<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Gold Capital Corporation
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(Name of Issuer)
Common Stock, $0.0001 par value per share
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(Title of Class of Securities)
380548 10 7
----------------------
(CUSIP Number)
Jack Stoch With copies to:
President Paul Hilton, Esq.
Globex Mining Enterprises Inc. Kevin P. Stichter, Esq.
146 - 14th Street Davis, Graham & Stubbs LLP
Rouyn-Noranda, 370 17th Street, Suite 4700
Quebec, Canada J9X 2J3 Denver, Colorado 80202
(819) 797-5242 (303) 892-9400
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
March 13, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D,
and is filing this schedule because of Rule 13d-1(b)(3) or (4), check
the following box [ ].
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to
whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information
which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the
Securities Exchange Act of 1934 ("Act") or otherwise subject to the
liabilities of that section of the Act but shall be subject to all
other provisions of the Act (however, see the Notes).
Page 1 of 4 pages
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CUSIP No. 380548 10 7 SCHEDULE 13D Page 2 of 4 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Globex Mining Enterprises Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Quebec, Canada
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7 SOLE VOTING POWER
4,654,543 See Item 5.
8 SHARED VOTING POWER
4,654,543 See Item 5.
9 SOLE DISPOSITIVE POWER
4,654,543 See Item 5.
10 SHARED DISPOSITIVE POWER
4,654,543 See Item 5.
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,654,543 See Items 4 and 5.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 51.3%, based upon 9,073,653 shares
of Common Stock outstanding as of the date hereof.
See Item 5.
14 TYPE OF REPORTING PERSON*
CO
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
Item 3 is amended by the addition of the following:
Upon consummation of the Merger, Globex will issue 1,285,067
shares of Globex Common Stock to the shareholders of the Company.
ITEM 4. PURPOSE OF THE TRANSACTION.
--------------------------
Item 4 is amended by the addition of the following:
(a)-(j) Pursuant to an Agreement and Plan of Merger,
executed on March 13, 1997 and effective as of March 5, 1997, between
Globex, GME Merger Corporation, a Colorado corporation wholly owned by
Globex ("Merger Sub"), and the Company (the "Merger Agreement"),
Globex will effectively acquire all outstanding shares of Company
Common Stock upon consummation of the merger described in the Merger
Agreement (the "Merger"), which is subject to various conditions set
forth in the Merger Agreement, including approval by Company
stockholders and Globex's acquisition of 4,419,110 shares of Company
Common Stock owned by Royalstar. Upon consummation of the Merger,
Merger Sub will be merged into the Company, each outstanding share of
common stock of Merger Sub (all of which are owned by Globex) will be
converted into shares of Company Common Stock, and the outstanding
shares of Company Common Stock not held by Globex will be converted
into the right to receive a proportional share of 1,285,067 shares of
Globex Common Stock. The purpose of the Merger is to acquire complete
control of the Company.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
Item 5 is amended by the addition of the following:
(a)-(c) Pursuant to the Option Agreement and Merger
Agreement, the Company is the beneficial owner, according to
Rule 13d-3, of 51.3% of the outstanding shares of Company Common
Stock.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
--------------------------------
Item 7 is amended by the addition of the following:
Exhibit G Merger Agreement, with attachments omitted.
Page 3 of 4 pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, the undersigned hereby certifies that the information as set
forth in this Amendment No. 1 to Schedule 13D is true, complete and
correct.
GLOBEX MINING ENTERPRISES INC.
By: JACK STOCH
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Jack Stoch, President
Dated: March 17, 1997
Page 4 of 4 pages
AGREEMENT AND PLAN OF MERGER
dated as of March 5, 1997
among
GLOBEX MINING ENTERPRISES INC.,
GME MERGER CORPORATION,
and
GOLD CAPITAL CORPORATION
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TABLE OF CONTENTS
Page
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AGREEMENT AND PLAN OF MERGER.................................. 1
ARTICLE 1
THE 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 2
REPRESENTATIONS 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<PAGE>
2.25 California Law Inapplicable.......................... 19
2.26 Taxes................................................ 19
2.27 ERISA................................................ 22
2.28 True Statements...................................... 24
ARTICLE 3
REPRESENTATIONS AND WARRANTIESPARENT AND MERGER SUB........ 25
3.1 Organization......................................... 25
3.2 Authority Relative to this Agreement;
Noncontravention..................................... 25
3.3 Litigation........................................... 26
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 4
CONDUCT 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 5
ADDITIONAL 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 6
CONDITIONS................................................. 38
6.1 Conditions to the Obligation of the Company.......... 38
6.2 Conditions to the Obligations of Parent and
Merger Sub........................................... 39
ii
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ARTICLE 7
TERMINATION, 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 8
GENERAL 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
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE.................... 50
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
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Section 1.3 hereof), in accordance with this Agreement and the
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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<PAGE>
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.
1.2 Effect of the Merger. The Merger shall have the effects set
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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.
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
(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.
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.
-5-
<PAGE>
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 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
-6-
<PAGE>
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 the terms, conditions
-7-
<PAGE>
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
-8-
<PAGE>
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, 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
-9-
<PAGE>
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.
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,
-10-
<PAGE>
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, 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
-11-
<PAGE>
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.
(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
-- ----
-12-
<PAGE>
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. Sections 2601-2629, the Safe Drinking Water Act,
as amended 42 U.S.C. Sections 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.
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,
-13-
<PAGE>
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) 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
-14-
<PAGE>
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 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
-15-
<PAGE>
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
-16-<PAGE>
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 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
-17-<PAGE>
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.
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
-18-<PAGE>
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.
2.26 Taxes.
-----
(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,
-19-
<PAGE>
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
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
-20-
<PAGE>
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.
(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
-21-
<PAGE>
jurisdiction that the Company or any of the Company Subsidiaries is or
may be subject to tax by that jurisdiction.
2.27 ERISA.
-----
(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
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
-22-
<PAGE>
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.
(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
-23-
<PAGE>
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.
-24-
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant
to the Company as follows:
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.
------------------------------------------------------
(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
-25-
<PAGE>
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.
(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
-26-
<PAGE>
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.
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
-27-
<PAGE>
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:
(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
-28-
<PAGE>
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;
(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;
-29-
<PAGE>
(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;
(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
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<PAGE>
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 of funds as set forth above, Parent, by
written notice to the Company at any time, may
-31-
<PAGE>
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.
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<PAGE>
(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 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
-33-
<PAGE>
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 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
-34-
<PAGE>
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.
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.
-35-
<PAGE>
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 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
-36-<PAGE>
(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.
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.
-37-
<PAGE>
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;
(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;
-38-
<PAGE>
(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:
-39-
<PAGE>
(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
-40-
<PAGE>
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 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.
-41-
<PAGE>
(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 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;
-42-
<PAGE>
(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
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
-43-
<PAGE>
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.
(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
-44-
<PAGE>
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.
-45-
<PAGE>
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
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<PAGE>
(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
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
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<PAGE>
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.
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
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<PAGE>
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.
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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<PAGE>
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
---------------------------------
Jack Stoch
President
GME MERGER CORPORATION
By: JACK STOCH
---------------------------------
Jack Stoch
President
GOLD CAPITAL CORPORATION
By: BILL M. CONRAD
----------------------------------
Bill M. Conrad
President
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