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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 0-16778
CORNUCOPIA RESOURCES LTD.
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#540 - 355 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA V6C 2G8
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (604) 687-0619
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Shares, without par value
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 this Form 10-K or any
amendment to this Form 10-K. / X /
-----
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant based on the closing sale price of the
registrant's common shares on the Nasd OTC Bulletin Board of $0.115 on March
29, 1999, was approximately $4,783,061. As of March 29, 1999, there were
41,591,834 common shares issued and outstanding.
Documents incorporated by reference: The following documents filed with the
Commission by the registrant are incorporated by reference in this Form
10-K: Current Report on Form 8-K, dated March 11, 1999, and Preliminary
Proxy Materials, filed as Schedule 14a, dated March 26, 1999.
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CORNUCOPIA RESOURCES LTD.
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TABLE OF CONTENTS
<S> <C> <C>
PART I GENERAL 3
ITEM 1 BUSINESS
- Business of the Company 3
- Business Development 3 - 4
- Significant Transactions of the Company
(1) Major Reorganization 5
(2) Ivanhoe Joint Venture Agreement and Sale of Ivanhoe Property Interest 5 - 6
(3) Acquisition of Stockscape Technologies Ltd. 6 - 7
(4) Sale of Mineral Ridge Mine 7
(5) Carlin Resources Corp. 8
- Industry Overview and Factors Relating to the Company's Properties 8 - 11
- Glossary of Mining Terms and Definitions 11 - 12
ITEM 2 PROPERTIES
- Mineral Ridge Mine 12 - 14
- Ivanhoe Property 15 - 17
- Other Property Interests
(1) Yakobi Island Property 17
(2) South Monitor Property 17
(3) Red Mountain Property 17 - 18
ITEM 3 LEGAL PROCEEDINGS 18
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 19 - 24
ITEM 6 SELECTED FINANCIAL DATA 25
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION 26 - 29
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29 - 43
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 29
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 44 - 46
ITEM 11 EXECUTIVE COMPENSATION 46 - 51
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 51
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 52
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 53 - 55
SIGNATURES 56
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CORNUCOPIA RESOURCES LTD.
PART I
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GENERAL
Unless the context otherwise requires, the "Registrant" means Cornucopia
Resources Ltd. and the "Company" means the Registrant and its subsidiaries.
The Company's principal office is located at 540 - 355 Burrard Street,
Vancouver, British Columbia, V6C 2G8, telephone (604) 687-0619, facsimile
(604) 681-4170, or web site www.cornucopia-resources.com.
All references to number of common shares and per share amounts in this Form
10-K reflect the subdivision of the Registrant's common shares ("Common
Shares") on a two-for-one basis on July 7, 1987.
The information set forth in this form is as of March 22, 1999, except where
an earlier or later date is indicated, and all information included in this
document should only be considered correct as of such date, except as
otherwise expressly stated.
Financial information is presented in accordance with Canadian Generally
Accepted Accounting Principles ("GAAP"). Differences between United States
GAAP and Canadian GAAP are explained in note 7 of the Consolidated Financial
Statements of the Company for the year ended December 31, 1998, and Item 8 of
this Form 10-K.
The Company uses the United States ("US dollar") dollar as its reporting
currency. As such, all references in this document to "dollars" or "$" are to
United States dollars, unless otherwise indicated. References to C$ are to
Canadian dollars.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). Such forward-looking statements involve known
and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements express or
implied by such forward-looking statements. Such factors include, among
others, results of merger or sale of assets, precious metals exploration and
development costs and results, reclamation obligations, fluctuation of gold
prices, competition, uninsured risks, recovery of reserves, capitalization
and commercial viability and requirements for obtaining bonds, permits and
licenses.
ITEM 1: BUSINESS
BUSINESS OF THE COMPANY
Cornucopia Resources Ltd. was organized on November 14, 1985, under the laws
of the Province of British Columbia, Canada by the statutory amalgamation of
Cyrano Resources Inc. and Cornucopia Resources Ltd., two British Columbia
companies which were incorporated in 1980 and 1982, respectively. While
historically the Company has been involved in the exploration and development
of precious metal deposits, the Company is currently undergoing a major
reorganization of its business and capital.
On March 2, 1999, the Company announced a major reorganization in that the
Company plans to sell its principal and only active mining asset, a 25%
interest in the Ivanhoe property in Nevada, and change the course of its
business from the mining sector to the Internet investment research sector.
More detailed disclosure on this is provided in Item 1 - "Significant
Transactions of the Company"; (1) "Major Reorganization" and (3) "Acquisition
of Stockscape Technologies Ltd."
BUSINESS DEVELOPMENT
Subsequent to the amalgamation in 1985, the Registrant assumed Cyrano
Resources Inc.'s listing on the Vancouver Stock Exchange. On January 29,
1988, Common Shares of the Registrant were listed on the Toronto Stock
Exchange (symbol CNP). The Common Shares were also quoted in the United
States on The Nasdaq Stock Market, National Market System until January 17,
1992, the Nasdaq SmallCap Market until October 29, 1998, and are currently
quoted (symbol CNPGF) on the Nasd OTC Bulletin Board ("OTCBB"). At the
Registrant's request, its Common Shares were delisted from trading on the
Vancouver Stock Exchange on February 4, 1993, and as part of the planned
major reorganization, the Registrant applied for delisting from the Toronto
Stock Exchange which became effective March 31, 1999.
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The Registrant conducts its business affairs in the United States through its
wholly-owned subsidiary, Cornucopia Resources Inc., a Nevada corporation, and
through the latter company's wholly-owned subsidiaries: Touchstone Resources
Company ("Touchstone"), a Nevada corporation; and Red Mountain Resources,
Inc. ("Red Mountain"), a Colorado corporation. The Company sold its interest
in Mineral Ridge Resources Inc. ("Mineral Ridge"), a Nevada corporation, and
its operating mine (the "Mineral Ridge Mine") to Vista Gold Corp. on October
21, 1998. See Item 2: "Mineral Ridge Mine."
Since its incorporation, the Company has been primarily involved in the
acquisition, exploration, development and mining of precious mineral resource
properties in the United States. The Company's principal project since 1987
has been the exploration, development and subsequent production of gold at
the Ivanhoe property (the "Ivanhoe Property") near Battle Mountain in Elko
County, Nevada. The Company also retains a 100% interest in certain mineral
claims located in southeast Alaska ("Yakobi Island Property") and direct or
indirect interests in other mineral properties. In late 1993, the Company
expanded its exploration activities to include West Africa. During 1995 and
1996, the Company's primary focus was on the Mineral Ridge Mine in Silver
Peak, Nevada and exploration activities on three concessions in West Africa
through an affiliate. After an unsuccessful attempt to acquire mining
concessions in Zaire, the Company decided in late 1996, to concentrate its
efforts on North American properties. See Item 2: "Properties" for a summary
of past and current activities on the Company's properties.
In 1992, the Company sold half of its 50% working interest in the Ivanhoe
Property to Newmont Mining Corporation ("Newmont"), thus leaving the Company
with a 25% interest in the Ivanhoe Property. Newmont, by separate agreement,
acquired the remaining 50% interest in the Ivanhoe Property. In August 1997,
Newmont's 75% interest in the Ivanhoe Property was transferred from Newmont
to Great Basin Gold Ltd. ("Great Basin"), and the Company, through
Touchstone, entered into a Venture Agreement with Great Basin. Great Basin is
a British Columbia reporting company with shares listed for trading on the
Vancouver Stock Exchange and the OTCBB in the United States. On March 2,
1999, the Company entered into an agreement with Great Basin, subject to
shareholder approval, to sell its remaining interest in the Ivanhoe Property.
See Item 1: "Significant Transations of the Company" - (1) "Major
Reorganization" and (2) "Ivanhoe Joint Venture Agreement and Sale of Ivanhoe
Property Interest."
On December 3, 1992, the Registrant incorporated another wholly-owned
subsidiary, Cornucopia Resources Ghana Limited ("Cornucopia Ghana"), a
company incorporated under the laws of the Republic of Ghana, to act as a
holding company for its investments and operations in the Republic of Ghana.
In October, 1994, the Registrant entered into agreements whereby it
transferred to Carlin Resources Corp. ("Carlin Resources"), a Vancouver Stock
Exchange listed company, all of the Registrant's interest in Cornucopia
Ghana, in consideration of a total of 1,635,639 common shares of Carlin
Resources. This investment was sold in September 1998, as described in Item
1: "Significant Transactions of the Company" - (5) "Carlin Resources Corp."
The Registrant may incorporate additional subsidiary companies, if considered
advisable, to hold interests in other companies, properties, or projects it
may acquire.
The following chart sets forth the organization of Cornucopia Resources Ltd.
and its direct and indirect subsidiaries as of December 31, 1998, and their
jurisdictions of incorporation, as well as relevant stock exchange listings.
-----------------------------
CORNUCOPIA RESOURCES LTD.
TSE & NASD OTC Bulletin Board
(British Columbia)
-----------------------------
-----------------------------
100%
CORNUCOPIA RESOURCES INC.
(Nevada)
-----------------------------
----------------------------- -----------------------------
100% 100%
TOUCHSTONE RESOURCES COMPANY RED MOUNTAIN RESOURCES, INC.
(Nevada) (Colorado)
----------------------------- -----------------------------
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----------------------------- -----------------------------
----------------------------- -----------------------------
SIGNIFICANT TRANSACTIONS OF THE COMPANY
(1) MAJOR REORGANIZATION
On March 2, 1999, the Company announced that it had entered into arrangements
with arm's length parties which will result in a substantial reorganization
of the Company and its business. The reorganization will be subject to
requisite regulatory approval and shareholder approval at the Company's
upcoming Annual and Extraordinary General Meeting.
As part of the Company's reorganization, the Company entered into an
agreement with Great Basin pursuant to which the Company agreed to sell to
Great Basin all of the issued and outstanding shares of Touchstone. Because
the Company's interest in the Ivanhoe Property is its sole remaining active
mining interest, the sale of that asset represents a major change in the
status of the Company as a mining entity and a sale of substantially all of
the Company's present undertaking. Details of the agreement with Great Basin
are outlined in the following sections; see Item 1: "Significant Transactions
of the Company - (2) Ivanhoe Joint Venture Agreement and Sale of Ivanhoe
Property Interest", Item 2: "Properties" - "Ivanhoe Property", and Great
Basin Gold Ltd. Purchase and Sale Agreement, dated March 2, 1999, filed as
Exhibit 10.8.
Concurrently with the disposition of its remaining active mining asset the
Company plans to complete the acquisition of "Stockscape Technologies Ltd.",
("Stockscape"), a British Columbia company which is a privately-held Internet
investment research provider in its third year of operations with an
established website at stockscape.com. More detailed disclosure on Stockscape
and its business is provided in Item 1: "Significant Transactions of the
Company - (3) Acquisition of Stockscape Technologies Ltd." and Item 8:
"Financial Statements and Supplementary Data" - "Notes to Consolidated
Financial Statements", note 12 " Subsequent Events."
As part of the proposed reorganization, and as a condition precedent to the
Stockscape acquisition, the Registrant will be required to consolidate its
issued and outstanding Common Shares on a 10-for-1 basis. At the upcoming
Annual and Extraordinary General Meeting shareholders will be asked to pass a
special resolution approving the consolidation, a change of the name of the
Registrant to "Stockscape Technologies Ltd." or such other name as decided
upon by the directors and acceptable to the Registrar of Companies for
British Columbia, and to restructure the Board of Directors of the Company to
reflect the nature of the Company's new business.
A copy of the Registrant's news release, dated March 2, 1999, was filed as an
exhibit to the Registrant's Form 8-K, dated March 11, 1999.
(2) IVANHOE JOINT VENTURE AGREEMENT AND SALE OF IVANHOE PROPERTY INTEREST
Since the sale of Mineral Ridge, the Company has focused its activities on
the Ivanhoe Property where its joint venture partner Great Basin has earned a
75% interest under the Venture Agreement between the parties. After the
earn-in by Great Basin the Company would be required to commit to exploration
budgets set by Great Basin. Provisions in the Venture Agreement would allow
the Company the option of not participating in exploration program budgets
but at the cost of dilution of its interest. For example, by opting out of
the proposed programs for exploration and reclamation for 1999, the Company
would have suffered dilution from a 25% interest to a 19% interest. The
Company has entered into a Sale Agreement dated March 2, 1999, with Great
Basin pursuant to which the Company will sell its wholly-owned subsidiary,
Touchstone, to Great Basin in exchange for shares of Great Basin. See Item 2:
"Properties" - "Ivanhoe Property."
The Ivanhoe project will be sold in exchange for 2,750,000 Common Shares at a
deemed price of C$1.25 per share and 250,000 warrants of Great Basin,
exercisable to purchase an additional 250,000 shares at C$2.00 per share for
one year. Resale of the shares issued in consideration for the Company's
interest will be restricted, by agreement, for a period of twelve months. The
Company has agreed to a voting trust in favor of Great Basin management for a
period of two years and will be given representation to the board of
directors of Great Basin. As well, the Company will have the right to
participate in future financings of Great Basin in order to maintain its
equity interest. In addition to the requisite regulatory and shareholder
approvals, completion of the purchase and sale is subject to conditions
precedent in favor of both parties which include satisfactory due diligence
review of and favorable opinions on matters material to the transaction.
In the event that the sale of Touchstone is not approved, certain obligations
with respect to reclamation on the Ivanhoe Property will continue to be the
responsibility of the Company. Reclamation on the Ivanhoe Property is being
carried out by Newmont and as at December 31, 1998, a total of $5,495,093 had
been spent. Currently, under a three party agreement
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between Newmont, Touchstone and Great Basin, reclamation expenses are shared
one third by each party. Under the Venture Agreement, if the budget exceeds
$6,000,000, Newmont will contribute 75%, Great Basin 18.75% and the Company
6.25% of the remaining excess reclamation costs.
(a) NEWMONT MINING CORPORATION MINING VENTURE
The Company's indirect wholly-owned subsidiary, Touchstone entered into a
letter agreement dated March 26, 1992, (the "Ivanhoe Venture") with Newmont
Mining Corporation and its subsidiaries (collectively "Newmont") for the sale
to Newmont of half of Touchstone's 50% interest in the assets of the Ivanhoe
Property in consideration for $6,700,000 payable in cash on the closing date.
At about the same time, Newmont also entered into an agreement with Galactic
Resources Ltd., to acquire a further 50% interest in the Ivanhoe Property in
consideration for $13,400,000. The sales transactions were completed on June
23, 1992, and accordingly Newmont acquired a 75% interest in the Ivanhoe
Property, with Touchstone holding the remaining 25% interest. Touchstone and
Newmont then entered into a mining venture agreement for further exploration
and development of the Ivanhoe Property.
(b) TERMINATION OF NEWMONT MINING VENTURE
On July 11, 1995, Newmont advised the Company of its decision to withdraw
from the Ivanhoe Venture. Upon notification by Newmont of their decision to
withdraw, the Company entered into an option agreement with Newmont on the
same date to acquire Newmont's interest in the Ivanhoe Property for a total
purchase price of $1. Exercise of the option was contingent on the Company
identifying a mining industry partner acceptable to Newmont who would
contribute a further $1,000,000 to the reclamation fund established for the
Ivanhoe Property. Once the option was executed, the Company would be required
to pay an additional $25,000 to the reclamation fund, resulting in aggregate
payments by the Company of $500,000. See following section "Ivanhoe Venture
Agreement with Great Basin Gold Ltd."
On June 1, 1996, Newmont commenced reclamation which consisted primarily of
rinsing the heaps, site monitoring and test work, extensive construction of
diversion ditches, and re-shaping of waste rock piles. By December 31, 1996,
the Company's initial $500,000 contribution to the reclamation fund had been
exhausted. Newmont submitted a formal reclamation and closure plan in March
1997, to the State of Nevada and the Bureau of Land Management and began a
more extensive reclamation program, with a revised reclamation budget through
to December, 2004, having total reclamation costs estimated at approximately
$5,900,000. At December 31, 1998, reclamation liabilty of $465,000 existed in
relation to Ivanhoe reclamation which was not recorded in the accounts of the
Company. The Company, Newmont and Great Basin Gold Ltd. subsequently ratified
an agreement wherein Newmont would transfer its interest to Great Basin, but
Newmont is in the process of completing the reclamation plan as submitted to
the Bureau of Land Management in March 1997.
The Company previously contributed $500,000 to the reclamation fund, Newmont
contributed $3,000,000 and Great Basin contributed $1,000,000. This
$4,500,000 has been expended and the parties are to contribute to the
reclamation fund on an equal basis until a total of $6,000,000 has been
spent. Reclamation costs in excess of $6,000,000 are to be paid 75% by
Newmont and 25% pro rata by the Company and Great Basin. At December 31,
1998, a total of $5,495,093 had been spent pursuant to the reclamation plan.
See Item 1: "Industry Overview and Factors Relating to the Company's
Properties" - (k) "Reclamation Obligations."
(c) IVANHOE VENTURE AGREEMENT WITH GREAT BASIN GOLD LTD.
On August 13, 1997, the Company, through its 100% owned subsidiary Touchstone
Resources Company, entered into a Venture Agreement with Great Basin Gold
Ltd. Pursuant to the terms of this agreement, Great Basin has earned a 75%
interest in the Ivanhoe Property by paying $1 million to Newmont (paid),
spending an additional $2.8 million on exploration and related costs over the
next two years (completed), and by purchasing 1,100,000 units in the capital
stock of the Registrant for C$1.00 each (completed). Each unit was comprised
of one Common Share plus one share purchase warrant exercisable at C$1.25.
The share purchase warrants expired on March 26, 1998. After Great Basin met
the earn-in requirements of the Venture Agreement, the agreement provides
that expenditures and ownership of the Ivanhoe Property are to be on a 75%
Great Basin and 25% Cornucopia basis or dilution provisions will come into
effect.
(3) ACQUISITION OF STOCKSCAPE TECHNOLOGIES LTD.
On March 1, 1999, the Company reached an agreement in principle for the
acquisition of a privately-held Internet investment research provider,
Stockscape Technologies Ltd. Under the terms of a Share Exchange Agreement to
be entered into between the Company and the shareholders of Stockscape, the
Company intends to acquire all of the issued and outstanding shares of
Stockscape by the issuance of 10,000,000 post-consolidation Common Shares of
the Registrant (the "Payment Shares"). The parties have agreed that the
Payment Shares will be issued for a deemed value of C$0.50 per share making
the overall deemed
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value of the transaction C$5 million. Both the shareholder of Stockscape and
Stockscape are entirely at arm's length to the Company. The acquisition of
Stockscape is conditional upon the completion of due diligence by both
parties and the execution and delivery of definitive documentation. The
Payment Shares will be subject to trading restrictions under U.S. securities
legislation for a minimum of two years.
Stockscape, in its third year of operation, has financed its development and
operations by equity financing and a loan payable to its shareholder. As
Stockscape's policy is to expense business and software development costs, a
deficit of C$813,043 has accumulated as at December 31, 1998. Business and
software development costs over the upcoming twenty-four months are expected
to be financed from revenues and from equity financing issued by the combined
entity. The acquisition of Stockscape is subject to conditions precedent, one
of which is the commitment for a financing of the Registrant for up to
C$2,000,000 representing 4,000,000 units at C$0.50 per unit, to be completed
at the time of closing of the acquisition of Stockscape. Each unit will
consists of one Common Share and two share purchase warrants of the
Registrant. One share purchase warrant will be exercisable in the first year
to acquire one additional Common Share in the capital of the Registrant at
C$0.65. The second warrant will be exercisable for a period of two years to
acquire one additional Common Share at C$0.95. The warrants will have forced
conversion features. Proceeds of the financing will be used for working
capital and to further develop Stockscape's customer base.
For detailed disclosure on Stockscape reference is made "Appendix A" of the
Registrant's Preliminary Proxy Materials, filed as Schedule 14a, dated March
26, 1999.
(4) SALE OF MINERAL RIDGE MINE
Mineral Ridge Resources Inc., and its principal project the Mineral Ridge
Mine, was 100% owned by the Company until its sale to Vista Gold Corp.
("Vista Gold") of Denver, Colorado. Consideration for this sale was $250,000
and 1,562,500 common shares of Vista Gold at a deemed value of $250,000, plus
the assumption of all of the liabilities of the Company with respect to the
mine, and Vista Gold also subscribed to a private placement of 2,777,777
Common Shares of the Registrant valued at $250,000. The Company recorded a
gain of $180,972 on the sale of the Mineral Ridge Mine. Also see Item 2:
"Properties" - "Mineral Ridge Mine."
MINE DEBT FINANCING FACILITY
On January 17, 1997, the Company entered into a loan agreement with Dresdner
Kleinwort Benson ("Dresdner") for senior secured loan facilities of $13.0
million for construction and development purposes and working capital. A $2.0
million contingency facility was to be available to fund cost overruns and
the initial debt service reserve, but was not used.
Dresdner was given 1,500,000 warrants as part of the consideration for
providing the loan and 250,000 warrants in consideration for establishing a
letter of credit in the amount of $1.1 million to facilitate construction of
power lines and ancillary electrical distribution equipment at the mine site.
The original warrants were exercisable at C$1.35 per share at any time until
December 31, 2000. In October 1998, as part of the sale agreement of Mineral
Ridge, approval was sought and granted to reprice and extend the term of the
warrants held by Dresdner to purchase 1,750,000 Common Shares, at C$0.20 per
share expiring December 31, 2001.
At October 21, 1998, the Company was in default of its obligations to
Dresdner in the amount of $14.4 million combined principal and interest. The
obligations were assumed by Vista Gold upon the sale of Mineral Ridge.
CONTRACTS
On August 20, 1996, the Company entered into a contract with Roberts &
Schaefer Company for the construction of certain facilities and plant at the
Mineral Ridge Mine. The total contract price was fixed at $12,399,672 payable
in installments. On December 8, 1997, Roberts & Schaefer recorded a notice of
lien on the Mineral Ridge property claiming for holdback, legal fees and
interest of $599,512. This indebtedness was settled by Vista Gold under the
terms of the agreement of sale of Mineral Ridge.
On January 21, 1997, the Company entered into a contract with D. H.
Blattner & Sons, Inc. for open-pit mining over the life-of-mine estimated
at 6 years. On February 10, 1998, D. H. Blattner & Sons recorded a
notice of lien on the Mineral Ridge property for payment of invoices
totaling $699,000 for contract mining. This indebtedness was settled by
Vista Gold under the terms of the agreement of the sale of Mineral Ridge.
On July 11, 1997, Mineral Ridge Resources, Inc. entered into an agreement
with Sierra Pacific Power Company to provide electric power to the Mineral
Ridge Mine in Esmeralda County, Nevada, throughout the life of the project.
The agreement
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established certain long term prices for current and future capacity. This
contract was assumed by Vista Gold upon the sale of Mineral Ridge.
(5) CARLIN RESOURCES CORP.
As at January 1, 1997, the Registrant held an aggregate of 3,635,639 common
shares of Carlin Resources Corp., a Vancouver Stock Exchange listed company.
DISPOSITION OF CARLIN RESOURCES SHARES
Effective April 29, 1997, the Registrant sold 2,100,000 shares of Carlin
Resources through a broker for net proceeds of C$0.59 per share. As at
December 31, 1997, the Registrant still held 14.6% or 1,561,139 shares of
Carlin Resources. After a writedown of $476,341 in 1997, the carrying value
of the investment in Carlin Resources was reduced to nil. An outstanding
inter-company advance of approximately $202,000 (C$290,000) included in
accounts receivable on the balance sheet at its estimated realizable value as
at December 31, 1997, was recovered in 1998, together with 1,000,000
additional Carlin Resources shares. During the first and second quarters of
1998, the Company endeavored unsuccessfully to find a buyer for its block of
2,561,139 Carlin Resources shares. In order to raise funds for working
capital, the shares were sold to two directors of the Registrant in September
1998.
INDUSTRY OVERVIEW AND FACTORS RELATING TO THE COMPANY'S PROPERTIES
(a) USES OF GOLD
Product fabrication and bullion investment are the two principal uses of
gold. Within the fabrication category there is a wide variety of end uses,
the largest of which is the manufacture of carat jewelry. Other fabrication
purposes include official coins, electronics, miscellaneous industrial and
decorative uses, dentistry, medals, and medallions. The Company believes that
certain purchases of official coins and high-carat, low mark-up jewelry are
often motivated in part by investment, so that net private bullion purchases
alone do not represent the total investment activity in physical gold during
the course of any year.
(b) GOLD PRICE VOLATILITY
The Company's ability to generate profits from its operations has been
directly related to the market price of gold. There can be no assurance that
the price of gold will be such that the Company's investments in gold
equities or projects will generate profits.
In early January 1998, the price of gold dropped to a 19 year low. The price
of gold has typically experienced volatile and significant price movements
over short periods of time, and is affected by numerous factors beyond the
Company's control, including international economic and political trends,
expectations for inflation, currency exchange fluctuations (specifically, the
US dollar relative to other currencies), interest rates and global or
regional consumption patterns (such as the development of gold coin
programs), speculative activities and increased production due to improved
mining and production methods. The supply of and demand for gold are affected
by various factors, including political events, economic conditions and
production costs in major gold producing regions and governmental policies
with respect to gold holdings by a nation or its citizens.
The volatility of gold prices is illustrated by the following table of the
high and low gold prices per ounce on the London Metals Exchange bullion
market: (Source of Data - Pratt's Metals Week.)
<TABLE>
<CAPTION>
-------------------- ------------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR HIGH LOW YEAR HIGH LOW
-------------------- ------------- --------------------- -------------
1989 416 356 1994 396 369
1990 424 346 1995 396 372
1991 403 344 1996 416 367
1992 360 330 1997 367 283
1993 405 326 1998 313 273
-------------------- ------------- --------------------- -------------
</TABLE>
(c) GOLD HEDGING
In order to manage its exposure to fluctuations in the price of gold, the
Company entered into fixed forward contracts. Forward sales agreements
obligated the Company to sell gold at a specified price on a specified date.
All contacts held by the Company were held by Mineral Ridge Resources Inc.
After the sale of Mineral Ridge in October 1998, the Company was no longer a
party to fixed forward contracts.
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(d) INFLATION AND PRICE CHANGES
Inflation could affect the profitability of the Company's investments in gold
equities or properties. Inflation is not expected to have any other material
impact on the Company beyond the general impact on all businesses, such as
higher costs of materials, services and wages.
(e) RISKS AND UNCERTAINTIES
CURRENT OPERATIONS
There can be no certainty that the Company could successfully pursue
financing options or rely on joint venture partners to supply the funds
required to explore and develop its properties. There can be no assurance
that the Company will be successful in obtaining approvals for the proposed
major reorganization or that the terms of any financing obtained will be
favorable. If the Company's withdrawal from active mining and exploration
activities is successful, the risks inherent in these type of operations will
be mitigated. At March 29, 1999, the Company considers that current cash
balances and realizable investments will be sufficient to allow the Company
to meet its expected funding requirements on current projects and anticipated
administrative expenses until the end of the second quarter 1999. The Company
expects funding requirements thereafter to be met with the proceeds of a
C$2,000,000 financing, which is a condition precedent to the acquisition of
Stockscape. See "Significant Transactions of the Company" - (3) "Acquistion
of Stockscape Technologies Ltd."
NEW BUSINESS
For risk factors relating to and the effect of the acquisition of Stockscape
on shareholder liquidity, reference is made to "Risk Factors" and "Liquidity
and Capital Resources" in "Appendix A" of the Registrant's Preliminary Proxy
Statement, filed as Schedule 14a, dated March 26, 1999, incorporated herein
by reference.
(f) COMPETITION
Significant and increasing competition exists for the limited number of gold
acquisition opportunities available in Canada and the United States. Some of
this competition is with large established mining companies having
substantial capabilities, greater financial and technical resources than the
Company. As a result of this competition, the Company may be unable to
acquire future potential gold mining properties on acceptable terms.
(g) SALES AND REFINING
Gold can be readily sold on numerous markets throughout the world. Gold
produced from the Company's mining operations was refined by a commercial
refinery. Gold and silver produced was subsequently purchased by the refinery
on the basis of the quoted selling price of gold on the applicable metals
exchange on the date of sale. During 1998, prior to the sale of the Mineral
Ridge Mine on October 21, 1998, the gold and sliver produced from the mine
totaled 9,045 ounces gold and 5,231 ounces silver.
(h) ROYALTIES AND OTHER COMMITMENTS
During 1998, the Company made no advance royalty payments. In view of the
sale of Mineral Ridge to Vista Gold, and Touchstone to Great Basin, the
Company will no longer have any royalty obligations.
(i) TITLE TO PROPERTIES
The Company owns or leases unpatented mining claims which constitute the
majority of the Company's property holdings in the United States. The
ownership and validity of unpatented mining claims are often uncertain and
may be contested. In view of the withdrawal of the Company from active mining
and exploration, it has minimal residual property interests which are
described in Item 2 - "Properties" - "Other Property Interests,"
(j) REGULATORY AND ENVIRONMENTAL MATTERS
In view of the withdrawal of the Company from active mining and exploration,
it is unlikely that the Company will be exposed to any significant residual
obligations relating to reclamation since these obligations have been, or
will be, assumed by the purchasers of the Company's interests.
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(k) RECLAMATION OBLIGATIONS
Reclamation requirements vary depending on the location and the managing
agency, but they are similar in that they aim to minimize long term effects
of exploration and mining disturbance by requiring the operating company to
control possible deleterious effluents and to re-establish to some degree
pre-disturbance land forms and vegetation. The Company believes that it has
met or exceeded reclamation requirements to date.
IVANHOE PROPERTY
Reclamation on the Ivanhoe Property for disturbance caused prior to July
1995, is being carried out by Newmont. Newmont submitted the original Ivanhoe
Property reclamation plan to the State of Nevada and the Bureau of Land
Management in June 1993. In July 1995, Newmont advised the Company that it
did not plan to pursue the project and revised its cost estimate of
reclaiming the property.
On June 1, 1996, Newmont commenced reclamation which consisted primarily of
rinsing the heaps, site monitoring and testwork, extensive construction of
diversion ditches, and re-shaping of waste rock piles. This reduced the
Company's share of the provision for site restoration from $500,000 on
December 31, 1995 to NIL as at December 31, 1996. Newmont submitted a formal
reclamation and closure plan in March 1997, to the State of Nevada and the
Bureau of Land Management and began a more extensive reclamation program.
Newmont revised its reclamation budget through to December 2004, which is now
estimated to be approximately $5,900,000. Newmont intends to complete the
reclamation plan, as submitted to the BLM, in 1999. Expenditures, if any,
over the reclamation fund of $4,500,000 will be funded one third each by
Newmont, Great Basin and the Company up to US $1.5 million and thereafter 75%
by Newmont with the balance payable pro rata by Great Basin and the Company.
By agreement dated March 2, 1999, Great Basin assumed responsibility for all
past and future obligations of the Company which exceed the $500,000 already
paid by the Company.
In the event that the sale of Touchstone is not approved, certain obligations
with respect to reclamation on the Ivanhoe Property will continue to be the
responsibility of the Company. Reclamation on the Ivanhoe Property will
continue to be carried out by Newmont and as at December 31, 1998, $5,495,093
had been spent. Currently, under a three party agreement between Newmont,
Touchstone and Great Basin, reclamation expenses are shared one third by each
party. Under the Venture Agreement, if the budget exceeds $6,000,000, Newmont
will contribute 75%, Great Basin 18.75% and the Company 6.25% of the
remaining excess reclamation costs. See Item 2: "Properties" - "Ivanhoe
Property."
MINERAL RIDGE MINE
As at December 31, 1998, the Company had no reclamation commitments related
to the Mineral Ridge Mine. In view of the sale of the mine to Vista Gold in
October 1998, the Company's responsibilities relating to reclamation of the
mine were assumed by Vista Gold. See Item 2: "Properties" - "Mineral Ridge
Mine."
(l) LABOR
Due to the winding down of operations at Mineral Ridge, a steady reduction in
the work force at that project took place until the sale of the mine in
October 1998. During the year, staff in the Vancouver office was drastically
reduced to three positions: President and Chief Executive Officer,
Vice-President Finance and Chief Financial Officer and Corporate Secretary.
(m) FOREIGN OPERATIONS
Foreign properties, operations and investments may be adversely affected by
local political and economic developments, exchange controls, currency
fluctuations, taxation and laws or policies of particular countries, as well
as by laws and policies of Canada and the United States affecting foreign
trade, investment and taxation. The Company has not been adversely affected
by any risks inherent in foreign operations to date.
(n) CURRENCY AND CONVERSION
The Company's financial statements are denominated in United States dollars.
The Canadian/United States currency exchange rate at the end of each of the
past five calendar years and the average, the high and low rates of exchange
for each year are set forth below. These rates, which are expressed in
Canadian dollars, are noon rate of exchange for the conversion of United
States dollars into Canadian dollars calculated on the basis of rates of
exchange as reported by The Bank of Canada.
10
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<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31 AVERAGE LAST DAY HIGH LOW
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1.4831 1.5333 1.5845 1.4040
1997 1.3844 1.4305 1.4399 1.3345
1996 1.3630 1.3706 1.3865 1.3287
1995 1.3724 1.3640 1.4267 1.3275
1994 1.3659 1.4018 1.4090 1.3085
------------------------------------------------------------------------------------------
</TABLE>
On March 29, 1999, the noon rate of exchange quoted by The Bank of Canada for
the conversion of the United States dollars into Canadian dollars was $1.5126
(Canadian $1.00 equals US $0.66).
(o) MARKET FOR SECURITIES
The Common Shares of the Company commenced trading on the OTCBB (symbol
CNPGF) effective October 29, 1998. The Registrant remains a reporting company
under the United States Securities Exchange Act of 1934. The Registrant has
made application to the Toronto Stock Exchange (TSE) to delist its Common
Shares because after giving effect to the reorganization the Company would
not have met the continued listing requirements. The TSE delisting became
effective on the close of business March 31, 1999.
(p) YEAR 2000 COMPUTER RISK
The Year 2000 issue has resulted from computer programs coded to accept two
digits rather than four to define the applicable year. The effects of the
problem, if any, would occur on or about January 1, 2000, and could result in
internal system failure in, among other things, local area network,
accounting and other administrative functions. Externally, the problem could
result in system failure by third party providers or suppliers. It is not
possible to be certain that all aspects of the Year 2000 issue which may
arise from third party providers and suppliers will be resolved.
The Registrant, in early 1998, began assessment of the potential impact of
the Year 2000 issue. Internally, the Company uses current or near current
versions of software by major developers for office productivity, accounting,
internet and database applications. To gain further certainty as to Year 2000
compliance, the Company will either purchase upgrades which are currently
available or obtain published statements by these software developers
assuring that these programs are Year 2000 compliant. The cost of obtaining
these upgrades is not expected to be material.
In the event that the Registrant acquires other businesses, the software and
hardware acquired in connection with those business combinations may not be
Year 2000 non-compliant.
GLOSSARY OF MINING TERMS AND DEFINITIONS
COLUMN LEACHING - a method of dissolving gold and/or silver from crushed or
ground ore contained in a cylindrical vessel by the continuous movement of
cyanide solution through the column.
CUT-OFF GRADE - the lowest grade of mineralized rock that qualifies as ore
grade in a given deposit, and is also used as the lowest grade below which
the mineralized rock currently cannot be profitably exploited. Cut-off grades
vary between deposits depending upon the amenability of ore to gold
extraction and upon costs of production.
HEAP-LEACHING/LEACHING - a process whereby gold is recovered from ore by
heaping broken ore on sloping impermeable pads, repeatedly spraying the heaps
with a cyanide solution which dissolves the gold content of the ore,
collecting the gold-laden solution and stripping the solution of gold. Such
gold is melted and recast as dore bullion and is then delivered to commercial
refiners.
MINERALIZED DEPOSIT - a mineralized body which has been physically delineated
by drilling, underground work, surface trenching and other workings or drill
holes and found to contain a sufficient amount of mineralized material with
an average grade sufficient to warrant further evaluation. Such deposit does
not qualify as a commercially mineable (or viable) ore body until technical,
economic and legal factors have been sufficiently satisfied to classify the
mineralized material as a reserve.
MINING CLAIM - that portion of public mineral lands which a party has staked
or marked out in accordance with provincial or state mining laws to acquire
the right to explore for and exploit the minerals under the surface.
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NET SMELTER RETURN ("NSR") - a return based on the actual gold sale
price received less the cost of refining at an off-site refinery.
OPEN PIT MINING - the process of mining an ore body from the surface in
progressively deeper steps. Sufficient waste rock adjacent to the ore body is
removed to maintain mining access and to maintain the stability of the
resulting pit.
OPT - ounces per ton.
OUNCES - troy ounces; in this report production figures refer to gold having
a fineness of at least 995 parts per 1,000 parts; other references to ounces
in this report do not refer to a specific fineness.
PROBABLE RESERVES - reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between
points of observation.
PROVEN RESERVES - reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality
are computed from the results of detailed sampling; and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well established.
PROVEN/PROBABLE RESERVES - is used if the difference in degree of assurance
between proven and probable reserves cannot be reliably defined.
RESOURCE - the estimated quantity and grade of mineralization that is of
potential economic merit. A resource estimate does not require specific
mining, metallurgical, environmental, price, and cost data, but the nature
and continuity of mineralization must be understood. A resource
classification differs from "mineralization" as that term is used in National
Policy 2-A of the Canadian Securities Administrators in that the latter
refers to a natural aggregate of one or more metallic minerals, which may or
may not be of economic interest.
STRIPPING RATIO - the ratio of the number of tons of waste to the number of
tons of ore which will be extracted during the excavation of an open pit mine.
TONS - dry short tons (2,000 pounds).
ITEM 2: DESCRIPTION OF PROPERTY
MINERAL RIDGE MINE
PROPERTY AND OWNERSHIP
The Mineral Ridge Mine was 100% owned by the Company until its sale to Vista
Gold Corp. ("Vista Gold") on October 21, 1998, for consideration of $250,000
and 1,562,500 common shares of Vista at a deemed value of $250,000 plus the
assumption of all of the liabilities of the Company with respect to the mine.
The Company acquired its initial interest in the property (the "Original
Property") in April 1993, pursuant to an agreement with Mary Mining Company,
Inc., a Florida corporation ("MMC"), and in August 1995, acquired an option
from BenguetCorp. USA, Inc. ("BUSA") on other mining properties (the
"Oromonte Claims") situated contiguous to the Original Property. The
Company's interest in the Mineral Ridge Mine consisted of 175 claims of which
54 are patented. The Company's undivided 100% interest was subject to certain
royalty obligations outlined below.
LOCATION, CLIMATE AND INFRASTRUCTURE
The Mineral Ridge Mine is located about four miles (six kilometers) northwest
of the town of Silver Peak, approximately 35 miles (56.35 kilometers)
southwest of Tonopah, in Esmeralda County, Nevada. The 3,130 acre (1,266
hectares) land package consists of a total of 195 claims on four contiguous
parcels of land in Esmeralda County (collectively referred to as the "Mineral
Ridge Mine"). The terrain throughout most of the mineralized area is hilly to
steep. Elevations range from 5,800 to
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7,400 feet (1,740 - 2,220 meters) in the mine area. Climate is typical of the
Great Basin region with hot dry summers and cool dry winters.
Modest amenities including living quarters, an elementary school, library,
swimming pool and small store are found in Silver Peak and the town is
suitable for housing a small work force.
PROPERTY HISTORY
The Mineral Ridge area has been intermittently mined up to the present day.
Overall historical production is estimated at 573,000 ounces of gold from
about 3 million tons of ore, with approximately 460,000 ounces produced prior
to 1942.
MINERAL RIDGE ACQUISITIONS
On April 16, 1993, the Company entered into a letter agreement with MMC as
trustee for and on behalf of certain beneficiaries under a land trust under
which the Company was granted the option to enter into a lease for the
Original Property located in Esmeralda County, Nevada. On May 15, 1996, the
Company entered into a purchase agreement for the property which provides for
certain option payments to the owners in addition to a down payment of
$210,000.
On August 31, 1995, the Company entered into an agreement with BUSA under
which the Company was granted an option to purchase the adjoining Oromonte
Claims and assumed obligations under the related property purchase
agreements. The Company paid $1.2 million for these claims which were subject
to certain royalty payments.
GEOLOGY
The Mineral Ridge Mine gold deposits are detachment-fault hosted mesothermal
quartz vein and replacement deposits localized on the crest and flanks of an
early Tertiary metamorphic core complex. The mine is a northwest tending,
doubly plunging, antiformal uplift of intermediate to felsic granitic rocks,
varying from granodiorite to alaskite; capped by a metamorphic carapace of
Precambrian metasediments which host the gold deposits.
FEASIBILITY STUDY
Behre Dolbear was retained by the Company during August 1995, to prepare a
final feasibility study on the Mineral Ridge Mine (the "Parrish Report")
which assumed that the construction of the mine would be financed with funds
raised entirely with equity. Based upon the terms of the Mine Debt Financing
Facility, the Company estimated its debt service costs to be approximately
$4.20 per ounce.
The feasibility study established ore reserves of the project contained in
four deposits and a low-grade ore stockpile. The proven and probable mineable
ore reserve was calculated to be approximately 5.2 million tons averaging
0.068 ounces gold per ton of ore at an average internal cut-off grade of
0.024 ounces gold per ton of ore based on a gold price of $385 per ounce.
The life-of-mine direct cash operating costs (before taxes, royalties,
amortization, depreciation and debt service) were estimated in the Parrish
Report to be $235 per ounce and total operating costs (including debt service
costs) were estimated to be $355 per ounce.
The life-of-mine, cumulative project cash flow of $13.5 million was set out
in the Parrish Report. This cash flow was based on an economic analysis using
constant dollars, applying no leveraging, viewing the project on a
stand-alone basis. The estimates in the Parrish Report, assuming cash flows
were realized at year end, no change in current taxation structure and a gold
price averaging $407 per ounce for the 120,000 ounces hedged under the
Company's hedging line, and $385 per ounce for the balance of production,
indicated an internal rate-of-return of 12% after all applicable taxes.
Price, ore reserve grade, and gold recovery all had about the same and
greatest sensitivity on the projected cash flow.
Since the date of the calculation of the internal rate of return, gold prices
have dropped significantly and, in response, the Company was forced to revise
its mining plan with corresponding impact upon the estimated cost of
production. The collapse of the gold price in 1997 and 1998 rendered these
projections unrealistic.
PERMITTING
In early October 1996, the Mineral Ridge Mine received a Reclamation Permit
and posted an initial reclamation bond in the amount of $1.6 million clearing
the way to commence construction. Since that time, all additional permits
required from the State of Nevada in order to commence mining operations were
obtained.
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<PAGE>
EXPLORATION AND DEVELOPMENT
In 1997, exploration at the Mineral Ridge Mine consisted of a two phase
program, with the first stage designed to increase definition of the Mary,
Brodie and Upper Drinkwater deposits, while the second part tested the
down-dip, underground potential of the Mary and Custer Shaft targets. The
1997 program included 118 reverse circulation drill holes for a total of
22,140 feet of drilling. An additional 19 rotary percussion holes were
drilled. The mine reserves were updated in late 1997 using the new data
obtained in the drilling program, incorporated into a geologically
constrained mineralization model. Compilation of historic surface and
underground geology, structure and assay information was initiated to locate
additional reserves which may be developed by surface and underground mining
methods. An additional 22 lode claims were located to extend coverage of the
property to almost three line miles of strike on the mineralized contact.
CURRENT STATUS
Operations at the Mineral Ridge Mine consisted of open-pit mining, four-stage
crushing, agglomeration, heaping onto a permanent leach pad, and leaching and
recovery by conventional cyanide and carbon adsorption methods. Mining was by
contractor, crushing to 100% minus 6 mesh. The estimated gold recovery was
80.8% realized in 120 days after heaping in 20 feet (6.1 meters) lifts to a
total height of 120 feet (36.6 meters).
In August 1996, a fixed price, turnkey contract was awarded to Roberts and
Schaefer Company of Salt Lake City, Utah, for Engineering, Procurement and
Construction Management (EPCM) of the Mineral Ridge Mine processing and other
facilities. Construction proceeded according to schedule and mechanical
completion was achieved on May 29, 1997. Final completion and testing of the
facility was achieved on August 7, 1997.
A 69 kV powerline was installed to the mine site by Sierra Pacific Power
Company. Water for mining and processing is drawn from an 1,800 foot (540
meters) deep well adjacent to the processing plant.
The Company initiated mining operations at the Mineral Ridge Mine in October
1996, and ore was stockpiled in advance of process plant start-up. Contract
mining of the Mineral Ridge Mine ore deposits was carried out by D.H.
Blattner & Sons Inc., of Avon, Minnesota. Due to low gold prices, mining was
suspended in November 1997.
The crushing plant is designed for a maximum production rate of approximately
230 tons per hour. The ADR plant is designed for solution flows of 600
gallons per minute. As designed, these facilities will be capable of handling
the planned production rate of 2,700 tons per day, which, at the planned mine
head grades, would result in the average annual production of 50,000 ounces
of gold. Initial gold production began in June 1997.
Because of declining gold prices, the reserves were re-evaluated using a gold
price of $325 per ounce. This was performed in house by Mineral Ridge
employees using MEDSYSTEM software and resulted in a reduction of mineable
reserves to 3,014,326 tons grading 0.066 opt for a total of 199,501 ounces.
With the cessation of mining in November 1997, the continuing operations were
devoted to crushing and leaching of the remaining stockpile and leaching of
ore already placed on the pad. Attention was given to improving the quantity
and quality of the water supply and remedying engineering problems related to
the functioning of the four-stage crusher. The processing of ore and
production of gold continued until the sale of the mine in October 1998.
The diminished activities and corresponding reduction in residual leaching of
ore from the pile resulted in substantial reduction in the workforce. It
became evident that this level of production could not sustain a viable
operation nor could it provide the cash flow necessary to service the project
loan of $13 million and the outstanding payables to contractors which
exceeded $2 million. In these circumstances, steps were taken to seek a buyer
for the Mineral Ridge Mine on terms which would relieve the Company of these
financial burdens.
After negotiation with several interested buyers, the mine was sold on
October 21, 1998, to Vista Gold Corp., of Denver, Colorado for consideration
of $250,000 and 1,562,500 common shares of Vista Gold at a deemed value of
$250,000, plus assumption by Vista Gold of all of the liabilities of the
Company with respect to the mine.
14
<PAGE>
IVANHOE PROPERTY
OWNERSHIP, LOCATION AND CLIMATE
On December 31, 1998, the Company owned a 25% interest in the Ivanhoe
Property through its wholly-owned subsidiary, Touchstone Resources Company.
On March 2, 1999, the Company entered into an agreement with Great Basin
whereby Great Basin would acquire all of the outstanding shares of Touchstone
in exchange for 2,750,000 common shares of Great Basin having an agreed value
of C$1.25 per share, plus the allotment and issuance of 250,000 share
purchase warrants to acquire a further 250,000 common shares of Great Basin
at C$2.00 per share for a one year term. The transaction is subject to
regulatory approval and shareholder approval and upon such approvals the
Company will have no further direct interest in the Ivanhoe Property. The
required shareholder approval will be sought at the upcoming Annual and
Extraordinary General Meeting of the Registrant.
The Ivanhoe Property, which is approximately 50 miles northeast of Battle
Mountain, Nevada, is located at the northwestern end of the Carlin Trend in
an area between Little Antelope Creek on the south to the Midas Trough on the
north. The property currently consists of 510 unpatented mining claims and
covers approximately 9,231 acres. Access to the property is available either
via an eleven mile road from Midas, a county road from Battle Mountain, or a
road from the Dee Mine six miles southeast of the property. The Ivanhoe joint
venture's interest in the property is by way of option agreements, mining
leases, operating rights agreements and staked mining claims. Pursuant to an
agreement dated August 13, 1997, Great Basin has earned a 75% interest in the
property by incurring expenditures totaling $5 million.
PROPERTY HISTORY
Pursuant to an agreement dated January 19, 1987, the Company acquired from
USX Corporation ("USX") an option to purchase a 100% interest in part of the
Ivanhoe Property for a purchase price of $3,250,000. USX reserved a
non-participating royalty equal to the difference between 5% of the net
smelter returns from all minerals produced from the property and all
royalties paid pursuant to the underlying mining leases. This royalty was
assigned to Franco-Nevada Mining Corporation and Euro-Nevada Mining
Corporation in March 1992.
Following the acquisition of USX's interest, the Company proceeded to
increase its interest in the Ivanhoe Property through the staking of mining
claims and the acquisition of mining leases and operating rights agreements
with options to purchase the claims. The mining leases and operating rights
agreements then acquired provided for annual advance minimum royalties that
are fully creditable and recoverable against production royalties which range
from 2.5% to 3.5% of net smelter returns from all minerals (with limited
exceptions) produced from the mining claims.
On May 19, 1989, the Company and Galactic Resources Ltd. ("Galactic") signed
definitive agreements, effective April 4, 1987, which established the terms
and conditions of a joint venture for the exploration and development of the
Ivanhoe Property. Galactic acquired a 50% interest in the Ivanhoe Property on
March 1, 1990. Construction of the Hollister Mine began in April 1990, and
was completed in October 1990. Gold production recovered from the Hollister
Mine and attributed to the Company for the years 1990 to June 1996, totaled
50,457 ounces. Mining ceased in May 1992, and production from residual
leaching continued throughout the balance of 1992 to June 1996. The
Galactic/Cornucopia joint venture terminated upon completion of the sale of
various interests in the Ivanhoe Property and assets to Newmont as described
below.
Touchstone entered into a letter agreement dated March 26, 1992, with Newmont
Mining Company for the sale to Newmont of half of Touchstone's 50% interest
in the assets of the Ivanhoe Property in consideration for $6,700,000. At
about the same time, Newmont also acquired Galactic's 50% interest in the
property thus giving Newmont a total 75% interest in the Ivanhoe Property,
with Touchstone holding the remaining 25% interest. Touchstone and Newmont
then entered into a mining venture agreement (the "Ivanhoe Venture") for
further exploration and development of the Ivanhoe Property with Newmont
being appointed as manager.
In early 1995, Newmont completed an in-house pre-feasibility analysis of the
Hollister gold deposit and concluded that the known deposits did not meet
Newmont's present size and investment criteria for near-term development.
As a result, on July 11, 1995, Newmont advised the Company of its decision to
withdraw from the Ivanhoe Venture. Upon notification by Newmont of its
decision to withdraw, the Company then entered into an option agreement with
Newmont to acquire Newmont's interest in the Ivanhoe Property. Thereafter,
the Company entered into an agreement dated August 13, 1997, with Great Basin
Gold Ltd. whereby Great Basin may earn up to a 75% interest in the Ivanhoe
Property by paying $1 million to Newmont (paid) as a contribution to the
reclamation fund, spending $2.8 million by August 12, 1999, on exploration
and related costs (completed) and by purchasing 1.1 million units in the
capital stock of Cornucopia Resources Ltd. for C$1.00
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per unit (completed). The reclamation fund consisted of $4.5 million of which
$3,000,000 was contributed by Newmont, $500,000 by the Company and $1,000,000
by Great Basin. Reclamation costs incurred on the Ivanhoe Property greater
than $4,500,00 were to be funded as to $500,000 each by Newmont, Great Basin
and the Company. Further overruns are to be funded as to 75% by Newmont,
18.75% by Great Basin and 6.25% by the Company. See Item 1: "Industry
Overview and Factors Relating to the Company's Properties" - (k):
"Reclamation Obligations."
In 1995, the joint venture's land claims were downsized to 510 claims which
include a substantial area around the Hollister deposit and the Hatter dome.
The property is in good standing and the leached out heaps continue to be
rinsed in the course of reclamation.
GEOLOGY
The Carlin Trend, which includes the Ivanhoe Property at its northern end, is
a northwest-trending, 50 mile long metallogenic corridor. The key ore
controls for Carlin-type gold deposits are a combination of favorable
structural preparation of favorable host rocks. In addition, because of the
postulated role of magmatic activity as a heat and/or metal source, the
occurrence of associated intrusive rocks is another important geologic factor
for the Carlin Trend gold deposits.
Favorable Carlin Trend geologic conditions are observed at the Ivanhoe
Property. The Ivanhoe Property geologic units include Lower Plaeozoic
sedimentary and mid-Tertiary intrusive rocks covered by a thin veneer of
Tertiary volcanic and volcano-sedimentary rocks. At Ivanhoe and on the rest
of the Carlin Trend, the best host rocks for gold mineralization occur in the
Lower Paleozoic stratigraphy below the Tertiary rocks. Structure is an
important ore control, and typically occurs at the Ivanhoe Property as
high-angle faults with east-west, north-northwest and northeast trends. The
intersection zones of these faults are especially critical controls for gold
mineralization.
Ivanhoe contains at least two areas known to host significant gold
mineralization. The Hollister mine area has a large low-grade gold system
associated with the Tertiary volcanic rocks and underlying upper plate
Ordovician Valmy Formation quartzites and cherts. This mineralization is
interpreted to be a near surface leakage from a deeper high grade gold system
below. A 1994 core intercept in the west Hollister area by Newmont of 2.4
feet grading 33.541 oz. Au/ton, is a high grade feeder vein to the overlying
volcanic hosted disseminated gold mineralization. There are at least 34 such
historic high grade intercepts in the Valmy Formation requiring follow-up
drilling to delineate the Hollister feeder vein system.
The 40 mg Hatter Stock represents the second target area and has another
significant, although less well studied, leakage anomaly associated with it
and the surrounding Valmy Formation. Assays from the younger cross cutting
veins in the Hatter intrusive include 10 feet of 0.731 oz. Au/ton and 20 feet
of 0.736 Au/ton and Valmy rocks low-grade intercepts such as 525 feet at
0.012 oz. Au/ton in brittle shear or Fault zones on the west flank of the
stock host.
MINING OPERATIONS
The Hollister Mine which operated from October 1990, until mined out in May
1992, was a surface mine with two coalescing open pits in the USX zone with
heap leach gold extraction and a carbon adsorption gold recovery plant
located approximately one half mile from the operating pits. In addition, the
mine site also included a waste dump, topsoil stockpiles, haul roads, office,
laboratory, and a warehouse/shop facility. The project utilized conventional
drilling and blasting techniques and material movement methods. Production
from residual leaching continued from 1992 through to June 1996.
IVANHOE EXPLORATION
The primary goal of the current exploration program at Ivanhoe is to locate
high grade gold deposits similar to Franco-Nevada's Ken Snyder Mine to the
northwest and Barrick's Meikle Mine to the southeast which are mineable by
underground methods. As well, exploration will be based on comparisons to the
Goldstrike area (ie. Post-Betze and associated deposits). The comparison with
Goldstrike is based upon similarities in the size and tenor of the gold
leakage anomalies in the Hatter areas, ore controlling structures, Lower
Paleozoic stratigraphy and association of mineralization with an intermediate
composition intrusive body (ie. the Hatter stock). The comparison with Ken
Snyder is based on the similarity in style and mineralogy of feeder veins
intersected beneath the Hollister deposit to those at the Midas discovery.
As operator of the Ivanhoe Joint Venture, Great Basin has identified two
primary exploration targets, the Hollister and Hatter areas, to explore for
modest depth feeder veins in the Valmy Formation below the Hollister deposit
and deeper, lower plate targets below both the Hollister and Hatter target
areas. To date, Great Basin has completed new, detailed surface mapping, and
extensive new cross section construction that has defined key ore controlling
vein structures beneath Hollister.
16
<PAGE>
An initial drilling program at Hollister in 1998 tested one of these vein
systems containing a 1994 Newmont core intercept of (+) 30 opt gold. Using a
N40E oriented fence of six vertical core holes on 25 foot spacings, the
drilling cross-cut high-grade intercepts in the northern Clementine area of
the deposit. Hole IH-004 pierced a very high grade vein zone of 4.6 feet
grading 11.129 opt and 103.4 ounces silver per ton within a thicker interval
of 10.6 feet assaying 4.964 opt and 47.8 ounces silver per ton. Another
intercept of 12.6 feet grading 1.635 opt gold and 39.0 ounces silver was
discovered downhole.
The early 1998 discovery of Ken Snyder-style veining in the Valmy Formation
at Hollister has made this target a high priority for the upcoming
exploration program. The continuing Ivanhoe exploration program will focus on
testing this high grade gold-silver system in upper plate Valmy Formation in
the Hollister area. Drilling will build on relogging of drill holes and
geocompilation of the vein system geometry.
During the 1999 exploration season Great Basin plans a C$1.5 to C$2.5 million
exploration program to build on reinterpretation of the multiple vein
intercepts in the Hollister area, by drilling angled core holes to establish
the presence and continuity of this high-grade gold-silver system. Drill
holes will test projected intersections of major ore-controlling northeast,
east and north trending fault zones. Depending on results, 15 to 25 angled
core holes with an average length of 1,000 feet are planned for 1999.
OTHER PROPERTY INTERESTS
The Company has interests in certain properties which are not considered to
be material to current operations. A brief summary of 1996, 1997 and 1998
activities on each of these properties follows:
YAKOBI ISLAND PROPERTY
The Yakobi Island property is located approximately 70 miles west of Juneau
in the Sitka Recording District, at the northernmost end of the Alexander
Archipelago of Southeast Alaska. The property consisted of 39 unpatented
federal claims and 11 patented federal claims at Bohemia Basin. It also
includes a 1.95 acre Alaska Tidelands Lease which covers a 200-foot dock at
the Lower Camp access to Bohemia Basin. The Company held an undivided 100
percent interest in certain patented and unpatented mineral claims on the
Yakobi Island property. In August 1997, all rental payments on the unpatented
claims held by the Company on this property were allowed to lapse. The
property is without a known body of commercial ore and the Company's
activities on the property to date have been exploratory in nature.
The Company is in discussions with a Land Trust for the sale of the Yakobi
Island properties. If concluded, the agreement would provide for clean up
activities on the site and proceeds to the Company for the 155 acre property
at appraised value, less an administrative fee payable to the Land Trust.
SOUTH MONITOR PROPERTY
The South Monitor property, which consists of 147 unpatented mining claims,
is located in west-central Nevada between the Ellendale and Hannapah Mining
Districts at the southern end of the Monitor Range, Nye County. The property
is held by the Company and Gold Exploration General Partnership, whose
general partner is Nassau Ltd. Each partner holds a 50% interest in the
property. The partners have elected to farm the property out to larger
exploration companies who have the resources to fully explore the property's
mineral potential.
The South Monitor property is without a known body of commercial ore and the
Company's activities on the property to date have been exploratory in nature.
RED MOUNTAIN PROPERTY
The Company acquired this property as a result of the amalgamation of
Cornucopia Resources Ltd. and Cyrano Resources Inc. in November 1985.
The Red Mountain property, situated approximately 13 miles from Silverton and
Ouray, Colorado, consisted of 48 patented mining claims and 51 unpatented
lode claims in Ouray and San Juan Counties in Southwestern Colorado. The
Company determined that it was not interested in retaining the property and
executed a quit-claim effective September 27, 1989, which reconveyed its
interest in the property to Frank W. Baumgartner and Sial Exploration Inc.
The Division of Minerals and Geology (previously the Colorado Mined Land
Reclamation Division) inspected the property in 1992 and 1993 and concluded
that a full release of funds in trust of $60,000 was dependent on further
evaluation of the revegetation on the property. In 1994, weather conditions
prohibited inspection by the authorities. Another inspection was
17
<PAGE>
performed in 1995 when it was determined that further monitoring of
vegetation was required prior to full release of the reclamation bond. In
1996, the Company received a release from Baumgartner for $50,000 of the
funds held in trust. No inspection was performed in 1997 or 1998 and the
$10,000 balance will be held in trust by the Forestry Department until
restoration of the land is considered complete.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
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CORNUCOPIA RESOURCES LTD.
PART II
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Shares of the Registrant are listed and trade in Canada on the
Toronto Stock Exchange under the symbol "CNP" and are quoted in the United
States on the Nasd OTC Bulletin Board ("OTCBB") under the symbol "CNPGF". The
Registrant's shares traded on The Nasdaq Stock Market's, SmallCap Market
("Nasdaq") from October 18, 1988, to October 28, 1998. As the minimum bid
price of the Registrant's shares did not meet the new requirements to remain
on Nasdaq, the Registrant's shares were moved to the OTC Bulletin Board on
October 29, 1998.
Due to the major reorganization of the Company, as outlined in Item
1-"Significant Transactions of the Company" - "Major Reorganization" and
"Acquisition of Stockscape Technologies Ltd.", the Registrant applied to
delist its shares from the Toronto Stock Exchange ("TSE"), which became
effective on the close of business March 31, 1999.
The high and low trade prices of the Registrant's Common Shares as reported
on the TSE for each quarter during the past two years are as follows:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
HIGH LOW
PERIOD TSE (C $) (C $)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 First quarter 1.29 0.90
Second quarter 1.10 0.70
Third quarter 0.85 0.45
Fourth quarter 0.79 0.19
1998 First quarter 0.49 0.19
Second quarter 0.33 0.04
Third quarter 0.15 0.05
Fourth quarter 0.13 0.035
1999 First quarter (to March 29, 1999) 0.20 0.035
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
</TABLE>
The following table sets forth, for the periods indicated, the high and low
bid prices of the Registrant's Common Shares as quoted on Nasdaq and the
OTCBB after October 29, 1998:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
HIGH LOW
PERIOD (US $) (US $)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 First quarter 0.94 0.62
Second quarter 0.81 0.50
Third quarter 0.59 0.31
Fourth quarter 0.56 0.16
1998 First quarter 0.37 0.12
Second quarter 0.21 0.03
Third quarter 0.09 0.03
Fourth quarter 0.09 0.02
1999 First quarter (to March 29, 1999) 0.20 0.02
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------
</TABLE>
The TSE, Nasdaq and OTCBB quotations above reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
As at February 23, 1999, there were 2,061 registered shareholders of record
holding a total 41,591,834 Common Shares of the Company. To the best of the
Registrant's knowledge, as of February 23, 1999, there were 85 registered
Canadian shareholders, 6 international shareholders, and 1,970 shareholders
resident in the United States holding approximately 8,768,527, 16,124 and
32,807,183 shares respectively, which represented 21.08%, 0.04% and 78.88%
respectively of the Company's shares then outstanding.
19
<PAGE>
There are no arrangements known to the Registrant which, at a date subsequent
to the date of this report, would result in a change of control of the
Registrant except for the proposed acquisition of Stockscape, which, if
concluded, will result in a change of control. See Item I: "Significant
Transactions of the Company - (3) Acquisition of Stockscape Technologies
Ltd." and "Appendix A" of the Registrant's Preliminary Proxy Materials, filed
as Schedule 14a, dated March 26, 1999.
There are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities
to hold or vote the securities held. There are no such limitations imposed by
the Registrant's Memorandum, Articles or contracts of which the management of
the Registrant is aware.
There are no decrees or regulations in Canada or its several provinces that
restrict the import or export of capital, including, but not limited to
foreign exchange controls, or that affect the remittance of dividends or
other payments to holders of the Registrant's securities. Any such
remittances to United States residents, however, are subject to withholding
tax.
TAX CONSIDERATIONS
The discussion under this heading summarizes the principal Canadian federal
income tax consequences of acquiring, holding and disposing of Common Shares
of the Registrant for a shareholder of the Registrant who is not resident in
Canada but is resident in the United States and who will acquire and hold
Common Shares of the Registrant and capital property for the purpose of the
Income Tax Act (Canada) (the "Tax Act"). This summary does not apply to a
shareholder who carries on business in Canada through a "permanent
establishment" situated in Canada or performs independent personal services
in Canada if the shareholder's holding in the Registrant is effectively
connected with such permanent establishment or fixed base. This summary is
based on the provisions of the Tax Act and the regulations thereunder and on
counsel's understanding of the administrative practices of Revenue Canada,
and takes into account all specific proposals to amend the Tax Act or
regulations made by the Minister of Finance of Canada to March 3, 1997. It
has been assumed that there will be no other relevant amendment of any
governing law although no assurance can be given in this respect. The
existing tax treaty between the United States and Canada essentially calls
for taxation of shareholders by the shareholder's country of residence. In
those instances in which a tax may be assessed by the other country, a
corresponding credit against the tax owed in the country of residence is
generally available, subject to limitations. This discussion is general only
and is not a substitute for independent advice from a shareholder's own
Canadian and US tax advisor.
The provisions of the Tax Act are subject to income tax treaties to which
Canada is a party, including the Canada-United States Income Tax Convention
(1980) (the "Convention").
DIVIDENDS
The Registrant has not, since the date of its amalgamation, declared or paid
any dividends on its Common Shares and currently intends to utilize all of
its funds to finance its business development activities and for the
acquisition of capital assets relating to its business. It does not foresee
paying any dividends on its Common Shares in the near future.
Under the Tax Act, a nonresident of Canada is generally subject to Canadian
withholding tax at the rate of 25% on dividends paid or deemed to have been
paid to him by a corporation resident in Canada. The Convention limits the
rate to 15% if the shareholder is resident in the United States and the
dividends are beneficially owned by and paid to him, and to 6% for 1996 and
to 5% for 1997 and thereafter if the shareholder is also a corporation that
beneficially owns at least 10% of the voting stock of the payor corporation.
The Convention generally exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to
an organization constituted and operated exclusively to administer a pension,
retirement or employee benefit fund or plan, if the organization is resident
in the United States and is exempt from income tax under the laws of the
United States.
DISPOSITION OF COMMON SHARES
Under the Tax Act, a taxpayer's capital gain or capital loss from a
disposition of a Common Share of the Registrant is the amount, if any, by
which his proceeds of disposition exceed (or are exceeded by, respectively)
the aggregate of his adjusted cost base of the share and reasonable expenses
of disposition. Three-quarters of a capital gain (the "taxable capital gain")
is included in income, and three-quarters of a capital loss in a year (the
"allowable capital loss") is deductible from taxable capital gains realized
in the same year. The amount by which a shareholder's allowable capital loss
exceeds the taxable capital gain in a year may be deducted from a taxable
capital gain realized by the shareholder in the three previous or any
subsequent
20
<PAGE>
year, subject to certain restrictions in the case of a corporate shareholder
and subject to adjustment when the capital gains inclusion rate in the year
of disposition differs from the inclusion rate in the year the deduction is
claimed.
If a Common Share of the Registrant is disposed of to the Registrant other
than in the open market in the manner in which shares would normally be
purchased by the public, the proceeds of disposition will, in general terms,
be considered as limited to the paid-up capital of the share and the balance
of the price paid will be deemed to be a dividend. In the case of a
shareholder that is a corporation, the amount of any capital loss otherwise
determined may be reduced, in certain circumstances, by the amount of
dividends previously received in respect of the shares disposed of, unless
the corporation owned the shares for at least 365 days prior to sustaining
the loss and (together with corporations, persons and other entities, with
whom the corporation was not dealing at arm's length) did not own more than
5% of the shares of any class of the corporation from which the dividend was
received. These loss limitation rules may also apply where a corporation is a
member of a partnership or a beneficiary of a trust that owned the shares
disposed of.
Under the Tax Act, a nonresident of Canada is subject to Canadian tax on
taxable capital gains and may deduct allowable capital losses, realized on a
disposition of "taxable Canadian property". Common Shares of the Registrant
will constitute taxable Canadian property of a shareholder at a particular
time if the shareholder used the shares in carrying on business in Canada, or
if at any time in the five years immediately preceding the disposition 25% or
more of the issued shares of any class or series in the capital stock of the
Registrant belonged to one or more persons with whom the shareholder did not
deal at arm's length and in certain other circumstances.
The Convention relieves United States residents from liability for Canadian
tax on capital gains derived on a disposition of shares unless:
a) The value of the shares is derived principally from "real property" in
Canada, including the right to explore for or exploit natural resources and
rights to amounts computed by reference to production,
b) The shareholder was resident in Canada for 120 months during the period of
20 consecutive years, preceding, and at any time during the 10 years
immediately preceding, the disposition and the shares were owned by him
when he ceased to be resident in Canada, or
c) The shares formed part of the business property of a "permanent
establishment" that the holder has or had in Canada within the 12 months
preceding the disposition.
UNITED STATES TAX CONSIDERATIONS
UNITED STATES SHAREHOLDERS ("US HOLDERS")
As used herein, a "US Holder" includes a holder of Common Shares who is a
citizen or resident of the United States, a corporation created or organized
in or under the laws of the United States or of any political subdivision
thereof and any other person or entity whose ownership of Common Shares is
effectively connected with the conduct of a trade or business in the United
States. A US Holder does not include persons subject to special provisions of
federal income tax law, such as tax-exempt organizations, qualified
retirement plans, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers,
nonresident alien individuals or foreign corporations whose ownership of
Common Shares is not effectively connected with the conduct of a trade or
business in the United States and shareholders who acquired their stock
through the exercise of employee stock options or otherwise as compensation.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
For United States federal income tax purposes, a foreign corporation will be
treated as a passive foreign investment company (a "PFIC") if 75% or more of
its gross income constitutes passive income or if 50% or more of its assets
produce passive income or are held for the production of passive income. A US
Holder will be deemed to hold shares of a PFIC if he holds shares in a
foreign corporation and at any time during the holding period of the
shareholder the foreign corporation constituted a PFIC under the above
definition.
Generally, a US Holder of PFIC shares is subject to a special addition to tax
and interest charge with respect to certain dispositions of and "excess
distributions" with respect to shares of stock of a PCIF. (An excess
distribution is defined as the amount of distributions received by a
shareholder in a year with respect to stock in a PFIC which exceeds 125% of
the average amount of the distributions to such shareholder during the three
years prior to the year of the distribution.) This addition to tax is
determined by allocating the amount of the gain on disposition or excess
distribution to each day during the holding period of the shareholder of such
stock. The amount of the gain or excess distribution which is allocated to
taxable years after 1986
21
<PAGE>
and prior to the present year is deemed to generate an additional tax
(computed at the highest rate of federal income tax applicable to such
shareholder in such year) and an interest charge, calculated at the statutory
rate applicable to underpayments of federal income taxes.
Because the Company may have been a PFIC for its fiscal year ending December
31, 1998, and may have been a PFIC for some of its fiscal years ending before
that date, each US shareholder of the Company should consult a tax advisor
with respect to how the PFIC rules may affect such shareholder's tax
situation. In particular, a US shareholder should determine whether such
shareholder should elect to have the Company be treated as a Qualified
Electing Fund in the event the Company is a PFIC. This might avoid adverse US
federal income tax consequences that may otherwise result from the Company
should it be treated as a PFIC.
DISTRIBUTIONS ON COMMON SHARES
US Holders receiving dividend distributions (including constructive
dividends) with respect to the Registrant's Common Shares are required to
include in gross income for the United States federal income tax purposes the
gross amount of such distribution to the extent that the Registrant has
current or accumulated earnings and profits, without reduction for any
Canadian income tax withheld from such distributions. Such Canadian tax
withheld (see above) may be credited, subject to certain limitations, against
the US Holder's United States federal income tax liability or, alternatively,
may be deducted in computing the US Holder's United States federal income tax
by those who itemize deductions. (See more detailed discussion at "Foreign
Tax Credit" Below). To the extent that distributions by the Registrant exceed
current or accumulated earnings and profits of the Registrant, they will be
treated first as a return of capital up to the US Holder's adjusted basis in
the Common Shares and thereafter as gain from the sale or exchange of such
shares. Preferential tax rates for long-term capital gains are applicable to
a US Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a US Holder which is a
corporation.
Dividends paid on the Registrant's Common Shares will not generally be
eligible for the dividends received deduction provided to corporations
receiving dividends from certain United States corporations. A US Holder
which is a corporation may, under certain circumstances, be entitled to a 70%
deduction of the United States source portion of dividends received from the
Registrant if such US Holder owns shares representing at least 10% of the
voting power and value of the Registrant. The availability of this deduction
is subject to several complex limitations which are beyond the scope of this
discussion.
FOREIGN TAX CREDIT
A US Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Registrant's Common Share may be
entitled, at the option of the US Holder, to either a deduction or a tax
credit for such foreign tax paid of withheld. There are extremely complex
rules and limitations which apply to the credit and deduction. The
availability of the foreign tax credit or a deduction for foreign taxes and
the application of the limitations on the credit to a specific taxpayer will
be determined based on the specific circumstances of such shareholder.
Accordingly, holders and prospective holders of Common Shares should consult
their own tax advisors regarding their individual circumstances.
The foregoing discussion is based upon the sections of the Code, Treasury
Regulations, published Internal Revenue Service rulings, published
administrative positions of the Internal Revenue Service and court decisions
that are currently applicable, any or all of which could be materially
adversely changed, possibly on a retroactive basis, at any time. In addition,
this discussion does not consider the potential effects, both adverse and
beneficial, of proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time. The foregoing discussion is for
general information only and is not intended to be, nor should it be
construed to be, legal or tax advise to any holder or prospective holder of
the Registrant's Common Shares, and no opinion or representation with respect
to the United States federal income tax consequences to any such prospective
holders of the Registrant's Common Shares should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of Common Shares of the Registrant.
SALES OF UNREGISTERED SECURITIES
(i) On March 5, 1996, the Registrant issued 900,000 units by way of a private
placement at a price of C$2.00 per unit, for which the Registrant paid an
agent a commission of 5%. Each unit consisted of one Common Share and one
two year share purchase warrant exercisable at a price of C$2.30 during
the first twelve months after closing and C$2.65 thereafter. At December
31, 1997, there were 900,000 share purchase warrants outstanding from
this issue. This issue expired on March 4, 1998.
(ii) Pursuant to subscription agreements and an Agency Agreement dated
May 15, 1996, the Registrant issued and sold 6,050,000 Special Warrants
at a price of C$2.00 per Special Warrant for gross proceeds of
C$12,100,000. Each Special
22
<PAGE>
Warrant entitled the holder to receive one Common Share and one share
purchase warrant at no additional cost. Two full share purchase
warrants entitled the holder to purchase one Common Share of the
Registrant at a price of C$2.75 per Common Share. The Special Warrants
were exercised on September 16, 1996, and the equivalent number of
Common Shares issued. As at December 31, 1997, there were 3,932,500
share purchase warrants, including 907,500 Broker's warrants,
outstanding from this financing. This issue expired on May 15, 1998.
(iii) On November 14, 1996, pursuant to the terms of a Special Warrant
Indenture made as of the same date, the Registrant issued 2,180,000
Special Warrants at a price of C$1.20 each for gross proceeds of
C$2,616,000. Each Special Warrant was exchangeable for one unit comprised
of 1.1 Common Share, in aggregate 2,398,000 Common Shares, and 0.55 of
one share purchase warrant. Each full share purchase warrant entitled the
holder to purchase one additional Common Share at a price of C$1.50. As
at December 31, 1997, none of the Special Warrants had been exercised and
the issue expired on May 15, 1998.
(iv) On March 26, 1997, the Registrant announced a private placement of 1.1
million Special Warrants with one investor at a subscription price of
C$1.00 per Special Warrant, for a total of C$1.1 million. Each Special
Warrant was exchangeable for one Unit, comprised of one Common Share and
one share purchase warrant entitling the holder to purchase one
additional Common Share at a price of C$1.25 during the twelve months
after closing and expiring on March 26, 1998.
The full amount of the subscription funds for this private placement were
released to the Registrant upon issue of the Special Warrants. The
Registrant obtained receipts from the regulatory authorities for the
final prospectus on July 24, 1997, and subsequently issued 1,100,000
Common Shares and share purchase warrants. None of the share purchase
warrants were exercised and this issue expired on March 26, 1998.
(v) On January 17, 1997, the Registrant entered into a loan agreement with a
financial institution for senior secured loan facilities of $13.0 million
for construction and development purposes and working capital and a $1.1
million letter of credit to facilitate construction of power lines and
ancillary electrical equipment at the mine site. The bank was given
warrants to purchase 1,750,000 Common Shares as part of the consideration
for providing the loan facilities. The warrants were exercisable at
C$1.35 per share until December 31, 2000.
In October, 1998, approval was sought and granted to reprice and extend
the term of the warrants. See Item 1: "Significant Transactions of the
Company - (4) "Sale of Mineral Ridge Mine." The warrants to purchase
1,750,000 Common Shares are now exercisable at a price of C$0.20 per
share at any time until December 31, 2001. As at December 31, 1998, no
warrants had been exercised from this issue.
(vi) Vista Gold subscribed, on October 21, 1998, to a private placement of
2,777,777 Common Shares of the Registrant valued at $250,000.
UNITED STATES EXEMPTIONS
All of the distributions referred to above were made to either non-United
States residents outside the United States in reliance upon Regulation S or
to qualified institutional investors in the United States in reliance upon
Rule 144.
SHARE CAPITAL AND STOCK INCENTIVE PLAN
The Registrant's Common Shares authorized, issued and outstanding and the
Registrant's Stock Incentive Plan (the "Plan") are described in "Notes to
Financial Statements", note 6 - Share Capital: (a) Shares Authorized, Issued
and Outstanding; (b) Stock Incentive Plan, and (c) Grant of Options. As at
December 31, 1998, there were 41,591,834 Common Shares outstanding, a total
of 1,795,000 stock options outstanding under the Plan, and 1,365,000 options
outstanding outside of the Plan.
GRANT OF OPTIONS OUTSIDE OF THE REGISTRANT'S STOCK OPTION PLAN
Due to restrictions in the Registrant's Stock Option Plan, on September 10,
1998, the Board of Directors resolved that an aggregate of 1,415,000 new
stock options be granted to directors and employees of the Company to reflect
the current market price of the Registrant's shares, at an exercise price of
C$0.15 per share, expiring September 9, 2003, and that the new options would
be granted outside of the Plan. In November, 1998, an option for 50,000
shares expired due to an employee resignation. The Registrant received notice
from the Toronto Stock Exchange that the options would not be accepted for
filing until they were approved by a favorable vote of the disinterested
shareholders of the Registrant.
23
<PAGE>
ANTI-TAKE OVER PROVISIONS OF ARTICLES
The overall effect of the Registrant's Articles may be to render more
difficult or discourage the accomplishment of mergers, tender offers and
forms of business combinations, reorganizations and sales of assets, as well
as to discourage the assumption of control of the Registrant by a principal
shareholder.
In August 1992, the Registrant adopted a Shareholder Protection Rights Plan
Agreement, amended in July 1996, (the "SPRPA") to protect the Company from
unfair, abusive or coercive takeover strategies. The Rights issued to
shareholders under the SPRPA will entitle the holder upon the occurrence of
certain triggering events (including the acquisition of 10% or more of the
Common Shares of the Registrant in a transaction not approved by the
Registrant Board) to acquire additional equity interest in the Registrant at
a 50% discount to the market. However, the Rights are not triggered by a
"Permitted Bid" which is a bid that is made to all shareholders for all of
their Common Shares in accordance with relevant securities legislation and
other reasonable conditions, provided that a majority of the Common Shares
held by independent shareholders are deposited in acceptance of such a bid.
The SPRPA is designed to prevent creeping takeovers and other coercive
acquisition tactics. The SPRPA's Permitted Bid provision allows bidders to
take bids directly to all of the shareholders without the cooperation of the
Registrant Board. The SPRPA thus preserves the shareholders' right to
consider such bids on a fully-informed basis. The SPRPA is not intended to
deter fair offers for the Common Shares of the Registrant. The SPRPA also
does not impose indebtedness or other burdens upon the Registrant's
operations, and does not impair the Registrant Board's continuing efforts to
enhance shareholder value.
The Registrant was not aware of any pending or threatening takeover bids for
the Company on implementation of the SPRPA. A copy of the Shareholder
Protection Rights Plan Agreement was filed as an exhibit to the Registrant's
Form 6-K dated June 30, 1992.
24
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The following selected financial information has been derived from the
consolidated financial statements of the Company for the periods indicated.
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $ -- $ -- $ 115,096 $ 315,144 $ 263,457
Gross profit (loss) from operations -- 19,433 (78,269) (19,749) 40,724
Interest and other income 70,394 51,705 460,093 280,914 204,652
Gain on sale or write down of
Resource Assets (180,972) 16,000,000 988,396 701,006 164,158
Income (loss) (707,607) (18,464,625) (2,610,635) (2,640,663) (1,924,518)
Income (loss) per share (0.02) (0.49) (0.09) (0.11) (0.09)
Weighted average number of Common Shares 39,291,535 37,514,204 30,287,082 24,847,263 21,400,555
outstanding
BALANCE SHEET AND OTHER DATA
(AT PERIOD END)
Total assets 2,271,874 18,357,596 24,615,551 11,561,496 13,369,024
Working capital 284,001 (13,970,445) (263,587) 1,015,931 6,349,434
Provision for site restoration -- 172,908 -- 500,000 475,000
Capital Lease Obligations -- 42,436 95,830 109,866 --
Shareholders' Equity 2,170,597 2,588,145 20,297,412 9,420,622 7,043,872
Increase (decrease) in cash (892,783) (2,873,581) 2,609,716 (5,387,816) 1,514,894
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There have been no changes in accounting methods over the five year period.
The Company uses the United States dollar as its reporting currency. Monetary
assets and liabilities are translated at the exchange rate in effect at the
balance sheet date and non-monetary assets and liabilities at the rate in
effect on the dates of the related transactions. Revenue and expenses are
translated at rates approximating exchange rates in effect at the time of
transactions. See Item 1: "Industry Overview and Factors Relating to the
Company's Properties" -(n) "Currency and Conversion."
25
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial position of the Company and results
of operations for the years ended December 31, 1998, 1997 and 1996, should be
read in conjunction with the Consolidated Financial Statements and the
related notes. These statements were prepared using accounting principles
generally accepted in Canada. Reference should be made to note 7 of the
Consolidated Financial Statements for a reconcilation of Canadian and United
States generally accepted accounting principles.
The following discussion contains statements which are not historical facts,
and within the meaning of the Private Securities Litigation Reform Act of
1995 are considered "forward looking statements". (Reader should refer to
Part I for the full cautionary statement.)
OVERVIEW
Since its incorporation the Registrant's primary focus has been the
exploration, development and mining of precious metal deposits. On March 2,
1999, a major reorganization was announced which, if approved by
shareholders, will result in a change in the Registrant's business focus and
a restructuring of the Registrant's remaining active mining property interest
into an investment in an arm's length entity.
On October 21, 1998, the Company sold its 100% interest in the Mineral Ridge
Mine by a sale of all of the shares of Mineral Ridge Resources Inc., a Nevada
corporation wholly-owned by the Company, to Vista Gold Corp. As
consideration, the Company received 1,562,500 Vista Gold common shares, Vista
Gold subscribed to a private placement of 2,777,777 Common Shares of the
Registrant for a deemed value of $250,000 and assumed all of the liabilities
of the Company with respect to the mine. See Item 2: "Properties" - "Mineral
Ridge Mine."
At present, the Company's principal and only active m"ining asset is its
interest in the Ivanhoe Property in Nevada's Carlin Trend. An agreement was
entered into with Great Basin, on March 2, 1999, pursuant to which the
Registrant will sell its wholly-owned subsidiary Touchstone, which holds the
Ivanhoe Property, to Great Basin, in exchange for 2,750,000 common shares and
250,000 share purchase warrants of Great Basin subject to regulatory approval
and satisfactory due dilligence.
As part of its proposed reorganization, the Registrant plans to complete the
acquisition of Stockscape Technologies Ltd., a privately-held British
Columbia company, carrying on business as an Internet investment research
provider, with an established website at Stockscape.com. As a condition
precedent to the Stockscape acquisition, the Registrant will be required to
consolidate its issued and outstanding Common Shares on a 10-for-1 basis. At
the upcoming Annual and Extraordinary General Meeting, the shareholders will
be asked to pass a special resolution approving the consolidation. This
resolution must be passed by a majority of 75% of the votes cast on the
resolution: See Item 1 "Significant Transactions of the Company" - (3)
"Acquisition of Stockscape Technologies Ltd."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
REVENUES
Revenues from interest and other income were $70,394 and $51,705 in the years
ended December 31, 1998 and 1997, respectively. The increase was mainly due
to higher investment income on the reclamation bond for Mineral Ridge. In
1996, interest and other income was $460,093 which was attributable to income
on excess cash balances as a result of significant capital raised during the
year.
During the year ended December 31, 1998, receipts from dore shipments from
the Mineral Ridge Mine have been recorded as an offset to capital
expenditures as the Mineral Ridge Mine had not yet met tests that qualified
the project as being in full commercial production for accounting purposes.
As a result, no amounts from the sale of gold and silver from the Mineral
Ridge Mine have been included under revenue on the Consolidated Statement of
Loss and Deficit.
EXPENSES
General and administrative expenses declined to $968,455 in the year ended
December 31, 1998, from $1,987,525 for the year ended December 31, 1997 and
$2,776,253 for the year ended December 31, 1996. The decrease was due to a
reduction in the Vancouver, British Columbia, office staff costs and
reductions in other expense areas such as investor relations, rent, insurance
26
<PAGE>
and travel.
In 1998, the Registrant sold all of its share holdings in Carlin Resources
Corp. ("Carlin Resources") and recorded a gain thereon of $25,177. At
December 31, 1998, the Registrant recorded a $15,695 writedown of its
investment in Vista Gold shares to adjust to the year end market value.
During the year 1997, the Registrant recorded an expense of $476,341 due to
the writedown of its investment in Carlin Resources shares. The completion of
five financings by Carlin Resources in 1996, in which the Registrant did not
participate, reduced the Registrant's interest and resulted in a gain of
$631,970 on the partial disposal of the investment.
In October 1998, the Company sold Mineral Ridge and realized a $180,972 gain
on sale. At December 31, 1997, the Company recorded a writedown of $16
million against the Mineral Ridge Mine calculated using an undiscounted cash
flow analysis based on gold price assumptions prevailing at the time. In
1996, the Company had total abandonment and writedown expenses of $988,396,
attributable to the Tenke-Fungurume Concession in Zaire and the Yakobi Island
property in Alaska.
The equity method of accounting for the investment in Carlin Resources was
applicable resulting in losses of $71,897 for the year ended December 31,
1997 and $112,264 for the year ended December 31, 1996. No corresponding loss
was applicable to the year ended December 31, 1998 as the Company accounted
for its investment on the cost basis until the disposition of its remaining
interest in Carlin Resources.
LOSS PER COMMON SHARE
The Registrant's net loss for the year ended December 31, 1998, was $707,607,
compared to a net loss of $18,464,625 in 1997 and a net loss of $2,610,635 in
1996.
The weighted average number of Common Shares for the year ended December 31,
1998, was 39.3 million which resulted in a loss of $0.02 per share.
LIQUIDITY AND CAPITAL RESOURCES
A low gold price and problems originating in 1997 with construction delays
and water supply at the Mineral Ridge Mine led to covenant breaches and
repayment defaults under the Company's Mine Debt Financing Facility and the
reclassification of the entire loan as a current liability. These events have
led the Registrant to report a significant working capital deficiency since
September 1997.
The agreement with Vista Gold, completing the sale of the Company's
wholly-owned subsidiary Mineral Ridge, included agreements for the release of
all of the Company's $14.4 million obligation under the Mine Debt Financing
Facility, the $1.3 million account payable to its mining contractor and $0.6
million holdback payable to its construction contractor. Vista Gold
subscribed to a private placement of 2,777,777 Common Shares of the
Registrant for a deemed value of $250,000.
The Registrant had positive working capital of $284,001 at December 31, 1998,
compared to a $13,970,445 working capital deficiency at December 31, 1997.
Cash and cash equivalents decreased by a net amount of $892,783 in the year
ended December 31, 1998. Significant uses of cash were to fund accounts
payable reductions, net capital expenditures on resource assets at the
Mineral Ridge Mine, and for operations, primarily general and administrative
expenses and staff costs. These expenditures were financed by a reduction in
accounts receivable, the proceeds of the private placement of Vista Gold and
by drawing down cash balances.
On March 26, 1997, a private placement of 1,100,000 Special Warrants at
C$1.00 was made with each Special Warrant exchangeable for one unit,
comprised of one Common Share and one share purchase warrant. Each share
purchase warrant entitled the holder to purchase one additional Common Share
at C$1.25 for one year. The share purchase warrants relating to this issue
were not exercised and expired on March 26, 1998.
On November 14, 1996, the Registrant issued 2,180,000 Special Warrants at a
price of C$1.20 each for gross proceeds of C$2.6 million. As consideration
for services rendered, the underwriters were paid a fee of C$0.2 million and
issued an aggregate of 218,000 broker's warrants. Each share purchase warrant
entitled the holder to purchase one additional Common Share at a price of
C$1.50 until May 15, 1998.
27
<PAGE>
Pursuant to subscription and agency agreements, in May 1996, the Registrant
issued 6.1 million Special Warrants at a price of C$2.00 per Special Warrant
for gross proceeds of C$12.1 million. In addition, the underwriters were paid
a fee of C$0.8 million and issued an aggregate of 605,000 broker's warrants.
The warrants relating to this issue expired on May 15, 1998.
On March 5, 1996, the Registrant issued 900,000 units at C$2.00 per unit by
way of private placement and paid an agent's commission of 5%. The share
purchase warrants from this issue expired on March 4, 1998.
Vista Gold subscribed, on October 21, 1998, to a private placement of
2,777,777 Common Shares of the Registrant valued at $250,000.
IVANHOE JOINT VENTURE
Since the sale of Mineral Ridge, the Company has focused its activities on
the Ivanhoe Property where its joint venture partner Great Basin has earned a
75% interest under the Venture Agreement. After the earn-in by Great Basin,
the Company would be expected to commit to exploration budgets set by Great
Basin which would have resulted in cash calls. Provisions in the Venture
Agreement would allow the Company the option of not participating in
exploration program budgets, but at the cost of a dilution of interest in the
Company's interest in the Ivanhoe Property. For example, by opting out of the
proposed programs for exploration and reclamation for 1999, the Company would
have suffered dilution from a 25% interest to a 19% interest. The Company has
entered enter into a Sale Agreement dated March 2, 1999, with Great Basin
pursuant to which the Company proposes to sell its wholly-owned subsidiary,
Touchstone Resources Company, to Great Basin in exchange for shares of Great
Basin: See "Significant Transactions of the Company" - (2) "Ivanhoe Joint
Venture Agreement and Sale of Ivanhoe Property Interest."
ACQUISITION OF STOCKSCAPE TECHNOLOGIES LTD.
Under the terms of a Share Exchange Agreement to be entered into between the
Registrant and the shareholders of Stockscape, the Registrant will acquire
all of the issued and outstanding shares of Stockscape by issuing 10,000,000
post-consolidation Common Shares of the Registrant (the "Payment Shares").
The parties have agreed that the Payment Shares will be issued for a deemed
value of C$0.50 per share, making the overall deemed value of the transaction
C$5 million. Both the shareholder of Stockscape and Stockscape are entirely
at arm's length to the Registrant. The acquisition of Stockscape is
conditional upon the completion of due diligence by both parties and the
execution and delivery of definitive documentation. The Payment Shares will
be subject to trading restrictions under United States securities legislation
for a minimum of two years.
Stockscape, now in its third year of operation, has financed its development
and operations by equity financing and a loan payable to its shareholder. As
Stockscape's policy is to expense business and software development costs, a
deficit of C$813,043 has accumulated as at December 31, 1998. Business and
software development costs over the upcoming twenty-four months are expected
to be financed from revenues and from equity financing issued by the combined
entity. The acquisition of Stockscape is also subject to conditions
precedent, one of which is the commitment for a financing of up to
C$2,000,000, representing 4,000,000 units, which will be completed at the
time of closing of the acquistion of Stockscape. Each unit will consist one
Common Share and two share purchase warrants of the Registrant.
RISKS AND UNCERTAINTIES
There can be no certainty that the Company could successfully pursue
financing options or rely on joint venture partners to supply the funds
required to explore and develop its properties. Also, there can be no
assurance that the Company will be successful in obtaining approvals for its
proposed major reorganization or that the terms of any financing obtained
will be favorable. The Company has no unused banking commitments or lines of
credit which could provide significant increases in its working capital.
In the event that the sale of Touchstone is not approved, certain obligations
to reclaim the Ivanhoe Property will continue to be the responsibility of the
Company. Reclamation on the Ivanhoe Property is being carried out by Newmont
and as at December 31, 1998, $5,495,093 has been spent. Currently, under a
three party agreement between Newmont, Touchstone and Great Basin,
reclamation expenses are shared one third by each party. Under the Venture
Agreement, if the budget exceeds $6,000,000, Newmont will contribute 75%,
Great Basin 18.75% and the Company 6.25% of the remaining excess reclamation
costs.
28
<PAGE>
NEW BUSINESS
For risk factors relating to and the effect of the acquisition of Stockscape
on shareholder liquidity, reference should be made to "Appendix A" - sections
"Risk Factors" and "Liquidity and Capital Resources" of the Registrant's
Preliminary Proxy Materials, filed as Schedule 14a, dated March 26, 1999,
which is incorporate in this document by reference.
MARKET FOR SECURITIES
The Common Shares of the Registrant commenced trading on the OTCBB (symbol
CNPGF) effective October 29, 1998. The Registrant remains a reporting company
under the United States Securities and Exchange Commission rules. The
Registrant applied to the Toronto Stock Exchange to delist its Common Shares,
because after giving effect to the reorganization the Registrant would not
have met the continued listing requirements. The delisting became effective
on the close of business March 31, 1999.
YEAR 2000 COMPUTER RISK
The Year 2000 issue has resulted from computer programs coded to accept two
digits rather than four to define the applicable year. The effects of the
problem, if any, would occur on or about January 1, 2000, and could result in
internal system failure in, among other things, local area network,
accounting and other administrative functions. Externally, the problem could
result in system failure by third party providers or suppliers. It is not
possible to be certain that all aspects of the Year 2000 issue which may
arise from third party providers and suppliers will be resolved.
In early 1998, the Registrant began assessment of the potential impact of the
Year 2000 issue. Internally, the Company uses current or near current
versions of software by major developers for office productivity, accounting,
internet and database applications. To gain further certainty as to Year 2000
compliance, the Company will either purchase upgrades which are currently
available or obtain published statements by these software developers
assuring that these programs are Year 2000 compliant. The cost of obtaining
these upgrades is not expected to be material.
In the event that the Registrant acquires other businesses, the software and
hardware acquired in connection with those business combinations may be Year
2000 non-compliant.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any market risk sensitive instruments.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as at December 31, 1998,
and the reports of independent Chartered Accountants are included in this report
as follows:
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(i) Report of Independent Chartered Accountants for the years ended
December 31, 1996, December 31, 1997, and December 31, 1998
including comments by Auditors for U.S readers on Canada- U.S.
reporting differences, dated April 1, 1999. 30
(ii) Consolidated Balance Sheets as at December 31, 1997, and
December 31, 1998. 31
(iii) Consolidated Statements of Loss and Deficit for the years ended
December 31, 1996, December 31, 1997, and December 31, 1998. 32
(iv) Consolidated Statements of Changes in Financial Position for the
years ended December 31, 1996, December 31, 1997, and December 31, 1998. 33
(v) Notes to the Consolidated Financial Statements for the years ended
December 31, 1996, December 31, 1997, and December 31, 1998. 34 - 43
</TABLE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's auditor is KPMG LLP, Chartered Accountants of 777 Dunsmuir
Street, Vancouver, British Columbia, V7Y 1K3.
The Company has no disagreements on accounting or financial disclosure
matters with its accountants.
29
<PAGE>
AUDITORS' REPORT
TO THE SHAREHOLDERS
CORNUCOPIA RESOURCES LTD.
We have audited the consolidated balance sheets of Cornucopia Resources Ltd.
as at December 31, 1998 and 1997 and the consolidated statements of loss and
deficit and changes in financial position for each of the years in the three
year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 1998 and 1997 and the results of its operations and changes in its
financial position for each of the years in the three year period ended
December 31, 1998, in accordance with generally accepted accounting
principles in Canada. As required by the Company Act (British Columbia) we
report that, in our opinion, these principles have been applied on a
consistent basis.
Significant measurement differences between Canadian and United States
accounting principles are explained and quantified in note 7 to the financial
statements.
(SIGNED) "KPMG LLP"
Chartered Accountants
Vancouver, Canada
April 1, 1999
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
consolidated financial statements are affected by conditions and events that
cast substantial doubt on the company's ability to continue as a going
concern, such as those described in note 1 to the consolidated financial
statements. Our report to the shareholders, dated April 1, 1999, is expressed
in accordance with Canadian reporting standards which do not permit a
reference to such events and conditions in the auditors' report when these
are adequately disclosed in the financial statements.
(SIGNED) "KPMG LLP"
Chartered Accountants
Vancouver, Canada
April 1, 1999
31
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
ASSETS
NOTE
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 103,949 996,732
Accounts receivable 25,844 546,050
Prepaid expenses and deposits 21,180 40,880
Investment 4 234,305 --
---------------------------------------------------------------------------------------------
385,278 1,583,662
---------------------------------------------------------------------------------------------
Capital Assets 3 11,701 63,116
Resource Assets 4 1,874,895 16,710,818
---------------------------------------------------------------------------------------------
TOTAL ASSETS 2,271,874 18,357,596
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 101,277 2,367,508
Debt 5 -- 13,186,599
---------------------------------------------------------------------------------------------
101,277 15,554,107
---------------------------------------------------------------------------------------------
Capital Lease Obligations -- 42,436
Provision for Site Reclamation 4,10 -- 172,908
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 101,277 15,769,451
---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 6
Issued and outstanding common shares 38,119,366 37,829,307
1998 - 41,591,834 (1997 - 38,556,040)
Deficit (35,948,769) (35,241,162)
---------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,170,597 2,588,145
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' 2,271,874 18,357,596
EQUITY
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Operations 1
Commitments and Contingencies 10
Subsequent events 12
</TABLE>
Approved by the Board:
(SIGNED)
______________________________________
Andrew F. B. Milligan, Director
(SIGNED)
______________________________________
Sargent H. Berner, Director
32
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Stated in United States Dollars)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
REVENUES
Product sales -- -- 115,096
Production costs -- (19,433) 193,365
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Operating profit (loss) -- 19,433 (78,269)
Interest and other income 70,394 51,705 460,093
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
70,394 71,138 381,824
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
EXPENSES (OTHER INCOME)
General and administrative expenses 968,455 1,987,525 2,776,253
(Gain) loss on disposal and writedown of
investments and marketable securities (9,482) 476,341 (631,970)
(Gain) on sale or write down of resource
assets (180,972) 16,000,000 988,396
Equity loss -- 71,897 112,264
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
778,001 18,535,763 3,244,943
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
LOSS BEFORE NON-CONTROLLING INTEREST 707,607 18,464,625 2,863,119
Non-controlling interest -- -- 252,484
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR 707,607 18,464,625 2,610,635
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
Deficit, beginning of the year 35,241,162 16,776,537 14,165,902
Net loss for the year 707,607 18,464,625 2,610,635
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
DEFICIT, END OF THE YEAR 35,948,769 35,241,162 16,776,537
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
LOSS PER SHARE .02 0.49 0.09
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 39,291,535 37,514,204 30,287,082
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Stated in United States Dollars)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATIONS
Net loss for the period (707,607) (18,464,625) (2,610,635)
Items not involving cash;
Amortization 134,683 103,536 101,692
Reclamation accrual -- 172,908 --
(Gain) loss on disposal and writedown of
investments and marketable securities (9,482) 476,341 (631,970)
(Gain) on sale or write down of resource
assets (180,972) 16,000,000 988,396
Equity loss -- 71,897 --
Non - controlling interest -- -- (252,484)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
(763,378) (1,639,943) (2,405,001)
Net change in non-cash working capital items;
Accounts receivable 420,479 (413,720) 14,044
Product inventory -- 3,084 18,617
Prepaid expenses and deposits 19,701 (2,384) 24,961
Loans and advances -- (85,500) --
Prepaid to mining venture net of liabilities -- -- (25,000)
Accounts payable and accrued liabilities (400,009) (1,806,913) 4,003,572
Due to mining joint venture -- (47,888) (92,530)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
(723,207) (3,993,264) 1,538,663
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
INVESTING
Investments (250,000) 1,001,727 969,354
Proceeds on partial disposition of resource
assets -- -- 99,980
Proceeds on disposal of investments 25,177 -- 631,970
Proceeds on sale of subsidiary, net of cash
of subsidiary at date of sale 212,450 -- --
Note receivable -- 111,837 15,488
Capital assets -- (64,102) (83,384)
Resource assets, Mineral Ridge (1,268,559) (13,818,341) (13,579,965)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
(1,280,932) (12,768,879) (11,946,557)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
FINANCING
Debt, Mineral Ridge 853,737 13,186,599 --
Capital lease obligations (32,440) (53,394) (14,036)
Non - controlling interest -- -- (455,779)
Net proceeds from issue of common shares for
cash 250,000 2,501,535 11,741,248
Issue of common shares for services 40,089 -- --
Net proceeds (expenses) from issue of
special warrants -- (1,746,178) 1,746,177
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
1,111,356 13,888,562 13,017,610
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (892,783) (2,873,581) 2,609,716
Cash and Equivalents, beginning of the year 996,732 3,870,313 1,260,596
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF THE YEAR 103,949 996,732 3,870,312
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
</TABLE>
(includes funds in escrow)
See accompanying notes to consolidated financial statements.
34
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
1. OPERATIONS
These financial statements are prepared in accordance with accounting
principles applicable to a going concern. The recoverability of the amounts
shown for interests in mining properties and deferred costs is dependent upon
discovery and delineation of economically recoverable reserves, on the
outcome of legislative or regulatory developments relating to environmental
protection, and on future profitable operations or proceeds from the
disposition thereof. The viability of production on mineral properties or
resource related share investments held by the Company is highly dependent on
the price of gold.
The Company's principal mineral property, the Ivanhoe Property, is currently
being explored by Great Basin Gold Ltd. (Great Basin) under a Venture
Agreement. The Company faces dilution under the Venture Agreement unless it
participates in future exploration programs conducted by Great Basin. The
financial position of the Company would not allow participation in such
exploration programs without undertaking some form of financing. At
December 31, 1998, the Company had working capital of $284,001 (1997 -
deficit of $13,970,445). The Company has very limited ability to access
capital markets because of market conditions generally in financing resource
related business activities as well as the depressed price of the Company's
Common Shares.
The Company has announced a reorganization (note 12) which, if completed,
will result in the exchange of its interest in the Ivanhoe Property for an
equity interest in Ivanhoe and will release the Company from any past and
future cash calls for Ivanhoe reclamation. However, for such reorganization
to be successful, a major financing will need to be completed and shareholder
approval must be sought. There can be no assurances that the Company will
complete the proposed reorganization. If the proposed reorganization is not
successful, the Company will be required to significantly curtail their
operations and future exploration programs.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements for the fiscal year ended
December 31, 1998, are prepared on the basis of accounting principles
generally accepted in Canada. Significant differences to accounting
principles generally accepted in the United States of America are explained
in note 7.
The consolidated financial statements include the accounts of Cornucopia
Resources Ltd., (the "Company") which is incorporated under the Company Act
(British Columbia), its subsidiaries, including Cornucopia Resources, Inc. a
wholly-owned subsidiary incorporated in the State of Nevada, and its
subsidiaries which are wholly-owned, except, Carlin Resources Corp. ("Carlin
Resources") which was a partially-owned subsidiary.
The Company consolidated its investment in Carlin Resources up to September
20, 1996. At that date the Company's interest in Carlin Resources decreased
to 38% and the equity method applied until April 30, 1997, and due to further
disposition of Carlin Resources shares the application of the cost method
thereafter. During the year ended December 31, 1998, the Company divested all
of the remaining shares of Carlin Resources.
The Company's 25% interest in the Ivanhoe joint venture (note 4(a)) has been
accounted for by the proportionate consolidation method. All significant
intercompany accounts and transactions have been eliminated upon
consolidation.
The Company's operations are in the mining exploration and development
industry and are conducted primarily in the United States of America.
b) CASH & CASH EQUIVALENTS
For the purpose of these consolidated financial statements, the Company
considers all investments in commercial paper and other highly liquid
investments which are readily convertible to cash and with a maturity date
within three months of purchase, to be cash equivalents. The Company follows
a policy of diversifying its investments in different government and industry
sectors.
c) INVESTMENT
Investment is carried at the lowest cost or quoted market value.
35
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(d) RESOURCE ASSETS
Property acquisition costs, which include financing costs, are deferred until
the property to which they relate is placed into commercial production, sold
or abandoned. These costs will be charged to future operations on a
unit-of-production basis following commencement of commercial production
using estimated recoverable reserves of the principal property as the base,
or written down if the property is sold, abandoned or there is an impairment
in value.
Where the Company enters into agreements for the acquisitions of interest in
mining properties which provide for periodic payments, such amounts unpaid
are not recorded as a liability since they are payable entirely at the
Company's discretion. Such payments, when made are recorded as a cost of the
property to which they relate. If unpaid, such non-payment will result in the
write-off of the related investment in mining properties.
Exploration costs incurred during the search for new ore bodies are deferred
and will be charged to future operations on a unit-of-production basis
following commencement of production. If the property is abandoned or sold or
there is an impairment in value, the exploration costs will be charged to
operations.
(e) RECLAMATION
Post closure reclamation and site restoration costs are estimated based upon
regulatory and environmental requirements and are accrued over the life of
the mine. Expenditures relating to environmental, reclamation and restoration
programs are expensed as determinable [see note 10(b)].
(f) FOREIGN CURRENCIES
The Company's functional and reporting currency is the United States dollar.
Monetary assets and liabilities stated in Canadian dollars are translated at
the exchange rate in effect at the balance sheet date and non-monetary assets
and liabilities at the rate in effect on the dates of the related
transactions. Revenues and expenses are translated at rates approximating
exchange rates in effect at the time of the transactions. Gains or losses
arising on conversion of foreign currency transactions are included in income
in the period they occur.
(g) SHARE CAPITAL
Shares issued for other than cash consideration are valued at the quoted
price on the Toronto Stock Exchange on the date the agreement to issue the
shares was reached.
(h) LOSS PER SHARE
The loss per share is computed on the basis of the weighted average number of
shares outstanding during the year. Fully diluted loss per share is not
presented as the effect of outstanding convertible instruments is
anti-dilutive.
(i) COMPARATIVE FIGURES
Where necessary, prior year figures have been reclassified to conform with
the current period's presentation.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, such as the recoverability of resource assets and
liabilities, including the determination of reclamation obligations, and the
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.
36
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(k) FINANCIAL INSTRUMENTS
In prior years, the Company used forward sales agreements for the purpose of
managing its anticipated gold sales. These financial instruments were
accounted for as hedges of anticipated transactions and are not recorded on
the balance sheet of the Company. Gains and losses from these contracts have
been recorded in income in the same period as production is delivered to meet
the commitments. As at December 31, 1998, the Company had no forward sales
agreements outstanding.
The carrying values of cash and cash equivalents, accounts receivable, and
accounts payable and accrued liabilities approximate fair values due to the
relatively short period to maturity of the instruments. The market value of
investment, based on quoted market price, is not materially different from
carrying value.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Depreciation Value Cost Depreciation Value
CAPITAL ASSETS $ $ $ $ $ $
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Buildings, leasehold improvements 12,088 9,937 2,151 12,088 5,810 6,278
Drilling, field equipment and - - - - - -
vehicles
Furniture, fixtures, and office 212,163 202,613 9,550 212,163 155,325 56,838
equipment
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
$224,251 $212,550 $11,701 $224,251 $161,135 $63,116
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4. RESOURCE ASSETS
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Acquisition Deferred December 31, December 31,
Costs Expenses 1998 1997
EXPLORATION PROPERTIES $ $ $ $
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivanhoe Property (a) 1 1,874,891 1,874,892 1,874,892
Mineral Ridge Mine (b) -- -- -- 14,835,922
Other Properties 4 -- 4 4
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
$5 $1,874,891 $1,874,896 $16,710,818
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
o
(a) IVANHOE PROPERTY
At December 31, 1998, the Company's principal and only active mining asset is
its interest in the Ivanhoe Property (note 12) in Nevada's Carlin Trend. The
Company holds a 25% interest in the Ivanhoe Property in Nevada where mining
of the Hollister deposit ceased in May 1992, and reclamation activities
continued thereafter.
Newmont Exploration Limited ("Newmont") the former joint venture partner,
conducts all reclamation, which consisted primarily of rinsing the heaps,
monitoring the site, constructing extensive diversion ditches and re-shaping
waste stock piles. Newmont submitted a formal reclamation and closure plan to
the State of Nevada, Bureau of Land Management (the "BLM") in March 1997, and
began a more extensive program. The budget for the complete reclamation plan
through to December 2004, is estimated to be $5,900,000.
The Company, Newmont and Great Basin, ratified a purchase agreement on August
13, 1997, whereby their respective interests in the Ivanhoe Property were
transferred to a joint venture. Under the terms of the agreement, Newmont
transfered its 75% interest in the Ivanhoe Property to Great Basin in
consideration for a $1,000,000 contribution to a reclamation fund.
Immediately thereafter, the Company and Great Basin entered into a joint
venture agreement whereby Great Basin must spend $5.0 million in exploration
and related expenditures by August 12, 1999. As at December 31, 1998, Great
Basin has earned a 75% interest in the property by incurring expenditures
totaling $5 million.
37
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
4. RESOURCE ASSETS (cont'd)
Reclamation spending surpassed the $4,500,000 level in June 1998, after which
the parties are each required to contribute funds to the reclamation fund on
an equal basis until a total of $6,000,000 has been spent. Reclamation costs
in excess of $6,000,000 will be paid 75% by Newmont and 25% pro rata by the
Company and Great Basin. The terms of the joint venture agreement between the
Company and Great Basin allow for Great Basin to repay reclamation cash calls
on behalf of the Company.
(b) MINERAL RIDGE MINE
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
December 31, December 31,
1998 1997
RESOURCES ASSETS $ $
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
<S> <C> <C>
Deposits/Bonds -- 1,056,700
Capital Assets, net -- 484,751
Land/Options -- 1,428,616
Deferred Royalties -- 127,354
Deferred Exploration -- 4,298,803
Deferred Construction Costs -- 12,271,104
Net Smelter Revenue -- (7,612,719)
Deferred Financing Costs -- --
Other Capital Costs -- 2,781,313
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
-- $14,835,922
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
</TABLE>
The Company acquired its interest in the Mineral Ridge property in April
1993, pursuant to an agreement with Mary Mining Company, Inc., a Florida
corporation, and in August 1995, acquired an option from BenguetCorp. USA,
Inc. on other contiguous mining properties.
Construction of the mine and related facilities commenced in 1996, with the
first gold poured June 1997. Construction delays, depressed gold price and
problems associated with water supply and ore processing led the Company to
default on the covenants and repayment provisions of its Mine Debt Financing
Facility. Mining operations were suspended in November 1997, after which the
Company engaged in discussions with several parties to sell the Mineral Ridge
Mine.
On October 21, 1998, Vista Gold Corp. ("Vista Gold") of Denver, Colorado
purchased all of the shares of Cornucopia's wholly-owned subsidiary Mineral
Ridge Resources Inc. ("Mineral Ridge") which holds and operates the Mineral
Ridge Gold Mine in Esmeralda County, Nevada. As consideration, the Company
received 1,562,500 common shares of Vista valued at $250,000 and in
connection with the transaction, Vista subscribed to a private placement of
2,777,777 Common Shares of Cornucopia valued at $250,000. As at December 31,
1998, the Company wrote down its investment to market value, being $234,305.
The transaction, included an agreement between Vista Gold and Dresdner
Kleinwort Benson to restructure the Mine Debt Financing Facility, which at
the date of the transaction totaled $14.0 million including accrued interest.
Roberts & Schaefer Company, D. H. Blattner & Sons and Mary Mining Company
also agreed to settlements of outstanding amounts.
Annually, the Company reviews the carrying values of its portfolio of mining
properties and exploration properties. During 1997, it was determined that
certain resource assets had suffered a permanent impairment in value and
therefore were written down to their estimated net recoverable amounts.
5. MINE DEBT FINANCING FACILITY
On January 17, 1997, the Company entered into a loan agreement with Dresdner
Kleinwort Benson for senior secured loan facilities to be used for the
construction, development, and mining of ore from the Mineral Ridge Mine.
Advances totaling $13,000,000 were made under the agreement.
38
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
5. MINE DEBT FINANCING FACILITY (cont'd)
The Mine Debt Financing Facility contemplated that the Company's 100% share
holdings in Touchstone Resources Company be pledged as security for the
Company's indebtedness. The facility also provided for guarantees by the
parent company, Cornucopia Resources Ltd.
Upon the sale of Mineral Ridge Resources Inc. to Vista Gold, a release was
obtained from the bank for the indebtedness and from the pledges and
guarantees made by Cornucopia Resources Ltd., Cornucopia Resources Inc. and
Touchstone Resources Company. Release was also obtained from the letter of
credit obligation in the amount of $1,089,242 which had been used to finance
construction of power lines and ancillary electrical distribution equipment
at the Mineral Ridge Mine.
As part of the Vista Gold transaction, approval was sought and granted to
reprice the warrants held by Dresdner Kleinwort Benson to purchase 1,750,000
Common Shares, to C$0.20 at any time until December 31, 2001.
6. SHARE CAPITAL
(a) SHARES AUTHORIZED, ISSUED AND OUTSTANDING
Authorized:
100,000,000 preferred shares without par value, with rights to be determined
upon issue.
200,000,000 Common Shares authorized, without par value.
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
Number of Average Price Value of
Shares per Share Share
ISSUED AND OUTSTANDING: $ Capital
$
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1996 26,290,340 23,586,524
- - - - - - - - - - - - - - - - - - issued for cash 8,767,700 1.339 11,741,248
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
Balance, December 31, 1996 35,058,040 35,327,772
- - - - - - - - - - - - - - - - - - issued for cash 3,498,000 0.715 2,501,535
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
Balance, December 31, 1997 38,556,040 37,829,307
- - - - - - - - - - - - - - - - - - issued for services 107,500 0.200 21,500
- - - - - - - - - - - - - - - - - - issued for services 150,517 0.123 18,559
- - - - - - - - - - - - - - - - - - issued for cash 2,777,777 0.090 250,000
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 41,591,834 $38,119,366
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
</TABLE>
(b) STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan (the "Plan") which was adopted in June
1988. The Plan consists of a Share Purchase Plan, a Share Option Plan and a
Share Bonus Plan, the terms of which, as amended, are described below.
The aggregate maximum number of shares which the Company may at any time
reserve for issuance under the Plan was 4,750,000 as at December 31, 1998.
Under the Share Purchase Plan participants who are full-time employees and
have one year of continuous service, may contribute up to 10% of their annual
basic salary to the plan for the purpose of purchasing Common Shares of the
Company. The Company will contribute an amount equal to one-sixth of the
participant's contribution during the first year of participation and
one-third in subsequent years. At the end of each calendar quarter,
participants are issued Common Shares based on the contributions made to
date, with delivery of the shares to the participants six months after issue.
Under the Share Option Plan participants who are employees of the Company or
who, in the opinion of the Board of Directors, are in a position to
contribute to the Company's success or are worthy of special recognition, may
be granted options ("discretionary options") to purchase Common Shares of the
Company at a price per share not less than the fair market value of the
shares on the day before the grant.
39
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
6. SHARE CAPITAL (cont'd)
No discretionary option is exercisable until it has vested according to a
vesting schedule specified by the Board of Directors at the time of grant of
the option. A discretionary option is exercisable for any period specified by
the Board of Directors up to a maximum of five years after the date of grant.
Options to persons who would be deemed "insiders" under the United States
Securities Exchange Act of 1934, are allocated under a formula set out in the
Plan.
Under the Share Bonus Plan, the Board of Directors may issue Common Shares to
full-time employees in respect of meritorious service. The maximum number of
shares that may be issued under the Plan in any calendar year may not exceed
107,676 being 0.5% of the total number of Common Shares of the Company that
were issued and outstanding on December 31, 1994.
(c) GRANT OF OPTIONS
As at December 31, 1998, there were an aggregate of 3,160,000 stock options
outstanding (December 31, 1997; 2,275,000) granted to directors, officers and
employees of the Company.
The following table summarizes the options granted under the Plan, and
outside of the Plan, to directors and employees of the Company for the
purchase of Common Shares at various exercise prices. Stock options are
granted at exercise prices based on the closing market price of the Company's
shares on the day before the grant.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
OPTIONS GRANTED OPTIONS OPTIONS NUMBER OF OPTIONS
OUTSTANDING OUTSTANDING OUTSTANDING
EXERCISE PRICE INSIDE THE OUTSIDE THE
YEAR GRANTED (C $) EXPIRY DATE STOCK OPTION PLAN STOCK OPTION PLAN TOTAL
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $ 0.68 January 4, 2000 175,000 175,000
1996 $ 0.68 January 4, 2001 873,000 873,000
1997 $ 0.68 February 2, 2002 12,000 12,000
0.68 February 27, 2002 300,000 300,000
0.68 May 20, 2002 35,000 35,000
0.68 June 19, 2002 250,000 250,000
1998 $0.26 January 4, 2003 50,000 50,000
0.15 November 17, 2003 100,000 100,000
0.15 September 9, 2003 1,365,000 1,365,000
----------------------------------------------------------------------------------------------------------------------
1,795,000 1,365,000 3,160,000
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>
On September 10, 1998, the Board of Directors resolved that an aggregate of
1,415,000 new stock options, of which 50,000 have been subsequently canceled,
be granted to directors and employees of the Company to reflect the current
market price of the Company's shares, at an exercise price of C$0.15 per
share expiring September 9, 2003, and that the new options would be granted
outside of the Plan. The Company received notice from the Toronto Stock
Exchange that the options were not approved until such time that the Company
received a favorable disinterested vote of the shareholders at the upcoming
Annual and Extraordinary General Meeting.
A summary of the Company's outstanding stock option transactions as at year
ended December 31, is as follows:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
1998 1997 1996
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year (Share Option
Plan) 2,275,000 2,303,000 950,000
Granted 150,000 992,000 1,675,000
Exercised -- -- (222,000)
Cancelled or expired (630,000) (1,020,000) (100,000)
---------------------------------------------------------
Outstanding at end of year (Share Option Plan) 1,795,000 2,275,000 2,303,000
Granted on September 10, 1998 (Outside the Plan) 1,415,000 -- --
Cancelled or expired (50,000) -- --
---------------------------------------------------------
Outstanding at end of year (Outside the Plan) 1,365,000 -- --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
Total Stock Options Outstanding 3,160,000 2,275,000 2,303,000
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
6. SHARE CAPITAL (cont'd)
As at December 31, 1998, there were an aggregate of 3,160,000 stock options
outstanding, of which 2,325,000 were granted to the directors of the Company.
During the years ended December 31, 1998 and 1997, there were no options
exercised. During the year ended December 31, 1996, there were a total of
222,000 options exercised at prices ranging between C$0.87 and C$1.75 per
share.
(d) SHARE PURCHASE WARRANTS
As at December 31, 1998, the following share purchase warrants were outstanding:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------
NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------
C$
<S> <C> <C>
900,000 2.65 March 4, 1998 (expired)
3,025,000 2.75 May 15, 1998 (expired)
1,199,000 1.50 May 15, 1998 (expired)
1,100,000 1.25 March 26, 1998 (expired)
1,750,000 0.20 December 31, 2001
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------
</TABLE>
(e) SHAREHOLDER PROTECTION PLAN
On August 18, 1992, the Company adopted a Shareholder Protection Rights Plan
Aagreement and amended on July 16, 1996, (the "SPRPA") which will remain in
effect for ten years. Under the SPRPA, one right is issued in respect of each
Common Share outstanding and each Common Share issued thereafter. Each right
entitles the holder to purchase one Common Share at a 50% discount to the
market. After a person acquires 10% or more of the voting shares of the
Company or announces an intention to do so, the rights become exercisable.
The rights are not triggered by a bid which is made to all shareholders in
accordance with relevant securities legislation.
7. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA
AND THE UNITED STATES
(a) For purposes of United States generally accepted accounting principles, the
Company would have adopted Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes". Statement 109 requires companies to
account for income taxes by an asset and liability method. As indicated in
note 8, the Company has significant unrecognized loss carry forwards for
income tax purposes. As it is not more likely than not as to the
utilization of the loss carry forwards, the benefit attributable thereto
would be fully offset by the valuation allowance. Accordingly, the adoption
of Statement No. 109 does not result in a material difference for
accounting purposes.
(b) Under United States accounting principles the value attributable to the
Common Shares issued for services and non-cash transactions would be
excluded from operating, financing, and investing activities in the
consolidated statement of changes in financial position and reported
separately. The value attributed to the shares received on the sale of the
Company's subsidiary would also be excluded.
(c) Under United States accounting principles the $16,000,000 writedown of
resource assets relating to the Mineral Ridge Mine in 1997 would have been
calculated using discounted cash flow methods. Under such calculation
methods using a discount rate of 4% per annum an additional provision of
$900,000 would have been recorded. Due to the sale of the Mineral Ridge
Mine in 1998, the Company would have recorded an additional $900,000 gain
on sale of resource assets.
(d) Under United States accounting principles, the Company's interest in the
Ivanhoe joint venture (note 4 (a)) would be accounted for by the equity
method. If applied, this difference would not impact the reported earnings
or shareholders' equity.
(e) Under United States accounting principles, Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation",
requires that stock-based compensation be accounted for based on a fair
value methodology. As permitted by the statement, the Company has elected
to continue measuring compensation costs using the intrinsic value based
method of accounting. Under this method, compensation is the excess, if
any, of the quoted market value of the stock at the measurement date of the
grant over the amount an optionee must pay to acquire the stock. As the
exercise price of the options approximate market value at date of grant,
the Company has determined that there is no material difference to United
States accounting principles.
41
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
7. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND
THE UNITED STATES (cont'd)
The effect of the difference between accounting principals generally
accepted in Canada and the United States on the statement of operations is
summarized as follows:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
DECEMBER 31,
1998 1997 1996
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the period under
Canadian GAAP $(707,607) $(18,464,625) $(2,610,635)
Adjustment for writedown of
resource assets (note 7(c)) -- (900,000) --
Adjustment for sale of Mineral
Ridge Mine (note 7(c)) 900,000 -- --
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Net income (loss) for the period,
under U.S. GAAP $192,393 $(19,364,625) $(2,610,635)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Net income (loss) per share, $0.00 $(0.52) $0.09)
under U.S. GAAP
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
</TABLE>
8. INCOME TAXES
The Company's operations are primarily in the United States. Tax benefits
related to losses of prior years are not recognized in the statements of
operations and deficit due to the uncertainty of their realization.
At December 31, 1998, the Company had net operating loss carry forwards for
United States income tax purposes of approximately $4,000,000 which, if not
utilized to reduce United States taxable income in future periods, expires
through 2011. Of this amount, approximately $945,000 can only be utilized
against future taxable income of a non-operating subsidiary and will begin to
expire in the year 2001.
At December 31, 1998, the Company had net operating losses for Canadian
income tax purposes carried forward of approximately C$10,900,000 which, if
not utilized to reduce Canadian taxable income in future periods, will expire
during the years 1999 to 2004.
9. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are as follows:
(a) The Company paid $145,488 in 1998, (year ended: 1997 - $155,530; 1996 -
$158,474) to Glencoe Management Ltd. (Glencoe), a company controlled by an
officer and director, in return for consulting services.
(b) The Company paid $nil in 1998, (year ended: 1997 - nil; 1996 - $11,005) to
7557 Management Group Ltd., a company controlled by an officer and
director, in return for consulting services provided by two officers.
(c) The Company paid $14,192 in 1998, (year ended: 1997 - $23,041: 1996 - nil)
to Anacortes Management Inc., a company controlled by an officer, in return
for consulting services.
(d) The Company incurred legal fees of $60,570 in 1998, (year ended: 1997 -
$155,758; 1996 - $74,217) to DuMoulin Black, a firm in which a director of
the Company is a partner.
(e) During the year ended December 31, 1998, the Company sold 1,227,806 shares
of Carlin Resources to an officer and director of the Company. The Company
also sold 1,333,333 shares of Carlin Resources to a director of the
Company. For the above transactions, the Company sold the shares at C$0.015
per share which approximated the market value at the date of sale.
(f) The Company paid $1,445 in 1998, (year ended: 1997 - $2,341: 1996 - $954)
to David Williamson Associates Limited, a company controlled by a director
in return for consulting services.
42
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
10. COMMITMENTS AND CONTINGENCIES
(a) LEASE COMMITMENTS
The Company leases certain office premises and equipment under operating
lease arrangements. Minimum rental expense under such arrangements amounted
to approximately $87,615, $111,000, and $106,000 for fiscal 1998, 1997 and
1996, respectively. Future minimum lease commitments under such arrangements
will be approximately $13,350 and $764 for fiscal 1999 and 2000, and nil
thereafter.
(b) PROVISION FOR SITE RESTORATION
The budget for the complete reclamation and closure plan for the Hollister
Mine on the Ivanhoe Property through to December 2004, is estimated by
Newmont to be $5,900,000 (note 4(a)). Of the $5,900,000, $465,000 of the
reclamation liability exists for the Company, which has not been recorded in
the accounts of the Company. However, the joint venture agreement with Great
Basin provides for Great Basin to make payments on Touchstone's behalf.
(c) AGREEMENTS
The services of Andrew F. B. Milligan, a director, President and Chief
Executive Officer of the Company, are provided to the Company pursuant to a
Consultant/Management Agreement with Glencoe dated December 1, 1991, and
amended on December 19, 1992, June 29, 1994, June 1, 1995 and May 20, 1998.
Mr. Milligan is the principal shareholder of Glencoe. The agreement includes
provisions by which Mr. Milligan is entitled to receive an amount equal to
three years' management fees, and to participate in all employee insurance
and benefit plans in place for a period of up to three years if the Company
should terminate the agreement or the employment of Mr. Milligan without
cause. In order to facilitate the reorganization contemplated herein, Mr.
Milligan has agreed that in the event the reorganization described in note 12
receives all required approvals, effective June 1, 1999, Glencoe will accept
a 44.4% reduction in salary and the substitution of a 3 year fixed term
employment contract in lieu of the three year severance provisions of the
current Consultant/Management Agreement. As consideration, for relinquishing
these benefits, Glencoe will be granted 400,000 warrants to purchase 400,000
Common Shares of the Company on a post-consolidation basis at a price of
C$0.50, in addition to any other options to which Mr. Milligan may be
entitled in his continuing capacity as a director and officer of the Company.
(d) LEGAL
The Company is from time to time involved in various legal proceedings of a
character normally incidental to its business. The Company does not believe
adverse decisions in any pending or threatened proceedings, or any amounts
which it may be required to pay by reason thereof, will have a material
adverse effect on the financial condition of the Company.
(e) YEAR 2000
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effect of the Year 2000 issue may be experienced before, on,
or after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 issue affecting the Company, including those related to the efforts of
customers, suppliers or other third parties, will be fully resolved.
11. SEGMENTED INFORMATION
During the year, the Company adopted the new recommendation of the Canadian
Institute of Chartered Accountants with respect to segmented disclosure. The
Company believes it conducts its business in a single operating segment being
the exploration and development of mineral properties. For each of the years
presented, all resource properties were located in the United States and
product sales were earned from sources in the United States.
43
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in United States Dollars)
12. SUBSEQUENT EVENTS
Subsequent to year end, the Company announced that it had entered into
arrangements with arm's length parties which will result in a substantial
reorganization of the Company and its business. The reorganization, which is
subject to requisite regulatory and shareholder approvals, will involve: the
sale of the Company's primary asset, its joint venture interest in the
Ivanhoe Property in the State of Nevada, a consolidation of its authorized
and issued Common Share capital, the acquisition of a new business, and a
change of name and restructuring of the Board of Directors of the Company.
The costs associated with the Company's 25% interest in the Ivanhoe Joint
Venture have been carried by Great Basin. In the absence of funds to maintain
this position in the future, however, the Company's interest would have been
subject to progressive dilution. The likelihood of the Company funding its
share of the substantial costs associated with the anticipated drilling
program at Ivanhoe was assessed to be remote. The Company has therefore made
the decision to exchange its direct interest in the Ivanhoe Property for a
significant equity interest in Great Basin.
As a first step in the reorganization, the Company entered into an agreement
with Great Basin, its joint venture partner, pursuant to which the Company's
interest in the Ivanhoe Property will be sold in exchange for 2,750,000
common shares at a deemed price of C$1.25 per share and 250,000 warrants of
Great Basin, exercisable to purchase an additional 250,000 shares at C$2.00
per share for one year. Resale of the shares issued in consideration for the
Company's interest will be restricted, by agreement, for a period of twelve
months. The Company has agreed to a voting trust in favour of Great Basin
management for a period of two years and will be given representation on the
board of directors of Great Basin. As well, the Company will have the right
to participate in future financings of Great Basin in order to maintain its
equity interest. In addition to the regulatory and shareholder approvals,
completion of the purchase and sale is subject to satisfactory due diligence
review.
The Company has also announced it has reached an agreement in principle for
the acquisition of a privately-held Internet investment research provider,
Stockscape Technologies Ltd. The acquisition will be accomplished by the
issuance of 10,000,000 post-consolidation shares of the Company at a deemed
price of C$.50 per share for aggregate consideration of C$5,000,000 and is
conditional upon the completion of due diligence and the execution and
delivery of definitive documentation. These shares will be subject to trading
restrictions under United States Securities legislation for a minimum of two
years.
Further conditions precedent to the acquisition are a consolidation of the
Company's Common Share capital on the basis of ten old for one new, a change
of name of the Company, restructuring of the Board of Directors and
commitments for a financing of up to 4,000,000 units of the Company to be
completed contemporaneously with the acquisition.
The 4,000,000 unit financing will be done on a post-consolidation basis at
C$0.50 per unit to raise maximum proceeds of C$2,000,000. Each unit will
consist of one Common Share and two share purchase warrants. One share
purchase warrant will be exercisable in the first year to acquire one
additional Common Share in the capital of the Company at C$0.65. The second
warrant will be exercisable for a period of two years to acquire one
additional Common Share at C$0.95. The warrants will have forced conversion
features.
44
<PAGE>
CORNUCOPIA RESOURCES LTD.
PART III
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant's Board of Directors has a Compensation Committee and is
required to have an Audit Committee. Members of these committees are as set
out in the chart below. The names, ages, positions, offices with the
Registrant, business experience, and periods of service of all directors and
executive officers are also listed below:
<TABLE>
<CAPTION>
Name Age Position with Registrant
- - - - - - - - - - - - - - - - - --------------------------------------- ---------- -----------------------------------------------------------------------------
<S> <C> <C>
CURRENT DIRECTORS AND OFFICERS
Sargent H. Berner (1)(2) 58 Director since October 1990; Corporate Secretary from May 1990 to June 1992.
Andrew F. B. Milligan (1) 74 Director since November 1986; Chairman of the Board from April 1987 to June
1989; President and Chief Executive Officer from November 1986 to April
1987 and since September 1991.
Charles J. G. Russell (1)(2) 65 Director since July 1991.
Stephen R. Sopher (2) 64 Director since March 1990.
David R. Williamson 57 Director since October 1989.
Glenn H. Friesen 42 Chief Financial Officer since February 1998;
Corporate Controller since May 1997.
Karyn E. Bachert 47 Corporate Secretary since June 1992;
Assistant Secretary from November 1988 to June 1992.
PAST DIRECTORS AND OFFICERS
David S. Jennings 56 Resigned as a Director in January 1999. Director since June 1986.
Vice President, Exploration from September 1991 to February 1996.
Robert F. Dunlop 69 Resigned as a Director in February 1998; Director since May 1995.
James A. Currie 45 Resigned in February 1998; Executive Vice President since May 1997; and
Vice President of Mining from December 1995 to May 1997. Director of
Touchstone Resources Company from May 1998 to November 1998.
Bobbi-Jo (B. J.) Gordon 41 Resigned in January 1998; Vice President of Finance and Chief Financial
Officer from February 1997 to January 1998.
Nathan A. Tewalt 37 Director of Touchstone Resources Company from May 1997 to January 1999;
Vice President, Exploration from March 1996 to May, 1997.
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee
(see Item 11 - "Board Compensation Committee Report on Executive
Compensation").
The Registrant's Board is elected at each Annual General Meeting and holds
office until the next meeting of shareholders or until their successors are
appointed. Executive officers are appointed by the Registrant's Board to
serve until terminated by the Registrant's Board or until their successors
are appointed.
45
<PAGE>
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS
CURRENT DIRECTORS
SARGENT H. BERNER is a partner of DuMoulin Black, a law firm in Vancouver,
British Columbia. Mr. Berner is also a director of Aurizon Mines Ltd., Cream
Minerals Ltd., Emperor Gold Corporation, Sultan Minerals Inc. and Valerie
Gold Resources Ltd. which are Vancouver-based companies listed on the
Vancouver Stock Exchange. Aurizon Mines Ltd. is also listed on the Toronto
and Montreal stock exchanges. Aurizon Mines Ltd. has a class of securities
registered pursuant to Section 12 of the United States Securities Exchange
Act of 1934 (the "Exchange Act"), or subject to the requirements of Section
15(d) of the Exchange Act.
ANDREW F. B. MILLIGAN, a business executive, has been President and Chief
Executive Officer of the Company since September 1991. Mr. Milligan was
Chairman of the Company from April 1987, to June 1989, and was President of
the Company from November 1986, to April 1987. Mr. Milligan also was Chairman
of Carlin Resources Corp. from November 1994, to June 1997, and was a
director of Carlin Resources Corp. from November 1994, to January 1998, and
he is also a director of Advanced Projects Limited and Lysander Gold
Corporation, all of which are Vancouver-based mining companies with shares
listed on the Vancouver Stock Exchange.
CHARLES J. G. RUSSELL, is currently a director of Polymet Mining Corp.,
Lysander Gold Corporation, Carlin Resources Corp., and Quartz Mountain Gold
Corp. Previously, Mr. Russell was Vice-President of Ivanhoe Capital
Corporation from 1993 to 1995; President of Diamond Fields Resources Ltd.
from 1993 to 1994; Senior Vice-President and a director of Galactic Resources
Ltd. from 1987 to 1992; a Vice-President and General Manager of St. Lawrence
Fluospar Ltd. from 1985 to 1987; General Manager, San Martin Mining,
Reasearch and Investment Co. Ltd., Kenya from 1984 to 1985; General Manager,
Ashanti Gold Fields Corporation, Ghana from 1980 to 1983; and General
Manager, National Iron Ore Co. Ltd., Liberia from 1975 to 1980. Polymet
Mining Corp., Carlin Resources Corp. and Lysander Gold Corp. shares listed on
the Vancouver Stock Exchange. Quartz Mountain Gold Corp. is listed on The
Canadian Unlisted Exchange
STEPHEN R. SOPHER is a professional geologist and a private investor. Mr.
Sopher was President and C.E.O. of Lysander Gold Corporation from May 1995,
to June 1997, and a director from January 1994, until September 1997. Mr.
Sopher was Executive Vice President and a director of TVX Gold Inc. from
January 1991, to September 1992. Prior to the merger of TVX Gold Inc. with
Inco Gold Ltd. in early 1991, Mr. Sopher was Vice President Exploration of
Inco Exploration and Technical Services, Inc. He joined Inco Limited in 1961
and in 1970 was transferred to Brazil to organize and manage Inco's
exploration program and in 1987 he became Managing Director, South America.
Mr. Sopher is a registered Professional Engineer of Ontario, member of the
American Institute of Mining, Metallurgical and Petroleum Engineers, Inc. and
also the founding member of the Brazil-Canada Chamber of Commerce. Mr. Sopher
is also a director of Consolidated Logan Mines, which is listed on the
Vancouver Stock Exchange.
DAVID R. WILLIAMSON, a mining engineer and business executive, is principal
of his own business, David Williamson Associates Limited, financial
consultants to the mining industry and publishers of International Mining
Review, based in London, England. In 1982 Mr. Williamson joined Shearson
Lehman Hutton and formed their metals and mining research team. From 1987 to
1989 he held the positions of Executive Director of Shearson Lehman Hutton
and director of Metals and Mining Research for Shearson Lehman Hutton
Commodities. He is also a former governor of the Camborne School of Mines in
England. Mr. Williamson is a director of Crown Resources Corporation, Asia
Pacific Resources Ltd. and Crew Development Corporation, which are publicly
traded mining companies listed on Nasdaq and the Toronto Stock Exchange.
PAST DIRECTORS
DAVID S. JENNINGS, a geologist and business executive, director of the
Registrant from June 1986, to January 1999, and Vice President, Exploration
of the Company from September 1991, to February 28, 1996. Dr. Jennings has
been president of Farallon Resources Ltd. since July 1991, and also has been
President and Chief Executive Officer of Quartz Mountain Gold Corp. since May
1988, and was Vice President of Carlin Resources from November 1994, to
February 29, 1996. Dr. Jennings is also a director of Quartz Mountain Gold
Corp., which is listed on The Canadian Unlisted Exchange and Farallon
Resources Ltd., Zim-Gold Resources Ltd., B.A.S.M. Resources Ltd. and Advanced
Projects Limited, which are Vancouver based-companies with shares listed on
the Vancouver Stock Exchange.
ROBERT F. DUNLOP resigned as a director in February 1998. Mr. Dunlop was
formerly Deputy Chairman of Lonrho plc, the UK conglomerate which has
significant mining interests in Africa, including a 37% holding in Ashanti
Goldfields in Ghana and a 72% holding in Western Platinum in South Africa.
Currently he is also a director of Companhia do Pipeline Mocambique-Zimbabwe
Limitada.
46
<PAGE>
CURRENT OFFICERS
GLENN H. FRIESEN is a Certified General Accountant and has been Chief
Financial Officer of the Company since February 1998, and Corporate
Controller from May 1997, to February 1998. Mr. Friesen was Chief Financial
Officer of Power Smart Inc. from 1991 to 1996 and Controller of Skyline Gold
Corp. from 1989 to 1991. He was also employed in various accounting positions
from 1981 to 1986 at Westar Mining Ltd.
KARYN E. BACHERT has been Corporate Secretary of the Company since June 1992,
and was Assistant Secretary of the Company from November 1988, to June 1992.
Ms. Bachert has been employed by the Company since January 1987. Ms. Bachert
was Corporate Secretary of Carlin Resources Corp. from November 1994, to June
1997.
PAST OFFICERS
JAMES A. CURRIE is a mining engineer with 18 years experience in the mining
industry, and principal of his own business, Anacortes Management Ltd.,
providing consulting to the mining industry. Mr. Currie was Executive Vice
President of the Company from June 1997, to February 1998, and Vice
President, Mining of the Company from December 1994, to June 1997, and
remained a director of Touchstone Resources Company until November, 1998.
Prior to his appointment with the Company, he was employed by Placer-Dome
Inc., Fording Coal Ltd. and Noranda Mines Ltd. in various capacities and more
recently has been Vice President, Operations for Queenstake Resources Ltd.
(1989-1991) and Manager, Technical Services for Galactic Resources Ltd.
(1991-1993).
BOBBI-JO (B. J.) GORDON resigned her position with the Company in January
1998. Ms. Gordon is a Chartered Accountant and was appointed Vice President,
Finance and Chief Financial Officer of the Company on February 1, 1997. Ms.
Gordon previously provided consulting services to various resource companies.
In 1994, she was Chief Financial Officer of Ashton Mining Company of Canada
Inc. and in 1993, she was Vice President, Finance for CMP Resources Ltd.
Prior to this, Ms. Gordon was an officer and a director of companies in the
Homestake Canada group.
ITEM 11: EXECUTIVE COMPENSATION
The Company's executive and employee compensation program is administered by
the Compensation and/or Executive Committees. The Compensation Committee
establishes or recommends general compensation levels and policies for
executive officers and employees of the Company. The Stock Incentive Plan is
administered by the Executive Committee or, in the absence of this committee,
by executive officers of the Registrant on behalf of the Board of Directors.
The Registrant's Board designates the Members of each committee on an annual
basis.
SUMMARY OF EXECUTIVE COMPENSATION
Between 1996 and 1998, there were five executive officers of the Company:
Andrew F. B. Milligan, James A. Currie, Bobbi-Jo Gordon, Glenn H. Friesen and
James M. Carter. The following table sets forth certain summary information
concerning the compensation awarded to, earned by, or paid to the Chief
Executive Officer and those executive officers of the Company whose combined
salary and bonuses exceeded C$100,000 for services in all capacities to the
Company during the years ended December 31, 1998, 1997 and 1996,
(collectively, the "Named Executive Officers"). The aggregate value of other
annual compensation paid to the Named Executive Officers during 1998 did not
exceed 10% of the aggregate cash compensation set forth in the following
table.
47
<PAGE>
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
SALARY BONUS(1) SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR $ $ UNDER OPTIONS COMPENSATION (2)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andrew F. B. Milligan (3) 1998 145,488 -- 500,000 --
President and Chief Executive Officer 1997 155,530 -- 50,000(4) --
1996 158,474 47,542 450,000 --
James A. Currie (5) 1998 14,192 -- -- --
Executive Vice President 1997 112,448 -- 400,000 --
and Chief Operating Officer 1996 107,850 18,332 50,000 --
Bobbi-Jo (B. J.) Gordon (7) 1998 10,416 -- -- 84,237
Vice President, Finance and 1997 88,604 -- 150,000 --
Chief Financial Officer 1996 -- -- -- --
James M. Carter (6) 1998 -- -- -- --
Executive Vice President and 1997 5,400 -- -- --
Chief Financial Officer 1996 132,062 39,168 240,000 --
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Granted in respect of performance in the previous year.
(2) Represents amount paid or accrued under termination arrangement.
(3) The services of Mr. Milligan are provided under an Agreement dated December
1, 1991, as amended on June 1, 1995, and subsequently on May 20, 1998,
extended to May 31, 1999, between the Company and Glencoe Management Ltd.,
a company owned and controlled by Mr. Milligan. (see Exhibit 20.4)
(4) This represents the repricing of the stock options of Mr. Milligan
granted in 1995 and 1996. See "Table of Option and SAR Repricings" below.
(5) The services of Mr. Currie were provided under an Agreement dated November
17, 1997, between the Company and Anacortes Management Ltd. and terminated
on February 6, 1998. Mr. Currie resigned his position as Executive Vice-
President of the Company in February 1998, and remained a director of the
Company's subsidiary Touchstone Resources Company until November 1998.
(6) The services of Mr. Carter were provided under an Agreement with the
Company dated June 1, 1993, and amended June 1, 1995, which terminated
January 31, 1997. All options held by Mr. Carter expired on June 30, 1997,
pursuant to his termination agreement.
(7) The services of Ms. Gordon were provided under an agreement with the
Company dated February 1, 1997. Ms. Gordon resigned her position as
Vice-President, Finance and Chief Financial Officer of the Company in
January 1998, and the stock option granted to her in 1997 expired in
March 2, 1998.
STOCK INCENTIVE TRANSACTIONS DURING 1998
The following table sets out the details of all stock option grants to the
Named Executive Officers during the most recently completed financial year.
These stock options were granted outside of the Company's Stock Incentive
Plan.
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS GRANTED PRICE APPRECIATION FOR
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION OPTIONS TERMS
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE 5% 10%
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Andrew F.B. Milligan 500,000 39% C$0.15 September 9, 2003 C$20,721 C$45,788
Glenn H. Friesen 115,000 9% C$0.15 September 9, 2003 C$4,766 C$10,531
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: During 1998, a total of 150,000 options were granted under the
Registrant's Stock Incentive Plan. These options were granted at an
exercise price equal to the closing price of the Company's Common
Shares on the Toronto Stock Exchange on the trading day immediately
preceding the date of grant. As part of the corporate
reorganization described in Item 1: "Significant Transactions of
the Company" - (1) "Major Reorganization" and (3) "Acquisition of
Stockscape Technologies Inc.", outstanding directors' and
employees' options granted both under and outside of the Company's
Stock Incentive Plan will be cancelled, and replaced by new
incentive options to purchase post-consolidation shares at a price
of C$0.50 per share to be granted under the new Stock Incentive
48
<PAGE>
Plan for which shareholder approval will be sought at the upcoming
Annual and Extraordinary General Meeting. Details of the Stock
Incentive Plan are included in the Registrant's Preliminary Proxy
Materials, filed as Schedule 14a, dated March 26, 1999,
incorporated in this doucment by reference.
AGGREGATED OPTIONS EXERCISED, EXPIRED OR SURRENDERED IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets out the details of all stock options exercised
during the most recently completed financial year by the Named Executive
Officers and the financial year end values of the stock options held by the
Named Executive Officers.
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
SHARES OPTIONS(1)
ACQUIRED EXPIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON SURRENDERED UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS AT
EXERCISE VALUE OPTIONS AT 12/31/98 12/31/98
NAME (#) (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew F. B. Milligan -- -- -- 500,000 (3) 500,000 Nil Nil
James A. Currie -- -- -- 400,000 2) -- Nil Nil
Glenn H. Friesen -- -- -- 35,000 (3) 115,000 Nil Nil
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During 1998 a total of 630,000 options either expired or were surrendered.
(2) Option exercisable until May 1999.
(3) As part of the corporate reorganization described in Item 1:
"Significant Transactions of the Company" - (1) "Major Reorganization"
and (3) "Acquisition of Stockscape Technologies Ltd.", outstanding
directors' and employees' options granted both under and outside of the
Company's Stock Incentive Plan will be cancelled, and replaced by new
incentive options to purchase post-consolidation shares at a price of
C$0.50 per share to be granted under the new Stock Incentive Plan for
which shareholder approval will be sought at the Company's upcoming
Annual and Extraordinary General Meeting. Details of the Stock Incentive
Plan are included in the Registrant's Preliminary Proxy Materials, filed
as Schedule 14a, dated March 26, 1999, incorporated in this doucment by
reference.
STOCK OPTION REPRICINGS
Stock options are a significant component of the compensation received by the
Named Executive Officers and serve to provide incentive to such individuals
to act in the best interests of the Company and its shareholders. Since the
market price of the Company's shares was well below the exercise price, the
stock options ceased to offer the desired incentive and were repriced.
The following table sets forth stock options of Named Executive Officers
which were repriced under the Company's Stock Option Plan or otherwise during
the preceding three years.
<TABLE>
<CAPTION>
TABLE OF OPTION AND SAR REPRICINGS
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE OF
SECURITIES SECURITIES AT EXERCISE PRICE LENGTH OF
UNDER TIME OF AT TIME OF ORIGINAL OPTION
OPTIONS/SARS REPRICING OR REPRICING OR NEW EXERCISE TERM REMAINING AT
DATE OF REPRICED OR AMENDMENT AMENDMENT PRICE DATE OF REPRICING
NAME REPRICING AMENDED (#) (C $/SECURITY) (C $/SECURITY) (C $/SECURITY) OR AMENDMENT
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Andrew F. B. Milligan Oct 21-97 500,000 $0.68 $1.75/ $0.68 2 1/4 years/
$1.69(1) 3 1/4 years(1)
James A. Currie Oct 21-97 400,000 $0.68 $1.06/ $0.68 4 1/2 years(2)
$0.80(2)
Bobbi-Jo (B.J.) Gordon Oct 21-97 150,000 $0.68 $1.08 $0.68 4 1/4 years
Glenn H Friesen Oct 21-97 35,000 $0.68 $0.95 $0.68 4 1/2 years
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Two stock options were repriced, one exerciseable for 50,000 shares at
C$1.75 per share expiring on January 4, 2000; and one exerciseable for
450,000 shares at C$1.69 per share expiring on January 4, 2001.
(2) Two stock options were repriced:, one exerciseable for 150,000 shares at
C$1.06 per share expiring on February 27, 2002; and one exerciseable for
250,000 shares at C$0.80 per share expiring on June 19, 2002.
49
<PAGE>
COMPENSATION OF DIRECTORS
The Company pays outside directors a fee of C$650 for each meeting attended,
in person or by telephone and an additional C$350 for outside directors who
chair committee or board meetings. These fees were waived by the Board during
1998. In addition, the directors may be reimbursed for actual expenses
reasonably incurred by them in connection with attending meetings of the
board. Directors are also eligible to receive bonus shares or options to
purchase Common Shares of the Company.
A significant component of the compensation of the insiders of the Company
consists of stock options. The directors do not consider that the recent
performance of the Company's share price accurately reflects the performance
of its directors, officers or employees. The directors consider that the most
significant influences on the Company's share trading price have been the
drop in the price of gold and the current junior stock investment climate,
both of which are unrelated to performance of the directors, officers and
employees of the Company. As a result, the directors considered that it was
appropriate to reprice stock options of directors, officers and employees so
that they continue to provide incentive to such persons to act in the best
interests of the shareholders.
MANAGEMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
(1) The services of Andrew F. B. Milligan, a director, President and Chief
Executive Officer of the Company, are provided to the Company pursuant
to a Consultant/Management Agreement with Glencoe Management Ltd. dated
December 1, 1991, and amended on December 19, 1992, June 29, 1994, June
1, 1995 and May 20, 1998. Mr. Milligan is the principal shareholder of
Glencoe Management Ltd. The agreement includes provisions by which Mr.
Milligan is entitled to receive an amount equal to three years'
management fees, and to participate in all employee insurance and
benefit plans in place for a period of up to three years if the Company
should terminate the agreement or the employment of Mr. Milligan without
cause. In order to facilitate the reorganization contemplated herein,
Mr. Milligan has agreed that in the event the reorganization receives
all required approvals, effective June 1, 1999, Glencoe Management Ltd.
will accept a 44.4% reduction in salary and the substitution of a 3 year
fixed term employment contract in lieu of the three year severance
provisions of the current Consultant/Management Agreement. As
consideration, for relinquishing these benefits, Glencoe Management Ltd.
will be granted 400,000 warrants to purchase 400,000 Common Shares of
the Company on a post-consolidation basis at a price of C$0.50, in
addition to any other options to which Mr. Milligan may be entitled in
his continuing capacity as a director and officer of the Company.
(2) Until February 6, 1998, the services of James A. Currie, who was
Executive Vice President and Chief Operating Officer of the Company
since June, 1997 and Vice-President, Mining of the Company from December
1994, to June, 1997, were provided to the Company pursuant to a
Consulting Agreement between the Company and Anacortes Management Ltd.
dated November 17, 1997. This Agreement was terminated on February 6,
1998.
(3) Until February 1, 1998, the services of Bobbi-Jo (B.J.) Gordon, who was
Vice-President, Finance and Chief Financial Officer of the Company since
February 1, 1997, were provided to the Company pursuant to an Employment
Agreement dated February 1, 1997. This agreement included provisions by
which Ms. Gordon was entitled to receive an amount equal to one years
salary, and was also entitled to participate in all employee health,
insurance and benefit plans in place for a one year period should the
Company terminate the agreement or her employment without cause. The
Company and Ms. Gordon entered into an agreement on January 31, 1998
under which a total of C$100,948 was paid and an additional C$28,523 was
settled by way of issuance of 150,517 Common Shares in May 1998. Ms.
Gordon's stock option expired on March 3, 1998.
(4) David S. Jennings, a former director of the Company, is the principal
shareholder of 7557 Management Group Ltd., a management company which
received fees for providing the services of Dr. Jennings. No fees were
paid to Dr. Jennings, or to 7557, during 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Andrew F. B. Milligan, a Director and Executive Officer of the
Registrant, served as a member of the Compensation Committee during 1996 and
part of 1997. From June 1997, to present, the Compensation Committee has been
made up of non-executive directors of the Registrant.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Registrant's compensation program for its executive officers is
administered and reviewed by the Compensation Committee (the "Committee") of
the Board of Directors. In 1995, the Committee used information and a report
prepared by outside consultants to assist in determining appropriate
executive compensation practices for the most senior executive
50
<PAGE>
officers. The report used two groups of Canadian mining companies, using
annual revenues and number of employees as measures. The report augmented
information by including recent salary surveys carried out for comparable
mining companies, and publicly available compensation information for
Canadian mining companies.
The Committee reviewed the information and confirmed that the base salaries
and benefits provided to the two senior officers were comparable to those
provided by similar companies. However, it was determined that the Company
was deficient, in relation to comparable companies, in not providing
short-term incentives such as a bonus plan. Thus, the Committee recommended
and the Board of Directors approved additional potential annual compensation
through short term incentive awards (ie. bonus plan). The award of a bonus is
based on the performance of the Executive reaching strategic goals of the
Company, such as achieving recognition in the market-place, development of
ore reserves, securing additional financing, accomplishing significant
acquisitions, etc. The objectives for the individual are intended to be
specific, measurable, achievable, relevant and timely.
In 1998, the Committee reviewed and concluded that the annual salary and
benefits for the executive officers remained in line with salaries and
benefits offered by comparable companies. The Committee did not recommend any
increase in base salaries or benefits or the award of any bonuses for 1998.
The change in direction and business of the Company resulting from the
disposition of its remaining active mining asset and acquisition of
Stockscape will require a re-evaluation of the Company's compensation
arrangements and the basis for them. It is expected that a newly constituted
Compensation Committee will review such matters following the Company's
upcoming Annual and Extraordinary General Meeting.
COMPARATIVE SHAREHOLDER RETURN PERFORMANCE GRAPH
The graph below (as required by the Regulation) compares the yearly
percentage change in the cumulative total shareholder return on the Company's
Common Shares against the cumulative total shareholder return on the TSE Gold
& Precious Minerals Sub-Index and TSE 300 Stock Index for the five fiscal
years immediately prior to the beginning of the present financial year,
assuming a $100 initial investment with all dividends reinvested to the
cumulative returns.
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN ("CSR") ON COMMON SHARES
OF THE CORPORATION AND THE TSE 300 STOCK INDEX
[GRAPHIC]
<TABLE>
<S> <C> <C>
Yearly % Change in CSR Total Dividends & (End Price - Opening Price)
== ------------------------------------------------------
(for a given period) Opening Price
</TABLE>
* Assumes that the initial value of investment on the Toronto Stock Exchange in
the Registrant's Common Shares and in each of the indices was $100 on
commencement of the 5 year period and that all dividends were reinvested.
51
<PAGE>
Data for the above comparison performance graph:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
TSE 300 GOLD & MINERAL
STOCK PRICE STOCK PRICE CORNUCOPIA CLOSING PRICE
YEAR INDEX VALUES INDEX VALUE C$
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1993 4,321.43 10,698.96 2.55
----------------------------------------------------------------------------------------------------------------
1994 4,213.61 9,586.36 1.55
----------------------------------------------------------------------------------------------------------------
1995 4,713.54 10,413.61 1.75
----------------------------------------------------------------------------------------------------------------
1996 5,927.03 11,302.64 0.97
----------------------------------------------------------------------------------------------------------------
1997 6,699.44 6,378.87 0.26
----------------------------------------------------------------------------------------------------------------
1998 6,485.94 5,921.27 0.045
----------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As at March 29, 1998, the number of Common Shares beneficially owned,
directly or indirectly, or over which control or direction is exercised, by
the directors and Named Executive Officers of the Registrant is outlined
below. To the knowledge of the directors and Named Executive Officers of the
Registrant, the only shareholder who beneficially owns, directly or
indirectly, or exercises, control or direction over shares carrying more than
5% of the voting rights attached to all shares of the Registrant is Vista
Gold Corp. of Denver, Colorado which holds 2,777,777 Common Shares
representing 6.68% of the shares presently issued and outstanding. The total
issued and outstanding shares of the Registrant at December, 31, 1998, was
41,591,834.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
COMMON STOCK BENEFICIALLY OWNED
NAME NUMBER OF SHARES (1) PERCENT OF CLASS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS:
Andrew F. B. Milligan, Vancouver, BC, Canada 547,200 (2) 1.32%
Glenn H. Friesen, North Vancouver, BC, Canada 35,000 (3) < 1%
OTHER DIRECTORS
Sargent H. Berner, Vancouver, BC, Canada 110,000 (4) < 1%
Charles J. G. Russell, Guernsey, UK 100,000 (3) < 1%
Stephen R. Sopher, Oakville, ON, Canada 145,000 (4) < 1%
David R. Williamson, London, England 100,000 (3) < 1%
DIRECTORS OF US SUBSIDIARY COMPANIES
James A. Currie, Abbotsford, BC, Canada 400,000 (3) < 1%
All directors and executive officers as group (6 persons) 1,437,200 (5) 3.46%
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon information furnished to the Registrant by individual
directors. Unless otherwise indicated, such shares are held directly.
(2) Includes 500,000 shares issuable upon exercise of a currently
exercisable incentive stock option.
(3) Represents shares issuable upon exercise of a currently exercisable
incentive stock option.
(4) Includes 100,000 shares issuable upon exercise of a currently
exercisable incentive stock option.
(5) Includes 1,335,000 shares issuable upon exercise of currently
exercisable incentive stock options.
The information as to shares beneficially owned, not being within the
knowledge of the Registrant, has been furnished by the respective individuals
or has been extracted from the register of shareholdings maintained by the
Registrant's transfer agent.
Section 16(a) of the Exchange Act requires the officers and directors, and
persons who own more than 10% of a registered class of equity securities of a
reporting company to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC"). Officers, directors and
shareholders owning greater than 10% of the common stock of such a company
are required by the SEC to furnish the company with copies of all reports
filed pursuant to Section 16(a). Based solely upon a review of the reports
furnished to the Company, the Company is not aware of any transactions that
were not reported on a timely basis or any failure to file any required form.
52
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The services of Andrew F. B. Milligan, a director, President and Chief
Executive Officer of the Registrant, are provided to the Company pursuant to
a Consultant/Management Agreement with Glencoe Management Ltd. dated December
1, 1991, as amended. Mr. Milligan is the principal shareholder of Glencoe
Management Ltd. which receives management fees from the Company. See Item 11:
"Executive Compensation", "Summary of Executive Compensation."
James A. Currie, formerly Executive Vice President and Chief Operating
Officer of the Registrant until February 6, 1998, and a director of
Touchstone Resources Company from May 1998, to November 1998, is the
principal shareholder of Anacortes Management Ltd., which received fees of
$14,192 during 1998 fiscal year and $23,041 for the period November 17, 1997,
to December 31, 1997, (nil in prior years) for providing consulting services
for the Company.
The services of Bobbi-Jo (B. J.) Gordon, Vice President, Finance and Chief
Financial Officer of the Registrant was provided to the Company pursuant to
an Employment Agreement dated February 1, 1997, and terminated on January 31,
1998. See Item 11: "Management Agreements and Termination of Employment and
Change-In-Control Agreements."
Until February 1997, the services of James M. Carter, a director and
Executive Vice President and Chief Financial Officer of the Registrant, was
provided to the Company pursuant to a Management Agreement dated June 1,
1993, and amended on June 29, 1994, and June 1, 1995. See Item 11:
"Management Agreements and Termination of Employment and Change-In-Control
Arrangements."
Sargent H. Berner, a director of the Company, is a partner in the Vancouver
law firm of DuMoulin Black, which incurred $60,570 in fees for legal services
provided to the Company for the period ended December 31, 1998; ($155,758 -
1997 fiscal year; $74,217 - 1996 fiscal year).
David S. Jennings, a former director and former Vice President of the
Registrant, is the principal shareholder of 7557 Management Group Ltd.
("7557"), a management company which received fees for providing the services
of Dr. Jennings. During the periods ended December 31, 1997, and 1998, no
management fees were paid (1996 - $11,005) to 7557 for such services.
David R. Williamson, a director of the Registrant, is the principle owner of
David Williamson Associates Limited ("DWA"), which received fees for services
of Mr. Williamson. During the period ended December 31, 1998, consulting fees
of $1,445 ($2,431- 1997 fiscal year; $954 - 1996 fiscal year) were paid to
DWA for such services.
53
<PAGE>
CORNUCOPIA RESOURCES LTD.
PART IV
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are included in
Part II, Item 8 of this Form 10-K.
2. NOT APPLICABLE
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
3. A.) EXHIBITS PAGE(S)
<C> <S> <C>
* Incorporated herein by reference to the corresponding exhibit filed
with the Registrant's original Form 10 dated April 29, 1988.
* 3.1 Certificate of Amalgamation dated November 14, 1985 and
Amalgamation Agreement dated April 24, 1985 between Cyrano
Resources Inc. and Cornucopia Resources Ltd.
* 3.2 Memorandum of the Registrant, as amended June 24, 1986 and
June 25, 1987.
* 3.3 Articles of the Registrant, as amended June 24, 1986.
* 4.1 Article 25.1 of the Registrant.
* 4.2 Specimen Certificate for Common Shares without par value.
4.3 Stock Incentive Plan as amended and approved by the Registrant
shareholders on May 27, 1993 and further amended by the directors
on January 5, 1994, May 15, 1995, September 18, 1995 and January
4, 1996. Directors' and Employees' Share Option Program.
Incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form S-8 (Reg. No. 33-25974) and the most recent
amendment received approval from the Registrant shareholders at
the Company's Annual General Meeting on June 20, 1996.
Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Form 10-K for year ended December 31, 1996.
10.1 Venture Agreement between Newmont Exploration Limited and
Touchstone Resources Company dated June 23, 1992. Incorporated by
reference to Exhibit 19.1 of the Registrant's Form 6-K dated June
30, 1992 and amended on July 6, 1996.
10.2 Property Agreement dated August 31, 1995 between Benguet Corp.,
USA and Cornucopia Resources Ltd. Incorporated by Reference to
Exhibit 10.5 of the Registrant's Form 10-KSB for year ended
December 31, 1995.
10.3 Construction Contract dated August 20, 1996, between the
Company's subsidiary Mineral Ridge Resources Inc. and Roberts &
Schaefer Company. Incorporated by reference to Exhibit 10.7 of
the Registrant's Form 10-K for year ended December 31, 1996.
10.4 Open Pit Mining Contract dated August 20, 1996, between the
Company's subsidiary Mineral Ridge Resources Inc. and D. H.
Blattner & Sons, Inc. Incorporated by reference to Exhibit 10.8
of the Registrant's Form 10-K for year ended December 31, 1996.
10.5 Loan Agreement dated January 17, 1997, between the Company's
subsidiary Mineral Ridge Resources Inc. and Dresdner Bank AG, New
York and Grand Cayman Branches. Incorporated by reference to
Exhibit 10.9 of the Registrant's Form 10-K for year ended
December 31, 1996.
10.6 Agreement between Sierra Pacific Power Company and Mineral Ridge
Resource Inc. dated July 11, 1997. Incorporated by reference to
Exhibit 20.1 of the Registrant's Form 10-Q for quarter ended
September 30, 1997.
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
54
<PAGE>
A.) EXHIBITS (CONT'D)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
PAGE(S)
10.7 Venture Agreement between Touchstone Resources Company and Great
Basin Gold Inc. dated August 13, 1997. Incorporated by reference
to Exhibit 20.2 of the Registrant's Form 10-Q for quarter ended
September 30, 1997.
10.8 Great Basin Gold Ltd. Purchase and Sale Agreement, dated March 2, 1999. -
10.9 Share Purchase and Sale Agreement among Cornucopia Resources Inc. and
Cornucopia Resources Ltd. and Vista Gold Holdings Inc. and
Vista Gold Corp. -
11.1 Statement Regarding Computation of Per Share Earnings. -
19.1 Shareholder Protection Plan Rights Agreement between Cornucopia
Resources Ltd. and The R-M Trust Company dated August 18, 1992,
and amended on July 16, 1996. Incorporated herein by reference to
Exhibit 19.5 of the Registrant's Form 10-K for year ended
December 31, 1996
20.1 Final Prospectus of Cornucopia Resources Ltd. dated September 12,
1996 as filed with the Ontario Securities Commission, British
Columbia Securities Commission and Quebec Securities Commission.
Incorporated by reference to Exhibit 20.2 of the Registrant's
Form 10-K for year ended December 31, 1996.
20.2 Final Prospectus of Cornucopia Resources Ltd. dated March 3,
1997. Incorporated by reference to Exhibit 20.3 of the
Registrant's Form 10-K for year ended December 31, 1996.
20.3 Final Prospectus of Cornucopia Resources Ltd. dated July 25,
1997, as filed with the Ontario Securities commission, British
Columbia Securities Commission and Quebec Securities Commission.
Incorporated by reference to Exhibit 20.1 of the Registrant's
Form 10-Q for quarter ended June 30, 1997.
20.4 Revised Management Agreement dated June 1, 1995, between the
Registrant and Glencoe Management Ltd. Incorporated herein by
reference to Exhibit 19.14 of the Registrant's Form 10-KSB for
year ended December 31, 1995.
20.5 Revised Management Agreement dated June 1, 1995, between the
Registrant and James Carter. Incorporated herein by reference to
Exhibit 19.13 of the Registrant's Form 10-KSB for year ended
December 31, 1995.
20.6 Employment Agreement between the Registrant and B. J. Gordon
dated February 1, 1997. Incorporated by reference to Exhibit 99
of the Registrant's Form 10-Q for quarter ended March 31, 1997.
20.7 Consulting Agreement between the Registrant and Anacortes
Management Ltd. dated November 17, 1997. Incorporated herein by
reference to the corresponding exhibit filed with the
Registrant's original Form 10-K for year ended December 31, 1997.
20.8 News release dated March 2, 1999. Incorporated hereby by
reference to an exhibit filed with the Registrant's Form 8-K
dated March 11, 1999.
22.1 Subsidiaries of the Registrant. The subsidiary companies of the
Registrant are described in Item 1 - "Business Development of this
Form 10-K. 4
23.1 Consent of KPMG LLP dated April 12, 1999. -
27 Financial Data Schedule
99 Undertaking with respect to Form S-8 under the Securities Act of 1993. -
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
B.) REPORTS ON FORM 8K
During 1998, and as of March 26, 1999, the Registrant has filed reports on
Form 8-K on the following dates:
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
DATE SUMMARY
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
<C> <S>
February 12, 1998 News release announcing the resignation of Executive Vice President and Chief Operating
Officer and Vice-President, Finance and Chief Financial Officer of the Registrant,
appointment of Corporate Controller as Chief Financial Officer and distribution under
the Registrant's Stock Bonus Plan.
February 26, 1998 News release announcing the resignation of a director of the Registrant.
April 15, 1998 News release announcing Mineral Ridge Resources Inc. was not in compliance with certain
covenants of its loan agreement for construction of the Mineral Ridge Mine, that a lien
been placed on the property by the mine contractor, and that the Company was in
negotiations with companies regarding a corporate combination or financial restructuring.
April 21, 1998 News release announcing that the Company's lender had declared Mineral Ridge Resources
Inc. in default of loan agreement for construction of Mineral Ridge Mine.
October 23, 1998 News release announcing sale of Mineral Ridge Resources Inc. to Vista Gold Corp.
March 11, 1999 Company announces a major reorganization involving the disposition of the Ivanhoe
Joint Venture Interest, a consolidation, the acquisition of Stockscape Technolgies
Ltd., a name change and new composition of Board of Directors.
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
</TABLE>
D.) During 1998, the Registrant filed three reports on Form 10-Q dated:
March 31, 1998, June 30, 1998, and September 30, 1998.
56
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CORNUCOPIA RESOURCES LTD.
Date: April 12, 1999 /s/ Andrew F. B. Milligan
- - - - - - - - - - - - - - - - - ---------------------- --------------------------------------------
Andrew F. B. Milligan
President & Chief Executive Officer
Director
Date: April 12, 1999 /s/ Glenn H. Friesen
- - - - - - - - - - - - - - - - - ---------------------- --------------------------------------------
Glenn H. Friesen
Vice President, Finance and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: April 12, 1999 /s/ Sargent H. Berner
- - - - - - - - - - - - - - - - - ---------------------- --------------------------------------------
Sargent H. Berner
Director
Date: April 12, 1999 /s/ Charles J. G. Russell
- - - - - - - - - - - - - - - - - ---------------------- --------------------------------------------
Charles J. G. Russell
Director
Date: April 12, 1999 /s/ Stephen R. Sopher
- - - - - - - - - - - - - - - - - ---------------------- --------------------------------------------
Stephen R. Sopher
Director
THE REGISTRANT'S 1998 ANNUAL REPORT COVERING THE COMPANY'S LAST FISCAL YEAR
AND PROXY MATERIAL RELATED TO THE REGISTRANT'S 1999 ANNUAL AND EXTRAORDINARY
GENERAL MEETING WILL BE SENT TO SHAREHOLDERS APPROXIMATELY ONE MONTH PRIOR TO
THE SCHEDULED DATE OF THE MEETING.
57
<PAGE>
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
INDEX TO EXHIBITS PAGE(S)
<C> <S> <C>
* Incorporated herein by reference to the corresponding exhibit filed
with the Registrant's original Form 10 dated April 29, 1988.
* 3.1 Certificate of Amalgamation dated November 14, 1985 and
Amalgamation Agreement dated April 24, 1985 between Cyrano
Resources Inc. and Cornucopia Resources Ltd.
* 3.2 Memorandum of the Registrant, as amended June 24, 1986 and
June 25, 1987.
* 3.3 Articles of the Registrant, as amended June 24, 1986.
* 4.1 Article 25.1 of the Registrant.
* 4.2 Specimen Certificate for Common Shares without par value.
4.3 Stock Incentive Plan as amended and approved by the Registrant
shareholders on May 27, 1993 and further amended by the directors
on January 5, 1994, May 15, 1995, September 18, 1995 and January
4, 1996. Directors' and Employees' Share Option Program.
Incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form S-8 (Reg. No. 33-25974) and the most recent
amendment received approval from the Registrant shareholders at
the Company's Annual General Meeting on June 20, 1996.
Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Form 10-K for year ended December 31, 1996.
10.1 Venture Agreement between Newmont Exploration Limited and
Touchstone Resources Company dated June 23, 1992. Incorporated by
reference to Exhibit 19.1 of the Registrant's Form 6-K dated June
30, 1992 and amended on July 6, 1996.
10.2 Property Agreement dated August 31, 1995 between Benguet Corp.,
USA and Cornucopia Resources Ltd. Incorporated by Reference to
Exhibit 10.5 of the Registrant's Form 10-KSB for year ended
December 31, 1995.
10.3 Construction Contract dated August 20, 1996, between the
Company's subsidiary Mineral Ridge Resources Inc. and Roberts &
Schaefer Company. Incorporated by reference to Exhibit 10.7 of
the Registrant's Form 10-K for year ended December 31, 1996.
10.4 Open Pit Mining Contract dated August 20, 1996, between the
Company's subsidiary Mineral Ridge Resources Inc. and D. H.
Blattner & Sons, Inc. Incorporated by reference to Exhibit 10.8
of the Registrant's Form 10-K for year ended December 31, 1996.
10.5 Loan Agreement dated January 17, 1997, between the Company's
subsidiary Mineral Ridge Resources Inc. and Dresdner Bank AG, New
York and Grand Cayman Branches. Incorporated by reference to
Exhibit 10.9 of the Registrant's Form 10-K for year ended
December 31, 1996.
10.6 Agreement between Sierra Pacific Power Company and Mineral Ridge
Resource Inc. dated July 11, 1997. Incorporated by reference to
Exhibit 20.1 of the Registrant's Form 10-Q for quarter ended
September 30, 1997.
10.7 Venture Agreement between Touchstone Resources Company and Great
Basin Gold Inc. dated August 13, 1997. Incorporated by reference
to Exhibit 20.2 of the Registrant's Form 10-Q for quarter ended
September 30, 1997.
10.8 Great Basin Gold Ltd. Purchase and Sale Agreement, dated March 2, 1999. -
10.9 Share Purchase and Sale Agreement among Cornucopia Resources Inc. and
Cornucopia Resources Ltd. and Vista Gold Holdings Inc. and
Vista Gold Corp. -
11.1 Statement Regarding Computation of Per Share Earnings. -
19.1 Shareholder Protection Plan Rights Agreement between Cornucopia
Resources Ltd. and The R-M Trust Company dated August 18, 1992,
and amended on July 16, 1996. Incorporated herein by reference to
Exhibit 19.5 of the Registrant's Form 10-K for year ended
December 31, 1996
20.1 Final Prospectus of Cornucopia Resources Ltd. dated September 12,
1996 as filed with the Ontario Securities Commission, British
Columbia Securities Commission and Quebec Securities Commission.
Incorporated by reference to Exhibit 20.2 of the Registrant's
Form 10-K for year ended December 31, 1996.
20.2 Final Prospectus of Cornucopia Resources Ltd. dated March 3,
1997. Incorporated by reference to Exhibit 20.3 of the
Registrant's Form 10-K for year ended December 31, 1996.
20.3 Final Prospectus of Cornucopia Resources Ltd. dated July 25,
1997, as filed with the Ontario Securities commission, British
Columbia Securities Commission and Quebec Securities Commission.
Incorporated by reference to Exhibit 20.1 of the Registrant's
Form 10-Q for quarter ended June 30, 1997.
20.4 Revised Management Agreement dated June 1, 1995, between the
Registrant and Glencoe Management Ltd. Incorporated herein by
reference to Exhibit 19.14 of the Registrant's Form 10-KSB for
year ended December 31, 1995.
20.5 Revised Management Agreement dated June 1, 1995, between the
Registrant and James Carter. Incorporated herein by reference to
Exhibit 19.13 of the Registrant's Form 10-KSB for year ended
December 31, 1995.
20.6 Employment Agreement between the Registrant and B. J. Gordon
dated February 1, 1997. Incorporated by reference to Exhibit 99
of the Registrant's Form 10-Q for quarter ended March 31, 1997.
20.7 Consulting Agreement between the Registrant and Anacortes
Management Ltd. dated November 17, 1997. Incorporated herein by
reference to the corresponding exhibit filed with the
Registrant's original Form 10-K for year ended December 31, 1997.
20.8 News release dated March 2, 1999. Incorporated hereby by
reference to an exhibit filed with the Registrant's Form 8-K
dated March 11, 1999.
22.1 Subsidiaries of the Registrant. The subsidiary companies of the
Registrant are described in Item 1 - "Business Development of this
Form 10-K. 4
23.1 Consent of KPMG LLP dated April 12, 1999. -
27 Financial Data Schedule
99 Undertaking with respect to Form S-8 under the Securities Act of 1993. -
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.8
GREAT BASIN GOLD LTD.
(the "Purchaser")
c/o Suite 1500, Royal Centre
1055 West Georgia Street
Vancouver, British Columbia
V6E 2W2
---------------------------
March 2, 1999
To: Touchstone Resources Company (the "Company")
Cornucopia Resources Ltd. (the "Vendor")
Suite 540 Marine Building
355 Burrard Street
Vancouver, British Columbia
V6C 2G8
ATTENTION: BOARD OF DIRECTORS
---------------------------------
Dear Sirs/Mesdames:
AGREEMENT TO PURCHASE ALL OF THE SHARES OF TOUCHSTONE RESOURCES COMPANY (THE
"COMPANY") FROM CORNUCOPIA RESOURCES LTD. (THE "VENDOR") BY GREAT BASIN GOLD
LTD. . (THE "PURCHASER")
This letter will confirm our agreement (herein the "AGREEMENT") for the
acquisition by the Purchaser from the Vendor of all of issued and outstanding
shares (each a "PURCHASED SHARE") of the Company.
The Company is a body corporate subsisting under and registered pursuant to
the laws of the State of Nevada and its only business is operating its 25%
working interest (the "JV INTEREST") in the Ivanhoe joint venture pursuant to
the Venture Agreement dated August 13, 1997, (collectively, the "COMPANY'S
BUSINESS").
The following are schedules which are attached to and form a part of this
Agreement:
(a) Schedule A - the Company's financial statements as of December 31,
1998 together with certain other financial information; and
(b) Schedule B - a complete list of the Company's assets and
liabilities and material agreements (to be updated as of the Closing
Date as defined in Article 5).
<PAGE>
In connection with the foregoing, therefore, the undersigned hereby
acknowledge and agree that:
ARTICLE 1
PURCHASE AND SALE OF THE ALL OF THE PURCHASED SHARES
Purchase and Sale
1.1 Subject to the terms and conditions hereof and based upon the
mutual representations, warranties, terms and conditions herein contained and
the prior satisfaction or waiver of the conditions precedent which are set
forth in Article 4 hereinbelow, the Vendor agrees to assign, sell and
transfer at the closing date more particularly described in Article 5 (the
"CLOSING DATE") 100% of all right, title and interest in and to the Purchased
Shares to the Purchaser and the Purchaser agrees to purchase all of the
Purchased Shares from the Vendor.
Purchase Price
1.2 The total purchase price (the "PURCHASE CONSIDERATION") for all of
the Purchased Shares shall be paid by the Purchaser's allotment and issuance
to the Vendor of 2,750,000 common shares without par value in its capital
stock (the "Shares") having an agreed value of $1.25 each plus the allotment
and issuance of 250,000 one-year share purchase warrants (the "Warrants")
each Warrant exercisable at $2.00 to acquire a further common share ("Warrant
Shares") of the Purchaser with each Warrant having an agreed value of $0.01.
The Purchase Consideration shall be issued at Closing and shall be issued as
fully paid and non-assessable. The Warrants are non-transferable except with
the consent of the Company, in its sole discretion.
CONTRACTUAL RESALE RESTRICTIONS AND CALL RIGHTS
1.3 (a) The Vendor agrees that notwithstanding any statutory or regulatory
provision permitting earlier resale, none of the Shares nor any Warrant
Shares (collectively the "Offered Shares") may be sold, transferred or
otherwise disposed of by the Vendor for 180 calendar days after the
Closing (the "Prohibition Period") without the Purchaser's prior written
consent, such consent to be in the Purchaser's sole discretion. After
the Prohibition Period, the Vendor may not sell, transfer or otherwise
dispose of any of the Offered Shares except as provided in Section
1.3(b), Section 1.3(c) and Section 1.4.
(b) After the expiry of the Prohibition Period, the Vendor may, without
restriction or notice to the Purchaser, sell up to 25,000 of the Offered
Shares in any 30 calendar day period (the "25,000 Share Entitlement"). If
the Vendor has not sold any Offered Shares in any 30 calendar day period
after the Prohibition Period, the 25,000 Share Entitlement applicable to
that period may be carried forward to the next 30 calendar day period and
thereafter, for up to four such periods so that, the Vendor may sell up to
100,000 Offered Shares without restriction or notice to the Purchaser
during the last 30 calendar days of a 120 calendar day period.
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(c) Notwithstanding the provisions of Section 1.3(b), after the
Prohibition Period the Vendor may sell more than 25,000 and up to
100,000 Offered Shares in any 30 calendar day period providing that at
least fifteen days before the commencement of that period, the Vendor
has given notice of such intention to the Purchaser and the Purchaser
has not availed itself of a first right to cause the Offered Shares to
be bought by a designated person (the "Placement Right"). The Placement
Right herein granted requires that upon receipt of a 15 day notice of
proposed sale (the "Offer Notice") the Purchaser may require that the
Offered Shares proposed to be sold by the Vendor be sold to a buyer
designated by the Purchaser with the closing of such purchase and sale
to occur within 15 calendar days of the Purchaser's response to the
Offer Notice. The purchase price for the Offered Shares shall be the
five-day average closing price of the Purchaser's shares on the five
trading days before the date of the Offer Notice less a 10% discount.
If the Purchaser does not exercise the Placement Right by responding to
the Offer Notice by the 15th day after receipt (or responds to the Offer
Notice by declining to purchase thereunder (a "Rejection Notice"), the
Vendor may sell the Offered Shares in the Offer Notice by private sale
or stock market transaction in the Vendor's sole discretion during the
45 days after the earlier of the 15th day after the delivery of the
Offer Notice and the day of delivery of the Rejection Notice.
1.4 The Purchaser is hereby also granted an assignable call right (the
"Call") on all shares in the capital of the Purchaser owned from time to time
by the Vendor (including without limitation any Offered Shares, shares of the
Purchaser acquired pursuant to the provisions of section 1.8 hereof or any
other shares of the Purchaser acquired by the Vendor) in excess of 2,000,000
(calculated for these purposes as fully diluted, i.e. counting any potential
Warrant Shares as if already issued if on the date of the Call Notice the
5-day average closing price of the shares of the Purchaser is greater than
the exercise price of the Warrants). The term of the Call shall commence on
Closing and continue for the earlier of the 36 months thereafter and the date
the Vendor holds fewer than 2,000,000 shares in the capital of the Purchaser,
fully diluted. The Call may be exercised by the Purchaser, or its designee,
in whole or in part and from time to time. In order to exercise the Call,
the Purchaser, or its designee or assignee, shall give notice (the "Call
Notice") to the Vendor confirming the number of Shares to be purchased (the
"Called Shares") and confirming the exercise price which shall be the 5-day
average closing price calculated to the trading day before the notice is
given plus 10% (the "Call Price"). In no event will the Call Price be less
than $1.00 per share. The closing time of the purchase and sale of the
Called Shares shall be specified in the date of notice given for a date which
is within 10 business days of the date of notice and such closing shall occur
at the offices of the Purchaser's solicitors in Vancouver. At closing,
certified funds equal to the Call Price shall be paid to the Vendor and the
Vendor shall deliver against payment therefor, share certificates
representing the Called Shares duly endorsed for transfer to the named buyer
with all necessary signature guarantees, powers of attorney and corporate
resolutions respecting authority to execute documents in relation to the
transfer of the Called Shares. The buyer shall be entitled to have a
confirmation from the registrar and transfer agent of the Purchaser
confirming that the Called Shares so delivered constitute good delivery
(subject always to restrictions on transfer that are imposed by applicable
securities laws on such shares upon issue, the terms hereof and securities
laws of
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general application) and that the Called Shares can be immediately cancelled
and re-registered in the name of the buyer or nominee.
1.5 In the event that within 10 trading days after the completion of
the purchase and sale contemplated by Section 1.4 hereof, the Called Shares
would have had a 5 day average closing price equal to or greater than 115% of
the Call Price ("Trigger Price") then the designated buyer, or failing which
the Purchaser, shall pay an additional cash amount to the Vendor equal to
one-half of the difference between the Trigger Price and the Call Price.
Alternatively in lieu of a cash payment the buyer or Purchaser shall return
to the Vendor in transferable form, free and clear of encumbrances, a number
of the Shares purchased sufficient to raise the average purchase price of the
Called Shares retained to the Trigger Price.
THE JV INTEREST
1.6 The parties acknowledge that the Company has as of the date hereof
agreed that it shall not participate in the first two programs approved by
the Management Committee of the Ivanhoe Joint Venture in particular the
$1,500,000 drill program and the 2/3 of $317,000 (US) reclamation programs
adopted on February 17, 1999. This waiver is made outside of this Agreement
and remains effective whether or not the transactions contemplated hereunder
consummate.
VOTING THE SHARES, VENDOR'S REPRESENTATION ON PURCHASER'S BOARD
1.7 For the first 2 years from Closing, the Vendor agrees to vote the
Shares and any Warrant Shares at any of the Purchaser's shareholders'
meetings in favour of those items and resolutions respecting which the
Purchaser's Board has requested or recommended that shareholders vote in
favour. The Purchaser agrees that upon Closing and for the same two year
period a legally eligible nominee of the Vendor shall be appointed to the
Purchaser's Board and shall be renominated for a Board directorship at each
meeting of the Purchaser's shareholders convened in such two year period.
VENDOR'S PRO RATA RIGHT
1.8 During a period equal to the lesser of the two years of the voting
agreement above, or so long as the Vendor still holds at least 1,500,000 of
the Shares, the Purchaser shall, in the event it proposes to offer common
shares for cash from its treasury ("Treasury Shares"), permit the Vendor to
subscribe for its then pro rata portion of Treasury Shares proposed to be
sold calculated as Vendor's Shares plus all potential Warrant Shares divided
by Purchaser's then fully diluted outstanding common shares. Upon the
Vendor's second election not to take up its pro rata share the right granted
by this Section 1.8 shall cease. The right granted hereby does not apply to
Purchaser's treasury issuances for incentive options, property acquisitions
(except to the extent they include a cash component) and all common shares
issued for dilutive securities outstanding at the date hereof. The Vendor
shall have the obligation to complete any subscription on materially the same
terms as the third party subscribers and the Vendor must elect to participate
in such issuance in writing within 10 days of receipt notice of the offering.
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ARTICLE 2
WARRANTIES, REPRESENTATIONS AND COVENANTS
BY THE COMPANY AND THE VENDOR
WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE COMPANY AND THE VENDOR
2.1 In order to induce the Purchaser to enter into this Agreement and
consummate the purchase and sale of the Purchased Shares each of the Company
and the Vendor hereby warrant to, represent to and covenant with the
Purchaser that now and as at the Closing Date, that:
(a) the Company is duly incorporated under the laws of Nevada, is validly
existing and is in good standing with respect to all statutory filings
required by the applicable corporate laws;
(b) the Company has the requisite power, authority and capacity to own and
use all of its business assets and to carry on the Company's Business as
presently conducted by it;
(c) the Company owns and possesses and has good and marketable title to
its JV Interest and all of its other mineral claims and assets free and
clear of all actual or threatened liens, charges, options, encumbrances,
voting agreements, voting trusts, demands, limitations and restrictions of
any nature whatsoever;
(d) the Company holds all licenses and permits required for the conduct in
the ordinary course of the operations of the Company's Business and for the
uses to which its business assets have been put and neither the execution
and delivery of this Agreement nor the completion of the transactions
contemplated hereby will give any person the right to terminate or cancel
any right or interest held by the Company;
(e) there are at present no other shares in the capital of the Company
issued or allotted or agreed to be issued or allotted to any person and the
authorized and issued share capital of the Company is 1,000 common shares
with a par value of $1.00 per share of which 100 common shares are issued
and outstanding and registered in the name of the Vendor;
(f) the Vendor has good and marketable title to and is the sole legal and
beneficial owner of all of the Purchased Shares free and clear of liens,
bank security interests or other encumbrances of any kind or nature;
(g) the Purchased Shares are validly issued and outstanding and fully paid
and non-assessable in the capital of the Company, and the Purchased Shares
are free and clear of all actual or threatened liens, charges, options,
encumbrances, voting agreements, voting trusts, demands, limitations and
restrictions of any nature whatsoever;
(h) there are no restrictions of any nature whatsoever affecting the right
of the Vendor to transfer the Purchased Shares to the Purchaser;
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<PAGE>
(i) the Vendor has the power and capacity to own and dispose of the
Purchased Shares;
(j) this Agreement constitutes a legal, valid and binding obligation of
each of the Company and the Vendor, enforceable against each of the Company
and the Vendor in accordance with its respective terms, except as
enforcement may be limited by laws of general application affecting the
rights of creditors;
(k) the Company has not and has not committed itself to provide any
person, firm or corporation with any agreement, option or right, consensual
or arising by law, present or future, contingent or absolute, or capable of
becoming an agreement, option or right:
(i) to require it to issue any further or other shares in its
share capital, or any other security convertible or exchangeable
into shares in its share capital, or to convert or exchange any
securities into or for shares in its share capital;
(ii) for the issue and allotment of any of the authorized but
unissued shares in its share capital;
(iii) to require it to purchase, redeem or otherwise acquire
any of the issued and outstanding shares in its share capital; or
(iv) to purchase or otherwise acquire any shares in its share
capital;
(l) no other person, firm or corporation has any agreement, option or
right capable of becoming an agreement for the purchase of any of the
Purchased Shares;
(m) save and except as may be set forth on the Schedules hereto, there
are no material liabilities, contingent or otherwise, existing on the
date hereof in respect of which either of the Company may be liable on
or after the completion of the transactions contemplated by this
Agreement other than:
(i) liabilities disclosed or referred to in this Agreement;
and
(ii) liabilities incurred in the ordinary course of the
Company's Business, none of which are materially adverse to the
business, operations, affairs or financial conditions of the
Company;
(n) no dividend or other distribution by the Company will be declared,
paid or authorized up to and including the Closing Date, and the Company
has not and has not committed itself to confer upon, or pay to or to the
benefit of, any entity, any benefit having monetary value, any bonus or any
salary;
(o) there is no basis for and there are no actions, suits, judgments,
investigations or proceedings outstanding or pending or, to the best of the
knowledge, information and belief of each of the Company and the Vendor,
after making due inquiry, threatened
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<PAGE>
against or affecting the Company at law or in equity or before or by any
federal, state, municipal or other governmental department, commission,
board, bureau or agency;
(p) the Company is not in breach of any laws, ordinances, statutes,
regulations, by-laws, orders or decrees to which it is subject or which
apply to it;
(q) the Company has not experienced, nor are the Company and the Vendor
aware of, any occurrence or event which has had, or might reasonably be
expected to have, a materially adverse affect on the Company's Business;
(r) the Company is not, nor until or at the Closing Date will it be, in
breach of any provision or condition of, nor has it done or omitted
anything that, with or without the giving of notice or lapse or both, would
constitute a breach of any provision or condition of, or give rise to any
right to terminate or cancel or accelerate the maturity of any payment
under, any deed of trust, contract, certificate, consent, permit, license
or other instrument to which it is a party, by which it is bound or from
which it derives benefit, any judgment, decree, order, rule or regulation
of any court or governmental authority to which it is subject, or any
statute or regulation applicable to it, to an extent that, in the
aggregate, has a material adverse affect on it;
(s) the Company has not committed to making and until the Closing Date
will not make or commit itself to:
(i) guarantee, or agree to guarantee, any indebtedness or
other obligation of any person or corporation; or
(ii) waive or surrender any right of material value;
(t) until the Closing Date the Company will:
(i) maintain its assets in a manner consistent with and in
compliance with applicable law; and
(ii) not enter into any material transaction or assume or
incur any material liability outside the normal course of its
business;
(u) the Vendor acknowledges that the Shares will be issued, and reserved
for issuance where applicable, under certain exemptions from the
registration and prospectus filing requirements otherwise applicable under
the Securities Act, and that, as a result, the Vendor may be restricted
from using most of the remedies that would otherwise be available to it and
will not receive information that would otherwise be required to be
provided to it, and the Purchaser is relieved from certain obligations that
would otherwise apply to it, in either case, under applicable securities
legislation;
(v) the Vendor acknowledges and agrees that the Shares have not been and
will not be qualified or registered under the securities laws of the
Province of British Columbia or
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<PAGE>
under any federal or state laws of the United States and, as such, the
Vendor may be restricted from selling or transferring such Shares under
applicable law and by terms of this Agreement; and
(w) the making of this Agreement, the completion of the transactions
contemplated hereby and the performance of and compliance with the terms
hereof does not and will not:
(i) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of the incorporation documents
of the Company or the Vendor;
(ii) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of any law, judgment, order,
injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which either the
Company or the Vendor are subject, or constitute or result in a
default under any agreement, contract or commitment to which either
the Company or the Vendor are a party;
(iii) give to any party the right of termination, cancellation
or acceleration in or with respect to any agreement, contract or
commitment to which the Company is a party;
(iv) give to any government or governmental authority, or any
municipality or any subdivision thereof, including any governmental
department, commission, bureau, board or administration agency, any
right of termination, cancellation or suspension of, or constitute
a breach of or result in a default under, any permit, license,
control or authority issued to the Company which is necessary or
desirable in connection with the conduct and operations of the
Company's Business and the ownership or leasing of its business
assets; or
(v) constitute a default by the Company, or any event which,
with the giving of notice or lapse of time or both, might
constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness of the
Company which would give any party to that agreement, contract,
indenture or other instrument the right to accelerate the maturity
for the payment of any amount payable under that agreement,
contract, indenture or other instrument;
(x) the financial statements attached as Schedule "A" hereto are true and
complete and consistent with generally accepted accounting principles
consistently applied;
(y) the Company has filed all U.S. tax returns for previous years and has
not received any notice of objection or reassessment;
(z) the Vendor covenants to promptly seek the approval of its shareholders
for the consummation of the transactions herein and shall recommend to its
shareholders that they vote in favour of these transactions. The Vendor
also covenants to promptly seek
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<PAGE>
the approval of any regulatory authority where such approval can be
reasonably seen to be necessary or desirable to consummate the
transaction herein;
(aa) the Company is not indebted to the Vendor for any amount
whatsoever; and
(bb) on or before the Closing, the Company shall complete the
transactions set out in the footnote to Schedule B in a manner that
is satisfactory to the Purchaser so that the Company's only asset
will be the 25% working interest in the Ivanhoe Project and its tax
pools and the Company will have no liabilities whatsoever;
ARTICLE 3
WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE PURCHASER
WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE PURCHASER
3.1 In order to induce each of the Company and the Vendor to enter into
this Agreement, the Purchaser hereby represents to and covenants with each of
the Company and the Vendor that:
(a) the Purchaser is a corporation duly incorporated under the laws of the
Province of British Columbia, is validly existing and is in good standing
with respect to all statutory filings required by the COMPANY ACT (British
Columbia);
(b) the Purchaser has the requisite power, authority and capacity to own
and use all of its business assets and to carry on its business as
presently conducted by it;
(c) the Purchaser owns and possesses and has good and marketable title to
and possession of all of its business assets free and clear of all actual
or threatened liens, charges, options, encumbrances, voting agreements,
voting trusts, demands, limitations and restrictions of any nature
whatsoever;
(d) the Purchaser holds all licenses and permits required for the conduct
in the ordinary course of the operations of its business and for the uses
to which its business assets have been put and are in good standing, and
such conduct and uses are in compliance with all laws, zoning and other
by-laws, building and other restrictions, rules, regulations and ordinances
applicable to the Purchaser, and neither the execution and delivery of this
Agreement nor the completion of the transactions contemplated hereby will
give any person the right to terminate or cancel any said license or permit
or affect such compliance;
(e) the authorized capital of the Purchaser consists of 100,000,000 common
shares without par value of which, according to the records of the
Purchaser, 16,918,271 common shares are issued and outstanding as fully
paid and non-assessable (21,764,671 fully diluted);
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<PAGE>
(f) all of the issued and outstanding shares of the Purchaser are listed
and posted for trading on the Vancouver Stock Exchange ("VSE"), and the
Purchaser is not in material default of any of the terms and conditions of
its listing agreement with the VSE or of any of the rules and policies of
the VSE;
(g) the Purchaser will allot and issue the Shares and Warrants to the
Vendor on the Closing Date as fully paid and non-assessable in the capital
of the Purchaser free and clear of all actual or threatened liens, charges,
options, encumbrances, voting agreements, voting trusts, demands,
limitations and restrictions of any nature whatsoever, other than hold
periods or other restrictions imposed under applicable securities
legislation or by securities regulatory authorities, including the VSE or
this Agreement;
(h) up to and including the Closing Date the Purchaser will not commit
itself to:
(i) redeem or acquire any shares in its share capital;
(ii) declare or pay any dividend;
(iii) make any reduction in or otherwise make any payment on
account of its paid-up capital; or
(iv) effect any subdivision, consolidation or reclassification
of any of its share capital;
(i) up to and including the Closing Date the Purchaser will not commit
itself to:
(i) acquire or have the use of any property from a person,
corporation or entity with whom it was not dealing with at arm's
length; or
(ii) dispose of anything to a person, corporation or entity
with whom it was not dealing with at arm's length for proceeds less
than the fair market value thereof;
(j) there are no material liabilities, contingent or otherwise, existing
on the date hereof in respect of which the Purchaser may be liable on or
after the completion of the transactions contemplated by this Agreement
other than:
(i) liabilities disclosed or referred to in this Agreement or
in the public record; and
(ii) liabilities incurred in the ordinary course of business,
none of which are materially adverse to the business, operations,
affairs or financial conditions of the Purchaser;
(k) no dividend or other distribution by the Purchaser has been made,
declared or authorized since its incorporation, nor will any be declared,
paid or authorized up to and including the Closing Date, and the Purchaser
will not commit itself to confer upon, or
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<PAGE>
pay to or to the benefit of, any entity, any benefit having monetary
value, any bonus or any salary increases except in the normal course of
its business;
(l) there is no basis for and there are no actions, suits, judgments,
investigations or proceedings outstanding or pending or, to the best of the
knowledge, information and belief of the Purchaser, after making due
inquiry, threatened against or affecting the Purchaser at law or in equity
or before or by any federal, state, municipal or other governmental
department, commission, board, bureau or agency;
(m) the Purchaser is not in material breach of any laws, ordinances,
statutes, regulations, by-laws, orders or decrees to which it is subject or
which apply to it;
(n) the Purchaser has not experienced, nor is the Purchaser aware of,
any occurrence or event which has had, or might reasonably be expected to
have, a materially adverse affect on the Purchaser's business or on the
results of its operations;
(o) up to and including the Closing Date there has been and will be
prepared and filed on a timely basis all Canadian Federal and Provincial
income tax returns, elections and designations, and all other governmental
returns, notices and reports of which the Purchaser had or ought reasonably
to have had knowledge, required to be or reasonably capable of being filed
up to the Closing Date, with respect to the operations of the Purchaser,
and no such returns, elections, designations, notices or reports contain
any material misstatement or omit any material statement that should have
been included, and each such return, election, designation, notice or
report, including accompanying schedules and statements, is true, correct
and complete in all material respects;
(p) the Purchaser is not, nor until or at the Closing Date will it be,
in breach of any provision or condition of, nor has it done or omitted
anything that, with or without the giving of notice or lapse or both, would
constitute a breach of any provision or condition of, or give rise to any
right to terminate or cancel or accelerate the maturity of any payment
under, any deed of trust, contract, certificate, consent, permit, license
or other instrument to which it is a party, by which it is bound or from
which it derives benefit, any judgment, decree, order, rule or regulation
of any court or governmental authority to which it is subject, or any
statute or regulation applicable to it, to an extent that, in the
aggregate, has a material adverse affect on it;
(q) no payments of any kind have been made or authorized by or on behalf
of the Purchaser to or on behalf of directors, officers, shareholders or
employees of the Purchaser or under any management agreements with the
Purchaser other than in the ordinary course of business;
(r) none of directors, officers or employees of the Purchaser are now
indebted or under obligation to the Purchaser on any account whatsoever,
other than in the ordinary course of business;
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<PAGE>
(s) the Purchaser has not committed to making and until the Closing Date
will not make or commit itself to:
(i) guarantee, or agree to guarantee, any indebtedness or
other obligation of any person or corporation; or
(ii) waive or surrender any right of material value;
(t) the shares in the capital of the Purchaser are not subject to or
affected by any actual or, to the best of the knowledge, information and
belief of the Purchaser, after making due inquiry, pending or threatened
cease trading, compliance or denial of use of exemptions orders of, or
action, investigation or proceeding by or before, any securities regulatory
authority, court, administrative agency or other tribunal; and
(u) the making of this Agreement, the completion of the transactions
contemplated hereby and the performance of and compliance with the terms
hereof does not and will not:
(i) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of the incorporation documents
of the Purchaser;
(ii) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of any law, judgment, order,
injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which the Purchaser
is subject, or constitute or result in a default under any
agreement, contract or commitment to which the Purchaser is a party;
(iii) give to any party the right of termination, cancellation
or acceleration in or with respect to any agreement, contract or
commitment to which the Purchaser is a party;
(iv) give to any government or governmental authority, or any
municipality or any subdivision thereof, including any governmental
department, commission, bureau, board or administration agency, any
right of termination, cancellation or suspension of, or constitute
a breach of or result in a default under, any permit, license,
control or authority issued to the Purchaser which is necessary or
desirable in connection with the conduct and operations of its
business and the ownership or leasing of its business assets; or
(v) constitute a default by the Purchaser or any event which,
with the giving of notice or lapse of time or both, might
constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness of the
Purchaser which would give any party to that agreement, contract,
indenture or other instrument the right to accelerate the maturity
for the payment of any amount payable under that agreement,
contract, indenture or other instrument; and
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<PAGE>
(v) all the Purchaser's publicly filed disclosure is materially accurate
and complete and may be relied upon by the Vendor in consummating the
transactions contemplated hereby.
ARTICLE 4
CONDITIONS PRECEDENT TO CLOSING
PURCHASER'S CONDITIONS PRECEDENT PRIOR TO THE CLOSING DATE
4.1 The obligations of the Purchaser under this Agreement to Close are
further subject to the following conditions for the exclusive benefit of the
Purchaser to be fulfilled in all material aspects in the reasonable opinion
of the Purchaser or in the Purchaser's discretion to be waived by the
Purchaser prior to or at the Closing:
(a) the Company and the Vendor shall have complied with all warranties,
representations, covenants and agreements herein agreed to be performed or
caused to be performed by the Company and the Vendor on or before the
Closing Date;
(b) the Purchaser shall have obtained all authorizations, approvals and
other actions by, and have made all filings with, any securities regulatory
authority from whom any such authorization, approval or other action is
required to be obtained or to be made in connection with the transactions
contemplated herein, and all such authorizations, approvals and other
actions are in full force and effect and all such filings have been
accepted;
(c) there shall have occurred no material loss or destruction of or
damage to the Company, any of its assets, any of the Company's Business or
the Purchased Shares in the reasonable opinion of the Purchaser, based upon
an updated Schedule "B";
(d) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority, regulatory
body or agency to enjoin or prohibit:
(i) the purchase or transfer of any of the Purchased Shares
contemplated by this Agreement or the right of the Vendor to
dispose of any of the Purchased Shares; or
(ii) the right of the Company to conduct its operations and
carry on, in the normal course, its business and operations as it
has carried on in the past;
(e) the Company and the Vendor will cause the Company until Closing,
during normal business hours, and limited to the verification only of the
Vendor's and the Company's representations herein:
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(i) make available for inspection by the solicitors, auditors
and representatives of the Purchaser, at such location as is
appropriate, the Company's books, records, contracts, documents,
correspondence and other written materials, and afford such persons
every reasonable opportunity to make copies thereof and take
extracts therefrom at the sole cost of the Purchaser, provided such
persons do not unduly interfere in the operations of the Company;
(ii) authorize and permit such persons at the risk and the
sole cost of the Purchaser, and only if such persons do not unduly
interfere in the operations of the Company, to attend at all of its
places of business, inspect its assets and financial records; and
(iii) require the Company's management personnel to respond to
all reasonable inquiries concerning the Company's Business, its
assets or the conduct of its business relating to its liabilities
and obligations;
(f) the delivery by the Company and Vendor to the Purchaser of an
opinion of the solicitors for the Company and the Vendor, in a form
satisfactory to the Purchaser's solicitors, dated as at the date of Closing
together with certificates of an officer of the Vendor and an officer of
the Company, to the effect that:
(i) the Company is a corporation duly incorporated under the
laws of its jurisdiction of incorporation, is validly existing and
is in good standing with respect to all statutory filings required
by the applicable corporate laws;
(ii) the Company has the requisite power, authority and
capacity to own and use all of its assets and to carry on its
business as presently conducted by it;
(iii) the Vendor has taken all necessary corporate proceedings
and has all necessary regulatory approvals to sell and transfer all
the Purchased Shares under this Agreement;
(iv) the number of authorized and issued shares in the share
capital of the Company are as warranted by the Company and the
Vendor, and all of such issued shares are duly authorized, validly
issued and outstanding as fully paid and non-assessable;
(v) all necessary steps and corporate proceedings have been
taken by the Company and the Vendor to permit the Purchased Shares
to be duly and validly transferred to and registered in the name of
the Purchaser as at the Closing Date;
(vi) based on actual knowledge and belief, such solicitors and
officers know of no claims, judgments, actions, suits, litigation,
proceedings or investigations, actual, pending or threatened,
against either the Company or the Vendor which might materially
affect either the Company, its assets or the Company's Business or
which could result in any material liability to either of the
Company, its assets
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or the Company's Business and the officers shall confirm the
accuracy of the updated Schedule "B"; and
(vii) as to all other legal matters of a like nature pertaining
to the Vendor, the Company, its assets, the Company's Business and
to the transactions contemplated hereby as the Purchaser or the
Purchaser's solicitors may require on reasonable notice.
COMPANY'S AND VENDOR'S CONDITIONS PRECEDENT
4.2 The obligations of the Vendor under this Agreement to Close are
further subject to the following conditions for the exclusive benefit of the
Vendor to be fulfilled in all material aspects in the reasonable opinion of
the Vendor or in the Vendor's discretion, to be waived by the Vendor prior to
or at the Closing:
(a) the Purchaser shall have complied with all warranties,
representations, covenants and agreements herein agreed to be performed or
caused to be performed by the Purchaser on or before the Closing Date;
(b) the Vendor shall have received the approval of its shareholders for
the consummation of the purchase and sale contemplated hereby;
(c) there should have occurred no material loss or destruction of or
damage to the Purchaser's business or material assets;
(d) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority, regulatory
body or agency to enjoin or prohibit:
(i) the purchase or transfer of any of the Purchased Shares
contemplated by this Agreement or the right of the Vendor to sell
the Purchased Shares; or
(ii) the right of the Company to conduct its operations and
carry on, in the normal course, its business and operations as it
has carried on in the past;
(e) the Purchaser will, until Closing, during normal business hours and
limited to the verification only of the Purchaser's representations herein:
(i) make available for inspection by the solicitors, auditors
and representatives of the Company and the Vendor, at such location
as is appropriate, all of the Purchaser's books, records,
contracts, documents, correspondence and other written materials,
and afford such persons every reasonable opportunity to make copies
thereof and take extracts therefrom at the sole cost of the Company
and the Vendor, provided such persons do not unduly interfere in
the operations of the Purchaser;
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(ii) authorize and permit such persons at the risk and the
sole cost of the Company and the Vendor, and only if such persons
do not unduly interfere in the operations of the Purchaser, to
attend at all of its places of business and operations to inspect
its properties and assets;
(iii) require the Purchaser's management personnel to respond
to all reasonable inquiries concerning the Purchaser's business
assets or the conduct of its business relating to its liabilities
and obligations; and
(f) the Purchaser shall have provided to Vendor a favourable opinion of
its solicitors respecting, as pertains the Purchaser, materially the same
legal matters as are referred to in Section 4.1(g) regarding the
solicitor's opinion pertaining to the Company and the Vendor.
PARTIES' MUTUAL CONDITIONS PRECEDENT
4.3 The closing shall also be conditional upon and subject to the
following conditions which may not be waived by the parties:
(a) the receipt of all necessary regulatory approvals by the Vendor on
or before May 31, 1999; and
(b) the Vancouver Stock Exchange having approved in principle of the
issuance by the Purchaser to the Vendor of the Purchase Consideration by
the Closing Date which acceptance or approval the Purchaser hereby agrees
to diligently seek after execution hereof.
FAIRNESS OPINION
4.4 The Vendor and the Purchaser acknowledge that the negotiations
resulting in the entering into of this Agreement were done with reference to
a fairness opinion prepared with respect to this acquisition by Ross
Glanville of Ross Glanville & Associates Ltd. Each of the parties has
enjoyed all necessary opportunity to review, make inquiries of and provide
input to Mr. Glanville with respect to the contents of his fairness opinion.
4.5 Each of the Vendor, Purchaser and the Company shall be responsible
to bear their own costs related to the transactions contemplated hereby
whether or not the transactions consummate. The cost of the fairness opinion
referred to in Section 4.4 shall be borne by the Purchaser.
ARTICLE 5
CLOSING AND EVENTS OF CLOSING
CLOSING AND CLOSING DATE
5.1 The closing (the "Closing") of the within purchase and delivery of
the Purchased Shares, together with all of the transactions contemplated by
this Agreement shall occur on the
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earlier of May 31, 1999 and the day which is 3 calendar days following the
satisfaction of all of the conditions precedent which are set out in Article
"4" hereinabove (the "Closing Date"), or on such earlier or later Closing
Date as may be agreed to in advance and in writing by each of the Parties
hereto. The Closing will occur at the offices of solicitors for the
Purchaser, Lang Michener Lawrence & Shaw, at 2:00 p.m. (Vancouver time) on
the Closing Date.
LATEST CLOSING DATE
5.2 If the Closing Date has not occurred by May 31, 1999 the obligation
to close will be terminated unless the Parties hereto agree in writing to
grant an extension of the Closing Date.
DOCUMENTS TO BE DELIVERED BY THE COMPANY AND THE VENDOR PRIOR TO THE CLOSING
DATE
5.3 Not less than one business day prior to the Closing Date, and in
addition to the documentation which is required by the agreements and
conditions precedent which are set forth hereinabove, the Company and the
Vendor shall also execute and deliver or cause to be delivered all such other
documents, resolutions and instruments as may be necessary, in the opinion of
counsel for the Purchaser, acting reasonably, to transfer all of the
Purchased Shares to the Purchaser free and clear of all liens, charges and
encumbrances, and in particular including, but not being limited to:
(a) all documentation as may be necessary to ensure that all of the
Purchased Shares have been transferred, assigned and are registrable in the
name of and for the benefit of the Purchaser under the laws of the
Company's jurisdiction of incorporation;
(b) certificates representing the Purchased Shares registered in the
name of the Vendor, duly endorsed for transfer to the Purchaser with
irrevocable stock powers instructing and authorizing the Purchaser's
solicitors or its assigns to transfer the Purchased Shares to the
Purchaser;
(c) subject to cancellation of the certificate in Section 5.3(b), a
certificate representing the Purchased Shares registered in the name of the
Purchaser;
(d) a certified copy of the resolutions of the directors of the Company
authorizing the transfer by the Vendor to the Purchaser of the Purchased
Shares;
(e) a copy of all corporate records, material agreements, geology
reports and books of account of the Company and including, without limiting
the generality of the foregoing, a copy of all minute books, share register
books, share certificate books and annual reports and business records of
the Company;
(f) evidence of any necessary approval in writing of any regulatory
authority to the completion of the transactions contemplated herein;
(g) a certificate of an officer of the Vendor and the Company, dated as
of the Closing Date, acceptable in form to the solicitors for the
Purchaser, acting reasonably, certifying
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that the warranties, representations, covenants and agreements of the
Company and the Vendor contained in this Agreement are true and correct
in all respects and will be true and correct as of the Closing Date as
if made by the Company and the Vendor on the Closing Date and confirming
the accuracy of the updated Schedule "B";
(h) an opinion of counsel to the Company and the Vendor, dated as at the
Closing Date, and addressed to the Purchaser and its counsel, in form
referred to in Section 4.1(f).
(i) consents to act or other documents as may be required in connection
with the appointment of the nominee of the Vendor to the Board of Directors
of the Purchaser;
(j) resignations of all directors and officers of the Company and a
resolution appointing the Purchaser's nominee as director of the Company;
and
(k) all such other documents and instruments as the Purchaser's
solicitors may reasonably require.
DOCUMENTS TO BE DELIVERED BY THE PURCHASER PRIOR TO THE CLOSING DATE
5.4 Not less than one business day prior to the Closing Date, and in
addition to the documentation which is required by the agreements and
conditions precedent which are set forth hereinabove, the Purchaser shall
also execute and deliver or cause to be delivered all such documents,
resolutions and instruments as are necessary, in the opinion of counsel for
the Company and the Vendor, acting reasonably, to effectively issue to the
Vendor the Purchased Consideration free and clear of all liens, charges and
encumbrances, and in particular including, but not being limited to:
(a) a certified copy of the resolutions of the directors of the
Purchaser providing for:
(i) the allotment and issuance by the Purchaser to the Vendor
the Shares and Warrants comprised in the Purchase Consideration; and
(ii) the approval of all of the transaction contemplated
hereby and the appointment of a nominee of the Vendor to the
Purchaser's board of directors;
(b) the consents in writing of the Vancouver Stock Exchange to the
completion of the transactions contemplated herein;
(c) a certificate of an officer of the Purchaser, dated as of the
Closing Date, acceptable in form to the solicitors for the Company and the
Vendor, acting reasonably, certifying that the warranties, representations,
covenants and agreements of the Purchaser contained in the Agreement are
true and correct and will be true and correct as of the Closing Date as if
made by the Purchaser on the Closing Date and confirming the accuracy and
currency of the Purchaser's publicly filed information;
(d) an opinion of counsel to the Purchaser, dated as at the Closing
Date, and addressed to the Company, the Vendor and their respective
counsel, in form and
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substance satisfactory to the Company's and the Vendor' respective
counsel, corresponding generally to the matters requested of Vendor's
counsel set forth in Section 4.1(f);
(e) all such other documents and instruments as the Company's and the
Vendor' respective solicitors may reasonably require.
ARTICLE 6
DUE DILIGENCE AND NON-DISCLOSURE
DUE DILIGENCE
6.1 Each of the Parties shall have the right until Closing to conduct
any further compliance due diligence examination of the other Party as it
deems appropriate. Such due diligence shall be completed prior to Closing
and shall be conducted only with a view to confirming the accuracy of the
representations made by a party hereunder (except as provided in Section
4.1(e) and Section 4.2(d).
CONFIDENTIALITY
6.2 Each Party may in a reasonable manner carry out such investigations
and due diligence as to the other Party, at all times subject to the
confidentiality provisions hereinbelow, as each Party deems necessary. In
that regard the Parties agree that each shall have full and complete access
to the other Party's books, records, financial statements and other
documents, articles of incorporation, by-laws, minutes of Board of Directors'
meetings and its committees, investment agreements, material contracts and as
well such other documents and materials as the Vendor, the Company or the
Purchaser, or their respective solicitors, may deem reasonable and necessary
to conduct an adequate due diligence investigation of each Party, its
respective operations and financial condition prior to the Closing Date with
a view to verifying the accuracy of representations made hereunder.
NON-DISCLOSURE
6.3 Subject to the provisions hereinbelow, the Parties, for themselves,
their officers, directors, shareholders, consultants, employees and agents
agree that they each will not disseminate or disclose, or knowingly allow,
permit or cause others to disseminate or disclose to third parties who are
not subject to express or implied covenants of confidentiality, without the
other Party's express written consent, either: (i) the fact or existence of
this Agreement or discussions and/or negotiations between them involving,
INTER ALIA, possible business transactions; (ii) the possible substance or
content of those discussions; (iii) the possible terms and conditions of any
proposed transaction; (iv) any statements or representations (whether verbal
or written) made by either Party in the course of or in connection with those
discussions; or (v) any written material generated by or on behalf of any
Party and such contacts, other than such disclosure as may be required under
applicable securities legislation or regulations, pursuant
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to any order of a court or on a "need to know" basis to each of the Parties
respective professional advisors.
PUBLIC ANNOUNCEMENTS
6.4 Notwithstanding the provisions of this Article, the Parties agree
to make such public announcements of this Agreement promptly after its
execution in accordance with the requirements of applicable securities
legislation and regulations.
ARTICLE 7
ASSIGNMENT
ASSIGNMENT
7.1 Save and except as provided herein, no Party may sell, assign,
pledge or mortgage or otherwise encumber all or any part of its interest
herein without the prior written consent of the other Party; provided that
any Party may at anytime at its sole discretion and without the prior
approval of the other Party assign and transfer any benefit or right herein
to any wholly owned subsidiary, subject at all times to the requirement that
any such subsidiary remain wholly owned by the Party hereto failing which any
such interest must be immediately transferred back to such Party hereto; and
provided further that any transfer of all or any part of a Party's interest
herein to its wholly owned subsidiary shall be accompanied by the written
agreement of any such subsidiary to assume the obligations of such Party
hereunder and to be bound by the express terms and conditions hereof.
ARTICLE 8
FORCE MAJEURE
EVENTS
8.1 If any Party hereto is at any time prevented or delayed in
complying with any provisions of this Agreement by reason of acts of God, or
any other reason or reasons beyond the control of that Party (causes due to
insufficient finances excluded), then the time limited for the performance by
that Party of its respective obligations hereunder shall be extended by a
period of time equal in length to the period of each such prevention or delay.
NOTICE
8.2 A Party shall, within seven calendar days, give notice to the other
Party of each event of FORCE MAJEURE under section "8.1" hereinabove, and
upon cessation of such event shall furnish the other Party with notice of
that event together with particulars of the number of days by which the
obligations of that Party hereunder have been extended by virtue of such
event of FORCE MAJEURE and all preceding events of FORCE MAJEURE.
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ARTICLE 9
ARBITRATION
MATTERS FOR ARBITRATION
9.1 The Parties agree that all questions or matters in dispute with
respect to this Agreement shall, in so far as lawfully possible, be submitted
to arbitration pursuant to the terms hereof.
NOTICE
9.2 It shall be a condition precedent to the right of any Party to
submit any matter to arbitration pursuant to the provisions hereof that any
Party intending to refer any matter to arbitration shall have given not less
than two calendar days' prior written notice of its intention to do so to the
other Party together with particulars of the matter in dispute. On the
expiration of such two calendar days the Party who gave such notice may
proceed to refer the dispute to arbitration as provided in section "9.3"
hereinbelow.
APPOINTMENTS
9.3 The Party desiring arbitration shall appoint one arbitrator, and
shall notify the other Party of such appointment, and the other Party shall,
within two calendar days after receiving such notice, appoint an arbitrator,
and the two arbitrators so named, before proceeding to act, shall, within
five calendar days of the appointment of the last appointed arbitrator,
unanimously agree on the appointment of a third arbitrator, to act with them
and be chairman of the arbitration herein provided for. If the other Party
shall fail to appoint an arbitrator within two calendar days after receiving
notice of the appointment of the first arbitrator, and if the two arbitrators
appointed by the Parties shall be unable to agree on the appointment of the
chairman, the chairman shall be appointed under the provisions of the
COMMERCIAL ARBITRATION ACT (British Columbia) (the "ARBITRATION ACT").
Except as specifically otherwise provided in this section, the arbitration
herein provided for shall be conducted in accordance with the Arbitration
Act. The chairman, or in the case where only one arbitrator is appointed,
the single arbitrator, shall fix a time and place in Vancouver, British
Columbia, for the purpose of hearing the evidence and representations of the
Parties, and he shall preside over the arbitration and determine all
questions of procedure not provided for under such Arbitration Act or this
section. After hearing any evidence and representations that the Parties may
submit, the single arbitrator, or the arbitrators, as the case may be, shall
make an award and reduce the same to writing, and deliver one copy thereof to
each of the Parties. The expense of the arbitration shall be paid as
specified in the award.
AWARD
9.4 The Parties agree that the award of a majority of the arbitrators,
or in the case of a single arbitrator, of such arbitrator, shall be final and
binding upon each of them and such award may include the costs of the
arbitrator and of the parties in respect of the Arbitration.
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ARTICLE 10
TERMINATION
DEFAULT
10.1 The Parties hereto agree that if any Party hereto is in material
default with respect to any of its representations or covenants in this
Agreement (herein called the "DEFAULTING PARTY"), the non-defaulting Party
(herein called the "NON-DEFAULTING PARTY") shall give notice to the
Defaulting Party designating such default, and within 14 calendar days after
its receipt of such notice, the Defaulting Party shall either:
(a) cure such default, if reasonably possible, or commence proceedings
to cure such default and prosecute the same to completion without undue
delay; or
(b) give the Non-Defaulting Party notice that it denies that such
default has occurred and that it is submitting the question to arbitration
as herein provided.
ARBITRATION
10.2 If arbitration is sought, a Party shall not be deemed in default
until the matter shall have been determined finally by appropriate
arbitration under the provisions of Article "9" hereinabove.
CURING THE DEFAULT
10.3 If:
(a) the default is not so cured or the Defaulting Party does not
commence or diligently proceed to cure the default; or
(b) arbitration is not so sought; or
(c) the Defaulting Party is found in arbitration proceedings to be in
default, and fails to cure it within five calendar days after the rendering
of the arbitration award,
the Non-Defaulting Party may, by written notice given to the Defaulting Party
at any time while the default continues, terminate the interest of the
Defaulting Party in and to this Agreement.
TERMINATION
10.4 In addition to the foregoing it is hereby acknowledged and agreed
by the Parties hereto that the obligation to close under this Agreement will
be terminated without liability to the terminating party in the event that:
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(a) either the Company and the Vendor or alternatively the Purchaser,
has not either satisfied or waived each of their respective conditions
precedent prior to Closing in accordance with the provisions of Article "4"
hereinabove;
(b) either the Company, the Vendor or the Purchaser has failed to
deliver or caused to be delivered any of their respective documents
required to be delivered by Articles "4" and "5" hereinabove prior to
Closing in accordance with the provisions of Articles "4" and "5"
hereinabove and the other party does not waive receipt of such document;
(c) the conditions specified in section "4.3" hereinabove have not been
satisfied by the dates indicated;
(d) the Closing has not occurred on or before May 31, 1999 unless it is
due to a default of a party or a breach of a party's representation or
covenant hereunder; or
(e) by agreement, in writing, of each of the Company, the Vendor and the
Purchaser;
and in such event this Agreement will be terminated and be of no further
force and effect other than the obligations under Article "6" and Section 4.5
hereinabove.
ARTICLE 11
NOTICE
NOTICE
11.1 Each notice, demand or other communication required or permitted to
be given under this Agreement shall be in writing and shall be sent by
courier to the Party entitled to receive the same, or delivered to such
Party, at the address for such Party specified above. The date of receipt of
such notice, demand or other communication shall be the date of delivery
thereof if delivered, or, if given by facsimile transmission after 4:00 p.m.
in the place of receipt, the next day.
CHANGE OF ADDRESS
11.2 Either Party may at any time and from time to time notify the other
Party in writing of a change of address and the new address to which notice
shall be given to it thereafter until further change.
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ARTICLE 12
GENERAL PROVISIONS
ENTIRE AGREEMENT
12.1 This Agreement constitutes the entire agreement to date between the
Parties hereto and supersedes every previous agreement, communication,
expectation, negotiation, representation or understanding, whether oral or
written, express or implied, statutory or otherwise, between the Parties with
respect to the subject matter of this Agreement.
ENUREMENT
12.2 This Agreement will enure to the benefit of and will be binding
upon the Parties, their respective heirs, executors, administrators and
assigns.
APPLICABLE LAW
12.3 The situs of this Agreement is Vancouver, British Columbia, and for
all purposes this Agreement will be governed exclusively by and construed and
enforced in accordance with the laws prevailing in the Province of British
Columbia.
FURTHER ASSURANCES
12.4 The Parties hereto hereby covenant and agree to forthwith, upon
request and without payment of further consideration, execute and deliver, or
cause to be executed and delivered, such further and other deeds, documents,
assurances and instructions as may be reasonably required by another Party
hereto or its counsel in order to carry out the terms of this Agreement taken
as a whole.
SEVERABILITY AND CONSTRUCTION
12.5 Each Article, section, paragraph, term and provision of this
Agreement, and any portion thereof, shall be considered severable, and if,
for any reason, any portion of this Agreement is determined to be invalid,
contrary to or in conflict with any applicable present or future law, rule or
regulation in a final unappealable ruling issued by any court, agency or
tribunal with valid jurisdiction in a proceeding to any of the Parties hereto
is a party, that ruling shall not impair the operation of, or have any other
effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which other terms shall remain binding on the Parties
and continue to be given full force and agreement as of the date upon which
the ruling becomes final).
CAPTIONS
12.6 The captions, section numbers and Article numbers appearing in this
Agreement are inserted for convenience of reference only and shall in no way
define, limit, construe or describe the scope or intent of this Agreement nor
in any way affect this Agreement.
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CURRENCY
12.7 Unless otherwise stipulated, all references to money amounts
hereunder shall be in lawful money of Canada.
COUNTERPARTS
12.8 This Agreement may be signed by the Parties hereto in as many
counterparts as may be necessary, and via facsimile if necessary, each of
which so signed being deemed to be an original and such counterparts together
constituting one and the same instrument and, notwithstanding the date of
execution, being deemed to bear the effective execution date as set forth on
the front page of this Agreement.
NO PARTNERSHIP OR AGENCY
12.9 The Parties have not created a partnership and nothing contained in
this Agreement shall in any manner whatsoever constitute any Party the
partner, agent or legal representative of any other Party, nor create any
fiduciary relationship between them for any purpose whatsoever. No Party
shall have any authority to act for, or to assume any obligations or
responsibility on behalf of, any other party except as may be, from time to
time, agreed upon in writing between the Parties or as otherwise expressly
provided.
CONSENTS AND WAIVERS
12.10 No consent or waiver expressed or implied by either Party in
respect of any breach or default by the other in the performance by such
other of its obligations hereunder shall:
(a) be valid unless it is in writing and stated to be a consent or
waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other breach or
default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or waiver
pursuant to this section in any other or subsequent instance.
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Please acknowledge your acceptance of the general terms of this Agreement by
kindly executing the same in the space provided hereinbelow. This offer is
only open for acceptance until 5:00 p.m. (Vancouver time) on March 2, 1999.
Yours very truly,
GREAT BASIN GOLD LTD.
Per: (SIGNED)
Authorized Signatory
The within offer and terms of Agreement are hereby accepted by the following
authorized representatives of the Company and the Vendor effective on this 2nd
day of March, 1999:
CORNUCOPIA RESOURCES LTD.
Per: (SIGNED)
Authorized Signatory
TOUCHSTONE RESOURCES COMPANY
Per: (SIGNED)
Authorized Signatory
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EXHIBIT 10.9
SHARE PURCHASE AND SALE AGREEMENT
MADE
OCTOBER 21, 1998
AMONG
CORNUCOPIA RESOURCES INC.
AND
CORNUCOPIA RESOURCES LTD.
AND
VISTA GOLD HOLDINGS INC.
AND
VISTA GOLD CORP.
IN RESPECT OF THE SHARES OF
MINERAL RIDGE RESOURCES INC.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART 1 - DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . 28
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . 32
PART 2 - PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . 33
2.1 Purchase and Sale of Purchased Shares . . . . . . . . . . . . . . 33
PART 3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 33
3.1 Representations and Warranties of the Vendor and CRL. . . . . . . 33
(1) Corporate Status and Authority . . . . . . . . . . . . . . . 34
(2) No Default . . . . . . . . . . . . . . . . . . . . . . . . . 35
(3) Share Capital. . . . . . . . . . . . . . . . . . . . . . . . 35
(4) Financial Matters. . . . . . . . . . . . . . . . . . . . . . 36
(5) Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 36
(6) Material Changes . . . . . . . . . . . . . . . . . . . . . . 37
(7) Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(8) Material Contracts . . . . . . . . . . . . . . . . . . . . . 38
(9) Assets and Property. . . . . . . . . . . . . . . . . . . . . 38
(10) Hazardous Materials and Environmental Laws . . . . . . . . . 39
(11) Legal and Regulatory Matters . . . . . . . . . . . . . . . . 40
(12) Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(13) Employment Matters . . . . . . . . . . . . . . . . . . . . . 41
(14) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 43
(15) Binding Agreement. . . . . . . . . . . . . . . . . . . . . . 43
(16) Ownership of Purchased Shares. . . . . . . . . . . . . . . . 43
(17) Residency. . . . . . . . . . . . . . . . . . . . . . . . . . 43
(18) No Commission. . . . . . . . . . . . . . . . . . . . . . . . 43
(19) Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . 43
(20) Representations and Warranties of Mineral Ridge in
Restated and Amended Loan Agreement. . . . . . . . . . . . . 44
(21) Securities Laws. . . . . . . . . . . . . . . . . . . . . . . 44
3.2 Representations and Warranties of the Purchaser and VGC . . . . . 47
(1) Corporate Status and Authority . . . . . . . . . . . . . . . 48
(2) No Default . . . . . . . . . . . . . . . . . . . . . . . . . 48
(3) Binding Agreement. . . . . . . . . . . . . . . . . . . . . . 48
(4) Share Capital. . . . . . . . . . . . . . . . . . . . . . . . 48
(5) Disclosure Documents . . . . . . . . . . . . . . . . . . . . 49
(6) No Encumbrances on VGC Shares. . . . . . . . . . . . . . . . 49
(7) Listing of VGC Shares. . . . . . . . . . . . . . . . . . . . 49
(8) Reporting Issuer Status. . . . . . . . . . . . . . . . . . . 49
(9) No Commission. . . . . . . . . . . . . . . . . . . . . . . . 49
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PART 4 - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.1 Covenants of the Vendor and CRL . . . . . . . . . . . . . . . . . 50
(1) Agreement Date to Closing. . . . . . . . . . . . . . . . . . 50
(2) At Closing . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.2 Covenants of the Purchaser and VGC. . . . . . . . . . . . . . . . 53
(1) General. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(2) At Closing . . . . . . . . . . . . . . . . . . . . . . . . . 53
PART 5 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 54
5.1 Mutual Conditions Precedent . . . . . . . . . . . . . . . . . . . 54
5.2 Conditions for the Benefit of the Vendor and CRL. . . . . . . . . 55
5.3 Conditions for the Benefit of the Purchaser and VGC . . . . . . . 57
PART 6 - SURVIVAL OF REPRESENTATIONS AND INDEMNITY. . . . . . . . . . . . . 60
6.1 Survival of Representations, Warranties and Covenants . . . . . . 60
6.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
PART 7 - GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . 61
7.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.3 Confidentiality and Disclosure. . . . . . . . . . . . . . . . . . 62
7.4 Dispute Resolution and Arbitration. . . . . . . . . . . . . . . . 63
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.6 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.7 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 63
7.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 64
7.11 Counterparts and Facsimile. . . . . . . . . . . . . . . . . . . . 65
SCHEDULE "A" - FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . A-1
SCHEDULE "B" - LOANS AND CREDIT FACILITIES . . . . . . . . . . . . . . . . B-1
SCHEDULE "C" - BANK FACILITIES . . . . . . . . . . . . . . . . . . . . . . C-1
SCHEDULE "D" - MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . . D-1
SCHEDULE "E" - MATERIAL CONTRACTS IN BREACH OR DEFAULT . . . . . . . . . . E-1
SCHEDULE "F" - MINERAL RIGHTS AND LANDS. . . . . . . . . . . . . . . . . . F-1
SCHEDULE "G" - ROYALTY INTERESTS . . . . . . . . . . . . . . . . . . . . . G-1
SCHEDULE "H" - EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . H-1
SCHEDULE "I" - LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . I-1
SCHEDULE "J" - EMPLOYMENT CONTRACTS. . . . . . . . . . . . . . . . . . . . J-1
SCHEDULE "K" - INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . K-1
SCHEDULE "L" - PERMITTED ENCUMBRANCES. . . . . . . . . . . . . . . . . . . L-1
SCHEDULE "M" - APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . M-1
SCHEDULE "N" - VGC SUBSCRIPTION AGREEMENT. . . . . . . . . . . . . . . . . N-1
</TABLE>
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<PAGE>
SHARE PURCHASE AND SALE AGREEMENT
THIS AGREEMENT made the 21st day of October, 1998
AMONG:
CORNUCOPIA RESOURCES INC., a company incorporated under the
laws of the State of Nevada and having an office at Suite
540, Marine Building, 355 Burrard Street, Vancouver, British
Columbia, Canada
(the "VENDOR")
AND:
CORNUCOPIA RESOURCES LTD., a company amalgamated under the
laws of the British Columbia and having an office at Suite
540, Marine Building, 355 Burrard Street, Vancouver, British
Columbia, Canada
("CRL")
AND:
VISTA GOLD HOLDINGS INC., a company incorporated under the
laws of the State of Nevada and having an office at Suite
3000, 370 Seventeenth Street, Denver, Colorado, U.S.A.
(the "PURCHASER")
AND:
VISTA GOLD CORP., a company continued under the laws of the
Yukon Territory and having an office at Suite 3000, 370
Seventeenth Street, Denver, Colorado, U.S.A.
("VGC")
WHEREAS:
A. the Vendor is the legal and beneficial holder of all of the issued and
outstanding shares in the capital of Mineral Ridge;
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B. the Purchaser has agreed to purchase and the Vendor has agreed to sell
all of the issued and outstanding shares in the capital of Mineral Ridge on the
terms, at the time and subject to the conditions set forth herein;
C. the Vendor is a wholly-owned subsidiary of CRL and the Purchaser is a
wholly-owned subsidiary of VGC;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the premises and
mutual covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby covenant and agree as follows:
PART 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement and the recitals hereto, unless the context
otherwise requires, the following terms shall have the following respective
meanings:
(a) "ACCREDITED INVESTOR" means an "accredited investor" as that term is
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
U.S. Securities Act;
(b) "ASSETS" means all of the rights, properties, undertakings and assets
of Mineral Ridge, whether or not used in connection with or relating
to the Business, whether real or personal, tangible or intangible, and
whether owned, leased or licensed, including, without limitation, all
Mineral Rights, Lands and Equipment;
(c) "BUSINESS" means all the business carried on by Mineral Ridge as of
the date of this Agreement, including, without limitation, mineral
exploration and mining;
(d) "BUSINESS DAY" means any day, other than Saturday, Sunday or a
statutory holiday in the Province of British Columbia;
(e) "CLAIM" means any claim, demand, action, cause of action, damage,
loss, cost, liability or expense, including, without limitation,
reasonable professional fees and all costs incurred in investigating
or pursuing any of the foregoing or any proceeding relating to any of
the foregoing;
(f) "CLOSING" means the closing of the purchase and sale of the Purchased
Shares contemplated herein;
(g) "CLOSING DATE" means October 21, 1998 or such other date as the
parties hereto may agree;
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<PAGE>
(h) "CONSTATING DOCUMENTS" means the memorandum, articles, articles of
incorporation, articles of continuance or articles of amalgamation
pursuant to which a corporation is incorporated, continued or
amalgamated, as the case may be, together with any amendments thereto,
and the by-laws of such corporation and any shareholders' agreement
which has been executed by such corporation or which governs in whole
or in part such corporation's affairs;
(i) "CRL SHARES" means the 2,777,777 common shares in the capital of CRL
to be issued to VGC pursuant to the VGC Subscription Agreement;
(j) "DRESDNER" means Dresdner Bank AG, New York and Grand Cayman Branches;
(k) "DRESDNER LOAN AGREEMENT" means the loan agreement dated January 17,
1997 between Mineral Ridge and Dresdner;
(l) "ENCUMBRANCE" means any mortgage, charge, pledge, hypothec, security
interest, lien, easement, right-of-way, encroachment, covenant,
condition, right of re-entry, lease, license, assignment, option,
claim, encumbrance, set-off, escrow, hold period, voting agreement,
voting trust or other limitation, restriction or title defect of
whatever kind or nature, regardless of form, whether or not registered
or registrable and whether or not consensual or arising by law or
pursuant to the by-laws, rules or policies of any stock exchange, and
whether known or unknown at the time of Closing;
(m) "ENVIRONMENTAL CONTAMINATION" means the discharge, emission, leaking,
spilling, leaching, release or discharge into the environment,
including, without limitation, land, air and water, of Hazardous
Materials or other material, so as to result in any harm, damage or
hazard to the environment or to any person, property or thing;
(n) "ENVIRONMENTAL LAWS" means all Laws or lawful requirements of any
Governmental Authority with respect to environmental and health
protection or regulating Hazardous Materials;
(o) "EQUIPMENT" means all supplies and all machinery, equipment,
automobiles, trucks, bulldozers, shovels, trailers, tractors, office
equipment, computer hardware and software, yard equipment, furniture,
furnishings and tools of all kinds owned or leased by Mineral Ridge,
the Vendor and CRL and used or intended for use in connection with the
Business;
(p) "FINANCIAL STATEMENTS" means the unaudited financial statements of
Mineral Ridge as at July 31, 1998 attached hereto as Schedule "A"
hereto;
(q) "GOVERNMENTAL AUTHORITY" means any federal, provincial, state,
municipal, county or regional governmental or quasi-governmental
authority, domestic or foreign, and includes any ministry, department,
commission, bureau, board,
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administrative or other agency, regulatory body or instrumentality
thereof, including, without limitation, any securities commission,
stock exchange or other securities regulatory authority, whether a
self-regulating body or otherwise;
(r) "GOVERNMENTAL AUTHORIZATIONS" means all authorizations, approvals,
licenses, permits or quotas issued to Mineral Ridge primarily in
connection with the Business or any of the Assets by any Governmental
Authorities;
(s) "HAZARDOUS MATERIALS" means any asbestos materials, urea formaldehyde,
explosives, radioactive materials, pollutants, contaminants, hazardous
substances, corrosive substances, toxic substances, special wastes or
wastes of any kind, including, without limitation, compounds known as
chlorobiphenyls and any substance the storage, manufacture, disposal,
treatment, generation, use, transport, remediation or release of which
into the environment is prohibited, controlled or licensed under
Environmental Laws;
(t) "INVENTORIES" means all inventories of every kind and nature and
wheresoever situate owned by Mineral Ridge and in any way pertaining
to the Business, including, without limitation, all inventories of
processed ore, raw materials, work-in-progress, finished goods, spare
parts, operating supplies and packaging materials of or in any way
pertaining to the Business;
(u) "LANDS" means the surface interest in lands and premises associated
with the Mineral Rights and all plant, improvements, appurtenances and
fixtures situated thereon or forming part thereof, including without
limitation, all buildings situated thereon and all reserves of
minerals IN SITU within, under or upon such lands and premises;
(v) "LAWS" means all applicable laws (including the common law), by-laws,
rules, rulings, regulations, orders, ordinances, notices, injunctions,
directions, decrees, treaties, statutes and judgments or other
requirements of any Governmental Authority, all as in force at the
date of this Agreement;
(w) "LIABILITIES" means any and all debts, liabilities, obligations,
claims or demands of whatsoever nature or kind and whether accrued,
contingent, absolute, conditional or otherwise and whether or not
determined or determinable;
(x) "MATERIAL CONTRACT" means any agreement, whether written or oral,
which is material to the Business and for the purposes of this
Agreement, a contract shall be a Material Contract if:
(i) performance of any right or obligation by any party to such
contract (other than a contract with a customer in the ordinary
course of business) may occur over a period of time greater
than one year;
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<PAGE>
(ii) an expenditure, receipt or transfer or other disposition of
property with a value of greater than $10,000 may arise under
such contract; or
(iii) such contract has been entered into other than in the ordinary
course of business;
(y) "MINERAL RIDGE" means Mineral Ridge Resources Inc., a company
incorporated under the laws of the State of Nevada;
(z) "MINERAL RIGHTS" means all water, water wells, water rights,
concessions, leases, mineral interests, easements, reserves or any
other mineral interests, including, without limitation, patented and
unpatented claims and options to lease held by Mineral Ridge;
(aa) "MISREPRESENTATION" means:
(i) an untrue statement of a material fact; or
(ii) an omission to state a material fact that is required to be
stated, or necessary to prevent a statement that is made from
being false or misleading in the circumstances in which it was
made;
(bb) "PERMITTED ENCUMBRANCES" means (i) Encumbrances for taxes, assessments
or governmental charges or levies on property not yet due or
delinquent, (ii) easements, encroachments and other minor
imperfections of title which do not, individually or in the aggregate,
materially detract from the value or impair the use or marketability
of the Mineral Rights or any real property, (iii) Encumbrances granted
by VGC or the Purchaser, and (iv) Encumbrances described in
Schedule "L" hereto;
(cc) "PERSON" means an individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, a trustee, executor,
administrator or other legal representative, and any Governmental
Authority;
(dd) "PURCHASED SHARES" means the 25,000 issued and outstanding common
shares in the capital of Mineral Ridge being sold by the Vendor and
purchased by the Purchaser under this Agreement;
(ee) "SECURITIES LAWS" means the applicable securities laws of the Province
of British Columbia and the respective regulations made and forms
prescribed thereunder, together with all applicable published policy
statements and blanket orders and rulings of the British Columbia
Securities Commission;
(ff) "STOCK EXCHANGES" means The Toronto Stock Exchange and the American
Stock Exchange;
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<PAGE>
(gg) "TAXES" include, without limitation, all taxes, duties, fees,
premiums, assessments, imposts, levies and other charges of any kind
whatsoever imposed by any Governmental Authority, together with all
interest, penalties, fines, additions or taxes or other additional
amounts imposed in respect thereof (including, without limitation,
those levied on, or measured by, or referred to as income, gross
receipts, profits, capital, transfer, land transfer, sales, goods and
services, use, value-added, excise, stamp, withholding, business,
franchising, property, payroll, employment, health, social service,
education and social security taxes, all surtaxes, all customs duties
and import and export taxes, all licence, franchise and registration
fees, and all unemployment insurance, health insurance and Canada and
other government pension plan premium);
(hh) "U.S. EXCHANGE ACT" means the SECURITIES EXCHANGE ACT OF 1934, as
amended, of the United States of America;
(ii) "U.S. PERSON" means a U.S. person as that term is defined in
Regulation S under the U.S. Securities Act;
(jj) "U.S. SECURITIES ACT" means the SECURITIES ACT OF 1933, as amended, of
the United States of America;
(kk) "U.S. SECURITIES LAWS" means the U.S. Securities Act, the U.S.
Exchange Act, the securities laws of each applicable state of the
United States and the regulations promulgated under each such act or
law;
(ll) "VGC SHARES" means the 1,562,500 common shares in the capital of VGC
to be issued to CRL at the Closing as consideration for the Purchased
Shares; and
(mm) "VGC SUBSCRIPTION AGREEMENT" means the agreement substantially in the
form of Schedule "N" hereto.
1.2 INTERPRETATION
For the purposes of this Agreement, except as otherwise expressly
provided:
(a) "THIS AGREEMENT" means this Agreement, including the recitals hereto,
and not any particular Part, Section, Subsection or other subdivision
or recital hereof, and includes any agreement, document or instrument
entered into, made or delivered pursuant to the terms hereof, as the
same may, from time to time, be supplemented or amended and in effect;
(b) the words "HEREOF", "HEREIN", "HERETO" and "HEREUNDER" and other words
of similar import refer to this Agreement as a whole and not to any
particular Part, Section, Subsection, or other subdivision or recital
hereof;
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<PAGE>
(c) the division of this Agreement into Parts, Sections, Subsections, and
other subdivisions or recitals, and the insertion of headings are for
convenience of reference only and are not intended to interpret,
define or limit the scope, extent or intent of this Agreement or any
provision hereof;
(d) all references to currency in this Agreement are to lawful money of
the United States of America and all amounts to be calculated or paid
pursuant to this Agreement are to be calculated in lawful money of the
United States of America;
(e) a reference to a statute in this Agreement includes all regulations or
rules made thereunder, all amendments to the statute, regulations or
rules in force as at the date of this Agreement, and any statutes,
regulations or rules that supplement or supersede such statutes,
regulations or rules;
(f) the singular of any term includes the plural, and vice versa, and the
use of any term is generally applicable to any gender and, where
applicable, a body corporate, firm or other entity, and the word "OR"
is not exclusive and the word "INCLUDING" is not limiting, whether or
not non-limiting language (such as "WITHOUT LIMITATION" or "BUT NOT
LIMITED TO" or words of similar import) is used with reference
thereto;
(g) in the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such
action shall be required to be taken on the next succeeding day which
is a Business Day; and
(h) all references to "APPROVAL", "AUTHORIZATION" or "CONSENT" in this
Agreement means written approval, authorization or consent.
PART 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF PURCHASED SHARES
Subject to the terms and conditions contained in this Agreement,
the Vendor hereby agrees to sell, assign and transfer to the Purchaser and
the Purchaser hereby agrees to purchase from the Vendor at the Closing all of
the Purchased Shares, free and clear of all Encumbrances, except any
Permitted Encumbrances for a purchase price of $250,000 (CDN$380,700) payable
by the issuance of the VGC Shares to CRL at the Closing.
PART 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE VENDOR AND CRL
The Vendor and CRL each represent and warrant to and in favour of
the Purchaser and VGC as follows, and acknowledge that, notwithstanding any
due diligence and
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<PAGE>
investigations the Purchaser and VGC may have undertaken prior to the
Closing, the Purchaser and VGC are relying fully upon such representations
and warranties as an inducement to enter into this Agreement and to
consummate the transactions contemplated hereby:
(1) CORPORATE STATUS AND AUTHORITY
(a) CORPORATE STATUS OF THE VENDOR. The Vendor is duly incorporated and
validly exists under the laws of the State of Nevada and is in good
standing under applicable corporate statutes of the State of Nevada.
(b) CORPORATE STATUS OF THE CRL. CRL is duly incorporated and validly
exists under the laws of the Province of British Columbia and is in
good standing under the COMPANY ACT (British Columbia).
(c) CORPORATE STATUS OF MINERAL RIDGE. Mineral Ridge is duly incorporated
and validly exists under the laws of the State of Nevada and is in
good standing under applicable corporate statutes of the State of
Nevada.
(d) CORPORATE POWER AND AUTHORITY OF THE VENDOR TO ENTER INTO AND PERFORM
AGREEMENT. The Vendor has the corporate power and authority to own
and hold the Purchased Shares, to enter into this Agreement, to
consummate all transactions contemplated herein, to perform its
obligations hereunder, and to transfer legal title to and to transfer
beneficial ownership of the Purchased Shares to the Purchaser on the
terms and conditions hereof, free and clear of Encumbrances, except
Permitted Encumbrances.
(e) CORPORATE POWER AND AUTHORITY OF CRL TO ENTER INTO AND PERFORM
AGREEMENT. CRL has the corporate power and authority to enter into
this Agreement, to consummate all transactions contemplated herein and
to perform its obligations hereunder.
(f) NO BANKRUPTCY PROCEEDINGS. No proceedings have been taken or
authorized by the Vendor, CRL or Mineral Ridge or, to the best of the
knowledge of the Vendor or CRL, by any other person, with respect to
the bankruptcy, insolvency, liquidation, dissolution, or winding-up of
the Vendor, CRL or Mineral Ridge.
(g) POWER AND AUTHORITY OF MINERAL RIDGE. Mineral Ridge has all requisite
power and authority to own and lease its Assets and carry on its
Business.
(h) SUBSIDIARIES. Mineral Ridge has no subsidiaries or investments in
other corporate entities.
(i) CORPORATE RECORDS. The corporate records of the Vendor and Mineral
Ridge, as required to be maintained by the Vendor and Mineral Ridge
under the applicable corporate statutes of the State of Nevada,
including, without limitation, the Constating Documents of the Vendor
and Mineral Ridge, are accurate, complete
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<PAGE>
and up-to-date in all material respects and all material
transactions of Mineral Ridge have been promptly and properly
recorded in its books or filed with its records.
(2) NO DEFAULT
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, or the fulfilment of or compliance with the
terms and provisions hereof do not and will not, and do not create a state of
facts which after notice or lapse of time or both will:
(a) result in the breach of or violate any term or provision of the
Constating Documents of either Mineral Ridge or the Vendor;
(b) conflict with, result in the breach of, constitute a default under, or
accelerate or permit the acceleration of the obligations of the Vendor
or CRL under, any Material Contract, except the guarantee dated
January 17, 1997 between the Vendor and Dresdner, the pledge agreement
dated January 17, 1997 between the Vendor and Dresdner, the guarantee
dated January 17, 1997 between CRL and Dresdner and the pledge
agreement dated January 17, 1997 between CRL and Dresdner;
(c) result in the cancellation, suspension or alteration in the terms of
any Government Authorization;
(d) result in the creation of any Encumbrance upon any of the Assets;
(e) require the consent of any person pursuant to any Material Contract,
except Dresdner;
(f) give any person other than the parties hereto any material interest or
right, including, without limitation, rights of purchase, termination,
cancellation or acceleration under any Material Contract or Government
Authorization;
(g) subject to compliance with disclosure requirements under applicable
securities legislation and the rules, by-laws and policies of any
stock exchange having jurisdiction, conflict with, breach, or violate
any of the terms, conditions or provisions of any Law, or any
judgment, order, injunction, decree, regulation or ruling of any court
or stock exchange having jurisdiction; or
(h) result in the imposition of any Taxes on Mineral Ridge or the Assets.
(3) SHARE CAPITAL
(a) SHARE CAPITAL. The authorized share capital of Mineral Ridge consists
of 25,000 common shares with a par value of $1.00 per share, of which
25,000 common shares have been duly and validly allotted and issued
and are outstanding as fully-
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paid and non-assessable shares as at the date hereof. No other
shares in the capital of Mineral Ridge are issued and outstanding
as at the date hereof.
(b) SHAREHOLDERS. The Vendor is the sole legal and beneficial shareholder
of Mineral Ridge.
(c) NO OPTIONS. Except pursuant to this Agreement, no person has any
option, warrant, right, call, commitment, conversion right, right of
exchange or other agreement, present or future, contingent or
absolute, or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an option, warrant, right, call,
commitment, conversion right, right of exchange or other agreement for
the purchase, subscription, allotment or issuance of any of the
unissued common shares, financial instruments convertible into common
shares or other securities of Mineral Ridge.
(4) FINANCIAL MATTERS
(a) FINANCIAL STATEMENTS. The Financial Statements have been prepared in
accordance with generally accepted accounting principles in Canada and
present fairly and accurately in every material respect the assets,
liabilities (whether accrued, absolute, contingent or otherwise) and
financial condition of Mineral Ridge as of the date of such
statements, and the results of the operations of Mineral Ridge during
the periods covered by such statements.
(b) LIABILITIES. Except as disclosed in the Financial Statements, Mineral
Ridge had no material Liabilities as of the date of the Financial
Statements, other than:
(i) certain of the amounts claimed by D.H. Blattner & Sons and
Roberts & Schaefer Company under a lien filed in the office of
the County Recorder of Esmerelda County, Nevada and disclosed
in Schedule "I" hereto;
(ii) certain additional interest and fees claimed by Dresdner under
the terms of the Dresdner Loan Agreement; and
(iii) certain additional funds requested by Van American Insurance
Company in respect of the reclamation obligations of Mineral
Ridge.
(5) INVENTORY
Gold inventory is recorded at estimated net realizable value. Gold
ounces contained and recoverable in the leach pad, or stockpile and in the
processing plant are valued using the average cost method and carried at the
lower of cost and net realizable value. All other Inventories are merchantable
or usable in the ordinary course of business. No items included in the
Inventories are held by Mineral Ridge on consignment from others or have been
pledged as collateral.
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(6) MATERIAL CHANGES
Except as contemplated by this Agreement or disclosed in Schedule "E",
Mineral Ridge has not, since the date of the Financial Statements:
(a) experienced any adverse material change in the business, operations,
assets, liabilities, ownership, capital or financial position or
condition of Mineral Ridge, or any change in a material fact that has
a significant adverse effect on, or would reasonably be expected to
have a significant adverse effect on, the business, operations,
assets, liabilities, ownership, capital or financial position or
condition of Mineral Ridge, including, without limitation, the
Business, the Assets and the Liabilities;
(b) transferred, assigned, sold or otherwise disposed of any part of the
Business or any of the Assets, except in the normal course of
business;
(c) incurred or assumed any material Liability, except unsecured current
obligations and liabilities incurred in the ordinary and usual course
of business;
(d) discharged or satisfied any Encumbrance, or paid any obligation or
Liability, other than Liabilities disclosed in the Financial
Statements and the Liabilities incurred since the date of the
Financial Statements that have been paid in the normal course of
business;
(e) suffered an extraordinary loss (before interest or taxes), waived,
surrendered or omitted to take any action in respect of any rights of
substantial value or entered into any commitment or transaction not in
the normal course of business, where such loss, rights, commitment or
transaction is or would be material in relation to the Assets or the
Business;
(f) granted any bonuses, whether monetary or otherwise, or made any
general wage or salary increases in respect of employees or officers
employed by Mineral Ridge other than as provided for in existing
employment arrangements, or changed the terms of employment for any
employee or officer of Mineral Ridge;
(g) hired or dismissed any employee or officer of Mineral Ridge, other
than the dismissals of Gary Saunders and John Garrison;
(h) granted any Encumbrance in respect of any of the Assets;
(i) declared or paid any dividend or declared or made any other
distribution on any of the Purchased Shares or redeemed, purchased or
otherwise acquired any of the Purchased Shares; or
(j) authorized, agreed or otherwise become committed to do any of the
foregoing.
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(7) BANKING
(a) LOANS AND CREDIT FACILITIES. Except as disclosed in Schedule "B"
hereto, Mineral Ridge has not entered into, committed to or otherwise
arranged for, any loans, operating lines of credit or other credit
facilities (including, without limitation, letters of credit, interest
rate or currency swaps, hedging contracts, forward loan or rate
agreements or other financial instruments), nor does Mineral Ridge
have any outstanding any bonds, debentures, mortgages, notes or other
similar indebtedness, and nor is Mineral Ridge obligated to create or
issue any bonds, debentures, mortgages, notes or other similar
indebtedness or financial instruments.
(b) GUARANTEES/INDEMNITIES. Mineral Ridge has not directly or indirectly
guaranteed or indemnified, or agreed to guarantee or indemnify, or
agreed to any other like commitment, in respect of any debt, liability
or other obligation of any person.
(c) BANK FACILITIES. Schedule "C" hereto contains a complete and accurate
listing showing the name of each bank, trust company or similar
financial institution in which Mineral Ridge has an account, safety
deposit box or other banking facility (of the nature described in
Schedule "C" hereto), including the names of all persons authorized to
transact business in respect of such accounts, and each corporate
credit card issued to Mineral Ridge.
(8) MATERIAL CONTRACTS
Schedule "D" hereto contains a complete and accurate list of all
Material Contracts. Except as disclosed in Schedule "E" hereto, Mineral
Ridge is not in breach or default of any of the terms of any Material
Contract, and the Vendor is not aware of any breach or default of any of the
terms of any Material Contract by any party thereto other than Mineral Ridge,
and each such Material Contract is in good standing and in full force and
effect without amendment thereto. No state of facts exists which, after
notice or lapse of time or both, would constitute such a default or breach.
Mineral Ridge has the capacity, including the necessary personnel, equipment
and supplies, to perform all of its obligations under each of its Material
Contracts.
(9) ASSETS AND PROPERTY
(a) OWNERSHIP OF ASSETS. Mineral Ridge owns good and marketable title to,
and is in actual and exclusive possession and control of, the Assets,
free and clear of Encumbrances, except Permitted Encumbrances, and
without limiting the generality of the foregoing, Mineral Ridge owns
or leases and is in actual and exclusive possession and control of the
Mineral Rights described in Schedule "F" hereto free and clear of
Encumbrances, except Permitted Encumbrances and, in the case of leased
Mineral Rights, the same are held under valid and subsisting leases,
and all monies due and payable thereunder have been duly paid;
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(b) ZONING. All Lands are zoned to permit the particular activity carried
out on such Lands by Mineral Ridge and its authorized agents or any
person to whom Mineral Ridge has given occupancy rights in respect of
such Lands.
(c) ROYALTY PAYMENTS. Except as disclosed in Schedule "G" hereto, there
are no landowner's royalties, overriding royalties, net profits
interests, working interests or similar interests on or in relation to
any of the Assets.
(d) OPERATING CONDITIONS. Mineral Ridge has operated the Assets and the
Business in accordance with accepted industry standards and in
accordance with all applicable laws, regulations and orders. The
Equipment comprised in the Assets is in good operating condition.
(e) LIST OF MINERAL RIGHTS. There are no Mineral Rights comprised in the
Assets other than those described in the list of Mineral Rights set
out in Schedule "F" hereto, which accurately and completely describes
all interests of Mineral Ridge in any Mineral Rights.
(f) LIST OF LANDS. There are no Lands comprised in the Assets other than
those described in the list of Lands set out in Schedule "F" hereto,
which accurately and completely describes all interests in real
property owned by Mineral Ridge used in the conduct of the Business.
(g) LIST OF EQUIPMENT. There is no Equipment comprised in the Assets
other than as described in the list of Equipment set out in
Schedule "H" hereto, which accurately and completely describes the
Equipment and other personal property owned by Mineral Ridge.
(10) HAZARDOUS MATERIALS AND ENVIRONMENTAL LAWS
(a) HAZARDOUS MATERIALS AND COMPLIANCE WITH ENVIRONMENTAL LAWS. No
Hazardous Materials, or other material used in or generated by any of
the Assets or the Business, have been or are currently placed, used,
stored, treated, manufactured, disposed of, released, discharged,
spilled or emitted in violation of any Environmental Laws or
Governmental Authorizations. All Hazardous Materials disposed of,
removed, emitted, treated, released, discharged or spilled from or by
any of the Assets or the Business were and are documented, generated,
handled, transported, stored, treated and disposed of in compliance
with all Environmental Laws and Governmental Authorizations.
(b) WASTE DISPOSAL. All of the Assets that were or are used for the
generation, handling, treatment, storage or disposal of Hazardous
Materials or other material used in or generated by the Assets or the
Business on any of the Lands or on any of the Mineral Rights have been
and are properly permitted and operated in compliance with all
Environmental Laws.
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(c) ENVIRONMENTAL CONTAMINATION. There is no Environmental Contamination
of any of the Assets or the Business.
(d) ENVIRONMENTAL ORDERS OR AGREEMENTS. There are no orders, agreements
or consent orders to which Mineral Ridge or any affiliate of Mineral
Ridge is a party relating to compliance of any of the Assets or the
Business with Environmental Laws.
(e) ENVIRONMENTAL CLAIMS. There have been no orders issued or threatened
and no investigations, removal, remedial or response actions ordered,
conducted, taken or threatened under or pursuant to any Environmental
Laws with respect to the Assets or the Business or any other
businesses conducted on or from any of the Lands or Mineral Rights
other than routine inspections. No claims are pending or threatened
with respect to Environmental Contamination on any of the Lands or
Mineral Rights or the violation of any Environmental Laws in
connection with the Assets or the Business.
(f) NUISANCE. The use of, and operations relating to, the Assets and the
Business conducted on or from the Lands or Mineral Rights, do not
constitute a nuisance of any nature, nor has any such claim for
nuisance been made or threatened in respect of such use by any person.
(11) LEGAL AND REGULATORY MATTERS
(a) LITIGATION. Except as described in Schedule "I" hereto, there are no
actions, suits, litigations, arbitrations, proceedings or claims in
progress, pending or threatened against or relating to Mineral Ridge,
the Vendor or CRL or likely to affect any of the Business, the Assets
or the Purchased Shares, there is no circumstance, matter or thing
known to the Vendor or CRL which might reasonably give rise to any
such proceeding and there is not outstanding or threatened against
Mineral Ridge, the Vendor or CRL any judgment, decree, injunction,
rule or order of or by any court or Governmental Authority having
jurisdiction.
(b) COMPLIANCE WITH LAWS. The operation of the Business is conducted in
compliance with all applicable Laws of each jurisdiction in which the
Business has been and is carried out and none of Mineral Ridge, the
Vendor or CRL have received any notice of any alleged material breach
or violation of any such Laws.
(c) COMPLIANCE DIRECTIVES. There are no outstanding compliance directives
or work orders relating to Mineral Ridge, the Assets or the Business
from any police, fire department, sanitation, health authorities,
environmental agencies, or from any other Government Authority,
department or agency, nor does Mineral Ridge, the Vendor or CRL have
notice that there are any matters under consideration by such
authorities relating to Mineral Ridge, the Assets or the Purchased
Shares.
(d) NOTICE OF DEFAULT/CLAIMS. None of Mineral Ridge, the Vendor or CRL
has received, from any Governmental Authority or a third party, any
notice of violation
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of any law or regulation or of any default, violation or termination
of any permits and licenses or of any fact or circumstance which
shall, or is likely to, result in such a default, violation or
termination.
(e) NO SEIZURE. Except in respect of the litigation described in
Schedule "I" hereto, there is no eminent domain, appropriation,
expropriation or seizure proceeding in respect of the Assets, the
Business or the Purchased Shares that is pending or that has been
threatened.
(f) LICENSES, REGISTRATIONS AND PERMITS. Mineral Ridge is duly qualified
to carry on, and holds all licenses, registrations and permits as may
be required for carrying on, the Business in all jurisdictions in
which the nature of the Business or the Assets make such
qualification, licenses, registrations and permits necessary.
(g) RECLAMATION. The Financial Statements and notes thereto accurately
disclose and describe all obligations of Mineral Ridge under all
applicable statutes for reclamation, site restoration and closure
requirements in respect of its Assets.
(12) TAXATION
There are no actions, suits, claims, proceedings, investigations or
audits now pending or threatened against Mineral Ridge, the Vendor or CRL in
respect of any Taxes affecting the Assets, the Business or the Purchased Shares
and there are no matters under discussion, audit or appeal with any Governmental
Authority relating to Taxes which, if not paid, would result in a lien or charge
on any of the Assets or the Purchased Shares. Mineral Ridge has fulfilled all
requirements under Laws for withholding of amounts from employees and has
remitted all amounts withheld to the appropriate authorities within the
prescribed times.
(13) EMPLOYMENT MATTERS
(a) EMPLOYEE CONTRACTS. Except as disclosed in Schedule "J" hereto,
Mineral Ridge is not a party to:
(i) any material written contract or commitment for the employment
of any officer or employee;
(ii) any agreement relating to the termination or notice of
termination of any employee which requires a specified notice
period or salary in lieu of notice;
(iii) any contract with or commitment to any labour union or
employees' association;
(iv) any pension, profit sharing, deferred compensation, retirement,
hospitalization, health, disability, termination, insurance or
similar plan or practice, formal or informal, with respect to
its employees, former
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employees or others, other than a stock option plan or a group
benefits plan; and
(v) any other contract that requires more than six months' notice
of termination.
(b) UNIONS. There are no current attempts to organize or establish any
labour union or employee association with respect to Mineral Ridge.
(c) NO GOLDEN PARACHUTES. Except in respect of the employment contracts
described in Schedule "J" hereto, neither the execution and delivery
of this Agreement nor the consummation of any of the transactions
contemplated hereby or thereby, whether individually or in the
aggregate, shall:
(i) result in any payment (including, without limitation, a
severance, unemployment compensation, termination, "golden
parachute", bonus or other payment) becoming due to any
director, officer, employee, agent or contractor of Mineral
Ridge or of any other person including CRL for which Mineral
Ridge would be liable in whole or in part under any plan,
agreement or otherwise; or
(ii) materially increase or result in the acceleration of the time
of payment of any salary or benefits otherwise payable by
Mineral Ridge to any director, officer, employee, agent or
contractor of Mineral Ridge or of any other person including
CRL for which Mineral Ridge would be liable in whole or in
part.
(d) NO EMPLOYMENT DISPUTES. Mineral Ridge has not terminated the
employment of any employee in circumstances that may give rise to a
claim by such employee for wrongful dismissal, other than the claim of
Michelle Walker described in Schedule "I" hereto. No notice has been
received by Mineral Ridge or CRL of any complaint filed by any of its
employees against it, claiming that it has violated any applicable
employment standards or human rights or similar legislation or of any
applications, complaints or proceedings of any kind involving Mineral
Ridge or any of its employees before any court, labour relations board
or similar tribunal. There are no pending or threatened work
stoppages or labour disputes, charges or unfair labour practices by
any present or former employees of Mineral Ridge. No event has
occurred with respect to CRL, the Vendor or Mineral Ridge which is
likely to result in any claim or action against Mineral Ridge under
any Laws related to employment or social security matters or any
increase in social insurance payroll assessments or any similar
assessment payable by Mineral Ridge.
(e) RETIREMENT AND BENEFITS PLANS. The Financial Statements and notes
thereto accurately disclose and describe all retirement and benefits
plans and pension obligations for present and past employees of
Mineral Ridge.
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(14) INSURANCE
Mineral Ridge maintains such policies of insurance and insured
reclamation bonds, issued by responsible insurers, as are appropriate to or
statutorily required for the Business and its Assets, in such amounts and
against such risks as are customarily carried and insured against by owners
of comparable businesses, properties and assets. Except as disclosed in
Schedule "I" with respect to the reclamation bonding with Van American, all
such policies of insurance and insured reclamation bonds, are in full force
and effect and Mineral Ridge is not in default as to the payment of premiums
or other terms of any such policy. Schedule "K" hereto contains a complete
list of all such insurance policies and insured reclamation bonds carried by
Mineral Ridge.
(15) BINDING AGREEMENT
This Agreement has been duly executed and delivered by the Vendor and
CRL and constitutes a legal, valid and binding obligation of the Vendor and CRL.
(16) OWNERSHIP OF PURCHASED SHARES
(a) The Vendor is the sole legal and beneficial owner of the Purchased
Shares, free and clear of all Encumbrances, except Permitted
Encumbrances.
(b) The Vendor is not acting as nominee, agent, trustee, executor,
administrator or other legal representative on behalf of any other
person who has a direct beneficial interest in the Purchased Shares.
(17) RESIDENCY
Mineral Ridge is a "non-resident" of Canada within the meaning of the
INCOME TAX ACT (Canada).
(18) NO COMMISSION
Neither the Vendor nor CRL has taken any action that would result in a
brokerage commission, finder's fee or other like payment being payable by any
party hereto with respect to the transactions contemplated hereby.
(19) APPROVALS
Except as disclosed in Schedule "M" hereto or as otherwise
specified in this Agreement or the VGC Subscription Agreement, no exemption,
consent, approval, order or authorization of any court, Governmental
Authority, stock exchange or any third party is required by, or with respect
to, the Vendor, CRL or Mineral Ridge in connection with the execution,
delivery and performance of this Agreement by the Vendor or CRL or the
consummation by the Vendor or CRL of any of the transactions contemplated
hereby.
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(20) REPRESENTATIONS AND WARRANTIES OF MINERAL RIDGE IN RESTATED AND
AMENDED LOAN AGREEMENT
The representations and warranties of Mineral Ridge set out in
Article VI of the restated and amended loan agreement between Mineral Ridge
and Dresdner dated as of October 21, 1998, other than:
(a) the representations and warranties set out in Sections 6.5 and 6.7;
and
(b) the representations set out in Sections 6.6 and 6.18, insofar as they
pertain to the Purchaser or VGC,
are, and will on the Closing Date, be true, complete and accurate.
(21) SECURITIES LAWS
(a) PURCHASE AS PRINCIPAL. CRL is purchasing the VGC Shares as
principal for its own account, and not for the benefit of any
other person, for investment only and not with a view to resale
or distribution.
(b) NO ADVERTISEMENT. The offering and sale of the VGC Shares to
CRL were not made through an advertisement of the VGC Shares in
printed media of general and regular paid circulation, radio or
television or any other form of advertisement, and, to its
knowledge, CRL has not received an offering memorandum as such
term is defined under the Securities Laws, and CRL acknowledges
that it is not purchasing the VGC Shares as a result of any
form of general solicitation or general advertising including
advertisements, articles, notices or other communications
published in any newspaper, magazine or similar media or
broadcast over radio, or television, or any seminar or meeting
whose attendees have been invited by general solicitation or
general advertising.
(c) NO INSIDER INFORMATION. The VGC Shares are not being purchased
by CRL as a result of any material information concerning the
Company that has not been publicly disclosed and CRL's decision
to enter into this agreement and acquire the VGC Shares has not
been made as a result of any verbal or written representation
as to fact or otherwise made by or on behalf of the Company or
any other person and is based entirely upon currently available
public information concerning the Company.
(d) FINANCIAL KNOWLEDGE. CRL has such knowledge and experience in
financial and business affairs as to be capable of evaluating
the merits and risks of the investment hereunder in the VGC
Shares and is able to bear the economic risk of loss of such
investment.
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(e) "U.S. PERSON". CRL is not a "U.S. Person" as defined in
Regulation S under the U.S. Securities Act.
(f) INVESTMENT ONLY. CRL has no intention to distribute either
directly or indirectly any of the VGC Shares in the United
States or to "U.S. Persons"; provided, however, that CRL may
sell or otherwise dispose of any of the VGC Shares pursuant to
registration thereof pursuant to the U.S. Securities Act and
any applicable state securities laws or under an exemption from
such registration requirements.
(g) NO U.S. REGISTRATION. CRL understands that the VGC Shares have
not been and will not be registered under the U.S. Securities
Act and that the sale contemplated hereby is being made in
reliance on an exemption from such registration requirement.
(h) ACCREDITED INVESTOR. CRL is an Accredited Investor and is a
corporation not formed for the specific purpose of acquiring
the VGC Shares, with total assets in excess of $5,000,000.
(i) NO "DIRECTED SELLING EFFORTS". CRL acknowledges that it has
not purchased the VGC Shares as a result of, and will not
itself engage in, any "directed selling efforts" (as defined in
Regulation S under the U.S. Securities Act) in the United
States in respect of the VGC Shares which would include any
activities undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the
market in the United States for the resale of the VGC Shares;
provided, however, that CRL may sell or otherwise dispose of
any of the VGC Shares pursuant to registration of the VGC
Shares pursuant to the U.S. Securities Act and any applicable
state securities laws or under an exemption from such
registration requirements and as otherwise provided herein.
(j) ADDRESS OF CRL. The office of CRL at which CRL received and
accepted the offer to purchase the VGC Shares is the address
listed on the first page of this Agreement.
(k) U.S. RESALE RESTRICTIONS. CRL agrees that if it decides to
offer, sell or otherwise transfer any of the VGC Shares, it
will not offer, sell or otherwise transfer any of such VGC
Shares directly or indirectly, unless:
(i) the sale is to VGC;
(ii) the sale is made outside the United States in a
transaction meeting the requirements of Rule 904 of
Regulation S under the U.S. Securities Act and in
compliance with applicable local laws and regulations;
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(iii) the sale is made pursuant to the exemption from the
registration requirements under the U.S. Securities Act
provided by Rule 144 thereunder and in accordance with
any applicable state securities or "Blue Sky" laws; or
(iv) the VGC Shares are sold in a transaction that does not
require registration under the U.S. Securities Act or
any applicable U.S. state laws and regulations
governing the offer and sale of securities, and it has
prior to such sale furnished to VGC an opinion
reasonably satisfactory to VGC.
(l) CANADIAN RESALE RESTRICTIONS. CRL acknowledges that if it
decides to offer, sell or otherwise transfer any of the VGC
Shares in Canada, such securities may be offered or sold or
otherwise transferred only:
(i) pursuant to an exemption from the registration and
prospectus requirements under the Securities Laws or
the securities legislation of the province of Canada in
which such trade is occurring, and with the prior
consent of The Toronto Stock Exchange; or
(ii) if 12 months has elapsed from the date of the issue of
the VGC Shares, and at that time CRL is not a control
person of VGC, no unusual effort is made to prepare the
market or create a demand for the VGC Shares and no
extraordinary commission or other consideration is paid
in respect of such offer, sale or transfer.
(m) LEGEND. CRL acknowledges that all certificates issued
representing the VGC Shares, as well as all certificates issued
in exchange for or in substitution therefor, will bear legends
to the following effect:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE FOLLOWING HOLD PERIOD AND RESALE RESTRICTIONS:
1. B.C. LEGEND -- THE COMMON SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A HOLD PERIOD IN THE
PROVINCE OF BRITISH COLUMBIA AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL OCTOBER 21, 1999, EXCEPT AS
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND
THE REGULATIONS AND RULES MADE THEREUNDER. A NEW
CERTIFICATE, NOT BEARING THIS LEGEND, MAY BE OBTAINED
FROM THE COMPANY UPON DELIVERY OF THIS CERTIFICATE AT
ANY TIME AFTER OCTOBER 21, 1999.
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2. U.S. LEGEND -- THE COMMON SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY; (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S
UNDER THE 1933 ACT OR (C) WITHIN THE UNITED STATES IN
ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER
THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF
APPLICABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS
ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, NOT
BEARING THIS LEGEND, MAY BE OBTAINED FROM THE COMPANY'S
REGISTRAR AND TRANSFER AGENT, UPON DELIVERY OF THIS
CERTIFICATE AND EITHER A DULY EXECUTED DECLARATION, IN
A FORM SATISFACTORY TO SUCH REGISTRAR AND TRANSFER
AGENT AND THE COMPANY, TO THE EFFECT THAT SUCH SALE IS
BEING MADE IN ACCORDANCE WITH RULE 904 OF REGULATION S
UNDER THE 1933 ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
SALE IS EXEMPT FROM REGISTRATION UNDER THE 1933 ACT."
(n) RECORD OF TRANSFER. CRL understands and acknowledges that the
Company, at its option, may not record a transfer without first
being satisfied that such transfer is exempt from or not
subject to registration under the U.S. Securities Act or the
securities laws of any state of the United States or is exempt
from or not subject to the registration and prospectus
requirements under the Securities Laws or the securities
legislation of the province of Canada in which such transfer is
occurring.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND VGC
The Purchaser and VGC represent and warrant to and in favour of the
Vendor and CRL as follows and acknowledge that the Vendor and CRL are relying
upon such representations and warranties as an inducement to enter into this
Agreement and to consummate the transactions contemplated hereby, that as at the
date hereof:
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(1) CORPORATE STATUS AND AUTHORITY
(a) CORPORATE STATUS OF THE PURCHASER. The Purchaser is a company that is
duly incorporated and validly existing under the laws of the State of
Nevada and in good standing under applicable corporate statutes.
(b) CORPORATE STATUS OF VGC. VGC is a corporation that is duly continued
and validly existing under the laws of the Yukon Territory and in good
standing under the BUSINESS CORPORATIONS ACT (Yukon Territory).
(c) CORPORATE POWER AND AUTHORITY OF THE PURCHASER. The Purchaser has the
corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to acquire legal and beneficial title to
and ownership of the Purchased Shares from CRL on the terms and
conditions hereof.
(d) CORPORATE POWER AND AUTHORITY OF VGC. VGC has the corporate power and
authority to enter into this Agreement, and to perform its obligations
hereunder.
(e) NO BANKRUPTCY PROCEEDINGS. No proceedings have been taken or
authorized by the Purchaser or VGC or, to the best of the knowledge of
the Purchaser or VGC, by any other person, with respect to the
bankruptcy, insolvency, liquidation, dissolution, or winding-up of the
Purchaser or VGC.
(2) NO DEFAULT
The execution and delivery of this Agreement, the fulfilment of or
compliance with the terms and provisions hereof and the issue, sale and delivery
on the Closing Date of the VGC Shares, do not and will not result in a breach of
and do not create a state of facts which, after notice or lapse of time, or
both, will result in a breach of, and do not and will not conflict with, any of
the terms, conditions or provisions of the constating documents of the Purchaser
or VGC or any trust indenture, agreement or instrument to which the Purchaser or
VGC is a party or by which the Purchaser or VGC is contractually bound or will
be contractually bound on the Closing Date.
(3) BINDING AGREEMENT
This Agreement has been duly executed and delivered by the Purchaser
and VGC and constitutes a legal, valid and binding obligation of the Purchaser
and VGC.
(4) SHARE CAPITAL
The authorized share capital of VGC consists of an unlimited number of
common shares without par value and an unlimited number of preferred shares, of
which 89,152,540 common shares are issued and outstanding on the date hereof as
fully paid and non-assessable shares.
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(5) DISCLOSURE DOCUMENTS
The following disclosure documents of VGC:
(a) the audited annual financial statements for the year ended
December 31, 1997;
(b) the management information and proxy circular dated as of May 11, 1998
for VGC's 1998 annual general meeting;
(c) all press releases issued by VGC after December 31, 1997;
(d) the Form 20-F of VGC dated March 30, 1998; and
(e) the quarterly reports to shareholders on the interim financial periods
ended March 31, 1998 and June 30, 1998,
were, at their respective dates of issue or publication, true and
correct in all material respects, contained no misrepresentations and
were prepared in accordance with and complied with applicable laws,
regulations, policy statements and rules.
(6) NO ENCUMBRANCES ON VGC SHARES
At their time of issue, the VGC Shares will be free and clear of all
Encumbrances, other than those created by, or imposed upon, the holders thereof
through no action of VGC.
(7) LISTING OF VGC SHARES
The common shares in the capital of VGC are listed and posted for
trading on the Stock Exchanges.
(8) REPORTING ISSUER STATUS
VGC is a reporting issuer under the SECURITIES ACT (British Columbia),
and is in compliance with its obligations thereunder.
(9) NO COMMISSION
Neither the Purchaser nor VGC has taken any action that would result
in a brokerage commission, finder's fee or other like payment being payable by
any party hereto with respect to the transactions contemplated hereby.
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PART 4
COVENANTS
4.1 COVENANTS OF THE VENDOR AND CRL
(1) AGREEMENT DATE TO CLOSING
Each of the Vendor and CRL covenants and agrees with the Purchaser and
VGC that, from the date of this Agreement to the Closing, it shall, and shall
cause Mineral Ridge to:
(a) ACCESS. Allow the Purchaser, VGC and their representatives reasonable
access to the premises and the properties of the Vendor and Mineral
Ridge and to the files, books, records and offices of the Vendor and
Mineral Ridge, including, without limitation, any and all information
relating to the Vendor's and Mineral Ridge's tax matters, contracts,
leases, licences and real, personal and intangible property and
financial condition. The Vendor and Mineral Ridge shall cause the
Vendor's and Mineral Ridge's auditors to cooperate with the
Purchaser's auditors in making available to the Purchaser and VGC all
financial information reasonably requested, including, without
limitation, the right to examine the working papers pertaining to tax
matters and financial statements prepared or audited by the Vendor's
and Mineral Ridge's auditors;
(b) CONSULTATION. Permit the Purchaser's representatives to meet with the
Vendor's and Mineral Ridge's directors, officers and employees and
attend such business meetings and provide the Purchaser with such
periodic reports, as the Vendor may reasonably request to permit the
Vendor to become and remain informed as to the Vendor's and Mineral
Ridge's business, assets and operations;
(c) CONDUCT BUSINESS IN THE ORDINARY COURSE. Except as otherwise provided
in this Agreement, operate the Business in the usual, regular and
ordinary manner and, to the extent consistent with such operation,
keep available the services of Mineral Ridge's present directors,
officers and employees (subject to voluntary resignations and
dismissals in accordance with proper business practices) and preserve
its and Mineral Ridge's relationships with clients and others having
business dealings with Mineral Ridge;
(d) NO ENCUMBRANCES ON ASSETS. Refrain from creating or permitting any
Encumbrance, other than Permitted Encumbrances, on the Assets in whole
or in part and from selling, transferring or otherwise disposing of
the Assets;
(e) NO ENCUMBRANCES ON SHARES. Refrain from creating or permitting any
Encumbrance, other than Permitted Encumbrances, on the Purchased
Shares;
(f) NO DIVIDENDS. Refrain from declaring any dividends or making any
other distributions in respect of capital stock of Mineral Ridge;
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(g) NO CHANGE TO MATERIAL CONTRACTS. Refrain from amending or varying any
of the Material Contracts or enter into any other Material Contract;
(h) MAINTAIN INSURANCE. Maintain in full force and effect all of the
Vendor's, CRL's and Mineral Ridge's policies of insurance and insured
reclamation bonds or renewals of such policies or bonds now in effect
in respect of Mineral Ridge, the Assets, the Business, and Mineral
Ridge's directors, officers and employees, and shall give all notices
and present all claims under all existing policies in a due and timely
fashion as may be reasonably required in accordance with prudent
business practice;
(i) RESTRICTIONS ON LOANS. Ensure that Mineral Ridge does not incur any
borrowings;
(j) RESTRICTIONS ON CERTAIN COMMITMENTS. Ensure that Mineral Ridge does
not enter into commitments in the nature of a capital expenditure and
that Mineral Ridge does not incur any contingent liability;
(k) NO AMENDMENT TO CHARTER DOCUMENTS. Except as otherwise provided in
this Agreement, not amend Mineral Ridge's Constating Documents or
change in any manner Mineral Ridge's authorized capital or the rights,
privileges, restrictions and conditions attaching to any of Mineral
Ridge's share capital;
(l) NO APPOINTMENTS OF NEW DIRECTORS OR OFFICERS. Ensure that Mineral
Ridge does not appoint any new directors or officers;
(m) MAINTAIN REGISTRATIONS. Use its best efforts to maintain all of
Mineral Ridge's registrations, licenses and permits, and the
registrations, licences and permits of Mineral Ridge's directors,
officers and employees, in good standing with such Regulatory
Authorities as are necessary to permit Mineral Ridge and its
directors, officers and employees to carry on the Business as
presently carried on;
(n) COMPLIANCE WITH LAWS. Comply in all material respects with all laws
applicable to it and to the conduct of the Business;
(o) OBTAIN CONSENTS. Use its best efforts to obtain, and where required
for the operation of the Business, to transfer to Mineral Ridge, all
necessary Governmental Authorizations, and all necessary releases,
waivers, consents and approvals as may be required to complete the
Vendor's obligations under this Agreement and to consummate the
transactions contemplated by this Agreement, and all such releases,
waivers, consents and approvals shall be in form and substance
satisfactory to the Purchaser, acting reasonably;
(p) MAINTENANCE OF BOOKS AND RECORDS. Maintain Mineral Ridge's books of
account and records in the usual, regular and ordinary manner, in
accordance with generally accepted accounting principles applied on a
consistent basis;
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(q) NOTICE OF MATERIAL DEVELOPMENTS. Notify the Purchaser and VGC as soon
as any of its or Mineral Ridge's directors or officers have determined
that a state of facts exist which results in, or shall result in:
(i) any representation and warranty of the Vendor or CRL being
untrue or incorrect in any material respects;
(ii) the non-fulfilment of any conditions set forth in this
Agreement; or
(iii) any adverse material change in the business, operations,
assets, liabilities, ownership, capital or financial position
or condition of Mineral Ridge, or change in a material fact
that has a significant adverse affect on, or would reasonably
be expected to have a significant adverse affect on, the
business, operations, assets, liabilities, ownership, capital
or financial position or condition of Mineral Ridge; and
(r) PERMIT REPRESENTATIVE TO MANAGE BUSINESS AND OPERATIONS. Take such
reasonable steps as are necessary to allow a representative of the
Purchaser or VGC to manage the business and operations of Mineral
Ridge at the Mineral Ridge mine.
The Vendor and CRL acknowledge that the Purchaser and VGC are relying
upon the foregoing covenants and agreements as an inducement to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
(2) AT CLOSING
In addition to the foregoing, each of the Vendor and CRL covenants and
agrees with the Purchaser and VGC that it shall, and shall cause Mineral Ridge
to, ensure that immediately prior to the Closing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Vendor and CRL shall be true and correct in all material respects;
(b) EXECUTION AND DELIVERY RATIFIED AND AUTHORIZED. The execution and
delivery of this Agreement and the performance by each of the Vendor
and CRL of its respective obligations under this Agreement shall be
duly and validly ratified and authorized by the Board of Directors of
the Vendor and CRL, as the case may be; and
(c) DUE EXECUTION. This Agreement shall be duly executed and delivered by
the Vendor and CRL and constitute a valid and binding obligation of
the Vendor enforceable against the Vendor and CRL.
The Vendor and CRL acknowledge that the Purchaser and VGC are relying
upon the foregoing covenants and agreements as an inducement to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
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4.2 COVENANTS OF THE PURCHASER AND VGC
(1) GENERAL
Each of the Purchaser and VGC covenants and agrees with the Vendor and
CRL as follows:
(a) COMPLETION OF DUE DILIGENCE. The Purchaser and VGC shall use their
best efforts to complete their due diligence investigations on or
before October 12, 1998;
(b) CONSENT OF STOCK EXCHANGES. VGC will use its best efforts to obtain
the consent of the Stock Exchanges and comply with all other
regulatory requirements, requirements of the Stock Exchanges and
requirements of the Securities Laws and U.S. Securities Laws
applicable to the offering and sale of VGC Shares to CRL on a "private
placement" basis as contemplated by this Agreement prior to the
Closing Date; and
(c) LISTING OF VGC SHARES. VGC will use its best efforts to ensure that
the VGC Shares will be listed and posted for trading on the Stock
Exchanges.
The Purchaser and VGC acknowledge that the Vendor and CRL are relying
upon the foregoing covenants and agreements as an inducement to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
(2) AT CLOSING
In addition to the foregoing, each of the Purchaser and VGC covenants
and agrees with the Vendor and CRL that immediately prior to the Closing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Purchaser and VGC shall be true and correct in all material
respects;
(b) EXECUTION AND DELIVERY RATIFIED AND AUTHORIZED. The execution and
delivery of this Agreement and the performance by each of the
Purchaser and VGC of its respective obligations under this Agreement
shall be duly and validly ratified and authorized by the Board of
Directors of the Purchaser and VGC, as the case may be; and
(c) DUE EXECUTION. This Agreement shall be duly executed and delivered by
the Purchaser and VGC and constitute a valid and binding obligation of
the Purchaser and VGC, enforceable against the Purchaser and VGC.
The Purchaser and VGC acknowledge that the Vendor and CRL are relying
upon the foregoing covenants and agreements as an inducement to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
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PART 5
CONDITIONS PRECEDENT
5.1 MUTUAL CONDITIONS PRECEDENT
The obligations of the parties to complete the sale of the Purchased
Shares and the transactions contemplated by this Agreement are subject to the
following conditions being satisfied on or before the Closing, which conditions
are for the mutual benefit of all parties to this Agreement and may be waived in
whole or in part only if jointly waived by all of the parties to this Agreement:
(a) all material approvals, authorizations or consents, including
approvals by Governmental Authorities, regulatory authorities, third
parties and judicial approvals and orders legally required for the
consummation of the Agreement and the transactions contemplated by
this Agreement, shall have been obtained or received from the persons,
authorities or bodies having jurisdiction in the circumstances;
(b) none of the approvals, authorizations, consents, orders, laws or
regulations contemplated in this Section 5.1 shall have contained
terms or conditions or require undertakings or security deemed
unsatisfactory or unacceptable by any of the parties acting
reasonably;
(c) an agreement, or agreements, in form and substance acceptable to VGC,
shall have been entered into among Mineral Ridge, the Vendor, CRL and
Dresdner whereunder:
(i) the terms of the indebtedness of Mineral Ridge to Dresdner are
amended in a manner satisfactory to VGC;
(ii) Dresdner consents to the acquisition of Mineral Ridge by the
Purchaser; and
(iii) Dresdner agrees to release the Vendor and CRL of all
obligations and liabilities undertaken by the Vendor or CRL in
connection with the debt financing of Mineral Ridge and the
Business, including the pledge of the Vendor's issued and
outstanding shares by CRL and the pledge of the issued and
outstanding shares of Touchstone Resources Company and Mineral
Ridge by the Vendor,
and such other documents as may be required to give effect thereto;
(d) agreements shall have been entered into among Mineral Ridge, the
Vendor, CRL, the Purchaser, VGC and Dresdner and such other creditors
of Mineral Ridge, the Vendor or CRL as may be necessary to release
each of the Vendor and CRL of all its liabilities, whether as
principal debtor or guarantor, in respect of the
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<PAGE>
development or operation of Mineral Ridge and the Business,
including agreements with a reclamation bonding company and such
other documents necessary to give effect thereto; and
(e) there shall be no inter-company balances owing between Mineral Ridge
and either of the Vendor or CRL, and Mineral Ridge, the Vendor and CRL
shall have executed and delivered such releases of such inter-company
balances as may be requested by the Purchaser and VGC.
5.2 CONDITIONS FOR THE BENEFIT OF THE VENDOR AND CRL
The obligation of the Vendor and CRL to complete the sale of the
Purchased Shares and the transactions contemplated by this Agreement is subject
to the satisfaction on or before the Closing, for the exclusive benefit of the
Vendor and CRL, of each of the following conditions:
(a) the representations and warranties of the Purchaser shall be true
and correct in all material respects as at the Closing with the
same force and effect as if such representations and warranties had
been made at and as of the Closing;
(b) the Purchaser and VGC shall have, in all material respects, performed
and complied with all covenants and agreements contained in this
Agreement to be performed or complied with, or caused to be performed
or complied with, by the Purchaser and VGC at or prior to the Closing;
(c) VGC shall have delivered to the Vendor and CRL:
(i) the VGC Subscription Agreement duly executed by VGC, together
with a cheque in the amount of $250,000 representing the
purchase price for the CRL Shares;
(ii) certified copies of resolutions of the directors of the
Purchaser and VGC approving this Agreement and all other
transactions contemplated by this Agreement; and
(iii) such other documentation and assurances as may be reasonably
required by the Vendor, or CRL, or their counsel;
(d) each of the Purchaser and VGC shall have delivered to the Vendor and
CRL a certificate, dated as of the Closing, and signed by any two of
its officers certifying that:
(i) the representations and warranties of the Purchaser and VGC
herein contained are true and correct at the Closing;
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(ii) each of the Purchaser and VGC has performed and complied with
all covenants and agreements contained in this Agreement to be
performed or complied with by the Purchaser and VGC at or prior
to the Closing; and
(iii) all necessary corporate action has been taken by the Purchaser
and VGC to authorize the execution and delivery of this
Agreement and to consummate the transactions contemplated by
this Agreement; and
(e) counsel to the Purchaser and VGC shall have delivered to the Vendor
and CRL favourable legal opinions, dated the Closing, in form and
content to the reasonable satisfaction of the Vendor and CRL and with
respect to all such matters as the Vendor and CRL may reasonably
request including, without limitation, the following:
(i) each of the Purchaser and VGC is duly organized and is a
validly existing company, is in good standing under applicable
laws, and is duly qualified to carry on business and own
property under the laws of any other jurisdictions in which it
carries on business or owns property;
(ii) this Agreement has been duly authorized by all necessary
corporate action on the part of the Purchaser and VGC, has been
duly executed and delivered by and on behalf of the Purchaser
and VGC, and is valid and legally binding upon the Purchaser
and VGC;
(iii) all necessary steps, authorizations and approvals have been
taken or obtained by the Purchaser and VGC to authorize the
execution and delivery by the Purchaser and VGC of the
Agreement and the performance of their respective obligations
thereunder;
(iv) the authorized and issued share capital of VGC;
(v) the VGC Shares have been duly and validly allotted and issued
as fully paid and non-assessable shares in the capital of VGC;
(vi) the VGC Shares have been conditionally approved for listing on
the Stock Exchanges, subject to the filing of the required
documents within the time stipulated by the Stock Exchanges;
(vii) VGC is a reporting issuer not in default under the SECURITIES
ACT (British Columbia);
(viii) no prospectus is required and, except as have been obtained
or completed, no approval or consent of or filing with any
governmental authority in the British Columbia or the Stock
Exchanges is required in order to qualify the issuance and
sale by VGC of the VGC Shares except for the filing within 10
days of the Closing Date of reports in prescribed form
prepared
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and executed in accordance with the Securities Laws and
except as may be required by the Stock Exchanges in
connection with the sale of the VGC Shares; and
(ix) the hold periods and resale restrictions applicable to the VGC
Shares under the Securities Laws.
The foregoing conditions are inserted for the exclusive benefit of the Vendor
and CRL and may be waived in whole or in part by the Vendor or CRL at any time.
5.3 CONDITIONS FOR THE BENEFIT OF THE PURCHASER AND VGC
The obligation of the Purchaser and VGC to complete the purchase of
the Purchased Shares and the transactions contemplated by this Agreement is
subject to the satisfaction on or before the Closing, for the exclusive benefit
of the Purchaser and VGC, of each of the following conditions:
(a) the representations and warranties of the Vendor and CRL herein and in
the VGC Subscription Agreement shall be true and correct in all
material respects as at the Closing with the same force and effect as
if such representations and warranties had been made at and as of the
Closing;
(b) the Vendor and CRL shall have, in all material respects, performed and
complied with all covenants and agreements contained in this Agreement
to be performed or complied with, or caused to be performed or
complied with, by the Vendor or CRL at or prior to the Closing;
(c) since the date of this Agreement, there shall not have been any
adverse material change in the business, operations, assets,
liabilities, ownership, capital or financial position or condition of
Mineral Ridge, or change in a material fact that has a significant
adverse affect on, or would reasonably be expected to have a
significant adverse effect on, the business, operations, assets,
liabilities, ownership, capital or financial position or condition of
Mineral Ridge;
(d) except as previously disclosed to and consented to in writing by VGC,
there being no outstanding options, warrants or other rights to
acquire shares of Mineral Ridge or any material change in compensation
or benefits arrangements with any director, officer or employee of
Mineral Ridge;
(e) the completion by VGC of a due diligence review satisfactory to VGC,
in its sole discretion, acting reasonably, of the financial condition,
business, affairs, properties and assets of Mineral Ridge;
(f) the receipt by the Purchaser and VGC of confirmation satisfactory to
the Purchaser and VGC that the purchase of the Purchased Shares and
the transactions
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contemplated by this Agreement have been approved by the required
majority of the shareholders of the Vendor and CRL or that such
approvals are not required;
(g) each of the Vendor and CRL shall have delivered to the Purchaser and
VGC a certificate, dated as of the Closing, and signed by any two of
its officers acceptable to the Purchaser and VGC certifying that:
(i) the representations and warranties of the Vendor and CRL herein
contained are true and correct at the Closing;
(ii) each of the Vendor and CRL has performed and complied with all
covenants and agreements contained in this Agreement to be
performed or complied with by the Vendor and CRL at or prior to
the Closing;
(iii) all necessary corporate action has been taken by the Vendor and
CRL to authorize the execution and delivery of this Agreement
and to consummate the transactions contemplated by this
Agreement; and
(iv) since the date of this Agreement there has not been any adverse
material change in the business, operations, assets,
liabilities, ownership, capital or financial position or
condition of Mineral Ridge, or change in a material fact that
has a significant adverse effect on, or would reasonably be
expected to have a significant adverse effect on, the business,
operations, assets, liabilities, ownership, capital or
financial position or condition of Mineral Ridge;
(h) the Vendor and CRL shall have delivered to the Purchaser:
(i) resignations in writing of all directors and officers of
Mineral Ridge;
(ii) certified copies of resolutions of the directors of the Vendor
approving the transfer of the Purchased Shares to the Purchaser
and all other transactions contemplated by this Agreement;
(iii) duly executed share certificates registered on the books of
Mineral Ridge in the name of the Purchaser representing the
Purchased Shares;
(iv) confirmation, in a form satisfactory to VGC, that the execution
and performance of this Agreement by CRL and the Vendor has
been approved by the required majority of the shareholders of
CRL and the Vendor or that such approval is not required; and
(v) such other documentation and assurances reasonably required by
VGC or its counsel; and
(i) counsel to the Vendor and CRL shall have delivered to the Purchaser
and VGC favourable legal opinions, dated the Closing, in form and
content to the
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reasonable satisfaction of the Purchaser and VGC and with respect
to all such matters as the Purchaser and VGC may reasonably request
including, without limitation, the following:
(i) each of CRL, the Vendor and Mineral Ridge is duly organized and
is a validly existing company, is in good standing under
applicable laws, and is duly qualified to carry on business and
own property under the laws of any other jurisdictions in which
it carries on business or owns property;
(ii) Mineral Ridge has all necessary corporate power and authority
to own its Assets and to carry on its Business as now
conducted;
(iii) this Agreement has been duly authorized by all necessary
corporate action on the part of the Vendor and CRL, has been
duly executed and delivered by and on behalf of the Vendor and
CRL, and is valid and legally binding upon the Vendor and CRL;
(iv) all necessary steps, authorizations and approvals have been
taken or obtained by the Vendor and CRL to authorize the
execution and delivery by the Vendor and CRL of the Agreement
and the performance of their respective obligations thereunder;
(v) so far as counsel is aware, none of the execution and delivery
of this Agreement, nor the fulfilment of its terms, conflicts
or shall conflict with or results or shall result in a breach
of any of the terms, conditions or provisions of the Constating
Documents of either the Vendor or Mineral Ridge, resolutions of
the shareholders and directors of the Vendor or Mineral Ridge,
any applicable laws, or, so far as counsel is aware, any
material license or permit issued to the Vendor or Mineral
Ridge or any material agreement or instrument to which the
Vendor or Mineral Ridge is a party, other than as disclosed in
Schedule "E" to this Agreement;
(vi) so far as counsel is aware, there is no threatened, pending or
actual litigation against or involving Mineral Ridge, other
than as disclosed in Schedule "I" to this Agreement;
(vii) the authorized and issued share capital of Mineral Ridge;
(viii) according to the register of shareholders of Mineral Ridge,
the Vendor is the registered holder of all of the issued and
outstanding shares of Mineral Ridge;
(ix) all necessary steps, authorizations and approvals have been
taken or obtained by Mineral Ridge to authorize the due and
valid transfer of the Purchased Shares at the Closing from the
Vendor to the Purchaser and the consummation of the
transactions contemplated by the Agreement; and
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(x) the form of certificates representing the Purchased Shares
comply with the memorandum and articles of Mineral Ridge, the
requirements of the applicable corporate statutes of the State
of Nevada and have been duly approved by the directors of
Mineral Ridge,
it being understood that counsel may rely as to matters of fact, to
the extent appropriate in the circumstances, on certificates of the
Vendor's, CRL's and Mineral Ridge's auditors and on certificates of
the Vendor, CRL and Mineral Ridge executed on behalf of the Vendor,
CRL and Mineral Ridge by a senior officer of the Vendor, CRL and
Mineral Ridge, as the case may be.
The foregoing conditions are inserted for the exclusive benefit of the Purchaser
and VGC and may be waived in whole or in part by the Purchaser and VGC at any
time.
PART 6
SURVIVAL OF REPRESENTATIONS AND INDEMNITY
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations, warranties and covenants of each of the parties
hereto contained in this Agreement shall survive the Closing and the completion
of the transactions contemplated hereby and shall continue in full force and
effect for a period of two years thereafter.
6.2 INDEMNITY
In addition to any other rights or remedies the Purchaser and VGC have
under this Agreement, each of the Vendor and CRL shall indemnify and save the
Purchaser and VGC harmless from and against all losses, costs, damages,
expenses, penalties and liabilities suffered or incurred by the Purchaser or VGC
by reason of:
(a) a breach of any representation or warranty, covenant or agreement in
this Agreement by the Vendor or CRL; and
(b) without limiting the generality of the foregoing, any Liability,
disclosed or undisclosed, known or unknown, determined or
undetermined, which was created or existing or arose out of acts or
omissions prior to the Closing in connection with the Assets, the
Business or the Purchased Shares which the Purchaser or VGC is
required to discharge, to the extent such Liability has not been
incurred or created by the Purchaser or VGC after the Closing.
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PART 7
GENERAL
7.1 TIME AND PLACE OF CLOSING
The Closing shall take place at 9:00 a.m. (Vancouver time) on the
Closing Date at the offices of DuMoulin Black in Vancouver, British Columbia, or
at such other place or date as may be mutually agreed by the parties.
7.2 NOTICES
Any notice or other communication which is required or permitted to be
given pursuant to any provision of this Agreement shall be in writing, delivered
personally, by registered mail or by telecopy, and addressed as follows:
(a) in the case of a notice or other communication to the Vendor or CRL:
Cornucopia Resources Ltd.
Suite 540, Marine Building
355 Burrard Street
Vancouver, B.C.
Canada
Attention: Andrew F.B. Milligan
Telecopier Number: (604) 681-4170
with a copy to:
DuMoulin Black
10th Floor, 595 Howe Street
Vancouver, B.C.
V6C 2T5
Attention: Sargent H. Berner
Telecopier Number: (604) 687-8772
(b) in the case of a notice or other communication to the Purchaser or
VGC:
Vista Gold Corp.
Suite 3000, 370 Seventeenth Street
Denver, Colorado
U.S.A. 80202
Attention: Michael B. Richings
Telecopier Number: (604) 629-2499
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<PAGE>
with a copy to:
Ladner Downs
1200 Waterfront Centre
200 Burrard Street
P.O. Box 48600
Vancouver, British Columbia
V7X 1T2
Attention: William F. Sirett
Telecopier Number: (604) 687-1415
or such other address or telecopier number as a party may, from time to time,
advise the other parties hereto by notice in writing given in accordance with
the foregoing. The date of receipt of any such notice shall be deemed to be the
date of delivery thereof, if delivered, and on the day of telecopying, if
telecopied, provided such day is a Business Day and, if not, on the first
Business Day thereafter.
7.3 CONFIDENTIALITY AND DISCLOSURE
(a) Except as may be required by applicable laws, any information
concerning any of the Vendor, the Purchaser, CRL, VGC or Mineral Ridge
and their respective affiliates disclosed to the other parties to this
Agreement or their representatives, which has not been publicly
disclosed, shall be kept strictly confidential by them and shall not
be disclosed or used by the recipients thereof whether or not the
Closing occurs until publicly disclosed by the party to which such
information relates. Further, it is agreed and acknowledged that all
such information is being disclosed solely for the purpose of
completing the transactions contemplated by this Agreement and shall
not be used for any other purpose. In the event that the Closing does
not occur, all documents, if any, of a confidential nature, delivered
to the Vendor, the Purchaser, CRL or VGC or their respective
representatives and any copies thereof shall be immediately returned
to the party to which such information relates.
(b) Except as may be required under applicable laws, no press releases or
material change reports relating to the transactions contemplated
hereby shall be issued by any party to this Agreement, nor shall the
terms of this letter be disclosed to third parties other than the
representatives of the parties, without the mutual consent of the
other parties. All necessary press releases and material change
reports required form shall be submitted for approval by the party
preparing such press release or material change report to the other
parties prior to the filing thereof in accordance with applicable
laws.
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7.4 DISPUTE RESOLUTION AND ARBITRATION
In the event of a dispute under or related to this Agreement, the
parties agree to negotiate diligently and in good faith the satisfactory
resolution of such dispute. Failing such resolution, the dispute shall be
resolved by binding arbitration pursuant to the COMMERCIAL ARBITRATION ACT
(British Columbia). Submission to arbitration shall be to a single arbitrator
appointed by agreement between the Purchaser and the Vendor within 10 days after
either party gives notice to the other specifying the matter to be submitted to
arbitration. Failing the appointment of an arbitrator within such 10 days the
arbitrator may be appointed in the manner provided under section 17 of the
COMMERCIAL ARBITRATION ACT (British Columbia). The arbitration shall take place
in the City of Vancouver, British Columbia.
7.5 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of British Columbia and the laws of Canada applicable
therein and each of the parties irrevocably attorns to the jurisdiction of the
courts of British Columbia.
7.6 BINDING EFFECT
This Agreement shall be binding upon and shall enure to the benefit of
the parties hereto and their respective successors and permitted assigns.
7.7 TIME OF ESSENCE
Time is of the essence of this Agreement.
7.8 ASSIGNMENT
Subject to the express provisions of this Agreement, neither of the
parties may assign his or its rights or obligations under this Agreement without
the prior written consent of the other, such consent not to be unreasonably
withheld.
7.9 FURTHER ASSURANCES
Each of the parties, upon the request of any other party, whether
before or after the Closing, shall do, execute, acknowledge and deliver or cause
to be done, executed, acknowledged or delivered all such further acts, deeds,
documents, assignments, transfers, conveyances and assurances as may be
reasonably necessary or desirable to effect complete consummation of the
transactions contemplated by this Agreement.
7.10 EXPENSES
The Vendor and the Purchaser shall each pay their respective expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement.
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7.11 ENTIRE AGREEMENT
The terms and provisions contained in this Agreement constitute the
entire agreement between the parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, between the parties with respect to the subject matter
hereof.
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7.12 COUNTERPARTS AND FACSIMILE
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument. This Agreement and any counterpart
thereof may be executed by telecopy and when delivered shall be deemed to be an
original.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
CORNUCOPIA RESOURCES INC.
Per: (SIGNED)
_________________________________
Authorized Signatory
Per: _________________________________
Authorized Signatory
CORNUCOPIA RESOURCES LTD.
Per: (SIGNED)
_________________________________
Authorized Signatory
Per: _________________________________
Authorized Signatory
VISTA GOLD HOLDINGS INC.
Per: (SIGNED)
_________________________________
Michael B. Richings,
President
VISTA GOLD CORP.
Per: (SIGNED)
_________________________________
Michael B. Richings,
President and Chief Executive Officer
N-69
<PAGE>
-5-
EXHIBIT 11
CORNUCOPIA RESOURCES LTD.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
BASIS LOSS PER SHARE
December 31,
1. Weighted average shares outstanding 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares outstanding, beginning of year 38,556,040 35,058,040 26,290,340
Number of shares issued during the year 3,035,794 3,498,000 8,767,700
Weighted average number of shares outstanding, end of year 39,291,535 37,514,204 30,287,082
---------- ---------- ----------
---------- ---------- ----------
---------- ---------- ----------
2. Loss for the year (707,607) (18,464,625) (2,610,635)
---------- ---------- ----------
---------- ---------- ----------
Loss per share (0.02) (0.49) (0.09)
---------- ---------- ----------
---------- ---------- ----------
FULLY DILUTED LOSS PER SHARE
1. Shares outstanding
Weighted average number of shares outstanding
at end of year 39,291,535 37,514,204 30,287,082
Assumed exercise of options (approved; eligible) 1,795,000 2,275,000 2,303,000
Assumed exercise of warrants 1,750,000 8,431,500 8,306,500
Shares outstanding - fully diluted 42,836,535 48,220,707 40,896,582
---------- ---------- ----------
2. Loss for the year (707,607) (18,464,625) (2,610,635)
---------- ---------- ----------
---------- ---------- ----------
Fully diluted loss per share (0.02) (0.38) (0.09)
---------- ---------- ----------
---------- ---------- ----------
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Cornucopia Resources Ltd.
We consent to the incorporation by reference in the registration statement
(No. 33-25974) on Form S-8 of Cornucopia Resources Ltd. ("Cornucopia") of our
report dated April 1, 1999 relating to the consolidated balance sheets of
Cornucopia as of December 31, 1998 and 1997, and the related consolidated
statements of loss and deficit and changes in financial position for each of
the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report on Form 10-K of Cornucopia.
Our report dated April 1, 1999 includes additional comments for U.S. readers
that cast substantial doubt as to Cornucopia's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
(SIGNED) "KPMG LLP"
Chartered Accountants
Vancouver, Canada
April 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 103,949
<SECURITIES> 0
<RECEIVABLES> 25,844
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 385,278
<PP&E> 2,099,146
<DEPRECIATION> (212,550)
<TOTAL-ASSETS> 2,271,874
<CURRENT-LIABILITIES> 101,277
<BONDS> 0
0
0
<COMMON> 38,119,366
<OTHER-SE> (35,948,769)
<TOTAL-LIABILITY-AND-EQUITY> 2,271,874
<SALES> 0
<TOTAL-REVENUES> 70,394
<CGS> 0
<TOTAL-COSTS> 968,455
<OTHER-EXPENSES> (190,454)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (707,607)
<INCOME-TAX> 0
<INCOME-CONTINUING> (707,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (707,607)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
-7-
EXHIBIT 99
UNDERTAKING WITH RESPECT TO FORM S-8 UNDER THE SECURITIES ACT OF 1933
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Registrant's Registration Statement on
Form S-8 No. 33-25974 (filed December 7, 1988):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
