U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the thirteen months ended January 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-20722
NEWGOLD, INC.
(Name of small business issuer in its charter)
Delaware 16-1400479
- ------------------------ --------------------
(State of other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
5190 Neil Road, Suite 320, Reno, Nevada 89502
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(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (702) 823-4000
----------------
Securities registered under Section 12(b) of the Exchange Act: None
-------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 No X
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
Issuer's revenues for its most recent fiscal year: $0
Aggregate market value of the voting stock held by non-affiliates as of
June 23, 1997: Unknown
Number of shares of Common Stock outstanding as of June 20, 1997:
18,761,839
Documents Incorporated by Reference: None.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No X
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEMS 1 AND 2: BUSINESS AND PROPERTIES
Newgold, Inc. (the "Company") is engaged in the mining and processing
of gold and silver ore and the exploration, acquisition and development of
gold-bearing properties in the continental United States. The Company is
currently developing or exploring its three properties: (1) the Relief Canyon
Mine, located in Pershing County, Nevada; (2) the Mission Mine, located in
Riverside County, California; and (3) the Bruner Property, located in Nye
County, Nevada.
The Company has not begun commercial mining on any of its properties.
The Relief Canyon Mine and the Mission Mine are in the process of being
permitted to allow production to commence, which is anticipated to begin during
the second half of 1997. The Bruner Property is an exploration property. The
Company's mines consist of open-pit and underground operations utilizing a
combination of heap leaching and conventional milling facilities to extract
gold.
On June 29, 1995, the Company, then operating as Warehouse Auto
Centers, Inc., a Delaware corporation ("WAC"), a discount auto parts retail
outlet, was involuntarily placed into Chapter 11 Bankruptcy by certain of its
unsecured creditors pursuant to the U.S. Bankruptcy Code (the "Code"). Pursuant
to a plan of reorganization (the "Plan") approved by the U.S. Bankruptcy Court
for the Western District of New York, on November 21, 1996, the Company was
merged with Newgold, Inc., a Nevada corporation ("NGNV").
Under the terms of the Plan, the Company: (i) effected a 1-for-65
reverse stock split of the Company's outstanding securities; (ii) acquired all
of the shares of NGNV in exchange for 12,000,000 shares of the Company's Common
Stock (post-reverse split); (iii) filed an amendment to its Articles of
Incorporation changing its name to Newgold, Inc., and increasing the Company's
authorized shares of Common Stock to 50,000,000 shares with a par value of $.001
per share; (iv) obtained a new CUSIP number (651362-10-5) and trading symbol,
"NGLD," from the National Association of Securities Dealers ("NASD"); (v) paid
off its creditors in cash or with shares of Common Stock pursuant to Section
1145 of the Code; (vi) appointed a new Board of Directors and management; (vii)
canceled all pre- petition options, warrants and other rights of commitments by
the Company to issue any securities or pay any benefits to any person or
business entity other than those approved in the Plan; and (viii) appointed
Oxford Transfer & Registrar as the Company's transfer agent.
Prior to completion of the Plan, the Common Stock of WAC was traded on
the NASDAQ Electronic Bulletin Board under the symbol "WHACQ". There have been
no trades of the Company's Common Stock since January 1997. The Company has
arranged for
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a new market maker to file an information statement pursuant to Rule 15c2-11
promulgated under the Securities Exchange Act of 1934. As of the date of this
Report, trading has not yet commenced.
NGNV was incorporated under the laws of Nevada on September 1, 1993 and
the Company commenced operations as Newgold, Inc., a Delaware corporation, on
November 21, 1996, the effective date of the Merger. The Company's headquarters
is located at 5190 Neil Road, Suite 320, Reno, Nevada 89502; and its telephone
number is (702) 823-4000. All references to the "Company" refer to NGNV or the
merged entity operating as Newgold, Inc.
The Company operates in one industry segment solely within the United
States. For financial information regarding the Company, see "Item 7: Financial
Statements And Supplementary Data."
The Company's capital requirements have been and will continue to be
significant. The Company has, to date, received no revenues from mining
operations. The Company has been dependent primarily on the private placements
of its securities. The Company anticipates, based on its current proposed plans
and assumptions relating to its mining operations, that proceeds from its prior
private placements, borrowings and planned revenues will not be sufficient to
satisfy the Company's contemplated cash requirements and the Company will be
required to raise additional funds immediately. If the Company is unable to
obtain additional financing, it will be required to curtail the development of
its mining operations and may cease its operations. Any additional equity
financing may involve substantial dilution to the Company's then-existing
shareholders. The Company's independent accountants have included an explanatory
paragraph in their report dated June 18, 1997, on the Company's financial
statements for the thirteen months ended January 31, 1997, indicating
substantial doubt about the Company's ability to continue as a going concern.
GLOSSARY OF MINING TERMS
See "Glossary of Mining Terms" contained on page 23 for definitions of
terms used in the following discussion.
MINING AND PROCESSING METHODS TO BE USED BY THE COMPANY
Mining and processing methods to be used by the Company include milling
open-pit mining, underground mining and heap leaching. The following is a
general description of the mining and processing methods to be used at the
Company's mines.
Open-Pit Mining Operations
The Company plans to conduct open-pit mining utilizing
industry-employed methods and proven equipment. Open pit mining is the process
of mining ore directly from the
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surface of a mining claim. Mine plans are designed to remove overburden (non-ore
bearing rock) to expose sufficient ore to meet processing requirements. Material
is generally drilled and blasted in 15-foot benches of ore. The blasted material
is then loaded onto off-road haul trucks using front-end loaders. Overburden is
transported outside the pits and placed on piles, or used to backfill pits where
operationally feasible. Ore is transported by haul trucks to one of several
destinations. Depending on the ore grade, ore is either taken from the pit and
stacked from the trucks directly onto heap leach pads or crushed before being
stacked onto heap leach pads.
Underground Mining Operations
The objective of underground mining is to extract the ore below the
surface of the earth safely and economically. Entry is through a tunnel or
shaft, and the ore is mined in stopes, or rooms. The Company will utilize an
underground mining method called "cut-and- fill stoping." Cut-and-fill stoping
is a method used in steeply dipping veins or beds. In this method, material is
built up as the stoping progresses and the ore is taken out of the mine and
processed.
Heap Leaching
In conventional heap leaching, the ore is hauled from the pit and
crushed to an optimum size, depending the nature of the ore. The crushed ore is
then mixed with lime and/or cement and hauled or conveyed to the leach pad where
it is stacked. The stacked ore is then cross-ripped to increase solution
percolation, and a weak cyanide solution is applied to the top of the heaps
using drip and sprinkler irrigation techniques. This solution percolates down
through the ore, where the cyanide leaches the gold from the rock. The cyanide
solution containing the gold collects on a lined pad. All leaching occurs in a
closed system on lined pads designed to meet applicable environmental protection
standards. The system is designed to recover all cyanide and prevent its escape
or infiltration into the ground.
The gold-bearing pregnant solutions are collected from each heap and
pumped from the heap leach pads to the plant facilities for recovery. The gold
is recovered through carbon absorption followed by conventional pressure
stripping of the carbon using a high- temperature caustic solution, which is
then pumped to electro-winning cells or to a zinc- precipitation circuit. Gold
is electroplated onto cathodes. The resultant electroplated material is removed
from the cathodes, fluxed, smelted and poured into dore' bars for shipment to a
third-party refinery.
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Run-of-mine heap leaching is identical to conventional heap leaching,
except that the ore and lime are placed directly on heap leach pads, without
being crushed as a preliminary step. Run-of-mine heap leaching cycles are
typically longer and recoveries are typically lower than conventional heap
leaching.
RELIEF CANYON MINE
The Relief Canyon Mine is an open-pit, heap leaching operation located
approximately 110 miles northeast of Reno, Nevada. The Company currently holds
441 unpatented mining claims and leased property covering approximately 8,800
acres. The mine is readily accessible by improved roads. Water for mining and
processing of operations is provided by two wells located on the property in
close proximity to the mine. Power is provided by a local rural electric
association and phone lines are present at the mine site.
Background and History
The Relief Canyon gold deposit was discovered by Duval Corporation,
("Duval") in 1981. Lacana Mining, ("Lacana") purchased the property from Duval,
drilled additional holes to establish reserves, and commenced mining in 1984 as
an open-pit cyanide heap leach operation. In 1986, Pegasus Gold, Inc.
("Pegasus"), purchased the mine from Lacana, drilled additional holes for a
total of approximately 400 and approximately 120,000 linear feet to confirm
reserves, and mined a cumulative total of approximately 6.3 million tons of gold
ore containing an average of 0.035 ounces per ton from 1986-1989. Pegasus ceased
mining activities in 1989 and reclaimed the mine site from 1990-1992.
In 1993, Pegasus sold the Relief Canyon Mine to its reclamation
contractor, J.D. Welsh & Associates ("Welsh"). Welsh continued to rinse the
heaps to detoxify them of their cyanide content and recovered minor amounts of
gold in the process.
On January 10, 1995, NGNV purchased the mine from Welsh for $500,000,
which at that time consisted of 39 unpatented lode mining claims, buildings,
fixtures, leach pads, water rights, various permits and a lease (the "Santa Fe
Lease") to fee simple real property entered into between Welsh and Santa Fe Gold
Company, recently merged with Newmont Gold Company ("Santa Fe"). Welsh assigned
the Santa Fe Lease to the Company at an annual lease payment of $12,500. The
Santa Fe Lease requires that Santa Fe consent to any assignment. To date, Santa
Fe has not formally consented to the assignment, but has accepted payment of the
Company's lease payments and it is the Company's position that such acceptance
constitutes consent. Subsequent to the signing of the contract for sale, the
parties reduced the amount due Welsh to $450,000 because of Welsh's inability to
secure Santa Fe's acceptance of assignment of the Santa Fe Lease. See "Risk
Factors -- Uncertainty of Title."
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Pursuant to the Santa Fe Lease, the Company is obligated to pay Santa
Fe a 2.5% net smelter royalty ("NSR") on production from the Relief Canyon Mine
(the "Santa Fe Royalty"), with a minimum annual royalty advance of $13,125 per
year. The Santa Fe Royalty relates only to land acquired from Welsh.
Repadre Capital Corporation ("Repadre") purchased a 3% NSR from the
Company for $500,000 in the fall of 1996 (the "Repadre NSR"). These funds were
applied to the Company's ongoing reserve confirmation and expansion program at
the Relief Canyon Mine. Under the terms of Repadre NSR, Repadre has a 3% NSR
which may be allocated to either the Relief Canyon Mine or the Mission Mine at
Repadre's option. Repadre currently has assigned 1.5% on the Relief Canyon Mine
and 1.5% on the Mission Mine. See "Mission Mine Project". Repadre can, at any
time, choose to place all of its royalty amount (3%) on one of either of the two
aforementioned projects.
In addition to the 39 unpatented mining claims acquired by Welsh, the
Company has staked an additional 402 claims with the Bureau of Land Management
("BLM") and is seeking to stake additional claims. Annual Federal and state
holding payments for the unpatented claims are $44,100. See "Risk
Factors--Uncertainty of Title."
On June 12, 1997, two mechanic's and materialsmen's liens, in
approximately the aggregate amount of $135,000 were filed against the property
relating to the Relief Canyon Mine for outstanding account payables.
Geology
Gold mineralization at the Relief Canyon Mine is hosted in an
interformational tectonic breccia between younger, thin-bedded sandy shales of
the Triassic Grass Valley Formation and older thin-to-medium bedded Triassic
Cane Springs limestone, as well as along high-angle faults and bedding plane
faults in the Cane Springs limestone. Tertiary sills of quartz monzonite and
dacite have intruded the breccia along high angle northwesterly faults and acted
as traps for later gold-bearing hydrothermal solutions. The ore body is hosted
in an anticline, with a steeper dip on the eastern limb, and plunges
south-southwest. Most mine development has been on the more accessible western
limb of the fold. Large, low-angle northwesterly striking faults, originally
interpreted as thrust faults, appear to have occurred along stratigraphic beds,
and may be detachment faults rather than thrusts. Multiple high-angle faults,
representing several regionally significant tectonic fabrics, also cross-cut the
Relief-Packard Flats area.
The Company is in the process of determining the proven and probable
reserves of gold of the Relief Canyon Mine. There are currently no proven or
probable reserves of gold at the Relief Canyon Mine. See "Risk Factors--Risks of
Gold Mining"
Drill Program
Most prior drilling on the Relief Canyon site was limited to 350 to
400-foot depths. No prior drilling tested deeper than 755 feet. An ongoing
80,000 linear-foot drilling program, designed to upgrade the pre-drill program
reserve status to the proven category, has been implemented by the Company along
with a deep drill program which to date has produced two holes, one 1,500 feet
deep and the other, 1,050 feet deep.
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Development and Planned Mining and Processing
The Relief Canyon Mine is an open-pit, heap leaching operation.
Material is mined by conventional open-pit, truck loader methods as described
above. The Company has developed the infrastructure of the mine which consists
of four existing heap leach pads, pregnant and barren solution ponds, processing
building with carbon recovery columns, carbon stripping circuit, retort and
furnace, three open mine pits, access roads, active power lines and two active
water wells.
The Relief Canyon Mine will be operational upon approval of its Plan of
Operations and issuance of a zero discharge permit and an environmental
assessment by the Nevada Department of Environmental Protection and final
approval by the BLM. Final approval and production for Relief Canyon Mine is
expected in the third quarter of 1997. A condition to regulatory approval is the
posting of a $880,000 bond with the BLM, which the Company does not expect to be
able to post until such time as it can raise additional funding. The Company
estimates reclamation costs to be approximately $880,000. There can be no
assurance that the Company will receive such permits or regulatory approval in a
reasonable time, or ever. The failure of the Company to receive the necessary
approval would have a materially adverse effect on the Company. See "Risk
Factors--Government Permits; Environmental Controls"; and "Item 6: Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company plans to begin to mine approximately 3.3 million tons of
oxide gold ore. Ore will be stacked on leach pads, sprinkled with dilute cyanide
solutions and the pregnant solutions piped to the plant for recovery of gold. A
portion of the ore will be crushed and agglomerated prior to being stacked on
the leach pads. Mining will be performed by a third-party contractor.
Metallurgical testing has indicated that a gold recovery of up to 65% of
contained gold from the heap leach operation is attainable. However, there can
be no assurance that the Company will recover sufficient quantities of gold nor
attain commercially feasible operating costs. Further, while the operation is
anticipated to be profitable at current gold prices, there are no guarantees
that gold prices will remain at this level, nor are there guarantees that the
operation will be profitable. See "Gold Market"; "Risk Factors--Risks of Gold
Mining."
Exploration
The Company continues exploration activity on the Relief Canyon Mine
through drilling and geological surveys.
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MISSION MINE PROJECT
The Mission Mine is an underground mining operation located
approximately 19 miles south-southeast of Twenty-Nine Palms, California, and is
made up of 22 unpatented mining claims consisting of approximately 440 acres.
The project is readily accessible via maintained roads. The infrastructure
consists of underground workings and a small gravity mill. Water is available
from area wells which the Company has contracted to use and power is available
at the mine site through the use of diesel on-site generators.
Background and History
Gold-bearing veins were discovered on the property in 1887. Underground
mining commenced on the property in 1929, and continued sporadically until the
mid-1970's by individual miners and small companies. The Mission Mine consists
of two 600-foot vertical shafts with four levels, containing 1,365 feet of
underground workings on the Water Well Vein structure; a 350-foot shaft on the
Verde Vein; and a 70-foot shaft on the Lone Star Vein. Past production reported
from the property is approximately 1,200 ounces of gold at head grades of 0.8
ounces a ton. The Company acquired a lease-purchase option on the property and
mining equipment during 1996 from Joie Jamison, as described below.
Property Interests
The property consists of 22 unpatented lode-bearing claims which total
approximately 440 acres. Within this acreage exists three additional historic
mines, the Duplex Mine, the Golden Egg Mine and the Sunset Mine, none of which
the Company has yet explored or exploited. The Company has entered into a
seven-year lease-purchase option ("Jamison Lease") on the property with Joie
Jamison ("Jamison"), for an aggregate purchase price, if such option is
exercised, of $3,500,000.
Under the terms of the Jamison Lease, the Company has agreed to pay
Jamison a 2.5% NSR and the Company has agreed to a minimum royalty payment. The
minimum royalty payment is currently $10,000 per month and increases each year
by $10,000 per month up to a maximum of $70,000 per month commencing March 1,
2003, until the purchase price is paid. All royalty payments will be applied to
the purchase price. The Company is obligated to pay all taxes applicable to the
property. The Company has the right to terminate the agreement should it become
economically unsound to continue with mining operations at no additional cost to
the Company.
In addition, under the terms of the Repadre NSR, Repadre currently has
a 1.5% NSR on the proceeds of production from the Mission Mine which, at
Repadre's option, may be increased to a maximum of 3%.
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Geology
Economic gold mineralization at the Mission Mine consists of free
milling gold hosted in iron/manganese-stained clay (fault gouge) and quartz
veins. The veins are approximately 3 feet in width, with slightly increasing
width upon increasing depth; gold/silver ratios go as high as 10:1, with minor
amounts of base metals at the 600- and 1,200-foot levels in the Mission and
Duplex Mines, respectively. This suggests that the veins are in the upper level
of an epithermal vein system with considerable mining depths. Surface mapping
and sampling has confirmed a 6,000 foot strike-length of multiple gold-bearing
veins within a northwest trending fault zone, in which the Mission Mine is
located. Underground mapping has identified gold mineralization with an average
grade of 0.8 ounce per ton, previously thought to be confined to the Water Well
Vein. The Water Well Vein occurs as multiple parallel veins within one of four
northwest trending fault zones, which cuts a Mesozoic Quartz Monzonite country
rock on the property. The three other parallel fault zones on the property
contain similar multiple gold-bearing veins.
Reserves
The Company is in the progress of delineating the minable reserves of
the property and as of the date of this Report the property is without known
reserves. The mine has been developed to a 600-foot depth and only 400 feet
along the strike of a 6,000-foot vein system. Additional reserves are
anticipated to be developed at the depths, as well as in the other three
parallel vein systems on the property, mentioned above. There can be no
assurance that sufficient reserves exist or that such reserves may be mined at a
commercially viable cost.
See "Risk Factors--Risk of Gold Mining."
Development and Planned Mining and Processing
The Company has mapped and sampled the underground workings at the
Mission Mine, as well as the surface of the claim block. Gold mineralization has
been identified throughout the 6,000 feet of the exposed multiple vein system on
which the Mission Mine is developed. Historical commercial gold recovery methods
used at the Mission Mine have been by gravitational concentration, a non-cyanide
method.
The Company is in the process of refurbishing the underground mining
systems and upgrading the equipment to meet state and federal standards. In
addition, prior to opening the mine, the Company must obtain the applicable
permits described below.
The property is currently permitted to operate as a small underground
mining and milling operation. The Company plans to seek modification of the
permit to increase the underground mining rate to 250 tons per day. The Company
expects to have its permitting completed during the third quarter of 1997.
However,
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there can be no certainty that the Company will be able to obtain such a permit
within a reasonable time, if ever. Failure of the Company to obtain the permit
modification would have a material adverse effect on the Company. See "Risk
Factors--Government Permits."
BRUNER PROPERTY
The Bruner property, which consists of 29 patented mining claims and
453 unpatented lode mining claims covering approximately 9,600 acres, is in the
exploration stage and is located approximately 60 miles southeast of Fallon,
Nevada, approximately 130 miles east of Reno, Nevada and 25 miles
north-northeast of Gabbs, Nevada. It is accessible by paved and unpaved public
roads. Because the property is in the exploration stage, the Company has not yet
established sources for water and power. There can be no certainty that the
Company will be able to acquire water at commercially reasonable terms or at
all. Failure to acquire water could have a materially adverse effect on the
Company's ability to commercially mine the Bruner property. Telephone service
would have to be via remote methods. The Company is unaware of any prior
commercial mining operations on the Bruner property. See "Risk Factors--Risks of
Gold Mining."
Property Interests
On October 11, 1996, the Company entered into a letter of intent to
enter into a four-year lease/option to purchase the Bruner property with Miramar
Mining Corporation ("Miramar"). Pursuant to the terms of the letter of intent,
which is currently being formalized into a written agreement, the Company will
make annual rental payments of approximately $80,000 per year until the year
2000 or until the Company chooses to exercise its option and pay $870,000 plus
100,000 shares of the Company's Common Stock. Miramar will also receive a 2.5%
royalty on all gold production over 200,000 ounces. Miramar also has an option
to enter into a joint venture with the Company for 25% of the operation if gold
reserves exceed 1,000,000 ounces. In addition, the Company is obligated to
conduct a minimum work program of 10,000 feet of drilling per year on the Bruner
Property. There can be no certainty that the Company and Miramar will enter into
a final agreement. As of the date of this Report, the Company has made a
non-refundable deposit of $10,000 and a rental payment of $80,000. If Miramar
and the Company do not execute a final agreement, the Company would loose any
rights to mine at the Bruner property and the Company would forfeit its payment
of $80,000. See "Risk Factors--Uncertainty of Title."
Geology
Historically, the Bruner district was developed on high-grade,
gold-quartz-adularia veins hosted in brecciated Tertiary alkali volcanics.
Production records are poor. Past production, as estimated from mill tailings
and dumps, was approximately 100,000 tons gold- silver ore with production
grades at approximately one ounce per ton. Lack of surface water
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limited the amount of development of the district. Past mining was done using
underground methods; however, the Company would plan on using the open-pit
method of mining should the Company determine such activity to be commercially
feasible.
Bonanza-style gold-silver mineralization is hosted in quartz-adularia
veins hosted in shear zones with strong northwesterly and/or north-northeasterly
trends. Gold grades in these shear zones appear to increase at the flanks of
rhyolitic domes and plugs which have intruded the porous volcaniclastic package.
Similar geologic settings are found at the Round Mountain and Rawhide gold
deposits, which contain more than 7 million troy ounces and 1 million ounces of
gold, respectively, approximately 100 miles to the southeast of the property.
Alteration of volcanics significant to gold mineralization can be found on more
than 70% of the property, and consists of quartz flooding and veining, clays and
potassic micas.
Reserves
While no minable reserves have been defined on the property by the
Company, a significant amount of both surface and subsurface exploration work
has been performed. Surface work has consisted of geologic mapping, sampling,
thematic mapping, and airborne and ground geophysics. Subsurface exploration
work has consisted of both sampling underground workings and approximately
15,000 feet of reverse circulation percussion drilling indicating the presence
of mineralization. See "Risk Factors--Risks of Gold Mining."
Development and Planned Mining and Processing
Metallurgical work performed by Miramar consisted of cyanide column
tests by a third-party laboratory of bulk samples taken of oxidized gold-bearing
rocks within underground small mine workings on a portion of the property.
Average gold recovery from two-inch material with head grades of 0.032 ounces
per ton was 68% at the end of 30 days. The Company will attempt to confirm these
results in the process of its work on the property. However, there can be no
assurance that the Company's actual gold production will reach such estimates.
See "Risk Factors--Risks of Gold Mining."
At the time of this Report, the Company has not made any production
commitments for this property and no reserves have been delineated. There are no
guarantees that the Company will elect to go into production at the Bruner
property. See "Risk Factors--Risks of Gold Mining."
WASHINGTON GULCH PROPERTY
The Company acquired the Washington Gulch Mine located in Montana from
Edward Mackay, a former officer and director and currently a principal
shareholder of the Company, in exchange for 3.8 million shares (post
stock-split) of Common Stock. Mr. Mackay was not an officer or director of the
Company at the time of the transaction. See "Item 12: Certain Relationships
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and Related Transactions." The Company has determined that the
Washington Gulch Mine does not fit its property profile; therefore, the Company
is not going to pursue commercial mining activity. The Company is currently in
the process of selling the plant and equipment of the Washington Gulch Mine and
the ground will have to be reclaimed. Management estimates reclamation costs to
be approximately $25,000. After reclamation, the Company will request the return
of its $206,000 reclamation bond currently being held by the State of Montana.
EXPLORATION, DEVELOPMENT OF MINE PROPERTIES AND EVALUATION
The Company conducts a grassroots exploration program in the
continental United States. The Company focuses on pure gold properties and
polymetallic deposits with a majority gold component. In addition, the Company
pursues aggressive exploration programs at its properties. The Company spent
approximately $2.3 million on exploration, development of mine properties and
evaluation activities for the thirteen months ended January 31, 1997 and
approximately $.7 million for fiscal year ended December 31, 1995. The Company
estimates that it will spend approximately $2 million during the fiscal year
ending January 31, 1998. Actual expenditures will vary depending on the results
of exploration activities at the Company's properties, the acquisition of new
properties and the Company's financial resources.
MARKETING
The Company plans to sell its production from its mines to metals firms
pursuant to fixed price forward contracts and at spot prices prevailing at the
time of sale. As of the date of this Report, the Company does not have any sales
contracts.
PERMITTING
The Company is required to obtain numerous permits at the federal,
state and county levels. Permitting is a continuing process, and as the Company
expands its operations at existing mining sites or acquires new properties, the
Company will be required to amend its existing permits and obtain new permits.
The Company is in the process of obtaining the necessary permits for the Relief
Canyon Mine and is amending its current permit at the Mission Mine. While the
Company believes it will obtain such required permits and amendments, the
failure to receive such permits would have an material adverse effect on the
Company. See "Risk Factors--Government Permits" and "--Environmental Controls"
INSURANCE
The business of gold mining is subject to certain types of risks,
including environmental hazards, industrial accidents, and theft. The Company
carries insurance against certain property damage loss (including business
interruption) and comprehensive general liability insurance. While the Company
maintains insurance consistent with industry practice, it is not possible to
insure against all risks associated with the mining business, or prudent to
assume that insurance will continue to be available at a reasonable cost. The
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Company has not obtained environmental liability insurance because such coverage
is not considered by management to be cost effective.
GOVERNMENT CONTROLS AND REGULATIONS
The Company's business is subject to extensive governmental controls
and regulations which are subject to amendment from time to time. The Company is
unable to predict what additional legislation or amendments may be proposed that
might affect its business or the time at which any such proposals, if enacted,
might become effective. Such legislation or amendments, however, could require
increased capital and operating expenditures and could prevent or delay certain
operations of the Company.
Outlined below are some of the more significant aspects of governmental
controls and regulations which materially affect the Company's principal area of
business.
Regulation of Mining Activity
All of the Company's operations, including its exploration, development
and production activities, are subject to environmental laws, policies and
regulations. These laws, policies and regulations regulate, among other matters,
emissions to the air, discharges to water, management of waste, management of
hazardous substances, protection of natural resources, protection of endangered
species, protection of antiquities and reclamation of land. The Company's
operations are also subject to numerous other Federal, state and local laws and
regulations. At the Federal level, the mining operations of the Company are
subject to inspection and regulation by the Division of Mine Safety and Health
Administration of the Department of Labor ("MSHA") under provisions of the
Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health
Administration ("OSHA") also has jurisdiction over certain safety and health
standards not covered by MSHA.
The Company's proposed mining operations and all future exploration and
development projects also require or will require a variety of permits. Although
the Company believes the permits for these projects can be obtained in a timely
fashion, permitting procedures are complex, costly, time consuming and subject
to potential regulatory delay. The Company does not believe that existing
permitting requirements or other environmental protection laws and regulations
would have a material adverse effect on its business, financial condition or
results of operations. However, the Company cannot be certain that future
changes in laws and regulations would not result in significant additional
expenses, capital expenditures, restrictions or delays associated with the
development and operation of the Company's properties. The Company cannot
predict whether it will be able to renew its existing permits or whether
material changes in existing permit conditions will be imposed. Non-renewal of
existing permits or the imposition of additional conditions could have a
material adverse effect on the Company's financial condition and results of
operations. See "Risk Factors--Government Permits."
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The State of Nevada (where a majority of the Company's properties are
located) adopted the Mined Land Reclamation Act (the "Nevada Act") in 1989 which
established design, operation, monitoring and closure requirements for all
mining facilities. The Nevada Act has increased the cost of designing,
operating, monitoring and closing new mining facilities and could affect the
cost of operating, monitoring and closing existing mining facilities. The State
of Nevada has also adopted reclamation regulations pursuant to which reclamation
plans have been prepared and financial assurances established for existing
facilities. New facilities are also required to provide a reclamation plan and
financial assurance to ensure that the reclamation plan is implemented upon
completion of operations. The Nevada Act also requires reclamation plans and
permits for exploration projects that will result in more than five acres of
surface disturbance.
Environmental Regulations
Legislation and implementation of regulations adopted or proposed by
the United States Environmental Protection Agency ("EPA"), the BLM and by
comparable agencies in various states directly and indirectly affect the mining
industry in the United States. These laws and regulations address the
environmental impact of mining and mineral processing, including potential
contamination of soil and water from tailings discharges and other wastes
generated by mining companies. In particular, legislation such as the Clean
Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act
("RCRA"), the Environmental Response, Compensation and Liability Act and the
National Environmental Policy Act require analysis and/or impose effluent
standards, new source performance standards, air quality antimycin standards and
other design or operational requirements for various components of mining and
mineral processing, including gold-ore mining and processing. Such statutes also
may impose liability on the Company for remediation of waste it has disposed.
The Company's gold mining and processing operations will generate large
quantities of solid waste which is subject to regulation under the RCRA and
similar state laws. The majority of the waste which will be produced by the
Company's operations is "extraction" waste that EPA has determined not to
regulate under RCRA's "hazardous waste" program. Instead, the EPA is developing
a solid waste regulatory program specific to mining operations under the RCRA.
Of particular concern to the mining industry is a proposal by the EPA entitled
"Recommendation for a Regulatory Program for Mining Waste and Materials Under
Subtitle D of the Resource Conservation and Recovery Act" ("Strawman II") which,
if implemented, would create a system of comprehensive Federal regulation of the
entire mine site. Many of these requirements would be duplicative of existing
state regulations. Strawman II as currently proposed would regulate not only
mine and mill wastes but also numerous production facilities and processes which
could limit internal flexibility in operating a mine. To implement Strawman II
the EPA must seek additional statutory authority, which is expected to be
requested in connection with Congress' reauthorization of RCRA.
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The Company is also subject to regulations under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
"Superfund") which regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to "CERCLA" and "ESA" are
being considered by Congress; the impact of these revisions on the Company is
not clear at this time.
Moreover, the Clean Air Act, as recently amended, mandates the
establishment of a Federal air permitting program, identifies a list of
hazardous air pollutants, including various metals and cyanide, and establishes
new enforcement authority. The EPA has published final regulations establishing
the minimum elements of state operating permit programs. The states had until
November 15, 1993 to submit their permit programs to the EPA for review and
approval. Until the state regulations are promulgated and approved by the EPA,
the full impact of the new regulations on the Company cannot accurately be
predicted.
In addition, the Company is required to mitigate long-term
environmental impacts by stabilizing, contouring, resloping, and revegetating
various portions of a site. While the Company performs a portion of the required
work concurrently with its operations, the majority of the environmental
mitigation occurs once such operations are completed. These reclamation efforts
are conducted in accordance with detailed plans which have been reviewed and
approved by the appropriate regulatory agencies. The Company posts security
bonds to cover the estimated costs of such reclamation as required by permit.
The Company believes that its operations, as they exist today, are in
substantial compliance with Federal and state regulations and that no
significant capital expenditures for environmental control facilities will be
required in the near future. However, compliance with these standards, laws and
regulations with respect to future planned operations may necessitate control
measures and expenditures which, if required, cannot be estimated at this time.
Compliance may require substantial prophylactic measures regarding operation of
new mines and mills or materially affect the proposed schedule for construction
of such facilities. Under certain circumstances, construction of mining
facilities may be stayed pending regulatory approval. See "Risk
Factors--Environmental Controls."
GOLD MARKET
The profitability of the Company's future operations will be affected
by the market price of gold. Market gold prices can fluctuate widely and are
affected by numerous factors beyond the Company's control, including industrial
and jewelry demand, expectations with respect to the rate of inflation, the
strength of the U.S. dollar (the currency in which the price of gold is
generally quoted) and of other currencies, interest rates, central bank sales,
forward sales by producers, global or regional political or economic events and
production
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costs in major gold-producing regions such as South Africa and Russia. In
addition, the price of gold sometimes is subject to rapid short-term changes
because of speculative activities.
The demand for and supply of gold affects gold prices, but not
necessarily in the same manner as supply and demand may affect the prices of
other commodities. The supply of gold consists of a combination of new mine
production and existing stocks of bullion and fabricated gold held by
governments, public and private financial institutions, industrial organizations
and private individuals. As the amounts produced in any single year constitute a
very small portion of the total potential supply of gold, normal variations in
current production do not necessarily have a significant impact on the supply of
gold or on its price.
If the Company's projected revenue from potential gold sales falls for
a substantial period below the Company's anticipated costs of production at any
or all of its mining projects, the Company may determine that it is not
economically feasible to commence production or, if a mine is in production, to
continue with commercial production at that particular facility.
The gold market generally is characterized by volatile prices and
strong competition. The volatility of gold prices is illustrated in the
following table of annual high, low and average gold fixing prices per ounce on
the London P.M. Fix:
Year High Low Average
1985 $341 $294 $317
1986 438 326 368
1987 500 390 446
1988 495 395 437
1989 416 356 381
1990 424 346 383
1991 403 344 362
1992 374 330 344
1993 406 326 360
1994 396 370 334
1995 396 372 384
1996* 415 367 388
Sources of Data: Metals Week
*Source of Data: Gold Fields Limited, Gold 1997
On June 6, 1997, the late fixing for gold on the London Exchange was
$338.90 per ounce and the closing spot market price of gold as quoted by Handy
and Harmon, New York, was $338 per ounce. Gold prices on both the London P.M.
Fix and the New York
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Commodity Exchange are regularly published in most major financial publications
and many nationally recognized newspapers.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements in this report, including the exhibits, contain forward
looking statements and information relating to the Company that is based on the
beliefs of management, as well as assumptions made by and information currently
available to management. Forward looking statements included statements preceded
by the words "anticipate," "believe," "estimate," "expect," "indicate,"
"intend," "will," and similar expressions. Estimates of future production and
future costs per ounce are forward- looking statements.
The purpose of this cautionary statement is to identify certain important
factors and assumptions on which such forward looking statements may be based or
which could cause actual results to differ materially from those expressed in
the forward looking statements. The important factors and assumptions set forth
below should be read in conjunction with the items contained under the heading
"RISK FACTORS."
Gold Production
Future gold production could be affected by, among other things, the
price of gold, risks and hazards associated with mining operations, variances in
ore grade and metallurgical and other characteristics from assumptions contained
in mining plans, labor disputes and acts of God.
Estimates of Operating Costs and Capital Costs; Capital Projects
Estimates of cash costs for mining operations are developed based on
production estimates, anticipated mining and ground conditions, estimated costs
of materials, supplies and utilities, exchange rates and other items. Estimates
of amortization of noncash costs are based on total capital costs and reserve
estimates and may change at least annually based on actual amounts of
unamortized capital and changes in reserve estimates.
Estimates for reclamation and environmental remediation costs are
developed based on existing and expected legal requirements, cost estimates
provided by Company employees and third parties and other factors. Estimates
also reflect assumptions with respect to actions of government agencies,
including exercise of discretion and the amount of time government agencies may
take in completing processes required under applicable laws and regulations. As
a result, final costs may vary significantly from estimates. The Company intends
to periodically reevaluate its reclamation cost estimates and reclamation
reserves to take account of such factors.
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Estimates of future capital costs are based on a variety of factors and
may include estimated levels of future production, estimates by and contract
terms with third-party suppliers, expectations as to government and legal
requirements, feasibility reports (which may be prepared by Company personnel
and/or outside consultants) and other factors. Capital cost estimates for new
projects under development generally are subject to greater uncertainties than
additional capital costs for existing operations.
Estimated periods for completion of capital projects are based on many
factors, including estimates provided by contractors, engineers, suppliers and
others involved in design and construction of projects. Estimates also reflect
assumptions with respect to factors beyond the Company's control, including, but
not limited to, the time government agencies may take in processing
applications, issuing permits and otherwise completing processes required under
applicable laws and regulations. Actual time to completion may vary
significantly from estimates.
Estimates of exploration costs are based upon many factors such as past
exploration costs, estimates of the level and cost of future activities, and
assumptions regarding anticipated results on each property. Actual costs may
vary during the year as a result of such factors as actual exploration results
(which could result in increasing or decreasing expenditures for particular
properties), changed conditions, and acquisitions and dispositions of property.
COMPETITION
The Company competes with other mining companies in connection with the
acquisition of mining claims and leases on precious metal properties and in
connection with the recruitment and retention of quality employees.
There is significant competition for the limited number of precious
metals acquisition opportunities in the continental United States. As a result
of this competition, much of which is with companies with greater financial
resources, the Company may be unable to continue to acquire attractive mining
properties on terms it considers acceptable.
RISK FACTORS
The risk factors identified below should be considered in conjunction
with the information contained under the caption "Cautionary Statement for
Purposes of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995."
Limited Relevant Operating History; Significant and Continuing
Operating Losses; Accumulated Deficit
The Company has been engaged primarily in exploration and development
of its mines and has had minimal revenues. Accordingly, the Company has a
limited relevant
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operating history upon which an evaluation of its prospects can be made. Such
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in the establishment of a new business in the mining
industry, which is a continually evolving industry characterized by an
increasing number of market entrants and intense competition, as well as the
risks, expenses and difficulties encountered in the commercialization of new
mines. As of January 31, 1997, the Company had an accumulated deficit of
approximately $3,401,816. Since such date, losses have increased and are
continuing through the date of this Report. In addition, the Company's operating
expenses have increased and can be expected to continue to increase in the
future in connection with the Company's efforts to develop and commercially mine
its properties. Accordingly, it is anticipated that the Company will continue to
incur significant losses at least until it is able to mine gold and silver in
sufficient quantities to support operations. There can be no assurance that the
Company will be successful in recovering sufficient quantities of gold and
silver such that the Company can ever achieve profitable operations.
Significant Capital Requirements; Need for Additional Capital
The Company's capital requirements have been and will continue to be
significant. The Company has been dependent primarily on the private placements
of its securities. The Company anticipates, based on its current proposed plans
and assumptions relating to its mining operations, that proceeds from its former
private placements, borrowings and planned revenues will not be sufficient to
satisfy the Company's contemplated cash requirements and the Company will be
required to raise additional capital immediately. If the Company is unable to
obtain additional financing, it will be required to curtail the development of
its mining operations and possibly cease its operations. Any additional equity
financing may involve substantial dilution to the Company's then-existing
shareholders. The Company's independent accountants have included an explanatory
paragraph in their report on the Company's financial statements for the thirteen
months ended January 31, 1997, indicating substantial doubt about the Company's
ability to continue as a going concern.
Late Payments Relating to Debt; Judgment
As of the date of this Report, the Company is approximately $115,000 in
arrears on interest and principal payments relating to outstanding, unsecured
note payables. In addition, the Company currently owes a judgment debtor
approximately $220,000.
Risks of Gold Mining
The Company's business of gold mining is highly speculative, full of
risks and uncertainties and is frequently non-productive. Among other things,
the business depends on the successful location of mines containing economically
recoverable mineralization. Once such sites have been identified, it can take
years of preparation and capital expenditure before
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successful development of the mine. Mining is subject to a variety of risks and
hazards, including rock falls and slides, cave-ins, flooding, other weather
conditions, and other acts of God. Such events could have a material adverse
effect on the Company.
Proposed Legislation Affecting the Mining Industry
During the past four years, the United States Congress has considered a
number of proposed amendments to the General Mining Law of 1872, as amended (the
"General Mining Law"), which governs mining claims and related activities on
Federal lands. In 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on Federal lands. Beginning in October 1994, a
moratorium on processing of new patent applications was approved. In addition, a
variety of legislation is now pending before the United States Congress to amend
further the General Mining Law. The proposed legislation would, among other
things, change the current patenting procedures, impose royalties, and enact new
reclamation, environmental controls and restoration requirements. The royalty
proposals range from a 2% royalty on net profits from mining claims to an 8%
royalty on modified gross income/net smelter returns. The extent of any such
changes is not presently known and the potential impact on the Company as a
result of future congressional action is difficult to predict. If enacted, the
proposed legislation could adversely affect the potential for development of
operating mines on the Federal unpatented mining claims held by the Company. The
Company's financial performance could therefore be materially and adversely
affected by the passage of all or pertinent parts of the proposed legislation.
Government Permits
The Company is seeking governmental permits for production and
expansion of allowed production activities at its Relief Canyon and Mission
Mines respectively and, to date, has not received the necessary permits to
operate any of its mines. Obtaining the necessary governmental permits is a
complex and time-consuming process involving numerous Federal, state and local
agencies. The duration and success of each permitting effort is contingent upon
many variables not within the Company's control. In the context of environmental
protection permitting, including the approval of reclamation plans, the Company
must comply with known standards, existing laws and regulations which may entail
greater costs and delays depending on the nature of the activity to be permitted
and the interpretation of the regulations implemented by the permitting
authority. The failure to obtain certain permits could have a material adverse
effect on the Company's business and operations.
Environmental Controls
The Company is required to comply with numerous environmental laws and
regulations imposed by Federal and state authorities. At the Federal level,
legislation such as the Clean Water Act, the Clean Air Act, the PCRA, the
Environmental Response, Compensation and Liability Act and the National
Environmental Policy Act impose effluent
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and waste standards, performance standards, air quality and emissions standards
and other design or operational requirements for various components of mining
and mineral processing, including gold-ore mining and processing. Although the
majority of the wastes produced by the Company's operations are "extraction" and
"beneficiation" wastes, which the EPA does not regulate under its current
"hazardous waste" program, the EPA is currently developing a separate program
under the RCRA to regulate such waste. Until the new regulatory program is
formally proposed by the EPA, there is not a sufficient basis on which to
predict the potential impacts of such regulations on the Company.
Many states, including the States of Nevada and California (where a
majority of the Company's properties are located), have also adopted regulations
that establish design, operation, monitoring, and closing requirements for
mining operations. Under these regulations, mining companies are required to
provide a reclamation plan and financial assurance to insure that the
reclamation plan is implemented upon completion of mining operations. Further,
under the Clean Air Act, as amended, states are required to develop permit plans
for polluting and potentially polluting industries such as mining and smelting.
Although the states have submitted their permit programs to the EPA for review,
until final regulations are promulgated and approved by the EPA, the Company
cannot predict the full impact of these state permitting regulations.
The Company's compliance with Federal and state environmental laws may
necessitate significant capital outlays or delays, materially and adversely
affect the economics of a given property, or cause material changes or delays in
the Company's intended exploration, development and production activities.
Further, new or different environmental standards imposed by governmental
authorities in the future could adversely affect the Company's business
activities. See "Government Controls and Regulations."
Uncertainty of Title
The Company acquired portions of the Relief Canyon Mine from Welsh
pursuant to an assignment of an original lease between Welsh and Santa Fe (the
"Santa Fe Lease"). The Santa Fe Lease requires that Santa Fe consent to any
assignment. To date, Santa Fe has not consented to an assignment, but has
accepted payment of the Company's lease payments and it is the Company's
position that such acceptance constitutes consent. However, there can be no
certainty that the Company's rights to the lease are secure.
The Company's interest in the Bruner property consists of a letter of
intent with Miramar. While the Company is in the process of negotiating a final
agreement with Miramar, there can be no certainty that the parties will enter
into such an agreement. If the Company and Miramar are unable to execute a final
agreement, the Company would loose all rights to mine at the Bruner property and
would forfeit all amounts paid to Miramar to date, approximately $90,000, and
all amounts spent on exploration and development to date, approximately $12,000.
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A majority of the Company's properties consist of unpatented mining
claims or mill site claims which the Company owns or leases. These claims are
located on Federal land or involve mineral rights which are subject to the
claims procedures established by the General Mining Law of 1872. Under this law,
if a claimant complies with the statute and the regulations for the location of
a mining claim or mill site claim, the claimant obtains a valid possessory right
to the land or the minerals contained therein. To preserve an otherwise valid
claim, the claimant must also make certain additional filings with the county in
which the land or mineral is situated and the BLM, and pay an annual "rental"
fee of $100 per claim. If a claimant fails to make the annual rental payment or
make the required filings, the mining claim or mill site claim is void or
voidable.
Because mining claims and mill site claims are self-initiated and
self-maintained rights, they are subject to unique vulnerabilities not
associated with other types of property interests. It is difficult to ascertain
the validity of unpatented mining claims or mill site claims from public
property records and, therefore, it is difficult to confirm that a claimant has
followed all of the requisite steps for the initiation and maintenance of a
claim. Under Federal law, in order for an unpatented mining claim to be valid,
the claimant has the burden of proving that the mineral occurrence on which it
is based can be mined at a profit at the time the claim is located and at any
time when anyone makes any subsequent challenge to the claim's validity. It is
therefore conceivable that, during times of falling metal prices, claims which
were valid when they were located could become invalid if challenged.
Title to unpatented claims and other mining properties in the western
United States typically involves certain other inherent risks due to the
frequently ambiguous conveyancing history of those properties, as well as the
frequently ambiguous or imprecise language of mining leases, agreements and
royalty obligations. No generally applicable title insurance is available for
unpatented mining or mill site claims or many other of the Company's mineral
interests. As a result, some of the titles to the Company's properties may be
subject to challenge.
Hedging Activities
The Company anticipates that from time to time it will enter into
fixed-forward and spot-deferred sales contracts for the sale of its gold with
the objective of mitigating the impact of downturns in the gold market and
providing adequate cash flow for operations, although it is engaging in no such
activities at this time. The Company may also purchase put options for the sale
of its gold.
Dependence on Key Personnel
The Company is dependent on the services of A. Scott Dockter, the
Company's Chief Executive Officer, and President. Competition in the mining
industry for qualified individuals such as Mr. Dockter is intense, and the loss
of Mr. Dockter could have a material adverse effect on the Company's business
and operations. The Company currently
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does not have key-person insurance. The Company is in the process of entering
into an employment agreement with Mr. Dockter which will provide for certain
payments upon termination or resignation resulting from a change in control of
the Company or termination without cause (as those terms will be defined in such
agreements).
OTHER
The Company does not own any patents, trademarks, licenses, franchises
or concessions except for mineral interests granted by governmental authorities
and private land owners.
The Company's business is generally not seasonal in nature except to
the extent that weather conditions at certain times of the year may affect the
Company's access to its properties.
The Company, as of January 31, 1997, had a total of 25 employees, 8 of
whom are management and professional staff. None of the Company's employees are
subject to any collective bargaining agreements or union affiliations. Relations
between management and employees are considered to be good.
On November 26, 1996, the Company purchased two aircraft at a total
cost of $562,000 to transport management and professional personnel to and from
the Company's properties. Such equipment is usual and customary in the mining
industry as project sites are in remote areas not serviced by commercial
carriers and auto travel between project sites or from the Company's office to
project sites is impracticable.
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GLOSSARY OF MINING TERMS
ASSAY - A test performed on a sample to determine mineral content.
BACKFILL - waste material used to fill the void created by mining an ore body.
BARREN SOLUTION POND - a holding area containing cyanide solution from which
most of the gold and silver has been removed.
BRECCIATED TERTIARY ALKALI VOLCANICS - shattered volcanic rock composed of
above-coverage amounts of potassium and sodium minerals.
CONCENTRATE - a product containing valuable metal from which most of the waste
material in the ore has been segregated.
CONTAINED OUNCES - the estimate of the total number of ounces of gold contained
in an ore body.
CRUSHING AND GRINDING - the process by which ore is broken into small pieces to
prepare it for further processing.
CUT-AND-FILL STOPING - a mining method used to extract ore from an underground
mine.
DORE - unrefined metal bars consisting of gold, silver and impurities which will
be further refined.
DRIFTS - development cuts in underground mining which will allow access to the
ore body.
GOLD-QUARTZ ADULARIA - an alteration epithermal per ton mineral assembly.
GRADE - the amount of valuable mineral in each ton of ore, expressed as ounces
per ton for precious metals.
RESERVE GRADE - estimated metal content per ton of an ore body, based
on reserve calculations.
CUT-OFF GRADE - the minimum contained value at which an ore body can be
economically mined in a given process.
MILL HEAD GRADE - metal content per ton of mined ore going into a mill
for processing.
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RECOVERED GRADE - the metal content per ton of ore recovered from a
given extraction process.
GRAVITY CIRCUIT - a process of recovering gold from crushed rock or gravel using
water and gold's high density to separate it from the lighter material.
HEAD GRADES - amount of gold contained in pre-processed ore (mill, heap,
crusher).
HEAP LEACHING - a process of extracting gold and silver by placing crushed and
uncrushed ore on sloping, impermeable pads and applying a dilute cyanide
solution that exchanges a portion of the contained gold for sodium ions, which
is then recovered in a carbon column or Merrill-Crowe circuit.
HEAP LEACH PAD ("HEAP") - a large, impermeable foundation used as a collection
plane for cyanide solution during heap leaching. The leach solution is collected
and does not escape from the circuit.
INTERFORMATIONAL TECTONIC BRECCIA - interbedded units of rock which have been
faulted.
MILL - a facility where ore is ground and the metals are extracted by physical
and/or chemical processes.
MILLING CIRCUIT - the combination of various processes and systems which
separate waste materials from the valuable minerals, producing a concentrate, or
dore.
MINERALIZED MATERIAL - includes mineralized bodies which have been physically
delineated by drilling, underground work, surface trenching, etc., and found to
contain a sufficient amount of material with an average grade of metal or metals
to warrant further exploration expenditures. Mineralized material has
established geologic continuity but does not qualify as a proven and probable
reserve until final technical, and economic factors have been resolved.
MINING CLAIM - public land which a party has staked or marked out in accordance
with federal, provincial, or state mining laws to acquire the right to explore
for and exploit the minerals above and below the surface.
NET PROFITS INTEREST - a royalty based on the profit remaining after recapture
of certain operating capital and other costs as determined by agreement.
NET SMELTER ROYALTY - a royalty based on gold produced, less the cost of
refining and transportation; royalty based on a contract agreement which will be
credited to the land owner or parties of interest.
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ORE - material that can be economically mined and processed for gold or silver.
OUNCE - troy ounce, which is equivalent to 34.286 grams.
PREGNANT POND - pond containing cyanide solution impregnated with gold and
silver which has percolated through the ore on the leach pad.
RECOVERY RATE - 1) percentage of the valuable mineral recovered in the
processing of ore; 2) the rate at which mineral is extracted from an extraction
process.
RESERVES:
PROVEN RESERVES - reserves for which (a) 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.
PROBABLE RESERVES - reserves for which quantity, 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 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.
REVERSE CIRCULATION DRILLING - a type of rotary drilling that uses a
double-walled drill pipe. Compressed air, water or other drilling medium is
forced down the space between the two pipes to the drill bit and the drilled
chips are flushed back up to the surface through the center tube of the drill
pipe.
RUN-OF-MINE ORE - unprocessed ore which is hauled directly to the heap leach
pads without being crushed.
SANDY SHALES - a compacted, thin-bedded rock composed mostly of silt and clay
particles with lessor sand.
STRIP (OR STRIPPING) RATIO - the tonnage of waste material removed to allow the
mining of one ton of ore in an open-pit.
SULFIDE ORE - mineralization contained in the form of a sulfide.
TAILINGS - material removed from a milling circuit after separation of the
valuable minerals.
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ITEM 3: LEGAL PROCEEDINGS
a) On December 3, 1996, the case of Christiansen v. Newgold, et al., a
purported breach of contract action was filed in the Second Judicial District,
Washoe County, Reno, Nevada. Plaintiff alleges that he is owed $250,000 relating
to recovery of his investment with a property subsequently acquired by the
Company. The Company believes that Plaintiff's claim is meritless and the claim
is being vigorously defended by counsel.
b) On January 28, 1997, the case of Stewart v. Newgold, a purported
breach of contract for the purchase of the Cerro Gordo Mine, in California, was
filed in the Second Judicial District, Washoe County, Reno Nevada. Plaintiff was
unable to present clear title to the property and the Company was unable to
clear title and refused to make additional payments called for under the
contract. Plaintiff is seeking $40,000 in damages. This case is in the initial
pleadings stage and is being vigorously defended by counsel.
c) On April 25, 1997, the Company filed a declaratory relief action in
the case of Newgold v. Wirsing, et al. in the Sacramento County Superior Court.
Mr. Wirsing and his fellow defendant, Mr. Wong, are each alleging that they are
the owners of a 10% share of the net profits interest from Relief Canyon. The
Company filed the action to seek declaratory relief that Messrs. Wirsing and
Wong's claim is without merit. Mr. Wong has filed a $100,000,000 mechanics lien
on the Relief Canyon Mine. The Company believes that the use of a mechanics'
lien is improper and that there is no merit in Messrs. Wirsing and Wong's
claims. However, to the extent that Messrs. Wirsing and Wong are successful, it
could have a material adverse effect on the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 21, 1996, as approved by the Western District of New York
Court, pursuant to the Plan and by means of a written ballot, the Stockholders
and Creditors of WAC approved the Plan and the Merger by a vote of 315,343 votes
cast in favor, 9,827 votes cast against and 2,974,021 votes absent.
During a special stockholder meeting held on June 19, 1996, the
Company's stockholders approved the Plan and the Merger by a vote of 10,568,358
votes cast in favor, no votes cast against and no votes abstaining.
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PART II
ITEM 5: MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Prior to the Plan the common stock of WAC was traded on the NASDAQ
Electronic Bulletin Board under the symbol "WHACQ". There have been no trades of
the Company's Common Stock since January 1997. The Company, after approval of
the Plan, applied for and received a change of its trading symbol to "NGLD". The
Company has arranged for a new market maker to file an information statement
pursuant to Rule 15c2-11 promulgated under the Securities Exchange Act of 1934.
As of the date of this Report, trading has not yet commenced. On May 23, 1997,
the Company had 18,761,839 shares of Common Stock, par value $.001, outstanding
held by approximately 760 stockholders of record. The Company has not to date
declared or paid any dividends to holders of its securities. The Board of
Directors does not intend to declare any dividends in the foreseeable future,
but instead intends to retain earnings for use in the Company's business
operations.
The following table sets forth the high and low bid prices for the
Common Stock, as reported by the NASD's OTC Bulletin Board for the quarters
indicated. The prices set forth represent quotes between dealers and do not
include commissions, mark-ups or mark-downs, and may not represent actual
transactions.
Common Stock
------------
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
Fiscal Quarter Ended:
January 31, 1995 4.50 3.50 4.4375 3
April 30, 1995 2.625 1.00 3.50 2
October 31, 1995 0.25 0.1875 0.3125 0.25
January 31, 1996 0.0935 0.0625 0.15625 0.125
April 30, 1996 0.35 0.03125 0.09375 0.08
July 31, 1996 0.15625 0.0625 0.25 0.25
October 31, 1996 0.0625 0.0625 0.125 0.125
January 31, 1997 0.0625 0.0625 0.0625 0.0625
March 31, 1997 N/A N/A N/A N/A
27
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ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged primarily in the exploration and development of
mining properties. The Company is the result of a merger between WAC and NGNV
pursuant to the Plan, effective as of November 21, 1996. For accounting
purposes, under the terms of the Merger, NGNV has been treated as the acquirer.
Accordingly, the historical financial statements prior to November 21, 1996 are
those of NGNV and do not reflect any financial information of
WAC as a separate entity. In addition, under the terms of the Merger, NGNV's
fiscal year was changed from December 31 to January 31. Hence, the comparative
financial information is for the thirteen months ended January 31, 1997 to the
year ended December 31, 1995.
The Company is engaged in the business of acquiring dormant, potentially
gold producing properties located in the continental United States and
developing such properties into commercial gold mining operations.
As of the date of this Report, the Company has not had any significant
revenue derived from its operations. The Company's capital requirements have
been and will continue to be significant. The Company has been dependent
primarily on the private placements of its securities.
FINANCIAL PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS
As of January 31, 1997, the Company had $876,573 in cash and $248,344
in working capital. Based upon current plans and assumptions relating to
operations, the Company will require approximately an additional $2 million to
complete permitting and to begin operations and gold production at the Relief
Canyon Mine. Further, the Company will need approximately $500,000 to begin
production at the Mission Mine and approximately $500,000 for exploration at the
Bruner Property. The Company is currently pursuing several potential funding
opportunities including the sale of a 1.5% NSR relating to the Relief Canyon
Mine for approximately $500,000; however, the Company has no current commitments
for additional funding. There can be no assurance that any of such opportunities
will result in actual funding or that additional financing will be available to
the Company when needed, on commercially reasonable terms, or at all. If the
Company is unable to obtain additional financing, it will be required to curtail
its development plans and cease its operations. Any additional equity financing
may involve substantial dilution to the Company's then-existing shareholders.
The Company's independent accountants have included an explanatory paragraph in
their report on the Company's financial statements for the thirteen months ended
January 31, 1997, indicating substantial doubt about the Company's ability to
continue as a going concern.
At the Relief Canyon Mine, the Company intends to begin operations upon
approval of its Plan of Operations and issuance of a zero discharge permit and
an
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environmental assessment by the Nevada Department of Environmental Protection
and final approval by the BLM. The Company anticipates issuance of the permits
during the beginning of the third quarter of 1997. In addition, the Company must
post an $800,000 reclamation bond and anticipates that its contribution to the
bond will be $300,000 with the remaining $500,000 balance provided by the State
of Nevada Bond Pool, of which there can be no certainty. The recovery facilities
are complete with the exception of the development of an additional leach pad
will need to be built at an approximate cost of $200,000 and approved by the
State of Nevada and the BLM. Mining and loading the new pad with processed ore
will be accomplished by third party contractors. The Company has allocated $1
million for contractor mobilization and operation for the initial 90 days with
$500,000 held in reserve for possible contingencies. The Company has personnel
in place to operate the leach system and recovery facility and does not expect
to hire additional employees for the Relief Canyon Mine operations. The Company
intends to have analyses completed by an independent engineering firm to
establish proven and probable reserves for the Relief Canyon claims based upon
the exploration data.
At Mission Mine, the Company has allocated $500,000 for mobilization of
contractors to begin operation at the Mission Mine. In addition, the Company
intends to engage third party contractors to complete approximately $200,0000 in
renovations to the production shaft of the existing mine, make approximately
$50,000 in improvements to the road to the mine and develop a Plan Of Operation,
with an anticipated cost of $150,000. The Company has also allocated $100,000 to
possible contingencies. The Company anticipates mining will begin in the next
twelve months using contractors and ore will be processed at existing off-site
mills.
Under terms of the letter of agreement for the Bruner property, the
Company will complete 10,000 feet of exploration drilling in the next eighteen
months. The Company also expects to spend approximately $400,000 for exploration
by drilling contractors and $80,000 for maintenance costs of the property.
RESULTS OF OPERATIONS
Thirteen Months Ended January 31, 1997 as Compared to Year Ended
December 31, 1995
For the thirteen months ended January 31, 1997, operating expenses,
which consist of general and administrative expenses and exploration costs, were
approximately $1,788,000 as compared to $193,000 for the year ended December 31,
1995. The increase was due to the payment of officer salaries, increased
prepayment royalties, professional fees associated with the Merger and the Plan
and increased general and administrative expenses.
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<PAGE>
Exploration and evaluation expenses increased to approximately $284,000
for the thirteen months ended January 31, 1997, from $21,000 for the year ended
December 31, 1995, due to increased drilling and geological survey activity and
pre-payment royalties. Exploration costs for the thirteen months ended January
31, 1997, were $113,319 for Mission Mine, $97,748 for the Bruner property and
$72,809 for exploration relating to other properties. Aggressive mine site
exploration utilizing new geologic interpretations will be conducted at each of
the Company's mines. Non-mine site efforts will focus on reconnaissance efforts
to locate potential mine and property acquisition candidates. The Company
intends to enter into exploration joint ventures on certain of its properties
during 1997. Actual exploration and evaluation expenditures will vary as a
result of the acquisition of new properties, the success of exploration
activities on existing properties and the success of financing efforts. Spending
on advanced projects and acquisitions, which depends on opportunities and
discoveries, cannot be projected.
General and administrative expenses increased to approximately
$1,505,000 for the thirteen months ended January 31, 1997, from $172,000 for the
year ended December 31, 1995, principally due to increased officer compensation,
professional fees relating to reorganization and increased geologist and
engineering expenses. Geologist and engineering expenses were $235,269 for the
thirteen months ended January 31, 1997 versus $57,290 for the year ended
December 31, 1995. Officer salaries were $237,502 for the thirteen months ended
January 31, 1997 versus zero for the year ended December 31, 1995. Legal and
professional fees incurred during the thirteen months ended January 31, 1997
were $331,824 versus $4,343 for the year ended December 31, 1995. Legal and
professional fees during the thirteen months ended January 31, 1997, included
$272,030 related to the Plan of Reorganization and the Merger.
A former property was reclaimed during the thirteen months ended January
31, 1997. Costs of reclamation were $30,152 and $69,470 for the periods ending
January 31, 1997, and December 31, 1995, respectively.
Financing, Liquidity and Capital Resources
The Company has financed its operations principally though private
placements of the Company's securities. Prior to the Merger, Newgold, Inc., a
Nevada corporation, hereinafter "NGNV", was a privately held Nevada corporation.
In April 1996, the Company entered a 50:50 joint venture with Casmyn
Corporation ("Casmyn") to complete the development of Relief Canyon Mine.
Pursuant to the terms of this agreement, Casmyn contributed $775,000 with a
commitment to contribute an additional $623,000 at a later date and the Company
30
<PAGE>
contributed its interest in the Relief Canyon Mine. Pursuant to a further
agreement dated October 18, 1996, the Company and Casmyn agreed to terminate the
joint venture. The agreement entered into between the parties called for the
Company to pay Casmyn $900,000 plus one million shares of Common Stock in
exchange for a return of all rights, title and interest in Relief Canyon Mine
and the proceeds therefrom less any other royalties granted on the project. This
transaction was completed on December 5, 1996.
On June 18, 1996, NGNV amended its Articles of Incorporation to
increase its authorized Common Stock to 50,000,000 shares of Common Stock and
decreased the par value of its Common Stock from $.01 to $.001. In addition, the
Company paid a Common Stock dividend of 67,683.58 shares of Common Stock for
each share of Common Stock outstanding (the "Dividend"). After giving effect to
the Dividend, NGNV had 10,568,358 shares of Common Stock outstanding.
On June 29, 1995, the Company, then operating as Warehouse Auto Centers,
Inc., a discount auto parts retail outlet, was involuntarily placed into Chapter
11 Bankruptcy by certain of its unsecured creditors pursuant to the U.S.
Bankruptcy Code (the "Code"). Pursuant to a plan of reorganization (the "Plan")
approved by the U.S. Bankruptcy Court for the Western District of New York, on
November 21, 1996, the Company was merged with NGNV.
Under the terms of the Plan, the Company: (i) effected a 1-for-65
reverse stock split of the Company's outstanding securities; (ii) acquired all
of the shares of NGNV in exchange for 12,000,000 shares of the Company's Common
Stock (post-reverse split); (iii) filed an amendment to its Articles of
Incorporation changing its name to Newgold, Inc. and increasing the Company's
authorized shares of Common Stock to 50,000,000 shares of Common Stock with a
par value of $.001 per share; (iv) obtained a new cusip number, 651362-10-5, and
trading symbol, "NGLD," from the NASD; (v) paid off its creditors in cash or
with shares of Common Stock pursuant to Section 1145 of the Code; (vi) appointed
a new Board of Directors and management; (vii) canceled all pre-petition
options, warrants and other rights of commitments by the Company to issue any
securities or pay any benefits to any person or business entity other than those
approved in the Plan; and (viii) appointed Oxford Transfer & Registrar as the
Company's transfer agent.
Under the terms of the bankruptcy law the Company was allowed to raise
capital by issuing Code Section 364 Certificates of Indebtedness (the "Debtor
Certificates") which were, at the holder's option, convertible into (i) either a
promissory note bearing 10% interest to be repaid in two years or (ii) shares of
Common Stock at the rate of one share per $1.00 of debt. The Company
successfully raised $4,706,970. As a result of the conversion of all of the
Debtors Certificates for Common Stock, the Company
issued an aggregate of 4,707,000 shares of Common Stock. In addition, the
Company paid a $10,000 consulting fee and issued an additional 428,130 shares of
Common Stock for commissions, and 305,709 shares of Common Stock were issued to
shareholders and creditors of WAC as required under the Plan of Reorganization
and Merger.
From May 1994 through April 1995, the Company raised an aggregate of
approximately $890,000 the sale of the rights to property and profits therefrom
relating to several of the Company's mines (the "Net Profit Interest
Agreements"). An aggregate of $440,000 of the Net Profit Interest Agreements
were repurchased and paid in cash. In addition, an aggregate of $442,037 of Net
Profit Interest Agreements were exchanged for 1,431,642 shares of Common Stock.
As of the date of this Report, no Net Profit Interest Agreements are
outstanding. But see "Item 3--Legal Proceedings" -- relating to Newgold v.
Wirsing, et al.
During January 1996, Repadre purchased, for $100,000, an option to
acquire a 3% net smelter royalty relating to the Relief Canyon Mine with an
exercise price of $400,000 . During September 1996, Repadre exercised its option
to purchase the Repadre Royalty and the Company received $400,000 ("Repadre
Royalty"). Under the terms of the Rapadre Royalty, Repadre received a 1.5%
royalty on the net proceeds, after smelting, from the production at each of the
Relief Canyon and Mission Mines, respectively. Repadre has the option to place
its entire royalty amount (3%) on either Relief Canyon or Mission Mine upon
notice to the Company.
During September 1996, Repadre purchased 100,000 shares of Common Stock
for an aggregate consideration of $100,000 in a private placement.
On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a
one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000
option payment (the "Option Payment") and the contribution of the Washington
Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay
arranging a $350,000 debt financing for the Company, the Option was amended (the
"Amendment") and exercised whereby the $50,000 Option Payment was converted into
a promissory note granted to Mackay and Mackay would receive 3.8 million shares
of Common Stock of the Company (56.14360233 shares pre-Dividend and
approximately 35% of the outstanding shares of Common Stock on January 1, 1996)
in exchange for the contribution of the Washington Gulch Mine by Mackay. Mackay
was an officer and director of the Company; however, he was not an officer or
director at the execution of the Option or the Amendment.
The Washington Gulch property, at the time of transfer from Mackay in
January 1996, was recorded at its net value of $181,000 and certain elements of
the operation, such as the plant and equipment on site, are in the process of
being sold, after which the property will be reclaimed and the Company will
request the return of its $206,000 bond currently being held by the State of
Montana. The equipment on site has not been given any value nor reported on the
financial statements.
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<PAGE>
On November 26, 1996, the Company purchased two aircraft at a total cost
of $562,000 to transport management and professional personnel to and from the
Company's properties. Such equipment is usual and customary in the mining
industry as project sites are in remote areas not serviced by commercial
carriers and auto travel between project sites or from the Company's office to
project sites is impracticable.
ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-22.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Prior to February 24, 1996, Burnett Umphress & Kilgour ("BUK") were the
principal accountants for the Company. On such date, BUK's appointment as
principal accountants was terminated and the Company engaged KPMG Peat Marwick
LLP as the Company's principal accountants. The opinions of BUK on the balance
sheet of NGNV as of December 31, 1995 and the Statements of Operations,
Stockholders' Equity and Cash Flows for the year then ended did not contain any
adverse opinions or disclaimers of opinions or modifications as to uncertainty,
audit scope or accounting principles. There were no disagreements between the
Company and BUK on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of BUK, would have caused it to make reference
to the subject matter of the disagreements in connection with its report.
33
<PAGE>
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Listed below are the names and ages, as of June 24, 1997, of each of the
present directors and executive officers of the Company together with the
principal positions and offices with the Company held by each. Executive
officers are appointed annually by the Board of Directors to serve for the
ensuing year or until their successors have been appointed. No officer is
related to any other by blood, marriage or adoption.
Name and Address Age Position(s) (1)
A. Scott Dockter 40 President, Director and CEO
Joseph Conway(2) 39 Director
Jay C. Kellerman, Esq. 33 Director
Michael J. Morrison, Esq. 51 Director
Robert W. Morris 56 Chief Financial Officer/Treasurer
(1) All Directors will hold their position until the next annual meeting of
the Shareholders of the Company, or until their successors have been
elected and qualified or until resignation, whichever occurs first.
(2) On January 15, 1997 at a special meeting of the Board of Directors,
Mr. Joseph Conway, President of Repadre Capital Corporation, a
principal stockholder of the Company, was elected to the Company's
Board of Directors.
Background Information of Officers and Directors
A. Scott Dockter has been Chairman of the Board, CEO and President of
the Company since November 21, 1996. Mr. Dockter was the founder, Chairman of
the Board, CEO and President of NGNV since 1993. Mr. Dockter is a founder,
president and CEO of Riverfront Development Corporation. Riverfront, founded in
1994, currently is in the process of refurbishing a 152,000 square foot
manufacturing facility on 71 acres near Sacramento, California. From June 1988
to June 1993, Mr. Dockter was the owner and founder of Earthco, a sole
proprietorship which was a general engineering contractor
34
<PAGE>
specializing in dams, levies and mining projects. In December 1992, Mr. Dockter,
as the result of litigation, voluntarily filed a bankruptcy action pursuant to
Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of California.
The proceeding was dismissed and Mr. Dockter's obligations were not discharged
by the court. Mr. Dockter devotes a minimal amount of time to Riverfront
Corporation.
Robert W. Morris has been Chief Financial Officer and Treasurer of the
Company since February 1997. From November 1996 to February 1997 he was the Vice
President of Finance. Mr. Morris was the Chief Financial Officer of NGNV from
July 1995 to November 1996. From July 1995 to the present, Mr. Morris has been
CFO of Riverfront Development Corporation. From December 1993 to December 1995,
Mr. Morris was the CFO of Tolson Construction Co. From July 1990 to November
1993, Mr. Morris was CFO of Elk Grove Ready Mix. Mr. Morris has been a Certified
Public Accountant for 30 years with 13 years in public accounting, which
included 6 years with Arthur Andersen & Co. and 17 years as a treasurer and
controller for private corporations. Mr. Morris devotes his full time to the
business of the Company.
Jay C. Kellerman, Esq., has been a director of the Company since
February 1997. Since April 1997, Mr. Kellerman has been a partner of Stikeman,
Elliott, a law firm based in Toronto, Canada. From June 1986 until April 1997,
Mr. Kellerman was an associate and partner for the law firm of Smith, Lyons. Mr.
Kellerman is also a director of Northfield Minerals, Ltd.
Joseph Conway has been a director of the Company since January 1997 and
has been the President and Chief Executive Officer of Repadre Capital
Corporation, a public corporation, since September 1995. Repadre is engaged in
the business of creating and acquiring royalty interests in mineral resource
properties throughout the world. Repadre currently holds royalties on mineral
properties in Canada, the United States, Mexico, Nicaragua, Bolivia, Colombia,
Indonesia, Argentina, Peru and South Africa. From March 1989 until July 1995,
Mr. Conway was a Vice President and director of Nesbett Burns, Inc., a Canadian
brokerage firm. Mr. Conway is also a director of Reserve Royalty Corporation,
Rex Diamond Mining Corporation and Triton Mining Corporation.
Michael J. Morrison, Esq. has been a director of the Company since
November 1996 and has been a practicing attorney in Reno, Nevada for 20 years
specializing in the areas of corporate, business and securities law. He is also
admitted to practice in the State of California and the District of Columbia.
Board of Directors
Directors of the Company are elected to serve until the next annual
meeting of the stockholders or until their earlier resignation or removal.
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Director Compensation
Each non-employee director is reimbursed for all out-of-pocket expenses
incurred by the director in attending Board meetings and performing other duties
on behalf of the Company. Directors do not receive compensation.
Committees of the Board
There are currently no committees of the Board of Directors. However,
the Board intends to establish a Compensation Committee, Audit Committee and
Nominating Committee during the next quarter.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission, by a specified date, reports regarding their ownership of Common
Stock. Arthur Scott Dockter, Edward Mackay, Michael J. Morrison and Robert W.
Morris each failed to file a Form 3 and a Form 5 to report the failure to file a
Form 3. In addition, Mr. Dockter failed to report the disposition of 15,000
shares of Common Stock.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services performed on the Company's behalf during each of the last three
completed fiscal years with respect to the Company's Chief Executive Officer and
each of the Company's other executive officers whose annual compensation during
the last fiscal year exceeded $100,000 (the "Named Executive Officer"):
<TABLE>
<CAPTION>
Summary Compensation Table
Other Annual All Other
Period Compen- Options Compen-
Name and Principal Position Ended Salary($) Bonus($) sation($) (In Shares) sation($)
- --------------------------- ----- --------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur Scott Dockter 01/31/97 45,000 229,651 -- -- --
Chief Executive Officer, 12/31/95 -- -- -- -- --
President 12/31/94 -- -- -- -- --
</TABLE>
36
<PAGE>
Options
None of the officers or directors were granted any stock options, SAR's
or other similar rights.
Employment Contracts
None of the officers or directors have employment contracts; however,
the Company is currently in negotiations with Mr. Dockter and Mr. Morris
relating to employment contracts.
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<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table below sets forth certain information as of June 23, 1997 (the
"Reference Date") with respect to the beneficial ownership of (i) each person
who beneficially owns more than 5% of the outstanding shares of Common Stock,
(ii) each director, (iii) the named executive officer and (iv) all officers and
directors as a group. Except as otherwise indicated below, the address for each
such person is: c/o Newgold, Inc., 5190 Neil Road, Reno, Nevada 89509.
Number of Shares of Percent of Common
Name of Beneficial Owner Common Stock Stock Outstanding (1)
- ------------------------ ------------ ---------------------
Arthur Scott Dockter 6,686,358 35.6%
Robert W. Morris 5,000 *
Michael J. Morrison, Esq. 12,500 *
Joseph Conway -- --
Jay C. Kellerman, Esq. -- --
Edward Mackay 2,644,293 14.1%
1010 Racquet Club Drive, Suite 103
Auburn, CA 95603
Casmyn Corporation 1,000,000 5.3%
1335 Greg Street
Unit 104
Sparks, NV 89431
All Officers and Directors
as a Group (4 persons) 6,703,858 35.7%
* Less than 1%
(1) Percentage figures based on 18,761,839 shares of Common Stock outstanding
on the Reference Date.
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ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1995, the Company purchased machinery and equipment from
Riverfront Development Corporation, of which Mr. Dockter is president and a
majority shareholder and Mr. Morris is a director, for the purchase price of
$250,000. As of the date of this Report, the Company owes Riverfront Development
Corporation approximately $117,627 relating to the purchase.
On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a
one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000
option payment (the "Option Payment") and the contribution of the Washington
Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay
arranging a $350,000 debt financing for the Company, the Option was amended (the
"Amendment") and exercised whereby the $50,000 option payment was converted into
a promissory note granted to Mackay and Mackay received 3.8 million shares of
Common Stock of the Company (56.14360233 shares pre- Stock Dividend and
approximately 35% of the outstanding shares of Common Stock on January 1, 1996)
in exchange for the contribution of the Washington Gulch Mine by Mackay. Mackay
was a director and officer of the Company; however, he was not a director or
officer at the execution of the Option or the Amendment. The Washington Gulch
Mine is currently inactive and the equipment is in the process of being sold and
the ground reclaimed after which time the Company will request return of it's
$206,000 bond currently being held by the State of Montana.
As of January 31, 1997, the Company had made advances totalling $92,486
to A. Scott Dockter, President and Chief Executive Officer of the Company. The
advances were draws against future salary, did not bear interest and were repaid
in April 1997.
On April 2, 1997, Mr. Dockter, loaned $100,000 to the Company at 8% per
annum, due and payable on demand. As of the date of this Report, no payments
have been made on this loan.
On April 17, 1997, Mr. Dockter loaned $50,000 to the Company at 8% per
annum, due and payable on demand. As of the date of this Report, no payments
have been made on this loan.
On April 30, 1997, Mr. Dockter loaned $20,000 to the Company at 8% per
annum, due and payable on demand. As of the date of this Report, no payments
have been made on this loan.
On May 30, 1997, Mr. Dockter loaned $35,000 to the Company at 8% per
annum, due and payable on demand. As of the date of this Report, no payments
have been made on this loan.
Repadre Capital Corporation ("Repadre") purchased a 3% NSR from the
Company for
39
<PAGE>
$500,000 in the fall of 1996 (the "Repadre NSR"). Under the terms of Repadre
NSR, Repadre has a 3% NSR which may be allocated to either the Relief Canyon
Mine or the Mission Mine at Repadre's option. Repadre currently has allocated
1.5% NSR on the Relief Canyon Mine and 1.5% NSR on the Mission Mine, (see
"Mission Mine Project"). Repadre can, at any time, choose to place all of their
royalty amount (3%) on either of the two aforementioned projects. Joseph Conway,
a director of the Company, is also the President and Chief Executive Officer of
Repadre. Mr. Conway was not a director of the Company at the time of the
transaction.
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<PAGE>
ITEM 13: EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
A. Exhibits. The following exhibits are filed herewith:
Exhibit
No. Description of Exhibit
2.1 Plan of Reorganization.(1)
3.1 Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Registrant.(1)
3.3 Bylaws of the Registrant.(2)
10.1 Contract of Sale between the Registrant and J.D. Welsh &
Associates.(1)
10.2 Agreement for Lease/Purchase and Sale of Property between the
Registrant, Joie Jamison and T.K.M. Corporation dated
September 2, 1996.(1)
10.3 Office Building Lease between the Registrant and Duffel
Financial and Construction Company dated May 20, 1996.(1)
10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and
Riverfront Development, Inc., between Edward Mackay and the
Company (the "Option Agreement").
10.5 First Amendment to Option to Purchase Newgold, Inc., between
the Registrant and Edward Mackay dated as of January 1, 1996
(the "Option Amendment").
10.6 Clarification Agreement (clarifying the Option and Option
Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug,
and the Company dated effective as of June 18, 1996.
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10.7 Letter of Intent between the Registrant and Mirimar Mining
Corporation dated October 8, 1996.
10.8 Agreement and Plan of Merger by and between the Registrant and
Newgold, Inc. dated August 1996.
10.9 Promissory Note between the Company and A. Scott Dockter,
dated April 2, 1997, for the principal amount of $100,000.
10.10 Promissory Note between the Company and A. Scott Dockter,
dated April 17, 1997, for the principal amount of $50,000.
10.11 Promissory Note between the Company and A. Scott Dockter,
dated April 30, 1997, for the principal amount of $20,000.
10.12 Promissory Note between the Company and A. Scott Dockter,
dated May 30, 1997, for the principal amount of $35,000.
27.1 Financial Data Schedule.
- -------------------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB-40 for the fiscal year ended January 31, 1996 filed with the
Commission on January 22, 1997.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (File No. 33-49920) filed with the Commission on October 14,
1993.
B. Reports on Form 8-K
None.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP.......................... F-2
Report of Burnett, Umphress and Kilgour................. F-3
Balance Sheet as of January 31, 1997..................... F-4
Statements of Operations for the year ended
December 31, 1995 and the thirteen months
ended January 31, 1997................................... F-5
Statements of Stockholders' Equity for the year
ended December 31, 1995 and the thirteen
months ended January 31, 1997............................ F-6
Statements of Cash Flows for the year ended
December 31, 1995 and the thirteen months
ended January 31, 1997................................... F-7
Notes to Financial Statements............................ F-8
42
<PAGE>
NEWGOLD, INC.
Financial Statements
January 31, 1997
(With Independent Auditors' Reports Thereon)
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Newgold, Inc.:
We have audited the accompanying balance sheet of Newgold, Inc. as of January
31, 1997, and the related statements of operations, stockholders' equity, and
cash flows for the thirteen month period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newgold, Inc. as of January 31,
1997, and the results of its operations and cash flows for the thirteen month
period then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has been dependent primarily upon cash
proceeds from private placement of its common stock. The Company anticipates
that current working capital and anticipated revenues will not be sufficient to
satisfy its future cash needs, and accordingly, the Company will need to raise
additional capital in the near term. Currently, the Company has no commitments
for additional funding. Management's plans in regard to these matters are also
described in note 2. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
June 18, 1997
F-2
<PAGE>
[BURNETT UMPHRESS & KILGOUR LETTERHEAD]
To the Board of Directors
NEWGOLD, INC.
(A Nevada Corporation)
Reno, Nevada
INDEPENDENT AUDITORS' REPORT
We have audited the statements of operations, stockholders' equity and cash
flows of NEWGOLD, INC. (A Nevada Corporation) for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements of
operations, stockholders' equity and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of operations, stockholder's
equity and cash flows. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of operations,
stockholders' equity and cash flows. We believe that our audit of the statements
of operations, stockholders' equity and cash flows provides a reasonable basis
for our opinion.
In our opinion, the statements of operations, stockholders' equity and cash
flows referred to above present fairly, in all material respects, the results of
operations, stockholders' equity and cash flows of NEWGOLD, INC. (A NEVADA
CORPORATION) for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/
Burnett, Umphress & Kilgour
Rancho Cordova, California
April 8, 1997
F-3
<PAGE>
NEWGOLD, INC.
Balance Sheet
January 31, 1997
Assets
Current assets:
Cash and cash equivalents $ 876,573
Refundable payroll taxes 154,357
-------------
Total current assets 1,030,930
Property, plant and equipment including undeveloped mineral
properties of $3,210,287, net of $25,561 of accumulated
depreciation (notes 3 and 10) 3,873,815
Advance to stockholder (note 9) 92,486
Reclamation bonds (note 12) 256,500
Other assets 12,885
-------------
Total assets $ 5,266,616
=============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 169,322
Accrued expenses 145,637
Accrued reclamation costs (notes 8 and 12) 25,000
Due to affiliate (note 9) 117,627
Notes payable to individuals (note 4) 325,000
-------------
Total current liabilities 782,586
Deferred revenue (note 9) 500,000
-------------
Total liabilities 1,282,586
Commitments and contingencies (notes 5 and 8)
Stockholders' equity (notes 7, 8, 9, 10 and 12):
Common stock - Authorized
50,000,000 shares, par value $0.001;
18,761,839 outstanding 18,762
Additional paid-in capital 6,944,722
Accumulated deficit (2,979,454)
-------------
Total stockholders' equity 3,984,030
Total liabilities and stockholders' equity $ 5,266,616
=============
See accompanying notes to financial statements.
F-4
<PAGE>
NEWGOLD, INC.
Statements of Operations
For the year ended December 31, 1995 and
the thirteen months ended January 31, 1997
Thirteen
Year Ended Months Ended
December 31, January 31,
1995 1997
------------ ------------
Sales:
Net sales $ - -
Cost of sales - -
------------ ------------
Gross margin - -
Operating expenses:
General and administrative expenses 172,125 1,504,539
Exploration costs 21,378 283,876
------------ ------------
Total operating expenses 193,503 1,788,415
------------ ------------
Loss from operations (193,503) (1,788,415)
Other income (expense):
Interest income - 35,807
Bad debt expense (40,374) -
Other income - 16,800
Interest expense - (67,976)
------------ ------------
Total other expense (40,374) (15,369)
Income tax provision - -
------------ ------------
Net loss $ (233,877) (1,803,784)
============ ============
Loss per share $ (0.03) (0.14)
====== ======
Weighted average number of shares outstanding 6,768,358 12,779,936
============ ============
See accompanying notes to financial statements.
F-5
<PAGE>
NEWGOLD, INC.
<TABLE>
Statements of Stockholders' Equity
For the year ended December 31, 1995
and for the thirteen months ended January 31, 1997
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Accumulated Shareholders'
Shares $ Capital Deficit Equity
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 6,768,358 $ 6,768 - (636,084) (629,316)
Net loss for the year ended December
31, 1995 - - - (233,877) (233,877)
---------- -------- ----------- ----------- -----------
Balances at December 31, 1995 6,768,358 6,768 - (869,961) (863,193)
Shares issued to purchase Washington
Gulch (note 7) 3,800,000 3,800 177,200 - 181,000
Shares issued in exchange for net
profit interests (note 7) 1,431,642 1,432 440,605 - 442,037
Shares issued to creditors and
shareholders of Warehouse Auto,
Center, Inc. (note 7) 305,709 306 305,403 (305,709) -
Shares issued to investors and
underwriters (note 7) 5,135,130 5,135 4,701,835 - 4,706,970
Shares issued to others (note 7) 221,000 221 220,779 - 221,000
Shares issued to Repadre (note 7) 100,000 100 99,900 - 100,000
Shares issued to repurchase 50%
interest in Relief Canyon, Ltd.
(note 7) 1,000,000 1,000 999,000 - 1,000,000
Net loss for the period from
January 1, 1996 to January 31, 1997 - - - (1,803,784) (1,803,784)
---------- -------- ----------- ----------- -----------
Balances at January 31, 1997 18,761,839 $ 18,762 6,944,722 (2,979,454) 3,984,030
========== ======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NEWGOLD, INC.
Statements of Cash Flows
For the year ended December 31, 1995,
the thirteen months ended January 31, 1997
Thirteen
Year Ended Months Ended
December 31, January 31,
1995 1997
------------ ------------
Cash flows from operating activities:
Net loss $ (233,877) (1,803,784)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,571 23,466
Bad debt 40,374 -
Assigned value of common stock
exchanged for services - 221,000
Changes in operating assets and liabilities:
Refundable payroll taxes - (154,357)
Prepaid expenses (150) 150
Other assets - (12,885)
Accounts Payable (111,634) -
Accrued expenses 85,456 55,526
Accrued reclamation costs 69,470 (69,470)
------------ ------------
Total adjustments to net loss 85,087 63,430
------------ ------------
Net cash used in operating activities (148,790) (1,740,354)
------------ ------------
Cash flows from investing activities:
Repayment of advances to stockholder (18,203) (66,847)
Contribution from joint venture partner - 775,000
Purchase of joint venture partner interest - (900,000)
Capital expenditures (308,662) (1,684,892)
------------ ------------
Net cash used in investing activities (326,865) (1,876,739)
------------ ------------
Cash flows from financing activities:
Repayment of advances from affiliate (15,923) (190,308)
Deferred revenue - 500,000
Proceeds from issuance of notes payabl 815,537 115,996
Payments on notes payable (329,735) (739,903)
Proceeds from sale of common stock - 4,806,970
------------ ------------
Net cash provided by financing activities 469,879 4,492,755
------------ ------------
Net (decrease) increase in cash (5,776) 875,662
------------ ------------
Cash and cash equivalents, beginning of period 6,687 911
------------ ------------
Cash and cash equivalents, end of period $ 911 876,573
============ ============
Supplemental Schedule of Cash Flow Information:
Cash paid for interest $ - 37,246
============ ============
Cash paid for income taxes $ - -
============ ============
See accompanying notes to financial statements.
F-7
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
January 31, 1997
(1) The Company
(a) Nature of operations
The Company is in the business of acquiring, exploring, developing and
producing gold properties. The Company has the rights to mine
properties in Nevada, California and Montana. Its primary focus is on
the Relief Canyon Mine located near Lovelock, Nevada, where it has
performed development and exploratory drilling and is currently in the
process of obtaining permits to allow operation of the Relief Canyon
Mine. In the period ended January 31, 1997, the Company also entered
into a lease with an option to buy the Mission Mine located near
Twenty-Nine Palms, California. Mission Mine is an abandoned underground
mine complex.
(b) Merger
In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into
Warehouse Auto Centers, Inc. (WAC), a public company, which had
previously filed an involuntary petition under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the
Western District of New York. Pursuant to the plan of reorganization
and merger (the Plan), (i) WAC which was the surviving corporation for
legal purposes, changed its name to Newgold, Inc. (the Company), (ii)
the outstanding shares of Old Newgold were converted into the right to
receive an aggregate of 12,000,000 shares or approximately 69% of the
post merger outstanding common stock of the Company, (iii) each
outstanding share of WAC was converted into the right to receive 1/65
share of the common stock of the Company, for an aggregate of 51,034
shares or less than 1% of the post merger outstanding common stock,
(iv) unsecured trade debts and other unsecured pre-petition liabilities
were paid in full via the issuance of one share of the Company's stock
for each $42 of debt, for an aggregate of 63,374 shares or less than 1%
of the post merger outstanding common stock, and (v) post petition
creditors received 1 share of stock for each $1 of debt, for an
aggregate of 191,301 shares or approximately 1% of the post merger
outstanding common stock. The Plan also required an amendment to the
Company's capital structure to increase the number of shares authorized
to 50,000,000 and to reduce the corresponding par value to $.001.
F-8 (Continued)
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
In connection with the Plan, the Company raised $4,707,000 of cash
through the issuance of convertible debtor certificates. Shortly after
confirmation of the Plan, the debtor certificates were exchanged for
5,135,130 shares of common stock (including 428,130 shares issued in
lieu of paying cash for underwriter's fees) of the Company representing
approximately 29% of the post merger outstanding common stock.
For accounting purposes, Old Newgold has been treated as the acquirer
(reverse acquisition). Accordingly, the historical financial statements
prior to November 21, 1996 are those of Old Newgold. There were no
assets or liabilities acquired in this transaction and there is no
impact on the statement of operations.
In connection with the merger with WAC, the Company changed its fiscal
year end from December 31 to January 31. As such, the financial
statements for the period ended January 31, 1997, include thirteen
months of activity.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Currently, the Company's
development and operation plans indicate that it will be unable to
continue unless it receives additional funding. Management is currently
exploring various means of raising additional capital. Strategic
alternatives being considered include: (i) selling an additional
$5,000,000 of common stock as a means of interim financing; (ii)
entering into a joint venture to develop the Relief Canyon mine, (iii)
the sale of Company assets, (iv) a business combination, (v) conversion
of certain debt to equity, and (vi) mortgaging certain Company assets.
There can be no assurance that the Company will be successful in its
attempt to consummate one or more of these strategic alternatives.
Failure to do so will necessitate that the Company curtail its
development plans and cease its operations.
Currency - The Company presents its financial statement information in
United States dollars as all of its assets and operations are located
in the United States.
(b) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
F-9 (Continued)
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
(c) Property, Plant and Equipment
General - Property, plant and equipment are stated at cost plus the
assigned value of common stock issued in purchase transactions and
include mine development costs, financing costs and costs of renewals
and betterments of machinery and equipment. When assets are sold or
abandoned, the recorded costs and related accumulated depreciation are
removed from the accounts and any gains or losses are included in
earnings. Repairs and maintenance are charged to expense as incurred.
Mineral exploration - Exploration costs are charged to operations in
the period in which they are incurred. When a property is determined to
have economically feasible development potential, development
expenditures and further development drilling costs are capitalized.
Mine development - Mine development costs consist of all costs
associated with bringing mines into production, to develop new ore
bodies and to develop mine areas substantially in advance of current
production. The decision to develop a mine is based on assessment of
the commercial viability of the property and the availability of
financing. Once the decision to proceed to development is made,
development and other expenditures relating to the project will be
deferred and carried at cost with the intention that these will be
depleted by charges against earnings from future mining operations. No
depreciation will be charged against the property until commercial
production commences. After a mine has been brought into commercial
production, any additional work on that property will be expensed as
incurred, except for major drilling and development programs not
adjacent to current mining operations, which will be deferred and
depleted.
Financing costs - Financing costs, including interest, are capitalized
when they arise from indebtedness incurred to finance development and
construction activities on properties that are not yet subject to
depreciation or depletion. Financing costs are charged against earnings
from the time that mining operations commence. Capitalization is based
upon the actual interest on debt specifically incurred or on the
average borrowing rate for all other debt except where shares are
issued to fund the cost of the project. As of January 31, 1997, an
aggregate of $34,403 of interest has been capitalized.
Depreciation, depletion and amortization - Assets other than mining
properties and mineral rights are depreciated using the straight-line
method over their estimated useful lives which range from three to
seven years. Gold production facilities, equipment and leasehold
improvements are depreciated over their estimated useful lives.
Capitalized development costs are amortized on the units of production
method considering proven
F-10 (Continued)
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
and probable reserves. Aircraft are depreciated ratably over their
estimated total useful hours. Depreciation and depletion rates are
subject to periodic review to ensure that asset costs are amortized
over their useful lives.
Impairment - Mining projects and properties are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable. If estimated future cash
flows expected to result from the use of the mining project or property
and its eventual disposition are less than the carrying amount, an
impairment is recognized based on the estimated fair value of the
mining project or property. Fair value generally is based on the
present value of estimated future net cash flows for each mining
project or property, calculated using estimates of proven and probable
mineable reserves, geologic resources, future prices, operating costs,
capital requirements and reclamation costs.
(d) Reclamation of Mining Areas
Reclamation costs, including the removal of production facilities at
the end of their useful lives, are estimated and accrued on an
undiscounted basis over the productive lives of properties. Remediation
costs are expensed when the liability is probable and estimable. Based
on current environmental regulations and known reclamation
requirements, management has included its best estimate of these
obligations in its reclamation accruals. However, it is reasonably
possible that the Company's estimates of its ultimate reclamation
liabilities could change as a result of changes in regulations or cost
estimates.
The Company performs concurrent reclamation to the extent possible.
However, most of the accrued costs are anticipated to be expended at
the end of the mine life.
(e) Revenue Recognition
Revenues will be recognized when deliveries of gold are made. Deferred
revenue represents cash received in exchange for royalties on net
smelter returns on the Relief Canyon Mine. Deferred revenue will be
amortized to earnings based on estimated production in accordance with
the royalty agreement (note 9).
(f) Income Taxes
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference
F-11 (Continued)
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances against
deferred tax assets are recorded to the extent management estimates
that the future benefit will not be realized.
(g) Loss Per Share
Loss per share is calculated based on the weighted average number of
common shares outstanding during each period.
(h) Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Gold mining requires the use of specialized facilities and technology.
The Company will rely heavily on such facilities to maintain production
levels. Also, the market price of gold significantly affects the
profitability of the Company's operations. Market gold prices can
fluctuate widely and are affected by numerous factors beyond the
Company's control. Although the Company intends to limit its sales to a
small number of customers, the Company does not expect to be
economically dependent on a limited number of customers for the sale of
its product because gold commodity markets are well established
worldwide.
(i) Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per
Share, which is effective for periods beginning after December 15,
1997. SFAS No. 128 has simplified the existing computational guidelines
as well as revised the existing disclosure requirements. The Company
will adopt the provisions of SFAS No. 128 for the year ended January
31, 1998.
The Company adopted the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, on January 1, 1996, which permits entities to
recognize as expense over the vesting period the fair value of all
employee stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to apply the provisions of APB
F-12 (Continued)
<PAGE>
NEWGOLD, INC.
Notes to Financial Statements
25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair value based method defined in SFAS No. 123 had
been applied. The Company plans to apply the provisions of APB 25.
(3) Property, Plant and Equipment
A summary of changes in property, plant and equipment and related
accumulated depreciation accounts is as follows:
<TABLE>
<CAPTION>
Machinery Develop-
& ment Capitalized
Buildings Equipment Costs Interest Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cost:
Balances at December 31, 1995 $ 215,510 328,705 614,410 20,314 1,178,939
Additions - 684,816 2,071,532 14,089 2,770,437
Disposals, retirements and
reclassifications (note 12) - - (50,000) - (50,000)
----------- ----------- ----------- ----------- -----------
Balances at January 31, 1997 215,510 1,013,521 2,635,942 34,403 3,899,376
----------- ----------- ----------- ----------- -----------
Accumulated depreciation:
Balances at December 31, 1995 - 2,095 - - 2,095
Depreciation and amortization - 23,466 - - 23,466
Disposals, retirements and
reclassifications - - - - -
----------- ----------- ----------- ----------- -----------
Balances at January 31, 1997 - 25,561 - - 25,561
----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net, January 31, 1997:
Relief Canyon 215,510 324,432 2,635,942 34,403 3,210,287
Aircraft - 552,314 - - 552,314
Other - 111,214 - - 111,214
----------- ----------- ----------- ----------- -----------
Total Company $ 215,510 987,960 2,635,942 34,403 3,873,815
=========== =========== =========== =========== ===========
</TABLE>
F-13 (Continued)
<PAGE>
(4) Debt
(a) Notes Payable to Individuals
Unsecured notes payable to individuals consist of the following at
January 31, 1997:
Loan was extended by individuals in June 1996 in the
original amount of $215,000. The note bears interest
at 8% per year. Full repayment was due September 30,
1996. The Company is in default with respect to this loan. $105,000
Loan from individual. The note bears interest at 10%
per year. The note is currently due. The Company is
in default with respect to this loan. 200,000
Other 20,000
--------
Total notes payable to individuals $325,000
========
(b) Interest Paid
The Company recorded $67,976 of interest expense in the current period.
Interest of $14,089 and $20,314 was capitalized during the period
ended January 31, 1997 and December 31, 1995, respectively.
(5) Leases
Except for the advance royalty and rent payments noted below, the
Company is not obligated under any capital leases or noncancelable
operating lease with initial or remaining lease terms in excess of one
year as of January 31, 1997. However, annual royalty payments are
required to retain the lease rights to the Company's properties.
(a) Relief Canyon
The Company purchased the Relief Canyon Mine from J.D. Welsh Associates
(Welsh) in January 1995. The Company currently holds 441 unpatented
mining claims and a lease for access to an additional 800 acres. As
part of the original purchase of Relief Canyon, Welsh assigned a lease
from Santa Fe Gold Corporation (Santa Fe) to Newgold. The lease, which
expires in 2004, covers only 800 acres of the total 8,800 acres of the
Relief Canyon Mine. As of January 31, 1997, Santa Fe had not consented
to the assignment of the lease from Welsh to Newgold. While, consent
has not yet been granted, Santa Fe continues to accept Newgold's annual
advance royalty and rent payments. Management of the Company does not
believe that the 800 acres under the disputed lease is critical to the
Relief Canyon project. Management believes that failure
F-14 (Continued)
<PAGE>
to perfect the lease agreement will not have a material adverse effect
on the Company's financial position, results of operations or
development of the mine.
The terms of the Santa Fe lease require a 2.5% net smelter return (NSR)
royalty to be paid to Santa Fe on all minerals taken from the Santa Fe
property and 39 claims originally purchased from Welsh. In addition,
advance royalty and rental payments totaling $26,400 per year are
required. The advance royalty and rent payments increase by 5% annually
(or more if inflation exceeds 5% per annum). These payments are
noncancelable and continue for the term of the lease (2004).
(b) Mission Mine Property
The Company has entered into a seven-year lease purchase of the Mission
Mine property for an aggregate purchase price, of $3,500,000. The
Mission Mine is an inactive underground mining operation in California
which includes 22 unpatented mining claims on approximately 440 acres.
Under the terms of this lease, the Company has agreed to pay the
greater of a minimum royalty payment or a 2.5% NSR royalty. The Company
is currently paying the minimum royalty payment. The minimum royalty
payment is currently $10,000 per month and increases each year by
$10,000 per month up to a maximum of $70,000 per month commencing March
1, 2003, until the purchase price is paid. All royalty payments will be
applied to the purchase price. The Company is obligated to pay all
taxes applicable to the property. The Company has the right to
terminate the agreement should it become economically unsound to
continue with mining operations at no cost to the Company.
Beginning May 5, 1997:
the minimum yearly lease payments are as follows:
1997 $ 418,000
1998 230,000
1999 350,000
2000 470,000
2001 590,000
2002 710,000
2003 696,000
-------------
$ 3,464,000
F-15 (Continued)
<PAGE>
(6) Income Taxes
As of January 31, 1997, the Company had net operating loss
carryforwards of approximately $1,500,000 available to reduce future
Federal taxable income which, if not used, will expire at various dates
through January 31, 2012. Due to changes in the ownership of the
Company, the utilization of these loss carryforwards may be subject to
substantial annual limitations.
Deferred tax assets (liabilities) are comprised of the following at
January 31, 1997:
Deferred tax assets:
Net operating loss carryforward $ 510,000
Deferred revenue 170,000
Valuation allowance for deferred tax assets (340,000)
----------
Net deferred tax assets 340,000
Deferred tax liabilities:
Net book value of property, plant and equipment (340,000)
----------
Net deferred tax assets $ -
==========
The net change in the total valuation allowance for the thirteen months
ended January 31, 1997 was $340,000.
The expected Federal income tax benefit, computed based on the
Company's pre-tax losses in 1997 and the statutory Federal income tax
rate, is reconciled to the actual tax benefit reflected in the
accompanying financial statements as follows:
Expected tax benefit at statutory rates $ 613,000
Decrease resulting from valuation allowance
for benefits from net operating loss
carryforwards and other (613,000)
----------
Total $ -
==========
Previous to June 21, 1996, the stockholder of the Company elected under
Internal Revenue Code Section 1362 to have the Company taxed as an S
corporation. As such, all Federal and substantially all State income
tax attributes passed through the Company directly to the stockholder
until that date.
F-16 (Continued)
<PAGE>
(7) Stockholders' Equity
As discussed in note 1, Newgold, Inc. and Warehouse Auto Centers, Inc.
merged to form the Company in November, 1996. Additionally, the
following common stock transactions occurred during the thirteen month
period ended January 31, 1997:
Approximately 56 shares were issued in January 1996 for the purchase of
rights to the Washington Gulch property. The site was acquired from
Edward Mackay, a former officer of the Company. The property consists
of a mill site located in Montana. The value of the common stock issued
on the property was recorded at the cash value of the net monetary
assets received which amounted to $181,000.
Stock split - On June 19, 1996, the Company effected a 67,864 to 1
stock split which increased the total shares outstanding from
approximately 156 to 10,568,358. The financial statements have been
retroactively adjusted to reflect the stock split.
Exchange of Net Profits Interests - In June, 1996 (prior to the merger
discussed in note 1), the Company exchanged several "net profits
interests" for shares of common stock of the Company. A net profit
interest is a royalty based on the profit remaining after recapture of
certain operating, capital and other costs as defined by agreement. Net
profits interests sold for aggregate consideration in 1994 and 1995 of
$442,037 were repurchased for 1,431,642 shares of common stock.
Repurchase of Relief Canyon - As more fully discussed in note 10, the
Company issued 1,000,000 shares, valued at $1 per share, to Casmyn
Corp. as partial consideration for the repurchase of their 50% interest
in Relief Canyon Mine.
Sale of Common Stock - In November 1996, the Company sold 100,000
shares in exchange for $100,000 in cash to Repadre Capital Corporation
(see note 9).
Other - In November, 1996, an aggregate of 221,000 shares were issued
to others in exchange for general and administrative services rendered
valued at $221,000.
(8) Commitments, Contingencies and Uncertainties
The Company has not commenced mining at Relief Canyon pending receipt
of an independent evaluation of reserves and obtaining appropriate
operating permits. Accordingly, the Company's ability to recover its
investment in Relief Canyon is dependent upon obtaining such operating
permits and the viability of future operations, both of which are not
presently determinable. The financial statements do not include
F-17 (Continued)
<PAGE>
any adjustments relating to the recoverability of the Company's
investment that might result from the outcome of these uncertainties.
Environmental obligations - The Company's mining and exploration
activities are subject to various federal and state laws and
regulations governing the protection of the environment. These laws and
regulations are continually changing and are generally becoming more
restrictive. The Company strives to conduct its operations so as to
protect the public health and environment and believes its operations
are in compliance with all applicable laws and regulations. The Company
has made, and expects to make in the future, expenditures to comply
with such laws and regulations.
The Company is in the process of obtaining various permits in order to
recommence mining activities at Relief Canyon Mine. The Company expects
to obtain all necessary permits to commence mining at Relief Canyon
Mine during the third quarter of calendar 1997. However, these
permitting matters are not entirely within the control of the Company
and no assurance can be given that such permits will be issued in a
timely manner.
Reclamation costs - The ultimate amount of reclamation obligations to
be incurred is uncertain. However, as of January 31, 1997, the Company
has accrued $0 for Relief Canyon and $25,000 for its Washington Gulch
site. The Washington Gulch site is currently bonded for $206,000. There
can be no assurances given that the above estimates accurately reflect
the actual costs of all reclamation activities that may be required.
Legal - The Company is facing threatened litigation with respect to a
dispute with two individuals. The individuals claim that they have a
10% net profit interest in the Relief Canyon Mine. The Company
maintains that the individuals gave up their rights upon the execution
of an exchange of net profits interest for common stock signed by one
of the individuals in June, 1996. In April, 1997, one of the
individuals filed a lien on the Relief Canyon project in the amount of
$100,000,000 as a means of asserting their alleged rights. The Company
believes that there are meritorious defenses to this claim if it should
be formally asserted through litigation. Management is of the opinion,
that the worst outcome if an actual case were filed would be the
recision of the exchange agreement and a return of the investors'
original aggregate investment of $85,000. The ultimate outcome of this
matter is not presently determinable. No adjustments have been made in
the financial statements for this contingency.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate dispositions of
F-18 (Continued)
<PAGE>
these matters will not have a material adverse effect on the Company's
financial position, results or operations or liquidity. As of January
31, 1997, Management has accrued $30,000 in recognition of claims
asserted against the Company.
(9) Related Party Transactions
Advance to shareholder - As of January 31, 1997 the Company had made
unsecured, non-interest bearing demand advances totaling $92,486 to A.
Scott Dockter, President and Chairman of the Company. The advances were
repaid in April 1997.
Other advances and repayments - During the current period, the Company
borrowed and repaid a total of $16,000 from officers of the Company
other than Mr. Dockter.
Advances from shareholders - A. Scott Dockter loaned the Company an
aggregate of $205,000 subsequent to year end. The advances are due on
demand, unsecured and bear interest at 8%.
Due to affiliate - As of January 31, 1997, the Company owed $117,627 to
Riverfront Development, Inc. for equipment purchases. Riverfront
Development, Inc. is a related entity owned by A. Scott Dockter.
Purchase from related party - The Company purchased the Washington
Gulch mill site from Edward Mackay, a former officer of the Company, in
exchange for approximately 35% of the Company. During the thirteen
months ended January 31, 1997, the Company also repaid $150,000 of
loans from Mr. Mackay. The loans were unsecured, due on demand and
non-interest bearing.
Relief Canyon - During January 1996, Repadre Capital Corporation
("Repadre") purchased, for $100,000, an option to acquire a 3% net
smelter royalty relating ("Repadre Royalty") to the Relief Canyon Mine
with an exercise price of $400,000. During September 1996, Repadre
exercised its option to purchase the Repadre Royalty and the Company
received $400,000. Under the terms of the Repadre Royalty, Repadre
received a 1.5% royalty on the net proceeds, after smelting, from the
production at each of the Relief Canyon and Mission Mines,
respectively. Repadre has the option to place its entire royalty amount
(3%) on either Relief Canyon or Mission Mine upon notice to the
Company. The total price of $500,000 has been recorded as deferred
revenue in the accompanying financial statements.
F-19 (Continued)
<PAGE>
(10) Investment by Casmyn Corp.
In April, 1996, the Company entered into a 50:50 joint venture with
Casmyn Corp. (Casmyn), a public company based in Sparks, Nevada, for
the development of the Relief Canyon project located in Pershing
County, Nevada. Casmyn committed to contribute $1,398,000 for their 50%
interest in the Venture. Newgold contributed their entire interest in
Relief Canyon to the Venture. As of September 30, 1996, Casmyn had
contributed approximately $775,000 towards its 50% interest in the
venture and their remaining $623,000 commitment was recorded as a
receivable to the joint venture. On October 18, 1996, the Company
repurchased Casmyn's 50% interest for $900,000 cash, 1,000,000
restricted shares of common stock, valued at $1 per share, and they
released Casmyn from its remaining $623,000 obligation. The Company
capitalized the resulting $1,125,000 to property, plant and equipment.
(11) Supplemental Cash Flow Information
The effects of the following non cash transactions have been excluded
from the statement of cash flows for the period ended January 31, 1997:
Reduction in debt -The prior owner (Welsh) of Relief Canyon was unable
to successfully transfer the lease on the Santa Fe property to Newgold
which was required under the original purchase agreement. Because of
this, Welsh and the Company mutually agreed to reduce the original
purchase price of Relief Canyon by $50,000 from $500,000 to $450,000.
As a result, the Company's debt outstanding to Welsh and its investment
in Relief Canyon were reduced by $50,000 during the current period.
F-20 (Continued)
<PAGE>
(12) Cumulative Financial Information (Unaudited)
The following tables contain summary unaudited cumulative results of
operations and cash flows:
Cumulative since
inception (unaudited)
---------------------
Results of operations:
Revenues $ -
Operating expenses 2,587,504
-----------
Loss from operations (2,587,504)
Net other expense (80,473)
Income tax provision -
-----------
Net loss since inception (2,667,977)
===========
Statement of cash flows:
Net loss since inception (2,667,977)
Add back noncash expenses 286,935
Net changes in operating assets and liabilities (21,905)
-----------
Net cash used in operating activities (2,402,947)
Cash flows from investing activities:
Advances to stockholders (131,860)
Contribution from joint venture partner 775,000
Purchase of joint venture partner interest (900,000)
Capital expenditures (2,005,254)
-----------
Net cash used in investing activities (2,262,114)
Cash flows from financing activities:
Repayment of advances from affiliate (132,373)
Proceeds from issuance of notes payable 1,237,138
Sale of net smelter return 500,000
Sale of net profit interests 442,037
Payment on notes payable (1,312,138)
Proceeds from sales of common stock 4,806,970
-----------
Net cash provided by financing activities 5,541,634
-----------
Net increase in cash 876,573
Cash and cash equivalents, beginning of period -
-----------
Cash and cash equivalents, end of period 876,573
===========
F-21 (Continued)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on June 24, 1997.
NEWGOLD, INC.
By: /s/Arthur Scott Dockter
------------------------
Arthur Scott Dockter,
President and Chief Executive 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.
Signature Title Date
/s/ Robert W. Morris Chief Financial Officer, June 24, 1997
- --------------------------
Robert W. Morris Treasurer (Principal
Financial Officer)
/s/ Arthur Scott Dockter President, Chief Executive June 24, 1997
- --------------------------
Arthur Scott Dockter Officer, Director
(Principal Executive Officer)
/s/ Joseph Conway Director June 24, 1997
- --------------------------
Joseph Conway
/s/ Jay C. Kellerman Director June 24, 1997
- --------------------------
Jay C. Kellerman
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
2.1 Plan of Reorganization.(1)
3.1 Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant.(1)
3.3 Bylaws of the Registrant.(2)
10.1 Contract of Sale between the Registrant and J.D. Welsh &
Associates.(1)
10.2 Agreement for Lease/Purchase and Sale of Property between the
Registrant, Joie Jamison and T.K.M. Corporation dated September 2,
1996.(1)
10.3 Office Building Lease between the Registrant and Duffel Financial and
Construction Company dated May 20, 1996.(1)
10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and
Riverfront Development, Inc., between Edward Mackay and the Company
(the "Option Agreement").
10.5 First Amendment to the Option to Purchase Newgold, Inc. between the
Registrant and Edward Mackay dated as of January 1, 1996 (the "Option
Amendment").
10.6 Clarification Agreement (clarifying the Option and Option Amendment)
between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company
dated effective as of June 18, 1996.
10.7 Letter of Intent between the Registrant and Mirimar Mining
Corporation dated October 8, 1996.
10.8 Agreement and Plan of Merger by and between the Registrant and
Newgold, Inc. dated August 1996.
10.9 Promissory Note between the Company and A. Scott Dockter, dated April
2, 1997, for the principal amount of $100,000.
10.10 Promissory Note between the Company and A. Scott Dockter, dated April
17, 1997, for the principal amount of $50,000.
10.11 Promissory Note between the Company and A. Scott Dockter, dated April
30, 1997, for the principal amount of $20,000.
<PAGE>
10.12 Promissory Note between the Company and A. Scott Dockter, dated May
30, 1997, for the principal amount of $35,000.
27.1 Financial Data Schedule.
- -------------------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB-40 for the fiscal year ended January 31, 1996 filed with the
Commission on January 22, 1997.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (File No. 33-49920) filed with the Commission on October 14,
1993.
EXHIBIT 10.4
OPTION TO PURCHASE
FORTY (40%) PERCENT
OF
NEWGOLD, INC. AND RIVERFRONT DEVELOPMENT, INC.
THIS "OPTION TO PURCHASE" is made and entered into as of this 31st day
of August, in the year 1995, by and between Edward Mackay and Scott Dockter.
UPON PAYMENT OF $50,000.00 to Scott Dockter, NEWGOLD, INC. and
RIVERFRONT DEVELOPMENT, INC., et al., Scott dockter, President and sole
stockholder shall grant to Edward Mackay an OPTION TO PURCHASE forty (40%)
percent of the above described corporations. Said OPTION shall be for a period
of one (1) year.
PURCHASE PRICE SHALL BE: 100% of Washington gulch, Inc. to be
transferred to Newgold, Inc. and the aforementioned $50,000.00 cash.
ANY ADDITIONAL CAPITAL that Edward Mackay elects to provide to the
above entities shall be secured by a Promissory Note and Deed of Trust on
Riverfront buildings and its real estate, and a UCC Statement on the Lime now
located at Riverfront.
EDWARD MACKAY shall use his best efforts to help promote and develop
the above entities, including, but not limited to obtaining permits and
refinancing the Riverfront property.
IT IS UNDERSTOOD that Scott dockter and Edward Mackay each shall own
forth (40%) percent of the above mentioned corporations, and twenty (20%)
percent shall be available to distribute to other investors, vendors, or
individuals that Edward Mackay and Scott Dockter agree together to giver
percentages to.
IN WITNESS WHEREOF, the parties hereto have executed this OPTION
AGREEMENT as of the dates below written and declare under penalty of perjury
that they have examined the foregoing statements and to the best of their
knowledge and belief it is true, correct and complete.
/s/ Scott Dockter /s/ Edward Mackay
---------------------- ---------------------
Name: Scott Dockter Name: Edward Mackay
Dated: 8/31/95 Dated: 8/31/95
EXHIBIT 10.5
FIRST AMENDMENT
TO THE
"OPTION TO PURCHASE"
NEWGOLD, INC.
THIS FIRST AMENDMENT TO THE OPTION TO PURCHASE AGREEMENT dated
August 31, 1995, for NEWGOLD, INC. hereinafter referred to as "Newgold"; is made
and entered into this 1st day of January, 1996, by and between Edward
MacKay/Gold bug, a partnership, hereinafter referred to as "Mackay"; and Scott
Docktor, hereinafter referred to as "Docktor".
W I T N E S S E T H
-------------------
WHEREAS, the original OPTION AGREEMENT shall continue in full force and effect
in its entirety except as amended to include and to read as follows:
"Mackay" shall exercise his option to purchase "Newgold".
In consideration for Three Million, Eight Hundred Thousand
(3,800,000) shares of "Newgold" stock, "MacKay" shall:
- Arrange for financing up to Three Hundred Fifty Thousand
Dollars ($350,000.00) for "Newgold".
- Transfer all assets and permits of Washington Gulch to
"Newgold", and
- Provide consulting services for the operation and
maintenance of "Newgold",
"Newgold" shall obtain written approval from the State of
Montana transferring permits from Washington gulch to
"Newgold".
"Newgold" shall assume all the liabilities of Washington Gulch
Transfer of Assets shall be deemed transferred as of January
1, 1996, the date of this Agreement.
All loans, including principal and interest, procured by "Mackay"
shall be due and payable on or before december 31, 1996.
Page 1 of 2 pages = AMENDMENT TO OPTION AGREEMENT/MACKAY-DOCKTOR
<PAGE>
Formal transfer of Washington gulch stock and "Newgold" stock shall
occur as soon as reasonably possible.
IN WITNESS WHEREOF, the authorized parties hereto have sworn to this AMENDMENT
as of the dates below written and verifies that the statements made herein are
true and correct.
WITNESSED: EDWARD MACKAY/GOLD BUG, a partnership
By:
Name: Edward Mackay
(Print or Type Name)
Title: Partner
Dated: January 15, 1995
WITNESSED: NEWGOLD, INC.
By:
Name: Scott Docktor
(Print or Type Name)
Title: President
Dated: January 15, 1996
Page 2 of 2 pages = AMENDMENT TO OPTION AGREEMENT/MACKAY-DOCKTOR
EXHIBIT 10.6
CLARIFICATION AGREEMENT
THIS CLARIFICATION AGREEMENT (the "Agreement") is entered into
effective as of June 18, 1996, by and between Newgold, Inc., a Nevada
corporation ("Newgold") and A. Scott Dockter ("Dockter"), an individual on the
one hand and Edward Mackay ("Mackay"), an individual residing in the State of
California, and Gold Bug, a California general partnership ("Gold Bug") on the
other hand.
RECITALS
WHEREAS, as of August 1995, Dockter owned 100 shares of
Newgold and was the sole shareholder;
WHEREAS, during August 1995, Newgold was at risk of loosing its main
asset, the Relief Canyon Mine, located in Lovelock, Nevada ("Relief Canyon
Mine") unless it could receive an additional infusion of capital of
approximately $50,000;
WHEREAS, during August 1995, Mackay and Newgold entered into
negotiations for the infusion of such needed capital and the acquisition of all
rights and assets of the Washington Gulch Mine located in Montana ("Washington
Gulch Mine");
WHEREAS, as of August 1995, the parties agreed that the value of the
Washington Gulch Mine was approximately $385,000 and that the value of Newgold
was approximately $500,000;
WHEREAS, on August 31, 1995, Newgold granted Mackay a one-year option
to purchase 40% of Newgold and 40% of Riverfront Development, Inc., a California
corporation ("Riverfront"), for the aggregate consideration of a $50,000 down
payment and all right, title, and interest to the Washington Gulch Mine,
attached hereto as Exhibit "A" (the "Option");
WHEREAS, as of August 31, 1995, a 40% ownership of Newgold by Mackay
would equate to 56.143602333 shares of Common Stock of Newgold. If such changes
were issued, Newgold would have had approximately 156 shares outstanding;
WHEREAS, from August 31, 1995 through December 31, 1995, Mackay did
arrange for additional financing and provided a de minimous amount of consulting
services to Newgold;
WHEREAS, on January 1, 1996, Newgold, Mackay and Gold Bug agreed to
amend the Option to reflect the changes that occurred between August 31, 1995
and January 1, 1996, to convert the $50,000 Option payment into a promissory
note and to reflect Mackay's exercise of the Option to purchase 40% of Newgold;
1
<PAGE>
WHEREAS, on January 1, 1996, Newgold, Mackay and Gold Bug amended the
Option pursuant to the terms of the First Amendment to the Option to Purchase
Newgold, Inc. (attached as Exhibit "B") (the "Amendment") as follows:
a. The Option was exercised, with respect to
approximately a 35% interest in Newgold only, in
exchange for the contribution of all assets and
rights in the Washington Gulch Mine;
b. Mackay would arrange for debt financing of up to
$350,000;
c. Mackay would provide consulting services to
Newgold;
b. The $50,000 option payment would be converted to
debt to be repaid to Mackay upon the closing of
future financings; and
d. Mackay would receive 3.8 million shares of Common
Stock of Newgold (56.143602333 shares prior to the
Stock Split referenced below);
WHEREAS, the Amendment failed to reference the conversion of the
$50,000 Option payment into debt owed to Mackay, and the parties hereto intend
to clarify that this was part of the agreement relating to the Amendment;
WHEREAS, the parties to the Amendment estimated that after a stock
split and future capitalization of Newgold, Newgold would have approximately
10,560,000 shares of Common Stock issued and outstanding and that the issuance
of 3,800,000 shares to Mackay would equal approximately 36% of the issued and
outstanding shares of Newgold, the amended position of Mackay;
WHEREAS, the parties recognize that Mackay performed a diminimous
amount of services in accordance with the terms and conditions of the Option and
the Amendment.
WHEREAS, the Company effected a 67,683.58-for-1 stock split of its
issued and outstanding Common Stock (the "Stock Split") as of June 15, 1996;
WHEREAS, the parties recognize that the 56.143602333 shares of Common
Stock held by Mackay upon exercise of the Option were uncertificated, but
Newgold recognizes that they were outstanding as of the date of the Amendment;
WHEREAS, after the Stock Split, Dockter owned approximately 6,768,358
shares of Common Stock of Newgold and Mackay owned approximately 3,800,000
shares of Common Stock of Newgold; and
2
<PAGE>
WHEREAS, certain issues relating to the background, interpretation and
satisfaction of the Option and the Amendment have occurred,and it is the purpose
of this Agreement to clarify and resolve any and all such issues.
NOW, THEREFORE, for valuable and adequate consideration, the receipt of
which is hereby acknowledged, and in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
1. Clarification. The parties agree that the above recitals
fairly reflect the transactions of the parties, are hereby
incorporated by reference and shall be made a part of this
Agreement.
2. Standing of Parties. The parties hereby agree that, as of the date
of this Agreement, the transfer of all assets and liabilities of the Washington
Gulch Mine to Newgold has been completed, all shares of stock have been issued
to Mackay and Gold Bug, and all terms and conditions of the Option and the
Agreement have been performed in full.
3. Attorneys' Fees. Each party will bear his or its own costs including
attorneys' fees in connection with this Agreement. If any party or parties
commence any legal proceedings against any other party with respect to any of
the terms and conditions of the Option, the Amendment or their Agreement, the
non-prevailing party or parties will pay the prevailing party or parties all
expenses of those proceedings, including reasonable attorneys' fees and any and
all included costs thereto.
4. Binding Effect. This Agreement will be binding upon and
inure to the benefit of the successors and assigns of the
respective parties.
5. Construction. This Agreement will not be construed
against the party preparing it but will be construed as if prepared
by all parties.
6. California Law. This Agreement shall be deemed to be
made under, and shall be construed in accordance with, the laws of
the State of California, without giving effect to principles of
conflicts of law.
7. Counterparts. This Agreement may be executed in several
counterparts with the same effect as if all parties signed one
document. Each counterpart shall be treated as an original and all
such counterparts will constitute one agreement.
8. Entire Agreement and Amendment. This Agreement,
including the Exhibits hereto, constitutes the entire agreement by
and among the parties hereto and supersedes any and all other
3
<PAGE>
agreements, written or oral, between the parties. The parties expressly
understand that this Agreement may not be altered, amended, modified or
otherwise changed in any respect or particular whatsoever except by a writing
duly executed by an authorized representative of each of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date set forth below.
DATED: ___________, 1997 NEWGOLD, INC.
By:
A. Scott Dockter
President
A. SCOTT DOCKTER
DATED: ___________, 1997
A. Scott Dockter, individually
GOLD BUG
DATED: ___________, 1997
Edward Mackay, partner
EDWARD MACKAY
DATED: ___________, 1997
Edward Mackay, individually
4
EXHIBIT 10.7
[MIRAMAR LETTERHEAD]
October 8, 1996
A. Scott Dockter
New Gold, Inc.
5190 Neil Road, Suite 320
Reno, NV
USA
Via Facsimile 702-823-4010
Dear Sir:
RE: Letter of Intent - Bruner Property, Nevada
I am pleased to inform you that I believe that we can come to a final agreement
with respect to the Bruner Property on the following basis:
1. Non-refundable deposit of US$10,000 on signing of this Letter of Intent;
2. 45 day due diligence process & preparation of option agreement subject to
signing a confidentiality agreement;
3. Option Agreement to be signed by November 18, 1996 for a FOUR year term;
4. Newgold to have an option to purchase 100% of property at end of four years
for:
a) US$870,000;
b) 100,000 shares of Newgold;
c) Miramar to retain 2.5% NSR on all production over 200,000 oz;
d) NSR to reduce to 1.5% if trading price of Newgold shares is equal to or
greater than US$15 per share when issued to Miramar;
e) NSR to terminate if Miramar buys back in as provided in paragraph 8;
5. US$80,000 payment on November 18, 1996 and each August 1 thereafter for as
long as the option agreement is in good standing;
6. Miramar will use payments to make November 19th, 1996 US$31,250 payment to
and to cover other property holding costs in August & December in subsequent
years;
7. Newgold will conduct a minimum work program of 10,000 feet of drilling per
year on the Burner property;
8. In the event of a proven & probable reserve of more than 1 million ounces of
gold is defined:
a) Miramar will have the right to purchase back up to a 25% working
interest in a joint venture which will operate the Bruner project;
b) The cost to Miramar for the buy-back will be twice 25% of Newgold's cost
incurred during the development of the property;
c) The joint venture will fund capital requirements and operations on a pro
rata basis;
<PAGE>
d) A third party, acceptable to both Miramar and Newgold, will audit the
reserve to confirm the 1 million ounce has been established, with the
cost of the audit to be split 50/50 between Miramar and Newgold;
e) The 1 million ounce reserve level will be defined on the basis of proven
and probable reserves defined at any time prior to an irrevocable
production decision being made by Newgold;
9. Miramar to be presented with results of quarterly and a comprehensive annual
report detailing all results (factual and interpretive);
10. Newgold will return all information (factual and interpretive) if it
withdraws from Bruner;
11. Newgold will assume environmental liabilities during the term of the option
agreement, including any future requirements to provide a reclamation
bond, and be responsible for reclamation of any disturbances it creates.
Should you find these terms and conditions acceptable, please sign where
indicated below and deliver the $10,000 deposit check to our Reno office. Please
also execute a copy of the Confidentiality Agreement attached and also return to
our Reno office. Please fax a copy of both documents to me in Vancouver as well.
On receipt of these documents and the deposit, you will be able to begin your
due diligence at the Reno Office. Please contact Ann Carpenter in Reno to make
the necessary arrangements to view the data. For legal issues related to the
option agreement, please deal with David Long, our in house counsel in
Vancouver.
We look forward to progressing with you in this venture.
Yours truly,
MIRAMAR MINING CORPORATION
/s/
Stephen P. Quin
Executive Vice president
The above terms and conditions of this Letter of Intent are agreed to by the
undersigned on behalf of Newgold Inc. this 11th day of October 1996:
Signed: /s/
Name: A. Scott Dockter
Position: President/CEO
EXHIBIT 10.8
AGREEMENT AND PLAN OF MERGER
by
and
between
WAREHOUSE AUTO CENTERS, INC.
and
NEWGOLD, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is entered into as of
this _____ day of August, 1996, by and between NEWGOLD, INC., a Nevada
corporation WAREHOUSE AUTO CENTERS, INC., a Delaware corporation ("WAC"). ("WAC"
and "Newgold" shall be the "Parties".)
RECITALS
A. WAC is currently in bankruptcy under Chapter 11 of the U.S.
bankruptcy Code. The bankruptcy is pending in the U.S. Bankruptcy Court for the
Western District of New York, Case No. 92-21279, styled "In re Warehouse Auto
Centers, Inc., Debtor" (the "Bankruptcy").
WAC is a publicly-traded company; its Common Stock is listed and traded
on the NASDAQ Bulletin Board.
B. The Board of Directors of Newgold and WAC have determined that a
business combination between them is in the best interests of their respective
companies and stockholders and presents an opportunity for their respective
companies to achieve long-term strategies and financial benefits, and
accordingly, have agreed to effect the transactions contemplated herein,
including a merger of Newgold with and into WAC (the "Merger") upon the terms
and subject to the conditions set forth herein.
C. In connection with the contemplated Merger, Newgold and WAC have
each determined to engage in the transactions contemplated hereby, pursuant to
which: (i) WAC shall reverse split its total outstanding shares of Common Stock
(3,312,026) on the basis of 1 for 65, which will result in total outstanding
shares, post-split, of 50,958; (ii) WAC shall, in connection with the
Bankruptcy, obtain approval for and make available for sale and purchase
Debtor's Certificates to raise up to $5,000,000 U.S., all pursuant to ss. 364 of
the U.S.Bankruptcy Code (the "Code"), and to offer holders of such Debtor's
Certificates the option to exchange each $1.00 of Debtor's Certificates for one
(1) share of the Reorganized WAC's Common Stock, all pursuant to ss. 1145 of the
code; (iii) WAC shall take such action as may be necessary to increase its total
authorized shares of Common Stock to 100,000,000, par value $.01; (iv)
post-Merger, WAC shall change its domicile to Nevada, if deemed appropriate by
the WAC Board of Directors; (v) the Board of Directors of WAC shall, upon
consummation of the Initial Closing, as defined in Article I hereof, resign and
be replaced by nominees of Newgold, which may include certain members of the
current Board of Directors of WAC; and (vi) in the Bankruptcy, WAC shall issue
to Newgold shareholders a total of 11,710,958 shares of its post-split shares of
Common Stock in exchange for 100% of the total outstanding shares of Newgold.
D. Subject to the terms and conditions of this Agreement, Newgold shall
be merged with and into WAC in accordance with the Delaware General Corporation
Act ("Delaware Law") and the Nevada Corporation Act ("Nevada Law"), and WAC
shall be the surviving corporation (the "Surviving Corporation"). In connection
therewith, all of the assets and liabilities of Newgold shall be transferred and
delivered to WAC in exchange for 11,710,958 post-split, newly-issued shares of
Common Stock of WAC, all in the manner and upon the terms and subject to the
conditions set forth herein. The 11,710,956 shares shall be unregistered and
restricted from transfer, all pursuant to applicable state and federal
securities laws, rules and regulations, including, Rule 144 promulgated under
the Securities Act
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of 1933, as amended (the "Securities Act") The Parties intend for this
transaction to be tax free, pursuant to ss.1032 of the Internal Revenue Code of
1966, as amended (the "Code")
E. Newgold and WAC intend for the Merger to qualify as a reorganization
in accordance with the provisions of ss. 366Cb)of the Code.
F. Newgold and WAC desire to make certain representations, warranties
and agreements in connection with the Merger.
G. It is fundamental to this Agreement that WAC retain its status as a
NASDAQ Bulletin Board listee post-Merger. (See Article X, Section 10.16).
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
SALE OF DEBTOR'S CERTIFICATES
SECTION 1.01 SALE OF DEBTOR'S CERTIFICATES.
(a) WAC has filed a motion in the Bankruptcy seeking approval to issue
Debtor's Certificates pursuant to 11 U.S.c. ss. 364(b) and to raise up to a
maximum of $5,000,000 U.S. to be used in connection with its proposed Merger
with Newgold. Under the terms of the Debtor's Certificates, the purchasers
thereof shall have the right to exchange their Certificates on the basis of one
(1) share of WAC's post~split Common Stock for each $1.00 of indebtedness, all
pursuant to ss. 1145 of the U.5 Bankruptcy Code.
Upon approval of the motion, WAC shall immediately, through sales
agents, attempt to raise up to $5,000,000 U.S. through the sale of the Debtor's
Certificates.
(b) Initial Closing. The closing of the sale and purchase of the
Debtor's Certificates (the "Initial Closing") shall take place as soon as WAC
receives authority from the U.S. Bankruptcy Court to sell the same. The Initial
Closing shall take place at the__________________ Bank in New York, New York,
unless a different date or place is agreed to in writing by the Parties hereto.
At the Initial Closing, WAC shall deliver to___________________________ as agent
for all purchasers, the Debtor's Certificates purchased. The Parties shall
execute any and all documents necessary to comply with applicable federal and
state laws, rules and regulations pertaining to the Debtor's Certificates.
ARTICLE II
THE MERGER
SECTION 2.01 MERGER CLOSING. The closing of the Merger (the "Merger
Closing") shall take place on the first business day after satisfaction or
waiver of the latest to occur of the conditions set forth in Article VIII, at
the offices of Michael J. Morrison, Esq., 1025 Ridgeview Drive, Suite 400, Reno,
Nevada 69509, unless a different date or place is agreed to in writing by the
Parties hereto (the "Merger Date")
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SECTION 2.02 THE MERGER. If all of the conditions to the Merger set
forth in this Agreement shall have been fulfilled or waived in accordance
herewith, and this Agreement shall not have been terminated as provided herein,
then concurrent with the Merger Closing, Newgold and WAC shall file a Plan of
Merger in the Office of the Secretary of State of the State of Delaware in
accordance with Delaware Law, and a Plan of Merger in the Office of the
secretary of State of the State of Nevada. The Merger shall become effective at
such time as the Plan of Merger is duly filed in both the Office of the
Secretary of State of the State of Delaware and the Office of the Secretary of
State of the State of Nevada (the date of such filings being hereinafter
referred to as the "Effective Date" and the time of the latest to occur of such
filing being hereinafter referred to as the "Effective Time"), and WAC shall be
the Surviving Corporation. It is the intention of the parties that this
Agreement shall constitute a Plan of Merger under ss. 6-101 et. seq. of Delaware
General Corporation Law and a Plan of Merger under Ch. 92A of Nevada Corporation
Law.
SECTION 2.03 ISSUANCE OF SHARES AND EXCHANGE OF CERTIFICATES;
TRANSFER OF ASSETS. At the Effective Time, all of the outstanding shares of
Newgold, together with all of the assets and liabilities of Newgold shall be
transferred and delivered, pursuant to appropriate deeds and/or title documents,
consistent with all applicable laws, to WAC; WAC shall deliver a certificate for
11,710,958 shares of its post-split, newly-issued shares of Common Stock to
newgold; each share of WAC post-split Common Stock outstanding immediately prior
to the Effective Time shall remain outstanding and shall represent one share of
Common Stock of the Surviving Corporation.
SECTION 2.04 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of WAC (the "Existing Certificate") shall be amended and restated
at the Effective Time to adopt the amendments to the Existing Certificate and to
restate the Existing Certificate in a manner agreed to by the Parties, by
separate agreement (the "Restated Certificate").
SECTION 2.05 BYLAWS. The Bylaws of WAC (the "Existing Bylaws") shall be
amended and restated to adopt the amendments to the Existing Bylaws and to
restate the Existing Bylaws in a manner agreed to by the Parties, by separate
agreement (the "New Bylaws").
SECTION 2.06 DIRECTORS. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of the Surviving Corporation shall be the New
Board (as defined in Section 5.02).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WAC
Except as set forth in a document referring specifically to the
relevant Section or subsection of this Agreement which is delivered by WAC to
Newgold prior to the execution of this Agreement (the "WAC Disclosure
Schedule"), WAC represents and warrants to Newgold as follows:
SECTION 3.01 CORPORATE EXISTENCE AND POWER. WAC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers required to carry on its business as
now conducted. WAC is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
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property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on WAC. WAC has delivered to Newgold true and complete copies of
WAC's Existing Certificate and Existing Bylaws as currently in effect. For
purposes of this Agreement, the term "Material Adverse Effect" means, with
respect to any person or entity, a material adverse effect on the condition
(financial or otherwise), business, properties, assets, liabilities (including
contingent liabilities), results of operations of such person or entity and its
subsidiaries; and the term "Material Adverse Change" means a change which would
have a Material Adverse Effect; provided, however, that the happening or the
occurrence of the events set forth on Schedule 3.01 of the WAC Disclosure
Schedule shall not constitute a Material Adverse Effect or Material Adverse
Change for purposes of this Agreement and shall not cause a breach of any
representation or warranty of WAC made herein or cause a failure of a condition
to Newgold's obligations hereunder.
SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by ~AC of this Agreement and the consummation by WAC of the
transactions contemplated hereby and thereby are within WAC's corporate powers
and have been and, to the extent not executed as of the date hereof, will be
prior to execution, duly authorized by all necessary corporate action, subject
to approval of the Merger by WAC's stockholders. This Agreement constitutes, or
upon execution will constitute, a valid and binding agreement of WAC,
enforceable against WAC in accordance with the terms herein, except as
enforcement may be limited by applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by WAC of this Agreement and the WAC consummation of the
transactions contemplated hereby and thereby by WAC requires no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than:
(a) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act");
(b) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder;
(c) compliance with any applicable requirements of the Securities Act
of 1933, as amended (the "Securities Act") and the rules and regulations
promulgated thereunder;
(d) compliance with any applicable requirements of NASDAO
("NASDAQ");
(e) compliance with any applicable state securities or "Blue Sky" laws;
and
(f) such other filings or registrations with, or authorizations,
consents, or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain would not have a Material
Adverse Effect on the ability of the Parties to consummate the transactions
contemplated hereby.
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SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance
by WAC of this Agreement and the consummation by WAC of the transactions
contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Existing Certificate or Existing
Bylaws of WAC;
(b) assuming compliance with the matters set forth in Section 3.03 and
assuming the requisite approval of the Merger by WAC's stockholders and
creditors, to the best of WAC's knowledge, (i) contravene, conflict with or
constitute a violation of any provision of any judgment, injunction, order or
decree binding upon WAC, as defined in Section 3.OE below), or (ii) contravene,
conflict with or constitute a violation of any provision of any law or
regulation applicable to WAC to the extent such contravention, conflict or
violation would have a Material Adverse Effect on WAC;
(c) except as set forth on Schedule 3.04(c) of the WAC Disclosure
Schedule, constitute a default under, require the approval of, or give rise to a
right of termination, cancellation or acceleration or loss of any material
benefit under any agreement, contract or other instrument (including loan
documents) binding upon WAC, or under any license, franchise, permit or other
similar authorization held by WAC; or
(d) result in the creation or imposition of any Lien (as defined below)
on any material asset of WAC.
For purposes of this Agreement, the term o"Lien" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
SECTION 3.05 CAPITALIZATION OF WAC. The authorized capital stock of WAC
consists of ___________ shares of Common Stock, par value $______ . As of
October 15, 1996, there were outstanding 3,312,026 shares of WAC Common Stock.
All outstanding shares of WAC Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of WAC Common Stock are listed, or approved for listing upon official notice of
issuance, on the NASDAQ and, to the best of WAC's knowledge, there are no
proceedings or other actions being taken to delist any such shares. Except as
set forth above in this Section 3.05, there are outstanding (i) no shares of
capital stock or other voting securities of WAC; (ii) no securities of WAC
convertible into or exchangeable for shares of capital stock or voting
securities of WAC; and (iii) no options or other rights to acquire from WAC, and
no obligation of WAC to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or other voting
securities of WAC (the items in clauses (i) , (ii) and (iii) being referred to
collectively as the "WAC Securities") . There are no outstanding obligations of
WAC to repurchase, redeem or otherwise acquire any WAC Securities. The shares of
WAC Common Stock which are (a) subject to issuance upon conversion of the
Debtor's Certificates and (b) issuable in connection with the Merger when issued
and paid for in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly authorized, validly issued, fully
paid and nonassessable.
SECTION 3.06 SEG FILINGS.
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(a) Schedule 3.07(a) of the WAC Disclosure Schedule sets forth a true
and complete list of all WAC Reports (as defined below) that WAC has delivered
to Newgold, or, to the extent not yet filed, will deliver to Newgold prior to
the Merger Closing.
(b) As of their respective filing date, no such report or statement
filed with the Securities and Exchange Commission (the "SEC") pursuant to the
Exchange Act (collectively the o"WAC Reports") contained any untrue statement of
a material tact or omitted to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. Except as set forth on Schedule 3.07(b) of the WAC
Disclosure Schedule, WAC has timely filed all reports, statements or forms
required by it to be filed pursuant to the Exchange Act and the rules and
regulations thereunder.
SECTION 3.07 FINANCIAL STATEMENTS. Each of the consolidated balance
sheets of WAC included in or incorporated by reference into the WAC Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of WAC and its subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of WAC
included in or incorporated by reference into the WAC Reports (including any
related notes and schedules) fairly presents results of operations, retained
earnings or cash flows, as the case may be, of WAC and its subsidiaries for the
period set forth therein (subject, in the case of unaudited statements to normal
year-end audit adjustments which would not be material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted therein
and except, in the case of the unaudited statements, as permitted by Form 10-0
of the SEC. For purposes of this Agreement, "WAC Balance Sheet" means the
consolidated balance sheet of WAC as of and the notes thereto and "WAC Balance
Sheet Date" means ____________________.
SECTION 3.08 COMPLIANCE WITH LAW. WAC is in compliance and has
conducted its business so as to comply with all laws, rules and regulations,
judgments, licenses, permits, decrees or orders of any court, administrative
agency, commission, regulatory authority or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Authority") applicable to
their respective businesses or properties except to the extent that
noncompliance would not have a Material Adverse Effect on WAC, taken as a whole.
Except as set forth on Schedule 3.Og of the WAC Disclosure Schedule, there are
no judgments or orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) including any
such actions relating to affirmative action claims or claims of discrimination,
against WAC or against any of its respective properties or businesses.
SECTION 3.09 NO DEFAULTS. Except as set forth on Schedule 3.10 of the
WAC Disclosure Schedule, WAC has not received notice that it would be with the
passage of time, (i) in violation of any provision of its articles or
certificate of incorporation or bylaws or other similar organizational document
or ~Ii) in default or violation of any term, condition or provision of (A) any
judgment, decree, order, injunction or stipulation applicable to WAC or (B) any
material agreement, note, mortgage, indenture, contract, lease or instrument,
permit, concession, franchise or license to which WAC is a party or by which WAC
or its respective properties or assets may be bound.
SECTION 3.10 LITIGATION. Except as set forth on Schedule 3.11 of the
WAC Disclosure schedule, there is no action, suit, proceeding, claim or
investigation pending or, to the best of WAC's knowledge, threatened, against
WAC which could, individually or in the aggregate, have a Material
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Adverse Effect on WAC, taken as a whole, or which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
SECTION 3.11 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or
contemplated by this Agreement or, as set forth on Schedule 3.12 to the WAC
Disclosure Schedule, since the WAC Balance Sheet Date, there has not occurred:
(a) A Material Adverse Change with respect to WAC, taken as a
whole;
(b) Any amendments or changes in the articles or certificate of
incorporation or bylaws or other similar organizational document of WAC, except
for the Restated Certificate and New Bylaws as contemplated by this Agreement;
(c) Any damage, destruction or loss, not covered by insurance, in
excess of $25,000 with respect to any of the former properties or businesses of
WAC;
(d) Any redemption, repurchase or other acquisition of shares of
capital stock, partnership interests or ownership units of WAC by WAC (other
than pursuant to arrangements with terminated employees or consultants), or any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of WAC;
(e) Any increase in the hourly rate of compensation payable or to
become payable (by reimbursement or otherwise) by WAC to any of their respective
directors, officers, partners, employees or consultants, whether as employees of
WAC or otherwise;
(f) Except as set forth on Schedule 3.12(f) of the WAC Disclosure
Schedule, any increase in or modification of any bonus, pension, insurance or
other employee benefit plan, payment or arrangement (including, but not limited
to, the granting of stock options, restricted stock awards or stock appreciation
rights) made to, for or with any of WAC's directors, officers or employees,
whether as employees of WAC or otherwise;
(g) Except as contemplated by this Agreement, and a sale of all assets,
as approved by the Bankruptcy Court, any acquisition or sale of a material
amount of property or assets by or of WAC;
(h) Any alteration in any term of any outstanding WAC securities;
(i) Except as contemplated by this Agreement, any Ii) incurrence,
assumption or guarantee by WAC of any debt for borrowed money; (ii) issuance or
sale of any securities convertible into or exchangeable for debt securities of
WAC; or (iii) issuance or sale of options or other rights to acquire from WAC,
directly or indirectly, debt securities of WAC or any securities convertible
into or exchangeable for any such debt securities;
(j) Any creation or assumption by WAC of any Lien on any material
asset, except as permitted or contemplated by this Agreement;
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(k) Any loan, advance or capital contribution to or investment in any
person other than (i) loans, advances or capital contributions to or investments
in any WAC Subsidiary, (ii) travel loans or advances made in the ordinary course
of business of WAC, and (iii) other loans and advances in an aggregate amount
which do not exceed $10,000 outstanding at any time;
(l) Any entry into, amendment of, relinquishment, termination or
non-renewal by WAC of any material contract, lease, commitment or other right or
obligation other than as permitted or contemplated by this Agreement; or
(m) To the best of WAC's knowledge, any agreement or arrangement made
by WAC to take any action which, if taken prior to the date hereof, would have
made any representation or warranty set forth in this Section 3.12 untrue or
incorrect as of the date when made.
SECTION 3.12 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth
on Schedule 3.13 to the WAC Disclosure Schedule, there are no liabilities of WAC
of any kind whatsoever that are material to the business of WAC, taken as a
whole, other than:
(a) liabilities disclosed or provided for in the WAC Balance Sheet;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the WAC Balance Sheet Date; and
(c) liabilities under this Agreement.
SECTION 3.13 CERTAIN AGREEMENTS. Except as set forth on Schedule 3.14
of the WAC Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby or
thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of WAC under any WAC Employee Plan (as
defined in Section 3.15(a) below) or otherwise, (ii) materially increase any
benefits otherwise payable under any WAC Employee Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
SECTION 3.14 EMPLOYEE BENEFITS.
(a) Schedule 3.15 of the WAC Disclosure Schedule sets forth each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and each employment agreement,
compensation agreement, bonus, commission or similar arrangement, and fringe
benefit arrangement which is maintained, administered or contributed to by WAC
or any affiliate thereof (as defined below) and covers any employee or former
employee of WAC or any affiliate or under which WAC or any affiliate has any
liability. Such plans are referred to collectively herein as the "WAC Employee
Plans." For purposes of this section 3.15 only, an "affiliate" of any person or
entity means any other person or entity, which, together with such person or
entity, would be treated as a single employer under Section 414 of the Code or
Title IV of ERISA. The only WAC Employee Plans which individually or
collectively would constitute an "employee pension benefit plan" as defined in
Section 3(2) of ERISA are identified as such in the list referred to above.
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(b) No WAC Employee Plan constitutes a "multi-employer plan" as defined
in Section 3(37) of ERISA (a "Multi-employer Plan"), no WAC Employee Plan is
maintained in connection with any trust described in Section 501(c) (9) of the
Code and no WAC Employee Plan is subject to Title IV of ERISA or Section 412 of
the Code. If WAC or an affiliate thereof ever maintained or was obligated to
contribute to a Multi-employer Plan or a plan subject to Title IV of ERISA, any
withdrawal or other liability under Title IV of ERISA with respect to such plan
has been fully satisfied. To WAC's knowledge, nothing done or omitted to be done
and no transaction or holding of any asset under or in connection with any WAC
Employee Plan has or will make WAC or any of its Subsidiaries, or any officer or
director thereof, subject to any liability under Title I of ERISA or liable for
any tax pursuant to Section 4975 of the Code.
(c) To the best knowledge of WAC, there is no WAC Employee Plan which
is intended to be qualified under section 401(a) of the Code.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of WAC or any affiliate that would obligate the
Surviving Corporation or any affiliate to pay any additional compensation,
including severance pay or additional withholding taxes, as a result of the
consummation of the transactions contemplated by this Agreement or that,
individually or collectively, could give rise to the payment by the surviving
Corporation of any amount that would not be deductible pursuant to the terms of
Sections 162 (a) (1) or 280G of the Code
(e) Neither WAC nor its affiliates have any projected liability in
respect of post-retirement health, life and medical benefits for retired
employees of WAC and its affiliates. Other than provisions of applicable law, no
condition exists that would prevent WAC or any of its Subsidiaries from amending
or terminating any WAC Employee Plan.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by WAC or any of its affiliates relating
to, or change in employee participation or coverage under, any WAC Employee Plan
which would materially increase the expense of maintaining such WAC Employee
Plan above the level of the expense incurred in respect thereof for the most
recent fiscal year.
SECTION 3.15 MAJOR CONTRACTS. Schedule 3.16 of the WAC Disclosure
Schedule sets forth a list of all "material contracts" as defined in Item 601 of
Regulation s-K under the Securities Act and to which WAC is a party or has a
beneficial interest in (each a "WAC Material Contract"). Each WAC Material
Contract is valid and binding on WAC, as applicable, and except as set forth on
Schedule 3.16 of the WAC Disclosure Schedule, neither WAC, nor to the best of
their knowledge any other party thereto, has breached any provision of, or is in
default under the terms of, any WAC Material Contract.
SECTION 3.16 TAXES.
(a) Except as set forth on schedule 3.17(a) of the WAC Disclosure
Schedule, all Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time by or on behalf of WAC (the "WAC Tax Returns"), the
non-filing of which would have a Material Adverse Effect on WAC or would result
in criminal penalties against WAC or any officer or employee thereof, have been
or will be filed when due (including any extensions of such due date).
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(b) WAC has timely paid, withheld or made provision on their books for
all Taxes shown as due and payable on WAC Tax Returns that have been filed.
(c) All WAC Tax Returns relating to income or franchise Taxes filed
with respect to Taxable years of WAC ending on or after December 31, 1990, have
been filed or extensions have been duly made.
(d) WAC has not been granted any extension or waiver of the limitation
period applicable to any WAC Tax Returns.
(e) To the beat of WAC's knowledge, there is no claim, audit, action,
suit, proceeding, or investigation now pending or threatened in writing against
or with respect to WAC in respect of any Tax or assessment.
(f) There are no requests for rulings in respect of any Tax pending
between WAC and any Taxing Authority.
(g) None of the property owned or used by WAC is subject to a tax
benefit transfer lease executed in accordance with Section 168(f) (8) of the
Code.
(h) None of the property owned by WAC is o"tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(i) Neither WAC, nor any other person on behalf of WAC, has entered
into nor will it enter into any agreement or consent pursuant to Section 341(f)
of the Code.
(j) Except as set forth on Schedule 3.17(j) of the WAC Disclosure
Schedule, there are no Liens for Taxes upon the assets of WAC, except Liens for
Taxes not yet due.
(k) WAC will not be required to include any adjustment in Taxable
income for any Tax period (or portion thereof) ending after the Effective Time
pursuant to Section 481(c) of the Code (or any similar provision of the Tax laws
of any jurisdiction) as a result of a change in method of accounting for any Tax
period (or portion thereof) ending on or before the Effective Time or pursuant
to the provisions of any agreement entered into with any Taxing Authority with
regard to the Tax liability of WAC for any Tax period (or portion thereof)
ending on or before the Effective Time.
(l) WAC has not been a member of an affiliated group, other than one of
which WAC was the common parent, or filed or been included in a combined,
consolidated or unitary Tax return other than one filed by WAC, or participated
in any other similar arrangement whereby any income, revenues, receipts, gains,
losses, deductions, credits or other Tax items of WAC was determined or taken
into account for Tax purposes with reference to or in conjunction with any such
items of another person other than WAC or predecessor.
(m) WAC is not currently under any contractual obligation to pay the
income or franchise tax obligations of, or with respect to transactions relating
to, any other person or to indemnify any other person with respect to any income
or franchise tax.
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(n) WAC has not signed any letter or entered into any agreement or
arrangement consenting to the surrender or sharing of any deductions, credits,
or other Tax attributes with any other person or transferred or assigned to any
other person for Tax purposes any such item.
(o) Notwithstanding any of the foregoing, no representation or warranty
is made by WAC with respect to the Tax consequences that may result from the
transactions contemplated by this Agreement.
(p) For the purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding on
amounts paid to or by such entity or any subsidiary thereof, payroll employment,
excise, severance, stamp, occupation, property, environmental or windfall profit
tax, or other tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii)
liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person.
SECTION 3.17 INTELLECTUAL PROPERTY.
(a) Schedule 3.18(a) of the WAC Disclosure Schedule sets forth all
licensing arrangements which WAC has with third parties and which are material
to the business of WAC, taken as a whole (the "WAC Intellectual Property
Rights")
(b) WAC, during the three years preceding the date of this Agreement,
has not been sued or charged in writing with or been a defendant or plaintiff in
any claim, suit, action or proceeding relating to its business which has not
been finally terminated prior to the date hereof and which involves a claim of
infringement of any patents or licenses, and to WAC's best knowledge (i) there
are no other claims by any other person of patent or license infringement by
WAC, and (ii) there are no continuing infringements by any other person or
persons of any WAC Intellectual Property Rights.
SECTION 3.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth
on Schedule 3.19 of the WAC Disclosure Schedule, there is no material agreement,
judgment, injunction, order or decree binding upon WAC which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any acquisition of property by WAC or the conduct of business by WAC as
currently conducted or as currently proposed to be conducted by WAC.
SECTION 3.19 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Schedule 3.20(a) of the WAC Disclosure Schedule sets forth a true
and complete description of all real property owned or leased (as lessee) by WAC
(the "WAC Properties"), the aggregate annual rental or other fee payable under
any such lease, and, with respect to any such WAC Properties currently under
contract for sale, the parties to such contract or contracts.
SECTION 3.20 ENVIRONMENTAL MATTERS.
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(a) Neither WAC, nor to the knowledge of WAC (without inquiry) any
tenant on the WAC Properties, has received any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, Lien or assessment,
and to the best of WAC's knowledge (without inquiry with respect to any tenant
on the WAC Properties), there is no investigation or review pending by any
governmental entity, with respect to any (i) alleged violation by WAC or any
tenant on the WAC Properties of any Environmental Law (as defined in subsection
(f) below), (ii) alleged failure by WAC or any tenant on the WAC Properties to
have any environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or (iii)
Regulated Activity (as defined in subsection (f) below)
(b) WAC, with respect to any of the WAC Properties, has no knowledge of
any Environmental Liabilities (as defined in subsection (f) below), or of any
release of Hazardous Substances (as defined in subsection (f) below) into the
environment in violation of any Environmental Law or environmental permit. WAC
has disclosed to Newgold in writing the presence, to the best of WAC's
knowledge, of any asbestos in any of its premises other than fully encapsulated
asbestos-containing construction materials.
(c) WAC has not prepared or had prepared for it any environmental
audits and other similar reports.
(d) Except as set forth on Schedule 3.21(d) of the WAC Disclosure
Schedule, to the best of WAC's knowledge, (i) no asbestos-containing materials
were installed or exposed in the WAC Properties through demolition, renovation
or otherwise, (ii) no electrical transformers or other equipment containing
PGB's are or were located on the WAC Properties, (iii) no storage tanks for
gasoline, heating oil or diesel fuel or any other substances are or were located
on or under the WAC Properties, and (iv) no materials regulated under any
federal, state or local law or regulation, as amended from time to time, as a
toxic, hazardous, contaminated or similarly harmful or dangerous material or
substance (including, without limitation, asbestos and radon) are or were
located on, in or under the WAC Properties or have affected the WAC Properties
or waters on or under the WAC Properties.
(e) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state and local
laws (including case law), regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions
relating to human health, the environment or to emissions, discharges
or releases of pollutants, contaminants, Hazardous Substances or wastes
into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, Hazardous Substances or wastes
or the cleanup or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities, whether vested
or invested, contingent or fixed, which (i) arise under or relate to a
violation of Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance regulated by any Environmental Law,
including petroleum, its derivatives, by-products
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and other hydrocarbons, or any substance having any material
constituent elements displaying any of the foregoing characteristics.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous
Substances.
SECTION 3.21 INSURANCE. Schedule 3.22 of the WAC Disclosure Schedule
sets forth a list of all insurance policies and fidelity bonds insuring the
assets, business, equipment, properties, operations, employees, officers and
directors of WAC. Copies of all such policies have been delivered to Newgold
prior to the date hereof. There is no claim by WAC pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums payable under all
such policies and bonds have been paid and WAC is otherwise in full compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). To the best of WAC's knowledge, no
termination or material premium increase is pending or threatened with respect
to any of such policies.
SECTION 3.22 LABOR MATTERS. To the best of WAC's knowledge after
inquiry, is in compliance with all currently applicable laws and regulations
respecting employment, discrimination in employment, verification of immigration
status, terms and conditions of employment and wages and hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice, except to the extent that non-compliance would not have a
Material Adverse Effect on WAC. Neither WAC nor, to the best of WAC'S knowledge
after inquiry, any other WAC affiliated person or entity has received any notice
from any Governmental Entity, and there has not been asserted before any
Governmental Entity, any claim, action or proceeding to which WAC is a party,
and to the best of WAC's knowledge, there is neither pending nor threatened any
investigation or hearing concerning or involving WAC or any officer or employee
of WAC arising out of or based upon any such laws, regulations or practices.
SECTION 3.23 EMPLOYEES. Schedule 3.24 of the WAC Disclosure Schedule
lists each employee of WAC, his/her current position, salary, bonus and general
compensation arrangement. Except for the employment agreements listed on
Schedule 3.24 of the WAC Disclosure Schedule, complete and accurate copies of
which have been delivered to Newgold, WAC is not a party to any employment
agreements. All employees of WAC who are employed in a technical, managerial or
executive capacity and who are material to the operations of WAC, taken as a
whole, have the right under applicable immigration laws to work in their present
locations for at least two years from the Effective Date.
SECTION 3.24 FINDERS' FEES. Except as disclosed in the WAC Disclosure
Statement and Plan of Reorganization filed with the Bankruptcy Court, there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of WAC who might be entitled to
any fee or commission upon consummation of the transactions contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWGOLD
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Except as set forth in a document referring specifically to the
relevant Section or subsection of this Agreement which is delivered by Newgold
to WAC prior to execution of this Agreement (the "Newgold Disclosure Schedule"),
Newgold represents and warrants to WAC as follows:
SECTION 4.01 CORPORATE EXISTENCE AND POWER. Newgold is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada. Newgold has all corporate powers and all material Governmental
Authorizations required to carry on its respective business as now conducted.
Newgold is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on Newgold.
With respect to Newgold and the Newgold Subsidiaries taken as a whole, a
Material Adverse Change shall be deemed to have occurred for purposes of this
Agreement if the fair market value of the Newgold Properties as reported by
_________________________________________ in Newgold's property report dated as
of ________________________ shall have declined by ten percent (10%) or more
prior to the Merger Date (such a decline to be a "Newgold Decline In Value" for
purposes of this Agreement) Newgold has delivered to WAC true and complete
copies of Newgold's Articles of Incorporation and Bylaws, each as currently in
effect
SECTION 4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Newgold of this Agreement and the consummation by Newgold of the
transactions contemplated hereby and thereby are within such corporation's
corporate powers and have been and, to the extent not executed as of the date
hereof, will be prior to execution, duly authorized by all necessary corporate
action. This Agreement constitutes a valid and binding agreement of Newgold,
enforceable against Newgold in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity
SECTION 4.03 GOVERNMENTAL CONSENTS AND APPROVALS. The execution,
delivery and performance by Newgold of this Agreement and the consummation of
the transactions contemplated hereby and thereby by Newgold requires no action
by or in respect of, or filing with, any governmental body, agency, official or
authority other than:
(a) compliance with any applicable requirements of the HSR Act;
(b) compliance with any applicable requirements of the Exchange Act and
the rules and regulations promulgated thereunder;
(c) compliance with any applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder;
(d) compliance with any applicable requirements of NASDAQ ("NASDAQ")
(e) compliance with any applicable state securities or "Blue Sky" laws;
and
(f) such other filings or registrations with, or authorizations,
consents, or approvals of, governmental bodies, agencies, officials or
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SECTION 4.04 NON-CONTRAVENTION. The execution, delivery and performance
by Newgold of this Agreement and the consummation of the transactions by Newgold
contemplated hereby and thereby and do not and will not:
(a) contravene or conflict with the Articles of Incorporation or Bylaws
of Newgold;
(b) assuming compliance with the matters set forth in Section 4.03, to the
best of Newgold's knowledge, (i) contravene, conflict with or constitute a
violation of any provision of any judgment, injunction, order or decree binding
upon Newgold or any Newgold Subsidiary (as defined in Section 4.06), or (ii)
contravene, conflict with or constitute a violation of any provision of any law
or regulation applicable to Newgold or any Newgold Subsidiary to the extent that
such contravention, conflict or violation would have a Material Adverse Effect
on Newgold;
(c) except as set forth on Schedule 4.04(c) of the Newgold Disclosure
Schedule, constitute a default under, require the approval of, or give rise to a
right of termination, cancellation, acceleration or loss of any material benefit
under any agreement, contract or other instrument (including loan documents)
binding upon Newgold or any Newgold Subsidiary or under any license, franchise,
permit or other similar authorization held by Newgold or any such Newgold
Subsidiary; or
(d) result in the creation or imposition of any Lien on any material
asset of Newgold or any Newgold Subsidiary
SECTION 4.05 CAPITALIZATION OF NEWGOLD
(a) The authorized capital stock of Newgold consists of 50,000,000
shares of Common Stock, par value $.00l. As of August 25, 1996, there were
11,710,958 shares of Newgold Common Stock outstanding. All outstanding shares of
Newgold Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in the Newgold Disclosure Schedule,
there are outstanding (i) no shares of capital stock or other voting securities
of Newgold, (ii) no securities of Newgold convertible into or exchangeable for
shares of capital stock or voting securities of Newgold and (iii) no options or
other rights to acquire from Newgold, and no obligation of Newgold to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or other voting securities of Newgold (the items in clauses
(i), (ii) and (iii) being referred to collectively as the "Newgold Securities").
There are no outstanding obligations of Newgold or any Newgold Subsidiary to
repurchase, redeem or otherwise acquire any Newgold Securities
SECTION 4.06 SUBSIDIARIES.
(a) Schedule 4.06(a) of the Newgold Disclosure Schedule sets forth a
true and accurate list of each "Subsidiary" of Newgold (each an "Newgold
Subsidiary" and together, the "Newgold Subsidiaries") . Each Newgold Subsidiary
is either a corporation or other entity duly incorporated or otherwise
organized, validly existing and in good standing (or local law equivalent) under
the laws of its jurisdiction of organization, and has all corporate or other
organizational powers required to carry on its business as now conducted. Each
Newgold Subsidiary is duly qualified to do business as a foreign corporation or
partnership (as the case may be), is in good standing (or local law equivalent)
and has all licenses and permits necessary in each jurisdiction where the
character of the property owned or leased by, or the nature of its activities,
make such qualification, licenses or permits necessary except for those
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jurisdictions where the failure to be so qualified or have such licenses or
permits would not, individually or in the aggregate, have a Material Adverse
Effect on Newgold or on the relevant Newgold Subsidiary. Newgold has delivered
to WAC true and complete copies of the Articles or Certificate of Incorporation,
Bylaws, Partnership Agreement and other similar organizational documents as
currently in effect for each such Newgold Subsidiary.
(b) Except as set forth on Schedule 4.06(b) of the Newgold Disclosure
Schedule, all of the outstanding capital stock of, or other ownership interests
in, each Newgold Subsidiary is owned by Newgold, directly or indirectly, free
and clear of any Lien and free of any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). Except as set forth on Schedule 4.06(b) of
the Newgold Disclosure Schedule, there are no outstanding:
(i) securities of Newgold or any Newgold Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities of
any Newgold Subsidiary; or
(ii) options or other rights to acquire from Newgold or any Newgold
Subsidiary, and no other obligation of Newgold or any Newgold
Subsidiary to issue, any capital stock, voting securities of or other
ownership interests in, or any securities convertible into or
exchangeable for any capital stock, voting securities or other
ownership interests of, any Newgold Subsidiary (the items in clauses
(i) and (ii) being referred to collectively as the "Newgold Subsidiary
Securities") . There are no outstanding obligations of Newgold or any
Newgold Subsidiary to repurchase, redeem or otherwise acquire any
outstanding Newgold Subsidiary Securities.
(c) Except as set forth on Schedule 4.06(c) of the Newgold Disclosure
Schedule, there are no material agreements, contracts and other documentation
setting forth any terms or conditions with respect to Newgold's ownership
interest in the Newgold Subsidiaries.
connection with the last three completed audits (if such audits took place) of
the financial statements of Newgold and any of the Newgold Subsidiaries,
including the audit conducted in connection with the Newgold Balance Sheet, and
any such correspondence since the Newgold Balance Sheet Date.
SECTION 4.07 FINANCIAL STATEMENTS. Newgold has delivered to WAC the
unaudited consolidated balance sheet of Newgold as of December 31, 1995 and the
related unaudited statements of operations, stockholders equity and cash flows
for the year ended December 31, 1995. The consolidated financial statements of
Newgold present fairly, in conformity with GAAP applied on a consistent basis
(except that the unaudited consolidated financial statements do not contain
notes), the consolidated financial position of Newgold and the Newgold
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended. For purposes of this
Agreement, "Newgold Balance Sheet" means the audited consolidated balance sheet
of Newgold as of December 31, 1995, and "Newgold Balance Sheet Date" means
December 31, 1995.
SECTION 4.08 COMPLIANCE WITH LAW. Newgold and each Newgold Subsidiary
is in compliance and has conducted its business so as to comply with all laws,
rules and regulations, judgments, licenses, permits decrees or orders of any
Governmental Authority applicable to their respective businesses or properties
except to the extent that noncompliance would not have a Material Adverse Effect
on Newgold or the Newgold Subsidiaries taken as a whole. Except as set forth on
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Schedule 4.08 to the Newgold Disclosure Schedule, there are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration), including any such actions
relating to affirmative action claims or claims of discrimination, against
Newgold or any Newgold Subsidiary or against any of their respective properties
or businesses.
SECTION 4.09 NO DEFAULTS. Neither Newgold nor any Newgold Subsidiary
is, or has received notice that it would be with the passage of time, (i) in
violation of any provision of its articles or certificate of incorporation or
bylaws or other similar organizational document or (ii) in default or violation
of any term, condition or provision of (A) any judgment, decree, order,
injunction or stipulation applicable to Newgold or any Newgold Subsidiary or (B)
any material agreement, note, mortgage, indenture, contract, lease or
instrument, permit, concession, franchise or license to which Newgold or any
Newgold Subsidiary is a party or by which Newgold or any Newgold Subsidiary or
their respective properties or assets may be bound.
SECTION 4.10 LITIGATION. Except as set forth on Schedule 4.10 of the
Newgold Disclosure Schedule, there is no action, suit, proceeding, claim or
investigation pending or, to the best of Newgold's knowledge, threatened,
against Newgold or any Newgold Subsidiary which could, individually or in the
aggregate, have a Material Adverse Effect on Newgold and the Newgold
Subsidiaries, taken on as a whole, or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
hereby. Except as set forth on Schedule 4.10, Newgold has delivered to WAC
complete copies of all audit response letters prepared by Newgold's counsel for
Newgold's independent public accountants and all management letters prepared in
authorities, the failure of which to make or obtain would not have a Material
Adverse Effect on the ability of the Parties to consummate the transactions
contemplated hereby.
SECTION 4.11 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or
contemplated by this Agreement or as set forth on Schedule 4.11 of the Newgold
Disclosure Schedule, since the Newgold Balance Sheet Date, there has not
occurred:
(a) Material Adverse Change with respect to Newgold or the Newgold
Subsidiaries, taken as a whole:
(b) Any amendments or changes in the articles or certificate of
incorporation or bylaws or other similar organizational document of Newgold or
any Newgold Subsidiary;
(c) Any damage, destruction or loss, not covered by insurance in excess
of $50,000 with respect to any of the properties or businesses of Newgold or any
Newgold Subsidiary;
(d) Any redemption, repurchase or other acquisition of shares of
capital stock, partnership units or ownership units of Newgold or any Newgold
Subsidiary by Newgold or any Newgold Subsidiary (other than pursuant to
arrangements with terminated employees or consultants), or any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of Newgold or any Newgold
Subsidiary;
(e) Any increase in or modification of the compensation or benefits
payable or to become payable by Newgold or any Newgold Subsidiary to any of
their respective directors, officers, partners, employees or consultants;
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(f) Any increase in or modification of any bonus, pension, insurance or
other employee benefit plan, payment or arrangement (including, but not limited
to, the granting of stock options, restricted stock awards or stock appreciation
rights) made to, for or with any of its directors or employees;
(g) Except as contemplated by this Agreement, any acquisition or sale
of a material amount of property or assets by or of Newgold or any Newgold
Subsidiary;
(h) Any alteration in any term of any outstanding securities of Newgold
or any Newgold Subsidiaries;
(i) Except as contemplated by this Agreement, any (i) incurrence,
assumption or guarantee by Newgold or any Newgold Subsidiary of any debt for
borrowed money; (ii) issuance or sale of any securities convertible into or
exchangeable for debt securities of Newgold or any Newgold Subsidiary; or (iii)
issuance or sale of options or other rights to acquire from Newgold or any
Newgold Subsidiary, directly or indirectly, debt securities of Newgold or any of
Newgold Subsidiary or any securities convertible into or exchangeable for any
such debt securities;
(j) Any creation or assumption by Newgold or any Newgold Subsidiary of
any Lien on any material asset;
(k) Any loan, advance or capital contribution to or investment in any
person other than (i) loans, advances or capital contributions to or investments
in Newgold subsidiaries, (ii) travel loans or advances made in the ordinary
course of business of Newgold and (iii) other loans and advances in an aggregate
amount which do not exceed $10,000 outstanding at any time;
(l) Any entry into, amendment of, relinquishment, termination or
non-renewal by Newgold or any Newgold subsidiary of any material contract,
lease, commitment or other right or obligation other than in the ordinary course
of business; or
(m) To the best of Newgold's knowledge, any agreement or arrangement
made by Newgold or any Newgold subsidiary to take any action which, if taken
prior to the date hereof, would have made any representation or warranty set
forth in this section 4.11 untrue or incorrect as of the date when made; or
(n) Any labor dispute, other than routine individual grievances, or any
actions or proceedings by a labor union or representative thereof to organize
any employee of Newgold or any Newgold subsidiary.
SECTION 4.12 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth
on schedule 4.12 of the Newgold Disclosure Schedule, there are no liabilities of
Newgold or any Newgold subsidiary of any kind whatsoever that are material to
the business of Newgold and the Newgold subsidiaries, taken as a whole, other
than:
(a) liabilities disclosed or provided for in the Newgold Balance Sheet;
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(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Newgold Balance Sheet Date; and
(c) liabilities under this Agreement.
SECTION 4.13 CERTAIN AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Newgold or any Newgold Subsidiary from Newgold or
any such Newgold Subsidiary, under any Newgold Employee Plan (as defined in
Section 4.14(a) below) or otherwise, (ii) materially increase any benefits
otherwise payable under any Newgold Employee Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
SECTION 4.14 EMPLOYEE BENEFITS.
(a) Schedule 4.14(a) of the Newgold Disclosure Schedule sets forth each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and each employment agreement,
compensation agreement, bonus, commission or similar arrangement, and fringe
benefit arrangement which is maintained, administered or contributed to by
Newgold or any affiliate thereof (as defined below) and covers any employee or
former employee of Newgold or any affiliate or under which Newgold or any
affiliate has any liability. Such plans are referred to collectively herein as
the "Newgold Employee Plans." The only Newgold Employee Plans which individually
or collectively would constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA are identified as such in the list referred to above.
(b) No Newgold Employee Plan constitutes a "multi-employer plan" as
defined in Section 3(37) of ERISA (a "Multi-employer Plan"), no Newgold Employee
Plan is maintained in connection with any trust described in Section 501(c) (9)
of the Code and no Newgold Employee Plan is subject to Title IV of ERISA or
Section 412 of the Code. If Newgold or an affiliate thereof ever maintained or
was obligated to contribute to a Multi- employer Plan or a plan subject to Title
IV of ERISA, any withdrawal or other liability under Title IV of ERISA with
respect to such plan has been fully satisfied. To Newgold's knowledge, nothing
done or omitted to be done and no transaction or holding of any asset under or
in connection with any Newgold Employee Plan has or will make Newgold or any of
its Subsidiaries, or any officer or director thereof, subject to any liability
under Title I of ERISA or liable for any tax pursuant to Section 4975 of the
Code.
(c) To the best knowledge of Newgold, each Newgold Employee Plan which
is intended to be qualified under Section 401 (a) of the Code is so qualified
and has been so qualified during the period from its adoption to date, and each
trust forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code. Newgold has furnished to WAC copies of the most recent Internal
Revenue Service determination letters, if any, with respect to each such Newgold
Employee Plan. To the best of knowledge of Newgold, each Newgold Employee Plan
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Newgold Employee Plan. Except as set forth on Schedule 4.14(c) of the Newgold
Disclosure Schedule, there are no pending or threatened disputed claims against
any Newgold Employee Plan or against Newgold or any affiliate of Newgold arising
under any such Plan. No Newgold Employee Plan is currently under examination by
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the Internal Revenue Service or Department of Labor and Newgold has received no
notice from either agency of its intent to examine by Newgold Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Newgold or any affiliate that would obligate the
Surviving Corporation to pay any additional compensation, including severance
pay or additional withholding taxes, as a result of the consummation of the
transactions contemplated by this Agreement or that, individually or
collectively, could give rise to the payment by the Surviving Corporation of any
amount that would not be deductible pursuant to the terms of Sections 162 (a)
(1) or 280G of the Code.
(e) Neither Newgold nor its affiliates have any projected liability in
respect of post-retirement health, life and medical benefits for retired
employees of Newgold and its affiliates. Other than provisions of applicable
law, no condition exists that would prevent Newgold or any of the Newgold
subsidiaries from amending or terminating any Newgold Employee Plan.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Newgold or any of its affiliates
relating to, or change in employee participation or coverage under, any Newgold
Employee Plan which would materially increase the expense of maintaining such
Newgold Employee Plan above the level of the expense incurred in respect thereof
for the most recent fiscal year.
SECTION 4.15 MAJOR CONTRACTS. Schedule 4.15 of the Newgold Disclosure
Schedule sets forth a list of all "material contracts" as defined in Item 601 of
Regulation S-K under the Securities Act and to which Newgold or any Newgold
Subsidiary is a party or has a beneficial interest in (each a "Newgold Material
Contract"). Each Newgold Material Contract is valid and binding on Newgold or
the Newgold Subsidiary, as applicable, and neither Newgold nor any Newgold
Subsidiary, nor to the best of their knowledge any other party thereto, has
breached any provision of, or is in default under the terms of, any Newgold
Material Contract.
SECTION 4.16 TAXES.
(a) Except as set forth on Schedule 4.16(a) of the Newgold Disclosure
Schedule, all Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time by or on behalf of Newgold or any of the Newgold
Subsidiaries (collectively, the "Newgold Tax Returns"), the non-filing of which
would have a Material Adverse Effect on Newgold or would result in criminal
penalties against Newgold or any officer or employee thereof, have been or will
be filed when due (including any extensions of such due date).
(b) Newgold and the Newgold Subsidiaries have timely paid, withheld or
made provision on their books for all Taxes shown as due and payable on Newgold
Tax Returns that have been filed.
(c) All Newgold Tax Returns relating to income or Franchise Taxes filed
with respect to Taxable Years of Newgold and Newgold Subsidiaries ending on or
after December 31, 1993 have been filed or extensions have been duly made.
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(d) Neither Newgold nor any Newgold Subsidiary has been granted any
extension or waiver of the limitation period applicable to any Newgold Tax
Returns.
(e) To the best of Newgold and each of the Newgold subsidiaries'
knowledge, there is no clerked audit, action, suit, proceeding, or investigation
now pending or threatened in writing against or with respect to Newgold or any
Newgold Subsidiary in respect of any Tax or assessment.
(f) There are no requests for rulings in respect of any Tax pending
between Newgold or any Newgold Subsidiary and any Taxing Authority.
(g) None of the property owned or used by Newgold or any of the Newgold
Subsidiaries is subject to a tax benefit transfer lease executed in accordance
with ~ 168(f) (8) of the Code.
(h) Except as set forth on schedule 4.16(h) of the Newgold Disclosure
Schedule, none of the property owned by Newgold or any Newgold Subsidiary is
o~tax-exempt use property" within the meaning of ss. 168(h) of the Code.
(i) Neither Newgold nor any Newgold Subsidiary, nor any other person on
behalf of Newgold or any such Newgold Subsidiary, has entered into nor will it
enter into any agreement or consent pursuant to Section 341(f) of the Code.
(j) Except as set forth on Schedule 4.16(j) of the Newgold Disclosure
Schedule, there are no liens for Taxes upon the assets of Newgold or any Newgold
Subsidiary except liens for current Taxes not yet due.
(k) Except as set forth on schedule 4.16(k) of the Newgold Disclosure
Schedule, neither Newgold nor any Newgold Subsidiary will be required to include
any adjustment in Taxable income for any Tax period (or portion thereof) ending
after the Effective Time pursuant to Section 481 (c) of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of a change in method
of accounting for any Tax period (or portion thereof) ending on or before the
Effective Time or pursuant to the provisions of any agreement entered into with
any Taxing Authority with regard to the Tax liability of Newgold or any such
Newgold Subsidiary for any Tax period (or portion thereof) ending on or before
the Effective Time.
(l) Neither Newgold nor any Newgold Subsidiary is currently under any
contractual obligation to pay the income or franchise tax obligations of, or
with respect to transactions relating to, any other person or to indemnify any
other person with respect to any income or franchise tax.
(m) Except as set forth on Schedule 4.16(m) of the Newgold Disclosure
Schedule, neither Newgold nor any Newgold Subsidiary has signed any letter or
entered into any agreement or arrangement consenting to the surrender or sharing
of any deductions, credits, or other Tax attributes with any other person or
transferred or assigned to any other person for Tax purposes any such item.
(n) Notwithstanding any of the foregoing, no representation or warranty
is made by Newgold with respect to the Tax consequences that may result from the
transactions contemplated by this Agreement.
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SECTION 4.17 INTELLECTUAL PROPERTY.
(a) Schedule 4.17 of the Newgold Disclosure Schedule sets forth a
schedule of all licensing arrangements which Newgold or any Newgold Subsidiary
has with third parties and which are material to the business of Newgold and the
Newgold Subsidiaries taken as a whole (collectively, the "Newgold Intellectual
Property Rights").
(b) Neither Newgold nor any Newgold Subsidiary, during the three years
preceding the date of this Agreement, has been sued or charged in writing with
or been a defendant or plaintiff in any claim, suit, action or proceeding
relating to its business which has not been finally terminated prior to the date
hereof and which involves a claim of infringement of any patents or licenses,
and to the best of the knowledge of Newgold (i) there are no other claims by any
other person of patent or license infringement by Newgold or a Newgold
Subsidiary, and (ii) there are no continuing infringements by any other person
or persons of any Newgold Intellectual Property Rights with respect to patents.
SECTION 4.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth
on Schedule 4.18 of the Newgold Disclosure Schedule, there is no material
agreement, judgment, injunction, order or decree binding upon Newgold or any
Newgold Subsidiary which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any acquisition of property by Newgold or
any Newgold Subsidiary or the conduct of business by Newgold or any Newgold
Subsidiary as currently conducted or as currently proposed to be conducted by
the Surviving Corporation.
SECTION 4.19 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Schedule 4.19(a) of the Newgold Disclosure Schedule sets forth a
true and complete list of all real property owned or leased (as lessee) by
Newgold or and Newgold Subsidiary (the "Newgold Properties", the aggregate
annual rental or other fee payable under any such lease, and, with respect to
any such Newgold Properties currently under contract for sale, the parties to
such contract or contracts and the principal terms thereof.
(b) Except as set forth on Schedule 4.19(b) of the Newgold Disclosure
Schedule, Newgold or an Newgold Subsidiary has marketable title to, or, in the
case of leased properties and assets, valid leasehold interests in, all of the
Newgold Properties, and, except as set forth on schedule 4.19(b) of the Newgold
Disclosure Schedule and to the best of Newgold's knowledge without conducting a
title search of the Newgold Properties, such title or leasehold interests are
free and clear of any Liens. Except as set forth on Schedule 4.19(b) of the
Newgold Disclosure Schedule, Newgold and its Subsidiaries are the sole owners of
the Newgold Properties free and clear of any right to or claim of possession by
any other party (except tenants under the leases copies of which have been
delivered to WAC and the rights of various public or private entities for
easement purposes). Schedule 4.19(b) of the Newgold Disclosure Schedule sets
forth a list of all material management agreements, development agreements or
other agreements of any kind with respect to any of the Newgold Properties to
which Newgold or any Newgold Subsidiary is a party and such agreements are valid
and binding on Newgold or the Newgold Subsidiary (as the case may be) and, to
the best of Newgold's knowledge, without default by any party thereto. All
approved or proposed site plans, master development plans or similar development
plans with respect to any of the Newgold Properties have been provided to WAC.
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(c) With respect to any buildings or other structures on the Newgold
Properties, to the best of Newgold's knowledge, except as set forth on Schedule
4.19(c) of the Newgold Disclosure Schedule, there are no material, physical or
mechanical defects, including, without limitation, the mechanical, ventilation,
plumbing, heating, air conditioning, life safety, and electrical systems and all
such items are in operating condition and repair and neither Newgold nor any
Newgold Subsidiary has received any notification of noncompliance with any
applicable governmental requirements.
(d) To the best of Newgold's knowledge, the use and operation of each
of the Newgold Properties is in material compliance with applicable building
codes, and neither Newgold nor any Newgold subsidiary has received any
notification of noncompliance with the Americans with Disabilities Act ("ADA"),
seismic design, zoning and land use laws, other local, state and federal laws
and regulations, and restrictive easements or covenants affecting the Newgold
Properties.
(e) Schedule 4.19(e) of the Newgold Disclosure Schedule sets forth a
rent roll for the Newgold Properties and such rent roll accurately summarizes
the status of the existing leases and any defaults thereunder. There are no
leasing or other commissions due and unpaid under any of the leases, and all
tenant improvements required under existing leases have been completed and are
fully paid and no credit is due to any tenant.
(f) Except as set forth in Schedule 4.19(f) of the Newgold Disclosure
Schedule, to the best of Newgold's knowledge, there are no condemnation
proceedings or any land-use or development regulations or proceedings pending or
threatened, including but not limited to historical designation or preservation
proceedings, that would have a Material Adverse Effect on the development, use
and operation of any of the Newgold Properties, nor has Newgold received notice
of any special assessment proceedings affecting any of the Newgold Properties.
(g) All water, sewer, gas, electric, telephone, drainage facilities and
any other utilities required for the normal use of those specific Newgold
Properties set forth on Schedule 4.19(g) of the Newgold Disclosure Schedule are
installed and connected pursuant to valid permits, and are adequate to service
such Newgold Properties, and to the best of Newgold's knowledge comply with all
applicable legal requirements.
(h) Except as set forth in Schedule 4.19(h) of the Newgold Disclosure
Schedule, Newgold has obtained all licenses, permits, certificates, approvals,
variances, easements and rights of way required from all governmental
authorities having jurisdiction over each of the Newgold Properties or from
private parties for the normal use (both existing and proposed) and. operation
of the Newgold Properties and to insure vehicular and pedestrian ingress to and
egress from each of the Newgold Properties.
(i) Except as set forth on Schedule 4.19(i) of the Newgold Disclosure
Schedule, none of the Newgold Properties are located in an area identified by
the Secretary of Housing and Urban Development or other governmental agency as
an area having special flood hazards, and except as indicated on the master
development plans or site plans delivered to WAC pursuant to Section 4.19(b), no
separate areas within any of the Newgold Properties are required to be set aside
for water retention, "green belt," open space or drainage.
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(j) Except with respect to Newgold Properties for which Newgold is
attempting to change existing zoning requests, Newgold has no knowledge of any
plan by any person or entity to change the existing zoning applicable to any of
the Newgold Properties.
(k) Except as set forth on Schedule 4.19(k) of the Newgold Disclosure
Schedule, all fees and charges due and payable for thirty (30) days or more for
materials and labor (including property management, design, engineering,
surveying, and other professional services) delivered or performed in connection
with the development of the Newgold Properties as of the date of the Merger
Closing will have been paid in full or lien releases for such fees and charges
will have been obtained.
(l) Except as set forth on Schedule 4.19(b) of the Newgold Disclosure
Schedule, to the best of Newgold's knowledge, there is no claim, litigation, or
governmental investigation or proceeding, pending or threatened, that may affect
the Newgold Properties and no unrecorded easements or claims of encroachment or
prescriptive easement affecting the Newgold Properties exist.
SECTION 4.20 ENVIRONMENTAL MATTERS
(a) Neither Newgold nor any Newgold Subsidiary, nor to the knowledge of
Newgold (without inquiry) any tenant on the Newgold Properties, has received any
written notice, demand, citation, summons, complaint or order or any notice of
any penalty, Lien or assessment, and to the best of Newgold's knowledge (without
inquiry with respect to any tenant on the Newgold Properties), there is no
investigation or review pending by any governmental entity, with respect to any
(i) alleged violation by Newgold, any Newgold Subsidiary, or any tenant on the
Newgold Properties of any Environmental Law, (ii) alleged failure by Newgold,
any Newgold Subsidiary or any tenant on the Newgold Properties to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or (iii)
Regulated Activity
(b) Neither Newgold nor any Newgold Subsidiary, with respect to any of
the Newgold Properties, has any knowledge of any Environmental Liabilities, or
of any release of Hazardous Substances into the environment in violation of any
Environmental Law or environmental permit. Newgold has disclosed to WAC in
writing the presence, to the best of Newgold's knowledge, of any asbestos in any
of its premises other than fully encapsulated asbestos-containing construction
materials
(c) Newgold has delivered to WAC copies of all environmental audits and
other similar reports which have been prepared by or for Newgold or any Newgold
Subsidiary, or by or for any tenant on the Newgold Properties to the extent
delivered to Newgold by such tenant, with respect to the Newgold Properties
(d) Except as set forth on Schedule 4.20(d) of Newgold Disclosure
Schedule, to the best of Newgold's knowledge, (i) no asbestos-containing
materials were installed or exposed in the Newgold Properties through
demolition, renovation or otherwise, at any time, (ii) no electrical
transformers or other equipment containing PCB's are or were located on the
Newgold Properties, (iii) no storage tanks for gasoline, heating oil or diesel
fuel or any other substances are or were located on or under the Newgold
Properties, and (iv) no materials regulated under any federal, state or local
law or regulation, as amended from time to time, as a toxic, hazardous,
contaminated or similarly harmful or dangerous material or substance (including,
without limitation, asbestos and radon) are or were located on, in or
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under the Newgold Properties or have affected the Newgold Properties or waters
on or under the Newgold Properties.
(e) Neither Newgold nor any Newgold Subsidiary, nor to the knowledge of
Newgold any tenant on the Newgold Properties, has received any written notice
under any applicable local, state or federal law regarding Hazardous substances
on, under or affecting the Newgold Properties or requiring the removal of any
Hazardous Substances from the Newgold Properties.
SECTION 4.21 INSURANCE. Schedule 4.21 of the Newgold Disclosure
Schedule sets forth a list of all insurance policies and fidelity bonds insuring
the assets, business, equipment, properties, operations, employees, officers and
directors of Newgold and the Newgold subsidiaries. Copies of all such policies
have been delivered to WAC prior to the date hereof. There is no claim by
Newgold or any Newgold Subsidiary pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and Newgold and the Newgold Subsidiaries are otherwise in full
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). To the best of
Newgold's knowledge, no termination or material premium increase is pending or
threatened with respect to any of such policies.
SECTION 4.22 LABOR MATTERS. Newgold and each Newgold Subsidiary is in
compliance with all currently applicable laws and regulations respecting
employment, discrimination in employment, verification of immigration status,
terms and conditions of employment and wages and hours and occupational safety
and health and employment practices, and are not engaged in any unfair labor
practice, except to the extent that non-compliance would not have a Material
Adverse Effect on Newgold. Neither Newgold nor any Newgold Subsidiary has
received any notice from any Governmental Entity, and there has not been
asserted before any Governmental Entity, any claim, action or proceeding to
which Newgold or any Newgold Subsidiary is a party and, to the best of Newgold's
knowledge, there is neither pending nor threatened any investigation or hearing
concerning Newgold or any Newgold Subsidiary arising out of or based upon any
such laws, regulations or practices.
SECTION 4.23 EMPLOYEES. Schedule 4.23 of the Newgold Disclosure
schedule lists each employee or consultant (if under a current contract) of
Newgold and each Newgold subsidiary, his or her current position, salary, bonus
and general compensation arrangement. Except for the employment agreements
listed on Schedule 4.23 to the Newgold Disclosure schedule, complete and
accurate copies of which have been delivered to WAC, neither Newgold nor any
Newgold Subsidiary is a party to any employment agreements. All employees of
Newgold and the Newgold Subsidiaries who are employed in a technical, managerial
or executive capacity and who are material to the operations of Newgold and the
Newgold subsidiaries, taken as a whole, have the right under applicable
immigration laws to work in their present locations for at least two years from
the Effective Date
SECTION 4.24 FINDERS' FEES. Except as disclosed in the WAC Disclosure
Statement and plan of Reorganization filed with the Bankruptcy Court, there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Newgold or any affiliate
thereof who might be entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement.
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SECTION 4.25 CERTAIN SECURITIES REPRESENTATIONS. Newgold understands
and hereby acknowledges that the 11,710,958 shares to be issued in the Merger
(the "Merger Shares") have been registered under the Securities Act of 1933, as
amended, and may not be resold except pursuant to a registration statement which
has been declared effective under the Securities Act or pursuant to an exemption
from the registration requirements of the Securities Act as confirmed in an
opinion of counsel, acceptable in form and substance to WAC, and in accordance
with the applicable securities laws of any state of the United States or any
other applicable jurisdiction. Newgold acknowledges, and will similarly insure
that its shareholders severally acknowledge, that the Merger Shares will be
acquired for their own account and are not being acquired with a view to, or for
offer or sale in connection with any distribution in violation of the Securities
Act. Newgold and its shareholders severally have such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of acquiring the Merger shares and are able to bear the economic risk of
the investment. Newgold and its shareholders acknowledge that they have had
access to such financial and other information, and has been afforded the
opportunity to ask such questions of representatives of WAC and receive answers
thereto, as it deems necessary in connection with Newgold and its shareholders'
decision to acquire the Merger Shares. Neither Newgold nor its shareholders were
induced to invest by any form of general solicitation or general advertising
including, but not limited to, the following: (i) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over the television or radio; or (ii) any seminar or meeting
whose attendees had been invited by any general solicitation or general
advertising.
portion of the assets of, WAC, other than the transactions contemplated by this
Agreement; provided. however, that nothing contained in this Section 5.04 shall
prohibit the Board of Directors of WAC from: (i) furnishing information to or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide Acquisition proposal, if, and only to the extent that
(a) the Board of Directors of WAC, after consultation with and based upon the
advice of Leonard Relin, Esq., or such other counsel selected by the WAC Board
of Directors, determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders under
applicable law and (b) prior to furnishing the information to, or entering into
discussions or negotiations with, the person or entity, WAC provides written
notice to Newgold to the effect that it is furnishing to, or entering into
discussions, or negotiations with, the person or entity; and (ii) to the extent
applicable, complying with Rule l4e-2 and Rule 14a-9 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
SECTION 5.05 COMPLIANCE WITH OBLIGATIONS. Except to the extent that
non-compliance would not have a Material Adverse Effect on WAC, taken as a
whole, prior to the Effective Date, WAC shall comply with (ii all applicable
federal, state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations. including its respective certificate of
incorporation and bylaws and other similar organizational documents, by which
it, its properties or its assets may be bound, and (iii) all final and
unappealable decrees, orders, writs, injunctions, judgments. statutes, rules and
regulations applicable to it and its respective properties or assets.
SECTION 5.06 NOTICE OF CERTAIN EVENTS. WAC shall promptly notify
Newgold of:
(a) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
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(b) any employment by WAC any new non-hourly employee to work for, and
whose compensation shall be reimbursed by WAC, for an annual salary (including
benefits) in excess of $25,000;
(c) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(d) any notice or other communication from the SEC or NASD;
(e) any notice or other communication from any lender; and
(f) any actions, suits, claims, investigations or proceedings commenced
or, to the best of WAC's knowledge threatened against, WAC
(c) WAC shall have received an opinion, dated the Effective Date, from
Michael J. Morrison, Esq., counsel to Newgold, in form and substance to be
agreed to by the Parties.
(d) All Consents other than Governmental Authorizations and other than
those permits and authorizations referred to in sections 9.03(f) and (g), that
are required as a result of the Merger shall have been obtained.
(e) The board of directors of WAC shall have received from Newgold's
independent public accountants letters dated the date of the Merger Closing
which shall be in a form customary for accountants "comfort letters" in
transactions such as the Merger and acceptable to WAC.
SECTION 8.03 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of Newgold and WAC hereunder are subject to the fulfillment, on and
as of the Effective Date, of each of the following conditions (any one or more
of which may be waived by such parties, but only in a writing signed by such
parties).
(a) WAC's stockholders and creditors shall have duly approved this
Merger and the New Board all in accordance with applicable laws, and the
Bankruptcy Court has confirmed the Plan of Reorganization.
(b) The Form S-S shall have become effective under the Securities Act
and shall not be the subject of any stop order.
(c) Newgold and WAC shall have received a written opinion from their
respective counsel and tax advisors to the effect that the Merger will
constitute a reorganization within the meaning of ss. 368(b)of the Code, which
opinions shall be substantially identical in form and substance and which shall
not have been withdrawn or modified in any material respect. In preparing the
WAC and the Newgold tax opinions, counsel may rely on reasonable representations
related thereto.
(d) The shares to be issued in the Merger shall have been authorized
subject to official notice to the WAC Stock Transfer Agent for issuance thereof.
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(e) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated or enforced (and not
repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger and the
transactions contemplated by this Agreement and each Party shall use its
commercially reasonable best efforts to have any such order, decree or
injunction lifted.
(f) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws.
(g) Notwithstanding the representations contained in Articles III and
IV relating to delivery of Disclosure Schedules by the Parties, the Parties
acknowledge that such Schedules or parts thereof could not be delivered prior to
execution of this Agreement and will be delivered as soon as possible, as and
when available, and delivery of same is an express condition precedent to the
consummation of this Agreement and the Merger.
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.01 TERMINATION PRIOR TO THE INITIAL CLOSING. This Agreement
may be terminated at any time prior to the Initial Closing:
WAC; or
(a) by mutual consent of the Boards of Directors of Newgold and
(b) by Newgold if the conditions set forth in Section 1.01(e) are not
satisfied, or by WAC if the conditions set forth in Section 1.01(f) are not
satisfied.
SECTION 9.02 TERMINATION AFTER THE INITIAL CLOSING. This Agreement may
be terminated at any time after the Initial Closing and prior to the Effective
Time whether before or after the approval and adoption of the Merger by the
stockholders of WAC:
WAC; (a) by mutual consent of the Boards of Directors of Newgold and
(b) by WAC, if the Fairness Opinion has not been received by WAC or has
been withdrawn prior to the Stockholders' Meeting;
(c) by either Newgold or WAC, if the stockholders of WAC do not approve
the Merger and the transaction contemplated hereby upon the holding of a duly
convened Stockholders' Meeting;
(d) by WAC, if WAC shall have received an Acquisition Proposal that
WAC's Board of Directors determines to recommend to the stockholders of WAC for
approval and acceptance;
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(e) by Newgold, if it is not in breach of this Agreement and if the
Board of Directors of WAC shall have (i) withdrawn its recommendation of the
Merger (except if such withdrawal is caused by any disclosures made or required
to be made by Newgold in the Form 5-8 pursuant to Item 404 of Regulation S-K
that in the opinion of the disinterested members of the Board of Directors of
WAC materially and adversely affects the Merger such that WAC could have
terminated this Agreement pursuant to Section 9.02(h) hereto), or (ii)
recommended or approved acceptance by WAC's stockholders of any Acquisition
Proposal;
(f) by Newgold, if (i) there has been a breach by WAC of any of its
representations and warranties hereunder such that Section 8.01(a) will not be
satisfied, or (ii) there has been the breach on the part of WAC of any of its
covenants or agreements contained in this Agreement such that Section 6.01(b)
will not be satisfied, and, in both case (i) and case (ii), such breach has not
been promptly cured after notice (in reasonable detail) to WAC;
(g) by WAC, if (i) there has been a breach by Newgold of any of its
respective representations and warranties hereunder such that Section 6.02(a)
will not be satisfied, or (ii) there has been a breach on the part of Newgold of
any of its respective covenants or agreements contained in this Agreement such
that Section 6.02(b) will not be satisfied, and, in both case (i) and case (ii),
such breach has not been promptly cured after notice (in reasonable detail) to
Newgold; provided, however, that at WAC's option, a breach of Section 6.06 of
this Agreement may not be cured by Newgold; and provided further, that if WAC
seeks to terminate this Agreement because of a Newgold Decline in Value (as
defined in Section 4.01), then at Newgold's option, in lieu of such termination,
number of shares to be issued to Newgold hereunder shall be re-computed in
accordance with the formula set forth in Schedule 9.02 hereto;
(h) by WAC, if there shall be any disclosures made or required to be
made by Newgold in the Form s-S pursuant to Item 404 of Regulation S-K that in
the opinion of the disinterested members of the Board of Directors of WAC
materially and adversely affects the Merger; or
(i) by any Party, if the Effective Date has not occurred by December
31, 1996.
SECTION 9.03 EFFECT OF TERMINATION; SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. In the event of termination of this Agreement, as provided above,
all further obligation of the Parties under this Agreement shall terminate
without further liability of any Party to the other except that the agreements
contained or referred to in Article I (provided that termination occurs after
the Initial Closing) and Sections 4.25, 5.07, 6.02, 6.06 and 10.03 (provided
that termination occurs after the Initial Closing) shall survive the termination
hereof. Except for Sections 4.25, 5.07, 6.02 and 6.06, all representations,
warranties and covenants made herein, and in any instrument delivered pursuant
to Articles III and IV of this Agreement, shall be deemed to be conditions to
the Merger Closing and shall not survive the Effective Time.
ARTICLE X
MISCELLANEOUS
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SECTION 10.01 DEFINITIONS. The following terms are defined in the
section of this Agreement referenced below:
Defined Term Reference
Acquisition Proposal Section 5.04
Agreement Preamble
Certificate of Incorporation Section 3.01
Code Recital D
Completion Notice Section 1.01(b)
Commitment Section 1.02(a)
Consents Section 8.01(f)
Debtor's Certificates Article I
Effective Date Section 2.02
Effective Time Section 2.02
Environmental Laws Section 3.21(f)
Environmental Liabilities Section 3.21(f)
ERISA Section 3.15(a)
Exchange Act Section 3.03(a)
Fairness Opinion Section 8.01(f)
Form S-S Section 5.08
GAAP Section 1.03(a)
Governmental Authority Section 3.09
Governmental Authorizations Section 3.23
Hazardous Substances Section 3.21(f)
HSR Act Section 3.03(a)
Initial Closing Section 1.01(c)
Initial Shares Section 1.01(a)
Knowledge Section 10.13
Lien Section 3.04
Material Adverse Change Section 3.01
Material Adverse Effect Section 3.01
Meeting Section 3.02
Meeting Date Section 5.02
Merger Recital A
Merger Closing Section 2.01
Merger Date Section 2.01
Multi-employer Plan Section 5.15(b)
NASDAQ Section 3.03(d)
Nevada Law Recital C
New Bylaws Section 2.05
New Board Section 5.02
Newgold Preamble
Newgold Balance Sheet Section 4.07
Newgold Balance Sheet Date Section 4.07
Newgold Common Stock Recital C
Newgold Decline in Value Section 4.01
Newgold Disclosure Schedule Article IV
Newgold Employee Plans Section 4.14(a)
Newgold Intellectual Property Rights Section 4.16
Newgold Material Contract Section 4.15
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Newgold Subsidiaries Section 4.06(a)
Newgold Subsidiaries' Securities Section 4.06(b)
Delaware Law Recital C
Parties Preamble
Registration Statement Section 3.31
Regulated Activity Section 3.21(f)
Restated Certificate Section 2.04
SEC Section 3.03(c)
Securities Act Section 1.08
Subsidiary Section 3.069a)
Surviving Corporation Recital C
Tax Section 3.17(p)
Taxing Authority Section 3.17(p)
Termination Date Section 1.02(a)
WAC Preamble
WAC Balance Sheet Section 3.02
WAC Balance Sheet Date Section 3.087
WAC Common Stock Recital B
WAC Disclosure Schedule Article III
WAC Employee Plans Section 3.16(a)
WAC Intellectual Property Rights Section 3.18(b)
WAC Material Contract Section 3.16
WAC Options Section 1.07(a)
WAC Properties Section 3.20
WAC Reports Section 3.07(b)
WAC Securities Section 3.05
WAC Stockholders Section 5.02
WAC Tax Returns Section 3.18(a)
SECTION 10.02 FURTHER ASSURANCES. Each Party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
SECTION 10.03 FEES AND EXPENSES.
(a) Except as set forth below, each party shall bear its own fees and
expenses, including counsel fees and fees of brokers and investment bankers
contracted by such party, in connection with the transactions contemplated
hereby.
(b) If this Agreement is terminated pursuant to Section 9.02(c), then
WAC shall reimburse Newgold for its expenses (including, without limitation,
attorney fees, accountant fees and appraisal fees)
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(c) If the Merger is not consummated because WAC terminates this
Agreement pursuant to Section g.02(g) (and it is not cured by Newgold) or
Section 9.02(h), then Newgold shall reimburse WAC for its expenses (including,
without limitation, attorney fees, accountant fees, and appraisal fees).
SECTION 10.04 NOTICES. Whenever any Party hereto desires or is required
to give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
If to Newgold: Newgold Corp.
5190 Neil Road, suite 320
Reno, Nevada 69502
With a copy in each case to:
Michael J. Morrison, Esq.
1025 Ridgeview Drive, Suite 400
Reno, Nevada 89509
If to WAC: Warehouse Auto Centers, Inc.
c/o Leonard Relin, Esq.
1 E. Main Street
Rochester, New York 14614
With a copy in each case to:
Leonard Relin, Esq.
1 E. Main Street
Rochester, New York 14614
Such communications shall be effective when they are received by the
addressee thereof. Any Party may change its address for such communications by
giving notice thereof to the other parties in conformity with this section.
SECTION 10.05 GOVERNING LAWS. The laws of the state of Delaware
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties.
SECTION 10.06 BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement is
personal to each of the parties and may not be assigned, in whole or in part,
without the written consent of the other party which may be withheld for any
reason or for no reason.
SECTION 10.07 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full
32
<PAGE>
force and effect and in no way be affected, impaired or invalidated, except to
the extent that the intent of the Parties in entering into the Agreement shall
be substantially and materially impaired.
SECTION 10.09 ENTIRE AGREEMENT. This Agreement, the Plan of
Reorganization and the Confidentiality Agreement constitute the entire
understanding and agreement of the Parties with respect to the subject matter
hereof and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto.
SECTION 10.09 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
SECTION 10.10 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. This Agreement may not be amended or supplemented
by any party hereto except pursuant to a written amendment executed by all
parties, and provided further that, following approval by the stockholders of
WAC of the Merger, there shall be no amendment or change to the provisions
hereof.
SECTION 10.11 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 10.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. A reference to an
Article, Section, Schedule or Exhibit shall mean an Article of, a Section in, or
Schedule or Exhibit to, this Agreement unless otherwise explicitly set forth.
The titles and headings herein are for reference purposes only and shall not in
any manner limit the construction of this Agreement which shall be considered as
a whole. The words "include," "includes," and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." For
purposes of this Agreement, and except as provided in the following sentence,
the term "knowledge," when used in reference to a corporation means the actual
knowledge of the executive officers of such corporation after such officers
shall have made any such inquiry that is customary and appropriate under the
circumstances to which reference is made, and when used in reference to an
individual means the actual knowledge of such individual after the individual
shall have made any such inquiry that is customary and appropriate under the
circumstances to which reference is made.
SECTION 10.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision
of this Agreement is intended, nor will be interpreted, to provide to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or any party hereto or any
other person or entity and all provisions hereof will be personal solely between
the parties to this Agreement.
33
<PAGE>
SECTION 10.14 MUTUAL DRAFTING. This Agreement is the joint product of
the parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
SECTION 10.15 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the panes reflected hereon as signatories.
SECTION 10.16 AGREEMENT CONDITIONAL ON CONTINUATION OF WAC'S NASDAQ
BULLETIN BOARD LISTING. Notwithstanding anything contained herein to the
contrary, this Agreement and all transactions contemplated hereby shall be null
and void, and this Agreement rescinded, if NASDAQ delists the WAC Shares from
the Bulletin Board or does not approve of this Merger. The parties expressly
agree that it is of utmost importance to the parties and is a fundamental
purpose of this Agreement for WAC to remain as a NASDAQ Bulletin Board listee.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEWGOLD, INC.
By: _____________________________________
Arthur Scott Dockter, President
WAREHOUSE AUTO CENTERS, INC.
By: _____________________________________
35
EXHIBIT 10.9
April 2, 1997
With this note, I, A. Scott Dockter, hereby authorize the transfer of One
Hundred Thousand Dollars ($100,000.00) of my person funds tot he Operations
Account of newgold, Inc. with U.S. Bank, Reno, nevada. this transfer is
acknowledged by myself and Newgold, Inc. to be a personal loan to Newgold, Inc.
and due on demand from the date of transfer. This loan shall bear interest at
the rate of eight percent (8%) until paid in full.
Further, I request that the Four Hundred Thousand ($400,000.00) balance of Five
Hundred Thousand ($500,000.00) paid to me by Repadre International be
transferred to my personal account with U.S. Bank, Reno, Nevada.
/s/ A. Scott Dockter /s/ Robert W. Morris
- ---------------------- ---------------------------
A. Scott Dockter Newgold, Inc.
Robert W. Morris, Treasurer
EXHIBIT 10.10
April 17, 1997
With this note, I, A. Scott Dockter, hereby loan Fifty Thousand Dollars
($50,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid
upon my demand.
This loan bears interest at the rate of eight percent (8%) until paid in full.
/s/ A. Scott Dockter /s/ Robert W. Morris
- --------------------- -----------------------
A. Scott Dockter Newgold, Inc.
Robert W. Morris, Treasurer
EXHIBIT 10.11
April 30, 1997
With this note, I, A. Scott Dockter, hereby loan Twenty Thousand Dollars
($20,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid
upon my demand.
This loan bears interest at the rate of eight percent (8%) until paid in full.
/s/ A. Scott Dockter /s/ Robert W. Morris
- -------------------- ---------------------
A. Scott Dockter Newgold, Inc.
Robert W. Morris, Treasurer
EXHIBIT 10.12
May 30, 1997
With this note, I, A. Scott Dockter, hereby loan Thirty-Five Thousand Dollars
($35,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid
upon my demand.
This loan bears interest at the rate of eight percent (8%) until paid in full.
NEWGOLD INC.
/s/ A. Scott Docker By /s/ Robert W. Morris
- --------------------- --------------------
A. Scott Dockter Robert W. Morris, Treasurer
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<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<CASH> 876,573
<SECURITIES> 0
<RECEIVABLES> 154,357
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0
0
<COMMON> 18,762
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<TOTAL-LIABILITY-AND-EQUITY> 5,266,616
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<INCOME-PRETAX> (1,803,784)
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