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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal Year Ended December 31, 1998
COMMISSION FILE NO. 1-2714
ATLAS CORPORATION
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(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 13-5503312
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
370 Seventeenth Street, Suite 3140, Denver, CO 80202 303-629-2440
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(Address of principal executive offices) (Zip Code) (Registrant's telephone number)
(including area code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
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TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $0.01 per share NASDAQ Bulletin Board
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Option Warrants to Purchase Common Stock
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of 27,514,544 shares of Common Stock held by non-
affiliates of the Registrant as of March 26, 1999 was $1,375,727.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES [X] NO [ ]
As of March 26, 1999 Registrant had outstanding 27,517,544 shares of Common
Stock, $0.01 Par Value, its only class of voting stock.
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DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. BUSINESS
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Atlas Corporation ("Atlas" or the "Company") filed a petition for relief under
Chapter 11 of the U.S. Bankruptcy Code on September 22, 1998. Atlas Precious
Metals Inc. ("APMI") and Atlas Gold Mining Inc. ("AGMI"), two of the Company's
subsidiaries, filed petitions for relief under Chapter 11 of the Bankruptcy Code
on January 26, 1999. Since the date of filing their petitions, Atlas, APMI and
AGMI have been operating as debtors-in-possession. This report includes forward-
looking statements concerning the Company's operations, performance and
financial condition. Such forward looking statements involve risks and
uncertainties and are subject to change based on various factors. Actual
results could differ materially. Readers are cautioned not to place undo
reliance on forward-looking statements nor on the possible outcome of Atlas'
efforts to reorganize and emerge from Chapter 11.
GENERAL
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Atlas is principally engaged in the exploration, development and exploitation of
mineral properties. Atlas was incorporated under the laws of the State of
Delaware on October 31, 1936. The principal office of Atlas is located at
Republic Plaza, 370 Seventeenth Street, Suite 3140, Denver, Colorado, 80202.
The Company holds 100% ownership of four subsidiaries: (i) APMI, incorporated
under the laws of the State of Nevada, which holds the Grassy Mountain property
and the exploration portion of the Gold Bar claim block, (ii) AGMI, incorporated
under the laws of the State of Nevada, which holds the mineral reserves and
other assets and infrastructure at the Gold Bar mine, (iii) Arisur Inc.
("Arisur"), a Grand Cayman corporation, which owns and operates mines in
Bolivia, South America through a Bolivian Branch, (iv) and Suramco Metals, Inc.
("Suramco"). In February 1999 Atlas sold its 61% ownership of Cornerstone
Industrial Minerals Corporation ("Cornerstone") formerly known as Phoenix
Financial Holdings Inc. Atlas intends to wind up the businesses of APMI, AGMI,
and Suramco, as soon as practical, as a means to cut its general and
administrative costs, in furtherance of its efforts to reorganize and emerge
from Chapter 11.
Atlas employs 6 people at its headquarters in Denver, Colorado and 243 employees
at its subsidiaries.
ARISUR INC.
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In 1996 the Company acquired a 50% interest in Arisur from Arimetco
International Inc., a Canadian corporation, for $3 million in cash and purchased
100% of Suramco, which owned the remaining 50% interest in Arisur, for four
million shares of the Company's common stock. Arisur owns and operates the
Andacaba Mine and Mill as well as the Don Francisco and Koyamayu development
properties. All three properties are underground lead, zinc and silver
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operations located in southern Bolivia. Arisur processes ore through its
Andacaba Mill and in 1997 purchased the Koyamayu property and the Comali Mill
for expansion opportunities. During 1997 Suramco's interest in Arisur was
transferred to Atlas, resulting in 100% direct ownership by Atlas. In 1998, the
operating company in Bolivia, Compania Minera Andacaba S.A., was merged into
Arisur Inc., the Bolivian Branch, 100% controlled by Arisur.
EMPLOYEES AND OFFICES
Arisur's corporate office is located in La Paz, Bolivia and staffed by five
persons. Operations are directed out of Arisur's office in Potosi, which is
staffed by seven persons. Additionally, there are 228 miners, mill workers and
maintenance persons directly involved in operations.
ANDACABA MINE
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LOCATION
The property is located in the south central altiplano region of Bolivia near
the city of Potosi, a historic mining community, at an elevation of
approximately 4,500 meters (14,800 feet). The Andacaba property is accessible
by traveling south/southeast 37 kilometers (23 miles) by road from Potosi.
PROPERTY
The Andacaba facilities and mine are situated on 18 concessions controlled 100%
by Arisur comprising 4,500 hectares (11,120 acres).
OPERATIONS
The Andacaba lead, zinc and silver mine has been in operation since the early
1900s. The mining operations take place year round with an average of 28 days
per month for a total of 330 workdays per year. During 1998, the Andacaba mine
produced approximately 7,400 tonnes per month with average head grades of 2.19%
Pb, 6.32% Zn and 6.96 Troy ounces Ag per ton. The Andacaba Mill processes ore
from all three of Arisur's mining properties and presently has excess capacity
to perform custom milling. Lead and zinc concentrates are shipped by truck to
Potosi, and then by rail to open-air storage at Portezuelo Station, near the
Chilean seaport of Antofagasta, prior to shipment to smelters in various
markets.
MINING METHODS
The mining method is shrinkage stoping with the mined out area being filled with
waste rock or left open. Due to the narrow width of the veins, stopes are
worked in panels 40 meters high and 30 meters long. Lateral development follows
the vein and box holes are driven up the vein. Access to a stope panel is by
entrance at each end and no opening is made to the upper level. All breaking is
by up-holes. Cut off grades at the Andacaba Mine are 1.76% Pb, 5.40% Zn and
4.82 ounces Ag per tonne at prices of $4.80 per tonne Pb, $950 per Tonne Zn and
$4.85 per ounce Ag.
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MILL CONCENTRATION
Two concentrates are produced at the Andacaba Mill, one lead-silver, and one
zinc-silver. After the ore is first crushed by a jaw crusher to minus 3/4-inch,
grinding through four ball mills further reduces the size to 80% minus 100 mesh.
After conditioning, the slurry reports to the lead recovery circuit, and then
the zinc circuit. Zinc and lead concentrates are separately thickened prior to
the transport.
CONDITION
Service facilities at the mine site are basic and require upgrading as part of
the mine expansion for which financing efforts are underway. The Andacaba Mill
capacity was expanded in 1997 to 550 tonnes per day. A direct power line from
the Velarde II substation near Potosi was completed in August 1997. Water for
the mill is supplied from underground sources at the mine. The city of Potosi
provides a source of supplies and labor.
GEOLOGY/MINERALOGY
The mineralized veins at Andacaba are enclosed in Tertiary porphyritic quartz
latite or rhyodacite volcanic rocks. The volcanics are part of an igneous
complex that includes an elliptical-shaped biotite granodiorite pluton that
outcrops south of the mine area. The pluton is believed to be 40 kilometers
long and 14 kilometers wide. Volcanic breccias can be observed in the mine area.
Paleozoic sediments outcrop west of the mine and lead, zinc and silver veins are
known to occur in the sediments beyond the property boundary. The thickness of
the volcanic package is not known and at deeper levels in the mine the host
volcanics may be underlain by Paleozoic sediments or possibly granodiorite. On
the surface the veins are oxidized to a depth of about 20 meters. Minerals in
the oxidized zone include limonite, hematite, goethite, quartz and clay. In the
sulfide zone the primary minerals are marmatite, galena, jamesonite,
boulangerite, sphalerite, tetrahedrite, stephanite, quartz, pyrite, pyrrhotite,
chalcopyrite, arsenopyrite, siderite, and others. Wall rocks show very little
alteration. There is possibly some silicification of the rhyodacite.
RESERVES/RESOURCES
Reserves, as determined by Mineria Tecnica Consultores Asociados ("MINTEC") in
October 1996 stood at 547,000 tonnes proven and probable containing 2.68% lead
("Pb"), 8.26% zinc ("Zn") and 9.13 Troy ounces silver ("Ag") per tonne (284
grams). Reserves determined by Arisur as of February 1997 stood at 561,000
tonnes proven and probable containing 2.68% Pb, 7.19% Zn, and 6.01 Troy ounces
Ag per tonne (187 grams). Jose E. Del Solar M., an independent consulting
engineer, in August 1998, determined that reserves stood at 544,000 tonnes
proven and probable containing 2.44% Pb, 8.78% Zn, and 9.7 Troy ounces Ag.
Arisur has historically been able to replace mined reserves through continued
development of the ore body. Current reserves will provide production for
approximately 5 years at current rates. The average grade of lead and zinc
reported in the mill head grades for 1998 of 2.19% Pb and 6.32% Zn are below
reserve grades. The difference between reserve grades and those reported at the
mill is caused by dilution from increased development and a reduced percentage
of production from the larger, higher grade veins. The Company is seeking
financing for the construction of a decline ramp, which will provide more
efficient access to the orebody. This
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is expected to return the balance of mill feed to 50% from the principal veins,
improving the head grades, and to significantly reduce unit costs.
DON FRANCISCO PROJECT
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LOCATION
The property is accessible by road 77 kilometers (48 miles) in a southerly
direction from Potosi or 64 kilometers (40 miles) from the Andacaba mine. The
Don Francisco project is at an elevation of 3,000 meters (9,800 feet).
PROPERTY
Arisur owns 100% of five concessions covering 227 hectares (approximately 560
acres).
OPERATIONS
The Don Francisco project produced approximately 350 tonnes per month in 1998.
Head grades averaged 1.01% Pb, 10.18% Zn and 2.71 Troy ounces Ag per tonne. Ore
is trucked to Andacaba for processing. Limited exploration and development
continues at Don Francisco to provide for 5,000 tonnes to be milled during 1999,
as a supplement to ore feed. There has been no recent audit of reserves or
estimate of resources by an independent third party.
CONDITIONS
Sufficient water is available to conduct the mining operations. Electrical
power is presently supplied by generator but a recently completed power line
supplies electrical power to within 2 kilometers of the project. Facilities are
situated on the property for the mineworkers and a radio communication system is
in place between Don Francisco and Andacaba.
GEOLOGY
The structural setting is similar to Andacaba in that there is one main
structure - the Veta Principal located south of the river, which flows across
the property and the Veta Cumbre north of the river with secondary splits off
the footwall of the main vein. Host rocks are Ordovician calcareous shales,
siltstones and sandstones which have been folded into a series of synclines and
anticlines. The Veta Principal occupies both flanks and the axial portion (for
a short distance) of a major anticline.
KOYAMAYU PROJECT
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In August 1997 the Company completed the acquisition of the Koyamayu lead, zinc
and silver property, located in southern Bolivia, for $100,000. The Company
mined and processed approximately 2,000 tonnes of ore during 1997, and 1,500
tonnes during 1998 with average head grades of 3.01% Pb, 11.18% Zn, and 4.35
Troy ounces Ag per tonne. 4,500 tonnes of ore is planned to be mined in 1999
from Koyamayu to be processed at the Andacaba Mill.
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COMALI MILL
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Arisur executed agreements to acquire the Comali Mill in late 1996 for $250,000
and the acquisition was completed in January 1998. The facility requires
additional capital expenditures of an estimated $150,000 to achieve operations
of 120 tonnes per day. Its flotation circuits are designed to recover lead,
zinc and silver in separate lead and zinc concentrates. The Company intends to
make use of Comali as a regional mill for Koyamayu ore and for toll milling ore
from third parties. The Comali Mill is situated near the community of
Toropalca, 30 kilometers south of Don Francisco.
CORNERSTONE INDUSTRIAL MINERALS CORPORATION
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PROJECT STATUS
In February 1999, Atlas completed the sale of its 61% interest in Cornerstone to
Seven Peaks Mining, Inc. In accordance with a Deposit Agreement executed on
October 2, 1998, as submitted to the bankruptcy court and approved, Atlas sold
its interest in Cornerstone (including debt owed to the Company) to Seven Peaks.
Proceeds to Atlas from this sale were approximately US $2.9 million.
HISTORY
On November 30, 1995 the Company purchased from a group of individual investors
12.2 million shares of Phoenix Financial Holdings Inc., representing
approximately 51% of the total shares then outstanding for an aggregate purchase
price of Cdn $1,781,200. On September 3, 1996 the shareholders approved a name
change from Phoenix Financial Holdings Inc. to Cornerstone. On December 13,
1996 Cornerstone executed a Stock Purchase Agreement providing for the purchase
by Cornerstone of all of the issued and outstanding shares of Atlas Perlite,
Inc., owner of the Tucker Hill perlite project ("Tucker Hill") from Atlas.
Subsequently, Cornerstone changed the name of Atlas Perlite, Inc. to Cornerstone
Industrial Minerals Corporation, U.S.A.
Mining operations for perlite commenced in December 1996. Testing of the
processing facility began in February 1997 at the Lakeview plant. Initial
shipments of finished perlite were made to several customers who reported that
the perlite was satisfactory for their operations. From February 1997 to August
1997 the facility underwent modifications identified in the testing phase.
Since August 1997 the processing facility performed at a rate less than expected
and required additional improvements to achieve the design rate. In December
1997, the Atlas Board of Directors determined that the ownership in Cornerstone
should be sold.
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GRASSY MOUNTAIN PROPERTY
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PROJECT STATUS
On January 9, 1998 the Company signed an option agreement with Tombstone
Explorations Company Ltd. ("Tombstone"), granting to Tombstone an exclusive
option to purchase 100% of the Grassy Mountain property for $4 million. The
payments were to be made over four years approximating $1 million each year.
Under the terms of the agreement, Tombstone had the right to accelerate the
purchase by paying a total of $3.5 million to Atlas by February 2000. Tombstone
had designed a two-phase drill program comprised of 15 drillholes (approximately
10,000 feet) and only completed a portion of the program. On July 15, 1998,
Tombstone terminated its option and returned 100% of the property to Atlas.
In February 1999, Atlas contracted with Geographe International MFS Inc.
("Geographe") to find a purchaser for this property. The agency agreement with
Geographe has been approved by the bankruptcy court.
LOCATION
The Grassy Mountain project is located in northern Malheur County, Oregon,
approximately 22 miles southwest of Vale, Oregon. The property is accessed by
traveling four miles west from Vale on U.S. Highway 20, then south on the Twin
Springs County Road for 23 miles, or by driving south from Nyssa on U.S. Highway
95 to Owyhee and then west to Rock Springs Canyon and by gravel road for 14
miles. The project elevation ranges from 3,300 to 4,300 feet.
PROPERTY
The Grassy Mountain property encompasses approximately 6.7 square miles. Atlas
owns 138 unpatented lode claims and an additional 76 unpatented lode and placer
claims are controlled under two separate mineral lease or lease/option to
purchase agreements. Approximately 1,000 acres of fee surface, 240 acres of fee
surface and minerals, and 80 acres of fee minerals are held under two
lease/option agreements. Atlas holds one state prospecting permit covering
1,280 acres.
GEOLOGY
The rocks exposed at Grassy Mountain are part of a late to middle-Miocene Grassy
Mountain Formation, a sequence of volcanic and volcaniclastic rocks made up of
primarily olivine-rich basalt and intercalated tufaceous siltstones, sandstones,
and conglomerates. The rocks have been dated through mammalian fossils and
Potassium-Argon chronology to be approximately 10 million years old. The
sediments are primarily flat lying with a slight regional dip to the east. The
structural trend of the area is N10W to N30E. Later post mineralization east
west faulting probably cut these features.
Mineralization is associated with a low-grade gold siliceous hot springs system
with enrichment along multi-stage quartz-adularia veins and favorable
lithologies. Explosive brecciation and overpressuring of the rock, common in
these systems, was minimized due to the un-lithified nature of the sediments.
The mineralized rock is highly silicified and locally brecciated in the vicinity
of the feeder structures. As silicification decreases so does grade. Away from
the feeder zones lithology also plays an important role in gold deposition. The
finer grained siltstones
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contain the bulk of the lower grade material. The higher grades are found in the
coarser arkosic sandstones. The feeder or vein zones contain grades as high as
20 ounces of gold/ton ("oz. Au/t").
HISTORY
There was no significant mining or major mineral occurrence known in the area
prior to the Company's acquisition of the Grassy Mountain project in 1986.
Detailed mapping and sampling were completed in 1986 and several drill targets
were defined. Hole 26-9 is considered the discovery hole with 145 feet of
mineralization averaging 0.075 oz. Au/t. The claim block was expanded at this
time and exploration work continued through 1991. The Company completed 388
drill holes for a total of approximately 221,500 feet on the property.
Newmont Grassy Mountain Corporation ("Newmont"), a wholly owned subsidiary of
Newmont Exploration Company leased the property from the Company in September,
1992 and continued property evaluation through August, 1994 completing an
additional 13 core and reverse circulation holes.
In September 1996 the Company executed an agreement with Newmont, (the
"Agreement"), which provided for the reconveyance of the Grassy Mountain
property to the Company. Pursuant to the Agreement, Atlas paid an amount of
$206,000 to Newmont, issued a $500,000 unsecured, non-interest-bearing
promissory note (originally due September 18, 1997, but subsequently extended,
then defaulted) and assumed bonding requirements for exploration reclamation of
approximately $146,000.
Exploration work during Tombstone's program at Grassy Mountain included 8,500
feet of reverse circulation and core drilling in ten drillholes. Tombstone
completed an extensive review of previous work at the property and commissioned
an economic review and scoping study by Pincock Allen & Holt ("PA&H"). The 1997
review indicated the potential for the existing resource to be economically
recoverable through underground mining methods. The review also concluded that
significant additional exploration potential exists to identify additional high
grade and bulk mineable low grade deposits.
RESERVES
As part of a detailed feasibility study conducted by Kilborn SNC-Lavalin, Inc.
("Kilborn") in 1990, PA&H developed an open pit mine model. The feasibility
study resulted in the definition of a mineable reserve of 996,000 ounces at a
$350 gold price from 16 million tons at grades 0.062 oz. Au/t of mill and heap
leach ores. Neither the recovered silver nor low-grade leach ores were
considered. The contained silver is approximately 2,467,000 ounces.
PA&H completed a feasibility study in 1990. The database utilized for this
study consisted of 180 drill holes in the main deposit area. The drilling is
predominantly vertical and angle reverse circulation rotary drill holes with
some core holes. Using a 0.02 oz. Au/t cutoff, PA&H calculated a geologic
resource of 17,217,000 tons at a grade of 0.061 oz. Au/t for a total of
1,051,500 ounces and 2,610,000 ounces of contained silver.
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UNDERGROUND STUDY
Two underground feasibility studies were commissioned to evaluate 200 tons per
day ("tpd") and 1,000 tpd production options by Kilborn and Dynatec Mining
Corporation, respectively. The 200-tpd study indicated diluted mineable
reserves of 131,000 tons at a grade of 1.132 oz. Au/t for 149,000 contained
ounces. The second, larger scale underground study at 1,000 tpd used an 0.08
oz. Au/t cutoff and identifies diluted mineable reserves as 1.9 million tons at
a grade of 0.262 oz. Au/t for 497,000 contained ounces.
EXPLORATION
An additional resource was drilled out approximately 1 mile west of the main
deposit. The Crabgrass target contains a near surface geologic resource at a
0.02 oz. Au/t cutoff of 24,000 ounces contained in 600,000 tons grading 0.038
oz. Au/t. Several drilled and undrilled areas within the Grassy Mountain claim
block have potential for additional resources.
GOLD BAR MINE
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PROJECT STATUS
On June 6, 1997 Barrick Gold Exploration Inc. ("Barrick") completed the purchase
from the Company of more than 90% of the Gold Bar property, with an option to
acquire the balance within two years. The Company received $1,000,000 in cash
from Barrick, and Barrick purchased one million Atlas Common Shares at $1 per
share. Under the terms of the purchase, Barrick was required to spend
$3,000,000 on the property prior to June of 1999. At Barrick's election, on or
before June 3, 1999, the balance of the Gold Bar property was to be conveyed to
Barrick and Atlas could have elected either to receive an additional $15,000,000
in cash and retain a 2% net smelter royalty, or to participate with Barrick in
the further exploration and development of Gold Bar as a 25% carried joint
venture participant. If Atlas elected to participate as a joint venture
partner, Barrick would spend a minimum of $15,000,000 on the project. If
Barrick chose not to acquire the balance of the properties within the two-year
period, all of Barrick's interest in the Gold Bar properties would be reconveyed
to Atlas.
In December 1998, the Company negotiated a Mutual Termination Agreement with
Barrick, which returned the property to Atlas. Barrick also paid the Company
$150,000 in satisfaction of its remaining obligation. Barrick had spent $2.7
million of the required $3.0 million obligation on geologic mapping, geophysics
and exploratory drilling, and the results of the work suggested they would not
continue to perform under the agreement. This Mutual Termination Agreement was
approved to by the bankruptcy court in January 1999. Geographe has also been
retained to seek a purchaser for this property.
LOCATION
The Gold Bar property is located in and adjacent to the Roberts Mountains in
Eureka County, Nevada, at elevations ranging from 6,400 to 8,800 feet above sea
level. The area is reached by traveling 22 miles west of Eureka, Nevada, on
U.S. Highway No. 50 and 17 miles northeast along the Three Bars Road.
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PROPERTY
The Gold Bar property area encompasses approximately 100 square miles. There
are 3,204 unpatented lode-mining claims of which Atlas owns 3,025 and 179 are
held through lease and option to purchase agreements. Atlas also owns 182
unpatented millsite claims, 6 patented lode claims and 8 patented millsite
claims. Additionally, Atlas holds under lease another 2,000 fee acres of
surface with varying percentages of the underlying minerals.
GEOLOGY
All of the mineralization found occurs as sediment-hosted "Carlin-type"
deposits. These deposits are hosted in carbonate-rich sedimentary rocks of the
Devonian Nevada Formation. Mineralization is characterized by micron-size gold
and a distinct hydrothermal alteration suite of the decalcification and
silicification. Gold mineralization and alteration are characteristically
enriched in the trace elements and minor silver.
HISTORY
Regional reconnaissance exploration led the Company to the Battle Mountain Trend
area in the summer of 1983. Focused reconnaissance along the southern Roberts
Mountains identified widespread hydrothermal alteration with anomalous gold
geochemistry along the western range front. Detailed exploration in the area
subsequently led to acquisition of land, target development, and drilling.
Since then, the Company has discovered five gold deposits: Gold Bar, Goldstone,
Gold Ridge, Gold Pick, and Gold Canyon. From inception through cessation of
operations in 1994, 485,200 ounces of gold were recovered from 7,514,600 tons of
ore grading .074 ounces of gold per ton milled.
Mill construction was completed in 1986 with the first gold poured in January
1987. The mill was originally designed and constructed for 1,500-tpd
throughput, later expanded in 1989 to the current 3,200-tpd rate.
Mining operations were suspended in February 1994 pending additional drilling
and further study of cost cutting measures. The confirmatory drill program
included 303 surface and 55 underground holes.
In late 1994 the Company decided to accelerate the exploration of the claim
block by entering into joint venture agreements with Rayrock Yellowknife
Resources Inc. and Homestake Mining Company. Rayrock's work consisted of
geological mapping and sampling, geophysical CSAMT lines and 65 reverse
circulation drill holes. Homestake completed additional geophysical CSAMT and
gravity lines as well as 26 reverse circulation drill holes.
In the summer of 1995, exploration by the Company produced encouraging drill
results near the Gold Bar Mill. To accelerate the delineation of the newly
discovered Millsite deposit the company entered into an exploration and
development agreement with Vista Gold Corp. whose work included 33 reverse
circulation drill holes.
All of these exploration joint venture agreements were terminated in 1995 and
1996 at which time the Company began a search for a partner for the entire
property. In June 1997, Atlas executed the agreement with Barrick, whose work
included 50 reverse circulation drill holes.
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RESOURCES
After completion of the drill program noted above in 1994, the mine plan for the
Gold Pick and Gold Ridge deposits established proven and probable mineable
reserves, which were independently audited by Mine Reserve Associates of Denver,
Colorado in December 1994, and confirmed by Pincock, Allen & Holt, Inc. of
Denver, Colorado as part of its independent review of the Gold Bar Resource
Area, dated December 13, 1995. The reserves were as follows at a gold price of
$400:
PROVEN AND PROBABLE RESERVES
DECEMBER 1996
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CONTAINED
ORE TONS GRADE (OZ AU/T) OUNCES/(1)/
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Gold Pick East 1,278,000 0.073 93,939
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Gold Pick West 1,009,000 0.069 69,909
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Gold Ridge 391,000 0.059 23,077
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Total 2,678,000 0.070 186,925
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/(1)/ Estimated recoverable ounces of 157,000 based upon an overall 84% recovery
rate.
MEASURED & INDICATED
MINERALIZED MATERIAL *
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TONS CONTAINED
(000) GRADE (OZ AU/T) OUNCES
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Advanced Prospects** 3,369 0.031 104,000
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* "Mineralized Material" is precious metal bearing rock that has been
physically delineated by one or more of a number of methods including drilling,
underground sampling and surface trenching and sampling. This material has been
found to contain a sufficient amount of mineralization of an average grade of
metals to have economic potential that warrants further exploration and
evaluation. Estimates of tonnage and grade are made on the continuity, size and
shape of the mineralization and have taken into account effects of waste mining
and dilution.
** Advanced prospects include Cabin Creek, Hunter, Gold Canyon and Pot Canyon.
AT DECEMBER 31, 1998 THE MARKET PRICE OF GOLD WAS $271 PER OUNCE. THE FOREGOING
RESERVES AND MINERALIZED MATERIAL ARE NOT ECONOMIC AT THIS PRICE.
DOBY GEORGE PROPERTY
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PROJECT STATUS
In September 1997 the Company executed a purchase and sale agreement for the
sale of the Doby George property to Western Exploration and Development Ltd.
("Western") which called for installment payments of $1,600,000 to be paid:
$200,000 on October 13, 1997; $400,000 on December 15, 1997; $300,000 on March
15, 1998; $300,000 on June 15, 1998; and $400,000 on September 15, 1998. All of
these payments were received by the Company
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as scheduled, except that the payment due September 1998 was paid in June 1998,
at a discount of $40,000.
DISCONTINUED OPERATIONS - URANIUM MILLSITE, MOAB, UTAH
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PROJECT STATUS
On March 12, 1999, the Company completed negotiations for an agreement-in-
principle that would absolve it from all future liability with respect to its
uranium mill and tailings impoundment (the "Millsite") near Moab, Utah. The
agreement was reached with the U.S. Nuclear Regulatory Commission ("NRC"), the
State of Utah, ACSTAR (surety provider for Atlas) and Atlas' Unsecured
Creditor's Committee after negotiations to avoid lengthy and expensive
litigation over the future of the Millsite. The agreement is subject to
approval by the Bankruptcy Court. As consideration for this release, Atlas has
agreed to contribute certain Millsite related assets to a Trust to be controlled
by the government. A definitive letter agreement is expected to be signed by
the parties and submitted to the bankruptcy court for approval by April 1999.
Elimination of this liability should coincide with confirmation of Atlas' plan
of reorganization, possibly by late summer. Coincidental to this agreement, the
Company received from the NRC the final Environmental Impact Statement, which
concludes that the Company's proposed reclamation plan is "environmentally
acceptable," with certain recommended mitigation measures.
HISTORY
The Millsite is located in Grand County, Utah, 3 miles northwest of Moab, is
accessed from U.S. Highway 191, and occupies approximately 200 acres within 437
acres owned by Atlas.
The Uranium Reduction Company ("URC") built and began operations at the Millsite
in October 1956. Atlas acquired URC in 1962 and operated the uranium mill until
1984 when it was placed on stand-by status. Atlas holds Source Material License
SUA-917 for the Millsite, which was changed to a "possession only" status on
December 18, 1992. The NRC's most recent inspection report, in February 1998,
concluded that there were no violations or deviations of the license.
Atlas was authorized to extract uranium oxide by both the acid and alkaline
leach processes and the mill was licensed for production at 850 metric tons
(1,870,000 pounds) of yellowcake annually. The majority of the ore processed at
the mill came from the Big Indian Uranium District approximately 30 miles to the
southeast. The sand-like material and mill solutions remaining after the
uranium was extracted (tailings) were pumped to the 130 acre tailings
impoundment adjacent to the Millsite. The approximate wet weight of the
tailings was 10.5 million tons, with a volume of 7.5 million cubic yards. An
interim cover comprised of low-grade ore, native soils and a synthetic geo-grid,
was placed over the tailings beginning in 1989 and ending in 1995.
A decommissioning plan for the Millsite was approved by NRC on November 28,
1988. The dismantling and disposal of the mill buildings was completed in 1996.
All that remains at the Millsite is an office/warehouse and the 130 acre
tailings impoundment.
12
<PAGE>
On March 7, 1997 the NRC issued its Technical Evaluation Report ("TER") which
stated that the Atlas' Plan for closure was in compliance with the technical
requirements for capping the tailings onsite.
For further information on the Moab site reclamation, see "Management's
Discussion and Analysis of Financial Position and Operating Results -
Environmental Matters."
RISK FACTORS
- ------------
Bankruptcy
- ----------
The Company and two of its subsidiaries are seeking to reorganize their debts
under Chapter 11 protection from their creditors. There are no guarantees that
Atlas or its subsidiaries will succeed with their efforts to reorganize and
emerge from Chapter 11.
Prices
- ------
The Company's profitability has and continues to be significantly affected by
metal prices. These prices may fluctuate widely and are affected by numerous
factors beyond the Company's control, including global and regional demand,
production costs, transportation and smelting charges, political and economic
conditions, the strength of the United States dollar and exchange rates.
Gold, lead, zinc and silver are products that can be easily sold on numerous
markets throughout the world. It is not difficult to ascertain the market price
for these metals at any particular time, and these metals can be sold to a large
number of refiners or metal dealers on a competitive basis. The Company normally
sells its metal production through major dealers and in some cases may use
hedging programs.
Environmental Issues
- --------------------
The Company is required to comply with various federal, state and local
regulations relating to environmental matters at its properties. The Company is
required to obtain permits from various governmental agencies in order to mine
and mill metals. The Company has obtained all of the necessary permits relating
to its on-going operations. The Company cannot anticipate whether increasing
costs of environmental compliance for its properties will have a material
adverse impact on planned operations or competitive position.
Competition
- -----------
The Company competes with substantially larger companies in the acquisition of
properties and the production and sale of metals. The Company does not believe
that it or any other competitor is a material factor in these markets, and the
price it receives for its production depends almost entirely upon market
conditions over which it has no control. The Company believes that it can
promptly sell at current market prices all of the metals that it can produce.
Liquidity
- ---------
The Company expects that it will continue to incur losses in the near future,
and that its return to profitability will depend on, among other things, its
ability to reorganize under Chapter 11
13
<PAGE>
and to finance additional development of its Bolivian operations. While the
Company continues to generate limited cash flow at its Bolivian mines, the
amount of cash flow available for acquisitions, investments, exploration and
development is very limited. As a result, the Company is carefully monitoring
its discretionary spending while it seeks financing alternatives. There is no
guarantee that the Company will be able to obtain the necessary financing to
enable it to return to profitability.
Mining and Processing
- ---------------------
The Company's business operations are subject to risks and hazards inherent in
the mining industry, including but not limited to unanticipated variations in
grade and other geological problems, water conditions, surface or underground
conditions, metallurgical and other processing problems, mechanical equipment
performance problems, the unavailability of materials and equipment, accidents,
labor force and transportation disruptions, unanticipated transportation costs
and weather conditions, any of which can materially and adversely affect, among
other things, the development of properties, production quantities and rates,
costs and expenditures and production commencement dates.
Risk of International Operations
- --------------------------------
Many of the mineral rights and interests of the Company are subject to
governmental approvals, licenses and permits. Such approvals, licenses and
permits are, as a practical matter, subject to the discretion of the applicable
governments or governmental officials. No assurance can be given that the
Company will be successful in obtaining any or all of the various approvals,
licenses and permits it seeks, that it will obtain them in a timely fashion, or
that it will be able to maintain them in full force and effect without
modification or revocation.
In certain countries in which the Company has assets and operations, such assets
and operations are subject to various political, economic and other
uncertainties, including, among other things, the risks of war or civil unrest,
expropriation, nationalization, renegotiation or nullification of existing
concessions, licenses, permits, approvals, contracts, taxation policies, foreign
exchange and repatriation restrictions, changing political conditions,
international monetary fluctuations, and currency controls. In addition, in the
event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of courts in the United States.
The Company also may be hindered or prevented from enforcing its rights with
respect to a governmental instrumentality because of the doctrine of sovereign
immunity. It is not possible for the Company to accurately predict such
developments or changes in law or policy or to what extent any such developments
or changes may have a material adverse effect on the Company's operations.
IMPACT OF YEAR 2000
The Company is in the process of reviewing the potential impact of the year 2000
on the ability of the Company's and its third party supplier's computer systems
to accurately process information that may be date sensitive. Programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. The Company's computer programs consist of
canned software which will be upgraded by the manufacturer at minimal cost to
the Company in order to achieve year 2000 compliance internally. However, the
Company has not yet completed its assessment of the impact of the year 2000 on
third parties upon which it relies and the related
14
<PAGE>
impacts to the Company. The Company places significant reliance on third parties
for its power supply to operate its mining and milling operations and also on
rail, trucking and shipping providers for the transport of its product. If this
issue is not adequately addressed by these third party providers in a timely
manner, it could result in a material financial risk to the Company. The Company
has not adopted a contingency plan to address possible risks to its systems.
Item 2. PROPERTIES
----------
The Company's materially important properties consist of the Andacaba Mine and
Mill which produce lead, zinc and silver in Bolivia, and the Gold Bar and Grassy
Mountain gold properties which contain gold resources, described under "Item 1
Business".
- --------
Item 3. LEGAL PROCEEDINGS
-----------------
On June 20, 1997 the Company was served with a Complaint in the matter of Curt
Goldschmidt and Ana Maria Goldschmidt (the "Goldschmidts) vs. Atlas Corporation;
Suramco Metals, Inc.; Arisur Inc.; and Harold R. Shipes and Eileen A. Shipes in
the Superior Court of the State of Arizona. In December 1994 Suramco and Arisur
purchased all of the shares of Cia Minera Andacaba S.A., which held mining
properties in Bolivia. Subsequently, Atlas acquired both Suramco and Arisur.
The Goldschmidts, the former owners of Cia Minera Andacaba S.A., asserted that
the consideration under the purchase agreement was not paid in full and they
were seeking damages in the amount of $800,000 plus expenses. Subsequent to the
Arizona Complaint, in La Paz, Bolivia, the Goldschmidts initiated action to seek
satisfaction of the purported damages. On June 25, 1998, the Company entered
into a settlement agreement and mutual release of all claims (the "Settlement
Agreement") with the Goldschmidts. The Settlement Agreement provided for the
payment by the Company of $80,000 to the Goldschmidts on the date of signing of
the Settlement Agreement. In addition, at the election of the Goldschmidts, the
Company agreed to purchase from the Goldschmidts 2,000,000 shares of the
Company's stock for $400,000 on September 11, 1998 and 250,000 shares of the
Company's stock for $50,000 on December 11, 1998. In return the Goldschmidts
released all claims against the Company, its subsidiaries and affiliates. The
Company defaulted on the payments due on September 11, 1998 and December 11,
1998.
On September 19, 1997 the Company filed a Complaint in U. S. Federal District
Court in Colorado for breach of contract and for indemnity against H. Roy
Shipes, et. al. ("Shipes Parties"). The Company claimed that the Shipes Parties
are duty bound to defend and indemnify the Company as a result of the
Goldschmidt claims against the Company (see above). The duty arose out of the
contract with the Shipes Parties to sell Suramco to the Company. On October 1,
1997 the Shipes Parties filed a claim against the Company. The Complaint seeks
damages for alleged misrepresentations in connection with the purchase of 50% of
Arisur from the Shipes Parties.
On January 25, 1999, the Company, the Goldschmidts and the Shipes Parties
executed a Settlement Agreement, which was approved by the Bankruptcy Court and
closed in April 1999. Under the terms of the agreement, the Company agreed to
allow a general unsecured claim in its bankruptcy proceeding of $580,000 to the
Shipes Parties and $450,000 to the Goldschmidts. In addition, the Shipes
Parties will be allowed a subordinated unsecured debt claim of $2,250,000.
15
<PAGE>
On January 30, 1998 a complaint was served on the Company in the matter of
Zonnie Marie Dandy Richards, the estate of Harold J. Richards, Sr. v. Texas
Zinc, Vanadium Corporation of America, Atlas Corporation, and all affiliates
joint venturers and assignees thereof, in the District Court of the Navajo
Nation, Kayenta District court. The Plaintiff alleged wrongful death of her
husband as a result of his exposure to uranium and other heavy metals at a
uranium mill site purportedly owned and operated by the Company. This case was
dismissed in July 1998.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the security holders during the quarter
ended December 31, 1998.
16
<PAGE>
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
--------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
ATLAS' COMMON STOCK IS LISTED ON THE NASDAQ BULLETIN BOARD UNDER THE SYMBOL
- ---------------------------------------------------------------------------
ATSP. The high and low sales prices for the common stock for each quarterly
- ----
period are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
---------------------------------------------------------------------------
Quarter Ended High Low High Low High Low
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $0.42 $0.15 $0.8125 $0.5625 $1.875 $1.375
June 30 0.41 0.17 0.75 0.3438 1.50 1.0
September 30 0.35 0.04 0.50 0.125 1.125 0.6875
December 31 0.09 0.03 0.375 0.0625 1.125 0.625
</TABLE>
No dividends were declared in the years ended December 31, 1998, 1997 and 1996.
At March 26, 1999, there were approximately 15,800 holders of record of the
Company's common stock.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The following table is derived in part from the audited consolidated financial
statements of the Company. This information should be read in conjunction with
the audited consolidated financial statements and the notes thereto.
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended Dec. 31, Dec. 31, Year Ended June 30,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Mining revenue $ 5,109 $ 3,935 $ 578 $ - $ 2,328 $ 19,478
Loss from continuing operations (2,730) (13,921) (10,385) (4,266) (20,397) (12,040)
Income (loss) from discontinued operations - (2,868) - - 621 2,175
Net loss (2,730) (15,619) (10,385) (4,266) (19,776) (9,865)
PER SHARE OF COMMON STOCK:
Loss from continuing operations (0.10) (0.54) (0.49) (0.22) (1.23) (1.45)
Income (loss) from discontinued operations - (0.11) - - 0.04 0.26
Net loss (0.10) (0.61) (0.49) (0.22) (1.19) (1.19)
Cash dividends per share - - - - - -
BALANCE SHEET DATA:
Cash and cash equivalents 4 583 1,022 220 4,452 3,767
Total assets 38,038 42,316 56,021 68,080 59,222 38,227
Long-term obligations 4,728 29,820 36,808 37,899 34,841 33,247
Liabilities subject to compromise 30,089 - - - - -
Working capital (deficit) 119 (8,197) (2,437) 7,212 5,664 (239)
Total stockholders equity (deficit) (2,153) 531 12,372 22,143 24,833 (2,475)
Book value per share (0.08) 0.02 0.51 1.16 1.34 (0.26)
</TABLE>
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying notes.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------
As previously noted, on September 22, 1998, Atlas filed a petition for relief
under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy
Court for the District of Colorado. On January 26, 1999, APMI and AGMI also
filed petitions for relief under Chapter 11. Under Chapter 11, certain claims
against Atlas in existence prior to the filing of the petition are stayed while
Atlas continues business operations as debtor-in-possession. Additional claims
may arise subsequent to the filing date resulting from rejection of executory
contracts, including leases, and from the determination by the court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against Atlas' assets also are stayed,
although the holders of such claims have the right to move the court for relief
from stay. Secured claims are secured primarily by restricted cash of the
Company and by performance bonds issued by insurance companies.
The Company does not intend to seek protection under any applicable bankruptcy
laws for Arisur.
In February 1997, Arisur signed a financing agreement with the Corporacion
Andina de Fomento ("CAF") for US $2.3 million dollars. CAF is a multilateral
financial institution that supports sustainable development and integration
efforts within the Andean region of South America. The proceeds of the loan,
received in May 1997, paid for certain equipment and expansion programs of the
Bolivian operations and reimbursed Atlas approximately of $500,000 of funds
previously advanced for said purposes.
During 1997, the Company also completed transactions on two of its non-operating
properties. In June of 1997, the Company sold 90% of its Gold Bar property to
Barrick for $1 million in cash and the purchase of one million shares of the
Company's stock at $1 per share. In September the Company executed an agreement
for the sale of its Doby George property for a total purchase price of $1.6
million. See Item 1. "BUSINESS" for a more complete discussion of these
transactions.
In June 1997 the Company repurchased its Exchangeable Debentures from the
debenture holders. The agreement with the debenture holders provided for the
then remaining outstanding principal amount of $9,810,000 together with accrued
interest to be repurchased for a combination of 1,500,928 new issue Atlas common
shares and all of its shares of Vista Gold Corp. ("Vista"), which had been
pledged as collateral on the Exchangeable Debenture.
The above transactions allowed the Company to acquire its interest in Arisur
(see Item 1. "ARISUR INC.") and to develop its Tucker Hill perlite project (see
Item 1. "CORNERSTONE INDUSTRIAL MINERALS CORPORATION"). These expenditures,
18
<PAGE>
combined with minimal operating revenues during most of this time period, have
resulted in large swings in the Company's working capital.
During 1998 working capital increased by $8.3 million from a deficit of $8.2
million to $.1 million. The primary reason for the increase is a result of the
Company's election to file for protection under Chapter 11 as discussed above.
All "pre-petition" liabilities have been reclassified to "Liabilities subject to
compromise" on the balance sheet at December 31, 1998, since payment of these
amounts is subject to a court approved plan of reorganization. This amount
includes $6.6 million of liabilities that would have otherwise been classified
as current. Other significant expenditures during the year included $0.8 million
in operating costs of Cornerstone, $0.5 million in additions to property and
equipment at Arisur, operating losses of approximately $1.1 million and $0.8
million of environmental reclamation costs. This was offset by $1.6 million
proceeds from the sale of assets (primarily Doby George) and $1.1 million in
Title X receipts from the Department of Energy (see Item 7. "Environmental
Matters"). Also, "asset held for sale" of $2.6 million has been classified as a
current asset in the Consolidated Balance Sheet at December 31, 1998 as a result
of the sale completed in February 1999.
Working capital decreased by $5.8 million during 1997 from a deficit of $2.4
million to a deficit of $8.2 million. This was a result of construction and
development expenditures at Tucker Hill of $2.1 million and Andacaba of $1.6
million, ongoing exploration, standby and administrative costs totaling $3.1
million and reclamation costs of $1.2 million. Cash inflows included $2 million
from Barrick, $1.6 million in Title X receipts and long-term debt proceeds of
$1.9 million. In addition, the Company's $3.5 million convertible debenture,
due September 30, 1998, was classified as a current liability at December 31,
1997. See Note 1. to the Consolidated Financial Statements.
Capital expenditures in 1998 were approximately $0.5 million consisting
primarily of development expenditures at its Andacaba mine in Bolivia. For the
year ended December 31, 1997, the Company's capital expenditures were $1.8
million, compared with $1.3 million during 1996. Expenditures for 1997
consisted of $1.6 million at Andacaba for the mine and mill expansion and $0.2
million at Grassy Mountain. In 1996, development and construction costs
incurred at Andacaba were $1.1 million, and acquisition costs of Grassy Mountain
were $0.2 million.
Through the sale of Cornerstone (see "Item 1. Business"), the Company has
secured sufficient funds to continue to operate while it develops a plan for the
reorganization of the Company. The primary focus of the plan will be a release
from any future liability associated with the Millsite (see "Item 7.
Environmental Matters"). The Company is also seeking financing for development
of its Andacaba Mine in order to increase operating cash flows. Finally, the
Company is seeking to divest of its Gold Bar and Grassy Mountain properties and
other non-core assets to generate additional cash for operations, and as partial
satisfaction of its pre-petition liabilities.
There is no guarantee that the Company will be successful in achieving all or
any one of the above reorganization goals or, if successful, that the creditors
of the Company and the Bankruptcy Court will approve the plan as submitted. In
the event that the agreement for the
19
<PAGE>
release of the Millsite liability cannot be finalized, the Company may be forced
into expensive and lengthy litigation over the issue, which would further
deplete the Company's already limited resources. Management believes that
successful completion of the aforementioned goals is necessary for the Company
to avoid a Chapter 7 liquidation of all of the assets of the Company.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for fiscal
years beginning after June 15, 1999. Currently, the Company does not have any
derivative financial instruments and does not participate in hedging activities.
Therefore, management believes that SFAS No. 133 will not have an impact on its
financial statements.
As discussed above, the Company and two of its subsidiaries have filed for
protection under U.S. Bankruptcy laws, and it has incurred operating losses of
$2,730,000, $13,921,000 and $10,385,000 for the years ended December 31, 1998,
1997 and 1996 respectively. As a result, the independent auditors' report,
which accompanies the financial statements included in this report, contains a
going concern explanatory paragraph. Management's plan to resolve the Company's
immediate financial difficulties and improve its financial position is described
above and in Note 1 to the consolidated financial statements at Item 8.
RESULTS OF OPERATIONS
- ---------------------
The following is a summary of production statistics at the Andacaba Mill for
1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996 (1)
------------ ------------ -------------
<S> <C> <C> <C>
Tonnes milled 119,535 77,219 19,176
Tonnes of lead concentrate produced 2,258 2,055 386
Grade of lead concentrate:
Zinc 64.57% 65.86% 66.64%
Silver (ounces per ton) 135.0 136.87 137.89
Tonnes of zinc concentrate produced 12,346 7,856 998
Grade of zinc concentrate:
Zinc 46.32% 47.65% 48.48%
Silver (ounces per ton) 23.64 24.37 28.71
</TABLE>
/(1)/ For the period from October 8, 1996 (date of acquisition) to December
31, 1996.
The increased production in 1998 is a result of the Andacaba Mill expansion
completed in early 1997, which increased capacity to 550 tonnes per day. Grades
of ore processed have declined somewhat due to the additional development and as
lower grade veins have been exploited in order to satisfy the increased capacity
of the mill, and also as a result of the processing of lower grade tailings
located at the mill site to produce a zinc concentrate.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------
REVENUES
Mining revenues in 1998 were $5,109,000 compared to $3,935,000 for the same
period in 1997. The 30% increase during the year is a result of the production
increase noted above. The increased production was offset somewhat by a
weakening of lead and zinc prices during 1998.
PRODUCTION COSTS AND DEPRECIATION, DEPLETION AND AMORTIZATION
Cash production costs in 1998 were $4,267,000 ($39.70 per tonne) compared to
$3,671,000 ($47.54 per tonne) during 1997, representing a 16% increase during
the year. This increase can again be attributed to the increase in production
levels during the period. The economies of scale attributable to the higher
production rate are evident by the lower rate of increase in costs than in
either the revenue or production statistics. As a result of these economies,
the Company was able to increase its cash-operating margin (mining revenue less
production costs) from $264,000 in 1997 to $842,000 in 1998.
Depreciation, depletion and amortization increased $334,000, from $665,000 in
1997 to $999,000 in 1998, primarily as a result of the higher units of
production amortized during the year.
SHUTDOWN AND STANDBY COSTS
Shutdown and standby costs decreased in 1998 to $355,000 from $446,000 in 1997.
This was a result of the assumption of certain costs by Barrick under its
agreement with the Company (see "Item 1. Business") and also due to cost cutting
efforts implemented by management.
EXPLORATION
Exploration costs in 1998 were $78,000 consisting principally of one geologist's
salary and costs of maintaining an office in Reno, Nevada. Costs of $731,000 in
1997 consisted of a $450,000 charge pursuant to a joint venture termination
agreement with Vista. The remaining costs consisted of other geological and
support costs and work performed on the Commonwealth property which was dropped
in 1997.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $1,230,000 in 1998 compared to $1,925,000
in 1997. The decrease in 1998 is a result of vigorous cost cutting measures
undertaken in 1998. A new lease was negotiated for the Company's corporate
offices in Denver, reducing monthly rent from $17,000 per month to $6,000 per
month. Corporate staff has been reduced from 11 in January 1997 to 6 at
December 31, 1998 resulting in a decrease in salaries and benefits to $345,000
in 1998 from $600,000 in 1997. Legal, accounting and other professional fees
were $338,000 in 1998, down from $603,000 in 1997 as a result of cost cutting
efforts. Shareholder
21
<PAGE>
relation costs were reduced from $248,000 in 1997 to $127,000 in 1998. Other
overhead costs were also lower as a result of these measures.
OTHER
Also during 1998, the Company recorded an additional loss from assets held for
sale of $1,165,000 caused by operating losses of Cornerstone during the year and
a lower final sales price than contemplated at the time of the original decision
to sell Cornerstone.
Notes 12 and 13 to the Consolidated Financial Statements provide details and a
discussion of discontinued operations for the past three years.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------
REVENUES
Mining revenues in 1997 were $3,935,000 compared to $578,000 in 1996. Revenues
in 1997 represent the first full year of operations for Arisur compared to only
one quarter in 1996, subsequent to the purchase of Arisur by the Company on
October 8, 1996. Revenues in 1997 also were higher as a result of the expansion
of its mining and milling operations in 1997, resulting in greater production
than in prior years.
PRODUCTION COSTS AND DEPRECIATION, DEPLETION AND AMORTIZATION
Total production costs in 1997 were $4,336,000, including depreciation of
$665,000, compared to $765,000 and $324,000, respectively, during 1996. The
large increase in production costs can also be attributed to the first full year
of production at Arisur.
EXPLORATION
Exploration costs were $731,000 for the year ended December 31, 1997 as compared
to $1,264,000 for the year ended December 31, 1996. The primary expenditure in
1997 was a $450,000 charge pursuant to a joint venture termination agreement
with Vista. Costs incurred in 1996 primarily reflect approximately $900,000 of
work performed on the Commonwealth property during the year.
GENERAL AND ADMINISTRATIVE
General and administrative expenses in 1997 were $1,925,000, a decrease of
$2,181,000 from 1996 costs of $4,106,000. The 1996 costs includes severance
payments of $830,000 related to the resignations of David J. Birkenshaw as
Chairman and CEO of the Company and Gerald E. Davis as President of the Company,
approximately $300,000 reflecting costs associated with unsuccessful merger
discussions with MSV Resources Inc., Company bonuses paid during the first
quarter of 1996 and costs associated with the relocation of the corporate
office. The Company underwent an intensive cost reduction program in 1997,
resulting in decreased salary, consulting and other general and administrative
costs during the year.
22
<PAGE>
OTHER
In June 1997, the Company repurchased the debentures as described above. The
transaction resulted in a loss of $5,419,000, which has been recorded in the
income statement as a loss from repurchase of Debentures of $6,589,000 and an
extraordinary gain of $1,170,000.
Effective December 15, 1997 the Company terminated life insurance coverage for
all current and future retirees, and also discontinued the retiree medical
benefit for all current employees, with the exception of three employees who
have been grandfathered. This change resulted in a curtailment gain of $655,000
in the year ended December 31, 1997.
Also during 1997, the Company recorded a loss from assets held for sale of
$2,938,000 as a result of its decision to sell its controlling interest in
Cornerstone.
ENVIRONMENTAL MATTERS
- ---------------------
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
mitigate any environmental effects caused by its past and present operations.
The Company believes that it has taken reasonable steps to be in substantial
compliance with all federal, state and local environmental regulations
applicable to its current and discontinued operations.
The Company's license issued by the NRC requires the Company to decommission and
reclaim its Millsite. The Company discontinued its uranium operations in 1987,
and the estimated shutdown and reclamation expenses were accrued. Reclamation
and decommissioning costs (net of reimbursements, see below) of $825,000,
$1,215,000 and $1,808,000 have been charged against this accrual for the years
ended December 31, 1998, 1997 and 1996. The approval process for the Company's
plan of reclamation was again extended during 1998. The delays in this process
have continued to increase the ultimate cost of the reclamation plan due to
additional technical information requirements, continuing overhead costs, legal
and consulting fees, as well as inflation and other ongoing carrying costs of
the property. Due to these added costs, along with possible changes in the
scope of the Company's reclamation plan, the Company reevaluated its uranium
reclamation accrual and concluded that an additional charge of $3,000,000 was
required in the year ended December 31, 1997. The balance of the accrual at
December 31, 1998 was $21,110,000. Title X of "The Comprehensive National
Energy Policy Act" ("Title X"), which was enacted in October 1992, provides for
reimbursement by the federal government of past and future reclamation expenses
in proportion to the extent that the Site's tailings were generated by Atomic
Energy Commission ("AEC") contracts. With respect to the Company's discontinued
uranium operations, 56% of the tailings were generated by AEC contracts.
Requests for reimbursement under Title X must be submitted annually to the
Department of Energy ("DOE") and are subject to review and audit. At December
31, 1998, the Company had recorded a Title X receivable of $14,784,000, which
includes claims already made (see below) as well as an estimate of future claims
based upon the recorded reclamation liability. The timing on the repayment of
costs approved for reimbursement is a function of Congressional appropriation.
23
<PAGE>
In July 1994, the Company submitted the first of five claims under Title X for
reimbursement of compliance and reclamation costs. The five claims cover costs
incurred from fiscal 1980 through March 1998. The total amount reimbursable
under the five claims is $7,049,000. As of March 15, 1999, the Company had
received $5,356,000 in reimbursements under Title X, leaving a remaining balance
due of $1,693,000.
On March 12, 1999, the NRC issued the "Final Environmental Impact Statement
Related to Reclamation of the Uranium Mill Tailings at the Atlas Site, Moab,
Utah," (FEIS). The FEIS concludes that the Atlas proposed on-site reclamation,
with certain recommended mitigation, was acceptable.
However, as noted above, through a negotiated settlement agreement-in-principle
with NRC, the State of Utah, ACSTAR (surety) and the unsecured Creditor's
Committee, the Company believes all future liability has been eliminated. This
agreement will release the Company from any further liability for the Moab site
in consideration for the Company contributing certain Moab related assets and
resources to a trust to be established and directed by the government.
With finalization of the agreement and upon approval by the Bankruptcy Court
releasing the Company from further liability expected by May 1999, the Company
believes its environmental costs related to the Millsite will be eliminated upon
confirmation of the Chapter 11 reorganization plan.
Estimated reclamation costs relating to the Gold Bar Resource Area are recorded
based on the units of production method. There were no reclamation costs
expensed in the years-ended December 31, 1998, 1997 and 1996.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS Page
<S> <C>
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 26
Consolidated Balance Sheets as of December 31, 1998 and 1997 27
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years Ended December 31, 1998, 1997 and 1996 28
Consolidated Statements of Cash Flow for the Years Ended
December 31, 1998, 1997 and 1996 29
Notes to Consolidated Financial Statements 30 - 52
Reports of Independent Auditors 53 - 56
</TABLE>
25
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Mining revenue $ 5,109 $ 3,935 $ 578
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs and expenses:
Production costs 4,267 3,671 441
Depreciation, depletion and amortization 999 665 324
Impairment of mineral property (Note 4) 34 1,256 -
Shutdown and standby costs (Note 4) 355 446 1,232
General and administrative expenses 1,230 1,925 4,106
Exploration and prospecting costs 78 731 1,264
- ----------------------------------------------------------------------------------------------------------------------
Gross operating loss (1,854) (4,759) (6,789)
- ----------------------------------------------------------------------------------------------------------------------
Other (income) and expense:
Equity in loss of Vista Gold Corp. (Note 7) - - 2,721
Loss on asset held for sale (Note 7) 1,165 2,938 272
Loss on repurchase of debentures (Note 8) - 6,589 -
Gain on curtailment of retirement plan (Note 15) - (655) -
Income from joint venture agreement (Note 4) (1,213) (437) -
Interest expense 593 939 1,201
Interest income (308) (380) (473)
Other (income) expense, net 491 168 (125)
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before reorganization
items, income taxes and extraordinary gain (2,582) (13,921) (10,385)
Reorganization items:
Gain on settlement of liabilities 10 - -
Professional fees (141) - -
Other (17) - -
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes and
extraordinary gain (2,730) (13,921) (10,385)
Provision for income taxes (Note 17) - - -
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before extraordinary gain (2,730) (13,921) (10,385)
Loss from discontinued operations (Note 12) - (2,868) -
- ----------------------------------------------------------------------------------------------------------------------
Loss before extraordinary gain (2,730) (16,789) (10,385)
Extraordinary gain (Note 8) - 1,170 -
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (2,730) $(15,619) $(10,385)
======================================================================================================================
Basic and diluted earnings per share of common stock (Note 16)
Loss from continuing operations $ (0.10) $ (0.54) $ (0.49)
Loss from discontinued operations - (0.11) -
Extraordinary gain - 0.04 -
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (0.10) $ (0.61) $ (0.49)
======================================================================================================================
Weighted average common shares outstanding 27,434 25,811 21,015
======================================================================================================================
</TABLE>
See accompanying notes
26
<PAGE>
ATLAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4 $ 583
Accounts receivable - Trade 892 542
Title X receivable (Note 13) 675 1,100
Accounts receivable - Other 352 541
Asset held for sale (Note 7) 2,643 -
Inventories (Note 2) 914 965
Prepaid expenses and other current assets 13 37
- ---------------------------------------------------------------------------------------------------------
Total current assets 5,493 3,768
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment (Note 4) 59,205 60,427
Less: Accumulated depreciation, depletion, amortization
and impairment (47,032) (46,027)
- ---------------------------------------------------------------------------------------------------------
12,173 14,400
Restricted cash and securities (Note 9) 6,181 6,208
Asset held for sale (Note 7) - 3,000
Title X receivable (Note 13) 14,109 14,765
Other assets 82 175
- ---------------------------------------------------------------------------------------------------------
$ 38,038 $ 42,316
=========================================================================================================
LIABILITIES
Liabilities not subject to compromise:
Current liabilities:
Trade accounts payable (Note 10) $ 980 $ 2,209
Other accrued liabilities (Notes 9 and 10) 1,161 2,189
Short-term debt (Notes 8 and 10) 3,233 6,017
Deferred gain on joint venture agreement - 750
Current portion of estimated uranium reclamation costs (Note 13) - 800
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 5,374 11,965
- ---------------------------------------------------------------------------------------------------------
Long-term debt (Note 8) 1,216 1,917
Other liabilities, long-term (Notes 9 and 10) 3,512 27,903
- ---------------------------------------------------------------------------------------------------------
Total long-term liabilities 4,728 29,820
- ---------------------------------------------------------------------------------------------------------
Liabilities subject to compromise (Note 10) 30,089 -
- ---------------------------------------------------------------------------------------------------------
Total liabilities 40,191 41,785
- ---------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 13, 14 and 15)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 5, 6, 7 AND 8)
Common stock, par value $0.01 per share; authorized
100,000,000; issued and outstanding, 27,517,544 and 27,281,503,
at December 31, 1998 and 1997 respectively 275 27,282
Capital in excess of par value 93,788 66,735
Deficit (96,216) (93,486)
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (2,153) 531
- ---------------------------------------------------------------------------------------------------------
$ 38,038 $ 42,316
=========================================================================================================
</TABLE>
See accompanying notes
27
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Capital in
Common Common Excess of
Shares Stock Par Value Deficit Other Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 20,035 $ 20,035 $69,248 $(67,482) $ 342 $ 22,143
Issuance of common stock for purchase of
Arisur Inc. (Note 7) 4,000 4,000 (750) - - 3,250
Shares issued to 401(k) plan 66 66 3 - - 69
Interest on debenture (Note 8) 79 79 13 - - 92
Unrealized loss on investment - - - - (2,764) (2,764)
Currency translation adjustment - - - - (33) (33)
Current year loss - - - (10,385) - (10,385)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 24,180 24,180 68,514 (77,867) (2,455) 12,372
Shares issued to 401(k) plan 74 74 (39) - - 35
Interest on debenture (Note 8) 40 40 (10) - - 30
Shares issued to Barrick (Note 4) 1,000 1,000 (500) - - 500
Shares issued to retire Exchangeable
Debentures (Note 8) 1,501 1,501 (938) - - 563
Shares issued for payment of fees 294 294 (184) - - 110
Sale of Vista shares (Note 7) - - - - 2,455 2,455
Shares issued in settlement of pension
obligation 193 193 (108) - - 85
Current year loss - - - (15,619) - (15,619)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 27,282 27,282 66,735 (93,486) - 531
Shares issued to 401(k) plan 118 118 (95) - - 23
Interest on debenture (Note 8) 118 118 (95) - - 23
Transfer of capital (Note 5) - (27,243) 27,243 - - -
Current year loss - - - (2,730) - (2,730)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 27,518 $ 275 $93,788 $(96,216) $ - $ (2,153)
===========================================================================================================
</TABLE>
See accompanying notes
28
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net loss $(2,730) $(15,619) $(10,385)
Loss from discontinued operations - 2,868 -
From continuing operations:
Adjustments to reconcile loss to net cash used
in operations (Note 11) 1,002 9,386 3,630
Changes in operating assets and liabilities (Note 11) 502 1,808 (2,010)
- ----------------------------------------------------------------------------------------------------------------
(1,226) (1,557) (8,765)
- ----------------------------------------------------------------------------------------------------------------
Discontinued operations:
Operating loss (net of tax) - (2,868) -
Adjustments to reconcile income (loss) to net cash provided
by (used in) operations:
Increase in accrued liabilities - 217 -
Decrease in other liabilities, long-term - (349) -
Net increase (decrease) in estimated reclamation costs 256 3,365 (1,808)
- ----------------------------------------------------------------------------------------------------------------
256 365 (1,808)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in operations (970) (1,192) (10,573)
- ----------------------------------------------------------------------------------------------------------------
Investing activities:
Net cash expended in purchase of subsidiary - - (3,676)
Cash released from escrow - - 10,000
Additions to property, plant and equipment (479) (1,847) (1,286)
Investment in asset held for sale (808) (2,057) (1,948)
Proceeds from joint venture agreement - 1,500 -
Proceeds from sale of Vista Gold Corp. - 76 5,527
Proceeds from sale of Dakota Mining Corporation - - 4,520
Proceeds from sale of equipment and reduction in other 1,663 563 -
assets
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 376 (1,765) 13,137
- ----------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowings on short term debt and line of
credit 871 505 238
Repayment of short-term debt (856) (500) (2,000)
Proceeds from the issuance of common stock - 500 -
Proceeds from the issuance of long-term debt - 2,300 -
Costs to repurchase Exchangeable Debenture - (287) -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 15 2,518 (1,762)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (579) (439) 802
Cash and cash equivalents at beginning of period 583 1,022 220
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4 $ 583 $ 1,022
================================================================================================================
</TABLE>
See accompanying notes
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION - Atlas is principally engaged in the exploration,
development and exploitation of mineral properties. The accompanying financial
statements have been prepared assuming that Atlas Corporation and its
subsidiaries (the "Company ") will continue as a going concern. The Company
filed for protection under the U.S. Bankruptcy code in September 1998 and has
incurred operating losses of $2,730,000, $13,921,000, and $10,385,000 for the
years ended December 31, 1998, 1997 and 1996 respectively. At December 31, 1998
the Company has a stockholders' deficit of $2,153,000. These considerations
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Management's plans to alleviate the substantial doubt include the following:
As discussed below, the Company has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. Through the sale of Cornerstone (Note 7), the Company has
secured sufficient funds to continue to operate while it develops a plan for the
reorganization of the Company. The primary focus of the plan will be a release
from any future liability associated with the Uranium Millsite (Note 13). The
Company is also seeking financing for development of its Andacaba Mine in order
to increase operating cash flows. Finally, the Company is seeking to divest of
its Gold Bar and Grassy Mountain properties and other non-core assets to
generate additional cash for operations, and as partial satisfaction of its pre-
petition liabilities.
On September 22, 1998, Atlas filed a petition for relief under Chapter 11 of the
federal bankruptcy laws in the United States Bankruptcy Court for the District
of Colorado. Under Chapter 11, certain claims against Atlas in existence prior
to the filing of the petition for relief under the federal bankruptcy laws are
stayed while Atlas continues business operations as debtor-in-possession. These
claims are reflected in the December 31, 1998 balance sheet as "Liabilities
subject to compromise." Additional claims (Liabilities subject to compromise)
may arise subsequent to the filing date resulting from rejection of executory
contracts, including leases, and from the determination by the court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against Atlas's assets also are stayed,
although the holders of such claims have the right to move the court for relief
from stay. Secured claims are secured primarily by restricted cash of the
Company and by performance bonds issued by insurance companies.
The Company's subsidiaries, Arisur Inc. ("Arisur"), Atlas Precious Metals Inc.
("APMI"), Atlas Gold Mining Inc. ("AGMI"), Suramco Metals, Inc. ("Suramco"), and
Cornerstone Industrial Minerals Corporation ("Cornerstone") had not filed for
protection under Chapter 11 as of December 31, 1998. Accordingly, liabilities
associated with these subsidiaries are included in "Liabilities not subject to
compromise" along with secured and post-petition liabilities of the Company. On
January 26, 1999 APMI and AGMI filed for relief under Chapter 11. Cornerstone
was sold in 1999 and the Company has no intentions to seek protection for
Arisur.
30
<PAGE>
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of Atlas Corporation and all majority-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.
INVENTORIES - Inventories are recorded at the lower of average cost or net
realizable value.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at the
lower of cost, or estimated net realizable value. Depreciation of milling
facilities and depletion of mining properties is determined by the units of
production method. The Company regularly assesses its ability to recover the
carrying value of its assets and recognizes an impairment when it is determined
that unamortized costs cannot be recovered from undiscounted cash flows over the
remaining project life. Leasehold improvements are amortized on a straight-line
basis over the terms of related leases or, if shorter, estimated useful life.
Expenditures for maintenance and repairs are charged to operations as incurred.
Expenditures for additions and major renewals are added to the property, plant
and equipment accounts. Interest expense allocable to the acquisition or
construction of capital assets and deferred mine development is capitalized
until operations commence.
FOREIGN CURRENCIES - The functional currency of all foreign subsidiaries is the
U. S. Dollar. Gains and losses on foreign currency transactions are included in
determining consolidated earnings/losses.
DEVELOPMENT PROPERTIES - At properties identified as having the potential to add
to proven and probable reserves, the direct costs of acquisition, exploration
and development are capitalized as they are incurred. Determination as to
reserve potential is based on results of feasibility studies, which indicate
whether a property is economically feasible. After drilling has confirmed the
shape and continuity of mineralization, initial feasibility studies are
optimized. If production commences, these costs are transferred to deferred
exploration and development costs and amortized against earnings using the units
of production method. If a project is determined not to be commercially
feasible, unrecovered costs are expensed in the year in which the determination
is made.
EXPLORATION COSTS - The costs of exploration programs not anticipated to result
in additions to reserves and other mineralization in the current year are
expensed as incurred.
MINING REVENUE - Revenues on base metals are recorded at the time of shipment.
RECLAMATION - Estimated reclamation, site restoration and closure costs for each
mine are charged to operations over the expected life of the mine using the
units of production method.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
Income tax accounting information is disclosed in Note 17 to the consolidated
financial statements.
CASH EQUIVALENTS - The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
31
<PAGE>
EARNINGS PER SHARE - Basic loss per share is computed by dividing loss
applicable to common shareholders by the weighted-average number of common
shares outstanding for the year. Diluted loss per share reflects the potential
dilution that could occur if dilutive securities and other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company, unless
the effect is to reduce a loss or increase earnings per share. The Company had
no potential common stock instruments, which would result in diluted loss per
share in 1998, 1997 or 1996.
ENVIRONMENTAL REMEDIATION LIABILITIES - The Company accounts for environmental
remediation liabilities under Statement of Position 96-1 "Environmental
Remediation Liabilities", which requires the accrual of environmental
remediation liabilities when the criteria for Financial Accounting Standards
Board Statement No. 5 "Accounting for Contingencies" are met.
COMPREHENSIVE INCOME - In June 1997, the Financial Accounting Standards Board
issued Statement No. 130, "Reporting Comprehensive Income", which requires
companies to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Statement No. 130 is
effective for financial statements for fiscal years beginning after December 15,
1997. During 1998, 1997 and 1996 the Company had no items of comprehensive
income; therefore adoption of this statement had no impact on the Company.
SEGMENT REPORTING - In June 1997, the Financial Accounting Standards Board
issued Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. In addition,
it establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
adoption of this statement does not have a significant effect on the Company's
reported segments.
PENSION DISCLOSURES - In February 1998 the FASB issued SFAS No. 132, "Employer's
Disclosures abut Pensions and Other Post Retirement Benefits," which
standardizes the disclosure requirements for pensions and other post retirement
benefit obligations. The Company adopted SFAS No. 132 during 1998. This
statement has an impact on disclosures only.
DERIVATIVE INSTRUMENTS - In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This statement is effective
for fiscal years beginning after June 15, 1999. Currently, the Company does not
have any derivative financial instruments and does not participate in hedging
activities. Therefore, management believes that SFAS No. 133 will not have an
impact on its financial statements.
ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
32
<PAGE>
RECLASSIFICATIONS - Certain of the comparative figures have been reclassified to
conform with the current year's presentation.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Zinc and lead concentrates $ 65 $ 91
Stockpiled ore 217 249
Materials and supplies 632 625
---------------------------------
$ 914 $ 965
=================================
</TABLE>
3. FINANCIAL INSTRUMENTS
Financial instruments consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
Carrying Carrying
(In thousands) Value Fair Value Value Fair Value
- ------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Assets
Short-term assets $4,566 $4,566 $ 2,766 $ 2,766
Liabilities
Short-term liabilities 5,374 5,374 11,965 11,965
Long-term debt 1,216 1,176 1,917 1,858
</TABLE>
Short-Term Assets and Liabilities: The fair value of cash and cash equivalents,
marketable equity securities, accounts receivable, accounts payable, other
accrued liabilities and short-term debt approximates their carrying value due to
the short-term nature of these instruments.
Long-Term Debt: The fair value of long-term debt is based primarily on the
Company's current established refinancing rates of approximately 12%.
Liabilities subject to compromise: As a result of the Company's Chapter 11
filing, the fair value of certain liabilities subject to compromise cannot be
determined at December 31, 1998.
33
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated
Depreciation,
Depletion
Acquisition Amortization & Net Book
December 31, 1998 (In thousands) Costs Impairment Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and leaseholds $ 5,347 $ 2,211 $ 3,136
Land improvements 5,741 5,741 -
Deferred exploration and development costs 6,041 3,847 2,194
Buildings and equipment 42,076 35,233 6,843
--------------------------------------------------------
Total $ 59,205 $ 47,032 $ 12,173
========================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Depreciation,
Depletion
Acquisition Amortization & Net Book
December 31, 1997 (In thousands) Costs Impairment Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and leaseholds $ 6,417 $ 1,983 $ 4,434
Land improvements 5,741 5,740 1
Deferred exploration and development costs 6,586 3,814 2,772
Buildings and equipment 41,683 34,490 7,193
--------------------------------------------------------
Total $ 60,427 $ 46,027 $ 14,400
========================================================
</TABLE>
In September 1996 the Company reacquired the Grassy Mountain property from
Newmont Grassy Mountain Corporation for $206,000, a $500,000 note due September
1997 (Note 8) and assumption of a reclamation liability then estimated at
$201,000. In December 1997 the Company signed an option agreement with Tombstone
Explorations Company Ltd. ("Tombstone") granting Tombstone an exclusive option
to purchase the Grassy Mountain property for $4 million. In 1998, Tombstone
elected not to exercise the options and returned the property to Atlas. The
Company had received $500,000 from this agreement in 1997 and 1998 which was
applied to the capitalized cost of the property.
On October 25, 1995 the Company purchased the Doby George property from
Independence Mining Company Inc. for the sum of $400,000 in cash plus 1.4
million shares of the Company's common stock. In September 1997 the Company
executed a purchase agreement for the sale of the Doby George property to
Western Exploration and Development Ltd. ("Western") which called for payments
of $1,600,000 to be paid in installments through September 15, 1998. In June
1998, the Company agreed to an early payment discount of $40,000 bringing the
net sales price to $1,560,000. As a result of the sale to Western, the Company
recorded an impairment of mineral property of $34,000 and $1,256,000 in the
accompanying consolidated statements of operations for the years ended December
31, 1998 and 1997, respectively.
34
<PAGE>
During September 1994 the Company placed the Gold Bar mine on standby. During
the years ended December 31, 1998, 1997 and 1996 the Company recorded $335,000,
$446,000 and $1,232,000 respectively, of additional shutdown and standby costs.
On June 6, 1997, Barrick Gold Exploration Inc. ("Barrick") completed the
purchase from the Company of more than 90% of the Gold Bar claim block with an
option to acquire the balance within two years. The Company received $1,000,000
in cash from Barrick and Barrick purchased one million Atlas common shares at $1
per share. Under the terms of the agreement, Barrick agreed to spend $3,000,000
on the property prior to June of 1999. At Barrick's election, on or before June
3, 1999, the balance of the Gold Bar property would be conveyed to Barrick and
Atlas could elect either to receive an additional $15,000,000 in cash and retain
a 2% net smelter royalty, or to participate with Barrick in the further
exploration and development of Gold Bar as a 25% carried joint venture
participant. If Atlas elected to participate as a joint venture partner, Barrick
would spend a minimum of $15,000,000 on the project. If Barrick chose not to
acquire the balance of the properties within the two year period, all of
Barrick's interest in the Gold Bar properties will be reconveyed to Atlas.
In December 1998, the Company and Barrick mutually agreed to terminate the
purchase agreement thereby returning the Gold Bar property to Atlas. Barrick
agreed to pay the Company $150,000 in satisfaction of its remaining exploration
obligations of approximately $300,000. The Company recorded the $150,000 along
with the remaining unamortized gain on the original sale of $1,063,000 as income
from joint venture agreement in the accompanying Consolidated Statements of
Operations.
5. STOCKHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 1,000,000 shares of preferred stock, par
value $1 per share. The preferred stock is issuable in series, with
designations, rights and preferences to be fixed by the Board of Directors. The
Board of Directors has established a series of 200,000 shares of Series
Preferred Stock designated Series A Junior Participating Preferred Stock
("Series A Preferred Stock"), no shares of which have been issued.
At the Company's annual meeting held on June 18, 1998, the stockholders of the
Company approved an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of common stock from
50,000,000 shares to 100,000,000 shares and reducing the par value of the
Company's common stock from $1.00 to $0.01 per share. The amendment was filed
with the Delaware Secretary of State and effective on August 13, 1998.
At December 31, 1998 there were 875,000 shares of common stock reserved for the
conversion of an outstanding Convertible Debenture and 2,032,111 shares of
common stock reserved for Option Warrants which are exercisable at a price of
$15.625 per share and have no expiration date ("Perpetual Warrants"). Since
December 31, 1995, no Perpetual Warrants have been issued or exercised. Also at
December 31, 1998 there were 4,545,455 shares of common stock reserved for
Option Warrants issued in connection with private placements, with the following
terms and activity:
Date of issuance Aug. 15, 1994 Dec. 14, 1994
Exercise price $ 7.00 $ 7.00
Expiration date Aug. 15, 1999 Dec. 15, 1999
Warrants issued and outstanding 3,243,405 1,302,050
35
<PAGE>
6. EMPLOYEE INCENTIVE PLANS
The Company's Long Term Incentive Plan (the "LTIP") provides that key employees
may be granted options to purchase common stock at the fair value of the shares
on the date of grant. At a February 17, 1995 Meeting of Stockholders, the
shareholders approved an amendment to the LTIP (i) to increase by 850,000 to
1,745,000 the number of shares authorized for issuance under the LTIP, (ii) to
provide for the automatic grant to non-employee directors of the Company of
awards of stock options under the LTIP and (iii) to reduce the minimum period
prior to which an option may be exercised for all options granted after January
6, 1995 from one year to six months. Options are exercisable for a maximum of
ten years from the date of grant and no options may be granted after July 31,
1999.
<TABLE>
<CAPTION>
Date Granted Exercise Price Shares
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted August 10, 1994 $4.750 122,500
Granted January 6, 1995 2.125 80,000
Granted January 6, 1995 4.500 450,000
Granted January 6, 1995 3.000 83,000
Granted January 6, 1995 4.000 83,000
Granted January 6, 1995 5.000 84,000
Granted May 19, 1995 2.000 235,000
Canceled (815,000)
- --------------------------------------------------------------------------------------
Balance outstanding as of July 1, 1995 1,117,000
Granted July 12, 1995 1.875 40,000
Granted August 10, 1995 2.000 225,500
Granted December 13, 1995 1.500 20,000
Granted December 15, 1995 2.000 7,800
Canceled (347,000)
- --------------------------------------------------------------------------------------
Balance outstanding as of December 31, 1995 1,063,300
Granted June 21, 1996 1.500 200,000
Granted October 8, 1996 1.000 20,000
Granted November 1, 1996 1.000 651,000
Granted November 5, 1996 1.000 100,000
Canceled (692,500)
- --------------------------------------------------------------------------------------
Balance outstanding as of December 31, 1996 1,341,800
Granted January 15, 1997 1.000 35,000
Granted August 15, 1997 1.000 100,000
Canceled (336,500)
- --------------------------------------------------------------------------------------
Balance outstanding as of December 31, 1997 1,140,300
Canceled (287,800)
- --------------------------------------------------------------------------------------
Balance outstanding as of December 31, 1998 852,500
======================================================================================
</TABLE>
36
<PAGE>
Summary of options outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Date Exercise Price Shares
- -------------------------------------------------------------------------------
<S> <C> <C>
January 6, 1995 $2.125 40,000
July 12, 1995 1.875 20,000
August 10, 1995 2.000 132,500
June 21, 1996 1.500 200,000
November 1, 1996 1.000 410,000
August 15, 1997 1.000 50,000
- -------------------------------------------------------------------------------
852,500
====================
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
During 1997 the Company authorized the grant of options to key personnel for
85,000 shares of the Company's stock, of which 35,000 expired in 1997. The
remaining options granted have a 10 year term expiring August 15, 2007 and vest
and become fully exercisable at the end of six months of continued service.
During 1996 the Company authorized the grant of options to key personnel for up
to 971,000 shares of the Company's common stock. Of these, 200,000 were granted
with a two year term, expiring June 21, 1998 and fully vested and exercisable at
time of grant. Also, there were 100,000 options granted with a two year term
that expired November 5, 1998 and fully vested and exercisable at time of grant.
All remaining options granted have 10 year terms expiring November 1, 2006 and
vest and become fully exercisable at the end of six months of continued service.
No options were granted in 1998.
Pro forma information regarding net income and earnings per share as required by
Statement 123, has been determined as if the Company had accounted for its
employee stock options under fair value method of that Statement. The fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1997: risk-free interest rate of 5.09% and 5.71% respectively; dividend
yields of 0.0%; volatility factor of the expected market price of the Company's
common stock of 0.462; and a weighted-average expected life of the options of 4
years.
The Black-Scholes option valuation model was developed for the use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
37
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information for the years ended December 31, is as follows (in thousands
except for earnings per share)
1996
1998 1997 (unaudited)
--------------------------------------------
Pro forma net loss $(2,734) $(15,761) $(10,589)
Pro forma earnings per share
Basic $ (.10) $ (.61) $ (.50)
Diluted $ (.10) $ (.61) $ (.50)
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
(In thousands) Options Exercise Price Options Exercise Price Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 1,140 $ 1.27 1,342 $ 1.35 1,063 $ 3.45
Granted - - 135 1.00 971 1.10
Exercised - - - - - -
Forfeited (288) 1.04 337 1.47 692 4.23
---------------------------------------------------------------------------------------------
Outstanding-end of year 852 1.35 1,140 1.27 1,342 1.35
=============================================================================================
Exercisable at end of year 852 1.35 1,027 1.30 521 1.62
Weighted-average fair value of
options granted during year $ - $ 0.09 $ 0.31
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$1.00 to $2.125. The weighted-average remaining contractual life of those
options is 5.85 years.
7. INVESTMENTS
INVESTMENT IN VISTA GOLD CORP.
On August 15, 1994 the Company completed the purchase from M.I.M. (Canada) Inc.
of 12,694,200 common shares of Granges Inc. (predecessor to Vista Gold Corp.,
hereinafter referred to as "Vista") which represented 37.2% of the issued and
outstanding shares of Vista. The purchase price was Cdn$4.00 per share (U.S.
$2.80), or an aggregate purchase price of Cdn$50.8 million (U.S. $35.8
million).
On October 16, 1996 the Company sold 4,240,324 Vista common shares at $1.32 per
share resulting in a net loss of $1.5 million. On June 25, 1997 the Company
exchanged its remaining shares in Vista as partial consideration for the
redemption of its Exchangeable Debentures (Note 8).
38
<PAGE>
The Company reported the results of Vista's operations on the equity method from
the acquisition date of August 15, 1994 until September 30, 1996. On October 1,
1996 as a consequence of the sale of the Vista common shares noted above, the
Company changed its method of accounting for the Vista investment to the lower
of cost or market basis.
A summarized Statement of Operations of Vista is presented below:
Nine Mo. Ended
September 30,
STATEMENT OF OPERATIONS 1996
(U.S. GAAP, U.S. Dollars, in thousands) (unaudited)
- ------------------------------------------------------------------------------
Sales $ 26,062
Cost of sales 21,851
Depreciation, depletion & amortization 8,247
Income (loss) from mining operations $ (4,036)
==============
Net loss $ (8,482)
==============
Under the equity method, the Company recorded a loss of $2,721,000 for the nine
months ended September 30, 1996.
In September 1995 the Company entered into an exploration joint venture
agreement (the "Agreement") with Vista with respect to approximately 34 square
miles of the Company's Gold Bar claim block. On January 8, 1997 the Company
entered into an agreement with Vista to terminate the Agreement for a total cost
of $450,000.
INVESTMENT IN CORNERSTONE INDUSTRIAL MINERALS CORPORATION
On November 30, 1995 the Company purchased 12.2 million (51%) of the outstanding
common shares of Phoenix Financial Holdings Inc. ("Phoenix") for an aggregate
purchase price of Cdn. $1,781,200 at which time Atlas assumed control of the
Phoenix Board of Directors. At a meeting of the shareholders on September 3,
1996 the shareholders of Phoenix approved a name change to Cornerstone
Industrial Minerals Corporation ("Cornerstone").
On December 13, 1996 the Company and Cornerstone executed an agreement (the
"Purchase Agreement") providing for the purchase by Cornerstone of all the
issued and outstanding shares of Atlas Perlite, Inc., the Company's wholly owned
subsidiary, the major asset of which is the Tucker Hill perlite project. As a
result of the transaction, the Company increased its equity position in
Cornerstone to 61%.
In December 1997, the Company made the decision to sell its interest in
Cornerstone. As a result of this decision, the Company's investment in
Cornerstone has been classified as an asset held for sale in the accompanying
consolidated balance sheets at December 31, 1998 and 1997. The Company's losses
related to Cornerstone of $1,165,000, $2,938,000, and $272,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, are included in loss on
assets held
39
<PAGE>
for sale in the accompanying consolidated statements of operations. The 1997
amount includes an impairment of the mill by Cornerstone of $1,331,000 and an
additional charge by Atlas of $1,115,000 to adjust the asset to its estimated
net realizable value. All prior periods have been restated to conform to the
current year presentation.
In February 1999, the Company completed the sale of Cornerstone to Seven Peaks
Mining Inc. for proceeds of approximately $2.9 million, less selling and holding
costs of approximately $250,000.
INVESTMENT IN ARISUR INC.
On October 8, 1996 the Company acquired Arisur, a Grand Cayman corporation which
owns and operates the Andacaba, Don Francisco and Koyamayu mines located in
southern Bolivia, South America. The acquisition was accounted for as a purchase
under generally accepted accounting principles. Costs of acquisition in excess
of Arisur's book value have been allocated to the mine and mill equipment, the
known reserves of Arisur and the future exploration potential. The amortization
of these costs will be over the estimated lives of the respective assets, and on
the units of production method for the known reserves. Exploration potential
will be amortized as reserves are delineated.
The following are pro forma results of operations as though Arisur had been
acquired as of January 1, 1996 (in thousands):
1996
(unaudited)
-----------
Mining revenues $ 3,469
Production costs (2,919)
Depreciation, depletion & amortization (1,259)
Other costs (10,198)
-----------
Net loss $ (10,907)
===========
Earnings per share $ (0.45)
===========
The results of operations of Arisur (from the date of acquisition to December
31, 1998) are consolidated into the Company's financial statements using the
principles of consolidation discussed in Note 1.
8. CURRENT AND LONG-TERM DEBT
LONG-TERM DEBT (IN THOUSANDS)
December 31,
---------------------
1998 1997
---------------------
Corporacion Andina de Fomenta /(1)/ $ 1,150 $ 1,917
Other 66 -
---------------------
Total long-term debt $ 1,216 $ 1,917
=====================
40
<PAGE>
/(1)/ The loan from Corporacion Andina de Fomenta is repayable in five equal
semi-annual principal installments (May and November) plus outstanding interest.
The loan bears interest at the six month LIBOR rate plus 4.5% (9.56% at December
31, 1998). Outstanding amounts are collateralized by certain property, plant and
equipment of the Company with a carrying value of approximately $9,500,000.
On June 25, 1997 the Company completed a repurchase of its Exchangeable
Debentures from the Debenture holders for 8,313,065 Vista shares and 1,500,928
new issue Atlas common shares. As a result of the transaction, the Company
recorded in the accompanying consolidated statement of operations a loss on
repurchase of Debentures of $6,589,000 and a related extraordinary gain from the
sale of Vista shares of $1,170,000 for a combined net loss on the transaction of
$5,419,000.
SHORT-TERM DEBT (IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Redeemable Convertible Debenture, due
September 20, 1998, bearing interest at 9% /(1)/ $ - $ 3,500
BHN Multibanca S.A. /(2)/ - 133
Advances on sales of concentrates /(3)/ 1,089 968
Short-term loan /(4)/ - 300
Corporacion Andina de Fomenta /(5)/ 767 383
Note payable - Newmont /(6)/ 500 500
Seven Peaks Mining Inc. /(7)/ 750 -
Other 127 233
-----------------------------
Total short-term debt $ 3,233 $ 6,017
=============================
</TABLE>
/(1)/ The Convertible Debenture was due on September 20, 1998, and was in
default on the date the Company filed for protection under Chapter 11. It
has been reclassified to liabilities subject to compromise at December
31, 1998.
/(2/) The note bears interest at 13% and was payable in monthly installments of
$16,667 plus interest. The balance was paid off in 1998.
/(3)/ Under the terms of its agreement with Glencore International AG for the
sale of zinc/silver and lead/silver concentrates, the Company may take
advances of up to 80% of the estimated value of the concentrates
available for shipment via rail from the Company's warehouse in Potosi,
Bolivia, and an additional 10% of this amount may be advanced once the
concentrate is ready for shipment from port in Chile. Interest is payable
on the advances at the "New York" prime rate plus 1.5% (9.0% at December
31, 1998).
/(4)/ In June 1996 Arisur entered into an additional agreement with Glencore
for a prepayment to be applied against future production in the original
amount of $500,000. Interest was payable on the outstanding balance at
the three-month LIBOR rate plus 1%. The balance was paid in full in 1998.
/(5)/ See description under long-term debt above.
/(6)/ The Note bearing interest at 10.5% was due on September 18, 1998 and is
in default at December 31, 1998. The note is an obligation of APMI and,
as such, will be reclassified in 1999 to liabilities subject to
compromise (Note 1).
/(7)/ The note bears interest at 10% and was repaid from the proceeds of the
sale of Cornerstone in February 1999 (Note 7).
41
<PAGE>
9. DETAILS OF CERTAIN BALANCE SHEET CAPTIONS
A summary of restricted cash and securities is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Collateral for a $5,426,000 letter of credit (a) (c) $ 5,431 $ 5,431
Collateral for a $1,500,000
Reclamation bond (b) 750 777
---------------------------
$ 6,181 $ 6,208
===========================
</TABLE>
(a) Securing $6,500,000 performance bonds related to the Company's uranium
reclamation obligation.
(b) Securing $1,500,000 performance bonds related to the Company's Gold Bar
reclamation obligation.
(c) Securing $1,764,000 performance bonds related primarily to the Company's
Gold Bar reclamation obligation.
A summary of other accrued liabilities is as follows:
December 31,
-------------------
(In thousands) 1998 1997
- --------------------------------------------------------------------
Accrued compensation and benefits $ 182 $ 409
Accrued exportation costs 472 264
Mine reclamation accrual 200 200
Accrued interest payable 210 166
Accrued asbestos reclamation costs - 300
Other 97 850
-------------------
$ 1,161 $ 2,189
===================
A summary of other liabilities, long-term is as follows:
December 31,
--------------------
(In thousands) 1998 1997
- -----------------------------------------------------------------------------
Long-term uranium reclamation costs (Notes 12 and 13) $ - $21,135
Pension and deferred compensation obligations - 1,138
Mine reclamation accrual 3,064 3,064
Accrued post retirement benefit obligation (Note 15) - 534
Other 448 2,032
--------------------
$ 3,512 $27,903
====================
42
<PAGE>
10. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consisted of the following at December
31, 1998 (in thousands):
Accounts payable $ 1,486
Accrued liabilities 1,671
Redeemable Convertible Debenture (Note 8) 3,500
Uranium reclamation liability (Notes 12 and 13) (1) 21,110
Accrued post retirement benefit obligation (Note 15) 485
Pension and deferred compensation obligations (Notes 14 and 15) 1,157
Other 680
---------
$ 30,089
=========
/(1)/ The uranium reclamation liability is partially secured by a $6,500,000
performance bond, which is partially secured by $5,431,000 of the
Company's restricted cash.
In addition to the above, obligations of APMI and AGMI included in trade
accounts payable of $227,000, other accrued liabilities of $227,000, short-term
debt of $500,000 and other liabilities long-term of $3,064,000 will be
reclassified to liabilities subject to compromise in January 1999 as a result of
their Chapter 11 filings.
11. DETAILS OF CERTAIN STATEMENTS OF CASH FLOW CAPTIONS
The components of the adjustment to reconcile loss to net cash used in
operations as reflected in the Consolidated Statements of Cash Flows are as
follows:
Year Ended December 31,
--------------------------------
(In thousands) 1998 1997 1996
--------------------------------
Depreciation, depletion and amortization $ 1,016 $ 808 $ 370
Equity loss in Vista Gold Corp. - - 2,721
Loss from assets held for sale 1,165 2,938 272
Loss on sale of Vista shares - 57 1,439
Loss on repurchase of Debentures - 6,589 -
Extraordinary gain - (1,170) -
Impairment of mineral property 34 1,256 -
Gain on curtailment of retirement plan - (655) -
Gain on sale of Dakota shares - - (1,333)
Income from joint venture agreement (1,213) (437) -
Other adjustments - - 161
--------------------------------
$ 1,002 $ 9,386 $ 3,630
================================
43
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Decrease (increase) in trade/other accounts receivable $ (11) $ (344) $ 206
Decrease (increase) in inventories 51 (117) (263)
Decrease (increase) in prepaid expense and other
current assets 24 158 (84)
Decrease (increase) in other assets and restricted cash
and securities 113 178 (1,003)
Increase (decrease) in trade accounts payable 256 766 (246)
Increase (decrease) in other accrued liabilities 689 423 (571)
Increase (decrease) in other liabilities, long-term (620) 744 (49)
------------------------------------
$ 502 $ 1,808 $(2,010)
====================================
</TABLE>
Net cash required for operating activities reflects cash payments for interest
and income taxes as follows:
Year Ended December 31,
-----------------------------
(In thousands) 1998 1997
- ----------------------------------------------------------------------------
Interest (net of amount capitalized) $ 511 $ 939
Income taxes - -
12. DISCONTINUED OPERATIONS
During 1997, as a result of continuing delays in the regulatory approval process
and due to an anticipated increase in the scope of the final reclamation plan
(Note 13), the Company recorded a charge of $3,000,000 representing an increase
to its uranium reclamation liability. In addition, the Company recorded a charge
of $217,000 related to the clean up at its former asbestos mine located near
Coalinga, California and also recorded a gain of $349,000 related to coinsurance
experience primarily related to the operations of the Company's Atlas Building
Systems Division, which was sold in 1989.
The items above are included in the consolidated statements of operations under
the heading "Income from discontinued operations". The following table
summarizes the operating income (loss) of the discontinued businesses:
<TABLE>
<CAPTION>
Asbestos Uranium
Mining Reclamation Service
Period ended (In thousands) & Milling Costs & Other Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998 $ - $ - $ - $ -
December 31, 1997 $ (217) $ (3,000) $ 349 $(2,868)
December 31, 1996 $ - $ - $ - $ -
</TABLE>
44
<PAGE>
The following is a summary of activity of provisions for loss from disposal of
discontinued operations:
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
Balance beginning of period $ 22,915 $ 18,704 $ 21,623
Additions:
Charged to costs and expenses - 3,217 -
Charged to other accounts - 2,252 -
Deductions (923) (1,258) (2,919)
---------------------------------------
Balance end of period $ 21,992 $ 22,915 $ 18,704
=======================================
13. COMMITMENTS AND CONTINGENCIES
URANIUM MILLSITE, MOAB UTAH
The Company is obligated to decommission and reclaim its uranium millsite
located near Moab, Utah. The Company discontinued its uranium operations and
permanently shut down its uranium mill and mines in 1987, and estimated shut
down expenses and reclamation costs were accrued. Title X of "The Comprehensive
National Energy Policy Act" ("Title X"), enacted in October 1992, provides for
the reimbursement of past and future reclamation expenses related to uranium
sites operated under Atomic Energy Commission contracts. The Company's uranium
reclamation costs are reduced by this Government cost sharing program since 56%
of its tailings were generated under government contracts. The total estimated
reclamation liability ($21,110,000) and current and future Title X receivables
($14,784,000) are shown separately in the accompanying 1998 consolidated balance
sheets leaving a net liability to the Company of $6,326,000.
The Company has submitted five claims to the Department of Energy ("DOE") under
Title X for reclamation costs incurred from the fiscal year ended June 30, 1980
through March 31, 1998. As of December 31, 1998, the status of the five claims
is as follows:
<TABLE>
<CAPTION>
Gross Claim Anticipated Actual Anticipated
Amount Gross Amount Reimbursement Reim-bursement Balance
Claim Date Approved Receivable Payments Due
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 7, 1994 $ 4,999,000 $ 4,510,000 $ 2,530,000 $ 2,530,000 $ -
June 16, 1995 3,638,000 2,591,000 1,454,000 1,454,000 -
May 1, 1996 3,998,000 2,884,000 1,618,000 1,372,000 246,000
May 1, 1997 2,054,000 1,579,000 886,000 - 886,000
May 1, 1998 1,602,000 1,000,000(1) 561,000 - 561,000
- ------------------------------------------------------------------------------------------------------
Totals $16,291,000 $12,564,000 $ 7,049,000 $ 5,356,000 $ 1,693,000
======================================================================================================
</TABLE>
/(1)/ Approval pending. Amount is estimated.
In addition to the above amounts, the Company includes in the Title X receivable
in the consolidated balance sheet an amount equal to 56% of its future estimated
reclamation costs.
45
<PAGE>
Timing of the remaining payments for approved reimbursements is a function of
Congressional appropriation of Title X funding.
On March 12, 1999, the Company completed negotiations for an agreement-in-
principle that would absolve it from all future liability with respect to its
uranium mill and tailings impoundment (the "Millsite") near Moab, Utah. The
agreement was reached with the U.S. Nuclear Regulatory Commission ("NRC"), the
State of Utah, ACSTAR (surety provider for Atlas) and Atlas' Unsecured
Creditor's Committee after negotiations to avoid lengthy and expensive
litigation over the future of the Millsite. The agreement is subject to approval
by the Bankruptcy Court. As consideration for this release, Atlas has agreed to
contribute certain Millsite related assets to a Trust to be controlled by the
government. A definitive letter agreement is expected to be signed by the
parties and submitted to the bankruptcy court for approval by April 1999.
Elimination of this liability should coincide with confirmation of Atlas' plan
of reorganization, possibly by late summer.
LEGAL PROCEEDINGS
On June 20, 1997 the Company was served with a Complaint in the matter of Curt
Goldschmidt and Ana Maria Goldschmidt (the "Goldschmidts) vs. Atlas Corporation;
Suramco Metals, Inc.; Arisur Inc.; and Harold R. Shipes and Eileen A. Shipes in
the Superior Court of the State of Arizona. In December 1994 Suramco and Arisur
purchased all of the shares of Cia Minera Andacaba S.A., which held mining
properties in Bolivia. Subsequently, Atlas acquired both Suramco and Arisur. The
Goldschmidts, the former owners of Cia Minera Andacaba S.A., asserted that the
consideration under the purchase agreement was not paid in full and they were
seeking damages in the amount of $800,000 plus expenses. Subsequent to the
Arizona Complaint, in La Paz, Bolivia, the Goldschmidts initiated action to seek
satisfaction of the purported damages. On June 25, 1998, the Company entered
into a settlement agreement and mutual release of all claims (the "Settlement
Agreement") with the Goldschmidts. The Settlement Agreement provided for the
payment by the Company of $80,000 to the Goldschmidts on the date of signing of
the Settlement Agreement. In addition, at the election of the Goldschmidts, the
Company agreed to purchase from the Goldschmidts 2,000,000 shares of the
Company's stock for $400,000 on September 11, 1998 and 250,000 shares of the
Company's stock for $50,000 on December 11, 1998. In return the Goldschmidts
released all claims against the Company, its subsidiaries and affiliates. The
Company defaulted on payment of the $400,000 due on September 11, 1998.
On September 19, 1997 the Company filed a Complaint in U. S. Federal District
Court in Colorado for breach of contract and for indemnity against H. Roy
Shipes, et. al. ("Shipes Parties"). The Company claimed that the Shipes Parties
are duty bound to defend and indemnify the Company as a result of the
Goldschmidt claims against the Company (see above). The duty arose out of the
contract with the Shipes Parties to sell Suramco to the Company. On October 1,
1997 the Shipes Parties filed a claim against the Company. The Complaint seeks
damages for alleged misrepresentations in connection with the purchase of 50% of
Arisur from the Shipes Parties.
On January 25, 1999, the Company, the Goldschmidts and the Shipes Parties
executed a Settlement Agreement, which was approved by the Bankruptcy Court and
closed in April 1999.
46
<PAGE>
Under the terms of the agreement, the Company agreed to allow a general
unsecured claim in its bankruptcy proceeding of $580,000 to the Shipes Parties
and $450,000 to the Goldschmidts. In addition, the Shipes Parties will be
allowed a subordinated unsecured debt claim of $2,250,000.
On January 30, 1998 a complaint was served on the Company in the matter of
Zonnie Marie Dandy Richards, the estate of Harold J. Richards, Sr. v. Texas
Zinc, Vanadium Corporation of America, Atlas Corporation, and all affiliates
joint venturers and assignees thereof, in the District Court of the Navajo
Nation, Kayenta District court. The Plaintiff alleged wrongful death of her
husband as a result of his exposure to uranium and other heavy metals at a
uranium millsite purportedly owned and operated by the Company. This case was
dismissed in July 1998.
OTHER COMMITMENTS
Minimum future rental commitments under the Company's non-cancelable operating
leases (primarily office rent) having a remaining term in excess of one year at
December 31, 1998 are as follows:
Year ended December 31, (In thousands)
- -----------------------------------------------------------------------
1999 $ 97
2000 96
2001 1
--------
Total minimum payments required $ 194
========
Amounts charged to rent expense in the years ended December 31, 1998, 1997 and
1996 were $113,000, $213,000 and $201,000 respectively.
14. EMPLOYEE RETIREMENT PLANS
The Company has a trusteed and insured retirement plan (the "Plan") covering
substantially all salaried employees. The Plan provides pension benefits that
are based on final average compensation minus certain adjustments for primary
social security benefits. The Company's funding policy for the Plan is to make
at least the minimum annual contributions required by applicable government
regulations. Plan assets are invested primarily in equity securities, corporate
and government bonds and money market funds.
Year Ended December 31,
- --------------------------------------------------------------------------
(In thousands) 1998 1997 1996
--------------------------
Components of net periodic benefit cost
Service costs-benefits earned during the year $ - $ 9 $ 71
Interest cost on projected benefit obligation 407 433 451
Actual return on Plan assets (763) (1,043) (700)
Net amortization and deferral 323 644 318
--------------------------
Net periodic benefit cost for the year $ (33) $ 43 $ 140
==========================
47
<PAGE>
The following table sets forth the funded status of the Plan and amounts
recognized in the Company's financial statements at December 31 (in thousands):
1998 1997
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 5,917 $ 6,506
Service cost - 9
Interest cost 407 433
Actuarial loss 233 146
Benefits paid (869) (1,047)
Effect of curtailment - (130)
-----------------------
Benefit obligation at end of year 5,688 5,917
-----------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 5,190 5,122
Actual return on plan assets 763 1,043
Employer contributions - 72
Benefits paid (869) (1,047)
-----------------------
Fair value of plan assets at end of year 5,084 5,190
Funded status (604) (727)
Unrecognized net actuarial loss 267 341
Unrecognized prior service cost (11) (35)
------------------------
Accrued benefit cost $ (348) $ (421)
========================
Assumed discount rate 7.25% 7.25%
Expected return on plan assets 8.50% 8.50%
Assumed rate of increase in future compensation N/A 5.0%
Effective March 1, 1997 the Company froze future benefit accruals under the
Plan. Past benefits earned will not be affected by this freeze.
The Company has an Investment and Savings Plan to assist eligible employees in
providing for retirement or other future financial needs. Employee contributions
(up to 10% of their earnings) are matched in Company stock by the Company at a
rate of 100% up to a maximum of 6% of the employee's earnings. In addition, the
Company provides a 4% contribution for all eligible employees compensated on an
hourly scale. The Company's contributions to this Plan in the years ended
December 31, 1998, 1997 and 1996 were $26,000, $35,000 and $69,000,
respectively.
15. OTHER POST RETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plan the Company has a
defined benefit post retirement plan (the "Retirement Plan") covering most
salaried employees. The Retirement Plan provides medical and life insurance
benefits to retirees of the Company that meet certain qualifying criteria. The
Retirement Plan is contributory, with retiree contributions adjusted annually,
and contains other cost-sharing features such as deductibles and coinsurance.
The accounting for the health care plans anticipates future cost-sharing changes
to the written plan that
48
<PAGE>
are consistent with the Company's expressed intent to increase the retiree
contribution rate annually for the expected general inflation rate for that
year. The Company's policy is to fund the cost of the post retirement health
care benefits in amounts determined at the discretion of management. Effective
December 15, 1997 the Company terminated the life insurance plan for all
participants and also terminated the medical plan for all current employees,
except for three individuals who were grandfathered. Retirees currently
receiving medical benefits will continue under the plan. The change resulted in
a curtailment gain of $655,500, which was recognized as income in the
accompanying consolidated statement of operations for the year ended December
31, 1997.
The following summarizes the Retirement Plan's combined funded status reconciled
with the amounts recognized in the Company's financial statements:
Year Ended
December 31,
--------------------
(In thousands) 1998 1997
- ----------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 229 $ 849
Service cost 2 12
Interest cost 17 55
Actuarial (gain)/loss - (38)
Benefits paid (15) (76)
Effect of curtailment - (573)
-------------------
Benefit obligation at end of year 233 229
Fair value of plan assets - -
-------------------
Funded status (233) (229)
Unrecognized net actuarial (gain)/loss (227) (255)
Unrecognized prior service cost (16) (18)
-------------------
Prepaid/(accrued) benefit cost (476) (502)
Year Ended
December 31,
--------------------
(In thousands) 1998 1997
- ----------------------------------------------------------------------
Components of net periodic post retirement
benefit cost:
Service cost $ 2 $ 12
Interest cost 17 55
Net amortization and deferral (30) (34)
-------------------
Net periodic post retirement benefit cost $ (11) $ 33
===================
The weighted-average annual assumed rate of increase in per capita cost of
covered benefits (i.e. health care cost trend rate) for the Retirement Plan is
8% for fiscal year 1999 and is assumed to decrease gradually to 5% in 2002 and
remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated post
retirement benefit obligation for the medical plans as of
49
<PAGE>
December 31, 1998 and 1997 by $24,000 and $24,000 respectively, and the
aggregate of the service cost and interest cost components of net periodic post
retirement benefit cost for December 31, 1998 by $3,000.
The weighted-average discount rate used in determining the accumulated post
retirement benefit obligation was 7.25%, and 7.25% at December 31, 1998 and
1997, respectively.
16. EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings per
share:
Year Ended
December 31,
----------------------------------------
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Numerator:
Loss from continuing operations $ (2,730) $(13,921) $(10,385)
----------------------------------------
Denominator:
Weighted average shares outstanding 27,434 25,811 21,015
----------------------------------------
Basic and diluted earnings per share $ (0.10) $ (0.54) $ (0.49)
========================================
As described in Note 5, the Company has 875,000 common shares reserved for its
Convertible Debenture and 6,577,566 shares reserved for option warrants
exercisable at prices ranging from $7.00 to $15.625 per share. The Company also
has 852,500 employee stock options outstanding at December 31, 1998 convertible
into the Company's common stock (Note 6). These securities have not been
included in the computation of diluted earnings per share because the exercise
prices were greater than the average market price of the common stock and,
therefore, the effect would be antidilutive.
17. INCOME TAXES
The Company's provision for income tax from continuing operations consists of
the following:
Year Ended
December 31,
----------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------
Deferred $ - $ - $ -
Current - - -
----------------------------------
Income tax expense $ - $ - $ -
==================================
Deferred income taxes result from temporary differences in the timing of income
and expenses for financial and income tax reporting purposes. The primary
components of deferred income taxes result from exploration and development
costs; depreciation, depletion and amortization expenses; impairments; and
reclamation accruals.
50
<PAGE>
The net deferred tax balances in the accompanying December 31, 1998 and 1997
balance sheets include the following components:
December 31,
--------------------
(In thousands) 1998 1997
- -------------------------------------------------------------------------
Deferred tax assets:
Net operating loss ("NOL") carryovers $ 7,277 $ 7,616
Capital loss ("CL") carryovers 2,176 1,738
Impairment of mineral properties 12,799 12,799
Reclamation accruals 2,449 2,484
Post retirement benefit accrual 219 250
Equity in unconsolidated subsidiary 2,129 1,700
Other 223 -
--------------------
Total deferred tax assets 27,272 26,587
Deferred tax asset valuation allowance (20,945) (21,446)
--------------------
Net deferred tax assets 6,327 5,141
--------------------
Deferred tax liabilities:
Depreciation, depletion and amortization 6,327 4,848
Deferred revenue - 293
--------------------
Total deferred tax liabilities 6,327 5,141
--------------------
Net deferred tax balances $ - $ -
====================
The change in the Company's valuation allowance is summarized as follows:
Year Ended
December 31,
-------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
Valuation allowance, beginning of period $21,446 $20,745 $ 52,031
Continuing operations 956 4,872 3,730
Discontinued operations - 1,004 -
Extraordinary gain - (410) -
Restriction of carryforwards (1,365) (5,182) (34,950)
Other (92) 417 (66)
-------------------------------
$20,945 $21,446 $ 20,745
===============================
A reconciliation of expected federal income taxes on income from continuing
operations at statutory rates with the expense for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory rates $ (956) $ (4,872) $ (3,730)
Increase in deferred tax asset valuation allowance 956 4,872 3,730
-----------------------------------------------
Income tax expense $ - $ - $ -
===============================================
</TABLE>
At December 31, 1998 the Company has unused U.S. NOL carryovers of $107,345,000
which commence expiring in 1999, CL carryovers of $23,483,000 which commence
expiring in 2001 and investment tax credit (ITC) carryovers of $62,000 which
commence expiring in 1999. The Company also has alternative minimum tax credit
(AMT) carryovers of $127,000, which can be
51
<PAGE>
carried forward indefinitely, and Bolivian NOL carryovers of $2,781,000, which
commence expiring in 1999. These carryovers are subject to restriction due to a
change of ownership, as defined by U.S. tax laws, occurring on October 8, 1996
when the Company issued stock for the acquisition of Arisur (Note 7). Due to the
change of ownership, utilization of the Company's NOL, ITC, CL and AMT credit
carryovers existing as of October 8, 1996 is limited to offset approximately
$858,000 of taxable income per year. At December 31, 1998 the Company has
unrestricted U.S. NOL and CL carryovers of $7,250,000 and $6,217,000,
respectively, which are available to offset future taxable income.
18. GEOGRAPHIC SEGMENTS
Financial information regarding geographic segments is set out below:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------------------------
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
United States $ - $ - $ -
Bolivia 5,109 3,935 578
Loss before income taxes
United States (2,365) (13,257) (10,117)
Bolivia (365) (664) (268)
Provision for income tax - - -
--------------------------------------------------------
Loss from continuing operations (2,730) (13,921) (10,385)
Income (loss) from discontinued operations - (2,868) -
--------------------------------------------------------
Loss before extraordinary gain (2,730) (16,789) (10,385)
Extraordinary gain - 1,170 -
--------------------------------------------------------
Net Loss $ (2,730) $ (15,619) $ (10,385)
========================================================
</TABLE>
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
Balance Sheet 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
United States $ 26,717 $ 30,342
Bolivia 11,321 11,974
--------------------------------------
$ 38,038 $ 42,316
======================================
</TABLE>
19. SIGNIFICANT CONCENTRATIONS
The Company sells all of its lead and zinc concentrates to Glencore
International AG ("Glencore"), an international metal trader. Glencore sells the
concentrates to various metal smelters throughout the world. Due to the liquid
nature of the metals markets, the Company believes that it would be able to
replace Glencore, if necessary, with minimal disruption to its operations.
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Atlas Corporation
We have audited the accompanying consolidated balance sheet of Atlas Corporation
and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atlas Corporation
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Atlas Corporation will continue as a going concern. As more fully described
in Note 1, the Company filed for protection under Chapter 11 bankruptcy, has
incurred recurring operating losses and has a stockholders' deficit. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with regard to these matters are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
March 26, 1999
53
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ATLAS CORPORATION
We have audited the accompanying consolidated balance sheet of Atlas Corporation
and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1997 and 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Arisur Inc. a wholly owned subsidiary, which statements reflect total assets of
$11,974,000 as of December 31, 1997 and total revenues of $3,935,000 and
$578,000, for the years ended December 31, 1997 and 1996, respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Arisur, Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Atlas Corporation and subsidiaries at
December 31, 1997, and the consolidated results of their operations and their
cash flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Atlas Corporation will continue as a going concern. As more fully described
in Note 1, the Company has incurred recurring operating losses and has a working
capital deficiency. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters, which include short-term financing and the sale of certain assets are
also described in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amount and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Denver, Colorado
March 20, 1998
54
<PAGE>
To: Legal Representative in Bolivia of
ARISUR INC. (BOLIVIAN BRANCH)
La Paz
1. We have examined the consolidated balance sheet of ARISUR INC. (BOLIVIAN
BRANCH) as of December 31, 1997 and the accompanying statements of profit
and loss, accumulated results, and changes in the consolidated financial
situation for the year then ended. These financial statements are the
responsibility of Branch management. Our responsibility is to express an
opinion on these Financial Statements based on our audit.
We conducted our audit in accordance with international auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our examination
provides a reasonable basis for our opinion.
2. In our opinion, the consolidated financial statements mentioned in the
first paragraph, present fairly, in all material respects, the financial
and equity position of ARISUR INC. (BOLIVIAN BRANCH) as of December 31,
1997, the results of its operations, accumulated results and changes in
financial position for the year ended on that date in conformity with
international accounting standards.
3. As stated in Note 17 to the consolidated financial statements, ARISUR INC.
(BOLIVIAN BRANCH) and Compania Minera Andacaba S.A. are involved in a penal
lawsuit. The prosecutor has asked for preventive measures, such as the
temporary suspension of property rights, and the freezing of funds in the
national financial system, which, until the presentation of these financial
statements had not yet been executed by a local judge. In the judgement of
the legal counselor, this matter exposes ARISUR INC. (BOLIVIAN BRANCH) to a
potential risk in the normal functioning of its operations, with the
possibility of serious consequences in the future.
LA PAZ-BOLIVIA
MARCH 9, 1998
55
<PAGE>
La Paz, Bolivia, February 28, 1997
To the Legal Representative of
ARISUR INC. - Bolivian Branch
La Paz - Bolivia
1. We have audited the consolidated balance sheet of Arisur Inc. (Bolivian
Branch) as of December 31, 1996 and the consolidated statements of
operations, accumulated deficit and cash flow for the period of three
months ended December 31, 1996. These financial statements are the
responsibility of the Legal Representative's Branch. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the Legal Representative, as well as
evaluating the overall financial statement presentation.
2. In our opinion, the consolidated financial statements mentioned in the
first paragraph, present fairly, in all material respects, the consolidated
financial position of the Branch as of December 31, 1996 and the
consolidated results of its operations and the change in its cash flow for
the period of three months ended December 31, 1996 in accordance with
generally accepted accounting principles.
3. As described in note 11 to the consolidated financial statements, the
Branch is the defendant party in two coercitive judgments initiated by the
National Social Institution. Both cases are in a phase of procedural
transition as it was found out that there was duplication of the claim
whereby both cases contribution is being claimed by the same parties. As a
result, the Branch has asked for the accumulation of cases in order to
determine the exact amount owed.
Juan Verna (Partner)
VERNA Y ASOCIADOS LTDA
56
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable
57
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
DIRECTORS
The Company's directors are divided into three classes and hold office for a
term of three years ending with the annual meeting of stockholders held in the
year ended December 31, 1999 in the case of Class II, in the year ended December
31, 2000 in the case of Class III and in the year ended December 31, 2001 in the
case of Class I. There are currently six directors.
Information Concerning Directors
The following table sets forth certain information concerning each director.
<TABLE>
<CAPTION>
Principal Occupation, Past Five Year's Business
Director Experience
Name Since and Other Directorships Held Age
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS II
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS HELD IN THE YEAR
ENDED DECEMBER 31, 1999)
James H. Dunnett 1995 An independent business consultant specializing in 49
finance for the mining industry internationally and
prior to that he was a principal of Endeavor
Financial Corp. Mr. Dunnett's business address is
1860 Robson Street, Suite 1401, Vancouver, BC, V6G
3C2, Canada.
C. Thomas Ogryzlo 1993 Currently President and CEO of Black Hawk Mining 59
Inc. and formerly Triton Mining Corporation prior
to merger of the two companies in May 1998. Prior
to August 1997 Chairman of Kilborn SNC-Lavalin, a
world class engineering firm; Director of Carib
Gold Resources Inc. Franco, Nevada, Tiomin
Resources and Vista Gold Corp. Mr. Ogryzlo's
business address is 95 Wellington Street West,
Suite 1800, Toronto, Ontario, M5J 2N7.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation, Past Five Year's Business
Director Experience
Name Since and Other Directorships Held Age
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS III
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS HELD IN THE YEAR
ENDED DECEMBER 31, 2000)
Douglas R. Cook 1988 President of Cook Ventures, Inc., a geological 73
consulting firm. Mr. Cook's business address is
2485 Greensboro Drive, Reno, Nevada 89509.
Gregg B. Shafter 1998 President of the Company since October 1997. Prior 43
to that Mr. Shafter served in various capacities
with the Company, including Vice President of
Project Development, Manager Business Development
and Land Manager. Mr. Shafter's business address
is 370 Seventeenth Street, Suite 3140, Denver, CO
80202.
CLASS I
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS HELD IN THE YEAR
ENDED DECEMBER 31, 2001)
Mario Caron 1996 Presently an independent management consultant. 45
Formerly President, Chief Executive Officer and
director of Eden Roc Mineral Corp. from February
1997 to March 31, 1999. Chief Executive Officer of
Atlas Corporation from September 1996 to January
1997. From 1993 to 1996, President and Chief
Executive Officer of MSV Resources Inc. and from
1987 to 1993 President of Corpomin Management Inc.
Mr. Caron also is director of three junior Canadian
exploration companies. His current business
address is 1 First Canadian Place, Suite 2610,
Toronto, Ontario M5X 1E3, Canada.
Richard E. Blubaugh 1998 Executive Vice President of the Company since 1998 51
and prior to that served as Vice President of
Environmental and Governmental Affairs. Mr.
Blubaugh's business address is 370 Seventeenth
Street, Suite 3140, Denver, CO 80202.
</TABLE>
59
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Company has an Audit Committee and a Compensation Committee of which
the Board of Directors appoints all members. The Compensation Committee consists
of Messrs. Ogryzlo and Cook. The Audit Committee consists of Messrs. Dunnett,
Caron and Ogryzlo. The principal functions of the Audit Committee are to
recommend the selection of the Company's auditors, review with the auditors the
scope and anticipated cost of their audit and receive and consider a report from
the auditors concerning their conduct of the audit. The principal functions of
the Compensation Committee are to administer the Company's 1979 Key Employee
Stock Incentive Plan, Long Term Incentive Plan, Annual Incentive Plan and
Retirement Plan for Outside Directors, to recommend changes in compensation
plans and the adoption of new compensation plans and to recommend compensation
for senior officers of the Company. During the year ended December 31, 1998 the
Audit Committee held three meetings and the Compensation Committee did not meet
in 1998.
During the year ended December 31, 1998 the Board met four times. Each
incumbent director attended 75% or more of the aggregate of the total number of
Board meetings and meetings of Board committees on which that director served
during the year ended December 31, 1998.
COMPENSATION OF DIRECTORS
Fees paid to non-employee directors consist of a $1,000 fee for each
Board of Directors meeting attended in person, a $500 fee for each Board of
Directors meeting attended by telephone and a $500 fee for each committee
meeting attended. The Chairman also receives an annual fee of $25,000.
Upon joining the Board, all non-employee directors are awarded a one time
grant of 50,000 options under the Long Term Incentive Plan ("LTIP"), vesting six
months from the grant date, at an exercise price equal to the market price on
the grant date or $1.00 per share, whichever is higher. In addition, the
Chairman is awarded options to purchase 25,000 shares of Atlas Common Stock, as
granted under the LTIP, vesting six months from the grant date at an exercise
price equal to the closing market price on the grant date or $1.00 per share,
whichever is higher.
EXECUTIVE OFFICERS
Set forth below is the age and certain other information regarding each person
currently serving as an executive officer of the Company.
Gregg B. Shafter, age 43, has served as President since October 7, 1997. Since
joining the Company in August 1991, Mr. Shafter has also served in the
capacities of Vice President of Project Development, Manager Business
Development and Land Manager. Prior thereto Mr. Shafter performed acquisition
and administrative functions for Western Gold Exploration and Mining Company,
Limited Partnership and Atlantic Richfield Company.
60
<PAGE>
Richard E. Blubaugh, age 51, currently serves as Executive Vice President since
September 1998 and has served as Vice President of Environmental and
Governmental Affairs since October 1, 1990, and has been with Atlas for 17
years. He has been involved in the environmental, health and safety field for
over 23 years, has managed environmental and regulatory functions for mining
firms in seven western states, and also has experience as a regulator and a
consultant.
James R. Jensen, age 39, currently serves as Chief Financial Officer since
September 1998 and has served as Treasurer and Secretary since February 1997.
Mr. Jensen joined the Company in August of 1989, as Accounting Manager and was
promoted to Controller in September 1993. Prior to his employment with the
Company, Mr. Jensen was a manager with the accounting firm of KPMG Peat Marwick.
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Under Section 16 of the Exchange Act, the Company's directors and executive
officers and persons holding more than 10% of the Company's Common Stock are
required to report their initial ownership of Common Stock and subsequent
changes to that ownership to the Securities and Exchange Commission by specified
due dates. To the Company's knowledge all of these filing requirements were
----------------------------------------------------------------
satisfied with respect to transactions during the year ended December 31, 1998.
- -------------------------------------------------------------------------------
Item 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company, for the
years ended December 31, 1998, 1997 and 1996 to Messrs. Gregg B. Shafter and
Richard E. Blubaugh. Except for Messrs. Shafter and Blubaugh, no person who was
serving as an executive officer of the Company during the year ended December
31, 1998 had total cash and cash-equivalent remuneration, which exceeded
$100,000 during the year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compen-
Annual Compensation sation
------------------------------------- ----------------
Other Annual All Other
Year or Period Compen- Compen-
Name and Principal Position Ended Salary Bonus sation Stock Options sation
- ------------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gregg B. Shafter, President Dec. 31, 1998 $108,505 $ - $ 1,546 (1) - $6,510 (2)
Dec. 31, 1997 86,395 - 7,445 (1) - 5,100 (2)
Dec. 31, 1996 80,024 11,813 8,013 (1) 75,000 5,465 (2)
Richard E. Blubaugh, Dec. 31, 1998 99,194 - 2,372 (1) - $5,951 (2)
Executive VP Dec. 31, 1997 91,690 - 9,768 (1) - 5,501 (2)
Dec. 31, 1996 91,676 13,754 10,214 (1) 75,000 5,703 (2)
</TABLE>
(1) Includes certain perquisites, such as car allowances and life insurance
premiums paid by the Company.
(2) Includes contributions by the Company to the Investment Savings Plan for
Employees of Atlas.
See also, with respect to Messrs. Shafter and Blubaugh the section entitled
"Options" below.
61
<PAGE>
PERFORMANCE GRAPH
The following graph shows changes over the past five years in the value of
$100 invested in: (1) Atlas Corporation Common Stock, (2) the Dow Jones Equity
Market Index and (3) the Dow Jones Precious Metals Index. The year-end values
of each investment are based on the share price appreciation plus the monthly
reinvestment of dividends, if any.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ATLAS CORPORATION, THE DOW JONES EQUITY MARKET INDEX AND THE DOW JONES
PRECIOUS METALS INDEX*
ATLAS CORPORATION
PERFORMANCE GRAPH INPUT
12/31/98
DJ
ATLAS PRECIOUS DJ
------------------------------
Dec-93 100.00 100.00 100.00
Dec-94 54.29 83.61 100.77
Dec-95 34.29 88.41 139.28
Dec-96 14.29 90.06 172.15
Dec-97 3.12 62.19 214.68
Dec-98 1.46 53.63 249.03
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
INVESTMENT AND SAVINGS PLAN. The Atlas Company Investment and Savings Plan
(the "Plan") benefits employees of the Company and its subsidiaries who have
completed six months of service. Each participant under the Plan must be at
least 21 years of age. Under the Plan, an employee may elect to contribute,
pursuant to a salary reduction election, not less than 1% and not more than 10%
of the employee's annual compensation. The Company makes a matching
contribution of 100% of the amount contributed by the employee, but not more
than 6% of the employee's annual compensation. In addition, the Company may
make special contributions to the Plan, but these special contributions may not
exceed the maximum amount deductible under Section 404(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"). Employee contributions may be
invested in a number of investment options, but not Common Stock of the Company.
All matching and special contributions to the Plan are invested in shares of
Common Stock of the Company.
1978 RETIREMENT PLAN. Eligible employees, including officers, participate
in the Atlas Corporation 1978 Retirement Plan (the "1978 Retirement Plan"), a
noncontributory defined
62
<PAGE>
benefit pension Plan. Benefits under the 1978 Retirement Plan are based on years
of service and the participant's compensation during the participant's three
consecutive highest compensated years out of the participant's final five years
as a participant. Benefits under the 1978 Retirement Plan are payable upon
disability, death or retirement at age 55 or later and may be distributed in the
form of a lump sum, a single-life annuity, a joint and survivor annuity covering
the participant and a beneficiary or installments over a term of years.
Participants retiring before the age of 55 are entitled to a lump sum
distribution. Effective March 1, 1997, the Company froze all future accrual of
benefits under the 1978 Retirement Plan. The benefits earned by each participant
as of February 28, 1997 shall be preserved and no benefit of any participant
shall be decreased or reduced. At the Company's option the freeze can be lifted
at any time in the future.
The following table shows the estimated annual benefits payable upon
retirement in the form of a single-life annuity under the 1978 Retirement Plan
to persons in the specified compensation and years-of-service classifications:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Annual
Compensation on
which Retirement Estimated Annual Retirement Benefits at Age
Benefits are Based 65 for Indicated Years of Credited Services
------------------ --------------------------------------------------------------------------------------
(10) (15) (20) (25) (30)
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 50,000............ $ 8,535 $12,802 $17,070 $21,337 $25,604
$100,000............ $18,535 $27,802 $37,070 $46,337 $55,604
$150,000............ $28,535 $42,802 $57,070 $71,337 $85,604
$200,000............ $28,535 $42,802 $57,070 $71,337 $85,604
$250,000............ $28,535 $42,802 $57,070 $71,337 $85,604
$300,000............ $28,535 $42,802 $57,070 $71,337 $85,604
</TABLE>
Retirement benefits under the 1978 Retirement Plan are based on salaries
and additional compensation such as awards under the Annual Incentive Plan.
Directors' fees do not affect these benefits.
Benefits listed in the table are net of an offset for part of the
participant's Social Security benefits. There is no other offset. Years of
service credited through December 31, 1998 under the 1978 Retirement Plan for
the officers listed in the Summary Compensation Table is 14 years for Mr.
Blubaugh and 4 years for Mr. Shafter.
The Code sets limits on a participant's annual benefits on retirement under
the 1978 Retirement Plan. To assure that participants' retirement benefits are
not reduced in the future because of the Code limits, the Board of Directors
adopted a supplemental Executive Retirement Plan, which provides retirement
benefits on an unfunded basis to selected participants whose benefits under the
1978 Retirement Plan would be limited by the Code in an amount equal to the
difference between the annual retirement benefit permitted under the 1978
Retirement Plan by the Code and the amount that would have been paid but for the
limitation imposed by the Code.
63
<PAGE>
ANNUAL INCENTIVE PLAN. Under the Company's Annual Incentive Plan,
incentive compensation may be paid to key employees selected by the Compensation
Committee based on the achievement by the Company and the selected employees of
performance goals established for each fiscal year by the Compensation
Committee. In addition to target awards, which recognize achievement of the
predetermined goals, the Compensation Committee may establish threshold and
maximum awards to recognize performance, which has only been minimally
acceptable, and performance, which has been significantly above target. Target,
threshold and maximum awards are expressed as a percentage of selected
employees' base salary for the pertinent fiscal year. The Compensation Committee
may consider the adverse impact of external circumstances on the Company's
performance in evaluating the achievement of individual employee goals and in
determining whether to exercise its authority in such circumstances to make
alternative or supplemental awards. Since July 1, 1993, no awards were made
under the Annual Incentive Plan.
OPTIONS
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION. The following table provides information relating to the number and
value of stock options exercised in the year ended December 31, 1998 and the
number of exercisable and unexercisable stock options held by executive officers
at December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options
---------------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gregg B. Shafter - - 101,500 -
Richard E. Blubaugh - - 127,500 -
</TABLE>
There were no unexercised, in-the-money options at December 31, 1998.
There were no awards under the company's long term incentive plan to any named
executive officer during the year ended December 31, 1998.
OFFICER CONTRACTS
Gregg B. Shafter has served as President of the Company since October 7,
1997. Mr. Shafter has an employment agreement providing for his employment as an
officer of the Company, at a minimum annual salary of $120,000, until the
termination of his employment either by Mr. Shafter or the Company or his normal
retirement in accordance with the Company retirement programs in place at the
time. Mr. Shafter is entitled, upon termination of his employment by the Company
without "Cause", by him with "Good Reason" or either within three months prior
to a change of control or within two years after a "Change of Control" (as such
terms are defined in the employment agreement), to a severance payment equal to
one-twelfth of his annual salary multiplied by the number of full years of
employment by the Company, provided that in no event shall such amount be less
than one-half of his annual salary, amounts accrued but unpaid under this
employment contract and amounts payable under existing employee benefit plans.
64
<PAGE>
Richard E. Blubaugh has served as Vice President of Environmental and
Governmental Affairs since October 1, 1990. Mr. Blubaugh has an employment
agreement providing for his employment as an officer of the Company, at a
minimum annual salary of $100,690, until the termination of his employment
either by Mr. Blubaugh or the Company or his normal retirement in accordance
with the Company's retirement programs in place at the time. Mr. Blubaugh is
entitled, upon termination of his employment by the Company without "Cause", by
him with "Good Reason" or either within three months prior to a change of
control or within two years after a "Change of Control" (as such terms are
defined in the employment agreement), to a severance payment equal to one year's
salary, amounts accrued but unpaid under his employment agreement and amounts
payable under existing employee benefits plans.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1998 are identified above
under the heading BOARD AND COMMITTEE MEETINGS. No member of the Compensation
Committee is or has been at any time an officer of the Company or any of its
subsidiaries (except for Mr. Cook who served as a non-executive Chairman of the
Company during 1998). During 1998 no executive officer of the Company served as
a director or as member of the Compensation Committee of another entity whose
executive officers served as a director or as a member of the Compensation
Committee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 15, 1999
regarding the beneficial ownership, including shares of Atlas Common Stock which
may be acquired upon the exercise of stock options or warrants, or the
conversion of any securities, within 60 days of March 15, 1999, of the Company's
Common Stock by (i) persons known to the Company to own more than 5% of the
Company's Common Stock, (ii) each director of the Company, (iii) each executive
officer named in the Summary Compensation Table set forth above, and (iv) all
directors and executive officers as a group:
65
<PAGE>
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
NAME BENEFICIAL OWNERSHIP/(1)/ PERCENT OF CLASS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
H. R. Shipes 2,117,646 /(2)/ 7.70%
11251 E. Camino del Sahauro
Tucson, AZ 85711
Victor D. Bahary 1,582,100 /(3)/ 5.75%
45 Park Boulevard
Ocean, NJ 07712
Independence Mining Company Inc. 1,400,000 /(4)/ 5.09%
5251 DTC Parkway, Suite 700
Englewood, CO 80111
Douglas R. Cook 97,000 /(5)/ *
Mario Caron 50,000 /(6)/ *
James H. Dunnett 115,000 /(7)/ *
C. Thomas Ogryzlo 70,000 /(8)/ *
Richard E. Blubaugh 176,406 /(9)/ *
Gregg B. Shafter 142,797 /(10)/ *
All current executive officers and
directors as a group (7 persons) 766,336 /(11)/ 2.72%
</TABLE>
* Represents less than 1% ownership interest.
(1) Does not include shares issuable on the exercise of options, which have not
vested and will not vest within 60 days of this report.
(2) On October 28, 1996 a Schedule 13D was filed with the Securities and
Exchange Commission by H.R. Shipes reflecting beneficial ownership of
2,117,646 shares of Common Stock of which 156,863 are held by Mr. Shipes
for the benefit of his minor child under the Uniform Gift to Minor's Act.
Also included are 56,667 shares obtainable upon exercise of options granted
to Mr. Shipes under the Long Term Incentive Plan.
(3) On October 2, 1997 a Schedule 13D was filed with the Securities and
Exchange Commission by Victor D. Bahary reflecting beneficial ownership of
1,581,200 shares of Common Stock.
66
<PAGE>
(4) On November 3, 1995 Atlas received a copy of Schedule 13D filed by
Independence Mining Company Inc. reflecting direct ownership of 1,400,000
shares of Common Stock.
(5) Includes 2,000 shares of Common Stock directly owned and 95,000 shares
obtainable upon exercise of options granted to Mr. Cook under the Long Term
Incentive Plan.
(6) Includes 50,000 shares obtainable upon exercise of options under the Long
Term Incentive Plan.
(7) James H. Dunnett is the indirect beneficial owner of warrants issued by the
Company which are exercisable into 45,000 shares of Common Stock at an
exercise price of $7.00 per share. Mr. Dunnett's holdings also include
70,000 shares obtainable upon exercise of options granted to him under the
Long Term Incentive Plan.
(8) Includes 70,000 shares obtainable upon exercise of options granted under
the Long Term Incentive Plan.
(9) Includes (i) 127,500 shares obtainable upon the exercise of options granted
under the Long Term Incentive Plan and (ii) 48,906 shares held in Mr.
Blubaugh's account under the Company's 401(k) Plan.
(10) Includes (i) 101,500 shares obtainable upon the exercise of options granted
under the Long Term Incentive Plan and (ii) 41,297 shares held in Mr.
Shafter's account under the Company's 401 (k) Plan.
(11) Includes (i) 592,500 shares obtainable upon the exercise of options granted
under the Long Term Incentive Plan, (ii) warrants issued by the Company
which are exercisable into 45,000 shares of Common Stock at an exercise
price of $7.00 per share, (iii) 125,836 shares of Common Stock held
beneficially under the Company's 401(k) Plan and (iv) direct ownership of
3,000 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
67
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) Financial Statements:
See Index to Financial Statements on page 24.
(2) Financial Statement Schedules:
Not Applicable.
(3) Exhibits:
Exhibit
Number Exhibits
----------------------------------------------------------------------
2.1 Stock Purchase Agreement between the Company and Arimetco
International Inc. dated October 7, 1996. (filed as Exhibit
2.2 to the Company's annual report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
2.2 Stock Purchase Agreement between the Company and Cornerstone
Industrial Minerals Corporation dated December 13, 1996
(filed as Exhibit 2.3 to the Company's annual report on Form
10-K for the year ended December 31, 1996, and incorporated
herein by reference).
2.3 Asset Purchase Agreement between the Company, Atlas Gold
Mining Inc. and Atlas Precious Metals Inc. and Barrick Gold
Exploration Inc. dated June 3, 1997 regarding the Company's
Gold Bar property. (Filed as exhibit 2.4 to the Company's
annual report on form 10-K for the year ended December 31,
1997 and incorporated herein by reference.)
2.4 Letter Agreement between the Company and Tombstone
Explorations Co. Ltd. dated December 19, 1997 with respect
to the Company's Grassy Mountain property. (Filed as exhibit
2.5 to the Company's annual report on form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference.)
3.1 Amended and Restated Certificate of Incorporation of the
Company, dated July 28, 1998.
3.2 By-Laws of the Company as amended on July 12, 1995. (filed
as Exhibit 3.3 to the Company's annual report on Form 10-K
for the year ended June 30, 1995 and incorporated herein by
reference).
68
<PAGE>
10.1 Atlas Corporation Management Incentive Compensation Plan
(filed as Exhibit 10.2 to the Company's annual report on
Form 10-K (File No. 1-2714) for the fiscal year ended June
30, 1981 and incorporated herein by reference).
10.2 Form of Indemnity Agreement entered into between the Company
and certain of its directors (filed as Exhibit 10.14 to the
Company's annual report on Form 10-K for the fiscal year
ended June 30, 1987 and incorporated herein by reference).
10.3 Long Term Incentive Plan of the Company dated November 1,
1989 (filed as Exhibit 10.28 to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1989 and
incorporated herein by reference).
10.4 Atlas Corporation Supplemental Executive Retirement Plan
dated as of January 3, 1990 (filed as Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1990 and incorporated herein by reference).
10.5 Atlas Corporation Retirement Plan for Outside Directors
dated April 4, 1990 (filed as Exhibit 10.3 to the Company's
quarterly report on Form 10-Q for the quarter ended March
31, 1990 and incorporated herein by reference).
10.6 Atlas Corporation Annual Incentive Plan adopted by the Board
of Directors of the Company on March 6, 1991 (filed as
Exhibit 10.20 to the Company's annual report on Form 10-K
for the year ended June 30, 1991 and incorporated herein by
reference).
10.7 Securities Purchase Agreement dated September 3, 1993
between the Company and Phoenix Financial Holdings Inc.
(filed as Exhibit 2 to the Company's Report on Form 8-K
filed on September 9, 1993 and incorporated herein by
reference).
10.8 The Company's Long Term Incentive Plan, as amended, dated
February 17, 1995 (filed as Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the quarter ended March
31, 1995 and incorporated herein by reference).
10.9 Employment agreement made as of February 17, 1995 between
the Company and Richard E. Blubaugh (filed as Exhibit 10.27
to the Company's annual report on Form 10-K for the year
ended June 30, 1995 and incorporated herein by reference).
69
<PAGE>
10.10 Resignation Agreement and General Release dated November 5,
1996 between the Company and Gerald E. Davis (filed as
Exhibit 10.39 to the Company's annual report on Form 10-K
for the year ended December 31, 1996 and incorporated herein
by reference).
10.11 Amendment to Resignation Agreement and General Release dated
January 14, 1997 between the Company and Gerald E. Davis
(filed as Exhibit 10.40 to the Company's annual report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10.12 Employment Agreement dated December 1, 1996 between the
Company and Gregg B. Shafter (filed as Exhibit 10.41 to the
Company's annual report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
10.13 Deposit Agreement between Seven Peaks Mining, Inc. and Atlas
Corporation dated October 2, 1998.
10.14 Mutual Termination Agreement dated December 16, 1998 between
Barrick Gold Exploration Inc. and Atlas Corporation, Atlas
Gold Mining Inc. and Atlas Precious Metals Inc.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) The Registrant filed or amended reports on Form 8-K during the fourth
quarter of 1998 as follows:
(i) Report on Form 8-K dated October 9, 1998 with respect to the Company's
sale of Cornerstone and the resignation of Ernst & Young as auditors
of the Company.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ATLAS CORPORATION
By: /s/ Gregg B. Shafter
Name: Gregg B. Shafter
Title: President
Date: 4/13/99
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
/s/ James R. Jensen Chief Financial Officer 4/13/99
- -------------------------
James R. Jensen (Principal Financial Officer
& Principal Accounting Officer)
/s/ Richard E. Blubaugh Director 4/13/99
- -------------------------
Richard E. Blubaugh
/s/ Mario Caron Director 4/13/99
- -------------------------
Mario Caron
/s/ Douglas R. Cook Director 4/13/99
- -------------------------
Douglas R. Cook
/s/ James H. Dunnett Director 4/13/99
- -------------------------
James H. Dunnett
/s/ Gregg B. Shafter Director 4/13/99
- -------------------------
Gregg B. Shafter
/s/ C. Thomas Ogryzlo Director 4/13/99
- -------------------------
C. Thomas Ogryzlo
71
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ATLAS CORPORATION
ATLAS CORPORATION, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
The name of the corporation (hereinafter called the "Corporation") is
Atlas Corporation, which is the name under which the Corporation was originally
incorporated. The date of filing the original Certificate of Incorporation of
the Corporation with the Secretary of State of the State of Delaware was October
31, 1936.
The provisions of the Certificate of Incorporation of the Corporation,
as heretofore amended and supplemented, are hereby restated and integrated into
a single instrument which is hereinafter set forth and is entitled "Amended and
Restated Certificate of Incorporation of Atlas Corporation" without further
amendment and without any discrepancy between the provisions of the Certificate
of Incorporation, as heretofore amended and supplemented, and the provisions of
the Restated Certificate of Incorporation.
The Board of Directors of the Corporation has duly adopted the Amended
and Restated Certificate of Incorporation pursuant to the provisions of Section
245 of the General Corporation Law of the State of Delaware in the following
form:
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ATLAS CORPORATION
FIRST: The name of the Corporation is Atlas Corporation.
SECOND: The registered office or place of business of the Corporation in
the State of Delaware is located as 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.
THIRD: The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows:
-1-
<PAGE>
1. To acquire by purchase, subscription, underwriting or otherwise, and
to own, hold for investment or otherwise, and to use, sell, assign, transfer,
mortgage, pledge, exchange or otherwise dispose of real and personal property
of every sort and description and wheresoever situated, including shares of
stock, bonds, debentures, notes, scrip, securities, evidences of indebtedness,
contracts or obligations of any corporations, associations or trust estates,
domestic or foreign, or of any firm or individual estates, domestic or
foreign, or of any firm or individual or of the United States of any state,
territory or dependency of the United States or any foreign country, or any
municipality or local authority within or without the United States, and also
to issue in exchange therefor stocks, bonds or other securities or evidences
of indebtedness of the Corporation, and, while the owner or holder of any such
property, to receive, collect and dispose of the interest, dividends and
income on or from such property and to possess and exercise in respect thereto
all of the rights, powers and privileges of ownership, including all voting
power thereon;
2. To carry on the business of general brokers, dealers and underwriters
in stocks, bonds, securities, mortgages and other choses in action, including
the acquisition thereof by original subscription, underwriting or otherwise
howsoever; to make investments in such property; and to hold, manage, mortgage,
pledge, sell and dispose of the same in like manner as individuals may do;
3. To aid in any manner any corporation, association or trust estate,
domestic or foreign or any firm or individual, any shares of stock in which or
any bonds, debentures, notes, securities, evidences of indebtedness, contracts
or obligations of which are held by or for the Corporation, directly or
indirectly, or in which, or in the welfare of which, the Corporation shall have
any interest, and to do any acts designed to protect, preserve, improve or
enhance the value of any property at any time held or controlled by it or in
which it may be at any time interested, directly or indirectly or through other
corporations or otherwise; and to organize or promote or facilitate the
organization of any corporation, association, partnership, syndicate or entity,
domestic or foreign;
4. To buy, sell, and otherwise deal in notes, open accounts and other
similar evidences of indebtedness and to loan money and to take notes, open
accounts and other similar evidences of indebtedness as collateral security
therefor;
5. To borrow money and to issue bonds, promissory notes, bills of
exchange, debentures, and other obligations and evidences of indebtedness,
whether secured by mortgage, pledge or otherwise, or unsecured, for money
borrowed or in payment for property purchased or acquired or for any other
lawful object; to mortgage or pledge all or any part of its properties, rights,
interests and franchises, including any or all shares of stocks, bonds,
debentures, notes, scrip or other obligations or evidences of indebtedness at
any time owned by it; to confer upon the holders of any bonds, promissory notes,
bills of exchange, debentures or other obligations or evidences of indebtedness
of the Corporation, secured or unsecured, the right to convert the same into any
series of any class of stock of the Corporation now or hereafter authorized;
-2-
<PAGE>
6. To guarantee or assume the payment of any dividends upon any capital
stock and to assume or guarantee by endorsement or otherwise the principal or
interest, or both, of any bonds, debentures, notes, scrip or other obligations
or evidences of indebtedness, or the performance of any contract or obligations,
of any other corporation, trust estate or association, domestic or foreign, or
of any firm or individual in which it may have a lawful interest, in so far as
and to the extent that such guaranty may be permitted by law;
7. To purchase or otherwise acquire shares of its own stock and options
to purchase shares of its own stock (insofar as may be permitted by law) and its
bonds, debentures, notes, scrip or other securities or evidences of
indebtedness, and to cancel or to hold, transfer or reissue the same to such
persons, firms, corporations or associations and upon such terms and conditions
as the Board of Directors may in its discretion determine, without offering any
thereof on the same terms or on any terms to the stockholders then of record or
to any class of stockholders;
8. To transact any manufacturing or mining business and to purchase or
otherwise acquire, to hold or own, to mortgage, sell, pledge, assign, transfer
or otherwise dispose of and to invest, trade and deal in goods, wares and
merchandise and property of every class and description.
9. To acquire by discovery, location, purchase, lease, assignment, patent
or otherwise, mining claims and lands containing or supposed to contain gold,
silver, copper, lead, zinc, iron, mercury, pumice, uranium, thorium, vanadium,
or any other ores, minerals or metals and to open, develop, maintain and operate
mines on the said lands and locations and to mine and produce any and all of the
said ores, metals and minerals;
10. To acquire, collect, explore, develop, refine, process, store,
utilize, sell, transport, transmit, distribute or otherwise use, apply or
dispose of any and all natural resources, of whatever nature or character and
wherever located, and whether now known or hereafter discovered;
11. To acquire, buy, hold, invest in, sell, lease, exchange, deal in,
manage, operate, control, improve, develop, explore, maintain and dispose of
lands, properties, leases, mineral rights, royalties, participations and other
interests of whatsoever nature in petroleum and other oils, gas, coal, sulphur,
lignite, sand, clay, gravel, stone and other minerals and mineral substances,
salt, brine and other mineral solutions in any form or of any kind whatsoever;
12. To acquire, buy, hold, store, use, own, sell, lease, exchange,
dispose of, transport, transmit, distribute, deal in, manufacture, produce,
refine, furnish and supply petroleum and other oils, gas, coal, sulphur,
lignite, sand, clay, gravel, stone and other minerals and mineral substances,
salt, brine and other mineral solutions in any form or of any kind whatsoever,
and any substances, articles or things of which or in the production of which
-3-
<PAGE>
petroleum, other oils, gas, minerals or mineral substances or mineral solutions
form a part;
13. To produce, manufacture, buy or otherwise acquire, distribute, use,
sell or otherwise dispose of petroleum and other oils, natural gas or artificial
gas or a mixture of natural and artificial gas for light, heat, power and other
purposes, and to produce, acquire, use, sell and distribute the by-products and
residual products therefrom, and to construct or in any manner acquire,
maintain, operate, encumber, sell, or in any manner dispose of works therefor
and any and all equipment and appurtenances relating or incident thereto;
14. To engage in any business relating, directly or indirectly, to the
discovery, development, production, use or application of nuclear, fissionable,
fusionable or radioactive materials and atomic energy, whether now known or
hereafter invented or discovered;
15. To search, prospect and explore for, mine, drill, extract, remove,
produce, acquire by purchase or otherwise, own, use, store, transport, sell or
otherwise dispose of, refine, distill, concentrate, synthesize, treat
chemically, recycle, mill, manufacture, process and reprocess all ores,
minerals, gases and other natural or artificial substances, and all products,
by-products and residual products thereof or therefrom, related to or having any
purpose in connection with nuclear, fissionable, fusionable or radioactive
materials and atomic energy, whether now known or hereafter invented or
discovered;
16. To build, manufacture, fabricate, construct, assemble, design,
develop, experiment with, produce, purchase, charter, hire, or otherwise
acquire, own, maintain, hold, operate, use, install, equip, replace, service,
process, reprocess, repair, remodel, recondition, sell, lease, transfer, assign,
mortgage, pledge or otherwise dispose of, trade and deal in nuclear reactors and
related and associated devices, power units and plants, heating units and
plants, engines, machines, mechanisms, facilities, installations, tools,
implements, instruments, measuring, indicating or detecting devices, appliances
and apparatus of whatsoever kind and description, whether now known or hereafter
invented or discovered, making use of, related to or having any purpose in
connection with nuclear, fissionable, fusionable or radioactive materials and
atomic energy;
17. To devise, experiment with, develop, improve, service, manufacture,
product, sell, lease or otherwise dispose of, market, deal and trade in
substances, products and by-products, including radioactive isotopes of long and
short life, and procedure, processes and applications in agriculture,
horticulture, commerce, industry, medicine, military affairs, or any and all
other fields of human endeavor, including the treatment, preparation and
preservation of foods, beverages, drugs, and medicinal products, making use of,
related to or having any purpose in connection with nuclear, fissionable,
fusionable or radioactive materials and atomic energy, whether now known or
hereafter invented or discovered;
18. To undertake, manage and control any and all kinds of scientific,
historical, geographical, artistic or other enterprises and investigations, and
to conduct, promote and finance
-4-
<PAGE>
any and all kinds of research, experiments, investigations, expeditions and
explorations in aid thereof;
19. To buy, lease and otherwise acquire lands and interests in lands of
every kind and description and wheresoever situated; to buy, lease and otherwise
acquire, and to construct and erect buildings and structures in and on such
lands for any use or purpose; to hold, own, improve, develop, maintain, operate,
let, lease, mortgage, sell, or otherwise dispose of such property or any
thereof; to equip and operate warehouses, office buildings, hotels, apartment
house, apartment hotels, theaters, restaurants, and cafes, or any other
buildings and structures of whatsoever kind;
20. To manufacture, produce, buy, hire, or otherwise acquire, use, sell,
lease, license others to use, or otherwise turn to account or dispose of,
exhibit and distribute all kinds of sound or silent pictures, whether still or
moving, apparatus and goods of all kinds useful in making, receiving,
collecting, transcribing, reproducing, exhibiting, transmitting, broadcasting,
telecasting or otherwise dealing with the same, and also any and all parts,
apparatus, equipment, supplies, materials, chemicals, implements, devices and
things incidental to or useful in connection with any of the foregoing;
21. To own, lease, or otherwise acquire and to manage, operate, and
control theatres and other places of amusement and entertainment; to own, lease,
or otherwise acquire, and to manage, operate, and control radio, telegraph,
telephone, radio broadcasting and telecasting systems or stations and any other
means of communication, whether now known or hereafter discovered or invented;
to carry on a general theatrical and amusement business and every branch thereof
or every business connected therewith; and to carry on any other business
of a similar or related nature or capable of being conveniently carried on in
connection with the foregoing or calculated directly or indirectly to enhance
the value of the property or rights of the Corporation;
22. To acquire, buy, hold, own, lease, manage and control lands, interests
in lands, concessions, railroads, canals, water courses, dams, irrigation
systems, drainage systems, structures, buildings, factories, shops, warehouses,
machinery, tools, ships, boats, cars, trucks, busses, engines, aircraft and any
other property, real and personal, of whatsoever kind, and to do any acts
necessary or convenient in connection with the exercise of the foregoing powers;
23. To plan, design, construct, alter, repair, remove or otherwise engage
in any work upon bridges, railroads, dams, canals, piers, docks, wharves,
buildings, structures, foundations, mines, shafts, tunnels, wells, water works
and all kinds of structural excavations and subterranean work and generally to
carry on the business of contractors and engineers;
24. To transact a general real estate agency and brokerage business and to
act as agents, brokers or attorneys in fact for any persons, firms, or
corporations in buying, selling and dealing in real property and any and every
estate or interest therein;
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25. To make, enter into and carry out any arrangements with any domestic
or foreign, governmental, municipal or public authority or with any corporation,
association, firm, syndicate, entity or individual, domestic or foreign, and to
obtain therefrom or otherwise to acquire by purchase, lease, assignment or
otherwise any powers, rights, privileges, immunities, franchises, guaranties,
grants and concessions; to acquire, hold, own, exercise, exploit, dispose of and
realize upon the same, and to undertake and prosecute any business dependent
thereon;
26. To manufacture, improve, repair and work upon minerals, metals, wood,
oils and other liquids, gases, chemicals, animal and plant products or any of
the products and by-products thereof or any article or thing into the
manufacture of which any of the foregoing may enter;
27. To buy, sell, lease exchange, trade and otherwise deal in any and all
kinds of manufactured articles, raw materials, synthetics, minerals, oils,
gases, liquids, animal and plant products and any other goods, wares,
merchandise, articles, substances and things whatsoever, and generally to carry
on the business of storekeepers, merchants, factors, traders, importers and
exporters;
28. To carry on the business of trucking, warehousing and storage,
including the storage of all kinds of goods, wares and merchandise, the issue of
storage and warehouse receipts, negotiable and non-negotiable, covering all
kinds of goods, wares and merchandise;
29. To develop, acquire, buy, hold, own, sell, exchange, apply for,
control, dispose of, deal in, use, discover, improve, work upon, assign, lease,
mortgage, grant licenses to use, or otherwise dispose of patents, patent rights,
copyrights, inventions, improvements, devices and processes, trade-marks, trade
names, trade symbols and other indications of origin and ownership;
30. To take over, acquire, buy, hold, own, sell, exchange, dispose of,
finance, build up, promote, improve, maintain, operate, equip and manage any and
all kinds of industrial, engineering, producing, servicing, supplying, mining,
manufacturing, agricultural, horticultural, selling, trading, entertainment and
other productive and commercial enterprises, businesses and undertakings, public
or private;
31. To act as financial, business or purchasing agent for domestic or
foreign corporations, individuals, partnerships, associations, states,
governments or other bodies;
32. To acquire, organize, assemble develop, build-up and operate
constructing, producing, booking, servicing, supplying, and operating, and other
organizations and systems and to hire, sell, lease, exchange, turn over, deliver
and dispose of such organizations, in whole or in part, and as going
organizations and systems and otherwise, and to enter into and perform
contracts, agreements and undertakings of any kind in connection with any or all
of the foregoing purposes;
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33. To do all and everything necessary and proper for the accomplishment
of the objects herein enumerated or necessary or incidental to the protection
and benefit of the Corporation, and in general to carry on any lawful business
necessary or incidental to the attainment of the purposes of the Corporation,
whether such business is similar in nature to the objects and powers hereinabove
set forth, or otherwise; but nothing herein contained is to be construed as
giving the Corporation the power of issuing bills, notes or other evidences of
debt for circulation as money, or the power of carrying on the business of
receiving deposits of money, or the business of buying gold or silver bullion or
foreign coins, or the business of constructing, maintaining and operating public
utilities within the State of Delaware.
34. To do any or all things herein set forth to the same extent as natural
persons might or could do, as principal, agent, contractor or otherwise, and
either alone or in conjunction with one or more other persons, firms,
associations, trust estates or corporations;
35. To conduct its business and promote its objects in the State of
Delaware, other States, the District of Columbia, the territories and colonies
of the United States and in foreign countries, without restriction as to place
or amount, and to have one or more offices without as well as within the State
of Delaware and to hold, purchase, mortgage and convey real or personal property
without as well as within the State of Delaware.
The foregoing clauses shall be construed as objects, purposes and powers,
and it is hereby expressly provided that the foregoing enumeration of specific
powers shall not beheld to limit or restrict in any manner the powers of the
Corporation.
Only the business for which a corporation may be formed under the
provisions of the General Corporation Law of the State of Delaware may be
conducted by the Corporation.
FOURTH: The total number of shares of capital stock which may be issued by
the Corporation is 101,000,000, of which 100,000,000 shares shall be Common
Stock, par value $0.01 per share, and 1,000,000 shares shall be Series Preferred
Stock, par value $1.00 per share.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of
stock, are as follows:
SERIES PREFERRED STOCK
I. The Board of Directors is hereby expressly authorized to issue
the shares of Series Preferred Stock in series and to determine the number of
shares, voting powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions of each series. The authority of the Board of Directors with
respect to each series shall include, without limitation, the authority to
determine any or all of the following matters:
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(a) The number of shares constituting such series and the designation
thereof to distinguish the shares of such series from the shares of
all other series;
(b) The voting powers of such series whether full, limited or none;
(c) The terms and provisions governing the redemption of shares of
such series, if redeemable;
(d) The terms and provisions governing the operation of retirement or
sinking funds, if any, for the retirement or purchase of shares of
such series;
(e) The rights of holders of shares of such series to receive
dividendes thereon and the dividend rates, the conditions and time of
payment of dividends, the extent to which dividends are payable in
preference to, or in any other relation to, dividends payable on any
other class or classes or series of stock, and whether such dividends
shall be cumulative or non-cumulative;
(f) The rights of holders of shares of such series upon the
dissolution of, or upon distribution of the assets of, the
Corporation;
(g) The rights, if any, of holders of shares of such series to
convert such shares into or to exchange such shares for shares of any
other class or classes of stock, or of any series thereof, of the
Corporation and the price or prices or rate or rates for such
conversion or exchange, and any adjustments thereto; and
(h) Any other preferences and relative, participating, optional or
other special rights, and qualifications, limitations or
restrictions of such series.
The shares of each series may vary from the share of any other series as to
any of such matters.
Dividends on all outstanding shares of Series Preferred Stock must be
declared and paid, or set aside for payment, before any dividends may be
declared and paid, or set aside for payment, on share of Common Stock with
respect to the same dividend period.
COMMON STOCK
II. Subject to all of the rights of the Series Preferred Stock,
dividends may be paid upon the Common Stock as and when declared by the Board of
Directors out of any funds legally available therefor.
III. Upon any liquidation, dissolution or winding up of the Corporation,
after payment shall have been made in full to holders of the Series Preferred
Stock as provided in Section I of this Article Fourth, or after an amount
sufficient to make such payment in full (or the
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portion of such amount not already paid out for such purpose) shall have been
deposited in trust for the purpose with any bank or trust company having
capital, surplus and undivided profits of not less than $5,000,000, the holders
of the Common Stock shall, subject to the respective terms and provisions, if
any, applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of the Series Preferred Stock shall not be
entitled to share therein.
IV. Subject to the provisions hereof, the Common Stock shall be
entitled to one vote for each share for the election of directors and upon all
other matters.
GENERAL
V. Nothing contained herein shall limit any legal right of the
Corporation to purchase any shares of Series Preferred Stock, or any shares of
its Common stock (except as otherwise provided in or pursuant to Section I of
this Article Fourth), or any options to purchase shares of its own stock of any
class.
VI. No holder of any stock of the Corporation shall have any right, as
such holder, to purchase or subscribe for or otherwise acquire any shares of
stock or any securities or obligations convertible into, or exchangeable for, or
any right, warrant or option to purchase, any shares of stock of any class which
the Corporation may at any time hereafter issue or sell, whether now or
hereafter authorized, but any and all such stock, securities, obligations,
rights, warrants and options may be issued and disposed of by the Board of
Directors to such persons, firms, corporations and associations, and for such
lawful consideration, and on such terms, as the Board of Directors in its
discretion may determine, without first offering the same or any thereof, to the
stockholders.
VII. A director shall be fully protected in relying in good faith upon
the books of account of the Corporation or statements prepared by any of its
officials as to the value and amount of the assets, liabilities and/or net
profits of the Corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid.
VIII. The Corporation shall be entitled to treat the person in whose name
any share, right or option is registered as the owner thereof, for all purposes,
and shall not be bound to recognize any equitable or other claim to or interest
in such share, right or option on the part of any other person, whether or not
the Corporation shall have notice thereof, save as may be expressly provided by
the laws of the State of Delaware.
IX. The minimum amount of capital with which the Corporation will
commence business is $1,000.
FIFTH: The Corporation is to have perpetual existence.
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SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatsoever.
SEVENTH: The number of Directors of the Corporation which shall constitute
the whole Board of Directors shall be such as from time to time shall be fixed
by a resolution adopted by an affirmative vote of a majority of the entire Board
of Directors, but in no case shall the number be less than six or more than 13.
The Directors to be elected by the holders of Common Stock shall be divided into
three Classes designated Classes I, II and III, and each such Class shall
consist of not less than two or more than five Directors, as determined from
time to time by the Board of Directors. Each Class I Director holding office at
the time of the 1989 annual meeting of stockholders shall serve a remaining term
of two years, each Class II Director elected at the 1989 annual meeting of
stockholders shall serve a term of three years, and each Class III Director
holding office at the time of the 1989 annual meeting of stockholders shall
serve a remaining term of one year, or in each case until their successors are
duly elected and qualified. At each annual meeting of stockholders, commencing
with the 1990 annual meeting, the successors to any Class of Directors whose
terms then expire shall be elected to service three-year terms, or until their
successors are duly elected and qualified. Except as may otherwise be required
by law, any vacancy occurring among the Directors of any Class, and any newly
created directorship occurring by reason of any increase in the number of
Directors in such Class, may be filled by a majority of the Directors then in
office, though less than a quorum, or by a sole remaining Director, and
Directors chosen to fill such vacancies shall hold office until the next
election of the Class for which such Directors shall have been chosen, or until
their successors are duly elected and qualified. Directors elected by the
holders of Common Stock may not be removed without cause. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of Series
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, and such Directors so elected
shall not be divided into classes pursuant to this Article unless expressly
provided by such terms. Notwithstanding any other provision of this Certificate
of Incorporation, and in addition to any other vote that may be required by
statute or this Certificate of Incorporation, this Article may not be amended,
altered, repealed or otherwise changed unless approved by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of stock of the
Corporation entitled to vote thereon.
All corporate powers of the Corporation shall be exercised by the Board of
Directors except as otherwise provided herein or by law.
IN FURTHERANCE AND NOT IN LIMITATION OF THE OWERS CONFERRED BY STATUTE THE
BOARD OF DIRECTORS IS EXPERESSLY AUTHORIZED:
(a) To fix, determine and vary from time to time the amount to be
maintained as
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surplus and the amount or amounts to be set apart as working capital.
(b) To be set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purposes and/or to abolish
any such reserve or reserves in the manner in which created.
(c) To make, amend, alter, change, add to or repeal by-laws of the
Corporation, without any action on the part of the stockholders. The by-
laws made by the directors may be amended, altered, changed, added to or
repealed by a majority of a quorum of the stockholders.
(d) To authorize and cause to be executed mortgages and liens, with or
without limit as to amount, upon the real or personal property of the
Corporation.
(e) From time to time to determine whether and to what extent, at what time
and place, and under what conditions and regulations the accounts and books
of the Corporation, or any of them, shall be open to the inspection of any
stockholder; and no stockholder shall have any right to inspect any account
or book or document of the Corporation except as conferred by statute or by-
laws or as authorized by resolution of the stockholders or Board of
Directors.
(f) To authorize the payment of compensation to the directors for services
to the Corporation, including fees for attendance at meetings of the Board
of Directors, the Executive committee and other committees and/or salaries
for serving as such directors or committee members, and to determine the
amount of such compensation.
(g) From time to time to formulate, establish, promote and carry out, and to
amend, alter, change, revise, recall, repeal or abolish, a plan or plans for
the participation by all or any of the employees, including directors and
officers, of the Corporation, or of any corporation, company, association,
trust or organization in which or in the welfare for which the Corporation
has any interest, and those actively engaged in the conduct of the
Corporation's business, in the profits, gains or business of the Corporation
or of any branch or division thereof, as part of the Corporation's
legitimate expenses and for the furnishing to such employees, directors,
officers or persons, or any of them, at the Corporation's expense, of
medical services, insurance against accident, sickness or death, pensions
during old age, disability or unemployment, education, housing, social
services, recreation or other similar aids for their relief or general
welfare, in such manner and upon such terms and conditions as the Board of
Directors shall determine.
EIGHTH: Until such time as the Corporation shall issue shares of its
capital stock in addition to the shares of its Common Stock issuable pursuant to
the provisions of Article V of the Agreement of Merger dated as of November 30,
1955, of Atlas Corporation, Airfleets, Inc., Albuquerque Associated Oil Company,
RKO Pictures Corporation, San Diego Corporation and
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Wasatch Corporation, or shall by action of its Board of Directors transfer
additional amounts to capital represented by shares of its capital stock, the
capital of the Corporation shall be a sum equal to $1 for each share of its
Common Stock so issued. There shall be transferred from time to time to capital
represented by shares of capital stock of the Corporation such amounts as may be
necessary to make the capital of the Corporation the sum aforesaid.
NINTH: (a) A director or officer of the Corporation shall not be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor shall any transaction or
contract of the Corporation be void or voidable by reason of the fact that any
director or officer of any firm of which any director or officer is a member or
any corporation of which any director or officer is a stockholder, officer or
director, is in any way interested in such transaction or contract, provided
that such transaction or contract is or shall be authorized, ratified or
approved either (1) by a vote of a majority of a quorum of the Board of
Directors or of the Executive Committee, without counting in such majority or
quorum any director so interested or member of a firm so interested, or a
stockholder, officer or director of a corporation so interested, or (2) by the
written consent, or by the vote of any stockholders' meeting of the holders of
record, of a majority of all the outstanding shares of stock of the Corporation
entitled to vote, nor shall any director or officer be liable to account to the
Corporation for any profits realized by or from or through any such transaction
or contract authorized, ratified or approved as aforesaid by reason of the fact
that he, or any firm of which he is a member or any corporation of which he is a
stockholder, officer or director was interested in such transaction or contract.
Nothing herein contained shall create liability in the events above described or
prevent the authorization, ratification or approval of such contracts in any
other manner permitted by law.
(b) No person shall be liable to the Corporation for any loss or
damage suffered by it on account of any action taken or omitted to be taken by
him as a director or officer of the Corporation in good faith, if such person
(i) exercised or used the same degree of care and skill as a prudent man would
have exercised or used under the circumstances in the conduct of his own
affairs, or (ii) took, or omitted to take, such action in reliance upon advice
of counsel for the Corporation or upon statements made or information furnished
by officers or employees of the Corporation which he had reasonable grounds to
believe or upon a financial statement of the Corporation prepared by an officer
or employee of the Corporation in charge of its accounts or certified by a
public accountant or firm of public accountants.
(c) Any contract, transaction or act of the Corporation or of the
Board of Directors which shall be ratified by a majority of a quorum of the
stockholders entitled to vote at any annual meeting or at any special meeting
called for that purpose shall be as valid and binding as though ratified by
every stockholder of the Corporation; provided, however, that any failure of the
stockholders to approve or ratify such contract, transaction or act, when and if
submitted, shall not be deemed in any way to invalidate the same or to deprive
the Corporation, its directors or officers of their right to proceed with such
contract, transaction or act.
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(d) To the full extent permitted by subsections (a), (b) and (e) of
Section 145 of the General Corporation Law of Delaware or any successor
provisions thereto, (1) the Corporation shall (A) indemnify any person who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal administrative
or investigative, by reason of the fact that such person is or was a director or
officer of the Corporation, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding and (B) pay
expenses incurred by such person in defending a civil or criminal action, suit
or proceeding in advance of the final disposition of such action, suit or
proceeding, and (2) the Corporation may (A) indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was an employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding and (B) pay expenses incurred by such person in defending a
civil or criminal action, suit or proceeding in advance of the final disposition
of such action, suit or proceeding. The foregoing indemnification and
advancement of expenses provisions shall not be deemed exclusive of any other
rights to indemnification or advancement of expenses to which any such person
may be entitled under any statute, by-law, agreement, vote of stockholders of
disinterested directors or otherwise. Any change in law that purports to
restrict the ability of the Corporation to indemnify or advance expenses to any
such person shall not affect the Corporation's obligation or right to indemnify
and advance expenses to any such person with respect to any action, claim, suit
or proceeding that occurred or arose, or that is based on events or acts that
occurred or arose, prior to such change in law.
TENTH: Any property of the Corporation not essential to the conduct of
its corporate business may be sold, leased, exchanged or otherwise disposed of
by authority of its Board of Directors, and the Corporation may sell, lease or
exchange all of its property and assets, including its good-will and its
corporate franchises, upon such terms and conditions and for such consideration,
which may be in whole or in part shares of stock in, and/or other securities of,
any other corporation of corporations, as its Board of Directors shall deem
expedient and for the best interests of the Corporation, when and as authorized
by the affirmative vote of the holders of a majority of each class of stock
issued and outstanding, voting separately by classes, given at a stockholders'
meeting duly called for that purpose, or when authorized by the written consent
of the holders of a majority of each such class issued and outstanding.
ELEVENTH: Upon the written consent or affirmative vote of the holders of a
majority in aggregate number of the shares of stock of the Corporation then
outstanding and entitled to vote, and subject to the express provisions hereof,
every statute of the State of Delaware (a) increasing, diminishing, or in any
way affecting the rights, powers or privileges of stockholders of corporations
organized under the general laws of said State, or (b) giving effect to the
action
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taken by any part, less than all, of the stockholders of any such corporation,
shall be binding upon the Corporation and every stockholder thereof, to the same
extent as if such statute had been in force at the date of the making, filing
and recording of this Certificate of Incorporation of the Corporation.
TWELFTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders of any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the Creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said Court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
THIRTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
officers, directors and stockholders herein are granted subject to this
reservation.
FOURTEENTH: Except as otherwise provided in this Article, the affirmative
vote of the holders of at least two-thirds of the outstanding shares of stock of
the Corporation entitled to vote thereon is required for the approval of (a) any
agreement of merger or consolidation of the Corporation with or into another
corporation which is required by law to be approved by the stockholders of the
Corporation, (b) the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the corporation, or (c) any
issuance or delivery of securities of the Corporation in exchange or payment for
any securities, properties or assets of any other person or entity in a
transaction in which the authorization or approval of stockholders of the
Corporation is required by law or any agreement to which the Corporation is a
party. The foregoing special voting requirement shall not be applicable to any
of the foregoing types of transactions if the other party thereto is, directly
or indirectly, a subsidiary of the Corporation. For this purpose, subsidiary
means any corporation, association or other business entity of which more than
50% of the outstanding shares of stock or similar interests of each class having
ordinary voting power (other than stock or similar interests having such power
by reason of the happening of a contingency) is at the time owned of record
and/or beneficially by the
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Corporation, or by one or more subsidiaries, or by the Corporation and one or
more subsidiaries. Notwithstanding any other provision of this Certificate of
Incorporation, and in addition to any other vote that may be required by statute
of this Certificate of Incorporation, this Article may not be amended, altered,
repealed or otherwise changed unless approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of stock of the
Corporation entitled to vote thereon.
FIFTEENTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that the foregoing provision of this Article
FIFTEENTH shall not apply to the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit. This Article FIFTEENTH shall not eliminate
or limit the liability of a director for any act or omission occurring prior to
the time this Article FIFTEENTH became effective.
Signed and attested to on July 28, 1998.
/s/ Greg B. Shafter
-----------------------
By: Gregg B. Shafter
President
Attest:
/s/ James R. Jensen
- -------------------------
By: James R. Jensen
Secretary & Treasurer
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EXHIBIT 10.13
DEPOSIT AGREEMENT
BETWEEN
SEVEN PEAKS MINING, INC.
AND
ATLAS CORPORATION
October 2, 1998
<PAGE>
DEPOSIT AGREEMENT
THIS AGREEMENT is entered into on the 2nd day of October, 1998, by and
between Seven Peaks Mining, Inc., a Kentucky corporation ("Seven Peaks"), and
Atlas Corporation, a Delaware corporation ("Atlas").
This agreement (the "Agreement") sets out the terms and conditions upon
which Seven Peaks will make or will cause a direct or indirect wholly-owned
subsidiary to make an offer (the "Offer") on substantially the terms summarized
in Schedule "A" forming part of this Agreement, for all of the issued and
outstanding common shares (the "Cornerstone Shares") of Cornerstone Industrial
Minerals Corporation, an Ontario corporation ("Cornerstone") (Atlas is the
majority shareholder and Manager of Cornerstone).
This Agreement also sets out the terms and conditions of the agreement by
Atlas not to solicit expressions of interest for or encourage competing offers
for the Cornerstone Shares presently owned beneficially and of record by Atlas
(the "Atlas Securities") and to deposit irrevocably and unconditionally under
the Offer all of the Atlas Securities, and sets out the obligations and
commitments of Atlas in connection therewith.
This Agreement also sets out the understanding and acknowledgment of Seven
Peaks that Atlas filed on September 22, 1998, a petition seeking protection
under Chapter 11 of the United States Bankruptcy Code, and that all agreements,
promises and provisions contained in this Agreement are subject to the
requirements of the Bankruptcy Code and Orders of the Bankruptcy Court having
jurisdiction over Atlas' petition in bankruptcy.
NOW THEREFORE, in consideration of the foregoing premises and the promises
and covenants herein made, together with other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the U.S. Securities Exchange Act of 1934, as amended.
"Cornerstone Financial Statements" means the audited financial statements
of Cornerstone as at and for the year ended December 31, 1997 and the
unaudited interim financial statements of Cornerstone as at and for the six
months ended June 30, 1998;
"Cornerstone Debt" means that certain indebtedness from Cornerstone to
Atlas as evidenced by that certain Stock Purchase Agreement between Atlas
and Cornerstone dated December 13, 1996, and the Cornerstone Financial
Statements.
<PAGE>
"Cornerstone Shares" means all of the issued and outstanding common shares
of Cornerstone Industrial Minerals Corporation, an Ontario corporation.
"Bankruptcy Code" means the United States Bankruptcy Code, as amended.
"Bankruptcy Case" means the case to be established in the United States
Bankruptcy Court for the District of Colorado upon the filing of Atlas'
petition for protection under chapter 11 of the Bankruptcy Code.
"Confidential Information" has the meaning set forth in paragraph 13 below.
"CUSA" means Cornerstone Industrial Minerals Corporation, U.S.A., an Oregon
corporation formerly known as Atlas Perlite, Inc.. CUSA is a wholly-owned
subsidiary of Cornerstone.
"DIP Agreement" means the Agreement for Debtor In Possession Financing
filed in the Bankruptcy Case.
"Environmental Costs" means any clean-up costs, remediation, removal, or
other response costs, legal expenses (including reasonable attorneys'
fees), investigation costs (including reasonable fees of consultants,
counsel and other experts in connection with any environmental
investigation or testing), losses, liabilities, obligations, payments,
fines, penalties (civil and criminal) and damages.
"Environmental Law" means any federal, state, provincial, regional,
territorial, municipal, local or foreign statute, code, ordinance, rule,
regulation, policy, guideline, permit, consent, approval, license,
judgment, order, writ, decree, injunction or other authorization, relating
to:
(1) emissions, discharges, releases or threatened releases of Hazardous
Substances into the natural or human environment, including, without
limitation, air, soil, sediments, land surface or subsurface, surface
water, ground water, buildings or facilities, treatment works,
drainage systems or septic systems; or
(2) the generation, treatment, storage, disposal, use, handling,
manufacturing, transportation or shipment of Hazardous Substances; or
(3) mining or mined land reclamation; or
(4) otherwise relating to the pollution or protection of health or safety
or the environment, solid waste
<PAGE>
handling, treatment or disposal or operation or reclamation of mines.
"Hazardous Substances" means (i) hazardous materials, pollutants,
contaminants, constituents, toxic substances, hazardous wastes and
hazardous substances as those terms are defined in the following statutes
and their implementing regulations: the Hazardous Materials Transportation
Act, 49 U.S.C. (S) 1801 et seq., the Resource Conservation and Recovery
------
Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive Environmental Response,
------
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act 42 U.S.C. (S) 1906 et seq., the Clean Water Act, 333
------
U.S.C. (S) 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)
------
2601 et seq., and the Clean Air Act, 42 U.S.C. (S) 7401 et seq., (ii)
------ -------
petroleum, including crude oil and any fractions thereof, (iii) natural
gas, synthetic gas and any mixtures thereof, (iv) asbestos and/or asbestos-
containing materials, (v) PCBs, or PCB-containing materials or fluids, (vi)
any other substance with respect to which any federal, state or local
agency or other governmental entity may require either an environmental
investigation or an environmental remediation, and (vii) any other
hazardous or noxious substance, material, pollutant or solid or liquid
waste that is required by, or forms the basis of liability under, any
environmental law.
"Henley Facility" means that facility for storing and shipping perlite
located in Henley, Oregon, on land leased by CUSA.
"Operating Permits" means all permits necessary for mining and processing
operations for the Project.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof).
"Process Plant" means the plant for processing perlite ore located on the
Process Plant Land.
"Process Plant Land" means the land described in Schedule "B" covering
approximately 26 acres in the northern outskirts of Lakeview, Oregon which
includes approximately 700 feet of dedicated rail siding upon which a
process plant is located for processing perlite ore mined from the Tucker
Hill Property.
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<PAGE>
"Project" means, collectively, the Process Plant, the Process Plant Land,
the Henley Facility, and the Tucker Hill Property.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"Tucker Hill Property" means the land described in Schedule "B" consisting
of 45 unpatented lode mining claims located in Lake County, Oregon.
2. The Offer, Purchase and Sale of Cornerstone Shares.
(1) Offer. Seven Peaks shall make the Offer for 100% of the Cornerstone
Shares as soon as possible after all regulatory and court approvals
are obtained, including the approval of the U.S. Bankruptcy Court and
in any event, within [10] days of receipt of approval of the U.S.
Bankruptcy Court. Seven Peaks covenants and agrees to use all
reasonable efforts and to fully cooperate with Atlas to obtain the
requisite regulatory and court approvals in order for the Offer to be
made as provided for herein.
(2) Conditions Precedent. Notwithstanding Paragraph 2(a), Seven Peaks
shall not be required to make the Offer (and Seven Peaks may, without
prejudice to any other rights, by written notice to Atlas, terminate
this Agreement) if:
(1) prior to the making of the Offer, (i) any act, action, suit or
proceedings shall have been taken before or by any domestic or
foreign court or tribunal or governmental agency or other
regulatory authority or administrative agency or commission by
any elected or appointed public official or person in Canada or
elsewhere, whether or not having the force of law, or (ii) any
law, regulation, rule or policy shall have been proposed,
enacted, promulgated or applied:
(1) to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the sale to
Seven Peaks of 100% of the Cornerstone Shares or the right
of Seven Peaks to own or exercise full rights of ownership
of 100% of the Cornerstone Shares, or
4
<PAGE>
(2) which, in the sole judgment of Seven Peaks, acting
reasonably in the circumstances, if the Offer were
consummated, would materially and adversely affect
Cornerstone and its subsidiaries considered on a
consolidated basis,
provided, however, that Seven Peaks shall not be required to make the
Offer as a result of any act, action, suit or proceeding taken by a
Person only if such act, action, suit or proceeding shall have been
resolved in favor of such Person as evidenced by an order, ruling or
decision by any domestic or foreign court or tribunal or government
agency or other regulatory authority or administrative agency or
commission in Canada or elsewhere having jurisdiction in respect of
Seven Peaks or the Offer, or if, in the opinion of counsel to Seven
Peaks, acting reasonably, there is a reasonable risk that such act,
action, suit or proceeding will be so resolved in favor of such
Person;
(2) at the time Seven Peaks proposes to make the Offer, there exists
any prohibition at law against Seven Peaks making the Offer or
taking up and paying for 100% of the Cornerstone Shares under the
Offer;
(3) except as previously disclosed in writing to Seven Peaks or
except with the prior written approval of Seven Peaks, which
approval will not be unreasonably withheld, subsequent to the
date of this Agreement and prior to the making of the Offer,
Cornerstone or any subsidiary of Cornerstone, shall have
authorized or proposed, or shall have entered into any agreement,
arrangement or understanding with respect to:
(1) any take-over bid (other than the Offer), merger,
amalgamation, plan of arrangement, reorganization or other
business combination;
(2) any acquisition or disposition of assets or securities in an
amount exceeding $50,000;
(3) any change in its capitalization including, but not limited
to, any increase in its consolidated borrowings to an amount
exceeding $50,000;
(4) any capital expenditures in an amount exceeding $50,000;
5
<PAGE>
(5) declaring or paying any dividend or declaring, authorizing
or making any distribution of or on any of its securities
whether payable in cash, securities or other property other
than (A) regular cash dividends in amounts fixed by their
terms or consistent with past practice or (B) any dividend
or distribution by a subsidiary of Cornerstone to
Cornerstone;
(6) entering into, modifying or terminating any agreements or
arrangements with its officers or employees except (A) as
disclosed in writing to and acknowledged by Seven Peaks
prior to the date of this Agreement, or (B) agreements or
arrangements (other than agreements or arrangements in
respect of share options or other rights or entitlements to
acquire authorized and unissued Shares or relating to
severance or termination or other rights related to a change
of control) in the ordinary course of business and
consistent with past practice;
(7) any release or relinquishment not in the ordinary course of
business of any material contractual rights;
(8) the amendment of its articles or by-laws, or the issuance or
purchase or other acquisition of any shares of its capital
or any class of securities convertible into, or rights,
warrants or options to acquire, any such shares or other
convertible securities;
(9) agreeing or committing to the guarantee of payment of any
indebtedness;
(10) instituting, canceling or modifying any pension plans or
other employee benefit arrangements;
(11) any other change in the business, operations, affairs,
assets, capitalization, financial condition, licenses,
permits, rights or privileges, whether contractual or
otherwise, of Cornerstone or any of its subsidiaries
considered on a consolidated basis which, in the sole
judgement of Seven Peaks, acting reasonably in the
circumstances, could individually or in the aggregate, have
a material adverse effect either on the value of Cornerstone
and its subsidiaries considered on
6
<PAGE>
a consolidated basis or on the value of the Cornerstone
Shares to Seven Peaks;
(4) either Atlas or Cornerstone, prior to making the Offer,
shall not have given Seven Peaks and its authorized agents
reasonable ongoing access, upon reasonable notice to Atlas
or Cornerstone, to all of Cornerstone's and its affiliates'
personnel, assets, properties, books, records, agreements
and commitments and, on terms mutually agreed by Seven Peaks
and Cornerstone, to customers, and officers of Cornerstone,
and shall not have reasonably co-operated with Seven Peaks
and any such authorized agents in their due diligence
investigations and furnished such persons with all material
information with respect to Cornerstone and its subsidiaries
and their ongoing operations and activities as Seven Peaks
or such authorized agents may have reasonably requested,
provided that Seven Peaks shall designate an individual or
individuals to co-ordinate such access and further provided
that Seven Peaks shall not unreasonably disrupt the normal
business operations of Atlas or Cornerstone or its
subsidiaries;
(5) there shall have occurred or arisen (or there shall have
been generally disclosed or discovered, if not previously
disclosed in writing to Seven Peaks), any change (or any
condition, event or development involving a prospective
change) in the business, operations, affairs, assets,
liabilities (including any contingent liabilities that may
arise through outstanding, pending or threatened litigation
or otherwise), capitalization, financial condition,
licenses, permits, rights or privileges, whether contractual
or otherwise, or prospects of Cornerstone or any of its
subsidiaries considered on a consolidated basis which, in
the sole judgment of Seven Peaks, acting reasonably in the
circumstances, has or may have a material adverse effect
either on the value of Cornerstone and its subsidiaries
considered on a consolidated basis or on the value of the
Shares to Seven Peaks;
(6) in the course of its due diligence investigations, prior to
September 30, 1998, Seven Peaks shall have become aware of
any fact or facts which in the aggregate, in its sole
discretion, acting reasonably, have or may have a material
adverse effect either on the value of Cornerstone and its
subsidiaries considered on a consolidated basis or
7
<PAGE>
on the value of the Cornerstone Shares to Seven Peaks;
(7) Cornerstone and its subsidiaries shall not have taken all
steps reasonably requested by Seven Peaks in connection with
the Offer, including, without limitation, any steps required
to meet regulatory requirements, provided that such steps
would not have any material adverse consequences to the
holders of Cornerstone Shares or to Cornerstone or any of
its subsidiaries if the Offer was not completed;
(8) any representation or warranty of Atlas in this Agreement
shall not have been, as of the date made, true and correct
in all material respects, or Atlas or Cornerstone shall not
have performed in all material respects any of their
respective covenants or complied with any of their
respective agreements to be performed and complied with by
it under this Agreement;
(9) at the time the Offer is made, the board of directors of
Cornerstone shall not have announced that they are
recommending that holders of the Cornerstone Shares accept
the Offer, it being understood that, if practicable, it
would be desirable for Cornerstone to mail the required
Directors' Circular simultaneously with the Offer, provided
that Seven Peaks has provided full particulars of the Offer
and all such additional information as is required to be
contained in a takeover bid circular not less than 15 days
prior to the date the Offer is to be made.
The foregoing conditions are for the sole benefit of Seven Peaks and may be
waived by Seven Peaks in whole or in part at any time and shall be deemed
to have been waived by it by the making of the Offer.
3. Deposit and Closing of the Atlas Securities.
(1) Deposit. Prior to making the Offer, the Atlas Securities will have
been placed in a third party escrow account (subject to a reasonable
escrow agreement to be prepared by counsel for both Parties) pursuant
to the DIP Agreement. Atlas hereby irrevocably and unconditionally
agrees that as soon as practicable after the Offer is made, it will
comply immediately with the escrow instructions regarding to deposit
under the terms of the Offer all of the Atlas Securities (the
"Deposited
8
<PAGE>
Shares"), together with a duly completed and executed letter of
transmittal (which letter shall include the instructions set forth in
paragraph 3(c) below), and, in any event, on or before the fifth
business day after the date of the Offer. Atlas hereby irrevocably and
unconditionally agrees not to withdraw or take any action to withdraw
any of the Deposited Shares deposited under the Offer notwithstanding
any statutory rights or other rights under the terms of the Offer or
otherwise which it might have, unless ordered otherwise in the
Bankruptcy Case, or unless this Agreement is terminated in accordance
with its terms prior to the taking up of the Deposited Shares under
the Offer.
(2) Taking Up and Closing. If the conditions precedent set forth in
paragraph 2(b) of this Agreement are satisfied or waived by Seven
Peaks such that the Offer is made, and the conditions contained in the
Offer are satisfied or waived, then within 10 days after the expiry of
the Offer, Seven Peaks will take up and pay for all of the Cornerstone
Shares under the Offer (the "Closing").
(3) Distribution to Atlas.
(1) Atlas shall direct the transfer agent that the amount payable to
Atlas under the Offer for the Atlas Securities (the "Purchase
Price") shall be distributed as follows:
(A) The sum of US$350,000.00 of the Purchase Price will be
placed in an interest bearing third party escrow account
(subject to a reasonable escrow agreement to be prepared by
counsel for both Parties) pending resolution of the
litigation between Cornerstone and Wyant Machinery. Seven
Peaks will cause Cornerstone to assign to Atlas as of the
Closing all of Cornerstone's rights and obligations in the
Wyant litigation. Atlas will use its reasonable best efforts
to either litigate toward judgment or dismissal, or to
negotiate a settlement of that litigation, but will not
execute any settlement agreement until obtaining the written
approval of Seven Peaks (which will not be unreasonably
withheld). Seven Peaks will cooperate with Atlas in this
process as reasonably requested by Atlas, pursuant to
paragraph 10(c) hereof. Upon judgment, dismissal or
settlement, the escrowed funds shall first be used to
satisfy obligations to Wyant, and the balance shall be
9
<PAGE>
distributed to Atlas, provided that if Wyant is entitled to
more than US $350,000 the excess shall be paid by Atlas, and
if Wyant is required to pay damages all such damages shall
be for Atlas' account.
(B) The sum of US$84,000.00 of the Purchase Price will be placed
in an interest bearing third party escrow account (subject
to a reasonable escrow agreement to be prepared by counsel
for both Parties) pending resolution of the Canadian goods
and services tax audit. Atlas will use its best efforts to
negotiate a reduction of that liability, but will not
execute any settlement agreement until obtaining the written
approval of Seven Peaks (which will not be unreasonably
withheld). Upon resolution, the escrowed funds shall first
be used to satisfy the tax obligations, and the balance
shall be distributed to Atlas.
(C) The outstanding balance of financing provided by Seven Peaks
to Atlas, including principal and interest, under the DIP
Agreement shall be deducted from the amount of the Purchase
Price payable to Atlas and such deduction shall be paid to
Seven Peaks.
(D) The following portions of the Purchase Price will be placed
in a third party escrow account unless previously paid
(subject to a reasonable escrow agreement to be prepared by
counsel for both Parties):
the sum of US$107,029.00 to pay the then existing penalties
under the agreement between CUSA and Armstrong World
Industries,
the sum of US$30,000.00 to pay the existing debt owed by
Cornerstone to C&C Logging, Inc. under its Perlite Haulage
Contract with Cornerstone,
the sum of US$129,000.00 of the Purchase Price to pay the
commission due to Monarch Financial Corporation, and
the sum of US$37,500 of the Purchase Price to pay Julian
Garcia's severance pay if he does not remain an employee of
CUSA after Closing.
10
<PAGE>
If Seven Peaks is able to negotiate a lesser amount payable to
either Armstrong or C&C, one half of the savings will be
distributed to Atlas and one half to Seven Peaks. If the amount
payable to Monarch is less than $129,000, the balance will be
distributed to Atlas. If Mr. Garcia remains an employee of CUSA
after Closing the amount escrowed for his severance shall be
distributed to Atlas.
(2) Atlas shall direct the transfer agent that disbursement of the
Purchase Price under 3(c)(i) above shall not occur until:
(A) Atlas and Seven Peaks certify to the transfer agent that
they have adjusted the amount of Cornerstone's debt to Atlas
(the "Cornerstone Debt") such that the total amount paid by
Seven Peaks for acquiring all of the Cornerstone Shares,
plus the Cornerstone Debt, equals Four Million Dollars
(U.S.); and that after such adjustment, the Cornerstone Debt
has been further credited or debited as follows:
Atlas and Seven Peaks will review the amount of the accounts
payable (except those set out in subparagraph 3(c)(i) above
and except expenses incurred by Cornerstone in connection
with the Offer) and accounts receivable plus cash of CUSA
(without regard, however to any recoupable royalty accounts,
which shall remain the property of CUSA)--if the liabilities
(other than those hereinbefore excluded) exceed the
receivables and cash, the excess will be credited against
(subtracted from) the amount of the adjusted Cornerstone
Debt, if the opposite occurs (receivables and cash exceed
liabilities), the difference will be debited against (added
to) the amount of the adjusted Cornerstone Debt. All
inventory at the Process Plant and the Henley Facility shall
remain the property of CUSA; and
(B) Seven Peaks has certified that Atlas has delivered to Seven
Peaks the written resignations of the officers and directors
of Cornerstone either nominated by Atlas or securing a dual
role as either an officer or director of Cornerstone and
Atlas, and a written quitclaim deed conveying to Seven Peaks
the gross proceeds royalty previously
11
<PAGE>
reserved by Atlas in Atlas' December 13, 1996 Stock Purchase
Agreement with Cornerstone.
4. Representations of and Warranties Concerning the Transaction.
(1) Representations and Warranties of Atlas. Atlas represents and warrants
to Seven Peaks, subject to confirmation of this Agreement and any
orders entered in the Bankruptcy Case, that the statements contained
in this subparagraph 4(a) are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing (as
though made then and as though the Closing were substituted for the
date of this Agreement throughout this subparagraph 4(a)):
(1) Organization of Atlas. Atlas is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware.
(2) Authorization of Transaction. Atlas has full corporate power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement has been duty
authorized, executed and delivered by Atlas and constitutes the
valid and legally binding obligation of Atlas, enforceable in
accordance with its terms and conditions, subject to: (A)
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally; (B) the
qualification that equitable remedies, including without
limitation, specific performance and injunction, may be granted
only in the discretion of a court of competent jurisdiction; and
(C) the qualification that rights to indemnity may be limited by
applicable law.
(3) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will violate (A) any provision of the Articles of
Incorporation or Bylaws of Atlas; (B) any provision of law; (C)
any order of any court or other agency of government; (D) any
provision of any indenture, agreement or other instrument to
which Atlas, Cornerstone or CUSA is a party or by which the
Project is bound; or (E) be in conflict with, result in a breach
of or constitute (with due notice and lapse of time) a default
under any such indenture, agreement or other instrument. To the
knowledge of Atlas, there is no law, rule or regulation, nor is
there any judgment, decree or
12
<PAGE>
order of any court or governmental authority binding on Atlas,
Cornerstone or CUSA which would be contravened by the execution,
delivery, performance or enforcement of this Agreement or any
instrument or agreement required hereunder.
(4) Brokers' Fees. Atlas has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which
Seven Peaks could become liable or obligated except as set forth
in subparagraph 3(c)(i), above.
(5) Atlas Securities. Atlas holds of record and owns beneficially all
of the Atlas Securities, free and clear of any restrictions on
transfer (other than restrictions under applicable securities
laws), taxes, security interests, options, warrants, purchase
rights, contracts, commitments, equities, claims or demands
(except as contemplated by the DIP Agreement) and no voting
trust, proxy, or other agreement or understanding exists with
respect to the voting of the Atlas Securities.
(2) Representations and Warranties of Seven Peaks. Seven Peaks represents
and warrants to Atlas that the statements contained in this paragraph
4(b) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing (as though made then
and as though the Closing were substituted for the date of this
Agreement throughout this paragraph 4(b)) and will remain correct and
complete until such time as Atlas has received all of the
consideration to which it is entitled hereunder as set forth in
paragraph 3:
(1) Organization of Seven Peaks. Seven Peaks is a corporation duly
organized, validly existing, and in good standing under the laws
of the State of Kentucky.
(2) Authorization of Transaction. Seven Peaks has full corporate
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement has been duly
authorized, executed and delivered by Seven Peaks and constitutes
the valid and legally binding obligation of Seven Peaks,
enforceable in accordance with its terms and conditions, subject
to: (A) bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally
(B) the qualification
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<PAGE>
that equitable remedies, including, without limitation, specific
performance and injunction, may be granted only in the discretion
of a court of competent jurisdiction; and (C) the qualification
that rights to indemnity may be limited by applicable law.
(3) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will violate (A) the charter or bylaws of Seven Peaks;
(B) any provision of law; (C) any order of any court or other
agency of government; (D) any provision of any indenture,
agreement or other instrument to which Seven Peaks is a party or
by which its properties or assets are bound; or (E) be in
conflict with, result in a breach of or constitute (with due
notice and lapse of time) a default under any such indenture,
agreement or other instrument. To the knowledge of Seven Peaks,
there is no law, rule or regulation, nor is there any judgment,
decree or order of any court or governmental authority binding on
Seven Peaks which would be contravened by the execution,
delivery, performance or enforcement of this Agreement or any
instrument or agreement required hereunder.
(4) Brokers' Fees. Seven Peaks has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for
which Atlas could become liable or obligated.
5. Pre-Offer Representations and Warranties Concerning Cornerstone. Atlas, in
its capacity as a 61% shareholder of Cornerstone, represents and warrants
to Seven Peaks that the statements contained in this paragraph 5 are
correct and complete as of the date of this Agreement and will be correct
and complete as of the date of the Offer (as though made then and as though
the date of the Offer were substituted for the date of this Agreement
throughout this paragraph 5):
(1) Employees. Cornerstone has no employees.
(2) Subsidiaries. Cornerstone has no Subsidiaries except CUSA.
(3) Business Activities. Cornerstone has conducted no business activity
other than the ownership of CUSA since November 1995.
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<PAGE>
(4) Cornerstone Financial Statements. The Cornerstone Financial
Statements:
(1) have been prepared in accordance with Canadian generally
accepted accounting principles, applied on a basis
consistent with that of the preceding periods;
(2) are complete and accurate in all material respects;
(3) accurately disclose the assets, liabilities (whether
accrued, absolute, contingent or otherwise) and financial
condition of Cornerstone and the results of the operations
of Cornerstone, as at the dates thereof and for the periods
covered thereby;
(4) reflect all proper accruals as at the dates thereof and for
the periods covered thereby of all amounts which, though not
payable until a time after the end of the relevant period,
are attributable to activities undertaken during, that
period; and
(5) contain or reflect adequate reserves for all liabilities and
obligations of Cornerstone of any nature, whether absolute,
contingent or otherwise, matured or unmatured, as at the
date thereof
No information has become available to Cornerstone that would render
the Cornerstone Financial Statements incomplete or inaccurate. There
have been no significant changes in Cornerstone's financial condition
since June 30, 1998 as reflected in the Cornerstone Financial
Statements.
(5) Consents, Approvals. No consent, approval, license, order,
authorization, regulation or declaration of, or filing with, any
governmental authority or other Person is required by Atlas,
Cornerstone or CUSA, in connection with (a) the Closing or (b) the
execution and delivery by Atlas of this Agreement or the other
documents to be delivered by Atlas to Seven Peaks hereunder or (c) the
observance and performance by Atlas of its obligations under this
Agreement or such other documents.
(6) Non-Arm's Length Transaction. There does not exist any agreement,
understanding or commitment giving rise to any
15
<PAGE>
material obligations, financial or otherwise, on the part of
Cornerstone to Atlas or any of its affiliates (or any associates or
insiders of any of the foregoing), other than the Cornerstone Debt.
(7) Absence of Certain Changes or Events. To the best knowledge of Atlas,
since September 15, 1998 and except as publicly disclosed, Cornerstone
has conducted its business only in, and has not taken any actions
except in, the ordinary course of business and in a manner consistent
with past practice and has preserved substantially intact the business
organization and relationships of Cornerstone and, since such date,
there has not been any change in the working capital, assets,
financial condition, results of operation, cash flows, business,
liabilities or prospects of Cornerstone and its subsidiaries, taken as
a whole, having a material adverse effect.
6. Closing Representations and Warranties Concerning Cornerstone. Atlas, in
its capacity as a 61% shareholder of Cornerstone, represents and warrants
to Seven Peaks that the statements contained in this paragraph 6 are
correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing (as though made then and as though the
Closing were substituted for the date of this Agreement throughout this
paragraph 6):
(1) Organization, Qualification, and Corporate Power. Cornerstone is a
corporation duly organized, validly existing, and in good standing
under the laws of the Province of Ontario. Cornerstone is duly
authorized to conduct business and is in good standing under the laws
of the Province of Ontario. Cornerstone has the corporate power and
authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. No proceedings have been
taken or authorized by Cornerstone or, to the best of Atlas's
knowledge, any other Person, with respect to the bankruptcy,
insolvency, liquidation, dissolution or winding up of Cornerstone or
with respect to any amalgamation, merger, consolidation, arrangement
or reorganization relating to Cornerstone.
(2) Capitalization. The Cornerstone Shares are the only issued and
outstanding equity securities of Cornerstone and the Cornerstone
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable. No Person has any agreement or any option, right or
privilege capable of becoming an agreement for the purchase,
16
<PAGE>
subscription or issuance of any securities of Cornerstone or any
securities convertible into or exchangeable for securities of
Cornerstone, except (as disclosed on Schedule 5(b)) for options to
directors and officers of Cornerstone to purchase 475,200 shares at
C$0.15, however, Atlas shall request of each holder of such options
that they voluntarily cancel and return their options to Atlas prior
to Closing.
(3) Brokers' Fees. Cornerstone does not have any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(4) Environmental Compliance. To the knowledge of Atlas, there are no
conditions or activities at or on the Project or elsewhere which would
result in a violation of or liability under applicable Environmental
Laws or result in Environmental Costs to Cornerstone, except for such
matters as would not have a material adverse effect on the Project
taken as a whole. To the knowledge of Atlas, there have been issued
under applicable Environmental Laws no notices of violation or consent
orders to which Cornerstone or the Project are subject, except for
such matters as would not have a material adverse effect on the
Project taken as a whole. There are no pending or, to the knowledge of
Atlas, threatened proceedings by or before any court or other
governmental authority against Cornerstone with respect to its
operation or ownership of the Project alleged to be, or have been, in
violation of, under, any Environmental Law, except for such matters as
would not have a material adverse effect on the Project taken as a
whole
7. Pre-Offer Representations and Warranties Concerning CUSA. Atlas, in its
capacity as a 61% shareholder in Cornerstone, represents and warrants to
Seven Peaks that the statements contained in this paragraph 7 are correct
and complete as of the date of this Agreement and will be correct and
complete as of the date of the Offer (as though made then and as though the
date of the Offer were substituted for the date of this Agreement
throughout this paragraph 7):
(1) Royalties. Except as set forth in Schedule 6(a), to Atlas's knowledge
there are no royalties or other burdens on production affecting the
Tucker Hill Property.
(2) Title to Claims. Except as disclosed in the "Title Report" of February
9, 1996 prepared for Atlas by Morrison & Foerster, LLP, to Atlas's
knowledge, as to the unpatented mining claims comprising the Tucker
Hill
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Property (the "Claims") subject to the paramount title of the United
States:
(1) CUSA is in exclusive possession thereof, and except as
disclosed herein, the Claims are free and clear of all
liens, encumbrances or other burdens on production or claims
of third parties arising by, through or under CUSA;
(2) since CUSA acquired the Claims, assessment work, intended in
good faith to satisfy the requirements of state and federal
laws and regulations and generally regarded in the mining
industry as sufficient, for all assessment years up to and
including the assessment year ending September 1, 1992, was
timely performed on or for the benefit of the Claims and
affidavits evidencing such work were timely recorded;
(3) since CUSA acquired the Claims, claim rental and maintenance
fees required to be paid under federal law in lieu of the
performance of assessment work, in order to maintain the
Claims commencing with the assessment year ending on
September 1, 1993 and through the assessment year ending on
September 1, 1999, have been timely and properly paid, and
affidavits or other notices evidencing such payments and
required under federal or state laws or regulations have
been timely and properly filed or recorded;
(4) since CUSA acquired the Claims, all filings with the Bureau
of Land Management with respect to the Claims which are
required under the Federal Land Policy and Management Act of
1976 have been timely and properly made, and
(5) there are no actions or administrative or other proceedings
pending or threatened against or affecting the Claims.
Nothing herein shall be deemed a representation that any of
the Claims contain a discovery of valuable minerals.
(3) Title to Assets. Except as otherwise set forth or contemplated in the
Title Report, or as disclosed herein, CUSA has good and marketable
title to all of its assets (including, without limiting the generality
of the foregoing, the Process Plant Land), free and clear of all
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liens, encumbrances or claims of third parties except for taxes due
but not yet payable.
(4) Material Contracts and Commitments. True and correct copies of all
contracts, agreements, mortgages, indentures and leases (including
equipment leases) to which CUSA is a party (collectively the
"Contracts") have been provided by Atlas to Seven Peaks prior to the
date hereof. To Atlas's knowledge, except as disclosed herein, CUSA
has performed all material obligations required to be performed by it
under the Contracts and is not in default, and will not be in default
as a result of the consummation of the transactions contemplated
herein, under any Contract or any license, judgment, injunction,
decree, order, determination, restriction, or other instrument to
which it is subject in connection with the Project, except for such
matters as would not have a material effect on the Project taken as a
whole.
(5) Litigation and Claims. To the knowledge of Atlas, other than matters
affecting the U.S. mining industry as a whole, there are no actions,
suits or proceedings pending or threatened against or affecting the
Project, including any actions, suits, or proceedings being prosecuted
by any federal, state, or local department, commission, board, bureau,
agency, or instrumentality. To the knowledge of Atlas, CUSA is not in
any material default with respect to, or subject to, any order, writ,
injunction, judgment or decree of any court or any federal, state or
local department, commission, board, bureau, agency or instrumentality
which relates to the Project.
(6) Consents. CUSA has obtained all consents, approvals, authorizations,
declarations, or filing required by any federal, state, local, or
other authority, or any lenders, lessors, creditors, and other third
parties in connection with the consummation of the transactions
contemplated hereby.
(7) Taxes. CUSA, so long as it has been in possession of the Project, has
duly and timely filed, in correct form, all federal, state and local
income, excise, property and other tax returns, reports or statements
required to be filed by it with respect to the Project and has fully
paid all taxes, fees, assessments, penalties, and interest due in
respect of any such returns, reports, or statements, except for such
matters as would not have a material adverse effect on the Project
taken as a whole.
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(8) Undisclosed Liabilities. CUSA has no liabilities (whether accrued,
absolute, contingent or otherwise, matured or unmatured) of any kind
except:
(1) liabilities disclosed or provided for in the Cornerstone
Financial Statements; and
(2) liabilities incurred in the ordinary course of business since
June 30, 1998, which are consistent with past practice, are not,
in the aggregate, material and adverse to CUSA or the Project and
do not violate any covenant contained in this Agreement or
constitute a breach of any representation or warranty made in or
pursuant to this Agreement.
(9) Absence of Changes. Since June 30, 1998:
(1) CUSA has conducted its business in the ordinary course, has not
incurred any debt, obligation or liability out of the ordinary
course of business or of an unusual or extraordinary nature and
has used its best efforts to preserve its business and assets;
(2) there has not been any change in the condition of CUSA's business
or assets other than changes in the ordinary course of business,
and such changes have not, either individually or in the
aggregate, been materially adverse and have not had nor may they
be reasonably expected to have, either before or after Closing, a
material adverse effect on the condition of CUSA's business or
assets;
(3) to Atlas's knowledge, there has not been any change in, or
creation of, any applicable law, any termination, amendment or
revocation of any licence or any damage, destruction, loss, labor
dispute or other event, development or condition of any character
(whether or not covered by insurance) which has had, or could
have, a material adverse affect on CUSA's business or assets; and
(4) there has not been any change in the accounting principles,
policies, practices or procedures of CUSA or their application to
CUSA.
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(10) Absence of Unusual Transactions. Since June 30, 1998 CUSA has not:
(1) transferred, assigned, sold or otherwise disposed of any of
its assets or canceled any debts or claims other than in the
ordinary course of business;
(2) incurred or assumed any obligation or liability (fixed or
contingent) other than obligations or liabilities included
in the Cornerstone Financial Statements and obligations and
liabilities incurred since June 30, 1998 in the ordinary
course of business;
(3) settled any liability, claim, dispute, proceedings, suit or
appeal pending against it or against any of its assets;
(4) discharged or satisfied any lien or encumbrance, or paid any
obligation or liability (fixed or contingent) other than
liabilities included in the Cornerstone Financial Statements
and liabilities incurred since June 30, 1998;
(5) made any material change with respect to any method of
management operation or accounting in respect of its
business;
(6) waived or omitted to take any action in respect of any
rights of substantial value or entered into any commitment
or transaction if such loss, rights, commitment or
transaction is or would be material in relation to its
assets or business;
(7) created any encumbrance on any of its assets or suffered or
permitted any such encumbrance that has arisen on its assets
since that date to remain;
(8) modified, amended or terminated any contract, agreement or
arrangement to which it is or was a party, or waived or
released any right which it has or had, other than in the
ordinary course of its business;
(9) incurred any debt, liability or obligation for borrowed
money, or incurred any other debt,
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liability or obligation except in the ordinary course of its
business;
(10) issued or sold any securities or issued, granted or
delivered any right, option or other commitment for the
issuance of any securities;
(11) declared or paid any dividend or other distribution in
respect of any shares in its capital or purchased or
redeemed any such shares;
(12) modified, amended or terminated any contract, agreement or
arrangement to which it is or was a party, or waived or
released any right which it has or had, other than in the
ordinary course of its business; or
(13) authorized or agreed or otherwise become committed to do any
of the foregoing.
(11) Absence of Guarantees. CUSA has not given nor agreed to give, and is
not a party to or bound by, any guarantee of indebtedness or other
obligations of third parties nor any other commitment by which CUSA
is, or is contingently, responsible for such indebtedness or other
obligations.
(12) Restrictions on Business. CUSA is not a party to any agreement, lease,
mortgage, security document, obligation or instrument, or subject to
any restriction in its articles, by-laws or its directors' or
shareholders' resolutions or subject to any restriction imposed by any
governmental authority or subject to any applicable law or order which
could materially restrict or interfere with the conduct of its
business or its use of assets or which could materially limit or
restrict or otherwise adversely affect the shares or the assets or
business of CUSA, other than statutory provisions and restrictions of
general application to its business.
(13) Conditions of Assets. All material tangible assets of CUSA, other than
the Process Plant, are in good working condition and good repair,
ordinary wear and tear excepted, and comply with all standards and
requirements of all applicable governmental authorities. Both parties
acknowledge that the Process Plant is not in good working condition,
that Seven Peaks has fully inspected the Process Plant, that Seven
Peaks accepts the Process Plant
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"As-is, Where-is, and with all faults," and that the foregoing
sentence shall not apply to the Process Plant.
(14) Insurance. CUSA is insured by reputable insurers against liability,
loss and damage in such amounts and against such risks as are
customarily carried and insured against by owners of comparable
businesses, properties and assets, and such insurance coverage will be
continued in full force and effect to and including the Closing. True
and complete copies of all of the most recent inspection reports, if
any, received from insurance underwriters as to the condition of the
assets and the business have been delivered to Seven Peaks. CUSA is
not in default with respect to any of the provisions contained in any
such insurance policy and there are no current claims that have not
been settled or finally determined. All such policies of insurance are
in full force and effect and CUSA is not in default, whether as to the
payment of premium or otherwise, under the terms of any such policy.
(15) No Expropriation. CUSA has not received any notice of expropriation of
all or any of its assets and CUSA is not aware of any expropriation
proceeding pending or threatened against or affecting its assets nor
of any discussions or negotiations which could lead to any such
expropriation.
(16) Government Grants. There are no contracts or agreements relating to
grants or other forms of assistance, including loans with interest at
below market rates, received by CUSA from any governmental authority.
(17) Restrictive Covenants. CUSA is not a party to or bound or affected by
any commitment, agreement or document which limits the freedom of CUSA
to compete in any line of business, transfer or move any of its assets
or operations or which does or could adversely affect the business
practices, operations or conditions of CUSA after the Closing.
(18) Books and Records. Atlas has made available to Seven Peaks all books
and records of or relating to CUSA. Such books and records fairly and
correctly set out and disclose in all respects the financial position
of CUSA in accordance with good business practice and all financial
transactions relating to CUSA have been accurately recorded in such
books and records. The books and records,
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(1) accurately reflect the basis for the financial condition of
CUSA shown in the Cornerstone Financial Statements; and
(2) together with all disclosures made in this Agreement or in
the schedules hereto, present fairly the financial condition
of CUSA as of and to the date hereof.
No information, records or systems pertaining to the operation or
administration of CUSA are in the possession of, recorded, stored,
maintained by or otherwise dependent on any other person. Atlas has
disclosed the existence of and made available for review by Seven
Peaks all the books and records.
(19) No Joint Venture Interests. CUSA has not nor has it agreed to become,
a partner, member, owner, proprietor or equity investor of or in any
partnership, joint venture co-tenancy or other similar jointly-owned
business undertakings or to acquire or lease any other business
operation and does not have any other significant investment interests
in any similar business owned or controlled by any third party.
(20) Bank Accounts. The name of each bank or other depository in which
Cornerstone or CUSA maintains any bank account, trust account or
safety deposit box has been delivered to Seven Peaks, along with the
names of all persons authorized to draw thereon or who have access
thereto.
8. Closing Representations and Warranties Concerning CUSA. Atlas, in its
capacity as a 61% shareholder in Cornerstone, represents and warrants to
Seven Peaks that the statements contained in this paragraph 8 are correct
and complete as of the date of this Agreement and will be correct and
complete as of the Closing (as though made then and as though the Closing
were substituted for the date of this Agreement throughout this paragraph
8):
(1) Permits and Licenses. A list of all currently active material permits,
licenses, consents, approvals, authorizations, and qualifications
obtained by CUSA in connection with its operations on the Tucker Hill
Property as of the date of this Agreement, true and correct copies of
each of which have been made available to Seven Peaks, is set forth on
Schedule 6(b)(i); the only other permits, licenses, consents,
approvals, authorizations and qualifications required in order to
operate the Project in the normal course of business are set forth in
Schedule 6(b)(ii). To Atlas's knowledge,
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CUSA's ownership and operation of the Tucker Hill Property is not in
violation of and has resulted in no liability (other than liability
for compliance with existing permits and laws, including but not
limited to performance of reclamation) under any statute, rule or
regulation of any governmental authority applicable to the Tucker
Hill Property, other than violations or liability, if any, which have
not resulted and would not be reasonably expected to result in any
material loss or liability.
(2) Environmental Compliance. To the knowledge of Atlas, there are no
conditions or activities at or on the Project which would result in a
violation of or liability under applicable Environmental Laws or
result in Environmental Costs to CUSA, except for such matters as
would not have a material adverse effect on the Project taken as a
whole. To the knowledge of Atlas, there have been issued under
applicable Environmental Laws no notices of violation or consent
orders to which CUSA (with respect to its operations at the Project)
or the Project are subject, except for such matters as would not have
a material adverse effect on the Project taken as a whole. There are
no pending or, to the knowledge of Atlas, threatened proceedings by or
before any court or other governmental authority against CUSA with
respect to its operation or ownership of the Project alleged to be, or
have been, in violation of, under, any Environmental Law, except for
such matters as would not have a material adverse effect on the
Project taken as a whole.
(3) Legality. To the knowledge of Atlas, CUSA's operations on the Project
have been conducted in material compliance with applicable laws,
rules, ordinances and other governmental regulations, including,
without limitation, those relating to zoning, condemnation, mining,
reclamation, environmental matters, equal employment, and federal.
state, or local health and safety laws, rules, and regulations, except
for such violations as would not materially adversely affect the
Project.
9. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(1) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions
contemplated by this Agreement, including obtaining approval of this
Agreement in the Bankruptcy Case.
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(2) Notices and Consents. Each of the Parties will (and Atlas will use its
reasonable best efforts cause Cornerstone and CUSA to) give any
notices to, make any filings with, and use its reasonable best efforts
to obtain any required authorizations, consents, and approvals of
governments and governmental agencies in connection with the
transactions contemplated by this Agreement.
(3) Operation of Business. Atlas, in its capacity as a 61% shareholder of
Cornerstone, will use its reasonable best efforts not to cause or
permit Cornerstone or CUSA to engage in any practice, take any action,
or enter into any transaction outside the ordinary course of business
of Cornerstone or CUSA consistent with the past practice and custom of
Cornerstone or CUSA.
(4) Full Access for Due Diligence. Atlas, in its capacity as a 61%
shareholder of Cornerstone, will use its reasonable best efforts to
cause Cornerstone and CUSA to permit Seven Peaks and its
Representatives to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of
Cornerstone and CUSA, to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or
pertaining to Cornerstone and CUSA, which may relate, in the good
faith judgment of Seven Peaks, to the titles held by Cornerstone and
CUSA and to its properties, to the financial condition of Cornerstone
and CUSA, to environmental matters related to Cornerstone and CUSA and
its properties, and to the ore reserve calculations of Cornerstone and
CUSA. Seven Peaks and Atlas hereby acknowledge and agree that Atlas
makes no representation or warranty as to the reliability, accuracy or
completeness of any of the information or data referred to in this
paragraph. Seven Peaks (and its Representatives) will treat and hold
as Confidential Information any and all information received from
Atlas, Cornerstone and CUSA and their Representatives in the course of
the review contemplated by this paragraph.
(5) Exclusivity. Unless and until this Agreement is terminated prior to
the Cornerstone Shares being taken up under paragraph 3(b) or until
Seven Peaks withdraws the Offer, Atlas will not (and will use its
reasonable best efforts to not cause or permit Cornerstone and CUSA
to) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to the acquisition of all or
substantially all of the capital
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<PAGE>
stock or assets of Cornerstone and CUSA (including any acquisition
structured as a merger, consolidation or share exchange), unless such
proposal or offer pertains to Atlas as a whole and is made subject to
this Agreement.
10. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(1) General. In case at any time after the Offer is made any further
action is necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to
indemnification hereunder).
(2) Corporate Records. As soon as practicable after the Cornerstone Shares
are taken up, Atlas shall deliver to Seven Peaks all corporate records
of Cornerstone and CUSA which are maintained by Atlas or its agents or
Affiliates provided that Seven Peaks and Atlas shall coordinate and
agree upon a mutually acceptable schedule for the assembly and
delivery of such documents; thereafter, Seven Peaks shall afford Atlas
reasonable access to such documents upon reasonable notice and during
regular business hours.
(3) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any third party action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or
demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing
involving Cornerstone or CUSA, the other Party shall cooperate
(without subpoena) with it and its counsel in the defense or contest,
make available its personnel, and provide such testimony and access to
its books, records and properties as shall be necessary in connection
with the defense or contest, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor hereunder).
11. Survival of Representations and Warranties. The representations and
warranties of Seven Peaks and Atlas contained herein shall survive the
Closing for a period of two years.
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<PAGE>
12. Termination.
(1) Termination of Agreement by the Parties. The Parties may terminate
this Agreement as provided below:
(1) Seven Peaks and Atlas may terminate this Agreement by mutual
written consent at any time prior to the Closing; or
(2) Seven Peaks may terminate this Agreement by giving written notice
to Atlas at any time prior to the Closing in the event Atlas has
breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Seven Peaks
has notified Atlas of the breach, and Atlas has not disputed the
existence or nature of such breach or such breach has not been
cured by the Automatic Termination Date; or
(3) Atlas may terminate this Agreement by giving written notice to
Seven Peaks at any time prior to the Closing in the event Seven
Peaks has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect,
Atlas has notified Seven Peaks of the breach, and Seven Peaks has
not disputed the existence or nature of such breach or such
breach has not been cured by the Automatic Termination Date.
(2) Automatic Termination. This Agreement shall automatically terminate,
without further action on the part of either Party in the event that:
(1) the Offer has not been made on or before December 31, 1998;
(2) the Offer does not substantially conform with the description in
Schedule A;
(3) Cornerstone Shares deposited under the Offer (including the Atlas
Securities) have not, for any reason whatsoever (other than that
all the terms and conditions of the Offer have not been complied
with or waived by Seven Peaks), been taken up and paid for on or
before the expiry of ten days after the expiry of the Offer.
(4) Closing has not occurred within 90 days after the Offer is made.
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<PAGE>
(3) Effect of Termination. If either Party terminates this Agreement (or
if it terminates automatically) pursuant to this paragraph all rights
and obligations of the Parties hereunder shall terminate without any
liability of either Party to the other Party except for any liability
of any Party then in breach, and Seven Peaks shall have only the
rights and Atlas the obligations set forth in the DIP Agreement;
however, if Seven Peaks terminates this Agreement without cause after
90% of the Cornerstone Shares have been deposited under the Offer,
Atlas shall be entitled to retain the first $250,000.00 provided by
Seven Peaks under the DIP Agreement, plus interest thereon, with any
remaining advances under the DIP Agreement refunded to Seven Peaks as
provided in the DIP Agreement.
13. Confidentiality. Seven Peaks acknowledges that any and all information
concerning the businesses, properties and affairs of Atlas which is
disclosed to Seven Peaks or its Representatives by Atlas or its
Representatives or by Cornerstone or its Representatives, or which is
discovered by Seven Peaks or its Representatives in the course of its due
diligence constitutes the unique, proprietary and confidential information
of Atlas (collectively "Confidential Information"). Notwithstanding the
foregoing, however, "Confidential Information" shall not include any
information or data which is in, or becomes a part of, the public domain by
any means other than the breach by Seven Peaks or its Representatives of
the obligations hereunder. Until the earlier to occur of the Closing or the
second anniversary of the Termination of this Agreement pursuant to
paragraph 12 hereof Seven Peaks shall maintain all Confidential Information
disclosed to or received by it pursuant to this Agreement in confidence and
shall not disclose the same to any third party unless required to do so by
court order or by law, in which case Seven Peaks shall notify Atlas, in
writing, prior to making such disclosure and shall cooperate with Atlas to
preserve and protect the confidentiality of the Confidential Information to
the fullest extent possible. Additionally, except as specifically
contemplated by this Agreement, Seven Peaks shall not utilize any
Confidential Information for its own benefit or for the benefit of any
other party. If this Agreement is terminated, for any reason whatsoever,
Seven Peaks and its Representatives will return to Atlas all tangible
embodiments (and all copies) of the Confidential Information which are in
their possession.
14. Miscellaneous.
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(1) Disclosure of Information Concerning Cornerstone and CUSA. Atlas has
instructed its representatives, and to the extent it is able to do so
the representatives of Cornerstone and CUSA to answer questions
concerning the businesses, affairs, operations and properties of CUSA
which are addressed to them by Seven Peaks and its Representatives
during the course of the due diligence conducted by Seven Peaks.
Additionally, Atlas has instructed its Representatives and the
Representatives of Cornerstone and CUSA to provide to Seven Peaks and
its Representatives copies of documents requested by Seven Peaks and
its Representatives in the course of the due diligence conducted by
Seven Peaks and to otherwise cooperate with and assist Seven Peaks and
its Representatives in such due diligence efforts. The Parties
acknowledge and agree that all such information and documents are
Confidential Information.
(2) Press Releases and Public Announcements. Neither Party shall issue any
press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior
written approval of the other Party; provided, however, that either
Party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the
disclosing Party will use its best efforts to advise the other Party
prior to making the disclosure) or if such disclosure is made pursuant
to the requirements of the U.S. Bankruptcy Code or a court order in
the Bankruptcy Case.
(3) Entire Agreement. This Agreement (including the DIP Agreement and the
Schedules referred to herein) constitutes the entire agreement among
the Parties and their Affiliates in regard to the subject matter
hereof and supersedes any prior understandings, agreements, or
representations (specifically including the Confidentiality Agreement
of August 26, 1998) by or among the Parties or their Affiliates,
written or oral, to the extent they relate in any way to the subject
matter hereof.
(4) Succession anti Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party.
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(5) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(6) Headings. The paragraph headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(7) Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if sent by prepaid overnight courier or transmitted by
telecopier addressed to the intended recipient as set forth below:
If to Atlas:
Atlas Corporation
Republic Plaza, Suite 3050
370 17/th/ Street
Denver, Colorado 80202
Attention: Gregg Shafter, President
Telecopier No.: (303) 629-2445
with a copy to :
Harvey Sender, Esq.
John B. Wasserman, Esq.
Sender & Wasserman, P.C.
1999 Broadway, Suite 2305
Denver, Colorado 80202
Telecopier No.: (303) 296-7600
If to Seven Peaks:
Seven Peaks Mining, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Michael Stanley, President
Telecopier No.: (606) 928-0450
with a copy to:
Robert A. Bassett
Dorsey & Whitney LLP
Republic Plaza, Suite 4400
370 17/th/ Street
Denver, Colorado 80202
Telecopier No.: (303) 629-3450
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Any notice, request, demand, claim, or other communication hereunder sent to the
intended recipient at the address set forth above shall be deemed to have been
duly given on the business day following the day upon which it is given to the
courier or on the day (or the next business day if such day is not a business
day) upon which it is telecopied. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(8) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than
the State of Colorado.
(9) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and
signed by Seven Peaks and Atlas. No waiver by either Party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(10) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(11) Expenses. Each of Seven Peaks and Atlas will bear its own costs and
expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(12) Currency. All dollar amounts contained herein are expressed in lawful
currency of the United States of America except as specifically set
forth herein.
(13) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement in the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed
32
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as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference
to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word "Including" shall mean
including without limitation.
(14) Incorporation of Schedules. The Schedules identified in this Agreement
are incorporated herein by reference and made a part hereof.
(15) Arbitration of Disputes.
(1) Unresolved Disputes. Any disagreement or dispute arising out of
or relating to this Agreement, its existence, interpretation,
performance or enforcement (including but not limited to the
existence of a default) not resolved by the Parties within fifty
(50) days after the date on which one party notifies the other of
any such disagreement or dispute shall be settled by arbitration
in accordance with this paragraph.
(2) Rules. Matters subject to arbitration shall be settled by
arbitration before one disinterested person who shall
arbitrate the dispute in Denver, Colorado, in accordance
with the commercial arbitration rules of the American
Arbitration Association in effect at the time of
arbitration. In the event of a conflict between those
commercial arbitration rules and this paragraph, this
paragraph shall control. The judgment of the arbitrator as
to such matters shall be binding upon the parties to this
Agreement, and judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction
under the provision of the Colorado Revised Statutes
pertaining to arbitration and award as they may be amended
from time to time.
(3) Demand. To demand arbitration any party (the "demanding
party") shall give written notice to the other party (the
"responding party"). Such notice shall specify the nature of
the issues in dispute, the amount involved, and the remedy
requested. Within twenty (20) days of the receipt of the
notice, the responding
33
<PAGE>
party shall answer the demand in writing, specifying the
issues that party disputes. The parties shall thereupon each
select one arbitrator, who shall be qualified by skill and
experience in the subject matter under dispute. Within
fifteen (15) days thereafter, the two party appointed
arbitrators shall jointly select the disinterested person
arbitrator who shall be similarly qualified.
(4) Proceedings. Within twenty (20) days after the third arbitrator
has been selected or appointed, each party to the dispute shall
submit to the arbitrator a written statement of its position as
to the matter being arbitrated, including its position on the
necessity for discovery or a formal hearing. The arbitrator
shall, within fifteen (15) days after submission of statements,
establish a schedule for the arbitration proceedings and issues
orders relating to the conduct of such proceedings, governing,
among other matters, the extent and nature of any discovery to be
allowed and the necessity of a formal hearing. If a hearing is
held, the arbitrator shall issue a decision as to the resolution
of the dispute within fifteen (15) days after the hearing. All
costs, expenses and fees, plus reasonable attorneys' fees, shall
be recoverable by or paid to the substantially prevailing party
in any dispute resolved by arbitration.
15. Nothing contained in this Agreement shall require Atlas to request any
director or officer of Cornerstone to take any action or to refrain from
taking any action as a director or officer of Cornerstone or to act
otherwise than in accordance with such person's fiduciary duties as a
director and/or officer of Cornerstone. For greater certainty, nothing
contained herein will prevent Cornerstone from: (i) responding as required
by applicable law to any unsolicited expression of interest, proposal or
offer, (ii) making such disclosure which in the judgment of the board of
directors of Cornerstone upon the advice of counsel is required by law to
the extent required to satisfy the fiduciary obligations of the members of
such board of directors, or (iii) withdrawing or modifying any
recommendation or otherwise fulfilling the fiduciary duties of the members
of the board of directors of Cornerstone (including the Atlas
representatives thereon) to Cornerstone and its shareholders in relation to
the transaction if to do so would, in the opinion of the board of directors
of Cornerstone (upon the advice of counsel), be a proper exercise of such
directors' fiduciary duties.
34
<PAGE>
16. THIS AGREEMENT AND ATLAS' CONSUMMATION OF THE TRANSACTION CONTEMPLATED
HEREIN ARE SUBJECT TO APPROVAL OF THE U.S. BANKRUPTCY COURT FOR THE
DISTRICT OF COLORADO
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives upon the date first herein
written.
SEVEN PEAKS MINING, INC.
By: ___________________________________
Michael Stanley, President
ATLAS CORPORATION
By: ___________________________________
Gregg Shafter, President
35
<PAGE>
EXHIBIT 10.14
MUTUAL TERMINATION AGREEMENT
This Mutual Termination Agreement (the "Agreement") is entered into as of
December ___, 1998, by and between Barrick Gold Exploration Inc., an Ohio
corporation ("Barrick"), and Atlas Corporation, a Delaware Corporation, Atlas
Gold Mining Inc., a Nevada corporation, and Atlas Precious Metals Inc., a Nevada
corporation (collectively "Atlas"). Barrick and Atlas are sometimes referred to
herein individually as "Party" or collectively as "Parties."
RECITALS
A. Barrick and Atlas entered into that certain Asset Purchase Agreement as
of June 3, 1997, pursuant to which Barrick agreed to purchase from Atlas certain
Purchased Claims and agreed to obtain from Atlas the right to acquire certain
Excluded Claims (collectively the "Claims"), in each case together with the
related Leases, Contracts, Fixtures and Improvements, Water Rights, Related
Rights and Information, as each is defined in the Asset Purchase Agreement, and
to conduct certain exploration and other investigatory activities with respect
to the Claims. The Claims, Contracts and Leases are more particularly described
in Exhibit A to the Asset Purchase Agreement, and all Water Rights and Related
Rights are listed in Exhibit B to the Asset Purchase Agreement.
B. Pursuant to Section 6 of the Asset Purchase Agreement, Barrick agreed
to perform exploration work and make certain expenditures during the two year
period following the closing date of the Asset Purchase Agreement.
C. Pursuant to Section 15(a) of the Asset Purchase Agreement, the Parties
mutually desire to terminate the Asset Purchase Agreement, and Barrick desires
to reconvey to Atlas all of Barrick's right, title and interest in and to
Claims, including the right to acquire the Excluded Claims, and to any right or
interest in the related Leases, Contracts, Fixtures and Improvements, Water
Rights, Related Rights and Information obtained by Barrick pursuant to the Asset
Purchase Agreement.
AGREEMENT
In consideration of the promises herein made, and in consideration of the
representations, warranties, and covenants herein contained, the Parties
mutually agree as follows:
1. Settlement. In full satisfaction of any and all obligations or
----------
responsibilities incurred by Barrick under the Asset Purchase Agreement,
including without limitation the obligation to make any payment or perform any
act described in Section 6 of the Asset Purchase Agreement, the Parties agree
that Barrick will (a) remit a one time settlement payment to Atlas in the amount
of US$150,000 (the "Settlement Payment") and (b) perform the Reconveyance
described in Section 2 below. Barrick further agrees to release its rights under
the Asset Purchase Agreement to acquire the Excluded Claims. The Settlement
Payment shall be remitted as a single payment to Atlas at the closing of the
transaction contemplated by this Agreement (the "Closing") by wire transfer or
other immediately available funds.
Page 1 of 5
<PAGE>
2. Reconveyance. Barrick hereby agrees to reconvey to Atlas at the
------------
Closing all of the right, title, and interest of Barrick in and to the Purchased
Claims, Excluded Claims, Contracts, Leases, Fixtures and Improvements, Water
Rights, Related Rights and Information previously conveyed by Atlas to Barrick
under the Asset Purchase Agreement (the "Reconveyance"). The Parties agree that
this Reconveyance shall be made on an "as is, where is" basis and without any
warranties or representations whatsoever, except that the Reconveyance shall be
clear of defects, liens and encumbrances created by, through or under Barrick.
The Mining Deed, Assignment and Assumption Agreement and Memorandum of Agreement
necessary to effect this Reconveyance shall be executed by the Parties at
Closing and are attached hereto as Exhibits A, B and C, respectively.
3. Post-Termination Obligations. Barrick shall bear all recording fees
----------------------------
and BLM transfer fees associated with the Reconveyance. All other fees,
expenses, taxes, and other costs associated with the Reconveyance if any,
including without limitation real estate taxes, transfer fees, and income taxes,
shall be the sole responsibility of Atlas. From and after the Closing, Atlas
shall assume the responsibility for performing all obligations arising under, or
necessary for the maintenance of, the Claims, Contracts, Leases, Water Rights
and Related Rights, including all payments due with respect thereto. At Closing,
with respect to those Leases requiring that written notice of the assignment be
provided to the lessor, Atlas shall furnish proof that such written notice will
be provided. Atlas also shall assume upon Closing the obligation to obtain all
consents required under any applicable mining leases or other agreements in
respect of the Reconveyance to Atlas. With respect to those Leases for which
such consent is required, Atlas shall be responsible for satisfying all
obligations under such Leases that become due after the Closing and during which
time consent has not been given, and should Atlas fail to satisfy such
obligations Barrick may terminate or surrender the subject Lease or Leases as
provided therein. Barrick agrees to execute any agreements as may be reasonably
required to effect the Reconveyance, but shall have no obligation to make any
money payments with respect to such agreements.
4. Access and Reclamation. The Parties agree that Barrick shall continue
----------------------
to have full access to the properties on which the Claims are situated to the
extent necessary or convenient to (a) complete the reclamation obligations
incurred in connection with Barrick's exploration activities on the properties
and (b) obtain the release from the BLM and other regulatory agencies of any
bonds or security for performance provided by Barrick in connection with the
exploration activities, without further compensation or payment to Atlas, and
Atlas agrees to ensure that any easements, rights of way, or other possessory
rights necessary or convenient to complete such reclamation work would be
provided to Barrick without cost or expense to Barrick for a period of time
extending through July 30, 1999, or longer if reasonably required only if Atlas
is reasonably able to do so.
5. Access to Data. Barrick will make available to Atlas for inspection
--------------
and copying during normal business hours, at the sole cost and expense of Atlas,
all data and technical information relating to the exploration work conducted by
or on behalf of Barrick with respect to the Claims, exclusive of interpretive
materials.
Page 2 of 5
<PAGE>
6. Release. Atlas, in addition to other commitments made herein by
-------
Barrick, accepts the Settlement Payment and Reconveyance as consideration for
termination of the Asset Purchase Agreement and in full satisfaction of the
obligations of Barrick under the Asset Purchase Agreement, and acknowledges that
Barrick has fully performed or otherwise satisfied all obligations for which
Barrick was responsible under the Asset Purchase Agreement prior to Closing.
Atlas fully releases Barrick from the performance of all obligations under the
Asset Purchase Agreement and agrees that Atlas will not assert any claims
against Barrick arising out of or relating to any alleged non-performance or
breach of such obligations. Any liabilities unrelated to Barrick's activities on
the properties that arise after Closing shall be borne by Atlas, and Atlas
agrees to indemnify, release and hold harmless Barrick with respect to any
claims, liabilities, judgments, or awards with respect thereto.
7. Approval of Bankruptcy Court. This Agreement shall be first executed
----------------------------
by Barrick and Atlas and then submitted by Atlas to the Bankruptcy Court for
approval. The Agreement shall become effective upon the Court's issuance of a
non-appealable Order approving the Agreement in Case No. 98-23331 DEC, United
States Bankruptcy Court for the District of Colorado. Closing shall take place
within twenty four (24) hours of the Court's Order, provided, however, that the
Agreement shall terminate by operation of law if Closing does not occur by March
1, 1999. The costs incurred by Atlas in connection with obtaining this Order
shall be borne solely by Atlas. Upon execution and during the pendency of such
Court Order, any property holding payments or other payments made by Barrick
pursuant to the Leases and Contracts shall reduce the Settlement Payment on a
dollar for dollar basis. Barrick has been advised that Atlas is seeking to
reduce land holding costs relating to the Leases and Contracts, and Barrick
agrees to make a partial payment or no payment upon written instruction by Atlas
so long as Atlas provides written evidence that such reduction in payment is
acceptable to the lessor or other party to the agreement and that such reduced
payment will not result in a termination of the Lease or Contract.
8. Entire Agreement. This Agreement and the Asset Purchase Agreement
----------------
constitute the complete understanding between the Parties and supersedes any
other understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they may relate in any way to the subject matter
of the Agreement and the Asset Purchase Agreement. This Agreement shall modify
the Asset Purchase Agreement only to the extent provided herein, and provisions
of the Asset Purchase Agreement not so modified shall remain in effect to the
extent that such provisions survive termination.
9. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
10. Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or
Page 3 of 5
<PAGE>
conflict of law provision or rule (whether of the State of Nevada or any other
jurisdiction) that would cause the application of the laws of any other
jurisdiction other than the State of Nevada, except with respect to matters of
corporate securities laws which matters shall be governed, interpreted and
enforced in accordance with the laws of the State of Delaware.
12. Amendments: No Amendment of any provision of this Agreement shall be
----------
valid on any Party unless the same shall be in writing and signed by such Party.
13. Severability. Any term of this Agreement that is invalid or
------------
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
14. Expenses. Each of the Parties will bear its own costs and expenses
--------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
15. Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" shall mean "including
without limitation."
16. Incorporation. The Exhibits identified in this Agreement are
-------------
incorporated herein by reference and made a part hereof.
17. Submission to Jurisdiction. Each of the Parties submits to the
--------------------------
jurisdiction of any state or federal court sitting in Nevada, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waves any bond, surety,
or other security that might be required of any other Party with respect
thereto. Nothing in this Section shall affect the right of any Party to bring an
action or proceeding arising out of or relating to this Agreement in any other
court as permitted by law.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
BARRICK GOLD EXPLORATION INC.
By:
-------------------------------------
Name: /s/ Alex Davidson
-----------------------------------
Title: Vice President
----------------------------------
Page 4 of 5
<PAGE>
ATLAS CORPORATION
By: /s/ Gregg B. Shafter
-------------------------------------
Name: Gregg B. Shafter
Title: President
ATLAS GOLD MINING INC.
By: /s/ Gregg B. Shafter
-------------------------------------
Name: Gregg B. Shafter
Title: President
ATLAS PRECIOUS METALS INC.
By: /s/ Gregg B. Shafter
-------------------------------------
Name: Gregg B. Shafter
Title: President
Page 5 of 5
<PAGE>
EXHIBIT 21
ATLAS CORPORATION
LIST OF SUBSIDIARIES OF THE REGISTRANT
Atlas Precious Metals Inc. (incorporated in Nevada)
Atlas Gold Mining Inc. (incorporated in Nevada), a subsidiary of Atlas Precious
Metals Inc.
Arisur Inc. (organized under the laws of Grand Cayman).
Suramco Metals, Inc. (incorporated in Nevada).
72
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in Post Effective Amendment
Number 19 to Registration Statement Number 2-8439 on Form S-3 dated November 10,
1983, Post Effective Amendment Number 1 to Registration Statement Number 33-
18316 on Form S-8 dated December 14, 1987, Registration Statement Number 33-
65165 on Form S-3 dated February 2, 1996 and the Related Prospectuses of our
report to the consolidated financial statements included in this Annual Report
on Form 10-K of Atlas Corporation for the year ended December 31, 1998.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
April 13, 1999
73
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