U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended
January 31, 1997.
Commission File No: 0-25798
HERITAGE MINES, LTD.
(Name of small business in its charter)
Colorado 84-1293168
(State or other jurisdiction (IRS Employer
of Incorporation) Identification No.)
660 Newport Center Drive, Suite 1030
Newport Beach, California 92660
(Address of Principal Office) Zip Code
Issuer's telephone number: (714) 760-8001
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
Not Applicable Not Applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Class A Warrants to Purchase Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. ____
State issuer's revenue for its most recent fiscal year: $ 23,274.00
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days: $8,226,440.75 as of April 30,
1997.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 10,522,068 as of
April 30, 1997.
(Documents incorporated by reference. If the following documents are
incorporated by reference, briefly describe them and identify the part
of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant
to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification
purposes.
Transitional Small Business Disclosure
Format:
Yes ____ No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Company is a junior gold exploration/mining company in
its development stage. The Company was incorporated under the laws
of the State of Colorado on January 19, 1995, and acquired Heritage
Gold Mines, Inc., a Nevada corporation, and its wholly-owned
subsidiaries, WAZCO, Inc., and GWZ Management Company, Inc., in
exchange for authorized but previously unissued common stock on
March 6, 1996. As of the end of its fiscal year ending January 31,
1997, notwithstanding its plans to reach commercial production levels,
the Company's sole mining property, the Bowerman Project, located in
Siskiyou County, California, remained in the developmental stage. By
year end, approximately 2,500 linear feet of underground mine
development had been completed, installation of major plant
machinery was substantially complete, and limited test operations had
been conducted. The development process was continuing at year end
when the Company's cash resources were depleted.
The Company's business plan is to seek additional capital,
continue with exploration and development of the Bowerman Project,
and investigate, and, if warranted, acquire interests in one or more
additional mining properties.
History
In 1987, Mr. Mark Gavard, a director of the Company,
discovered high grade gold occurrences near historic (Circa mid-late
1800's) gold mines in the mountainous terrain of Siskiyou County,
located in Northern California. The Bowerman Project, as it is known,
is situated in the Knownothing Creek Mining District approximately
eight miles south of Forks of Salmon between Knownothing Creek and
Bowerman Mountain. Heritage Mines, Ltd. predecessor companies
were formed by Mr. Gavard and his associates beginning in 1988 to
explore and develop the mineral resources of the Bowerman Project.
From 1988 to 1994, Mr. Gavard dedicated himself to exploration of
the property, development of infrastructure, and acquisition of
necessary regulatory permits.
In the period from 1994 to 1996, Mr. Gavard sought to
properly capitalize the Bowerman Project through a series of
transactions with individuals and corporations. Ultimately all of these
efforts failed, largely due to the inability of the investing entity to
provide the capital necessary.
On March 6, 1996, a stock purchase and exchange agreement
was executed which placed the Bowerman Project, and all related
companies and assets into Heritage Mines, Ltd. (the "Company"), a
Colorado corporation, in exchange for issuance of 7.4 million shares in
the Company to Mr. Gavard and others who were party to the
transaction. Heritage Mines, Ltd. was at the time a new entity created
by a reverse merger into a Colorado corporate shell.
Heritage Mines, Ltd. subsequently issued additional shares and
stock purchase warrants to raise capital to pursue further exploration
and development of the Bowerman Project. Shares issued to raise
capital and issued in lieu of fees for services have brought the current
total shares outstanding to 10,522,068, plus 2,739,000 Class A
Warrants as of April 30, 1997. Each Class A Warrant gives the holder
the right to purchase one additional share of common stock at a price
of $2.00 per share.
In addition to the aforementioned equity financing, and
excluding bank financing for equipment of $31,215, the Company and
its predecessor in interest have also entered into debt financing
arrangements for a total of $611,640 as of January 31, 1997, $525,000
of which is convertible to equity in the Company at the option of the
lender(s) at an average price of $1.25 per share. If such lender elected
to convert the outstanding debt to equity, the conversion would result
in an increase to 10,942,068 shares outstanding, and a reduction of
debt, other than trade payables, to $86,640, plus accrued interest. As
of January 31, 1997, the Directors of the Company had authorized the
further issuance of 898,200 shares priced at $1.67 per share pursuant
to a stock option plan for certain officers and directors of the
Company.
With the capital raised through equity and debt offerings, the
Company continued, until early 1997, to explore and develop the
Bowerman Property and to take steps believed to be necessary to
complete the construction of a small processing plant on the property.
As of January 31, 1997, the Company had completed approximately
2,500 feet of underground development and sampling, and completed
the construction of a small processing plant with crush, grind and
gravity separation circuits a short distance from the mine portal.
During the fiscal year ending January 31, 1997, the plant was used to
process a limited tonnage of feed material from the underground
development work and demonstrated a capability of processing
approximately 2.5 tons per hour.
During the fiscal year ended January 31, 1997, the Company
also engaged the services of James W. Cooksley, a Registered
Geologist to conduct a surface and underground geo-chemical
evaluation program, and to prepare a mineral resource analysis and
report. The report prepared by Mr. Cooksley, which was initially
completed in November, 1996, reported estimated proven/probable
reserves subject to an analysis of economic viability. Subsequent to
November, 1996, the Company completed an analysis of economic
viability in support of characterization of the resource identified in the
geologist's report as ore. The Company intends to hire an independent
geologist to review Mr. Cooksley's findings.
The Company was not successful in achieving a sustaining
level of production from the Bowerman Project during the fiscal year
ended January 31, 1997, and was forced to suspend further
underground development work when its cash resources became
depleted. In March, 1997, subsequent to the end of its fiscal year, the
Company hired a new Chief Executive Officer (See ITEM 9,
Directors, Executive Officers, Promoters and Control Persons),
developed a restructuring plan and initiated efforts to raise additional
working capital (See ITEM 6, Management's Discussion and Analysis
and Plan of Operation).
ITEM 2. DESCRIPTION OF PROPERTY.
The Company maintains its offices at 660 Newport Center
Drive, Suite 1030, Newport Beach, California 92660. These offices
consist of approximately 2,000 square feet of office space which is
leased pursuant to a 3 year lease agreement for base rent of $2,657.00
per month. Subsequent to its fiscal year ending January 31, 1997, the
Company negotiated an exchange of the lease for a lease on smaller
premises. It has also entered into a five year lease arrangement for
2,550 square feet of office space in Durango, Colorado, the city of
residence of its new Chief Executive Officer. The base rent for the
premises in Durango, Colorado, is approximately $2,975 per month,
and the Company intends to relocate its corporate headquarters to this
location as soon as practicable.
During the fiscal year ending January 31, 1997, the Company
acquired all of the issued and outstanding stock of Heritage Gold
Mines, Inc., a Nevada corporation, and through this transaction it
acquired certain mining claims and other properties which are referred
to herein as the Bowerman Project. This property covers an area of
approximately 5 to 6 square miles and is located in the Knownothing
Creek Mining District of Siskiyou County, at the Forks of Salmon,
which is east of Eureka and southwest of Yreka, in Northern
California. The Company pays annual fees of a nominal amount to
the Federal Bureau of Land Management for the rights to use such
land to develop and extract minerals.
The property consists of thirty-one unpatented lode mining
claims. As of January 31, 1997, underground development consisting
of approximately 2,500 feet of drift on vein and cross-cutting had been
completed through one mine portal. A mill and its ancillary facilities
is located on the property. The mill operation includes crushing,
grinding, separation shaker screen and concentration equipment, and a
furnace house, saw mill house and explosives storage magazine.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to legal proceedings in Circuit Court
in Dupage County, Illinois (Case No. 97L 00224). The Complaint was
served on the Company on March 6, 1997. The plaintiffs in the action
are Charles P. Zapotocky, Jr., the former Chief Financial Officer of
Wazco, Inc., Margaret Zapotocky, Tony Zapotocky, Joseph Zapotocky,
Philip Bolas and Douglas Zinger. The defendants are the Company,
Wazco, Inc., Mark E. Gavard and John W. Zane, a former director of
the Company.
The suit seeks collection of certain promissory notes which
have an unpaid principal balance of $86,640.19. The notes were
issued by Wazco, Inc., a wholly-owned subsidiary of the Company,
and are personally guaranteed by Mr. Gavard and Mr. Zane. The
Company does not dispute the amounts due under the promissory notes
and is currently negotiating to settle the terms of payment.
No director, officer or affiliate of the Company, and no owner
of record or beneficial owner of more than 5% of the securities of the
Company, or any associate of any such director, officer or security
holder is a party adverse to the Company or has a material interest
adverse to the Company in reference to pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of
the Company during the fourth quarter of the fiscal year which ended
January 31, 1997.
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
There is currently a limited public trading market for the
Company's securities on the OTC Bulletin Board. Trading in the
Company's shares commenced on or about September 13, 1996. The
range of high and low bid information for the third and fourth quarters
of the fiscal year ending January 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Third Fourth
Quarter Quarter
High $6.00 $5.50
Low $5.00 $3.50
</TABLE>
The information regarding high and low bid and ask prices is
based upon over-the-counter market quotations which reflect inter-
dealer prices, without retail mark-up, mark-down or commission, and
may not represent actual transactions.
No dividends have been declared or paid on the Company's
securities, and it is not anticipated that any dividends will be declared
or paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.
OVERVIEW. The Company's balance sheet as of January 31,
1997, reflects total assets of $2,131,210, the most significant
component of which is property, plant, equipment, and mine
development costs of $2,061,539. The balance sheet as of January 31,
1997 also reflects a deficit accumulated during the development stage
of $1,688,113, and total stockholders' equity of $1,176,274.
As of January 31, 1996, the Company's consolidated balance
sheet (which reflects the reverse acquisition of all of the issued and
outstanding capital stock of Heritage Gold Mines, Inc., as of March 6,
1996) reflected total assets of $1,151,531, the most significant
component of which was property, plant, equipment and mine
development costs of $1,026,049. The balance sheet as of January 31,
1996 also reflected a deficit accumulated during the development stage
of $309,196, and total stockholders' deficit of $87,682.
Operating revenues for fiscal year ended January 31, 1997 were
$23,274 as compared to operating revenues of $0 for the fiscal year
ended January 31, 1996. Revenues for 1997 resulted from test runs
conducted in the last quarter of the year.
The changes in financial condition of the Company from
January 31, 1996, to January 31, 1997, are consistent with the
development stage activities which the Company carried on during that
period. Such activities primarily included capital raising efforts through
various equity and debt private placement offerings, and the
expenditure of such funds for general and administrative expenses and
for costs associated with development of the Bowerman Project.
The Company raised a total of $1,972,819 from its various
financing activities during the fiscal year ended January 31, 1997,
including $631,975 from the sale of stock and $1,341,323 in proceeds
from notes payable. General and administrative expenses, including,
but not limited to officers salaries, the cost of maintaining the
corporate headquarters, legal and accounting fees, organizational costs,
and the cost of the geological report, totalled $1,299,916, and
$918,983 of the cash raised by the Company during the year was
applied to payment of operating expenses for the period.
The balance of the cash raised by the Company during the
fiscal year was used for purchase of property and equipment, payment
of mine development costs and for construction of the mill and its
ancillary facilities. The expenditure of funds on these items is
reflected on the Company's balance sheet by the increase in the asset
category referred to as "Property, Plant, Equipment, and Mine
Development Costs, Net" from $1,026,049 as of January 31, 1996, to
$2,061,539 as of January 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES. As of January
31, 1997, the Company had depleted all of its operating capital. It
must raise additional operating capital in order to continue with its
development stage activities.
As of April 28, 1997 the Company commenced a private
placement offering of convertible debentures intended to raise between
$500,000 and $1,000,000 of bridge financing. The proceeds of this
offering will be allocated to payment of all outstanding trade payables,
providing cash resources necessary to enable the Company to proceed
with acquisition of certain additional properties, and working capital
needed to enable the Company to hire additional key personnel,
relocate its corporate office, establish needed business systems, and
generally prepare itself for a secondary offering or other financing
arrangement intended to provide the funds needed to explore and
develop the Bowerman Project and any additional properties it may
acquire.
There is no assurance as to when or whether the Company will
realize any net proceeds from its offering of convertible debentures.
However, unless the Company receives at least a portion of the
anticipated net proceeds of the offering, or funds from some other
source, within the reasonably near future, it will not be able to proceed
with further activities related to the implementation of its business
plan. These factors raise substantial doubt about the Company's ability
to continue as a going concern and the independent auditor's report
includes an explanatory paragraph indicating that the Company's
financial statements have been prepared assuming the Company will
continue as a going concern, and that no adjustments were made in the
financial statements for this uncertainty.
PLAN OF OPERATIONS. The long-term goal of the
Company is to become a self-sustaining medium sized precious metals
exploration and mining company with a solid foundation of credible
reserves which can be developed and produced at costs which are in
the lowest quartile of industry averages. In order to work towards this
goal, the plan of operations of the Company for the next twelve
months includes hiring experienced management personnel, completion
of the sale of at least a minimum of $500,000 of convertible
debentures on or before July 27, 1997, relocation of its offices to
Durango, Colorado, acquisition of interests in one or more additional
mining properties, completion of a secondary financing of between
$10,000,000 and $15,000,000 to provide funds needed for exploration
and development of its properties, and reaching a sustaining level of
cash flow from limited production on one or more of its properties.
There is no assurance that the Company will be able to complete any
of the elements of its plan of operations.
As of March 1, 1997, the Company hired Gregory B. Sparks as
its new Chief Executive Officer (See ITEM 9, Directors, Executive
Officers, Promoters and Control Persons).
As of April 28, 1997, the Company commenced the private
placement offering described above, the proceeds of which will be
held in escrow pending receipt of a minimum of $500,000 and pending
completion of a share roll-back plan implemented by the Company.
The share roll-back plan involves repurchase by the Company
of approximately 4,000,000 shares of its issued and outstanding
common stock from certain principal shareholders in exchange for
issuance of conditional promissory notes to the holders of such shares.
The notes would be convertible at any time, at the option of the
Company into newly issued shares of common stock. To the extent
not converted by the Company, the notes would be payable at the rate
of $2.00 per share purchased for each 500,000 ounces of
proven/probable gold reserves discovered on the Bowerman Project
within a period of 5 years. No payments would be due under the
notes unless a minimum of 500,000 ounces of proven/probable gold
reserves are discovered on the Bowerman Project within 5 years from
the date of repurchase of the shares.
The purpose of the share roll-back plan is to reduce the number
of currently issued and outstanding shares of the Company in order to
enhance the value of shares acquired by new investors in the
Company.
On March 26, 1997, the Company signed a letter of intent with
Black Diamond Mining, Inc., concerning acquisition of an interest in a
property known as the Lelan-Dividend Project located in Yavapai
County, Arizona. Pursuant to the terms of the letter of intent, the
Company will have 90 days after placing a $50,000 deposit in escrow,
to conduct due diligence on the property. At its election on or before
the expiration of the option period, the Company will have the right to
purchase a 70% joint venture interest in the property by paying an
additional $200,000. Thereafter, upon completion of exploration and
bankable feasibility analysis, Black Diamond Mining, Inc., will have a
60 day option to convert its 30% joint venture interest into common
shares of the Company in accordance with a formula which effectively
exchanges shares to be issued at the then current stock price for
minable reserves valued at $30 per proven/probable ounce.
The Company is also engaged in preliminary discussions
regarding the possibility of acquiring interests in two additional
properties. As of May 15, 1997, the Company had not executed letters
of intent or taken any other formal actions with respect to such
potential acquisitions.
This report contains various forward-looking statements that are
based on the Company's beliefs as well as assumptions made by and
information currently available to the Company. When used in this
report, the words "believe," "expect," "anticipate," "estimate" and
similar expressions are intended to identify forward-looking statements.
Such statements may include statements regarding reserves, resources,
mineralized material or deposits, mining methods, political and related
matters, planned levels of exploration, and the like, and are subject to
certain risks, uncertainties and assumptions which could cause actual
results to differ materially from projections or estimates contained
herein. Factors which could cause actual results to differ materially
include, among others, unanticipated grade, geological, metallurgical,
processing or other problems, conclusions of feasibility studies,
changes in project parameters as plans continue to be refined, the
timing of receipt of governmental permits, results of current or
planned exploration activities, environmental costs and risks, changes
in the gold price, and the like. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated or projected. The Company cautions against placing undue
reliance on forward-looking statements all of which speak only as of
the date made.
ITEM 7. FINANCIAL STATEMENTS.
See following pages.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 31, 1997, 1996 and
For the Period from Inception (May 14, 1992) through
January 31, 1997
<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders'
Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
RAIMONDO, PETTIT & GLASSMAN
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Heritage Mines, Ltd.
(A Development Stage Company)
Newport Beach, California
We have audited the accompanying consolidated balance sheet of
Heritage Mines, Ltd. (A Development Stage Company) as of January
31, 1997, and the related consolidated statements of operations, cash
flows, and stockholders' equity (deficit), for the years ended January
31, 1997, 1996 and for the period from inception (May 14, 1992)
through January 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatements.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heritage Mines, Ltd. (A Development Stage Company) as of January
31, 1997 and the results of its operations and its cash flows for the
years ended January 31, 1997, 1996 and for the period from inception
(May 14, 1992) through January 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note
1, the Company has minimal revenue and needs additional funds to
carry out its plan of operations. The Company's continued existence
depends upon its ability to obtain additional equity or debt financing.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with respect to
these matters are described in Note 1. No adjustments have been
made to the financial statements to provide for this uncertainty.
/s/
RAIMONDO, PETTIT & GLASSMAN
Torrance, California
May 14, 1997
F-1<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
January 31, 1997
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ASSETS (Notes 5 and 6)
Cash and cash equivalents 1,078
Other current assets 8,255
Total Current Assets 9,333
PROPERTY, PLANT, EQUIPMENT,
AND MINE DEVELOPMENT
COSTS, NET 2,061,539
OTHER ASSETS
Restricted cash 17,880
Deposits 7,458
Mining claims 35,000
Total Other Assets 60,338
TOTAL ASSETS 2,131,210
</TABLE>
See accompanying notes to financial statements.
F-2<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
January 31, 1997
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses 180,781
Accrued compensation 107,005
Note payable to related party 50,000
Convertible note and current maturities
of long-term debt 566,975
Accrued interest 24,295
Total Current Liabilities 929,056
Long-term debt 25,880
TOTAL LIABILITIES 954,936
COMMITMENTS AND CONTINGENCY (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock; no par value; 10,000,000 shares
authorized; no shares issued and outstanding -
Common stock; no par value; 200,000,000
shares authorized; 10,472,068 shares issued
and outstanding 26,180
Additional paid-in capital 2,838,207
Deficit accumulated during the
development stage (1,688,113)
TOTAL STOCKHOLDERS' EQUITY 1,176,274
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY 2,131,210
</TABLE>
See accompanying notes to financial statements.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
Year ended Year ended (May 14, 1992)
January 31, January 31, through
1997 1996 January 31, 1997
<S> <C> <C> <C>
REVENUES
Operating Revenue 23,274 0 53,270
Total Revenues 23,274 0 53,270
OPERATING COSTS
General and
administrative 1,299,916 319,524 1,790,527
Depreciation 75,505 29,129 151,668
Total Operating Costs 1,375,421 348,653 1,942,195
LOSS FROM
OPERATIONS (1,352,147) (348,653) (1,888,925)
OTHER INCOME (Expense)
Interest expense, net (26,770) (9,345) (36,398)
Other income - 2,833 237,210
Total Other Income
(Expense) (26,770) (6,512) 200,812
NET LOSS (1,378,917) (355,165) (1,688,113)
NET LOSS PER
COMMON SHARE (0.15) (1.76) (.91)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 8,936,241 201,703 1,846,381
</TABLE>
See accompanying notes to financial statements.
F-4<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
(page 1 of 2)
<TABLE>
<CAPTION>
Common Stock Additional
Shares Paid-In
Issued Amount Capital
<S> <C> <C> <C>
Issuance of WAZCO common
stock, May 14, 1992 25,000 25,000 180,469
Net loss for the period
Balance, January 31, 1993 25,000 25,000 180,469
Issuance of GWZ common
stock, April 26, 1993 15,000 15,000
Net income for the year
Balance, January 31, 1994 40,000 40,000 180,469
Net loss for the year
Balance, January 31, 1995 40,000 40,000 180,469
Issuance of Heritage Gold
Mines common stock,
July 21, 1995, at par
($.001 per share) 310,000 310
Issuance of WAZCO common
stock for legal services
735 735
Net loss for the year
Balance, January 31, 1996 350,735 41,045 180,469
Net effect on common stock
to account for reverse
acquisition 3,083,265 (32,460) 32,460
Issuance of common stock in
connection with the
Reorganization,
March 6, 1996 6,566,000 16,415 1,696,998
Issuance of common stock in
connection with the
Private Placement 293,125 733 631,242
Conversion of debt to
common stock 170,943 427 141,458
Issuance of common stock
for compensation 8,000 20 23,980
Contribution of
compensation by
stockholders 131,600
Net loss for the year
Balance,
January 31, 1997 10,472,068 26,180 2,838,207
</TABLE>
See accompanying notes to financial statements.
F-5<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
(page 2 of 2)
<TABLE>
<CAPTION>
Deficit Accumulated Total
During the Stockholders'
Development Stage Equity (Deficit)
<S> <C> <C>
Issuance of WAZCO common
stock, May 14, 1992 205,469
Net loss for the period (9,889) (9,889)
Balance, January 31, 1993 (9,889) 195,580
Issuance of GWZ common
stock, April 26, 1993 15,000
Net income for the year 86,655 86,655
Balance, January 31, 1994 76,766 297,235
Net loss for the year (30,797) (30,797)
Balance, January 31, 1995 45,969 266,438
Issuance of Heritage Gold
Mines common stock,
July 21, 1995, at par
($.001 per share) 310
Issuance of WAZCO common
stock for legal services 735
Net loss for the year (355,165) (355,165)
Balance, January 31, 1996 (309,196) (87,682)
Net effect on common stock
to account for reverse
acquisition -
Issuance of common stock in
connection with the
Reorganization,
March 6, 1996 1,713,413
Issuance of common stock in
connection with the
Private Placement 631,975
Conversion of debt to
common stock 141,885
Issuance of common stock
for compensation 24,000
Contribution of
compensation by
stockholders 131,600
Net loss for the year (1,378,917) (1,378,917)
Balance, January 31, 1997 (1,688,113) 1,176,274
</TABLE>
See accompanying notes to financial statements.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
Year ended Year ended (May 14, 1992)
January 31, January 31, through
1997 1996 January 31, 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,378,917) (355,165) (1,688,113)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation 75,505 29,129 151,668
Stock issued for
services 24,000 1,045 25,045
Stockholders' compensation
contributed to capital 131,600 - 131,600
Changes in assets and
liabilities:
Other current assets 15,346 (23,601) (8,255)
Restricted cash - (7,300) (17,880)
Accounts payable and
accrued expenses 157,288 55,753 180,781
Accrued compensation 29,978 77,027 107,005
Accrued interest 26,217 35,860 71,593
Net cash used in operating
activities (918,983) (187,252) (1,046,556)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment (107,738) (114,889) (194,798)
Mine development costs (847,526) (251,262) (1,223,374)
Construction in progress (124,037) (77,239) (283,972)
Deposits 3,000 (6,938) (7,458)
Mining claims - - (20,000)
Net cash used in investing
activities (1,076,301) (450,328) (1,729,602)
</TABLE>
See accompanying notes to financial statements.
F-6<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
Year ended Year ended (May 14, 1992)
January 31, January 31, through
1997 1996 January 31, 1997
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock
for cash 631,975 - 744,475
Proceeds from notes
payable to related
parties 716,323 373,677 1,090,000
Proceeds from notes
payable 625,000 36,640 661,640
Advances from related
parties - 252,000 294,500
Repayment of notes
payable (479) - (48,879)
Repayment of advances
from related parties - (2,000) (14,500)
Net cash provided from
related parties 1,972,819 660,317 2,727,236
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (22,465) 22,737 1,078
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 23,543 806 0
CASH AND CASH EQUIVALENTS
END OF YEAR 1,078 23,543 1,078
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for services 24,000 1,045 25,045
Stockholders' compensation
contributed to capital 131,600 - 131,600
Equipment exchanged for
mining claims - - 15,000
Note payable issued to
related party for
property, plant,
equipment and mine
development costs - - 327,000
Notes payable issued for
property, plant and
equipment 31,694 - 106,094
Notes payable converted
to common stock 141,885 - 141,885
Stock issued for
subscriptions
receivable - - 127,500
Stock issued for
equipment - - 92,969
Issuance of common stock
in connection with the
reorganization 1,713,413 - 1,713,413
</TABLE>
See accompanying notes to financial statements.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
HERITAGE MINES, LTD.
Heritage Mines, Ltd., formerly known as Alchemy Equities, Ltd. ("the
Company" or "Heritage") was incorporated under the laws of the State
of Colorado on January 19, 1995. On March 6, 1996, Heritage Mines,
Ltd. acquired all the outstanding shares of Heritage Gold Mines, Inc.
Since Heritage Mines, Ltd. was a non-operating shell, and considering
that the former stockholders of Heritage Gold Mines, Inc. control
Heritage Mines, Ltd. after the acquisition, this business combination
was accounted for as a reverse acquisition.
Prior to its merger with Heritage Gold Mines, Inc., Heritage Mines,
Ltd. had no full time employees, owned no real property and was
formed for the purpose of seeking out business opportunities. Under
the purchase method, the $125,000 goodwill generated by the alloca-
tion of the purchase price (mainly acquisition expenses) was complete-
ly amortized and is included in general and administrative expenses.
HERITAGE GOLD MINES, INC.
WAZCO, Inc. ("WAZCO"), GWZ Management Company, Inc.
("GWZ"), and Heritage Gold Mines, Inc. ("Heritage Gold Mines") (A
Development Stage Company) were incorporated on May 14, 1992,
April 26, 1993, and July 21, 1995, respectively, under the laws of the
State of Nevada.
In connection with the merger with Heritage Mines, Ltd., Heritage
Gold Mines acquired 100% of the stock of WAZCO and GWZ from
the common stockholders, and several notes payable to stockholders
and related parties were contributed to capital (the "Reorganization")
(Note 6). The exchange of shares between the companies under
common control was accounted for as if the combination was a pool-
ing of interest.
F-8<PAGE>
DESCRIPTION OF BUSINESS
The Company is developing the business to mine, mill and refine gold
ore from its own claims and deposits for sale as 80% fine dore gold
bars and 99.99% pure gold bullion.
Once in production, the 80% fine dore gold bars will be recovered and
refined by the Company from its own free gold on site. The concen-
trates, after the free gold and the Company production of 80% fine
dore gold bars, will be further refined under contract with outside
independent processors and refiners into 99.99% pure gold bullion
bars, which are then sold by the Company throughout recognized
outlets into the readily available domestic and international gold
market.
DEVELOPMENT STAGE
From its inception (considered to be May 14, 1992 for the purpose of
these consolidated financial statements), to January 31, 1997, the
Company was in the development stage. The Company has concen-
trated its activities to acquire, explore, claim and permit mineral
properties, acquire, repair, retrofit and bring mining equipment to its
intended use, develop the mineral properties to get them ready for
operations and to raise capital to finance the activities described above.
From inception through January 31, 1997, there have been no active
mining operations, although small test runs generated minimal reve-
nues at the end of the 1997 fiscal year.
GOING CONCERN
The Company has incurred operating losses from inception through
January 31, 1997, has an accumulated deficit of $1,688,113, and
negative working capital of $919,723. During the year ended January
31, 997, the Company's operations used $918,983 of cash, and the
Company used $1,076,301 of cash in investing activities. The Compa-
ny's cash was provided from stock issuances and notes from related
parties and others. Management expects that the Company's cash
expenditures for the fiscal year ended January 1, 1998, will not be less
than $1,000,000. Larger expenditures may be incurred based on the
Company's development project opportunities, and available cash
resources from operating cash flow and/or from additional financing.
The Company is in the process of raising between $500,000 and
$1,000,000 through a private placement of convertible debt securities
(Note 10). Management believes that the funds raised will allow the
Company to start revenue generating operations within the year.
However, there can be no assurance such funds will be raised or will
be sufficient to support profitable operations and additional financing
may be necessary. No adjustments have been made to the accompa-
nying financial statements to provide for this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Heritage
Mines, Ltd., and Heritage Gold Mines and its wholly owned subsidiar-
ies, GWZ and WAZCO. All significant intercompany balances and
transactions have been eliminated.
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabili-
ties and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expens-
es during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS AND SUPPLEMENTAL CASH
FLOW INFORMATION
Cash and cash equivalents consist of all cash balances and highly
liquid investments with a maturity of three months or less.
Income taxes and interest paid for all periods presented was immateri-
al.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying value of financial instruments included in current assets
and liabilities approximates fair value because of the short maturity of
these items. The carrying value of notes payable and long-term debt
approximates fair value since these instruments bear rates consistent
with current market interest rates.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at
the lower of average cost or net realizable value. Precious metals are
stated at market value. Since there were no active operations, there
was no such inventory at January 31, 1997.
PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT
COSTS
Expenditures for new property, plant and equipment or expenditures
which extend the useful lives of existing property, plant and equipment
are capitalized and depreciated using the straight-line method at rates
sufficient to depreciate such costs over their estimated productive lives,
which range from five to ten years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the
costs incurred to develop such property, including the costs to further
delineate the ore body and remove overburden to initially expose the
ore body, are capitalized. Such costs and estimated future develop-
ment costs will be amortized using a unit-of-production method over
the estimated life of the ore body. No amortization was recorded for
all years presented as there have been no active mining operations
from inception to January 31, 1997.
Interest expense allocable to the cost of developing mining properties
and to constructing new facilities is capitalized until operations com-
mence. Interest capitalized amounted to $2,509, $26,088, and $37,143
for the years ended January 31, 1997, 1996 and from inception
through January 31, 1997, respectively.
Gains or losses from normal sales or retirements of assets are included
in other income and expense.
MINING REVENUES
Mining revenues are recognized upon passage of title of the gold.
MINING COSTS
In general, mining costs are charged to operations as incurred.
RECLAMATION AND MINE CLOSURE COSTS
Estimated future reclamation and mine closure costs are based princi-
pally on legal and regulatory requirements and are accrued and
charged over the expected operating lives of the Company's mines
using a unit-of-production method. No costs have been accrued to
date since there have been no active mining operations from inception
to January 31, 1997.
INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax conse-
quences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement
and the tax basis of assets and liabilities using enacted rates in effect
for the year in which the differences are expected to reverse. Valua-
tion allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
ISSUANCE OF STOCK FOR SERVICES
Shares of the Company's common stock issued for services are record-
ed in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations", and Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation
("SFAS 123"), at the fair market value of the stock issued or the fair
market value of the services provided, whichever value is the more
clearly evident.
STOCK COMPENSATION PLAN
SFAS No. 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair
value. The Company elected to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
NET LOSS PER COMMON SHARE
Net loss per common share is computed based on the reported net loss
divided by the weighted average number of outstanding common
shares. Common stock equivalents, which consisted of warrants,
options and convertible debt, have not been included as their effect
would be anti-dilutive.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with
the current year presentation.
3. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOP-
MENT AND MINING CLAIMS.
<TABLE>
<CAPTION>
<S> <C>
January 31, 1997
Equipment 377,194
Mine development 1,223,374
Construction in progress 610,972
2,211,540
Less accumulated depreciation (150,001)
2,061,539
</TABLE>
The Company's facilities, deposits, and claims are located in the
Knownothing Creek Mining District at the Forks of Salmon in North-
ern California. The Company pays annual fees of a nominal amount
to the Federal Bureau of Land Management for the rights to use such
land to develop and extract minerals. At January 31, 1997, there are
thirty-one claims in various stages of exploration and development,
valued at cost of $35,000.
Mine development costs are capitalized to the extent they are recover-
able from future mining operations, assuming the Company will
continue as a going concern. Such analysis of cost recovery is based
on estimated ore reserves that are considered to be economically
recoverable. Because of the inherent uncertainties surrounding the
determination of such estimates, it is at least reasonably possible that
estimated reserves may change in the near future and, as a result, the
mine development costs may not be entirely recoverable.
Construction in progress consists of a mill and its ancillary facilities,
which are connected by Company-improved roads to various claims
and operational mining locations. The mill operation includes
crushing, grinding, separation shaker screen and concentration
equipment, and a furnace house, saw mill house, and dynamite storage
house.
4. RESTRICTED CASH
As of January 31, 1997, the Company had $17,880 in restricted cash
to serve as collateral for several U.S. Forest Service reclamation
bonds. The bonds are required to insure reclamation and stabilization
of surface resources, and are subject to yearly changes in the
Company's operations and costs of reclamation and erosion control.
5. CONVERTIBLE NOTE AND LONG-TERM DEBT
At January 31, 1997, the Company's long-term debt consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Convertible note payable to an individual bearing
interest at 10%, with principal and interest due
on September 15, 1997. This note is convertible
into the Company's common stock at $1.25 per share
and is secured by a deed of trust on one of the
Company's mining claims and collateralized by the
Company's assets and production from its mining
operations. 525,000
Notes payable to three separate individuals, bearing
interest at 10%, with principal and interest due on
demand. These notes are collateralized by the assets
and production from the Company's mining operations
and are personally guaranteed by one of the Company's
directors. 36,640
Notes payable to a bank, bearing interest at 8.5%
with combined monthly payments of $649, including
interest. This note is collateralized by
specific equipment and matures on
December 15, 2001. 31,215
592,855
Less current maturities 566,975
25,880
</TABLE>
At January 31, 1997, principal payments on the convertible note and
long-term debt are due as follows:
<TABLE>
<CAPTION>
Year ended January 31, Amount
<S> <C>
1998 566,975
1999 5,806
2000 6,319
2001 6,878
2002 6,877
592,855
</TABLE>
During April 1997, the Company received an additional $75,000 on
the convertible note payable, bringing the total outstanding balance to
$600,000.
6. STOCKHOLDERS' EQUITY
REORGANIZATION
Pursuant to the Stock Purchase and Exchange Agreement between
Heritage and Heritage Gold Mines (the "Acquisition"), which was
consummated on March 6, 1996, (i) Heritage Gold Mines'
stockholders received 7,400,000 Heritage common shares in exchange
for all of the outstanding shares of Heritage Gold Mines; (ii) Heritage
Acquisition Corp. ("Heritage Acquisition"), a former Heritage Gold
Mines stockholder, recontributed 934,000 of its Heritage common
shares; (iii) Heritage issued 100,000 common shares to Heritage
Acquisition in exchange for the assignment by Heritage Acquisition of
a $1,000,000 Revolving Promissory Note due from Heritage Gold
Mines. In connection with the Reorganization, the total number of
issued and outstanding shares increased by 6,566,000, from 3,434,000
at January 31, 1996 to 10,000,000 at March 6, 1996.
In order to reflect the reverse acquisition (Note 1), the Statement of
Stockholders' Equity (Deficit) was adjusted by 3,083,265 common
shares to reconcile the January 31, 1996 Heritage Gold Mines common
shares of 350,735 to Heritage's 3,434,000 outstanding common shares
on that date.
Concurrent with and related to the Acquisition, certain obligations and
receivables of the Company were contributed to capital as follows:
<TABLE>
<CAPTION>
<S> <C>
$1,000,000 note payable, plus accrued
interest of $5,026, due to Heritage
Acquisition, $323,000 of which was
outstanding at January 31, 1996, and
assigned to Heritage on March 6, 1996,
was converted to 598,998 common shares
as part of the 6,566,000 newly issued
Acquisition shares. 1,005,026
$353,000 note payable, plus accrued
interest of $40,387, due to a
stockholder was contributed to
capital. 393,387
Non-interest bearing advance due to a
related party was assumed by a
stockholder and contributed to
capital. 250,000
Amount payable to a stockholder for
legal fees was assumed by a stockholder
and contributed to capital. 50,000
Non-interest bearing advance due to a
former stockholder was assumed by a
stockholder and contributed to capital. 30,000
Subscriptions receivable settled as part
of the Reorganization. (15,000)
1,713,413
</TABLE>
PRIVATE PLACEMENT
During the year ended January 31, 1997, and pursuant to a private
placement offering (the "Private Placement"), 293,125 shares of the
Company's common stock were issued at prices ranging from $2.00 to
$2.50 per share for a total of $631,975. Subsequent to year end,
50,000 shares were issued at $2.50 per share for a total of $125,000.
CONVERTIBLE DEBT
In June 1996, the Company issued a sixty-day $100,000 10% convert-
ible note payable to an individual. In August 1996, the note was
converted into 150,000 shares of the Company's common stock at an
approximate price of $0.667 per share.
In May, 1996, the Company received a $40,000 advance from an
officer of the Company, bearing interest at 8%. In December, 1996,
the advance plus accrued interest of $1,885 was converted into 20,943
shares of the Company's common stock at an approximate price of
$2.00 per share.
STOCK ISSUED IN LIEU OF COMPENSATION
In July, 1996, an officer of the Company converted $24,000 in accrued
compensation into 8,000 shares of the Company's common stock at a
conversion price of $3.00 per share.
EXECUTIVE COMPENSATION CONTRIBUTED TO CAPITAL
During the year ended January 31, 1997, three officers of the Compa-
ny, who are also stockholders, contributed $131,600 in accrued com-
pensation to capital.
COMMON STOCK
The Board of Directors determined a stated value for the common
stock of $0.0025 per share, with any balance paid per share designated
as additional paid-in capital. On January 8, 1996, the Board of Direc-
tors authorized a two-for-one stock split of common stock to stock-
holders of record on January 15, 1996. All share and per-share
amounts in the accompanying financial statements have been adjusted
for the split.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of its no
par value preferred stock. The preferred stock may be issued in series,
from time to time, with such designation, rights, preferences, and
limitations as the Board of Directors may determine by resolution. As
of January 31, 1997, no shares of preferred stock were issued or
outstanding.
WARRANTS
During the year ended January 31, 1995, the Company issued
2,695,000 each of Class A and Class B Warrants (the "Warrants").
44,000 Class A Warrants were issued during the year ended January
31, 1996. Each Warrant entitles the holder to purchase one share of
the Company's common stock at an exercise price of $2.00 and $4.00
per share for the Class A and Class B Warrants, respectively. The
Warrants became exercisable on August 1, 1995, and expire on
December 31, 1999. No Warrants have been exercised, and the Class
B Warrants were canceled in January, 1996, in connection with the
Acquisition.
The Company reserves the right to extend the expiration date or reduce
the exercise price of the Warrants upon giving five days notice. The
Warrants can only be exercised when the shares underlying the
Warrants are registered.
1996 STOCK OPTION PLAN
On April 4, 1996, the Company adopted the 1996 Stock Option Plan
(the "Plan"), subject to the approval of shareholders. The Plan
authorizes the granting of incentive and nonqualified stock options,
and stock appreciation rights relating to certain nonqualified stock
options, to employees, directors and consultants. Up to 1,200,000
shares of the Company's common stock may be issued under the Plan.
The exercise price of the shares under option shall equal the fair
market value (FMV) of the common stock at the date of grant for
incentive options (110% of the FMV for over 10% shareholders), and
at a price as determined by the Board of Directors for non-qualified
options.
The options are exercisable over five and ten years for incentive and
nonqualified options, respectively, and vest in increments which may
be determined at the date of grant.
Following is a summary of all common stock options outstanding:
<TABLE>
<CAPTION>
Shares Under Weighted Average
Option Exercise Price
<S> <C> <C>
Outstanding at
January 31, 1996 - -
Granted 908,200 1.67
Canceled 10,000 1.67
Outstanding at
January 31, 1997 898,200 1.67
Weighted average fair
value of options granted
during the year 1.18
</TABLE>
Each outstanding option allows the holder to purchase one share of
common stock at any time after the vesting date, which ranges from
immediate to ten years. At January 31, 1997, 119,760 options were
exercisable.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company
had accounted for its stock option plans under the fair value based
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for the year
ended January 31, 1997: risk-free interest rate of 6.5%, no dividend,
volatility factor of the expected market price of the Company's
common stock of .60, and an expected weighted average life of the
options of 8.3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting or
trading restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
pro forma information for the year ended January 31, 1997, is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma net loss (1,508,424)
Pro forma net loss per common share (0.17)
</TABLE>
7. RELATED PARTY TRANSACTIONS
The $50,000 note payable to a related party is due to a former officer
of the company, bears interest at 10%, with principal and interest due
on demand. This note is collateralized by the assets and production
from the Company's mining operations and is personally guaranteed
by one of the Company's directors. Accrued interest at January 31,
1997 includes $8,356 due on this note.
Subscriptions receivable of $15,000 relating to the incorporation of
GWZ were settled as part of the Reorganization (Note 6).
A stockholder who provides legal services to the Company received
735 shares of the Company's common stock for legal services provid-
ed during the year ended January 31, 1996. Legal expense in connec-
tion with services rendered by this individual was $949, $32,411 and
$54,149 for the years ended January 31, 1997, 1996 and from incep-
tion through January 31, 1997, respectively. $50,000 in accrued legal
fees due to this individual as of January 31, 1996 was assumed by a
stockholder, and contributed to capital during the year (Note 6).
Legal expense during the year ended January 31, 1997 includes
$12,619 for services provided by a stockholder and former director of
the Company. Included in accounts payabLe at January 31, 1997 is
approximately $6,000 due to this individual.
Accrued compensation includes $51,300 due to an officer at January
31, 1997.
Other current assets include $7,730 in prepaid compensation to a
related party who provides bookkeeping services to the Company.
Facilities and space rent are also paid to this individual. Rent expense
amounted to $6,300, $6,300, and $13,650 for the years ended January
31, 1997, 1996, and from inception through January 31, 1997, respec-
tively. Included in accrued expenses is $3,150 due to this individual at
January 31, 1997.
During the year ended January 31, 1994, the Company paid $11,000
for services provided by a company owned by a former director.
Interest cost incurred to related parties was $12,475, $33,664, and
$55,655 for the years ended January 31, 1997, 1996, and inception
through January 31, 1997, respectively.
8. INCOME TAXES
WAZCO, GWZ, and Heritage Gold Mines filed separate returns for
tax years 1995, 1994, and 1993 with different tax year ends. Short
period returns were filed from the different entities year ends through
March 6, 1996, the date of the Reorganization. Upon Reorganization,
Heritage Mines, Ltd. will file a consolidated return with a January 31,
1997 year end. The Company has incurred tax losses for all entities
and all periods presented. As a result, no provision has been recorded
and the tax benefit of net operating losses was offset by valuation
allowances of the same amount.
As of January 31, 1997, the Company had combined net operating loss
carryforwards available to offset future taxable income of approximate-
ly $138,393, which expire at various times through 2011. For tax
purposes, only a portion of the tax net operating loss can be utilized in
any given year if the company which generated the loss has more than
fifty percent change in ownership in a three year listing period.
Accordingly, the Reorganization may result in limitations on the use of
the NOL described above.
The components of the net deferred tax asset and (liability) are as
follows:
<TABLE>
<CAPTION>
For the Years Ended January 31
1996 1997
<S> <C> <C>
Net operating loss
carryforward 47,054 47,054
Capitalized costs 569,563 139,755
Subtotal 616,617 186,809
Valuation allowance (616,617) (186,809)
Total - -
</TABLE>
9. COMMITMENTS AND CONTINGENCY
NONCANCELABLE OPERATING LEASES
The Company leases office space and equipment under the terms of
noncancelable operating lease agreements with lease terms through
January 2001. Rent expense for the years ended January 31, 1997,
1996, and from inception through January 31, 1997 was $37,771,
$531, and $38,302, respectively.
At January 31, 1997, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year ended January 31, Amount
<S> <C>
1998 41,368
1999 41,368
2000 6,633
2001 3,036
92,405
</TABLE>
LITIGATION SETTLEMENT
In May 1993, WAZCO entered into a joint venture agreement with
Sky Scientific, Inc. ("Sky"), a California corporation, with the purpose
of raising equity to develop its mining operations. In 1994, Sky issued
stock and deposited $220,000 in exchange for the Company's twelve
mining claims. The funds were recorded in other income in 1994.
Other than this transaction, the joint venture was never consummated
and WAZCO sued Sky to recover its claims, and Sky countersued. In
March 1996, the litigation was settled as follows: Sky was given two
of the twelve claims, the remaining ten claims were returned to
WAZCO, and the stock issued to WAZCO was canceled.
10. SUBSEQUENT EVENTS
LEGAL PROCEEDINGS
On February 26, 1997, a former officer of the Company and five other
individuals filed a complaint against the Company, seeking $86,640
plus interest and costs, relating to $86,640 in demand notes payable.
The Company does not dispute the amounts due under the demand
notes and is currently negotiating to settle the terms of payment. At
January 31, 1997, $50,000 and $36,640 are recorded as a related party
note payable and current maturities of long-term debt, respectively.
EMPLOYMENT AGREEMENT
In March 1997, the Company entered into an employment agreement
with its President and Chief Executive Officer for a term expiring
December 31, 1997. The agreement provides for a base monthly
salary of $15,000 and the granting of 600,000 stock options to acquire
600,000 of the Company's common shares, at terms yet to be deter-
mined.
PRIVATE PLACEMENT OF CONVERTIBLE DEBT
On April 28, 1997, the Company commenced a 15% convertible
debenture offering for a minimum of $500,000 and a maximum of
$1,000,000. The debentures will be secured by substantially all of the
Company's assets and mature two years after the date of issuance.
Subject to certain adjustment provisions, the debentures are convertible
into shares of the Company's common stock at a conversion price of
$1.25 per share from the period six months to one year following the
date of issuance, and at a conversion price of $2.50 per share if
converted after one year but prior to maturity. The debentures are
redeemable by the Company at 100% of the purchase price plus
accrued interest. The closing of the debenture offering is subject to a
share roll-back program, whereby certain major shareholders will
exchange shares for promissory notes, the payment of which are
contingent upon performance targets for certain of the Company's
operations.
LETTER OF INTENT - ACQUISITION
On March 26, 1997, the Company signed a letter of intent to acquire
an interest in a mining property in Arizona. The company will have
90 days after placing a $50,000 deposit in escrow, to conduct due
diligence on the property. The Company has not yet obtained the
escrow funds, and there can be no assurance that the Company will be
above to obtain such funds. At its election on or before the expiration
of the option period, the Company will have the right to purchase a
70% joint venture interest in the property by paying an additional
$200,000. Thereafter, upon completion of an exploration program
which defines 500,000 ounces or greater of minable reserves, the
owners of the 30% joint venture interest will have a 60 day option to
convert its interest into common shares of the Company in accordance
with a formula which effectively exchanges shares to be issued at the
then current stock price for minable reserves valued at $30 per
proven/probable ounce.
LEASE COMMITMENT
The Company plans to move its corporate headquarters to Durango,
Colorado and, in May 1997, signed a sixty month operating lease with
base monthly rental payments of approximately $2,975 per month.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
The Company has had no change in, or disagreements with, its
principal independent accountants since the date of inception.
However, in February, 1996, subsequent to the end of its fiscal year
ending January 31, 1996, the Company did change accountants.
Comiskey & Company, P.C., 2851 S. Parker Road, Suite 1125,
Aurora, Colorado 80014-9921, the independent accountant previously
engaged as the principal accountant to audit the Company's financial
statements, was dismissed, effective February 22, 1996. The report of
Comiskey & Company, P.C., on the financial statements of the
Company for the fiscal year ending January 31, 1996, did contain an
explanatory paragraph with respect to the existence of substantial
doubt about the Company's ability to continue as a going concern,
but did not contain any other adverse opinion, disclaimer of opinion or
qualification as to uncertainty, audit scope or accounting principles.
The decision to change accountants was recommended and approved
by the board of directors of the Company and occurred in conjunction
with a change in control of the Company.
There were no disagreements with Comiskey & Company, P.C.,
at any time, on any matters of accounting principles or practices,
financial statement disclosures, or auditing scope or procedures.
Effective as of February 22, 1996, the Company engaged new
independent accountants, Raimondo, Pettit & Glassman, a Partnership
including Professional Corporations, Union Bank Tower, Suite 1250,
21515 Hawthorne Boulevard, Torrance, California 90503, as the
principal accountants to audit the registrant's financial statements.
Part III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
The names, ages and positions held of the directors and officers of the
company following the completion of this change in control and as of
the end of its fiscal year were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions Held
James D. Stout 52 Chairman of the Board,
President & Director
Douglas L. Drumwright 50 Executive Vice President,
Chief Financial Officer &
Director
Mark Gavard 49 Executive Vice President,
Director of Exploration,
Development & Mining
Operations, & Director
Peter Wilson 44 Executive Vice President
& Director
Robert E. Newberry 50 Senior Vice President &
Director
</TABLE>
On or about March 13, 1997, the Company hired Gregory B.
Sparks as President and Chief Executive Officer and elected him to the
vacant fifth seat of the Board of Directors. In conjunction with this
action, three officers resigned their positions with the Company. The
names, ages and positions held of the directors and officers of the
Company following these changes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions Held
Gregory B. Sparks 47 President, Chief
Executive Officer &
Director
Mark Gavard 49 Executive Vice
President, Director of
Exploration,
Development & Mining
Operations & Director
Robert E. Newberry 50 Senior Vice President
& Secretary
Douglas L. Drumwright 50 Director
James D. Stout 52 Director
Peter Wilson 44 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Gregory B. Sparks, President, Chief Executive Officer and Director
Mr. Sparks, President and Chief Executive Officer, a Registered
Professional Mining Engineer, has held executive and other senior
management positions with companies such as Echo Bay Mines,
Standard Metals Corporation, American Mine Services and Tenneco
Minerals/American Borate. His extensive experience included prospect
evaluations, acquisition negotiations, infrastructure establishment,
environmental consultations and due diligence reviews of both surface
and underground mining of base and precious metals.
Mark Gavard, Executive Vice President in charge of Exploration,
Development and Mining Operations and Director
Mark Gavard, co-founder of Heritage Gold Mines Incorporated, is
an experienced, versatile miner and mine operator adept at matching
selected ore deposits to production techniques, personnel and
marketing, and coordinating them with economic conditions. Mr.
Gavard has acquired, expanded, operated and sold several hard rock
mines including the Mohawk Mine located in the State of Nevada.
Together with a partner, he developed the mine to be Nevada's largest
producing underground silver mine in the late 1970's and early 1980's.
With over twenty years of versatile mining experience, Mr. Gavard has
a strong background in the understanding of surface, underground, and
underwater blasting techniques. This experience has proven to be
invaluable as to his ability to determine minerable ore and expedition
of its production. In addition, Mr. Gavard's vast knowledge in the
coordination of materials, equipment and labor in remote locations
makes him an invaluable asset.
Robert E. Newberry, Senior Vice President and Secretary
Mr. Newberry was most recently Vice President and Director of
Electrosci Incorporated, an electrochemical water purification
company, which licensed its patents both nationally and internationally.
Previously, he owned and operated Barron Financial Group, a
nationwide mortgage banking company. Prior to Barron Financial
Group, he was Executive Vice President of Beverly Hills Savings. He
received a Bachelor of Science from Southern Illinois University in
1968 and also graduated from Northwestern University's Mortgage
Banking program.
Douglas L. Drumwright, Director
Mr. Drumwright served as Vice President and Chief Financial
Officer of Homestake Mining Company from 1983-1986. Homestake
is the largest producer of precious metals in the United States,
operating both base and precious metal mining operation domestically
and internationally. Homestake is the fifth oldest company on the
New York Stock Exchange. While at Homestake, Mr. Drumwright
supervised the placement of substantial equity and pollution control
bond financing, as well as the establishment of revolving credit lines
in the United States and Europe. During his tenure, the company's
shares were split twice and were listed on the London, Zurich and
Frankfurt Exchanges. Since leaving Homestake, Mr. Drumwright has
been actively engaged as a consultant and principal in various start up
and turn around situations. In this connection in the last five years he
has served as CEO of numerous public and private companies,
including Care Enterprises, Inc. (NYSE), Tustin, CA; Maxum Health
Corp. (NASDAQ), Dallas, TX; and United Western Medical Centers,
Santa Anna, CA.
James D. Stout, Director
Mr. Stout served as President and CEO of Parker Technology,
based at Twenty-Nine Palms, California, a high technology processor
of gold and platinate group metals, for eight years prior to taking over
his present duties at Heritage Mines, Ltd. Prior to that time, he
founded and operated Five Star, one of the largest apartment unit
owners and managers in the USA and was President of US operations
for Daon Development Corporation of Vancouver, BC, involved in all
aspects of commercial, residential and industrial land development and
construction.
Peter Wilson, Director
Mr. Wilson has been involved in the founding and management of
Molson Development Company, a residential real estate firm;
Quicksilver USA, Inc. and Barely Legal, Inc., major sportswear
manufacturers and distributors. In 1989, Mr. Wilson founded
Electrosci, Inc., a California corporation that purchased the worldwide
patents for an electrolytic process. Mr. Wilson graduated from the
University of Southern California with a degree in architecture.
Compliance With Section 16(a) of the Exchange Act.
To the best knowledge and belief of the Company, each of the
directors, officers or beneficial owners of more than 10% of the
Company's securities named herein has filed all reports required to be
filed by Section 16(a) of the Securities Exchange Act of 1934. None
of such reports were filed in a timely manner following the changes in
control of the Company described herein.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation provided by the
Company to James Stout, the Company's President and Chief
Executive Officer, for services rendered in all capacities to the
Company during the fiscal years ended January 31, 1997 and 1996.
No other executive officer received compensation in excess of
$100,000 for services rendered in all capacities to the Company during
the fiscal years ended January 31, 1997 and 1996.
<TABLE>
<CAPTION>
Name Year Salary
<S> <C> <C>
James D. Stout 1997 $95,000 <F1>
1996 $50,000 <F2>
<FN>
<F1> $75,000 was paid in cash and $20,000 was contributed to
capital during the year ended January 31, 1997.
<F2> $20,000 was paid in cash. $30,000 in accrued compensation at
January 31, 1996 was contributed to capital during the year ended
January 31, 1997.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS. The Company had no
employment contracts with any of its officers or directors during the
fiscal year ended January 31, 1997. On March 13, 1997, effective as
of March 1, 1997, the Company entered into an employment
agreement with Gregory B. Sparks, its new President and Chief
Executive Officer for a term expiring December 31, 1997. The
agreement provides for a base monthly salary of $15,000 and the
granting of stock options to acquire 600,000 of the Company's
common shares, at terms yet to be determined.
DIRECTOR COMPENSATION. The Company's directors do
not receive any cash compensation for service on the Board of
Directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
STOCK OPTION PLAN. On April 4, 1996, the Company
adopted the 1996 Stock Option Plan. The Plan authorizes the granting
of incentive and nonqualified stock options and stock appreciation
rights relating to certain nonqualified stock options, to employees,
directors and consultants. Up to 1,200,000 shares of the Company's
common stock may be issued under the Plan. As of January 31, 1997,
options to purchase a total of 898,200 shares of common stock at a
purchase price of $1.67 per share were outstanding under the 1996
Stock Option Plan, including 598,800 options held by Douglas L.
Drumwright and 299,400 options held by Robert E. Newberry. A total
of 119,760 of the outstanding options were exercisable as of January
31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
As of January 31, 1997, the Company had a total of 10,472,068
shares of its Common Stock issued and outstanding. Subsequent to
year-end, an additional 50,000 shares of Common Stock were issued.
The following table sets forth, as of January 31, 1997, the number of
shares of Common Stock owned of record and beneficially by
executive officers, directors and persons who hold five percent (5%) or
more of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
Name and Address Number of Percentage
Shares Owned of Class
Beneficially Owned
<S> <C> <C>
Mark Gavard<F1>
P. O. Box 1
Forks of Salmon, CA
96031 2,970,000<F2> 28.36%
Mark Zane
215 Booker St.
Tonopah, NV 89049 2,614,530<F2> 24.96%
Peter Wilson<F1>
3334 E. Coast Hwy. #412
Corona del Mar, CA 92625 1,625,552<F3> 15.52%
Heritage Acquisition Corp
3334 E. Coast Highway #412
Corona del Mar, CA 92625 1,625,552<F4> 15.52%
Cede & Co.
P. O. Box 20
Bowling Green Station
New York, NY 10004 527,973 5.04%
James D. Stout
3857 Birch Street #708
Newport Beach, CA 92660 200,000<F5> 1.91%
B.S.V., LLC
Attn: Anthony Vitti
23 Corporate Plaza, #135
Newport Beach, CA 92660 200,000<F6> 1.91%
Douglas Drumwright <F1>
39 Harbour Ridge Drive
Newport Beach, CA 92660 80,943<F7> .77%
Robert E. Newberry<F1>
Newberry Revocable Family Trust
6 Park Place
Newport Beach, CA 92663 39,600<F8> .38%
Gregory B. Sparks<F1>
420 Blue Ridge
Durango, CO 81301 -0- 0.0%
All Officers and Directors
as a Group (3 in number) 4,899,965<F3>
<F5> 46.79%
<FN>
<F1> The person listed is an officer, a director, or both, of the
Company.
<F2> Does not include 500,000 shares subject to Class A Warrants
owned which are exercisable at $2.00 per share
<F3> Includes 1,625,552 shares owned by Heritage Acquisition
Corporation of which Mr. Wilson, as the principal shareholder of
Heritage Acquisition Corp, may be deemed to be the beneficial owner.
<F4> Does not include 990,011 shares subject to Class A Warrants
owned which are exercisable at $2.00 per share.
<F5> Includes 200,000 shares owned by B.S.V., LLC of which
Mr. Stout, as the principal shareholder may be deemed to be the
beneficial owner.
<F6> Does not include 55,000 shares subject to Class A Warrants
owned which are exercisable at $2.00 per share.
<F7> Does not include 30,000 shares subject to Class A Warrants
owned which are exercisable at $2.00 per share.
<F8> Does not include 8,000 shares subject to Class A Warrants
owned which are exercisable at $2.00 per share.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Peter Wilson is a Director of the Company. He is also President
and principal shareholder of Heritage Acquisition Corp. On January 5,
1996, Heritage Acquisition Corp. acquired a controlling interest in the
Company through purchase of 1,282,500 shares of its issued and
outstanding stock, representing approximately 74.69% thereof.
Heritage Acquisition Corp. also acquired 2,165,000 of the issued and
outstanding Class A Warrants, representing approximately 79.04%
thereof. Heritage Acquisition Corp. paid a total of $50,000 for the
acquisition, of which $25,000 was paid to the sellers of the securities
(who were the former officers, directors and principal shareholders of
the Company), and $25,000 was allocated to fees, expenses, and costs
related to the acquisition.
Heritage Acquisition Corp. acquired a controlling interest in the
Company in anticipation of the subsequent acquisition by the Company
of all of the issued and outstanding stock of Heritage Gold Mines,
Inc., a Nevada corporation. As described herein, the Company
completed the acquisition of Heritage Gold Mines, Inc., on or about
March 6, 1996.
In addition, Heritage Acquisition Corp. has entered into an
agreement to purchase 2,614,530 shares of the Company's Common
Stock from Mr. Mark A. Zane.
Mr. Jeff Gavard is an employee of the Company and brother of
Mark Gavard.
Mr. Gary S. Joiner is a shareholder and attorney of the Company.
He is a partner in the firm of Frascona, Joiner & Goodman, P.C.,
located in Boulder, Colorado. During the fiscal year ended January
31, 1997, the Company paid Frascona, Joiner & Goodman, P.C., a
total of $7,026.75 for legal and costs and fees, and as of January 31,
1997, the Company owed Frascona, Joiner & Goodman, P.C., a total
of $6,273.03 for legal fees and costs.
Mr. John Rogers is a shareholder and employee/consultant of the
Company and his spouse, Cindy Hopper, is a partner in the Company's
accounting firm of Hopper-Engelund.
ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB.
The Exhibits listed below are filed as part of this Annual Report.
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen Class A Warrant Certificate
21 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE>
The Company filed no reports Form 8-K during the last quarter of
its fiscal year ending January 31, 1997.
Signatures
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
HERITAGE MINES, LTD.
By:/s/ Gregory B. Sparks
President, CEO and Director
Date: May 19, 1997
By:/s/ Mark Gavard
Executive Vice President & Director
Date: May 19, 1997
By:/s/ Robert E. Newberry
Senior Vice President and Secretary
Date: May 19, 1997
By:/s/ Douglas L. Drumwright
CFO & Director
Date: May 19, 1997<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
_______________
FORM 10-KSB
Annual report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for this fiscal year ended January 31, 1997.
________________
Heritage Mines, Ltd.
(Name of Small Business Issuer in its charter)
660 Newport Center Drive, Suite 1030
Newport Beach, CA 92660
(Address of principal executive offices) (Zip Code)
Issuers telephone number: (714) 760-8001
EXHIBIT INDEX
Exhibit No. Document
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen Class A Warrant Certificate
21 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE>
EXHIBIT 3.1 - ARTICLES OF INCORPORATION
ARTICLES OF INCORPORATION
OF
HERITAGE MINES, LTD.
The undersigned, who, if a natural person, is eighteen years of age
or older, hereby establishes a corporation pursuant to the Colorado
Business Corporation Act as amended and adopts the following
Articles of Incorporation:
FIRST: The name of the corporation is Heritage Mines, Ltd.
SECOND: The corporation shall have and may exercise all of
the rights, powers and privileges now or hereafter conferred upon
corporations organized under the laws of Colorado. In addition, the
corporation may do everything necessary, suitable or proper for the
accomplishment of any of its corporate purposes. The corporation
may conduct part or all of its business in any part of Colorado, the
United States or the world and may hold, purchase, mortgage, lease
and convey real and personal property in any of such places.
THIRD: The aggregate number of shares which the
corporation shall have authority to issue is one hundred ten million
(110,000,000) shares of which a portion shall be common stock and a
portion shall be preferred stock, all as described below.
A. Common Stock. The aggregate number of common
shares which the corporation shall have the authority to issue is one
hundred million (100,000,000), which shares shall be designated
"Common Stock." Subject to all the rights of the Preferred Stock as
expressly provided herein, by law or by the Board of Directors
pursuant to this Article, the Common Stock of the corporation shall
possess all such rights and privileges as are afforded to capital stock
by applicable law in the absence of any express grant of rights or
privileges in these Articles of Incorporation, including, but not limited
to, the following rights and privileges:
(a) dividends may be declared and paid or set apart for payment
on the Common Stock out of any assets or funds of the corporation
legally available for the payment of dividends;
(b) the holders of Common Stock shall have unlimited voting
rights, including the right to vote for the election of directors and on
all other matters requiring stockholder action. Each holder of
Common Stock shall have one vote for each share of Common Stock
standing in his name on the books of the corporation and entitled to
vote, except that in the election of directors each holder of Common
Stock shall have as many votes for each share of Common Stock held
by him as there are directors to be elected and for whose election the
holder of Common Stock has a right to vote. Cumulative voting shall
not be permitted in the election of directors or otherwise.
(c) on the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, and after paying or adequately
providing for the payment of all of its obligations and amounts
payable in liquidation, dissolution or winding up, and subject to the
rights of the holders of Preferred Stock, if any, the net assets of the
corporation shall be distributed pro rata to the holders of the Common
Stock.
B. Preferred Stock. The aggregate number of preferred
shares which this corporation shall have the authority to issue is ten
million (10,000,000) shares, each with no par value, which shares shall
be designated "Preferred Stock." Shares of Preferred Stock may be
issued from time to time in one or more series as determined by the
Board of Directors. The Board of Directors is hereby authorized, by
resolution or resolutions, to provide from time to time, out of the
unissued shares of Preferred Stock not then allocated to any series of
Preferred Stock, for a series of the Preferred Stock. Each such series
shall have distinctive serial designations. Before any shares of any
such series of Preferred Stock are issued, the Board of Directors shall
fix and determine, and is hereby expressly empowered to fix and
determine, by resolution or resolutions, the voting powers, full or
limited, or no voting powers, and the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof as provided by
Colorado law. Before issuing any shares of a class or series, the
corporation shall deliver to the secretary of state for filing articles of
amendment to these articles of incorporation that set forth information
required by Colorado law, including but not limited to, the
designations, preferences, limitations, and relative rights of the class or
series of shares.
C. Voting. Unless otherwise ordered by a court of
competent jurisdiction, at all meetings of shareholders one-third of the
shares of a voting group entitled to vote at such meeting, represented
in person or by proxy, shall constitute a quorum of that voting group.
FOURTH: The number of directors of the corporation shall be
fixed by the bylaws, or if the bylaws fail to fix such a number, then
by resolution adopted from time to time by the board of directors,
provided that the number of directors shall not be more than five (5)
nor less than three (3). Three (3) directors shall constitute the initial
board of directors. The following persons are elected to serve as the
corporation's initial directors until the first annual meeting of
shareholders or until their successors are duly elected and qualified:
</TABLE>
<TABLE>
<CAPTION>
Name Address
<S> <C>
Gary S. Joiner 4750 Table Mesa Drive
Boulder, Colorado
80303
Grant W. Peck 4555 Kingston Street
Denver, Colorado
80239
Dean F. Sessions 2040 W. 10th Avenue
Apt. E-301
Broomfield, Colorado
80020
</TABLE>
FIFTH: The street address of the initial registered office of
the corporation is 4750 Table Mesa Drive, Boulder, Colorado 80303.
The name of the initial registered agent of the corporation at such
address is Gary S. Joiner.
SIXTH: The address of the initial principal office of the
corporation is 2040 W. 10th Avenue, Apt. E-301, Broomfield,
Colorado 80020.
SEVENTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
corporation, and the same are in furtherance of and not in limitation or
exclusion of the powers conferred by law.
(a) Conflicting Interest Transactions. As used in this paragraph,
"conflicting interest transaction" means any of the following: (i) a
loan or other assistance by the corporation to a director of the
corporation or to an entity in which a director of the corporation is a
director or officer or has a financial interest; (ii) a guaranty by the
corporation of an obligation of a director of the corporation or of an
obligation of an entity in which a director of the corporation is a
director or officer or has a financial interest; or (iii) a contract or
transaction between the corporation and a director of the corporation
or between the corporation and an entity in which a director of the
corporation is a director or officer or has a financial interest. No
conflicting interest transaction shall be void or voidable, be enjoined,
be set aside, or give rise to an award of damages or other sanctions in
a proceeding by a shareholder or by or in the right of the corporation,
solely because the conflicting interest transaction involves a director of
the corporation or an entity in which a director of the corporation is a
director or officer or has a financial interest, or solely because the
director is present at or participates in the meeting of the corporation's
board of directors or of the committee of the board of directors which
authorized, approves or ratifies a conflicting interest transaction, or
solely because the director's vote is counted for such purpose if: (A)
the material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or
committee in good faith authorizes, approves or ratifies the conflicting
interest transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors are less
than a quorum; or (B) the material facts as to the director's
relationship or interest and as to the conflicting interest transaction are
disclosed or are known to the shareholders entitled to vote thereon,
and the conflicting interest transaction is specifically authorized,
approved or ratified in good faith by a vote of the shareholders; or (C)
a conflicting interest transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a
meeting of the board of directors or of a committee which authorizes,
approves or ratifies the conflicting interest transaction.
(b) Loans and Guaranties for the Benefit of Directors. Neither
the board of directors nor any committee thereof shall authorize a loan
by the corporation to a director of the corporation or to an entity in
which a director of the corporation is a director or officer or has a
financial interest, or a guaranty by the corporation of an obligation of
a director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest, until at least ten days after written notice of the proposed
authorization of the loan or guaranty has been given to the
shareholders who would be entitled to vote thereon if the issue of the
loan or guaranty were submitted to a vote of the shareholders. The
requirements of this paragraph (b) are in addition to, and not in
substitution for, the provisions of paragraph (a) of Article SEVENTH.
(c) Indemnification. The corporation shall indemnify, to the
maximum extent permitted by law, any person who is or was a
director, officer, agent, fiduciary or employee of the corporation
against any claim, liability or expenses arising against or incurred by
such person made party to a proceeding because he is or was a
director, officer, agent, fiduciary or employee of the corporation or
because he was a director, officer, agent, fiduciary or employee of the
corporation or because he is or was serving another entity as a
director, officer, partner, trustee, employee, fiduciary or agent at the
corporation's request. The corporation shall further have the authority
to the maximum extent permitted by law to purchase and maintain
insurance providing such indemnification.
(d) Limitation on Director's Liability. No director of this
corporation shall have any personal liability for monetary damages to
the corporation or its shareholders for breach of his fiduciary duty as a
director, except that this provision shall not eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for: (i) any breach of the director's duty of loyalty
to the corporation or its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation
of law; (iii) voting for or assenting to a distribution in violation of
Colorado Revised Statutes Section 7-106-401 or the articles of
incorporation if it is established that the director did not perform his
duties in compliance with Colorado Revised Statutes Section 7-108-
401, provided that the personal liability of a director in this
circumstance shall be limited to the amount of the distribution which
exceeds what could have been distributed without violation of
Colorado Revised Statutes Section 7-106-401 or the articles of
incorporation; or (iv) any transaction from which the director directly
or indirectly derives an improper personal benefit. Nothing contained
herein will be construed to deprive any director of his right to all
defenses ordinarily available to a director nor will anything herein be
construed to deprive any director of any right he may have for
contribution from any other director or other person.
(e) Negation of Equitable Interests in Shares or Rights. Unless
a person is recognized as a shareholder through procedures established
by the corporation pursuant to Colorado Revised Statutes Section 7-
107-204 or any similar law, the corporation shall be entitled to treat
the registered holder of any shares of the corporation as the owner
thereof for all purposes permitted by the Colorado Business
Corporation Act, including without limitation all rights deriving from
such shares, and the corporation shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any other person including
without limitation, a purchaser, assignee or transferee of such shares,
unless and until such other person becomes the registered holder of
such shares or is recognized as such, whether or not the corporation
shall have either actual or constructive notice of the claimed interest of
such other person. By way of example and not of limitation, until
such other person has become the registered holder of such shares or is
recognized pursuant to Colorado Revised Statutes Section 7-107-204 or
any similar applicable law, he shall not be entitled: (i) to receive
notice of the meetings of the shareholders; (ii) to vote at such
meetings; (iii) to examine a list of the shareholders; (iv) to be paid
dividends or other distributions payable to shareholders; or (v) to own,
enjoy and exercise any other rights deriving from such shares against
the corporation. Nothing contained herein will be construed to deprive
any beneficial shareholder, as defined in Colorado Revised Statutes
Section 7-113-101(1), of any right he may have pursuant to Article
113 of the Colorado Business Corporation Act or any subsequent law.
EIGHTH: The name and address of the incorporator is:
Gary S. Joiner
4750 Table Mesa Drive
Boulder, Colorado 80303
DATED the 19th day of January, 1995.
/s/ Gary S. Joiner
Incorporator
Gary S. Joiner hereby consents to the appointment as the initial
registered agent for Heritage Mines, Ltd.
/s/ Gary S. Joiner
Initial Registered Agent<PAGE>
EXHIBIT 3.2 - BYLAWS
BYLAWS
OF
HERITAGE MINES, LTD.
ARTICLE I
Offices
The principal office of the corporation shall be designated from
time to time by the corporation and may be within or outside of
Colorado.
The corporation may have such other offices, either within or
outside Colorado, as the board of directors may designate or as the
business of the corporation may require from time to time.
The registered office of the corporation required by the Colorado
Business Corporation Act to be maintained in Colorado may be, but
need not be, identical with the principal office, and the address of the
registered office may be changed from time to time by the board of
directors.
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held during the month of September of each year
on a date and at a time fixed by the board of directors of the
corporation (or by the president in the absence of action by the board
of directors), beginning with the year 1996, for the purpose of electing
directors and for the transaction of such other business as may come
before the meeting. If the election of directors is not held on the day
fixed as provided herein for any annual meeting of the shareholders, or
any adjournment thereof, the board of directors shall cause the election
to be held at a special meeting of the shareholders as soon thereafter as
it may conveniently be held.
A shareholder may apply to the district court in the county in
Colorado where the corporation's principal office is located or, if the
corporation has no principal office in Colorado, to the district court of
the county in which the corporation's registered office is located to
seek an order that a shareholder meeting be held (i) if an annual
meeting was not held within six months after the close of the
corporation's most recently ended fiscal year or fifteen months after its
last annual meeting, whichever is earlier, or (ii) if the shareholder
participated in a proper call of or proper demand for a special meeting
and notice of the special meeting was not given within thirty days after
the date of the call or the date the last of the demands necessary to
require calling of the meeting was received by the corporation pursuant
to C.R.S. Section 7-107-102(1)(b), or the special meeting was not held
in accordance with the notice.
Section 2. Special Meetings. Unless otherwise prescribed by
statute, special meetings of the shareholders may be called for any
purpose by the president or by the board of directors. The president
shall call a special meeting of the shareholders if the corporation
receives one or more written demands for the meeting, stating the
purpose or purposes for which it is to be held, signed and dated by
holders of shares representing at least ten percent of all the votes
entitled to be cast on any issue proposed to be considered at the
meeting.
Section 3. Place of Meeting. The board of directors may
designate any place, either within or outside Colorado, as the place for
any annual meeting or any special meeting called by the board of
directors. A waiver of notice signed by all shareholders entitled to
vote at a meeting may designate any place, either within or outside
Colorado, as the place for such meeting. If no designation is made, or
if a special meeting is called other than by the board, the place of
meeting shall be the principal office of the corporation.
Section 4. Notice of Meeting. Written notice stating the place,
date, and hour of the meeting shall be given not less than ten nor more
than sixty days before the date of the meeting, except that (i) if the
number of authorized shares is to be increased, at least thirty days'
notice shall be given, or (ii) any other longer notice period is required
by the Colorado Business Corporation Act. Notice of a special
meeting shall include a description of the purpose or purposes of the
meeting. Notice of an annual meeting need not include a description
of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to (i) an amendment to the
articles of incorporation of the corporation, (ii) a merger or share
exchange in which the corporation is a party and, with respect to a
share exchange, in which the corporation's shares will be acquired,
(iii) a sale, lease, exchange or other disposition, other than in the usual
and regular course of business, of all or substantially all of the
property of the corporation or of another entity which this corporation
controls, in each case with or without the goodwill, (iv) a dissolution
of the corporation, or (v) any other purpose for which a statement of
purpose is required by the Colorado Business Corporation Act. Notice
shall be given personally or by mail, private carrier, telegraph,
teletype, electronically transmitted facsimile or other form of wire or
wireless communication by or at the direction of the president, the
secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed and if
in a comprehensible form, such notice shall be deemed to be given and
effective when deposited in the United States mail, addressed to the
shareholder at his address as it appears in the corporation's current
record of shareholders, with postage prepaid. If notice is given other
than by mail, and provided that such notice is in a comprehensible
form, the notice is given and effective on the date received by the
shareholder.
If requested by the person or persons lawfully calling such meeting,
the secretary shall give notice thereof at corporation expense. No
notice need be sent to any shareholder if three successive notices
mailed to the last known address of such shareholder have been
returned as undeliverable until such time as another address for such
shareholder is made known to the corporation by such shareholder. In
order to be entitled to receive notice of any meeting, a shareholder
shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and
records.
When a meeting is adjourned to another date, time or place, notice
need not be given of the new date, time or place if the new date, time
or place of such meeting is announced before adjournment at the
meeting at which the adjournment is taken. At the adjourned meeting
the corporation may transact any business which may have been
transacted at the original meeting. If the adjournment is for more than
120 days, or if a new record date is fixed for the adjourned meeting, a
new notice of the adjourned meeting shall be given to each shareholder
of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such shareholder.
Such waiver shall be delivered to the corporation for filing with the
corporate records. Further, by attending a meeting either in person or
by proxy, a shareholder waives objection to lack of notice or defective
notice of the meeting unless the shareholder objects at the beginning of
the meeting to the holding of the meeting or the transaction of
business at the meeting because of lack of notice or defective notice.
By attending the meeting, the shareholder also waives any objection to
consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the
shareholder objects to considering the matter when it is presented.
Section 5. Fixing of Record Date. For the purposes of
determining shareholders entitled to (i) notice of or vote at any
meeting of shareholders or any adjournment thereof, (ii) receive
distributions or share dividends, or (ii) demand a special meeting, or to
make a determination of shareholders for any other proper purpose, the
board of directors may fix a future date as the record date for any such
determination of shareholders, such date in any case to be not more
than seventy days, and, in case of a meeting of shareholders not less
than ten days, prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no record date is
fixed by the directors, the record date shall be the date on which
notice of the meeting is mailed to shareholders, or the date on which
the resolution of the board of directors providing for a distribution is
adopted, as the case may be. When a determination of shareholders
entitled to vote at any meeting of shareholders is made as provided in
this Section, such determination shall apply to any adjournment thereof
unless the board of directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be
given notice of action so taken shall be the date a writing upon which
the action is taken is first received by the corporation. The record date
for determining shareholders entitled to demand a special meeting shall
be the date of the earliest of any of the demands pursuant to which the
meeting is called.
Section 6. Voting Lists. The secretary shall make, at the earlier
of ten days before each meeting of shareholders or two business days
after notice of the meeting has been given, a complete list of the
shareholders entitled to be given notice of such meeting or any
adjournment thereof. The list shall be arranged by voting groups and
within each voting group by class or series of shares, shall be in
alphabetical order within each class or series, and shall show the
address of and the number of shares of each class or series held by
each shareholder. For the period beginning the earlier of ten days
prior to the meeting or two business days after notice of the meeting is
given and continuing through the meeting and any adjournment
thereof, this list shall be kept on file at the principal office of the
corporation, or at a place (which shall be identified in the notice) in
the city where the meeting will be held. Such list shall be available
for inspection on written demand by any shareholder (including for the
purpose of this Section 6 any holder of voting trust certificates) or his
agent or attorney during regular business hours and during the period
available for inspection. The original stock transfer books shall be
prima facie evidence as to the shareholders entitled to examine such
list or to vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during
regular business hours and during the period it is available for
inspection, provided (i) the shareholder has been a shareholder for at
least three months immediately preceding the demand or holds at least
five percent of all outstanding shares of any class of shares as of the
date of the demand, (ii) the demand is made in good faith and for a
purpose reasonably related to the demanding shareholder's interest as a
shareholder, (iii) the shareholder describes with reasonable particularity
the purpose and the records the shareholder desires to inspect, (iv) the
records are directly connected with the described purpose and (v) the
shareholder pays a reasonable charge covering the costs of labor and
material for such copies, not to exceed the estimated cost of
production and reproduction.
Section 7. Recognition Procedure for Beneficial Owners. The
board of directors may adopt by resolution a procedure whereby a
shareholder of the corporation may certify in writing to the corporation
that all or a portion of the shares registered in the name of such
shareholder are held for the account of a specified person or persons.
The resolution may set forth (i) the types of nominees to which it
applies, (ii) the rights or privileges that the corporation will recognize
in a beneficial owner, which may include rights and privileges other
than voting; (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record
date, the time within which the certification must be received by the
corporation, (v) the period for which the nominee's use of the
procedure is effective, and (vi) such other provisions with respect to
the procedure as the board deems necessary or desirable. Upon receipt
by the corporation of a certificate complying with the procedure
established by the board of directors, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in
the certification, to be the registered holders of the number of shares
specified in place of the shareholder making the certification.
Section 8. Quorum and Manner of Acting. One-third of the
votes entitled to be cast on a matter by a voting group shall constitute
a quorum of that voting group for action on the matter. If less than
one-third of such votes are represented at a meeting, a majority of the
votes so represented may adjourn the meeting from time to time
without further notice, for a period not to exceed 120 days for any one
adjournment. If a quorum is present at such adjourned meeting, any
business may be transacted which might have been transacted at the
meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, unless the meeting is adjourned and a new record date
is set for the adjourned meeting.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the
voting group favoring the action exceed the votes cast within the
voting group opposing the action, unless the vote of a greater number
or voting by classes is required by law or the articles of incorporation.
Section 9. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy by signing an appointment form or
similar writing, either personally or by his duly authorized attorney-in-
fact. A shareholder may also appoint a proxy by transmitting or
authorizing the transmission of a telegram, teletype, or other electronic
transmission providing a written statement of the appointment to the
proxy, a proxy solicitor, proxy support service organization, or other
person duly authorized by the proxy to receive appointments as agent
for the proxy, or to the corporation. The transmitted appointment shall
set forth or be transmitted with written evidence from which it can be
determined that the shareholder transmitted or authorized the
transmission of the appointment. The proxy appointment form or
similar writing shall be filed with the secretary of the corporation
before or at the time of the meeting. The appointment of a proxy is
effective when received by the corporation and is valid for eleven
months unless a different period is expressly provided in the
appointment form or similar writing.
Any complete copy, including an electronically transmitted
facsimile, of an appointment of a proxy may be substituted for or used
in lieu of the original appointment for any purpose for which the
original appointment could be used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless (i) the corporation had notice that
the appointment was coupled with an interest and notice that such
interest is extinguished is received by the secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his
authority under the appointment, or (ii) other notice of the revocation
of the appointment is received by the secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his
authority under the appointment. Other notice of revocation may, in
the discretion of the corporation, be deemed to include the appearance
at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such
meeting.
The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the secretary or
other officer or agent authorized to tabulate votes before the proxy
exercises his authority under the appointment.
The corporation shall not be required to recognize an appointment
made irrevocable if it has received a writing revoking the appointment
signed by the shareholder (including a shareholder who is a successor
to the shareholder who granted the proxy) either personally or by his
attorney-in-fact, notwithstanding that the revocation may be a breach
of an obligation of the shareholder to another person not to revoke the
appointment.
Subject to Section 11 and any express limitation on the proxy's
authority appearing on the appointment form, the corporation is
entitled to accept the proxy's vote or other action as that of the
shareholder making the appointment.
Section 10. Voting of Shares. Each outstanding share, regardless
of class, shall be entitled to one vote, except in the election of
directors, and each fractional share shall be entitled to a corresponding
fractional vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of
any class or classes are limited or denied by the articles of
incorporation as permitted by the Colorado Business Corporation Act.
Cumulative voting shall not be permitted in the election of directors or
for any other purpose. Each record holder of stock shall be entitled to
vote in the election of directors and shall have as many votes for each
of the shares owned by him as there are directors to be elected and for
whose election he has the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes
cast in favor of their election, shall be elected to the board of
directors.
Except as otherwise ordered by a court of competent jurisdiction
upon a finding that the purpose of this Section would not be violated
in the circumstances presented to the court, the shares of the
corporation are not entitled to be voted if they are owned, directly or
indirectly, by a second corporation, domestic or foreign, and the first
corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation except to the
extent the second corporation holds the shares in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the
shares has been deposited with a bank, trust company or other
financial institution under an irrevocable obligation to pay the holders
the redemption price on surrender of the shares.
Section 11. Corporation's Acceptance of Votes. If the name
signed on a vote, consent, waiver, proxy appointment, or proxy
appointment revocation corresponds to the name of a shareholder, the
corporation, if acting in good faith, is entitled to accept the vote,
consent, waiver, proxy appointment or proxy appointment revocation
and give it effect as the act of the shareholder. If the name signed on
a vote, consent, waiver, proxy appointment or proxy appointment
revocation does not correspond to the name of a shareholder, the
corporation, if acting in good faith, is nevertheless entitled to accept
the vote, consent, waiver, proxy appointment or proxy appointment
revocation and to give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(ii) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary
status acceptable to the corporation has been presented with respect to
the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(iii) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, proxy appointment
or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(v) two or more persons are the shareholder as co-tenants
or fiduciaries and the name signed purports to be the name of at least
one of the co-tenants or fiduciaries, and the person signing appears to
be acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy
appointment or proxy appointment revocation is otherwise proper
under rules established by the corporation that are not inconsistent with
this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or
about the signatory's authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts
or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the
standards of this Section is liable in damages for the consequences of
the acceptance or rejection.
Section 12. Informal Action by Shareholders. Any action
required or permitted to be taken at a meeting of the shareholders may
be taken without a meeting if a written consent (or counterparts
thereof) that sets forth the action so taken is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof
and received by the corporation. Such consent shall have the same
force and effect as a unanimous vote of the shareholders and may be
stated as such in the document. Action taken under this Section 12 is
effective as of the date the last writing necessary to effect this action is
received by the corporation, unless all of the writings specify a
different effective date, in which case such specified date shall be the
effective date for such action. If any shareholder revokes his consent
as provided for herein prior to what would otherwise be the effective
date, the action proposed in the consent shall be invalid. The record
date for determining shareholders entitled to take action without a
meeting is the date the corporation receives a writing upon which the
action is taken.
Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this Section 12 may revoke such
consent by a writing signed by the shareholder describing the action
and stating that the shareholder's prior consent thereto is revoked, if
such writing is received by the corporation before the effectiveness of
the action.
Section 13. Meetings by Telecommunication. Any or all of the
shareholders may participate in an annual or special shareholders'
meeting by, or the meeting may be conducted through the use of, any
means of communication by which all persons participating in the
meeting may hear each other during the meeting. A shareholder
participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
Board of Directors
Section 1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of
the corporation shall be managed under the direction of its board of
directors, except as otherwise provided in the Colorado Business
Corporation Act or the articles of incorporation.
Section 2. Number, Qualifications and Tenure. The number of
directors of the corporation shall be fixed from time to time by the
board of directors, within a range of no less than three or more than
five. A director shall be a natural person who is eighteen years of age
or older. A director need not be a resident of Colorado or a
shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders.
Each director shall hold office until the next annual meeting of
shareholders following his election and thereafter until his successor
shall have been elected and qualified. Directors shall be removed in
the manner provided by the Colorado Business Corporation Act.
Section 3. Vacancies. Any director may resign at any time by
giving written notice to the corporation. Such resignation shall take
effect at the time the notice is received by the corporation unless the
notice specifies a later effective date. Unless otherwise specified in
the notice of resignation, the corporation's acceptance of such
resignation shall not be necessary to make it effective. Any vacancy
on the board of directors may be filled by the affirmative vote of a
majority of the shareholders or the board of directors. If the directors
remaining in office constitute fewer than a quorum of the board, the
directors may fill the vacancy by the affirmative vote of a majority of
all the directors remaining in office. If elected by the directors, the
director shall hold office until the next annual shareholder's meeting at
which directors are elected. If elected by the shareholders, the director
shall hold office for the unexpired term of his predecessor in office;
except that, if the director's predecessor was elected by the directors to
fill a vacancy, the director elected by the shareholders shall hold office
for the unexpired term of the last predecessor elected by the
shareholders.
Section 4. Regular Meetings. A regular meeting of the board of
directors shall be held without notice immediately after and at the
same place as the annual meeting of shareholders. The board of
directors may provide by resolution the time and place, either within
or outside Colorado, for the holding of additional regular meetings
without other notice.
Section 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of
the board of directors may fix any place, either within or outside
Colorado, as the place for holding any special meeting of the board of
directors called by them, provided that no meeting shall be called
outside the State of Colorado unless a majority of the board of
directors has so authorized.
Section 6. Notice. Notice of any special meeting shall be given
at least two days prior to the meeting by written notice either
personally delivered or mailed to each director at his business address,
or by notice transmitted by telegraph, telex, electronically transmitted
facsimile or other form of wire or wireless communication. If mailed,
such notice shall be deemed to be given and to be effective on the
earlier of (i) three days after such notice is deposited in the United
States mail, properly addressed, with postage prepaid, or (ii) the date
shown on the return receipt, if mailed by registered or certified mail
return receipt requested. If notice is given by telex, electronically
transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be
effective when sent, and with respect to a telegram, such notice shall
be deemed to be given and to be effective when the telegram is
delivered to the telegraph company. If a director has designated in
writing one or more reasonable addresses or facsimile numbers for
delivery of notice to him, notice sent by mail, telegram, telex,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be
effective unless sent to such addresses or facsimile numbers, as the
case may be.
A director may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such director. Such
waiver shall be delivered to the corporation for filing with the
corporate records. Further, a director's attendance at or participation
in a meeting waives any required notice to him of the meeting unless
at the beginning of the meeting, or promptly upon his arrival, the
director objects to holding the meeting or transacting business at the
meeting because of lack of notice or defective notice and does not
thereafter vote for or assent to action taken at the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors
fixed by the board of directors pursuant to Section 2 or, if no number
is fixed, a majority of the number in office immediately before the
meeting begins, shall constitute a quorum for the transaction of
business at any meeting of the board of directors. If less than such
majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice, for
a period not to exceed sixty days at any one adjournment.
Section 8. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be
the act of the board of directors. No director may vote or act by
proxy at any meeting of directors.
Section 9. Compensation. By resolution of the board of
directors, any director may be paid any one or more of the following:
his expenses, if any, of attendance at meetings, a fixed sum for
attendance at each meeting, a stated salary as director, or such other
compensation as the corporation and the director may reasonably agree
upon. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A director of the corporation
who is present at a meeting of the board of directors or committee of
the board at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless (i) the director
objects at the beginning of the meeting, or promptly upon his arrival,
to the holding of the meeting or the transaction of business at the
meeting and does not thereafter vote for or assent to any action taken
at the meeting, (ii) the director contemporaneously requests that his
dissent or abstention as to any specific action taken be entered in the
minutes of the meeting, or (iii) the director causes written notice of his
dissent or abstention as to any specific action to be received by the
presiding officer of the meeting before its adjournment or by the
corporation promptly after the adjournment of the meeting. A director
may dissent to a specific action at a meeting, while assenting to others.
The right to dissent to a specific action taken at a meeting of the board
of directors or a committee of the board shall not be available to a
director who voted in favor of such action.
Section 11. Committees. By resolution adopted by a majority of
all the directors in office when the action is taken, the board of
directors may designate from among its members an executive
committee and one or more other committees, and appoint one or more
members of the board of directors to serve on them. To the extent
provided in the resolution, each committee shall have all the authority
of the board of directors, except that no such committee shall have the
authority to (i) authorize distributions, (ii) approve or propose to
shareholders actions or proposals required by the Colorado Business
Corporation Act to be approved by shareholders, (iii) fill vacancies on
the board of directors or any committee thereof, (iv) amend articles of
incorporation, (v) adopt, amend or repeal the bylaws, (vi) approve a
plan of merger not requiring shareholder approval, (vii) authorize or
approve the reacquisition of shares unless pursuant to a formula or
method prescribed by the board of directors, or (viii) authorize or
approve the issuance or sale of shares, or contract for the sale of
shares or determine the designations and relative rights, preferences
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or officer to do so within limits
specifically prescribed by the board of directors. The committee shall
then have full power within the limits set by the board of directors to
adopt any final resolution setting forth all preferences, limitations and
relative rights of such class or series and to authorize an amendment of
the articles of incorporation stating the preferences, limitations and
relative rights of a class or series for filing with the Secretary of State
under the Colorado Business Corporation Act.
Sections 4, 5, 6, 7, 8 and 12 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action
without a meeting of the board of directors, shall apply to committees
and their members appointed under this Section 11.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee
pursuant to its authority shall alone constitute compliance by any
member of the board of directors or a member of the committee in
question with his responsibility to conform to the standards of care set
forth in Article III, Section 14 of these bylaws.
Section 12. Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the directors or any committee
designated by the board of directors may be taken without a meeting if
a written consent (or counterparts thereof) that sets forth the action so
taken is signed by all of the directors entitled to vote with respect to
the action taken. Such consent shall have the same force and effect as
a unanimous vote of the directors or committee members and may be
stated as such in any document. Unless the consent specifies a
different effective date, action taken under this Section 12 is effective
at the time the last director signs a writing describing the action taken,
unless, before such time, any director has revoked his consent by a
writing signed by the director and received by the president or
secretary of the corporation.
Section 13. Telephonic Meetings. The board of directors may
permit any director (or any member of a committee designated by the
board) to participate in a regular or special meeting of the board of
directors or a committee thereof through the use of any means of
communication by which all directors participating in the meeting can
hear each other during the meeting. A director participating in a
meeting in this manner is deemed to be present in person at the
meeting.
Section 14. Standard of Care. A director shall perform his duties
as a director, including, without limitation his duties as a member of
any committee of the board, in good faith, in a manner he reasonably
believes to be in the best interests of the corporation, and with the care
an ordinarily prudent person in a like position would exercise under
similar circumstances. In performing his duties, a director shall be
entitled to rely on information, opinions, reports or statements,
including financial statements and other financial data, in each case
prepared or presented by the persons herein designated. However, he
shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted. A director shall not be liable to the corporation or its
shareholders for any action he takes or omits to take as a director if, in
connection with such action or omission, he performs his duties in
compliance with this Section 14.
The designated persons on whom a director is entitled to rely are (i)
one or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented, (ii) legal counsel, public accountant, or other person as to
matters which the director reasonably believes to be within such
person's professional or expert competence, or (iii) a committee of the
board of directors on which the director does not serve if the director
reasonably believes the committee merits confidence.
ARTICLE IV
Officers and Agents
Section 1. General. The officers of the corporation shall be a
president, one or more vice presidents, a secretary and a treasurer,
each of whom shall be a natural person eighteen years of age or older.
The board of directors or an officer or officers authorized by the board
may appoint such other officers, assistant officers, committees and
agents, including a chairman of the board, assistant secretaries and
assistant treasurers, as they may consider necessary. The board of
directors or the officer or officers authorized by the board shall from
time to time determine the procedure for the appointment of officers,
their term of office, their authority and duties and their compensation.
One person may hold more than one office. In all cases where the
duties of any officer, agent or employee are not prescribed by the
bylaws, or by the board of directors, such officer, agent or employee
shall follow the orders and instructions of the president of the
corporation.
Section 2. Appointment and Term of Office. The officers of
the corporation shall be appointed by the board of directors at each
annual meeting of the board held after each annual meeting of the
shareholders. If the appointment of officers is not made at such
meeting or if an officer or officers are to be appointed by another
officer or officers of the corporation, such appointment shall be made
as soon thereafter as conveniently may be. Each officer shall hold
office until the first of the following occurs: his successor shall have
been duly appointed and qualified, his death, his resignation, or his
removal in the manner provided in Section 3.
Section 3. Resignation and Removal. An officer may resign at
any time by giving written notice of resignation to the corporation.
The resignation is effective when the notice is received by the
corporation unless the notice specifies a later effective date.
Any officer or agent may be removed at any time with or without
cause by the board of directors or an officer or officers authorized by
the board. Such removal does not affect the contract rights, if any, of
the corporation or of the person so removed. The appointment of an
officer or agent shall not in itself create contract rights.
Section 4. Vacancies. A vacancy in any office, however
occurring, may be filled by the board of directors, or by the officer or
officers authorized by the board, for the unexpired portion of the
officer's term. If an officer resigns and his resignation is made
effective at a later date, the board of directors, or officer or officers
authorized by the board, may permit the officer to remain in office
until the effective date and may fill the pending vacancy before the
effective date if the board of directors or officer or officers authorized
by the board provide that the successor shall not take office until the
effective date. In the alternative, the board of directors, or officer or
officers authorized by the board of directors, may remove the officer
at any time before the effective date and may fill the resulting
vacancy.
Section 5. President. Subject to the direction and supervision of
the board of directors, the president shall be the chief executive officer
of the corporation, and shall have general and active control of its
affairs and business and general supervision of its officers, agents and
employees. Unless otherwise directed by the board of directors, the
president shall attend in person or by substitute appointed by him, or
shall execute on behalf of the corporation written instruments
appointing a proxy or proxies to represent the corporation, at all
meetings of the stockholders of any other corporation in which the
corporation holds any stock. On behalf of the corporation, the
president may in person or by substitute or by proxy execute written
waivers of notice and consents with respect to any such meetings. At
all such meetings and otherwise, the president, in person or by
substitute or proxy, may vote the stock held by the corporation,
execute written consents and other instruments with respect to such
stock, and exercise any and all rights and powers incident to the
ownership or said stock, subject to the instructions, if any, of the board
of directors. The president shall have custody of the treasurer's bond,
if any.
Section 6. Vice Presidents. The vice presidents shall assist the
president and shall perform such duties as may be assigned to them by
the president or by the board of directors. In the absence of the
president, the vice president, if any (or, if more than one, the vice
presidents in the order designated by the board of directors, or if the
board makes no such designation, then the vice president designated by
the president, or if neither the board nor the president makes any such
designation, the senior vice president as determined by first election to
that office), shall have the powers and perform the duties of the
president.
Section 7. Secretary. The secretary shall (i) prepare and
maintain as permanent records the minutes of the proceedings of the
shareholders and the board of directors, a record of all actions taken
by the shareholders or board of directors without a meeting, a record
of all actions taken by a committee of the board of directors in place
of the board of directors on behalf of the corporation, and a record of
all waivers of notice of meetings of shareholders and of the board of
directors or any committee thereof, (ii) see that all notices are duly
given in accordance with the provisions of these bylaws and as
required by law, (iii) serve as custodian of the corporate records and of
the seal of the corporation and affix the seal to all documents when
authorized by the board of directors, (iv) keep at the corporation's
registered office or principal place of business a record containing the
names and addresses of all shareholders in a form that permits
preparation of a list of shareholders arranged by voting group and by
class or series of shares within each group, that is alphabetical within
each class or series and that shows the address of, and the number of
shares of each class or series held by each shareholder, unless such a
record shall be kept at the office of the corporation's transfer agent or
registrar, (v) maintain at the corporation's principal office the originals
or copies of the corporation's articles of incorporation, bylaws,
minutes of all shareholders' meetings and records of all action taken
by shareholders without a meeting for the past three years, all written
communications within the past three years to shareholders as a group
or to the holders of any class or series of shares as a group, a list of
the name and business addresses of the current directors and officers, a
copy of the corporation's most recent corporate report filed with the
Secretary of State, and financial statements showing in reasonable
detail the corporation's assets and liabilities and results of operations
for the last three years, (vi) have general charge of the stock transfer
books of the corporation, unless the corporation has a transfer agent,
(vii) authenticate records of the corporation, and (vii) in general,
perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the president or
by the board of directors. Assistant secretaries, if any, shall have the
same duties and powers subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a
person other than the secretary or assistant secretary to keep the
minutes of their respective meetings.
Any books, records, or minutes of the corporation may be in
written form or in any form capable of being converted into written
form within a reasonable time.
Section 8. Treasurer. The treasurer shall be the principal
financial officer of the corporation, shall have the care and custody of
all funds, securities, evidences of indebtedness and other personal
property of the corporation and shall deposit the same in accordance
with the instructions of the board of directors. He shall receive and
give receipts and acquittances for money paid in on account of the
corporation, and shall pay out of the corporation's funds on hand all
bills, payrolls and other just debts of the corporation of whatever
nature upon maturity. He shall perform all other duties incident to the
office of the treasurer and, upon request of the board, shall make such
reports to it as may be required at any time. He shall, if required by
the board, give the corporation a bond in such sums and with such
sureties as shall be satisfactory to the board, conditioned upon the
faithful performance of his duties and for the restoration to the
corporation of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to
the corporation. He shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of
directors or the president. The assistant treasurers, if any, shall have
the same powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems
of accounting to be followed, keep complete books and records of
account as required by the Colorado Business Corporation Act, prepare
and file all local, state and federal tax returns, prescribe and maintain
an adequate system of internal audit and prepare and furnish to the
president and the board of directors statements of account showing the
financial position of the corporation and the results of its operations.
ARTICLE V
Stock
Section 1. Certificates. The board of directors shall be
authorized to issue any of its classes of shares with or without
certificates. The fact that the shares are not represented by certificates
shall have no effect on the rights and obligations of shareholders. If
the shares are represented by certificates, such shares shall be
represented by consecutively numbered certificates signed, either
manually or by facsimile, in the name of the corporation by one or
more persons designated by the board of directors. In case any officer
who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may nonetheless be issued by the
corporation with the same effect as if he were such officer at the date
of its issue. Certificates of stock shall be in such form and shall
contain such information consistent with law as shall be prescribed by
the board of directors. If shares are not represented by certificates,
within a reasonable time following the issue or transfer of such shares,
the corporation shall send the shareholder a complete written statement
of all of the information required to be provided to holders of
uncertificated shares by the Colorado Business Corporation Act.
Section 2. Consideration for Shares. Certificated or
uncertificated shares shall not be issued until the shares represented
thereby are fully paid. The board of directors may authorize the
issuance of shares for consideration consisting of any tangible or
intangible property or benefit to the corporation, including cash,
promissory notes, services performed or other securities of the
corporation. Future services shall not constitute payment or partial
payment for shares of the corporation. The promissory note of a
subscriber or an affiliate of a subscriber shall not constitute payment or
partial payment for shares of the corporation unless the note is
negotiable and is secured by collateral, other than the shares being
purchased, having a fair market value at least equal to the principal
amount of the note. For purposes of this Section 2, "promissory note"
means a negotiable instrument on which there is an obligation to pay
independent of collateral and does not include a non-recourse note.
Section 3. Lost Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, the board of
directors may direct the issuance of a new certificate in lieu thereof
upon such terms and conditions in conformity with law as the board
may prescribe. The board of directors may in its discretion require an
affidavit of lost certificate and/or a bond in such form and amount and
with such surety as it may determine before issuing a new certificate.
Section 4. Transfer of Shares. Upon surrender to the
corporation or to a transfer agent of the corporation of a certificate of
stock duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, and receipt of such documentary
stamps as may be required by law and evidence of compliance with all
applicable securities laws and other restrictions, the corporation shall
issue a new certificate to the person entitled thereto, and cancel the old
certificate. Every such transfer of stock shall be entered on the stock
books of the corporation which shall be kept at its principal office or
by the person and at the place designated by the board of directors.
Except as otherwise expressly provided in Article II, Sections 7 and
11, and except for the assertion of dissenters' rights to the extent
provided in Article 113 of the Colorado Business Corporation Act, the
corporation shall be entitled to treat the registered holder of any shares
of the corporation as the owner thereof for all purposes, and the
corporation shall not be bound to recognize any equitable or other
claim to, or interest in, such shares or rights deriving from such shares
on the part of any person other than the registered holder, including
without limitation any purchaser, assignee or transferee of such shares
or rights deriving from such shares, unless and until such other person
becomes the registered holder of such shares, whether or not the
corporation shall have either actual or constructive notice of the
claimed interest of such other person.
Section 5. Transfer Agent, Registrars and Paying Agents. The
board may at its discretion appoint one or more transfer agents,
registrars and agents for making payment upon any class of stock,
bond, debenture or other security of the corporation. Such agents and
registrars may be located either within or outside Colorado. They
shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
ARTICLE VI
Indemnification of Certain Persons
Section 1. Indemnification. For purposes of Article VI, a
"Proper Person" means any person who was or is a party or is
threatened to be made a party to any threatened, pending, or complete
action, suit or proceeding, whether civil, criminal, administrative or
investigative, and whether formal or informal, by reason of the fact
that he is or was a director, officer, employee, fiduciary or agent of
the corporation, or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, fiduciary or agent of
any foreign or domestic profit or nonprofit corporation or of any
partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee
benefit plan. The corporation shall indemnify any Proper Person
against reasonably incurred expenses (including any attorneys' fees),
judgments, penalties, fines (including any excise tax assessed with
respect to an employee benefit plan) and amounts paid in settlement
reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of
this Article that he conducted himself in good faith and that he
reasonably believed (i) in the case of conduct in his official capacity
with the corporation, that his conduct was in the corporation's best
interests, or (ii) in all other cases (except criminal cases), that his
conduct was at least not opposed to the corporation's best interests, or
(iii) in the case of any criminal proceeding, that he had no reasonable
cause to believe his conduct was unlawful. A Proper Person will be
deemed to be acting in his official capacity while acting as a director,
officer, employee or agent on behalf of this corporation and not while
acting on this corporation's behalf for some other entity.
No indemnification shall be made under this Article VI to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper
Person was adjudged liable to the corporation or in connection with
any proceeding charging that the Proper Person derived an improper
personal benefit, whether or not involving action in an official
capacity, in which he was adjudged liable on the basis that he derived
an improper personal benefit. Further, indemnification under this
Section in connection with a proceeding brought by or in the right of
the corporation shall be limited to reasonable expenses, including
attorneys' fees, incurred in connection with the proceeding.
Section 2. Right to Indemnification. The corporation shall
indemnify any Proper Person who was wholly successful, on the
merits or otherwise, in defense of any action, suit, or proceeding as to
which he was entitled to indemnification under Section 1 of this
Article VI against expenses (including attorneys' fees) reasonably
incurred by him in connection with the proceeding without the
necessity of any action by the corporation other than the determination
in good faith that the defense has been wholly successful.
Section 3. Effect of Termination of Action. The termination of
any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall
not of itself create a presumption that the person seeking
indemnification did not meet the standards of conduct described in
Section 1 of this Article VI. Entry of a judgment by consent as part
of a settlement shall not be deemed an adjudication of liability, as
described in Section 2 of this Article VI.
Section 4. Groups Authorized to Make Indemnification
Determination. Except where there is a right to indemnification as set
forth in Sections 1 or 2 of this Article or where indemnification is
ordered by a court in Section 5, any indemnification shall be made by
the corporation only as authorized in the specific case upon a
determination by a proper group that indemnification of the Proper
Person is permissible under the circumstances because he has met the
applicable standards of conduct set forth in Section 1 of this Article.
This determination shall be made by the board of directors by a
majority vote of those present at a meeting at which a quorum is
present, which quorum shall consist of directors not parties to the
proceeding ("Quorum"). If a Quorum cannot be obtained, the
determination shall be made by a majority vote of a committee of the
board of directors designated by the board, which committee shall
consist of two or more directors not parties to the proceeding, except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board
of directors cannot be obtained and the committee cannot be
established, or even if a Quorum is obtained or the committee is
designated and a majority of the directors constituting such Quorum or
committee so directs, the determination shall be made by (i)
independent legal counsel selected by a vote of the board of directors
or the committee in the manner specified in this Section 4, or, if a
Quorum of the full board of directors cannot be obtained and a
committee cannot be established, by independent legal counsel selected
by a majority vote of the full board (including directors who are
parties to the action) or (ii) a vote of the shareholders.
Section 5. Court-Ordered Indemnification. Any Proper Person
may apply for indemnification to the court conducting the proceeding
or to another court of competent jurisdiction for mandatory
indemnification under Section 2 of this Article, including
indemnification for reasonable expenses incurred to obtain court-
ordered indemnification. If the court determines that such Proper
Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances, whether or not he met the standards of
conduct set forth in Section 1 of this Article or was adjudged liable in
the proceeding, the court may order such indemnification as the court
deems proper except that if the Proper Person has been adjudged
liable, indemnification shall be limited to reasonable expenses incurred
in connection with the proceeding and reasonable expenses incurred to
obtain court-ordered indemnification.
Section 6. Advance of Expenses. Reasonable expenses
(including attorneys' fees) incurred in defending an action, suit or
proceeding as described in Section 1 may be paid by the corporation to
any Proper Person in advance of the final disposition of such action,
suit or proceeding upon receipt of (i) a written affirmation of such
Proper Person's good faith belief that he has met the standards of
conduct prescribed by Section 1 of this Article VI, (ii) a written
undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet
the prescribed standards of conduct (the undertaking shall be an
unlimited general obligation of the Proper Person but need not be
secured and may be accepted without reference to financial ability to
make repayment), and (iii) a determination is made by the proper
group (as described in Section 3 of this Article VI) that the facts as
then known to the group would not preclude indemnification.
Determination and authorization of payments shall be made in the
same manner specified in Section 4 of this Article VI.
Section 7. Witness Expenses. The sections of this Article VI do
not limit the corporation's authority to pay or reimburse expenses
incurred by a director in connection with an appearance as a witness in
a proceeding at a time when he has not been a named defendant or
respondent in the proceeding.
Section 8. Report to Shareholders. Any indemnification of or
advance of expenses to a director in accordance with this Article VI, if
arising out of a proceeding by or on behalf of the corporation, shall be
reported in writing to the shareholders with or before the notice of the
next shareholders' meeting. If the next shareholder action is taken
without a meeting at the instigation of the board of directors, such
notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
ARTICLE VII
Provision of Insurance
By action of the board of directors, notwithstanding any interest of
the directors in the action, the corporation may purchase and maintain
insurance, in such scope and amounts as the board of directors deems
appropriate on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation, or who, while a
director, officer, employee, fiduciary or agent of the corporation, is or
was serving at the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of any other foreign or
domestic corporation or of any partnership, joint venture, trust, profit
or nonprofit unincorporated association, limited liability company or
other enterprise or employee benefit plan, against any liability asserted
against, or incurred by, him in that capacity arising out of his status as
such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of Article VI
or applicable law. Any such insurance may be procured from any
insurance company designated by the board of directors of the
corporation, whether such insurance company is formed under the laws
of Colorado or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an
equity interest or any other interest, through stock ownership or
otherwise.
ARTICLE VIII
Miscellaneous
Section 1. Seal. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation and the
words, "Seal, Colorado."
Section 2. Fiscal Year. The fiscal year of the corporation shall
be as established by the board of directors.
Section 3. Amendments. The board of directors shall have
power, to the maximum extent permitted by the Colorado Business
Corporation Act, to make, amend and repeal the bylaws of the
corporation at any regular or special meeting of the board unless the
shareholders, in making, amending or repealing a particular bylaw,
expressly provide that the directors may not amend or repeal such
bylaw. The shareholders also shall have the power to make, amend or
repeal the bylaws of the corporation at any annual meeting or at any
special meeting called for that purpose.
Section 4. Gender. The masculine gender is used in these
bylaws as a matter of convenience only and shall be interpreted to
include the feminine and neuter genders as the circumstances indicate.
Section 5. Conflicts. In the event of any irreconcilable conflict
between these bylaws and either the corporation's articles of
incorporation or applicable law, the latter shall control.
Section 6. Definitions. Except as otherwise specifically
provided in these bylaws, all terms used in these bylaws shall have the
same definition as in the Colorado Business Corporation Act.
THE FOREGOING BYLAWS, consisting of eighteen (18) pages,
including this page, constitute the bylaws of Heritage Mines, Ltd.
adopted by the board of directors of the corporation as of January 19,
1995.
/s/ Secretary<PAGE>
EXHIBIT 4.1 - SPECIMEN CLASS A WARRANT CERTIFICATE
WARRANT CERTIFICATE NO ______
_________ CANCELABLE WARRANTS
HERITAGE MINES, LTD.
(a Colorado corporation)
CANCELABLE WARRANT CERTIFICATE
For the Purchase of Common Stock
CUSIP 013738 11 7
THIS CERTIFIES THAT, for value received,
__________________________________________________________
("Warrantholder"), is the registered owner of the above-stated number
of Cancelable Class A Warrants ("Cancelable Warrants") of
HERITAGE MINES, LTD., a Colorado corporation ("Company"),
expiring on December 31, 1999, unless canceled or extended
("Expiration Date"). Subject to cancellation and other limitations as
described below, each Cancelable Warrant entitles the Warrantholder
to purchase one share of the common stock no par value ("Common
Stock" or "Shares"), of the Company, at a purchase price of $2.00 per
Share ("Exercise Price"), at any time beginning August 1, 1995 and
until to the Expiration Date, upon surrender of this Certificate with the
exercise form on the reverse side hereof duly completed and executed,
accompanied by payment of the Exercise Price, to U.S. Stock Transfer
Corp. ("Warrant Agent"), 1745 Gardena Avenue, Glendale, California
91204. This Certificate and exercise of these Cancelable Warrants will
be subject to the provisions of the Warrant Agent Agreement dated
_____________, 19__, ("Warrant Agreement"), between the Company
and the Warrant Agent, to which provisions the Warrantholder agrees
by acceptance of this Certificate. The provisions of the Warrant
Agreement and those set forth on the reverse side of this Certificate
are fully incorporated by reference into this Certificate as if fully set
forth herein.
If all Cancelable Warrants represented by this Certificate shall not
have been duly exercised on or before the Expiration Date, as it may
be extended, the unexercised Cancelable Warrants shall expire and this
Certificate shall become void. The Expiration Date may be extended
from time to time for an indefinite period, or the Exercise Price may
be reduced, at the discretion of the Company upon giving notice
thereof to the Warrant Agent and giving subsequent notice thereof to
holders of Cancelable Warrants then listed on its books.
The Warrantholder may exercise all or any of the Cancelable
Warrants in the manner and during the period stated above, but only
for an even number of Shares if less than all are exercised, upon due
presentment of this Certificate to the Warrant Agent. The Exercise
Price must be paid in lawful money of the United States of America,
in cash or by personal check, bank check or certified check payable to
the order of the Company. If fewer than all of the above number of
Cancelable Warrants are exercised, the Warrant Agent shall execute
and deliver to the Warrantholder a new Cancelable Class A Warrant
certificate of like tenor evidencing the number of Cancelable Warrants
not exercised. Should any or all the Cancelable Warrants be assigned,
then upon due presentment of this Certificate by the assignee to the
Warrant Agent accompanied by payment of the sum of $10.00 per
Cancelable Class A Warrant certificate to be issued and of all transfer
taxes and other governmental charges due, if any, the Warrant Agent
shall transfer the Cancelable Warrants assigned on the transfer books
and shall (subject to the Warrant Agreement) execute and deliver to
the assignee a Cancelable Class A Warrant certificate of like tenor
representing the number of Cancelable Warrants assigned, and if less
than all of the Cancelable Warrants are assigned, execute and deliver
to the Warrantholder a Cancelable Class A Warrant certificate of like
tenor representing the number of Cancelable Warrants not assigned.
The Company may cancel these Cancelable Warrants at any time
upon at least thirty days' prior written notice to holders of Cancelable
Warrants then listed on its books. This notice shall accelerate the
Expiration Date, which shall become the last day of the cancellation
period, and the Cancelable Warrants may be exercised on or before the
accelerated Expiration Date. Cancelable Warrants not exercised timely
shall expire and this Certificate shall become void. The cancellation
prior (and the accelerated Expiration Date) may be extended by the
Company upon two days' written notice to the Warrant Agent and
giving subsequent notice thereof to holders of Cancelable Warrants
then listed on its books.
The Cancelable Warrants may be exercised, or canceled in
accordance with the immediately proceeding paragraph, only if a
current prospectus is then in effect. The Company has undertaken to
use its best efforts to maintain a current prospectus at any time during
which the market bid price for the Common Stock exceeds the
Exercise Price, but is not obligated to do so.
In addition, should management of a business opportunity that is the
target of a business combination with the Company require, as a
condition to the consummation of the business combination, that the
Cancelable Warrants be canceled, the Cancelable Warrants may be
canceled by the Company under the terms set forth in Section 5(a) of
the Warrant Agreement without prior written notice to the registered
holders of the Cancelable Warrants and without any right on the part
of such holders to exercise the Cancelable Warrants prior to
cancellation. The Company may cancel the Cancelable Warrants under
these limited circumstances irrespective of whether a current
prospectus is then in effect. The Company's power to cancel the
Cancelable Warrants in accordance with Section 5(a) of the Warrant
Agreement shall expire upon the Company's consummation of a
business combination. UNTIL THE CANCELABLE WARRANTS
ARE NO LONGER SUBJECT TO CANCELLATION UNDER
SECTION 5(a) OF THE WARRANT AGREEMENT, THE
CANCELABLE WARRANTS MAY NOT BE TRANSFERRED ON
THE RECORDS OF THE COMPANY.
These Cancelable Warrants shall not entitle the Warrantholder to
any of the rights of stockholders or to any dividend declared upon the
Common Stock unless the Warrantholder shall have exercised these
Cancelable Warrants and purchased the Shares of Common Stock prior
to the record date fixed by the Board of Directors of the Company for
the determination of holders of Common Stock entitled to such
dividend or other right. Holders of Cancelable Warrants are protected
against dilution of their interests represented by the underlying shares
of Common Stock upon the occurrence of stock dividends, stock splits
or reclassifications of the Common Stock, as provided in the Warrant
Agreement.
This Certificate shall not be valid unless countersigned by the
Warrant Agent.
WITNESS the facsimile seal of the Company and the facsimile
signature of its duly authorized officer.
Dated:______________________________
HERITAGE MINES, LTD.
By:_________________, President By: ___________, Secretary
COUNTERSIGNED:
U.S. STOCK TRANSFER CORP.
1745 Gardena Avenue
Glendale, California 91204
By:___________________________
Warrant Agent Authorized Signature<PAGE>
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name and State of Name Under
Incorporation Which
Does Business
<S> <C>
WAZCO, Inc.
a Nevada corporation Same
GWZ Management Company, Inc.
a Nevada corporation Same
Heritage Gold Mines, Inc.
a Nevada corporation Same
</TABLE>
<PAGE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
[ARTICLE] 5
[TYPE] EX-27
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JAN-31-1997
[PERIOD-END] JAN-31-1997
[CASH]
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS]
[PP&E]
[DEPRECIATION]
[TOTAL-ASSETS]
[CURRENT-LIABILITIES]
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON]
[OTHER-SE]
[TOTAL-LIABILITY-AND-EQUITY]
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE]
[INCOME-PRETAX]
[INCOME-TAX] 0
[INCOME-CONTINUING]
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME]
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 1,078
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,333
<PP&E> 2,211,540
<DEPRECIATION> 150,001
<TOTAL-ASSETS> 2,131,210
<CURRENT-LIABILITIES> 929,056
<BONDS> 0
0
0
<COMMON> 26,180
<OTHER-SE> 2,838,207
<TOTAL-LIABILITY-AND-EQUITY> 2,131,210
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,770
<INCOME-PRETAX> (1,378,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,378,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,378,917)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
