SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of Earliest Event Reported): March 13, 1997
GOLD CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 0-24610 84-1251798
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(State of other juris- (Commission (I.R.S. Employer
diction of incorpora- File Number) Identification No.)
tion)
5525 Erindale Drive, Suite 201
Colorado Springs, Colorado 80918
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(address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (719) 260-8509
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(Former address, if changed since last report) (Zip code)
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Item 1. CHANGES IN CONTROL OF REGISTRANT
On March 13, 1997, Gold Capital Corporation (the "Company") executed an
agreement (the "Merger Agreement"; the transactions contemplated by the Merger
Agreement are hereinafter referred to as the "Merger") to merge with Globex
Mining Enterprises Inc., a publicly traded corporation organized and existing
under the laws of the Province of Quebec, Canada ("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, the Company would
be merged with and into GME Merger Corporation ("Surviving Corporation"), a
Colorado corporation wholly owned by Globex, which corporation would survive the
Merger. The 4,654,543 shares of Company 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.
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 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
represent approximately 25% of the currently issued and outstanding Common Stock
of the Company.
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 Surviving Corporation, all of which have been
nominated by Globex, will be the officers and directors of the Surviving
Corporation after the Merger.
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
See Item 5 below.
Item 3. BANKRUPTCY OR RECEIVERSHIP
No report required.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
No report required.
Item 5. OTHER EVENTS.
In connection with the Merger Agreement, Globex has agreed to fund
financial obligations of the Company pending completion of the Merger. Subject
to the terms and conditions of a 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. Continued funding 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.
Item 6. RESIGNATION OF REGISTRANT'S DIRECTORS.
See Item 1 above.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements.
No report required.
b. Proforma Financial Information.
No report required.
c. Exhibits.
(i) Loan Agreement by and between the Company and Globex,
dated January 16, 1997, without exhibits.
(ii) Agreement and Plan of Merger by and between the Company,
Globex and GME Merger Corporation, without exhibits.
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Item 8. CHANGE IN FISCAL YEAR
No report required.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned hereunto duly authorized.
GOLD CAPITAL CORPORATION
Date: March 27, 1997 By: /S/ BILL M. CONRAD
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Bill M. Conrad, President
5
LOAN AGREEMENT
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THIS LOAN AGREEMENT, dated as of January 16, 1997 (this "Agreement"), is by
and among GLOBEX MINING ENTERPRISES INC., a Quebec corporation, whose address is
146 - 14th Street, Rouyn-Noranda, Quebec, Canada, J9X 2J3 (the "Lender"), GOLD
CAPITAL CORPORATION, a Colorado corporation, whose address is 5525 Erindale
Drive, Suite 201, Colorado Springs, Colorado, USA 80918 (the "Borrower"), TONKIN
SPRINGS VENTURE LIMITED PARTNERSHIP, a Nevada limited partnership, whose address
is 55 Madison, Suite 700, Denver, Colorado 80206 ("TSVLP"), TONKIN SPRINGS GOLD
MINING COMPANY a Colorado corporation, general partner of TSVLP, whose address
is 55 Madison, Suite 700, Denver, Colorado 80206 ("TSGMC") and U.S. GOLD
CORPORATION, a Colorado corporation ("U.S. Gold") of which TSGMC is a
wholly-owned subsidiary, whose address is 55 Madison, Suite 700, Denver,
Colorado 80206.
RECITALS
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A. Borrower is the owner of an undivided sixty percent (60%) interest in
the Tonkin Springs Project, consisting of unpatented mining claims, unpatented
millsites leases, improvements, permits, water rights, mines, fixtures and
equipment, all located in Eureka County, Nevada (collectively, the "Project").
B. Borrower and TSVLP are parties to a Purchase and Sale Agreement dated
December 31, 1993 (the "Purchase and Sale Agreement"), pursuant to which the
Borrower acquired its sixty percent (60%) interest in the Project. Borrower and
TSVLP are also parties to a Mining Venture Agreement dated effective as of
December 31, 1993 (the "Mining Venture Agreement"), pursuant to which operations
are conducted at the Project and under which the Borrower is the Manager (as
defined in the Mining Venture Agreement) of the Project. In addition, TSVLP is
the owner and holder of an Amended and Restated Secured Promissory Note, as
amended (the "TSVLP Note"), executed by Borrower on or about June 21, 1995, in
the original principal amount of $3,800,000, which is secured by a Security
Agreement by and between Borrower and TSVLP dated December 31, 1993 (the "TSVLP
Security Agreement"). The remaining amount of principal and interest outstanding
under the TSVLP Note, and the schedule for repayment of those amounts, is set
forth in the TSVLP Note.
C. In accordance with the terms of a Letter of Intent dated December 20,
1996, among the Lender, the Borrower, TSGMC and U.S. Gold (the "Letter of
Intent"), the Borrower and the Lender are contemplating a series of transactions
(the "Acquisition Transactions") pursuant to which the Lender acquires all of
the issued and outstanding shares of common stock of the Borrower, and in
connection therewith, the Lender has agreed to make certain advances of funds on
Borrower's behalf, for the payment of operating and other indebtedness of
Borrower incurred in connection with the Project.
D. TSVLP has agreed to execute the Intercreditor Agreement (as defined
below) to provide the Lender a security interest in the Project pari passu with
the security interest in the Project held by TSVLP pursuant to the TSVLP
Security Agreement, for the amount of funding provided by the Lender under this
Agreement.
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E. Borrower, TSVLP and Lender desire to memorialize the terms and
conditions upon which such financing will be completed.
NOW, THEREFORE, in consideration of the foregoing recitals, the covenants
and conditions hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
SECTION I
Definitions
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As used in this Agreement:
"Accounts Payable" shall mean outstanding amounts currently owed by the
Borrower to third party vendors, a complete list of which (to the actual
knowledge of the Borrower) is set forth on Schedule 1 attached hereto.
"Collateral" shall mean all of the right, title and interest of Borrower in
and to the property defined as "Collateral" or "Debtor's Collateral" in the
TSVLP Security Agreement, as more particularly described in Section 2(a)(i)-(ix)
thereof, and all of the right, title and interest of Borrower in and to any
additional real or personal property, ores, minerals or mineral resources,
machinery, fixtures or equipment of any kind at the Project, and general
intangibles and income, products and proceeds associated with the foregoing and
any additional unpatented mining claims or millsites, as more particularly
described on Exhibit A attached hereto and incorporated herein by reference.
"Deed of Trust" shall mean that Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production and Proceeds, pursuant to which
the Lender is granted a first priority security interest in and to that portion
of the Collateral constituting real property, in the form of Exhibit B attached
hereto and incorporated herein by reference, subject only to Permitted Liens and
the Lien created by the TSVLP Note and the TSVLP Security Agreement.
"Distribution" means any dividend payable in cash or property with respect
to any shares of capital stock of Borrower (including, without limitation,
dividends payable in shares of common, preferred, or other capital stock) or any
purchase, redemption or retirement of, or other payment with respect to any
shares of capital stock of Borrower.
"Environmental Laws" means any and all federal, state and local statutes,
laws, regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation, ambient
air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, which statutes and regulations shall
include, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et
seq., the Federal Water and Pollution Control Act, as amended, 33 U.S.C. Section
1251 et seq., the Federal Clean Air Act, as amended, 42 U.S.C.Section 7401 et
seq., the Emergency Planning and Community Right to Know Act, as amended, 42
U.S.C.
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Section 110101 et seq., the Toxic Substances Control Act, as amended, 154 U.S.C.
Section 2601-2629, the Safe Drinking Water Act, as amended, 42 U.S.C. Section
300f-300j, and any and all Nevada state law counterparts, and the regulations
issued under each of such federal or state statutes.
"Equity Proceeds" means the net proceeds of sale by Borrower of any and all
common stock, preferred stock, notes, debentures or other securities (including
without limitation any stock sold pursuant to the exercise of stock options)
issued by Borrower and sold subsequent to the date of this Agreement.
"Event of Default" shall mean the occurrence of any one or more of the
events which constitute an Event of Default under Section VII of this Agreement.
"Intercreditor Agreement" means that certain Intercreditor Agreement among
the Lender, TSVLP, TSGMC and U.S. Gold of even date herewith, in the form of
Exhibit C attached hereto.
"Lands" means all of the unpatented mining claims and millsites or other
mineral rights owned or leased by the Borrower or TSVLP and subject to the
Mining Venture Agreement.
"Lien" means any lien, mortgage, deed of trust, security interest, pledge,
deposit, production payment, right of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent thereto or any
other charge or encumbrance for security purposes, whether arising or by law or
agreement or otherwise, but excluding any right of offset which arises without
agreement in the ordinary course of business.
"Loan" shall mean the aggregate amount of the advances provided for in
Section II hereof, as evidenced by the Note to be delivered by the Borrower to
the Lender on the Loan Date.
"Loan Date" shall mean the date on which the Lender makes the initial
installment of the Loan available to the Borrower pursuant to Section II of this
Agreement.
"Material Project Agreements" means those agreements to which the Borrower
is a party which are material to the conduct of operations at the Project or the
maintenance of any portion of the Collateral.
"Maturity Date" means the earlier of the date of full execution and
delivery of definitive documents by which the Lender acquires all of the issued
and outstanding shares of common stock of the Borrower, or August 30, 1997.
"Mining Leases" shall mean those Mining Leases described in Schedule 2
attached hereto.
"Note" shall mean the promissory note of the Borrower, evidencing the Loan,
which shall be automatically amended from time to time as Lender makes
additional advances to Borrower pursuant to Section 2.1, in the form attached to
this Agreement as Exhibit D and incorporated herein by reference.
"Permitted Liens" shall mean existing indebtedness of the Borrower
(including Accounts Payable) as listed in Schedule 3 attached hereto.
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"Person" shall mean any natural person, company, trust, corporation, joint
venture or business organization.
"Security Documents" shall mean the filings, recordations, approvals,
certificates, title insurance and other documentation, including without
limitation the Deed of Trust, necessary, in the Lender's sole discretion, to
perfect and evidence the Lender's lien and security interest in the Collateral.
SECTION II
The Loan
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Subject to the terms and conditions of this Agreement, the Lender agrees to
make the Loan to the Borrower as follows:
2.1.Amount; Maturity. Subject to the terms and conditions hereof, Lender
agrees to make advances to Borrower under this Loan Agreement, from time to
time, in the initial amount of $415,000 (the "Initial Advance", which shall be
disbursed in accordance with the procedures described below) and in such
additional amounts as requested in writing (in the form of request set forth on
the attached on Schedule 2.1) by the Borrower and agreed to by the Lender (in
each case not later than three business days following the receipt of such
request, unless the Lender has asked the Borrower for additional information as
to the nature of the advance or the specific uses to which the funds advanced
will be put, which such requests by Lender Borrower agrees to respond to
promptly, in which case, assuming it receives the additional information, Lender
will respond not later than seven business following the receipt of such
request) in its sole discretion (so long as the Lender, subject to its rights to
approve or disapprove specific requests for advances and to elect not to make
any further advances hereunder, agrees to make such advances as are necessary to
enable Borrower to achieve the objectives set forth in clauses (a), (b) and (c)
below), all such amounts to be disbursed and utilized strictly in accordance
with this Section 2.1 and the schedule attached hereto as Exhibit E and
incorporated herein by reference, to enable Borrower to (a) take such actions as
are reasonably necessary to maintain, preserve and protect the assets and
properties of the Tonkin Springs Project, (b) service the TSVLP Note (which the
parties agree shall not be subject to the Lender's discretion), and (c) pay
other necessary and proper obligations and commitments of Borrower, including
such obligations and commitments of Borrower as are required under the Letter of
Intent and all agreements contemplated thereby. The Borrower and the Lender
hereby agree and the Borrower hereby covenants and agrees that the proceeds of
the Initial Advance shall be disbursed and used as follows:
(i) $20,000, previously advanced by Lender to Borrower;
(ii) $166,780 to be paid by wire transfers to the Lessors under the
Campbell/Simpson Lease (as defined in Schedule 2), pursuant to written
instructions from the Borrower;
(iii) $141,000 to be paid immediately to TSVLP, $91,000 of which will
be applied to payments, including interest, past due under the TSVLP Note, and
$50,000 of which will cover the January 1997 payment due under the TSVLP Note;
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(iv) $30,306.37 to be paid immediately to the Eureka County, Nevada,
Assessor to cover past due personal property taxes for the Collateral;
(v) $25,000 to cover the Borrower's working capital needs (as directed
by Lender in accordance with the provisions of this Section 2.1) for January
1997, as set forth on Exhibit E; and
(vi) the balance ($31,913.63) to be used for the payment of Accounts
Payable (as directed by Lender in accordance with the provisions of this Section
2.1) during January 1997, as set forth on Exhibit E.
Except for the Initial Advance, as to which no election is permitted, the
parties hereby acknowledge and agree that in addition to responding
affirmatively or negatively to specific written requests for advances of funds
as set forth above, Lender, by written notice to the Borrower at any time, may
elect to terminate its obligation to make any further advances to the Borrower
pursuant to this Agreement. In that event, the Lender shall have no obligation
or liability to the Borrower, any other party hereto, or any third party for the
foreseeable or unforeseeable consequences of an election by the Lender not to
make any further advances.
2.2.Note. The Obligation of Borrower to repay the Loan, with interest
thereon, shall be evidenced by the Note, which shall be deemed automatically
amended to reflect all amounts advanced by Lender to Borrower pursuant to
Section 2.1, at the time each such advance is made. The Note shall be payable on
the Maturity Date or upon acceleration as hereinafter set forth. The Note shall
bear interest at a rate equal to two percent (2%) over the existing prime rate,
as published in the Wall Street Journal, Western Edition, on the day the initial
portion of the Loan is funded. Interest shall accrue at the annual rate of
fifteen percent (15%) (the "Default Rate") on any past-due payment of principal
and, to the fullest extent permitted by law, of any interest or other amount
payable under this Agreement. Interest shall be calculated on the basis of a
three hundred sixty (360) day year of twelve (12) thirty (30) day months.
2.3.Acceleration. The Maturity Date of the Note shall be accelerated (the
"Acceleration Date") (a) as provided under Section 8.1, (b) in the event the
Borrower shall receive Equity Proceeds in an aggregate amount of not less than
$2,000,000 at any date subsequent to the Loan Date, (c) in the event the TSVLP
Note shall be declared in default and action to foreclose the underlying
security (pursuant to the TSVLP Security Agreement) is taken in connection with
such an Event of Default, or (d) in the event any third party takes any
foreclosure action or otherwise attempts to collect against the Collateral.
2.4.Prepayments.
(a) Within five (5) business days after receipt by Borrower of any
Equity Proceeds in excess of $2,000,000, Borrower shall make mandatory
prepayment of the entire amount of the Loan.
(b) Borrower shall have the right to prepay the Note at any time,
either in whole or in part, with or without notice, without penalty or premium.
2.5.Payment to Lender. Borrower will pay to the Lender on the Maturity
Date, or the Acceleration Date, whichever shall first occur, the principal
amount, together with accrued interest not later than 12 noon, Denver, Colorado
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time in lawful money of the United States of America in immediately available
funds. Any payment received after that time will be deemed to have been made on
the next following business day. Should the payment become due and payable on a
day other than a business day, the maturity of that payment shall be extended to
the next succeeding business day, and in the case of a payment of principal,
interest shall accrue and be payable for the period of such extension. At the
Lender's election, which may be exercised by its giving written notice to the
Borrower not less than ten (10) business days prior to the Maturity Date or the
Acceleration Date, whichever is applicable, the Lender may request the Borrower
to issue to the Lender common stock of the Borrower in lieu of payment of the
amounts outstanding under the Note, the number of common shares to be issued to
be determined by dividing $.80 into the amount outstanding under the Note. The
Borrower agrees, at its sole expense, that it will upon the Lender's written
request use its reasonable best efforts to register the sale of such shares with
the United States Securities and Exchange Commission, in accordance with the
provisions of Exhibit F attached hereto. In connection therewith, the Borrower
shall have obtained all authorizations and approvals of, and all other actions
required to be taken by, any applicable governmental authority or regulatory
body or stock exchange and shall have given all notices to, and made all filings
with, any such governmental authority or regulatory body or stock exchange, that
may be required in connection with such issuance and registration of the
Borrower's common stock. The Borrower may elect not to issue the stock if it
timely pays to Lender in immediately available funds the full amount of
principal and interest owed under the Note. Upon the issuance of the stock, the
amount due under the Loan shall be deemed no longer due and payable, and this
Agreement shall be deemed terminated and the Note deemed canceled.
2.6.Continuation of Indebtedness. If at any time prior to August 30, 1997,
Lender and Borrower and any necessary third parties have executed and delivered
definitive agreements pursuant to which Lender has acquired all of the issued
and outstanding shares of Borrower's common stock (as contemplated under the
Letter of Intent), the amount due under the Loan shall remain due and payable
and the Note shall remain outstanding, but the security interest of Lender under
this Agreement shall be deemed terminated. In connection therewith, U.S. Gold
hereby agrees that it will vote (and cause its officers and directors and TSVLP
and TSGMC to vote) all of the shares of common stock of the Borrower that it (or
they) own(s) in favor of the planned acquisition of all such stock by the Lender
(in exchange for common stock of Lender at the ratio and as otherwise set forth
in the Letter of Intent), and that it (and they) will not sell any of its
(their) shares of common stock of the Borrower to any third party, all pursuant
to the terms and provisions of a Stock Purchase Option Agreement between U.S.
Gold and the Lender to be executed simultaneously herewith.
SECTION III
Security
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3.1.The Security. The obligations of the Borrower hereunder will be secured
by the Security Documents and any additional Security Documents hereinafter
delivered by Borrower and accepted by Lender.
3.2.Priority of Security. The Lien of Lender created by the Security
Documents shall rank pari passu with the Lien of TSVLP evidenced by the TSVLP
Security Agreement and accompanying financing statements, such ranking in an
amount equal to the principal amount of the Loan (plus applicable interest).
Proceeds from exercise of any rights granted by the Security Documents and the
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TSVLP Security Agreement shall be split pari passu between Lender and TSVLP,
share and share alike until the Lender has recovered the principal amount of the
Loan (plus applicable interest). TSVLP agrees to execute and file, as deemed
necessary by counsel for Lender, any documents necessary to evidence the equal
priority granted Lender hereunder.
3.3.Forbearance by Lender. Notwithstanding written notice by the Lender of
an election not to make any additional advances hereunder, the Lender hereby
agrees to forebear exercising any rights under the Security Documents through
and including the Maturity Date, so long as no Events of Default have occurred
hereunder or thereunder, to allow the Borrower to perform its duties as Manager
at the Project and to seek additional financing during that time.
Notwithstanding such forbearance, however, Lender shall be entitled to declare
the Loan immediately due and payable in accordance with the provisions of
Section 8.1 and to exercise all rights it has to the full extent of the Security
Documents in the event that (a) TSVLP shall undertake any action to enforce its
rights under the TSVLP Security Agreement or other documents securing its
existing Lien, or (b) any third party shall exercise any rights of foreclosure
or other collection action against the Collateral.
SECTION IV
Conditions Precedent
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The Lender's obligation to make the Initial Advance under the Loan (or
decision to make any further advance of additional amounts thereunder following
the Loan Date) shall be subject to the satisfaction of each of the following
conditions precedent:
4.1.Note. The Note shall have been executed by the Borrower and delivered
to the Lender.
4.2.Security Documents and Security. The Security Documents, duly executed
and delivered in form, substance and date satisfactory to the Lender, shall have
been delivered to the Lender, and the Lender shall have a valid and perfected
lien and security interest in the Collateral in accordance with the terms of the
Security Documents, subject only to Permitted Liens and the Lien created by the
TSVLP Security Agreement.
4.3.Intercreditor Agreement. The Lender shall have received the
Intercreditor agreement, duly executed and delivered by TSVLP in form, substance
and date satisfactory to the Lender.
4.4.Approvals; Certificates. The Lender shall have received, dated the date
hereof, certificates of the Secretary or Assistant Secretary of the Borrower
certifying (a) the resolutions of the Board of Directors of the Borrower
approving this Agreement, the Note and the Security Documents and (b) the names
and true signatures of the officers authorized to sign said agreement and
documents.
4.5.Representations and Warranties. Each and every representation and
warranty made by or on behalf of the Borrower relating to this Agreement, the
Note, the Security Documents or any instruments or transactions contemplated
hereby or thereby shall be true and complete on and as of the Loan Date, and on
the date of each subsequent advance of funds hereunder by the Lender.
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4.6.No Defaults. There shall exist no Event of Default (other than the
technical defaults under the Purchase and Sale Agreement and the Mining Venture
Agreement referred to in Section 5.6 below) and no event which, with the giving
of any notice or the passage of any period of time, would constitute an Event of
Default.
4.7.Counsel Opinion. The Borrower shall have delivered to the Lender an
opinion of the Borrower's counsel dated the date hereof in form and substance
satisfactory to the Lender and its counsel, as to the matters referred to in
Sections 5.1 and 5.2 of this Agreement and with respect to such other matters as
the Lender may reasonably require.
4.8. Lockup Agreement. The Lender shall have received the Stock Purchase
Option Agreement referred to in Section 2.6, duly executed and delivered by U.S.
Gold in form, substance and date satisfactory to the Lender.
SECTION V
Representations and Warranties
------------------------------
In order to induce the Lender to enter into this agreement, the Borrower
hereby represents and warrants to the Lender as follows:
5.1.Existence. The Borrower 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
Borrower 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 Borrower to perform its obligations under
this Agreement, the Security Documents or the Note.
5.2.Authority. The Borrower has all necessary corporate power and authority
to execute, deliver, observe and perform the terms of this Agreement, the
Security Documents, and the Note. Neither the Borrower's execution and delivery
of this Agreement, the Security Documents, or the Note, nor the performance or
observance by the Borrower of the provisions hereof or thereof, violates, or
will violate, any provisions in the Borrower'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 the Borrower or its property or the Collateral. This
Agreement, the Security Documents, and the Note have been duly executed and
delivered by the Borrower, and this Agreement, the Security Documents, and the
Note are legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms (subject to
applicable bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditors' rights generally). The Borrower's obligations
hereunder under the Security Documents and under the Note will rank not less
than pari passu with all of the Borrower's secured indebtedness to TSVLP, as
evidenced by the TSVLP Security Agreement.
5.3.Litigation; Taxes. Except for Permitted Liens, and as set forth in
Schedule 5.3, 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 Borrower) threatened, against the Borrower 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 Borrower to perform its
obligations under this Agreement, the Security Documents, or the Note, or which
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could have a material adverse impact on the Project. The Borrower 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 Borrower or any of its
subsidiaries. The charges, accruals and reserves on the books of the Borrower
and its subsidiaries in respect of taxes and other governmental charges are, in
the opinion of the Borrower, adequate therefor.
5.4.Financial Condition; No Material Adverse Effect. The Borrower 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 (as set forth in Borrowers'
Annual Report on form 10-K for the fiscal year ending December 31, 1995 and
Borrower's Quarterly Reports on form 10-Q for the periods ended March 31, 1996,
June 30, 1996 and September 30, 1996, copies of each of which the Lender
acknowledges receiving from the Borrower prior to the Loan Date), which have
been certified by the principal financial officer of the Borrower. 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 Borrower 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, except as
set forth on the Schedules attached to this Agreement, to the best of the
Borrower's knowledge, no event or condition has occurred that reasonably could
be expected to have a material adverse effect on the ability of the Borrower to
perform its obligations under this Agreement, the Security Documents or the
Note.
5.5.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, or any consent or approval of any other third party, is
required for the due execution, delivery and performance by the Borrower of this
Agreement, the Security Documents, the Note, or any other agreements or
instruments required of the Borrower by this Agreement.
5.6.Title to Properties.
(a)The Borrower owns an undivided sixty percent (60%) interest in and
to the Project pursuant to the provisions of the Purchase and Sale Agreement and
the Mining Venture Agreement. The Purchase and Sale Agreement and the Mining
Venture Agreement are in full force and effect; provided, however, that the
parties acknowledge that the Borrower is in technical default under the Purchase
and Sale Agreement and the Mining Venture Agreement as to the performance of
certain of Borrower's obligations as the Manager under the Mining Venture
Agreement.
(b)(i) The Borrower owns an undivided sixty percent (60%) interest,
and, to the best of Borrower'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 5.6(b)(i) attached
hereto and Schedule A-1 to the Deed of Trust, which title is, subject to Liens
held by TSVLP, and the Royalties described in Section 5.7, 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.
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(ii) The Borrower 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, and the
lessee has performed all of its obligations thereunder (other than 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 Borrower'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 Section 5.7, 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.
(c)With respect to the unpatented lode mining claims listed on
Schedule 5.6(b)(i) attached hereto and Schedule A-1 to the Deed of Trust; (1)
the Borrower 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 set forth in Schedule 5.7); (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 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
Borrower's knowledge threatened against or affecting the claims. With respect to
the unpatented lode mining claims listed on Schedule 5.6(b)(ii) attached hereto
and Schedule A-2 to the Deed of Trust: (1) the Borrower 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 Borrower'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 Borrower'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 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 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 Borrower's
knowledge threatened against or affecting the claims. Nothing herein shall be
deemed a representation that any unpatented claim listed on Schedule 5.6(b)
contains a discovery of valuable minerals. In addition, with respect to each of
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the unpatented mining claims listed on Schedule 5.6(b) attached hereto and
Schedule A to the Deed of Trust, the Borrower 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.
(d)The Borrower has good and marketable title to the equipment,
machinery, property and fixtures comprising a portion of the Project, as
described in Exhibit A and in Schedule B to the Deed of Trust. The Lands that
are described in Schedule 5.6(b) attached hereto and Schedule A to the Deed of
Trust and the equipment, machinery, property and fixtures described in Exhibit A
and in Schedule B to the Deed of Trust constitute all of the properties and
assets, tangible or intangible, real or personal, which are used in the conduct
of the business of the Borrower, 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 equipment, machinery,
property and fixtures owned by the Borrower and described in Exhibit A attached
hereto and Schedule B of the Deed of Trust is in a state of repair adequate for
normal operations and is in all material respects in good working order
5.7.Leases and Royalties. The Lands described in Schedule 5.6(b) attached
hereto and Schedule A to the Deed of Trust are not subject to any leases or
other agreements other than the Mining Leases. The Lands described in Schedule
5.6(b) attached hereto as Schedule A of the Deed of Trust are not subject to any
Royalties burdening such Lands except as set forth in the Mining Leases and
other agreements listed on Schedule 5.7. For purposes hereof, "Royalties" shall
mean all 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.
5.8.Agreements. Other than the Material Project Agreements (all of which
are listed on the attached Schedule 5.8), the Borrower 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
on Schedule 3 or in Section 5.6(b)(ii), all such Material Project Agreements are
in full force and effect and the Borrower is not (nor, to the Borrower'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 Borrower 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.
5.9.Compliance with Laws. With respect to the Project and operations
undertaken at the Project or in connection therewith, the Borrower, except as
set forth in Schedule 5.9 attached hereto, 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 Borrower is
not aware of any investigation (other than a routine inspection) of the Borrower
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
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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 Borrower'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 Borrower'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 on Schedule 5.9, the
Borrower has no knowledge of any past or existing violations of any such laws,
ordinances or regulations issued by any governmental authority.
5.10.Permits Affecting Properties. The Borrower has obtained, as set forth
on Schedule 5.10 attached hereto, 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 Borrower does not
warrant that those constitute all of the Material Project Permits that will be
required for the Project. The Borrower has listed on Schedule 5.10 all Material
Project Permits. Copies of all such Material Project Permits have been made
available to the Lender and are full, complete and current copies of same.
5.11.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.
SECTION VI
Covenants
---------
The Borrower agrees that, until the principal amount of the Loan and all
accrued interest thereon shall have been paid in full, the Borrower shall
perform, observe and comply with each of the following:
6.1.Notice to the Lender. The Borrower will promptly give notice to the
Lender as soon as it becomes aware of:
(a)Any Event of Default or potential Event of Default;
(b)Any loss or damage to the Collateral in excess of $25,000;
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(c)Every notice, and the contents thereof, received by the Borrower in
relation to any renewal of any rights with respect to, or having a material
adverse effect upon , the Lands, and any circumstances which might result in a
loss of or a failure to obtain or a failure to be able to renew the Borrower's
interest in a material part of the Lands;
(d)Each new issuance or approval of a Material Project Permit and each
new change in operations that necessitates any amendment or modification of any
Material Project Agreement or Material Project Permit; and
(e)The cessation of any Event of Default.
6.2.Dispositions of Assets or Dissolution. Except as otherwise specifically
permitted hereunder, the Borrower shall not:
(a)sell, assign, convey, lease or otherwise dispose of any part of its
assets or properties, or grant the option or any other right to purchase, or
otherwise acquire such assets, whether now owned or hereafter acquired, except
in the ordinary course of business or for the replacement of a capital asset
with an asset of equal or greater value (in accordance with the provisions of
Section 6.12);
(b)dissolve, liquidate or otherwise cease to do business;
(c)so long as Lender has not given written notice of its intention not
to make any further advances pursuant to Section 2.1, without the prior written
consent of the Lender, directly or indirectly, (i) grant any proxies or enter
into any voting trust or other agreement or arrangement with respect to the
voting of any of its shares of common stock (the "Shares"), (ii) acquire or
sell, assign, transfer or otherwise dispose of any Shares, (iii) enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect acquisition or sale, assignment, transfer or other
disposition of any Shares, or (iv) directly or indirectly, encourage, solicit,
initiate or participate in any way in discussions or negotiations with, or
knowingly provide any information to, any corporation, partnership, person or
other entity or group (other than the Borrower or any affiliate or subsidiary of
the Borrower) concerning any proposal or offer (a "Takeover Proposal") for a
merger or other business combination involving the Borrower or the acquisition
in any manner, directly or indirectly, of a material equity interest in any
voting securities of or a substantial portion of the assets of the Borrower;
provided, however, that to the extent required in the exercise of the fiduciary
duties of the Borrower's directors and officers to the Borrower or its
shareholders under applicable law (after duly considering the written advice of
outside counsel to the Borrower), the Borrower may, in response to an
unsolicited request therefor, furnish information with respect to the Borrower
to any such corporation, partnership, person or other entity or group who has
made a bona fide offer for a Takeover Proposal that the board of directors of
the Borrower determines in its good faith judgment to be more favorable to the
Borrower's stockholders than the Acquisition Transactions. The Borrower shall
promptly notify the Lender of, and communicate to the Lender the terms and
status of any inquiry or proposal with respect to any Takeover Proposal and
shall promptly provide the Lender with any such information regarding such
proposal as the Lender may request (including delivering copies thereof).
6.3.No Liens. Neither the Borrower nor any subsidiary shall create, assume
or suffer to exist any Lien or other security interest on any real or personal
property or interest therein now owned or hereafter acquired by it, except for
Permitted Liens or any such Liens or security interests created under the TSVLP
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Security Agreement or the Security Documents. In addition, the Borrower will use
its best efforts to obtain and record in the official records of Eureka County
release documents for the liens listed on the attached Schedule 6.3.
6.4.Taxes and Other Obligations. The Borrower shall pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or upon any portion of the Project prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any such portion of the Project, except for any
such tax, assessment, charge, levy or claim, which constitutes a Permitted Lien
or the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained, or if the
non-payment thereof would not have a material adverse effect on the ability of
the Borrower to perform its obligations under this Agreement, the Security
Documents or the Note.
6.5.Use of Loan Proceeds. The Borrower agrees that all Loan Proceeds shall
be used only as set forth on Exhibit E.
6.6.Properties.
(a)Maintenance of Properties. The Borrower shall maintain and preserve
all of the properties comprising the Project in good standing without default of
any obligations with respect thereto, including without limitation payment of
claim maintenance fees, and making federal filings and state recordings
regarding the unpatented claims comprising the Collateral.
(b)Compliance with Agreements. The Borrower shall comply with all of
the provisions of the Mining Leases, the Purchase and Sale Agreement, the Mining
Venture Agreement, the TSVLP Security Agreement and all other agreements to
which it is a party, except where noncompliance therewith would not have a
material adverse effect on the ability of the Borrower to perform its
obligations under this Agreement, the Security Documents, or the Note.
(c)Insurance. The Borrower shall maintain such insurance policies as
are currently in place for activities at or undertaken in correction with the
Project.
6.7.Corporate Existence and Good Standing. The Borrower shall preserve and
maintain its corporate existence, and shall be and remain qualified to do
business as a foreign corporation and be in good standing in each jurisdiction
in which such qualification is necessary or desirable in view of its business or
operations or the ownership of its properties; provided that nothing contained
in this Section 6.6 or otherwise in this Agreement shall prevent the termination
of the existence of any subsidiary of the Borrower or of any rights, franchises
or privileges of the Borrower or such a subsidiary if the Borrower deems such
termination thereof to be advisable in its own discretion so long as such
termination does not have a material adverse effect on the financial condition
of the Borrower or its ability to comply with its obligations hereunder.
6.8.Compliance with Law. The Borrower shall comply at all times and in all
material respects with all valid and applicable statutes, rules and regulations
of the United States of America, of the states thereof and their counties,
municipalities and other subdivisions and of any other jurisdictions applicable
to it (including, without limitation, Environmental Laws), and the provisions of
permits, licenses and any other authorizations issued to it or pertaining to the
Project, except where noncompliance would not have a material adverse effect on
the ability of the Borrower to perform its obligations under this Agreement, the
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Security Documents or the Note, or where compliance shall be currently contested
in good faith by appropriate proceedings, timely instituted, which shall operate
to stay any order with respect to noncompliance.
6.9.Additional Debt and Distributions. The Borrower shall not (unless the
Lender has given written notice of its intention not to make any further
advances pursuant to the provisions of Section 2.1), create, incur, assume or
permit to exist any debt except the Loan, the TSVLP Note, Permitted Liens, trade
debt to suppliers and contractors and debt of the types permitted by the
Security Documents. Further, the Borrower shall not (unless the Lender has given
written notice of its intention not to make any further advances pursuant to the
provisions of Section 2.1) make Distributions of any kind or otherwise issue any
additional shares of its common stock or sell or otherwise transfer or grant
options for any shares of its common stock or enter into any agreements with any
third parties contemplating any of the foregoing.
6.10.Security Documents; Further Assurances. The Borrower at its cost shall
take all actions necessary or reasonably requested by the Lender to maintain the
Security Documents in full force and effect and enforceable in accordance with
their respective terms, including (i) making filings and recordations, (ii)
making payments of fees and other charges, (iii) issuing supplemental
documentation, including continuation statements, and (iv) taking all actions
necessary or reasonably requested by the Lender to ensure that the Collateral is
and remains subject to a valid and enforceable lien and security interest in
favor of the Lender (subject only to Permitted Liens and the TSVLP Security
Agreement).
6.11.Books and Records. The Borrower shall keep proper books of record in
accordance with generally accepted accounting principles and permit
representatives of the Lender to visit and inspect the properties, to examine
the books of record and accounts and to discuss the affairs, finances and
accounts of the Borrower with the Borrower's principal officers, engineers and
independent accountants, all at such reasonable times during business hours and
at such intervals as the Lender may desire; provided, however, that the Lender
shall provide the Borrower with at least three Business Days' notice of any
visit and shall use their best efforts not to unreasonably disrupt the
Borrower's business during such visits.
6.12.Alterations, Disposal of Assets, Etc. The Borrower will not cause any
building, structure or fixture or other improvement which is part of the
Collateral to be erected, removed, demolished, or materially changed or altered,
except in the ordinary course of business. Except in the ordinary and normal
course of business, the Borrower shall not remove or permit the removal of any
of the personal property constituting part of the Collateral or any part thereof
(including renewal, replacement and other after-acquired property) from the
Lands or the Project; provided, however, that obsolete or worn out property may
be removed concurrently with the replacement or renewal thereof with property of
at least equal quality, usefulness, value and class to the original property, if
such replacement is in accordance with prudent industry practices; provided,
further, however, that the Borrower shall have the right, but not the
obligation, to amend or relocate any or all of the unpatented lode mining claims
included in the Lands (under any applicable federal or state statute) and to
locate any fractions resulting from the amendment or relocation of such claims.
Any mining claims amended or relocated by the Borrower shall be included in the
Lands, and the Borrower agrees that the amendment or relocation of such claims
shall not result in any diminution of the total acreage presently included
within the lands. The Borrower shall not commit or permit any waste in, on or
about the Lands or the Project that would have a material adverse effect on the
Collateral.
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6.13.Leases and Other Agreements. The Borrower shall not enter into, assume
or otherwise become liable with respect to any non-cancelable operating leases
or other agreements having terms in excess of or renewable for more than one (1)
month if the aggregate minimum required payments under any such leases or other
agreements exceeds Ten Thousand Dollars ($10,000).
6.14.Change in Business. The Borrower shall not engage in any business
activities or operations substantially different form the business of
exploration, mining and production of Gold and other precious metals or base
metals associated with any Gold mine.
6.15.Capital Expenditures. The Borrower shall not make capital expenditures
in excess of the aggregate amount of Ten Thousand Dollars ($10,000) without the
Lender's prior written approval.
6.16.Loans; Intercompany Accounts. Other than as contemplated in this
Agreement, the Borrower shall not lend or advance money, gold, or other assets
to any entity or person.
6.17.Additional Covenants of TSVLP. TSVLP hereby confirms that the Borrower
is not in default under the provisions of the TSVLP Note or the TSVLP Security
Agreement, and that while technical defaults by Borrower (as referred to in
Section 5.6) exist under the Purchase and Sale Agreement and the Mining Venture
Agreement, such events of default shall be deemed suspended, and TSVLP will take
no actions in connection therewith, for so long as (i) Lender has not elected to
terminate the advancement of funds to the Borrower and has made advances of
funds as required under Section 2.1 hereof, (ii) Lender continues good faith
negotiations with the Borrower and other necessary third parties for definitive
agreements by which Lender acquires all of the issued and outstanding shares of
Borrower's common stock and (iii) no third party attempts to foreclose or
otherwise take any collection action against the Collateral.
SECTION VII
Events of Default
-----------------
Each of the following shall constitute an Event of Default under this
Agreement:
7.1.Payments.
(a)The Borrower shall fail to make payment of any principal amount of
the Loan or accrued interest thereon under this Agreement or the Note when the
same shall become due and payable (whether prior to its stated maturity or
otherwise).
(b)TSVLP has declared an event of default based on the Borrower's
failure to make any payment of any amount due under the TSVLP Note or the TSVLP
Security Agreement or any other event of default thereunder.
7.2.Representations and Covenants. Any representation or warranty made by
the Borrower under this Agreement or the Security Documents proves to have been
incorrect in any material respect when made (unless such representation or
warranty was incorrect as a result of actions taken by the officers of the
Borrower between October 1 and December 15, 1996), or the Borrower shall
violate, fail or omit to perform or observe any other covenant, agreement,
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condition or provision contained in this Agreement, the Note or the Security
Documents and any such violation, failure or provision shall continue without
being corrected for five (5) days after the Lender has given written notice
thereof to the Borrower.
7.3.Insolvency. The Borrower shall not pay its debts as they become due
(unless such failure is caused by an election by the Lender not to make any
further advances of funds pursuant to Section 2.1), shall file or consent by
answer or otherwise to the filing against it of a petition for relief,
reorganization, arrangement or any petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, shall
make an assignment for the benefit of its creditors, shall be adjudicated
insolvent or be liquidated, or shall take corporate action for the purpose of
any of the foregoing.
7.4.Change in Control. There shall occur any change in the effective
control of the Borrower (other than by way of acquisition by the Lender of all
of the shares of common stock of the Borrower).
SECTION VIII
Remedies Upon an Event of Default
---------------------------------
Notwithstanding any contrary provisions or inference herein or elsewhere:
8.1. Acceleration of Loan. If an Event of Default shall occur and be
continuing hereunder, and such Event of Default does not result directly from a
decision by the Lender not to make any further advances pursuant to Section 2.1,
then the Lender shall have the right, but not the obligation, upon written
notice to the Borrower, to declare the entire unpaid principal balance of, and
any accrued interest on, the Loan to be immediately due and payable, whereupon
the Note, all such interest and any other amounts payable hereunder shall become
and be forthwith due and payable, without presentment, demand or notice of any
kind, all of which are hereby expressly waived by the Borrower.
8.2. Exercise of Remedies. The aforementioned right to accelerate is in
addition to and not a substitute for any other remedies available to Lender
hereunder, under the Security Documents, under the Note and under applicable
laws.
SECTION IX
Miscellaneous
-------------
9.1. Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Security Documents or the Note, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless by an agreement
in writing signed by authorized representatives of both parties.
9.2. Notices. All notices and other communications provided for hereunder
shall be in writing and shall be delivered by hand, by reputable overnight
courier or telecopied; if to the Borrower, at its address as set forth above,
Attention: Bill Conrad; if to the Lender, at its address as set forth above,
Attention: Jack Stoch; if to TSVLP, at its address set forth above, Attention:
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William W. Reid; or, as to any party, at such other address as shall be
designated by such party in a written notice to the other party.
9.3. No Waivers; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
9.4. Costs and Expenses. The Borrower shall reimburse the Lender in the
event the Lender incurs any legal or other fees and expenses in connection with
the modification or amendment of this Agreement, the Note or the Security
Documents or in protecting or enforcing its rights hereunder or thereunder
whether or not any legal action or suit is brought.
9.5. Entire Agreement. This Agreement, the Note, and the Security Documents
contain the entire agreement of the parties pertaining to the subject matter
hereof and supersede all prior written and oral agreements pertaining hereto.
9.6. Successors and Assigns. This Agreement, the Note and the Security
Documents shall be binding on and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns; provided, however, that the
Borrower may not assign any of its rights or delegate any of its obligations
hereunder without the prior written consent of the Lender.
9.7. Survival. The obligations of the Borrower under Section 9.4 shall
survive the repayment of the Loan and the termination of this Agreement and the
Note.
9.8. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together constitute one and the same instrument.
9.9. Governing Law. This Agreement, the Security Documents and the Note
shall be governed by and construed in accordance with the laws of the State of
Colorado, without regard to its principles concerning conflicts of laws.
9.10. Further Assurances. At the request of any party hereto, the 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
other party to effect the purposes of this Agreement and the transactions
contemplated hereby.
9.11. Public Announcements. Each party shall obtain the prior written
consent of each 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 (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).
9.12. Confidentiality. Except as otherwise set forth in Section 9.11, the
parties hereto and their collective representatives shall forever treat
confidentially all information concerning the terms and conditions of this
-18-
<PAGE>
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
9.12 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GOLD CAPITAL CORPORATION, a Colorado
corporation
By:
-----------------------------------------
------------------------------------(name)
-----------------------------------(title)
GLOBEX MINING ENTERPRISES INC., a Quebec
corporation
-19-
<PAGE>
By:
---------------------------------------
---------------------------------(name)
--------------------------------(title)
TONKIN SPRINGS VENTURE LIMITED
PARTNERSHIP, a Nevada limited partnership
By: TONKIN SPRINGS GOLD MINING COMPANY,
a Colorado corporation
By:
--------------------------------------
--------------------------------(name)
-------------------------------(title)
-20-
<PAGE>
TONKIN SPRINGS GOLD MINING COMPANY,
a Colorado corporation
By:
---------------------------------------
---------------------------------(name)
--------------------------------(title)
U.S. GOLD CORPORATION, a Colorado
corporation
By:
---------------------------------------
---------------------------------(name)
--------------------------------(title)
-21-
AGREEMENT AND PLAN OF MERGER
dated as of March 5, 1997
among
GLOBEX MINING ENTERPRISES INC.,
GME MERGER CORPORATION,
and
GOLD CAPITAL CORPORATION
DGS-19458.18
March 25, 1997 9:29 am
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
AGREEMENT AND PLAN OF MERGER......................................................................................1
ARTICLE 1THE MERGER...............................................................................................1
1.1 The Merger.............................................................................1
1.2 Effect of the Merger...................................................................2
1.3 Consummation of the Merger.............................................................2
1.4 Certificate of Incorporation; By-laws; Directors and Officers..........................2
1.5 Conversion of Merger Sub Common Stock..................................................2
1.6 Conversion of Company Common Stock.....................................................3
1.7 Shares of Dissenting Stockholders......................................................3
1.8 Exchange of Certificates...............................................................4
1.9 Company Stock Option Plan..............................................................5
1.10 Taking of Necessary Action; Further Action.............................................5
ARTICLE 2REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................6
2.1 Organization...........................................................................6
2.2 Capital Stock of the Company...........................................................6
2.3 Authority Relative to this Agreement; Noncontravention.................................7
2.4 SEC Reports and Financial Statements...................................................8
2.5 Certain Changes........................................................................9
2.6 Litigation.............................................................................9
2.7 Disclosure in Registration Statement and Proxy Statement..............................10
2.8 Broker's or Finder's Fees.............................................................10
2.9 Board Recommendation; Company Action; Requisite Vote of the
Company's Stockholders................................................................10
2.10 Subsidiaries..........................................................................10
2.11 Absence of Changes in Benefit Plans...................................................10
2.12 State Takeover Statutes...............................................................11
2.13 Compliance with Laws..................................................................11
2.14 Environmental Matters.................................................................11
2.15 Permits and Licenses..................................................................13
2.16 Contracts; Debt Instruments...........................................................13
2.17 Title to Properties...................................................................15
2.18 Leases and Royalties..................................................................17
2.19 Partnerships and Joint Ventures.......................................................17
2.20 Ore Reserve Information...............................................................18
2.21 Intellectual Property.................................................................18
2.22 Labor Matters.........................................................................18
2.23 Insurance.............................................................................18
2.24 Noncompetition........................................................................19
2.25 California Law Inapplicable...........................................................19
2.26 Taxes.................................................................................19
2.27 ERISA.................................................................................22
2.28 True Statements.......................................................................24
ARTICLE 3REPRESENTATIONS AND WARRANTIESPARENT AND MERGER SUB.....................................................25
3.1 Organization..........................................................................25
3.2 Authority Relative to this Agreement; Noncontravention................................25
3.3 Litigation............................................................................26
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<PAGE>
3.4 Reporting Issuer......................................................................26
3.5 Disclosure in Registration Statement and Proxy Statement..............................27
3.6 Parent and Merger Sub Due Diligence...................................................27
3.7 True Statements.......................................................................27
ARTICLE 4CONDUCT OF BUSINESS PENDING THE MERGER..................................................................28
4.1 Conduct of Business by the Company Pending the Merger.................................28
4.2 Funding for the Tonkin Springs Project................................................31
ARTICLE 5ADDITIONAL AGREEMENTS...................................................................................32
5.1 Registration Statement; Proxy Statement...............................................32
5.2 Other Filings.........................................................................33
5.3 Options...............................................................................33
5.4 Consents and Approvals................................................................33
5.5 Public Statements.....................................................................34
5.6 Reasonable Best Efforts...............................................................34
5.7 Notification of Certain Matters.......................................................35
5.8 Access to Information; Confidentiality................................................35
5.9 No Solicitation.......................................................................36
5.10 Stockholder Litigation................................................................37
5.11 Company Expenses......................................................................37
5.12 Financial Statements..................................................................37
5.13 Fairness Opinion......................................................................38
ARTICLE 6CONDITIONS..............................................................................................38
6.1 Conditions to the Obligation of the Company...........................................38
6.2 Conditions to the Obligations of Parent and Merger Sub................................39
ARTICLE 7TERMINATION, AMENDMENT AND WAIVER.......................................................................43
7.1 Termination...........................................................................43
7.2 Effect of Termination.................................................................44
7.3 Fees and Expenses.....................................................................44
7.4 Amendment.............................................................................45
7.5 Waiver................................................................................45
ARTICLE 8GENERAL PROVISIONS......................................................................................46
8.1 Notices...............................................................................46
8.2 Representations and Warranties........................................................47
8.3 Closing...............................................................................47
8.4 Time of Essence.......................................................................47
8.5 GOVERNING LAW.........................................................................47
8.6 Counterparts; Facsimile Transmission of Signatures....................................47
8.7 Assignment............................................................................48
8.8 Severability..........................................................................48
8.9 Entire Agreement......................................................................48
8.10 Definitions...........................................................................48
8.11 Interpretation........................................................................48
8.12 Enforcement...........................................................................49
8.13 Waiver of Jury Trial..................................................................49
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AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE......................................................................50
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 5,
1997 is among Globex Mining Enterprises Inc., a Quebec corporation ("Parent"),
GME Merger Corporation, a Colorado corporation and wholly-owned subsidiary of
Parent ("Merger Sub"), and Gold Capital Corporation, a Colorado corporation (the
"Company").
WHEREAS, all of the issued and outstanding shares of common stock, par
value $0.01 per share, of Merger Sub ("Merger Sub Common Stock") are presently
held by Parent;
WHEREAS, the respective boards of directors of Parent and Merger Sub,
deeming it advisable for the respective benefit of Parent, Merger Sub, the
Company and their respective stockholders, have unanimously approved the merger
of the Company and Merger Sub (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the board of directors of the Company (the "Board of Directors")
has unanimously approved the Merger (as defined herein) and, subject to receipt
of a satisfactory fairness opinion, resolved to recommend the approval of the
Merger by the stockholders of the Company;
WHEREAS, Parent has acquired an option to purchase the 2,287,547 shares of
common stock, par value $0.0001 per share, of the Company ("Company Common
Stock") owned by U.S. Gold Corporation, a Colorado corporation ("U.S. Gold") in
exchange for 632,094 shares of common stock of Parent ("Parent Common Stock")
and has acquired an irrevocable proxy to vote all of the shares of Company
Common Stock owned by U.S. Gold in favor of the Merger; and
WHEREAS, Parent has made a conditional offer to Royalstar Resources, Ltd.,
a Canadian corporation ("Royalstar") to purchase the 4,419,110 shares of Company
Common Stock owned by Royalstar at a price of $0.80 per share, and such offer
was accepted by Royalstar.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Parent, Merger Sub and
the Company, intending to be legally bound, hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3 hereof),
in accordance with this Agreement and the Colorado Business Corporation Act
("Colorado Law"), Merger Sub will be merged with the Company, the separate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"). Notwithstanding the
foregoing, Parent may elect, with the approval of the Company which shall not be
unreasonably withheld, at any time prior to the Merger, instead of merging
Merger Sub into the Company as provided above, to merge the Company with Merger
Sub. In such event, the parties agree to execute an appropriate amendment to
this Agreement in order to reflect the foregoing and, where appropriate, to
provide that Merger Sub shall be the Surviving Corporation. At the election of
Parent, with the approval of the Company which shall not be unreasonably
withheld, any direct or indirect wholly-owned subsidiary of Parent may be
substituted for Merger Sub as a constituent corporation in the Merger. In such
event, the parties agree to execute an appropriate amendment to this Agreement
in order to reflect the foregoing.
<PAGE>
1.2 Effect of the Merger. The Merger shall have the effects set forth in
Section 7-111-106 of Colorado Law.
1.3 Consummation of the Merger. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in Article 6 hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of Colorado articles of merger in such form as required by,
and executed in accordance with, the relevant provisions of Colorado Law and
shall make all other filings or recordings required under Colorado Law. The
Merger shall become effective at such time as the articles of merger are duly
filed with the Colorado Secretary of State, or at such other time as Merger Sub
and the Company shall agree should be specified in the articles of merger (the
time the Merger becomes effective being referred to herein as the "Effective
Time" and the date of such effectiveness being referred to herein as the
"Effective Date").
1.4 Certificate of Incorporation; By-laws; Directors and Officers. The
certificate of incorporation and by-laws of Merger Sub as in effect immediately
prior to the Effective Time shall become the certificate of incorporation and
by-laws of the Surviving Corporation until thereafter amended as provided
therein and under Colorado Law. The directors of Merger Sub immediately prior to
the Effective Time will be the initial directors of the Surviving Corporation
and shall serve until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and by-laws and
Colorado Law. The officers of Merger Sub immediately prior to the Effective Time
will be the initial officers of the Surviving Corporation and shall serve until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's certificate of incorporation and by-laws and Colorado Law.
1.5 Conversion of Merger Sub Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company or any holder of shares of Merger Sub Common Stock, each share of Merger
Sub Common Stock outstanding immediately prior to the Effective Time shall be
converted into one fully paid and nonassessable share of common stock, par value
$0.01 per share, of the Surviving Corporation ("Surviving Corporation Common
Stock"). Each certificate which immediately prior to the Effective Time
represents a number of outstanding shares of Merger Sub Common Stock shall, from
and after the Effective Time, be deemed for all purposes to represent the same
number of shares of Surviving Corporation Common Stock.
1.6 Conversion of Company Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or any holder of shares of Company Common Stock (i) shares of Company Common
Stock which are owned by Parent or by a direct or indirect subsidiary of the
Company or of Parent or shares of Company Common Stock held in the Company's
treasury at the Effective Time shall be cancelled, (ii) each share of Company
Common Stock issued and outstanding and not owned by Parent at the Effective
Time shall be converted into and exchanged for the right to receive that number
of shares of Parent Common Stock derived by dividing (a) 1,285,067 by (b) the
total number of all shares of Company Common Stock issued and outstanding and
not owned by Parent as of the Effective Time (the "Merger Consideration"), which
shall be distributed promptly upon the surrender of the certificate representing
such share, in accordance with Section 1.8(c), and (iii) all such shares of
2
<PAGE>
Company Common Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration, without interest. The shares of Parent Common Stock constituting
the Merger Consideration shall be registered with the U.S. Securities and
Exchange Commission ("SEC") and applicable state blue sky authorities and shall
be listed on The Montreal Exchange and the Toronto Stock Exchange. By way of
example only, if the total number of issued and outstanding shares of Company
Common Stock, not owned by Parent, as of the Effective Time is 4,654,543 as
represented by the Company in Section 2.2, then each share of Company Common
Stock would be converted into the right to receive approximately 0.276 shares of
Parent Common Stock. In no event shall Parent issue more than 1,285,067 shares
of Parent Common Stock as the total Merger Consideration. Prior to or
substantially contemporaneous with the Merger, Parent intends to purchase
4,419,110 shares of Company Common Stock from Royalstar.
1.7 Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding shares of Company Common
Stock held by a person who objects to the Merger and complies with all the
provisions of Colorado Law concerning the right of holders of Company Common
Stock to dissent from the Merger and require appraisal of their shares (a
"Dissenting Stockholder") shall not be converted as described in Section 1.6 but
shall become, at the Effective Time, by virtue of the Merger and without any
further action, the right to receive such consideration as may be determined to
be due to such Dissenting Stockholder pursuant to Colorado Law; provided,
however, that the shares of Company Common Stock outstanding immediately prior
to the Effective Time and held by a Dissenting Stockholder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to Colorado Law, shall be deemed to be
converted as of the Effective Time, into the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any written
demands for appraisal of shares of Company Common Stock received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to any such demands. The Company shall not, without the prior written consent of
Parent, voluntarily make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands.
1.8 Exchange of Certificates.
-------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall select a
transfer agent, bank or trust company to act as exchange agent (the "Exchange
Agent") for the distribution of the Merger Consideration upon surrender of
certificates representing Company Common Stock.
(b) Parent To Provide Merger Consideration. Parent will provide to the
Exchange Agent, prior to the Effective Time of the Merger, Parent Common Stock
necessary to exchange for the shares of Company Common Stock pursuant to Section
1.6.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in a form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
3
<PAGE>
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by the Parent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor the number of shares of Parent Common Stock into which the shares of
Company Common Stock theretofore represented by such Certificate shall have been
converted pursuant to Section 1.6, and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of Company
Common Stock which is not registered in the transfer records of the Company,
Merger Consideration may be distributed to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered as contemplated
by this Section 1.8, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
number of shares of Parent Common Stock into which the shares of Company Common
Stock theretofore represented by such Certificate shall have been converted
pursuant to Section 1.6.
(d) Fractional Shares. No fractional shares of Parent Common Stock
shall be issued as Merger Consideration hereunder to any holder of a
Certificate. Any fractional share to which such holder would otherwise be
entitled shall be rounded up or down to the nearest whole share. Such a holder
shall not be entitled to dividends or any other rights in respect of any such
fraction.
(e) No Further Ownership Rights in Company Common Stock. All Merger
Consideration distributed upon the surrender of Certificates in accordance with
the terms of this Article 1 shall be deemed to have been distributed in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificates, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Article 1.
(f) No Liability. None of Parent, Merger Sub, the Company or the
Exchange Agent shall be liable to any person in respect of any Merger
Consideration (or appropriate substitute consideration) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time of the Merger (or immediately prior to such earlier date on
which any payment pursuant to this Article 1 would otherwise escheat to or
become the property of any Governmental Entity), the payment in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(g) Withholding Tax. The right of any stockholder to receive the
Merger Consideration shall be subject to and reduced by the amount of any
required tax withholding obligation.
1.9 Company Stock Option Plan. Parent and the Company shall take all
actions necessary to provide that, at the Effective Time, each outstanding
option to purchase shares of Company Common Stock granted under the Company's
1994 Non-Qualified Stock Option and Stock Grant Plan (the "Option Plan") shall
be cancelled and the Company shall use its reasonable best efforts to obtain any
necessary consents from the holders of such options.
4
<PAGE>
1.10 Taking of Necessary Action; Further Action. Each of Parent, Merger Sub
and the Company shall use all reasonable efforts to take all such actions as may
be necessary or appropriate in order to effectuate the Merger under Colorado Law
as promptly as commercially practicable. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either the Company or Merger Sub, the officers and directors of the Surviving
Corporation are fully authorized in the name of their corporation or otherwise
to take, and shall take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
2.1 Organization. The Company is a participant in the Tonkin Springs
Project Joint Venture (the "Venture") between the Company and Tonkin Springs
Venture Limited Partnership ("TSVLP"), pursuant to that certain Mining Venture
Agreement, dated December 31, 1993, (the "Mining Venture Agreement") pertaining
to the Tonkin Springs Project, consisting of unpatented mining claims,
unpatented millsites leases, improvements, permits, water rights, mines,
fixtures, and equipment, all located in Eureka County, Nevada (the "Project").
Each of the Company and each corporation, partnership, joint venture, and other
similar interests in which the Company holds more than a 5% ownership interest,
including, but not limited to, the Venture (collectively the "Company
Subsidiaries") is, to the extent required by law, a corporation or organization
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated or organized and has the
power to own its property and to carry on its business as now being conducted.
Each of the Company and the Company Subsidiaries is duly qualified and/or
licensed, as may be required, and in good standing in each of the jurisdictions
in which the nature of the business conducted by it or the character of the
property owned, leased or used by it makes such qualification and/or licensing
necessary, except in such jurisdictions where the failure to be so qualified
and/or licensed would not result in a Company Material Adverse Effect. For the
purposes of this Agreement, a "Company Material Adverse Effect" shall mean any
result or consequence that individually or in the aggregate would require an
expenditure exceeding $15,000 or otherwise have a material adverse effect on the
prospects, condition (financial or otherwise), business, operations, or assets
of the Company and the Company Subsidiaries, taken as a whole. The Company has
delivered to Parent complete and correct copies of the Company's articles of
incorporation ("Articles of Incorporation") and by-laws ("By-laws") and the
articles of incorporation and by-laws of the Company Subsidiaries, in each case
as amended to the date of this Agreement.
2.2 Capital Stock of the Company. The authorized capital stock of the
Company consists of 25,000,000 shares of Company Common Stock, of which
9,073,653 are issued and outstanding, and 5,000,000 shares of preferred stock,
par value $0.01 per share, of which no shares are issued and outstanding. In
addition, 2,500,000 shares of Company Common Stock were reserved for issuance
pursuant to the Option Plan and, as of the date of this Agreement, 75,000 shares
of Company Common Stock had been issued pursuant to the exercise of options
under the Option Plan. As of the date of this Agreement, there are no
outstanding options, warrants, or other agreements to acquire any shares of
5
<PAGE>
Company Common Stock, except as disclosed in Section 2.2 of that certain letter
of even date herewith from the Company to Parent (the "Company Disclosure
Letter"). Except as set forth above, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding.
Excluding the number of shares of Company Common Stock currently owned by
Royalstar (4,419,110), there are and will be 4,654,543 shares of Company Common
Stock issued and outstanding as of the date of this Agreement and as of
Effective Time. There are no outstanding stock appreciation rights. The Company
has not issued any bonds, debentures, notes or other indebtedness of the Company
that, by the terms thereof, grant the holder thereof (other than Parent), the
right to vote (or are convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of the Company may vote.
There are no shares of Company Common Stock held in the treasury of the Company.
The issued and outstanding shares of Company Common Stock have been and are duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights. Except as disclosed in the Filed SEC Documents (as defined below), the
Company has not, subsequent to December 31, 1995, declared or paid any dividend,
or declared or made any distribution on, or authorized the creation or issuance
of, or issued, or authorized or effected any split-up or any other
recapitalization of, any of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired any of its outstanding capital stock.
The Company has not heretofore agreed to take any such action, will not take any
such action during the period between the date of this Agreement and the
Effective Time of the Merger, and there are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of the Company.
2.3 Authority Relative to this Agreement; Noncontravention.
-------------------------------------------------------
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder and the consummation by the Company of the
transactions contemplated herein have been duly authorized by the Board of
Directors, and no other corporate proceedings on the part of the Company or any
of the Company Subsidiaries are necessary to authorize the execution and
delivery of this Agreement, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby, except for the approval of the Company's stockholders as contemplated in
Section 5.1. None of the Company's Articles of Incorporation, By-laws, or any
agreement or other document to which the Company is a party or is subject
requires approval of the Merger by the holders of more than a majority of the
outstanding shares of Company Common Stock. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
(b) Neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions contemplated
herein nor compliance by the Company with any of the provisions hereof will (i)
conflict with or result in any breach of the Certificate or Articles of
Incorporation or By-laws of the Company or of any of the Company Subsidiaries,
(ii) result in a violation or breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any Company
Subsidiaries under, or result in the loss of a material benefit under, any of
6
<PAGE>
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, contract, lease, agreement or other instrument or obligation
of any kind to which the Company or any of the Company Subsidiaries is a party
or by which the Company or any of the Company Subsidiaries or any of their
respective properties or assets, may be bound or any permit, concession,
franchise or license applicable to any of them or their properties or assets or
(iii) subject to compliance with the statutes and regulations referred to in
subsection (c) below, conflict with or violate any judgment, ruling, order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company or any of the Company Subsidiaries or any of their respective properties
or assets.
(c) Except for compliance with the provisions of Colorado Law, Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Exchange Act of 1934, as amended (the "'34 Act"), the
Securities Act of 1933, as amended (the "'33 Act"), the rules and regulations of
the SEC and the "blue sky" laws of various states and foreign laws and the
filing of a notice pursuant to Section 721 of the Defense Production Act of 1950
(the "Exon-Florio Amendment"), no action by any governmental authority is
necessary for the Company's execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby.
(d) Except as set forth in Section 2.3(d) of the Company Disclosure
Letter, no consents, approvals, orders, registrations, declarations, filings or
authorizations are required for or in connection with the execution and delivery
of this Agreement or the consummation by the Company of the transactions
contemplated on its part hereby.
2.4 SEC Reports and Financial Statements.
-------------------------------------
(a) Since January 1, 1994, the Company has filed with the SEC all
forms, reports, schedules, registration statements, definitive proxy statements
and other documents (the "Company SEC Reports") required to be filed by the
Company with the SEC. As of their respective dates, the Company SEC Reports
complied in all material respects with the applicable requirements of the '33
Act, the '34 Act and the rules and regulations promulgated thereunder (the
"Rules and Regulations") applicable to such Company SEC Reports, and, as of
their respective dates, none of the Company SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any Company SEC Report has been revised or
superseded by a later Company SEC Report filed and publicly available prior to
the date of this Agreement (a "Filed SEC Document"), none of the Company SEC
Reports contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows (or changes in financial position prior to the
approval of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 95) for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the Filed SEC Documents or in Section 2.4 of the Company Disclosure Letter,
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neither the Company nor any of the Company Subsidiaries has any liabilities,
debts or obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by GAAP to be set forth on a consolidated balance sheet of
the Company and its consolidated subsidiaries or in the notes thereto. None of
the Company Subsidiaries is required to file any forms, reports or other
documents with the SEC pursuant to Section 12 or 15 of the '34 Act.
(b) The financial statements and records of Venture pertaining to the
Project fairly and accurately present the financial position of Venture and the
Project as of the dates thereof and the results of operations for the periods
then ended. Except as set forth in the financial statements listed in Section
2.4 of the Company Disclosure Letter and delivered to Parent, Venture has no
liabilities, debts or obligations of any nature (whether accrued, absolute,
contingent or otherwise).
2.5 Certain Changes. Except as disclosed in the Filed SEC Documents or in
Section 2.5 of the Company Disclosure Letter, since the date of the most recent
audited financial statements included in the Filed SEC Documents, each of the
Company and the Company Subsidiaries has conducted its business only in the
ordinary course and (i) there has not been any Company Material Adverse Effect,
(ii) the Company has not become a party to any agreement or amendment to an
existing agreement which would be required to be filed by the Company as an
exhibit to any filing made, or required to be made, under the '34 Act, (iii)
there has not been any change by the Company or the Company Subsidiaries in
accounting principles or methods except insofar as may be required by GAAP and
(iv) there has not been (A) any granting by the Company or any of the Company
Subsidiaries to any executive officer of the Company or any of the Company
Subsidiaries of any increase in compensation, (B) any granting by the Company or
any of the Company Subsidiaries to any such executive officer of any increase in
severance or termination pay, except as was required under employment, severance
or termination agreements in effect as of the date of the most recent audited
financial statements included in the Filed SEC Documents, (C) any entry by the
Company or any of the Company Subsidiaries into any employment, severance or
termination with any such executive officer, (D) any acceleration of the vesting
or exercise of any Employee Option, or (E) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock.
2.6 Litigation. Except as disclosed in the Filed SEC Documents or in
Section 2.6 of the Company Disclosure Letter, there is no suit, action or legal,
administrative, arbitration or other proceeding or governmental investigation
pending or threatened, to which the Company or any of the Company Subsidiaries
is a party or by which any of them is or would be affected (and the Company is
not aware of any basis for any such action, suit or proceeding that has a
reasonable likelihood of being brought) which, considered individually or in the
aggregate, if determined adversely to the Company, is reasonably likely to (i)
have a Company Material Adverse Effect, (ii) impair the ability of the Company
to perform its obligations under this Agreement or (iii) prevent the
consummation of any of the transactions contemplated by this Agreement, nor is
there any judgment, decree, injunction, rule or order of any governmental entity
or arbitrator outstanding against the Company or any of the Company Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future would
have, any such effect.
2.7 Disclosure in Registration Statement and Proxy Statement. The
Registration Statement and Proxy Statement (as defined below in Section 5.1)
required for the consummation of the Merger will comply in all material respects
with the '34 Act and the Rules and Regulations. Notwithstanding the foregoing,
no representation or warranty is made with respect to any information with
respect to Parent, Merger Sub or their respective officers, directors or
affiliates provided to the Company by Parent or Merger Sub in writing for
inclusion in the Registration Statement and Proxy Statement or the supplements
or amendments thereto.
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2.8 Broker's or Finder's Fees. No agent, broker, person or firm acting on
behalf of the Company or under its authority is or will be entitled to any
commission or broker's or finder's fee from any of the parties hereto in
connection with any of the transactions contemplated herein. The estimated fees
and expenses for financial and legal advisors incurred and to be incurred by the
Company in connection with this Agreement and the transactions contemplated by
this Agreement are set forth in Section 2.8 of the Company Disclosure Letter.
2.9 Board Recommendation; Company Action; Requisite Vote of the Company's
Stockholders. The Board of Directors has, subject to its continuing duties to
the stockholders of the Company and by resolutions duly adopted by the requisite
vote of the directors present at a meeting of such board duly called and held on
March 4, 1997, approved and adopted this Agreement, the Merger, and the other
transactions contemplated hereby, and, upon receipt of a satisfactory fairness
opinion, will recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger.
2.10 Subsidiaries. Section 2.10 of the Company Disclosure Letter lists each
Company Subsidiary. All the outstanding shares of capital stock of each Company
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned by the Company, by another Company Subsidiary or by the Company and
another such Company Subsidiary, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"). Except for the capital stock of the Company
Subsidiaries and except for the ownership interests set forth in Section 2.10 of
the Company Disclosure Letter, the Company does not own, directly or indirectly,
any capital stock or other ownership interest in any corporation, partnership,
joint venture or other entity.
2.11 Absence of Changes in Benefit Plans. Except as disclosed in the Filed
SEC Documents, since the date of the most recent audited financial statements
included in the Filed SEC Documents, there has not been any adoption or
amendment in any material respect by the Company or any of its subsidiaries of
any Benefit Plan (as hereinafter defined). Except as disclosed in the Filed SEC
Documents or Section 2.11 of the Company Disclosure Letter and except for
obligations existing as a matter of law, there exist no employment, consulting,
severance, termination or indemnification agreements, arrangements or
understandings between the Company or any of the Company Subsidiaries and any
current or former employee, officer or director of the Company or any of the
Company Subsidiaries. Except for Employee Options granted under the Option Plan,
none of the Benefit Plans provide benefits to any advisor or consultant to the
Company or any of the Company Subsidiaries who is not a current or former
employee, officer or director of the Company or any of the Company Subsidiaries.
2.12 State Takeover Statutes. The Board of Directors has approved the
Merger and this Agreement, in accordance with all applicable provisions of
Colorado Law to the Merger, this Agreement and the transactions contemplated by
this Agreement and any additional acquisitions of Company Common Stock or other
transactions involving the Company and Parent or Merger Sub. No other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement, or any of the transactions contemplated by this
Agreement.
2.13 Compliance with Laws. Except as set forth in Section 2.13 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
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regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business or operations, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect. Except as set forth in Section
2.13 of the Company Disclosure Letter, none of the Company and the Company
Subsidiaries has received any written communication during the past two years
from a Governmental Entity that alleges that any of them is not in compliance in
any material respect with any applicable law. Except as set forth in Section
2.13 of the Company Disclosure Letter, the Company and the Company Subsidiaries
are not required to make, and the Company has no reasonable expectation that any
of the Company or the Company Subsidiaries will be required to make, any
expenditures to achieve or maintain compliance with applicable law.
2.14 Environmental Matters.
----------------------
(a) Except as disclosed in Section 2.14(a) of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries has (x) placed
or disposed of any Hazardous Substances (as defined below) on, under, from or at
any of the Company's or any of the Company Subsidiaries' properties or any other
properties presently or formerly owned or operated by the Company or any of the
Company Subsidiaries including, without limitation, the Project (hereinafter,
the "Properties"), in violation of any applicable Environmental Laws (as defined
below), (y) any knowledge of the presence of any Hazardous Substances on, under
or at any of the Properties or any other property but arising from the
Properties, in violation of any applicable Environmental Laws, or (z) received
any written notice (A) from a Governmental Entity that the Company or any of the
Company Subsidiaries is in violation of, or has failed to obtain any necessary
permit or authorization under, any Environmental Laws, (B) of the institution or
pendency of any suit, action, claim, proceeding or investigation by any
Governmental Entity or any third party in connection with any such violation or
in connection with a release or threatened release of Hazardous Substances at
the Properties (whether due to past or present operations or other factors or
conditions) or any other properties for which the Company or any of the Company
Subsidiaries may be responsible, (C) requiring the response to or remediation of
a release or threatened release of Hazardous Substances at or arising from any
of the Properties or any other properties or (D) demanding payment by the
Company or any of the Company Subsidiaries for response to or remediation of a
release or threatened release of Hazardous Substances at or arising from any of
the Properties or any other properties. Except as disclosed in Section 2.14(a)
of the Company Disclosure Letter, (i) the Company and the Company Subsidiaries
have conducted their business in compliance with all Environmental Laws; (ii)
neither the Company nor any of the Company Subsidiaries is in violation of or
has violated any Environmental Law; (iii) no Environmental Laws require any
investigation, work, repairs, construction, remediation, expenditures or
response costs of any kind or nature (collectively, "Environmental Obligation")
with respect to the Properties or any of the actions, omissions or business
endeavors of the Company or any of the Company Subsidiaries, nor has the Company
or any of the Company Subsidiaries agreed or committed to any Environmental
Obligation; and (iv) neither the Company nor any of the Company Subsidiaries
nor, to the knowledge of the Company, any other person, including any previous
or other owner, operator, tenant, occupant or user of any real property owned,
leased, operated or otherwise occupied by the Company or any of the Company
Subsidiaries at any time, has released, discharged or disposed of any Hazardous
Substance on, under, in or about any of the Properties (A) in any quantity or
concentration exceeding any limitation, standard or prohibition under any
Environmental Law or (B) in such a manner or extent as to require or result in
any Environmental Obligation with respect to such property under any
Environmental Law.
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(b) To the best of the knowledge of the Company and the Company
Subsidiaries, no Environmental Law imposes any obligation upon the Company or
the Company Subsidiaries arising out of or as a condition to any transaction
contemplated by this Agreement, including, without limitation, any requirement
to modify or to transfer any permit or license, any requirement to file any
notice or other submission with any Governmental Entity, the placement of any
notice, acknowledgment or covenant in any land records, or the modification of
or provision of notice under any agreement, consent order or consent decree.
Except as set forth in Section 2.17 of the Company Disclosure Letter, no Lien
has been placed upon any of the Company's or the Company Subsidiaries'
Properties under any Environmental Law.
(c) For purposes of this Agreement, the term "Environmental Laws"
shall mean any and all federal, state and local statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions relating to
the protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution ,use, treatment, storage, disposal, transport or handling or
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes, which statutes and regulations shall include, without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 9601 et seq., the Federal Water and
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq., the Federal
Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq., the Emergency
Planning and Community Right to Know Act, as amended, 42 U.S.C. Section 110101
et seq., the Toxic Substances Control Act, as amended, 154 U.S.C. Section
2601-2629, the Safe Drinking Water Act, as amended 42 U.S.C. Section 300f-300j,
and any and all Nevada state law counterparts, and the regulations issued under
each of such federal or state statutes. The term "Hazardous Substance" shall
mean any toxic or hazardous materials, wastes or substances, defined as, or
included in the definition of, "hazardous wastes," "hazardous materials" or
"toxic substances" under any Environmental Law, including asbestos, buried
contaminants, regulated chemicals, flammable explosives, radioactive materials,
polychlorinated biphenyls, petroleum and petroleum products.
2.15 Permits and Licenses. Section 2.15 of the Company Disclosure Letter
contains a list of all of governmental licenses, franchises, permits,
certificates, consents, orders, grants, easements, approvals and other
authorizations held by the Company or the Venture or otherwise pertaining to the
Project, including, without limitation, those required under Environmental Laws,
necessary to own, lease, stake or maintain claims and other property interests,
as the case may be, to hold the Properties and to carry on its business as
presently conducted. Except as disclosed in Section 2.15 of the Company
Disclosure Letter and except for the reclamation bond required by the U.S.
Bureau of Land Management ("BLM") for the Project, each of the Company and the
Company Subsidiaries owns, possesses, has obtained and is in compliance with all
such licenses, franchises, permits, certificates, consents, orders, grants,
easements, approvals and other authorizations. Except as disclosed in Section
2.15 of the Company Disclosure Letter, there are no threatened or pending
claims, actions, proceedings or investigations relating to revocation or
modification of, or any assessments of any fines or penalties under, any such
licenses, franchises, permits, certificates, consents, orders, grants,
easements, approvals or authorizations. Except as disclosed in Section 2.15 of
the Company Disclosure Letter, neither the execution and delivery of this
Agreement nor the performance thereof will constitute a violation of, or require
any consent pursuant to, any such licenses, franchises, permits, certificates,
consents, orders, grants, easements, approvals or authorizations.
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2.16 Contracts; Debt Instruments.
----------------------------
(a) Except as disclosed in the Filed SEC Documents or as listed on
Section 2.16(a) of the Company Disclosure Letter, there are no contracts or
agreements to which the Company or any of the Company Subsidiaries is a party
that either (i) are material to the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of the Company and
the Company Subsidiaries taken as a whole, or (ii) were entered into by the
Company or any of the Company Subsidiaries other than in the ordinary course of
business of such entity. Except for the failure to make certain payments
required under certain agreements as set forth in Section 2.16(a) of the Company
Disclosure Letter, each agreement, contract, lease, license, commitment or
instrument of the Company disclosed in the Filed SEC Documents or Section
2.16(a) of the Company Disclosure Letter is in full force and effect and is a
legal, valid and binding agreement of the Company or the applicable Company
Subsidiary and, to the best knowledge of the Company, of each other party
thereto, enforceable in accordance with its terms except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles. Except as set forth in Section
2.16(a) of the Company Disclosure Letter, neither the Company nor any of the
Company Subsidiaries is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the giving of notice would
cause such a violation of or default under) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other contract, agreement, arrangement or understanding, to which it is a party
or by which it or any of its properties or assets is bound, except for
violations or defaults that could not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
(b) Set forth in Section 2.16(b) of the Company Disclosure Letter is
(x) a list of all loan or credit agreements, notes, bonds, indentures and other
agreements and instruments (whether or not in writing and including, without
limitation, cash or other advances made by Royalstar) pursuant to which any
Indebtedness of the Company or any of the Company Subsidiaries to any person (or
group of related persons) in an aggregate principal amount in excess of $10,000
is outstanding or may be incurred and (y) the respective principal amounts
currently outstanding thereunder. For purposes of this Agreement, "Indebtedness"
shall mean, with respect to any person, without duplication, (A) all obligations
of such person for borrowed money, or with respect to deposits or advances of
any kind to such person, (B) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations of such person
upon which interest charges are customarily paid, (D) all obligations of such
person under conditional sale or other title retention agreements relating to
property purchased by such person, (E) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding
obligations of such person to creditors for raw materials, inventory, services
and supplies incurred in the ordinary course of such person's business), (F) all
capitalized lease obligations of such person, (G) all obligations of others
secured by any lien on property or assets owned or acquired by such person,
whether or not the obligations secured thereby have been assumed, (H) all
obligations of such person under interest rate or currency hedging transactions
(valued at the termination value thereof), (I) all letters of credit issued for
the account of such person and (J) all guarantees and arrangements having the
economic effect of a guarantee of such person of any Indebtedness of any other
person.
(c) Except as set forth in Section 2.16(c) of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries is a party to or
bound by any material written or oral (w) employment agreement or employment
contract that is not terminable at will by the Company, without any adverse
effect (financial or otherwise) on the Company or any Company Subsidiary, (x)
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covenant not to compete or (y) agreement, contract or other arrangement with (A)
any shareholder of the Company, (B) any Affiliate of the Company or any
Affiliate of any shareholder of the Company or (C) any officer, director or
employee of the Company (other than employment agreements covered by clause (w)
above) or of any shareholder of the Company or of any affiliate of the Company.
(d) Except as set forth in Section 2.16(d) of the Company Disclosure
Letter, the Company is not a party to or bound by any material written or oral
mortgage, pledge, security agreement, deed of trust or other document granting a
Lien (including, but not limited to, Liens upon properties acquired under
conditional sales, capital leases or other title retention or security devices).
2.17 Title to Properties.
--------------------
(a) Capitalized terms appearing in this Section 2.17, if not defined
in this Agreement, shall have the meanings defined in that Loan Agreement among
the Company, Parent, U.S. Gold, TSVLP, and Tonkin Springs Gold Mining Company,
dated January 16, 1997 (the "Loan Agreement"). The Company owns an undivided
sixty percent (60%) interest in and to the Project pursuant to the provisions of
the Purchase and Sale Agreement and the Mining Venture Agreement. The Purchase
and Sale Agreement and the Mining Venture Agreement are in full force and
effect; provided, however, that the parties acknowledge that the Company is in
technical default under the Purchase and Sale Agreement and the Mining Venture
Agreement as to the performance of certain of Company's obligations as the
Manager under the Mining Venture Agreement.
(b) (i) The Company owns an undivided sixty percent (60%) interest,
and, to the best of 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 Section 2.17 of the Company
Disclosure Letter, which title is, subject to Liens held by TSVLP, and the
Royalties described in Section 2.18, 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.
(ii) 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, including, without limitation, those on which mining reserves are
indicated. Each of the Mining Leases is in full force and effect, and the lessee
has performed all of its obligations thereunder, and neither party is in default
thereunder. To the best of Company's knowledge, the title of the lessor under
each of the Mining Leases to the unpatented lode mining claims covered thereby
is, subject to Liens held by TSVLP or Parent, and the Royalties described in
Section 2.18, 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.
(c) With respect to the unpatented lode mining claims listed in
Section 2.17 of the Company Disclosure Letter; (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, Liens held by Parent, and the
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Royalties described in Section 2.18); (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 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 listed in Section 2.17 of the Company
Disclosure Letter: (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 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 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 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 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
in Section 2.17 of the Company Disclosure Letter contains a discovery of
valuable minerals. In addition, with respect to each of the unpatented mining
claims listed in Section 2.17 of the Company Disclosure Letter, the Company
represents that it has been remonumented as necessary, and that evidence of such
remonumentation has been timely and properly recorded, all in compliance with
the provisions of Nevada Revised Statutes Section 517.030.
(d) The Company has good and marketable title to the equipment,
machinery, property and fixtures comprising a portion of the Project, as
described in Section 2.17 of the Company Disclosure Letter. The Lands that are
described in Section 2.17 of the Company Disclosure Letter, and the equipment,
machinery, property and fixtures described in Section 2.17 of the Company
Disclosure Letter 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. Except as set forth in Section 2.17 of the Company Disclosure
Letter, 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 or the Loan Agreement. All equipment, machinery, property and
fixtures owned by the Company and described in Section 2.17 of the Company
Disclosure Letter is in various states of repair for normal operation and the
Company knows of no major defects therein, except for potential climatic
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deterioration since June 1990. Any and all equipment, machinery, property and
fixtures onsite at the Project are owned by the Venture, unless specifically
excluded in Section 2.17 of the Company Disclosure Letter.
(e) None of the employees, officers or directors of the Company or any
Company Subsidiary owns any interest in real property, or any mineral interest
or estate therein, within one aerial mile of the exterior boundaries of the
Lands or the Project.
(f) The Company holds legal and equitable title to or otherwise has
water and water rights sufficient to provide water supplies adequate for the
conduct of operations at the Project as are currently being conducted and as may
be conducted in the future in accordance with the Tonkin Springs Project Joint
Venture's 1996 Plan of Operations, No. N64-96-009P, as may be amended up to the
date of this Agreement (the "Plan of Operations").
(g) The Company owns easements, rights-of-way or otherwise holds legal
rights of access to the Properties and Project sufficient for the conduct of
operations at the Project as are currently being conducted and as may be
conducted in the future in accordance with the Plan of Operations.
2.18 Leases and Royalties. Capitalized terms appearing in this Section
2.18, if not defined in this Agreement, shall have the meanings defined in the
Loan Agreement. The Lands described in Section 2.17 of the Company Disclosure
Letter are not subject to any leases or other agreements other than the Mining
Venture Agreement and the Mining Leases. The Lands described in Section 2.17 of
the Company Disclosure Letter are not subject to any Royalties burdening such
Lands except as set forth in the Mining Leases and other agreements listed in
Section 2.18 of the Company Disclosure Letter. For purposes hereof, "Royalties"
shall mean all amounts payable as a share of the product 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.
2.19 Partnerships and Joint Ventures. The Mining Venture Agreement, as
defined in Section 2.1, is in full force and effect and is valid, binding and
enforceable by the Company in accordance with its terms (subject to bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting creditors rights and general equity principles), and has not been
amended or modified without the prior written consent of Parent. Except as set
forth in Section 2.19 of the Company Disclosure Letter, the Company is not in
default under any of the provisions of the Mining Venture Agreement, all
contributions of the Company under the Mining Venture Agreement have been made
and, except as provided therein, the Company has the full and unrestricted
rights of a joint venturer, free of any encumbrances, except those created by
the Mining Venture Agreement. All organizational, governance, management and
financial records, minutes and books pertaining to the Venture, the Project and
any other activities conducted pursuant to the Mining Venture Agreement are true
and complete and fairly and accurately present the material covered thereby. No
information provided by the Company as manager of the Venture, to U.S. Gold (or
its direct or indirect subsidiaries or affiliates) and used by U.S. Gold in its
reports and filings with the SEC pursuant to the '34 Act, or included in its
Annual Reports to Shareholders or any other public document or statement has
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make such information, in light of the circumstances under
which it was conveyed, not materially misleading.
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2.20 Ore Reserve Information. The proven and probable ore reserve
information of the Company as of December 31, 1996, is set forth in Section 2.20
of the Company Disclosure Letter and was prepared in accordance with generally
accepted definitions, methodology and criteria applicable in the gold mining
industry.
2.21 Intellectual Property. The Company and the Company Subsidiaries own,
or are validly licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights, copyrights, trade secrets, and other proprietary
intellectual property rights and computer programs, software and data
(collectively, "Intellectual Property") which are used in or necessary to the
conduct of the business of the Company and the Company Subsidiaries, as set
forth in Section 2.21 of the Company Disclosure Letter. This Agreement and the
consummation of the transactions contemplated hereby will not conflict with,
alter or impair any such rights or cause a breach, termination or default (with
or without any action on behalf of any person) under any agreement or
understanding with respect to any Intellectual Property. All Intellectual
Property listed in Section 2.21 of the Company Disclosure Letter is free and
clear of the claims of others and of all liens, security interests and
encumbrances whatsoever. The conduct of the business of the Company and the
Company Subsidiaries as presently conducted does not, and in the conduct of such
business as proposed to be conducted in accordance with the Plan of Operations
will not, violate, conflict with or infringe the Intellectual Property of any
other person. There are no infringement or other claims notified to or pending
or, to the best of the knowledge of the Company and the Company Subsidiaries,
threatened against the Company or any of the Company Subsidiaries.
2.22 Labor Matters. Except as set forth in Section 2.22 of the Company
Disclosure Letter, there are no collective bargaining or other labor union
agreements to which the Company or any of the Company Subsidiaries is a party or
by which any of them is bound. Neither the Company nor any of the Company
Subsidiaries has been subject to any labor union organizing activity, or had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts.
2.23 Insurance. Section 2.23 of the Company Disclosure Letter sets forth a
complete and accurate list and description, including annual premiums and
deductibles, of all policies of fire, liability, product liability, workmen's
compensation, health and other forms of insurance presently in effect with
respect to the business of the Company and the Company Subsidiaries. All such
policies are valid, outstanding and enforceable policies and provide insurance
coverage for the properties, assets and operations of the Company and the
Company Subsidiaries, of the kinds, in the amounts and against the risks (i)
required to comply with laws and (ii) as management of the Company deems to be
adequate. No notice of cancellation or termination has been received with
respect to any such policy. The activities and operations of the Company have
been conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies.
2.24 Noncompetition. Except as set forth in Section 2.24 of the Company
Disclosure Letter, the Company and the Company Subsidiaries are not, and after
the Effective Time neither the Surviving Corporation nor Parent (by reason of
any agreement to which the Surviving Corporation is a party) will be, subject to
any noncompetition or similar restriction on their respective businesses or
activities or those of their Affiliates.
2.25 California Law Inapplicable. Section 2115 of the California General
Corporation Law is not and shall not be applicable to the Company, the Company
Common Stock, the Merger, this Agreement or to the transactions contemplated
hereby.
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2.26 Taxes.
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(a) For purposes of this Agreement, (A) "Tax" or "Taxes" means all
Federal, state, local, foreign and other taxes, assessments, duties or similar
charges of any kind, including all payroll, employment and other withholding
taxes, and including any interest, penalties and additions imposed with respect
to such amounts; (B) "Code" shall mean the Internal Revenue Code of 1986, as
amended; (C) "Taxing Authority" shall mean any governmental or any
quasi-governmental body exercising any taxing authority or any other authority
exercising Tax regulatory authority; and (D) "Return" or "Returns" shall mean
all returns, declarations of estimated tax payments, reports, estimates,
information returns and statements with respect to Taxes, including any related
or supporting information with respect to any of the foregoing, filed or
required to be filed with any Taxing Authority.
(b) (A) the Company and each of the Company Subsidiaries, and any
consolidated, combined, unitary or affiliated group of which the Company or any
of the Company Subsidiaries is or has ever been a member (an "Affiliated
Group"), has timely filed with the appropriate Taxing Authority all Returns
required to be filed on or prior to the date hereof and each such Return was
complete and correct in all material respects at the time of filing and (B) all
Taxes including Taxes for which no Returns are required to be filed (i) of the
Company, and each of the Company Subsidiaries and any Affiliated Group, (ii) for
which the Company or any of the Company Subsidiaries is or could otherwise be
held liable, or (iii) which are or could otherwise become chargeable as an
encumbrance upon any property or assets of the Company or any of its the Company
Subsidiaries (the Taxes referred to in this Section being "Covered Taxes"), have
been duly and timely paid.
(c) The Company has delivered or made available to the Parent and
Merger Sub (A) complete and correct copies of all Returns filed by the Company,
each of the Company Subsidiaries, and each Affiliated Group for taxable periods
ending after December 31, 1992 and for all other taxable periods for which the
applicable statute of limitations has not yet run and (B) complete and correct
copies of all ruling requests, private letter rulings, revenue agent reports,
information document requests and responses thereto, notices of proposed
deficiencies, deficiency notices, applications for changes in method of
accounting, protests, petitions, closing agreements, settlement agreements, and
any similar documents submitted by, received by or agreed to by or on behalf of
the Company, any of the Company Subsidiaries or any Affiliated Group and
relating to Covered Taxes.
(d) Except as set forth in Section 2.26 of the Company Disclosure
Letter, no liens for Taxes exist with respect to any of the assets or properties
of any of the Company Subsidiaries or the Company. Except as set forth in
Section 2.26 of the Company Disclosure Letter, the Federal income Tax Returns of
the Company, each of the Company Subsidiaries and each Affiliated Group have
been examined by the Internal Revenue Service, or the statute of limitations
with respect to the relevant Tax liability has expired, for all taxable periods
through and including the taxable year ended on December 31, 1995. All other
Returns with respect to income, profits, corporate franchise, receipts, sales,
use, excise, property, net worth, and capital Taxes, and with respect to all
other material Taxes, have been examined by the appropriate Taxing Authority, or
the statute of limitations with respect to the relevant Tax liability has
expired, for all taxable periods through and including the taxable period listed
with respect to each such jurisdiction in Section 2.26 of the Company Disclosure
Letter. Each deficiency resulting from any audit or examination relating to
Covered Taxes by any Taxing Authority has been paid and no material issues were
raised in writing (or otherwise to the actual knowledge of the Company) by the
relevant Taxing Authority during any such audit or examination that will apply
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to taxable periods other than the taxable period to which such audit or
examination related. Except as set forth in Section 2.26 of the Company
Disclosure Letter, (A) no Returns with respect to Federal income Taxes or other
income Taxes of the Company of any of the Company Subsidiaries are currently
under audit or examination by the Internal Revenue Service or any other Taxing
Authority, (B) no audit or examination relating to Covered Taxes is currently
being conducted by the Internal Revenue Service or any other Taxing Authority
and (C) neither the Internal Revenue Service nor any other Taxing Authority has
given notice (either orally or in writing) that it will commence any such audit
or examination.
(e) Except as set forth in Section 2.26 of the Company Disclosure
Letter, (A) no person has made with respect to the Company or any of the Company
Subsidiaries, or with respect to any property held by the Company or any of the
Company Subsidiaries, any consent under Section 341 of the Code, (B) no property
of the Company or any of the Company Subsidiaries is "tax-exempt use property"
within the meaning of Section 168(h) of the Code, (C) neither the Company nor
any of the Company Subsidiaries is a party to any lease made pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect prior
to the date of enactment of the Tax Equity and Fiscal Responsibility Act of
1982, (D) none of the assets of the Company or any of the Company Subsidiaries
is subject to a lease under Section 7701(h) of the Code or under any
predecessor, (E) none of the Company or any of the Company Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Section 280G of the Code, and (F) none of the
Company, any of the Company Subsidiaries or any other Affiliate of the Company
has made any election under Section 13261(g)(2) or Section 13261(g)(3) of the
Revenue Reconciliation Act of 1993.
(f) Except as set forth in Section 2.26 of the Company Disclosure
Letter, there is no agreement or other document extending, or having the effect
of extending, the period of assessment or collection of any Covered Taxes and no
power of attorney with respect to any Covered Taxes has been executed or filed
with the Internal Revenue Service or any other Taxing Authority.
(g) Section 2.26 of the Company Disclosure Letter lists each
affiliated, consolidated, combined, unitary or aggregate group for purposes of
filing Returns or paying Taxes of which the Company or any of the Company
Subsidiaries is or has been a member, the jurisdiction in which such affiliated,
consolidated, combined, unitary or aggregate group has or has been required to
file a Return that includes the Company, any of the Company Subsidiaries, or the
income, assets or activities of the Company or any of the Company Subsidiaries,
and the corporation and/or other person that is or was responsible for filing
such Returns.
(h) Except as set forth in Section 2.26 of the Company Disclosure
Letter, none of the Company, any of the Company Subsidiaries or any Affiliated
Group is a party to or is bound by any agreement, arrangement or practice with
respect to Taxes. The Company has delivered to the Parent and Merger Sub
complete and accurate copies of any such written agreement, arrangement or
practice, and complete and accurate descriptions of any such oral agreement,
arrangement or practice.
(i) None of the Company or any of the Company Subsidiaries will be
required to include in a taxable period on or after the Effective Date taxable
income (1) attributable to income that economically accrued in a taxable period
ending on or before the Effective Date, including, without limitation, as a
result of the installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting or the cash method of
accounting, or (2) by reason of Section 481 of the Code or comparable provisions
of state, local or foreign law.
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(j) Section 2.26 of the Company Disclosure Letter sets forth as of
December 31, 1995, with respect to the Company and the Company Subsidiaries (1)
the tax basis of the Company and the Company Subsidiaries in their assets; and
(2) the amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution, including a
description of any material limitations affecting the use thereof (including but
not limited to limitations under Sections 382 and 383 of the Code) and a
description of the methodology used in computing such limitations.
(k) Section 2.26 of the Company Disclosure Letter lists each state,
county, local, municipal or foreign jurisdiction in which the Company or any of
the Company Subsidiaries files, has ever filed, is required to file or has been
required to file a Return or is or has been liable for Tax on a "nexus" basis.
No claim has ever been made by any other jurisdiction that the Company or any of
the Company Subsidiaries is or may be subject to tax by that jurisdiction.
2.27 ERISA.
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(a) Section 2.27 of the Company Disclosure Letter contains a list and
brief description of each "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (hereinafter a "Pension Plan"), "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA, hereinafter a "Welfare Plan") and each other
plan, arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by the Company and the Company Subsidiaries
or any other person or entity that, together with the Company, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (each,
together with the Company, a "Commonly Controlled Entity") for the benefit of
any present or former officers, employees, agents, directors or independent
contractors of the Company or any of the Company Subsidiaries (all the foregoing
being herein called "Benefit Plans"). The Company has delivered to Merger Sub
and the Parent true, complete and correct copies of (1) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (2) the most
recent annual report on Form 5500 filed with the Internal Revenue Service with
respect to each Benefit Plan (if any such report was required by applicable
law), (3) the most recent summary plan description (or similar document) for
each Benefit Plan for which such a summary plan description is required by
applicable law or was otherwise provided to plan participants or beneficiaries
and (4) each trust agreement and insurance or annuity contract relating to any
Benefit Plan. To the knowledge of Company, each such Form 5500 and each such
summary plan description (or similar document) was and is as of the date hereof
true, complete and correct in all material respects.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms. The Company, the Company Subsidiaries and all the
Benefit Plans are in compliance in all material respects with the applicable
provisions of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"),
and all other applicable laws. All reports, returns and similar documents with
respect to the Benefit Plans required to be filed with any governmental agency
or distributed to any Benefit Plan participant have been duly and timely filed
or distributed and, to the knowledge of Company, all reports, returns and
similar documents actually filed or distributed were true, complete and correct
in all material respects. There are no investigations by any governmental
agency, termination proceedings or other claims (except claims for benefits
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payable in the normal operation of the Benefit Plans), suits or proceedings
against or involving any Benefit Plan or asserting any rights to or claims for
benefits under any Benefit Plan that could give rise to any material liability,
and there are not any facts that could give rise to any material liability in
the event of any such investigation, claim, suit or proceeding.
(c) None of the Benefit Plans or any plan under which the Company or
any Commonly Controlled Entity has or could have any liability (i) constitutes a
"multiemployer plan," as defined in Section 3(37) of ERISA; (ii) is subject to
Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code; or (iii) has
given, or could give, rise to a liability under Title IV of ERISA.
(d) All contributions to, and payments from, the Benefit Plans that
may have been required to be made in accordance with the terms of the Benefit
Plans have been timely made. All such contributions to, and payments from, the
Benefit Plans, except those payments to be made from a trust qualified under
Section 401(a) of the Code, for any period ending before the Effective Date that
are not yet, but will be, required to be made, will be properly accrued and
reflected in the Company's financial statements.
(e) Each Benefit Plan that is a Pension Plan (hereinafter a "Company
Pension Plan") that is intended to be a tax-qualified plan has been the subject
of a determination letter from the Internal Revenue Service to the effect that
such Company Pension Plan is qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code; no such
determination letter has been revoked, and, to the knowledge of the Company,
revocation has not been threatened; no event has occurred and no circumstances
exist that would adversely affect the tax-qualification of such Company Pension
Plan; and such Company Pension Plan has not been amended since the effective
date of its most recent determination letter in any respect that might adversely
affect its qualification, materially increase its cost or require security under
Section 307 of ERISA. The Company has delivered to Merger Sub and the Parent a
copy of the most recent determination letter received with respect to each
Company Pension Plan for which such a letter has been issued, as well as a copy
of any pending application for a determination letter. The Company has also
provided Merger Sub and the Parent with a list of all Company Pension Plan
amendments as to which a favorable determination letter has not yet been
received. No event has occurred that could subject any Company Pension Plan to
tax under Section 511 of the Code.
(f) Section 2.27 of the Company Disclosure Letter discloses whether:
(1) any "prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan;
(2) any prohibited transaction has occurred that could subject the Company, any
of the Company Subsidiaries, any of their employees, or, to the knowledge of the
Company, a trustee, administrator or other fiduciary of any trust created under
any Benefit Plan to the tax or sanctions on prohibited transactions imposed by
Section 4975 of the Code or Title I of ERISA; and (3) the Company, any of the
Company Subsidiaries or any trustee, administrator or other fiduciary of any
Benefit Plan or any agent of any of the foregoing has engaged in any transaction
or acted in a manner that could, or has failed to act so as to, subject the
Company, any such Subsidiary or any trustee, administrator or other fiduciary to
any liability for breach of fiduciary duty under ERISA or any other applicable
law.
(g) No Commonly Controlled Entity has acted in a manner that could, or
failed to act so as to, result in fines, penalties, taxes or related charges
under (x) Section 502(c), (i) or (1) of ERISA, (y) Chapter 43 of the Code.
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(h) The list of Welfare Plans in Section 2.27 of the Company
Disclosure Letter discloses whether each Welfare Plan is (i) unfunded, (ii)
funded through a "welfare benefit fund," as such term is defined in Section
419(e) of the Code, or other funding mechanism or (iii) insured. Each such
Welfare Plan may be amended or terminated without material liability to the
Company at any time after the Effective Date. The Company and the Company
Subsidiaries comply with the applicable requirements of Section 4980B(f) of the
Code with respect to each Benefit Plan that is a group health plan, as such term
is defined in Section 5000(b)(1) of the Code.
(i) Except disclosed in Section 2.27 of the Company Disclosure Letter,
no employee, officer or director of the Company or any of the Company
Subsidiaries will be entitled to any additional benefits or any acceleration of
the time of payment or vesting of any benefits under any Benefit Plan as a
result of the transactions contemplated by this Agreement.
(j) No compensation payable by the Company or any of the Company
Subsidiaries to any of their employees, officers or directors under any existing
contract, Benefit Plan or other employment arrangement or understanding
(including by reason of the transactions contemplated hereby) will be subject to
disallowance under Section 162(m) of the Code.
(k) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(l) of the Code). Section 2.27 of the
Company Disclosure Letter sets forth (i) the maximum amount that could be paid
to each executive officer of Company as a result of the transactions
contemplated by this Agreement under all employment, severance and termination
agreements, other compensation arrangements and Benefit Plans currently in
effect and (ii) the "base amount" (as such term is defined in Section 280G(b)(3)
of the Code) for each such executive officer calculated as of the date of this
Agreement.
2.28 True Statements. The statements contained in this Agreement, in the
Company Disclosure Letter hereto and in any other written documents executed and
delivered by or on behalf of the Company or any of the Company Subsidiaries
pursuant to the terms of this Agreement are true and correct in all material
respects. The statements contained in the Company Disclosure Letter and such
other documents will be deemed to constitute representations and warranties of
Company under this Agreement to the same extent as if set forth herein. None of
the foregoing representations and warranties contains any untrue statement of a
material fact or omits to state any material fact required to be stated in order
to make such representation true and correct in all material respects.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company as follows:
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3.1 Organization. Each of Parent and Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of Parent and Merger Sub has the
corporate power to own its property and to carry on its business as now being
conducted. Each of Parent and Merger Sub is duly qualified and/or licensed, as
may be required, and in good standing in each of the jurisdictions in which the
nature of the business conducted by it or the character of the property owned,
leased or used by it makes such qualification and/or licensing necessary, except
in such jurisdictions where the failure to be so qualified and/or licensed would
not individually or in the aggregate have a material adverse effect on the
financial condition, business, operations or assets of Parent and Merger Sub and
the direct and indirect subsidiaries of Parent (the "Parent Subsidiaries")
considered as a single enterprise (a "Parent Material Adverse Effect").
3.2 Authority Relative to this Agreement; Noncontravention.
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(a) Each of Parent and Merger Sub has the requisite corporate power to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by Parent and Merger Sub, the
performance by Parent and Merger Sub of their respective obligations hereunder
and the consummation by Parent and Merger Sub of the transactions contemplated
herein have been duly authorized by the respective boards of directors of Parent
and Merger Sub, and no other corporate proceedings on the part of Parent or any
of the Parent Subsidiaries are necessary to authorize the execution and delivery
of this Agreement, the performance by Parent and Merger Sub of their respective
obligations hereunder and the consummation by Parent and Merger Sub of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes a valid and binding
obligation of Parent and Merger Sub, enforceable against each of them in
accordance with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent transfer,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
(b) Except as set forth in Section 3.2(b) of that certain letter of
even date herewith from the Parent to Company ("the Parent Disclosure Letter"),
neither the execution and delivery of this Agreement by Parent or Merger Sub,
nor the consummation by Parent or Merger Sub of the transactions contemplated
herein nor compliance by Parent or Merger Sub with any of the provisions hereof
will (i) conflict with or result in any breach of the certificate or articles of
incorporation or by-laws of Parent or Merger Sub, (ii) result in a violation or
breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of the Parent Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, contract, lease, agreement or other instrument or obligation of any
kind to which Parent or any of the Parent Subsidiaries is a party or by which
Parent or any of the Parent Subsidiaries or any of their respective properties
or assets may be bound, or (iii) subject to compliance with the statutes and
regulations referred to in subsection (c) below, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of the Parent Subsidiaries or any of their respective properties
or assets other than any such event described in items (ii) or (iii) which would
not prevent the consummation of the transactions contemplated hereby.
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(c) Except for compliance with the provisions of Colorado Law, the HSR
Act and any applicable Canadian or other foreign antitrust and competition laws
and regulations, the '33 Act and the '34 Act, the "takeover" or "blue sky" laws
of various states and foreign laws and the filing of a notice pursuant to
Section 721 of the Exon-Florio Amendment, no action by any governmental
authority is necessary for Parent's or Merger Sub's execution and delivery of
this Agreement or the consummation by Parent or Merger Sub of the transactions
contemplated hereby except where the failure to obtain or take such action would
not prevent the consummation of the transactions contemplated hereby.
(d) Except for any action contemplated by subsections (a) and (c)
above, and except for any consents, approvals and authorizations set forth in
Section 3.2(d) of the Parent Disclosure Letter, no consents, approvals or
authorizations with respect to Parent or Merger Sub are required for or in
connection with the consummation by Parent or Merger Sub of the transactions
contemplated on their part hereby, other than consents, approvals and
authorizations the failure of which to obtain would not, individually or in the
aggregate, prevent the consummation of the transactions contemplated hereby.
3.3 Litigation. Except as disclosed in Section 3.3 of the Parent Disclosure
Letter, there is no suit, action or legal, administrative, arbitration or order,
proceeding or governmental investigation pending or, to the knowledge of Parent,
threatened, to which Parent or Merger Sub is a party which, considered
individually or in the aggregate, is reasonably likely to prevent the
consummation of the transactions contemplated hereby or which would be material
to the transactions contemplated hereby.
3.4 Reporting Issuer. Parent is a reporting issuer under the provisions of
the Securities Act (Quebec) and the Securities Act (Ontario) and is not in
default of any of the requirements of either of the said Acts relating to
continuous disclosure. Since January 1, 1994, Parent has filed with the
applicable Canadian and provincial securities law authorities all forms,
reports, schedules, definitive proxy statements and other documents (the "Parent
Reports") required to be filed by Parent and has made copies of such documents
available to the Company. As of their respective dates, the Parent Reports
complied in all material respects with the applicable requirements of the
Canadian and provincial laws, rules and regulations applicable to such Parent
Reports, and, as of their respective dates, none of the Parent Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. Except
to the extent that information contained in any Parent Report has been revised
or superseded by a later Parent Report filed and publicly available prior to the
date of this Agreement (a "Filed Parent Document"), none of the Parent Reports
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent Reports
comply as to form in all material respects with applicable accounting
requirements, have been prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the Filed Parent
Documents or in Section 3.4 of the Parent Disclosure Letter, neither Parent nor
any of its subsidiaries has any material liabilities, debts or obligations
(whether accrued, absolute, contingent or otherwise) required to be set forth on
a consolidated balance sheet of Parent and its consolidated subsidiaries or in
the notes thereto.
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3.5 Disclosure in Registration Statement and Proxy Statement. None of the
information which has been or will be supplied in writing by Parent to the
Company specifically for inclusion or incorporation by reference in the
Registration Statement and Proxy Statement will, at the time such Proxy
Statement is mailed to the stockholders of the Company or at the time such
Registration Statement is filed with the SEC, respectively, include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. None of the information which has been or will be supplied in
writing by Parent and Merger Sub specifically for inclusion in the Registration
Statement and Proxy Statement, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary in
order to make the statements made, in light of the circumstance under which they
are made, not misleading.
3.6 Parent and Merger Sub Due Diligence. Each of the Parent and Merger Sub
have undertaken certain due diligence of the Company, the Project, and the
Venture, as determined necessary and appropriate prior to execution of this
Agreement and the Effective Date of the Merger. In the event that prior to the
Effective Date Parent or Merger Sub have actual knowledge of a material breach
by the Company of any representation in this Agreement and Parent and Merger Sub
consummate the Merger, Parent and Merger Sub shall be deemed to have waived
their rights to assert any claim against the Company for the Company's breach of
such representation.
3.7 True Statements. The statements contained in this Agreement, in the
Parent Disclosure Letter and in any other written documents executed and
delivered by or on behalf of Parent or Merger Sub pursuant to the terms of this
Agreement are true and correct in all material respects. The statements
contained in the Parent Disclosure Letter and such other documents will be
deemed to constitute representations and warranties of Parent and Merger Sub
under this Agreement to the same extent as if set forth herein. None of the
foregoing representations and warranties contains any untrue statement of a
material fact or omits to state any material fact required to be stated in order
to make such representation true and correct in all material respects.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, prior to the Effective Time, unless Parent and Merger
Sub shall otherwise agree in advance in writing, subject to Parent's material
compliance with Section 4.2:
(a) The businesses of the Company and each of the Company Subsidiaries
shall be conducted in the ordinary and usual course of business and consistent
with past practices, and the Company and each of the Company Subsidiaries shall
maintain and preserve intact their respective business organizations, use their
best efforts to keep available the services of their respective officers and
employees, and maintain significant beneficial business relationships with
suppliers, contractors, distributors, customers, licensors, licensees and others
having business relationships with it;
(b) Without limiting the generality of the foregoing Section 4.1(a),
from and after the date hereof the Company shall not directly or indirectly, and
shall not permit any of the Company Subsidiaries to, do any of the following,
unless Parent and Merger Sub shall otherwise agree in advance in writing:
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(i) sell, lease, transfer, dispose of, or mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of, any of its properties
or assets, or enter into any material commitment or transaction out of the
ordinary course of business consistent with past practice, provided that in no
event shall all actions or matters permitted under Section 4.1(b) together
involve an amount greater than an aggregate of $15,000, without the consent of
Parent;
(ii) amend or propose to amend its Articles of Incorporation or
By-laws or, in the case of the Company Subsidiaries, their respective
constituent documents or reincorporate in any jurisdiction;
(iii) split, combine or reclassify any outstanding shares of, or
interests in, its capital stock;
(iv) declare, set aside or pay any dividend or distribution,
payable in cash, stock, property or otherwise with respect to any of its capital
stock;
(v) redeem, purchase or otherwise acquire or offer to redeem,
purchase or otherwise acquire any shares of capital stock of the Company or any
of the Company Subsidiaries or any options, warrants or rights to acquire
capital stock of the Company or any of the Company Subsidiaries;
(vi) issue, sell, pledge, dispose of or encumber, or authorize,
propose or agree to the issuance, sale, pledge or disposition or encumbrance by
the Company or any of the Company Subsidiaries of, any shares of, or any
options, warrants or rights of any kind to acquire any shares of, or any
securities convertible into or exchangeable for any shares of, its capital stock
of any class, or any other securities in respect of, in lieu of, or in
substitution for any class of its capital stock outstanding on the date hereof;
(vii) enter into any contracts, commitments or transactions
pertaining to its business out of the ordinary course of business consistent
with past practice, provided that in no event shall all actions or matters
permitted under Section 4.1(b) together involve an amount greater than an
aggregate of $15,000, without the consent of Parent;
(viii) incur any indebtedness, obligations or liability or make
any payment in respect thereof, including the making of any royalty or option
payment out of the ordinary course of business consistent with past practice,
provided that in no event shall all actions or matters permitted under Section
4.1(b) together involve an amount greater than an aggregate of $15,000, without
the consent of Parent;
(ix) acquire or agree to acquire additional assets;
(x) sell, agree to sell or otherwise dispose of any of its
assets;
(xi) make any payments of any type to any officer, director or
shareholder of the Company or any person not dealing at arms' length with any of
the foregoing;
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(xii) modify the terms of any existing indebtedness for borrowed
money or incur any indebtedness for borrowed money or issue any debt securities;
(xiii) assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the economic
effect of any of the foregoing or make any loans or advances or capital
contributions to, or investments in, any other person, except to the Company or
any of the Company Subsidiaries;
(xiv) authorize, recommend or propose any material change in its
capitalization, or any release or relinquishment of any material contract right
or effect or permit any of the foregoing;
(xv) adopt or establish any new employee benefit plan or amend in
any material respect any employee benefit plan or increase the compensation or
fringe benefits of any employee or pay any material benefit not consistent with
any existing employee benefit plan;
(xvi) make, grant, pay or commit to pay any bonus or any wage
increase, salary increase or other compensation increase, whether in the form of
cash, options, stock, or otherwise, to any officer, director or employee of the
Company or any Company Subsidiary;
(xvii) enter into or amend in any material respect any
employment, consulting, severance or indemnification agreement entered into or
made by the Company or any of the Company Subsidiaries with any of their
respective directors, officers or employees, or any collective bargaining
agreement or other obligation to any labor organization or employee incurred or
entered into by the Company or any of the Company Subsidiaries;
(xviii) fail to timely pay and discharge or dispute all federal
and state taxes and other accounts payable for which it is liable;
(xix) make any tax election or settle or compromise any liability
for taxes;
(xx) make or commit to make capital expenditures acquisitions of
other businesses, capital assets, properties, or intellectual property;
(xxi) make any material changes in its reporting for taxes or
accounting procedures other than as required by GAAP or applicable law;
(xxii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the Company
included in the Filed SEC Documents or incurred after the date of such financial
statements, settle any litigation or other legal proceedings (notwithstanding
the foregoing) or waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or any of
the Company Subsidiaries is a party out of the ordinary course of business
consistent with past practice, provided that in no event shall all actions or
matters permitted under Section 4.1(b) together involve an amount greater than
an aggregate of $15,000, without the consent of Parent;
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(xxiii) write off any accounts or notes receivable;
(xxiv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof or (y)
any assets that are material, individually or in the aggregate, to the Company
and the Company Subsidiaries taken as a whole, subject to Section 5.9;
(xxv) adopt any stockholder rights or similar plan or take any
other action with the intention of, or which may have the effect of,
discriminating against Parent as a stockholder of the Company (or any
successor);
(xxvi) take any action that would, or that could reasonably be
expected to, result in (i) any of the representations and warranties of the
Company set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue or (iii) any of the conditions to the Merger set forth
in Article 6 not being satisfied;
(xxvii) take any other action or enter into any other transaction
or agreement, other than in the ordinary course of business; or
(xxviii)enter into, modify or authorize any contract, agreement,
commitment or arrangement to do any of the foregoing.
(c) The Company shall promptly advise Parent orally and in writing of
any change or event having, or which, insofar as can reasonably be foreseen,
would have, material adverse effect on the Merger or a Company Material Adverse
Effect.
(d) For purposes of this Section 4.1, payment by Parent of any
expenditure requested by Company in writing pursuant to the terms of the Loan
Agreement shall be considered written consent to the proposed expenditures as
required by this Section 4.1, unless Parent notifies the Company in writing of a
lack of such consent.
4.2 Funding for the Tonkin Springs Project. Subject to the terms and
conditions of the Loan Agreement, Parent agrees to make advances to the Company
under the Loan Agreement, from time to time, as requested in writing by the
Company and agreed to by Parent in its sole discretion (so long as Parent,
subject to its rights to approve or disapprove specific requests for advances
and to elect not to make any further advances hereunder, agrees to make such
advances as are necessary to enable the Company to achieve the objectives set
forth in clauses (a), (b) and (c) below), all such amounts to be disbursed and
utilized strictly in accordance with the Loan Agreement, to enable the Company
to (a) take such actions as are reasonably necessary to maintain, preserve and
protect the assets and properties of the Project, (b) service the Amended and
Restated Secured Promissory Note, as amended, executed by the Company on or
about June 21, 1995, and payable to TSVLP, in the original principal amount of
$3,800,000 (which the parties agree shall not be subject to the Parent's
discretion), and (c) pay other necessary and proper obligations and commitments
of the Company. The parties hereby acknowledge and agree that in addition to
responding affirmatively or negatively to specific written requests for advances
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of funds as set forth above, Parent, by written notice to the Company at any
time, may elect to terminate its obligations to make any further advances to the
Company pursuant to the Loan Agreement. In that event, Parent shall have no
obligation or liability to the Company, any other party hereto, or any third
party for the foreseeable or unforeseeable consequences of an election by Parent
not to make any further advances, and the Company shall have the right to
terminate this Agreement under Section 7.1(e).
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Registration Statement; Proxy Statement.
----------------------------------------
(a) As soon as possible, the Company and Parent shall prepare and file
with the SEC a Registration Statement on Form S-4 or such other form as may be
permitted (the "Registration Statement") and the related prospectus and proxy
statement (the "Proxy Statement") relating to the Merger as required by the '33
Act, '34 Act, the rules and regulations promulgated under such Acts, and
Colorado law. The Company and Parent shall use their best efforts to file the
Registration Statement and Proxy Statement with the SEC by March 21, 1997 and
with applicable Blue Sky authorities thereafter. The Company shall obtain and
furnish to Parent as soon as possible and in any event within five business days
of execution of this Agreement all information relating to the Company required
to be included in the Proxy Statement or Registration Statement, provided that
audited financial statements for the Company's fiscal year ended December 31,
1996 shall be furnished in accordance with Section 5.12, and shall promptly
obtain and furnish to Parent and the SEC any other information requested by the
SEC. The Company and Parent shall respond promptly to any comments made by the
SEC with respect to the Registration Statement and Proxy Statement. The Company
shall cause the final Proxy Statement along with notice of a special stockholder
meeting to be mailed to the Company's stockholders within two (2) days of the
effectiveness of the Registration Statement, and shall, subject to the fiduciary
duties of the Board of Directors under applicable law as advised by counsel and
receipt of a satisfactory fairness opinion, use its best efforts to obtain the
necessary approvals of the Merger by its stockholders. If at any time prior to
the approval of this Agreement by the Company's stockholders there shall occur
any event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will promptly prepare and mail to its stockholders such
an amendment or supplement. The Company will not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably objects, unless
otherwise required by law.
(b) The Company, acting through its Board of Directors and with the
consent of Parent, shall duly call, give notice of, convene and hold a special
meeting (the "Special Meeting") of its stockholders, such meeting to be held on
or about the date which is 30 calendar days after mailing of the notice of
meeting or such earlier date which may be permitted by law, for the purpose of
adopting this Agreement and approving the transactions contemplated hereby.
(c) Subject to Section 5.9(b) and receipt of a satisfactory fairness
opinion, the Company will, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the transactions contemplated by
this Agreement.
5.2 Other Filings. As soon as practicable after the date hereof, the
Company and Parent shall promptly and properly prepare and file any other
schedules, statements, reports, or other documents required to be filed by it
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under the `34 Act (if any), the `33 Act or any other federal or state securities
laws relating to the Merger and the transactions contemplated herein (the "Other
Filings"). Each party shall notify the others promptly of the receipt by such
party of any comments or requests for additional information from any
governmental official with respect to any Other Filing made by such party and
will supply the others with copies of all correspondence between such party and
its representatives, on the one hand, and the appropriate government official,
on the other hand, with respect to the Other Filings made by such party. Each of
the Company and Parent shall, after consultation with the other, respond
promptly to any comments made by any governmental official with respect to any
Other Filing and any preliminary version thereof made by such party.
5.3 Options. Prior to the Effective Time, the Company Board of Directors
(or, if appropriate, the committee administering the plans pursuant to which the
options under the Option Plan were granted) shall adopt appropriate resolutions
and take such other actions, in each case subject to Parent's prior approval,
after receiving written notice from the Company thereof, as may be necessary to
cancel all outstanding options under the Option Plan as contemplated in Section
1.9 and shall use its reasonable best efforts to obtain any necessary consents
from the holders of such options. Parent may, in its sole discretion, grant
options to purchase Parent Common Stock to holders of options to purchase
Company Common Stock.
5.4 Consents and Approvals.
-----------------------
(a) The Company, Parent and Merger Sub shall cooperate with each other
and (i) promptly prepare and file all necessary documentation, (ii) effect all
necessary applications, notices, petitions and filings and execute all
agreements and documents, (iii) use all reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all governmental
bodies (including, but not limited to, any filing with the Federal Trade
Commission or the U.S. Department of Justice under the HSR Act or any other
applicable antitrust law or regulation) and (iv) use all reasonable efforts to
obtain all necessary permits, consents, approvals, waivers and authorizations of
all other parties, in the case of each of the foregoing clauses (i), (ii), (iii)
and (iv), necessary or advisable to consummate the transactions contemplated by
this Agreement without the occurrence of any of the conditions or actions
referred to as being sought in Section 6.2(k) or required by the terms of any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument to which the Company, Merger
Sub, Parent or any of their respective subsidiaries is a party or by which any
of them is bound; provided, however, that no note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument shall be amended or modified to increase materially the amount
payable thereunder or to be otherwise materially more burdensome to the Company
and the Company Subsidiaries considered as one enterprise in order to obtain any
permit, consent, approval or authorization without first obtaining the written
approval of Parent. Each of the Company and Parent shall have the right to
review and consult with the other regarding all characterizations of the
information relating to the transactions contemplated by this Agreement that
appear in any filing (including, without limitation, the Proxy Statement) made
in connection with the transactions contemplated hereby. The Company, Parent and
Merger Sub agree that they will consult with each other with respect to the
obtaining of all such necessary permits, consents, approvals and authorizations
of all third parties and governmental bodies.
5.5 Public Statements. Parent and Merger Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
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make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any U.S. or Canadian securities exchange. The parties
agree that the initial press releases to be issued with respect to the
transactions contemplated by this Agreement shall be issued simultaneously and
that the Company shall deliver its proposed press release to Parent at least 48
hours prior to the time of issuance and shall use its best efforts to
accommodate comments of Parent, subject to the Company's disclosure obligations
under applicable law.
5.6 Reasonable Best Efforts. Subject to the terms and conditions herein
provided, each of the Company, Parent and Merger Sub agrees to use reasonable
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things reasonably necessary, proper or advisable under applicable
laws and regulations to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement without
(unless Parent shall otherwise agree) the occurrence of any of the conditions or
actions referred to as being sought in Section 6.2(k) (none of which Parent or
Merger Sub shall be required to agree to), including but not limited to (i)
obtaining all consents, approvals and authorizations and the making of all
necessary filings and registrations required for or in connection with the
consummation by the parties hereto of the transactions contemplated by this
Agreement, (ii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of any of the transactions contemplated by this Agreement,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (iii) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, Parent
and/or the Surviving Corporation shall cause the proper officers and directors
of the Company, Parent and Merger Sub hereto to take all such action. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall (A) use their respective best efforts to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement or any of the other transactions contemplated by this
Agreement and (B) if any state takeover statute or similar statute or regulation
becomes applicable to the Merger, this Agreement or any other transaction
contemplated by this Agreement, use their respective best efforts to ensure that
the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
Notwithstanding the foregoing, the Board of Directors shall not be prohibited
from taking any action permitted by Section 5.9(b). In the event any litigation
is commenced by any person involving the Company, Parent or Merger Sub and
relating to the transactions contemplated by this Agreement, including any other
proposal for a Takeover Proposal (as defined in Section 5.9), the Company,
Parent or Merger Sub shall have the right, at its own expense, to participate
therein.
5.7 Notification of Certain Matters. Each of the Company, Parent and Merger
Sub agrees to give prompt notice to each other of, and to use their respective
reasonable best efforts to prevent or promptly remedy, (i) the occurrence or
failure to occur, or the impending or threatened occurrence or failure to occur,
of any event which occurrence or failure to occur would be likely to cause any
of its representations or warranties in this Agreement that are qualified as to
materiality to be untrue or inaccurate in any material respect or, to the extent
qualified as to materiality, to be untrue or inaccurate in any respect, in each
case at any time from the date hereof through the Effective Time and (ii) any
material failure on its part to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.7 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
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5.8 Access to Information; Confidentiality.
---------------------------------------
(a) The Company shall, and shall cause the Company Subsidiaries and
the officers, directors, employees and agents of the Company and the Company
Subsidiaries to, afford the officers, employees and agents of Parent and Merger
Sub complete access at all reasonable times from the date hereof through the
Effective Date to its officers, employees, agents, properties, facilities,
books, records, contracts and other assets and shall furnish Parent and Merger
Sub all financial, operating and other data and information as Parent and Merger
Sub through their officers, employees or agents, may reasonably request. Parent
and Merger Sub shall have the right to make such due diligence investigations as
Parent and Merger Sub shall deem necessary or reasonable.
(b) Parent shall, and shall cause Parent's subsidiaries and the
officers, directors, employees and agents of Parent and Parent's subsidiaries
to, afford the officers, employees and agents of the Company complete access, at
all reasonable times from the date hereof through the date of filing of the
preliminary proxy statement regarding the Merger, to its officers, employees,
agents, properties, facilities, books, records, contracts and other assets and
shall furnish the Company all financial operating and other data and information
as the Company through its officers, employees or agents, may reasonably
request.
(c) No investigation by any party hereto shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
5.9 No Solicitation.
----------------
(a) The Company has agreed that, in light of the consideration given
by its Board of Directors prior to the execution of this Agreement to various
alternatives to the transactions contemplated by this Agreement, the Company
shall not, nor shall it permit any of the Company Subsidiaries to, nor shall it
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, the Company or any of
the Company Subsidiaries to, (i) solicit, initiate, or encourage the submission
of, any Takeover Proposal, (ii) enter into any agreement with respect to any
Takeover Proposal or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal;
provided, however, that to the extent required by the fiduciary obligations of
the Board of Directors of the Company, as determined in good faith by a majority
of the disinterested members thereof based on the written advice of outside
counsel, the Company may, in response to an unsolicited request, take such
actions permitted by Section 5.9(b) subject to all restrictions therein. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any executive officer of the Company or
any of the Company Subsidiaries or any investment banker, attorney or other
advisor or representative of the Company or any of the Company Subsidiaries,
whether or not such person is purporting to act on behalf of the Company or any
of the Company Subsidiaries or otherwise, shall be deemed to be a breach of this
Section 5.9(a) by the Company. For purposes of this Agreement, the term
"Takeover Proposal" means any bona fide proposal or offer (whether or not in
writing and whether or not delivered to the stockholders of the Company
generally) for a merger or other business combination involving the Company or
any of the Company Subsidiaries or any proposal or offer to acquire in any
manner, directly or indirectly, an equity interest (including any option to
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acquire an equity or voting interest and any convertible debt or other interest
which may be converted into such an equity or voting interest) in, any voting
securities of, or a substantial asset of the Company or any of the Company
Subsidiaries, other than the transactions contemplated by this Agreement.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or Merger Sub, the approval or recommendation by such
Board of Directors or any such committee of this Agreement or the Merger or (ii)
approve or recommend, or propose to approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, the Board of Directors of the Company, to the
extent required by the fiduciary obligations thereof, as determined in good
faith by a majority of the disinterested members thereof and based on the
written advice of qualified outside counsel, may furnish information regarding
the Company, pursuant to a customary confidentiality agreement (reasonable
acceptable to Parent), to any person presenting a Superior Proposal or may
approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement and the Merger) a Superior
Proposal; provided, however, that this sentence shall not (x) permit the Company
to terminate this Agreement, (y) permit the Company to enter into any agreement
with respect to such Superior Proposal or (z) affect any other obligation of the
Company under this Agreement, unless this Agreement is terminated pursuant to
Section 7.1(d) simultaneously with such action under clause (x), (y), or (z) and
the Company simultaneously pays to Parent the Termination Fee under Section
7.3(b). Upon approval or recommendation of a Superior Proposal by the Board of
Directors of the Company, Parent may, in its sole discretion, immediately
discontinue any or all funding to the Company under the Loan Agreement and the
Company shall waive all rights and recourse relating to such discontinuance. For
purposes of this Agreement, the term "Superior Proposal" means a bona fide
proposal made by a third party to acquire the Company pursuant to a tender or
exchange offer, a merger, a sale of all or substantially all its assets or
otherwise, or a sale of stock on terms which a majority of the disinterested
members of the Board of Directors of the Company determines in its good faith
judgment to be more favorable to the Company's stockholders than the Merger
(based on the written opinion, with only customary qualifications, of the
Company's independent financial advisor that the value of the consideration
provided for in such proposal exceeds the value of the consideration provided
for in the Merger by a material amount) and for which financing, to the extent
required, is then committed or which, in the good faith judgment of a majority
of such disinterested members (based on the written advice of the Company's
independent financial advisor), is reasonably capable of being financed and
completed in a timely manner by such third party.
(c) The Company shall immediately advise Parent orally and in writing
of any Takeover Proposal or any inquiry with respect to or which could lead to
any Takeover Proposal and the identity of the person making any such Takeover
Proposals or inquiry. The Company will keep Parent fully informed of the status
and details of any such Takeover Proposal or inquiry and will promptly furnish
Parent with a copy of any written advice of counsel or written opinion of any
financial advisor referred to above.
5.10 Stockholder Litigation. The Company shall give Parent the opportunity
to participate in the defense or settlement of any stockholder litigation
against the Company and its directors relating to any of the transactions
contemplated by this Agreement; provided, however, that no such settlement shall
be agreed to without Parent's consent.
5.11 Company Expenses. Company shall not spend more than $100,000 in fees
and costs associated with investment bankers, attorneys, accountants and other
financial or professional advisors in connection with the Merger and related
transactions, provided that if necessary the Company may incur up to a total of
$150,000 in such fees and costs with the consent of Parent, which consent shall
not be unreasonably withheld.
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5.12 Financial Statements. The Company shall deliver to Parent and Merger
Sub copies of all financial statements of Company and the Company Subsidiaries
(all of which shall be in accordance with GAAP) that have been or may be filed
by Company from September 30, 1996, through the Effective Date with the SEC or
any other Governmental Entity. By March 15, 1997, or as soon thereafter as
possible, the Company shall deliver to Parent and Merger Sub all financial
statements required to be filed with the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996. Company shall furnish Parent and Merger
Sub copies of balance sheets and statements of income of Company and the Company
Subsidiaries for each month from and including the month of this Agreement
through the Effective Date, within 20 days of the end of each such month.
5.13 Fairness Opinion. By March 15, 1997, or as soon thereafter as
possible, the Board of Directors shall obtain from an investment banker or other
financial advisor selected by the Company (and acceptable to Parent which
acceptance shall not be unreasonably withheld) a written fairness opinion (which
opinion shall be acceptable in form and factual basis to Parent) to the effect
that the consideration to be received by the holders of the Company Common Stock
pursuant to the Merger is fair to the holders of Company Common Stock from a
financial point of view (a copy of which opinion will be promptly furnished to
Parent). The Company also shall obtain an updated written fairness opinion,
dated as of the Effective Date, which opinion shall be promptly furnished to
Parent and shall be acceptable in form and factual basis to Parent.
ARTICLE 6
CONDITIONS
6.1 Conditions to the Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the fulfillment at or prior to
the Effective Time of the following conditions, unless such conditions are
waived in writing by the Company:
(a) this Agreement, the Merger and the consummation of the
transactions contemplated in this Agreement shall have been approved and adopted
by the requisite vote of the stockholders of the Company required by Colorado
Law;
(b) each of Parent and Merger Sub shall have performed each obligation
and agreement and complied with each covenant to be performed or complied with
by it hereunder at or prior to the Effective Time except for such failures to
comply which would not materially adversely affect the consummation of the
transactions contemplated hereby, and the Company shall have received a
certificate signed on behalf of the Parent by the chief executive officer of the
Parent to such effect;
(c) the representations and warranties of Parent and Merger Sub in
this Agreement shall be true and correct in all respects when made and at the
Effective Time with the same force and effect as though made at such time,
except for such inaccuracies which would not materially adversely affect the
consummation of the transactions contemplated hereby, and the Company shall have
received a certificate signed on behalf of the Parent by the chief executive
officer of the Parent to such effect;
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(d) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect that would make the acquisition of Company Common
Stock pursuant to the Merger or the holding directly or indirectly by Parent of
the shares of Common Stock of the Surviving Corporation illegal or otherwise
prevent the consummation of the Merger;
(e) Parent's registration statement covering the offer, sale and
delivery of the Merger Consideration shall have been declared effective by the
SEC and no stop order relating thereto shall be in effect;
(f) the Merger Consideration shall have been approved upon issuance
for listing on The Montreal Exchange and The Toronto Stock Exchange;
(g) Parent shall have received funds in an amount no less than
$4,000,000 available to provide short-term working capital for the Company and
to conduct further exploration for the Project, provided that this condition
shall not require Parent to obtain more than $10,000,000;
(h) Parent shall have acquired from Royalstar 4,419,110 shares of
Company Common Stock and repaid the loans from Royalstar to the Company or made
adequate provision therefore, prior to or substantially contemporaneous with the
Merger;
(i) Between the date of this Agreement and the Effective Date, Parent
shall have provided the funding for the Project and other purposes as specified
in and subject to the terms and conditions of Section 4.2; and
(j) Parent and Merger Sub shall have delivered to the Company the
favorable opinion of counsel to Parent and Merger Sub, dated the Effective Date,
in form and substance reasonably satisfactory to counsel to the Company, to the
following effect: (i) the organization, existence, and good standing of the
Parent and Merger Sub is as stated in this Agreement; (ii) Parent and Merger Sub
have full power and authority to execute and deliver this Agreement and Parent
and Merger Sub have full power and authority to perform this Agreement; (iii)
this Agreement has been duly authorized by all requisite action of Parent and
Merger Sub, and constitutes a valid and legally binding agreement of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, subject to bankruptcy, insolvency, moratorium, reorganization, or similar
laws affecting creditors' rights generally and to general equitable principles;
(iv) the execution and performance by Parent and Merger Sub of this Agreement
will not violate the articles of incorporation or by-laws of Parent or Merger
Sub and will not violate, result in a breach of or constitute a default under,
any lease, mortgage, agreement, instrument, judgment, order or decree known to
such counsel to which Parent or Merger Sub is a party or to which they or any of
their properties may be subject; and (v) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental agency or
body not previously obtained is required for the consummation of the Agreement.
6.2 Conditions to the Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
fulfillment at or prior to the Effective Time of the following conditions unless
waived in writing by Parent and Merger Sub:
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(a) this Agreement, the Merger and the consummation of the
transactions contemplated in this Agreement shall have been approved and adopted
by the requisite vote of the stockholders of the Company required by Colorado
Law;
(b) the Company shall have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it hereunder at
or prior to the Effective Time, except for such failures to comply which would
not constitute a Company Material Adverse Effect and which would not otherwise
materially adversely affect the consummation of the transactions contemplated
hereby, and Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of the
Company to such effect;
(c) the representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality shall be true and correct,
and the representations and warranties of the Company set forth in this
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Effective
Date, as though made on and as of the Effective Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect with
respect to the Company's representations and warranties;
(d) the Company shall have taken all actions, if any, that are
necessary to assure that upon consummation of the Merger all of the options,
warrants, and other agreements to acquire any shares of Company Common Stock
(excluding agreements with Parent) outstanding immediately prior to the Merger
(and not exercised prior to the Merger) shall, effective upon the Merger, have
been cancelled and shall have provided evidence thereof to Parent satisfactory
to it;
(e) the Company shall have delivered to Parent and Merger Sub all
necessary consents, waivers, authorizations and approvals, such that neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in the acceleration,
termination, modification or cancellation of, or the creation in any party of
the right to accelerate, terminate, modify or cancel, any indenture, contract,
lease, sublease, loan, agreement, note or other similar obligation or liability
to which the Company or any of the Company Subsidiaries is a party or is bound
or to which any of their respective assets are subject, (ii) conflict with,
violate or result in a breach of any provision of the charter documents or
bylaws of the Company or any of the Company Subsidiaries, (iii) conflict with or
violate any law, rule, regulation, ordinance, order, writ, injunction or decree
applicable to the Company or any of the Company Subsidiaries or by which any of
their respective properties or assets is bound or affected or (iv) conflict with
or result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or result in the
creation of any lien, charge or encumbrance on any of the properties or assets
of the Company or any of the Company Subsidiaries pursuant to any of the terms,
conditions or provisions of any indenture, contract, lease, sublease, loan,
agreement, note, permit, license, franchise, agreement or other instrument,
obligation or liability to which the Company or any of the Company Subsidiaries
is a party or by which the Company or any of the Company Subsidiaries or any of
their assets is bound or affected, unless the failure to obtain such consents,
waivers, authorizations and approvals would not (x) prevent the consummation of
the transactions contemplated hereby, or (y) be reasonably likely to have a
Company Material Adverse Effect;
(f) the Company shall have delivered to each of Parent and Merger Sub
a certificate of the Secretary of the Company dated the Effective Date,
certifying as to (i) a copy (to be attached to such certificate) of the Articles
of Incorporation of the Company, together with all amendments thereto, and a
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copy of the By-laws of the Company and further certifying that no action has
been taken to amend, modify or repeal such documents, the same being in full
force and effect in such form on the Effective Date, (ii) a copy (to be attached
to such certificate) of the resolutions of the board of directors and
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated herein
and further certifying that such resolutions have not been amended, modified,
revoked or rescinded as of the date of such certificate and (iii) the incumbency
and signature of the officers of the Company executing this Agreement on behalf
of the Company and any certificate, agreement or other documents to be delivered
by the Company pursuant hereto, together with evidence of the incumbency of such
Secretary;
(g) the Company shall have delivered to each of Parent and Merger Sub
the favorable opinion of counsel to the Company, dated the Effective Date, in
form and substance reasonably satisfactory to counsel to Parent and Merger Sub,
to the following effect: (i) the organization, existence, and good standing of
the Company and the Company Subsidiaries are as stated in this Agreement; (ii)
the Company has full power and authority to execute and deliver this Agreement
and the Company has full power and authority to perform this Agreement; (iii)
this Agreement has been duly authorized by all requisite action of the Board of
Directors and shareholders of the Company, and constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, moratorium, reorganization,
or similar laws affecting creditors' rights generally and to general equitable
principles; (iv) the execution and performance by the Company of this Agreement
will not violate the Articles of Incorporation or By-laws of the Company and
will not violate, result in a breach of or constitute a default under, any
lease, mortgage, agreement, instrument, judgment, order or decree known to such
counsel to which the Company or any Company Subsidiary are parties or to which
they or any of their properties may be subject; (v) the Articles of Merger have
been duly executed by the Company and, upon filing, will be sufficient to
lawfully effect the Merger; (vi) the Mining Venture Agreement is in full force
and effect and is valid, binding and enforceable by the Company, except as
disclosed in Section 2.16(a) of the Company Disclosure Letter; (vii) the Company
owns and has good title to the Project, the Properties and all of the assets and
properties of the Company referenced in Section 2.17 of this Agreement, except
as set forth in Section 2.17 of the Company Disclosure Letter; and (viii) to the
knowledge of such counsel, no consent, approval, authorization or order of any
court or governmental agency or body not previously obtained is required for the
consummation of the Agreement.
(h) since the date of this Agreement, there shall not have occurred
any material adverse change in the condition (financial or otherwise), business,
operations, prospects or assets of the Company and the Company Subsidiaries
considered as one enterprise;
(i) Parent shall have completed, and in its sole discretion be
satisfied with the results of, its due diligence investigation of the Company;
(j) except for the filing of the Articles of Merger with the Secretary
of State of the State of Colorado, all waivers, consents, approvals and actions
or non-actions of any governmental authority, commission, board or other
regulatory body required to consummate the transactions contemplated by this
Agreement shall have been obtained and shall not have been reversed, stayed,
enjoined, set aside, annulled or suspended;
(k) there shall not be threatened or pending any suit, action or
proceeding by any Governmental Entity or any other person, or before any court
or governmental authority, agency or tribunal, domestic or foreign, in each
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case that has a reasonable likelihood of success, (i) challenging the
acquisition by Parent or Merger Sub of any shares of Company Common Stock,
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement, or seeking to obtain from the
Company, Parent or Merger Sub any damages that are material in relation to the
Company and the Company Subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of any material portion of the business or assets of the
Company, Parent or any of their respective subsidiaries, or to compel the
Company, Parent or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement, (iii) seeking to impose
limitations on the ability of Parent or Merger Sub to acquire or hold, or
exercise full rights of ownership of, any shares of Company Common Stock,
including, without limitation, the right to vote the Company Common Stock
purchased by it on all matters properly presented to the stockholders of the
Company, (iv) seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect the business or operations of
the Company or the Company Subsidiaries or (v) which otherwise is reasonably
likely to have a Company Material Adverse Effect;
(l) the Company's Board of Directors shall have approved the Globex
Loan Agreement, and the Company shall not be in default under that agreement;
(m) all funds which the Company borrows are used for the purpose
required by any loan agreement or related documentation associated with such
borrowing;
(n) U.S. Gold shall have duly executed the Stock Option Agreement, and
all related agreements and documents and such agreements are in full force and
effect and U.S. Gold shall not be in default thereof;
(o) Royalstar shall have duly executed a Stock Purchase Agreement
providing for the purchase by Parent of 4,419,110 shares of Company Common Stock
at $0.80 per share, all related agreements and documents and such agreements are
in full force and effect, Royalstar shall not be in default thereof, and Parent
shall have acquired such shares prior to or substantially contemporaneous with
the Merger;
(p) The Company shall have caused any of its employees, officers,
directors or any Company Subsidiary which owns any interest in any real
property, or any mineral interest or estate therein, within one aerial mile of
the Lands or the Project, to convey such interest, without any additional
compensation to such person, to the Company by a document of transfer
satisfactory to Parent and its counsel;
(q) the Company and TSVLP shall have executed and delivered a
document, satisfactory to Parent, amending the terms and provisions of the
Mining Venture Agreement; and
(r) Parent shall have successfully raised financing of no less than
$10,000,000.
ARTICLE 7
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TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of this Agreement and the
transactions contemplated herein by the respective boards of directors or
stockholders of the parties hereto:
(a) by mutual written consent of Parent, Merger Sub and the Company;
(b) by any of Parent, Merger Sub or the Company if the Effective Time
shall not have occurred on or before August 30, 1997; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose material breach of any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date; provided, further, that such time period
shall be tolled for up to 12 months for any part thereof during which any party
shall be subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or any meeting
of stockholders of the Company necessary to authorize the Merger and, if such
time period is tolled for up to 12 months, any payments due to Parent from the
Company under the Loan Agreement shall similarly be tolled during such period
with interest continuing to accrue during such period.
(c) by any of Parent, Merger Sub or the Company if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling each of the parties hereto shall use all
reasonable efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and nonappealable;
(d) by Parent or the Company if (i) to the extent permitted by Section
5.9(b), the Board of Directors of the Company approves or recommends a Superior
Proposal and (ii) the Company has issued to Parent the shares of Company Common
Stock constituting the Termination Fee, all within 10 days of approving or
recommending a Superior Proposal and in accordance with Section 7.3; or
(e) by the Company, if Parent has, by written notice to the Company,
elected to terminate its obligations to make any further advances to the Company
pursuant to the Loan Agreement.
7.2 Effect of Termination. Upon the termination of this Agreement pursuant
to Section 7.1, this Agreement shall forthwith become null and void except as
set forth in Sections 2.8, 5.9(b), 7.2 and 7.3 and Article 8, which shall
survive such termination, without any liability or obligation on the part of
Parent, Merger Sub or the Company (other than pursuant to the foregoing
specified Sections) except to the extent that such termination results from the
wilful and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
7.3 Fees and Expenses.
------------------
(a) Except as provided below, all fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
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(b) The Company shall issue to Parent upon demand (x) 250,000 fully
paid, non-assessable shares of Company Common Stock, and (y) an additional
40,000 shares of Company Common Stock per month or fraction thereof between the
date of this Agreement and any event occurring under subsections (i), (ii) or
(iii) of this Section 7.3(b), with all of such shares referenced in (x) and (y)
being registered shares which are freely tradable or unregistered shares subject
to a registration rights agreement in the form attached hereto as Exhibit 7.3
(collectively such shares are referred to as the "Termination Fee") (in each
case, plus interest on the fair market value of such shares from the date due
until issued at a rate of 10% per annum), if:
(i) this Agreement is terminated pursuant to Section 7.1(d); or
(ii) the Agreement is terminated or the Merger is not consummated
by August 30, 1997 and either (A) the Company shall have breached or failed to
comply with any of its obligations in this Agreement (which breach or failure
shall not have been cured within ten business days following the Company's
receipt of written notice thereof from Parent), or any representation or
warranty of the Company contained in this Agreement shall have been inaccurate
when made in any respect and which breach, failure or inaccuracy, in any such
case, individually or in the aggregate, results, or may reasonably be expected
to result, in any Company Material Adverse Effect, or (B) such termination of
this Agreement or failure to consummate the Merger by August 30, 1997 is for any
reason, other than as a result primarily of (x) a material breach of this
Agreement by Parent or Merger Sub or (y) Parent's failure to satisfy materially
the conditions in Section 6.1 (which breach or failure shall not have been cured
within ten business days following Parent's receipt of written notice thereof
from the Company), provided that such breach under (x) or failure to satisfy
under (y) shall not have been caused in whole or in part, directly or
indirectly, by any act or omission or breach of this Agreement by Company.
(c) Upon the commencement, public proposal or public disclosure of a
Takeover Proposal, the Company shall, within 10 business days thereafter,
deposit into an escrow account (the "Escrow Account") at an escrow agent chosen
by Parent (and reasonably satisfactory to the Company), pursuant to an escrow
agreement, the form and terms of which shall be provided by Parent and shall be
reasonably satisfactory to the Company, the Termination Fee. All shares on
deposit in the Escrow Account which are issuable to Parent pursuant to Section
7.3(b) shall be released to Parent immediately following the satisfaction of the
conditions specified in Section 7.3(b).
7.4 Amendment. This Agreement may be amended by the parties hereto, at any
time before or after approval of this Agreement and the transactions
contemplated herein by the respective boards of directors or stockholders of the
parties hereto; provided, however, that after any such approval by the
stockholders, no amendment shall be made that by law requires further approval
by such stockholders without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.5 Waiver. Any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived at any time
prior to the Effective Time by any of the parties entitled to the benefit
thereof only by a written instrument signed by each such party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, representation, warranty, covenant, agreement or condition shall not
operate as a waiver of or estoppel with respect to, any subsequent or other
failure.
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ARTICLE 8
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by cable, telegram
or telecopier to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a) if to Parent or Merger Sub:
Globex Mining Enterprises Inc.
146 - 14th Street
Rouyn-Noranda, Quebec
J9X 2J3 CANADA
Attn: Jack Stoch, President
Fax: 819-797-1470
Phone: 819-797-5242
with copies to:
Heenan Blaikie
1250 Rene-Levesque Blvd. West
Suite 2500
Montreal, Quebec
H3B 4Y1 CANADA
Attn: Neal Wiener, Esq.
Fax: 514-846-3427
Phone: 514-846-2208
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, CO 80202 USA
Attn: Paul Hilton, Esq.
Fax: 303-893-1379
Phone: 303-892-9400
(b) if to the Company:
Gold Capital Corporation
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 USA
Attn: Bill M. Conrad, President
Fax: 719-260-8516
Phone: 719-260-8509
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with a copy to:
Overton, Babiarz & Sykes PC
7720 E. Belleview Ave. #200
Englewood, CO 80111
Attn: David J. Babiarz, Esq.
Fax: 303-779-6006
Phone: 303-779-5900
Notice so given shall (in the case of notice so given by mail) be deemed to be
given when received and (in the case of notice so given by cable, telegram,
telecopier, telex or personal delivery) on the date of actual transmission or
(as the case may be) personal delivery.
8.2 Representations and Warranties. The representations and warranties
contained in this Agreement shall survive the Merger.
8.3 Closing. The closing of the transactions contemplated by this Agreement
shall take place at the offices of Davis, Graham & Stubbs LLP, or such other
place as the parties may agree, as soon as practicable after the satisfaction or
waiver of the conditions set forth in Article 6.
8.4 Time of Essence. With regard to all dates, time periods, transactions,
acts, or conditions set forth or referred to in this Agreement, time is of the
essence.
8.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUCTED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
8.6 Counterparts; Facsimile Transmission of Signatures. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, and delivered by means of facsimile transmission or
otherwise, each of which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute but one and the
same agreement. If any party hereto elects to execute and deliver a counterpart
signature page by means of facsimile transmission, it shall deliver an original
of such counterpart to each of the other parties hereto within ten days of the
date hereof, but in no event will the failure to do so affect in any way the
validity of the facsimile signature or its delivery.
8.7 Assignment. This Agreement and all of the provisions hereto shall be
binding upon and inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations set forth herein shall
be assigned by any party hereto without the prior written consent of the other
parties hereto and any purported assignment without such consent shall be void;
provided, however, that Merger Sub may, without such consent and at any time
prior to the Effective Time, transfer all of Merger Sub's rights, interests or
obligations herein to Parent or any affiliate of Parent; provided, further, that
no assignment of any rights, interests or obligations set forth herein shall
release the assigning party from its obligations hereunder.
8.8 Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic or legal
effect of which comes as close to that of the invalid, illegal or unenforceable
provisions.
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8.9 Entire Agreement. This Agreement contains all of the terms of the
understandings of the parties hereto with respect to the Merger.
8.10 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "knowledge," or any variation thereof, of any party hereto as used
in this Agreement shall mean as to the facts or circumstances represented: (i)
actual knowledge of any of the executive officers or directors of such party or
its subsidiaries or affiliates or (ii) knowledge that any such person should
have obtained in conducting a reasonable inquiry as to the relevant business,
operations, properties, documents, agreements and records considering such
person's particular position and responsibilities with such party or its
subsidiaries or affiliates;
(c) "Governmental Entity" shall mean any court, administrative agency
or commission or other federal, state, provincial or local governmental
authority or instrumentality, domestic or foreign; and
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
8.11 Interpretation. When a reference is made in this Agreement to a
Section or Annex such reference shall be to a Section of, or an Annex to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
8.12 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Colorado or in Colorado state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Colorado or
any Colorado state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal or state court sitting in the
State of Colorado or a Colorado state court.
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8.13 Waiver of Jury Trial. The parties hereto each hereby irrevocably
waives all right to trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to
this Agreement or the actions of any party hereto in the negotiation,
administration, performance and enforcement thereof.
[The remainder of this page is intentionally blank.]
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AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above.
GLOBEX MINING ENTERPRISES INC.
By:
------------------------------
Jack Stoch
President
GME MERGER CORPORATION
By:
------------------------------
Jack Stoch
President
GOLD CAPITAL CORPORATION
By:
------------------------------
Bill M. Conrad
President
44
