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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________.
Commission file number: 0-16436
PIEDMONT MINING COMPANY, INC.
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(Name of small business issuer in its charter)
NORTH CAROLINA 56-1378516
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4101-G STUART ANDREW BOULEVARD, CHARLOTTE, NC 28217
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (704) 523-6866
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NONE
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Securities registered under Section 12(g) of the Exchange Act:
NO PAR VALUE COMMON STOCK
-------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB: [_]
The Registrant had no operating revenues for the fiscal year ended December 31,
1997.
The aggregate market value of shares of the Registrant's no par value Common
Stock held by non-affiliates as of April 8, 1998 was $1,723,268.
The number of shares outstanding of the Registrant's no par value Common Stock,
its only outstanding class of Common Stock, as of April 8, 1998 was 17,188,787
shares.
Transitional Small Business Disclosure (check one): Yes No X
--- ---
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PART I
ITEM 1. BUSINESS
General.
The Registrant is engaged in exploration for gold and other precious
metals and evaluation of gold properties in North and South Carolina. The
Registrant was also engaged in the mining and production of gold at its Haile
Mine properties (the "Haile Property") near Kasho, South Carolina, from early
1985 until mid-1992, when the Registrant entered into a mining venture with a
subsidiary of Amax Gold Inc. to further explore, evaluate and, if warranted,
develop and operate a gold mining operation at the Haile Property on a larger
scale than was previously operated by the Registrant. The Registrant also
controls one property area in North Carolina on which it has conducted
exploration. The Registrant's activities in South Carolina are conducted
primarily through its wholly-owned subsidiary, Kasho Gold Company, Inc.
(formerly Mineral Mining Company, Inc.), and in North Carolina through its
wholly-owned subsidiary, Piedmont Gold Company, Inc. Unless the context
otherwise requires, all references to the Registrant in Items 1 and 2 of this
report include Piedmont Mining Company, Inc. and both such subsidiaries.
From 1985 until mid-1992, the Registrant's principal business (other
than its continuing exploration activities) and principal source of revenue was
the mining and production of gold at the Haile Property. See "Prior Operations
at the Haile Property." On March 15, 1991, the Registrant entered into an Option
and Earn-In Agreement with a subsidiary of Amax Gold Inc. ("AGI"; all references
in this report to AGI include AGI and its subsidiaries) pursuant to which AGI
obtained an option to acquire an undivided 62.5% interest in the Haile Property
and undertook to conduct further exploration and evaluation of the Haile
Property during the option period. On May 1, 1992, AGI exercised its option and
acquired a 62.5% interest, and effective as of July 1, 1992 the Registrant and
AGI, through wholly-owned subsidiaries, entered into a mining venture (the
"Haile Mining Venture" or the "Venture") to further explore and evaluate and, if
warranted, develop and operate a large-scale gold mining operation at the Haile
Property. The Registrant has a 37.5% interest in the Venture and AGI has the
remaining 62.5% interest. Venture operations have been managed by another
wholly-owned subsidiary of AGI. See "Haile Mining Venture" below.
On March 29, 1995, the Registrant filed a lawsuit in South Carolina
against AGI claiming, among other things, that AGI's failure to implement the
approved 1994 program and budget was a breach of its obligations under the
Venture Agreement and Management Agreement for the Venture, and seeking damages.
The Registrant intends to vigorously pursue its claims. Since the commencement
of the litigation with AGI, operations at the Haile Property have been limited
primarily to property maintenance and environmental studies. See Item 3 -- Legal
Proceedings.
In connection with the Option and Earn-In Agreement and exploration
activities at the Haile Property during the option period, the Registrant phased
out its mining operations at the Haile
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Property in 1991, although recovery and production of gold from mineralized rock
previously mined and stacked continued until late 1992. The Haile Mining
Venture's activities to date have consisted of further exploration and
evaluation of the Haile Property and property maintenance. If production were to
commence again, it is expected that a surface mining operation would be
established at the Haile Property on a significantly larger scale than the
small-scale heap leaching operation previously conducted by the Registrant. See
"Haile Mining Venture" below.
Total Venture expenditures from the formation of the Venture in July
1992 through the end of 1993 were approximately $8,000,000. The approved 1994
program and budget called for total Venture expenditures of approximately
$6,300,000, including $1,900,000 for additional drilling and $150,000 for
completion of a bankable feasibility study by September 1994. However, no
further drilling has been conducted since January 10, 1994, and the bankable
feasibility study has not yet been provided to the Registrant.
The Registrant also currently controls one mineral property in North
Carolina. This property was not part of the Haile Mining Venture, and the
Registrant has conducted exploration for gold and other precious metals there
independent of its past participation in the Haile Mining Venture. In August
1992, the Registrant resumed exploration at its North Carolina properties, which
continued through mid-1993. No significant exploration activities in North
Carolina have been conducted since that time. See "Exploration in North
Carolina" below.
In April 1990, in connection with its acquisition of certain of the
mining properties that are now part of the Haile Property, the Registrant also
acquired other property and equipment associated with mining, processing and
selling a mineral assemblage commonly referred to as sericite and marketed under
the trademark Mineralite(R), among others. The Registrant continued its sericite
operations until July 31, 1992, when it sold the remaining assets associated
with those operations back to the original owner. The Registrant decided to sell
the sericite operations so that it could devote its resources primarily to the
Haile Mining Venture and to its North Carolina gold properties.
The Registrant was incorporated in North Carolina in July 1983 by the
partners in a limited partnership, Piedmont Land and Exploration Company, which
had been organized in 1980 to conduct exploration for gold and other precious
metals in the southeastern United States. In November 1983, the limited
partnership assigned to the Registrant its mining leases with respect to the
Haile Property and then in 1985 all of the partners in the limited partnership
transferred their interests in the limited partnership to the Registrant in
exchange for additional shares of its Common Stock, and the partnership was
dissolved.
Prior Operations at the Haile Property.
The Registrant's principal activities since it began operations in 1985
have been mining and production of gold by heap leaching at its Haile Property
and conducting exploration at the Haile Property and other properties controlled
by the Registrant.
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The Registrant's operations at the Haile Property prior to the
commencement of the Haile Mining Venture have accounted for all of the gold
produced by the Registrant and most of the Registrant's revenues to date. Mining
and production of gold by the Registrant at the Haile Property involved open-pit
mining of mineralized rock, crushing and agglomerating the mineralized rock and
stacking it on leach pads for recovery through heap leaching.
The Registrant phased out its mining operations during 1991 while
participating with AGI in further exploration and evaluation of the Haile
Property pursuant to the Option and Earn-In Agreement. Heap leaching and
recovery of gold from mineralized rock that was mined and stacked during 1991
and prior years continued into 1992 (for the account of the Registrant through
June 30, 1992 and thereafter for the account of the Haile Mining Venture, in
which the Registrant has a 37.5% interest).
Because the projected mine life at the Haile Property at any time never
exceeded more than about one year from the time the Registrant commenced its
mining operations in 1985 until mining operations were phased out in 1991, the
Registrant was required to continually conduct exploration in order to locate
additional gold mineralization as known deposits were depleted through mining.
While gold production from the Registrant's operations at the Haile Property has
been important to the development of the Registrant's business and has provided
some of the funds for continued exploration, the Registrant's long-term
prospects have depended upon the success of its exploration and significantly
increasing the mineralized tonnage and ore reserves at the Haile Property and at
its North Carolina properties; consequently, it has devoted a substantial part
of its resources to exploration.
Exploration involves the study of geological and historical data,
examination of properties, geologic mapping, geochemical and geophysical
surveying and mapping, trenching, drilling, and collection and analysis of
samples, all in an effort to locate mineralization and determine the tonnage and
grade thereof. The costs of exploration are not recoverable if the program is
unsuccessful in locating commercially minable deposits. If exploration is
successful, the development and commencement of mining operations will require
substantial additional funding, the amount of which will depend upon the nature
and size of the operations necessary to mine and recover gold economically from
the deposits.
The Registrant first commenced meaningful exploration in late 1987 after
completion of its initial public offering. However, costs incurred in 1988 for
leach pad construction and new facilities and equipment at the Haile Property,
including the costs of compliance with more stringent regulatory requirements,
were greater than originally anticipated. As a result of such increased costs,
construction and regulatory delays, and a shortage of cash during late 1988 and
early 1989, the Registrant's exploration activities were constrained. During
that period, the Registrant concentrated its exploration efforts at the Haile
Property, where its preliminary exploration results were encouraging and where
additional mineralization could be processed at its facilities on site.
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Since further drilling and testing necessary to determine the
feasibility of mining the gold mineralization at the Haile Property, as well as
the development of a larger mine and related production facilities, required
substantial additional capital beyond the Registrant's resources at that time,
the Registrant began in 1990 to investigate various financing alternatives,
including possible joint ventures, equity financings and business combinations
with other mining companies. Such investigations led the Registrant to enter
into the Option and Earn-In Agreement with AGI described below in March 1991.
Pursuant to that agreement, exploration activities at the Haile Property in 1991
and early 1992 were conducted and fully funded by AGI as it evaluated whether or
not to exercise its option and acquire a 62.5% interest in the Haile Property.
AGI exercised its option on May 1, 1992, and as of July 1, 1992 the Registrant
and AGI entered into the Haile Mining Venture to further explore and evaluate,
and, if warranted, develop and operate a large-scale gold mining operation at
the Haile Property.
Haile Mining Venture.
On March 15, 1991 the Registrant entered into an Option and Earn-In
Agreement with AGI, pursuant to which AGI was granted an option to earn a 62.5%
interest in the Haile Property. The Option and Earn-In Agreement provided that,
upon exercise of such option, the Registrant and AGI would then enter into a
joint venture for further exploration and evaluation and, if warranted,
development of the property with the objective of establishing a large scale
gold mining and processing operation.
Pursuant to the agreement and as part of the earn-in conditions, AGI
paid the Registrant $1,000,000 in cash, assumed the Registrant's obligations to
make payments on its notes to MMC Holding, Inc. and its shareholder through May
1, 1992 (a total of $1,072,000), provided financial support for a $750,000
reclamation bond increase, funded all exploration activity and paid a portion of
the lease holding costs of certain mineral leases during the option period, and
prepared at its sole cost a preliminary feasibility study for the Haile Property
which was delivered to the Registrant in December 1991.
AGI exercised its option on May 1, 1992, at which time it satisfied the
further conditions to such exercise by paying the Registrant an additional
$1,750,000 in cash and issuing 1,000,000 unregistered shares of its common stock
to the Registrant. In January 1995, the Registrant began selling shares of the
AGI Common Stock on the open market. In 1996, the Registrant sold its remaining
shares of the AGI Common Stock.
Upon AGI's exercise of the option, the Registrant conveyed to AGI a
62.5% undivided interest in the Haile Property and, effective July 1, 1992,
subsidiaries of the Registrant and AGI entered into the Haile Mining Venture
Agreement to form the Haile Mining Venture and entered into a Management
Agreement with another subsidiary of AGI for the management of Venture
operations. The joint venture interests are 62.5% for AGI and 37.5% for the
Registrant. The Registrant has not funded its share of Venture expenditures
since February 1995 as a result of the litigation commenced on March 29, 1995
and described in "Item 3. Legal Proceedings." On March 29, 1995 the Registrant
filed a lawsuit in South Carolina against AGI and its two wholly-owned
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subsidiaries claiming, among other things, that AGI's failure to implement the
approved 1994 program and budget was a breach of its obligations under the
Venture Agreement and Management Agreement for the Venture and seeking damages.
The Registrant intends to vigorously pursue its claims. See Item 3 -- Legal
Proceedings.
Under the Venture Agreement: 1) each participant would take in kind or
separately dispose of its share of the gold or other mineral products produced
by the Venture; 2) although the Registrant is represented on the Venture's
Management Committee and the consent of the Registrant is required for certain
actions of the Venture, the Venture is effectively controlled by AGI and its day
to day operations are managed by the AGI subsidiary acting as Manager under the
Management Agreement; 3) a production decision will require the unanimous
consent of both participants, but either party may elect to proceed alone under
certain conditions; 4) each participant in the Venture is obligated to offer to
the other the option to participate in the acquisition of any real property
within five miles of the Haile Property; 5) the disposition by a participant of
any interest in the Venture or the Haile Property (other than certain transfers
to affiliates) is subject to the consent of the other participant and certain
other restrictions; however, this does not preclude a transfer by the Registrant
or AGI of the stock in their subsidiaries that are the Venture participants; and
6) a participant's interest in the joint venture is subject to dilution if a
participant fails to fund its share of the Venture expenditures. AGI has
indicated that it intends to activate the dilution of interest provisions of the
Venture Agreement as a result of the Registrant's failure to pay its share of
Venture expenditures since March 1995. The Registrant's position is that AGI has
materially breached the Venture Agreement and the Management Agreement and that
as a result the Registrant has no obligation to fund any portion of the
Venture's costs.
The arrangements with AGI were entered into after extensive
investigations by the Registrant during 1990 and early 1991 of its financing
alternatives for further exploration and development of the Haile Property. In
connection with the Option and Earn-In Agreement, International Corona
Corporation (now Homestake Canada, Inc.) waived its right of first refusal on
joint ventures as to the Haile Property.
From the formation of the Venture until 1994, extensive exploration and
evaluation of the Haile Property continued, including drilling and studies
relating to reserve delineation, metallurgical evaluation, environmental,
engineering, hydrological and other technical studies. AGI's most recently
published calculations of the reserves at the Haile Property are summarized in
Item 2 of this report and in AGI's 1997 Annual Report on Form 10-K, AGI's
November 29, 1996 Consent Solicitation Statement and in AGI's February 28, 1997
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission. Since the beginning of 1994, Venture activities have consisted
primarily of environmental studies, evaluation work and property maintenance. In
September 1994, AGI advised the Registrant that it intended to pursue a sale of
its interest in the Venture.
Total Venture expenditures were approximately $5,074,000 in 1993,
$2,415,000 in 1994, $1,011,000 in 1995, $1,099,000 in 1996 and $1,213,000 in
1997. The Registrant funded 37.5% of the 1993 and 1994 expenditures and the
expenditures through February 1995, but did not
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fund 37.5% of the remaining 1995 expenditures or any of the 1996 and 1997
expenditures as a result of the litigation described in the following paragraph
and under Item 3 -- Legal Proceedings. AGI has identified approximately
$2,803,000 of Venture expenditures through December 31, 1997 that AGI now claims
are subject to the indemnification provisions of the Venture Agreement ($290,000
for the second half of 1992, $681,000 for 1993, $674,000 for 1994, $488,000 for
1995, $279,000 for 1996 and $391,000 for 1997). In addition, claims for 1998, as
indicated on projections provided to the Registrant by the Venture manager, are
$423,000. The Registrant has disputed such cost reallocation. The total amount
claimed by AGI, including budgeted amounts for 1998 is now approximately
$3,226,000 (of which $1,370,000 has been paid to AGI as a result of the
arbitration award described in the next paragraph), and is increasing each
month.
On March 5, 1996, an arbitration panel of the American Arbitration
Association rendered an award in connection with the Registrant's dispute with
AGI over such cost reallocation. Pursuant to the award, the Registrant paid
approximately $1,370,000 of the disputed amount to a subsidiary of AGI in
December 1996. According to the award, the administrative and arbitrators' fees
and expenses, totalling approximately $66,000, were to be borne equally by the
parties. The expenses that were the subject of the award were accrued on the
Registrant's 1995 financial statements. The Registrant paid the full amount of
the arbitration award in 1996. On November 5, 1997, AGI filed a second demand
for arbitration with respect to such cost reallocation in excess of the
$1,370,000 award. It is the Registrant's position that amounts in excess of the
$1,370,000 award may not be reallocated. See "Certain Factors Affecting the
Industry and the Registrant -- 3. Governmental Regulation, Environmental
Controls and Indemnification" below.
Based upon the Preliminary Feasibility Study prepared by AGI in December
1991 pursuant to the Option and Earn-In Agreement, preliminary estimates of the
total costs of developing and commencing operations, ranged up to approximately
$80,000,000 at that time, of which the Registrant's 37.5% share would have been
approximately $30,000,000. The Registrant believes, based on current
information, that such costs could be significantly less. See "Certain Factors
Affecting the Industry and the Registrant -- 5. Need for Additional Financing"
below.
The 1997 program and budget included total Venture expenditures of
approximately $1,549,000, of which 37.5% would have been approximately $581,000.
The 1998 program and budget calls for total Venture expenditures of
approximately $1,435,000, of which 37.5% would be approximately $538,000.
Exploration in North Carolina.
Until 1997 the Registrant had controlled three property areas in North
Carolina at which it has conducted limited exploration for gold and other
precious metals, primarily at its Russell-Coggins Property. See Item 2 --
Properties -- "North Carolina Properties."
Although the Registrant has held interests in various North Carolina
properties during most of the time it has been in business, exploration of the
North Carolina properties has been limited due to the priority given to the
Haile Property and the Registrant's limited financial
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resources and manpower. In 1992 the Registrant commenced a new limited
exploration program at its Russell-Coggins Property. Exploration expenditures
for the North Carolina properties were approximately $162,000 in 1993. The
Registrant made no expenditures for exploration in North Carolina in 1994, 1995,
1996 or 1997 and has not budgeted any such expenditures for 1998.
Although the Registrant's exploration results at its Russell-Coggins
Property have been encouraging and the Registrant has defined certain zones of
gold mineralization at the Russell-Coggins Property as summarized in Item 2
below and at the Jones-Keystone property, the exploration results are still
preliminary and the Registrant has decided not to allocate its limited resources
to further exploration there at this time. If the Registrant were to resume
significant exploration at such properties, the Registrant would need additional
financing beyond its current capital resources, such as additional debt or
equity financings or a joint venture or merger with another mining company. The
amount of additional capital needed cannot be accurately predicted at this time.
In 1997 and 1998, the Registrant terminated leases with respect to or sold all
but its Russell Property in North Carolina. See "Item 2-- Prospectus --North
Carolina Properties"
Employees and Consultants.
The Registrant had three full time employees at March 31, 1998. The
Registrant uses part-time employees and consultants from time to time for
various activities. None of the Registrant's employees are represented by labor
unions or covered by collective bargaining agreements. Management considers its
employee relations to be good.
The number of the Registrant's employees was substantially reduced
during 1991 and 1992 due to the winding down and suspension of its mining
operations and the sale of the its sericite operations.
The Registrant periodically engages consultants to advise it regarding
exploration, development, operations, environmental and administrative matters.
Certain Factors Affecting the Industry and the Registrant.
Exploration, development and mining of mineral properties involve unique
and greater risks than those generally associated with other industries. Many
exploration programs do not result in the discovery of a commercially minable
mineral deposit, in which case the costs of exploration are not recoverable. The
Registrant's operations are subject to all the hazards and risks normally
incident to the exploration, development and mining of mineral properties,
including the particular risks described below:
1. Fluctuating Price for Gold. Most of the Registrant's past revenues
were derived from the sale of gold produced from its mining and processing
operations. The Registrant's prospects will depend upon the ability of the
Registrant (and, with respect to the Haile Property, possibly the Haile Mining
Venture) to locate and profitably exploit gold deposits through the mining,
production and sale of gold. Therefore, the feasibility of developing and
operating new
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gold mining operations and the future profitability of any such operations will
depend on the price of gold. Gold prices fluctuate widely from time to time and
are affected by numerous factors beyond the Registrant's control which cannot be
accurately predicted, including expectations about inflation, exchange rates,
banking, economic and political crises, interest rates, global supply and
demand, political and economic conditions, and production costs in major gold
producing regions, including the Republic of South Africa and the former Soviet
Union, and many other factors. From 1985 through 1997, gold prices fluctuated
between a low of approximately $280 per ounce and a high of approximately $485
per ounce. At March 30, 1998, the price of gold was approximately $300 per
ounce.
2. Effect of Exploration Costs. Exploration costs do not generate
offsetting revenues unless and until the exploration is successful and the
Registrant can commence additional production, sell the property or otherwise
realize the benefits of additional discoveries. The Registrant experienced
losses in 1987, 1988 and 1989 due largely to increased exploration costs. The
Registrant generated a profit in 1990 despite its large exploration costs but
experienced losses again in 1991 and subsequent years largely as a result of
exploration and development costs and the suspension of its mining operations.
Although the Registrant's share of the costs of the Haile Mining Venture have
been partially offset on the Registrant's income statement by amortization of
the deferred gain on the disposition to AGI of a 62.5% interest in the Haile
Property, the Registrant does not expect to generate any operating revenues
resulting from such exploration efforts or from its North Carolina exploration
program unless and until new mining operations are developed and production
commences.
3. Governmental Regulation, Environmental Controls and Indemnification.
The gold mining industry is subject to extensive federal, state and local laws
and regulations covering exploration, development, operations and production,
taxes, labor standards, occupational health, waste disposal, environmental
protection, reclamation, mine safety, toxic substances and other matters.
Environmental, operating, water, dust and other federal and state permits are
essential to any mining operation. The nature of the mining business is such
that mining companies are frequently in the process of applying for additional
permits or modifications to existing permits at any given time. There can be no
assurance that such permits will be granted in the future as needed, and, if
such permits are not granted, the Registrant or any mining venture in which it
is a participant could be required to curtail or cease its development plans or
operations with serious adverse consequences to its liquidity and profitability.
Amendments to current laws and regulations governing operations and activities
of mining companies or more stringent implementation thereof or additional taxes
could have a material adverse impact on the Registrant. In addition, opposition
to development of mining operations by environmental and other groups is
increasing, and such opposition may result in delays, increased costs or
abandonment of development plans.
The Venture Agreement provided that the Registrant is responsible for
37.5% of the expenditures of the Venture. The Registrant has not paid such 37.5%
share of these expenses since February 1995 due to the ongoing litigation
against AGI. See Item 3 -- Legal Proceedings. The Preliminary Feasibility Study
prepared for AGI in December 1991 pursuant to the Option and Earn-In Agreement
estimated total environmental and regulatory costs to the Venture in connection
with
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the development and commencement of mining operations at the Haile Property to
be approximately $1,120,000. However, that estimate has been increasing as a
result of delays in development and commencement of production and may be
subject to further changes due to changes in regulations or in the nature and
scope of the project.
The Option and Earn-In Agreement, the Venture Agreement and certain
related agreements, provided that the Registrant indemnify AGI from all
environmental and other liabilities arising from matters occurring or existing
on the Haile Property prior to March 15, 1991, or arising from acts, omissions
and operations on the Haile Property from March 15, 1991 to July 1, 1992 (the
date the Venture was formed). AGI has identified approximately $2,803,000 of
Venture expenditures through December 31, 1997 that it now claims are subject to
such indemnification provisions and should be reallocated 100% to the Registrant
($290,000 for the second half of 1992, $681,000 for 1993, $674,000 for 1994,
$488,000 for 1995, $279,000 for 1996 and $391,000 for 1997). In addition, AGI's
claims for 1998, as indicated on projections provided to the Registrant by the
Venture manager, are $423,000. A substantial part of such costs relate to
ongoing water treatment and property maintenance at the Haile Mine property, as
well as certain reclamation costs. Initially, the Registrant paid 37.5% of such
costs through December 31, 1994 (which totaled approximately $617,000).
The Registrant disputed the cost reallocation asserted by AGI and in May
1995 AGI commenced an arbitration proceeding as to such dispute. On March 5,
1996, an arbitration panel of the American Arbitration Association rendered an
award in connection with the Registrant's dispute with AGI over such cost
reallocation. Pursuant to the award, the Registrant paid approximately
$1,370,000 of the disputed costs to a subsidiary of AGI. According to the award,
the administrative and arbitrators' fees and expenses, totalling approximately
$66,000, were to be borne equally by the parties. The award was paid in full in
December 1996. The Registrant believes that it is not responsible for any cost
reallocation in excess of that $1,370,000 that was the subject of the
arbitration award. However, AGI has taken the position that the Registrant will
be responsible for 100% of similar ongoing expenses, and on November 5, 1997
filed a second demand for arbitration with respect to such expenses. See Item 3
- -- Legal Proceedings.
The Registrant has been advised by the manager of the Venture that it
believes the Venture has conducted its operations so as to protect the public
health and environment, and that the Venture has made and expects to make in the
future expenditures to comply with applicable environmental laws and
regulations. Upon any commencement of mining operations at the Haile Property,
reclamation and restoration costs for those operations will be estimated and
provided based upon the requirements then in effect.
4. Long Lead Time and Delays. The risks normally associated with the
exploration and development of a mineral deposit include the extended period of
time required to complete such exploration, development and permitting, as well
as the risks and delays normally associated with permitting and construction.
Such events can result in a delay in the receipt of income from a property or
operation with serious adverse consequences to the Registrant's liquidity,
financial condition and profitability. The Registrant has also been adversely
affected by the delays from
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AGI's failure to implement the approved 1994 work plan and budget and complete a
bankable feasibility study.
5. Need for Additional Financing. The Registrant has historically
required substantial capital to conduct its exploration and development
programs, and has frequently sought additional capital as its business has
developed, including that obtained through its initial public offering of Common
Stock in 1987, additional equity financing in 1989, and the consideration
received pursuant to the Option and Earn-In Agreement with AGI in 1991 and its
exercise in 1992. The Registrant's current capital resources are limited (See
Item 6 -- Management's Discussion and Analysis or Plan of Operation; Financial
Condition, Liquidity and Capital Resources) and it will need additional
financing if the Haile Mining Venture were to proceed to develop and commence
mining operations at the Haile Property or if the Registrant decides to resume
exploration in North Carolina. Based upon the Preliminary Feasibility Study
prepared by AGI pursuant to the Option and Earn-In Agreement in December 1991,
preliminary estimates of the total costs of developing and commencing
operations, ranged up to approximately $80,000,000 at that time, of which the
Registrant's 37.5% share would have been approximately $30,000,000. The
Registrant believes, based on current information, that such costs could be
significantly less. If a production decision were to be made, there is no
assurance that project financing would be available and the Registrant may be
required to seek its own separate financing.
Financing for such purpose, or to expand the Registrant's North Carolina
exploration program, could be sought through the issuance of additional shares
of Common Stock or other equity securities, or through debt financing, or
through various arrangements with third parties. There is no assurance that the
Registrant could obtain any such additional financing. Any such additional
financing obtained through the issuance of additional shares of Common Stock or
other equity securities could result in further dilution to the Registrant's
shareholders. Any arrangement with third parties to finance the Registrant's
exploration, development, or operations could take the form of a joint venture,
merger, lease, royalty, purchase option, or some other participation which could
reduce, or involve a disposition of, the Registrant's interests in its
properties or the revenues therefrom. Under the Venture Agreement, the
Registrant's failure or inability to fund its share of the expenses of the Haile
Mining Venture could also result in dilution of its interest in the Venture and
possibly termination of its participating interest.
ITEM 2. PROPERTIES
General.
The Registrant and AGI (the "Venture Participants") control the Haile
Property near Kasho, South Carolina, in accordance with their undivided
interests in the Haile Mining Venture (62.5% for AGI and 37.5% for the
Registrant), and the Registrant itself currently controls one other mineral
property in North Carolina independent of the Venture. This Item 2 describes
each such property area, the nature of the Registrant's or Venture Participants'
interests therein, and the exploration work conducted or planned to be conducted
at each property.
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All of the properties described are either owned by the Registrant or
Venture Participants or controlled by the Registrant or Venture Participants
under mineral leases or purchase options, as indicated. The existing rights
under the mineral leases would permit mining and extraction of gold and other
minerals on all such properties, except that all necessary permits from local,
state and federal regulatory authorities would have to be obtained prior to
commencement of any mining operations.
The Registrant and AGI have conducted title examinations of, and
obtained title insurance on, certain key tracts at the Haile Property on which
gold mineralization has been located. In addition, the Registrant carried
$250,000 of title insurance on certain Russell-Coggins property tracts in North
Carolina subject, however, to matters that would be disclosed by an accurate
survey. It has been the general policy of the Registrant not to incur the
expense of conducting title examinations and obtaining title insurance on leased
properties until such time as it commits substantial funds to the exploration or
acquisition of the properties. With respect to the tracts other than those noted
above, the Registrant can give no assurance as to the status of title of such
tracts or as to the exact acreage of each such tract. Statements of acreage
contained in this report are generally based upon recitals in the relevant
documentation and not upon any surveys conducted for or by the Registrant.
All of the Registrant's mineral properties occur, geologically, within
the major depositional boundary between underlying metavolcanic rocks and
overlying metasedimentary rocks of the Carolina Slate Belt. A large number of
the gold mines which operated in North and South Carolina during the past 200
years are located in this geological environment. The gold bearing zones are
known to occur either in the upper portions of the dominantly silica-rich
metavolcanics or in the lower siliceous strata of the metasediments. Similar
geologic environments in volcanic terrains elsewhere in North and South Carolina
and throughout the world are known to host disseminated low grade, bulk tonnage
gold mineralization. In addition, a number of the Registrant's properties were
mined in the past by underground methods, and several have potential for the
discovery of mineralization which could be mined by either open pit or
underground methods.
Haile Property
1. Location. The Haile Property is located approximately two miles north
of Kasho in Lancaster County, South Carolina, on paved U.S. Highway 601 which
passes through the western portion of the property. The property is accessible
all year.
2. Leases, Facilities and Ownership. The Haile Property consists of
approximately 3,669 acres in 19 tracts, five of which are owned by the Venture
Participants and 14 of which are controlled under various Mineral Leases. The
currently estimated reserves on the Haile Property (see "4. Mineable Reserve
Estimates at the Haile Property" below) are on the tracts owned by the Venture
Participants and on a 1,209 acre tract controlled under a Mineral Lease and
Purchase Option.
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The Venture Participants own a 288 acre tract, a 234 acre tract, a 17.65
acre tract, a 89.3 acre tract, a one acre tract and the mineral estate in and to
a 20 acre tract at the Haile Property. The 288 acre tract is improved with the
facilities previously used by the Registrant in its mining operations, including
three cement block buildings containing approximately 7,000 square feet, which
housed the mine office, assay laboratory, engineering and mapping facilities and
the recovery plant equipment, and two separate small buildings used to house the
sample and core storage facilities. The Registrant's storage and treatment
ponds, wastewater treatment facility and leach pads were also constructed on the
tract. Although these facilities are currently held and used, it is not expected
that they would be used as part of the mining facilities if a decision were made
to develop a new mine and production facility at the Haile Property.
The 89.3 acre tract was purchased on December 1, 1994. On August 5,
1993, the Venture Partners purchased a house and one acre of land located
adjacent to the Haile Property for $52,000.
The Venture Participants also hold a Mineral Lease covering three tracts
totaling 1,209 acres and containing a significant portion of the currently
estimated reserves on the Haile Property. In 1991, AGI acquired an option to
purchase these three tracts (the "Purchase Option") for $2,495,000, plus 8% per
annum from May 1, 1992, subject to annual payments of $150,000 (subject to
escalation for inflation beginning in 1996) to keep the Purchase Option in force
until as late as June 20, 2001. Upon AGI's exercise of its option under the
Option and Earn-In Agreement, it assigned a 37.5% interest in the Purchase
Option to the Registrant so that the property subject to the Purchase Option
would become part of the Venture if the Purchase Option is exercised. This
Mineral Lease expired on June 21, 1997, but the Registrant believes this lease
was extended for an additional one year period.
The Venture Participants have a mineral lease interest in a 60%
undivided interest in a 169-acre tract under a Mineral Lease dated October 7,
1983. This lease can be continued by making advance royalty payments of $12,000
annually from 1993 through 2002. In the event of production from the property,
the lessee would pay a royalty of 4.5% of gross smelter returns and all advance
royalty payments would be credited against any royalties from production. Under
the terms of the lease, the Venture Participants have a right of first refusal
to lease or purchase the lessors' 60% interest in such property on the same
terms offered by or to any third party. In order to make production on this
property feasible, an action to partition the mineral rights in this property
may be required.
A 100 acre tract is controlled under a Mineral Lease dated June 29,
1984. Advance royalties are now $15,000 per year, which will be credited against
annual royalties of 4.75% of gross smelter returns if the property is in
production. This lease continues after the tenth year so long as mining
commences during the first ten years or annual production royalties of 4.75% of
gross smelter returns commencing in the eleventh year yield not less than
$15,000 per year.
An 82 acre tract is controlled under a Mineral Lease dated September 24,
1984. Advance royalties are now $6,000 per year. The lease continues after the
tenth year so long as mining commences during the first ten years and payments
(whether production royalty payments or
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advance royalty payments) are made in the amount of $10,000 per year. In the
event of production from the property, the lessee would pay a royalty of 4% of
gross smelter returns and all advance royalty payments would be credited against
any production royalties.
A 77 acre tract is controlled under a Mineral Lease dated November 11,
1987. After the fifth year, the term continues so long as the Registrant makes
advance royalty payments of $10 per acre per year to be credited against
royalties of 4% of net smelter returns in the event of production from the
property. The Venture Participants have the option to purchase this property at
any time during the lease term for $1,000 per acre less a credit for rental and
royalty payments previously made.
A 61.56 acre tract is controlled under a Mineral Lease dated March 10,
1988, which has terms similar to those of the Mineral Lease for the 77 acre
tract described in the preceding paragraph, except that advance royalty payments
after the fifth year are $100 per acre per year and the purchase option price is
$1,100 per acre.
On June 13, 1991 the Registrant entered into an Assignment of Rights and
Obligations Agreement with Brewer Gold Company, pursuant to which the Registrant
conveyed to Brewer a Mineral Lease on eight acres adjacent to a Brewer tract
which contains a small gold deposit. In exchange, Brewer conveyed to the
Registrant Mineral Leases to eight tracts totalling 1,344 acres, as to which the
Registrant conveyed or agreed to convey a 62.5% undivided interest to AGI upon
its exercise of its option under the Option and Earn-In Agreement. In 1993, a
Mineral Lease dated February 27, 1984 with respect to a 23.9 acre tract was
terminated by the Venture Participants. None of the estimated reserves at the
Haile Property were located on this tract. The remaining seven tracts are as
follows:
Tract 1: A 10 acre tract controlled under a Mineral Lease dated September 14,
1983. Advance royalties are now $300 per year, which will be credited against
annual royalties of 5% of net smelter returns in the event of production from
the property. For every acre within any open pit, shaft, stockpile, waste dump,
or ore related facilities, the lessee must pay 200% of the current market value
for non-mining related uses of equivalent land, buildings, and other
improvements in the vicinity. This lease continues for a minimum term of 15
years or so long as the owner receives production royalty payments if the
property is in production.
Tract 2: A 10 acre tract controlled under a Mineral Lease dated September 9,
1983. Advance royalties are now $300 per year, which will be credited against
annual royalties of 5% of net smelter returns from production if the property is
ever in production. For every acre within any open pit, shaft, stockpile, waste
dump, or ore related facilities, the lessee may be obligated to pay 200% of the
current market value for non-mining related uses of equivalent land, buildings,
and other improvements in the vicinity. This lease continues for a minimum term
of 15 years or so long as the owner receives production royalty payments if the
property is in production.
Tract 3: A 25.5 acre tract controlled under a Mineral Lease dated September 12,
1983. Advance royalties are now $1,020 per year, which will be credited against
annual royalties of 5% of net
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smelter returns from production if the property is ever in production. For every
acre within any open pit, shaft, stockpile, waste dump, or ore related
facilities, the lessee is obligated to pay 200% of the current market value for
non-mining related uses of equivalent land, buildings and other improvements in
the vicinity. This lease continues for a minimum term of 15 years or so long as
the owner receives production royalty payments if the property is ever in
production.
Tract 4: A 167 acre tract controlled under a Mineral Lease dated September 26,
1983. Advance royalties are now $6,680 per year, which will be credited against
annual royalties of 5% of net smelter returns from production if the property is
ever in production. For every acre within any open pit, shaft, stockpile, waste
dump, or ore related facilities, the lessee is obligated to pay 150% of the
current market value for non-mining related uses of equivalent land, buildings,
and other improvements in the vicinity. This lease continues for a minimum term
of 21 years or so long as the owner receives production royalty payments from
production if the property is in production.
Tract 5: A 172 acre tract controlled under a Mineral Lease dated September 18,
1983. Advance royalties are now $5,000 per year, which will be credited against
annual production royalties of 5% of net smelter returns from production if the
property is ever in production. For every acre within any open pit, shaft,
stockpile, waste dump, or ore related facilities, the lessee is obligated to pay
150% of the current market value for non-mining related uses of equivalent land,
buildings, and other improvements in the vicinity. This lease continues for a
minimum term of 21 years or so long as the owner receives production royalty
payments if the property is in production.
Tract 6: A 761 acre tract controlled under a Mineral Lease dated August 20,
1987. Advance royalties are now $7,610 per year, which will be credited against
annual production royalties of 5% of net smelter returns from production if the
property is ever in production. For every acre within any open pit, shaft,
stockpile, waste dump, or ore related facilities, the lessee is obligated to pay
reasonable value for non-mining related uses of equivalent land, buildings, and
other improvements in the vicinity. This lease continues for a minimum term of
10 years or so long as the owner receives production royalty payments if the
property is in production. This lease was terminated as of August 1997.
Tract 7: A 175 acre tract controlled under a Mineral Lease dated August 20,
1987. Advance royalties are now $1,750 per year, which will be credited against
annual production royalties of 5% of net smelter returns from production if the
property is ever in production. For every acre within any open pit, shaft,
stockpile, waste dump, or ore related facilities, the lessee is obligated to pay
reasonable damages for non-mining related uses of equivalent land, buildings,
and other improvements in the vicinity. This lease continues for a minimum term
of 10 years or so long as the owner receives production royalty payments if the
property is in production. This lease was terminated as of August 1997.
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3. Exploration At The Haile Property. Meaningful exploration at the
Haile Property commenced in late 1987, with geophysical surveys and then
exploration drilling. Geophysical surveys have now been conducted over most of
the Haile Property. Drilling, geophysics and geochemical studies by the
Registrant in 1989 and 1990 succeeded in locating two new areas of
mineralization minable by shallow open pit methods and resulted in a significant
increase in the mineralized tonnage. Pursuant to the Option and Earn-In
Agreement with AGI, AGI commenced further exploration in April 1991 continuing
through November 1991. This 1991 exploration program was fully funded by AGI and
resulted in a further significant increase in the mineralized tonnage at the
Haile Property. The remainder of 1991 was spent in compilation and analysis of
the data, from which was prepared a Preliminary Feasibility Study delivered to
the Registrant in December 1991 in fulfillment of one of the earn-in conditions.
In March and April 1992, further exploration drilling was conducted on the Haile
Property, again fully funded by AGI, which resulted in the location of another
significant new zone of gold mineralization.
On May 1, 1992, AGI exercised its option to acquire a 62.5% interest in
the Haile Property, and the Haile Mining Venture was formed in July 1992. See
Item 1 -- Business -- "Haile Mining Venture" for a discussion of Venture
activities. AGI's most recently published calculations of reserves at the Haile
Property are summarized below.
4. Minable Reserve Estimates at the Haile Property. The most recent
audited estimates of the minable reserves at the Haile Property have been made
by AGI in connection with its management of the Haile Mining Venture and have
been audited by DMBW, Inc. as set forth in their report dated April 22, 1994
(the "1994 Reserve Report"). A summary of the 1994 Reserve Report has been
subsequently published by AGI in its 1997 Form 10-K, November 29, 1996 Consent
Solicitation Statement to its shareholders and a Registration Statement on Form
S-3 with respect to $200 million of securities filed with the Securities and
Exchange Commission on February 28, 1997.
According to the 1994 Reserve Report, the proven and probable reserves
of in-place gold minable by open pit methods at the Haile Property at April 1,
1994 were 8,736,325 short tons of mill ore at an average mill head grade of
0.0893 troy ounces per short ton, containing 780,018 ounces of gold in place.
Such reserves were calculated through the use of mapping, drilling, sampling,
assaying and other standard evaluation methods, and are based upon drilling
results through the end of 1993, a facility processing about 4,000 tons of ore
per day and producing about 100,000 ounces of gold per year, an assumed gold
price of $400 per ounce, and a floating cut-off grade averaging 0.025 ounces per
ton. Cash production costs were estimated at $236 per ounce of gold recovered.
The stripping ratio (of waste to ore) was estimated at 5.6 to 1, including waste
for 80-ft. wide in-pit haulage roads. Such reserves represent in-place minable
reserve estimates and do not reflect losses in the recovery process; it was
estimated that ultimate gold recoveries would range from 69% to 81%.
These reserves are defined within six separate pits. In their audit of
these reserves, DMBW, Inc. reviewed one or more sections through each of the
open pits designed by AGI. The audit represented 11% of the total reserves.
Based on this approach, DMBW's own estimate of the
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contained ounces was 7.5% greater than that computed by AGI, and therefore they
concluded that this is a conservative, but fair and prudent, estimate of gold
reserves at the Haile Property.
North Carolina Properties.
A. Russell-Coggins Property
1. Location. This property included the Russell and Coggins tracts,
located one to two miles north of El Dorado, Montgomery County, North Carolina,
on paved State Road 1302, which bounds or traverses the property and is open all
year. One additional tract totaling 140 acres located approximately one mile
north and east of the Russell and Coggins tracts was included with the
Russell-Coggins property for exploration purposes.
2. Ownership, Leases and Permits. The 1,144 acre Russell tract and the
82 acre Coggins tract were acquired by the Registrant in 1987 upon exercise of a
purchase option, subject only to a 1% production royalty to the prior owner. On
February 17, 1998 the Registrant sold the 82 acre Coggins Tract for
approximately $ 95,000.
An additional 140 acre tract was controlled by the Registrant under a
Mineral Lease dated May 5, 1986, as amended June 4, 1991. Rentals for the fourth
year were $2,500, the fifth year $3,000, the sixth year $2,000 and the seventh
through eleventh years $5,000 per year. After the tenth year, advance royalties
were to be paid in the amount of $10,000 per year, which would be credited
against annual production royalties of 4% of gross smelter returns if the
property is put into production. The Registrant terminated this lease on May 5,
1997.
The Registrant had a prospecting permit from the U.S. Forest Service on
a tract of approximately 2,272 acres near the Russell-Coggins property which
expired March 31, 1996 and cannot be renewed.
3. Recent Exploration History. In 1984, the Registrant entered into a
joint venture with Tenneco Minerals, Incorporated to conduct a program of
geological mapping, geochemical surveying, geophysics and core drilling. Tenneco
terminated its interest in the property in 1985; the usual reason for such
termination is the failure to locate commercially minable mineralization. Based
on the results of the 1984-1985 work, a mineralized tonnage of 426,345 tons
grading 0.056 ounces of gold per ton at a cut-off grade of 0.01 ounces per ton
was determined to exist on the Russell tract at that time. The Registrant has
possession of all maps and records from the 1984-1985 work.
Further exploration drilling was conducted by the Registrant during late
1989 and early 1990, resulting in a significant increase in the mineralized
tonnage. The mineralized tonnage reported below was compiled in August 1990
using the results of that drilling. From August 1992 through mid-1993, the
Registrant conducted additional limited exploration on its North Carolina
properties, focused primarily on this property, consisting of additional rock
chip and soil sampling, trenching and drilling. Although some of the drilling
results from the recent exploration program
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were encouraging, the Registrant has not yet obtained a revised estimate of the
mineralized tonnage based on the recent drilling results and therefore is not in
a position to quantify any change in the proven and probable mineralized tonnage
at this property resulting from its most recent drilling program. The Registrant
has no current plans for further exploration at this property in 1998.
4. Mineralized Tonnage. Based on all drilling and exploration data
available through mid-1990, David C. Jonson, independent consulting geologist,
of Golden, Colorado compiled an estimate of the gold mineralization at the
Russell property in August 1990 as follows:
Geologically Proven and Probable Gold Mineralization
(cut-off grade equals 0.01 ounces per ton)
Tons Grade (ounces/ton)
---- ------------------
4,127,720 0.051
Note that tonnages and grades do not account for any mining dilution or losses
in recovery. Jonson's proven tonnage includes mineralization within 50 feet of
drill holes or pit assays on a section, and probable tonnage includes
mineralization within an additional 50 feet. Grade and tonnage are based on
atomic absorption assays as well as fire assays where available. Three assays of
greater than 2.6 oz/ton were reduced to 0.5 ounces of gold per ton.
This information does not reflect the results of exploration work that
was conducted on the property from late 1992 through mid-1993.
This information should not be construed as an estimate of commercially
minable ore reserves, as no feasibility studies have been made. The Registrant
has not yet done sufficient drilling and analysis or metallurgical testing of
the mineralization and therefore is unable to estimate the extraction dilution
and processing recovery factors, or whether this mineralization could be mined
and processed economically. Consequently, there is no assurance that a
commercially minable ore reserve exists on this property unless and until
further geologic work and drilling and a final legal-economic feasibility study
is conducted.
B. Star Property
1. Location. This property is located approximately two miles west of
Star, Montgomery County, North Carolina, on State Road 1340 which bisects the
property. The property is accessible by a paved road which is open all year.
2. Leases. The property consists of four leased tracts of land. Two
tracts totaling 173 acres were held by the Registrant under a Mineral Lease
dated February 6, 1981, as amended on May 22, 1987, March 25, 1989, February 6,
1993 and February 6, 1995. Annual advance royalty payments were $2,082 and were
paid through February 6, 1997. Annual advance royalties paid were to be credited
against annual production royalties of 4% of net smelter returns if the property
is brought into production. This lease would have continued after the tenth year
as long as mining
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commenced during the first ten years and annual production royalties of 4% of
net smelter returns commencing in the eleventh year yielded not less than the
advance royalty paid in the tenth year. Under the terms of the lease, the
Registrant had a right of first refusal to lease or purchase such land on the
same terms offered by or to any third party. The Registrant could at any time
release any part of the leased property and reduce the rent or advance royalties
payable under the terms of the lease proportionate to such release. The lease
was terminated by the Registrant in 1997.
A third tract of 445 acres was held by the Registrant under a Mineral
Lease dated June 22, 1981, and as amended on June 21, 1991. Annual rental
payments for years 11 though 15 were $2,000 and were paid through June 22, 1996.
The lease was terminated by the Registrant on June 21, 1997.
A fourth tract, approximately 169 acres, was held by the Registrant
under a Mineral Lease dated December 18, 1980, also under similar terms, except
that rental payments were $1,690 per year indefinitely and no production was
required. If production commenced, similar production royalties were payable by
the Registrant. The lease was terminated by the Registrant in 1997.
3. Recent History. The Registrant entered into a joint venture with
Kennecott Minerals Company to explore the property in 1983. Approximately 2,000
feet of backhoe trenching and sampling were conducted during this program. Four
of the geochemical targets discovered by this work were tested by shallow
diamond core drill holes. Mineralization was not of economic interest at that
time, and Kennecott chose not to fund the program beyond one year. Only a shaft
and related structures remain from prior activities conducted on the property
during the 1950's. Numerous old abandoned shallow pits and test shafts, now
caved, are scattered over the property.
4. Exploration. Because the Registrant has limited staff, resources and
facilities, there was no exploration activity at this property in 1997.
C. Jones-Keystone Property
1. Location. This property is located approximately 12 miles west of
Asheboro, in Randolph County, North Carolina, and can be reached by traveling
southwest on paved State Road 1344 for 1.2 miles from its intersection with U.S.
Highway 64 and then east on an unpaved road for 0.8 miles. The roads are open
all year.
2. Leases. The property consisted of two contiguous tracts of land. A
240 acre tract was held under a Mineral Lease dated December 18, 1980, as
amended December 18, 1993. Annual advance royalties were $2,400 per year through
1998 and were paid through December 18, 1997. If mining commenced during the
initial fourteen year term of this lease, the term of this lease would continue
as long as annual production royalties of 4% of net smelter returns for each
lease year after the fourteenth year of the term were not less than the advance
royalties paid during the fourteenth year of the lease term. This lease
terminated on the last day of any lease year that royalty payments are not in
such amount. This lease included an option to purchase the tract for $300,000
plus 10%
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for each lease year after December 18, 1982 until the option is exercised. Under
the terms of the lease, the Registrant had a right of first refusal to lease or
purchase such land on the same terms offered by or to any third party. The lease
was terminated by the Registrant in December 1997.
The other tract is 156 acres held under a Mineral Lease dated February
9, 1983, as amended February 9, 1992. Annual advance royalties were $1,560 per
year through 1998 and were paid through February 8, 1998. If mining commenced
during the initial fourteen year term of this lease, the term of this lease
would continue as long as annual production royalties of 4% of net smelter
returns for each lease year after the first fourteen years of the term are not
less than the advance royalties paid during the fourteenth year of the term.
This lease would terminate on the last day of any such lease year that royalty
payments were not in such amount. Under the terms of the lease, the Registrant
had a right of first refusal to lease or purchase such land on the same terms
offered by or to any third party. The lease was terminated by the Registrant in
February 1998.
3. Recent History. American Smelting and Refining Company drilled three
diamond core holes on the property in 1969, and the Registrant has possession of
these results. U.S. Borax and Chemical Company drilled the property after that,
but the Registrant has no knowledge of the results. These major companies with
greater financial resources and larger technical staffs than the Registrant
decided not to explore further or to develop the property. Only two abandoned
open pits and four shafts of unknown depth are known on the property.
4. Exploration. During 1990, two trenches were dug along the trend of
old mine workings. Samples of rock indicated low grade mineralization was
present in each trench. No exploration work was conducted in 1991 or 1992. In
1993, the Registrant conducted limited IP geophysics. One core hole was drilled
to test one geophysical anomaly. This hole intersected over two hundred feet of
anomalous gold. No exploration was conducted in 1994, 1995, 1996 or 1997.
* * * *
Property Acquisitions. The Registrant holds purchase options on several property
tracts. In addition, the Registrant may attempt to purchase or lease other
tracts. Opportunities to acquire new mineral rights and properties, some of
which have already had drilling and exploration work done on them, may also be
brought to the Registrant's attention from time to time. The Registrant has no
current plans to acquire any additional tracts. It is not known whether the
acquisition of rights in other properties near the Haile Property may be
considered in the future.
Office Facilities. The Registrant leases approximately 500 square feet of office
space for its corporate headquarters in Charlotte, North Carolina under a
month-to-month lease. The Registrant also rents a small office in New York City.
That lease has been terminated pursuant to foreclosure proceedings brought by a
lender against the owner of the property and the building has been sold to
another owner. The Registrant's New York office will be closed by June 1998.
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ITEM 3. LEGAL PROCEEDINGS.
On March 29, 1995, the Registrant and its wholly-owned subsidiary, Kasho
Gold Company, Inc., as plaintiffs, filed a complaint in the Court of Common
Pleas for Lancaster County, South Carolina (Case No. 95-155) against Amax Gold
Inc., Lancaster Mining Company, Inc. and Haile Mining Company, Inc., alleging
breach of contract by defendants Amax Gold Inc., Lancaster Mining Company, Inc.
and Haile Mining Company, Inc., and tortious interference with contractual
rights by defendant Amax Gold Inc. The complaint asked for actual and punitive
damages as the Court and jury shall determine. A trial by jury was demanded.
A hearing on pending motions in the state court proceeding was held on
October 5, 1995. On November 2, 1995, the court issued an order dismissing the
claims of Piedmont Mining Company, Inc. (but not those of Kasho Gold Company)
against the defendants, and dismissing both plaintiffs' claims for breach of
contract against Amax Gold Inc. (but not Kasho Gold Company's claims against
Lancaster Mining Company, Inc. and Haile Mining Company, Inc.), on the grounds
that only the subsidiaries of the Registrant and of Amax Gold Inc. are parties
to the contract in question. The order also stayed Kasho Gold Company's claims
for breach of contract against the two Amax Gold Inc. subsidiaries pending a
determination of arbitrability by the arbitrators. Kasho Gold Company's claim
against Amax Gold Inc. for tortious interference with contract (including the
Venture Agreement) was allowed to proceed. Amax Gold Inc.'s motion for a more
definite statement of the tortious interference claim was granted. Discovery on
the tortious interference claim was also authorized. The Registrant intends to
vigorously prosecute its claims against Amax Gold Inc. and the two subsidiaries.
The Registrant timely moved for reconsideration of the court's November 2, 1995
order. A hearing on the motion for reconsideration was held on January 26, 1998.
To date, the court has not yet ruled.
Following the court's November 2, 1995, order, the defendant, Amax Gold
Inc., removed the claim against it by Kasho to the Federal District Court for
the District of South Carolina. Kasho filed its amended complaint in this action
on January 29, 1996 alleging tortious interference and civil conspiracy. In
August 1997, a jury awarded $9,000,000 in damages to Kasho; however, the
District Judge reversed the jury verdict. This reversal order has been appealed
to the U.S. Fourth Circuit Court of Appeals in Richmond, Virginia and is
scheduled for oral argument the first week in June 1998.
On May 24, 1995, Lancaster Mining Company, Inc. ("Lancaster") filed a
demand for arbitration with the American Arbitration Association alleging the
breach by plaintiffs of obligations under the Venture Agreement. The defendant
sought to recover costs incurred, and has taken the position that "future costs
are not waived, but are specifically preserved." The Registrant has taken the
position before both the court and the American Arbitration Association that the
dispute is not arbitrable under the terms of the Venture Agreement, and objected
to the arbitration proceedings. Nevertheless, the arbitration proceedings were
conducted in early 1996 before an arbitration panel of the American Arbitration
Association.
On March 5, 1996, the arbitration panel rendered an award calling for
the Registrant to pay approximately $1,370,000 of the disputed expenses to
Lancaster According to the award, the administrative and arbitrators' fees and
expenses, totalling approximately $66,000, were to be
20
<PAGE> 22
borne equally by the parties. In August 1996, the award was confirmed by the
U.S. District Court in South Carolina and judgment was entered on the award.
On September 9, 1996, the Registrant and its wholly-owned subsidiary,
Kasho Gold Company, Inc., filed petitions for relief under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of
North Carolina. Such filings automatically stayed the enforcement of the
judgement on the arbitration award. After a hearing, the Bankruptcy Court
dismissed the petitions on October 30, 1996, thereby terminating the automatic
stay. Following dismissal of the bankruptcy proceedings, Lancaster commenced
proceedings to enforce its judgement. The Registrant paid the judgement in full
in December 1996.
Amax Gold and its subsidiary Lancaster have taken the position that the
Registrant is liable for future environmental expenses under the terms of the
Venture Agreement, which currently total $3,226,000 (of which $1,370,000 has
been paid to Lancaster pursuant to the march 5, 1996 award). Amax Gold filed a
second demand for arbitration with the American Arbitration Association on
November 5, 1997. The arbitration is scheduled to be heard beginning on August
19, 1998. The Registrant has petitioned the Court of Common Pleas of Lancaster
County to stay such arbitration and have also asked the arbitration panel to
stay and/or dismiss the arbitration. It is the Registrant's position that Amax
Gold and Lancaster have attempted to manipulate the jurisdictional amount of the
arbitration proceedings as set forth in the Venture Agreement, and have waived
any claim for future environmental expenses in excess of the $1,370,000 in
expenses subject to the March 5, 1996 award. This position has not yet been
litigated or heard by the arbitration panel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers OTC Bulletin
Board. Prior to January 26, 1996, the Registrant's Common Stock was traded in
the over-the-counter market and was quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the symbol PIED.
The high and low bid prices for the Common Stock as reported on the NASDAQ
Bulletin Board for each quarterly period during 1996 and 1997 (which reflect
inter-dealer prices without markup, markdown or commissions and which may not
represent actual transactions) were as follows:
21
<PAGE> 23
<TABLE>
<CAPTION>
Bid Prices ($)
--------------
High Low
---- ---
<S> <C> <C>
1996
First Quarter .938 .310
Second Quarter .812 .580
Third Quarter .625 .281
Fourth Quarter .440 .187
1997
First Quarter .500 .250
Second Quarter .328 .188
Third Quarter .469 .250
Fourth Quarter .359 .109
</TABLE>
The Registrant had 316 shareholders of record as of April 8, 1998.
The Registrant has paid no cash dividends and does not currently expect
to pay any cash dividends in the foreseeable future.
On December 9, 1996, the Board of Directors of the Registrant authorized
the issuance of up to $300,000 principal amount of Convertible Notes to members
of the Board of Directors pursuant to Regulation D under the Securities Act of
1933. Pursuant to such authorization, the Registrant issued $290,000 principal
amount of Convertible Notes to five directors and an accredited investor. The
Convertible Notes matured June 30, 1997 and were converted into shares of the
Registrant's Common Stock at $.40 per share, resulting in the issuance of an
aggregate of 745,008 shares of the Registrant's Common Stock in 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
The Registrant's principal operations prior to mid-1992, other than its
exploration activities, were the mining and production of gold at the Haile
Property, which accounted for most of the Registrant's revenues to date. On
March 15, 1991, the Registrant entered into an Option and Earn-In Agreement with
AGI pursuant to which AGI was granted an option to acquire a 62.5% undivided
interest in the Haile Property. In connection with its entering into the Option
and Earn-In Agreement and AGI's exploration activities at the Haile Property
during the option period thereunder, the Registrant began to phase out its
shallow, open-pit mining operations at the Haile Property in March 1991 and
suspended mining and hauling in August 1991. AGI exercised its option on May 1,
1992, and the Registrant and AGI formed the Haile Mining Venture on July 1, 1992
to further explore, evaluate, and, if warranted, develop and operate a
large-scale mining
22
<PAGE> 24
operation at the Haile Property. The Registrant has an undivided 37.5% interest
in the Venture's assets and revenues. Recovery and production of gold from the
leaching of ore previously mined continued in 1991 and 1992 for the account of
the Registrant until the formation of the Venture, and for a short period
thereafter for the account of the Venture. Consequently, the Registrant's
results of operations during the three years ended December 31, 1997 primarily
reflect the property maintenance activities at the Haile property, the legal
proceedings relating to the Haile Mining Venture and the Registrant's general
and administrative expenses.
In connection with the grant of the option pursuant to the Option and
Earn-In Agreement with AGI in March 1991, and as part of the earn-in conditions,
AGI also paid the Registrant $1,000,000 in cash, assumed debt service
obligations during the option period (approximately $1,072,000) on the
Registrant's note to MMC Holding, Inc., provided financial support for a
reclamation bond increase at the Haile Property, funded all exploration costs at
the Haile Property during the option period, and provided at its expense a
preliminary feasibility study for the Haile Property. Upon the exercise by AGI
of its option in 1992, the Registrant received $1,750,000 in cash and 1,000,000
unregistered shares of AGI Common Stock.
Results of Operations
1997 Compared to 1996
There were no sales and no mine operating expense in 1997 due to the
suspension of mining in 1991 and the completion in 1992 of recoveries of gold
from leaching of ore previously mined.
General and administrative expense decreased 34.2% due to a decrease in
wages paid and general corporate overhead.
There was no stock appreciation rights and awards expense accrued in
1997.
Exploration expense declined 80% principally due to a decrease in lease
expense with respect to the Registrant's North Carolina properties.
Professional fees decreased 30.9% due to a decrease in required legal
services primarily as a result of the litigation against AGI.
There was $8,000 in interest expense in 1997 as a result of the interest
accrued on the convertible notes before the notes and accrued interest were
converted to equity on June 30, 1997.
The gain on sale of assets increased 66.7% to $25,000 in 1997 primarily
from the sale of two vehicles and other equipment compared to a $15,000 gain in
1996 from the sale of Amax stock.
Interest and other income decreased 39.2% due principally to a decline
in invested cash and the resulting decline in earned interest on invested cash.
23
<PAGE> 25
The Registrant has been amortizing the deferred gain, recorded as a
result of the AGI option exercise, to income in amounts equal to the sum of
37.5% of the Haile Mining Venture's costs and expenses and the Registrant's
other direct costs of participation in the Venture. By May of 1997, the
remaining deferred gain of $157,000 was amortized. The amortization of deferred
gain was 69.8% lower in 1997 than in 1996 primarily because the Registrant
amortized all of the remaining deferred gain by May 1997. Venture activity and
expenditures declined by 6.0% in 1997.
The Company has deferred tax assets totalling approximately $5.0 million
at December 31, 1997 which have been fully reserved through a valuation
allowance as reflected in Note 5 to the consolidated financial statements.
The Registrant's net loss of $1,030,000 in 1997 was due to the factors
set forth above.
1996 Compared to 1995
There were no sales and no mine operating expense in 1996 due to the
suspension of mining in 1991 and the completion in 1992 of recoveries of gold
from leaching of ore previously mined.
General and administrative expense decreased 7% due to a decrease in
salaries and general corporate overhead.
Professional fees increased 81% due to an increase in required legal
services primarily as a result of the litigation against AGI.
There was no stock appreciation rights and awards expense accrued in
1996.
Exploration expense declined 29% principally due a decrease in lease
expense for the Registrant's North Carolina properties.
There was no interest expense in 1996 because the Registrant had no
borrowings.
Interest and other income increased 12% due principally to the interest
earned on invested cash.
The Registrant has been amortizing the deferred gain, recorded as a
result of the AGI option exercise, to income in amounts equal to the sum of
37.5% of the Haile Mining Venture's costs and expenses and the Registrant's
other direct costs of participation in the Venture. Such costs and related
amortization amounted to $521,000 in 1996. The amortization of deferred gain was
23% lower than in 1995 due a lower level of Venture activity and expenditures.
The Registrant sold all of its remaining shares of AGI Common Stock in
1996 for total proceeds of $1,537,000, generating a net gain of $15,000.
24
<PAGE> 26
The Company has deferred tax assets totalling approximately $4.0 million
at December 31, 1996 which have been fully reserved through a valuation
allowance as reflected in Note 5 to the consolidated financial statements.
The Registrant's net loss of $1,057,000 in 1996 was due to the factors
set forth above.
Financial Condition, Liquidity and Capital Resources
The Registrant's financial condition and liquidity continued to decline
in 1997 due primarily to the accounting charge for 37.5% of the costs and
expenses of the Haile Mining Venture and various corporate costs without any
offsetting revenues. Working capital deficit increased to ($1,496,000) at
December 31, 1997, compared with ($643,000) at the end of 1996.
The Registrant's principal source of liquidity during 1997 was from the
December 1996 sale of 1,400,000 shares of the Registrant's Common Stock and from
the issuance of $290,000 of Notes convertible into the Registrant's Common
Stock. The net proceeds from such sales were approximately $850,000, which was
used in 1996 to pay a portion of the arbitration award and the remainder of
which was used in 1997 to fund normal Registrant activities. At March 30, 1998,
the Registrant had approximately $30,000 in cash or cash equivalents.
The Registrant believes that its current cash position will not provide
sufficient capital resources for its continued operations (including the costs
of pursuing the lawsuit against AGI, which is presently under appeal) through
the end of 1998. Certain directors of the Registrant have agreed to provide the
Registrant with unsecured loans in the aggregate principal amount of $120,000
and a 10% interest rate, which will mature on August 15,1998. However,
additional financing will be required to develop and commence mining operations
at the Haile Property or if there is no favorable resolution of the litigation
during 1998. Additional financing for such purposes could be sought through the
issuance of additional shares of the Registrant's Common Stock or other equity
securities, through debt financing, or through various arrangements (including
joint ventures or mergers) with third parties. However, the Registrant currently
has no commitments for any such additional financing, and there is no assurance
that the Registrant could obtain any such additional financing if and when
needed.
ITEM 7. FINANCIAL STATEMENTS.
The following reports of independent accountants and financial
statements are filed under this Item 7:
Report of Independent Accountants
Consolidated balance sheets - December 31, 1997 and 1996.
Consolidated statements of operations - years ended December 31, 1997
and 1996.
25
<PAGE> 27
Consolidated statements of cash flows - years ended December 31, 1997
and 1996.
Notes to consolidated financial statements (including Changes in
Shareholders' Equity in Note 8)
26
<PAGE> 28
[Gleiberman Spears Shepherd & Menaker, P.A. LETTERHEAD]
Independent Auditor's Report
To the Board of Directors and Shareholders of
Piedmont Mining Company, Inc.
We have audited the accompanying consolidated balance sheets of Piedmont Mining
Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit incudes 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 financial statements referred to above present
fairly, in all material respects, the financial position of Piedmont Mining
Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company's
future operations are substantially dependent on the outcome of the Haile Mining
Venture ("the Venture"). The Venture's operations have consisted primarily of
drilling and engineering studies to further ascertain the existence and
commercial value of ore reserves. Since the beginning of 1994, Venture
activities have been limited primarily to property maintenance, evaluation work
and environmental studies. There has been no further drilling since January
1994, and in September 1994 the Company was notified by its co-venturer that it
had decided to pursue the sale of its interest in the Venture.
As discussed in Note 11 to the consolidated financial statements, the Company
filed a lawsuit on March 29, 1995, against its co-venturer for breach of its
obligations under the Venture Agreement and Management Agreement for the
Venture and is seeking actual and punitive damages. A trial occurred in August
1997 and resulted in a verdict by the jury awarding the Company's subsidiary,
Kershaw Gold Company, monetary damages of $9,000,000. However, the Court
rejected the jury's verdict and granted the Company's co-venturer judgment as a
matter of law. The Court's decision has been appealed by the Company. The
ultimate outcome of this litigation cannot presently be determined. In
addition, the Company's co-venturer reallocates certain reclamation and
environmental costs of the Venture 100% to the Company that it claims are
subject to indemnification provisions of the Venture agreement. In March 1996,
an arbitration panel rendered an award that required the Company to pay
$1,370,000 of such designated costs through August 1995. The award was paid in
full during 1996. The Company is disputing future cost reallocations. In
November 1997, the Company's co-venturer filed a second claim before an
arbitration panel seeking damages of $1,757,000 for certain reclamation and
environmental costs incurred since August 1995. The arbitration is in the
discovery stage. The ultimate outcome of this arbitration cannot presently be
determined. The range of potential loss is from $-0- to $1,757,000 plus
expense of arbitration
27
<PAGE> 29
(Continued)
The conditions and events discussed in the two preceding paragraphs raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with respect to these matters and the uncertainties
associated with the ongoing dispute with the co-venturer are discussed in Note
1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
It is the Company's policy to expense the costs of reclamation on an ongoing
basis as mining operations are performed. Reclamation and shutdown costs to be
incurred when mining operations are closed should be provided over the period of
operations of the mine based upon management's periodic assessment of such
ultimate costs. Management has made no assessment of the ultimate costs to be
incurred when mining operations are closed since the Company entered into the
Haile Mining Venture (See Notes 3 and 11), because the amount of such costs
cannot be reasonably estimated.
/s/Gleiberman Spears Shepherd & Menaker P.A.
Charlotte, North Carolina
March 10, 1998
28
<PAGE> 30
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,000 $ 700,000
Prepaid expenses 2,000 1,000
------------ ------------
Total current assets 23,000 701,000
Property and equipment, net (including $194,000 and $227,000
relating to the Haile Mining Venture) (Note 5) 228,000 263,000
Deferred costs, net of accumulated amortization (including
$1,536,000 relating to the Haile Mining Venture) (Note 3) 1,754,000 1,754,000
Other assets 2,000 3,000
------------ ------------
$ 2,007,000 $ 2,721,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 7) $ 290,000
Accounts payable (including $246,000 relating to the
Haile Mining Venture) $ 281,000 267,000
Accrued salaries and wages 1,000 4,000
Accrued venture costs (Note 11) 1,237,000 783,000
------------ ------------
Total current liabilities 1,519,000 1,344,000
------------ ------------
Accrued reclamation costs (Note 11) 125,000 125,000
------------ ------------
Deferred gain, net of accumulated amortization of $7,019,000
and $6,862,000 (Note 3) 157,000
------------
Uncertainties and contingencies (Notes 3, 11 and 12)
Shareholders' equity (Notes 7, 8 and 9):
Common stock, no par value; authorized 100,000,000
shares; issued and outstanding 17,188,787 shares, 1997
16,443,869 shares, 1996 12,015,000 11,717,000
Contributed capital 317,000 317,000
Accumulated deficit (11,969,000) (10,939,000)
------------ ------------
363,000 1,095,000
------------ ------------
$ 2,007,000 $ 2,721,000
============ ============
</TABLE>
See notes to consolidated financial statement.
33
<PAGE> 31
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ $
Cost of sales:
Depreciation expense (Note 5) 1,000 9,000
Haile Mining Venture expenses (Notes 3 and 11) 490,000 521,000
Amortization of deferred gain (Notes 3 and 11) (157,000) (521,000)
------------ ------------
334,000 9,000
------------ ------------
Other expenses (income):
General and administrative 381,000 579,000
Exploration 2,000 10,000
Professional fees 347,000 502,000
Interest expense 8,000
Gain on sale of assets (Note 13) (25,000) (15,000)
Interest and other income (17,000) (28,000)
------------ ------------
696,000 1,048,000
------------ ------------
Net loss (Note 6) $ (1,030,000) $ (1,057,000)
============ ============
Net loss per common share $ (.06) $ (.07)
============ ============
Weighted average number of common shares outstanding (Note 8) 16,819,390 15,105,239
============ ============
</TABLE>
See notes to consolidated financial statement.
34
<PAGE> 32
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,030,000) $ (1,057,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 35,000 39,000
Interest expense 8,000
Amortization of deferred gain (157,000) (521,000)
Accrued arbitration award (1,370,000)
Gain on sale of assets (25,000) (15,000)
(Increase) decrease in:
Accounts receivable 28,000
Prepaid expenses (1,000) (1,000)
Other assets 1,000 1,000
Increase (decrease) in:
Accounts payable and other accrued expenses 11,000 (26,000)
Accrued venture costs 454,000 468,000
------------ ------------
Net cash used in operating activities (704,000) (2,454,000)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of Amax Gold Inc. stock 1,537,000
Purchase of property and equipment (16,000)
Proceeds from sale of equipment 25,000 1,000
------------ ------------
Net cash provided by investing activities 25,000 1,522,000
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 560,000
Proceeds from (repayment of ) notes payable 290,000
------------
Net cash provided by financing activities 850,000
------------
Decrease in cash and cash equivalents (679,000) (82,000)
Cash and cash equivalents at beginning of year 700,000 782,000
------------ ------------
Cash and cash equivalents at end of year $ 21,000 $ 700,000
============ ============
</TABLE>
Non-cash transaction:
Notes payable of $290,000 and accrued interest of $8,000 were converted into
common stock (See Note 6).
See notes to consolidated financial statement.
35
<PAGE> 33
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Going concern:
As more fully discussed in Notes 3 and 11, the Company's gold mining
activity, through its interest in the Haile Mining Venture (the
Venture), ceased in 1992, and the Company is involved in litigation
related to the Venture. It has had no significant revenue from
operations since the discontinuance of mining operations and has
suffered large net losses in each subsequent year. As of December 31,
1997, the Company had few tangible assets other than its 37 1/2%
interest in the Haile Mining Venture, an accumulated deficit of almost
$12,000,000 and net worth of $363,000. In addition, the Company has
pending against it claims for environmental expenses related to the
Haile Mining Venture for $1,757,000 (See Note 11). Due to these
factors, there is substantial doubt as to the Company's ability to
continue as a going concern.
Management plans to pursue its legal positions with respect to the
lawsuit now under appeal, and arbitration matters (See Note 11) and to
protect its interest in the Haile Mining Venture. Subsequent to
December 31, 1997, the Company sold certain land in North Carolina for
$95,000 and obtained loan commitments totaling $120,000 from certain
directors to provide working capital. The Company's continued existence
is contingent upon a favorable outcome of the appeal, its ability to
obtain additional equity capital or debt, which is uncertain, or a
favorable settlement of the Haile Mining Venture issues.
2. Description of business and summary of significant accounting policies:
Description of business:
The Company is principally engaged in the investment in, exploration and
development of gold properties.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of Piedmont Mining Company, Inc. and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of estimates:
The timely preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Actual results could differ from those estimates.
Significant estimates include the recoverability of deferred costs,
accrued Venture costs and accrued reclamation costs. It is reasonably
possible that a change in one or more of these estimates could occur in
the near term due to the uncertainties described in Note 11.
Cash and cash equivalents:
The Company considers all highly liquid investments with initial
maturities of three months or less to be cash equivalents.
36
<PAGE> 34
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
2. Description of business and summary of significant accounting policies
(continued):
Concentration:
The Company's investments in gold properties and mineral rights are
located at only two locations. One in the Piedmont area of North
Carolina and one in the Piedmont area of South Carolina through its
interest in the Haile Mining Venture (See Note 3).
Deferred costs:
Development costs and costs of obtaining mineral rights are deferred
until the related properties reach the production stage, and then they
are amortized on a units-of-production basis.
Exploration costs:
Exploration costs are expensed as incurred.
Reclamation:
Certain reclamation is performed and expensed on an ongoing basis as
mining operations are performed. Reclamation and shutdown costs to be
incurred when mining operations are closed are provided over the period
of operation of the mine based upon management's periodic assessment of
such ultimate costs (See Note 11).
Property and equipment and depreciation:
Property and equipment are recorded at cost and depreciation is provided
over the estimated useful lives of the assets using the straight-line
method.
Financial instruments:
The estimated fair value of the Company's cash and cash equivalents and
notes payable approximates the carrying amounts due principally to
their short maturities.
Impairment of long-lived assets:
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS
121). SFAS 121 requires the recognition of impairment losses on
long-lived assets when facts and circumstances indicate that impairment
may exist. The adoption of SFAS 121 did not have a material effect on
the Company's financial position or results of operations.
37
<PAGE> 35
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
2. Description of business and summary of significant accounting policies
(continued):
Income taxes:
The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and
liabilities using the enacted income tax rates expected to apply to
taxable income in the periods in which the deferred tax liability or
asset is expected to be settled or realized. SFAS 109 requires that a
valuation allowance be established, if necessary, to reduce the
deferred tax assets to the amount that management believes is more
likely than not to be realized.
Net loss per common share:
Net loss per common share is computed based on the weighted average
number of shares of Common Stock outstanding during the year. Stock
options and unearned stock awards have been excluded from the
calculation of net loss per common share because they are not dilutive.
3. Haile Mining Venture:
On March 15, 1991, the Company and Amax Gold Exploration, Inc., a
wholly-owned subsidiary of Amax Gold Inc., (collectively, "Amax"),
entered into an Option and Earn-In Agreement (the "Agreement"),
pursuant to which the Company granted Amax an option (the "Option") to
acquire a 62.5% undivided interest in the Company's Haile Mine
properties and certain equipment and improvements (the "Property"), and
then to enter into a joint venture with the Company to further explore,
develop and mine the Property.
As consideration for the Option, Amax paid the Company $1,000,000 in
cash on March 15, 1991, and agreed to pay on behalf of the Company the
principal and interest on certain notes issued by the Company. The
total payments on the notes approximated $1,072,000. In addition, Amax
agreed to provide a guaranty or other financial support necessary to
enable the Company to increase its reclamation bond on the Property by
approximately $750,000 during the Option period. Amax conducted and
funded all the exploration costs during such period.
On May 1, 1992, Amax exercised the Option, and the Company received
$1,750,000 in cash and 1,000,000 unregistered shares of Amax common
stock (valued upon receipt by the Company at $5,550,000). In addition,
Amax assumed 62.5% or $625,000 of the Company's note obligation to MMC
Holding, Inc. (See Note 4).
Pursuant to the Agreement, the Company and Amax formed a venture (the
"Haile Mining Venture" or the "Venture") to further explore, evaluate
and, if warranted, develop and operate a gold mine at the Property.
Amax manages and controls the Venture. Amax and the Company have 62.5%
and 37.5% undivided interests, respectively, in the Venture's assets
and liabilities. Costs of the Venture are to be borne by each party
based on its respective interest, and the ultimate gold produced by the
Venture, if any, is to be taken by the parties in kind. Accordingly,
the applicable captions of the Company's financial statements reflect
its share of the Venture's assets, liabilities and costs.
38
<PAGE> 36
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. Haile Mining Venture (continued):
The Agreement further provides that in the event that either party fails
to pay its proportionate share of the Venture's costs, the other party
may pay the non-paying party's share of such costs, in which case the
interest of the non-paying party in the Venture may be diluted (See
Note 11).
The $7,019,000 excess of the fair value of the consideration received
from Amax over the carrying value of the Property sold and liabilities
assumed was reflected as a deferred gain because of the Company's
intent to fund its share of the costs of the Venture, and such amount
was expected to exceed the amount of the deferred gain. The Company has
amortized the deferred gain to income in amounts equal to the sum of
the Company's share of the Venture's costs and expenses and the
Company's other direct costs of participation in the Venture. The
Company has charged these costs to expense as incurred because the
Company and Amax have not yet made a decision to develop an operating
mine at the Property (See Note 11).
A summary of the assets and liabilities included in the accompanying
balance sheets that are associated with the Company's interest in the
Venture is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Property and equipment $ 194,000 $ 227,000
Deferred costs 1,536,000 1,536,000
Trade accounts payable (246,000) (246,000)
----------- -----------
Company's net investment in the Venture (excluding deferred
gain of $157,000 at December 31, 1996) $ 1,484,000 $ 1,517,000
=========== ===========
</TABLE>
In contemplation of the formation of the Venture described above, the
Company suspended its mining and hauling operations in August 1991. On
June 30, 1992, leaching and recovery of gold ceased for the account of
the Company and commenced for the account of the Venture with Amax
taking its 62.5% of the gold production. Such leaching and recovery of
gold ceased in 1992.
The Venture's operations have consisted primarily of drilling and
engineering studies to further ascertain the existence, location,
quality, quantity and commercial value of the ore reserves, as well as
ongoing permitting and environmental studies and property maintenance.
There has been no further drilling since January 1994, and in September
1994 the Company was notified by Amax that it intended to pursue the
sale of its interest in the Venture. Since the beginning of 1994,
Venture activities have been limited primarily to property maintenance,
evaluation work and environmental studies.
39
<PAGE> 37
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. Haile Mining Venture (continued):
Should the venturers (including any successor to the interest of Amax in
the Venture) decide to develop an operating mine (See Note 11 regarding
litigation related to the Venture), it is expected that the Venture
would construct a processing facility for gold production at the Haile
Property. The size and complexity of such processing facility cannot be
determined until the venturers complete the work necessary to make a
production decision and establish a mining plan for the Haile Property.
Accordingly, management cannot estimate with precision the cost of
construction and related costs to be incurred if the venturers were to
decide to begin production. Based upon a preliminary feasibility study
prepared for Amax in late 1991, the total cost of developing and
commencing operations ranged up to approximately $80 million, of which
the Company's 37.5% share could range up to approximately $30 million.
Should a production decision be made, the Company would probably seek
to finance its share of such costs through debt financing (either
directly by the Company or through project financing by the Venture)
and/or by raising additional equity capital. No such production
decision has been made, and there is no expectation of such a decision
in the near future (See Note 11). At this time, no assurance can be
given that the mine will be placed into production or that the Company
will be able to raise the capital required to finance its share of
costs to place the mine into production.
See Note 11 for further discussion regarding uncertainties,
contingencies and litigation relating to the Haile Mining Venture.
4. Investment in Amax Gold Inc. common stock:
In 1995, the Company began selling in the open market shares of the Amax
common stock it acquired upon exercise of the Amax Option described in
Note 2. The Company sold all of the remaining 252,400 shares at an
average price of approximately $6.09 per share during 1996 with total
proceeds of $1,537,000 and a net gain on the sales of $15,000.
The proceeds from the sales of the Amax common stock were used to repay
indebtedness including the arbitration award and to fund operations.
5. Property and equipment:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $149,000 $149,000
Buildings and improvements 122,000 122,000
Machinery and equipment 178,000 309,000
-------- --------
449,000 580,000
Less accumulated depreciation 221,000 317,000
-------- --------
$228,000 $263,000
======== ========
</TABLE>
40
<PAGE> 38
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
6. Income taxes:
The Company had no provision (benefit) for income taxes for 1997 or
1996.
A reconciliation of the income tax benefit computed using the statutory
rate to the amount recorded is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax benefit at U. S. federal statutory rate
$(350,000) $(359,000)
Effect of state tax, net (47,000) (48,000)
Change in valuation allowance 297,000 422,000
Other 100,000 (15,000)
--------- ---------
Income tax benefit $ 0 $ 0
========= =========
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ (28,000) $ (36,000)
Deferred costs (589,000) (535,000)
----------- -----------
Gross deferred tax liabilities (617,000) (571,000)
----------- -----------
Deferred tax assets:
Deferred gain and accrued arbitration award 61,000
Net operating loss carryforward 4,834,000 3,853,000
Investment tax and AMT credit carryforwards 86,000 86,000
Other 45,000 45,000
----------- -----------
Gross deferred tax assets 4,965,000 4,045,000
Valuation allowance (4,348,000) (3,474,000)
----------- -----------
Deferred tax asset after valuation allowance 617,000 571,000
----------- -----------
Net deferred tax asset (liability) $ 0 $ 0
=========== ===========
</TABLE>
At December 31, 1997, the Company had approximately $12,539,000 of net
operating loss carryforwards, which expire in varying amounts through
the year 2012. Also at December 31, 1997, the Company had an AMT credit
carryforward of $54,000 and an investment tax credit carryforward of
$32,000 to offset future income tax liabilities.
41
<PAGE> 39
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
6. Income taxes (continued):
In the light of the Company's cumulative losses in recent years,
management has established a valuation allowance of $4,348,000 and
$3,474,000 against its deferred income tax assets at December 31, 1997
and 1996, respectively, which reduces the carrying value of such assets
to an amount equal to the sum of its offsetting deferred income tax
liabilities.
The Company paid no income taxes in 1997 or 1996.
7. Notes payable:
In December 1996, the Company issued $290,000 of convertible notes to
officers, directors and a third party. The convertible notes accrued
interest at 5% per annum and were due June 30, 1997. The holders of the
notes had the right to convert all or any portion of the outstanding
principal and accrued interest into shares of common stock at $.40 per
share on or after March 31, 1997. At June 30, 1997, the notes and
accrued interest of $8,000 were converted into 744,918 shares of common
stock.
8. Changes in shareholders' equity:
An analysis of changes in shareholders' equity is as follows:
<TABLE>
<CAPTION>
Common Common Contributed Accumulated
shares stock capital deficit Other Total
------ ----- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 15,043,869 $11,157,000 $317,000 $ (9,882,000) $ 307,000 $ 1,899,000
Net loss for the year (1,057,000) (1,057,000)
Issuance of common stock 1,400,000 560,000 560,000
Unrealized gain on investment
securities, net of tax (307,000) (307,000)
---------- ----------- -------- ------------ --------- -----------
Balance, December 31, 1996 16,443,869 11,717,000 317,000 (10,939,000) 0 1,095,000
Net loss for the year (1,030,000) (1,030,000)
Conversion of notes payable
into common stock 744,918 298,000 298,000
---------- ----------- -------- ------------ --------- -----------
Balance, December 31, 1997 17,188,787 $12,015,000 $317,000 $(11,969,000) $ 0 $ 363,000
========== =========== ======== ============ ========= ===========
</TABLE>
In December 1996, the Company completed the sale of 1,400,000 shares of
its unregistered common stock to a group of accredited investors under
Regulation D of the Securities Act of 1933 and received proceeds of
$560,000.
The Company has authorized 1,000,000 shares of $1 par value Preferred
Stock, none of which is outstanding.
42
<PAGE> 40
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
9. Stock option plans and stock awards:
The Company has adopted four stock option plans for officers, key
employees and non-employee Directors: the 1985 Incentive Stock Option
Plan (the "1985 Plan"); the 1988 and 1994 Stock Option Plans (the "1988
Plan" and the "1994 Employee Plan") and the 1994 Nonqualified Stock
Option Plans for non-employee Directors (the "1994 Plan"). In addition,
stock awards have been granted to certain officers and key employees
(the "Stock Awards"). The shares issued or issuable under all such
stock option plans and awards have been registered under the Securities
Act of 1933. These plans and awards are described below:
1985 Plan:
Options were granted under the 1985 Plan in February 1987 for 60,606
shares at $1.65 per share for a period of five years and 97,999 shares
at $1.50 per share for a period of ten years. Further options were
granted in December 1987 to purchase 61,000 shares at $1.75 per share
for a period of ten years. No further options can be granted under the
1985 Plan. These options, which are generally non-transferable, became
exercisable in installments in February 1989 and February 1990. The
shares are registered under the Securities Act of 1933. Grantees of
the options may request stock appreciation rights. Shares issued under
the Plan cannot be sold, assigned, transferred, pledged or otherwise
encumbered for a period of six months following such issuance. Shares
and prices of Common Stock under option are subject to adjustment in
certain events, principally stock dividends or splits or other
recapitalizations. Options outstanding under the Plan were zero and
43,333 at December 31, 1997 and 1996, respectively. The weighted
average exercise price of the options outstanding was $1.50 per share
at December 31, 1996.
1988 Plan:
The 1988 Plan provides for the granting of options to purchase up to
500,000 shares of Common Stock. It allows for the granting of
incentive stock options and nonqualified stock options. In addition,
the Plan provides that stock appreciation rights may be granted with
respect to any option granted under the Plan. The options are to be
granted under such provisions, terms and conditions as the
Compensation Committee of the Board of Directors of the Company
determines. Incentive stock options are not to be granted at less than
100% of the fair market value of the shares on the date the options
are granted and in no event may the option price be less than 110% of
the fair market value of the shares on the date the option is granted
to an over-ten-percent shareholder. No incentive stock option can be
exercised after the expiration of ten years from the date of grant,
and an incentive stock option granted to an over-ten-percent
shareholder cannot be exercised after the expiration of five years
from the grant date. Each option under the Plan requires the optionee
to remain in the continuous employment of the Company for a period of
at least one year from the date of grant before the option becomes
exercisable. Options were granted under the 1988 Plan in May, 1989 for
125,000 shares at $1.07 for a period of ten years. Further options
were granted in March, 1990 for 35,000 shares at $1.85 per share for a
period of ten years. Further options were granted in July, 1991 for
103,500 shares at $1.57 per share for a period of ten years. Options
outstanding under the Plan were 203,000 at December 31, 1997 and 1996.
The weighted average exercise price of the options outstanding was
$1.26 per share at December 31, 1997 and 1996.
43
<PAGE> 41
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
9. Stock option plan and stock awards (continued):
1994 Employee Plan:
During 1994, the Company adopted a nonqualified stock option plan for
non-employee members of its Board of Directors. The 1994 Plan grants
options to purchase 10,000 shares of Common Stock to each non-employee
Director every six months beginning July 1, 1994, subject to an
aggregate limit of 550,000 shares. Under the Plan options have been
granted to purchase 310,000 shares of Common Stock through December
1997 at between $.27 - $1.34 per share. The option prices equal the
average market value for a certain period as defined by the Plan prior
to the date of grant. The options are exercisable immediately after
the grant date. All options expire on the earlier of five years after
the date of grant or when an optionee ceases to be a Director by
reasons specified in the Plan. Options outstanding under the Plan were
310,000 and 200,000 at December 31, 1997 and 1996, respectively. The
weighted average exercise price of the options outstanding were $.60
and $.75 at December 31, 1997 and 1996, respectively.
1994 Plan:
During 1994, the Company also adopted a stock option plan for officers
and key employees. Under the 1994 Employee Plan, options (which may be
either incentive stock options or non-qualified stock options) may be
granted to purchase up to 500,000 shares of Common Stock. The options
are generally exercisable after six months from the grant date.
Otherwise, the terms of the 1994 Employee Plan are comparable to those
of the 1988 Plan described above. The Plan granted incentive stock
options to purchase 75,000 shares of Common Stock in June 1994 at
$1.25 per share, the market value at the date of grant. The Plan
granted incentive stock options to purchase 50,000 shares of Common
Stock in March 1997 at $.25 per share, the market value at the date of
grant. The options under both of the 1994 plans are generally
non-transferable. Options outstanding under the 1994 Employee Plan
were 100,000 and 50,000 at December 31, 1997 and 1996, respectively.
The weighted average exercise price of the options outstanding were
$.75 and $1.25 at December 31, 1997 and 1996, respectively.
Option summary:
The following table sets forth changes in the number of shares under
option:
<TABLE>
<CAPTION>
Weighted Weighted average
Price average contractual life
Shares range price remaining (in years)
------ ----- ----- --------------------
<S> <C> <C> <C> <C>
Options outstanding at
January 1, 1996 $ 621,333 $ .44 - 2.00 $ 1.40 4.75
Granted 80,000 .32 - .69 .51 5.00
Terminated (205,000) 1.25 - 2.00 1.83 2.03
---------
Options outstanding at
December 31, 1996 496,333 $ .32 - 1.57 1.08 3.55
Granted 160,000 .25 - .36 .29 5.00
Terminated (43,333) 1.50 1.50 --
---------
Options outstanding and
exercisable at
December 31, 1997 613,000 $ .25 - 1.57 .84 3.25
=========
</TABLE>
44
<PAGE> 42
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
9. Stock option plan and stock awards (continued):
Option summary (continued):
Options available for future grant were 640,000 shares at December 31,
1997.
Stock awards:
During 1992, the Board of Directors approved an additional stock bonus
plan (the "1992 Stock Bonus Plan for Non-affiliates") pursuant to
which up to 100,000 shares of Common Stock may be awarded to the
Company's employees, consultants or advisors who are not directors or
executive officers. There were 65,000 shares of common stock available
to be awarded at December 31, 1997 and 1996.
10. Mining leases:
The Company and Amax (in connection with the Haile Mining Venture) own
undivided interests in the Haile Property and lease the remainder from
third parties under leases of varying terms. In conjunction with the
Agreement described in Note 3, Amax entered into an agreement with one
of the third parties to purchase part of the property under certain
terms. Such purchase option has been assigned to the Venture. Purchase
option payments under the agreement amount to $150,000 annually,
subject to escalation for inflation beginning in 1996. The purchase
option, if exercised prior to its expiration in June 2001, requires a
payment of $2,495,000 subject to escalation at 8% per annum, computed
from May 1, 1992.
11. Uncertainties and contingencies:
Litigation:
Pursuant to the Option and Earn-In Agreement described in Note 3, the
Haile Mining Venture Agreement (the "Venture Agreement") between the
subsidiaries of the Company and Amax that are the Venture participants,
and certain related agreements, the Company and its subsidiary agreed
to indemnify Amax and its affiliates from all environmental and other
liabilities arising from matters occurring or existing at the Haile
Property prior to March 15, 1991, or arising from acts, omissions and
operations of the Company and its subsidiary from March 15, 1991, to
July 1, 1992, (the date of formation of the Venture).
Venture expenditures incurred from its formation through December 31,
1997, totaled approximately $13,426,000, of which the Company paid
37.5% through February 1995. Amax has identified approximately
$2,803,000 of these Venture expenditures through December 31, 1997,
that it claims are subject to such indemnification provisions and
should be reallocated 100% to the Company ($290,000 for the second half
of 1992, $681,000 for 1993, $674,000 for 1994, $488,000 for 1995,
$279,000 for 1996 and $391,000 for 1997). The Company paid 37.5% of the
costs reallocated to the Company through December 31, 1994, (which
totaled approximately $617,000). The Company has not paid any of these
reallocated costs, except for the arbitration award of $1,370,000
discussed below, since January 1995 due to the lawsuit on appeal, also
discussed below. The Company has disputed such cost reallocation. The
total amount of such reallocated costs claimed by Amax and unpaid
through December 31, 1997, is approximately $816,000 and increasing
every month.
45
<PAGE> 43
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
11. Uncertainties and contingencies (continued):
A substantial part of such costs relates to ongoing water treatment and
property maintenance at the Haile Mine property, as well as certain
reclamation costs. Amax has also taken the position that the Company
will be responsible for 100% of similar ongoing expenses in the future.
The Company's consolidated financial statements reflect only 37.5% of
the amount of such costs through December 31, 1997, as Venture costs.
Arbitration proceedings were commenced by Amax in May 1995. On March 5,
1996, an arbitration panel of the American Arbitration Association
rendered an award in connection with the Company's dispute with Amax
over such cost reallocation. The award required the Company to pay
approximately $1,370,000 of the disputed costs through August, 1995 to
a subsidiary of Amax. In addition, approximately $33,000 of
administrative expenses related to the arbitration were borne by the
Company. The award was accrued as of December 31, 1995, and was fully
offset by amortization of the deferred gain in the statement of
operations for the year ended December 31, 1995. In August 1996, the
award was confirmed by the U. S. District Court in South Carolina, and
judgment was entered on the award. In September 1996, the Company filed
petitions for relief under Chapter 11 of the U.S. Bankruptcy Code,
which automatically stayed the enforcement of the judgment. In October
1996, the Bankruptcy Court dismissed the Company's petitions for
relief. The full amount of the arbitration award was paid in 1996.
In November 1997, Amax filed a second claim before an arbitration panel
seeking additional damages of $1,757,000 for certain reclamation and
environmental costs incurred since August 1995. The arbitration is in
the discovery stage. The ultimate outcome of this arbitration cannot
presently be determined. The range of potential loss is from $ -0- to
$1,757,000 plus expenses of arbitration.
On March 29, 1995, the Company filed a lawsuit in South Carolina against
Amax claiming, among other things, that Amax's failure to implement the
approved 1994 Program and Budget for the Venture was in breach of its
obligations under the Venture Agreement and Management Agreement for
the Venture, and seeking actual and punitive damages. A trial was held
in August 1997 and resulted in a verdict by the jury awarding the
Company's subsidiary, Kershaw Gold Company, monetary damages of
$9,000,000. However, the Court rejected the jury's verdict and granted
Amax judgment as a matter of law. The Court's decision has been
appealed by the Company. No amounts have been recorded in the
accompanying financial statements relating to this gain contingency.
The Company has not funded its share of the Venture's expenditures since
February 1995 as a result of the litigation now under appeal. The
Company has, however, accrued Venture costs totaling $1,237,000,
including $306,000, or 37.5% of the costs reallocated 100% to the
Company subsequent to August 1995. The total of such costs reallocated
100% to the Company subsequent to August, 1995 was $146,000 in 1995,
$279,000 in 1996 and $391,000 in 1997. These accruals have also been
partially offset by amortization of the deferred gain in the statements
of operations for the years ended December 31, 1997 and 1996. Amax has
indicated that it intends to activate the dilution of interest
provisions of the Venture Agreement as a result of the Company's
failure to pay its share of Venture expenditures since March 1995. It
is the Company's position that Amax has materially breached the Venture
Agreement and Management Agreement and that as a result it has no
obligation to fund its portion of the Venture costs and is not
responsible for any further indemnification costs.
46
<PAGE> 44
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
11. Uncertainties and contingencies (continued):
Reclamation costs:
Management has made no assessment or provision for reclamation and
shutdown costs to be incurred when mining operations are closed since
the Company entered into the Haile Mining Venture in 1992, because the
amount of such costs cannot be reasonably estimated, in part because no
mining plan has been established, and the Company is not in control of
the Venture. However, the ultimate obligations for reclamation and
shutdown costs may differ materially from the amount accrued in the
financial statements. No decision has been made on any future mine
development or operations or over what period of time such operations
would occur.
12. Severance agreements:
The Company has severance payment agreements with two officers that
provide each of them severance pay benefits of $250,000 if there is a
change in control of the Company and within two years of the change in
control one or both of the officers are involuntarily terminated, they
resign for good reason as defined in the Agreement or in the event of
their disability or death. The agreements expire in March 2002.
13. Related party transactions:
During 1997, the Company sold certain mining equipment and a vehicle,
which was fully depreciated, to the president of the Company for
$19,000. Also, the Company sold a vehicle, which was fully depreciated,
to a consultant to the Company for $6,000.
47
<PAGE> 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required to be reported by this item was previously
reported by the Registrant on Current Reports on Form 8-K dated December 3, 1996
and March 3, 1997. No disclosure is required in response to Item 304(b) of
Regulation S-B.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information about the Directors is as follows:
<TABLE>
<CAPTION>
Shares of Percent of
Name and Common Common Stock
Director Since(1) Age Information About Directors Stock Owned(2) Outstanding(3)
- ----------------- --- --------------------------- -------------- --------------
<S> <C> <C> <C> <C>
Robert M. Shields, Jr. 59 Chairman of the Board of the 995,531 (4) 5.73%
1983 Company since 1988; President
1983-1988; Chief Executive
Officer and Treasurer of the
Company since its formation
in 1983.
Earl M. Jones 58 President of the Company since 1988 679,512 (5) 3.92%
1983 and Secretary of the Company since
1996; Executive Vice President 1983-
1988; Chief Operating Officer of
the Company since its formation in
1983.
John W. Castles 3d(6) 76 Retired. Formerly a partner in 975,220 (7) 5.65%
1984 Lord Day & Lord, Barrett Smith (law
firm) for more than the previous
five years.
</TABLE>
48
<PAGE> 46
<TABLE>
<S> <C> <C> <C>
William Feick, Jr.(6)(8) 73 Consultant to William D. Witter, 858,888 (7) 4.97%
1984 Inc. (investment advisers)
1994-present. Managing Director of
William D. Witter, Inc., 1987-1993.
Joseph F. McDonald(8) 61 Partner in Morgan, Lewis & Bockius 298,542 (7) (9) 1.73%
1984 LLP (law firm) 1994 - present.
Partner in Lord Day & Lord, Barrett
Smith for more than the previous five
years.
Christopher M.H. 64 President and Director of 208,460 (7) 1.21%
Jennings SouthernEra Resources Limited, a
1989 mining and exploration company,
since April 1992; independent
geological consultant, 1991-1992;
Senior Vice President, Exploration,
of International Corona Corporation,
1988-1991. Serves as a Director of
Repadre Capital Corp. and Kimberly
Diamond Corporation.
Douglas D. Donald 75 Retired. Fund Manager at Scudder, 50,000 (10) (11)
1997 Stevens & Clark, Inc. for more than
previous five years. Serves as a
Director of Repadre Capital Corp.
and Stillwater Mining Company.
</TABLE>
- ------------------
(1) The information about the Directors was furnished to the Company by the
Directors.
(2) All shares are owned directly and with sole voting and dispositive
power except as otherwise noted. Common Stock ownership information is
as of April 1, 1998.
(3) Based on the number of shares outstanding plus shares subject to stock
options held by such person that are currently exercisable or
exercisable within 60 days.
(4) Includes 64,399 shares held by Mr. Shields as custodian for his minor
children and 179,000 shares subject to incentive stock options that are
currently exercisable or exercisable within
49
<PAGE> 47
60 days. Does not include 222,075 shares held by Mr. Shields' wife, as
to which he disclaims beneficial ownership.
(5) Includes 124,500 shares subject to incentive stock options that are
currently exercisable or exercisable within 60 days.
(6) Member of the Compensation Committee.
(7) Includes 80,000 shares subject to currently exercisable stock options
granted under the Company's 1994 Nonqualified Stock Option Plan for
Non-Employee Directors.
(8) Member of the Audit Committee.
(9) Includes 75,000 shares held by Mr. McDonald as custodian for his minor
child.
(10) Includes 40,000 shares subject to currently exercisable stock options
granted under the Company's 1994 Nonqualified Stock Option Plan for
Non-Employee Directors.
(11) Less than 1%.
The two executive officers of the Company, Messrs. Shields and Jones,
also currently serve as Directors. Mr. Shields served as the Company's
President, Chief Executive Officer and Treasurer, and Mr. Jones served as the
Company's Executive Vice President and Chief Operating Officer, from the
organization of the Company in 1983 through May 1988. At that time Mr. Shields
was elected Chairman of the Board of Directors and Mr. Jones was elected
President. Mr. Shields continues to serve as the Company's Chief Executive
Officer and Treasurer, and Mr. Jones continues to serve as the Company's
President, Secretary and Chief Operating Officer.
All officers of the Company have been appointed to serve at the
pleasure of the Board of Directors.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, executive officers and persons who beneficially own more
than 10% of the Company's Common Stock to file reports with the Securities and
Exchange Commission showing their initial ownership of Common Stock at the time
they become reporting persons and showing subsequent changes in their ownership
of Common Stock. Such reporting persons are also required to furnish copies of
such reports to the Company. Based solely upon its review of the copies of
reports furnished to the Company during 1994 and written representations as to
the absence of obligations to file other reports, all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
10% shareholders were complied with, except that Messrs S. Castles, Feick,
Jennings, and McDonald each filed one late report regarding one transaction,
which transaction has since been reported, Mr. Jones did not timely report two
transactions and Mr. Shields did not timely report one transaction.
50
<PAGE> 48
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table summarizes for each of the past three fiscal years
the compensation paid or accrued for the account of Robert M. Shields, Jr., the
Company's Chief Executive Officer, the only executive officer whose total salary
and bonus exceeded $100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- -------------------------------------------------------------------------------------------------------------------
OTHER RESTRICTED OPTION/
ANNUAL STOCK SAR ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS AWARDS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($) (# SH) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Shields, Jr. 1997 130,000 0 (1) 0 25,000 0
Chairman and Chief
Executive Officer
- -------------------------------------------------------------------------------------------------------------------
1996 150,000 0 (1) 0 0 0
- -------------------------------------------------------------------------------------------------------------------
1995 153,462 0 (1) 0 0 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Shields did not receive personal benefits during the listed years
in excess of 10% of his annual salary and bonus.
51
<PAGE> 49
The following table shows, on an aggregated basis, the 1997 fiscal
year-end value of unexercised options and SARs held by Mr. Shields.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT FY-END THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE REALIZED (# SH) AT FY-END ($)
NAME EXERCISE (# SH) ($) EXERCISABLE / EXERCISABLE /
UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert M. Shields, Jr. 0 0 179,000 0/0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective as of March 1, 1992, the Company entered into a Severance
Payment Agreement with Shields, providing for the payment to him of $250,000 in
the event of termination of his employment on or within two years after a
"Change of Control" of the Company, or by or at the request of the Company in
anticipation of such a Change of Control. "Change of Control" is defined in each
of such Agreement to include mergers, consolidations and share exchanges in
which the Company's shareholders own less than 80% of the survivor or successor,
the sale of all or substantially all of the Company's assets, the acquisition by
any person or group of more than 50% of the Company's Common Stock, or there
being a majority of the Board of Directors consisting of individuals affiliated
with or designated by a person or group seeking to control the Company, subject
to certain exceptions in each case. The severance payment is not required if the
termination is by the Company for cause, or if the executive resigns otherwise
than for "good reason" (generally, an adverse change in the executive's
employment status). If such termination is due to the death or disability of the
executive, the payment may be made in six monthly installments. The Agreement
was to expire on March 1, 1997, but the Board of Directors voted to extend the
term of the Agreement for an additional five years. The Agreement now will
expire on March 1, 2002 if no Change of Control has occurred prior to that time;
in addition, the Agreement expires if the executive's employment is terminated
prior to any Change of Control and not by or at the request of the Company in
anticipation of such Change of Control. The purpose of the Agreement is to
provide some measure of employment security for Mr. Shields in the performance
of his duties to the Company in connection with any transaction that may involve
a prospective Change of Control of the Company.
52
<PAGE> 50
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs Granted
Underlying to Employees in
Options/SARs Fiscal Year Exercise or Base
Name Granted (#) Price $/Share Expiration Date
---- ------------ --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Robert M. Shields, Jr. 25,000 (1) 50% $.25 3/18/2007
</TABLE>
- ----------------
(1) This option became exercisable on September 19,1997.
DIRECTOR COMPENSATION
Directors are reimbursed for their expenses of attending meetings of
the Board of Directors and its Committees. Directors are not paid any fees in
connection with their services as members of the Board of Directors and its
Committees.
Eligible Directors who are not employees of the Company have been
granted options under the Company's 1991 and 1994 Nonqualified Stock Option
Plans for Non-Employee Directors (the "1991 Director Plan" and the "1994
Director Plan") which were approved by the shareholders at the 1992 and 1994
Annual Meetings, respectively. Amendments to the 1994 Director Plan were
approved by the shareholders at the 1997 Annual Meeting.
Each of the current Directors other than Messrs. Shields, Jones and
Donald was also granted an option to purchase 30,000 shares at $2.00 per share
(the fair market value at the date of grant) under the 1991 Director Plan on
August 1, 1991, which became exercisable on August 1, 1992 for one-half of the
shares subject to the option and became fully exercisable on August 1, 1993.
None of the options granted under the 1991 Director Plan were exercised. One
option for 30,000 shares was terminated in 1993 and one option for 30,000 was
terminated in 1995. All remaining options granted under the 1991 Director Plan
expired, unexercised, on August 1, 1996.
53
<PAGE> 51
Under the 1994 Director Plan each Eligible Director is automatically
granted an option to purchase 10,000 shares of Common Stock on January 1 and
July 1 of each year, commencing July 1, 1994, subject to adjustment in the event
of stock dividends and splits, recapitalizations and similar transactions and
subject to an aggregate limit (before such adjustment) of 300,000 shares. An
"Eligible Director" is a Director of the Company who is not a regular employee
of the Company on the date of grant and who has served as a non-employee
Director of the Company for the six months preceding the date of grant. On July
1, 1994, January 1, 1995, July 1, 1995, January 1, 1996, July 1, 1996, January
1, 1997 and July 1, 1997 each of the current directors, other than Messrs.
Shields, Jones and Donald, was granted an option to purchase 10,000 shares of
Common Stock at $1.34, $.93125, $.440625, $.3186, $.6872, $.3625 and $.2512 per
share, respectively. Mr. Donald was granted an option to purchase 25,000 shares
of Common Stock as $.2725 per share in connection with his initial appointment
to the Board of Directors. In addition, Mr. Donald was granted an option to
purchase 10,000 shares of Common Stock at $.2512 per share on July 1, 1997.
Options granted under the 1994 Director Plan are fully exercisable on the date
of grant, and may be exercised until they expire five years after the date of
grant, unless earlier terminated. An optionee's rights under all outstanding
options granted under the 1994 Director Plan will terminate three months after
the optionee ceases to serve as a Director, unless due to the optionee's death
or disability, in which case the options will terminate one year thereafter. The
options are nontransferable except by will or intestacy or pursuant to a
qualified domestic relations order.
The shares issuable pursuant to the 1994 Director Plan have been
registered under the Securities Act of 1933.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At March 30, 1998, the only persons known to the Company to be the
beneficial owners of more than 5% of the Common Stock of the Company were as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING(2)
- ------------------- ----------------------- --------------
<S> <C> <C>
Van Eck Associates 2,270,000 (3) 13.20%
Corporation
99 Park Avenue, 8th Fl.
New York, New York 10016
Robert M. Shields, Jr. 995,531 (4) 5.73%
211 East 49th Street
New York, New York 10017
John W. Castles 3d 975,220 (5) 5.65%
</TABLE>
54
<PAGE> 52
6 Shell Fish Lane
Callawassie Island
Okatie, South Carolina 29910
- ------------------
(1) Unless otherwise indicated, each shareholder has sole voting and sole
investment power with respect to all shares beneficially owned.
(2) Based on the number of shares outstanding plus shares subject to
incentive stock options held by such beneficial owner that are
currently exercisable or exercisable within 60 days.
(3) The information concerning beneficial ownership is derived from a
Schedule 13G dated February 12, 1998. Van Eck Associates Corporation is
a registered investment adviser, and such shares are held for funds or
trusts managed by it.
(4) Includes 64,399 shares held by Mr. Shields as custodian for his minor
children and 179,000 shares subject to incentive stock options that are
currently exercisable or exercisable within 60 days. Does not include
222,075 shares held by Mr. Shields' wife, as to which he disclaims
beneficial ownership.
(5) Includes 80,000 shares subject to currently exercisable stock options
granted under the Company's 1994 Nonqualified Stock Option Plan for
Non-Employee Directors.
The following table sets forth, as of March 31, 1998, information as to
the beneficial ownership of the Company's Common Stock by all Directors and
executive officers of the Company as a group (7 persons):
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
AND NATURE OF COMMON STOCK
TITLE OF CLASS BENEFICIAL OWNERSHIP OUTSTANDING
- -------------- -------------------- ------------
<S> <C> <C>
Common Stock, no par value 4,066,153(1) 22.78%(2)
</TABLE>
- ------------
(1) Includes 663,500 shares subject to stock options held by Directors and
officers that are currently exercisable or exercisable within 60 days.
(2) Based on the number of shares outstanding plus shares subject to stock
options and convertible notes held by Directors and executive officers
that are currently exercisable or exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
55
<PAGE> 53
NONE.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (Parenthetical number denotes incorporation by
reference as described in footnotes following the list of
Exhibits).
<TABLE>
<S> <C>
3.1 The Registrant's Articles of Incorporation, as amended. (1)
3.2 The Registrant's Bylaws, as amended. (2)
4 Form of Convertible Note. (3)
10.4 The Registrant's 1985 Incentive Stock Option Plan adopted January 21, 1986, as amended
January 27, 1987 and July 14, 1987. (4)
10.5 The Registrant's Management Incentive Compensation Plan adopted January 21, 1986. (4)
10.7 Contract of Lease Agreement dated June 21, 1946 between Haile Mines, Inc. and James P.
Beckwith. (Haile) (4)
10.8 Agreement dated July 11, 1984 among the Registrant and George B. Small and wife, June
L. Small, Gold Fields Mining Corporation and Mineral Mining Corporation. (Haile) (4)
10.10 Mineral Lease dated June 29, 1984 among the Company and Bobby B. Gregory and wife,
Ethel Mae Gregory. (Haile) (4)
10.11 Mineral Lease dated September 24, 1984 among the Registrant and Morris H. Phillips and
wife, Mary Lou G. Phillips. (Haile) (4)
10.12 Mineral Lease dated October 7, 1983 among the
Registrant and W.S. Jones, Executor under the Will of
Fred S. Jones; Teresa Jones Carter; Susan Jones
Lawson; Patricia Jones Jennings; Karen Jones; Emily
Jones King; Miriam Jones Lewis; Anne Jones Horton;
and Virginia Jones Horton. (Haile) (4)
10.36 Form of Indemnity Agreement between the Registrant and its directors and officers. (4)
10.38 Option to Purchase Mineral Rights dated November 20,
1985 between the Registrant (then Piedmont Land) and
Rockingham Mining and Investment Company,
Incorporated.
(Russell-Coggins) (4)
</TABLE>
56
<PAGE> 54
<TABLE>
<S> <C>
10.40 Mineral Lease dated November 11, 1987 between the Registrant and Minor Lee Catoe.
(Haile) (5)
10.41 Mineral Lease dated March 10, 1988 between the Registrant and Ira Taylor, Jr. and
Pauline H. Taylor. (Haile) (5)
10.42 The Registrant's 1988 Stock Option Plan. (6)
10.44 Exploration License and Option to Purchase Agreement
dated September 29, 1990 between the Registrant and
Ronny Edward Hinson and wife Nadine G. Hinson, and
Charles W.
Hinson and wife Pauline D. Hinson. (Haile) (2)
10.49 Option and Earn-In Agreement dated March 15, 1991 between the Registrant, Mineral
Mining Company, Inc. (the Registrant's wholly-owned subsidiary, now Kasho Gold
Company, Inc.) and Amax Gold Exploration, Inc. (2)
10.50 The Registrant's 1991 Nonqualified Stock Option Plan for Non-Employee Directors. (7)
10.52 Assignment of Rights and Obligations Agreement dated
June 13, 1991 between the Registrant and Brewer Gold
Company, including the assigned mineral leases
described therein. (Haile) (7)
10.55 Letter Agreement dated September 20, 1991 between the Registrant, Mineral Mining
Company, Inc. and Amax Gold Exploration, Inc. (7)
10.58 Severance Agreement dated as of March 1, 1992 between the Registrant and Robert M.
Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between the Registrant and Earl M.
Jones. (8)
10.60 The Registrant's 1992 Restricted Stock Bonus Plan. (9)
10.61 The Registrant's 1992 Stock Bonus Plan for Non-Affiliates. (10)
10.62 Haile Mining Venture Agreement dated as of July 1, 1992 between Lancaster Mining
Company, Inc. and Mineral Mining Company, Inc. (now Kasho Gold Company, Inc., a
wholly-owned subsidiary of the Registrant). (8)
</TABLE>
57
<PAGE> 55
<TABLE>
<S> <C>
10.63 Management Agreement dated as of July 1, 1992 between Haile Mining Company, Inc., as
the Manager, and Lancaster Mining Company, Inc. and Mineral Mining Company, Inc. (now
Kasho Gold Company, Inc., a wholly-owned subsidiary of the Registrant) as the
Participants. (8)
10.64 Notice of Exercise of Option dated May 1, 1992. (11)
10.65 Securities Agreement dated May 1, 1992 between the Registrant and Amax Gold Inc. (12)
10.67 Memorandum of Extension Agreement dated October 17,
1992, relating to Exploration License and Option to
Purchase Agreement listed as Exhibit 10.44. (Haile)
(8)
10.69 Term Loan Agreement dated as of October 15, 1993 between the Registrant and Amax Gold
Inc. (13)
10.74 Letter Agreement dated April 28, 1994 between the Registrant and Amax Gold Inc.
amending the Term Loan Agreement, Pledge Agreement and Securities Agreement. (14)
10.75 Pledge Agreement by and among Smith Barney Shearson Inc. and the Registrant dated as
of May 23, 1994. (15)
10.76 The Registrant's 1994 Employee Stock Option Plan. (16)
10.77 The Registrant's 1994 Nonqualified Stock Option Plan for Non-Employee Directors, as
amended. (filed herewith)
10.80 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Robert M. Shields, Jr. (17)
10.81 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Earl M. Jones. (17)
21 List of Subsidiaries of the Registrant.
23.1 Consent of Gleiberman, Spears, Shepherd & Menaker, P.A.
23.2 Consent of DMBW, Inc.
23.3 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
58
<PAGE> 56
MANAGEMENT CONTRACTS AND COMPENSATORY
PLANS AND ARRANGEMENTS
The foregoing exhibits include the following management contracts and
compensatory plans and arrangements:
<TABLE>
<S> <C>
10.4 The Registrant's 1985 Incentive Stock Option Plan adopted January 21, 1986, as amended
January 27, 1987 and July 14, 1987. (4)
10.5 The Registrant's Management Incentive Compensation Plan adopted January 21, 1986. (4)
10.42 The Registrant's 1988 Stock Option Plan. (6)
10.58 Severance Agreement dated as of March 1, 1992 between the Registrant and Robert M.
Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between the Registrant and Earl M.
Jones. (8)
10.60 The Registrant's 1992 Restricted Stock Bonus Plan. (9)
10.61 The Registrant's 1992 Stock Bonus Plan for Non-Affiliates. (10)
10.76 The Registrant's 1994 Employee Stock Option Plan. (15)
10.80 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Robert M. Shields, Jr. (17)
10.81 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Earl M. Jones. (17)
</TABLE>
- ----------------
NOTES FOR INCORPORATION BY REFERENCE
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1994.
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1990. File No. 0-16436.
59
<PAGE> 57
(3) Incorporated herein by reference to Exhibit 4 in the Registrant's Current
Report on Form 8-K dated December 23, 1996, File No. 0-16436.
(4) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-16040.
(5) Incorporated by reference to the exhibit designated by the same number in
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993, File No. 0-16436.
(6) Incorporated herein by reference to Exhibit 10 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-27214.
(7) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1991, File No. 0-16436.
(8) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1992, File No. 0-16436.
(9) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48176.
(10) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-56780.
(11) Incorporated herein by reference to Exhibit 2.3 in the Registrant's Current
Report on Form 8-K dated May 1, 1992, File No. 0-16436.
(12) Incorporated herein by reference to Exhibit 2.4 in the Registrant's Form
8-K dated May 1, 1992, File No. 0-16436.
(13) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended September 30, 1993,
File No. 0-16436.
(14) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended March 31, 1994,
File No. 0-16436.
(15) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended June 30, 1994, File
No. 0-16436.
(16) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81684.
(17) Incorporated herein by reference to the exhibit designated by the same
number in the Registrants Form 10-QSB for the quarter ended June 30, 1997, File
No. 0-16436.
60
<PAGE> 58
(b) Reports on Form 8-K
None.
61
<PAGE> 59
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PIEDMONT MINING COMPANY, INC.
By:/s/ Robert M. Shields,Jr.
---------------------------------
Robert M. Shields, Jr.
Chairman of the Board of
Directors and Chief
Executive Officer
Dated: April 13, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Robert M. Shields, Jr. Chairman of the Board April 13, 1998
- --------------------------------- of Directors, Chief Executive
Robert M. Shields, Jr. Officer, Treasurer, and Director
(Principal Executive
and Financial Officer)
/s/ Earl M. Jones President, Chief April 11, 1997
- --------------------------------- Operating Officer
Earl M. Jones and Director
/s/ John W. Castles 3d Director April 13, 1998
- ---------------------------------
John W. Castles 3d
Director April 13, 1998
- ---------------------------------
William Feick, Jr.
Director April 13, 1998
- ---------------------------------
Christopher M. H. Jennings
/s/ Joseph F. McDonald Director April 13, 1998
- ---------------------------------
Joseph F. McDonald
/s/ Douglas D. Donald Director April 13, 1998
- ---------------------------------
Douglas D. Donald
</TABLE>
62
<PAGE> 60
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
Item 13
FORM 10-KSB
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 31, 1997 0-16436
PIEDMONT MINING COMPANY, INC.
EXHIBIT INDEX
(Parenthetical number denotes incorporation by reference as described in
footnotes following the list of Exhibits).
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------ -------------------
<S> <C>
3.1 The Registrant's Articles of Incorporation, as amended. (1)
3.2 The Registrant's Bylaws, as amended. (2)
4 Form of Convertible Note. (3)
10.4 The Registrant's 1985 Incentive Stock Option Plan adopted January 21, 1986, as amended
January 27, 1987 and July 14, 1987. (4)
10.5 The Registrant's Management Incentive Compensation Plan adopted January 21, 1986. (4)
10.7 Contract of Lease Agreement dated June 21, 1946 between Haile Mines, Inc. and James P.
Beckwith. (Haile) (4)
10.8 Agreement dated July 11, 1984 among the Registrant and George B. Small and wife, June
L. Small, Gold Fields Mining Corporation and Mineral Mining Corporation. (Haile) (4)
10.10 Mineral Lease dated June 29, 1984 among the Company and Bobby B. Gregory and wife,
Ethel Mae Gregory. (Haile) (4)
</TABLE>
63
<PAGE> 61
<TABLE>
<S> <C>
10.11 Mineral Lease dated September 24, 1984 among the Registrant and Morris H. Phillips and
wife, Mary Lou G. Phillips. (Haile) (4)
10.12 Mineral Lease dated October 7, 1983 among the
Registrant and W.S. Jones, Executor under the Will of
Fred S. Jones; Teresa Jones Carter; Susan Jones
Lawson; Patricia Jones Jennings; Karen Jones; Emily
Jones King; Miriam Jones Lewis; Anne Jones Horton;
and Virginia Jones Horton. (Haile) (4)
10.36 Form of Indemnity Agreement between the Registrant and its directors and officers. (4)
10.38 Option to Purchase Mineral Rights dated November 20,
1985 between the Registrant (then Piedmont Land) and
Rockingham Mining and Investment Company,
Incorporated.
(Russell-Coggins) (4)
10.40 Mineral Lease dated November 11, 1987 between the Registrant and Minor Lee Catoe.
(Haile) (5)
10.41 Mineral Lease dated March 10, 1988 between the Registrant and Ira Taylor, Jr. and
Pauline H. Taylor. (Haile) (5)
10.42 The Registrant's 1988 Stock Option Plan. (6)
10.44 Exploration License and Option to Purchase Agreement
dated September 29, 1990 between the Registrant and
Ronny Edward Hinson and wife Nadine G. Hinson, and
Charles W.
Hinson and wife Pauline D. Hinson. (Haile) (2)
10.49 Option and Earn-In Agreement dated March 15, 1991 between the Registrant, Mineral
Mining Company, Inc. (the Registrant's wholly-owned subsidiary, now Kasho Gold
Company, Inc.) and Amax Gold Exploration, Inc. (2)
10.50 The Registrant's 1991 Nonqualified Stock Option Plan for Non-Employee Directors. (7)
10.52 Assignment of Rights and Obligations Agreement dated
June 13, 1991 between the Registrant and Brewer Gold
Company, including the assigned mineral leases
described therein. (Haile) (7)
10.55 Letter Agreement dated September 20, 1991 between the Registrant, Mineral Mining
Company, Inc. and Amax Gold Exploration, Inc. (7)
</TABLE>
64
<PAGE> 62
<TABLE>
<S> <C>
10.58 Severance Agreement dated as of March 1, 1992 between the Registrant and Robert M.
Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between the Registrant and Earl M.
Jones. (8)
10.60 The Registrant's 1992 Restricted Stock Bonus Plan. (9)
10.61 The Registrant's 1992 Stock Bonus Plan for Non-Affiliates. (10)
10.62 Haile Mining Venture Agreement dated as of July 1, 1992 between Lancaster Mining
Company, Inc. and Mineral Mining Company, Inc. (now Kasho Gold Company, Inc., a
wholly-owned subsidiary of the Registrant). (8)
10.63 Management Agreement dated as of July 1, 1992 between Haile Mining Company, Inc., as
the Manager, and Lancaster Mining Company, Inc. and Mineral Mining Company, Inc. (now
Kasho Gold Company, Inc., a wholly-owned subsidiary of the Registrant) as the
Participants. (8)
10.64 Notice of Exercise of Option dated May 1, 1992. (11)
10.65 Securities Agreement dated May 1, 1992 between the Registrant and Amax Gold Inc. (12)
10.67 Memorandum of Extension Agreement dated October 17,
1992, relating to Exploration License and Option to
Purchase Agreement listed as Exhibit 10.44. (Haile)
(8)
10.69 Term Loan Agreement dated as of October 15, 1993 between the Registrant and Amax Gold
Inc. (13)
10.74 Letter Agreement dated April 28, 1994 between the Registrant and Amax Gold Inc.
amending the Term Loan Agreement, Pledge Agreement and Securities Agreement. (14)
10.75 Pledge Agreement by and among Smith Barney Shearson Inc. and the Registrant dated as
of May 23, 1994. (15)
10.76 The Registrant's 1994 Employee Stock Option Plan. (16)
10.77 The Registrant's 1994 Nonqualified Stock Option Plan for Non-Employee Directors, as
amended.
</TABLE>
65
<PAGE> 63
<TABLE>
<S> <C>
10.80 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Robert M. Shields, Jr. (17)
10.81 First Amendment to Severance Agreement dated as of February 28, 1997 between the
Registrant and Earl M. Jones. (17)
21 List of Subsidiaries of the Registrant.
23.1 Consent of Gleiberman, Spears, Shepherd & Menaker, P.A.
23.2 Consent of DMBW, Inc.
23.3 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
- --------------
NOTES FOR INCORPORATION BY REFERENCE
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1994.
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1990. File No. 0-16436.
(3) Incorporated herein by reference to Exhibit 4 in the Registrant's Current
Report on Form 8-K dated December 23, 1996, File No. 0-16436.
(4) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-16040.
(5) Incorporated by reference to the exhibit designated by the same number in
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993, File No. 0-16436.
(6) Incorporated herein by reference to Exhibit 10 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-27214.
(7) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1991, File No. 0-16436.
(8) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1992, File No. 0-16436.
66
<PAGE> 64
(9) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48176.
(10) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-56780.
(11) Incorporated herein by reference to Exhibit 2.3 in the Registrant's Current
Report on Form 8-K dated May 1, 1992, File No. 0-16436.
(12) Incorporated herein by reference to Exhibit 2.4 in the Registrant's Form
8-K dated May 1, 1992, File No. 0-16436.
(13) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended September 30, 1993,
File No. 0-16436.
(14) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended March 31, 1994,
File No. 0-16436.
(15) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended June 30, 1994, File
No. 0-16436.
(16) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81684.
(17) Incorporated herein by reference to the exhibit designated by the same
number in the Registrants Form 10-QSB for the quarter ended June 30, 1997, File
No. 0-16436
67
<PAGE> 1
EXHIBIT 10.77
PIEDMONT MINING COMPANY, INC.
AMENDED AND RESTATED
1994 NONQUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. This Plan is intended to provide Directors who are not
employees of the Corporation a sense of proprietorship and personal involvement
in the development and success of the Corporation, to encourage such Directors
to remain with and devote their best efforts to the Corporation, and to reward
such Directors for their continued service.
2. DEFINITIONS. Whenever used in the Plan, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:
Board or Board of Directors means the Board of Directors of the
Corporation.
Business Day means any day other than a Saturday, Sunday or other
day on which the New York Stock Exchange is closed for trading.
Code means the Internal Revenue Code of 1986.
Common Stock means the Common Stock of the Corporation as
constituted on the Effective Date and any other stock or securities
resulting from the adjustment thereof or substitution therefor after the
Effective Date as described in Section 9 below.
Corporation means Piedmont Mining Company, Inc., a North Carolina
corporation.
Director means a member of the Board of Directors.
Disability means the inability of a Director to duly and regularly
perform his or her duties as such by reason of the condition of his or
her physical or mental health. A Director shall be deemed to have ceased
being a Director by reason of Disability if such Director resigns, is
removed from office, is not nominated for reelection at the expiration of
his or her term, or declines to stand for reelection as a Director by
reason of such Disability.
Discretionary Grant Date means the date of grant of a Discretionary
Option.
Discretionary Option means an option granted to a Director who is
not a regular employee of the Company in connection with such Director's
initial election to the Board of Directors.
68
<PAGE> 2
Effective Date means the date on which this Plan shall have been
approved by the shareholders of the Corporation as provided in Section 12
below.
Eligible Director, means on any Formula Grant Date, each Director
who is not a regular employee of the Company and who has continuously
served as such a non-employee Director at all times during the preceding
three months.
Exercise Price, with respect to each share of the Common Stock
subject to any Formula Option or Discretionary Option granted on any
Formula Grant Date or any Discretionary Grant Date, as the case may be,
means the average Market Value per share of Common Stock for the last
five Trading Days ending on or before such Formula Grant Date or
Discretionary Grant Date, as the case may be; provided, if there are not
at least five Trading Days during the period of ten Business Days ending
on such Formula Grant Date or Discretionary Grant Date, as the case may
be, then the Exercise Price with respect to Options granted on such
Formula Grant Date or Discretionary Grant Date, as the case may be, shall
be the average Market Value on the Trading Days during such ten Business
Day period, or if there are no Trading Days during such ten Business Day
period, the Market Value on the most recent Trading Day prior to such
Formula Grant Date or Discretionary Grant Date, as the case may be.
Formula Grant Date means each January 1 and July 1 after the
Effective Date and prior to the termination of the Plan.
Formula Option means an option to purchase Common Stock granted to
an Eligible Director on a Formula Grant Date.
Grant means the grant of a Formula Option to an Eligible Director on
a Formula Grant Date.
Market Value, with respect to a share of the Common Stock on any
particular date, shall be (i) if such Common Stock is listed on a
national securities exchange or traded on the NASDAQ National Market
System ("NMS"), the closing price per share of the Common Stock on the
national securities exchange (or if traded on more than one such
exchange, the principal exchange on which such shares are traded) or the
National Market System on said date or (ii) if the Common Stock shall
not be listed on a national securities exchange or traded on the NMS but
shall be traded in the over-the-counter market and quotations therefor
are regularly reported by the National Association of Securities
Dealers, Inc. ("NASDAQ"), the last price (if such last price is then
reported on a real-time basis) or, if the last price is not then so
reported, the mean between the bid and asked prices last reported, by
NASDAQ for the over-the-counter market on said date, or (iii) if at any
time quotations for the Common Stock shall not be regularly reported by
NASDAQ for the over-the-counter market and the Common Stock shall not be
listed on any national securities exchange or traded on the NMS, the
69
<PAGE> 3
last price (if such last price is then reported on a real-time basis)
or, if the last price is not then so reported, the mean between the bid
and asked prices last reported, in reports generally available by the
market maker (or if there are more than one market maker on such day,
the average of the amounts determined from each) for such Common Stock
on such day or, if there is no such report by a market maker on such day
or on any of the most recent ten Business Days, the most recent cash
price per share of the Common Stock paid in an arm's length transaction
involving 100 shares or more on or prior to such day which is
ascertained by the Corporation within ten days after such day.
Option means either a Formula Option or a Discretionary Option.
Optionee, with respect to any Option, means a Director to whom such
Option was granted (or the personal representative of the estate or
other permitted transferee of such Director) and who is entitled to
exercise such Option.
Plan means the Piedmont Mining Company, Inc. 1994 Nonqualified Stock
Option Plan for Non-Employee Directors as set forth in this instrument,
as the same may be amended from time to time.
Trading Day means a day on which transactions in the Common Stock
occur and are reported, or for which price quotations are reported, from
which the Market Value of the Common Stock on such day can be
determined.
3. ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by any other committee of the Board of Directors consisting of not
less than two (2) Directors. The operation of the Plan shall be administered by
the proper officers of the Corporation, who shall act in a ministerial capacity
in accordance with the terms of the Plan.
4. SHARES AVAILABLE FOR OPTION. The Board of Directors shall reserve for
the purposes of the Plan, out of the authorized but unissued Common Stock, a
total of 550,000 shares of Common Stock (or the number and kind of shares of
stock or other securities which, in accordance with Section 8 of the Plan, shall
be substituted for such number of shares or to which such number of shares shall
be adjusted). The number of shares of Common Stock with respect to which Options
may be granted hereunder shall not exceed such number (subject to adjustment in
accordance with said Section 8). In the event that prior to expiration of the
Plan an Option granted under the Plan expires or is terminated unexercised as to
any shares covered thereby, such shares shall thereafter be available for the
granting of Options under the Plan as though such Option had not been granted.
5. GRANT OF OPTIONS. On each Formula Grant Date, each Eligible Director
shall automatically be granted a Formula Option to purchase 10,000 shares of the
Common Stock (subject to adjustment as provided in Section 8) at the Exercise
Price applicable to such Grant; provided, that if on any Formula Grant Date the
total number of shares of the Common Stock covered by the Plan and available for
Grants is insufficient for the Grant of such number of shares to each Eligible
Director, then the Grant to each Eligible Director shall be reduced to the
number of
70
<PAGE> 4
shares then available for Grants divided by the number of Eligible Directors,
except that no fraction of a share resulting from such calculation shall be the
subject of any such Grant or any future Grant. Promptly after each Formula Grant
Date, the Corporation shall mail written confirmation of such Grant and the
related Exercise Price to each Eligible Director, but the failure to mail such
notice shall not impair the effectiveness of any such Grant.
In addition, the Board of Directors may in its discretion grant a
Discretionary Option to any Director who is not a regular employee of the
Corporation in connection with and as consideration for such Director's initial
election to the Board of Directors, such Discretionary Option to be in such
number of shares and upon such terms as shall be determined by the Board of
Directors. Promptly after the grant of such Discretionary Option the Corporation
shall cause to be prepared a Stock Option Agreement that shall specify the
Exercise Price, the number of shares subject to the Discretionary Option and
such other provisions as the Board of Directors shall determine.
6. OPTIONS NONTRANSFERABLE. Options are not transferable by the Optionee
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. No purported
transfer in contravention of this Section shall be effective.
7. EXERCISE OF OPTIONS. Each Option granted on a Formula Grant Date or
Discretionary Grant Date, as the case may be, may be exercised by the Optionee
in whole or in part at any time after such Formula Grant Date or Discretionary
Grant Date, as the case may be, and prior to the earliest of:
(a) the expiration of five years after such Formula Grant Date or
Discretionary Grant Date, as the case may be; or
(b) three months after such Optionee ceases to be a Director other
than by reason of his or her death or Disability; or
(c) one year after such Optionee ceases to be a Director by reason of
his or her death or Disability.
To exercise an Option, the Optionee shall give the Corporation written notice
(effective upon receipt by the Corporation at its principal office) of such
exercise prior to the expiration of such Option, which notice shall be signed by
such Optionee or his or her duly authorized attorney, shall specify the number
of shares of the Common Stock for which such Option is exercised, and shall be
accompanied by payment of the Exercise Price in cash or equivalent (including
payment by personal check if such check is not dishonored). Upon due exercise of
an Option, the Corporation shall issue to the Optionee a certificate or
certificates for the Common Stock for which the Option was exercised, which may
be subject to any legends or restrictions then required by applicable law.
8. ADJUSTMENT OF NUMBER OF SHARES; ACCELERATION OF EXPIRATION DATE IN
CERTAIN EVENTS. In the event that after the Effective Date a dividend shall be
declared upon the Common
71
<PAGE> 5
Stock payable in shares of Common Stock or other securities of the Corporation,
the number of shares of Common Stock then subject to any Option, the number of
shares to be covered by any subsequent Grant, and the number of shares reserved
for issuance pursuant to the Plan but not yet covered by an Option shall be
adjusted by adding to each such share the number of shares or other securities
of the Corporation which would be distributable thereon if such share had been
outstanding on the date fixed for determining the shareholders entitled to
receive such dividend in shares or other securities. In the event that after the
Effective Date the outstanding shares of Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Corporation or of another corporation, or into or for the right to
receive cash or other property (otherwise than as a dividend or other
distribution by the Corporation of cash or property), whether through
reorganization, recapitalization, stock split-up, combination of shares, merger,
consolidation or statutory share exchange, then there shall be substituted for
each share of Common Stock subject to any Option, for each share to be covered
by any subsequent Grant, and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an Option, the number and
kind of shares of stock or other securities or rights to receive cash or
property into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged. In the case of any such
substitution or adjustment as provided for in this Section 8 the Exercise Price
for each share covered thereby prior to such substitution or adjustment will be
the Exercise Price for all shares of stock or other securities which shall have
been substituted for such share or to which such share shall have been adjusted
pursuant to this Section 8. No adjustment or substitution provided for in this
Section 8 shall require the Corporation to issue a fractional share and the
total substitution or adjustment with respect to each Grant shall be limited
accordingly.
9. AMENDMENT OF PLAN. The Board of Directors or the shareholders of the
Corporation shall have the right to amend, suspend or terminate the Plan at any
time, provided that (a) the Plan may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder, (b) no such amendment may
adversely affect the rights of an Optionee under an outstanding Option without
such Optionee's consent, and (c) no such amendment may be made by the Board of
Directors without the approval of the shareholders which would increase the
number of shares of Common Stock from the number theretofore covered by the
Plan, or change the method of determining Eligible Directors or the amount,
Exercise Price or Formula Grant Date for Formula Options, or make any other
change for which shareholder approval would be required in order for the Plan to
continue to qualify for the exemption under Rule 16b-3 (or any similar successor
rule) under the Securities Exchange Act of 1934.
10. COMPLIANCE WITH LAW AND OTHER CONDITIONS. No shares shall be issued
pursuant to the exercise of any Option granted under the Plan prior to
compliance by the Corporation to the satisfaction of its counsel with any
applicable laws and regulations relating thereto, including without limitation
applicable federal and state laws relating to the sale of securities. In
addition, if at the time of the exercise of any Option the Corporation is
required to withhold any taxes with respect to the Common Stock issued to such
Optionee, the Corporation shall not be required to issue such shares unless and
until such Optionee shall have made satisfactory arrangements with the
72
<PAGE> 6
Corporation to provide sufficient funds in cash for the Corporation to meet such
withholding requirements, and the Corporation shall have no obligation to
advance any of its own funds for such purpose.
11. NONQUALIFIED OPTIONS. Options granted under the Plan will not be
treated as "incentive stock options" under Section 422 of the Code.
12. EFFECTIVE DATE. The Plan has been adopted and approved by the Board
and was submitted to the shareholders of the Corporation for their approval at
the 1994 Annual Meeting of Shareholders of the Corporation. Such approval
required the affirmative vote of the holders of a majority of the shares of
Common Stock present, or represented, and entitled to vote at such meeting, and
the Effective Date of the Plan is the date of such approval. No Options may be
granted under the Plan prior to the Effective Date or subsequent to July 1,
1999.
13. DURATION AND TERMINATION OF PLAN. The Plan may be terminated at any
time by action of the Board of Directors or the shareholders. The Plan shall
also terminate automatically on the day following any Formula or Discretionary
Grant Date on which Options for all remaining shares subject to the plan
(disregarding any remaining fractions of shares) shall have been granted, and if
not sooner terminated as aforesaid, shall terminate on July 2, 1999. No Director
shall have any vested interest in any Option until the applicable Grant Date
therefor, but no termination of the Plan shall affect rights under Options
previously granted and still outstanding, and the terms of the Plan in effect at
the time of such termination shall continue in effect with respect to such
Options.
73
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary (1) State of Incorporation
- ------------------ ----------------------
Kasho Gold Company, Inc. South Carolina
Piedmont Gold Company, Inc. North Carolina
- ------------------------
(1) Such subsidiary does business only under its corporate name.
74
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the Incorporation by reference in the Registration Statement Nos.
33-27214, 33-48176, 33-56780, 33-81682 and 33-81684 of Piedmont Mining Company,
Inc. on Form S-8 of our report dated March 10, 1998, appearing in the Annual
Report on Form 10-KSB of Piedmont Mining Company, Inc. for the year ended
December 31, 1997.
/s/Gleiberman Spears Shepherd & Menaker, P.A.
Charlotte, North Carolina
April 13, 1998
75
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DMBW, INC.
We hereby consent to the presentation of information as to the
estimated proven and probable reserves at the Haile Property derived from our
report to Amax Gold Inc. dated April 22, 1994 and the references to us and to
such report appearing under the caption "Haile Property - 4. Minable Reserve
Estimates" in Item 2 of the Annual Report on Form 10-KSB of Piedmont Mining
Company, Inc. (the "Registrant") for its fiscal year ended December 31, 1997,
and the incorporation thereof by reference to said Form 10-KSB in the
Registration Statements of the Registrant on Form S-8, Registration Nos.
33-27214, 33-48176, 33-56780, 33-81684 and 33-81682.
DMBW, INC.
By:/s/ I.S. Parrish
-----------------------
Name: I.S. Parrish
---------------
Title: President
---------------
Golden, Colorado
April 13, 1998
76
<PAGE> 1
EXHIBIT 23.3
CONSENT OF DAVID C. JONSON
I hereby consent to the use of a summary of my reports as to
mineralized tonnage at the Russell-Coggins Property and the references to me as
an independent consulting geologist appearing in Item 2 of the Annual Report on
Form 10-KSB of Piedmont Mining Company, Inc. (the "Registrant") for its fiscal
year ended December 31, 1997, and the incorporation thereof by reference to said
Form 10-KSB in the Registration Statements of the Registrant on Form S-8,
Registration Nos. 33-27214, 33-48176, 33-56780, 33-81684 and 33-81682.
/s/ David C. Jonson
--------------------------
David C. Jonson
Golden, Colorado
April 13, 1998
77
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 12/31/97 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,000
<PP&E> 449,000
<DEPRECIATION> 221,000
<TOTAL-ASSETS> 2,007,000
<CURRENT-LIABILITIES> 1,519,000
<BONDS> 0
0
0
<COMMON> 12,015,000
<OTHER-SE> 317,000
<TOTAL-LIABILITY-AND-EQUITY> 2,007,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 334,000
<TOTAL-COSTS> 334,000
<OTHER-EXPENSES> 688,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> (1,030,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,030,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
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