U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from ________ to __________
Commission file number 0-24610
GOLD CAPITAL CORPORATION
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(Name of small business issuer in its charter)
Colorado 84-1251798
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5525 Erindale Drive, Suite 201, Colorado Springs, Colorado 80918
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(Address of principal executive office) (Zip Code)
Issuer's telephone number (719) 260-8509
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
registered
None N/A
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value
-------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Sections 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 X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Itsm 205 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X}.
State issuer's revenues for its most recent fiscal year. No revenues for year
ended December 31, 1996.
The aggregate market value (at the mean of the bid and asked price of $0.85 per
share) of the 2,039,496 shares of Common Stock of Gold Capital Corporation held
by nonaffiliates as of March 25, 1997 was approximately $1,723,400. As of March
19, 1997, there were 9,073,653 shares of Common Stock, par value $0.0001,
outstanding.
Transitional Small Business Disclosure Format (check one): yes no x
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<PAGE>
TABLE OF CONTENTS
Page Number
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS................................. 1
ITEM 2. DESCRIPTION OF PROPERTIES............................... 7
ITEM 3. LEGAL PROCEEDINGS....................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 12
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS............................. 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATIONS, FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................... 13
ITEM 7. FINANCIAL STATEMENTS INDEX.............................. 20
CONSOLIDATED FINANCIAL STATEMENTS....................... F-1 to
F-25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................... 21
PART II.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 21
ITEM 10. EXECUTIVE COMPENSATION................................. 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................... 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................... 31
ii
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
------------------------
General
Gold Capital Corporation (the "Company") was organized under the laws of
the State of Colorado on December 10, 1993 to engage in development of gold
mining projects. The Company's activities since inception have been primarily
limited to organizational activities, obtaining financing, acquisition and
evaluation of interests in mining properties and management of a mining joint
venture. For the period from inception to December 31, 1996, the Company had no
revenues.
Effective December 31, 1993, the Company acquired a 60% interest in the
Tonkin Springs Project (the "Project") and assumed management and funding
responsibilities related to the Project. The Company acquired its 60% interest
in the Project from Tonkin Springs Venture Limited Partnership ("TSVLP"), a
partnership owned by wholly-owned subsidiaries of U.S. Gold Corporation
("USGL"), a Colorado Corporation with shares publicly traded on the NASDAQ small
cap market under the symbol "USGL."
At present, the Project represents the Company's only property, although
additional properties may be acquired in the future. The Project consists of an
open-pit gold mine, integrated milling facility, and support facilities
encompassing approximately 21,100 acres of unpatented mining claims on Federal
land. The Project is located along the Battle Mountain- Cortez Trend
approximately 45 miles northwest of the town of Eureka in Eureka County, Nevada.
The Company completed its initial public offering in April, 1994, and
received proceeds of $450,000. The Company's Common Stock is currently traded in
the over-the-counter market and is quoted in the OTC Bulletin Board. From
inception through December 31, 1996, the Company has raised approximately
$6,742,660 through the public and private sale of its Common Stock.
Effective June 22, 1995, the Company completed transactions with Royalstar
Resources Ltd. ("Royalstar") whereby Royalstar purchased, in the aggregate, 2.5
million shares of Common Stock of the Company for an aggregate of $2.5 million,
including 2.2 million shares for $2.2 million in a private placement to
Royalstar, and 300,000 shares for $300,000 under the private placement offering
dated March 9, 1995. These transactions resulted in a change in control of the
Company whereby Royalstar acquired voting control of the Company representing
approximately 49.6% of the then issued and outstanding voting stock. Commencing
in the fourth quarter of 1995 and for most of 1996, the Company continued
operations funded largely by advances from Royalstar (the "Royalstar Advances".)
In August, 1996, the Company approved the conversion of $1,919,110 in Royalstar
Advances, being the balance as of July 30, 1996, into 1,919,110 shares of common
stock at $1.00 per share. In the fourth quarter of 1996, Royalstar informed the
Company of Royalstar's inability to continue to fund Company operations. As of
December 31, 1996, Royalstar owned 4,419,110 common shares of the Company
representing 48.7% of the voting shares of the Company.
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On December 4, 1996, Mr. John Young, the former president, chief executive
officer and a director of the Company, resigned his positions. Mr. Young is also
president and chief executive officer of Royalstar. Prior to Mr. Young's
resignation, three other directors who had also been nominated to their
positions by Royalstar had tendered their resignations. The three remaining
directors of the Corporation, which include two of the original founders, have
assumed responsibilities for the affairs of the Corporation, with Mr. Bill
Conrad serving as President. While individuals representing Royalstar have
resigned their positions with the Company, Royalstar, by virtue of the amount of
Common Stock owned, is still in a position to exert controlling influence on the
Company.
On December 20, 1996, the Company and Globex Mining Enterprises
Inc.("Globex"), a publicly traded corporation organized and existing under the
laws of the Province of Quebec, Canada, entered into an agreement in principal
regarding a conditional offer by Globex to finance the Company and merge it into
a subsidiary of Globex. Effective March 13, 1997, the Company executed an
agreement (the "Merger Agreement" or "Merger") to merge with Globex. By virtue
of the Merger, and subject to certain conditions, the Company would become a
wholly-owned subsidiary of Globex. (See - "Developments During 1996").
Narrative Description
On December 31, 1993, the Company acquired its 60% interest in the Project
which is located along the Battle Mountain - Cortez Trend approximately 45 miles
northwest of the town of Eureka, in Eureka County, Nevada. The Company is
currently preparing for gold production at the Project, although no revenues
have been received to date.
The Company acquired its interest in the Project from Tonkin Springs
Venture Limited Partnership, a Nevada limited partnership ("TSVLP"). TSVLP owns
the remaining 40% interest in the Project and is owned by wholly-owned
subsidiaries of U.S. Gold Corporation ("USGL"). USGL, with its ownership in
TSVLP, presently owns 2,287,547 shares of Common Stock of the Company, and holds
a promissory note from the Company in the remaining principal amount of
$1,501,076 as of December 31, 1996.
During 1994, the Company evaluated and initiated the process required to
obtain various Federal, state and other permits necessary to commence gold
production at the Project, undertook various metallurgical studies, and obtained
a feasibility study from an independent engineering firm on the economic
viability of producing gold from a milling and heap leach operation at the
Project. In August, 1995, the Company received the necessary permit
authorizations to commence construction of a leach pad and commenced
construction on the pad during 1996. Construction on the pad was suspended in
October, 1996 due to financial constraints. The Company is continuing to
finalize permits necessary to begin mining and operations, although at a slower
pace due to funding limitations. Upon securing necessary funding and final
permits and authorization, it is the Company's present intention to commence
gold production at the Project.
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The Project consists of unpatented mining claims, an open-pit gold mine and
integrated milling facility and support facilities located on Federal land.
Certain of the claims are leased from unaffiliated third parties. From 1985
through 1987, an aggregate of 873,000 tons of ore were mined at the Project by
USGL, yielding approximately 25,460 ounces of gold through the heap leach
process. Prior to the Company's acquisition of its interest, USGL and joint
venture partners spent in excess of $57,000,000 for construction of facilities,
exploration and other development costs at the Project. The mill facility was
operated in a start-up mode from March, 1990 through June, 1990, but did not
reach commercial production during that time. Due to liquidity constraints
encountered by USGL during that period, the mine and milling facilities were
placed on stand-by status in June, 1990 and have not been in operation since
that time. (See "Item 2. Properties" for a more complete description of the
Project).
The Project is managed by the Company pursuant to a Mining Venture
Agreement entered into between the Company and TSVLP on December 31, 1993 (the
"Venture"). Pursuant to the terms of the Venture Agreement, the Company is
obligated to fund all holding, administrative, development and other costs
associated with the Project until commercial production is achieved. The Company
is entitled to recoup such costs, up to a maximum of $6 million ("Recoupable
Costs"), from a preferential distribution of net cash flows, if any, from the
Project. Through December 31, 1996, the Company has expended approximately
$3,725,000 of Recoupable Costs to the Venture. The Venture Agreement has been
amended in connection with the Merger, effective upon consummation of the
Merger. (See "Item 6. Management's Discussion and Analysis or Plan of
Operations, Financial Condition and Results of Operations").
Developments during 1996
During 1996, the principal activities of the Company involved efforts to
obtain additional funding, obtaining a technical audit of the Tonkin Springs
Project, obtaining an updated open-pit ore reserve estimate, activities
necessary to obtain or reactivate the necessary permits for the Project, and to
commence construction efforts on the new pad. The Company spent considerable
efforts in contacting investment bankers and others to secure funding in an
effort to commence production at the Project. These efforts resulted in the
proposed merger with Globex discussed below. (See also "Item 6. Management's
Discussion and Analysis or Plan of Operations, Financial Condition and Results
of Operations").
Proposed Merger. On March 13, 1997, subsequent to year end, the Company
executed an agreement to merge with a subsidiary of Globex Mining Enterprises
Inc. of Quebec. The Merger is part of two separate, but related, transactions
pursuant to which Globex proposes to acquire 100% of the Company's issued and
outstanding Common Stock. Pursuant to the terms of the Merger Agreement, the
Company would be merged with GME Merger Corporation, a Colorado corporation
wholly owned by Globex, and the Company would survive the Merger (the "Surviving
Corporation"). The 4,654,543 shares of the Company Common Stock issued and
outstanding prior to the Merger and not owned by Royalstar would be converted
into the right to receive 1,285,067 shares of Globex Common Stock. The shares
proposed to be issued by Globex would be registered under relevant provisions of
the Securities Act of 1933, as amended, and qualified under applicable state
Blue Sky laws. The Common Stock owned by Royalstar would be acquired by Globex
3
<PAGE>
in a separate transaction (the "Acquisition"), anticipated to be completed
contemporaneously with the Merger. If both transactions are completed, Globex
would own 100% of the issued and outstanding shares of Common Stock of the
Company.
Both the Merger and Acquisition are subject to certain conditions. Prior to
consummation of the Merger, the following conditions, among others, must be
satisfied: i) approval of a registration statement covering Globlex stock
proposed to be issued in connection with the Merger; ii) receipt of financing by
Globex; iii) approval of the Merger by the Company's shareholders; and (iv)
approval of various regulatory agencies. The consummation of the Acquisition is
subject to shareholder approval and other conditions precedent. The respective
Boards of Directors of the Company and Globex intend to proceed promptly and use
their reasonable best efforts to complete the Merger and Acquisition.
Pending completion of the Merger, Globex has acquired an option to purchase
the 2,287,547 shares of Common Stock of the Company owned by USGL and TSVLP and
an irrevocable proxy to vote all of those shares in favor of the Merger. The
Common Stock owned by USGL and TSVLP and subject to the option and proxy
represents approximately 25.2% of the currently issued and outstanding Common
Stock of the Company. (See "Item 11. Security Ownership of Certain Beneficial
Ownership and Management").
Upon satisfaction of the conditions precedent and completion of the Merger,
it is contemplated that the Board of Directors of the Company will be changed.
The officers and directors of the GME Merger Corporation, all of which have been
nominated by Globex, will be the officers and directors of the Surviving
Corporation after the Merger.
In connection with the Merger Agreement, Globex has agreed to fund the
financial obligations of the Company pending completion of the Merger (the
"Globex Loan"). Subject to the terms and conditions of the Loan Agreement
between the parties, Globex has agreed to make advances to the Company to
maintain, preserve and protect the assets of the Tonkin Springs Project, service
the promissory note payable to U.S. Gold and pay other necessary and proper
obligations and commitments of the Company. As of December 31, 1996, the balance
of borrowings under the Globex Loan totaled $20,000. As of March 18, 1997, the
principal balance of the Globex Loan is $697,493. The Globex Loan accrues
interest at 2% over prime, is secured by all the assets of the Company and is
due on or before August 30, 1997. TSVLP has agreed to share its collateral
position in the Company's 60% interest in the assets of the Tonkin Springs
Project and interest in the Venture, pari passu, with Globex under the terms of
an Intercreditor Agreement dated January 16, 1997. Continued funding under the
Globex Loan is subject to the right of Globex to accept or reject each funding
request made by the Company, as well as the right of Globex to discontinue
funding altogether. In that event, the Company has the right to terminate the
Merger Agreement. Without continued funding from the Globex loan or other
sources of funding, the Company is not able to meet its current obligations nor
to provide for development costs associated with future obligations and
operations relating to the Venture and other corporate objectives. (See "Item 6
Management's Discussion and Analysis or Plan of Operations, Financial Condition
and Results of Operations").
4
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Competitive Business Conditions
The Company competes with other companies and individuals to acquire gold
mining projects, to recruit and retain qualified personnel, and to obtain
development capital for its projects. Many of these competitors are
substantially larger and have greater financial resources than the Company. The
Company also competes with other companies seeking personnel to operate and
manage gold mines. Given its size, limited capitalization, and limited personnel
resources, there can be no assurance that the Company can successfully compete
under these competitive conditions.
Major Customers
Future sales of refined gold and silver bullion, if any, derived from
operating properties will be made to unaffiliated companies. The Company
believes that the loss of any one of these customers would not affect its
business.
Patents, Trademarks, Licenses, Franchises, Concessions
The Company does not own any trademarks, licenses, franchises or
concessions, except mining interests granted by governmental authorities and
private landowners. No portion of its business is subject to re-negotiation of
profits or termination of contracts or subcontracts at the election of the
government.
Government Regulations
In connection with its mining, milling and exploration activities, the
Company is required to comply with various federal, state and local laws and
regulations pertaining to the protection of the environment. The Company or
joint venture participants have obtained, or are in the process of obtaining,
environmental permits, licenses or approvals required for its operations.
Management of the Company is not aware of any material violations of
environmental permits, licenses or approvals issued with respect to the
Company's operations.
The Company's proposed operations and activities will be subject to mining
and reclamation requirements which apply to all surface mining operations in the
State of Nevada. Among other requirements, such laws establish permitting,
reclamation and financial assurance requirements. TSVLP had previously submitted
an operating plan regarding the existing and proposed surface disturbances at
the Project and proposed a reclamation plan. Based upon this plan, the Bureau of
Land Management requires a bonding obligation of $1.3 million for reclamation
prior to commencement of mining. The Company believes that funding to partially
satisfy this obligation may be available through state-sponsored programs or
commercial bonding. However, there is no assurance that the Company can obtain
the funds necessary to satisfy the obligation if required. Failure or inability
of the Company to satisfy the obligation could result in denial or revocation of
permits necessary to operate the Project.
5
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The Tonkin Springs Project is located in an area that contains habitat for
a variety of wildlife species, and is subject to various Federal and state laws
and regulations intended to protect wildlife. Compliance with any such laws and
regulations may necessitate significant capital outlays, which may materially
affect the economics of the project or may cause material changes or delays in
the Company's intended activities.
Numerous, and in some regards conflicting, bills have been introduced in
the U.S. Congress which would supplant or radically alter the provisions of the
Mining Law of 1872. If enacted, such legislation could substantially increase
the cost of holding unpatented mining claims and could impair the ability of
companies to develop mineral resources on unpatented mining claims. Under the
terms of these bills, the ability of companies to obtain a patent on unpatented
mining claims would be nullified or substantially impaired, and most contain
provisions for the payment of royalties to the federal government for production
from unpatented mining claims, which could adversely affect the potential for
development of such claims and the economics of operating new or even existing
mines on federal unpatented mining claims. The Company's financial performance
could therefore be affected adversely by passage of such legislation. It is not
possible to predict whether any change in the Mining Law of 1872 will, in fact,
be enacted or, if enacted, the form that the changes may take.
In connection with its ownership of the Project, the Company may be subject
to potential liabilities for environmental cleanup or damages in connection with
any contamination associated with the site. The Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and
certain state laws and regulations impose liability for cleanup of waste sites,
and in some circumstances, attorney's fees, damages and/or trebling of damages.
Existing violations, even though not directly caused by the Company, could
potentially subject the Company to fines and penalties, as well as other
administrative sanctions. While management is not aware of any adverse
conditions, such violations could have a material adverse effect on the
Company's future stability and profitability.
Costs and Effects of Compliance with Environmental Laws
The Company or Venture participants have obtained, or are in the process of
obtaining, environmental permits, licenses or approvals required for its
operations. Management of the Company is not aware of any material violations of
environmental permits, licenses or approvals issued with respect to the
Company's operations. The Company has not made a separate estimation of any
capital costs associated primarily with environmental or related issues except
the reclamation bond; however the Company estimates that such amounts may be
material. The Company has obtained an estimate with the assistance of a firm
experienced with such matters of the time required to activate and obtain the
necessary permits and approvals to operate the Project and has incorporated such
estimates in its plan of development.
Employees
The Company currently has three (3) employees, including its two executive
officers and the manager of the Tonkin Springs Project. The executive officers
currently serve part-time and without compensation. The manager is employed
full-time at the Project.
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The Company retains other individuals and entities on a contract basis to
fulfill specific needs of the Company, including financial, geological,
environmental, title, metallurgical, accounting and legal services. Such
individuals are retained by the Company on an hourly basis as the needs of the
Company dictate. Management anticipates that when it receives funding sufficient
for commencement of commercial production at the Project, additional employees
will be required. It is anticipated that the Company will be able to fill those
requirements when necessary.
ITEM 2. DESCRIPTION OF PROPERTIES.
--------------------------
General
The Tonkin Springs Project consists of unpatented mining claims, an open
pit gold mine and integrated milling facility, and support facilities on
approximately 21,100 acres of Federal land located along the Battle Mountain
- -Cortez Trend approximately 45 miles northwest of the town of Eureka in Eureka
County, Nevada. A total of 207 claims, constituting approximately 20% of the
total claims at the Project, are leased from unaffiliated third parties, while
the remaining claims are held jointly by the Company and TSVLP. USGL or its
wholly-owned subsidiaries have owned interests in the Project, directly or
indirectly, since 1984.
Access to the Project is provided by a county maintained road. Electrical
power is provided through a substation located near the mill and operated by
Sierra Pacific Power Company. Water is available through production wells which
have been established on the site. The Project also contains an assay laboratory
and metallurgical pilot plant testing lab. In addition to the heavy equipment
shop for repair and maintenance of mining equipment, a repair shop and warehouse
building is situated adjacent to the mill building.
Claims
The Tonkin Springs Project consists of a total of 1,059 claims. Of that
amount, an aggregate of 207 of the unpatented mining claims are leased from
unaffiliated third parties pursuant to two mining leases assigned to the Venture
by TSVLP. Record ownership of undivided interests in the claims is held by the
Company (60%) and TSVLP (40%) in the same proportions as their interests in the
Venture. The Campbell/Simpson Lease, which covers 197 claims, has an initial
term which expires December 31, 2006 and may be extended from year to year, up
to a maximum term of 99 years, by production from the leased claims. The
Buffington Lease, which covers 10 claims, has an initial term which expires
August 9, 1996, and may be extended from year to year by production from the
leased claims or by continued payment of advance royalties. Each lease contains
certain conditions and other requirements for annual payments, expenditures or
work to be performed in order to retain the leased claims.
The Campbell/Simpson lease, upon which the bulk of the oxide mineralization
is presently located at Rooster, requires an annual advance royalty in the
greater amount of $150,000, or the value of 455 ounces of gold, which royalty is
payable in January of each year. Payment of the 1997 annual advance royalty of
$166,780 was due and paid in January, 1997, bringing the balance of net advance
royalties paid to approximately $1,680,290. The lease requires production
royalties of 5% of the gross sales price of gold or silver but provides for
deduction of advance royalties previously paid. The Company is required to
perform an annual work commitment in the amount of the greater of $300,000 or
the value of 909 ounces of gold toward which the Company currently maintains a
carry-forward excess of approximately $95,000 available to cover future annual
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work commitments. The Campbell/Simpson lease includes an area of interest
extending 1.5 miles from the boundaries of certain claims. In addition, these
claims also are subject to a royalty to Precambrian Exploration, Inc.
("Precambrian") of 1% of net smelter returns which becomes payable after
$15,000,000 in gross revenues is realized from the claims.
The Buffington lease requires payment of an insignificant initial advance
royalty and 5% of all net returns following commencement of production.
An aggregate of 848 of the unpatented mining claims covered by the Project,
as well as 4 millsites, are owned jointly by the Company and TSVLP. A total of
317 of these claims are subject to a royalty of 2% of net smelter returns
(defined as gross revenues from sales of minerals, less refining costs,
transportation costs, severance, production and sales taxes, and sales
commissions), which becomes payable to Precambrian after $50 million in gross
revenues is realized from the claims. Precambrian Exploration, Inc. is an
unaffiliated third party and predecessor in interest to the claims. Precambrian
may elect to receive such royalty "in kind," upon proper notice to the Venture.
The remaining claims and the millsites are not subject to any royalties.
The Company owns also additional 215 claims covering approximately 4,400
acres in the vicinity of the Tonkin Springs Project. The claims are subject to a
royalty of 1% of net smelter returns for gold when the indexed price of gold is
$350 per ounce or more, and a royalty of 1% of net smelter returns for silver
when the indexed price of silver is $3.50 per ounce or more. No royalties are
payable at lower indexed prices. The indexed prices shall reflect adjustments
based on the Producer's Price Index, sub-index Finished Goods Excluding Foods,
as published by the United States Department of Commerce.
Reserves
At various times, the venture has engaged the consulting firm Ore Reserves
Engineering ("ORE") to provide estimates of the open pit minable reserves from
the Project. An open-pit reserve estimate was completed by ORE in October, 1996,
and is summarized in the table below:
(SPACE INTENTIONALLY LEFT BLANK)
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<TABLE>
<CAPTION>
Tons above Grade above Ounces Contained Strip
Cutoff Cutoff Cutoff Gold Ratio
------ ------ ------ ---- -----
Deposit (opt Au) (1,000's) (opt Au) (1,000's) (W:O)
- -------
<S> <C> <C> <C> <C> <C>
TSP-1
Milling 0.055 1,470 0.099 146 3.4
Bioheap 0.025 1,159 0.040 46 2.0
----- ---
2,629 192
Rooster
Oxide Heap 0.015 3,692 0.037 136 1.3
Bioheap 0.027 1,805 0.051 92 1.3
----- ---
5,496 228
O-15
Milling 0.055 969 0.107 103 11
Bioheap 0.025 601 0.040 24 3
----- ---
1,570 127
TSP-6
Milling 0.055 90 0.117 11 2.4
Bioheap 0.025 86 0.039 3 2.4
----- ---
176 14
TSP-8
Milling 0.055 48 0.081 4 8.2
Bioheap 0.025 61 0.041 2 8.2
----- ---
109 6
F-Grid
Milling 0.055 247 0.094 23 7.0
Bioheap 0.025 407 0.037 15 7.0
----- ---
654 38
Total 10,635 0.057 605 3.1
</TABLE>
Definitions
As used herein, the term "reserves" means those estimated quantities of a
mineral deposit that, under present anticipated conditions, may be economically
and legally mined and sold or processed for the extraction of their constituent
values. Estimated quantities of a mineral deposit involve quantity computed from
dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or
quantity computed from the results of detailed sampling and the sites for
inspection, sampling and measurement spaced so closely and the geologic
character so well defined that size, shape, depth and mineral content of
reserves are well established.
The 1996 ORE reserve estimate utilized certain data and assumptions
provided by the Company including digitized topographical files, drill-hole data
base, pit slope, tonnage factors, process recoveries and gold price assumptions.
Estimates of operating costs were provided by an independent engineering firm.
ORE did not make independent review of those data. In the opinion of the
Company, the data and assumptions used by ORE are reasonable.
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In April, 1996, the Company obtained an audit and updated feasibility study
with expanded development plan to include bio-oxidation followed by milling,
bio-oxidation followed by conventional heap leach recovery for lower grade ores,
and an oxide heap leach from the mining industry consulting firm of Behre
Dolbear & Company, Inc. ("Behre Dolbear.") Subject to certain conditions and
assumptions set forth therein, including, but not limited to, gold prices, ore
grade, metallurgical recovery and operating costs, the feasibility study
concludes that gold can be economically mined over the estimated five-year
initial phase of the Project.
Geology
Host rocks for gold mineralization at Tonkin Springs consist of a sequence
of Paleozoic rocks that were subsequently faulted, intruded and mineralized.
Gold-bearing solutions originated at depth and migrated up along fracture
systems until reaching fractured rock or chemically favorable rock suitable for
ore deposition. Later volcanism, faulting, erosion and sedimentation affected
the ore deposits.
History
As previously noted, the Project is located along the Battle
Mountain-Cortez trend in Nevada. Gold mines located along this trend have
historically produced significant quantities of gold by various companies.
The properties constituting the Tonkin Springs Project were acquired by
USGL in December 1984. In November, 1985, USGL commenced open pit mining
operations, using conventional heap leach extraction technology to process oxide
ore mined from the properties. Through 1987, an aggregate of 873,000 tons of ore
were mined and processed, yielding approximately 25,460 ounces of gold.
ITEM 3. LEGAL PROCEEDINGS.
------------------
The Company and its subsidiary are party to certain pending legal
proceedings, primarily related to claims from contractors and vendors for
payment related to work performed and/or services provided the Tonkin Springs
Project, as follows:
A. Canyon Construction Co., a Nevada corporation, Plaintiff, vs. Tonkin
Springs Gold Mining Company, a Colorado corporation; Gold Capital
Corporation, a Colorado corporation; and Does I through V, Defendants,
Civil Action No. 28416 in the District Court of the Fourth Judicial
District of the State of Nevada, in and for the County of Elko.
Plaintiff Canyon Construction Co. brought this action against the Company
and Tonkin Springs Gold Mining Company, a wholly-owned subsidiary of USGL and
the general partner of TSVLP, the Company's joint venture partner, for breach of
contract for the value of labor and materials allegedly provided by Plaintiff at
the Tonkin Springs Project. The Complaint seeks damages in an amount in excess
of $10,000, together with interest, reasonable attorneys fees and court costs.
Plaintiff has also delivered notice to the Company of its intention to file a
lien against the Project in connection with this claim.
10
<PAGE>
Plaintiff's claim arises from work performed at the Tonkin Springs Project.
Plaintiff alleges that Defendants, including the Company, contracted with the
Plaintiff for construction and materials as part of the Defendants' gold mining
operations. Plaintiff further contends that it performed work pursuant to that
contract, and that there is currently due and owing the amount of $191,957
pursuant to that agreement. Plaintiff alternatively contends that Defendants,
and each of them, are liable for the reasonable value of services provided at
the Project in a similar amount.
An Answer has been filed with the Court on Defendants' behalf, denying the
material allegations of the Complaint. Defendants admit execution of the
contract but are unable to determine the amount of money, if any, due and owing
to the Plaintiff. Defendants further allege that a condition precedent of the
contract, a survey of the Project site, has not been completed. Accordingly,
Defendants denied that the amount allegedly due was properly payable.
The Company intends to defend this action pending receipt of a final survey
as to the appropriate amount due, if any. Upon receipt of documentation
confirming the amount due, the Company may seek to negotiate a satisfactory
settlement with the Plaintiff. The Company has included the amount claimed by
Plaintiff in its financial statements, without admitting any liability to
Plaintiff.
B. Sea Gull Leasing, Ltd. and Budget Rent-A-Car B.C. Ltd., Plaintiffs, vs.
Gold Capital Corporation, Defendant, District Court, City and County of
Denver, Civil Action No. 97-CV-997.
Plaintiffs, both Canadian corporations, allegedly advanced the amount of
$207,549 to the Company in November, 1996. The action was filed with the
District Court on February 20, 1997 and delivered to the Company on February 21,
1997. The Complaint seeks damages in that amount, together with interest,
attorneys fees, costs and exemplary damages.
Claims of the two Plaintiffs are similar, but for different amounts. Such
claims include money had and received, unjust enrichment and promissory
estoppel. Plaintiff Sea Gull seeks recovery of the amount of $187,266, while
Budget seeks recovery of $20,284, plus interest, costs and fees.
Due to the recency of this action, the Company has yet to file an Answer on
its behalf. Unless extended, an Answer will be due not sooner than April, 1997.
However, the Company intends to vigorously defend this action. The Company may
also assert claims against certain third-party entities to recover the amounts
claimed by Plaintiffs. In addition, by letter dated January 14, 1997, Royalstar
has promised to indemnify the Company against certain losses incurred as a
result of this action.
The Company and its subsidiary are not a party to any other material
pending legal proceedings, nor is its property the subject of any such
proceedings. However, the Company has been notified of a potential claim by a
former officer and director. Mr. John Young, former president, chief executive
11
<PAGE>
officer and a director of the Company, recently notified current management of
his claim to an aggregate of 340,000 shares of Common Stock of the Company in
consideration for services rendered to the Company prior to his resignation in
December 1996. Since no formal action has been commenced to recover such
amounts, the Company is unable to formally evaluate the claim. However,
management believes the claim to be without merit and intends to defend any
action subsequently commenced.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of security holders during the fiscal
year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
------------------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market and is
quoted in the OTC Bulletin Board under the symbol "GOCP." The following table
sets forth the range of high and low bid quotations as reported for the Common
Stock of the Company. Quotations represent prices between dealers, do not
include retail markups, markdowns or commissions and do not necessarily
represent prices at which actual transactions were effected.
Fiscal Year Ended
December 31, 1996 High Low
----------------- ---- ---
First Quarter $ 1.63 $ 1.00
Second Quarter $ 1.50 $ 0.81
Third Quarter $ 1.88 $ 0.63
Fourth Quarter $ 1.94 $ 0.56
Fiscal Year Ended
December 31, 1995 High Low
----------------- ---- ---
First Quarter $ 2.50 $ 1.38
Second Quarter $ 1.88 $ 1.25
Third Quarter $ 1.88 $ 1.38
Fourth Quarter $ 1.44 $ 0.88
As of March 20, 1997, there were 200 record holders and street name
accounts for the Company's common stock. The Company estimates that there were
300 beneficial owners.
No dividends have been paid with respect to the Company's common stock and
the Company does not anticipate the payment of dividends in the foreseeable
future.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF
OPERATIONS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------------------
Plan of Operation
Introduction. The Company's plan of operation ("Plan") for the twelve (12)
months ending December 31, 1997 is to obtain sufficient capital to commence
production of gold at its Tonkin Springs Project. Prior to and during 1996,
management believes that the Company had conducted sufficient testing to warrant
commencement of efforts to produce gold at the Project. To that end, efforts
were undertaken during late 1996 to commence construction of the asphalt pad
necessary to begin bio-oxidation of the sulfide ore. The Company also
commissioned preparation of an updated feasibility study to confirm early
estimates and expand the Company's development plan with regard to Project.
However, the Company's Plan may be modified as the result of the proposed Merger
with Globex.
Effective March 13, 1997, the Company and Globex executed the Merger
Agreement which, if successfully concluded, would result in the Company becoming
a wholly-owned subsidiary of Globex. The Merger is subject to a number of
contingencies, including approval by the Company's shareholders. If the Merger
is completed, Globex has advised the Company that it intends to conduct further
development drilling on the Project prior to undertaking efforts to commence
production of gold. Accordingly, pending completion of the Merger, management is
unable to predict with any degree of certainty a specific plan with regard to
development of the Project. The following discussion includes possible
alternatives, depending upon whether the Merger is completed as proposed.
The Company's current Plan calls for treatment of sulfide ore in a modified
acid heap leach process, followed by conventional carbon in leach ("CIL")
process. An important part of the ore reserves at the Project are in the oxide
form and are amenable to conventional heap leach extraction methods. Mining will
be by open pit methods through independent contractors.
Pursuant to the Plan, ore bearing material will be crushed by an existing
crusher, which will need to be modified, and pre-treated on a heap leach pad
which must be completed. Construction of the heap leach pad commenced during
1996, but construction efforts have been suspended pending funding of additional
working capital to continue the efforts. In February, 1996, the Company engaged
the minerals industry consulting firm of Behre Dolbear & Company, Inc. to
prepare an updated feasibility study with expansion of the development plan to
included definition of the economic feasibility of incorporating milling, oxide
heap leach, and low grade sulfide bio-oxidation with conventional heap leach
recovery. This report was issued in April, 1996, and concluded that "the project
economics and technical factors indicate the project should proceed to
commercial production." (See "Item 2. Properties" for a more complete
description of the Behre Dolbear Report.)
13
<PAGE>
Through approximately September, 1996, the costs of these efforts have been
paid with the proceeds of a private and two public offerings as well as advances
from Royalstar. Royalstar informed the Company in November, 1996, of its
inability to continue to fund operations of the Company through Royalstar
Advances. Pre-operating activities are anticipated to be accelerated upon the
Company obtaining additional funding.
If the Merger is completed, Globex has notified the Company that it intends
to conduct additional development drilling in an effort to estimate the presence
of additional ore. Management has been advised that additional testing and
evaluation could extend the time prior to commencement of commercial production
at the Project, but could enable Globex to obtain sufficient financing in an
effort to accomplish that objective. In addition, the Mining Venture Agreement
to which the Company and TSVLP are parties has been amended, effective upon
consummation of the Merger, to expand the definition of commercial production to
include acid heap leach oxidation of both high grade and low grade sulfide ore
followed by conventional heap leach processing as well as the ability to start
the project on oxide ore by conventional heap leach processing.
Pre-Operating Activities. The Company's plan of operation for the Project
entails significant expenditures before commencement of gold production and
receipt of revenue. Additional engineering, construction, holding and start-up
costs are currently projected at approximately $8.5 million. The most
significant of these remaining pre-operating costs are finalization of the
bio-heap leach pad to process sulfide ore and acquisition of ancillary machinery
and equipment. Additional pre-production expenses include acquisition and
installation of a portable crusher and necessary plant modification, as well as
consulting fees for engineering and reactivation of various permits necessary to
operate the Project. An independent consultant has been retained to assist the
Company regarding permitting. All of these expenses will need to be paid from
the proceeds of future financings.
Various permits must be in place from various state and Federal agencies
before mining can commence. Although many of these permits are current, some of
the more important require amending prior to commencement of operation. In
August, 1995 the Company received the necessary permits and authorizations to
construct the bio-heap pad, and commenced construction efforts in 1996.
Management does not presently anticipate any special obstacles to issuance of
any of these permits.
Mining and Processing. Mining and processing of the ore will represent the most
significant expense of the Company's proposed operations. In an effort to manage
these expenses, the Company anticipates utilizing the services of a third party
contractor to accomplish mining of the ore. Management believes that the
utilization of a third party contractor offers several advantages compared to
the Company's participation, including the elimination of front end equipment
capital costs, reduced general and administrative expenses, quick mobilization
and reduction of available labor and training issues.
Processing of the bio-oxidized ore will be conducted in facilities in which
the Company has an interest, and, although some modification will be necessary,
should not require a substantial additional capital outlay. The carbon in leach
process will be conducted in the milling and processing facilities previously
constructed by USGL prior to acquisition of the Company's interest in the
14
<PAGE>
Project. Significant expenses anticipated in this phase of production include
personnel costs associated with operation of the mill, chemicals necessary to
process the oxidized material and spare parts and tools necessary to support
processing operations.
In addition to the acid heap leach/carbon in leach process proposed by the
Company, Globex has suggested additional alternatives which might be used to
process sulfide ore at the Project. It would involve modification of the bioheap
recovery such that both high-grade and low-grade sulfide ore can be processed
simultaneously through acid heap leach pre- oxidation followed by conventional
heap leach processing. The other process would involve processing of oxide ore
in a conventional heap process prior to commencement of treatment on sulfide
ore. Determination of these methods will necessarily await completion of the
Merger and additional testing by Globex.
Operating Revenue and Expenses. Under the Mining Venture Agreement between the
Company and TSVLP, the Company is responsible for funding all holding,
administrative, development and other costs associated with the Venture until
commercial production is achieved. The Company is entitled to recoup such costs,
up to a maximum of $6,000,000, from a preferential distribution from net cash
flow, entitling the Company to receive 84% of net cash flows from the Venture
prior to payback. Through December 31, 1996, the Company has advanced
approximately $3,725,000 of Recoupable Costs to the Venture. After recovery of
Recoupable Costs, the cash flows will be distributed to the Company and TSVLP in
proportion to their interests in the Venture.
Subject to completion of the Merger, TSVLP and the Company have agreed to
modify the Joint Venture Agreement. These modifications include, but are not
limited to, i) increase of the Recoupable Amount to $8.05 million, ii) the right
to pledge TSVLP's share of cash flow from the project for use in debt service of
project financing arranged by the Company, if any, iii) expanded definitions of
Commencement of Commercial Production to include two additional possible
property development alternatives (heap pre-oxidation followed by conventional
heap leach processing of sulfide ores, or development and processing of the
oxide ore reserves), and iv) a commitment by the Company to TSVLP to a) pay off
the TSVLP Secured Note within 5 days of approval of the Globex Merger, b) agree
to pay to TSVLP certain minimum distributions of cash flow during a 24 month
period commencing 12 months after the effective date of the amendment, and c)
agree to finance capital requirements on behalf of TSVLP, if any, after
Commencement of Commercial Production.
Operation of a gold processing facility is dependent on many factors,
including the presence and grade of the ore reserves, gold recovery rates from
the ore and operating costs associated with extracting the gold from the ore.
The audit of the feasibility study completed in April, 1996, by Behre Dolbear
represents an estimate of the economic viability of producing gold from a
milling and heap leach operation at Tonkin Springs and, subject to certain
conditions and assumptions set forth therein, concludes that gold can be
economically mined over the estimated five-year initial operations phase of the
Project (see "Item 2. Description of Properties, Tonkin Springs Properties
- -Reserves").
Gold prices depend on many factors, including worldwide demand and the
prevailing economic and political climate. Gold prices fluctuate widely and are
affected by numerous factors beyond the Company's control, including
expectations regarding inflation, global and regional demand, political and
economic conditions and production costs in major gold producing regions. Such
15
<PAGE>
risks affect all participants in the mining industry, although the Company may
encounter special risks due to its development stage. Once production is
achieved, management will endeavor to reduce the risk of fluctuation in gold
prices through evaluation of periodic sales of a portion of its gold production
at fixed future prices. However, hedging transactions can result in additional
risk to the Company.
Liquidity and Capital Resources
The Company has historically relied on capital from outside sources to
finance its activities, and continues to be reliant on outside sources for the
foreseeable future.
For much of 1996, Royalstar, a principal shareholder of the Company and a
corporation organized and existing under the laws of Canada with shares publicly
traded on the Vancouver Stock Exchange, funded operations of the Company through
informal and unsecured advances. In August, 1996, Royalstar converted $1,919,110
in cash advances into 1,919,110 shares of common stock ($1.00 per share). Those
advances ceased in November, 1996. As of December 31, 1996, the balance of
remaining Royalstar Advances total $856,821. The Royalstar advance accrues
interest at the published prime rate. Prior to its relationship to Royalstar,
the Company relied on the proceeds of two private and one public offerings to
finance ongoing activities. The acquisition of the Company's interest in the
Project was completed through a combination of debt and equity financing
facilitated by TSVLP.
On January 16, 1997, and in connection with negotiations for the Merger,
the Company consummated a Loan Agreement with Globex to provide the Company
additional operating capital. Subject to the terms and conditions of that Loan
Agreement, Globex has agreed to make advances to the Company to maintain,
preserve and protect the assets of the Project, service the promissory note
payable to U.S. Gold and pay other necessary and proper obligations of the
Company pending completion of the Merger. Continued funding under that
arrangement is subject to the right of Globex to accept or reject each funding
request made by the Company, as well as the right to discontinue funding all
together. As of December 31, 1996, the balance of borrowings under the Globex
loan totaled $20,000. As of March 18, 1997, the principal balance of that loan
is $697,493. The Globex loan accrues interest at the rate of 2% over prime, is
secured by all assets of the Company, and is due and payable on or before August
30, 1997 if the Merger is not completed. If the Merger is not completed, the
Company will be forced to solicit other sources of financing.
At December 31, 1996, the Company had negative working capital of
approximately $2,342,080, consisting of current assets of $1,914 and current
liabilities of $2,343,994. The primary components of the Company's current
liabilities are the Company's promissory note and accrued interest due TSVLP
($690,982) related to the Company's acquisition of its interest in the Tonkin
Springs Project, accounts payable to creditors ($644,697), primarily related to
vendors and contractors for to the Tonkin Springs Project, and advances from
Royalstar ($856,821).
The Company's financial condition has deteriorated during 1996. Liquidity
and working capital both decreased as a result of continued expenditures for
holding and development costs at the Project, coupled with a lack of sufficient
financing. Working capital decreased from a deficit of $1,253,642 at December
31, 1995 to a deficit of $2,342,080 at December 31, 1996. Although the Company
was able to reduce the principal balance on the note payable to TSVLP, other
16
<PAGE>
current liabilities increased substantially. Accounts payable and accrued
expenses increased almost $300,000, while advances payable to Royalstar
increased to $856,821, accounting for most of the increase. Management
anticipates that the Company's financial condition will continue to deteriorate
pending finalization of an agreement for sufficient financing. It is hoped that
the Merger will satisfy that objective.
The Company's obligations under the promissory note to TSVLP and certain of
the Company's obligations under the Mining Venture Agreement are subject to a
Security Agreement in favor of TSVLP, pursuant to which the Company has granted
a security interest in the assets constituting its interest in the Project. The
Globex Loan also includes a security interest in the assets of the Company, and
TSVLP has agreed to share its senior secured collateral position in the
Company's 60% interest in the assets of the Tonkin Springs Project with Globex,
pari passu, as provided in the Intercreditor Agreement.
In addition to start-up and other capital costs associated with
recommencement of operations at the Project, the Company will require capital
for ongoing operating expenses, debt service, and general and administrative
expenses. Total capital required including recommencement of operations at the
Project, acquisition debt repayment and working capital needs total
approximately $10 million. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue operations as a going concern is dependent upon its success in (1)
obtaining additional capital; (2) paying its obligations timely; (3) developing
its properties to the commercial production stage; and (4) ultimately achieving
profitable operations. The financial statements do not include any adjustments
which might result from the outcome of these uncertainties.
On November 1, 1996, the Company received funds in the amount of $185,350
from Sea Gull Leasing Ltd., a private company ("Sea Gull"). The November 1, 1996
transaction with Sea Gull was arranged on behalf of the Company by its former
president and chief executive officer, Mr. John Young, who resigned all his
positions with the Company effective December 4, 1996. On November 1, 1996, the
Company disbursed a portion of the proceeds of the Sea Gull funds directly to
Attwood Gold Corporation ("Attwood") in the amount of approximately $74,140. In
addition to the funds directly received by the Company from Sea Gull, a payment
by Sea Gull directly to a vendor of the Venture was made on behalf of the
Company in the approximate amount of $20,284. Sea Gull has initiated legal
actions to recover from the Company in the stated amount of $205,634 plus
interest and costs. Royalstar provided the Company a written commitment of
indemnity dated January 14, 1997, concerning and related to the Sea Gull
Obligation (the "Indemnity"). The Company has given Royalstar notice that it
intends to invoke the Indemnity with regards to the legal action initiated by
Sea Gull and has further requested Royalstar and Attwood to resolve the claim.
Other than the Globex Loan, the Sea Gull funding and the Royalstar
Advances, the Company has not to date secured the necessary funding required to
meet its current obligations nor to provide for development costs associated
with future obligations and operations relating to the Venture and other
corporate objectives. If the potential merger of the Company and Globex is
consummated, Globex will be responsible for funding the operations of the
Company. If the Globex Merger is not consummated the Company will require
17
<PAGE>
significant additional working capital as well as funds to pay back the Globex
Loan, of which there is no assurance. The Company requires approximately $8.5
million, primarily to construct the bio-heap leach pad and otherwise prepare to
commence mining and processing of mineralized material and arranging for
reclamation bonding, and a minimum of $697,493 plus accrued interest, to repay
the Globex Loan. The note to TSVLP, as amended June 22, 1995, requires payments
by the Company of $50,000 per month until the Company has raised $4 million in
new financing, which payments increase to $75,000 after such additional $4
million in new financing is secured.
The Company's only current sources of limited working capital are funds
under the Globex Loan as discussed above, or, upon if the plan to merge with
Globex were to be terminated, other possible equity offerings, short-term and/or
project debt financings, as well as anticipated cash from future operations and
possible receipt of proceeds from the exercise of the Company's options and
warrants.
Results of Operations
For the fiscal year ended December 31, 1996, the Company remained in the
development stage, as it had no revenues from operations. It is anticipated that
the Company will remain in the development stage until such time as sufficient
financing to commence production can be obtained.
1996 Compared to 1995. For the year ended December 31, 1996, the Company
recorded a net loss of $1,606,332 or $(0.28) per share compared to a net loss of
$1,638,830 or $(0.51) per share for year 1995. After reflecting the mandatory 9%
dividend on the Series A Preferred Stock (which dividends terminated November
30, 1995) of $247,500 for 1995, the net loss applicable to common shareholders
was $1,606,332 for 1996 and $1,886,330 for 1995. The Company had no operating
revenues for either year as the Tonkin Springs Project is not in production.
General and administrative expenses totaled $532,651 in 1996 compared to
$669,388 in 1995, reflecting generally lower expenses for legal and investor
relation activities, while interest expense primarily related to the TSVLP
Promissory Note and Royalstar Advance totaled $231,421 during 1996, compared to
$192,941 for 1995. During 1996 the Company was also credited with approximately
$1,191,442 of Tonkin Springs net Recoupable Costs bringing the balance of
Recoupable Costs to $3,725,000. Property maintenance cost at the Tonkin Springs
Project totaled $844,133 for 1996 compared to $609,424 for 1995, reflecting the
increased activities at the property during 1996. The Company anticipates that
it will continue to incur losses until such time, if ever, that it obtains
sufficient working capital to commence operations of the Tonkin Springs Project.
Net cash used in operating activities amounted to $599,057 for the year
ended December 31, 1996, compared to $1,346,701 in 1995, primarily reflecting
1996 expenses satisfied by the issuance of common stock. During 1996, the
Company issued an aggregate of 2,281,139 shares of Common Stock to creditors at
a price of $1.00 per share to satisfy liabilities incurred for operating
activities. Cash flow used in investing activities totaled $797,806 in 1996,
compared to $614,122 for 1995. Cash flow from financing activities were
$1,387,749 and $1,935,224, respectively, in 1996 and 1995.
18
<PAGE>
Inflation. Management believes that inflation can affect the profitability
of the Company if production is commenced through changes in operating expenses
and prices for sale of gold. Inflation could adversely affect the cost of
production, including third party contractors, labor, equipment and chemicals
used in conjunction with mining operations. However, management does not
anticipate substantial cost increases in the immediate future. Inflation could
also significantly affect the price of gold. During times of rising prices,
demand for gold and other precious metals historically have increased as a
perceived hedge against inflationary pressure. The Company will have little
control over price fluctuations, as inflation will be affected by worldwide and
domestic economic and political conditions and other factors beyond the
Company's control.
Other
Except for the historical information contained herein, the statements in
this report which relate to the Company's plans, objectives or future
performance may be deemed to be forward-looking statements. Such statements are
based on current expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors including
gold price, ore grades, metallurgical recovery, operating costs, market
valuation, and project operator's performance under the Project Joint Venture,
as well as other risks and uncertainties.
ITEM 7. FINANCIAL STATEMENTS
---------------------
See complete Financial Statements, including the Index thereto, beginning
at Page F-1 of this Report.
19
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Index to Consolidated Financial Statements Page
Independent Auditors Report F-1
Consolidated Balance Sheet as of December 31, 1996 F-2
Consolidated Statement of Operations for the Years
Ended December 31, 1996 and 1995 and for the period
from December 10, 1993 (Inception) to December 31, 1996 F-3
Consolidated Statement of Stockholders' Equity for
the Period from December 10, 1993 (Inception)
to December 31, 1996 F-4 to F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995, and for the Period
from December 10, 1993 (Inception) to December 31, 1996 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-24
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Gold Capital Corporation
We have audited the accompanying consolidated balance sheet of Gold Capital
Corporation as of December 31, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1996 and 1995 and for the period December 10, 1993 (inception) through December
31, 1996. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion of these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1996, and the results of their operations and their cash flows for
the years ended December 31, 1996 and 1995 and for the period December 10, 1993
(inception) through December 31, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed further in Note B to
the consolidated financial statements, the Company has significant obligations
related to its acquisition of certain mining properties, and its continued
existence is dependent upon its ability to raise additional capital and
ultimately achieve profitable operations. In the past, the Company has been
unable to remain current on these obligations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As of December 31, 1996, the Company has a substantial investment in mineral
properties and equipment. The ability of the Company to recover this investment
is dependent upon meeting their development and financing obligations and
achieving profitable operations. Management's plans in this regard are discussed
in Note B.
STARK TINTER & ASSOCIATES, LLC
March 18, 1997
Englewood, Colorado
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 1996
ASSETS
CURRENT ASSETS, Cash $ 1,914
PROPERTY, PLANT AND EQUIPMENT
Milling, plant and production equipment 7,234,110
Buildings 2,232,963
Vehicles and trailers, net of depreciation 152,115
Property development and mineral claim costs 3,170,200
-----------
12,789,388
-----------
OTHER ASSETS
Prepaid royalties 527,823
Deposits and organization costs 42,750
-----------
570,573
-----------
$13,361,875
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 644,697
Accrued interest-TSVLP 129,569
Notepayable-TSVLP, current portion 561,413
Advances payable-Royalstar Resources 856,821
Other obligations, net 151,493
-----------
2,343,993
NOTE PAYABLE-TSVLP, LONG-TERM 939,663
RECLAMATION RESERVE 1,469,900
MINORITY INTEREST IN JOINT VENTURE 2,435,178
-----------
7,188,734
-----------
COMMITMENTS AND CONTINGENCIES
(Notes D, E, F and K)
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares authorized;
none outstanding
Common Stock $.0001 par value; 25,000,000 shares
authorized; 9,073,653 shares issued and
outstanding 922
Additional paid-in capital 9,973,741
Deficit accumulated during development stage (3,801,522)
-----------
6,173,141
-----------
$13,361,875
===========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage company)
Consolidated Statements of Operations
For the Years Ended December 31, 1996 and 1995, and from
December 10, 1993 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
For the Period from
Year Ended Year Ended December 10, 1993
December 31, December 31, (Inception) to
1996 1995 December 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
Costs and expenses:
General and administrative $ 532,651 $669,388 $1,528,108
Property maintenance 844,133 609,424 1,453,557
Write off of Argentina
Mineral Claims - 167,077 167,077
Interest expense, net 299,548 192,941 652,780
--------- -------- ---------
Net loss (1,606,332) (1,638,830) (3,801,522)
Preferred stock dividend - 247,500 517,500
---------- ---------- ---------
Net loss applicable to
common shareholders $(1,606,332) $(1,886,330) $(4,319,022)
=========== =========== ===========
Net loss per common share $ (0.28) $ (0.51)
=========== ===========
Weighted average of common
shares outstanding 5,758,543 3,672,684
========= =========
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
From December 10, 1993 (Inception) to December 31, 1996
Deficit
Accumulated
Common Additional During
Stock Subscribed Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 10, 1993 (Inception) - $ - - $ - - $ - $ - $ -
Issuance of stock to officers
for cash, December 22, 1993,
$.04/share - - - - 300,000 30 11,970 -
Issuance of Series A Convertible
Preferred Stock for mining
properties, at $10.00/share - - 300,000 3,000 - - 2,997,000 -
Common stock subscribed by
officers and affiliates,
$1.00/share 200,000 20 - - - - 199,980 -
------- -- ------- ----- ------- ---- --------- ---------
December 31, 1993 200,000 20 300,000 3,000 300,000 30 3,208,950 -
Issuance of stock for cash,
$1.00/share (200,000) (20) - - 1,350,000 135 1,134,285 -
Issuance of stock for cash,
$2.00/share - - - - 248,396 25 483,499 -
Issuance of stock as dividend
on Series A Convertible
Preferred Stock, $2.11/share - - - - 127,702 13 (13) -
Net loss - - - - - - - (556,360)
-------- --- ------- ----- --------- ---- ---------- ---------
December 31, 1994 - - 300,000 3,000 2,026,098 203 4,826,721 (556,360)
continued on next page
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
From December 10, 1993 (Inception) to December 31, 1996
Deficit
Accumulated
Common Additional During
Stock Subscribed Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - - 300,000 3,000 2,026,098 203 4,826,721 (556,360)
Issuance of stock for cash,
$1.00/share (net of
issuance cost) - - - - 2,776,100 278 2,770,822 -
Issuance of stock to short-term
lender, $1.00/share - - - - 2,500 - 2,500 -
Exercise of stock option for
cash, $1.00/share - - - - 75,000 8 74,992 -
Issuance of stock for legal fees,
$1.00/share - - - - 15,000 1 14,999 -
Issuance of stock as dividend on
Series A Convertible Preferred
Stock, $1.67/share - - - - 147,816 15 (15) -
Net loss - - - - - - - (1,638,830)
----- ----- ------ ----- -------- --- ------ -----------
December 31, 1995 - $ - 300,000 $3,000 5,042,514 $505 $7,690,019 $(2,195,190)
Issuance of stock in conversion
of accounts payable to affiliates,
$1.00/share - - - - 2,281,139 242 2,280,897 -
Conversion of Preferred Stock
into Common Stock, $1.72/share - - (300,000) (3,000) 1,750,000 175 2,825 -
Net loss - - - - - - - (1,606,332)
----- ----- ------- ----- --------- --- --------- -----------
December 31, 1996 - $ - - $ - 9,073,653 $922 $9,973,741 $(3,801,522)
====== ===== ======= ===== ========== ==== ========== ===========
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and
1995, and from December 10, 1993 (Inception)
to December 31, 1996
For the Period from
For The Year For The Year December 10, 1993
Ended Ended (Inception) to
December 31, December 31, December 31,
1996 1995 1996
------------ ------------ --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest income 1,873 $ 11,591 $ 17,331
Cash paid to suppliers (600,930) (1,358,292) (2,249,248)
-------- ---------- ----------
Cash used in operating activities (599,057) (1,346,701) (2,231,917)
-------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (797,806) (1,173,333) (2,693,989)
Sale of surplus equipment, net - 630,000 630,000
Investment in Argentina claims - (70,789) (167,077)
-------- ---------- ---------
Cash used in investing activities (797,806) (614,122) (2,231,066)
-------- ---------- ----------
Cash flow from financing activities:
Net advances from Royalstar 2,107,379 387,204 2,494,583
Borrowings 154,294 - 154,294
Funding of bank overdraft - - (138,000)
Cash received from sale of common stock - 2,846,100 4,676,024
Obligations paid with common stock (423,080) - (423,080)
Principal payments on note payable (450,844) (1,298,080) (2,298,924)
-------- ---------- ----------
Cash provided by financing activities 1,387,749 1,935,224 4,464,897
--------- --------- ---------
Increase (decrease) in cash (9,114) (25,599) 1,914
Cash, beginning 11,028 36,627 -
--------- --------- ---------
Cash, ending $ 1,914 $ 11,028 $ 1,914
========= ========= =========
Reconciliation of net loss to cash used
in operating activities:
Net loss $(1,606,332) $(1,638,830) $(3,801,522)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 21,143 4,541 28,642
Interest expense 231,420 195,573 661,151
Expenses paid with common stock 514,293 - 514,293
Write-off of investment in mineral claims - 70,789 70,789
(Decrease) in other assets (26,780) (554,240) (598,363)
Increase in current liabilities related to
operations 267,199 115,064 432,691
Increase in liabilities, long-term - 460,402 460,402
----------- ----------- -----------
Net cash used in operating activities $ (599,057) $(1,346,701) $(2,231,917)
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and
1995, and from December 10, 1993 (Inception)
to December 31, 1996, continued
For the Period from
For The Year For The Year December 10, 1993
Ended Ended (Inception) to
December 31, December 31, December 31,
1996 1995 1996
------------ ------------ --------------------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Non-cash investing and financing activities
excluded above-
Preferred stock issued for property, plant
and equipment $ - $ - $3,000,000
Note issued for property, plant and
equipment - - 3,800,000
Reclamation reserve assumed for property,
plant and equipment - - 829,900
Bank overdraft and other payables incurred
to acquire property, plant and equipment
and other assets - - 156,232
Common stock subscription receivable - - 150,000
Common stock issued for legal services - 15,000 15,000
Common stock issued to short term lender - 2,500 2,500
Common stock issued for amounts due
affiliated creditors 362,029 - 362,029
Common stock issued for Series A
Preferred Stock dividend - 247,500 517,500
Common stock issued for conversion of
Series A Preferred Stock 300,000 - 3,000,000
------- ---------- -----------
Net Non-Cash Investing and Financing Activities $3,362,029 $ 265,000 $11,833,161
========== ========== ===========
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization Gold Capital Corporation (the "Company") was incorporated under the
laws of the state of Colorado on December 10, 1993 to engage in development of
gold mining projects. The Company's activities have been primarily limited to
its formation, obtaining financing, acquisition of certain interests in mining
properties and management of a mining joint venture. For the period from
inception to December 31, 1996, the Company had no operations.
Consolidation The accompanying consolidated financial statements include the
accounts of the Company and 100% of the assets and liabilities of the Tonkin
Springs Project Joint Venture (the "Venture") of which the Company holds a 60%
interest and is the manager. All significant intercompany accounts and
transactions have been eliminated.
Exploration and Development Costs General exploration costs are expensed as
incurred while exploration and acquisition costs related to projects are
deferred until the properties are put into commercial production, sold, or
abandoned. Mine development costs incurred either to develop new ore deposits,
expand the capacity of operating mines, or to develop mine areas substantially
in advance of current production are also deferred. Costs incurred to maintain
current production or to maintain properties on a standby basis are charged to
operations. Costs of abandoned projects are charged to operations upon
abandonment.
The Company periodically evaluates the carrying value of capitalized mining
costs and related property, plant and equipment costs to determine if these
costs are equal to or in excess of their net realizable value. Net realizable
value is defined as the estimated sales price in the ordinary course of business
less reasonably predictable costs of completion and disposal. If such periodic
evaluation indicates an impairment has occurred, write downs are made to the
carrying value of capitalized mining costs and related property, plant and
equipment to the net realizable value.
Equipment Vehicles and trailers are recorded at cost and depreciated using the
straight-line method principally over estimated useful lives of three to five
years.
Property Reclamation Costs The estimated reclamation costs associated with
mineral properties are accrued and charged to operations over the expected life
of each property using the units of production method. Ongoing environmental and
reclamation expenditures are either charged against the reclamation reserve
related to each property, or expensed as incurred if unrelated to an ore
reserve.
F-8
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
-----------------------------------------------------
Income Taxes The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109.") Temporary differences are
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years.
Loss Per Share Loss per share is based on the weighted average number of shares
outstanding during the period. Convertible preferred stock, options and warrants
have not been included in the computation of earnings per share because their
effect would be antidilutive.
Use of Estimates The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B - CONTINUED OPERATIONS AND RECOVERABILITY OF MINING PROPERTIES AND
EQUIPMENT
- -----------------------------------------------------------------------------
During 1996, the Company was in the development stage and had not realized any
revenues from its planned operations. The Company does not expect any revenues
will be derived until a significant amount of additional capital is raised for
further development and start-up costs. The Company's financial statements are
presented on the basis that it is a going concern which contemplates the
realization of assets and liquidation of liabilities in the ordinary course of
business. In connection with its acquisition and future development of the
mining properties discussed above and in Notes D, F and H, the Company incurred
significant obligations and the Company's continued existence and recoverability
of mining properties and equipment is dependent upon its ability to raise
additional capital or alternative funding, and ultimately achieve profitable
operations. Future development costs are expected to be significant and include,
among other costs, property holding costs, project engineering, capital and
start-up costs, as well as costs to secure environmental bonding for the
project.
F-9
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE B - CONTINUED OPERATIONS AND RECOVERABILITY OF MINING PROPERTIES AND
EQUIPMENT, continued
- --------------------------------------------------------------------------------
For much of 1996, Royalstar, a principal shareholder of the Company, funded
operations of the Company through informal and unsecured advances. In August,
1996, Royalstar converted $1,919,110 of cash advances into 1,919,110 shares of
common stock ($1.00 per share). As of December 31, 1996, the Royalstar Advances
are $856,658. During 1996, the Royalstar Advances accrued interest at an annual
rate reflecting the monthly prime rate as reported in the Wall Street Journal,
totaling $87,808.
In connection with the Merger Agreement with Globex Mining Enterprises Inc.
("Globex"), a publicly traded corporation organized and existing under the laws
of the Province of Quebec, Canada (See Note C), Globex has agreed to fund the
financial obligations of the Company pending completion of the Merger (the
"Globex Loan"). Subject to the terms and conditions of the Agreement between the
parties, Globex has agreed to make advances to the Company to maintain, preserve
and protect the assets of the Tonkin Springs Project, service the promissory
note payable to U.S. Gold and pay other necessary and proper obligations and
commitments of the Company. As of December 31, 1996, the balance of borrowings
under the Globex Loan totalled $20,000. As of March 18, 1997, the principal
balance of the Globex Loan is $697,493. The Globex Loan accrues interest at 2%
over prime, is secured by all the assets of the Company and is due on or before
August 30, 1997. TSVLP has agreed to share its collateral position in the
Company's 60% interest in the assets of the Tonkin Springs Project and interest
in the Venture, pari passu, with Globex under the terms of an Intercreditor
Agreement dated January 16, 1997. Continued funding under the Globex Loan is
subject to the right of Globex to accept or reject each funding request made by
the Company, as well as the right of Globex to discontinue funding altogether.
In that event, the Company has the right to terminate the Merger Agreement.
Without continued funding from the Globex loan or finding other sources of
funding, the Company is not able to meet its current obligations nor to provide
for development costs associated with future obligations and operations relating
to the Venture and other corporate objectives.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The ability of the Company to continue operations
as a going concern is dependent upon its success in (1) obtaining additional
capital; (2) paying its obligations timely; (3) developing its properties to the
commercial production stage; and (4) ultimately achieving profitable operations.
The financial statements do not include any adjustments which might result from
the outcome of these uncertainties.
F-10
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
Note C - PROPOSED MERGER
- --------------------------
On December 20, 1996, the Company and Globex entered into an agreement in
principal regarding a conditional offer by Globex to finance the Company and
merge it with a subsidiary of Globex. Effective March 13, 1997, the Company and
Globex executed an agreement (the "Merger Agreement" or "Merger") to merge with
Globex. By virtue of the Merger, and subject to certain conditions, the Company
would become a wholly-owned subsidiary of Globex.
The Merger is part of two separate, but related, transactions pursuant to which
Globex proposes to acquire 100% of the Company's issued and outstanding Common
Stock. Pursuant to the terms of the Merger Agreement, GME Merger Corporation, a
Colorado corporation wholly owned by Globex, would be merged with and into the
Company (the "Surviving Corporation"), which corporation would survive the
Merger. The 4,654,543 shares of the Company's Common Stock issued and
outstanding prior to the Merger and not owned by Royalstar Resources Ltd.
("Royalstar") would be converted into the right to receive 1,285,067 shares of
Globex Common Stock. The shares proposed to be issued by Globex would be
registered under relevant provisions of the Securities Act of 1933, as amended,
and qualified under applicable state Blue Sky laws. The Common Stock owned by
Royalstar, the Company's single largest shareholder, would be acquired by Globex
in a separate transaction (the "Acquisition"), anticipated to be completed
contemporaneously with the Merger. When both transactions are completed, Globex
would own 100% of the issued and outstanding shares of Common Stock of the
Company.
Both the Merger and Acquisition are subject to certain conditions. Prior to
consummation of the Merger, the following conditions, among others, must be
satisfied: i) receipt of an effective date by Globex for a registration
statement covering its stock proposed to be issued in connection with the
Merger; ii) receipt of financing by Globex; iii) approval of the Merger by the
Company's shareholders; and (iv) approval of various regulatory agencies. The
consummation of the Acquisition is subject to finalization of an agreement
between Globex and Royalstar, in addition to shareholder approval and other
conditions precedent. The respective Boards of Directors of the Company and
Globex intend to proceed promptly and use their reasonable best efforts to
complete the Merger and Acquisition.
Pending completion of the Merger, Globex has acquired an option to purchase the
2,287,547 shares of Common Stock of the Company owned by U.S. Gold Corporation
and TSVLP and an irrevocable proxy to vote all of those shares in favor of the
Merger. The Common Stock owned by U.S. Gold and subject to the option and proxy
represents approximately 25.2% of the currently issued and outstanding Common
Stock of the Company.
F-11
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
Note C - Proposed Merger, continued
- -------------------------------------
Upon satisfaction of the conditions precedent and completion of the Merger, it
is contemplated that the Board of Directors of the Company will be changed. The
officers and directors of GME Merging Corporation, all of which have been
nominated by Globex, will be the officers and directors of the Surviving
Corporation after the Merger.
NOTE D - MINING PROPERTIES
- ----------------------------
Tonkin Springs:
- ---------------
On December 31, 1993 (the "Closing"), the Company entered into a Purchase and
Sale Agreement (Purchase Agreement) with Tonkin Springs Venture Limited
Partnership ("TSVLP") whereby the Company acquired a 60% undivided interest in
certain properties and obligations of the Project (the "Properties") located in
Eureka County, Nevada. At closing the Company and TSVLP entered into the Venture
agreement to manage and develop mining operations on the Properties. The Company
was designated the manager under the Venture and is allowed to charge the
Venture $5,000 per month to cover its overhead and expenses related to the
conduct of operations of the Venture. During 1996 and 1995, the Company charged
the Venture a total of $120,000. This amount is eliminated in consolidation.
The Company acquired its 60% interest in the Properties from TSVLP for a
purchase price and other consideration of approximately $7,830,000 representing
the estimated fair market value of the assets. The purchase price included
$200,000 in cash at Closing; delivery of a mortgage note in the amount of $3.8
million (the "Promissory Note") (see Note F); 300,000 shares of the Company's
Series A Preferred Stock ("Preferred Stock") having an assigned value of $3
million (see Note I) and the assumption of 60% of a reclamation obligation
recorded at $829,900 (see Note E).
As part of the Purchase and Venture Agreements, the Company agreed to fund 100%
of the holding, development and administrative costs relating to the Properties
up until commencement of commercial production. The Company shall be reimbursed
for expenditures, up to $6 million ("Reimbursable Costs"), from a preferential
portion of cash flows from the operations of the Venture, if any. Expenditures
in excess of $6 million will be considered contributions to the Venture. Through
December 31, 1996, the Company has incurred approximately $3,725,000 in net
Reimbursable Costs.
F-12
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE D - MINING PROPERTIES, continued
- ----------------------------------------
Until the Company recovers its Reimbursable Costs, the Company will be entitled
to receive 84% of net cash flows of the Venture upon commencement of commercial
production. After recovery of such costs, the cash flows will be distributed to
the Company based upon its 60% interests in the Venture. In the event that the
Company has advanced any portion of TSVLP's funding obligation after
commencement of commercial production, the Company shall be entitled to receive
92% of the Venture's net cash flows available for distribution until such
advances are recovered by the Company.
Activities on the Properties are subject to laws and regulations controlling not
only the exploration and mining of mineral properties, but also the effect of
such activities on the environment. Compliance with such laws and regulations
may necessitate significant capital outlays, affect the economics of a given
project, and cause material changes or delays in the Company's intended
activities.
The Property includes several blocks of unpatented mining claims that are
subject to certain production royalties through mining leases or previous
property acquisitions from third parties. The royalty payment obligations are
based on percentages ranging from 1% to 5% of production revenues and the spot
prices of metals at the time of production. One lease requires advance minimum
royalty ("AMR") payments of the greater of $150,000 or the dollar equivalent of
455 ounces of gold and annual work commitment expenditures of $300,000 or the
dollar equivalent of 909 ounces of gold. However, this lease also allows the AMR
payments to be recouped from subsequent production royalty obligations and for
work commitment expenditure overages to be carried forward and credited against
subsequent years obligations. All leases require the Company to pay annual claim
fees to hold the claims.
During 1995, the Tonkin Springs Project made a distribution to the participants
of $640,000 in net proceeds from the sale of a surplus sag mill at the Project
with the Company receiving $384,000 and TSVLP receiving $256,000. No gain or
loss was recognized related to the sale.
In March 1995, the Financial Accounting Standards Board issued a new statement
titled "Accounting for Impairment of Long-Lived Assets" (FAS 121). This new
standard is effective for years beginning after December 15, 1995 and would
change the Company's method of determining impairment of long-lived assets. The
Company does not believe the impact of this standard on the Company's financial
statements to be material.
F-13
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE D - MINING PROPERTIES, continued
- ---------------------------------------
Argentina Mineral Claims:
- -------------------------
During 1994, the Company entered into an agreement whereby the Company acquired
a 100% interest in various mineral claims in Argentina, which agreement was
amended in 1995. Under the amended agreement, the Company acquired its interest
for $120,000, and an agreement to pay the seller 15% of any net profits and 1%
of any net revenues derived from these claims as defined by the purchase
agreement. In order to maintain the validity of these exploration claims during
1995 and beyond, additional expenditures were required.
Given the limited financial resources available to the Company during this
period, the decision was made not to maintain these exploration claims.
Therefore, an expense charge of $167,077 was taken in 1995 representing the
write-off of the investment associated with the exploration claims in Argentina.
NOTE E - RECLAMATION OBLIGATION
- ----------------------------------
In addition to the funding requirements relating to the Company's investment in
the Venture (Note D), the Company agreed to assume a proportionate share of
certain obligations of TSVLP related to the Properties. Included among these
obligations is the estimated cost of the reclamation of the Properties described
in Note D. The total cost is approximately $1.47 million, of which the Company's
share is approximately $829,900. The total obligation has been reflected in the
accompanying consolidated financial statements of the Company. In order to
secure the reclamation of the Properties, the Federal Bureau of Land Management
and the State of Nevada have required a $1.3 million bond to be provided before
mining operations are recommenced. If mining operations at the Properties are
recommenced, which is the intent of the Venture, the agencies described above
may increase the bonding requirement, the extent of which cannot be determined
at this time.
F-14
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE F - NOTE PAYABLE
- ------------------------
At December 31, 1996 the Company has a $1,501,076 amended note payable (the
"Note) to TSVLP as a result of its purchase of a 60% interest in the Properties
(Note D). The Note is collateralized by the Company's 60% interest in the
Properties and the Venture and accrues interest at a fixed rate of 7.5% on the
unpaid principal balance, with interest payments due at the end of each calendar
year. Accrued interest for 1996 of $129,569 was paid January 16, 1997 along with
$11,431 applied to the principal balance under the Note from partial proceeds of
borrowings under the Globex Loan. TSVLP also agreed in conjunction with the
Globex Loan, that monthly note payments commencing February 1, 1997 would
continue at $50,000 per month until the earlier of August 1, 1997, or the
completion of the Globex Merger, after which monthly payments under the Note
would be subject to the existing terms of the Note.
The principal balance of $1,501,076 is payable as follows:
(1) Monthly installments of $11,431 in January, 1997, and thereafter at $50,000
per month until the Company has raised an aggregate of $4,000,000 in financing
subsequent to the June, 1995 transaction with Royalstar as discussed in Note I,
or until the Note is paid in full.
(2) Monthly installments of $75,000 subsequent to the Company raising an
aggregate of $4,000,000 in new financing (approximately $3 million in new
financing has been arranged through December 31, 1996).
The Company's obligations under the promissory note and certain of the Company's
obligations under the Venture agreement are subject to a Security Agreement in
favor of TSVLP, pursuant to which the Company has granted a security interest in
the assets constituting its interest in the Project. The Company is in technical
default in its performance as manager of the Venture. The inability of the
Company to satisfy the terms of the promissory note and the Venture agreement in
the future could, if not cured subsequent to written notice, cause the Company
to forfeit its interest in the Project.
F-15
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE F - NOTE PAYABLE, continued
- ------------------------------------
The future annual minimum principal payments as of December 31, 1996 are as
follows:
1997 $ 561,413
1998 600,000
1999 339,663
----------
$1,501,076
==========
Note G - ROYALSTAR ADVANCES
- ------------------------------
During the fourth quarter of 1995, the Company required additional funding to
maintain its operations and to meet its immediate financial obligations. Certain
limited funding was provided the Company by Royalstar on an unsecured basis. In
August 1996, the Company approved the conversion of $1,919,110 in Royalstar
Advances into 1,919,110 shares of common stock at $1.00 per share. These
advances continued until the fourth quarter of 1996, when Royalstar informed the
Company of the inability of Royalstar to continue funding of the Company. As of
December 31, 1996, the balance of the Royalstar Advances are $856,821, which is
classified as a current liability.
Note H - OTHER OBLIGATIONS
- -----------------------------
Sea Gull Obligation
- -------------------
On November 1, 1996, the Company received funds in the amount of $185,350
(Canadian $250,000) from Sea Gull Leasing Ltd., a private company (the "Sea Gull
Obligation"). This transaction with Sea Gull was arranged on behalf of the
Company by its former president and chief executive officer, Mr. John Young, who
resigned all his positions with the Company effective December 4, 1996. On
November 1, 1996, the Company disbursed $74,140 (Canadian $100,000) of the Sea
Gull proceeds directly to Attwood Gold Corporation ("Attwood"). In addition to
the funds directly received by the Company from Sea Gull, a payment of $20,284
by Sea Gull directly to a vendor of the Venture was made on behalf of the
Company. No note or other documentation exists related to the Sea Gull
Obligation. Sea Gull has initiated legal actions to recover $205,634 plus
interest and costs from the Company (See Note K).
Royalstar provided the Company a written but conditional commitment of indemnity
dated January 14, 1997, concerning and related to the Sea Gull Obligation (the
"Indemnity"). The Company has given Royalstar notice that it intends to invoke
the Indemnity with regard to the legal action initiated by Sea Gull and has
further requested Royalstar and Attwood to resolve the claim. The Company has
F-16
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
Note H - Other Obligations, continued
- -----------------------------------------
included the Sea Gull Obligation, reduced by the claim of the Company against
Attwood, on the balance sheet as of December 31, 1996 in Other obligations, net.
Globex Mining Enterprises, Inc.
- -------------------------------
As discussed in more detail in Notes B and C, the Company and Globex entered
into the Globex Loan, which as of December 31, 1996 had an outstanding balance
of $20,000. This amount is included in the Globex Loan agreement dated January
16, 1997.
NOTE I - STOCKHOLDERS' EQUITY
- --------------------------------
Common Stock:
- -------------
On August 20, 1996, the Company issued 1,919,110 shares of common stock to
Royalstar at $1.00 per share, as conversion of $1,919,110 in Royalstar Advances.
Effective December 19, 1996, the Company issued 242,029 shares of common stock
to U.S. Gold Corporation ("U.S. Gold") at $1.00 per share, as conversion of
$242,029 in amounts due to U.S. Gold for staff support, overhead and expenses
charged the Company under a month-to-month office services and support
agreement. U.S. Gold is the effective parent of TSVLP. On December 19, 1996, the
Company issued 120,000 shares of common stock to MCM Capital Management, Inc.
("MCM") at $1.00 per share, as conversion of $120,000 in amounts due MCM under a
secretarial and management services agreement dated. MCM is controlled by two
directors of the Company.
Effective December 31, 1996, TSVLP converted its 300,000 shares of Series A
Preferred Stock of the Company into 1,750,000 shares of Common Stock at an
effective conversion price of $1.72 per share.
On March 9, 1995, the Company commenced sale of up to 600,000 shares of common
stock at a price of $1.00 per share under a private placement offering limited
to accredited investors. The shares were offered pursuant to an exemption from
the registration requirements imposed by the Securities Act of 1933, as amended
("1933 Act"), and applicable state security laws, and accordingly, may not be
resold without registration or an exemption from such registration. The Company
has agreed to register the shares included in this private placement offering.
Through the termination date of this offering, May 8, 1995, the Company sold a
total of 576,100 shares and received gross proceed of $576,100 thereunder.
F-17
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE I - STOCKHOLDERS' EQUITY, continued
- -------------------------------------------
Common Stock:, continued
- -------------------------
On April 13, 1995, the Company entered into an option agreement with Royalstar
whereby Royalstar purchased, effective June 22, 1995, 2,200,000 shares of common
stock of the Company for an aggregate of $2.2 million (the "Option.") Concurrent
with the Option, Royalstar purchased 300,000 shares of common stock of the
Company under the March 9, 1995 private placement offering discussed above.
Effective June 22, 1995, the Company completed the sale of 2,200,000 shares of
its common stock in a private placement to Royalstar pursuant to the terms of
the Option. This private placement was completed pursuant to Regulation D of the
Securities Act of 1933, as amended, and the shares sold in the transaction were
"restricted" within the meaning of the 1933 Act and bore a restrictive legend.
However, the Company undertook to register the shares of common stock sold to
Royalstar. The price per share received by the Company in the offering was
determined in the Option agreement of April 13, 1995 which price represented a
discount from the trading price of the Company's common stock at that time. The
June 22, 1995 transaction resulted in a change in control of the Company whereby
Royalstar acquired voting control of the Company. At December 31, 1996,
Royalstar owns an aggregate of 4,419,110 shares of common stock, representing
approximately 48.7% of the issued and outstanding voting stock of the Company.
During the year ended December 31, 1994, the Company completed an offering of
450,000 units, to which 200,000 units were subscribed to as of December 31,
1993. Each unit consisted of two shares of common stock and one common stock
purchase warrant, at a price of $2.00 per unit. During 1994, all related
warrants to purchase 450,000 shares of common stock were exercised. The Company
received net proceeds of $1,134,420 from this offering and the exercise of the
related warrants. Two related entities with common officers and directors,
purchased 50,000 units of the offering.
On August 5, 1994, the Company commenced sale under a public offering of up to
500,000 units consisting of one share of common stock and one common stock
warrant to purchase one share of common stock for $5.00 per share. The warrants
are exercisable through August 31, 1997 and callable upon 30 days written
notice. Through the termination date of this offering, November 29, 1994, the
Company sold a total of 248,396 units and received net proceeds of $483,524.
F-18
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE I - STOCKHOLDERS' EQUITY, continued
- ------------------------------------------
Preferred Stock:
- ----------------
As discussed in Note D, the Company issued 300,000 shares of Series A Preferred
Stock having an assigned value of $10 per share, or $3 million, to TSVLP as part
of the purchase price of its 60% interest in the Properties. The value of the
Series A Preferred Stock was determined based on the estimated fair market value
of the properties of approximately $7.9 million, exclusive of the cash,
promissory note and liabilities assumed by the Company in connection with the
transaction. The fair market value of the assets, in turn, was determined in
negotiations between the parties. While no single factor was determinative, the
factors considered included the historical cost of the leases and facilities,
expenditures for exploration and development of the Properties prior to the
acquisition by the Company, anticipated future expenses for exploration and
development, the prior sale of a majority interest in the Properties and
economic forecasts for production from the assets.
The Series A Preferred Stock called for cumulative preferred dividends of 9% per
annum payable annually in cash or, at the discretion of the Company, in common
stock of the Company (based upon the average stock price for the prior year),
through November 30, 1995. For fiscal years 1995 and 1994, the Company issued
147,816 and 127,702 shares, respectively, of unregistered common stock in
satisfaction of the preferred stock dividend of $247,500 and $270,000,
respectively. As noted above, the Series A Preferred shares were converted
effective December 31, 1996 into 1,750,000 shares of common stock. The Company
has granted U.S. Gold and TSVLP a one time registration right for all shares of
Common Stock then owned by U.S. Gold and TSVLP.
The Company has 5,000,000 authorized but unissued shares of preferred stock
which may be issued in such series and preferences as determined by the
Company's Board of Directors.
Stock Option Plan:
- ------------------
During 1994, the Company adopted its Non-Qualified Stock Option and Stock Grant
Plan (the "Plan") for the benefit of its officers, directors and other personnel
and has reserved an aggregate of 1,500,000 common shares, subsequently increased
in 1995 to 2,500,000 common shares, for issuance under the Plan. During 1996,
options to purchase 100,000 shares at $1.00 per share were granted and options
to purchase 262,500 shares at $1.37 to $1.44 per share expired. As of December
31, 1996, the Company has outstanding options to purchase up to 1,962,500 common
shares under the Plan at prices of $1.00 per share (for 650,000 shares), $1.25
per share (for 1,050,000 shares), and $1.44 per share (for 262,500 shares) with
various expiration dates from year 2000 to 2005. As of March 27, 1997, options
to purchase 862,500 shares have expired.
F-19
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE I - STOCKHOLDERS' EQUITY, continued
- -------------------------------------------
Stock Option Plan (continued)
- -----------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income as if compensation cost for
the Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock option at the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
the 1995 grants: dividend yield of 0%; expected volatility of 32.16%; risk free
interest rate of 5.56%; and expected life of 9.43 years.
The Company applies APB Opinion 25 in accounting for the Plan. Accordingly, no
compensation expense has been recognized for 1996 or 1995. Had compensation
expense been determined on the basis of fair value pursuant to SFAS No. 123, net
loss and net loss per share would have been reduced as follows:
1996 1995
---- ----
Net loss:
As reported $(1,606,332) $(1,886,330)
============ ============
Pro forma $(1,620,542) $(3,032,503)
============ ============
Net loss per share:
As reported $(0.28) $(0.51)
======= =======
Pro forma $(0.28) $(0.83)
======= =======
F-20
<PAGE>
NOTE I - STOCKHOLDERS' EQUITY, continued
- --------------------------------------------
Stock Option Plan (continued)
- -----------------------------
Under the accounting provisions of SFAS No. 123, the Company's net income and
net income per share would have been adjusted to the following pro forma
amounts:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -----------------------------
Range of Range of
Exercise Exercise
Shares Prices Shares Prices
------ ------ ------ ------
<S> <C> <C> <C> <C>
Outstanding, beginning
of year 2,125,000 $1.00-1.44 1,050,000 $1.00-2.00
Granted 100,000 $1.00 1,575,000 $1.25-1.44
Exercised - - 75,000 $1.00
Canceled or expired 262,500 $1.37-1.44 425,000 $1.00-2.00
----------- ----------- ---------- ----------
Outstanding, end of year 1,962,500 $1.00-1.44 2,125,000 $0.28-$0.47
=========== ==========
Options exercisable,
end of year 1,895,833 $1.00-1.44 2,058,333 $1.00-1.44
Weighted average fair
value of option
granted during year $0.75 $1.33
=====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average
Remaining
Exercise Contractual Exercise Exercise
Price Number life Price Number Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.00 650,000 7.6 years $1.00 583,333 $1.00
$1.25 1,050,000 8.0 years $1.25 1,050,000 $1.25
$1.44 262,500 8.5 years $1.44 262,500 $1.44
</TABLE>
F-21
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE J - INCOME TAXES
- -----------------------
The components of net deferred tax assets, all of which are long-term, are as
follows at December 31, 1996:
Net operating loss $ 847,841
Tax differences from property
development expenditures and
from depreciation of Project assets 2,166,689
Less valuation allowance (3,014,530)
----------
$ -
===========
The long-term deferred tax assets are principally attributable to the net
operating loss carryforwards and property development expenditures deductible
for taxes but capitalized for book purposes. A valuation allowance has been
established for the entire amount of the deferred tax asset, which increased
$1,099,530 from December 31, 1995. The net operating loss carryforward as of
December 31, 1996 is approximately $6,373,000, which will expire through year
2011. In the transaction entered into June 22, 1995 (see Note I), the Company
believes it had an ownership change, as that term is defined under IRC Section
382 (g). As a result, the tax net operating loss carry forwards will be subject
to annual limitations under IRC Section 382, following the date of such
ownership change.
NOTE K - COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
The Company and the Tonkin Springs Project Joint Venture are parties to certain
litigation primarily involving claims that the Company has not paid contractors
and creditors for amounts due, and a lawsuit by Sea Gull for return of funds
provided to the Company (See Note H).
An action entitled "Canyon Construction Company ("Canyon") v. Tonkin Springs
Gold Mining Company, and Does I-V," was filed in the Nevada State Court, Case
No. 28416 on December 19, 1996. Tonkin Springs Gold Mining Company is a
wholly-owned subsidiary of U.S. Gold Corporation. The Canyon action was amended
to include the Company as a named defendant. The complaint alleges that the
Company has failed and refused to pay amounts due to Canyon for performance
under a construction contract dated August 9, 1996, and Canyon has filed a
Notice of Claim of Lien dated March 7, 1997, on the Tonkin Springs Project Joint
Venture. The Canyon contract was entered into by the Company on behalf of the
Tonkin Springs Project Joint Venture. Canyon claimed that they are owed
approximately $191,956.72 plus interest and damages. The Company is responsible
for funding of all costs of the Project until Commencement of Commercial
Production, and is obligated to keep the Tonkin Springs Project and assets free
and clear of any liens.
F-22
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE K - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
In addition, there are a number of creditors who are owned monies by the Company
which creditors could bring various legal actions against the Company and the
Tonkin Springs Project Joint Venture, some of which could involve the filing of
liens.
NOTE L - RELATED PARTY TRANSACTIONS
- --------------------------------------
Royalstar
- ---------
Effective June 22, 1995, the Company completed the sale of 2,200,000 shares of
its common stock in a private placement to Royalstar, which resulted in a change
in control, as discussed in Note I. Through October, 1996, the Company continued
essential operations through unsecured advances from Royalstar. For the period
from January 1 to November 30, 1996, the Company was charged $134,912 by
Royalstar for staff and office support. During 1995, the Company was charges a
total of $30,000 for Mr. Young, and $10,000 for Mr. Berry under this
arrangement, as well as $17,500 in office and staff support. At December 31,
1996, the Company had advances payable to Royalstar of $856,821.
U.S. Gold
- ---------
The Company has a month-to-month agreement with U.S. Gold to provide the Company
secretarial and administrative assistance, for $1,850 per month totalling
$22,200 during 1996 and 1995. The Company also contracts for consulting services
from certain employees of U.S. Gold on an as-needed basis. The Company accrued
an aggregate of $199,944 during 1996 and $107,426 in 1995 pursuant to this
arrangement. Effective December 19, 1996, U.S. Gold converted $242,029 owned by
the Company under these arrangements into 242,029 shares of Common Stock at
$1.00 per share. At December 31, 1996, the Company had accounts payable to U.S.
Gold of $946.
Other
- -----
The Company entered into an agreement to pay $2,000 per month with a related
party, MCM Capital Management, Inc. (MCM), for financial consulting services for
the Company in Colorado Springs, Colorado, which agreement was modified to
$10,000 per month effective July 1, 1995, as well as out-of-pocket expenses
incurred by MCM on behalf of the Company. MCM is a stockholder and has common
directors with the Company. The Company paid or accrued a total of $114,285 to
F-23
<PAGE>
GOLD CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Continued)
NOTE L - RELATED PARTY TRANSACTIONS, continued
- --------------------------------------------------
MCM during 1996 and $106,362 in 1995 under this arrangement. Effective December
19, 1996, MCM converted $120,000 owned by the Company under these arrangements
into 120,000 shares of Common Stock at $1.00 per share.
NOTE M - Selected Quarterly Financial Information (unaudited)
- ----------------------------------------------------------------
Per share data-
Net Loss Loss Per Share
1996
First Quarter $ 380,133 $0.08
Second Quarter $ 414,632 $0.09
Third Quarter $ 470,978 $0.09
Fourth Quarter $ 340,589 $0.02
1995
First Quarter $ 163,797 $0.08
Second Quarter $ 265,726 $0.10
Third Quarter $ 367,060 $0.08
Fourth Quarter $ 842,247 $0.17
During the fourth quarter of 1995, certain year-end adjustments were made
to expense property maintenance costs. The aggregate effect of these adjustments
was to increase net loss for the fourth quarter by $609,424 ($0.17 per share).
F-24
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
-------------------------------------------------
None.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The following table sets forth the names and ages of the members of the
Company's Board of Directors and its executive officers:
Name Age Position
---- --- --------
Bill M. Conrad 40 President and Director
Raymond E. McElhaney 40 Secretary, Treasurer and Director
William W. Reid 48 Director
Each director is serving a term of office which shall continue until the
next annual meeting of Shareholders and until his successor has been duly
elected or appointed and qualified. Officers of the Company serve at the
pleasure of the Board of Directors.
No family relationships exist between any of the officers and directors of
the Company.
21
<PAGE>
BILL M. CONRAD. Mr. Conrad has been a director of the Company since its
inception and was elected as President in December, 1996, following the
resignation of Mr. John Young. Mr. Conrad also held the position of Treasurer
from the Company's inception in 1993 until June 22, 1995. Since July, 1996, Mr.
Conrad has also been Vice President and Director of Wallstreet Racing Stables,
Inc., a Colorado corporation engaged in the acquisition, training and racing of
thoroughbred race horses. From September, 1989 to January, 1997, Mr. Conrad was
also Vice President of Corporate Development and a director of Consolidated
Capital of North America, Inc., a publicly traded corporation engaged in the
real estate industry. Concurrent with those positions, Mr. Conrad is also Vice
President and a director of MCM Capital Management, Inc., a privately held
financial consulting and investor relations firm, a position which he has
occupied since September, 1989. From August, 1991 to October, 1992, Mr. Conrad
was a registered representative for Rocky Mountain Securities, a NASD member
firm located in Denver, Colorado.
RAYMOND E. McELHANEY. Mr. McElhaney has been a Director of the Company
since its inception and was elected to the position of Secretary in December,
1996. He also served as Secretary from the Company's inception to June, 1995.
From July, 1995 to the present, Mr. McElhaney has been President and a director
of Wallstreet Racing Stables, Inc. and from 1984 to the present, President and a
director of MCM. From 1987 to January, 1997, he served as the president,
treasurer, chief executive and financial officer and a director of Consolidated
Capital of North America, Inc. From July, 1992 to October, 1992, Mr. McElhaney
was affiliated with Rocky Mountain Securities, Inc., a NASD member firm, as a
sales representative.
WILLIAM W. REID. Mr. Reid has been a director of the Company since December
31, 1993. Mr. Reid was appointed as a director of the Company pursuant to the
terms of the Company's Series A Convertible Preferred Shares. Mr. Reid has been
president, chief executive officer and a director of U.S. Gold Corporation, a
publicly-traded Colorado corporation since its inception in 1979. USGL is
engaged in the business of acquiring and developing gold mining projects in the
United States. Through wholly-owned subsidiaries, USGL owns 100% of Tonkin
Springs Venture Limited Partnership, from which the Company acquired its
interest in the Tonkin Springs Project in December, 1993. TSVLP owns the
remaining 40% interest in the Tonkin Springs Project and TSVLP and U.S. Gold are
the owner of an aggregate of 2,287,547 shares of the Company's common stock.
The Company also has the following significant employee:
George Newell, Project Manager, Tonkin Springs Project. Mr. Newell was
employed as the project manager of Tonkin Springs in May, 1996. Mr. Newell has
held various positions in mining and processing operating management including
plant superintendent at the Buckskin Operation, in Yerington, Nevada, from 1988
through 1995.
22
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
The following sets forth each officer, director or beneficial owner of more
than ten percent (10%) of any class of equity securities of the Company
registered pursuant to Section 12 of the 1934 Act that failed to file on a
timely basis Forms 3, 4 or 5 as required by Section 16(a) during the last fiscal
year, based solely upon copies of Forms 3, 4 and 5 received by the Company:
Name of Entity No. of Transactions Required Form
-------------- ------------------- -------------
John M. Young 1 Form 4 (1)
- ----------
(1) The reporting person never filed on a Form 4 for transactions dated August,
1996.
All members of the Board of Directors have attended a minimum of 75 percent
of all meetings of the Board.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Neither Mr. Conrad nor Mr. McElhaney receive any direct compensation for
their services as officers of the Company. However, Mr. Conrad and Mr. McElhaney
are reimbursed for out-of-pocket expenses incurred on behalf of the interests
and activities of the Company. The following table summarizes total compensation
of the Executive Officers of the Company for the Company's last three years:
(THIS SPACE INTENTIONALLY LEFT BLANK)
23
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Awards All
Name and Principal Annual ------ Other
Position Year Salary Compensation Stock Options Granted Compensation
- -------- ---- ------ ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C>
Bill M. Conrad, 1996 $0 $0 0 $ 0
President and CEO 1995 0 0 100,000 0
1994 0 0 75,000 0
Raymond E. McElhaney 1996 0 0 0 0
Secretary/Treasurer 1995 0 0 100,000 0
1994 0 0 75,000 0
John Young, 1996 0(1) 0 0 0(1)
President and CEO (1) 1995 0(1) 0 600,000 0(1)
1994 0(1) 0 0 0
Charles E. Stott, Jr. 1995 55,000 0 0 90,436(2)
President and CEO (2) 1994 91,000 0 400,000 0
Kenneth Berry, 1996 0(1) 0 0 0
Treasurer and 1995 0(1) 0 162,500 0(1)
Secretary (1) 1994 0(1) 0 0 0
- ----------------
</TABLE>
(1) The Company had an informal agreement under which the Company pays a fixed
allocation to Royalstar for Mr. Young and Mr Berry of which the named
individuals are or were executive officers. This agreement was terminated
effective December 4, 1996, with the resignation of Mr. John Young as
president, chief executive officer, chairman of the board, and a director
of the Company. Effective September 30, 1996, Mr. Berry resigned his
positions with the Company. During 1996, the Company was charged a total of
$66,000 for Mr. Young, and $20,000 for Mr. Berry under this arrangement,
while during 1995, the Company was charged a total of $30,000 for Mr.
Young, and $10,000 for Mr. Berry.
(2) Effective June 22, 1995, and related to the transaction with Royalstar, Mr.
Stott resigned as President and Chief Executive Officer, as well as a
member of the Board of Directors. Mr. Stott received $90,436 in
cancellation of his employment contract with the Company.
Option Grants in Last Fiscal Year
The Company granted no options to its officers and directors during fiscal
1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
Shown below is information at December 31, 1996 with respect to the
unexercised options to purchase the Company's common stock to the Named Officers
under the Non- Qualified Stock Option and Stock Grant Plan. The Named Officers
did not exercise any stock options during 1996.
24
<PAGE>
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised
Acquired Options Held at In-the-Money Options at
Name on Exercise December 31, 1996 December 31, 1996
---- ----------- ----------------- -----------------
<S> <C> <C> <C>
Bill M. Conrad 0 175,000 $ 0
Raymond E. McElhaney 0 175,000 $ 0
John M. Young 0 600,000 $ 0
Kenneth Berry 0 162,500 $ 0
Charlie Stott 0 0 $ 0
</TABLE>
(1) Based upon the mean of the closing bid and ask price as reported by certain
market makers on that date.
Compensation of Directors
The Company reimburses the outside directors for reasonable expenses
incurred by them in attending meetings of the Board of Directors or of
Committees of the Board. No such expenses were incurred or reimbursed during the
year ended December 31, 1996. Directors do not receive compensation for their
director responsibilities over their normal compensation if also employees,
although the Company may provide such compensation in the future. In addition,
during 1996, the Company was charged $74,603 by U.S. Gold under a month-to-month
agreement for a portion of time spent by William W. Reid on behalf of the
Company.
No grants of stock options were made pursuant to the Non-Qualified Stock
Option and Stock Grant Plan during 1996 to directors.
During 1996, the Company granted options for a total of 100,000 shares at
an exercise price of $1.00 per share, and options for 262,500 expired.
Subsequent to December 31, 1996, but prior to filing this Report, options for
862,500 also expired.
Non-Qualified Stock Option and Stock Grant Plan
The Company has adopted a Non-Qualified Stock Option and Stock Grant Plan
(the "Plan") for the benefit of key personnel and others providing significant
services to the Company. An aggregate of 2,500,000 shares of Common Stock has
been reserved for issuance under the Plan. As of March 5, 1997, options to
acquire a total of 1,100,000 shares of Common Stock at exercise prices ranging
from $1.00-$1.25 per share had been granted and are outstanding pursuant to the
Plan.
The Plan is administered by the Board of Directors, which selects optionees
and recipients of any stock grants, the number of shares and the terms and
conditions of any options or grants to key persons defined in the Plan. In
determining the value of services rendered to the Company, the Board considers,
among other things, such person's employment position and relationship with the
Company, his duties and responsibilities, ability, productivity, length of
service or association, morale, interest in the Company, recommendation by
supervisors and the value of comparable services rendered by others in the
community. All options granted pursuant to the Plan shall be exercisable at a
price not less than the fair market value of the shares of Common Stock on the
date of grant.
25
<PAGE>
There is no taxable income to an optionee as a result of the grant of a
Non-Qualified Stock Option unless the grant is at less than fair market value.
However, an optionee incurs taxable income upon the exercise of a Non-Qualified
Stock Option based on the difference between the fair value of the stock at the
time of exercise and the option price. The Company is not entitled to a tax
deduction upon the grant of a Non-Qualified Stock Option, but is entitled to a
tax deduction upon exercise corresponding to the optionee's taxable income.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
As of December 31, 1996, a total of 9,073,653 shares of Common Stock, the
Company's only class of voting securities, were issued and outstanding. The
following table sets forth as of December 31, 1996, certain information with
respect to the Company's Common Stock owned of record or beneficially by (i)
each officer or director of the Company, (ii) each person known by the Company
who owns beneficially more than five percent of the Company's outstanding Common
Stock, and (iii) all directors and officers as a group. Unless otherwise
indicated, the type of ownership is direct.
(THIS SPACE INTENTIONALLY LEFT BLANK)
26
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Percent of Class
Beneficial Owner Shares Beneficially Owned
- ---------------- ------ ------------------
Officers and Directors
- ----------------------
<S> <C> <C>
Bill M. Conrad 399,700(1)(2) 4.3%
5525 Erindale Drive
Colorado Springs, CO 80918
Raymond E. McElhaney 407,500(1)(2) 4.4%
5525 Erindale Drive
Colorado Springs, CO 80918
William W. Reid 2,739,547(3) 28.6%
55 Madison, Suite 700
Denver, CO 80206
Principal Shareholders
- ----------------------
Royalstar Resources Limited 4,419,110 48.7%
1055 West Hastings Street
Vancouver, British Columbia
CANADA V6E 2E9
Tonkin Springs Venture Limited 2,287,547(4) 25.2%
Partnership and
U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Globex Mining Enterprises Inc. 2,287,547(5) 25.2%
146 14th Street
Rouyn-Noranda
Quebec, CANADA J9 2J3
All Directors and Executive
Officers as a Group (3 persons) 3,401,747(1)(2)(3) 34.4%
</TABLE>
- ----------
(1) Includes 75,000 shares of Common Stock underlying options at an exercise
price of $1.00 per share, and 100,000 shares underlying options with an
exercise price of $1.25 per share, exercisable through February 6, 2004.
(2) Includes 145,000 shares of Common Stock owned by MCM Capital Management,
Inc., of which Messrs. McElhaney and Conrad are officers, directors and
principal shareholders. Messrs. McElhaney and Conrad disclaim beneficial
ownership of said shares.
(3) Includes 2,287,547 shares owned by TSVLP, owned by a wholly-owned
subsidiaries of U.S. Gold of which Mr. Reid is an officer and director;
300,000 shares of Common Stock underlying options from the Company at an
exercise price of $1.00 per share; 150,000 shares underlying an option with
an exercise price of $1.25, and 2,000 shares of Common Stock held by Mr.
Reid's wife.
27
<PAGE>
(4) Tonkin Springs Venture Limited Partnership is owned by wholly-owned
subsidiaries of U.S. Gold Corporation.
(5) Includes 2,287,547 shares of Company Common Stock over which the reporting
person has voting power by virtue of an Option Agreement with USGL, dated
January 16, 1997.
Change in Control
Effective December 4, 1996, Mr. John Young, the former president, chief
executive office and director of the Company resigned his positions. Mr. Young
is also president and chief executive officer of Royalstar. At December 31,
1996, Royalstar owned an aggregate of 4,419,110 shares of common stock,
representing approximately 48.7% of the presently issued and outstanding voting
stock of the Company. Prior to Mr. Young's resignation, three other directors
who had also been nominated to their positions by Royalstar had tendered their
resignations. The three remaining directors of the Corporation, which includes
two of the original founders, have assumed responsibilities for the affairs of
the Corporation, with Mr. Conrad serving as president. While individuals
representing Royalstar have resigned their positions with the Company,
Royalstar, by virtue of number of common shares owned, is still in a position to
exert controlling influence on the Company, should it determine to do so.
If the Merger with the Company and acquisition of Common Stock from
Royalstar are completed, Globex would acquire 100% of the issued and outstanding
Common Stock of the Company. Such events would effectively eliminate the voting
majority presently held by Royalstar and result in a change of control in the
Company. However, the Merger is subject to certain conditions. (See "Item 1.
Business")
ITEM 12. Certain Relationships and Related Transactions
----------------------------------------------
Royalstar Resources Ltd.
During the years ended December 31, 1996 and 1995, the Company was
essentially funded by advances from Royalstar Resources Ltd., its largest
shareholder. Royalstar acquired that position during April and June, 1995, when
it acquired an aggregate of 2,500,000 shares of the Company's Common Stock for a
total purchase price of $2,500,000. Mr. John Young, formerly president, chief
executive officer and director of the Company, is also the president and a
director of Royalstar. Mr. Ken Berry, formerly secretary and a director of the
Company, was also a director of Royalstar. As of December 31, 1996, Royalstar
owned an aggregate of 4,419,110 shares of Common Stock, representing
approximately 49% of the Company's issued and outstanding Common Stock.
During the years ended December 31, 1996 and 1995, Royalstar advanced the
Company amounts of $2,315,529 and $460,402, respectively, for operating and
other expenses incurred in connection with the Company's business. Of those
28
<PAGE>
amounts, $856,821 remained outstanding at December 31, 1996. In addition, on
August 20, 1996, the Company issued 1,919,110 shares of Common Stock to
Royalstar at a price of $1.00 per share, in conversion of all advances made by
Royalstar through July 31, 1996.
The Company also had an informal arrangement with Royalstar under which the
Company paid a fixed allocation for the services of Mr. John Young, formerly
president and chief executive officer of the Company, and Mr. Ken Berry,
formerly secretary of the Company. The Company was charged $6,000 per month for
the services of Mr. Young and $2,000 per month for the services of Mr. Berry.
During the years ended December 31, 1996 and 1995, the Company was charged
$86,000 and $40,000, respectively, under those arrangements. Mr. Young resigned
his position as president of the Company on December 4, 1996 and Mr. Berry
resigned effective September 30, 1996. Also during 1996 and 1995, the Company
was charged $134,912 and $57,500, respectively, for office and staff support
provided by Royalstar during the period of Mr. Young's tenure as president.
TSVLP and U.S. Gold Corporation
Effective December 31, 1996, TSVLP converted its 300,000 shares of
Preferred Stock into 1,750,000 shares of Common Stock of the Company pursuant to
the terms of the Preferred Stock Designation, as amended by the parties.
Effective December 19, 1996, U.S. Gold converted a receivable from the Company
in the amount of $242,029 into 242,029 shares of the Company. As of December 19,
1996, U.S. Gold and TSVLP collectively own 2,287,547 shares of Common Stock,
representing approximately 25.2 percent of the presently issued and outstanding
voting stock. The Company understands that TSVLP and U.S. Gold have granted a
proxy on its Common Stock to Globex along with a first right to purchase those
shares, until August 30, 1997.
At December 31, 1996 the Company has a $1,501,076 amended note payable (the
"Note) to TSVLP as a result of its purchase of a 60% interest in the Properties
effective December 31, 1993. The Note is collateralized by the Company's 60%
interest in the Properties and the Venture and accrues interest at a fixed rate
of 7.5% on the unpaid principal balance. TSVLP has agreed to share its
collateral position in the Company's 60% interest in the assets of the Tonkin
Springs Project and interest in the Venture, pari passu, with Globex under the
terms of an Intercreditor Agreement dated January 16, 1997. During the years
ended December 31, 1996 and 1995, TSVLP was paid $450,844 and $1,298,080,
respectively, under the Note.
The Company has a month-to-month agreement with U.S. Gold, the parent of
TSVLP, to provide the Company with secretarial and administrative assistance,
for $1,850 per month totaling $22,200 during both 1996 and 1995. The Company
also contracts for consulting services from certain employees of U.S. Gold on an
as-needed basis. The Company accrued an aggregate of $199,944 during 1996 and
$107,426 in 1995 pursuant to this arrangement. As noted above, effective
December 19, 1996, U.S. Gold converted $242,029 owed by the Company under these
arrangements into 242,029 shares of common Stock at $1.00 per share.
29
<PAGE>
Globex Mining Enterprises Inc.
During the year ended December 31, 1996, the Company borrowed funds from
Globex, a beneficial owner of the Company's Common Stock under the provisions of
Rule 13(d) of the Securities and Exchange Act of 1934. Pursuant to the terms of
a Loan Agreement executed between the parties, the Company borrowed an aggregate
of $20,000 as of December 31, 1996. That amount was increased to $697,493 as of
March 18, 1997. Such advances are secured by a first lien security interest on
the Company's interest in the Project, and are due and payable in full on or
before August 30, 1997.
Miscellaneous
The Company entered into an agreement to pay $2,000 per month with a
related party, MCM Capital Management, Inc. (MCM), for secretarial and
management services for the Company in Colorado Springs, Colorado, which
agreement was modified to $10,000 per month effective July 1, 1995, as well as
out-of-pocket expenses incurred by MCM on behalf of the Company. MCM is a
stockholder of the Company and Messrs. Bill Conrad and Raymond McElhaney,
officers and directors of the Company, are also officers, directors and
principal shareholders of MCM. The Company paid or accrued a total of $114,285
to MCM during 1996 and $106,362 in 1995 under this arrangement. Effective
December 19, 1996, MCM converted $120,000 owed by the Company under these
arrangements into 120,000 shares of common Stock at $1.00 per share.
(SPACE LEFT INTENTIONALLY BLANK)
30
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
Exhibit No.
- -----------
3.1 Articles of Incorporation of the Company as filed December 10, 1993
with the Secretary of State of the State of Colorado (incorporated by
reference from the Registration Statement on Form SB-2 dated April 29,
1994, Exhibit 3.1).
3.1.1 Certificate of Designation of Series A Convertible Preferred Shares
(incorporated by reference from the Registration Statement on Form SB-2
dated April 29, 1994, Exhibit 3.1.1).
3.2 Bylaws (incorporated by reference from the Registration Statement on
Form SB-2 dated April 29, 1994, Exhibit 3.2).
*3.3 Form of Amendment to Bylaws effective as of December 6, 1996.
4.1 Specimen certificate for Common Shares, $.0001 par value per share
(incorporated by reference from the Registration Statement on Form SB-2
dated April 29, 1994, Exhibit 4.1).
10.1 Purchase and Sale Agreement between the Registrant and Tonkin Springs
Venture Limited Partnership dated December 31, 1993 (incorporated by
reference from the Registration Statement on Form SB-2 dated April 29,
1994, Exhibit 10.1).
10.2.1 Promissory Note with Tonkin Springs Venture Limited Partnership, dated
December 31, 1993 (incorporated by reference from the Registration
Statement on Form SB-2 dated April 29, 1994, Exhibit 10.2).
10.2.2 Form of Amended Promissory Note dated July 13, 1994 (incorporated by
reference from the Registration Statement on Form SB-2 dated August 5,
1994 Exhibit 10.2.2).
10.2.3 Form of Amended Promissory Note dated October 18, 1994, (incorporated
by reference from the Report on Form 10-KSB for December 31, 1994,
Exhibit 10.2.3).
10.2.4 Form of Amended Promissory Note dated March 27, 1995, (incorporated by
reference from the Report on Form 10-KSB for December 31, 1994, Exhibit
10.2.4).
10.2.5 Form of Registration Rights Agreement dated March 27, 1995 with
Tonkin Springs Venture Limited Partnership, (incorporated by reference
from the Report on Form 10-KSB for December 31, 1994, Exhibit 10.2.5).
10.3 Mining Venture Agreement with Tonkin Springs Venture Limited
Partnership dated December 31, 1993 (incorporated by reference from the
Registration Statement on Form SB-2 dated April 29, 1994, Exhibit
10.3).
10.4 Security Agreement with Tonkin Springs Venture Limited Partnership
dated December 31, 1993 (incorporated by reference from the
Registration Statement on Form SB-2 dated April 29, 1994, Exhibit
10.4).
10.5 Campbell/Simpson Mining Lease dated January 1, 1986 (incorporated by
reference from the Registration Statement on Form SB-2 dated April 29,
1994, Exhibit 10.5).
10.6 Buffington Mining Lease dated August 10, 1986 (incorporated by
reference from the Registration Statement on Form SB-2 dated April 29,
1994, Exhibit 10.6).
31
<PAGE>
10.7 Stock Option Plan (incorporated by reference from the Registration
Statement on Form SB-2 dated April 29, 1994, Exhibit 10.7).
10.8 Intentionally omitted.
10.9 Bargain Grant and Sale Deed dated March 28, 1994 (incorporated by
reference from the Registration Statement on Form SB-2 dated August 5,
1994, Exhibit 10.9).
10.10 Subscription Agreement between the Company and Royalstar dated June 22,
1995 (incorporated by reference from report on Form 8-K dated June 22,
1995, Exhibit 1).
10.11 Amended and Restated Secured Promissory Note dated June 22, 1995,
(incorporated by reference from report on Form 8-K dated June 22, 1995,
Exhibit 3).
10.12 Loan Agreement between the Company and Globex Mining Enterprises, Inc.
dated January 16, 1997, (incorporated by reference from report on Form
8-K dated March 13, 1997).
*10.13 Deed of Trust, Security Agreement, Financing Statement and Assignment
of Production and Proceeds Agreement between the Company and Globex
Mining Enterprises, Inc. dated January 16, 1997.
*10.14 Intercreditor Agreement between the Company, Globex Mining Enterprises,
Inc., Tonkin Springs Gold Mining Company and U.S. Gold Corporation,
dated January 16, 1997.
10.15 Agreement and Plan of Merger between the Company and Globex Mining
Enterprises, Inc. dated March 13, 1997, (incorporated by reference from
report on Form 8-K dated March 13, 1997).
*11 Computation of Weighted Average Shares Outstanding Used in Earnings Per
Share Calculations for the two years ended December 31, 1996.
21 Subsidiaries of the Company (incorporated by reference from the Report
on Form 10-KSB for December 31, 1994, Exhibit 21).
*23.1 Consent of Behre Dolbear and Company, Inc., to the incorporation by
reference of their report dated April, 1996, Technical Audit of the
Tonkin Springs Gold Property.
*23.2 Consent of Ore Reserves Engineering, to the incorporation by reference
of the report dated October, 1996, Open-Pit Ore Reserve Estimates for
the Tonkin Springs Project.
- --------------------------
* Filed herewith.
--------------------------
(b) Reports on Form 8-K.
--------------------
The Company filed a report on Form 8-K effective December 4, 1996,
under Item 1., Change in Control of Registrant, related to the
resignation of Mr. John Young, as president, chief executive officer,
chairman and member of the board of directors.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Company caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GOLD CAPITAL CORPORATION
April 11, 1997 By /s/ Bill M. Conrad
------------------------------
Bill M.Conrad, President,
and Chief Financial Officer
April 11, 1997
By /s/ Raymond E. McElhaney
----------------------------
Raymond E. McElhaney,
Secretary and Treasurer
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
April 11, 1997 By /s/ Bill M. Conrad
---------------------------------
Bill M. Conrad, President and
Director
April 11, 1997 By /s/ Raymond E. McElhaney
---------------------------------
Raymond E. McElhaney, Secretary,
Treasurer and Director
April 11, 1997 By /s/ William W. Reid
---------------------------------
William W. Reid, Director
AMENDMENT to the Bylaws of Gold Capital Corporation, a corporation
organized and existing under the laws of the State of Colorado, adopted this 6th
day December 1996.
I. Article I, Section 1.D. of the Bylaws is hereby amended to read in its
entirety as follows:
"Article I, Section 1 Annual Meetings. D. Notice. Written notice at the
address last shown on the books of the Corporation stating the place, day
and hour of the meeting, and in the case of a Special Meeting the purpose
for which the meeting is called, shall be delivered not less than thirty
(30) days nor more than fifty (50) days before the date of the meeting,
either personally or by mail at the direction of the President, Secretary
or other officer or person calling the meeting."; and further
II. Article II, Section 5.A. of the Bylaws is hereby amended to read in its
entirety as follows:
"Section 5. Closing of Transfer Books; Record Date. A. Record Date. In lieu
of closing the Stock Transfer Books, the Board of Directors may fix a
future date as the record date for such determination of Stockholders, such
date in any case to be not more than seventy (70) days prior to the date of
action which requires such determination."; and further
III. Article IV, Section 2. of the Bylaws is hereby amended to read in its
entirety as follows:
"Article IV Officers. Section 2. Removal. Any Officer or agent or employee
of the Corporation may be removed by a majority vote of the Board of
Directors whenever in its judgment the best interests of the Corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
of any Officer or agent shall not of itself create contract rights."
IV. Article V, Section 5. Corporation to Have Right of First Option to Buy
Stock of the Bylaws is hereby deleted in its entirety.
With the foregoing exception, the remaining provisions of the Bylaws of the
Corporation shall remain in full force and effect.
IN WITNESS WHEREOF, I have fixed my signature and the seal of the
Corporation this ..... day of ........., 199.....
-----------------------------------
Raymond E. McElhaney, Secretary
DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND
ASSIGNMENT OF PRODUCTION AND PROCEEDS
dated as of January 16, 1997
by and among
GOLD CAPITAL CORPORATION
and
STEWART TITLE OF NORTHEASTERN NEVADA
(as Trustee)
and
GLOBEX MINING ENTERPRISES, INC.
- --------------------------------------------------------------------------------
WHEN RECORDED PLEASE
RETURN TO:
Randall E. Hubbard
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, CO 80202
(303) 892-9400
- --------------------------------------------------------------------------------
THIS DEED OF TRUST SHALL BE EFFECTIVE AS A FIXTURE FILING, AND SHALL BE INDEXED
NOT ONLY AS A DEED OF TRUST BUT ALSO AS A FIXTURE FILING.
<PAGE>
DEED OF TRUST, SECURITY AGREEMENT, FINANCING
STATEMENT AND ASSIGNMENT OF PRODUCTION AND PROCEEDS
---------------------------------------------------
THIS DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT
OF PRODUCTION AND PROCEEDS (this "Deed of Trust"), dated as of January 16, 1997
is made by and among GOLD CAPITAL CORPORATION, a Colorado corporation (the
"Company"), whose address is 5525 Erindale Drive, Suite 201, Colorado Springs,
Colorado USA 80918, and STEWART TITLE OF NORTHEASTERN NEVADA, a Nevada
corporation (the "Trustee"), whose address is 810 Idaho Street, Elko, Nevada
89801, for the benefit of GLOBEX MINING ENTERPRISES, INC., a Quebec corporation
(the "Lender"), whose address is 146 - 14th Street, Rouyn-Noranda, Quebec,
Canada J9X 2J3.
Recitals
--------
A. The Company has entered into a Loan Agreement with the
Lender and Tonkin Springs Venture Limited Partnership, a Nevada limited
partnership ("TSVLP") dated January 16, 1997 (the "Loan Agreement"), whereunder
the Lender committed to extend credit and make loans to the Company, subject to
the terms and conditions stated in the Loan Agreement, consisting of an Initial
Advance of $415,000 and such additional amounts as may be advanced pursuant to
the Loan Agreement (the "Loan");
B. Pursuant to the Loan Agreement, the Company has executed a promissory
note (the "Note"), under which the aggregate principal amount and the interest
thereon are due and payable not later than the earlier of (i) the date of full
execution and delivery of definitive agreements by which the Lender acquires all
of the issued and outstanding shares of common stock of the Company, or (ii)
August 30, 1997;
C. It is a condition precedent to the Lender making the Loan to the Company
under the Loan Agreement that the Company shall have granted the liens and
security interests contemplated by this Deed of Trust; and
D. All capitalized terms not defined herein shall have the same meaning as
set forth in the Loan Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to make the Loan and disburse funds pursuant to the Loan Agreement, the
Company hereby agrees with the Trustee and the Lender as follows:
-1-
<PAGE>
ARTICLE I
GRANT OF SECURITY
-----------------
1.1 The Collateral. In order to secure the payment of the Indebtedness (as
defined herein), the Company hereby grants, bargains, sells, assigns, transfers,
pledges, conveys and mortgages to the Trustee for the benefit of the Lender, and
for the same consideration grants a security interest to the Lender in, the
following real and personal property, rights, title and interests (collectively,
the "Collateral"):
(a) Lands. All of the Company's present or hereafter acquired right,
title and interest in and to (i) the agreements (and the properties covered
thereby) described in Part 1 of Schedule A attached hereto and (ii) the
unpatented mining claims and millsites, all described in Part 2 of Schedule A
attached hereto, located in Eureka County, Nevada (collectively, the "Lands").
(b) Improvements. All of the Company's present or hereafter acquired
right, title and interest in and to all buildings, structures and improvements
now or hereafter located or erected on the Lands (the "Improvements") and any
and all easements, licenses and rights-of-way used in connection therewith.
(c) Water Rights. All of the Company's present or hereafter acquired
water and water rights, ditch and ditch rights, reservoir and reservoir rights
of whatever nature or kind, used in relation to the Lands, including, but not
limited to, the water rights described in Part 3 of Schedule A attached hereto.
(d) Minerals. All ores, minerals and mineral resources, whether in
place, mined or unmined, work in progress, produced or severed, in finished or
unfinished form, in, on, under or derived from the Lands and to which the
Company is presently or hereafter entitled (herein called the "Minerals").
(e) Personal Property. All of the Company's present or hereafter
acquired right, title and interest in and to the surface or subsurface
machinery, furniture, goods, equipment, supplies, raw materials, goods in
process, work in process, finished and unfinished products, wares and
merchandise, inventory, all documents of title, and other personal property,
structures and fixtures, as defined under applicable law, now or hereafter
located in, on, under or affixed to the Lands or the Improvements which are used
or acquired for the production, treatment, processing, storage, transportation,
manufacture or sale of the Minerals and any replacements thereof, substitutions
therefor or accessions thereto (the "Operating Equipment"), including, but not
limited to, the personal property listed in Schedule B attached hereto.
(f) Contract Rights. All of the Company's present or hereafter
acquired right, title and interest in and to all deeds, leases, contracts and
agreements for the use, sale or assignment of property, whether tangible or
intangible, leaseholds, mortgages, assignments, options and licenses of every
kind and description, and all documents and muniments of title relating to or in
any way connected with the Lands or the Operating Equipment, whether tangible or
intangible;
-2-
<PAGE>
(g) General Intangibles. All of the Company's present or hereafter
acquired right, title or interest in and to general intangibles of every kind
whatsoever and all files, books, records and other writings of the Joint Venture
(as defined below), including without limitation, all records and books of
account, all minute books and all stock ledgers, and also including, without
limitation, all computer programs and tapes and all electronic data processing
software and all other computer software, and all information of every
description recorded or contained or stored in any of the foregoing, all rights
of access to computer service bureaus, all service bureau service contracts, all
computer data and all concepts and ideas on which said data is based, all
developmental ideas and concepts, all papers, drawings, blueprints, sketches and
documents relating to any of the Collateral, all databases, supplier and
customer lists, all trade secrets, patents, trademarks and service marks and all
applications for and licenses, rights and interests to or under or in respect of
any patents, trademarks, trade names or copyrights;
(h) Products. All of the Company's present or hereafter acquired
right, title and interest in and to the severed and extracted Minerals produced
from the Lands or the Project.
(i) Proceeds. All the cash and noncash proceeds and products of the
property described in subparagraphs (a) through (h) above now existing or
hereafter arising, including, without limitation, whatever is received upon the
sale, exchange, collection or other disposition of said property and the
insurance payable by reason of loss or damage to said property (the "Proceeds"),
and all additions thereto, substitutions and replacements thereof or accessions
thereto.
(j) All of the interest and rights of the Company under that certain
Joint Venture Agreement between the Company and TSVLP dated as of December 31,
1993 (the "Mining Venture Agreement") creating the Tonkin Springs Project Joint
Venture (the "Joint Venture") and governing operations at the Tonkin Springs
Project in Eureka County, Nevada (the "Project"), including all of the income,
products and proceeds of, and all additions, substitutions and accessions to,
the properties and assets described in subparagraphs (a)-(i) above.
TO HAVE AND TO HOLD all of the Collateral, together with all of the rights,
privileges, benefits, hereditaments and appurtenances in any wise belonging,
incidental or appertaining thereto, to the Trustee IN TRUST, NEVERTHELESS, for
the security and benefit of the Lender and its successors and assigns, subject
to all of the terms, conditions, covenants, agreements and trusts herein set
forth. In accordance with Article 21 of that certain lease effective January 1,
1986, among the Lyle F. Campbell Trust, Julian E. Simpson and Jean E. Simpson,
as lessors, and TSVLP, as lessee, which is expressly incorporated into this Deed
of Trust, the Company acknowledges that the assignment of its interest in that
lease pursuant to this Deed of Trust shall be null and void unless the Company
provides the lessors thereunder with a bona fide copy of this Deed of Trust and
any exhibits, attachments, amendments, or modifications hereto within thirty
(30) days after the date of execution of this Deed of Trust.
-3-
<PAGE>
ARTICLE II
INDEBTEDNESS SECURED
--------------------
2.1 Obligations Secured. This instrument is executed and delivered by the
Company to secure and enforce the payment and satisfaction of the Company's
indebtedness under the Loan Agreement and as described below (collectively, the
"Indebtedness"):
(a) All sums advanced to the Company pursuant to the Loan Agreement as
evidenced by the Note and all interest on the sums so advanced;
(b) All sums advanced and costs and expenses incurred by the Lender in
collecting any Indebtedness (directly or on its behalf by the Trustee),
including, without limitation, all reasonable legal fees and expenses, made or
incurred in connection with the Indebtedness or any part thereof, any renewal,
extension or change of or substitution for the Indebtedness or any part thereof,
or the acquisition or perfection of the security therefor, whether such
advances, costs and expenses were made and incurred at the request of the
Company, the Trustee or the Lender; and
(c) All renewals, extensions, amendments and changes of, or
substitutions for, all or any part of the items described under (a) and (b)
above.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
-----------------------------------------
3.1 Representations and Warranties. The Company represents and warrants to
the Trustee and the Lender that:
(a) Existence. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado, and is
qualified to do business and in good standing in the State of Nevada. The
Company is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business transacted
by it or the nature of the property owned or leased by it makes such
qualification necessary and where failure to so qualify would have a material
adverse effect on the ability of the Company to perform its obligations under
this Deed of Trust.
(b) Authority. The Company has all necessary corporate power and
authority to execute, deliver, observe and perform the terms of this Deed of
Trust. Neither the Company's execution and delivery of this Deed of Trust, nor
the performance or observance by the Company of the provisions hereof, violates,
or will violate, any provisions in the Company's articles of incorporation or
bylaws, or will constitute a default or a violation under, or result in the
imposition of any lien under, or conflict with, or result in any breach of any
of the provisions of, any existing contract or other obligation binding upon the
Company or its property or the Collateral. This Deed of Trust has been duly
executed and delivered by the Company and is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms (subject to applicable bankruptcy, reorganization, insolvency or
similar laws affecting the enforcement of
-4-
<PAGE>
creditors' rights generally). The Company's obligations hereunder will rank not
less than pari passu with all of the Company's secured indebtedness to TSVLP, as
evidenced by the TSVLP Security Agreement.
(c) Litigation; Taxes. Except for Permitted Liens, there are no legal
or arbitral proceedings or any proceedings by or before any judicial,
governmental or regulatory body, now pending, or (to the knowledge of the
Company) threatened, against the Company or pertaining to or which could affect
any of its property which, if adversely determined, could have a material
adverse effect on the ability of the Company to perform its obligations under
this Deed of Trust, or which could have a material adverse impact on the
Project. The Company has filed all United States Federal income tax returns and
all other material tax returns which are required to be filed by it and has paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Company or any of its subsidiaries. The charges, accruals and reserves on
the books of the Company and its subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Company, adequate therefor.
(d) Financial Condition; No Material Adverse Effect. The Company has
delivered to the Lender audited consolidated financial statements as of and for
the year ended December 31, 1995 and unaudited consolidated financial statements
for the three quarters ended September 30, 1996, which have been certified by
the principal financial officer of the Company. Such financial statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly and accurately present the financial position of the Company as of
said dates and the results of its operations for the periods then ended
(subject, in the case of unaudited quarterly financial statements, to normal and
customary year-end adjustments). Since September 30, 1996, to the best of the
Company's knowledge (except as set forth on the Schedules to the Loan
Agreement), no event or condition has occurred that reasonably could be expected
to have a material adverse effect on the ability of the Company to perform its
obligations under this Deed of Trust.
(e) No Approvals or Consents. No authorization or approval or other
action by, and no notice to or filing with, any court, governmental authority or
regulatory body, and no approval or consent of any other third party, is
required for the due execution, delivery and performance by the Company of this
Deed of Trust, or any other agreements or instruments required of the Company by
this Agreement.
(f) Title to Properties.
(i) The Company owns an undivided sixty percent (60%) interest in
and to the Project pursuant to the provisions of the Mining Venture
Agreement. The Mining Venture Agreement is in full force and effect;
provided, however, that the parties acknowledge that the Company is in
technical default under the Mining Venture Agreement as to the
performance of certain of the Company's obligations as Manager
thereunder.
-5-
<PAGE>
(ii) (A) The Company owns an undivided sixty percent (60%)
interest, and, to the best of the Company's knowledge, TSVLP owns
an undivided forty percent (40%) interest in and to all of the
unpatented lode mining claims comprising a portion of the Project
and which are described in Schedule A-1 to the Deed of Trust,
which title is, subject to Liens held by TSVLP, Permitted Liens,
and the Royalties described in Loan Agreement, superior and
paramount to any adverse claim or right of title which may be
asserted subject only to the paramount title of the United States
as to any unpatented mining claims and the rights of third
parties to such unpatented mining claims pursuant to the Multiple
Mineral Development Act of 1954 and the Surface Resources and
Multiple Use Act of 1955.
(B) The Company and TSVLP are tenants in common and hold an
undivided one hundred percent (100%) leasehold interest in and to
each of the Mining Leases. Each of the Mining Leases is in full
force and effect, the lessee has performed all of its obligations
thereunder (except for payment of the Advance Minimum Royalty
payment due thereunder between January 1 and 15, 1997), and
neither party is in default thereunder. To the best of the
Company's knowledge, the title of the lessor under each of the
Mining Leases to the unpatented mining claims covered thereby is,
subject to Liens held by TSVLP, and the Royalties described in
the Loan Agreement, superior and paramount to any adverse claim
or right of title which may be asserted subject only to the
paramount title of the United States as to any unpatented mining
claims and the rights of third parties to such unpatented mining
claims pursuant to the Multiple Mineral Development Act of 1954
and the Surface Resources and Multiple Use Act of 1955.
(iii) With respect to the unpatented lode mining claims and
millsites listed on Schedule A-1 attached hereto; (1) the Company is
in exclusive possession thereof, free and clear of all liens, claims,
encumbrances or other burdens on production (other than Permitted
Liens, the Lien held by TSVLP pursuant to the TSVLP Security Agreement
and the Royalties described in the Loan Agreement); (2) the claims
were located, staked, filed and recorded on available public domain
land in compliance with all applicable state and federal laws and
regulations; (3) assessment work, intended in good faith to satisfy
the requirements of state and federal laws and regulations and
generally regarded in the mining industry as sufficient, for all
assessment years up to and including the assessment year ending
September 1, 1992, was timely performed on or for the benefit of the
claims and affidavits evidencing such work were timely recorded; (4)
claim rental and maintenance fees required to be paid under federal
law in lieu of the performance of assessment work, in order to
maintain the claims commencing with the assessment year ending on
September 1, 1993 and through the assessment year ending on September
1, 1997, have been timely and properly paid, and affidavits or other
notices evidencing such payments and required under federal or state
laws or
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regulations have been timely and properly filed or recorded; (5) all
filings with the BLM with respect to the claims which are required
under the Federal Land Policy and management act of 1976 ("FLPMA")
have been timely and properly made, and (6) there are no actions or
administrative or other proceedings pending or to the best of the
Company's knowledge threatened against or affecting the claims. With
respect to the unpatented lode mining claims and millsites listed on
Schedule A-2 attached hereto; (1) the Company is in exclusive
possession thereof, free and clear of all liens, claims, encumbrances
or other burdens of production (except as set forth in the Mining
Leases); (2) to the best of the Company's knowledge, the claims were
located, staked, filed and recorded on available public domain land in
compliance with all applicable state and federal laws and regulations;
(3) to the best of the Company's knowledge, assessment work, intended
in good faith to satisfy the requirement of state and federal laws and
regulations and generally regarded in the mining industry is
sufficient, for all assessment years up to and including the
assessment year ending year ending September 1, 1992, was timely
performed or for the benefit of the claims and affidavits evidencing
such work were timely recorded; (4) claim rental and maintenance fees
required to be paid under federal law in lieu of the performance of
assessment work, in order to maintain the claims commencing with the
assessment year ending on September 1, 1993 and through the assessment
year ending on September 1, 1997, have been timely and properly paid,
and affidavits or other notices evidencing such payment and required
under federal or state laws or regulations have been timely and
properly filed and recorded; (5) all filings with the BLM with respect
to the claims which are required under FLPMA have been timely and
properly made; and (6) there are no actions or administrative or other
proceedings pending or to the best of the Company's knowledge
threatened against or affecting the claims. Nothing herein shall be
deemed a representation that any unpatented claim listed on Schedule A
contains a discovery of valuable minerals. In addition, with respect
to each of the unpatented mining claims listed on Schedule A, the
Company represents that they have been remonumented as necessary, and
that evidence of such remonumentation has been timely and properly
recorded, all in compliance with the provisions of N.R.S.Section
517.030.
(iv) The Company has good and marketable title to the Operating
Equipment described in Schedule B attached hereto. The Lands that are
described in Schedule A attached hereto and the Operating Equipment
described in Schedule B attached hereto constitute all of the
properties and assets, tangible or intangible, real or personal, which
are used in the conduct of the business of the Company, as such
business is presently being conducted and as pertains to the Project.
All such properties and assets are owned free and clear of all clouds
to title and of all Liens, except Permitted Liens and Liens created
under the TSVLP Security Agreement. All of the Operating Equipment
described in Schedule B attached hereto is in a state of repair
adequate for normal operations and is in all material respects in good
working order.
(g) Leases and Royalties. The Lands described in Schedule A attached
hereto are not subject to any leases or other agreements other than the
Mining Leases. The Lands described in Schedule A attached hereto are not
subject to any Royalties burdening such Lands except as set forth in
Schedule 5.7 to the Loan Agreement and the Mining Leases. For purposes
hereof, "Royalties" shall mean all
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amounts payable as a share of the product or profit or profit from the
Lands or any mineral products produced therefrom and includes without
limitation, production payments, net profits interests, net smelter return
royalties, landowner's royalties, minimum royalties, overriding royalties
and royalty bonuses.
(h) Agreements. Other than the Material Project Agreements, the
Company is not a party to any agreement or instrument or subject to any
charter or other corporate restriction adversely affecting its business or
the Project. Except for failure to make payments required under certain of
the Material Project Agreements, as set forth in the Loan Agreement, all
such Material Project Agreements are in full force and effect and the
Company is not (nor, to the Company's best knowledge, is any other party to
such agreements) in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in any
Material Project Agreement or any other agreement or instrument to which it
is a party, the effect of which would have a material adverse effect on the
financial condition, properties or operations of the Company or on the
Collateral. Copies of all such Material Project Agreements have been
delivered to the Lender and its counsel and are full, complete and current
copies of such agreements.
(i) Compliance with Laws. With respect to the Project and operations
undertaken at the Project or in connection therewith, the Company, except
as set forth in Schedule 5.9 of the Loan Agreement, has complied in all
material respects with all applicable local, state and federal laws,
including Environmental Laws, and regulations relating to the operation of
the Project, and the Company is not aware of any investigation (other than
a routine inspection) of the Company or the Project underway by any local,
state or federal agency with respect to enforcement of such laws and
regulations. The existing and planned use of the Project complies with all
legal requirements, including, but not limited to, applicable zoning in
ordinances, regulations and restrictive covenants affecting the Lands as
well as all environmental, ecological, landmark and other applicable laws
and regulations; and all requirements for such use have been satisfied. No
release, emission or discharge into the environment of hazardous
substances, as defined under any Environmental Law, has occurred or is
presently occurring or will occur in operating the Project in its intended
form in excess of federal or state permitted release levels or reportable
quantities, or other concentrations, standards or limitations under the
foregoing laws or under any other federal, state or local laws, regulations
or governmental approvals in connection with the construction, ore
treatment, fuel supply, power generation and transmission or waste
disposal, or any other operations or processes relating to the Project. The
Lands and the Company's use and proposed use thereof are not and will not
be in violation of any environmental, occupational safety and health or
other applicable law now in effect, the effect of which violation, in any
case or in the aggregate, would materially adversely affect the Lands or
the Company's use thereof, or which, in any case or in the aggregate, would
impose a material liability on the Lender or jeopardize the interest of the
Lender in the Lands. Except as set forth in Schedule 5.9 of the Loan
Agreement, the Company has no knowledge of any past or existing violations
of any such laws, ordinances or regulations issued by any governmental
authority.
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(j) Permits Affecting Properties. The Company has obtained as set
forth in Schedule 5.10 to the Loan Agreement all licenses, operating bonds
(other than the reclamation bond required by the BLM), permits and
approvals from all governments, governmental commissions, boards and other
agencies required in respect to its present operations at the Project, but
the Company does not warrant that those constitute all of the permits that
will be required for the Project. Copies of all such Material Project
Permits have been made available to the Lender and are full, complete and
current copies of same.
(k) Prior Security Interest. Except for the due and timely filing or
recording of any Security Document (and except for the delivery to the
Lender of any Collateral as to which possession is the only method of
perfecting a security interest in or Lien on such Collateral), no further
action is necessary to establish and perfect the Lender's prior security
interest in or shared first Lien on all Collateral other than Collateral
subject to Permitted Liens and the Lien created by the TSVLP Security
Agreement.
3.2 Affirmative Covenants. The Company covenants and agrees with the Lender
that so long as any of the Indebtedness secured hereby remains unpaid (unless
the Lender shall have otherwise consented in writing):
(a) Due Payment. The Company will pay when due, or within any
applicable grace periods with respect thereto, any and all amounts for
which it is obligated under the terms of the Loan Agreement, and the Note
and this Deed of Trust and will comply with all of the terms and provisions
thereof and hereof;
(b) Perfection; Maintenance of Liens. The Company shall promptly, at
the Company's own expense and insofar as not contrary to applicable law,
file and refile in such offices, at such times and as often as may be
necessary, any instrument as may be necessary to create, perfect, maintain
and preserve the lien and security interest intended to be created hereby
and the rights and remedies hereunder; shall promptly furnish to the Lender
evidence satisfactory to the Lender of all such filings and refilings; and
otherwise shall do all things necessary or expedient to be done to
effectively create, perfect, maintain and preserve the liens and security
interests intended to be created hereby as a valid lien of first priority
on real property and fixtures and a perfected security interest in personal
property and fixtures, subject to Permitted Liens and the Lien created by
the TSVLP Security Agreement, and hereby authorizes the Trustee and the
Lender to file one or more financing or continuation statements, and
amendments thereto, relative to any or all of the Collateral without the
signature of the Company, where permitted by law;
(c) Maintenance of Lands. The Company will (i) cause each of the
agreements described in Part 1 of Schedule A and any water rights, rights
of way, easements or privileges owned or hereafter acquired by or for the
Project and necessary or appropriate to the operation of a mine or mines
upon the Lands to be kept in full force and effect by the payment of
whatever sums may become payable and by the fulfillment of whatever other
obligations, and the performance of whatever other acts may be required to
the end that forfeiture or termination of each such interest shall be
prevented unless the termination, forfeiture or other relinquishment of the
interest is authorized by any operating plan or plan of operations then in
effect thereunder, (ii) conduct all mining and related operations in
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accordance with good and minerlike practice, (iii) timely perform adequate
amounts of annual assessment work sufficient to maintain the unpatented
mining claims listed on Schedule A so long as this Deed of Trust remains in
effect, or timely pay all required federal claim maintenance fees required
in lieu thereof, and timely record and file in the appropriate county and
federal offices adequate affidavits and notices of the timely performance
of such work or timely payment of such fees, and amend, relocate, locate
new mining claims and apply for patents with respect to those unpatented
mining claims as reasonably necessary to protect the Company's and the
Lender's interest in the Collateral, (iv) permit the Lender, through its
employees and agents, to enter upon the Lands for the purpose of
investigating and inspecting the condition and operation of the Collateral,
and do all other things necessary or proper to enable the Lender to
exercise this right upon reasonable notice at such times as the Lender may
reasonably request, and (v) do all other things necessary to preserve the
Lender's interest in the Collateral;
(d) Maintenance of Collateral. The Company will keep all Improvements,
Operating Equipment, inventory and fixtures of every kind now or hereafter
included in the Collateral in good working order, and all repairs,
renewals, replacements, additions, substitutions and improvements needful
to such end shall be promptly made;
(e) Compliance with Laws. The Company will comply with all lawful
rulings and regulations of each regulatory authority or governmental agency
having jurisdiction over the Lands and the Project;
(f) Payment of Obligations. The Company will pay when due all
liabilities of any nature, including all liabilities for labor and material
and equipment, incurred in or arising from the administration or operation
of the Lands and the Project;
(g) Protection of Collateral. The Company will protect every part of
the Collateral from removal, destruction and damage, and will protect same
from the doing or suffering to be done of any act, other than the use of
the Collateral as hereby contemplated, whereby the value of the Collateral
may be lessened;
(h) Insurance. The Company will carry (i) workmen's compensation
insurance covering persons who are employed by or for the benefit of the
Project in compliance with applicable laws, and (ii) other insurance as
required by the Mining Venture Agreement;
(i) Further Assurances. The Company shall execute, acknowledge and
deliver to the Lender such other and further instruments and do such other
acts as in the opinion of the Lender may be necessary or desirable to
effect the intent of this Deed of Trust, upon the reasonable request of the
Lender and at the Company's expense;
(j) Defend Title. If the title or the right of the Company or the
Lender to the Lands or any other Collateral or any part thereof shall be
attacked, either directly or indirectly, or if any legal proceedings are
commenced against the Company, the Company shall promptly give written
notice thereof to the Lender and, at the Company's own expense, shall
proceed diligently to defend against any such attack or proceedings, and
the Lender may take such independent action in connection therewith as it
may, in its reasonable discretion, deem advisable to protect its interest
in the Collateral, and all costs, expenses and reasonable attorneys' fees
incurred by the Lender in connection therewith shall be a demand obligation
owing by the Company to the Lender, and shall bear interest at the rate
specified in the Loan Agreement from the date such expenses are incurred
until paid, and shall be part of the Obligations;
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(k) Change in General Mining Law. In the event of the repeal or
substantial modification of the current General Mining Law of 1872 during
the term of the Loan Agreement and this Deed of Trust, such that the
interest of the Company in those lands which are material to the
exploration, development or operation of the Lands and the Project is
modified or transformed, the Company will use its best efforts to retain
its interest in those lands and will consult with the Lender to determine
how best to preserve the interest of the Company and the Lender's interest
in the affected Collateral, and the Company shall take no action, which in
the reasonable opinion of the Lender or its counsel could adversely affect
or impair the Lender's interest in the Collateral or under this Deed of
Trust;
(l) Information. The Company shall promptly furnish to the Lender such
information concerning the Company, the Company's business affairs and
financial condition, the Collateral and the operations and financial
condition of the Company and the Project as the Lender may reasonably
request in accordance with the Loan Agreement; and
(m) Access. The Company shall keep proper books, records and accounts
in which complete and correct entries shall be made of the Company's
transactions in accordance with generally accepted accounting principles,
and shall keep the records concerning the accounts and contract rights
included in the Collateral at the Company's place of business, and the
Lender shall have the right to inspect such records, and the Company shall
furnish copies upon reasonable request and upon reasonable notice in
accordance with the Loan Agreement.
3.3 Negative Covenants. The Company covenants and agrees with the Lender
that, so long as any of the Indebtedness secured hereby remains unpaid, the
Company shall not, either directly or indirectly, without the prior written
consent of the Lender:
(a) No Disposition of Assets. Except as permitted under the Loan
Agreement, dispose of any fixed or capital assets of the Company other than
for full, fair and reasonable consideration enter into any sale and
leaseback agreement covering any of its fixed or capital assets;
(b) No Debt. Except as permitted under the Loan Agreement, incur,
create, assume or permit any Debt to exist or incur, create or enter into
any guaranty of any obligation of any other person or entity;
(c) No Liens. Except as permitted under the Loan Agreement, create,
assume or suffer to exist any Lien on any of the Project property, real or
personal or mixed, whether now owned or hereinafter acquired, except
Permitted Liens and the Lien created by the TSVLP Security Agreement;
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<PAGE>
(d) Changes in Business. Except as permitted under the Loan Agreement,
liquidate or dissolve, or enter into any consolidation, merger, or enter
into any partnership, joint venture or other combination where such
combination involves a contribution by the Company of all or a substantial
portion of its assets, or sell, lease or dispose of its business or assets
of the Company; or
(e) Changes in Activities. Engage in any business activities or
operations substantially different from or unrelated to the gold
exploration, development, mining or production business.
3.4 Performance by the Lender. The Company covenants and agrees with the
Lender that if the Company fails to perform any act which it is required to
perform hereunder, or if the Company fails to pay any money which it is required
to pay hereunder, the Lender may, but shall not be obligated to, perform or
cause to be performed such act and may pay such money, and any expenses so
incurred by the Lender, and any money so paid by the Lender shall be a demand
obligation owing by the Company to the Lender, and shall bear interest at the
rate specified in the Loan Agreement from the date of making such payment until
paid and shall be a part of the Obligations hereby secured. No such advancement
or expenditure thereof shall relieve the Company of any default under the terms
of this Deed of Trust.
ARTICLE IV
COLLECTION OF PRODUCTION PROCEEDS
---------------------------------
4.1 The Lender's Receipt of Production Proceeds. Pursuant to the assignment
and security interest granted hereby, and except as provided in the agreements
listed in Part 1 of Schedule A attached hereto, the Company has transferred and
assigned to the Lender as collateral security all Minerals (and the Proceeds
therefrom) which are extracted from or attainable to the Lands beginning on the
date hereof. After an Event of Default, as defined in Article VI below, shall
have occurred and is continuing and upon notice from the Lender (and subject to
the terms and conditions of that Intercreditor Agreement between Lender and
TSVLP of even date herewith, referred to hereinafter as the "Intercreditor
Agreement"), all parties producing, purchasing and receiving Minerals or the
Proceeds therefrom are authorized and directed to treat the Lender as the person
entitled in the Company's place and stead to receive the same, and the Company
hereby irrevocably appoints the Lender to serve as the Company's
attorney-in-fact while this instrument is in force and effect for such purpose;
and, further, those parties will be fully protected in so treating the Lender
and will be under no obligation to see to the application by the Lender of any
Proceeds received by it. In this connection, the Company agrees to furnish to
the Lender promptly the name and address of each new or additional party who
hereafter becomes a purchaser of such Minerals; and the Company further agrees
that, if any Proceeds from such Minerals are hereafter paid to the Company, they
shall constitute trust funds in the hands of the Company and after any Event of
Default shall have occurred and be continuing shall be forthwith paid over by
the Company to the Lender. The Company shall, if and when requested by the
Lender, execute and file with any production purchaser a payment instruction or
other instrument declaring the Lender to be entitled to the Proceeds and severed
Minerals and instructing such purchaser to pay such Proceeds to the Lender.
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4.2 Application of Proceeds. All payments of Proceeds received by the
Lender pursuant to Section 4.1 above shall be applied as follows:
(a) first, to the payment of all accrued interest and fees then due
and owing to the Lender on the Note or otherwise as of the date such
application is made;
(b) next, to the payment of all costs and expenses incurred in
connection with the collection and receipt of all such Proceeds and all
other unreimbursed expenses incurred pursuant to Section 6.4 below;
(c) next, to the outstanding principal amount then due and owing to
the Lender hereunder on the Loan as of the date that such application is
made;
(d) next, at the Lender's election, to the payment of any other
Indebtedness then due and owing; and
(e) next, the excess to the Company.
After any Event of Default shall have occurred and been continuing, the
Lender may at its option hold any surplus balances from payments of Proceeds
received by the Lender pursuant to Section 4.1 for application to the
indebtedness under the Note as it becomes due and payable.
4.3 The Company's Payment Duties. Nothing contained herein will limit the
Company's duty to make payment on the Indebtedness when the Proceeds received by
the Lender pursuant to this Article IV are insufficient to pay the costs,
interest and principal thereof then owing, and the receipt of Proceeds by the
Lender will be in addition to all other security now or hereafter existing to
secure payment of the Indebtedness.
4.4 Liability of the Lender. The Lender has no obligation to enforce
collection of any Proceeds and is hereby released from all responsibility in
connection therewith except the responsibility to account for Proceeds actually
received.
4.5 Indemnification. The Company agrees to indemnify the Lender against all
claims, actions, liabilities, losses, judgments, attorneys' and consultants'
fees, costs and expenses and other charges of any description whatsoever (all of
which are hereafter referred to in this Section 4.5 as "Claims") made against or
sustained or incurred by the Lender as a consequence of the assertion, either
before or after the payment in full of the Indebtedness, that the Lender
received Minerals or Proceeds pursuant to this instrument. The Lender will have
the right to employ attorneys and to defend against any Claims, and, unless
furnished with satisfactory indemnity, the Lender will have the right to pay or
compromise and adjust all Claims in its sole discretion, reasonably exercised.
The Company shall indemnify and pay to the Lender all amounts as may be paid by
the Lender in compromise or adjustment of any of the Claims or as may be
adjusted against the Lender in respect of any of the Claims. The liabilities of
the Company as set forth in this Section 4.5 will constitute Indebtedness and
will survive the termination of this Instrument.
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ARTICLE V
TERMINATION
-----------
5.1 Termination. Upon the payment in full of the Indebtedness pursuant to
the terms and conditions of this Deed of Trust and the instruments evidencing
the Indebtedness, or the forgiveness of the Indebtedness pursuant to the
provisions of the Loan Agreement, this Deed of Trust shall become null and void.
In such event, the within conveyance of the Collateral shall become of no
further force and effect, all of the Collateral shall revert to the Company, and
the entire right, title and interest of the Lender shall terminate. The Lender
shall, promptly after the request of the Company, and at the Company's cost and
expense, execute, acknowledge and deliver to the Company proper instruments
evidencing the termination of this Deed of Trust and any Uniform Commercial Code
financing statements filed in connection herewith, and the relinquishment of any
right, interest, claim or demand in or to all or any portion of the Collateral.
Otherwise, this Deed of Trust shall remain and continue in full force and
effect.
ARTICLE VI
DEFAULT
-------
6.1 Events of Default. Any of the following events which shall occur and be
continuing shall be called an "Event of Default:"
(a) Failure by the Company duly to observe or perform any term,
covenant, condition or agreement of this Deed of Trust which failure is not
remedied to the Lender's satisfaction within five (5) days after written
notice from the Lender to the Company; or
(b) The occurrence of an Event of Default under the Loan Agreement;
(c) The declaration of an Event of Default by TSVLP under the TSVLP
Security Agreement; or
(d) The occurrence of a default by the Company under the Mining Leases
described in Part 1 of Schedule A hereto or the Mining Venture Agreement
which is material to the operation of the Project and which not cured
within the applicable grace period provided for in the pertinent Mining
Lease or the Mining Venture Agreement, respectively.
6.2 Acceleration. (a) In the case of an Event of Default, other than one
referred to in Section 7.3 of the Loan Agreement, any obligation on the part of
the Lender to make or continue the Loans shall terminate and the Lender may
declare all sums of principal and interest outstanding on the Loans, and all
other sums outstanding under or in respect of the Loan Agreement and this Deed
of Trust, immediately due and payable, without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character (other than as stated in any of the
foregoing sections of this Article VI), all of which are hereby expressly waived
by the Company; and in the case of an Event of Default referred to in Section
7.3 of the Loan Agreement, the Lender's obligation to make or continue the Loans
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shall be canceled and the full amount of all outstanding Obligations and all
other sums outstanding under or in respect of the Loan Agreement and this Deed
of Trust shall automatically become immediately due and payable without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, all of which are hereby expressly waived by the Company.
6.3 Remedies Upon Event of Default. Upon the occurrence of any Event of
Default, or at any time thereafter during which such Event of Default is
continuing, the Lender may elect to treat the fixtures included in the
Collateral either as real property or as personal property, but not as both, and
proceed to exercise such rights as apply to the type of property selected. The
Lender may resort to any security given by this Deed of Trust, or to any other
security now existing or hereafter given to secure the payment of any of the
Indebtedness secured hereby, in whole or in part, and in such portions and in
such order as may seem best to the Lender, in its sole discretion, and any such
action shall not in any way be considered as a waiver of any of the rights,
benefits or liens created by this Deed of Trust or granted by applicable law. In
any foreclosure proceeding or private sale, the Collateral may be sold in its
entirety, and shall not be required hereunder to be sold parcel by parcel.
6.4 Reimbursement of Expenses. All costs, expenses and reasonable
attorneys' fees incurred by the Lender in protecting and enforcing its rights
hereunder shall constitute a demand obligation owing by the Company to the
Lender and shall draw interest at the rate specified in the Loan Agreement from
the date such expenses are incurred until paid, all of which shall constitute a
portion of the Indebtedness secured by this instrument pursuant to Article II
hereof.
6.5 Rights Upon Default. Upon the occurrence of any Event of Default, and
at all times thereafter during which such Event of Default is continuing, in
addition to all other rights and remedies herein conferred, the Lender shall
have all of the rights and remedies of a beneficiary under a deed of trust
granted by applicable law, and the Lender shall have all the rights and remedies
of an assignee and secured party granted by applicable law, including the
Uniform Commercial Code, and shall, to the extent permitted by applicable law,
have the right and power, but not the obligation, to enter upon and take
immediate possession of the Collateral or any part thereof, to exclude the
Company therefrom, to the extent of the Company's interest therein at such time
to take possession of the mining and milling operation thereon and the
production from such operation, to remove any personal property included in the
Collateral, to hold, use, operate, manage and control the Collateral, to make
all such repairs, replacements, alterations, additions and improvements to the
same as it may deem proper, to sell all of the severed and extracted Minerals
included in the same, to demand, collect and retain all earnings, proceeds and
other sums due or to become due with respect to the Obligations after charging
against the receipts therefrom all costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon at the rate specified in the
Loan Agreement as fully and effectually as if the Lender was the absolute owner
of the Collateral and without any liability to the Company in connection
therewith.
6.6 Foreclosure or Sale of Collateral. Upon the occurrence of any Event of
Default, or at any time thereafter during which such Event of Default is
continuing, the Lender, in lieu of or in addition to exercising any other power
hereby granted, may, without notice, demand, or declaration of default, which
are hereby waived by the Company except as expressly provided herein, proceed by
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an action or actions in equity or at law for the seizure and sale of the
Collateral or any part thereof, for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, for the foreclosure or sale of the Collateral or any part thereof under
the judgment or decree of any court of competent jurisdiction, for the
appointment or decree of a receiver pending any foreclosure hereunder or the
sale of the Collateral or any part thereof, or for the enforcement of any other
appropriate equitable or legal remedy.
6.7 Disposal of Collateral. Upon the occurrence of any Event of Default, or
at any time thereafter during which such Event of Default is continuing, the
Lender may require the Company to assemble the personal property included in the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to all parties. If notice is required
by applicable law, thirty (30) days prior written notice of the time and place
of any public sale or of the time after which any private sale or any other
intended disposition thereof is to be made shall be reasonable notice to the
Company. No such notice is necessary if such property is perishable, threatens
to decline speedily in value or is of a type customarily sold on a recognized
market. If the Lender reasonably believes that the Securities Act of 1933, or
any other state or federal law, prohibits or restricts the customary manner of
sale or distribution of any of such property, the Lender may sell such property
privately, or in any other manner reasonably deemed advisable by the Lender, at
such price or prices as the Lender determines in its reasonable discretion. The
Company recognizes that such prohibition or restriction may cause such property
to have less value than it otherwise would have and that, consequently, such
sale or disposition by the Lender may result in a lower sales price than if the
sale were otherwise held.
6.8 Right of Sale. Upon the occurrence of any Event of Default, or at any
time thereafter during which such Event of Default is continuing, the Lender,
with or without entry, by itself or by its agents or attorneys, insofar as
applicable, shall have the power and authority to invoke the power of sale,
which is hereby granted to the Trustee. The Lender shall give written notice to
the Trustee of its election to invoke the power of sale, and the Trustee shall
give to the Company such notice of the Company's rights as is provided by law.
The Trustee shall advertise the time and place of the sale of the real property
included in the Collateral in such manner as is required by law and shall mail
copies of such notice of sale to the Company and other persons as prescribed by
law. After the lapse of such time as may be required by law, the Trustee,
without demand on the Company, shall sell the real property included in the
Collateral at public auction to the highest bidder for cash at the time and
place and in one or more parcels as the Trustee may think best and in such order
as the Trustee may determine. The Lender may become a purchaser at any such sale
and shall have the right to credit the amount of its bid to the amount due to
it. It shall not be obligatory upon any purchaser at any such sale to see to the
proper application of the purchase money. The Lender shall be entitled to a
receiver for the real property included in the Collateral upon or at any time
after the election to invoke the power of sale, and shall be entitled to such
receiver without notice, without regard to the solvency of the Company at the
time of the application for the appointment of such receiver, and without regard
to the then value of the real property included in the Collateral.
6.9 Company's Obligations Upon Sale. Any sale of the Collateral, or any
part thereof, pursuant to the provisions of this Article VI will operate to
divest all right, title, interest, claim and demand of the Company in and to the
property sold and will be a perpetual bar against the Company. Nevertheless, if
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<PAGE>
if requested by the Trustee or the Lender to do so, the Company shall join in
the execution, acknowledgment and delivery of all proper conveyances,
assignments and transfers of the property so sold. Any purchaser at a
foreclosure sale will receive immediate possession of the property purchased,
and the Company agrees that if the Company retains possession of the property or
any part thereof subsequent to such sale, the Company will be considered a
tenant at sufferance of the purchaser, and will, if the Company remains in
possession after demand to remove, be guilty of unlawful detainer and will be
subject to eviction and removal, forcible or otherwise, with or without process
of law, and all damages by reason thereof are hereby expressly waived.
6.10 Liens and Rights Unaffected. The liens and rights created and granted
hereby shall not affect or be affected by any other security taken by the Lender
for the same debts or any part thereof. The Company shall have and assert no
rights, under any statute or rule of law pertaining to the marshalling of
assets, the exemption of homestead, the administration of estates of decedents,
or other matters whatever, to defeat, reduce or affect the rights of the Lender
under the terms of this Deed of Trust, to a sale of the Collateral for the
collection of the Obligations secured hereby or the right of the Lender, under
the terms of this Deed of Trust, to the payment of the Obligations secured
hereby out of the proceeds of the sale of the Collateral in preference to every
other person and claimant whatever.
6.11 Application of Proceeds. The proceeds of any sale of the Collateral or
any part thereof made pursuant to this Article VI shall be applied as follows:
(a) First, to the payment of all out-of-pocket costs and expenses
incident to the enforcement of this instrument, including, but not limited
to, a reasonable compensation to the attorneys for the Lender;
(b) Second, to the payment of the Indebtedness; and
(c) Third, the remainder, if any, to be distributed as required by law
or paid to the Company.
6.12 Power of Attorney. If an Event of Default shall occur hereunder, the
Company will, upon the request of the Lender, execute and deliver to such person
or persons as may be designated by the Lender appropriate powers of attorney to
act for and on behalf of the Company in all transactions with TSVLP or any other
person owning an interest in the Lands or the Project and any governmental
agency or entity having authority relating to any of the Collateral.
6.13 Intercreditor Agreement. The rights and remedies granted to the Lender
under the provisions of this Article VI shall be subject to the terms and
conditions of the Intercreditor Agreement.
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<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
7.1 No Waiver; Cumulative Remedies. All options, powers, remedies and
rights herein granted to the Lender are continuing, cumulative and not
exclusive, and the failure to exercise any such option, power, remedy or right
upon a particular default or breach, or upon any subsequent default or breach,
shall not be construed as waiving the right to exercise such option, power,
remedy or right with respect to the Obligations secured hereby after its due
date. No exercise of the rights and powers herein granted, and no delay or
omission in the exercise of such rights and powers shall be held to exhaust the
same or be construed as a waiver thereof, and every such right and power may be
exercised at any time. Any and all covenants in this Deed of Trust may, from
time to time, by instrument in writing signed by the Lender, be waived to such
extent and in such manner as the Lender may desire, but no such waiver shall
ever affect or impair the Lender's rights hereunder, except to the extent
specifically stated in such written instrument. All changes to and modifications
of this Deed of Trust must be in writing and signed by the Lender.
7.2 No Release. No release from the lien of this Deed of Trust on any part
of the Collateral shall in any way alter, vary or diminish the force, effect or
lien of this Deed of Trust on the balance of the Collateral.
7.3 Severability; References. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction, the remaining provisions hereof
shall be liberally construed in favor of the Lender in order to effectuate the
provisions hereof, and the invalidity or unenforceability of any provisions
hereof in any jurisdiction shall not affect the validity or enforceability of
any such provision in any other jurisdiction. Any reference herein contained to
the statutes or laws of a state in which no part of the Collateral is situated
shall be deemed to be inapplicable to, and not used in, the interpretation
hereof.
7.4 Subrogation. This Deed of Trust is made with full substitution and
subrogation of the Lender in and to all covenants and warranties by others
heretofore given or made in respect of the Collateral or any part thereof.
7.5 No Duties. No provision of this Deed of Trust shall be construed to
impose upon the Lender a duty to perform any of the covenants and Obligations of
the Company.
7.6 Assignment of Rights. This Deed of Trust will be deemed to be, and may
be enforced from time to time as, an assignment, chattel mortgage, contract or
security agreement, and from time to time as any one or more thereof as is
appropriate under applicable state law.
7.7 Recording References. All recording references in Schedule A are to the
real property records of the county in which the Lands are located.
7.8 Counterparts. This Deed of Trust may be executed in several original
counterparts and each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.
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<PAGE>
7.9 Notices. All deliveries hereunder shall be deemed to have been duly
made if actually delivered, of if mailed by registered or certified mail,
postage prepaid, to the addresses first set forth hereinabove. Each party may,
by written notice so delivered to the other, change the address to which
delivery shall thereafter be made.
7.10 Successor Trustee. The Lender may appoint a successor trustee at any
time to operate the trust created by this Deed of Trust by recording, in the
office of the Eureka County Clerk and Recorder, a substitution of trustee in
conformance with Nevada law. From the time the substitution is recorded, the new
trustee shall succeed to all the powers, duties, authority and title of the
Trustee named herein or of any successor trustee. Each such substitution shall
be executed and acknowledged, and notice thereof shall be given and proof
thereof made, in the manner provided by law.
7.11 Binding Effect. The terms, provisions, covenants and conditions hereof
shall bind and inure to the benefit of the respective successors and assigns of
the Company and of the Lender.
7.12 Usury Laws. No provision of the Note or other instrument constituting
or evidencing any of the Indebtedness or any other agreements between the
parties shall require the payment or permit the collection of interest in excess
of the maximum non-usurious rate which the Company may agree to pay under
applicable laws. The intention of the parties being to conform to applicable
usury laws now in force, the interest on the principal amount of the Note and
the interest on other amounts due under and/or secured by this Deed of Trust
shall be held to be subject to reduction to the amount allowed under said
applicable usury laws as now or hereafter construed by courts having
jurisdiction, and any excess interest paid shall be credited to Company.
7.13 Governing Law. The terms and conditions of this Deed of Trust shall be
governed by the laws of the State of Nevada, without regard to its rules
concerning conflicts of laws.
7.14 Further Assurances. At the request of either party hereto, the other
party shall execute and deliver any further instruments, agreements, documents
or other papers and take such other actions as may be reasonably requested by
either party to effect the purposes of this Deed of Trust and the transactions
contemplated hereby.
7.15 Public Announcements. Each party shall obtain the prior written
consent of the other party to this Deed of Trust before making any public
announcement with respect to this Deed of Trust, any related agreement or the
transactions contemplated hereunder or thereunder, unless counsel for the
disclosing party advises it that such public announcement is required under
applicable laws or securities exchange regulations (in which case such public
announcement shall be made only after the text of such announcement has been
disclosed to the other parties with reasonable advance notice).
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<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this Deed of Trust to
be duly executed by their duly authorized officers, all as of the day and year
first above written.
GOLD CAPITAL CORPORATION
a Colorado corporation
By: /S/ BILL M. CONRAD
-----------------------------------
Bill M. Conrad (Name)
-----------------------------------
Pres (Title)
------------------------------------
GLOBEX MINING ENTERPRISES, INC., a
Quebec corporation
By:
------------------------------------
(Name)
------------------------------------
(Title)
------------------------------------
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<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me on January 16th, 1997,
by , Bill Conrad as Pres of GOLD CAPITAL CORPORATION, a Colorado corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this Deed of Trust first above written.
---------------------------------
Notary Public
My Commission expires: 12/23/98
---------
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<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me on January __, 1997, by
Jack Stoch as President of GLOBEX MINING ENTERPRISES INC., a Quebec corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this Deed of Trust first above written.
---------------------------------
Notary Public
My Commission expires:
---------------------
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<PAGE>
SCHEDULE A to Deed of Trust
(Lands)
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<PAGE>
SCHEDULE B to Deed of Trust
(Operating Equipment)
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INTERCREDITOR AGREEMENT
-----------------------
THIS INTERCREDITOR AGREEMENT, dated this 16th day of January, 1997, is by
and among TONKIN SPRINGS VENTURE LIMITED PARTNERSHIP, a Nevada limited
partnership ("TSVLP"), whose address is 55 Madison, Suite 700, Denver, Colorado
80206, TONKIN SPRINGS GOLD MINING COMPANY, a Colorado corporation and the
general partner of TSVLP ("TSGMC"), whose address is 55 Madison, Suite 700,
Denver, Colorado 80206, U.S. GOLD CORPORATION, a Colorado corporation of which
TSGMC is a wholly-owned subsidiary ("U.S. Gold"), whose address is 55 Madison,
Suite 700, Denver, Colorado 80206, and GLOBEX MINING ENTERPRISES INC., a Quebec
corporation ("Globex"), whose address is 146-14th Street, Rouyn- Noranda,
Quebec, Canada, J9X 253 and GOLD CAPITAL CORPORATION, a Colorado corporation
("GCC"), whose address is 5525 Erindale Drive, Suite 201, Colorado Springs,
Colorado 80918, who is a party hereto for certain purposes as indicated on the
signatory pages hereof.
RECITALS
--------
A. Pursuant to a Secured Promissory Note dated December 31, 1993, by GCC in
favor of TSVLP (such Secured Promissory Note having been amended and restated
July 13, 1994, October 18, 1994, March 27, 1995, June 21, 1995 and, as amended,
referred to hereinafter as the "TSVLP Note"), GCC issued to TSVLP a Secured
Promissory Note and currently owes principal and interest to TSVLP in the
aggregate amount of $1,630,644.46, after taking into account the adding of 1996
accrued interest on the TSVLP Note to the unpaid principal balance thereof.
B. The indebtedness and obligations of GCC under the TSVLP Note are secured
by certain real and personal property of GCC, constituting (i) a sixty percent
(60%) interest in certain owned or leased unpatented mining claims comprising
the Tonkin Springs Project in Eureka County, Nevada, and related surface
facilities and machinery and equipment (collectively the "Tonkin Springs
Project"), and (ii) GCC's interest in that Mining Venture Agreement between GCC
and TSVLP dated December 31, 1993, which governs operations at the Tonkin
Springs Project (the "Mining Venture Agreement"), all as more particularly
described in that Security Agreement dated December 31, 1993 (the "TSVLP
Security Agreement") and a related UCC-1 Financing Statement between GCC and
TSVLP (collectively referred to hereinafter as the "TSVLP Collateral
Agreements").
C. Pursuant to a Loan Agreement and Promissory Note (the "Globex
Agreements") dated of even date herewith among GCC, TSVLP, TSGMC, U.S. Gold and
Globex, Globex has agreed to provide a loan to GCC, consisting of an initial
advance of $395,000 and such additional advances as may be made pursuant to the
provisions of the Globex Agreements (the "Globex Loan"). The indebtedness and
obligations of GCC under the Globex Agreements with respect to the Globex Loan
and the Promissory Note issued by GCC to Globex in connection therewith are also
secured by the collateral that is covered by the TSVLP Collateral Agreements,
pursuant to a Deed of Trust, Security Agreement, Financing Statement and
Assignment of Production and Proceeds of even date herewith, together with
related UCC-1 Financing Statements (the "Globex Collateral Agreements").
<PAGE>
D. TSVLP and Globex are sometimes referred to collectively herein as the
"Lenders" or individually as a "Lender". The TSVLP Collateral Agreements and the
Globex Collateral Agreements are collectively referred to hereafter as the
"Collateral Documents." All of the collateral pertaining to the Tonkin Springs
Project and the Mining Venture Agreement covered and encumbered by any of the
Collateral Documents is collectively referred to hereinafter as the
"Collateral." The TSVLP Note and the Globex Agreements are collectively referred
to hereinafter as the "Loan Agreements."
E. The Lenders desire by this Agreement to establish their relative rights
and priorities with respect to their liens relating to the Collateral, and to
agree to enforcement procedures of rights under the Collateral Agreements.
AGREEMENT
---------
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Ratable Sharing of Collateral. Each Lender acknowledges (and each has
irrevocably advised and instructed GCC to recognize) that the Collateral in
which it has or acquires a security interest is identical and is intended to be
co-extensive with the Collateral covered by the security interest of the other
Lender and, with respect to gold and other precious metals contained in and
recoverable from the ore concentrates, that such security interests remain
through the stockpiling, shipping and smelting processes. It is the intent of
the Lenders, and it is hereby agreed between the Lenders, that as between the
Lenders each Lender shall participate in fifty percent (50%) of the total amount
of Collateral and proceeds of the Collateral (including commingled contained
gold in a given stockpile, shipment or batch) up to the aggregate amount of
principal and interest owed to each of them pursuant to the TSVLP Note and the
Globex Loan, respectively. Subject to the terms of this Agreement, the Lenders
hereby agree jointly to pursue any rights and remedies that each may have and
either may elect to initiate under their respective Collateral Documents in a
manner that recognizes and respects the other Lender's pro-rata share of the
Collateral in accordance with the terms of this Agreement and any proceeds from
the disposition of the Collateral in the event either Lender exercises or
enforces its rights to foreclosure or takes other remedial action as a secured
party shall, subject to the terms hereof, be shared between them pari passu in
equal proportions.
2. Priority. Notwithstanding the date, manner or order of recording of the
Collateral Documents or the taking of any other steps necessary to perfect or
any steps to enforce the respective security interests in the Collateral and
notwithstanding any provision of the Uniform Commercial Code as adopted in
Nevada or any other applicable law, or any provision in the Loan Agreements or
the Collateral Documents, the liens and encumbrances created by the Collateral
Documents shall be equal and on a parity, and TSVLP and Globex, subject to the
terms of Section 1, shall have equal priority with respect to their security
interests in the Collateral as to the amounts owing to them under the Loan
Agreements. Each Lender assigns to the other Lender, for the term of this
Agreement, an undivided interest in the Collateral Documents of the assigning
Lender, and in any proceeds collected by virtue of enforcement thereof or
otherwise, to the extent of the assignee's undivided interest and right to
participate in the Collateral pursuant to Section 1 hereof. Each Lender
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<PAGE>
agrees to take all action necessary or appropriate to evidence and give effect
to the foregoing assignment.
3. Foreclosure. If a Default or Event of Default, as such terms are defined
in the Loan Agreements (collectively, a "Default"), shall have occurred and is
continuing, the Lender who is alleging such Default (the "Foreclosing Lender")
may notify the other Lender (the "Participating Lender") in accordance with
Section 10 hereof. If after thirty (30) days from the date of the notice the
Default continues, the Participating Lender shall be entitled to pursue the
remedies and exercise any further rights and remedies granted under the relevant
Loan Agreement or Collateral Document. TSVLP and Globex recognize that a trustee
foreclosure under a deed of trust may be less expensive and more expedited than
a judicial foreclosure. Therefore, the Lenders covenant and agree that if there
is a Default under either or both of the TSVLP Collateral Agreements (and/or the
TSVLP Security Agreement) and the Globex Collateral Agreements (and/or the
Globex Agreements), foreclosure proceedings shall be commenced upon the
expiration of the thirty (30) day notice period, and the Foreclosing Lender
shall proceed to foreclose under the applicable Collateral Documents. The
foreclosure shall be conducted as a unified sale of real and personal property
conducted in accordance with the Nevada Uniform Commercial Code and Nevada real
property law governing a trustee's sale of real property encumbered by a deed of
trust, unless otherwise agreed by the Foreclosing and Participating Lender. At
the trustee's sale, the Foreclosing Lender and the Participating Lender shall
jointly bid not less than the lesser of the fair market value of the Collateral
or the combined balances then owing under the applicable Loan Agreement, unless
otherwise agreed by the Lenders. If the Collateral is not purchased by a third
party at the trustees sale, the Foreclosing Lender shall cause title to vest in
the names of both Lenders, as tenants in common, with equal undivided interests
therein. The Foreclosing Lender shall obtain a Trustee's Sale Guaranty from a
title company reasonably acceptable to the Participating Lender insuring title
in the real property portion of the Collateral vested as required herein. The
Foreclosing Lender or Participating Lender may also exercise any further rights
or remedies under the applicable Collateral Documents or Loan Agreements;
provided, that any interest in or amounts recorded with respect to the
Collateral shall be vested in the names of both Lenders in accordance herewith.
Any proceeds received from any such foreclosure, remedial action, redemption or
receivership proceeding related to the Collateral shall be shared between the
Lenders pari passu in equal proportions; provided, that such proceeds shall be
allocated between the Lenders in the manner provided in Section 4 below. Upon
issuance of the Trustee's Deeds to TSVLP and Globex, as tenants in common in
accordance herewith, each Lender agrees to promptly release the lien of its
respective Collateral Documents as an encumbrance against the Collateral. For a
period of ninety (90) days thereafter, TSVLP shall have the option to pay to
Globex in immediately available funds an amount equal to the amount of principal
and interest owed to Globex under the Globex Agreements at the time of
foreclosure, and thereby acquire all of the right, title and interest of Globex
in and to the Collateral, by documents of conveyance reasonably acceptable in
form and substance to TSVLP and Globex and their respective counsel. If TSVLP
fails to timely exercise that option, the parties shall remain tenants in common
as to the Collateral. Any foreclosure or sale of the Collateral constituting
personal property not conducted simultaneously with the trustee's sale shall be
made by the Foreclosing Lender in accordance with the provisions of the Nevada
Uniform Commercial Code, and any proceeds received therefrom shall be shared
between the Lenders pari passu in equal proportions; provided, that such
proceeds shall be allocated between the Lenders in the manner provided in
Section 4 below.
-3-
<PAGE>
4. Application of Payments with Respect to the Collateral. In the event of
any foreclosure, sale or other disposition of or realization in any manner upon
any of the Collateral, all monies or other property collected or received by
either Lender with respect to the Collateral, in excess of the amount paid to
discharge liens upon the Collateral prior to the Collateral Documents (if any),
shall be distributed by the collecting Lender as follows:
(a) First: to the Foreclosing Lender and Participating Lender in the
amount of, and to apply to, the payment of reasonable costs and expenses
incurred by the Foreclosing Lender and Participating Lender in connection
with the administration and enforcement of the foreclosed upon deed of
trust or other Collateral Document, as the case may be, and any of the
other Loan Agreements relating to such foreclosure, including the
reasonable fees and out-of-pocket expenses of counsel employed by the
foreclosing Lender to the extent that such fees, advances, costs and
expenses, shall not previously have been paid or reimbursed to the
Foreclosing Lender and Participating Lender;
(b) Second: to the pari passu payment and prepayment of so much of the
outstanding amounts of the Loan Agreements as constitute unpaid principal
amounts, and of so much of such unpaid indebtedness as constitute accrued
and unpaid interest to and including the date of such application, in equal
proportions, all in accordance with Section 1; and
(c) Third: to the Lenders pari passu in equal proportions, until all
indebtedness and other obligations owed by GCC under the Loan Agreements
have been satisfied in full, then any excess amount to GCC.
5. Notice of an Event of Default. If either Lender intends to declare a
Default under any of the Loan Agreements to which such Lender is a party, such
Lender shall give prompt notice of such intention to the other Lender, which
notice shall set forth in reasonable detail the circumstances known to the
sender with respect to such Event of Default. TSVLP hereby agrees that it will
not send notice to GCC of an Event of Default under the TSVLP Security Agreement
so long as GCC timely makes the monthly debt service payments required under the
TSVLP Note, Globex has not provided written notice to GCC of an election not to
make further advances of funds to GCC set forth in the Globex Agreements, and no
third party creditor(s) attempts to foreclose or otherwise collect on the
Collateral or to force GCC into any involuntary bankruptcy, insolvency or
similar proceedings. Globex hereby agrees to forebear exercising any foreclosure
rights under the Globex Collateral Agreements through and including the Maturity
Date (as defined in the Globex Agreements), so long as no Events of Default have
occurred hereunder or thereunder; provided, however, that Globex shall be
entitled to participate and to exercise all rights it has to the full extent of
the Globex Collateral Agreements in the event that (a) TSVLP shall undertake any
action to enforce its rights under the TSVLP Collateral Agreements, or (b) any
third party shall exercise any rights of foreclosure or other collection action
against the Collateral.
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<PAGE>
6. Security Interests. Notwithstanding anything to the contrary herein,
each Lender is responsible for the creation, perfection and validity of any
security or other interest in and to the Collateral pursuant to its own
financing facility (i.e., the TSVLP Note or the Globex Loan, as appropriate) and
pursuant to the Nevada Uniform Commercial Code (the "UCC"), Nevada real property
laws and other applicable law. In prescribing their relative rights and
privileges, this Agreement assumes that each Lender has complied with the UCC
and other applicable law and holds a valid security interest or ownership
interest in and to its share of Collateral. Each Lender is responsible for
perfecting its respective security interest in and to the Collateral, whether by
filing of record the Deed of Trust or otherwise reflecting its interest as
further security for the obligations and indebtedness under their respective
Loan Agreements.
7. Compromise of Claims; Effect of Bankruptcy, Fraud, etc. Neither Lender
shall compromise or settle any claim with respect to the Collateral without the
prior written consent of the other. Should GCC become subject to a bankruptcy or
similar proceeding prior to the repayment to a Lender of all amounts owed to
such Lender by GCC either Lender who files a proof of claim and is shown to have
a valid, perfected secured claim in or title to its respective pro-rata share of
the Collateral shall have a secured claim up to its own pro-rata share therein,
and shall share ratably in any deficiency or other claim against GCC, and any
proceeds received therefrom shall be shared between the Lenders pari passu in
equal proportions; provided, that such proceeds shall be allocated between the
Lenders in the manner provided in Section 4.
8. Termination. The provisions contained in the foregoing Sections 1
through 7 of this Agreement shall terminate when the indebtedness and
obligations under either of the respective Loan Agreements have been paid and
performed in full.
9. Representations, Warranties and Covenants. The parties make the
following representations, warranties and covenants:
(a) (i) TSVLP is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Nevada, and is
qualified to do business and in good standing in each jurisdiction in which the
nature of the business transacted by it or the nature of the property owned or
leased by it makes such qualification necessary and where failure to so qualify
would have a material adverse effect on the ability of TSVLP to perform its
obligations under this Agreement.
(ii) Globex is a corporation duly organized, validly existing and in
good standing under the laws of the Province of Quebec, and is qualified to do
business and in good standing in each jurisdiction in which the nature of the
business transacted by it or the nature of the property owned or leased by it
makes such qualification necessary and where failure to so qualify would have a
material adverse effect on the ability of Globex to perform its obligations
under this Agreement.
(b) (i) TSVLP has all necessary limited partnership power and
authority to own and operate its properties and to carry on its business as now
conducted and to execute, deliver, observe and perform the terms of this
Agreement. TSVLP has taken all necessary limited partnership action to duly
authorize the execution and delivery of this Agreement. Neither TSVLP's
-5-
<PAGE>
execution and delivery of this Agreement, nor the performance or observance by
TSVLP of the provisions hereof, violates, or will violate, any provisions in
TSVLP's articles of incorporation, bylaws or other constitutive documents, or
will constitute a default or a violation under, or result in the imposition of
any lien under, or conflict with, or result in any breach of any of the
provisions of, any existing contract or other obligation binding upon TSVLP or
its property or the Collateral. This Agreement has been duly executed and
delivered by TSVLP and is the legal, valid and binding obligation of TSVLP,
enforceable against TSVLP in accordance with its terms (subject to applicable
bankruptcy, reorganization, insolvency or similar laws affecting the enforcement
of creditors' rights generally).
(ii) Globex has all necessary corporate power and authority to
execute, deliver, observe and perform the terms of this Agreement. Neither
Globex's execution and delivery of this Agreement, nor the performance or
observance by Globex of the provisions hereof, violates, or will violate, any
provisions in Globex's articles of incorporation, bylaws or other constitutive
documents, or will constitute a default or a violation under, or result in the
imposition of any lien under, or conflict with, or result in any breach of any
of the provisions of, any existing contract or other obligation binding upon
Globex or its property or the Collateral. This Agreement has been duly executed
and delivered by Globex and is the legal, valid and binding obligation of
Globex, enforceable against Globex in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditors' rights generally).
(c) No suit, arbitration, action or other proceeding is pending or, to the
best of TSVLP's knowledge, threatened before any court, governmental authority
or regulatory body against TSVLP.
(d) Each of TSVLP and Globex agree that prior to the termination of this
Agreement they will in no way amend the terms and provisions of any Collateral
Documents to which they are a party.
10. No Representation or Guaranty; No Intention to Create Cross-Interests;
No Fiduciary Duty. Neither TSVLP nor Globex makes to the other Lender any
representation or assumes any responsibility in respect of the execution,
construction or enforcement of this Agreement or any Loan Agreement or
Collateral Document, note or other instrument or agreement executed by either
Lender. Neither Lender shall be deemed as a result of this Agreement to have
indirectly or directly guaranteed any debts, obligations or liabilities of the
other Lender or of GCC. The purpose of the foregoing provisions of this
Agreement is to establish certain rights and obligations as among the Lenders
which are necessary because of their shared interest in the Collateral. Each
Lender is the sole lender under and in respect of its own Loan Agreement with
GCC, and nothing herein shall be construed as an assignment, participation or
other disposition by one Lender with respect to the other Lender's Loan
Agreement or in any indebtedness or liability thereunder. Further, except as to
funds received or controlled by either Lender as to which the other Lender is
entitled to participate hereunder, nothing in this Agreement shall be deemed or
construed to expressly create a fiduciary relationship among or duty between the
Lenders, who disavow the existence of any other such fiduciary relationship or
duty to each other or to GCC.
11. Notices. All notices, requests and consent, demands and other
communications which are required or permitted to be given or made hereunder,
shall be given in writing and will be served by personal delivery, by reputable
-6-
<PAGE>
overnight courier or by postage prepaid or by U.S. certified mail, return
receipt requested, addressed to the respective parties at the addresses set
forth in the preamble of this Agreement. All notices, requests, consents,
demands and other communications hereunder shall be deemed given and effective
three days following the date on which such notice is deposited in the U.S. mail
or one business day after deposit with a reputable overnight courier, addressed
as provided above, or on the date personally delivered to and received by the
specified parties.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Nevada, without regard to its rules concerning conflicts of law.
13. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective
when copies hereof, taken together, bear the signatures of each of the parties.
14. Agreement by GCC. GCC agrees that it will cooperate with the Lenders to
the full extent necessary to effect the purposes of this Agreement, and that it
will not take any action in contravention of the provisions of this Agreement.
15. Conflicts. In the event any provision of any agreement, including
either the TSVLP Security Agreement, the TSVLP Note, or the Globex Agreements or
Globex Collateral Agreements, to which a Lender and GCC are parties is
inconsistent with the terms hereof, the provisions of this Agreement shall
prevail as to the subject matter hereof.
16. Survival of Representations. All representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for in it, shall
survive the recording of any Collateral Documents.
17. Waiver. Any of the terms or conditions of this Agreement may be waived
at any time by the party entitled to the benefit thereof, but no such waiver
shall affect or impair the right of the waiving party to require observance,
performance or satisfaction either of that term or condition as it applies on a
subsequent occasion or of any other term or condition thereof.
18. Succession. Subject to the provisions otherwise contained in this
Agreement, this Agreement shall inure to the benefit of and be binding on the
successors and assigns of the respective parties hereto. This Agreement may not
be assigned by either Lender without the prior written consent of the other
Lender, and may not be assigned by any other party.
-7-
<PAGE>
19. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
20. Specific Performance. Each party's obligations under this Agreement are
unique. The parties each acknowledge that, if any party should default in
performance of the duties and obligations imposed by this Agreement, it would be
extremely impracticable to measure the resulting damages. Accordingly, the
nondefaulting party, in addition to any other available rights or remedies, may
sue in equity for specific performance and the parties each expressly waive the
defense that a remedy in damages will be adequate.
21. Attorneys' Fees. If the services of any attorney are required by any
party to secure the performance hereof or otherwise upon the breach or default
of another party to this agreement, or if any judicial remedy or arbitration is
necessary to enforce or interpret any provision of this Agreement or the rights
and duties of any person in relation thereto, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and other expenses, in
addition to any other relief to which such party may be entitled.
22. Further Assurances. At the request of any party hereto, the other
parties shall execute and deliver any further instruments, agreements, documents
or other papers and take such other actions as may be reasonably requested by
any party to effect the purposes of this Agreement and the transactions
contemplated hereby.
23. Public Announcements. Each party shall obtain the prior written consent
of the other parties to this Agreement before making any public announcement
with respect to this Agreement, any related agreement or the transactions
contemplated hereunder or thereunder, unless counsel for the disclosing party
advises it that such public announcement is required under applicable laws or
securities exchange regulations.
24. Confidentiality. Except as otherwise set forth in Section 23, the
parties hereto and their collective representatives shall forever treat
confidentially all information concerning the terms and conditions of this
Agreement, all related agreements, and of the transactions contemplated
hereunder or thereunder (collectively "Confidential Information"); provided,
however, that Confidential Information shall not include information which
concerns the Tonkin Springs Project which is or becomes generally known to the
public other than as the result of a breach of the provisions of this Section 24
by any party hereto or its representatives. The obligation to treat the
Confidential Information confidentially shall not apply to the extent that any
party or its representatives shall be required to disclose such information in
connection with an investigation or legal proceeding where the failure to
disclose such information could result in liability for contempt or other
censure or penalty; provided, however, that such party and/or its
representatives shall notify the other parties as soon as possible and in any
event prior to such disclosure and shall cooperate with the other party in the
event that the other party elects to legally contest such disclosure.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Intercreditor Agreement
as of the date first written above.
TONKIN SPRINGS VENTURE LIMITED
PARTNERSHIP, a Nevada limited partnership
By: Tonkin Springs Gold Mining Company
General Partner
/s/ WILLIAM REID (name)
----------------------------------------
(title)
-----------------------------------------
TONKIN SPRINGS GOLD MINING
COMPANY, a Colorado corporation
By: /s/ WILLIAM REID
---------------------------------------
William W. Reid (name)
---------------------------------------
President (title)
---------------------------------------
U.S. GOLD CORPORATION, a Colorado
corporation
By: ---------------------------------------
---------------------------------(name)
--------------------------------(title)
GLOBEX MINING ENTERPRISES INC., a
Quebec corporation
By: /s/ JACK STOCH
---------------------------------------
Jack Stoch (name)
---------------------------------------
President (title)
---------------------------------------
-9-
<PAGE>
GCC is executing this Agreement for purposes of the agreements contained in
Sections 1, 3, 4(c), 13 and 14.
GOLD CAPITAL CORPORATION, a Colorado
corporation
By: /S/ BILL M. CONRAD
-----------------------------------
Bill M. Conrad
------------------------------(name)
Pres
-----------------------------(title)
-10-
EXHIBIT 11
GOLD CAPITAL CORPORATION
EXHIBIT TO FORM 10-KSB
Computation of Weighted Average Shares Outstanding
Used in Earnings Per share Calculations
for the two years ended December 31, 1996
1996 1995
---- ----
Shares issued, beginning of period 5,042,514 2,026,098
Weighted average of shares sold for cash,
or issued for services 716,029 1,646,586
--------- ---------
Total weighted average shares outstanding 5,758,543 3,672,684
========= =========
BEHRE DOLBEAR & COMPANY, INC.
Minerals Industry Consultants
1601 Blake Street TEL: (303) 620-0020
Suite 301 FAX: (303) 620-0024
Denver, Colorado 80202
CONSENT OF INDEPENDENT ENGINEERS
--------------------------------
As Independent Engineers, Behre Dolbear & Company, Inc. ("Behre Dolbear")
has rendered its report entitled TECHNICAL AUDIT OF THE TONKIN SPRINGS GOLD
PROPERTY, EUREKA COUNTY, NEVADA, dated April, 1996. Behre Dolbear hereby
consents to all references to Behre Dolbear in the Form 10- KSB for the period
ended December 31, 1996, of Gold Capital Corporation.
BEHRE DOLBEAR & COMPANY, INC.
By: /s/ Bernard J. Guarrera
---------------------------------
Bernard J. Guarrera, President,
Chief Executive Officer, and
Chief Operating Officer
Denver, Colorado
March 24, 1997
Denver New York Toronto Guadalajara Santiago Sydney
Ore Reserves Engineering
Alan C. Noble, P.E.
Principal Engineer
CONSENT OF INDEPENDENT ENGINEERS
As independent engineers, Ore Reserves Engineering ("ORE") has rendered
its estimates of open-pit ore reserves for the Tonkin Springs Project, dated
October, 1996. ORE hereby consents to all references to ORE in the Form 10-KSB
for the period ended December 31, 1996, of Gold Capital Corporation.
ORE RESERVES ENGINEERING
/s/ Alan C. Noble, P.E.
Alan C. Noble, P.E.
Lakewood, Colorado
March 20, 1997
- --------------------------------------------------------------------------------
303-237-8271 (Office) 12254 Applewood Knolls Drive
303-237-4533 (FAX) Lakewood, Colorado 80215 303-238-2821 (Res.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,914
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,914
<PP&E> 12,789,388
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,361,875
<CURRENT-LIABILITIES> 2,343,993
<BONDS> 0
0
0
<COMMON> 922
<OTHER-SE> 6,172,219
<TOTAL-LIABILITY-AND-EQUITY> 13,361,875
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,606,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299,548
<INCOME-PRETAX> (1,606,332)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,606,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,606,332)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
