SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant []
Check the appropriate box:
<checked-box> Preliminary Proxy Statement
<square> Definitive Proxy Statement
<square> Definitive Additional Materials
<square> Soliciting Material Pursuant to <section>240.14a-11(c) or
<section>240.14a-12
THERMAL EXPLORATION COMPANY
(Name of Registrant as Specified In Its Charter)
BOARD OF DIRECTORS
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
<square> $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(i)(3).
<square> $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
<checked-box> Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
COMMON SHARES
2) Aggregate number of securities to which transaction applies:
3,410,106
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:{1}
$1.00375
4) Proposed maximum aggregate value of transaction:
3,422,894
{1} Set forth the amount on which the filing fee is calculated and state how
it was determined.
<square> Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
THERMAL EXPLORATION COMPANY
11525 CAROLINE LANE
NEVADA CITY, CALIFORNIA 95959
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____, 1996
To the Shareholders of Thermal Exploration Company
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Meeting") of the
shareholders of Thermal Exploration Company, a California corporation
("Thermal") will be held on ____, ____, 1996, at 10:00 a.m. (PST), at the
offices of Smith, Lyons, Torrance, Stevenson & Mayer, World Trade Centre, Suite
550, 999 Canada Place, Vancouver, British Columbia, Canada V6C 3G8 for the
following purposes:
1. To consider, and if deemed advisable, to pass, with or without
variation, a resolution ("Reincorporation Resolution") approving the
reincorporation of Thermal from the State of California to the State of Wyoming
as Thermal Exploration Company, a Wyoming corporation ("Thermal-WY") ("Proposal
1");
2. Conditional upon the approval of the Reincorporation Resolution, to
consider, and if deemed advisable, to pass, with or without variation, a
resolution ("Continuance Resolution") authorizing Thermal-WY to apply to the
Registrar of Companies (British Columbia) for a certificate of continuance
continuing (reincorporating) Thermal-WY under the COMPANY ACT (British
Columbia) as Thermal Resources Company Ltd., a British Columbia corporation
("Thermal-BC") ("Proposal 2");
3. Conditional upon the approval of the Continuance Resolution, to
consider and, if deemed advisable, to pass, with or without variation, a
special resolution ("Arrangement Resolution") approving an arrangement,
pursuant to section 276 of the COMPANY ACT (British Columbia) which will result
in, among other things:
a. the transfer by Thermal-BC to Pacific Cascade Resources Corp., a to
be formed wholly-owned British Columbia corporate subsidiary of
Thermal-BC, ("Pacific") of all of the assets of Thermal-BC (except
for Thermal-BC's interest in the Carmacks Copper Project, Yukon
Territory) in exchange for common shares of Pacific ("Pacific
Shares");
b. the distribution of the Pacific Shares by Thermal-BC to the
shareholders of Thermal-BC (except for Western Copper Holdings
Limited ("Western")) in exchange of their Thermal-BC shares on the
basis of one Pacific Share for one percent (1%) of each Thermal-BC
share;
c. the consolidation of every five outstanding Pacific Shares in
exchange for one new Pacific Share.
d. the amalgamation of Thermal-BC and No. 385 Sail View Ventures Ltd.
("Sailview"), a wholly-owned subsidiary of Western, to form Carmacks
Copper Ltd. ("Copper"), a British Columbia company wholly owned by
Western;
e. the holders of Thermal-BC shares (other than Western) receiving one
(1) common share of Western for each five (5) Thermal-BC shares
held; and
f. the holders of warrants to purchase Thermal-BC shares (other than
Western) receiving from Western warrants to purchase one-fifth the number of
common shares of Western at five times the exercise price of their Thermal-BC
warrants;
g. the holders of incentive stock options to purchase Thermal-BC shares
(other than Western) receiving from Western incentive stock options to purchase
one fifth the number of common shares of Western at five times the exercise
price of their Thermal-BC incentive stock options;
h. all outstanding warrants and incentive stock options to purchase
Thermal-BC Shares
being cancelled;
i. Copper issuing to Western one common share of Copper for each common
share of Western issued to former holders of Thermal-BC shares;
j. all of the outstanding Thermal-BC shares being cancelled without any
repayment of capital; and
k. each existing share of Sailview being converted to one common share
of Copper. (Items 3.a to 3.k collectively "Proposal 3").
4. To transact any such other business that may be properly be
presented before the Meeting and any adjournment thereof.
The full texts of each of the Reincorporation Resolution, the Continuance
Resolution and the Arrangement Resolution are set out as Exhibits I, II, and
III to the accompanying Proxy Statement. The Plan of Arrangement with respect
to the Arrangement is reproduced in full as Appendix A to the Proxy Statement
of Thermal accompanying this Notice of Meeting.
AS THE ARRANGEMENT IS BEING CONSIDERED AS PROVIDED FOR IN THE INTERIM
ORDER AND THE ARRANGEMENT MUST BE APPROVED BY AN FINAL ORDER OF THE SUPREME
COURT OF BRITISH COLUMBIA, A COPY OF THE INTERIM ORDER AND NOTICE OF HEARING OF
PETITION TO THE SUPREME COURT OF BRITISH COLUMBIA FOR THE FINAL ORDER OF THE
SUPREME COURT OF BRITISH COLUMBIA ARE REPRODUCED IN FULL AS EXHIBITS IV AND V,
RESPECTIVELY TO THE PROXY STATEMENT OF THERMAL ACCOMPANYING THIS NOTICE OF
MEETING.
Holders of shares of Class A Preferred Stock and of Common Stock of
Thermal who will become holders of common and preference shares of Thermal-BC
are entitled, pursuant to the Interim Order and the Plan of Arrangement, to
give Thermal written notice of dissent, addressed to Thermal's transfer agent,
Montreal Trust Company of Canada, Corporate Services Division, 510 Burrard
Street, 4th Floor, Vancouver, British Columbia, Canada V6C 3B9, with respect
to the Arrangement on or before 10:00 a.m. (PST), on __, 1996. If the
Arrangement becomes effective, dissenting shareholders who have complied with
the provisions of Section 231 of the British Columbia Company Act ("Company
Act") may, on receiving from Thermal-BC a notice of intention to act, require
Thermal-BC to purchase their common and preference shares of Thermal. This
right is described in detail in the Proxy Statement accompanying this Notice of
Meeting.
Only shareholders of record at the close of business on ______, 1996 are
entitled to notice of and to attend and vote at the Meeting, or any
postponements or adjournments thereof.
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<PAGE>
Your vote is important, regardless of the number of shares that you own.
In order to ensure that your vote is counted, please complete, date and sign
the enclosed proxy and return it without delay in the enclosed envelope,
whether or not you expect to attend the Meeting in person. If you attend the
Meeting in person, you may then withdraw your proxy and vote in person.
DATED at __ , __ , this __ day of __, 1996.
By Order of the Board of Directors
(signed) "James E. Lanigan"
JAMES E. LANIGAN, SECRETARY
NOTE: Holders of Common Stock and Series A Preferred Stock of Thermal are
requested to date, sign and return the accompanying form of proxy for use at
the Meeting. To be effective, forms of proxy must be received by Corporate
Services Division, Montreal Trust Company of Canada, 510 Burrard Street, 4th
Floor, Vancouver, British Columbia, Canada V6C 3B9, prior to 10:00 a.m.,
(PST), on __, 1996.
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<PAGE>
THERMAL EXPLORATION COMPANY
11525 CAROLINE LANE
NEVADA CITY, CALIFORNIA 95959
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________, 1996
INTRODUCTION
SOLICITATION AND PURPOSE OF THE MEETING
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Thermal Exploration
Company, a California corporation (the "Company" or "Thermal"), for use at a
Special Meeting of the shareholders of Thermal (the "Meeting") to be held on
_____, ______, 1996, at 10:00 a.m. (PST) at Smith, Lyons, Torrance, Stevenson
& Mayer, World Trade Centre, Suite 550, 999 Canada Place, Vancouver, British
Columbia, Canada V6C 3G8 and at any adjournment thereof. It is anticipated
that this Proxy Statement and the accompanying proxy card will be mailed to
shareholders on or about January __, 1996.
At the Meeting, shareholders will be asked to consider, and if thought
advisable, approve the following proposals (collectively "Proposals"):
(1) the reincorporation of Thermal from the State of California to the
State of Wyoming ("Proposal 1");
(2) the continuation (reincorporation) of Thermal Exploration Company, a
Wyoming corporation ("Thermal-WY") from the State of Wyoming to the Province of
British Columbia, Canada to become Thermal Resources Company Ltd., a British
Columbia company ("Thermal-BC") ("Proposal 2");
(3) Conditional upon the approval of Proposals 1 and 2, the arrangement,
pursuant to Section 276 of the COMPANY ACT (British Columbia) which will result
in the following:
a. the transfer by Thermal-BC to Pacific Cascade Resources Corp., a
wholly-owned British Columbia corporate subsidiary of Thermal-BC,
("Pacific") of all of the assets of Thermal-BC (except for Thermal-
BC's interest in the Carmacks Copper Project, Yukon Territory) in
exchange for common shares of Pacific ("Pacific Shares");
b. the distribution of the Pacific Shares by Thermal-BC to the
shareholders of Thermal-BC (except for Western Copper Holdings
Limited ("Western")) in exchange of their Thermal-BC shares on the
basis of one Pacific Share for one percent (1%) of each Thermal-BC
share;
c. the consolidation of every five outstanding Pacific Shares in
exchange for one new Pacific Share.
d. the amalgamation of Thermal-BC and No. 385 Sail View Ventures Ltd.
("Sailview"), a wholly-owned subsidiary of Western, to form Carmacks
Copper Ltd. ("Copper"), a British Columbia company wholly owned by
Western;
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<PAGE>
e. the holders of Thermal-BC shares (other than Western) receiving one
(1) common share of Western for each five (5) Thermal-BC shares
held; and
f. the holders of warrants to purchase Thermal-BC shares (other than
Western) receiving from Western warrants to purchase one-fifth the number of
common shares of Western at five times the exercise price of their Thermal-BC
warrants;
g. the holders of incentive stock options to purchase Thermal-BC shares
(other than Western) receiving from Western incentive stock options to purchase
one fifth the number of common shares of Western at five times the exercise
price of their Thermal-BC incentive stock options;
h. all outstanding warrants and incentive stock options to purchase
Thermal-BC Shares
being cancelled;
i. Copper issuing to Western one common share of Copper for each common
share of Western issued to former holders of Thermal-BC shares;
j. all of the outstanding Thermal-BC shares being cancelled without any
repayment of capital; and
k. each existing share of Sailview being converted to one common share
of Copper. (Item 3.a to 3.k collectively "Proposal 3"); and
(vi) to transact any such other business that may be properly be
presented before the Meeting and any adjournment thereof.
Proposal 3 sets forth a reorganization of Thermal, Western and Copper
pursuant to an Arrangement dated for reference __, 1996 among Thermal, Pacific
and Western and in accordance with the Plan of Arrangement attached hereto as
Appendix A. Proposals 1 and 2 are necessary preconditions to move Thermal into
the jurisdiction of the British Columbia Company Act (the "Company Act") and
the Supreme Court of British Columbia and to permit the Arrangement to proceed.
When the proxy is properly executed and returned by a shareholder, it will
be voted as specified unless revoked. If no directions are given, the shares
represented by such proxies will be voted FOR all of the Proposals. Any
shareholder giving a proxy has the power to revoke it at any time before it is
voted. Revocation of a proxy is effective upon receipt by Thermal's transfer
agent of either (i) an instrument revoking it or (ii) a duly executed proxy
bearing a later date. A shareholder who is present at the Meeting may revoke
his proxy and vote in person if so desired.
VOTING REQUIREMENTS
Shareholders on the record date are entitled to notice of and to vote at
the Meeting. At the close of business on ____, 1996, the record date for the
Meeting, there were 17,050,528 shares of Common Stock and 120,000 shares of
Series A Preferred Stock outstanding. Holders of Common Stock and Series A
Preferred Stock are each entitled to one vote and vote as separate classes.
In order to adopt Proposal 1, holders of a majority of the outstanding
shares of Common Stock and Series A Preferred Stock, voting as separate
classes, must approve such Proposal. In order to adopt Proposal 2, holders of
two-thirds ( 2/3 ) of the outstanding shares of Common Stock and Series A
Preferred Stock of Thermal-WY, voting as separate classes, must approve such
Proposal. Proposal 3 must receive the affirmative vote of not less than three-
fourths ( 3/4 ) of the Thermal Common and Preference shares, voting as separate
classes, which, being entitled to vote, do so at the Meeting. Proposal 3 must
also be approved by the vote of two-thirds ( 2/3 ) of the votes cast at the
Meeting by the Minority Members. Minority Members shall consist of all
shareholders of Thermal-BC excluding, Western, Messrs. Corman and Quartermain,
and their affiliates. Thermal estimates that, assuming the issuance of
17,050,528 shares of Common Stock and 120,000 shares of Series A Preferred
Stock of Thermal-WY in connection with the reincorporation of Thermal into
Wyoming, and the issuance of 17,050,528 Thermal common shares and 120,000
preference shares upon the continuation of Thermal-WY into British Columbia,
8,570,427 Thermal common and preference shares will be held by Minority Members
and therefore will be entitled to vote in respect of the required minority
approval for Proposals 3.
Proposal 3 is dependent on Proposals 1 and 2 and if Proposal 1 or 2 is not
approved, the transactions set forth in Proposal 3 will not occur. If
Proposals 1 and 2 are approved but Proposal 3 is not, Thermal will become a
British Columbia company even though the transactions set forth in Proposal 3
will not occur. For purposes of the Meeting, a quorum is a majority of the
shares outstanding of a class present in person or by proxy at the Meeting.
Mr. Dale Corman, President and Chairman of the Board of Thermal and
President and Director of Western, and Hugh M. Blair, a Director of Thermal,
have approximately 15.66% of the aggregate voting power of the Common Stock,
and Western has approximately 34% of the aggregate voting power of the Common
Stock. Messrs. Corman and Blair and Western have indicated that they intend to
vote for all of the Proposals.
In addition, Queenston Mining Corporation, an Ontario corporation
("Queenston") has approximately 83% of the aggregate voting power of the Series
A Preferred Stock. Queenston has given a proxy regarding the Series A
Preferred Stock to the Board of Directors of Thermal, and the Board of
Directors intends to vote for all of the Proposals. Mr. Hugh Harbinson, an
officer of Western, is President of Queenston.
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<PAGE>
TABLE OF CONTENTS
PAGE
Summary of the Arrangement..........................................-5-
The Meeting........................................................-11-
Proposals..........................................................-13-
Comparison of Certain Rights of Shareholders of Thermal and Shareholders of
Western ...........................................................-20-
U.S. Federal Income Tax Considerations to Holders of Thermal Stock.-24-
Canadian Federal Income Tax Considerations.........................-31-
Certain United States Federal Income Tax Considerations Generally Applicable to
U.S. Shareholders of Canadian Corporations.........................-36-
Certain Canadian Federal Income Tax Considerations
Generally Applicable to U.S. Shareholders of Canadian Corporation..-37-
Summary of Financial Data..........................................-39-
Selected Pro Forma Financial Information...........................-41-
Comparative Market Prices..........................................-42-
Currency...........................................................-43-
Western Copper Holdings Limited Selected Financial Information.....-44-
Management's Discussion and Analysis of Financial Condition and Results
of Operations for Western..........................................-45-
Western Copper Holdings Limited....................................-46-
Western Management.................................................-51-
Description of Western Securities..................................-54-
Thermal Exploration Company Selected Financial Information.........-56-
Management's Discussion and Analysis of Financial Condition........-57-
Thermal Exploration Company........................................-59-
Thermal Management.................................................-62-
Description of Thermal Securities..................................-65-
Pacific Cascade Resources Corp.....................................-67-
Dissenter's Rights.................................................-68-
Legal Matters......................................................-71-
Stockholder Proposals..............................................-71-
Other Matters......................................................-72-
Index to Financial Statements......................................-73-
Financial Statements................................................F-1
Appendix...................................................Appendix A-1
Exhibits....................................................Exhibit I-1
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SUMMARY OF THE ARRANGEMENT
The following is a brief summary of certain information contained
elsewhere in this Proxy
Statement. This summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information contained in this Proxy
Statement and in the Appendices and Exhibits hereto. Shareholders of Thermal
are urged to review carefully the entire Proxy Statement. As used in this
Proxy Statement, reference to U.S. dollars shall be indicated by the symbol
"U.S. $" and reference to Canadian dollars shall be indicated by the symbol
"Cdn $".
GENERAL
Thermal is engaged in the exploration and development of mineral
properties. Thermal's primary asset is its 50% joint venture interest
("Thermal Carmacks Interest") in the Carmacks copper oxide and gold deposit
property (the "Carmacks Property") located in central Yukon, Canada. Western
Copper Holdings Limited, a British Columbia corporation ("Western") owns the
remaining 50% joint venture interest in the Carmacks Property. Thermal also
has other nominal assets consisting of mineral claims and geothermal and
mineral data. See "Thermal Exploration Company - Business"
Thermal and Western commissioned a feasibility study of the Carmacks
Property which was prepared by Kilborn Engineering Pacific Ltd. of Vancouver,
British Columbia ("Kilborn"). According to the feasibility study prepared by
Kilborn, the Carmacks Property has an open pit mineral reserve of 15.55 million
tons, grading 1.01% copper and an average 4.25:1 waste-ore ratio over an
estimated 8.5 years of production life. Total pre-production capital costs,
including working capital, has been estimated by Kilborn to be Cdn $67 million
(U.S. $49.2 million).
Thermal and Western intend to reorganize in order to place the Carmacks
Property under one management, which Thermal and Western believe will enhance
the ability to obtain financing to develop the Carmacks Property. As part of
the Arrangement Agreement, Thermal also intends that Thermal-BC distribute to
Thermal shareholders, other than Western, common shares of Pacific Cascade
Resources Corp., a British Columbia corporation ("Pacific"), a wholly-owned
subsidiary of Thermal-BC whose primary assets will be nominal assets of Thermal
consisting of mineral claims and geothermal and mineral data. Pacific's
business objectives will be the exploration of mineral properties.
THE COMPANIES
THERMAL
Thermal is primarily engaged in the exploration and development of the
Carmacks Property (formerly known as the Williams Creek deposit) located in
central Yukon, Canada. Thermal has a 50% joint venture interest in the Carmacks
Property. Western owns the remaining 50% interest in the joint venture. As of
September 30, 1995, approximately Cdn $3.5 million had been spent by the joint
venture to develop the Carmacks Property. A feasibility study by Kilborn for
the Carmacks Property contemplates an anticipated annual copper production rate
of 15,000 tons per year. The project's average operating cost, including
copper cathode shipping cost, is estimated to be Cdn $0.88 (U.S. $0.64) per
pound of copper. As of November 10, 1995 the copper price was U.S. $1.39 per
pound. As part of the Arrangement, Thermal's interest in the Carmacks
Property, along with nominal liabilities, will be acquired by a subsidiary of
Western. Thermal also owns other nominal non-producing assets consisting of
mineral claims and mineral and geothermal data. As part of the Arrangement,
such nominal, non-producing assets will be transferred to Pacific and common
shares of Pacific will be distributed to the shareholders of Thermal, except
for Western. Because of the speculative nature of these assets, Thermal has
assigned no book value for such assets. Thermal's Common Stock is listed with
the Alberta Stock Exchange ("ASE") and quoted on the OTC Bulletin Board.
Thermal's principal place of business is located at 11525 Caroline Lane, Nevada
City California, 95959, (telephone number 916-265-0653).
WESTERN COPPER HOLDINGS LIMITED
Western is primarily engaged in the exploration and development of the
Carmacks Property through its 50% joint venture interest with Thermal. Western
is the manager of the joint venture. Western also owns a 100% working interest
in mineral claims at the Copper Basin property located approximately 40 miles
south of Needles, California and an option to purchase the El Salvador property
located approximately 40 miles east of the city of Zacatecas, in the state of
Zacatecas, Mexico. A third party has a right to acquire a 50% interest in the
El Salvador property from Western. The Copper Basin and El Salvador properties
are being evaluated for their copper oxide potential. See "Western Copper
Holdings Limited - Business" Western is also Thermal's largest shareholder
owning 5,830,000 shares of Common Stock in Thermal, representing an approximate
34% interest. Western's common shares are listed on the Toronto Stock Exchange
("TSE"). Western's principal place of business is 11th Floor, 808 West
Hastings Street, Vancouver, British Columbia V6C 2X4, (telephone number 604-
689-3846).
Upon the consummation of the Arrangement, Western's subsidiary, Copper,
will acquire Thermal's Carmacks Interest, and Western will be primarily engaged
in the business of developing the Carmacks Property, and exploring and
developing its other properties.
PACIFIC CASCADE RESOURCES CORP.
Pacific, a to be formed corporation, will be a wholly-owned subsidiary of
Thermal whose assets will be all of Thermal's assets other than its Thermal
Carmacks Interest. Primarily these non-Carmacks Property assets consist of a
70% interest in mineral claim of approximately 38,000 acres located in the Lac
de Gras area of the Northwest Territories of Canada, a 100% interest in the
Kirkland Lake, Ontario, Canada copper-gold mineral claims, mineral claims in
Nye County, Nevada, and geothermal and mineral data. Thermal has assigned no
book value for the assets to be transferred to Pacific. As part of the
Arrangement, common shares in Pacific will be distributed, on a pro rata basis,
to all shareholders of Thermal-BC except for Western in exchange for one
percent of each Thermal-BC Share. Pacific intends to seek other mineral
properties. No market will immediately develop for the Pacific shares.
Pacific's principal place of business will be located in Vancouver, British
Columbia, Canada.
THE MEETING
The special meeting of shareholders will be held on ____, ____, 1996, at
10:00 a.m. (PST), at Smith, Lyons, Torrance, Stevenson & Mayer, World Trade
Centre, 999 Canada Place, Suite 550, Vancouver, British Columbia, Canada V6C
3C8. At the Meeting, shareholders will be asked to (i) approve Proposal 1
which provides for the reincorporation of Thermal from the State of California
to the State of Wyoming; (ii) approve Proposal 2 which provides for the
continuation (reincorporation) of Thermal-WY from the State of Wyoming to the
Province of British Columbia, Canada to become Thermal-BC; and (iii) approve
Proposal 3 which provides for the Arrangement consisting of (a) the transfer by
Thermal-BC to Pacific of all of the assets of Thermal-BC (except for Thermal-
BC's interest in the Carmacks Copper Project, Yukon Territory ("Thermal
Carmacks Interest")) in exchange for common shares of Pacific ("Pacific
Shares"); (b) the distribution of the Pacific Shares by Thermal-BC to the
shareholders of Thermal-BC (except for Western) in exchange of their Thermal-BC
shares on the basis of one Pacific Share for one percent (1%) of each Thermal-
BC share; (c) the consolidation of every five outstanding Pacific Shares in
exchange for one new Pacific Share; (d) the amalgamation of Thermal-BC and
Sailview to form Copper; (e) the holders of Thermal-BC shares (other than
Western) receiving one (1) common share of Western for each five (5)
Thermal-BC shares held; (f) the holders of warrants to purchase Thermal-BC
shares (other than Western) receiving from Western warrants to purchase
one-fifth the number of common shares of Western at five times the exercise
price of their Thermal-BC warrants; (g) the holders of incentive stock
options to purchase Thermal-BC shares (other than Western) receiving from
Western incentive stock options to purchase one-fifth the number
of common shares of Western at five times the exercise price of their Thermal-
BC incentive stock options; (h) all outstanding warrants and incentive stock
options to purchase Thermal-BC Shares being cancelled; (i) Copper issuing to
Western one common share of Copper for each common share of Western issued to
former holders of Thermal-BC shares; (j) all of the outstanding Thermal-BC
shares being cancelled without any repayment of capital; and (k) each existing
share of Sailview being converted to one common share of Copper (Proposals 1, 2
and 3, collectively the "Proposals").
Shareholders at the close of business on _____, 1996, will be entitled to
notice of and to vote at the Meeting. At the close of business on ______,
1996, there were 17,050,528 shares of Common Stock and 120,000 shares of Series
A Preferred Stock outstanding. Each share of Common Stock and Series A
Preferred Stock is entitled to one vote, voting as separate classes, at the
Meeting.
The holders of a majority of the outstanding shares of Common Stock and
Series A Preferred Stock, voting as separate classes, are required to approve
Proposal 1. The holders of two-thirds ( 2/3 ) of the outstanding shares of
Common Stock and Series A Preferred Stock, voting as separate classes, are
required to approve Proposal 2. Holders of Common Shares and Preference Shares
representing three-fourths ( 3/4 ) of each of their quorums at the Meeting,
voting as separate classes, must approve Proposal 3. Proposal 3 is dependent
on Proposals 1 and 2 and in the event that Proposals 1 or 2 is not approved,
the transactions set forth in Proposal 3 will not occur. In the event
Proposals 1 and 2 are approved, but not Proposal 3 Thermal will become a
British Columbia corporation even though the transactions set forth in Proposal
3 will not occur. In addition in accordance with Ontario securities
regulations, Proposal 3 must also be approved by the affirmative vote of two-
thirds ( 2/3 ) of the votes cast at the Meeting by the Minority Members.
Minority Members shall consist of all shareholders of Thermal-BC excluding,
Western, Messrs. Corman and Quartermain, and their affiliates. Pursuant to the
Arrangement Agreement, if 15% or more of the holders of the outstanding shares
of Common Stock or 20% or more of the holders of the outstanding shares of
Series A Preferred Stock abstain or vote "no" on any one of the Proposals, the
Board of Directors of either Thermal or Western may choose to abandon the
Arrangement and not to consummate the transactions contemplated by the
Proposals.
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<PAGE>
Mr. Dale Corman, President and Chairman of the Board of Thermal and
President and Director of Western and Mr. Hugh Blair, Director of Thermal, own
in the aggregate, 2,670,202 shares of Common Stock representing approximately
15.66% of the outstanding shares of Common Stock of Thermal and intend to vote
for the Proposals. Western, which owns 5,830,000 shares of Common Stock
representing approximately 34% of the Common Stock outstanding, also intends to
vote for the Proposals. In addition, Queenston owns 100,000 shares of Series A
Preferred Stock representing 83% of the Series A Preferred Stock outstanding
and in connection with the granting of the Series A Preferred Stock, Queenston
granted an irrevocable proxy for such Series A Preferred Stock to Thermal's
Board of Directors which intends to vote for the Proposals.
THE ARRANGEMENT
Thermal, Western, and Pacific have entered into an Arrangement Agreement
which sets forth the transactions necessary to accomplish the Proposals and
their rights and obligations in connection therewith. The transactions set
forth in the Arrangement Agreement are referred to herein as the "Arrangement."
The purpose of the Arrangement is to effect a reorganization of Western
and Thermal in order to bring control of the Carmacks Property under one
management. To achieve this purpose, it is necessary that Thermal be
reincorporated under the laws of Wyoming and then be continued (reincorporated)
under the laws of British Columbia. Then, pursuant to the Arrangement (a) the
Thermal-BC will transfer of all of its assets (except for the Thermal Carmacks
Interest) to Pacific in exchange for Pacific Shares; (b) Thermal-BC will
distribute to its shareholders (except for Western) the Pacific Shares in
exchange of their Thermal-BC shares on the basis of one Pacific Share for one
percent (1%) of each Thermal-BC share; (c) every five outstanding Pacific
Shares shall be consolidated and one new Pacific Share will be issued: (d)
Thermal-BC and Sailview shall amalgamate to form Copper; (e) the holders of
Thermal-BC shares (other than Western) shall receive one (1) common share of
Western for each five (5) Thermal-BC shares held; (f) the holders of warrants
to purchase Thermal-BC shares (other than Western) shall receive from Western
warrants to purchase one-fifth the number of common shares of Western at five
times the exercise price of their Thermal-BC warrants; (g) the holders of
incentive stock options to purchase Thermal-BC shares (other than Western)
shall receive from Western incentive stock options to purchase one-fifth the
number of common shares of Western at five times the exercise price of their
Thermal-BC incentive stock options; (h) all outstanding warrants and incentive
stock options to purchase Thermal-BC Shares shall be cancelled; (i) Copper
shall issue to Western one common share of Copper for each common share of
Western issued to former holders of Thermal-BC shares; (j) all of the
outstanding Thermal-BC shares shall be cancelled without any repayment of
capital; and (k) each existing share of Sailview shall be converted to one
common share of Copper. Pursuant to the Arrangement, no fractional shares of
Western or Pacific will be issued and as permitted under the laws of British
Columbia, and all fractions will be rounded to the prior whole number.
The Arrangement is subject to shareholder approval by the shareholders of
Thermal, by the Supreme Court of British Columbia and by other regulatory
agencies.
REASONS FOR THE ARRANGEMENT AGREEMENT AND RECOMMENDATION OF THE BOARD OF
DIRECTORS
The Board of Directors of Thermal believe that approval of the Arrangement
will benefit all shareholders of Thermal since Thermal and Western have common
directors, seek development of the same property and have parallel goals. At
this time, their primary goal is to develop the Carmacks Property. The Board
of Directors of Thermal believes that the development and operation of the
Carmacks Property by one management, instead of a joint venture, will enhance
the ability of Western to obtain project financing for the Carmacks Property.
In addition, since Thermal and Western have securities listed with different
securities exchanges, the reorganization of Thermal and Western will result in
lower administrative, regulatory, and exchange filing and maintenance expenses.
Further, approval of the Arrangement will also allow Thermal shareholders to
participate in the possible development of Western's Copper Basin and El
Salvador properties.
The Board of Directors of Thermal also believes that the distribution of
common shares of Pacific in connection with the Arrangement will allow
shareholders to participate in a company that potentially will be engaged in
the exploration of mineral properties.
The Board of Directors of Thermal unanimously recommend that the
shareholders of Thermal vote in favor of the Proposals.
OPINION OF SALMAN PARTNERS INC.
Salman Partners Inc. of Vancouver, British Columbia, ("Salman") was
retained by Thermal's Board of Directors to render a valuation of Thermal and
Western and to issue a fairness opinion with regard to the Arrangement, from a
financial viewpoint, to the shareholders of Thermal. Salman has represented
that it is independent, with respect to Western and Thermal, for the purposes
of rendering its opinion.
The Boards of Directors of Thermal and Western arrived at the exchange
ratio for the Arrangement Agreement. The Board of Directors of Thermal then
instructed Salman to provide its opinion as to whether the consideration to be
received by the shareholders of Thermal, in accordance with the terms of the
Arrangement Agreement, is fair to the shareholders of Thermal from a financial
viewpoint. No limitations were place on the scope of Salman's investigation
with regard to its fairness opinion.
Salman delivered to the Board of Directors of Thermal its written opinion,
dated [date of mailing of Proxy statement], to the effect that, as of such date
and based upon the matters described therein, including the consideration to be
received by the shareholders of Thermal, the Arrangement is fair from a
financial point of view to the shareholders of Thermal. A copy of Salman's
opinion is attached as Appendix B.
DISSENTERS' RIGHTS
Shareholders who object to the Proposals providing for the Arrangement
Agreement are entitled to dissent and to receive an appraisal of and payment
for their shares of Common Stock and Series A Preferred Stock pursuant to
Section 1300 of the California Corporations Code ("Corporations Code") and
Section 231 of the Company Act of British Columbia (the "Company Act"). See
"Dissenters' Rights" and Appendix C.
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CERTAIN U.S. AND CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF THERMAL
COMMON STOCK AND SERIES A PREFERRED STOCK
U.S. shareholders who receive Western common shares pursuant to the
Arrangement should recognize no gain under U.S. Federal income tax or Canadian
federal income tax laws. U.S. shareholders who receive Pacific common shares
may recognize the value of the shares received; however, Thermal management has
represented the value to be nominal. Under U.S. Federal income tax laws, a
shareholder who exercises his or her dissenter's rights and receives solely
cash for such holder's stock will recognize gain or loss as though such
holder's shares are redeemed on the date of the closing. See "U.S. Federal
Income Tax Considerations to Holders of Thermal Stock" and "Certain Canadian
Federal Income Tax Considerations."
ACCOUNTING TREATMENT
The Arrangement will be accounted for under the purchase method of
accounting for financial reporting purposes.
FAIRNESS HEARING; INFORMATIONAL REQUIREMENTS
The common shares of Western and common shares of Pacific to be exchanged
for shares of Thermal Common Stock and Series A Preferred Stock will not be
registered under the Securities Act of 1933, as amended, (the "Securities Act")
pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act. The Department of Corporations of the State of California
("DOC") conducted a hearing on January __, 1996, at which hearing all
shareholders of Thermal received notice and had the opportunity to voice their
opinions as to the Arrangement. At such hearing, the DOC determined that the
Arrangement was fair. In addition, the Supreme Court of British Columbia will
conduct a hearing on the fairness of the terms and conditions of the
Arrangement including the exchange of the Western common shares and Pacific
common shares for Thermal-BC Shares and preference share on ________, 1996. At
such hearing any shareholder approving or disapproving the Arrangement will be
given an opportunity to be heard.
Upon consummation of the Arrangement, Western and Copper will survive and
Thermal will dissolve. For reporting purposes under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") Western shall be the successor in
interest to Thermal and will be subject to the informational requirements of
the Exchange Act. In accordance therewith, Western will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the"Commission"). Western's common shares will continue to be listed with the
Toronto Stock Exchange.
Pacific will not be subject to the informational requirements of the
Exchange Act, at this time, since its assets will not exceed U.S. $5 million.
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<PAGE>
THE MEETING
GENERAL
This Proxy Statement is being furnished to the shareholders of Thermal in
connection with the solicitation of proxies by Thermal's Board of Directors for
use at the Meeting, and at any and all adjournments thereof. The Meeting will
be held on ____, _____, 1996, at 10:00 a.m. (PST), at Smith, Lyons, Torrance,
Stevenson & Mayer, World Trade Centre, 999 Canada Place, Suite 550, Vancouver,
British Columbia, Canada V6C 3C8. At the Meeting, shareholders of Common
Stock and Series A Preferred Stock will be asked to approve the Proposals in
connection with the Arrangement, and any other matter properly brought before
the Meeting.
VOTING RIGHTS AND REQUIRED VOTE
As of _______, 1996, the record date fixed for determining shareholders
entitled to vote at the Meeting, there were 17,050,528 shares of Common Stock
and 120,000 shares of Series A Preferred Stock issued and outstanding and
entitled to vote at the Meeting. Each share of Common Stock and each share of
Series A Preferred Stock is entitled to one vote on each matter to come before
the Meeting, voting as separate classes.
Pursuant to the Articles of Incorporation of Thermal, Thermal-WY and
Thermal-BC, the presence in person or proxy of one-third ( 1/3 )of the shares
outstanding and entitled to vote, of a class, constitutes a quorum for the
transaction of business. The holders of a majority of issued and outstanding
shares of Common Stock and Series A Preferred Stock, voting as separate
classes, are required to approve Proposal 1. Holders of two-thirds ( 2/3 ) of
the issued and outstanding shares of Common Stock and Series A Preferred Stock,
voting as separate classes, are required to approve Proposal 2. Holders of
Common Shares and Preference Shares representing three-fourths ( 3/4 ) of each
of their quorums at the Meeting must approve Proposal 3. In addition, in
accordance with Ontario securities regulations, Proposal 3 must also be
approved by the affirmative vote of two-thirds ( 2/3 ) of the votes cast at the
Meeting by the Minority Members. Minority Members shall consist of all
shareholders of Thermal-BC, excluding Western, Messrs. Corman and Quartermain,
and their affiliates. Proposal 3 is dependent on Proposals 1 and 2 and in the
event that Proposals 1 or 2 is not approved, the transactions set forth in
Proposal 3 will not occur. In the event Proposals 1 and 2 are approved, but
not Proposal 3, Thermal will become a British Columbia corporation even though
the transactions set forth in Proposal 3 will not occur. Messrs. Dale Corman,
President and Chairman of the Board of Thermal and President and Director of
Western, and Hugh Blair, Director of Thermal, own in the aggregate, 2,670,202
shares of Common Stock representing, approximately 15.66% of the outstanding
shares of Common Stock of Thermal and intend to vote for the Proposals.
Western, which owns 5,830,000 shares of Common Stock representing approximately
34% of the shares outstanding, and also intends to vote for the Proposals.
Queenston owns 100,000 shares of Series A Preferred Stock representing
approximately 83% of the Series A shares outstanding and has granted an
irrevocable proxy to Thermal's Board of Directors which intends to vote for the
Proposals.
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<PAGE>
PROXIES
Shareholders are urged to review carefully the matters described in this
Proxy Statement and to sign, date and return the enclosed proxy for use at the
Meeting. A shareholder giving a proxy may revoke it at any time before it is
voted by filing with Thermal's transfer agent a written revocation of such
proxy or a duly executed proxy bearing a later date.
Proxies may also be revoked by personal attendance and voting at the
Meeting. All shares represented by valid proxies granted pursuant to this
solicitation (and not revoked before they are exercised) will be voted in
accordance with the instructions noted thereon. If the proxy is signed and no
instructions are given, the shares it represents will be voted FOR (i) approval
of Proposal 1 which provides for the reincorporation of Thermal from the State
of California to the State of Wyoming; (ii) approval of Proposal 2 which
provides for the continuation (reincorporation) of Thermal-WY from the State of
Wyoming to the Province of British Columbia, Canada to become Thermal-BC; and
(iii) approval Proposal 3 which provides for the Arrangement consisting of (a)
the transfer by Thermal-BC to Pacific of all of the assets of Thermal-BC
(except for the Thermal Carmacks Interest) in exchange for Pacific Shares; (b)
the distribution of the Pacific Shares by Thermal-BC to the shareholders of
Thermal-BC (except for Western) in exchange of their Thermal-BC shares on the
basis of one Pacific Share for one percent (1%) of each Thermal-BC share; (c)
the consolidation of every five outstanding Pacific Shares in exchange for one
new Pacific Share; (d) the amalgamation of Thermal-BC and Sailview to form
Copper; (e) the holders of Thermal-BC shares (other than Western) receiving one
(1) common share of Western for each five (5) Thermal-BC shares held; (f) the
holders of warrants to purchase Thermal-BC shares (other than Western)
receiving from Western warrants to purchase one-fifth the number of common
shares of Western at five times the exercise price of their Thermal-BC
warrants; (g) the holders of incentive stock options to purchase Thermal-BC
shares (other than Western) receiving from Western incentive stock options to
purchase one-fifth the number of common shares of Western at five times the
exercise price of their Thermal-BC incentive stock options; (h) all outstanding
warrants and incentive stock options to purchase Thermal-BC Shares being
cancelled; (i) Copper issuing to Western one common share of Copper for each
common share of Western issued to former holders of Thermal-BC shares; (j) all
of the outstanding Thermal-BC shares being cancelled without any repayment of
capital; and (k) each existing share of Sailview being converted to one common
share of Copper; and (vi) in accordance with the discretion of the persons
exercising the proxy with respect to any other matters properly before the
Meeting. Management does not presently know of any other matter to be brought
before the Meeting.
SOLICITATION OF PROXIES
The costs of solicitation of proxies for the Meeting, including the cost
of reimbursing brokers and other nominees for forwarding proxies and proxy
material to their principals, will be borne by Thermal. Proxies may be
solicited by officers or employees of Thermal by telephone, telegram, mail or
personal contact. Arrangements have been made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of the shares of Common Stock and Series A
Preferred Stock held of record by such persons, and Thermal will reimburse them
for reasonable out-of-pocket expenses incurred in connection therewith.
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<PAGE>
CONDUCT OF THE MEETING
At the Meeting, Thermal shareholders will consider approval of
transactions constituting the Arrangement. In order for the reorganization
between Western and Thermal to be consummated, shareholders must approve
Proposal 1 concerning the reincorporation of Thermal from the State of
California to the State of Wyoming. Assuming that Thermal is reincorporated
from California to Wyoming, Thermal shareholders will then consider and vote
upon Proposal 2 regarding the continuation (reincorporation) of Thermal-WY to
the Province of British Columbia, Canada. Assuming Proposals 1 and 2 have been
approved, the shareholders of Thermal will then be asked to consider and
approve Proposal 3 providing for (a) Thermal-BC to transfer of all of its
assets (except for the Thermal Carmacks Interest) to Pacific in exchange for
Pacific Shares; (b) Thermal-BC to distribute to its shareholders (except for
Western) the Pacific Shares in exchange of their Thermal-BC shares on the basis
of one Pacific Share for one percent (1%) of each Thermal-BC share; (c) the
consolidation of every five outstanding Pacific Shares for every one new
Pacific Share; (d) Thermal-BC and Sailview to amalgamate to form Copper; (e)
the holders of Thermal-BC shares (other than Western) to receive one (1) common
share of Western for each five (5) Thermal-BC shares held; (f) the holders of
warrants to purchase Thermal-BC shares (other than Western) shall receive from
Western warrants to purchase one-fifth the number of common shares of Western
at five times the exercise price of their Thermal-BC warrants; (g) the holders
of incentive stock options to purchase Thermal-BC shares (other than Western)
shall receive from Western incentive stock options to purchase one-fifth the
number of common shares of Western at five times the exercise price of their
Thermal-BC incentive stock options; (h) all outstanding warrants and incentive
stock options to purchase Thermal-BC Shares shall be cancelled; (i) Copper to
issue to Western one common share of Copper for each common share of Western
issued to former holders of Thermal-BC shares; (j) all of the outstanding
Thermal-BC shares to be cancelled without any repayment of capital; and (k)
each existing share of Sailview to be converted to one common share of Copper.
In the event Proposals 1 and 2 are approved, but not Proposal 3, Thermal will
become a British Columbia corporation even though the transactions set forth in
Proposal 3 will not occur. After consideration and approval of the Proposals,
if there are no other matters before the Meeting, the Meeting will then be
adjourned.
THE PROPOSALS
BACKGROUND OF THE PROPOSALS
Thermal and Western each own 50% of the Carmacks Property which represents
the principal asset of both companies. In addition Western owns approximately
5.8 million shares of Common Stock (34%) of Thermal. Both companies are
dependent on equity financing to meet their respective overhead and exploration
expenses.
On several occasions during the two years prior to the initiation of
merger discussions, management of Thermal and Western discussed a variety of
ways to jointly develop the Carmacks Property. These discussions did not
result in any agreement, but did give management of both companies greater
insight into the operations and potentially complementary aspects of the
other's business.
The business advantages of a potential combination were considered by
Thermal's and Western's managements as the companies began planning how best to
raise the required capital to bring the Carmacks Property to production. Both
companies in their search for capital were informed independently by investment
banking firms that it would be highly desirable to have the Carmacks Property
under one company and one management in order to raise the equity portion of
the capital cost of the Carmacks Property.
These considerations led to preliminary discussions in late 1994 and early
1995 concerning the possible combination of Thermal and Western between F. Dale
Corman, Chairman, President and Chief Executive Officer of Thermal and Robert
A. Quartermain, President and Chief Executive Officer of Western. Management
of both companies acknowledged the existence of certain potential synergies
that could enhance the business prospects on a combined basis and potentially
eliminate duplicative operating costs. In these discussions, the possibility
of selling Thermal's interest in the Carmacks Property to Western for shares of
Western was also considered but was rejected due to the potential negative tax
implications arising out of a cross-border (U.S. and Canada) transaction.
Mr. Corman reported the results of these discussions to the Thermal Board
of Directors on January 27, 1995. After a discussion of the possible
advantages to Thermal and its shareholders of a business combination with
Western, further discussions with Western were authorized by the Thermal Board
of Directors. F. Dale Corman of Thermal arranged a meeting with Robert A.
Quartermain of Western. At this meeting, the general concept of a merger
involving the exchange of Western Common Stock for Thermal Common Stock was
discussed along with other potential terms including possible merger exchange
ratios for the shares, surviving management and other issues. Based on the
range of merger exchange ratios discussed neither party believed that the terms
of the business combinations were adequate. As a result, the discussions were
ended without any plans for their resumption.
Over the next few months it became apparent that in order to finance the
Carmacks Property that it would be necessary to combine the companies and
further discussions between F. Dale Corman and Robert A. Quartermain occurred.
Discussions during these meetings led to agreement on several key points with
respect to a combination. These terms included an exchange ratio in the range
of five to one and an understanding that Western would relinquish any rights to
Thermal's assets other than the Carmacks Property.
On April 24, 1995, the Board of Directors of Thermal met to consider the
proposed Arrangement. During this meeting, management reports concerning the
business, results of operations and financial condition of Thermal were
presented and the potential advantages and disadvantages of a merger with
Western were discussed. After extensive deliberations, the Board of Directors
of Thermal approved in principle the Arrangement, subject to its subsequent
determination that the results of the business review were satisfactory. The
Board of Directors also authorized the engagement of Salman Partners to act as
its financial adviser and to comment on the fairness of the exchange ratio and
other business aspects of the transaction. Based on the favorable findings of
Salman Partners the Board of Directors of Thermal agreed to proceed with the
Arrangement with Western.
REASONS FOR THE ARRANGEMENT AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Thermal believes that the Arrangement will
benefit shareholders of Thermal. Thermal's and Western's primary asset is the
Carmacks Property and their primary goal is the development of the Carmacks
Property. Thermal believes that control of the development and operation of
the Carmacks Property by Copper, Western's wholly-owned subsidiary, will
enhance the ability of the Carmacks Property to be financed since lenders
appear more amenable to provide project financing when a project is under one
management. In addition, the dissolution of Thermal is expected to result in
reduced administrative expenses, and lower regulatory, exchange filing and
maintenance costs since there will be only one management for the Carmacks
Property and one securities exchange for Western shares to be listed upon.
In addition, under the terms of the Carmacks Property joint venture,
Thermal and Western are jointly responsible for the joint venture's expenses.
In the event either is unable to meet its expenses, such party's interest in
the joint venture will be diluted. Since Thermal sold its working interest in
a geothermal development in 1991, Thermal has received insignificant revenues
and, traditionally, Thermal has funded its joint venture expenses through the
sale of its equity securities. Recently, Western has purchased shares of
Thermal Common Stock to cover Thermal's expenses in the joint venture. The
Arrangement will terminate Thermal's future obligation to fund the development
of the Carmacks Property but still allow Thermal shareholders to participate in
the development of the Carmacks Property. In addition, if the Arrangement is
effected, Thermal shareholders will be able to participate in the potential
future development of the Copper Basin property and El Salvador property
through their ownership in Western, and participate in a potential exploration
company through their ownership in Pacific.
Although Thermal's Board of Directors believes that the Arrangement is in
the best interest of Thermal shareholders, there may be disadvantages to the
Arrangement. After the reorganization, Thermal shareholders will own
approximately 30% of the outstanding common shares of Western. Existing
Western shareholders will own a substantial majority of such stock and this
represents a substantial dilution on the percentage ownership of the current
Thermal shareholders. In addition, the Arrangement costs associated with the
reorganization will have an adverse effect on the operating results of Western
since such costs must be capitalized and written off over the life of the
Carmacks Property. Further, completion of the Arrangement shall subject
Thermal shareholders with shareholder rights under British Columbia law, which
may be different than shareholder rights under California law.
Because under British Columbia law, a foreign corporation (i.e. a U.S.
corporation) cannot be merged into Copper, Thermal must become a British
Columbia corporation. Further, because California and British Columbia laws do
not allow a reincorporation directly from California to British Columbia,
Thermal must reincorporate in the State of Wyoming before continuing to the
Province of British Columbia.
Shareholders are urged to consider all the information contained in this
Proxy Statement and to make such independent inquiry as they consider
appropriate in deciding whether to vote in favor of the Proposals. The
recommendation of the Board of Directors of Thermal does not displace the right
or opportunity of every shareholder to make an independent voting decision.
EXCHANGE RATIO
Under the Arrangement Agreement, each shareholder of Thermal (except for
Western) shall receive one common share of Western in exchange for five common
or preference shares of Thermal-BC.
In arriving at the exchange ratio, the Board of Directors of Thermal
considered the relative trading price of shares of Common Stock of Thermal and
common shares of Western. On April 23, 1995, the day preceding the
announcement of the proposed Arrangement Agreement, one share of common stock
of Thermal was Cdn $.23 and one common share of Western was Cdn. $1.30. In
addition, in arriving at the exchange ratio, the Board of Directors Thermal
also considered the value of Western's two other properties consisting of the
Copper Basin property and El Salvador property.
Finally, under the Arrangement, each shareholder of Thermal (except for
Western) shall receive, on a pro rata basis, common shares of Pacific. As part
of the Arrangement, all of Thermal's assets, except for Thermal's Carmacks
Interest, will be transferred to Pacific and consist of mineral claims and
geothermal and mineral data related to the exploration of mineral and
geothermal resources. Pacific's primary business will be the exploration of
mineral properties.
No fractional shares will be issued in connection with the Arrangement,
and, as permitted under British Columbia law, all fractional shares will be
rounded to the preceding whole number.
FAIRNESS OPINION OF SALMAN PARTNERS INC.
Salman was retained at the request of Thermal's Board of Directors to
render a fairness opinion with regard to the fairness of the Arrangement, from
a financial viewpoint, to the shareholders of Thermal. Salman has represented
that it is independent, with respect to Thermal for purposes of rendering its
opinion.
Salman, in the ordinary course of its investment banking activities,
evaluates a broad variety of businesses and their securities and advises the
directors, officers and shareholders of public and private companies with
respect to the fairness of the terms of reorganizations and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and other corporate transactions.
The Board of Directors of Thermal instructed Salman to provide its
fairness opinion with regard to whether the consideration to be received by the
shareholders, in accordance with the terms of the Arrangement Agreement, is
fair to the shareholders of Thermal from a financial viewpoint. No limitations
were placed on the scope of Salman's investigation with regard to its fairness
opinion. Thermal has agreed to pay in the aggregate Cdn $25,000 for the
fairness opinion and to reimburse Salman's for reasonable costs incurred in
connection with such opinion. Thermal has also agreed to indemnify Salman
against certain liabilities relating to or arising out of services performed by
Salman in rendering its fairness opinion.
Salman delivered its written opinion, dated [mail date of proxy
statement], to the Board of Directors of Thermal providing that, as of that
date and based upon the matters described therein, including the consideration
to be received by the holders of Thermal, the exchange ratio of one common
share of Western for five common or preference shares of Thermal pursuant to
the Arrangement Agreement is fair from a financial point of view to the
shareholders of Thermal.
Salman considered the Net Asset Value Analysis ("NAV") and Market Trading
Analysis as two methods of assessing the relative market value of Thermal and
Western. NAV allows for the separate assessment of all assets and liabilities
in a manner most appropriate to the nature of the particular assets or
liability. The NAV analysis for both Thermal and Western was derived in part
from discounting to a present value the future cash flows of each company's
interest in the Carmacks Property and by making adjustments for balance sheet
items, exploration properties and exploration potential. Market Trading
Analysis, based upon Thermal's and Western's trading of shares prior to the
announcement of the reorganization, was also considered.
In determining whether the terms of the Arrangement Agreement were fair
from a financial point of view to the shareholders of Thermal, Salman reviewed
and considered financial and business documents provided by Thermal and Western
management and interviewed Thermal and Western management. Salman reviewed and
considered, among other things, information relating to the business and
operations of Thermal and Western obtained from interviews and other
information provided by the companies, the most recent audited and unaudited
financial statements of Thermal and Western, technical reports prepared by
Thermal and Western and their consultants, the stock market activity of Thermal
Common Stock and Western common shares and has held discussions with senior
management of Thermal and Western regarding the financial position, current
activities and business plans of each company.
In furnishing its opinion, Salman relied upon the accuracy of financial
and other information furnished to it by Thermal and Western, did not undertake
any independent verification of such information, and did not make an
independent appraisal of Thermal and Western. The fairness opinion of Salman
is set forth as Appendix B hereto and should be read in its entirety.
PROVISIONS OF THE ARRANGEMENT AGREEMENT
The primary purpose of the Arrangement is to place the Carmacks Property
under one management - Western and Western's wholly-owned subsidiary, Copper.
Pursuant to the Arrangement Agreement, the following will occur.
(a) Prior to the Effective Date (as defined below) of the Arrangement
Thermal-BC will transfer to Pacific all of Thermal's assets except for its
Carmacks Interest, in exchange for Pacific Shares.
(b) On Effective Date (as defined below), pursuant to the Arrangement (a)
Thermal-BC will distribute to its shareholders (except for Western) the Pacific
Shares in exchange of their Thermal-BC shares on the basis of one Pacific Share
for one percent (1%) of each Thermal-BC share; (b) every five outstanding
Pacific Shares shall be consolidated and one new Pacific Share will be issued:
(c) Thermal-BC and Sailview shall amalgamate to form Copper; (d) the holders of
Thermal-BC shares (other than Western) shall receive one (1) common share of
Western for each five (5) Thermal-BC shares held; (e) the holders of warrants
to purchase Thermal-BC shares (other than Western) shall receive from Western
warrants to purchase one-fifth the number of common shares of Western at five
times the exercise price of their Thermal-BC warrants; (f) the holders of
incentive stock options to purchase Thermal-BC shares (other than Western)
shall receive from Western incentive stock options to purchase one-fifth the
number of common shares of Western at five times the exercise price of their
Thermal-BC incentive stock options; (g) all outstanding warrants and incentive
stock options to purchase Thermal-BC Shares shall be cancelled; (h) Copper
shall issue to Western one common share of Copper for each common share of
Western issued to former holders of Thermal-BC shares; (i) all of the
outstanding Thermal-BC shares shall be cancelled without any repayment of
capital; and (k) each existing share of Sailview shall be converted to one
common share of Copper.
The Effective Date of the Arrangement means the date on which the final
order of the Supreme Court of British Columbia approving the Arrangement is
filed with the Registrar of Companies under the British Columbia Company Act.
The Arrangement is conditioned upon, among other things, (a) Thermal
completing its reincorporation from the State of California to the State of
Wyoming and the continuation (reincorporation) of Thermal-WY to the Province of
British Columbia; (b) the shareholders of Thermal approving the Proposals; and
(c) the Supreme Court of British Columbia approving the Arrangement.
In addition, as part of the Arrangement, if 15% or more of the holders of
the outstanding shares of Common Stock or 20% or more of the holders of the
outstanding shares of Series A Preferred Stock abstain or vote "no" on any one
of the Proposals, the Board of Directors of either Thermal or Western may
choose to abandon the Arrangement and not to consummate the transactions
contemplated by the Proposals.
FAIRNESS HEARING; COURT APPROVAL; INFORMATION REQUIREMENTS
The common shares of Western and common shares of Pacific to be received
in the Arrangement will not be registered under the Securities Act pursuant to
an exemption from registration under the Section 3(a)(10) of the Securities
Act. In connection with the Arrangement, Western and Pacific applied to the
Department of Corporations of the State of California ("DOC") to hold a
fairness hearing. On ____, 1996, the DOC held its hearing, at which time all
Thermal shareholders had the opportunity to attend and be heard, and the DOC
determined the fairness of the Arrangement.
In addition, the Supreme Court of British Columbia will conduct a hearing
on the fairness of the terms and conditions of the issuance of common shares of
Western and common shares of Pacific on ___, 1996 at ____ a.m. at _______. At
such hearing, all shareholders of Thermal-BC will be given an opportunity to be
heard, and Thermal-BC shall advise the Court prior to the hearing that if the
terms and conditions of the Arrangement are approved by the Court, the common
shares to be issued by Western and Pacific will not require registration under
the Securities Act by virtue of such Court's approval. In the event that a
shareholder wishes to object to the fairness of the terms and conditions, such
shareholder, or his or her solicitor, must appear at the hearing. All
shareholders wishing to support or oppose the Arrangement at the hearing must
file the notice with the Supreme Court of British Columbia and deliver a copy
such notice to Thermal by ______. Failure to properly follow the preceding
procedures may adversely affect such shareholders' ability to be heard at the
hearing. See Exhibit V for the procedure of filing a Notice. The consummation
of the Arrangement is conditioned upon, among other items, approval by the
Supreme Court of British Columbia.
As part of the Arrangement and for filing purposes under the Exchange Act,
Western will be successor-in-interest to Thermal. Consequently, Western will
be subject to the informational requirements of the Securities Exchange Act and
in accordance therewith, will file reports, proxy statements and other
information with the Commission. Western's common shares will continue to be
listed with the TSE.
Pacific, will not, however, be subject to the informational requirements
of the Commission, at this time, since its assets will not exceed U.S. $5
million. Further, no market is anticipated for the Pacific common shares.
ACCOUNTING TREATMENT
The Arrangement is expected to be treated as a "purchase" by Western of
Thermal in accordance with the provisions of Accounting Principles Board
Opinion No. 16 ("APB 16") and Staff Accounting Bulletin Topic 2.A.2. ("SAB
2.A.2.") for U.S. GAAP purposes. Under APB 16 and SAB 2.A.2., the acquiring
corporation is presumed to be the corporation whose shareholders receive the
larger portion of the voting rights in the merged companies unless the evidence
clearly indicates otherwise. The basis for the purchase price is primarily the
value of Thermal's Carmacks Interest, mineral claims and geothermal and mineral
data. The purchase price will be allocated to the assets of Thermal based on
their fair value at the date of the transaction with the resulting excess being
allocated to mineral properties and deferred exploration and development costs.
MANNER AND BASIS OF CONVERTING THERMAL SECURITIES
CONVERSION OF THERMAL COMMON STOCK AND SERIES A PREFERRED STOCK TO COMMON
SHARES OF WESTERN AND PACIFIC. At the Effective Date, each five outstanding
common and preference shares of Thermal-BC, except for (i) shares of Thermal
Common Shares held by Western and (ii) common and preference shares of Thermal-
BC to which dissenters' rights, if available, have been exercised, will be
automatically and without further action on the part of the holder thereof,
cease to be outstanding and will be converted to one common share of Western
and one common share of Pacific.
FRACTIONAL SHARES. No fractional shares of Western or Pacific Common
Shares will be issued in connection with the Arrangement. All fractional
common shares of Western or Pacific to which a holder of common or preference
shares of Thermal-BC is entitled will be aggregated. Thereafter, any
fractional shares will be rounded to the preceding whole number.
EXCHANGE OF CERTIFICATES. As soon as practicable after the Effective
Date, Montreal Trust Company of Canada, exchange agent (the "Exchange Agent")
will mail to each holder of record of a certificate whose shares are being
converted into Western common shares and Pacific common shares (i) a letter of
transmittal and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates evidencing Western and Pacific common
shares. After the Effective Date, the stock transfer books of Thermal will be
closed and there will be no further registration of transfers on the stock
transfer books of Thermal or its transfer agent of the shares of Thermal Common
Stock that were outstanding immediately prior to the Effective Date.
THERMAL SHAREHOLDERS SHOULD NOT SEND IN THEIR THERMAL STOCK CERTIFICATES
UNTIL THEY RECEIVE INSTRUCTIONS AND TRANSMITTAL FORMS FROM THE EXCHANGE AGENT
AFTER COMPLETION OF THE ARRANGEMENT.
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT
As of the record date, members of the Board of Directors and executive
officers of Thermal beneficially own 2,700,202 shares (15.84%) of the
outstanding Thermal Common Stock excluding share issuance upon the exercise of
stock options. Following the consummation of the Arrangement, the officers and
directors of Thermal immediately after the Arrangement will beneficially own
1,065,000 shares (9.14%) (after giving effect to the exchange ratio) of the
outstanding Western Common Shares. F. Dale Corman, President and a Director of
Thermal, is President and a Director of Western.
Western, as of the record date, beneficially owns 5,830,000 shares of
Thermal Common Stock. After the Arrangement, Western will own no shares of
Thermal Common Stock. Copper owns no shares of Thermal Common Stock.
Queenston owns 600,000 shares (11.10%) of Western Common Shares and after
the Arrangement, Queenston will beneficially own 620,000 shares (5.5%) of the
outstanding Western Common Shares.
COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF THERMAL
AND SHAREHOLDERS OF WESTERN
The rights of the shareholders of Thermal are governed by the California
General Corporation Law and its Restated and Amended Articles of Incorporation
("Thermal's Articles") and the rights of the shareholders of Western are
governed by the Company Act and its Memorandum and Articles. Upon the
consummation of the Arrangement Agreement, the shareholders of Thermal will
become holders of Western common shares and their rights will be governed by
the Company Act and the Western Articles. The following is a summary of the
significant differences between the rights of Thermal shareholders under
California law and Western shareholders under British Columbia law.
NUMBER OF DIRECTORS.
THERMAL. Under California law, a board of directors may fix the exact
number of directors from time to time within a range provided in the articles
of incorporation or bylaws, but any change in the range must be approved by the
shareholders. If no range is provided, any change in the authorized number of
directors must be approved by the shareholders.
Thermal's Articles of Incorporation provide for a range of directors of
four (4) to seven (7) directors. This number may be changed by a majority vote
of the shareholders or the Board of Directors.
WESTERN. Western's Articles provide that unless the number is determined
by shareholder resolution, the number of directors will not be less than 3, and
not more than 20. Within this range the number of directors may be determined
by the directors.
CUMULATIVE VOTING FOR DIRECTORS.
THERMAL. Under California law, each share of stock entitled to vote in
the election of directors has a number of votes equal to the number of
directors to be elected. A shareholder may then cast all of his votes for a
single candidate, or may allocate them among as many candidates as such
shareholder may choose.
WESTERN. Under British Columbia law, no shareholder of Western is
entitled to cumulative voting.
REMOVAL OF DIRECTORS.
THERMAL. Under California law, any or all of the directors may be
removed without cause by the affirmative vote of a majority of the outstanding
shares entitled to vote, provided that the shares voted against such removal
would not be sufficient to elect the director under cumulative voting rules.
WESTERN. Western may, by special resolution, remove any director before
the expiration of his period of office and may, by ordinary resolution, appoint
another person in his stead.
LIMITATION ON CALL OF SPECIAL MEETINGS OF SHAREHOLDERS.
THERMAL. Under California law, a special meeting of shareholders may be
called by the Board of Directors, the chairman of the board, the president, the
holders of shares entitled to cast not less than 10% of the votes at the
special meeting or such additional persons as may be provided in the articles
of incorporation or bylaws. Thermal's Bylaws provide that such meetings may be
called by the Board of Directors, the Chairman of the Board of Directors, the
President, or by shareholders entitled to cast not less than 10% of the votes
at the meeting.
WESTERN. Under the Company Act, a special meeting of shareholders may be
called only by Western's board of directors.
SHAREHOLDER VOTE FOR REORGANIZATIONS; SALE OF ASSETS
THERMAL. Under California law, a reorganization or consolidation must be
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote of both constituent corporations. Generally, no approval of
preferred shares of the surviving or acquiring corporation or of the parent of
such a corporation is required if the rights, preferences, privileges and
restrictions granted upon such class remains unchanged. California law does
not require a shareholder vote of the surviving corporation in such
reorganizations where shareholder control of both the surviving and
nonsurviving corporations is not diluted more than one-sixth (1/6) as a result
of the reorganization. California law generally requires a class vote when a
vote is required. A dissolution or sale of substantially all of the assets of
a corporation must be approved by a majority of the shares of the dissolving or
selling corporation entitled to vote.
Under California law, if the surviving corporation owns more than 50% of
the disappearing corporation, any nonredeemable common shares of the
disappearing corporation may only be exchanged for nonredeemable shares of the
surviving corporation or a parent party, except with the consent of all of the
holders of the nonredeemable shares. This provision does not apply in the case
of a short-form reorganization or a reorganization where the surviving
corporation owns at least 90% of the outstanding shares of the disappearing
corporation.
WESTERN. Under the Company Act, a reorganization, consolidation,
dissolution or sale of substantially all of a corporation's assets must be
approved by 75% of the shares voting in person or by proxy at a shareholders'
meeting called for such a purpose.
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LIMITATION ON DIRECTOR LIABILITY
THERMAL. California permits corporations to adopt a provision in their
charter eliminating the liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty
of care and governing the extent of indemnification.
Thermal's Articles of Incorporation eliminate the liability of directors
for monetary liability to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where such
liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
of the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a
director in which a director has a material financial interest; and (g)
liability for improper distributions, loans or guarantees.
The limitations of liability provisions permissible under California law
also may not limit a director's liability for violation of, or otherwise
relieve Thermal or its directors from the necessity of complying with federal
or state securities laws, or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
WESTERN. Subject to the Company Act, a director or other officer of
Western is not liable for: (a) any act, receipt, neglect, or default of any
other director or officer; (b) joining in any act for conformity; (c) loss or
damage arising from bankruptcy, insolvency or tortious acts of any person with
whom any monies, securities or effects are deposited; (d) loss or damage
arising or happening to Western through the insufficiency or deficiency of any
security in or upon which assets of Western may be invested; (e) any loss
occasioned by any error or oversight on his part; or (f) any loss, damages or
misfortune whatsoever happening in the execution of the duties of his office or
in relation thereto, unless it happens through his own dishonesty.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
THERMAL. California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines such person
is entitled to indemnity for expenses, and then such indemnification may be
made only to the extent that such court shall determine, and (b) no
indemnification may be made without court approval in respect of amounts paid
or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Indemnification is permitted by California law only for acts taken in good
faith and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party) or the court handling the action.
California law requires indemnification when the individual has successfully
defended the action on the merits.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate actions beyond that specifically authorized by statute. Thermal's
Articles of Incorporation include such a provision. Further, Thermal has
entered into indemnification agreements with its officers and directors.
WESTERN. Subject to the Company Act, Western will indemnify each and
every director, secretary or assistant secretary and each and every former
director, secretary or assistant secretary of Western against all reasonable
losses, costs, charges and expenses properly incurred, including any amount
paid to settle an action or satisfy a judgement in a civil, criminal or
administrative action or proceeding by reason of his having been a director or
secretary or assistant secretary of Western, if: (a) he acted honestly and in
good faith, with a view to the best interests of Western and (b) he had
reasonable grounds for believing his conduct was lawful. The result of any
action, suit or proceeding does not create a presumption that the person did
not act honestly and in good faith with a view to the best interests of
Western, or that the person did not have reasonable grounds to believe that his
conduct was lawful. Each director, secretary and assistant secretary on being
elected or appointed will be deemed to have contracted with Western on the
terms of the indemnity contained in the Articles. Western may, if permitted by
law, indemnify any person who serves or has served as a director, officer,
employee, or agent of Western or of any corporation of which Western is a
shareholder. The Company Act requires that prior court approval be obtained
before a corporation may indemnify a director. Western intends to apply to a
court of competent jurisdiction for all approvals of the court which may be
required to make the Articles effective and enforceable on this aspect.
Western does not currently have indemnification agreements with its officers
and directors, but may have such agreements in the future.
APPRAISAL OR DISSENTERS' RIGHTS.
THERMAL. Under California law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal or dissenters' rights pursuant to which
such stockholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Shareholders of a California corporation whose shares are
listed on a national securities exchange or on a list of over-the-counter
margin stocks issued by the Board of Governors of the Federal Reserve System
generally do not have dissenters' rights (unless such shares are subject to any
restriction on transfer or five percent (5%) or more of any class of shares
elect to exercise dissenters' rights), and dissenters' rights are also
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
WESTERN. Under British Columbia law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal or dissenters' rights pursuant to which
such stockholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction.
U.S. FEDERAL INCOME TAX CONSIDERATIONS TO HOLDERS OF
THERMAL STOCK
The following is a summary of the U.S. Federal income tax considerations
relating to the Arrangement. This summary is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations promulgated thereunder, published rulings and judicial decisions.
Unless otherwise specified, all section references in this summary refer to
sections of the Code.
The following discussion is for general information only and is not
intended as an alternative for individual tax planning. This summary covers
only the U.S. Federal income tax considerations of the Arrangement. It does
not deal with the considerations of the Arrangement under either Canadian law
or any other foreign, state or local laws or with many of the tax
considerations of the Arrangement that may be of particular application to
taxpayers who are not individual citizens or residents of the U.S. unless
specifically discussed below. The tax consequences herein may not apply to
tax-exempt entities, partnerships, estates, trusts, and debtors whose
participation in the Arrangement is pursuant to a plan under the jurisdiction
of a court in bankruptcy, receivership, foreclosure, or similar proceedings.
The shareholders of Thermal should note that no rulings will be obtained
from the Internal Revenue Service (IRS) concerning any of the tax issues
discussed herein. Furthermore, applicable legal authorities may be modified at
any time by legislative, judicial or administrative action, and any such
changes might be applied retroactively in a manner that could adversely affect
the Thermal shareholders. Accordingly, there can be no assurance that the
following summary of the material tax consequences of the Arrangement will
prove to be correct. THERMAL SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS WITH RESPECT TO THE POTENTIAL U.S. FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE ARRANGEMENT.
GENERAL TAX CONSIDERATIONS UNDER THE ARRANGEMENT
The Arrangement consists of (i) the reincorporation of Thermal from the
State of California to the State of Wyoming (the "Reincorporation"); (ii) the
continuation of Thermal-WY from the State of Wyoming to the Province of British
Columbia, Canada to become Thermal-BC (the "Continuation"); (iii) the
Acquisition consisting of (a) the transfer by Thermal-BC to Pacific of all of
the assets of Thermal-BC (except for the Thermal Carmacks Interest) in exchange
for Pacific Shares; (b) the distribution of the Pacific Shares by Thermal-BC to
the shareholders of Thermal-BC (except for Western) in exchange of their
Thermal-BC shares on the basis of one Pacific Share for one percent (1%) of
each Thermal-BC share; (c) the consolidation of every five outstanding Pacific
Shares in exchange for one new Pacific Share; (d) the amalgamation of Thermal-
BC and Sailview to form Copper; (e) the holders of Thermal-BC shares (other
than Western) receiving one (1) common share of Western for each five (5)
Thermal-BC shares held; (f) the holders of warrants to purchase Thermal-BC
shares (other than Western) receiving from Western warrants to purchase one-
fifth the number of common shares of Western at five times the exercise price
of their Thermal-BC warrants; (g) the holders of incentive stock options to
purchase Thermal-BC shares (other than Western) receiving from Western
incentive stock options to purchase one-fifth the number of common shares of
Western at five times the exercise price of their Thermal-BC incentive stock
options; (h) all outstanding warrants and incentive stock options to purchase
Thermal-BC Shares being cancelled; (i) Copper issuing to Western one common
share of Copper for each common share of Western issued to former holders of
Thermal-BC shares; (j) all of the outstanding Thermal-BC shares being cancelled
without any repayment of capital; and (k) each existing share of Sailview being
converted to one common share of Copper. The transactions contemplated in
Proposal 3 are referred to as ("the Acquisition"). These transactions are
contemplated within the Arrangement Agreement are dependent upon the approval
of Proposal 1 (Reincorporation) and Proposal 2 (Continuation). The
transactions are contemplated to occur within one day.
Under the general nonrecognition provisions of the Code, whether the
Reincorporation, Continuation and Acquisition qualify as separate transactions
or as one integrated transaction, neither Thermal nor those shareholders who
receive solely stock of Western in the transaction would have to recognize gain
realized in the transaction(s) (but see discussion below regarding the
exception to the general nonrecognition rules). Gain or loss realized is equal
to the difference between the money and the fair market value of Western shares
received and the shareholder's basis in the Thermal stock. Any shareholders
receiving stock and cash in lieu of fractional shares will be required to
recognize any gain realized equal to the cash received. If, under dissenter's
rights, shareholders receive solely money, gain or loss realized, if any will
be required to be recognized even if the general nonrecognition reorganization
provisions apply. Since the transfer of assets to Pacific is deemed part of
the Acquisition, for federal income tax purposes the transfer may be deemed
part of the reorganization so that the value of the Pacific shares constitute
taxable consideration to the Thermal shareholders. Further, even if determined
not to be part of the reorganization for federal income tax purposes, the
Pacific shares are likely to constitute a dividend to the Thermal shareholders.
As discussed below, Thermal management has determined the value of Pacific
shares to be nominal; therefore, Thermal management believes the taxable impact
on the Thermal shareholders to be minimal.
The general non-recognition rules are modified in reorganizations
involving one or more foreign corporations. Section 367 of the Code and the
Regulations thereunder provide special rules in determining the extent to which
the general nonrecognition sections are applicable. These rules discuss the
circumstances under which (i) gain realized by Thermal and its shareholders is
to be currently recognized or deferred, and (ii) amounts are treated by the
shareholders currently as dividends.
As a result of the transitory nature of the Reincorporation and
Continuation, the Reincorporation, Continuation and Acquisition are likely to
constitute steps in one transaction for tax purposes (the "Reorganization").
As a result, under Section 367 Thermal will have to recognize gain realized on
the transfer of its assets but Thermal shareholders will not to the extent they
receive Western shares. The modifications by Section 367 to the general
nonrecognition reorganization rules are discussed under "U.S. Federal Income
Tax Considerations to holders of Thermal Stock - Approval of the
Reincorporation, Continuation and Acquisition."
Whether the transfer to Pacific of the non-Carmacks Property constitutes a
taxable event to Thermal depends on whether there will be gain realized by
Thermal on the transfer. The contribution of appreciated non-Carmacks
properties to Pacific may not qualify as a tax-free transfer because Thermal
will not be in control of Pacific immediately after the transfer. Rather,
Thermal will be transferring ownership to Thermal shareholders other than
Western. Further, the transfer of Pacific shares to Thermal shareholders will
be a taxable event whether it is deemed part of the reorganization or outside
of the reorganization. If part of the reorganization, the distribution of
shares will constitute additional consideration to the Thermal shareholders.
If outside of the reorganization, the distribution of shares will result in a
taxable dividend to Thermal shareholders. Nevertheless, Thermal management
has represented that the value of the non-Carmacks assets being transferred is
nominal, at best. Therefore, management believes the impact to Thermal and
Thermal shareholders will be minimal.
STEP TRANSACTION DOCTRINE
The Reincorporation, Continuation, and Acquisition will be undertaken
pursuant to an overall plan, the Arrangement. Under the step transaction
doctrine, the IRS is likely to take the position that the Reincorporation,
Continuation, and Acquisition constitute a single transaction rather than
separate reorganizations and transactions. The step transaction doctrine
allows a series of formally separate steps to be treated as a single
transaction if they are in substance integrated, interdependent, and focused
toward a particular end result.
The step transaction doctrine will not be applied and separate steps will
be recognized for tax purposes if the preliminary steps result in a permanent
change of a valid business relationship. Thus, each step in a series of steps
will be recognized and the step transaction doctrine will not apply if each
step demonstrates independent economic significance, is not subject to attack
as a sham and was undertaken for valid business purposes and not mere avoidance
of taxes.
Although the Acquisition results in a real and substantial change in the
form of ownership of Thermal and Western, the preceding Reincorporation and
Continuation are transitory transactions resulting from the limitations set
forth in California and British Columbia laws to continue a California
corporation into British Columbia. While the steps have independent legal
significance, they will all take place within a short period of time, perhaps
within one day. Further, the Arrangement is dependent on the prior
transactions.
As one transaction, the Acquisition for tax purposes will be viewed as the
acquisition by Copper of all Thermal's Carmacks Interest and other nominal
liabilities (other than the non-Carmacks assets which will be transferred to
Pacific) in exchange for Western shares. Accordingly, the transaction may
qualify as a reorganization since substantially all of the assets of Thermal
would be deemed to be acquired by Copper in one transaction solely for Western
shares. However, as summarized above in "General Tax Considerations Under the
Arrangement," and as discussed below, the application of Section 367 will
subject Thermal to the loss of nonrecognition of gain realized on the transfer
of its assets although Thermal shareholders will be able to avoid recognition
of gain on the exchange of Thermal shares for Western shares.
BUSINESS PURPOSE AND CONTINUITY OF SHAREHOLDER INTEREST
In order for a transaction to qualify as a reorganization it must satisfy
the business purpose and continuity of shareholder interest tests in addition
to satisfying the statutory requirements of the reorganization provisions. To
establish a business purpose it must be shown that the transaction was
undertaken for reasons related to the conduct of the business and not solely
for tax avoidance.
The continuity of shareholder interest test requires that the former
owners of the corporation retain a continuing interest in the surviving
corporation. In the context of the Arrangement, the aspect of continuity of
shareholder interest test that might have relevance is the period of time the
shareholders of Thermal are required to hold Western shares received in the
Arrangement. A binding commitment or a preconceived plan on the part of some
or all of the former Thermal shareholders to sell, transfer or otherwise
dispose of the Western shares might defeat reorganization status. Thermal has
represented that it has no knowledge of any binding commitment or preconceived
plan to sell, transfer or otherwise dispose of any of the Western shares on the
part of any of its shareholders.
Thermal has represented that the combination of the companies resulting
from the Arrangement will benefit all shareholders of Thermal since the
companies share common management, similar properties and parallel goals. The
primary goal of both Copper and Western will be to develop and operate the
Carmacks project. Further, the combination is expected to result in lower
administrative expenses, lower exchange filing and maintenance expenses, and
potential tax savings in the future. The companies have further represented
that the corporate law of Wyoming will allow a U.S. corporation to continue
under the laws of British Columbia, but the corporate laws of California and
British Columbia will not permit such a continuation. Therefore, the
Reincorporation into Wyoming and then the Continuation into British Columbia is
necessary as a result of the differences in U.S. state and British Columbia
corporate laws.
CONTINUITY OF BUSINESS ENTERPRISE
The Arrangement will qualify as a reorganization only if Copper continues
Thermal's historic business or uses a significant portion of Thermal's historic
business assets in a business. If Copper does not continue Thermal's historic
business or use a significant portion of Thermal's historic business assets in
a business, this continuity of business enterprise test will not be met.
Thermal has represented that Western will continue Thermal's historic business
and use a significant portion of its historic business assets in a business.
PLAN OF REORGANIZATION
A plan of reorganization is specifically required by the Code. The
Reincorporation, the Continuation, and the Acquisition must be adopted by each
of the corporate parties thereto and the adoptions must be shown by the acts of
their officers and must appear on the official records of the corporations.
The officers of Thermal, Western and Pacific have executed, and their
respective Boards have approved, an Arrangement Agreement which sets forth the
contemplated transactions and the rights and obligations of the parties
thereto.
INVESTMENT COMPANIES
The tax-free reorganization provisions of the Code may not apply to the
combination of two or more investment companies. For purposes of the
reorganization provisions an investment company is a regulated investment
company, a real estate investment trust, or a corporation 50 percent or more of
the value of whose total assets are stock and securities and 80 percent or more
of the value of whose total assets are assets held for investment. Thermal has
represented that at the time of the Reincorporation, Continuation, and
Acquisition neither company will be an investment company. Based on these
representations, the Arrangement will not be denied reorganization status by
virtue of the investment company restrictions.
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TRANSFER OF NON-CARMACKS ASSETS TO PACIFIC
Thermal will form Pacific. As part of the Arrangement, Thermal will
transfer to Pacific all of Thermal-BC's assets except for the Carmacks
Property. In return, Pacific will issue shares to Thermal (then Thermal-BC).
Thermal-BC will distribute the Pacific shares to Thermal-BC shareholders other
than Western on the basis of one Pacific Common Share for one percent (1%) of
each Thermal-BC Share. Pacific will continue to exist after the Acquisition
and the Pacific Shares distributed will not be redeemed or exchanged as part of
the Arrangement.
The Code provides for nonrecognition of gain realized on the contribution
of appreciated assets to a corporation so long as immediately after the
contribution the transferor(s) is(are) in control of the corporation. Control
can be accomplished through a number of transferors if part of a single plan.
Control cannot be transitory.
Since Thermal-BC will not be distributing the Pacific Shares to all
Thermal-BC shareholders other than Western, the control requirement for
nonrecognition will not be met. Consequently, Thermal will recognize gain
realized on the transfer of the non-Carmacks assets to Pacific.
RECEIPT OF THERMAL SHARES FOR PACIFIC SHARES
The Arrangement provides that each Thermal-BC shareholder, other than
Western, will receive a pro rata distribution of Pacific shares in partial
redemption of Thermal-BC shares. The distribution of Pacific Shares to Thermal
shareholders will be taxable as additional consideration in the reorganization
or as a dividend. Thermal management has determined the value of the Pacific
shares to be nominal and the impact of receipt of such shares to be minimal.
APPROVAL OF THE REINCORPORATION, CONTINUATION AND ACQUISITION
If the Reincorporation, Continuation and Acquisition are approved, the
proposals will be deemed to constitute one transaction for tax purposes as a
result of the application of the step transaction doctrine. As a result,
Thermal, a domestic corporation, will be deemed to transfer assets and
liabilities to Copper, a foreign corporation, in return for shares of Western,
Copper's parent. As such, the transaction constitutes a triangular C
reorganization. The transfer of an insubstantial amount (in quantity and
value) of the assets of Thermal to Pacific should not invalidate the
Arrangement. The distribution of Pacific shares in redemption of a percent of
Thermal Shares for Pacific Shares may be considered as either additional
consideration to the Thermal shareholders or as a dividend, and should not
invalidate the Arrangement since the amount of "boot" is insubstantial.
Under Section 361(a) no gain or loss is recognized by a TRANSFEROR
CORPORATION which is a party to a reorganization on any exchange of property
solely for stock pursuant to a plan of reorganization. Under Section 354(a) no
gain or loss is recognized by a SHAREHOLDER in a corporation which is a party
to a reorganization in exchange solely for stock or securities in such
corporation or in another corporation a party to the reorganization.
However, under Section 367 the transferee corporation's loss of corporate
status for U.S. tax purposes precludes the treatment of the transfer as a
reorganization under Section 368 and denies the transferor corporation and the
shareholders of the transferor corporation the benefit of nonrecognition
treatment unless otherwise provided in Section 367 or the Treasury regulations
promulgated thereunder.
Sections 367(a)(2) and 367(a)(3) provide specific exceptions to the
general application of Section 367(a)(1). However, Section 367(a)(5) nullifies
the exceptions for purposes of Section 361(a). Section 367(a)(5) applies to
the Arrangement. Therefore, Thermal will have to recognize gain realized upon
the transfer of its assets as part of the Arrangement.
Shareholders of Thermal that are U.S. persons are also potentially subject
to Section 367(a) as a result of their transfer of stock or securities to a
foreign corporation. Such transfers are governed by Section 354. Although the
temporary regulations related to Section 367 expressly include as an indirect
stock transfer a triangular reorganization involving only a DOMESTIC ACQUIRED
and a DOMESTIC ACQUIRING corporation, other types of indirect stock transfers,
though not "included," may be subject to Section 367(a). Thus, the proposed
regulations have expanded the list to include triangular C reorganizations
involving a FOREIGN acquiring corporation. While the proposed regulations are
just that, proposed and not final, they provide an indication of the IRS'
expansive view in this area. As a result, the transfer by Thermal of assets
and liabilities to Copper for Western stock may be deemed an indirect stock
transfer.
In general, under the indirect stock transfer rules Thermal shareholders
owning 5% or more of Western immediately after the transfer would have to enter
into 5-year gain recognition agreements. (Those shareholders owning less than
5% have no gain recognition.)
However, proposed regulation Section 1.367(a)-3(d)(vi) provides that
"If the transfer of an asset is SUBJECT TO TAX under section 367(a)(3),
the rules of paragraph (3) shall apply only to a ratable portion of the
gain realized but not recognized by the United States person in the
Section 354 exchange." (Emphasis added).
Therefore, in general, the rules apply in a triangular C reorganization
only with respect to any "residual" gain on the Section 354 exchange. The
ratable portion is determined by reference to the percentage of gain realized
but not recognized on the asset transfer.
Although the assets to be transferred in the Arrangement are not being
taxed under the asset transfer rules of Section 367(a)(3) but as a result of
the application of Section 367(a)(5) (which nullified the exception provided by
Section 367(a)(3)), the residual rules should apply to a transfer taxable to
the transferor under Section 367(a)(5) such that no gain is recognized and no
gain recognition agreements are required. Because the Arrangement constitutes
a transfer described in Section 367(a), Section 367(b) does not apply to the
Thermal shareholders.
If the transaction is treated as a transnational reorganization, the
taxable year of Thermal will end with the close of the date of the transfer.
Regulation Section 1.367(a)-1T(e).
IF THE REINCORPORATION AND CONTINUATION ARE APPROVED BUT NOT THE ARRANGEMENT
REINCORPORATION OF THERMAL TO THERMAL-WY
Under the Code, no gain or loss will be recognized to Thermal on the
transfer of its assets to Thermal-WY solely in exchange for shares of Thermal-
WY and the assumption by Thermal-WY of the liabilities of Thermal
(<section><section> 361(a) and 357(a)).
No gain or loss will be recognized to Thermal-WY upon the receipt of the
assets of Thermal in exchange for shares of Thermal-WY (<section>1032(a)). The
basis of the assets of Thermal in the hands of Thermal-WY will be the same as
the basis of such assets in the hands of Thermal immediately prior to the
exchange (<section>362(b)).
The holding period of the assets of Thermal acquired by Thermal-WY will
include the period during which those assets were held by Thermal immediately
prior to the exchange (<section>1223(2)).
No gain or loss will be recognized to the shareholders of Thermal upon the
receipt of Thermal-WY shares solely in exchange for their Thermal shares
(<section>354(a)(1)). The basis of the shares of Thermal-WY received by
shareholders of Thermal will be, in each instance, the same as the basis of the
Thermal shares surrendered in exchange therefor (<section>358(a)(1)). The
holding period of the Thermal-WY shares to be received by the shareholders of
Thermal will include the holding period of the Thermal shares surrendered in
exchange therefor, provided the shares of Thermal shares were held as a capital
asset on the date of the exchange (<section>1223(1)).
For the purpose of <section>381 of the Code, Thermal-WY will be treated as
if there had been no reorganization. Accordingly, the taxable year of Thermal-
WY will not end on the Effective Date of the Arrangement and the tax attributes
of Thermal enumerated in <section>381(c) shall be taken into account by
Thermal-WY as if there had been no reorganization (<section>1.381(b)-1(a)(2) of
the Income Tax Regulations). The part of the taxable year of Thermal before
the reorganization and the part of the taxable year of Thermal-WY after the
reorganization will constitute a single tax year of Thermal-WY and, therefore,
Thermal will not be required to file a federal income tax return for any
portion of such taxable year (Revenue Ruling 57-276, 1957-1 C.B. 126).
In addition to meeting the statutory requirements, in order to qualify as
reorganizations the transactions must have a business purpose, continuity of
shareholder interest, continuity of business enterprise, a plan of
reorganization, and must not result in the combination of two or more
undiversified investment companies or a combination of an undiversified and a
diversified investment company. These requirements were discussed above.
CONTINUATION OF THERMAL-WY INTO BRITISH COLUMBIA
As discussed above, a mere change in identify, form or place of
incorporation of one corporation qualifies as a reorganization under the Code.
(<section>368(a)(1)(F). However, in the continuation, Thermal-WY will change
its place of organization from Wyoming to British Columbia, a foreign
jurisdiction. Generally, foreign corporations are not considered corporations
for purposes of applying the corporate organization, reorganization and
liquidation rules. (<section>367(a)(1)).
Since it is not obvious in an F Reorganization such as the Continuation of
Thermal-WY to Thermal-BC that there is a transfer of assets and/or a transfer
of stock or securities, Treasury Regulation Section 1.367(a)-1T(f)(2)
specifically provides that where the transferor in an F Reorganization is a
domestic corporation and the acquiring corporation is a foreign corporation,
there is considered to exist (1) a transfer of assets by the transferor
corporation to the acquiring corporation under section 361(a) in exchange for
stock of the acquiring corporation and the assumption by the acquiring
corporation of the transferor corporation's liabilities; (2) a distribution of
the stock (or stock and securities) of the acquiring corporation by the
transferor corporation to the shareholders (or shareholders and security
holders) of the transferor corporation; and (3) an exchange by the transferor
corporation's shareholders (or shareholders and security holders) of the stock
of the transferor corporation for stock (or stock and securities) of the
acquiring corporation under section 354(a).
Under section 361(a) no gain or loss is recognized by a TRANSFEROR
CORPORATION which is a party to a reorganization on any exchange of property
solely for stock pursuant to the plan of reorganization. Under Section 354(a)
no gain or loss is recognized by a SHAREHOLDER in a corporation which is a
party to a reorganization in exchange solely for stock or securities in such
corporation or in another corporation a party to the reorganization.
Thus, under section 367 the transferee corporation's loss of corporate
status for U.S. tax purposes precludes the treatment of the transfer as a
reorganization under section 368 and denies the transferor corporation and the
shareholders of the transferor corporation the benefit of nonrecognition
treatment unless otherwise provided in Section 367 or the Treasury regulations
promulgated thereunder.
As discussed, Sections 367(a)(2) and 367(a)(3) provide specific exceptions
to the general application of Section 367(a)(1). However, Section 367(a)(5)
which nullifies those exceptions applies to the Continuation. Therefore,
Thermal-WY will have to recognize gain realized upon the transfer of its assets
as part of the Continuation.
Shareholders of Thermal-BC that are U.S. persons are also potentially
subject to Section 367(a) as a result of their transfer of stock on securities
to a foreign corporation. Such transfers are governed by Section 354.
Since the Section 354 exchange of stock by Thermal-BC shareholders in the
Continuation is pursuant to an F reorganization, the Section 354 exchange is
not pursuant to one of the transfers listed in the Regulations and the deemed
Section 354 transfer of stock or securities by Thermal-WY shareholders to
Thermal-BC is excepted from Section 367(a)(1).
Since Thermal-WY's transfer of assets was an exchange described in Section
367(a), Section 367(b) will not apply.
If the transaction is treated as a transnational reorganization, the
taxable year of Thermal-WY will end with the close of the date of the transfer.
Regulation Section 1.367(a)-1T(e).
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations arising out of and relating to the Arrangement. Except to the
extent expressly described below, this summary deals only with the Canadian
federal income tax consequences of the Arrangement to Thermal, and to
shareholders of Thermal who hold their shares as capital property.
This summary is of a general nature only and is based upon the current
provisions of the Income Tax Act (Canada) (the "ITA"), upon the Regulations
thereunder, upon judicial decisions, upon an understanding of the current
administrative and assessing policies of Revenue Canada, Taxation, upon all
specific proposals (the "Tax Proposals") to amend the ITA and the Regulations
thereunder made prior to the date hereof. For the purposes of this summary, it
has been assumed that, insofar as the Tax Proposals proposed to be effective
retroactively in respect of a period or periods during which a step or steps of
the Arrangement are to be executed, the Tax Proposals will be adopted as
currently proposed and be effective as of the dates currently proposed, but no
assurances can be given in these regards. This summary is not exhaustive of
all possible Canadian federal income tax consequences and except for the Tax
Proposals, does not take into account nor anticipate any changes in law,
whether by way of legislative, governmental or judicial action, and does not
take into account provincial or local tax considerations which may differ from
those discussed herein and does not take into account the tax laws of any
jurisdiction other than Canada. A term which has a meaning under the ITA
should be read with that meaning in this discussion.
THIS DISCUSSION IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL
OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER OR OTHER PERSON AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR
SHAREHOLDER OR OTHER PERSON IS MADE. ACCORDINGLY, SHAREHOLDERS AND OTHERS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS FOR ADVICE WITH RESPECT TO THEIR OWN
PARTICULAR CIRCUMSTANCES. THIS DISCUSSION DOES NOT ADDRESS THE FEDERAL TAX
CONSIDERATIONS APPLICABLE WITH RESPECT TO OPINIONS TO ACQUIRE SHARES IN THERMAL
COMMON STOCK.
No advance income tax rulings have been requested or received.
Consequently, Revenue Canada, Taxation may take positions with respect to the
matters set out herein that differ from the tax consequences described in this
summary. Canadian counsel has not been requested to provide any opinion on the
applicability of the General Anti-Avoidance Rule provided in the ITA and
expresses no opinion in that regard.
Common Stock of Thermal will generally be considered capital property of
the holder unless it was acquired in the course of carrying on a business or
has been acquired in a transaction or transactions considered to be an
adventure in the nature of a trade. Certain holders of shares whose shares
might not otherwise qualify as capital property may be able to so qualify them
by making an election under subsection 39(4) of the ITA.
CONTINUATION OF THERMAL FROM CALIFORNIA TO WYOMING
The continuation of Thermal from the jurisdiction of the State of
California to the jurisdiction of the State of Wyoming (hereinafter referred to
as the "Wyoming Continuation") will not be deemed to be a disposition of assets
of Thermal for purposes of the ITA. Consequently, this continuation will have
no consequence to Thermal under the ITA.
The Wyoming Continuation will not result in nor be deemed by the ITA to
result in a disposition by a holder of shares of Thermal Common Stock, whether
the shareholder is a resident or a non-resident of Canada. Furthermore, a
holder of shares of Thermal Common Stock will be considered to have held the
shares of the continued corporation since the date the shares were originally
acquired by the holder. There will be no change to a holder in the holder's
adjusted cost base of his shares solely as a result of the Wyoming
Continuation.
cls\thermal5.prx
<PAGE>
CONTINUATION OF THERMAL-WY FROM THE STATE OF WYOMING TO BRITISH COLUMBIA
The continuation of Thermal-WY from the jurisdiction of the State of
Wyoming to the jurisdiction of the Province of British Columbia (hereinafter
referred to as the "B.C. Continuation") will cause Thermal-WY's taxation year
to be deemed to have ended immediately before that time.
Immediately prior to this deemed year-end, Thermal-WY will be deemed to
have disposed of each property owned by it, other than taxable Canadian
property, Canadian business inventory and eligible capital property in respect
of a Canadian business, for proceeds equal to the property's fair market value,
and to have reacquired such property at a cost equal to its deemed proceeds of
disposition. Taxable Canadian property for these purposes includes Canadian
resource property. As a result, Thermal-WY will be deemed to have disposed of
all of its assets at fair market value with the exception of the Carmacks
Property.
Thermal-WY will be considered a foreign affiliate in relation to any
Canadian resident shareholder owning at least 10% of Thermal-WY's issued and
outstanding Shares. On the B.C. Continuation, Thermal-WY will be deemed to
have been a controlled foreign affiliate of such shareholder at the end of the
taxation year deemed to have ended immediately before that time and the
shareholder will be required to include in its income its share of the foreign
accrual property income ("FAPI") of Thermal-WY for the taxation year that is
deemed to have ended immediately before that time. FAPI is defined to include,
among other things, any income from business and property other than active
business income. The deemed disposition of property other than the Carmacks
Property may constitute FAPI if the disposition of such property generates a
capital gain.
On the B.C. Continuation, Thermal-WY will be deemed to have been
incorporated in Canada and not to have been incorporated in any other
jurisdiction. Accordingly, Thermal-BC will qualify as a taxable Canadian
corporation.
The ITA establishes certain limits on the paid-up capital in respect of
any class of the shares of a corporation that has immigrated to Canada. In
general, Thermal-BC's paid-up capital may be reduced such that it will not
exceed the difference between the cost o;f its assets (as determined for
Canadian tax purposes) and its outstanding liabilities. Any reduction in
paid-up capital will be restored to the extent that the reduction has
previously been recognized as a deemed dividend on the shares in question.
The cost to a non-resident taxpayer of shares of a corporation that has
become resident in Canada are deemed to be the lesser of that cost otherwise
determined and the paid-up capital in respect of the share immediately after
the corporation became resident.
THE TRANSFER OF ASSETS BY THERMAL-BC TO PACIFIC
The transfer by Thermal-BC of all of its assets, other than the Carmacks
Property, to Pacific immediately after the B.C. Continuation, in exchange for
common shares of Pacific, will be a taxable disposition of such assets for tax
purposes. However, since on the B.C. Continuation, Thermal-WY will have
previously been deemed to have been disposed of such assets at fair market
value, there will be no additional tax liability in this regard. Pacific
will be considered to have acquired such assets at their fair market value.
Similarly, Thermal-BC will acquire the Pacific shares at a cost equal to the
fair market value of the assets less the amount of the liabilities assumed.
THE DISTRIBUTION OF THE PACIFIC SHARES BY THERMAL-BC
The distribution of the Pacific Shares by Thermal-BC to the shareholders
of Thermal-BC (except for Western) in exchange for a portion of their Thermal-
BC shares will be considered a dividend distribution by Thermal-BC. Thermal-BC
will be deemed to have disposed of the Pacific Shares at their fair market
value.
Shareholders will be deemed to have received proceeds of disposition equal
to the lesser of the paid-up capital and the fair market value of the Pacific
Shares so received and will realize a capital gain (or capital loss) to the
extent such proceeds of disposition exceeds (or is less than) the adjusted cost
base of the exchanged shares. A dividend will be deemed to have been received
by the shareholders to the extent that the fair market value of the Pacific
Shares received exceeds the paid-up capital of the Thermal-BC shares exchanged.
Where the paid-up capital of the Thermal shares exchanged is in excess of the
fair market value of the Pacific Shares received, no dividend will be deemed to
have been received.
THE AMALGAMATION OF THERMAL-BC AND SAILVIEW TO FORM COPPER AND THE EXCHANGE OF
THERMAL-BC SHARES FOR WESTERN SHARES
Upon an amalgamation becoming effective, the amalgamated corporation is
deemed for purposes of the ITA to be a new corporation and to commence a new
taxation year at that time. The fiscal year of each predecessor corporation is
deemed to have ended immediately prior to the amalgamation being effective for
purposes of the ITA.
For the purposes of the ITA, a holder of Thermal-BC shares will realize
neither a capital gain nor a capital loss on the Acquisition. The aggregate
cost of Western shares received in exchange will be equal to the aggregate
adjusted cost bases of the shares exchanged for common shares of Western by
virtue of the Acquisition.
A holder of a warrant to purchase Thermal-BC shares (the "Thermal-BC
Warrant") who receives a warrant to purchase Western shares (the "Western
Warrant") on the Amalgamation will be deemed to have disposed of the Thermal-BC
Warrant for proceeds equal to the adjusted cost base of that warrant
immediately before the Acquisition and to have acquired the Western Warrant at
a cost equal to such proceeds. As a result, holders of Thermal-BC Warrants
will recognize no gain or loss on the issue of the Western Warrants. Where the
Thermal-BC Warrant is considered taxable Canadian property to the holder, the
Western Warrant will be deemed to be taxable Canadian property.
DISSENT RIGHTS
The consequences under the ITA to a shareholder who dissents from either
the Wyoming Continuance of the Arrangement and who receives a payment for his
Thermal Common Stock are discussed below.
A Canadian resident shareholder who dissents with respect to the
reincorporation of Thermal from the State of California to the State of
Wyoming, and as a result receives a payment from Thermal, will be considered to
have received proceeds of disposition equal to the amount received. To the
extent that such proceeds of disposition exceed (or are exceeded by) the
adjusted cost base of such dissenting shareholder's Thermal Common Stock, he
will be regarded as having realized a capital gain (or capital loss) equal to
the amount of such difference. A non-resident shareholder receiving such
proceeds will not be subject to Canadian tax on any capital gain realized. If
the dissenting shareholder is a Canadian corporation, it may be possible to
elect to treat a portion of the proceeds of disposition as a dividend to the
extent of any exempt or taxable surplus balances of Thermal.
The tax treatment of payments received as a result of the exercise of
Dissent Rights with respect to the Arrangement is unclear. Revenue Canada,
Taxation is of the view that the receipt by a dissenting shareholder of a cash
payment equal to the fair value (excluding interest) of shares in respect of
which dissent rights are exercised with respect to an amalgamation may be
treated as proceeds of disposition of such shares. In accordance with this
position, to the extent jthat such proceeds of disposition exceed (or are
exceeded by) the adjusted cost base of a dissenting shareholder's Thermal-BC
Common Stock, they will be regarded as having realized a capital gain (or
capital loss) equal to the amount of such difference.
A shareholder of Thermal-BC dissenting to the Arrangement which is a non-
resident of Canada will not be subject to tax under the ITA in respect of any
capital gain realized by such shareholder unless the shares of Thermal-BC held
by such shareholder constitute "taxable Canadian property" and the non-resident
os not entitled to relief under an applicable tax treaty. The shares of
Thermal-BC will be taxable Canadian property if the particular holder used (or
in the case of a non-resident insurer used or held) such shares in carrying on
business in Canada or if, at any time during the five-year period immediately
preceding the Arrangement, not less than 25% of the issued shares of any class
of Thermal belonged to the particular holder, to persons with whom the
particular holder did not deal at arm's length or to any combination thereof.
A non-resident dissenting holder of Thermal-BC Common Stock who receives
interest on the fair value of such shares will be subject to Canadian
withholding tax in respect of such interest at the rate of 25%, subject to
reduction pursuant to an applicable tax treaty. In the case of shareholders
resident in the U.S., the withholding tax rate in respect of such interest will
generally be 10%. Non-residents of Canada whose shares of Thermal-BC
constitute taxable Canadian property and who wish to dissent to the Arrangement
should consider the availability of any relief under an applicable tax treaty.
For example, shareholders resident in the U.S. may be entitled to certain
transitional relief under the Canada-United States Income Tax Convention (the
"Treaty").
Alternatively, the receipt by a dissenting shareholder of a cash payment
equal to the fair value (which may include interest) of his Thermal-BC Common
Stock may be treated as a dividend to a holder of such shares. The balance of
the fair value paid (i.e. the amount equal to the paid-up capital of the
shares) will then be treated as proceeds of disposition of the Thermal-BC
Common Shares for capital gain (or capital loss) to the extent that such
proceeds of disposition of the shares exceed (or are exceeded by) the
shareholder's adjusted cost base of the shares. A deemed dividend may possibly
be treated as proceeds of disposition pursuant to subsection 55(2) of the ITA
in the case if certain Canadian resident corporate shareholders.
The comments above in respect of the tax treatment to non-residents of
capital gains are also applicable to this alternative. The deemed dividend
referred to above received by a Canadian resident taxpayer will be subject to
the normal rules regarding the taxation of dividends from Canadian
corporations. A non-resident shareholder of Thermal-BC dissenting to the
Arrangement will be subject to Canadian withholding tax in respect of such
deemed dividend, subject to reduction pursuant to an applicable tax treaty. In
the case of shareholders resident in the U.S., the withholding tax rate in
respect of such dividend will generally be 15%, unless the shareholder is a
corporation which owns at least 10% of the voting stock of the amalgamation
corporation deemed to have paid the dividend, in which case the withholding tax
rate will be 6% (reduced to 5% effective January 1, 1997).
A capital loss arising on a dissent relating to the Arrangement by a
corporate shareholder will be reduced by dividends received or deemed to be
received, including any deemed dividend arising from the exercise of Dissent
Rights on the Thermal-BC shares where the period of ownership of such shares
was less than 365 days or where the corporate holder (together with persons
with whom it did not deal at arms' length) held more than 5% of the issued
shares of any class of Thermal at the time the dividends are received or deemed
to have been received.
ANALOGOUS RULES APPLY TO A PARTNERSHIP OR TRUST OF WHICH A CORPORATION IS A
MEMBER OR A BENEFICIARY
As indicated above, the current general administrative practice of Revenue
Canada, Taxation as to the treatment of a cash payment received by a
shareholder who exercises his Dissent Rights in respect of an amalgamation is
as first described above (i.e. capital gain or capital loss). However, no
assurance can be given that Revenue Canada, Taxation will apply this practice
to a shareholder of Thermal who exercises his Dissent Rights in respect of the
Arrangement and no opinion is expressed herein as to which of the views
described above is properly applicable to such shareholder.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY APPLICABLE TO U.S. SHAREHOLDERS OF CANADIAN CORPORATIONS
The following is a summary of the principal U.S. federal income tax
considerations that will generally be applicable to U.S. shareholders holding
shares in a Canadian corporation such as Thermal-BC, Pacific and Western. The
summary is of a general nature only and is not exhaustive of all possible
income tax consequences applicable to U.S. shareholders and does not address
the tax consequences of U.S. shareholders subject to special provisions of
federal income tax law such as tax exempt organizations, trusts and significant
shareholders.
Dividends paid out of the current and accumulated earnings and profits in
such shares to a holder who is a U.S. citizen or domestic corporation will be
taxed as ordinary income for United States federal income tax purposes. As
discussed above in "Certain Canadian Federal Income Tax Considerations," such
dividends generally will also be subject to a Canadian withholding tax. The
deduction for dividends received which is usually available to corporate
shareholders is generally not available for dividends paid from a foreign
corporation such as Pacific and Western.
Pursuant to Sections 164 and 901 of the Internal Revenue Code of 1986, as
amended, a U.S. citizen and domestic corporation holding such shares may
generally elect, for U.S. federal income tax purposes, to claim either a
deduction from gross income for such Canadian withholding taxes or a credit
against its U.S. federal income taxes with respect to such Canadian taxes. The
choice of taking a deduction or claiming a credit is up to the taxpayer.
The amount of the foreign tax credit that may be claimed is limited to
that proportion of the tax against which the credit is taken that the holder's
taxable income from non-United States sources bears to the holder's entire
taxable income for that taxable year. The foreign tax credit limitation is
applied separately to different categories of income. Generally, for purposes
of applying such foreign tax credit limitations, dividends are included in the
passive income category.
If shares are held as a capital asset, any gain or loss on a sale,
exchange or other disposition will usually be capital gain or loss, and if the
holder has held the shares for more than one year, will qualify as long term
capital gain or loss. In general, gain from a sale, exchange or other
disposition on shares by a U.S. resident will be treated as U.S. source income.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY APPLICABLE TO U.S. SHAREHOLDERS OF CANADIAN CORPORATION
The following is a summary of the principal Canadian federal income tax
considerations generally applicable in respect of the Western Common Shares.
For purposes of this section, reference to Western will also be applicable to
the holders of Pacific common shares and to holders of Thermal-BC shares.
This summary is of a general nature only and is cased upon the current
provisions of the ITA, upon the Regulations thereunder, upon the provisions in
the Canada, Taxation, upon specific Tax Proposals to amend the ITA and the
Regulations thereunder made prior to the date hereof. For the purposes of this
summary, it has been assumed that, insofar as the Tax Proposals proposed to be
effective retroactively in respect of a period or periods during which a step
or steps of the Arrangement are to be executed, the Tax Proposals will be
adopted as currently proposed and be effective as of the dates currently
proposed, but no assurances can be given in there regards. This summary is not
exhaustive of all possible Canadian federal income tax consequences and except
for the Tax Proposals, dies not take into account nor anticipate any changes in
law, whether by way of legislative, governmental or judicial action, and does
not take into account provincial or local tax considerations which may differ
from those discussed herein and does not take into account the tax laws of any
jurisdiction other than Canada. A term which has a meaning under the ITA
should be read with that meaning in this discussion.
The tax consequences to any particular holder of Western Common Shares
will vary according to the status of that holder as an individual, trust,
corporation, or member of a partnership, the jurisdiction in which that holder
is subject to taxation, the place where that holder is resident and, generally,
according to that holder's particular circumstances. This summary is
applicable only to holders who are resident in the United States for purposes
of the Treaty, have never been resident in Canada for purposes of the ITA; do
not carry on business in Canada within the meaning of the ITA; held the Western
Common Shares as a capital asset; and did not, at any time during a period of
five years immediately preceding a disposition or deemed disposition by him of
the shares (either alone or together with persons with whom he does not deal at
arms' length) own 25% or more of such shares or shares of any other class of
Western.
This summary is of a general nature only and is not exhaustive of all
possible income tax consequences. It is not intended as legal or tax advice to
any particular holder of Western Common Shares and should not be so construed.
Each holder should consult his own tax advisor with respect to the income tax
consequences applicable to him in his own particular circumstances.
DISPOSITION OF COMMON SHARES
Under the ITA, a gain from the sale of Western Common Shares by a non-
resident will generally not be subject to Canadian tax.
If a non-resident was to dispose of Western Common Shares to another
Canadian corporation which deals or is deemed to deal on a non-arm's length
basis with the non-resident and which, immediately after the disposition, is
connected with Western (i.e., which holds shares representing more than 10% of
the voting power and more than 10% of the fair market value of all issued and
outstanding Western Common Shares of Western), the excess of the proceeds over
the paid-up capital of the Common Shares sold will be deemed to be taxable as a
dividend either immediately or eventually by means of a deduction in computing
the paid-up capital of the purchaser corporation.
DIVIDENDS
In the case of any dividends paid to non-residents, the Canadian tax is
withheld by Western, which remits only the net amount to the shareholder. By
virtue of Article X of the Treaty, the rate of tax on dividends paid to
residents of the United States is generally limited to 15% of the gross
dividend (or 6% in the case of certain corporate shareholders owning at least
10% of Western's voting shares). In the absence of the treaty provisions, the
rate of Canadian withholding tax imposed on non-residents is 25% of the gross
dividend. The withholding tax rate on dividend's will be reduced to 5%
effective January 1, 1997 if the holder of the shares is a company which owns
at least 10% of the voting stock of Western.
Stock dividends received by non-residents from Western are taxable by
Canada as ordinary dividends to the extent the paid-up capital of Western is
increased as a result of the stock dividend.
cls\thermal5.prx
<PAGE>
SUMMARY OF FINANCIAL DATA
The following selected historical financial data of Western and Thermal
have been derived from their respective historical financial statements and
should be read in conjunction with such financial statements and notes thereto,
which are included elsewhere in this Proxy Statement. The unaudited selected
pro forma financial information of Western and Thermal is derived from the
unaudited pro forma financial statements and should be read in conjunction with
such pro forma financial statements and notes thereto, which are included
elsewhere in this Proxy Statement.
WESTERN COPPER HOLDINGS LIMITED
<TABLE>
<CAPTION>
As at or for the
YEAR ENDED SEPTEMBER 30,
(In Canadian Dollars)(Cdn $)
<S> <C> <C> <C> <C> <C>
Income Statement Data 1995 1994 1993 1992 1991
Revenue $ 53,154 $ 23,048 $ 9,702 $ 3,984 $ 3,271
Loss before deferred
income (291,508) (153,169) (152,804) (161,912) (108,734)
taxes
Net Loss (291,508) (153,169) (146,961) ( 92,290) ( 61,978)
Loss per Common Share $ (0.06) $ (0.04) $ (0.04) $ (0.03) $ (0.05)
Average Number of
Common Shares 5,225,391 4,184,323 3,549,348 2,667,071 2,042,037
Balance Sheet Data
Working Capital $195,988 $545,091 $581,894 $165,618 $255,173
Mineral Properties and
Deferred Exploration
and 2,075,290 1,877,324 1,408,700 1,169,282 225,209
Development Costs
Total Assets 4,427,284 3,888,688 2,051,143 1,578,298 698,140
Shareholders' Equity $4,180,707 $3,822,215 $1,967,084 $1,307,155 $344,917
</TABLE>
cls\thermal5.prx
<PAGE>
THERMAL EXPLORATION COMPANY
(In United States Dollars)
<TABLE>
<CAPTION>
As at or for the As at or for the
THREE MONTHS ENDED YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: September 30, September 30, 1995 1994 1993 1992 1991
1995 1994
Revenues $ - $ - $ - $ - $31,826 $9,585 $6,533
(Loss) Income from (76,822) 20,835 (184,894) (184,374) (267,723) (754,867) (212,752)
Continuing Operations
Discontinued Operations
Income (Loss) from
Operations - - - - - 4,571 (152,928)
Gain on Sale - - - - - 810,386{(1)}
Net Income (Loss) (77,622) 20,035 (178,310) (167,545) (268,623) 60,090 (365,680)
Net Income (Loss) per .00 .00 (.01) (.01) (.02) .00 (.03)
share
Balance Sheet Data:
Working Capital (176,014) (21,039) (21,039) (140,702) (51,607) 46,789 40,754
Deferred Exploration 1,671,562 1,591,095 1,591,095 1,405,304 1,019,089 738,354 257,195
Costs
and Mineral Claims
Total Assets 1,683,086 1,668,180 1,688,180 1,513,278 1,167,670 1,170,553 3,166,968
Long Term Obligations - - - - - - 2,249,085
Shareholders' Equity $1,496,064 $1,462,686 $1,462,686 $1,263,446 $927,131 $956,962 $719,382
</TABLE>
{(1)} Recognized gain on sale of Thermal's geothermal operations.
cls\thermal5.prx
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
The following unaudited combined selected pro forma financial information,
which sets forth the pro forma effect of the Arrangement, is based upon the
audited financial statements of Western as of September 30, 1995 and the
audited financial statements of Thermal as of June 30, 1995. The selected pro
forma financial information shall be read in conjunction with the financial
statements and notes included herein.
The proforma financial information has been presented in Canadian dollars,
which represents the primary currency after effect of the Arrangement.
Western and Thermal
Combined Selected Pro Forma Financial Information
(In Canadian Dollars)(Cdn $)
Pro Forma Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
As at or for the
YEAR ENDED SEPTEMBER 30, 1995
<S> <C>
Revenue $148,549
Exploration and Development Costs $87,895
Loss for Year ($363,620)
Loss Per Common Share (.05)
Weighted Average Number of Common Shares 7,473,497
</TABLE>
Pro Forma Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
Working Capital (Deficit) ($32,908)
<S> <C>
Total Assets $7,946,518
Long-Term Liabilities Nil
Shareholders' Equity $7,440,460
</TABLE>
cls\thermal5.prx
<PAGE>
COMPARATIVE MARKET PRICES
Thermal Common Stock is listed for trading in Canada on the ASE under the
symbol THR and in the United States on the OTC Bulletin Board under the symbol
TECC. There is no established public trading market for Thermal's Common Stock
as that term is defined by the regulations of the Commission. Based on trading
volumes, Thermal believes that the principal market for Thermal's shares is the
ASE.
Western Common Stock is listed for trading Canada on the TSE under the
symbol WTC. After the Arrangement, Western Common Stock will be continued to
be listed on the TSE.
On April 21, 1995, the last trading day before the public announcement of
the Arrangement, the closing prices of Western Common Stock and Thermal Common
Stock were Cdn. $1.30 per share and Cdn. $.23 reported by the TSE and the ASE
respectively.
The following tables set forth the quarterly range of high and low bids
for Thermal Common Stock as reported on the OTC Bulletin Board and on the ASE,
and for Western Common Stock as reported by the TSE for the two most recent
fiscal years. The high and low closing bid quotations shown reflect
inter-dealer quotations and do not necessarily represent actual transactions.
None of the prices shown reflect retail mark-ups, mark-downs or commissions.
The OTC Bulletin Board quotations for Thermal were obtained from KO Securities,
Inc. in Seattle, Washington. ASE quotations for Thermal were obtained from
ASE's records.
Thermal Exploration Company
<TABLE>
<CAPTION>
OTC Bulletin Board Alberta Stock Exchange
(U.S. $) (Cdn $)
<S> <C> <C> <C> <C>
QUARTER ENDED HIGH LOW HIGH LOW
September 30, 1993 $0.25 $0.25 $0.45 $0.36
December 31, 1993 $0.25 $0.25 $0.40 $0.20
March 31, 1994 $0.19 $0.25 $0.37 $0.25
June 30, 1994 $0.06 $0.25 $0.58 $0.28
September 30, 1994 $0.50 $0.25 $0.40 $0.20
December 31, 1994 $0.31 $0.19 $0.35 $0.20
March 31, 1995 $0.38 $0.13 $0.34 $0.20
June 30, 1995 $0.30 $0.13 $0.32 $0.20
September 30, 1995 $0.25 $0.13 $0.29 $0.16
</TABLE>
On October 11, 1995, there were 17,050,528 shares of Thermal Common Stock
outstanding, held by 1,870 holders of record.
There is no market for the Pacific common shares.
cls\thermal5.prx
<PAGE>
Western Copper Holdings Limited
<TABLE>
<CAPTION>
TORONTO STOCK EXCHANGE (CDN $)
<S> <C> <C>
QUARTER ENDED HIGH LOW
December 31, 1993 $0.90 $0.70
March 31, 1994 $1.30 $0.80
June 30, 1994 $2.90 $0.90
September 30, 1994 $2.35 $1.60
December 31, 1994 $2.05 $1.55
March 31, 1995 $2.00 $1.10
June 30, 1995 $1.50 $1.10
September 30, 1995 $1.75 $1.10
</TABLE>
On _______, 1995, there were 5,367,058 shares of Western Common Shares
outstanding, held by _____ holders of record.
CURRENCY
The exchange rate at the end of each of the five years ended September 30,
1995, and the average, high, and low rates of exchange for each year in such
five-year period are set forth below. The table sets forth the number of
Canadian dollars required to buy one U.S. dollar. The rates, which are
expressed in Canadian dollars, were the noon buying rates in New York City for
cable transfer in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
Year Ended
SEPTEMBER 30, AVERAGE HIGH LOW CLOSE
<S> <C> <C> <C> <C>
1995 1.37 1.42 1.34 1.34
1994 1.36 1.40 1.30 1.34
1993 1.28 1.34 1.24 1.34
1992 1.18 1.25 1.12 1.25
1991 1.15 1.17 1.13 1.13
</TABLE>
cls\thermal5.prx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
As at or for the
YEAR ENDED SEPTEMBER 30,
(In Canadian Dollars)(Cdn $)
<S> <C> <C> <C> <C> <C>
Income Statement Data 1995 1994 1993 1992 1991
Revenue $ 53,154 $ 23,048 $ 9,702 $ 3,984 $ 3,271
Loss before deferred
income (291,508) (153,169) (152,804) (161,912) (108,734)
taxes
Net Loss (291,508) (153,169) (146,961) ( 92,290) ( 61,978)
Loss per Common Share $ (0.06) $ (0.04) $ (0.04) $ (0.03) $ (0.05)
Average Number of
Common Shares 5,225,391 4,184,323 3,549,348 2,667,071 2,042,037
Balance Sheet Data
Working Capital $195,988 $545,091 $581,894 $165,618 $255,173
Mineral Properties and
Deferred Exploration
and 2,075,290 1,877,324 1,408,700 1,169,282 225,209
Development Costs
Total Assets 4,427,284 3,888,688 2,051,143 1,578,298 698,140
Shareholders' Equity $4,180,707 $3,822,215 $1,967,084 $1,307,155 $344,917
</TABLE>
cls\thermal5.prx
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR WESTERN
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, Western had working capital of Cdn
$195,988. During the 1995 fiscal year, Western received Cdn
$570,000 from the private placement of 300,000 Units at Cdn $1.90
per unit each unit consisting of one common share and warrants to
purchase of 300,000 common shares at Cdn $2.10. Further, Western
loaned to Minera Dolores Augustias y Anexas S.A. de C.V., a Mexican
company ("MDAA") Cdn $100,995 for working capital and extended a
term loan of Cdn $252,828 to MDAA to develop the El Salvador
property.
As of September 30, 1994, Western had working capital of Cdn
$545,091. During the 1994 fiscal year, Western received Cdn
$521,000 through the private placement of 334,000 common shares,
and Cdn $56,000 from the exercise of warrants to purchase 70,000
common shares.
Western is a development stage corporation and does not have
revenue sufficient to meet its yearly capital needs. Western has
raised funds necessary to acquire its assets and conduct its
corporate affairs primarily through the private placement of its
common shares.
The recoverability of amounts shown for mineral rights and the
related deferred costs for any property is dependent on the
development of economically recoverable ore reserves, the ability
of Western, or the specific joint venture, to obtain necessary
permits and financing to successfully place the property into
production and upon future profitable production. Western's
primary objective will be to develop and place the Carmacks
Property into production. Based on exploration results to date and
reports of independent consultants, management of Western believes
that the pursuit of additional exploration or development programs
on its mineral interests is justified and will ultimately lead to
the recovery of the amounts carried on the books as mineral rights
and deferred costs. The cost of developing the Carmacks Property
and, if successful, placing it into production will exceed working
capital on hand. Western believes that additional funds, if
required, may be obtained from future debt or equity financing.
There can be no assurance that any additional required funds will
be obtained through debt or equity financing nor that the
exploration and development of Western's mineral interests will
ultimately prove to be economically viable and that the amounts
carried on the books as mineral rights and deferred costs will be
recovered.
On November 27, 1995, Western entered into an agreement in
principle with NM Rothschild & Sons Limited ("Rothschild").
Rothschild will assist Western in the overall strategy for the
financing for the Carmacks Property, and participation in the
proposed financing, as lead banker, subject to satisfactory due
diligence and approval by Rothschild's credit and executive
committees.
Western and Rothschild entered into a letter agreement for a
convertible debenture in the amount of Cdn $2.5 million. The loan
will be secured by the Carmacks Property. The loan shall have a
three year term and is convertible by Rothschild into Western
common shares at Cdn $1.50 per share. The proceeds of the loan
will be used for working capital and for completion of final
engineering related to the Carmacks Property.
cls\thermal5.prx
<PAGE>
RESULTS OF OPERATIONS
During fiscal 1995, Western incurred a loss of Cdn $291,508,
an increase of Cdn $138,339 from the Cdn $153,169 loss during
fiscal 1994. Interest income increased by Cdn $30,106 from Cdn
$23,048 during fiscal 1994 to Cdn $53,154 during fiscal 1995. The
increase in interest represents an increase in cash held during
fiscal 1995. Audit and legal expenses increased by Cdn $92,725
during fiscal 1995. The increase in audit and legal expenses
related to corporate activity in preparation for the proposed
Arrangement with Thermal.
In addition, during fiscal year 1995, Western recognized a
loss under the equity method of Cdn $103,199 related to Western's
34% interest in Thermal.
During fiscal 1994, Western incurred a loss of Cdn $153,169,
an increase of Cdn $6,208 from the Cdn $152,804 loss during fiscal
1993. Western recognized interest income of Cdn $23,048 during
fiscal 1995, an increase from Cdn $9,720 during fiscal 1994. The
increase in interest income was due to an increase in cash received
from a private placement during fiscal 1994. The increase in
interest income was offset by an increase in audit and legal
expense of Cdn $13,319 due to corporate activity related to the
Arrangement.
WESTERN COPPER HOLDINGS LIMITED
BUSINESS
GENERAL
Western is a natural resource company engaged in the
acquisition, exploration and
development of mineral properties. Western was incorporated under
the Company Act by the registration of its memorandum and articles
on July 11, 1984.
Western's major asset is its 50% joint venture interest in the
Carmacks Property. Western is also the manager of the Carmacks
Property joint venture. See the description of the Carmacks
Property below - "Carmacks Property." In addition, Western owns
interests in the Copper Basin and El Salvador properties.
Prior to October 31, 1995, Teck Corporation of Vancouver,
British Columbia ("Teck") was Western's largest shareholder. Teck
primarily provided Western with financing through the purchase of
its equity securities. At that time, Western's board consisted of
four directors and Mr. Robert A. Quartermain was its President. On
October 31, 1995, Prime Equities International Corporation
("Prime") acquired Teck's 35.89% interest in Western. In
connection with Prime's acquisition, Messrs. F. Dale Corman, John
Harvey, Murray Pezim and Michael Pezim became members of Western's
board, and Mr. F. Dale Corman became President of Western. Mr.
Corman is also Thermal's President. Mr. Murray Pezim became
Chairman of the Board, and Mr. Robert Quartermain will continue as
a Director.
Prime is a Vancouver, British Columbia-based mineral
exploration company which conducts business through publicly traded
affiliates and subsidiaries and provides financial, administrative
and minerals related technical services to various companies
related to Prime.
EMPLOYEES
Western has no full-time employees. Management is supplied by
Golden Knight, Inc. ("Golden Knight") for a fee. Teck is a
substantial shareholder in Golden Knight. In light of Teck's sale
of its interest in Western, Golden Knight will not continue to
provide services to Western and Prime has entered into a similar
relationship with Western.
DESCRIPTION OF PROPERTIES
Western owns a 50% joint venture interest in the Carmacks
Property in the Yukon Territory,
Canada, a 100% working interest in mineral claims for the Copper
Basin property in Southern California, and an option to purchase a
100% interest in the El Salvador Property in the state of
Zacatecas, Mexico of which a third party has a right to earn 50% of
Western's interest. These properties are described below.
CARMACKS PROPERTY
THE JOINT VENTURE
In August of 1989, Western obtained a right to earn a 100%
working interest in the Carmacks Property from Archer, Cathro &
Associates ("Archer") by making staged exploration expenditures
totalling Cdn $2 million by December 31, 1992, or by incurring Cdn
$1.6 million in work expenditures and producing a feasibility
study. In return, Archer was granted a 15% net profits royalty or
a 3% net smelter return up to Cdn $2.5 million. Concurrently,
Western entered into an agreement with Thermal, whereby Western
gave Thermal the right to acquire all of the Western's interest in
the Carmacks Property by incurring exploration and development
expenditures of Cdn $640,000, subject to Western's right to
reacquire a 50% interest by expending Cdn $960,000. Both parties
complied with the funding requirements so that a joint venture was
deemed to have been formed in which both Thermal and Western have a
50% interest. Future exploration costs are to be funded equally by
both parties.
THE MINERAL CLAIMS
The Carmacks Property consists of 232 contiguous and partial
unpatented mineral claims at Williams Creek in the Whitehorse
Mining district of the Yukon Territory, Canada. These mineral
claims comprise approximately 4,270 hectares (approximately 10,550
acres) 43 kilometers northwest of Carmacks. The property is
accessible by an all-weather road from Skagway, Alaska to within 7
miles of the property. A secondary road to the property is
sufficient for seasonal travel by two- and four-wheel drive
vehicles.
The Carmacks Property was found during a regional exploration
program for porphyry copper deposits in 1970. Follow-up work in
the early 1970's located several zones of copper mineralization.
The No. 1 Zone, which appears to hold the most potential, was
diamond drilled and trenched. The results indicated a mineralized
zone 100 to 150 feet wide, 2,300 feet in length and at least 1,500
feet deep. A major decline in the price of copper in the mid-
1970's resulted in suspension of exploration and no further
meaningful work was done until 1989, when the mineral claims were
optioned to Western and Thermal. Since 1989 to September 30, 1995,
the Joint Venture has spent approximately Cdn $3.5 million on an
intensive mine evaluation program, including diamond drilling,
metallurgical and environmental studies.
There are fourteen copper mineralized zones on the Carmacks
Property of which the No. 1 Zone has the most potential and is the
subject of a feasibility study by Kilborn. In 1993 an ore reserve
calculation was conducted by Western using both polygonal sections
and a computer generated 30 foot block model using mine software.
A geological reserve (proven and probable) to a depth of 1,500 feet
has been calculated at 22.05 million tons grading 1.06% copper and
0.013 ounces of gold per ton, for total contained metals of 470
million pounds of copper and 286,000 ounces of gold.
A diluted open pittable oxide reserve of 15.55 million tons
grading 1.01% copper
and 0.015 ounces of gold per ton has been outlined to a depth of
600 feet below surface. The strip ratio will average 4.25:1 waste-
ore over the estimated 8.5 years production life of the mine.
Metallurgical test work from a comprehensive 3-year program
indicates that 80% of the copper can be extracted from the deposit
by low cost solvent extraction and electrowinning (SX-EW). Three
additional zones containing copper mineralization similar in nature
to that contained within the No. 1 Zone were also identified by
trenching and diamond drilling in 1992. Insufficient drilling and
sampling has been conducted to assign a copper grade or tonnage to
these zones.
In September 1993 the joint venture engaged Kilborn to
complete a feasibility study on the Carmacks Property of sufficient
detail to be used for raising financing and finalizing permits. It
is estimated that the No. 1 Zone will be mined at a rate of 1.94
million tons per year. Ore will be mined 200 days per year at a
rate of 9,600 tons per day. Based on both the Kilborn feasibility
study and subsequent modifications, the Carmacks Project is
projected to produce an average of 45 tons of copper per day by way
of solvent extraction and electrowinning (SX-EW).
Preproduction capital costs for the plant and equipment are
estimated at Cdn $48.6 million (U.S. $35.4 million), with Cdn $9.7
million (U.S. $7.1 million) for indirect costs (i.e., engineering
and construction management) and Cdn $5.1 million (U.S. $3.7
million) for contingency, for a total of Cdn $63.4 million (U.S.
$46.3 million). Working capital requirements are estimated at Cdn
$4 million (U.S. $2.9 million). Operating costs over the life of
the project are estimated at $0.88 per pound of copper (U.S.
$0.64). The current copper price was U.S. $1.28 per pound on
November 11, 1995. No assurance can be given that the Carmacks
Project can be developed and operated at budgeted amounts and that
the price of copper will remain at current levels.
In the winter of 1993-94, a large scale 250 ton pilot heap
leach test was conducted in Carmacks, Yukon to obtain cold weather
leaching data for specific pad design and anticipated copper
recovery during the coldest period of the year and to ascertain
that heap leaching was feasible on a 12-month basis. The test also
helped define operational parameters for full scale development.
Leaching will occur year round. The ore will be moved by truck to
a crushing plant where it will be crushed to three quarters of an
inch. From there it will be either trucked or conveyed to a leach
pad where it will be stacked using a movable stacker conveyor. The
crushed ore will initially be treated with strong sulfuric acid,
then continuously washed until all of the recoverable copper has
been dissolved. Acid consumption is estimated at 50 pounds per ton
of ore. Test procedures and analyses were prepared in consultation
with Brown and Root, Inc., of Houston, Texas. This acid
consumption is similar to that of existing copper operations.This
dissolved copper (referred to as pregnant leach solution ("PLS"))
will be collected in the bottom of the leach pad. The PLS
containing 5 grams per liter copper will then be transferred to a
solvent extraction (SX) plant where, by a process using an organic
reagent and gravitational separation, it will be turned into a
solution containing 50-60 grams per liter of pure copper sulphate.
This solution will then be transferred to the electrowinning (EW)
plant where high purity copper cathode sheets will be plated out by
simple electrolysis. These sheets are 99.99% copper and need no
further refining.
The Kilborn report states that it is anticipated that from the
time a decision is made to proceed with the project it will take 12
months to design, construct and commission the plant. This does not
include time required for obtaining permits or additional technical
information.
Acid, for utilization in the project, will be shipped to a
bulk storage facility in Skagway, Alaska. Annually, 50,000 tons of
acid will be trucked 245 miles (400 kilometers) from the port to
the mine and these trucks will be used to back-haul copper.
Power will be supplied on-site by either oil fired turbine
generators or by a transmission line installed by Yukon Electric
Corp. The transmission line (if constructed) will be an extension
of the maingrid system which terminates at Carmacks. Access to the
property is via 33 kilometers on the government maintained Free
Gold Road and then 13 kilometers along the existing property road.
The property access road will be upgraded during the construction
phase. Government incentive programs are available to assist with
the financing of infrastructure in the Yukon.
Water for the leaching operation will be supplied from a small
reservoir constructed on Williams Creek and water wells drilled on
the property, downstream from the operation. This reservoir will
act as a secondary catchment for the operation. Much of the water
required for the operation will be recycled.
The Carmacks Project is located on unpatented mining claims on
public lands under the jurisdiction of the Federal and Territorial
governments. Environmental surveys were completed between 1991 and
1993. The results of these surveys were submitted for regulatory
review in February, 1994. The environmental impact statement (IEE)
and feasibility study was submitted for review in early 1995.
Land-use permits and a water license for the project are
anticipated to be issued in early 1996.
Local Carmacks residents are planned to be hired for the work
force and negotiations with the Little Salmon First Nation are
continuing with the expectation of finalizing an Economic
Development Agreement during the beginning of 1996. The number of
employees on site are estimated to be at 105 at the start of
operations, increasing in later years as the mine fleet is expanded
to accommodate the increased stripping.
The mineral industry in Canada has historically been the
subject of considerable regulation and control by various levels of
government. Generally, metal prices are negotiated directly
between purchasers and sellers. Drilling and production operations
are subject to provincial and federal laws and regulations
governing environmental quality and pollution control. Should the
Carmacks Property reach production, Western and Thermal believe
that it will be able to comply with all applicable regulations.
COPPER BASIN
In 1993, Western purchased a 100% working interest in 12
contiguous unpatented lode claims to the Copper Basin property in
San Bernardino county located 40 miles south of Needles,
California. The property has a drill-indicated reserve of 12.5
million tons grading 0.55% copper including 7.4 million tons
grading 0.75% copper. This is based on 164 core and 510 reverse
circulation holes in 3 zones. The property is oxidized to
approximately 200 feet below surface. Copper occurs dominantly as
malachite in the oxide zone and chalcopyrite in the sulphide zone.
The property was extensively explored in 1974, but has remained
dormant since then. Exploration potential exists elsewhere on the
property for additional near surface copper mineralization. The
property is readily accessible and power, labor, infrastructure and
acid are all available locally.
Western is reviewing the previous drill data with the
objective of defining a near surface copper oxide reserve capable
of supporting a solvent extraction-electrowinning (SE-EW)
operation.
EL SALVADOR
The El Salvador property is located approximately 40 miles
south of the city of Zacatecas in the State of Zacatecas, Mexico.
In October 1994, Western acquired an option to purchase a 100
percent interest in the property, subject to a 2.5 to 3 percent net
smelter return, from MDAA. Western must spend U.S. $1.5 million on
exploration over a three-year period in order to exercise the
option. Western loaned MDAA U.S. $250,000 for working capital and
to complete a small vat leach operation on high-grade material.
Copper mineralization consisting of tenorite, azurite, malachite,
and chrysocolla is exposed on a low hill. Extending laterally over
an area approximately 60 meters by 200 meters in area, the
mineralization occurs along the flow fabric in Cretaceous age,
andesitic volcanic rocks that dip up to 40 degrees. Although there
is no identified reserve, oxide-copper would appear to range from
1% to 1.5% copper over 30 meters in trenches. Higher grade lenses
up to one meter in width and ranging from 1% to 4% copper occur
within the overall deposit. The property is being evaluated as a
potential opportunity for low cost, open-pit mining techniques and
solvent extraction-electrowinning (SE-EW) methods. A third party
has a right to acquire a 50% interest in this property by matching
expenditures.
ENVIRONMENTAL MATTERS
The exploration and production of copper is subject to
environmental regulations by federal, and local authorities. In
most states, the exploration and production of copper is regulated by
environmental laws and regulations. Western must comply with
Canadian Federal Government and Yukon Territorial Government statutory
requirements that relate to exploration procedures, reclamation, safety
precautions, employees' health and safety, use of explosives, air quality
standards, pollution of stream and fresh water sources, noxious odors, noise,
dust and other environmental protection controls as well as the
rights of adjoining property owners.
While no guarantee exists that statutory requirements may not
be amended, preventing or delaying the commencement or continuance of given
operations, no material expenditures for environmental control facilities,
other than those mentioned above, are foreseen at this time.
LEGAL PROCEEDINGS
Western is not involved in any pending material legal
proceedings, nor is any property of Western the subject of any material
legal proceedings. Western has no knowledge of any legal
proceedings contemplated by governmental authorities to which it
may be made a party.
WESTERN MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to the Directors and Executive Officers of Western.
<TABLE>
<CAPTION>
Director or Officer Position With Principal Occupation
NAME AGE SINCE COMPANY FOR LAST FIVE YEARS
<S> <C> <C> <C> <C>
F. Dale Corman{(1)} 58 10/31/95 President, Chief President of Thermal,
Executive Officer & Independent Mining
Director Consultant
Robert A. Quartermain 40 1989 Director President of Silver
Standard Resources
Inc., Golden Knight
Resources Inc., and
Mutual Resources Ltd.
John D. Harvey{(1)} 59 10/31/95 Director, Vice Vice President of Prime
President, Equities International
Exploration Corp.; Prior President
of J.D. Harvey &
Associates; Prior
President of Noranda
Exploration Company
Murray Pezim{(1)} 73 10/31/95 Director, Chairman Chairman of the Board
of the Board and President of Prime
Equities International
Corp.
Michael E. Pezim{(1)} 42 10/31/95 Director Assistant Professor of
Surgery, University of
British Columbia
Lawrence Page 56 10/31/95 Secretary Attorney, Page Fraser &
Associates
Hugh Harbinson 48 10/31/95 Vice President, President of Queenston
Corporate Mining
Development
</TABLE>
{(1)} Prime Equities International Corporation on October 31, 1995
acquired Teck Corporation's 35.89% interest in Western. As part of
the acquisition Prime designated four (4) directors to serve on the
Western Board.
Each director serves until his successor is duly elected and
qualified at the next annual meeting of the stockholders. Each
executive officer serves at the discretion of the Board of
Directors. There are no arrangements or understandings between any
executive officer and any other person pursuant to which such
executive officer was or is to be selected as an executive officer
of Western.
EXECUTIVE COMPENSATION
Mr. Dale Corman was appointed as Western's president on
November 2, 1995. Prior to November 2, 1995, Mr. Robert A.
Quartermain served as president of Western. Mr. Quartermain does
not receive a salary from Western; instead Mr. Quartermain's salary
is paid by Golden Knight, which, in turn, charges fees to Western.
Mr Quartermain does not work full-time on Western matters. See
"Western - Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENTS
Dale Corman has entered into three year employment agreement
pursuant to which he will receive annual salary of Cdn $150,000.
It is anticipated that Mr. Corman will devote substantially all his
time to develop the Carmacks Property.
DIRECTORS COMPENSATION
Western pays no fee to its directors for their services as
such. Certain Western directors have been granted stock options as
described below.
OTHER COMPENSATION PLANS
From time to time Western grants to its directors, officers
and employees stock options pursuant to a Stock Option Plan. The
Stock Option Plan has been approved by the TSE and Western's
shareholders.
Generally, stock options when granted are exercisable all or
in part at the discretion of the
option holder and are non-transferable. Pursuant to TSE policies
the exercise price of options is never less than the market price
on the date of grant of the option. The exercise price of an
option is payable in full in cash or by certified check at the time
of exercise.
No stock options to purchase shares of Western were granted
during the fiscal year ended September 30, 1995. No stock options
were exercised by executive officers listed in the Executive
Compensation table during the last completed fiscal year. The
following table shows, as to executive officers of Western listed
in the Executive Compensation table, the fiscal year end option
values.
cls\thermal5.prx
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Value of
Unexercised Unexercised in-
Options at the-money Options
Fiscal Year at Fiscal Year End
End (#)
Shares Acquired On Exercisable/ Exercisable/
Name On Exercise (#) Value Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert A.
Quartermain -0- -0- 115,000/-0-{(1)} Cdn $97,750/-0-{(1)}
</TABLE>
{(1)} These options were exercised on October 18, 1995 for a net
value of Cdn $97,750.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
The following table sets forth, as of [RECORD DATE] certain information with respect to the beneficial ownership of
common shares (including common shares issuable upon exercise of outstanding options exercisable within 60 days) of Western for the
beneficial owners of (i) more than five percent of the outstanding common shares, (ii) all directors of Western individually, and
(iii) all directors and all executive officers of Western as a group. As of [RECORD DATE] , there were 5,367,058 outstanding
common shares of Western outstanding.
Share of Western Common Shares to be
Shares of Western Common Beneficially Owned after the
SHARE BENEFICIARY OWNED ARRANGEMENT
NAME NUMBER OF SHARES PERCENT OF CLASS NUMBER OF SHARES PERCENTAGE OF CLASS
<S> <C> <C> <C> <C>
F. Dale Corman, Chief 110,000{(1)} 2.0% 574,020{(4)} 5.0%
Executive Officer, President
and Director
Robert A. Quartermain, 175,000{(2)} 3.2% 195,000{(5)} 1.7%
Director
John D. Harvey, 60,000{(1)} 1.1% 60,000 *
Director, Vice President,
Exploration
Murray Pezim, 110,000{(1)} 2.0% 110,000 *
Director, Chairman of the
Board
Michael E. Pezim, 60,000{(1)} 1.1% 60,000 *
Director
All Directors and 665,000{(3)} 11.2% 999,020{(6)} 8.5%
Executive Officers
(8 Individuals)
Prime Equities International 1,983,726 37.0% 1,983,726 17.5%
Corporation
Queenston Mining, Inc. 600,000 11.18% 620,000 5.5%
</TABLE>
{(1)} Represents options immediately exercisable at Cdn $1.15 per common share
expiring on November 1, 2000.
{(2) }Includes options to purchase 60,000 common shares at Cdn $1.15 per
common share expiring on November 1, 2000.
{(3) }Includes options to purchase 555,000 common shares at Cdn $1.15 per
common share expiring on November 1, 2000.
{(4) }Includes 434,020 shares of Thermal Common Stock after giving effect to
the Arrangement and 140,000 shares subject to stock options.
{(5)} Includes 20,000 shares subject to options of Thermal after giving effect
to the Arrangement.
{(6)} Includes 140,000 shares subject to stock options of Thermal after giving
effect to the Arrangement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the two past fiscal years there have been no
transactions between Western, any Executive Officer, Director, or
5% beneficial owner of Western in which one of the foregoing
individuals or entities had an interest and the transaction
exceeded U.S. $60,000.
Under an agreement dated March 31, 1992 with Silver Standard
Resources Inc. ("Silver Standard"), Western pays Silver Standard
Cdn $2,500 per month for general and administrative services
including office space, telephone and accounting services. In
April 1995, Silver Standard no longer provided these services to
Western, and instead such services were provided to Western by
Golden Knight. In addition to office space, telephone and
accounting services, Golden Knight provided certain management and
geological staff to Western for a fee. For the year ended
September 30, 1994, Western paid Silver Standard Cdn $30,000 and
for the year ended September 30, 1995, Western paid Silver Standard
and Golden Knight, in the aggregate, Cdn $35,000.
Teck is a substantial shareholder in Silver Standard and
Golden Knight. In addition, Robert A. Quartermain and William
Meyer are both directors of Silver Standard and Golden Knight. In
light of Teck's sale of its interest in Western, Golden Knight and
Western have agreed to terminate this arrangement.
It is anticipated that Western will enter into a similar
relationship with Prime for Cdn $5,000 per month.
DESCRIPTION OF WESTERN SECURITIES
Pursuant to its Articles of Incorporation, Western is
authorized to issue up to 20,000,000 shares of Common Shares, no
par value.
COMMON SHARES
The holders of Common Shares are entitled to one vote for each
share held of record on each matter submitted to a vote of
shareholders. Further, the holders of Common Shares are entitled
to receive ratable dividends when and as declared by the Board of
Directors from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Western, the holders of
Common Shares are entitled to share ratably in all assets remaining
after payment to holders of any series of preferred Shares or of
any other senior securities outstanding at such time.
WESTERN WARRANTS
On November 3, 1994, Western entered into a Unit Subscription
Agreement with Teck wherein Teck subscribed for 300,000 units,
comprised of one Common Share of Western and a warrant to purchase
one Common Share of Western. Teck provided financial and
engineering support to Western and owned 1,983,726 shares or 35.89%
of Western's Common Shares prior to the purchase of Teck's interest
in Western by Prime. The price per unit was Cdn $1.90. The
warrant exercise price is Cdn $2.10 per Common Share. Teck still
owns these warrants which will expire November 3, 1995.
On May 25, 1994, Western acquired 4,630,000 shares of Common
Stock of Thermal from Queenston. As consideration for the Thermal
shares, Western issued to Queenston 600,000 Common Shares of
Western and warrants to purchase 400,000 Common Shares of Western
at Cdn $2.70 per share. These warrants will expire on August 29,
1996.
WESTERN PLAN OPTIONS
In October 1992, Western adopted a stock option plan for
Western officers, directors and employees. One million (1,000,000)
Western Common Shares were reserved for issuance. The aggregate
number reserved for issuance to any one person is limited to 5% of
the outstanding shares of Western Common Shares. Amendments to
Western's Stock Option Plan were adopted by the Board of Directors
on January 9, 1995. Toronto Stock Exchange approval was obtained
on August 22, 1995. Under the Amended Plan the option price is
calculated by the Board of Directors by using the average of daily
high and low board trading prices over the five day period
immediately preceding and including the date of grant. The option
price cannot be lower than this average market price. The Amended
Plan is being presented to the shareholders for approval by a
majority of the votes at the Western Annual General Meeting other
than votes attaching to securities beneficially owned by insiders
to whom shares may be issued pursuant to the Amended Plan, and
associates of the insiders.
As of November 1, 1995, options for 550,000 shares under the
Plan were outstanding with an exercise price of Cdn $1.15. The
options are exercisable over a five year term.
WESTERN NON PLAN OPTIONS
Pursuant to a stock option agreement dated May 19, 1994,
Western granted to Teck the option to purchase up to 170,000 Common
Shares of Western at a price of Cdn $1.85 per share exercisable up
to and including the close of business of May 18, 1996. The TSE
approved the grant of this option to Teck on August 22, 1994
subject to the approval of a disinterested shareholder vote.
Therefore, a resolution to approve this option will be presented to
Western shareholders at the Annual General Meeting. No shares have
been issued pursuant to this option.
cls\thermal5.prx
<PAGE>
THERMAL EXPLORATION COMPANY
SELECTED FINANCIAL INFORMATION
The following selected financial information of Thermal has
been derived from the Company's audited historical financial
statements and the Company's unaudited condensed financial
statements. Selected financial information for fiscal years 1995
and 1994 should be read in conjunction with such financial
statements and notes thereto included elsewhere herein. Historical
information for periods prior to fiscal 1994 are derived from
financial statements not included herein.
UNITED STATES DOLLARS
<TABLE>
<CAPTION>
For the Quarter For the
ENDED SEPTEMBER 30, YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: 1995 1994 1995 1994 1993 1992 1991
Revenues $ - $ - $ - $ - $31,826 $9,585 $6,533
(Loss) Income from (76,822) 20,835 (184,894) (184,374) (267,723) (754,867) (212,752)
Continuing Operations
Income (Loss) from Operations
- -
- - - 4,571 (152,928)
Gain on Sale - - - - - 810,386{(1)}
Net Income (Loss) (77,622) 20,035 (178,310) (167,545) (268,623) 60,090 (365,680)
Net Income (Loss) per share (0.00) (0.00) (.01) (.01) (.02) (0.00) (.03)
AT SEPTEMBER 30, AT JUNE 30,
Balance Sheet Data: 1995 1994 1995 1994 1993 1992 1991
Working Capital (Deficit) (176,014) (173,022) (21,039) (140,702) (51,607) 46,789 40,754
Deferred Exploration Costs and 1,671,562 1,414,165 1,591,095 1,405,304 1,019,089 738,354 257,195
Mineral Claims
Total Assets 1,683,086 1,542,240 1,688,180 1,513,278 1,167,670 1,170,553 3,166,968
Long Term Obligations -0- -0- -0- -0- -0- -0- 2,249,085
Shareholders' Equity $1,496,064 $1,283,481 $1,462,686 $1,263,446 $927,131 $956,962 $719,382
</TABLE>
{(1)} Recognized gain on sale of Thermal's geothermal operations.
cls\thermal5.prx
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THERMAL
GENERAL
The following discusses Thermal's financial condition and results of
operations based upon Thermal's financial statements which have been prepared
in accordance with generally accepted accounting principles in the United
States.
Thermal's primary business is its 50% joint venture interest in the
Carmacks Property. Thermal also owns mineral claims, a net smelter interest in
a property, and mineral and geothermal data, all of which, pursuant to the
Arrangement will be transferred to Pacific. Due to the speculative nature of
the assets to be transferred, Thermal has assigned no book value to such assets
Thermal receives no revenues from on-going operations, and since fiscal
year ended 1991 has funded its portion of its joint venture expenses through
the sale of its equity securities. Thermal has entered into a Arrangement
Agreement with Western, and assuming that it is consummated, Thermal will no
longer be in existence or responsible for expenses related to the Carmacks
Property. In the event that the Arrangement Agreement is not consummated,
Thermal will still retain its 50% joint venture interest in the Carmacks
Property, subject to dilution in the event Thermal is unable to meet its
portion of the joint venture expenses.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1995 COMPARED TO SEPTEMBER 30, 1994
During the three month period ending September 30, 1995 Thermal had no
operating revenue. Thermal also had no revenue for the corresponding three
month period in 1994. Thermal does not anticipate receiving any significant
income prior to placing the Carmacks Property into production. No assurance
can be given that this will occur. To meet its monthly operating expenses
Thermal will need to raise additional funds through the sale of assets or the
private placement of its common stock.
Total operating expenses for the three month period ended September, 1995
were U.S. $75,686, which represents a increase of U.S. $55,437 from the prior
year's corresponding period when operating costs were U.S. $20,249. The
increase is primarily the result of higher legal and accounting cost associated
with the proposed reorganization with Western.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO JUNE 30, 1994
During fiscal 1995, Thermal received no revenues from operations. Net
loss during fiscal 1995 was U.S. $178,310 compared to U.S. $167,545 for fiscal
1994. Operating loss increased to U.S. $233,323 during fiscal 1995 from U.S.
$181,911 during fiscal 1994. The operating loss during fiscal 1995 increased
primarily due to the write-off of deferred costs related to the option on
mineral claims covering 38,000 acres in the Lac de Gras area of Canada's
Northwest Territories, and the write-off of U.S. $27,814 related to other
deferred exploration costs.
Other income during fiscal 1995 consisted principally of a gain of U.S.
$30,664 on the sale of 2,057 acres of land in Utah and a gain of U.S. $37,573
on the sale of marketable securities held by Thermal.
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO JUNE 30, 1993
During the year ended June 30, 1994 Thermal had an operating loss of U.S.
$181,911 compared to U.S. $356,676 for the year ended June 30, 1993. A
significant portion of the 1993 losses resulted from losses on the
disposition/write-down of seismic costs, deferred exploration costs and mineral
rights amounting to U.S. $205,222. In 1994, write-offs of deferred exploration
costs and mineral claims amounted to U.S. $9,750. General and administrative
costs declined in 1994 by U.S. U.S. $11,119, from U.S. $183,280 in 1993 to U.S.
$172,161 in 1994.
Thermal had a net loss for the year of U.S. $167,545 compared to a loss of
U.S. $268,623 in 1993. The loss in 1993 reflects the write-down of seismic
costs of U.S. $155,222.
LIQUIDITY
Thermal had no revenue for the fiscal years ending June 30, 1995 and 1994.
During the fiscal year ending June 30, 1995 Thermal issued 350,000 common
shares as a result of the exercising of stock options by officers and directors
of Thermal. The proceeds from these transactions, Cdn $76,500 (U.S. $54,000)
was used to pay general corporate expenses. Western also purchased 1,200,000
shares of Thermal's Common Stock at Cdn $0.30 per share. In conjunction with
this purchase, warrants (exercisable for one year) to purchase 600,000 shares
of Thermal's Common Stock at a price of Cdn $0.35 were issued to Western. The
proceeds of Cdn $360,000 were applied to Thermal's share of Carmacks Property
expenditures and general corporate purposes.
On May 25, 1995 Thermal agreed to issue 500,000 shares of its Common Stock
to a private individual at a price of Cdn $0.30 per share on the condition that
Thermal shares be issued on a Flow-Through Agreement basis (see Footnote 6,
paragraph 2 to Thermal's financial statements for the year ended June 30, 1995
for an explaination of a Flow-Through Agreement). In addition, warrants for
the purchase of an additional 500,000 shares of Thermal's common stock were
issued to the individual exercisable at Cdn $0.40, which expire one year from
the date of grant. Thermal used the proceeds of Cdn $150,000 (U.S. $109,500)
to pay exploration expenditures related to the Carmacks Property.
As of June 30, 1995 total current liabilities exceed current assets by
U.S. $21,039. Thermal intends to meet its short term obligations through the
private placement of its shares or loans from its principal shareholders. As
of June 30, 1995 Thermal had a cash balance of U.S. $958, a decrease of U.S.
$28,372 for the year ended June 30, 1994. Cash in the amount of U.S. $75,497
which was held in trust on June 30, 1995 was received in early July 1995.
Thermal is responsible for its 50% share of exploration and capital costs for
the Carmacks Property.
Rothschild has entered into letter agreement to loan Cdn $2.5 million to
Western to be used for working capital and for the completion of final
engineering of the Carmacks Property. It is anticipated that the loan to
Western will be secured by Thermal's interest in the Carmacks Property.
cls\thermal5.prx
<PAGE>
CAPITAL RESOURCES
Thermal's current primary commitment is for the Carmacks Property. No
lease rentals were paid in the fiscal year ended June 30, 1995, nor are any
anticipated for fiscal year 1996.
Thermal has incurred expenses of U.S. $1,586,810 on exploration related to
its interest in the Carmacks Property. These amounts were funded from the sale
of its geothermal properties, sale of seismic data and the private placement of
its securities. Thermal is required to fund 50% of the ongoing costs of the
Carmacks Property, or its interest may be diluted.
In general, Thermal expects that its ability to maintain its interest in
the Carmacks Property will depend upon its ability to raise funds through
securities offerings, limited partnership sponsorships or negotiation of a
carried interest, in which another participant advances funds on Thermal's
behalf for later recoupment (with interest) from project revenue. If the
Arrangement Agreement is effected, Western will be responsible to raise
financings to pay for expenses and the cost of production of the Carmacks
Property.
FUTURE OPERATIONS
Thermal and Western intend to develop and operate the Carmacks Property,
and intend to seek debt and equity financing. Assuming that the Arrangement
Agreement is effected, Western will be responsible to raise financing to
develop and to place the Carmacks Property into production. In the event that
the Arrangement Agreement is not approved, Thermal will be responsible for 50%
of the expenses related to the Carmacks Property or have its ownership interest
diluted.
Thermal's primary focus has been the development of the Carmacks Property.
Through its to be formed, wholly-owned subsidiary, Pacific, Thermal also owns
mineral claims and mineral and geothermal data.
Common Stock of Pacific, will be distributed to Thermal shareholders,
except for Western, on a pro rata basis. Pacific will be engaged in the
business of exploration of mineral properties, subject to its ability to raise
financing.
THERMAL EXPLORATION COMPANY
BUSINESS
Thermal was incorporated in the State of California on February 18, 1972.
Since that date, Thermal has been engaged in the exploration and development of
natural resources. Until July, 1991, Thermal was primarily engaged in the
geothermal energy industry, through the maintenance of its 7.5% working
interest in the 21.4 megawatt power plant at the Roosevelt Geothermal Unit near
Milford, Utah ("Roosevelt"). Thermal also participated in natural gas
exploration through the acquisition and interpretation of seismic data in
Western Canada and the drilling of natural gas wells.
In August, 1991, Thermal sold its interest in geothermal leases and field
facilities for the production of geothermal steam, contract rights, and related
rights and assets at Roosevelt for U.S. $450,000 in cash, certain geothermal
data, the forgiveness of approximately U.S. $2.3 million in debt, and the
release of Thermal from all of its obligations and liabilities with respect to
Roosevelt. Thermal also sold its royalty interest in future steam sales, if
any, from the Fish Lake Unit for U.S. $112,500. Proceeds from the sales were
used to meet Thermal's obligations under the joint venture.
Thermal has no full-time employees. Thermal's president works on a
consulting basis. Other services required by Thermal are contracted for as
necessary.
MINERAL PROPERTIES
CARMACKS PROPERTY
Thermal and Western each have a 50% joint venture interest in the Carmacks
Property. See "Western Copper Holdings Limited - Carmacks Property" for a
description of the Carmacks Property.
LAC DE GRAS DIAMOND PROPERTY
On May 7, 1992 Thermal entered into an option agreement with the Heard
Syndicate of Vancouver, British Columbia, a non-affiliate to acquire a 70%
interest in mineral claims of approximately 94,519 acres located in the Lac de
Gras area of the Northwest Territories of Canada. The claims are located on
the Archean geological trend in which BHP Corporation and Kennecott Canada
Limited ("Kennecott") have announced the discovery of kimberlite pipes
containing gem quality diamonds. The Lac de Gras diamond property is located
approximately 40 miles north and east of the BHP discovery and is considered by
management to be in an area favorable for the formation of diamondiferous
kimberlite pipes.
Thermal paid the Heard Syndicate a total Cdn $47,259 and 200,000 shares of
Common Stock. Thermal concurrently entered into an agreement with Kennecott, a
wholly-owned subsidiary of Kennecott Inc. of Salt Lake City, Utah, whereby
Kennecott reimbursed Thermal Cdn. $47,259 to earn up to a 70% interest in the
project by providing all exploration costs through to a production decision.
As of August 9, 1993 Kennecott, after completing an airborne magnetometer and
resistivity survey and limited soil sampling, discontinued exploration of the
Lac de Gras diamond property and relinquished all rights to the Las de Gras
diamond property. Kennecott, during the course of its exploration, spent
approximately Cdn. $197,000, a sufficient amount to keep the claim to
approximately 38,000 acres of the original 94,519 acres in good standing until
March, 1996. This claim to a 70% interest in approximately 38,000 acres will
be transferred to Pacific.
Based on its estimate of recoverability of its acquisition and exploration
costs for the Lac de Gras diamond property, Thermal wrote off all of its
capitalized costs. Thermal has been seeking another senior mining company as a
joint venture partner to conduct further exploration on the property. Thermal
believes that Pacific will continue this effort although no assurance can be
given that Pacific will be successful. In the event that Pacific is unable to
find a joint venture partner to develop the Lac de Gras property, it will
probably let its rights lapse.
KIRKLAND LAKE COPPER-GOLD PROPERTY
In March of 1994, Thermal acquired, by staking, two claims (approximately
320 acres) in the Kirkland Lake area of Ontario, Canada, at a cost of Cdn $764.
The Kirkland Lake Copper-Gold claims were subsequently optioned to Kalahari
Resources Inc. in August, 1994. The option provided Thermal with 75,000 shares
of Kalahari common stock and a 4% net smelter return, of which Kalahari can
repurchase from Thermal 1.5% of the net smelter return for Cdn $1,500,000.
During fiscal 1994 Thermal sold the Kalahari common shares and received U.S.
$37,573. Kalahari failed to meet a cash payment of U.S. $10,000 to Thermal due
in August of 1995 and has thereby relinquished any right to the mineral claims.
No assurance can be given that minerals that can be economically mined will be
found. The Kirkland Lake copper-gold property claims will be transferred to
Pacific.
NEVADA GOLD PROPERTY
On December 21, 1994, Thermal acquired, by staking, seven mineral claims
in Nye County, Nevada. The Nevada Gold Property claims will be transferred to
Pacific.
A jasperoid ridge within the Nevada Gold property contains anomalous gold,
silver, antimony, arsenic and mercury. A large induce polarization anomaly
suggestive of sulfide mineralization parallels the ridge 500 feet to the east.
A drill program to test this anomaly is planned for early calendar year 1996.
A 2% net smelter return, of which Thermal can repurchase 1% for U.S. $1
million, has been granted to two technical consultants, who are non-affiliates,
for their work in structural interpretation and geophysical interpretation.
MINERAL AND GEOTHERMAL DATA
Thermal also owns mineral data and geothermal data covering the Western
region of the United States. No book value has been assigned to this data.
This data will be transferred to Pacific.
ENVIRONMENTAL MATTERS
The exploration and production of copper is subject to environmental
regulations by federal, and local authorities. Thermal must comply with
Canadian Federal Government and Yukon Territorial Government statutory
requirements that relate to exploration procedures, reclamation, safety
precautions, employees' health and safety, use of explosives, air quality
standards, pollution of stream and fresh water sources, noxious odors, noise,
dust and other environmental protection controls as well as the rights of
adjoining property owners.
While no guarantee exists that statutory requirements may not be amended,
preventing or delaying the commencement or continuance of given operations, no
material expenditures for environmental control facilities, other than those
mentioned above, are foreseen at this time.
LEGAL PROCEEDINGS
Thermal is not, nor are any of its properties, involved in any legal
proceeding.
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<PAGE>
THERMAL MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Thermal.
<TABLE>
<CAPTION>
Director or Officer Position With Principal Occupation
NAME AGE SINCE COMPANY FOR LAST FIVE YEARS
<S> <C> <C> <C> <C>
F. Dale Corman 58 1985 Chairman of Board, Independent Mining
President & C.E.O. Consultant
Robert A. Quartermain 40 1994 Director President & C.E.O. of
Silver Standard and
Golden Knight
Resources.
William Meyer 58 1994 Director Director of Western,
President of Teck
Exploration, V.P. of
Teck Corp.
Hugh M. Blair 64 1988 Director Independent Financial
Consultant
James E. Lanigan 49 1988 Secretary, Treasurer Independent Business
Consultant
</TABLE>
Each director is elected at the annual meeting of the stockholders and
serves until his successor is duly elected and qualified. Thermal's last
annual meeting was held on January 27, 1995. Each executive officer serves at
the discretion of the Board of Directors. There are no arrangements or
understandings between any executive officer and any other person pursuant to
which such executive officer was or is to be selected as an executive officer
of Thermal.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid for
the past three years to Dale Corman, President and Chief Executive Officer. No
employee total compensation exceeded U.S. $100,000 during the fiscal year 1995.
cls\thermal5.prx
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Other Annual Compensation All Other
NAME YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Dale Corman, 1995 U.S. $62,762 -0- -0- 150,000 -0-
President
1994 U.S. $48,670 -0- -0- -0- -0-
1993 U.S. $77,760 -0- -0- -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
There are no employment agreements with respect to the
officers and directors of Thermal.
DIRECTORS COMPENSATION
Thermal pays no fee to its directors for their services as
such. However, some of the directors provide their time on a
consulting basis.
OTHER COMPENSATION PLANS
Certain executive officers also have been granted stock
options under Thermal's Stock Option Plan. The following tables
show the number of shares of Thermal Common Stock subject to
options granted by Thermal and exercised by the executive officers
listed in the Executive Compensation table during the last
completed fiscal year.
<TABLE>
<CAPTION>
Percentage of Total
OPTION GRANTS IN LAST Options Granted to
FISCAL YEAR Employees in Exercise of
Fiscal Year Ended Base Price
INDIVIDUAL GRANTS
Name Options Granted June 30, 1995 ($/sh) Expiration Date
<S> <C> <C> <C> <C>
F. Dale Corman 150,000 100% Cdn $0.35 1/27/2000
</TABLE>
cls\thermal5.prx
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
FISCAL YEAR END OPTION VALUES
<S> <C> <C> <C> <C>
Number of Value of
Unexercised Unexercised in-
Options at the-money Options
Fiscal Year End (#) at Fiscal Year End ($)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (#) Value Realized Unexercisable Unexercisable
F. Dale Corman ______ ______ 200,000/-0- None of these
options are in the
money
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of November 30,
1995 with respect to (i) the beneficial owners of more than 5% of Thermal's
Common Stock (including Common Stock issuable upon exercise of options and
warrants exercisable within 60 days) and Series A Preferred Stock; (ii) each
director and executive officer and (iii) all officers and directors as a group:
<TABLE>
<CAPTION>
Shares of Western Common Shares to
Shares of Thermal Common Be Beneficially Owned after the
STOCK BENEFICIARY OWNED ARRANGEMENT
NAME NUMBER OF SHARES PERCENT CLASS NUMBER OF SHARES PERCENTAGE OF SHARES
<S> <C> <C> <C> <C>
Western Copper Holdings 6,430,000{(1)} 38% -0- -0-
Limited
F. Dale Corman 2,320,101{(2)} 13.5% 574,020{(7)} 5.0%
Director, Chairman & President
Hugh M. Blair 700,101{(3)} 4.0% 140,020 1.2%
Director
Robert A. Quartermain 100,000{(4)} * 195,000{(8)} 1.7%
Director
William Meyer 100,000{(4)} * 20,000 *
Director
James E. Lanigan 180,000{(5)} 1.0% 36,000 *
Secretary, Treasurer
All Directors and Executive 3,450,202{(6)} 19% 1,065,020{(9)} 9.14%
Officers (5 persons)
SERIES A PREFERRED STOCK
Queenston Mining, Inc. 100,000 83% -0- -0-
</TABLE>
{(1)} Includes 600,000 shares subject to warrants. The exercise price for the
warrants is Cdn $.40 per share.
{(2) }Includes 90,000 shares held by Caroline Corman, the wife of Mr. Corman.
Mr. Corman disclaims beneficial ownership to Mrs. Corman's shares.
Includes 150,000 shares subject to stock options. The exercise price of
these options is Cdn $0.35 per share.
{(3) }Mr. Blair holds directly 75,000 shares in his Registered Retirement
Savings Plan, and indirectly 350,101 shares through MacLean Blair & Co.
Limited. Mr. Blair's wife holds 75,000 shares. Includes 200,000 shares
which are subject to stock options. The exercise prices of these stock
options are 100,000 at Cdn $0.35 and 100,000 at Cdn $0.73 per share.
{(4)} Includes 100,000 shares subject to stock options at an exercise price
Cdn $0.35 per share.
{(5) }Includes 150,000 shares subject to stock options. The exercise prices
of these options are 50,000 at Cdn $0.22 and 100,000 at Cdn $0.35 per
share.
{(6)} Includes 700,000 shares subject to stock options.
{(7)} Includes options to acquire 110,000 Common Shares of Western.
{(8)} Includes 115,000 Common Shares of Western and 60,000 Common Shares
subject to options.
{(9)} Includes 115,000 Common Shares of Western and 170,000 Common Shares
subject to options.
* Less than one percent
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two fiscal years there have been no transactions between
Thermal, any executive officer, director, or 5% beneficial owner of Thermal in
which one of the foregoing individuals or entities had an interest and the
transaction exceeded U.S. $60,000. Thermal leases office space from Mr. Dale
Corman, Thermal's President, on a month-to-month basis for U.S. $500 per month.
DESCRIPTION OF THERMAL SECURITIES
Pursuant to its Restated Articles of Incorporation, Thermal is authorized
to issue up to 100,000,000 shares of Common Stock, no par value, and 5,000,000
shares of Preferred Stock, no par value.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Further, the
holders of Common Stock are entitled to receive ratable dividends when and as
declared by the Board of Directors from funds legally available therefor. In
the event of a liquidation, dissolution or winding up of Thermal, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment to holders of any series of preferred stock or of any other senior
securities outstanding at such time.
PREFERRED STOCK
Thermal also authorized 5,000,000 shares of Preferred Stock. The Board of
Directors is authorized to provide for the issuance of other series of
Preferred Stock and to determine the rights and privileges of Preferred Stock,
including the conversion rights and voting rights of any issuance without any
further vote or action by shareholders. 1,427,303 shares of such Preferred
Stock are designated as Series A Preferred Stock.
The holders of Series A Preferred Stock are not entitled to vote except on
certain matters where shareholder votes by class are required by law. Further,
holders of Series A Preferred Stock are entitled to dividends when and if
declared by the Board of Directors and, upon liquidation, dissolution or
winding up of Thermal, are entitled to be paid out of the net assets of Thermal
before any payment shall be made in respect of Common Stock, an amount equal to
three dollars per share plus all declared and unpaid dividends thereon. Each
share of Series A Preferred Stock has the right to convert into one share of
Common Stock. There are 120,000 shares of Series A Preferred Stock
outstanding.
THERMAL WARRANTS
Thermal has outstanding warrants to purchase 1,100,000 shares of Thermal
Common Stock. However, warrants for 600,000 shares are held by Western,
leaving warrants for 500,000 shares outstanding upon the consummation of the
Arrangement. These warrants for 500,000 shares will expire in May of 1996 and
are exercisable at Cdn $.40 per share The Arrangement Agreement provides that
Copper will assume the obligation to provide, for delivery for each unexpired
and unexercised warrant, Western Common Shares pursuant to the terms of the
warrant except that the number of Western stock to be delivered under the
warrants purchasable thereunder and the exercise price per share will be
adjusted in order to reflect the reorganization exchange ratio. A vote in
favor of Proposal 3 will also constitute a vote in favor of the assumption of
this obligation by Copper.
THERMAL PLAN OPTIONS.
In October 1989, Thermal adopted a stock option plan for Thermal officers,
directors and employees: the 1989 Incentive Stock Option Plan for directors,
officers and employees (the "1989 Plan"). Initially 1,000,000 shares of
Thermal Common Stock were reserved for issuance under the 1989 Plan. An
additional 500,000 shares of Thermal Common Stock were reserved during the year
ended June 30, 1992. Under the 1989 Plan, options are to be granted and priced
as determined by the board of directors. Vesting under the 1989 Plan occurs
immediately upon the granting of the options.
As of June 30, 1995, options for 690,000 shares under the 1989 Plan were
outstanding with exercise prices ranging from Cdn $.20 to Cdn. $.54. Although
the 1989 Plan provides that in the event of the sale of all or substantially
all of Thermal's assets the options terminate, the Arrangement Agreement
provides that Copper will assume the obligation to provide for delivery for
each unexpired and unexercised options, Western Common Shares pursuant to the
terms of the option except that the number of Western Common Shares to be
delivered under the option purchasable thereunder and the exercise price per
share will be adjusted in order to reflect the reorganization exchange ratio.
A vote in favor of Proposal 3 will also constitute a vote in favor of the
assumption of this obligation by Copper.
cls\thermal5.prx
<PAGE>
THERMAL NON-PLAN OPTIONS.
Thermal has granted options outside of the 1989 Plan ("Non-Plan Options").
As of November 30, 1995, Non-Plan Options for 100,000 shares of Thermal Common
Stock at an exercise price of Cdn $.25 were outstanding. This Non-Plan Option
was issued to a consultant of Thermal and will expire January 23, 1996. The
Arrangement Agreement provides that Copper will assume the obligation to
provide for delivery for each unexpired and unexercised option, Western Common
Shares pursuant to the terms of the option except that the number of Western
stock to be delivered under the options purchasable thereunder and the exercise
price per share will be adjusted in order to reflect the reorganization
exchange ratio. A vote in favor of Proposal 3 will also constitute a vote in
favor of the assumption of this obligation by Copper.
PACIFIC CASCADE RESOURCES CORP.
BUSINESS
GENERAL
Pacific Cascade Resources Corp., a British Columbia corporation, is a to
be formed wholly-owned subsidiary of Thermal. As part of the Arrangement,
Thermal will distribute all shares of Common Stock of Pacific held by Thermal
to shareholders of Thermal (except for Western) on a pro rata basis. Pacific's
primary assets will consist of mineral claims on the Lac de Gras Diamond
Property, a 100% working interest in the Kirkland Lake copper-gold property,
and a 100% interest in mineral claims in Nye County, Nevada. In addition,
Pacific will own mineral and geothermal data relating to western region of the
United States. These assets will be transferred by Thermal to Pacific as part
of the Arrangement. For a description of these properties, see "Thermal
Exploration Company." Due to the speculative nature of these assets, Thermal
has assigned no book value to such assets. It is anticipated that Pacific will
be engaged in the business of the exploration of mineral properties. Pacific's
principal executive office will be located in Vancouver, British Columbia,
Canada.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
F. Dale Corman will serve as the sole director of Pacific until his
successor is elected or appointed. It is anticipated that additional directors
may be elected to Pacific's board. See "Thermal Exploration Company-
Management."
DESCRIPTION OF SECURITIES
Pacific will be authorized to issue an unlimited number of common and
preferred shares, without par value.
All common shares to be issued to the Thermal shareholders (other than
Western) upon the consummation of the Arrangement, will be fully paid and non-
assessable. Each holder of record of common shares is entitled to one vote for
each common share so held on all matters requiring a vote of shareholders,
including the election of directors. There are no preferences, conversion
rights, preemptive rights, subscription rights, or restrictions or transfers
attached to the common shares. In the event of liquidation, dissolution, or
winding up of Pacific, the holders of common shares are entitled to participate
in the assets of Pacific available for distribution after satisfaction of the
claims of creditors.
The preference shares may be issued at any time and from time to time in
one or more series. The issuance of preference shares by the Board of
Directors with voting, conversion or other rights could have the effect of
delaying, deferring, or preventing a change in control of Pacific or could
adversely affect the voting power of the holders of common shares.
TRANSFER AGENT AND REGISTRAR
Montreal Trust Company of Canada in Calgary, Alberta, Canada is proposed
to be the transfer agent and registrar of Pacific's common shares.
DISSENTER'S RIGHTS
REINCORPORATION OF THERMAL TO WYOMING UNDER THE LAWS OF CALIFORNIA
Any shareholder is entitled to be paid the fair value of its shares in
accordance with Section 1300 et seq. of the Corporations Code if the
shareholder dissents to the reincorporation of Thermal from the State of
California to the State of Wyoming. A shareholder is not entitled to dissent
with respect to its shares if any of such shares are voted in favor of the
Proposal 1 authorizing the reincorporation. A brief summary of the provisions
of Sections 1300 to 1304 of the Code is set forth below and the complete text
of Section 1300 et seq. of the Corporations Code is set forth in Appendix C.
If the reincorporation from the state of California to Wyoming is approved
by the required vote of Thermal's shareholders, each holder of shares of
Thermal Common Stock or Series A Preferred Stock who abstains from voting or
who votes against Proposal 1 and who follows the procedures set forth in
Chapter 13 of the Corporations Code, will be entitled to have his or her shares
of Thermal Common Stock or Series A Preferred Stock purchased by Thermal for
cash at their fair market value. The fair market value of shares of Thermal
Common Stock and Series A Preferred Stock will be determined as of the day
before the first announcement of the terms of the proposed Arrangement,
excluding any appreciation or depreciation in consequence of the proposed
Arrangement.
Within ten days after approval of Proposal 1 by Thermal's shareholders,
Thermal must mail a notice of such approval (the "Approval Notice") to all
shareholders who abstained or voted against Proposal 1, together with a
statement of the price determined by Thermal to represent the fair market value
of the applicable Thermal Common Stock or Series A Preferred Stock, a brief
description of the procedures to be followed in order for the shareholder to
pursue his or her dissenters' rights and a copy of Sections 1300-1304 of the
Corporations Code. The statement of price by Thermal constitutes an offer by
Thermal to purchase all Thermal Common Stock or Series A Preferred Stock at the
stated amount.
A shareholder of Thermal wishing to exercise dissenters' rights must
demand in writing from Thermal the purchase of his or her shares of Thermal
Common Stock or Series A Preferred Stock and payment to the shareholder of
their fair market value. The demand is not effective for any purpose unless it
is received by Thermal or its transfer agent within 30 days of the date which
the Approval Notice is mailed to the shareholder. A holder who wishes to
exercise dissenters' rights should mail or deliver his or her written demand to
Thermal's transfer agent Montreal Trust Company of Canada, Corporation Services
Division, 510 Burrard Street, 4th Floor, Vancouver, British Columbia, Canada
V6C 3B9 on or before 10:00 a.m. on _______________, 1996. The demand should
specify the holder's name and mailing address, the number of shares of Thermal
Common Stock or Series A Preferred Stock owned by such shareholder, and state
that such holder is demanding purchase of his or her shares and payment of
their full market value, and must also contain a statement as to what the
shareholder claims to be the fair market value of such shares. Such statement
of the fair market value of the shares constitutes an offer by the shareholder
to sell such shares to Thermal at that price. In addition, within 30 days
after the date on which Approval Notice is mailed to the shareholder, the
shareholder must submit the certificate representing any shares, which the
shareholder demands that Thermal purchase, to Thermal for endorsement.
If Thermal and the shareholder agree that the shares are dissenting shares
and agree upon the purchase price of the shares, the dissenting shareholder is
entitled to the agreed upon price with interest thereon at the legal rate on
judgements from the date of such agreement. Payment for the dissenting shares
must be made within 30 days after the later of the date of such agreement or
the date on which all statutory and contractual conditions to Proposal 1 are
satisfied, and will be made subject to receipt by Thermal of the certificates
for the dissenting shares.
If Thermal denies that any of such shares are dissenting shares, or if
Thermal and the shareholder fail to agree upon the fair market value of such
shareholder's dissenting shares, then within six months after the date the
Approval Notice was mailed to shareholders any shareholder who has made a valid
written purchase demand may file a complaint in the Superior Court of Nevada
County, California, requesting a determination as to whether the shares are
dissenting shares or as to the fair market value of such dissenting shares, or
both, or may intervene in any pending action on such a complaint brought by any
other Thermal shareholder.
If any holder of shares of Thermal Common Stock who demands the purchase
of his or her shares under Chapter 13 fails to perfect, or effectively
withdraws or loses his or her right to such purchase, the shares of such holder
will be converted into a right to receive that number of shares of Western
Common Stock equal to that number of Western Common Shares that the holder
would receive if he or she had voted for the Arrangement.
ARRANGEMENT
BRITISH COLUMBIA COMPANY ACT
As indicated in the Notice of Meeting, under the Plan of Arrangement and
pursuant to the Interim Order, a member (REGISTERED SHAREHOLDER) of Western is
entitled to dissent and be paid the fair value of his Western Shares in
accordance with the procedure set out in Section 231 of the Company Act if the
member objects to the Arrangement Resolution and the Arrangement becomes
effective. A member may dissent only with respect to all of the Western Shares
held by the member on behalf of any one beneficial owner and registered in the
member's name. Accordingly, a member is not entitled to dissent with respect
to any Western Shares on the Arrangement if the member votes any of such shares
beneficially owned by him in favor of the Arrangement Resolution. Only members
(REGISTERED SHAREHOLDERS) may exercise dissent rights. IF YOUR SHARES ARE NOT
REGISTERED IN YOUR NAME, YOU MUST CONTACT YOUR BROKER, BANK, TRUST COMPANY OR
OTHER CUSTODIAN OR TRUSTEE IN WHOSE NAME YOUR SHARES ARE REGISTERED AND
INSTRUCT THEM TO DELIVER A NOTICE OF OBJECTION ON YOUR BEHALF. FAILURE TO DO
SO WILL RESULT IN THE COMPLETE LOSS OF ANY DISSENTERS' RIGHTS YOU MAY HAVE.
Under the Interim Order and in accordance with Section 231 of the Company
Act, in order to dissent, a registered holder of Western Shares must send a
written objection (an "Objection Notice") to the Montreal Trust Company of
Canada, Corporate Services Division, 510 Burrard Street, 4th Floor, Vancouver,
British Columbia, Canada V6C 3B9, with respect to the Arrangement Resolution
on or before 10:00 a.m. (PST), on __, 1996. The execution or exercise of a
proxy does not constitute such a written objection. A vote against the
Arrangement Resolution or an abstention does not constitute such a written
objection, but a member need not vote his Western Shares against the
Arrangement Resolution in order to object. Within 10 days after the approval
of the Arrangement Resolution by the Western members at the Meeting, Western
will send to each member who has filed an Objection Notice a notice stating
that the Arrangement Resolution has been adopted (the "Company Notice"). A
Company Notice is not required to be sent to any member who voted for the
Arrangement Resolution or who has withdrawn the Objection Notice.
On sending the Objection Notice, a Western member ceases to have any
rights as a member except the right to be paid the fair value of his shares in
respect of which he has dissented. Shares with respect to which a member has
delivered an Objection Notice with respect to the Arrangement Resolution will
be deemed to have been cancelled pursuant to the Arrangement unless the
dissenting member withdraws the Objection Notice not later than 3:00 p.m. (PST)
on the business day immediately preceding the Effective Date or the Arrangement
does not proceed, in which case such member's rights are reinstated as of the
date the member sent the Objection Notice.
If the Arrangement becomes effective, Copper will, not later than seven
days after the Effective Date, send to each dissenting member a written offer
(the "Offer to Purchase") to pay for the Thermal-BC Shares held by the
dissenting members an amount considered by the directors of Copper to be the
fair value thereof, accompanied by a statement showing how the fair value was
determined. Every Offer to Purchase shall be on the same terms. Dissenting
members who accept the Offer to Purchase will, unless such payment is
prohibited by the Company Act, be paid within 10 days. The Offer to Purchase
lapses if Copper does not receive an acceptance within 30 days after the date
on which the Offer to Purchase was made.
If Copper fails to make the Offer to Purchase, or the dissenting member
fails to accept the Offer to Purchase, Copper may apply to a court to fix a
fair value for the Thermal-BC Shares held by dissenting members within 50 days
after the Effective Date or within such further period as the court may allow.
Upon any such application by Copper, Copper shall notify each affected
dissenting member of the date, place and consequences of the application and of
such dissenting member's right to appear and be heard in person or by counsel.
If Copper fails to make such an application, a dissenting member has the right
to so apply within a further period of 20 days or within such further period as
the Court may allow. The applications referred to above shall be made to a
Court having jurisdiction in the place where Copper has its registered office
(currently being Vancouver, British Columbia, Canada) or in the province where
the dissenting member resides if Copper carries on business in that province
(Copper carries on business only in British Columbia). All dissenting members
whose Copper Shares have not been purchased by Copper will be joined as parties
to the application and will be bound by the decision of the Court. The Court
may determine whether any person is a dissenting member who should be joined as
a party and the Court will fix a fair value for the Thermal-BC Shares of all
dissenting members.
If the Arrangement becomes effective, a member who complies with each of
the steps required to dissent effectively is entitled to be paid the fair value
of the Thermal-BC Shares in respect of which he dissents, determined as of the
close of business on the day before the Meeting. The directors of Western may,
in certain circumstances, terminate the Arrangement, including if sufficient
Thermal-BC Shares are subject to Objection Notices.
If the Arrangement is implemented, a dissenting member who is ultimately
not entitled to be paid fair value for his or her Thermal-BC Shares for any
reason, including the failure of the dissenting member to comply with each of
the steps required to dissent, shall be deemed to have participated in the
Arrangement on the same basis as any non-dissenting holder of Thermal-BC
Shares.
STRICT COMPLIANCE WITH DISSENT PROVISIONS REQUIRED
The foregoing summaries do not purport to provide comprehensive statements
of the procedures to be followed by a dissenting shareholder who seeks payment
of the fair value of his shares of Thermal Common Stock. Section 1300 of the
Code and Section 231 of the Company Act each require strict adherence to the
procedures established therein and failure to do so may result in the loss of
all dissenters' rights. Accordingly, each shareholder who might desire to
exercise dissenters' rights should carefully consider and comply with the
provisions of these sections, the full texts of which are set out in Appendix C
to this Proxy Statement and consult his legal advisor.
LEGAL MATTERS
Bartel Eng Linn & Schroder, Sacramento, California is acting as counsel
for Thermal in connection with certain legal matters relating to the
Arrangement. Smith, Lyons, Torrance, Stevenson & Mayer, Vancouver, British
Columbia is acting as counsel for Western in connection with certain legal
matters relating to the Arrangement.
STOCKHOLDER PROPOSALS
If the Arrangement is not consummated, it is currently anticipated that
the 1996 Annual Meeting of Shareholders of Thermal will be held on or about May
17, 1996. If such meeting is held, shareholder proposals intended to be
presented at such meeting were required to be received by Thermal not later
than May 17, 1996 for inclusion on the proxy materials for such meeting.
cls\thermal5.prx
<PAGE>
OTHER MATTERS
Thermal is not aware of any other matters to be brought before this
Meeting. However, if any other matters should come before the Meeting, the
persons named on the proxy will vote such proxy in accordance with their
judgement on such matters. Further, it is not anticipated that a
representative of Deloitte & Touche will be at the Meeting to answer questions.
By Order of the Board
(signed) "James E. Lanigan"
JAMES E. LANIGAN, SECRETARY
January __, 1996
cls\thermal5.prx
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Western Copper Holdings Limited
Auditors' Report .................................................F-1
Balance Sheets as at September 30, 1995 and 1994..................F-2
Statements of Loss and Deficit For Each of the Years in the
Five Year Period Ended September 30, 1995......................F-3
Statements of Changes in Financial Position For Each of the
Years in the Five Year Period Ended September 30, 1995.........F-4
Notes to Financial Statements.....................................F-5
Thermal Exploration Company
Balance Sheets as at September 30, and June 30, 1995 (unaudited).F-14
Statements of Operations and Deficit For the Three Months
Ended September 30, 1995 and 1994 (unaudited).................F-15
Statements of Cash Flows for the Three Months
Ended September 30, 1995 and 1994 (unaudited).................F-16
Notes to Financial Statements....................................F-17
Report of Independent Auditors...................................F-18
Balance Sheets as at June 30, 1995 and 1994......................F-19
Statements of Operations and Deficit for the Three Months Ended
for the Years Ended June 30, 1995 and 1994....................F-20
Statements of Stockholders' Equity
for the Years Ended June 30, 1995 and 1994....................F-21
Statements of Cash Flows for the for the Three Months Ended
for Years Ended June 30, 1995 and 1994........................F-22
Notes to Financial Statements....................................F-23
Western Copper Holdings Limited
Compilation Report...............................................F-29
Pro Forma Consolidated Balance Sheet As of
September 30, 1995 (unaudited)................................F-30
Pro Forma Consolidated Statement of Loss For the
Year Ended September 30, 1995 (unaudited).....................F-31
Notes to Pro Forma Consolidated Financial Statements
As of September 30, 1995......................................F-32
cls\thermal5.prx
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS OF WESTERN COPPER HOLDINGS LIMITED
We have audited the balance sheets of Western Copper Holdings Limited as at
September 30, 1995 and 1994 and the statements of loss and deficit and
changes in financial position for each of the years in the five year period
ended September 30, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at September 30, 1995
and 1994 and the results of its operations and the changes in its financial
position for each of the years in the five year period ended September 30,
1995 in accordance with Canadian generally accepted accounting principles.
COOPERS & LYBRAND
Vancouver, B.C.
October 20, 1995
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
BALANCE SHEETS
AS AT SEPTEMBER 30, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS
Cash and short-term deposits $ 237,601 $ 565,957
Accounts receivable (note 7) 103,969 45,607
Working capital loan receivable (note 3) 100,995
442,565 611,564
LOAN RECEIVABLE (note 3) 252,828
INVESTMENT IN ASSOCIATED COMPANY (note 5) 1,656,601 1,399,800
MINERAL PROPERTIES AND DEFERRED
EXPLORATION AND DEVELOPMENT COSTS (note 4) 2,075,290 1,877,324
$ 4,427,284 $ 3,888,688
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 7) $ 246,577 $ 66,473
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 6)
Authorized -
20,000,000 shares without par value
Issued -
5,367,058 shares (1994 - 4,967,058) 4,704,838 4,054,838
DEFICIT (524,131) (232,623)
4,180,707 3,822,215
$ 4,427,284 $ 3,888,688
APPROVED BY THE DIRECTORS NATURE OF OPERATIONS (note 1)
CONTINGENT LIABILITY (note 10)
Director
Director
The attached notes form an integral part of these financial statements.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
STATEMENTS OF LOSS AND DEFICIT
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenue
Dividends $ $ $ $ $ 3,244
Interest 53,154 23,048 9,702 3,984 27
________________________________________________________________
53,154 23,048 9,702 3,984 3,271
________________________________________________________________
Exploration and
Development Costs 12,355 32,368 38,327 5,531 9,522
________________________________________________________________
Administration Expenses
Audit and legal 92,725 18,173 4,854 18,894 11,971
Consulting 29,419 26,857 20,811 32,620
Filing, transfer fees and annual
reports 45,736 41,145 40,312 30,451 22,333
Foreign exchange loss 18,031
Interest 8 626 2,043 3,738 3,717
Loss (gain) on sale of options
and shares 18,744 (17,983)
Miscellaneous 5,144 6,317 2,766 8,520 14,662
Office services and rent (note 7) 30,000 30,000 30,525 28,950 27,900
Promotion and advertising 8,045 20,731 22,868 18,448 1,137
Share registration expenses 38,746
____________________________________________________________
229,108 143,849 124,179 160,365 102,483
_____________________________________________________________
Loss Before the
Following: (188,309) (153,169) (152,804) (161,912) (108,734)
Recovery of Deferred
Income Taxes 5,843 69,622 46,756
Equity in Loss of
Associated Company (103,199)
______________________________________________________________
Loss for the Year (291,508) (153,169) (146,961) (92,290) (61,978)
Retained Earnings
(Deficit) - Beginning
of Year (232,623) (79,454) 67,507 159,797 221,775
______________________________________________________________
Retained Earnings
(Deficit) - End of Year $ (524,131) $ (232,623) $ (79,454) $ 67,507 $ 159,797
______________________________________________________________
______________________________________________________________
Loss per Share $ (0.06) $ (0.04) $ (0.04) $ (0.03) $ (0.05)
_______________________________________________________________
_______________________________________________________________
Weighted Average
Number of Shares
Outstanding 5,225,391 4,184,323 3,549,348 2,667,071 2,042,037
_______________________________________________________________
</TABLE>
The attached notes form an integral part of these financial statements.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
CASH PROVIDED FROM
(USED FOR)
OPERATING ACTIVITIES
LOSS FOR THE YEAR $ (291,508) $ (153,169) $ (146,961) $ (92,290) $ (61,978)
ITEMS NOT AFFECTING CASH -
LOSS (GAIN) ON SALE OF
OPTIONS AND SHARES 18,744 (17,983)
EQUITY IN LOSS OF ASSOCIATED
COMPANY 103,199
DEFERRED INCOME TAXES (5,843) (69,622) (46,756)
__________________________________________________________________
(188,309) (153,169) (152,804) (143,168) (126,717)
Change in non-cash working
capital balances -
Accounts receivable (58,362) (23,142) 64,183 (65,347) (21,301)
Marketable securities 255,621 (256,382)
Working capital loan
receivable (100,995)
Accounts payable and
liabilities 180,104 5,924 (182,849) 25,640 192,746
__________________________________________________________________
(167,562) (170,387) (271,470) 72,746 (211,654)
__________________________________________________________________
Financing Activities
Shares issued -
For cash 650,000 577,000 806,890 1,054,528 152,475
For debt extinguished 32,644
For investment 1,399,800
For mineral properties 31,500
Increase (reduction) of
notes payable (23,510) 1,608 (38,098) 33,880
__________________________________________________________________
650,000 1,984,790 808,498 1,016,430 218,999
__________________________________________________________________
Investing Activities
Reclassification of investments
to marketable securities 338,715
Loan receivable (252,828)
Mineral properties and
deferred exploration
and development costs (197,966) (468,624) (239,418) (944,073) (184,241)
Investment in associated company (360,000) (1,399,800)
__________________________________________________________________
(810,794) (1,868,424) 239,418 (944,073) 154,474
__________________________________________________________________
Increase (Decrease)
in Cash and
Short-Term Deposits (328,356) (54,021) 297,610 145,103 161,819
Cash and Short-Term
Deposits - Beginning
of Year 565,957 619,978 322,368 177,265 15,446
__________________________________________________________________
Cash and Short-Term
Deposits - End of Year $ 237,601 $ 565,957 $ 619,978 $ 322,368 $ 177,265
__________________________________________________________________
__________________________________________________________________
</TABLE>
The attached notes form an integral part of these financial statements.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
1. NATURE OF OPERATIONS
The company is currently planning development of the Carmacks Copper
Project. Following the favorable results of a feasibility study conducted
in 1993 and 1994, recent focus has been placed on the permitting process
and environmental review. The company is proceeding with a corporate
restructuring with Thermal Exploration Company (Thermal) and to arrange
financing for the mining operation.
Exploration is continuing on the other 13 zones at Carmacks Copper, as
well as other mineral properties.
The financial statements have been prepared on a basis that assumes the
company will commence operations and will be able to realize its assets
and discharge its liabilities in the normal course of business. The
recoverability of the amounts shown for mineral property costs is
dependent upon the existence of economically recoverable reserves, the
ability of the company to obtain the necessary financing to continue the
development of its mining properties, and upon future profitable
production. The financial statements do not reflect the adjustments to
the carrying values of assets and liabilities that would be necessary if
the company is unable to commence operations.
2. SIGNIFICANT ACCOUNTING POLICIES
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. Differences between Canadian
and United States generally accepted accounting principles which would
have a material effect on these financial statements are explained in note
9.
MINERAL PROPERTIES AND DEFERRED EXPLORATION AND DEVELOPMENT COSTS
The company records its interest in mineral properties at cost.
Exploration and development expenditures relating to properties that have
economically recoverable reserves or significant mineralization requiring
additional exploration are deferred and amortized against future
production following commencement of commercial production or written off
if the properties are sold, allowed to lapse or abandoned. Carrying
values of mineral properties and related deferred costs are reviewed on a
regular basis and, where necessary, are written down to their estimated
recoverable amount.
INVESTMENT IN ASSOCIATED COMPANY
The investment in Thermal Exploration Company, over which the company has
significant influence, is accounted for by the equity method. When there
has been a loss of value of the investment that is other than a temporary
decline, the investment is written down to recognize the loss.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
TRANSLATION OF FOREIGN CURRENCY
Monetary assets and liabilities resulting from foreign currency
transactions are translated into Canadian dollars using the year-end
conversion rates. Other assets are translated at rates prevailing at
acquisition dates. Exchange gains or losses arising on translation are
included in earnings for the year.
CASH EQUIVALENTS
For the purpose of the statement of changes in financial position, the
company considers cash equivalents to be cash, as well as short-term
investments with an initial maturity of 90 days or less.
3. LOANS RECEIVABLE
1995 1994
Working capital loan receivable -
U.S. $75,000, without interest,
due November 1, 1995 $ 100,995 $
Loan receivable -
U.S. $175,000. Interest is
charged at 10% per year,
compounded semi-annually 252,828
$ 353,823 $ Nil
Title to the El Salvador property has been pledged as security for the
loans.
The U.S. $175,000 loan is callable anytime after November 1, 1995.
However, if the company outlines three million tons grading 2% copper,
the loan will be forgiven and the forgiven amount will be considered as an
exploration expenditure of the El Salvador property (note 4).
4. MINERAL PROPERTIES AND DEFERRED EXPLORATION AND DEVELOPMENT COSTS
COSTS COSTS
INCURRED INCURRED
<TABLE>
<CAPTION>
TOTAL COSTS DURING TOTAL COSTS DURING TOTAL COSTS
TO 1993 THE YEAR TO 1994 THE YEAR TO 1995
__________________________________________________________________
<S> <C> <C> <C> <C> <C>
Carmacks $ 1,384,719 $ 463,564 $ 1,848,283 $ 193,127 $ 2,041,410
Copper Basin 23,981 5,060 29,041 234 29,275
El Salvador 4,605 4,605
_________________________________________________________________
$ 1,408,700 $ 468,624 $ 1,877,324 $ 197,966 $ 2,075,290
_________________________________________________________________
_________________________________________________________________
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
4. MINERAL PROPERTIES AND DEFERRED EXPLORATION AND DEVELOPMENT COSTS
(continued)
(a) Carmacks (Formerly Williams Creek Property)
The company has a 50% joint venture interest in 232 contiguous claims
and partial claims in the Whitehorse Mining District of the Yukon
Territory by making staged exploration expenditures totalling
$2,000,000.
During the year ended September 30, 1994, the company purchased a 10%
net profit interest from a third party, settled by way of the issue
of 35,000 common shares of the company at a price of $0.90 per share.
The joint venturer, Thermal, was granted 50% of this interest for the
sum of $15,750 to maintain its 50% joint venture participation.
(b) Copper Basin Property
The company has a 100% interest in 12 Copper Basin lode claims
located in San Bernardino county, California.
(c) El Salvador Property
The company has an option to acquire a 100% interest in the El
Salvador property in central Mexico. To acquire the interest, the
company must incur aggregate exploration expenditures of U.S.
$100,000 by November 1, 1995, $300,000 by November 1, 1996 and
$1,500,000 by November 1, 1997. The property vendor retains a 2.5%
NSR if the price of copper is less than U.S. $1 per pound and 3% if
the price of copper is in excess of $1 per pound. Discussions are
underway with another company to establish a 50/50 joint venture on
this property.
5. INVESTMENT IN ASSOCIATED COMPANY
1995 1994
______________________________ _____________________________
Number Carrying Market Number Carrying Market
of shares value value of shares value value
______________________________ ______________________________
Thermal
Exploration
Company 5,830,000 $ 1,656,601 $ 1,457,500 4,630,000 $ 1,399,800 $ 1,527,900
__________________________________ __________________________________
On September 8, 1994, the company purchased a 32% interest in Thermal from
Queenston Mining Inc. for a consideration of $1,399,800, settled by way of
the issue of 600,000 common shares (note 6(b)), and a warrant to purchase
a further 400,000 common shares at a price of $2.70 per share for a period
of 24 months.
On March 1, 1995, the company acquired 1,200,000 common shares at $0.30
per share and warrants to purchase an additional 600,000 common shares at
$0.35 per share exercisable for a period of 12 months.
As of September 30, 1995, the company owns 34.5% of the outstanding common
shares of Thermal.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
6. SHARE CAPITAL
(a) Authorized -
20,000,000 shares without par value
(b) Issued -
Shares Amount
Balance - September 30, 1992 3,168,558 $ 1,239,648
Issued -
For cash (i) 350,000 350,000
For warrants exercised (ii) 363,500 436,190
For stock options exercised (iii) 46,000 20,700
Balance - September 30, 1993 3,928,058 2,046,538
Issued -
For cash (i) 334,000 521,000
For stock options exercised (iii) 70,000 56,000
For investment (note 5) 600,000 1,399,800
For mineral properties (note 4(a)) 35,000 31,500
Balance - September 30, 1994 4,967,058 4,054,838
Issued -
For cash (i) 300,000 570,000
For stock options exercised (iii) 100,000 80,000
Balance - September 30, 1995 5,367,058 $ 4,704,838
i. During the year ended September 30, 1995, the company received
from Teck Corporation $570,000 from the private placement of
300,000 units, comprising 300,000 common shares at $1.90 per
share, and share purchase warrants to purchase an additional
300,000 common shares at $2.10 per share, exercisable on or
before November 3, 1995.
During the year ended September 30, 1994, the company arranged
private placements for the issue of 334,000 common shares for net
proceeds of $521,000.
During the year ended September 30, 1993, the company issued
350,000 flow-through shares at $1.00 per share for net proceeds
of $350,000.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
6. SHARE CAPITAL (continued)
(b) Issued - (continued)
ii. Share Purchase Warrants
Amounts per
Shares share
Balance - September 30, 1992 710,730 $ 1.20
Exercised (363,500) 1.20
Expired (347,230) 1.20
Balance - September 30, 1993 Nil
Granted 534,000 1.85 - 2.70
Balance - September 30, 1994 534,000 1.85 - 2.70
Expired (134,000) 1.85
Granted (note 6(b)i) 300,000 2.10
Balance - September 30, 1995 700,000 $2.10 - 2.70
During the year ended September 30, 1994, the company granted
warrants to purchase an aggregate of 534,000 shares at prices
ranging from $1.85 to $2.70 expiring between July 1995 and August
1996.
iii. Stock Options
Amounts per
Shares share
Balance - September 30, 1992 224,500 $0.45 - 1.35
Exercised (46,000) 0.45
Expired (178,500) 0.45 - 1.35
Balance - September 30, 1993 Nil
Granted 500,000 0.80 - 1.85
Exercised (70,000) 0.80
Balance - September 30, 1994 430,000
Expired (100,000) 0.80
Balance - September 30, 1995 330,000 $0.80 - 1.85
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
6. SHARE CAPITAL (continued)
iii. Stock Options (continued)
During the year ended September 30, 1995, stock options to
purchase 100,000 shares were exercised by directors and employees
of the company at a price of $0.80 per share for total proceeds
of $80,000. Subsequent to the year end, options to purchase
160,000 shares were exercised for total proceeds of $128,000.
During the year ended September 30, 1994, options to purchase
330,000 shares were granted to directors and employees and,
during the year, stock options to purchase 70,000 shares were
exercised by directors and employees at a price of $0.80 per
share for total proceeds of $56,000. A further 170,000 options
exercisable at $1.85 per share and expiring May 1996 were granted
to Teck Corporation.
7. RELATED PARTY TRANSACTIONS
(a) Included in accounts receivable is $74,419 (1994 - $35,109) owed by
Thermal to the company.
(b) Included in accounts payable is $46,595 (1994 - $63,673) owing to
companies with common directors.
(c) During the year ended September 30, 1995, the company incurred
$30,000 (1994 - $30,000; 1993 - $30,525; 1992 - $28,950; 1991 -
$27,900) in charges for office services and rent from a company with
common directors.
8. INCOME TAXES
As at September 30, 1995, the company has operating losses of
approximately $318,000 which start to expire in 1998 and accumulated
exploration and development expenditures of approximately $1,575,000,
which are all available for reduction of future taxable income. No future
tax benefit has been recognized in the accounts.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
9. MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
The company prepares its financial statements in accordance with
accounting principles generally accepted in Canada (Canadian GAAP), which
differ in certain respects from those principles that the company would
have followed had its financial statements been prepared in accordance
with accounting principles generally accepted in the United States (U.S.
GAAP). The major differences between Canadian and U.S. GAAP are described
below, and its effects on the financial statements are summarized as
follows:
(a) Statement of Cash Flow
In accordance with Canadian GAAP, the statement of cash flow must
include non-cash financing and investing activities. Under U.S.
GAAP, the statement of cash flow includes only those items that
directly affect cash, and any non-cash financing or investing
activities are shown in a separate schedule outside of the statement
of cash flow. The investing and financing activities of the company
that would not be included in the statement of cash flow, and would
be disclosed in a separate schedule, are as follows:
FOR THE YEARS ENDED SEPTEMBER 30,
_____________________________________________________________
1995 1994 1993 1992 1991
_____________________________________________________________
Financing
Activities
Cash provided
from (used for)
per Canadian
GAAP $ 650,000 $ 1,984,790 $ 808,498 $ 1,016,430 $ 218,999
Share Capital
Issued for
investments (1,399,800)
Issued for
property
interest (31,500)
Issued for debt
extinguishment (32,644)
Notes payable 26,120
___________________________________________________________________
Cash Provided
from (used
for) Financing
Activities per
U.S. GAAP $ 650,000 $ 553,490 $ 808,498 $ 1,016,430 $ 212,475
___________________________________________________________________
___________________________________________________________________
Investing
Activities
Cash provided
from (used for)
per Canadian
GAAP $ (810,794) $ (1,868,424) $ (239,418) $ (944,073) $ 154,474
Investments 1,399,800 (338,715)
Deferred
Exploration 31,500
___________________________________________________________________
Cash Provided
from (used for)
Investing
Activities per
U.S. GAAP $ (810,794) $ (437,124) $ (239,418) $ (944,073) $ (184,241)
__________________________________________________________________
__________________________________________________________________
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
9. MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (continued)
(b) Income Taxes
Under Canadian GAAP, income taxes are accounted for using the
deferral method of tax allocation.
U.S. GAAP requires that income taxes be accounted for in accordance
with Financial Accounting Standards Board Statement No. 109 (SFAS
109). The application of SFAS 109 would have no material effect on
the assets, liabilities or operations for the years presented in
these financial statements as any deferred tax assets related to
approximately $1,900,000 of costs available for deduction for tax
purposes would be eliminated by the recording of a valuation
allowance.
10. CONTINGENT LIABILITY
Pursuant to the requirements of a power supply agreement with respect to
the Carmacks property, in the event of termination of power service prior
to the full service date, the company is committed to reimburse the Yukon
Energy Corporation for project expenditures incurred to a maximum of
$75,000 including carrying charges, of which 50% would be recoverable
pursuant to the Thermal joint venture agreement.
11. SUBSEQUENT EVENTS
(a) Subsequent to the year ended September 30, 1995, the company and
Thermal entered into an arrangement agreement whereby:
i. Thermal will transfer certain assets, which include an option to
acquire a 70% interest in approximately 38,000 acres located in
the Lac de Gras area in the Northwest Territories of Canada, a
1.5% net smelter interest in the Kirkland Lake Copper-Gold
property, mineral claims in Nye County, Nevada and geothermal,
mineral and seismic data, to Pacific Cascade Resources Corp.
(Pacific), a wholly owned subsidiary of Thermal to be formed as
part of this reorganization. Thermal will distribute to its
shareholders, except the company, the shares of Pacific. These
assets are currently not valued in the accounts of Thermal.
ii. The company's wholly owned subsidiary, No. 385 Sail View Ventures
Ltd., will amalgamate with Thermal to form Carmacks Copper Ltd.
(Copper), a B.C. company wholly owned by the company. The
company will issue to Thermal's shareholders, other than itself,
one common share of the company for each five common or Series A
preferred shares of Thermal. The company will receive shares of
Copper as consideration for the shares issued to Thermal's
shareholders.
This business combination, which will be accounted for under the
purchase method of accounting, is subject to shareholder and
regulatory approval.
therm-1p.rx
<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE FIVE YEAR
PERIOD ENDED SEPTEMBER 30, 1995
11. SUBSEQUENT EVENTS (continued)
(b) On October 25, 1995, Prime Equities International Corporation (Prime)
announced that, following a positive due diligence review, its Board
of Directors has approved closing of the agreement to acquire Teck
Corporation's 1,983,726 shares of the company on November 2, 1995.
At closing, Prime will appoint four designates to the company's Board
of Directors, so that the Directors shall be:
Robert Quartermain - Director
John Harvey - Director
Murray Pezim - Chairman of the Board
Michael Pezim - Director
Dale Corman - Director and President
Other subsequent events are disclosed elsewhere in these financial
statements.
therm-1p.rx
<PAGE>
THERMAL EXPLORATION COMPANY
BALANCE SHEETS
(UNAUDITED)
(Expressed in U.S. Dollars)
SEPT. 30, 1995 JUNE 30, 1995
ASSETS
Cash & Cash Equivalents $ 1,448 $ 958
Receivables 9,560 75,497
Total Current Assets 11,008 76,455
DEFERRED EXPLORATION COSTS
AND MINERAL CLAIMS 1,671,562 1,591,095
OTHER 516 630
TOTAL ASSETS $1,683,086 $1,668,180
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 187,022 $ 97,494
Total Current Liabilities 187,022 97,494
ACCOUNTS PAYABLE TO BE REFINANCED -0- 108,000
TOTAL LIABILITIES 187,022 205,494
STOCKHOLDERS' EQUITY
Convertible Series A Preferred Stock 5,000,000
Shares Authorized; 155,000 Shares Issued and
Outstanding; $3.00 Per Share
Liquidation Preference 465,000 465,000
Common Stock, 100,000,000 Shares Authorized, No Par;
16,915,528 and 16,415,528 Outstanding at
Sept. 30, 1995 and June 30, 1995,
Respectively 6,841,910 6,730,910
Accumulated Deficit (5,810,846) (5,733,224)
Total Shareholders' Equity 1,496,064 1,462,686
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,683,086 $1,668,180
The Accompanying Notes are an Integral Part of These Financial Statements.
therm-1p.rx
<PAGE>
THERMAL EXPLORATION COMPANY
STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)
(Expressed in U.S. Dollars)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1995 1994
REVENUE:
Income $ -0- $ -0-
Total Revenues -0- -0-
EXPENSES:
Consulting Fees & Contract Labor 11,220 8,820
Professional Fees 53,812 1,856
Rent & Utilities 2,837 2,604
Stock Maintenance 4,107 2,652
Travel 455 321
Other 3,255 3,996
Total Expenses 75,686 20,249
OPERATING LOSS (75,686) (20,249)
OTHER INCOME
Gain on Asset Disposal -0- 40,718
Interest Income 1 1
Currency Gain (Loss) (1,137) 365
Income (Loss) before Income Taxes (76,822) 20,835
Provision for Income Tax 800 800
Net Income (Loss) $(77,622) $20,035
Net Income (Loss) Per Share $ .00 $ .00
Common Shares Outstanding 16,915,528 14,532,193
The Accompanying Notes are an Integral Part of These Financial Statements.
therm-1p.rx
<PAGE>
THERMAL EXPLORATION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Expressed in U.S. Dollars)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(77,622) $ 20,035
Adjustments to Reconcile Net
Income (Loss) to Cash
Provided By Operating Activities:
Depreciation 114 270
Amortization of Intangibles -0- 236
Gain on Sale of Assets -0- (40,718)
Increase in Receivables (100)
Increase (Decrease) in Accrued
Liabilities 89,528 8,927
Payment of Accounts Payable
to be Refinanced (108,000) -0-
Net Cash Flows used by
Operating Activities (95,440) (11,350)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Joint Venture (80,467) (12,143)
Decrease in Receivables from
Sale of Land 65,397 -0-
Net Cash Flows used by Investing
Activities (15,070) (12,143)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Stock Issuance 111,000 -0-
Net Increase (Decrease) in Cash
and Equivalents 490 (23,493)
Cash and Equivalants at Beginning of Period 958 29,330
Cash and Equivalants at End of Period $ 1,448 $ 5,837
Schedule of Noncash Financing Activities:
Securities Received on Sale of
Investment in Mining Claim $ 44,000
The Accompanying Notes are an Integral Part of these Financial Statements.
therm-1p.rx
<PAGE>
THERMAL EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The statement of financial position as of September 30, 1995, the
statements of operations and cash flows for the three month periods ended
September 30, 1995 and 1994, have been prepared by Thermal Exploration Company
(the "Company") without audit. In the opinion of management, all necessary
adjustments have been made to present fairly the financial position, results of
operations, and the cash flows for all periods presented.
Footnote disclosures and other information normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
It is suggested that these financial statements be read in conjunction
with the Company's fiscal year 1995 and 1994 audited financial statements and
notes thereto included elsewhere in this proxy statement. The results of
operations for the periods ended September 30, 1995 and 1994, are not
necessarily indicative of the operating results for the full years.
NOTE 2 - SUBSEQUENT EVENTS
On November 2, 1995 the Company's president was appointed to also serve as
president of Western, the Company's joint venture partner in the Carmacks
Copper Project.
therm-1p.rx
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Thermal Exploration Company
We have audited the accompanying balance sheets of Thermal Exploration Company
(Company) as of June 30, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Thermal Exploration Company as of June 30,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the balance sheets include
$1,591,095 and $1,405,304 in deferred exploration costs and mineral claims at
June 30, 1995 and 1994, respectively. As emphasized in Note 2, the recovery of
these costs is dependent upon the future development of economically
recoverable mineral reserves, the Company's ability to obtain the necessary
permits and financing to successfully place the properties into production, and
upon future profitable operations.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company's recurring losses from operations and
working capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also discussed in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche LLP
August 21, 1995
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THERMAL EXPLORATION COMPANY
BALANCE SHEETS
JUNE 30, 1995 AND 1994
(Expressed in U.S. dollars)
ASSETS NOTES 1995 1994
CURRENT ASSETS:
Cash and equivalents $ 958 $ 29,330
Account receivables ($8,000 from related
parties at June 30, 1995 and 1994) 5 75,497 8,800
Total current assets 76,455 38,130
DEFERRED EXPLORATION COSTS AND
MINERAL CLAIMS 4 1,591,095 1,405,304
LAND HELD FOR SALE 5 40,007
OTHER 630 29,837
TOTAL ASSETS $1,668,180 $1,513,278
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 97,494 $ 178,832
Total current liabilities 97,494 178,832
ACCOUNTS PAYABLE TO BE REFINANCED 6 108,000 71,000
TOTAL LIABILITIES 205,494 249,832
STOCKHOLDERS' EQUITY: 6
Convertible Series A preferred stock, 5,000,000
shares authorized; 155,000 shares issued and
outstanding; $3.00 per share
liquidation preference 465,000 465,000
Common stock, 100,000,000 shares authorized, no par;
16,415,528 and 14,532,193 outstanding
at June 30, 1995 and 1994, respectively 6,730,910 6,353,360
Accumulated deficit (5,733,224) (5,554,914)
Stockholders' equity 1,462,686 1,263,446
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,668,180 $1,513,278
See notes to financial statements.
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THERMAL EXPLORATION COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994
(Expressed in U.S. dollars)
NOTES 1995 1994
COSTS AND EXPENSES:
General and administrative $ 150,587 $ 172,161
Writeoff of deferred exploration costs and
mineral claims 4 54,922 9,750
Writeoff of other assets 27,814
OPERATING LOSS (233,323) (181,911)
OTHER INCOME:
Gain on sale of land 5 30,664
Gain on sale of marketable securities 4 37,573
Other 1,121 5,916
69,358 5,916
OTHER EXPENSES:
Other 20,929 8,379
20,929 8,379
LOSS BEFORE INCOME TAXES (184,894) (184,374)
INCOME TAX BENEFIT 8 6,584 16,829
NET LOSS $ (178,310) $ (167,545)
NET LOSS PER COMMON SHARE $(.01) $(.01)
SHARES USED IN COMPUTATION 15,144,694 13,272,150
See notes to financial statements.
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THERMAL EXPLORATION COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995 AND 1994
(Expressed in U.S. dollars)
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE SERIES A
PREFERRED STOCK COMMON STOCK Accumulated
Shares Amount Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1993 155,000 $ 465,000 12,320,945 $ 5,849,500 $ (5,387,369) $927,131
Net loss (167,545) (167,545)
Sale of common
shares 1,944,583 453,450 453,450
Exercise of warrants 166,665 35,500 35,500
Stock options
exercised 100,000 14,910 14,910
Balance,
June 30, 1994 155,000 465,000 14,532,193 6,353,360 (5,554,914) 1,263,446
Net loss (178,310) (178,310)
Sale of common
shares 1,533,335 324,000 324,000
Stock options
exercised 350,000 53,550 53,550
Balance,
June 30, 1995 155,000 $ 465,000 16,415,528 $ 6,730,910 $ (5,733,224) $1,462,686
</TABLE>
See notes to financial statements.
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<PAGE>
THERMAL EXPLORATION COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
(Expressed in U.S. dollars)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (178,310) $ (167,545)
Adjustments to reconcile to net cash used by
operating activities:
Depreciation and amortization 1,394 1,760
Gain on sale of land (30,664)
Gain on sale of marketable securities (37,573)
Writeoff of deferred exploration costs
and mineral claims 54,922 9,750
Writeoff of other assets 27,814
Other (623)
Effect of changes in:
Account receivables 16,444
Other assets (3,869)
Accounts payable and accrued expenses (81,338) 50,372
Accounts payable to be refinanced 37,000
Net cash used by operating activities (207,378) (93,088)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to deferred exploration costs
and mineral claims (30,058) (274,256)
Proceeds from sale of marketable securities 40,855
Net cash provided (used) by investing activities 10,797 (274,256)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock for cash 168,209 345,065
Net decrease in cash and equivalents (28,372) (22,279)
Cash and equivalents at beginning of year 29,330 51,609
Cash and equivalents at end of year $ 958 $ 29,330
See notes to financial statements.
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<PAGE>
THERMAL EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1994
(Expressed in U.S. dollars, unless otherwise noted)
1. GENERAL INFORMATION
BUSINESS - Thermal Exploration Company (TEC, or the Company) is engaged in
a single business segment, the exploration and development of extractive
resources. The Company has no full-time employees. The Company's
president works on a consulting basis. Other services required by the
Company are contracted for as necessary. The Company's principal business
operations involve: pursuit of equity capital and financing for the
development of its Carmacks Copper Project and on-going exploration and
evaluation of natural resource properties for potential investment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying financial statements have been
prepared in accordance with U.S. generally accepted accounting principles.
The Company's functional currency is the U.S. dollar. Gains and losses
from foreign currency transactions are included in other income.
Certain reclassifications to the 1994 financial statements were made to
conform to the classifications used in the 1995 financial statements.
DEFERRED EXPLORATION COSTS AND MINERAL CLAIMS - The balance sheets at June
30, 1995 and 1994 include deferred exploration costs and mineral claims of
$1,591,095 and $1,405,304, respectively. The recovery of these costs is
dependent on the development of economically recoverable mineral reserves,
the ability of the Company or its partners to obtain necessary permits and
financing to successfully place the properties into production and upon
future profitable production, or upon the sale of the Company's interest at
a sufficient price. Based on exploration results to date, management of
the Company believes that the pursuit of additional exploration or
development programs on its mineral interests is justified and will
ultimately lead to the recovery of the amounts carried on the books as
deferred exploration costs and mineral claims. Costs relating to the
acquisition of mineral claims and exploration and development costs
relating to such claims are deferred until the properties are brought into
commercial production. The costs are then amortized on a unit of
production basis. If the properties are abandoned, the costs are charged
to operating expense in the period the properties are abandoned. If the
Company determines that a property has been impaired, a portion of the
costs, representing such impairment, are charged to operating expense in
the period such a determination is made.
The Company has a working capital deficiency at June 30, 1995 and
accordingly, will have to obtain significant additional funds to finance
the cost of implementing these programs and, if successful, to place
properties into production. However, management of the Company believes
that additional funds may be obtained from future debt or equity financing.
There can be no assurance that additional required funds will be obtained
through debt or equity financing or that the exploration and development of
the Company's mineral interests will ultimately prove to be economically
viable or that the amounts carried on the books as mineral claims and
deferred exploration costs will be recovered.
LOSS PER COMMON SHARE - Loss per common share is based on the weighted
average number of common shares outstanding during each period. Common
stock equivalents (convertible preferred stock and incentive stock options)
have been excluded from the per share computation as their effect is
antidilutive.
CASH AND EQUIVALENTS - For the purposes of the statement of cash flows, the
Company defines cash and equivalents to be all highly liquid investments
with an original maturity of three months or less.
SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION - During the years ended
June 30, 1995 and 1994, the Company made interest payments of $0 and $401,
respectively, and income tax payments of $900 and $800, respectively. The
Company was also involved in the following noncash financing activities:
<circle> During the years ended June 30, 1995 and 1994, common stock in the
amount of $209,341 and $158,975 was issued to settle accounts payable
and accrued costs.
<circle> Land held by the Company was sold for a net sales price of $66,697
during the year ended June 30, 1995. At June 30, 1995, the sales
proceeds were held in trust for the Company.
INCOME TAXES - Income taxes reported in the statements of income are
computed at current tax rates for the current liability and at expected
future tax rates for the deferred liability. Deferred taxes are provided
for temporary differences between the recognition of items for tax and
financial reporting purposes (Note 8).
3. MANAGEMENT'S PLAN TO SUSTAIN OPERATIONS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the years ended June 30, 1995 and 1994 the Company
incurred net losses of $178,310 and $167,545, and as of June 30, 1995, the
Company's current liabilities exceeded its current assets by $21,039. The
Company currently has no source of operating revenues. These factors and
others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time. The financial statements do not
include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
In April 1995, the Company entered into an agreement in principal with
Western Copper Holdings Ltd. (Western), its joint venture partner in the
Carmacks Copper Project to a merger in which Western would be the
continuing company. As of August 21, 1995, the formal plan has yet to be
approved by TEC's shareholders or regulatory authorities and accordingly,
no assurances can be given that the merger will be consummated. Should the
merger with Western not be completed, management believes the Company will
be able to continue in existence during the fiscal year ending June 30,
1996 for the following reasons. The Company has a minimal amount of fixed
costs and overhead. All management and staff positions are filled by
personnel who bill the Company on an hourly basis and who are also
stockholders in the Company. The Company has been successful in the past
in raising funds through private placements and capital infusions or loans
from stockholders and believes that it will continue to be successful in
raising funds in this manner.
4. DEFERRED EXPLORATION COSTS AND MINERAL CLAIMS
CARMACKS - The Company is a 50% partner with Western (Note 3) in a joint
venture to develop the Carmacks Copper Project in the Yukon of Western
Canada. The Company had capitalized $1,586,810 and $1,354,134,
respectively, in exploration expenditures related to this project at
June 30, 1995 and 1994, respectively. Exploration costs are to be funded
equally by both parties. Failure by TEC to fund its share of future costs
would result in the dilution of its interest. Ultimately, recovery of
TEC's exploration costs is dependent upon the joint venture's ability to
develop the mine and achieve successful operations.
LAC DE GRAS - In April 1992, the Company obtained an option from the Heard
Syndicate (Heard) on mineral claims covering 94,519 acres in the Lac de
Gras area of the Northwest Territories in exchange for 200,000 shares of
the Company's common stock valued at $95,200. During the year ended June
30, 1993, the Company wrote off $50,000 of its deferred exploration costs
based on its estimate of the recoverability of such costs for this project.
During the year ended June 30, 1995, management concluded that this project
was not economically feasible and the Company wrote off the remaining
balance of the project's deferred exploration costs.
IMAGINE - In April 1993, the Company entered into an agreement with Imagine
Holding (Imagine), to jointly explore an area in Northwestern Quebec for
base and precious metals. The Company had capitalized exploration costs of
$9,750 at June 30, 1993 relating to this project. Although the Company and
Imagine both retain the right to perform additional exploration activities,
the Company does not expect to perform such activities in the foreseeable
future. As a result, during the year ended June 30, 1994, the Company
wrote off such capitalized exploration costs of $9,750.
CURRENT - In March 1995, the Company capitalized $4,285 in conjunction with
its acquisition of seven contiguous mineral claims in Nevada.
OTHER - On August 9, 1994, the Company entered into an agreement with
Kalahari Resources (Kalahari) to sell the Company's interest in two mineral
claims in Ontario in exchange for 75,000 shares of Kalahari stock with a
market value of approximately $40,855. The Company's book value of the
mineral claims sold was nominal. During the year ended June 30, 1995, the
Company sold the 75,000 shares and realized a net gain of $37,573.
5. SALE OF LAND
In June 1995, the Company sold 2,057 acres of land in Utah recording a gain
of $30,664. At June 30, 1995, account receivables included $66,697
relating to sale proceeds which were held in trust for the Company. Such
funds were received in July 1995.
6. STOCKHOLDERS' EQUITY
Series A nonvoting preferred stock is convertible into common stock at the
election of the holder, at the rate of one share of common stock for each
share of preferred stock. No dividend or distribution may be declared or
paid on any shares of common stock or Series A preferred stock unless at
the same time an equivalent dividend or distribution is declared or paid on
all outstanding shares of common stock and Series A preferred stock. Any
dividend on Series A preferred stock shall be payable in an amount equal to
the dividends payable on the common stock which the Series A preferred
stockholders would be entitled to receive if the preferred stock had been
converted into common stock immediately prior to the record date of such
dividend. In the event of liquidation, the holders of the preferred stock
have a liquidation preference in the amount of $3.00 per share.
On occasion, the Company has sold shares of its common stock under
agreements which allow the buyer, if eligible, to receive favorable
treatment under Canadian tax law. Under such agreements, termed Flow
Through Agreements, a buyer will commit to purchase a specified amount of
the Company's common stock at a specified price subject to the conditions
that the Company agree to use the funds for natural resource exploration in
Canada; to convey the tax benefits of such exploration expenditures to the
buyer; and to flow through any Canadian incentive payments to which the
Company would otherwise be entitled. Upon entering the agreement, the
buyer places the stock purchase price, and the Company issues its common
shares, into trust. As the Company incurs qualifying exploration costs,
the cash is released from trust to the Company and the shares are issued to
the buyer.
In April 1993, the Company entered into a Flow Through Agreement with
Thermal (1993) Limited Partnership I (TLP) for the private placement of the
Company's stock. Under the agreement TLP committed to purchase 231,250
shares of the Company's common stock at a price of $0.60 (CDN) per share.
In accordance with the agreement, TLP placed $138,750 (CDN) in cash and the
Company placed 231,250 shares of its common stock in trust in June 1993 for
issuance under the private placement. During the year ended June 30, 1994,
the Company issued the 231,250 shares from trust.
In November 1993, the Company issued 333,333 shares of its common stock
under the terms of an October 31, 1993 agreement with a private individual
(Buyer) for the private placement of the Company's stock. Under the
agreement, the Buyer committed to purchase 333,333 shares of the Company's
common stock at a price of $.30 (CDN) per share. In addition, warrants for
the purchase of an additional 333,334 shares of the Company's common stock
were issued to the Buyer. The warrants expire two years after the date of
the original agreement and are exercisable at $.30 (CDN) per share if
exercised within one year from the date of the original agreement and $.35
(CDN) per share thereafter until expiration. As of June 30, 1995, 333,334
warrants remained outstanding.
On December 20, 1993, the Company entered into a private placement
agreement with a significant shareholder (shareholder). Under the terms of
the agreement the Company issued 880,000 shares of its common stock at .25
(CDN) per share primarily to settle amounts owed by the Company to the
shareholder.
In January 1994, the Company issued 500,000 shares of its common stock to a
private party (Party) at a price of $.30 (CDN) per share. The Company
issued 333,333 of the shares subject to the conditions of a Flow Through
Agreement with the Party.
In addition, warrants for the purchase of an additional 500,000 shares of
the Company's common stock were issued to the Party. In June 1994, the
Party exercised the related warrants at a price of $.30 (CDN) per share.
The Company issued 166,665 shares of its common stock in June 1994 to the
Party. The remaining 333,335 shares were placed into trust in June 1994
subject to the conditions of its Flow Through Agreement with the Party.
Accordingly, $71,000 of accounts payable were classified as noncurrent
liabilities in the accompanying balance sheet as of June 30, 1994. In
December 1994, the Company issued the remaining 333,335 shares and received
proceeds of $72,000, which it used to pay accounts payable relating to
exploration activities at the Carmacks Copper Project and which had been
classified as noncurrent liabilities at June 30, 1994.
In January 1995, the shareholders of the Company voted to increase
authorized common shares from 25,000,000 to 100,000,000.
In January 1995, the Company entered into a private placement agreement
with Western. Under terms of the agreement, the Company issued 1,200,000
shares of its common stock at $.30 (CDN) per share in settlement of amounts
owed by the Company for accounts payable and accrued costs relating to the
Carmacks Copper Project.
In addition, warrants for the purchase of an additional 600,000 shares of
the Company's common stock were issued to Western. The warrants expire one
year after the date of the original agreement and are exercisable at $.35
(CDN) per share. As of June 30, 1995, 600,000 warrants remained
outstanding.
In May 1995, the Company entered into a Flow Through Agreement with an
investor for the private placement of the Company's stock. Under the
agreement, the investor committed to purchase 500,000 shares of the
Company's common stock at a price of $.30 (CDN) per share. In addition,
warrants for the purchase of an additional 500,000 shares of the Company's
common stock were issued to the investor. The warrants expire 12 months
after issuance and are exercisable at $.40 (CDN) per share. As of June 30,
1995, 500,000 warrants remained outstanding.
The 500,000 shares of common stock were placed into trust in May 1995,
subject to the conditions of the Flow Through Agreement with the investor.
Accordingly, $108,000 of accounts payable were classified as noncurrent
liabilities in the accompanying balance sheet as of June 30, 1995. No
shares had been issued from trust as of August 21, 1995.
7. STOCK OPTION PLAN
In October 1989, the Company reserved 1,000,000 shares of common stock for
issuance under a stock option plan for directors, officers, and employees.
An additional 500,000 shares of common stock were reserved during the year
ended June 30, 1992. Under the plan, options are to be granted and priced
as determined by the board of directors. Vesting under the plan occurs
immediately upon the granting of the options.
The following is a summary of stock option activity for the years ended
June 30, 1995 and 1994.
OPTIONS OPTIONS OUTSTANDING
Available Number of Price per
For Grant Shares SHARE (CDN)
Balance, June 30, 1993 890,000 1,100,000 $.20-.73
Options granted (150,000) 150,000 0.22
Options expired 100,000 (100,000) .73
Options exercised (100,000) 0.21
Balance, June 30, 1994 840,000 1,050,000 .20-.73
Options granted (550,000) 550,000 .35
Options expired 400,000 (400,000) .21-.73
Options exercised (350,000) .21-.24
Balance, June 30, 1995 690,000 850,000 $ .20-.54
In addition, the Company has issued warrants to purchase 1,433,334 shares
of common stock at prices ranging from $.35 (CDN) to $.40 (CDN) per share
as described in Note 6.
8. INCOME TAXES
At June 30, 1995, the Company's net operating loss carryforwards (NOLs) for
Federal income tax purposes expire as follow:
1996 $ 321,525
1997 923,076
1998 701,616
1999 1,116,625
2000 234,868
Thereafter 2,514,534
Total NOLs available for carryforward $5,812,244
Federal and state tax laws impose substantial restrictions on the use of
NOLs under many circumstances including Internal Revenue Code (IRC) Section
382, which restricts the use of NOLs in the event of significant changes in
ownership interests of individual shareholders and defined shareholder
groups. As a result of such changes in the Company's ownership interests
the Company is limited in the use of its NOLs to reduce future taxable
income. The annual limitation may be increased to the extent of any
applicable "built-in gains" as defined by IRC Section 382. Subsequent
ownership changes could further restrict NOLs.
Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, ACCOUNTING FOR INCOME TAXES (FAS 109). The
Company had no recorded deferred taxes before or after implementation of
FAS 109 and, accordingly, there was no cumulative or current period effect
from the adoption of FAS 109.
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes and the impact of net
operating loss carryforwards. The components of the Company's deferred tax
assets as of June 30, 1995 and 1994 were as follows:
1995 1994
Benefit from net operating losses $ 1,915,365 $1,941,469
Other 41,714 17,000
Total 1,957,079 1,958,469
Valuation allowance (1,957,079) (1,958,469)
Net $ - $ -
During the year ended June 30, 1995, the Company's valuation allowance
decreased by $1,390.
The Company's tax benefit (expense) for income tax for the years ended
June 30, 1995 and 1994 are composed of the following current taxes:
1995 1994
Canadian $ - $17,000
California (800) (800)
Utah 7,384 629
$ 6,584 $16,829
The Utah tax credit in 1995 and the Canadian tax credit in 1994 results
primarily from the reversal of previously accrued taxes.
9. RELATED PARTY TRANSACTIONS
TEC's president is retained on a consulting basis. Total consulting fees
and payments to the president for the years ended June 30, 1995 and 1994
were $62,762 and $48,670. During the years ended June 30, 1995 and 1994,
the spouse of the Company's president charged the Company $9,600 annually
for secretarial services. At June 30, 1995 and 1994, $23,872 and $14,771
was owed to these parties.
During the year ended June 30, 1995, the Company issued 1,200,000 shares of
common stock valued at $252,000 to Western, a significant shareholder in
settlement of accounts payable and accrued costs related to the Carmacks
Copper Project. During the year ended June 30, 1994, the Company issued
271,733 shares of common stock valued at $56,045 to a significant
shareholder as payment to the shareholder for managing the Carmacks Copper
Project.
The Company rents office space from its president on a month-to-month
basis. Rental payments were $6,000 for each of the years ended June 30,
1995 and 1994.
At June 30, 1995 and 1994, the Company was owed $8,000 by a director of the
Company.
At June 30, 1995 and 1994, the Company owed $16,561 and $10,199 to a
Company that was a significant shareholder during the period the borrowings
occurred. The amount is payable on demand and accrues interest at a rate
of 6% annually.
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<PAGE>
COMPILATION REPORT
TO THE DIRECTORS OF WESTERN COPPER HOLDINGS LIMITED
We have reviewed, as to compilation only, the accompanying pro forma
consolidated balance sheet of Western Copper Holdings Limited as at
September 30, 1995 and the pro forma consolidated statement of loss for the
year ended September 30, 1995 which have been prepared for inclusion in the
proxy statement relating to the special meeting of shareholders of Thermal
Exploration Company to be held on January 26, 1996. In our opinion, the pro
forma consolidated balance sheet as at September 30, 1995 and the pro forma
consolidated statement of loss for the year ended September 30, 1995 have been
properly compiled to give effect to the proposed transactions and the
assumptions described in the notes thereto.
Coopers & Lybrand
Vancouver, B.C.
October 20, 1995
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<PAGE>
WESTERN COPPER HOLDINGS LIMITED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1995
(Unaudited)
(Expressed in Canadian dollars)
Western Thermal Adjustments Pro forma
ASSETS
CURRENT ASSETS
Cash and short-term
deposits $ 237,601 $ 1,316 $ $ 238,917
Accounts receivable 103,969 103,688 (74,419) (NOTE 2(D)) 133,238
Working capital loan
receivable 100,995 100,995
442,565 105,004 (74,419) 473,150
LOAN RECEIVABLE 252,828 252,828
INVESTMENT IN
ASSOCIATED COMPANY 1,656,601 3,259,753 (NOTE 2(B))
(4,916,354) (NOTE 2(C))
MINERAL PROPERTIES
AND DEFERRED
EXPLORATION AND 2,075,290 2,015,123 3,078,452 (NOTE 2(C)) 7,220,540
DEVELOPMENT COSTS 51,675 (NOTE 2(D))
$ 4,427,284 $2,120,127 $1,399,107 $ 7,946,518
LIABILITIES
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 246,577 $ 282,225 $ (22,744) (NOTE 2(D)) $506,058
SHAREHOLDERS'
EQUITY
SHARE CAPITAL 4,704,838 9,060,732 3,259,753 (NOTE 2(B)) 7,964,591
(9,060,732)
DEFICIT (524,131)(7,222,830) 7,222,830 (524,131)
4,180,707 1,837,902 1,421,851 7,440,460
$ 4,427,284 $2,120,127 $ 1,399,107 $ 7,946,518
See accompanying notes to the pro forma consolidated financial statements.
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<PAGE>
WESTERN COPPER HOLDINGS LIMITED
PRO FORMA CONSOLIDATED STATEMENT OF LOSS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(Unaudited)
(Expressed in Canadian dollars)
Western Thermal Adjustments Pro forma
REVENUE
Gain on sale of land $ $ 42,175 $ $ 42,175
Gain on sale of
marketable securities 51,678 51,678
Interest 53,154 1,542 54,696
53,154 95,395 Nil 148,549
EXPLORATION AND DEVELOPMENT
COSTS 12,355 75,540 87,895
GENERAL AND ADMINISTRATION
EXPENSES 229,108 195,166 424,274
EQUITY IN LOSS OF ASSOCIATED
COMPANY 103,199 (103,199)
344,662 270,706 (103,199) 512,169
LOSS FOR THE YEAR $ (291,508) $ (175,311) $ 103,199 $(363,620)
See accompanying notes to the pro forma consolidated financial statements.
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<PAGE>
WESTERN COPPER HOLDINGS LIMITED
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 1995
(Unaudited)
(Expressed in Canadian dollars)
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated financial statements of Western
Copper Holdings Limited (Western) have been compiled from and include:
(a) the audited financial statements of Western as at September 30, 1995
(b) the audited financial statements of Thermal Exploration Company
(Thermal) as at June 30, 1995.
The balance sheet for Thermal has been translated into Canadian dollars
using the temporal method. Under this method, monetary assets and
liabilities are translated at the prevailing exchange rates in effect at
the balance sheet date and non-monetary assets and liabilities are
translated at historical rates.
These pro forma consolidated financial statements give effect to the
proposed transactions, as detailed in the Arrangement Agreement between
Western and Thermal, described in note 2 below, in accordance with
Canadian generally accepted accounting principles.
In the opinion of management, these pro forma consolidated statements
include all the adjustments necessary for fair presentation in accordance
with generally accepted accounting principles. The pro forma consolidated
balance sheet has been presented as though the transactions occurred on
September 30, 1995. The pro forma statement of loss has been prepared as
though the transactions occurred on October 1, 1994.
2. SIGNIFICANT ASSUMPTIONS
Western and Thermal have entered into an Arrangement Agreement to place
the Carmacks Property, a property consisting of 232 contiguous claims and
partial claims in the Whitehorse Mining District, Yukon, Canada, under the
control of Western. The companies believe that this reorganization will
enhance the ability to obtain financing to develop the property.
The significant details of the Arrangement Agreement are as follows:
(a) Thermal will transfer certain assets, which include a claim to a 70%
interest in approximately 38,000 acres located in the Lac de Gras
area in the Northwest Territories of Canada, a 1.5% net smelter
interest in the Kirkland Lake copper-gold mineral claims, mineral
claims in Nye County, Nevada and geothermal, mineral and seismic
data, to Pacific Cascade Resources Corp. (Pacific), a wholly owned
subsidiary of Thermal to be formed as part of this reorganization.
Thermal will distribute to its shareholders, except Western, the
shares of Pacific. These assets currently are not valued in the
accounts of Thermal.
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WESTERN COPPER HOLDINGS LIMITED
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 1995
(Unaudited)
(Expressed in Canadian dollars)
2. SIGNIFICANT ASSUMPTIONS (continued)
(b) Western will acquire the remaining outstanding shares of Thermal in
the following manner:
Western's wholly owned subsidiary, No. 385 Sail View Ventures Ltd.,
will amalgamate with Thermal to form Carmacks Copper Ltd. (Copper), a
B.C. company wholly owned by Western. Western will issue to
Thermal's shareholders, other than itself, one common share of
Western for each five common or Series A preferred shares of Thermal.
Western will receive shares of Copper as consideration for the shares
issued to Thermal's shareholders.
As at September 30, 1995, Western owned 5,830,000 common shares of
the outstanding 16,915,528 common shares and 155,000 Series A
preferred shares of Thermal. Accordingly, Western must issue
2,248,106 common shares to acquire the remaining outstanding shares
of Thermal. The cost of shares issued, $3,259,753, has been
determined by reference to the market value of Western's shares at
September 30, 1995.
(c) The total purchase price has been calculated to be $4,916,354 and
will be allocated as follows:
Carrying value of investment in Thermal
prior to the proposed Arrangement $ 1,656,601
Cost of shares issued under the
Arrangement (note 2(b)) 3,259,753
Total purchase price $ 4,916,354
Working capital $ (177,221)
Mineral properties 5,093,575
Net assets acquired $ 4,916,354
(d) The difference between the intercompany balances, which has arisen
due to the inclusion of the balance sheets of Western and Thermal at
different dates as described in note 1, has been charged to mineral
property and deferred exploration costs.
This business combination is subject to shareholder and regulatory
approval.
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APPENDIX A
PLAN OF ARRANGEMENT
ARRANGEMENT UNDER SECTION 276 OF
THE COMPANY ACT (BRITISH COLUMBIA)
1. DEFINITIONS AND INTERPRETATION
1.1 In this plan of arrangement, unless there is something in the
subject matter or context inconsistent therewith, the following capitalized
words and terms will have the following meanings:
(a) "Amalgamated Company" means the company formed upon the
amalgamation of Sailview and Thermal under the name "Carmacks
Copper Ltd.";
(b) "Amalco Common Share" means a common share in the capital stock of
the Amalgamated Company;
(c) "Applicable Securities Laws" means the SECURITIES ACT (Alberta),
the SECURITIES ACT (British Columbia) and the 1933 Act;
(d) "Arrangement" means the arrangement pursuant to section 276 of the
BCCA on the terms and conditions set out herein;
(e) "Arrangement Agreement" means the arrangement agreement dated for
reference the ______ day of ______, 1995 among Western, Sailview,
Thermal and Pacific including the exhibits and schedules attached
thereto as the same may be supplemented or amended from time to
time;
(f) "BCCA" means the COMPANY ACT (British Columbia), as amended;
(g) "B.C. Continuation" means the continuation of Thermal Wyoming from
the jurisdiction of Wyoming to the jurisdiction of British Columbia
in accordance with section 36 of the BCCA under the name "Thermal
Resources Company Ltd.", such company having the memorandum and
articles substantially in the form attached hereto as Exhibit V to
the Arrangement Agreement;
(h) "Business Day" means a day which is not a Saturday, Sunday or
statutory holiday;
(i) "Carmacks Agreement" means the agreement dated August 18, 1989
between Western and Thermal (as amended by agreements dated July
31, 1991, November 30, 1992 and November 30, 1994) pursuant to
which Thermal acquired and holds the Thermal Carmacks Interest;
(j) "Carmacks Project" means the mineral properties, interests in
minerals, real property, assets, infrastructure and other assets
situate in Whitehorse Mining District, Yukon Territory as more
particularly set forth and described in Exhibit III;
(k) "Charter Documents" means memorandum and articles or articles and
by-laws, as the case may be, of a corporation;
(l) "Corporations" means, collectively, Western, Thermal, Sailview and
Pacific and "Corporation" means any one of them;
(m) "Court" means the Supreme Court of British Columbia;
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(n) "Depositary" means Montreal Trust Company of Canada at its
principal office in Vancouver, British Columbia;
(o) "Dissenting Thermal Shareholders" means Thermal Shareholders who
exercise dissenting shareholder rights, if any;
(p) "Effective Date" means the date on which a certified copy of the
Final Order is accepted for filing by the Registrar;
(q) "Effective Time" means 12:01 a.m., Vancouver time, on the Effective
Date;
(r) "Final Order" means the final order of the Court approving the
Arrangement;
(s) "Interim Order" means the interim order of the Court providing
advice and directions in connection with the Meeting and the
Arrangement;
(t) "Meeting" means the annual and special general meeting of the
shareholders of Thermal to be held to, among other things, consider
and, if deemed advisable, approve the Arrangement;
(u) "Pacific" means Pacific Cascade Resources Corp., a company
incorporated under and subject to the BCCA;
(v) "Pacific Common Shares" means the common shares without par value
which Pacific is authorized to issue as the same are constituted on
the date hereof;
(w) "Person" means and includes an individual, sole proprietorship,
partnership, unincorporated association, unincorporated syndicate,
unincorporated organization, trust, body corporate, a trustee,
executor, administrator or other legal representative and the Crown
or any agency or instrumentality thereof;
(x) "Plan of Arrangement" means this plan of arrangement attached to
the Arrangement Agreement as Exhibit I as may be amended from time
to time;
(y) "Provinces" means British Columbia, Alberta, Ontario, Quebec and
______ [ALL PROVINCES IN WHICH TEC HAS REGISTERED SHAREHOLDERS];
(z) "Property Interests" means those agreements and interests in, or
rights to earn interests in, mineral properties and data as more
particularly set forth and described in Exhibit II to the
Arrangement Agreement all of which are to be transferred to Pacific
pursuant to the Plan of Arrangement;
(aa) "Property Liabilities" means all of the existing and future
obligations and liabilities of Thermal arising from or incurred or
assumed by Thermal in connection with, the Property Interests
including, without limitation, all environmental liabilities and
obligations;
(ab) "Proxy Circular" means the proxy and information circular of
Thermal to be sent to the shareholders of Thermal in connection
with the Meeting, including the schedules attached thereto;
(ac) "Registrar" means the Registrar of Companies under the BCCA;
(ad) "Sailview" means No. 385 Sailview Ventures Ltd., a company
incorporated under the provisions of the BCCA;
(ae) "Subsidiary" means, with respect to a specified body corporate, a
body corporate of which more than 50% of the outstanding shares
ordinarily entitled to elect a majority of the directors thereof,
whether or not shares of any other class or classes will or might
be entitled to vote upon the happening of any event or contingency,
are at the time owned, directly or indirectly, by such specified
body corporate, and includes a body corporate in like relation to a
Subsidiary;
(af) "Subscription Agreement" means the form of subscription agreement
between Thermal and Pacific with respect to the issuance of the
Pacific Common Shares, and the form of election pursuant to section
85(1) of the Tax Act in connection therewith, substantially in the
form attached as Schedule "A" to the Arrangement Agreement;
(ag) "Tax Act" means the INCOME TAX ACT (Canada) as in force and amended
from time to time;
(ah) "Thermal" means Thermal Exploration Company, a corporation
incorporated under the laws of California, U.S.A. and includes the
corporation formed pursuant to the Wyoming Merger ("Thermal
Wyoming") and as continued pursuant to the B.C. Continuation
("Thermal Resources Company Ltd.");
(ai) "Thermal Carmacks Interest" means all of the right, title and
interest of Thermal in and to the Carmacks Project and the Carmacks
Agreement, and all of the obligations and liabilities of Thermal in
connection therewith;
(aj) "Thermal Common Shares" means the common shares without par value
which Thermal is authorized to issue as the same are constituted on
the date hereof and includes the shares issued in exchange for the
presently existing Thermal Common Shares in connection with the
Wyoming Merger and the B.C. Continuation;
(ak) "Thermal Non-Carmacks Assets" means all of the assets and property
of Thermal, other than the Thermal Carmacks Interest and the
Pacific Common Shares beneficially owned by Thermal, existing as of
11:59 p.m. (Vancouver time) on the Business Day immediately
preceding the Effective Date;
(al) "Thermal Non-Carmacks Liabilities" means all of the liabilities and
obligations of Thermal, other than the Thermal Reorganization
Expenses or directly with respect to the Thermal Carmacks Interest,
but including the Property Liabilities, existing as of 11:59 p.m.
(Vancouver time) on the Business Day immediately preceding the
Effective Date;
(am) "Thermal Incentive Options" means the options to purchase up to an
aggregate of ______ Thermal Common Shares more particularly set
forth and described in subparagraph 3.2(e)(i) of the Arrangement
Agreement;
(an) "Thermal Reorganization Expenses" means all costs, liabilities,
obligations and expenses of Thermal incurred by Thermal in
connection with this Agreement, the Wyoming Merger, the B.C.
Continuation and the Arrangement, including, without limitation,
legal and accounting expenses, appraisal fees, administrative costs
directly related to this Agreement, the Wyoming Merger, the B.C.
Continuation and the Arrangement such as printing, clerical work,
telephone and fax, security underwriting and registration fees and
expenses, transfer taxes and transfer agents fees and expenses and
expenses incurred to evaluate the Wyoming Merger, B.C. Continuation
and the Arrangement;
(ao) "Thermal Series A Shares" means the convertible Series A preferred
stock, having a U.S.$3.00 per share liquidation preference, of
Thermal and includes the shares issued in exchange for the
presently existing Thermal Series A Shares in connection with the
Wyoming Merger and the B.C. Continuation;
(ap) "Thermal Shares" means, collectively, the Thermal Common Shares and
the Thermal Series A Shares;
(aq) "Thermal Shareholders" means the holders of Thermal Common Shares
and the holders of Thermal Series A Shares, and "Thermal
Shareholder" means a holder of Thermal Common Shares or a holder of
Thermal Series A Shares;
(ar) "Thermal Warrants" means the warrants to purchase up to 1,100,000
Thermal Common Shares more particularly set forth and described in
subparagraph 3.2(e)(ii) of the Arrangement Agreement;
(as) "Western" means Western Copper Holdings Limited, a company
incorporated under the provisions of the BCCA;
(at) "Western Common Shares" means the common shares without par value
which Western is authorized to issue as the same are constituted on
the date hereof;
(au) "Western Assets" means the mineral property interests in which
Western or its Subsidiaries hold, or have the right to earn, an
interest, as more particularly described in Exhibit IV to the
Arrangement Agreement;
(av) "Wyoming Merger" means the merger, in accordance with the
applicable corporate laws of California and Wyoming, of Thermal
with a wholly owned Wyoming subsidiary of Thermal, the surviving
corporation, Thermal Wyoming, being subject to the jurisdiction of
Wyoming;
(aw) "1933 Act" means the UNITED STATES SECURITIES ACT OF 1933, and the
regulations and rules made thereunder, as in force and amended from
time to time; and
(ax) "1934 Act" means the UNITED STATES SECURITIES EXCHANGE ACT OF 1934,
and the regulations and rules made thereunder, as in force and
amended from time to time.
1.2 The division of this Plan of Arrangement into articles, sections,
subsections, paragraphs and subparagraphs and the insertion of headings are for
convenience of reference only and will not affect the construction or
interpretation of this Plan of Arrangement. Unless otherwise specifically
indicated, the terms "this Plan of Arrangement", "hereof", "hereunder" and
similar expressions refer to this Plan of Arrangement as a whole and not to any
particular article, section, subsection, paragraph or subparagraph and include
any agreement or instrument supplementary or ancillary hereto.
1.3 Unless the context otherwise requires, words importing the singular
number only will include the plural and vice versa, words importing the use of
either gender will include both genders and neuter and words importing persons
will include firms and corporations.
1.4 Words and phrases used herein and defined in the BCCA will have the
same meaning herein as in the BCCA unless the context otherwise requires.
2 ARRANGEMENT AGREEMENT
2.1 This Plan of Arrangement is made pursuant and subject to the
provisions of the Arrangement Agreement.
3. THE ARRANGEMENT
3.1 Upon the Arrangement becoming effective, the following will occur
and be deemed to have occurred and to occur in the following order without any
further act or formality notwithstanding anything contained in the provisions
attaching to any of the securities of the Corporations:
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(a) effective as of 11:59 p.m. (Vancouver time) on the Business Day
prior to the Effective Date:
(i) Thermal and Pacific will enter into the Subscription
Agreement providing for the subscription by Thermal for
Pacific Common Shares in consideration for the transfer
to Pacific by Thermal of the Thermal Non-Carmacks
Assets, and the joint election of Thermal and Pacific
in accordance with subsection 85(1) of the Tax Act in
respect of such transfer, such that Thermal will then
hold a number of Pacific Common Shares equal to the
number of Thermal Shares then outstanding, ignoring any
Thermal Shares held by:
A. Dissenting Thermal Shareholders, or
B. Western,
(ii) Thermal will transfer all of the Thermal Non-Carmacks
Assets to Pacific,
(iii) Pacific will issue to Thermal the Pacific Common Shares
provided for in the Subscription Agreement, and
(iv) Thermal will be entered on the register of members of
Pacific as the holder of all of the Pacific Common
Shares so issued; and
(b) effective as at 12:01 a.m. on the Effective Date and as provided
pursuant to the Plan of Arrangement and the provisions of section
276 of the BCCA:
(i) one (1%) percent of the Thermal Shares held by each
Thermal Shareholder (other than Western or any
Dissenting Thermal Shareholder) will be acquired and
cancelled by Thermal in exchange for such number of
Pacific Common Shares as is equal to one hundred (100)
times the one percent (1%) of Thermal Shares so
surrendered,
(ii) each holder of Thermal Shares so acquired will cease to
be the holder of the Thermal Shares so acquired and
will become the holder of the number of Pacific Common
Shares delivered to such holder in connection with such
exchange, the name of such holder will be removed from
the register of the holders of Thermal Shares with
respect to the Thermal Shares so acquired and will be
added to the register of holders of Pacific Common
Shares as the holder of the number of Pacific Common
Shares delivered to such holder in connection with such
exchange,
(iii) the remaining outstanding Thermal Shares will be
subdivided so that each Thermal Shareholder will,
following such subdivision, hold the same number of
Thermal Shares he held before one (1%) percent of such
Thermal Shares were acquired and cancelled by Thermal
pursuant to subparagraph 2.2(b)(i) (that is, the
Thermal Shares remaining outstanding following the
acquisition and cancellation of one (1%) percent
thereof will be divided by zero decimal nine nine
(0.99)),
(iv) Thermal and Sailview will amalgamate to form the
Amalgamated Company,
(v) each Thermal Shareholder (other than Western and any
Dissenting Thermal Shareholders) will receive from
Western one (1) Western Common Share for each five (5)
Thermal Shares then held by him following the
subdivision of Thermal Shares referred to in
subparagraph 2.2(b)(iv) and his name will be added to
the register of holders of Western Common Shares as the
holder of the number of Western Common Shares delivered
to such holder by Western,
(vi) the Amalgamated Company will issue to Western one
Amalco Common Share for each Western Common Share so
issued;
(vii) the holders of Thermal Incentive Options will receive
from Western an option to purchase one (1) Western
Common Share for each five (5) Thermal Incentive
Options held by them, at a price per Western Common
Share equal to five (5) times the existing exercise
price of their Thermal Incentive Options;
(viii) the holders of Thermal Warrants (other than Western)
will receive from Western a warrant to purchase one (1)
Western Common Share for each five (5) Thermal Warrants
held by them, each such warrant having an exercise
price per Western Common Share equal to five (5) times
the exercise price of their existing Thermal Warrant;
(ix) all of the then outstanding Thermal Shares will be
cancelled without any repayment of capital and the name
of each holder thereof will be removed from the
register of holders of Thermal Shares;
(x) all of the outstanding Thermal Incentive Options and
Thermal Warrants will be cancelled;
(xi) each issued and outstanding Sailview Common Share will
be converted into one (1) Amalco Common Share; and
(xii) Western will be added to the register of the holders of
Amalco Common Shares as the holder of all of the issued
and outstanding Amalco Common Shares.
3.2 Holders of Thermal Shares who were affiliates, within the meaning
of the 1933 Act, of Thermal prior to the Effective Date will not be entitled to
sell, transfer or otherwise dispose of any Western Common Shares Pacific Shares
issued to such holders pursuant to the Arrangement unless such sale, transfer
or disposition:
(a) has been registered under the 1933 Act and under applicable state
securities laws;
(b) is made in conformity with the requirements of Rule 145 or Rule 904
under the 1933 Act; or
(c) is, in the opinion of counsel reasonably acceptable to Western,
otherwise exempt from registration under the 1933 Act and under
applicable state securities laws;
and, accordingly:
(d) the following legend will be placed on certificates representing
Western Common Shares and Pacific Shares issued to such holders:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), AND MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH RULE
145 OR RULE 904 UNDER THE U.S. SECURITIES ACT AND IN ACCORDANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS OR, WITH THE PRIOR
WRITTEN CONSENT OF THE CORPORATION, PURSUANT TO ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS."
"THE PRESENCE OF THIS LEGEND MAY IMPAIR THE ABILITY OF THE HOLDER
HEREOF TO EFFECT GOOD DELIVERY OF THE SECURITIES REPRESENTED HEREBY
ON A CANADIAN STOCK EXCHANGE. A CERTIFICATE WITHOUT A LEGEND MAY
BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT OF THE COMMON
SHARES IN CONNECTION WITH A SALE OF THE SECURITIES REPRESENTED
HEREBY UPON DELIVERY OF THIS CERTIFICATE AND AN EXECUTED
DECLARATION BY THE SELLER, IN A FORM SATISFACTORY TO THE REGISTRAR
AND TRANSFER AGENT OF THE COMMON SHARES AND THE CORPORATION, TO THE
EFFECT THAT SUCH SALE IS BEING MADE IN ACCORDANCE WITH RULE 145 OR
RULE 904 UNDER THE U.S. SECURITIES ACT."; and
(e) Western may give stop transfer instructions to the registrar and
transfer agent of the Western Common Shares with respect to the
Western Common Shares, and Pacific may give stop transfer
instructions to the registrar and transfer agent of the Pacific
Shares with respect to the Pacific Shares, issued to such holders
pursuant to the Arrangement.
4. CERTIFICATES AND FRACTIONAL SHARES
4.1 After the Effective Time, certificates formerly representing
Thermal Shares will represent only the right to receive certificates
representing the Pacific Shares and the Western Common Shares such holder is
entitled to pursuant to subsection 3.1 in exchange for such Thermal Shares.
Following the Effective Date, certificates representing the appropriate number
of Consolidated Pacific Shares and Western Common Shares will be forwarded to
former Thermal Shareholders against deposit of the certificates formerly
representing Thermal Shares with the Depositary [NOTE: CONSIDER IF THE
DISTRIBUTION OF CONSOLIDATED PACIFIC SHARES CAN TAKE PLACE AT THIS TIME OR IF
IT SHOULD BE DELAYED UNTIL SOME LATER DATE IE LISTING/FINANCING OR ?].
4.2 No fractional Consolidated Pacific Shares or Western Common Shares
will be issued. Former Thermal Shareholders who would otherwise be entitled to
receive a fraction of a Consolidated Pacific Share or a Western Common Share
pursuant to the Arrangement will forfeit such fractions without any
compensation whatsoever.
4.3 As soon as reasonably practicable after the Effective Date, each of
Pacific and Western will forward to each former Thermal Shareholder as at the
Effective Date, at the address of such holder as it appears on the register for
such holders, a letter of transmittal and instructions for obtaining the
certificate or certificates representing the Pacific Shares and Western Common
Shares, respectively, issued to such holder pursuant to the Arrangement.
Former Thermal Shareholders may take delivery of the certificate or
certificates representing the Pacific Shares and Western Common Shares issued
to them pursuant to the Arrangement by delivering the certificates representing
the Thermal Shares formerly held by them to the Depositary at the office of the
Depositary indicated in the letter of transmittal. Such certificates will be
accompanied by a properly completed letter of transmittal together with such
other documents as the Depositary may require and the certificates representing
Pacific Shares and Western Common Shares issued to former holders of Thermal
Shares will be registered in such name or names and delivered to such address
or addresses as such holders may direct in such letter of transmittal as soon
as reasonably practicable after receipt by the Depositary of the required
documents.
4.4 Any certificate formerly representing Thermal Shares not deposited
with all other documents as provided in subsection 4.3 hereof on or prior to
the date which is 10 years after the Effective Date will cease to represent a
right or claim of any kind or nature whatsoever. The Pacific Shares and
Western Common Shares issued to the former holder of any such certificate will
be deemed to be surrendered to Pacific or Western, as appropriate, together
with all dividends and distributions thereon held for such holder and will be
and remain the sole property of Pacific or Western, as appropriate.
5. TAX MATTERS
[NOTE: GIVEN THAT THE 85.1(1) ROLLOVER IS AUTOMATIC, AND THAT THE EXCHANGE OF
THERMAL SHARES FOR PACIFIC COMMON SHARES IS NOT ELIGIBLE FOR A ROLLOVER, IS IT
NECESSARY TO DEAL WITH TAX MATTERS IN THE PLAN OF ARRANGEMENT, AS NONE OF THE
COMPANIES PARTICIPATING IN THE ARRANGEMENT HAVE ANY OBLIGATIONS TO TAKE ANY
ACTIONS IN THIS REGARD?]
5.1 Each Thermal Shareholder resident in Canada who would otherwise
realize a gain for the purposes of the Tax Act on the exchanges described in
paragraph 3.1(b)(vi) and (x) will be deemed to have effected such exchange and
to have deferred such gain in accordance with the provisions of subsection
85.1(1) of the Tax Act and under equivalent provincial legislation.
5.2 The exchange described in paragraph 3.1(b)(i) will be on a fully
taxable basis and is not eligible for an election pursuant to subsection 85(1)
of the Tax Act.
6. RIGHT OF DISSENT
6.1 Members (REGISTERED SHAREHOLDERS) of Thermal may exercise rights of
dissent pursuant and in the manner set forth in section 231 of the BCCA and
this subsection 6.1 in connection with the Arrangement. Non-registered Thermal
Shareholders must request the registered holder of their Thermal Shares to
exercise the rights of dissent granted hereby on their behalf. No purported
exercise of a right of dissent by an unregistered Thermal Shareholder will be
effective for any purpose. Members of Thermal who duly exercise such rights of
dissent and who:
(a) are ultimately entitled to be paid the fair value of their Thermal
Shares will be deemed to have transferred their Thermal Shares to
the Amalgamated Company for cancellation at the Effective Date of
the Arrangement; or
(b) for any reason are not ultimately entitled to be paid fair value
for their Thermal Shares will be deemed to have participated in the
Arrangement on the same basis as any non-dissenting Thermal
Shareholder as at and from the Effective Date, and such Thermal
Shareholders will receive Consolidated Pacific Shares and Western
Common Shares on the basis set forth in subsection 3.1, subject to
the provisions of section 4.
7. MODIFICATION, AMENDMENT AND REVOCATION
7.1 Subject to the provisions of the Arrangement Agreement, Western and
Thermal may, by resolution of their respective directors and without further
authorization of the holders of Thermal Common Shares, from time to time at any
time before the Effective Date:
(a) modify or amend the Arrangement (including, without limitation, any
modification of amendment which the court may require) other than a
modification or amendment that would adversely affect the rights of
any holder of Thermal Common Shares;
(b) extend the time for carrying out the terms hereof or for taking any
other step or proceeding hereunder; or
(c) revoke or determine not to implement the Arrangement.
8. EFFECTIVENESS OF THE ARRANGEMENT
8.1 The Arrangement will not become effective until:
(a) the Plan of Arrangement is authorized, approved and agreed to by
the requisite majority of the Thermal Shareholders and the members
of each of Sailview and Pacific;
(b) the Final Order has been obtained; and
(c) a certified copy of the Final Order has been accepted for filing by
the Registrar.
8.2 Notwithstanding subsection 8.1, the boards of directors of Western
or Thermal may, subject to the provisions of the Arrangement Agreement and at
any time before the end of the last Business Day prior to the day on which the
Final Order has been accepted for filing by the Registrar, elect not to proceed
with the Arrangement.
9. THE AMALGAMATED COMPANY
9.1 The name of the Amalgamated Company will be "Carmacks Copper Ltd.".
9.2 There will be no restriction on the business which the Amalgamated
Company is authorized to carry on.
9.3 The registered office of the Amalgamated Company will be 11th Floor
- - 808 West Hastings Street in the City of Vancouver, in the Province of British
Columbia, V6C 2X4.
9.4 The Amalgamated Company will be authorized to issue 20,000,000
common shares ("Common Shares"). The rights, privileges, restrictions and
conditions attaching to the Common Shares as a class are as follows:
(a) to one vote for each Common Share held at all meetings of
shareholders of the Amalgamated Company, other than meetings at
which the holders of another specified class or series of shares
are entitled to vote separately as a class or series;
(b) to receive any dividend declared by the board of directors of the
Amalgamated Company in respect of the Common Shares; and
(c) subject to the prior rights of the shares of any other class
ranking senior to the Common Shares, to receive the remaining
property of the Amalgamated Company in the event of the
liquidation, dissolution or winding-up of the Amalgamated Company,
whether voluntary or involuntary, or any other distribution of the
assets of the Amalgamated Company among its shareholders for the
purpose of winding up its affairs.
9.5 The board of directors of the Amalgamated Company will, until
changed in accordance with the BCCA, consist of three (3) directors.
9.6 On the Effective Date, the number of directors of the Amalgamated
Company will be three (3). The first directors of the Amalgamated Company, who
will hold office until the first annual meeting of the Amalgamated Company or
until their successors are duly elected or appointed, will be the persons whose
names and addresses appear below:
CANADIAN
DIRECTORS RESIDENCE OCCUPATION CITIZEN
Robert A. Quartermain ______ President of Golden Knight Resources yes
Inc. and Silver Standard Resources Inc.
F. Dale Corman ______ Independent Mining Consultant ______
______ ______ ______ ______
9.7 The officers of the Amalgamated Company, until changed or added to
by the directors, will be as follows:
NAME OFFICE
F. Dale Corman President
Lawrence Page Secretary
9.8 The memorandum and articles of the Amalgamated Company will be those
attached as Exhibit V to the Arrangement Agreement.
9.10 The first annual general meeting of the Amalgamated Company will be
held in the month of ______, 1996.
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DRAFT 3
Appendix B
________________, 1996
REPORT TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF
THERMAL EXPLORATION COMPANY
RE: VALUATION AND FAIRNESS OPINION
1. INTRODUCTION
BACKGROUND
Salman Partners Inc. ("Salman Partners") understands that the Board of
Directors of Thermal Exploration Company ("Thermal") and the Board of Directors
of Western Copper Holdings ("Western Copper") have proposed that Thermal and
Western Copper (the "Companies") enter into an agreement pursuant to which the
Companies plan to merge by way of a Plan of Arrangement (the "Plan of
Arrangement"). The terms of the Plan of Arrangement provide that Thermal
common shareholders will receive one Western Copper common share for each five
common shares of Thermal. We further understand that Thermal's assets, other
than its interest in the Carmacks Copper Project, will be vended to a new
subsidiary of Thermal and dividended out to the existing Thermal common
shareholders. The Board of Directors of Thermal has appointed a committee (the
"Special Committee") of an independent director to review the terms of the
Amalgamation and to make recommendations to the common shareholders of Thermal
concerning the Plan of Arrangement.
Salman Partners understands that the Plan of Arrangement will constitute a
"related party transaction" within the meaning of the Ontario Securities
Commission Policy Statement 9.1 ("Policy 9.1") and that, accordingly, a formal
valuation (as defined in Policy 9.1) of the Companies (the "Formal Valuation")
will be required to be prepared and a summary of the Formal Valuation included
in the information circular (the "Circular") prepared by Thermal and sent to
the common shareholders of Thermal in connection with the special meeting to be
called for the purpose of voting on the Plan of Arrangement. The date of such
meeting is scheduled for *, 1995.
The terms of the Plan of Arrangement, information relating to Thermal and
Western Copper and other information are included in the Circular to be mailed
to shareholders of Thermal. The recommendation of the board of Directors of
Thermal and a description of the major factors supporting these recommendations
are included in the Circular.
Reference to dollars in this opinion are Canadian dollars.
ENGAGEMENT OF SALMAN PARTNERS
In accordance with Policy 9.1, the Special Committee has retained Salman
Partners to prepare a Formal Valuation (the "Valuation") of the Companies. The
Special Committee has also retained Salman Partners to provide its opinion as
the fairness of the terms of the Plan of Arrangement, from a financial point of
view, to the Minority Shareholders (the "Fairness Opinion"). Salman Partners
understands that the Valuation and the Fairness Opinion will be included in the
Circular and, subject to the terms of the engagement letter between Thermal and
Salman Partners dated August 16, 1995 (the "Engagement Agreement"), Salman
Partners consents thereto. In addition, pursuant to the requirements of
applicable securities regulations, copies of the Valuation and the Fairness
Opinion must be filed with Canadian securities regulatory authorities.
Salman Partners was first contacted with regard to the Plan of Arrangement on
or about Monday, May 8, 1995 and was formally engaged by the Special Committee
on August 16, 1995 pursuant to the Engagement Agreement. Salman Partners is to
receive fees of $25,000 for its services under the Engagement Agreement.
Salman Partners is entitled to recover its reasonable out-of-pocket expenses.
Thermal has agreed to indemnify Salman Partners with respect to certain
liabilities which may be incurred in connection with the engagement. Fees
payable to Salman Partners are not contingent in whole or in part on the
success of the Plan of Arrangement.
CREDENTIALS OF SALMAN PARTNERS
Salman Partners is a federally incorporated full service Investment Dealer
founded September 9, 1994 in Vancouver, British Columbia. Salman Partners is
registered as a Broker with the B.C. Securities Commission and as a Limited
Market Dealer with the Ontario Securities Commission. The firm is not
affiliated with a financial institution. Salman Partners is a member of the
Vancouver Stock Exchange. The firm employs 10 people and has one office in
Vancouver, British Columbia. Salman Partners provides its clients a wide range
of services including corporate finance, mergers, acquisitions and financial
advisory services, institutional equity sales and trading, and equity research.
Salman Partners has experience in transactions involving valuations and
fairness opinions of publicly-traded Canadian companies, including transactions
to which Policy 9.1 was applicable.
The opinions expressed herein are the opinions of Salman Partners as an entity.
The form and content hereof have been approved by a group of directors and
professionals from Salman Partners, each of whom is experienced in valuation
matters.
INDEPENDENCE OF SALMAN PARTNERS
Salman Partners is not an insider, associate or affiliate (as such terms are
defined in the Securities Act (Ontario)) of the Companies or their affiliates
or associates (collectively the "Interested Parties"). Except as advisor to
the Special Committee, Salman Partners is not an advisor to any of the
Interested Parties in respect of the Plan of Arrangement. Having reviewed the
provisions of Policy 9.1 and considered Salman Partners past, present and
anticipated future involvement with the Interested Parties, and with any of
their respective affiliates or associates, Salman Partners believes that it is
a qualified and independent valuer, as such terms are used in Policy 9.1.
Salman Partners has not, in the 24 months preceding the commencement of this
engagement, acted as lead or co-lead underwriter of securities of any
Interested Party or any of its principal security holders or its affiliates,
associates or related persons. Just prior to its engagement, in June 1995,
Salman Partners was a member of an underwriting group for Teck Corporation, a
major shareholder of Western Copper, but not as a lead or co-lead.
Salman Partners acts as a trader and dealer, both as principal and agent, in
the Canadian financial markets and, in such capacity, may in the future have
positions in the securities of the Interested Parties and, from time to time,
may in the future execute transactions on behalf of the Interested Parties or
other clients for which it receives compensation. In addition, as an
investment dealer, Salman Partners conducts research and provides investment
advice to is clients on investment matters.
therm-1p.rx
<PAGE>
Salman Partners does not have any agreements, commitments or understandings in
respect of any future business involving any of the Interested Parties.
However, Salman Partners may, from time to time in the future, seek or be
provided with assignments from one or more of the Interested Parties.
2. SCOPE OF REVIEW
In preparing the Valuation and Fairness Opinion, Salman Partners reviewed and,
where it considered appropriate, relied upon:
1. The Circular;
2. Audited financial statements of Thermal for the three fiscal years ending
June 30, 1994;
3. Audited financial statements of Western Copper for the three fiscal years
ending September 30, 1994;
4. Unaudited financial statements of Thermal for the period ending <June 30,
1995>;
5. Unaudited financial statements of Western Copper for the period ending June
30, 1995;
6. A list of Thermal shareholders as of June 30, 1995;
7. A list of Western Copper shareholders as of September 6, 1995;
8. Federal and provincial Income tax returns of Thermal for the year 1994;
9. Federal and provincial Income tax returns of Western Copper for the year
1994;
10. A copy of the Joint Venture Agreement between Thermal and Western Copper
dated August 18, 1989 respecting the Williams Creek Property;
11. A copy of an Option Agreement dated August 18, 1989 between Thermal and
Western Copper concerning the Williams Creek Property;
12. A copy of the Williams Creek Property Option Agreement dated August 18,
1989 and made between Archer, Cathro & Associates (1981) Limited and Western
Copper;
13. The Feasibility Study on the Carmacks Copper Project prepared for Western
Copper by Kilborn Engineering Pacific Ltd. and dated October 1994;
14. The Valuation Report on the Carmacks Copper Project prepared by Orcan
Consultants and dated June 1, 1995;
15. The Valuation Report on Mineral Properties, namely the Copper Basin
Property, San Bernardino County, California and the El Salvador Property,
Zacatecas State, Mexico prepared by Orcan Consultants and dated May 28, 1995;
16. Minutes of 1994 and 1995 Thermal and Western Copper Directors meetings;
17. Discussions with the managements of Thermal and Western Copper;
18. Discussions with auditors of Thermal;
19. Discussions with auditors of Western Copper;
20. Discussions with the member of the Special Committee;
21. Current and historical market trading information relating to Thermal and
Western Copper;
22. Information with respect to other business transactions considered by
Salman Partners to be relevant in the circumstances;
23. Letter of representation from Thermal as to the completeness and accuracy
of the information upon which the Valuation is based; and
24. Such other financial market, corporate and industry information,
investigations and analyses as Salman Partners considered necessary or
appropriate in the circumstances.
3. ASSUMPTIONS AND LIMITATIONS
With the Special Committee's approval and as provided for in the Engagement
Agreement, Salman Partners has relied upon and assumed without independent
verification the completeness, accuracy and fair presentation of all of the
financial and other information, data, advice, opinions or representations
obtained by it from public sources, senior management of the Companies, their
consultants and advisors. The Valuation and Fairness Opinion are conditional
upon the completeness and accuracy of all of the aforementioned.
Management of the Companies have represented to Salman Partners that there has
been no material change or material fact (as such terms are defined in the
Securities Act (Ontario)) relating to the information, data, advice, opinions,
and representations provided to Salman Partners that has not been disclosed to
Salman Partners and that no change has occurred in the facts set out or
referred to in any such information subsequent to the date thereof which would
reasonably be expected to have a material effect on the Valuation and the
Fairness Opinion.
In preparing the Valuation and the Fairness Opinion, Salman Partners has made
several other assumptions, including assumptions that the conditions required
to implement the Plan of Arrangement will proceed as described and
substantially within the time frame within the Circular and that the disclosure
provided in the Circular with respect to the Plan of Arrangement and the
parties thereto is complete and accurate in all material respects.
The Valuation and the Fairness Opinion have been rendered on the basis of
securities market, economic, financial and general business conditions
prevailing at the time of the Valuation and the Fairness Opinion and the
condition and prospects, financial or otherwise, of the Companies as they have
been represented to us at the date hereof or as they were reflected in the
information and documents reviewed by Salman Partners.
In arriving at the Valuation and the Fairness Opinion, in addition to the facts
and conclusions contained in the materials, information, representations and
opinions referred to herein, Salman Partners has assumed, among other things,
the validity and efficacy of the procedures being followed to implement the
Plan of Arrangement and Salman Partners expresses no opinion on such
procedures.
The Valuation and Fairness Opinion have been provided for the use of the
Special Committee and the Minority Shareholders of Mutual and may not be used
or relied upon by any other person without the express prior written consent of
Salman Partners. The Valuation and Fairness Opinion are given as of the date
hereof and Salman Partners disclaims any undertaking or obligation to advise
any person of any change in any fact or matter affecting its Valuation and
Fairness Opinion which may come or be brought to Salman Partners' attention
after the date hereof. In the event that there is any change in any fact or
matter affecting the Valuation or the Fairness Opinion after the date hereof,
Salman Partners reserves the right to change, modify or withdraw its Valuation
or Fairness Opinion.
Salman Partners believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses together, could create a
misleading view of the process underlying the Valuation and the Fairness
Opinion. The preparation of a valuation or fairness opinion is a complex
process and it is not necessarily susceptible to partial analysis or summary
description. Any attempt to do so could lead to undue emphasis on any
particular factor or analysis. In its analyses and in connection with the
preparation of the Valuation and the Fairness Opinion, Salman Partners made
numerous assumptions with respect to copper prices, general business and
economic conditions and other matters, many of which are beyond the control of
any party involved in the Plan of Arrangement and may prove incorrect.
4. VALUATION METHODOLOGY
VALUE DEFINITION
For purposes of preparing the Valuation, value means fair market value, which
is defined as the highest price, expressed in terms of money or money's worth,
that a willing and informed buyer would pay for the asset being valued in an
open and unrestricted market to a willing and informed seller, each acting at
arm's length, where neither party is under any compulsion to enter into the
transaction. Our opinion refers to the en-bloc value of the Thermal and
Western Copper shares.
As stated previously under "Assumptions and Limitations", Salman Partners
believes that the analyses of Thermal and Western Copper should be considered
as a whole and that selecting portions of such analyses or itemizing factors
considered by it, without considering all factors and analyses together, may
not provide appropriate conclusions for those selected portions or factors.
Salman Partners utilized the following valuation methods in assessing the Fair
Market Value of the Companies shares:
* Net Asset Value Analysis
* Market Trading Analysis
Net Asset Value ("NAV") is the valuation method preferred by mining
corporations to value mining projects and corporations. This approach allows
for the separate assessment of all assets and liabilities in a manner most
appropriate to the nature of the particular asset or liability. Salman
Partners considered the NAV analysis in arriving at its estimate of both
Thermal and Western Copper's Fair Market Values. The NAV analysis for both
Thermal and Western Copper was derived in part from discounting to a present
value of future cash flows of the Companies' interest in the Carmacks Copper
Project and by making adjustments (value additions/deletions) for balance sheet
items, exploration properties and exploration potential.
Market trading analysis, based on the Companies' prior to the announcement of
the transaction, was also considered and deemed appropriate for our Valuation
and Fairness Opinion. Western Copper is listed and trades on the Toronto Stock
Exchange under the stock symbol WTC. Thermal is listed and trades on the
Alberta Stock Exchange under the stock symbol THR. In addition, Thermal trades
over the OTC - Bulletin Board in the U.S. under the stock symbol TECC. Over
95% of all trading in Thermal shares during 1994 and 1995 has been through the
Alberta Stock Exchange.
VALUATION ASSUMPTIONS
1. We have relied upon the Orcan Consultants' Valuation Report (the "Orcan
Report") of the Carmacks Copper Project with certain adjustments in determining
our Net Asset Valuation of each company. The Orcan Report used the Discounted
Cash Flow Method in determining a Net Present Value for the Carmacks Copper
Project. A five year average historical copper price of U.S. $1.08 per pound,
or Cdn. $1.44 per pound was also used in the Orcan Report. Additional
assumptions including: a discount factor of 10%, 100% equity financing, no
inflation, and no taxes were assumed in the Orcan Report. Based on discussions
with the management of the Carmacks Copper Project, separate tax rates of 20%
and 24% were applied to the Orcan Report to quantify the net present value of
cash taxes payable.
2. We have assumed that government regulations regarding mining operations and
exploration in Canada remain unchanged;
3. The discount rate utilized in the present value calculation of forecast
general and administrative expenses was 8% which approximates the 10 year
Government of Canada bond rate.
4. We have ascribed a goodwill value to Western Copper to reflect the
company's: project management the Carmacks Copper Project, its Toronto Stock
Exchange Listing and its historically greater financial capacity and
flexibility relative to Thermal.
5. We have also ascribed a 20% control block premium on the Thermal common
shares held by Western Copper.
5. THERMAL VALUATION
Description of the Carmacks Copper Project
The Carmacks Copper Project is located 46 kilometres by gravel road northwest
of Carmacks, Yukon. Carmacks is 175 kilometres north of Whitehorse and 355
kilometres from the ice-free port of Skagway, Alaska, via paved highway.
The property proposed for development is located within a mineral claim group
covering 1,000 hectares owned 50% by Thermal and 50% by Western Copper.
Archer, Cathro & Associates retain a 3.0% NSR to a maximum of Cdn. $2.5
million.
The Carmacks Copper deposit, as presently defined, is the No. 1 Zone only. The
zone extends in trench exposures and drill intercepts over a 2,300 strike
length. A total of 12,900 metres of drilling in 80 diamond drill holes and 11
reverse circulation drill holes has been completed on the property including
zones other than No. 1. In addition, several kilometres of surface trenching
has been carried out across the deposit.
The total geological resource at a cutoff grade of 0.20% total copper is
24,835,036 tons (20,715,596 tonnes) at 0.98% total copper. The open pit
mineable reserve, diluted at 10%, is 15,553,400 tons (14,109,800 tonnes)
averaging 1.01% copper at a 0.35% copper cutoff. The reserves are classified
as proven plus probable. The open pit mine plans prepared have a stripping
ratio of 4.25 tonnes of waste to 1 tonne of ore. The project will treat on
average 1,763,700 tonnes of oxide ore per year, to produce 14,310 tonnes of
copper cathodes per year, at a recovery rate of 80%.
Mining from the open pit is to take place non-stop for 300 days per year. Ore
will be drilled, blasted, removed from the open pit and stockpiled. For a 200
day period during the year, from spring to early autumn, this material will be
crushed, transported and agglomerated, and loaded onto heap-leach pads.
Leaching of ore will be year round with solution heating during winter
operation. The mine operation will be carried out with used mining equipment
operated by Carmacks Copper employees. Copper will be recovered from the oxide
ore by acid heap leaching of crushed minus 19 millimetres, agglomerated ore.
Pregnant solution (PLS) will be treated in a solvent extraction plant to purify
and concentrate the weak leach solution to a more concentrated solution
suitable for electrowinning. High purity copper cathodes will be produced in
an electrowinning plant for shipment from the ice-free port of Skagway, Alaska.
They will then be shipped by ocean to market.
The estimated capital cost for the project is Cdn. $69.9 million of which $62
million is allocated on a pre-production basis and $7.9 million on a post-
production basis.
NET ASSET VALUE
Salman Partners relied in part on the NAV analysis in arriving at its estimate
of Thermal's Fair Market Value. The NAV analysis of Thermal was derived in
part from discounting to a present value the future cash flows of Thermal's
interest in the Carmacks Copper Project ("DCF") and by making adjustments
(value additions/deletions) for balance sheet items.
therm-1p.rx
<PAGE>
RESERVES
Classified as proven and probable, the reserve is estimated to be 14,109,800
tonnes averaging 1.01 per cent total copper using a cutoff grade of 0.35 per
cent copper and a dilution of ten per cent at zero grade. The waste to ore
stripping ratio is estimated to be 4.25:1.0.
PRODUCTION SCENARIO - TONNES/DAY MILLED
The project will treat on average 1,763,700 tonnes of oxide ore per year, to
produce 14,310 tonnes of cathodes per year, at a recovery rate of 80%.
MINE LIFE
The mine life has been estimated to be 8.5 years, based upon the quantity of
mineable reserves and forecast production.
OPERATING COSTS
The Orcan Report estimates the Carmacks Copper Project average operating costs,
before depreciation and amortization are estimated, but including cathode
shipping costs at Cdn. $0.88 per pound.
DISCOUNT RATE
The DCFs for Thermal's interest in the Carmacks Copper Project were discounted
on the basis of industry standards given Orcan's assessment of risk, cost of
capital and other financial and operational aspects of the Carmacks Copper
Project. The discount factor utilized was 10%.
INCOME TAXATION
Provincial and federal income tax and other taxes were in accordance with
projected rates and cash taxes payable were calculated based on discussions
with the Project's management.
DCF
Based on the above assumptions the pre-tax DCF for Thermal's interest in the
Carmacks Copper Project is estimated at $14.21 million.
WORKING CAPITAL
As of June 30, 1995, Thermal had working capital of U.S. $21,093 or Cdn.
$28,476 and includes approximately Cdn. $150,000 in flow-through funds. In
assessing the NAV of Thermal, we have added $28,476.
CASH DEEMED ON EXERCISE OF OPTIONS
In addition, we have added $200,000 in cash to the NAV reflecting the exercise
of in-the-money options (eg. 700,000 options exercisable at prices from $0.21
to $0.30).
EXPLORATION PROPERTIES
No value was ascribed to Thermal's other exploration properties given that such
assets are not being considered under the proposed Plan of Arrangement.
GENERAL AND ADMINISTRATIVE
We understand that the Orcan Report deducted general and administrative
expenses associated with Thermal's interest in the Carmack's Copper Project.
In order to take into account head office general and administrative expenses,
Salman Partners calculated the NPV of such expenses on an after tax basis
($U.S. $157,000 or Cdn. $212,000 per year) over an 8.5 year period. Using an
8% discount rate results in a NPV of $1,272,815. This amount was deducted in
the NAV calculation.
CASH TAXES PAYABLE
Based upon the available tax pools, the effective tax rates for the Carmacks
Copper Project ranged from 20% to 24%; these ranges were applied to the DCFs of
the Project and amounts of $2,842,000 and $3,410,400 were deducted as cash
taxes payable from the NAV calculation.
LONG TERM DEBT
Thermal currently has no long term debt.
The following table summarizes the NAV of Thermal:
THERMAL - NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
LOW HIGH
<S> <C> <C>
Discounted Cash Flow from Operations 14,210,000 14,210,000
Working Capital 28,476 28,476
Cash received on exercise of warrants/options 200,000 200,000
Exploration Potential 0 0
PC of General and Administrative Expenses (1,272,815) (1,272,815)
Present Value of Cash Taxes Payable (3,410,400) (2,842,000)
Long Term Debt 0 0
Total Value 9,755,261 10,323,661
Shares Outstanding 17,666,223 17,666,223
Net Asset Value Per Share 0.55 0.58
</TABLE>
MARKET TRADING ANALYSIS
We have analyzed Thermal's share trading for the sixteen months to April 4,
1995, the trading day immediately prior to the announcement of the Plan of
Arrangement. We particularly focused on the thirty-day trading period prior to
April 4, 1995. The moving average of trading prices as measured over 30
trading days was $0.21 per share with a high point of $0.25 per share and a low
point of $.20 per share.
FAIR MARKET VALUE DETERMINATION
The resultant ranges of values for Thermal shares are shown below. For the
purposes of determining Fair Market Value, Salman Partners has taken an average
of the ranges from the NAV and Market Trading Analysis.
therm-1p.rx
<PAGE>
FAIR MARKET VALUE - THERMAL
($ MILLIONS) ($)
METHODOLOGY RANGE OF VALUES VALUE PER SHARE
Net Asset Value Analysis 9.76 - 10.32 0.55 - 0.58
Market Trading Analysis 3.53 - 4.42 0.20 - 0.25
FAIR MARKET VALUE 6.65 - 7.37 0.38 - 0.42
6. WESTERN COPPER VALUATION
Description of Western Copper
Western Copper's major asset is its 50% interest in the Carmacks Copper
Project. Thermal's largest shareholder is Teck Corporation with approximately
37% interest. On September 6, 1995, Teck announced that it had entered into an
agreement with Prime Equities to sell its 37% interest in Western Copper to
Prime Equities. <The anticipated closing date for this transaction is *.>
For a description of the Carmacks Copper Project please refer to SECTION 5 -
THERMAL VALUATION. Western Copper is the manager of the Carmacks Copper
Project.
OTHER PROPERTIES
1. El Salvador Project - Mexico
The El Salvador Project is a copper oxide project located in central Mexico.
The property has previously been worked to depths of 60 metres by miners who
high-graded copper oxide mineralization. Recent trenching by the property
vendor, Minera Dolores Augustias y Anexas S.A. de C.V. ("MDDA"), has indicated
that copper mineralization is widespread, with values of 1% to 2% copper over
considerable widths. In October, 1994, Western Copper entered into an option
agreement with MDDA wherein Western Copper will lend the vendor U.S. $250,000
which will enable the vendor to complete a small vat leach operation on the
higher grade material. The company has the right to explore the remainder of
the property and must spend U.S. $1.5 million on exploration over a three-year
period to earn a 100% interest. MDDA will retain a 2.5% net smelter return
when copper is below U.S. $1.00 per pound, and 3% when the copper price exceeds
U.S. $1.00 per pound. Subsequent to this option, the Western Copper entered
into discussions with a major mining company which would participate on a 50/50
basis with Western Copper in the exploration of the property.
2. Copper Basin Property, California
Western Copper purchased the Copper Basin property, located 30 kilometres south
of Needles, California, in 1994. The property was drilled in the 1970s and a
reserve of 12.5 million tons grading 0.55% copper, including a higher grade
core of 7.4 million tons grading 0.75% copper has been outlined. This reserve
is based on 164 core and 510 reverse circulation drill holes.
In 1974, a pre-feasibility study of this project was undertaken by Drava
Corporation on behalf of Louisiana Land and Exploration. The pre-feasibility
study at that time demonstrated that the project would be uneconomic at a
copper price of U.S. $0.87. The Orcan Report indicates that the project would
not generate a positive cash flow at today's copper prices.
NET ASSET VALUE
Salman Partners relied in part on the NAV analysis in arriving at its estimate
of Western Copper's Fair Market Value. The NAV analysis of Western Copper was
derived in part from discounting to a present value the future cash flows of
Western Copper's interest in the Carmacks Copper Project ("DCF") and by making
adjustments (value additions/deletions) for balance sheet items, and
exploration properties.
CARMACKS COPPER PROJECT
RESERVES
Classified as proven and probable, the reserve is estimated to be 14,109,800
tonnes averaging 1.01 per cent total copper using a cutoff grade of 0.35 per
cent copper and a dilution of ten per cent at zero grade. The waste to ore
stripping ratio is estimated to be 4.25:1.0.
PRODUCTION SCENARIO - TONNES/DAY MILLED
The project will treat on average 1,763,700 tonnes of oxide ore per year, to
produce 14,310 tonnes of cathodes per year, at a recovery rate of 80%.
MINE LIFE
The mine life has been estimated to be 8.5 years, based upon the quantity of
mineable reserves and forecast production.
OPERATING COSTS
The Orcan Report estimates the Carmacks Copper Project average operating costs,
before depreciation and amortization are estimated, but including cathode
shipping costs at Cdn. $0.88 per pound.
DISCOUNT RATE
The DCF for Western Copper's interest in the Carmacks Copper Project was
discounted on the basis of industry standards given Orcan's assessment of risk,
cost of capital and other financial and operational aspects of the Carmacks
Copper Project. The discount factor utilized was 10%.
INCOME TAXATION
Provincial and federal income tax and other taxes were in accordance with
projected rates and cash taxes payable were calculated based on discussions
with the Project's management.
DCF
Based on the above assumptions the DCF for Western Copper's interest in the
Carmacks Copper Project is estimated at $14.21 million.
WORKING CAPITAL
As of June 30, 1995, Western Copper had working capital of $518,458. In
assessing the NAV of Western Copper we have added $518,458.
INVESTMENTS
Western Copper owns 5,830,000 common shares of Thermal. These shares were
valued at a market value plus a 20% premium to reflect Western Copper's control
block position. We derived a value of $1,749,000 to reflect these
considerations. The $1,749,000 amount was added to the NAV calculation.
GOODWILL
Given that Western Copper has a Toronto Stock Exchange Listing; project
management responsibilities for the Carmacks Copper Project; and historically,
greater financial capacity and flexibility than Thermal, a premium of 10% or
$1,200,000 has been added to the NAV calculation.
EXPLORATION PROPERTIES
Western Copper's exploration properties were valued on the basis of the Orcan
Report (Mineral Properties). The Copper Basin Property was valued at Cdn.
$4,000, and the El Salvador Property was valued at Cdn. $180,000. These
amounts were added to the NAV calculation.
GENERAL AND ADMINISTRATIVE
We deducted general and administrative expenses associated with Western Copper
and calculated the NPV of such expenses on an after tax basis ($400,000 per
year) over an 8.5 year period. Using an 8% discount rate results in a NPV of
negative $2,398,705. This amount was deducted from the NAV calculation.
LONG TERM DEBT
Western Copper currently has no long term debt.
The following table summarizes the NAV of Western Copper:
WESTERN COPPER - NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
LOW HIGH
($) ($)
<S> <C> <C>
Discounted Cash Flow from Operations 14,210,000 14,210,000
Working Capital 518,458 518,458
Cash from Exercisable Options 522,500 522,500
Exploration Properties 188,000 188,000
Investment in Thermal Shares 1,749,000 1,749,000
Goodwill 1,200,000 1,200,000
PV of General and Administrative Expenses (2,398,705) (2,398,705)
PV of Cash Taxes Payable (3,410,400) (2,842,000)
Long Term Debt 0 0
Total Value 12,578,853 13,147,253
Shares Outstanding 5,697,058 5,697,058
Net Asset Value Per Share 2.31 2.21
</TABLE>
MARKET TRADING ANALYSIS
We have analyzed Western Copper's share trading for the sixteen months to April
25, 1995, the trading day immediately prior to the announcement of the Plan of
Arrangement. We particularly focused on the 30-day period prior to April 25,
1995. The 30-day moving averages of trading prices as measured over the 30
trading days prior to April 25, 1995 ranged from $1.35 to $1.50 per share with
a mid-point of this range of $1.425 per share.
FAIR MARKET VALUE DETERMINATION
The resultant ranges of values for Western Copper shares are shown below. For
the purposes of determining Fair Market Value, Salman Partners has taken an
average of the ranges from the NAV and Market Trading Analysis.
FAIR MARKET VALUE - WESTERN COPPER
($ MILLIONS) ($)
METHODOLOGY RANGE OF VALUES VALUE PER SHARE
Net Asset Value Analysis 12.58 - 13.15 2.21 - 2.31
Market Trading Analysis 7.69 - 8.55 1.35 - 1.50
FAIR MARKET VALUE 10.14 - 10.85 1.78 - 1.91
7. VALUATION CONCLUSION
Based upon and subject to the foregoing analysis and the assumptions and
limitations contained therein, Salman Partners is of the opinion that at the
date hereof the Fair Market Value of all the common shares of Thermal is
between $0.38 and $0.40 per share and the Fair Market Value of all of the
common shares of Western Copper is between $1.78 and $1.91 per share as set
forth in the following table:
THERMAL THE CONSIDERATION EXCHANGE
FACTOR
Low $0.38 $1.78 4.68
High $0.42 $1.91 4.55
Midpoint $0.40 $1.845 4.61
8. FAIRNESS OPINION
Salman Partners based its Fairness Opinion on the information, discussions and
investigations discussed under Section 2, "Scope of Review", together with the
analyses, considerations and conclusions set forth in Section 7 and 4,
"Valuation Conclusion" and "Valuation Methodology". The Fairness Opinion is
subject to the "Assumptions and Limitations" set forth in Section 3.
FAIRNESS CONSIDERATIONS
In assessing the fairness, from a financial point of view, of the Plan of
Arrangement to the Minority Shareholders, Salman Partners principally
considered and relied upon the following:
(a) Our Valuation conclusions;
(b) A comparison of the Fair Market Value of Thermal compared with the Fair
Market Value of Western Copper;
(c) A review of the trading history of Thermal and Western Copper, the
liquidity of each company's common shares, and the Stock Exchanges upon which
each company's shares are listed;
(d) A review of the operating strength and project management team of Western
Copper relative to Thermal;
(e) A review of the historic and an estimate of the future financial capacity
and flexibility of each company;
(f) A recognition that Western Copper has agreed to forego participating in the
new company which will be formed with the assets currently owned by Thermal
which are not considered part of the Plan of Arrangement; and
(g) The announced purchase by Prime Equities of Teck Corporation's interest in
Western Copper.
VALUATION CONCLUSIONS
Salman Partners concluded that the Fair Market Values with respect to Thermal
and the Consideration are as follows:
THERMAL THE CONSIDERATION EXCHANGE
FACTOR
Low $0.38 $1.78 4.68
High $0.42 $1.91 4.55
Midpoint $0.40 $1.845 4.61
The Consideration being received by the Minority Shareholders, based on the 5:1
exchange ratio being proposed by Western Copper, is therefore valued at a range
of $0.36 to $0.38, with a mid-point of $0.37 per Thermal Share.
9. LIQUIDITY SUMMARY
1994 1995{(1)}
THERMAL
Annual volume traded (shares){(2)} 2,831,262 1,391,373
Percentage total shares outstanding 19.48% 8.47%
Approximate value of trading ($) 988,404 368,026
# of trading days where no trade occurred 137 119
WESTERN COPPER
Annual volume traded (million shares){(3)} 2,992,677 504,219
% of total shares outstanding 60.3% 9.6%
Approximate value of trading ($) 5,185,730 737,431
# of trading days where no trade occurred 38 47
NOTES:
(1) AS OF JUNE 23, 1995
(2) OBTAINED FROM BLOOMBERG NEWS SERVICE PER VOLUME ON THE ASE AND OTC
(3) OBTAINED FROM BLOOMBERG NEWS SERVICE PER VOLUME ON THE TSE
The table above presents a comparison of certain stock market volume trading
statistics of Thermal and Western Copper. The statistics indicate that Western
Copper shares are considerably more liquid than those of Thermal.
NATURE AND PROSPECTS OF WESTERN COPPER
We have reviewed the business prospects of Western Copper, including
Amalgamated Thermal, assuming the Plan of Arrangement is effected. The
prospects of Western Copper, including Amalgamated Thermal, will be influenced
by factors generally associated with mining companies such as the price of
copper, government regulations regarding mining operations and the foreign
dollar exchange rate. As a result of the Plan of Arrangement, the Minority
Shareholders will remain exposed to the risks usually associated with investing
capital in new development and exploration properties. If the Plan of
Arrangement is approved, the Minority Shareholders will become shareholders in
a company which would own 100% of the Carmacks Copper Project and would further
benefit by tripling the market capitalization of the company. This company
would be substantially larger than Thermal with a proforma market
capitalization and public float of approximately $14 million and $9.63 million
respectively, based on the April 21, 1995 closing 30-day moving average share
price of $1.35 for Western Copper. Western Copper including Amalgamated
Thermal will also be somewhat more diversified than Thermal alone in terms of
additional exploration opportunities.
ADVANTAGES OF THE ARRANGEMENT
A. The principal advantages of the Arrangement from the Minority Shareholders'
perspective are as follows:
(a) Offer of near-equivalent value;
(b) Liquidity enhancement;
(c) 100% of Earnings/Cash flow from the Carmacks Copper Project, upon its
completion;
(d) Greater financial capability;
(e) Relative safety;
(f) Retention of exploration upside with more advanced exploration properties.
(g) An opportunity to further participate in a new company to be formed with
those assets of Thermal not in the Plan of Arrangement.
Based on our determination of the fair market values of Thermal and Western
Copper, the terms of the Plan of Arrangement indicate that the Minority
Shareholders of Thermal will receive $0.36 to $0.38 worth of Western Copper
shares for each Thermal Share which appears to be at a discount of about 7.5%
to our determination of the Fair Market Value of each Thermal Share of $0.38 to
$0.42 per share. In comparing the mid-point of the Fair Market Value of
Thermal with the mid-point of the consideration received of $0.37, the
consideration is below our mid-point of Fair Market Value of $0.40 by $0.03 per
share. However, given the subjectiveness associated with our efforts to
quantify such intangibles as: Western Copper's project management of the
Carmacks Copper Project, Western Copper's historic financial strength relative
to Thermal's weaker financial condition, Western Copper's better liquidity
relative to Thermal's, and the fact that Western Copper will not be
participating in the new company to be formed with the assets of Thermal which
are not part of the Plan of Arrangement, we view the discount of 7.5% to our
determination of the Fair Market Value as insignificant.
In our view, the Plan of Arrangement affords the Minority Shareholders the
following major advantages: fair value given the consideration being offered,
relative safety, liquidity and increased financial ability of Western Copper
including Amalgamated Thermal to pursue the development of the Carmacks Copper
Project.
CONCLUSION
Based on and subject to the foregoing, Salman Partners is of the opinion that,
as of the date hereof, the terms of the Plan of Arrangement being one Western
Copper share for each 5.0 Thermal is fair, from a financial point of view, to
the Minority Shareholders of Thermal.
Yours very truly,
(SIGNED) SALMAN PARTNERS INC.
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APPENDIX C
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
<section> 1300. SHAREHOLDER IN SHORT FORM CORPORATION; PURCHASE AT FAIR MARKET
VALUE; "DISSENTING SHARES" AND "DISSENTING SHAREHOLDER"
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) of Section 1201, each shareholder of the corporation entitled
to vote on the transaction and each shareholder of a subsidiary corporation in
a short-form merger may, by complying with this chapter, require the
corporation in which the shareholder holds shares to purchase for cash at their
fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be
determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (i) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (ii) listed on the list of OTC margin stocks issued by
the Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in clause (i) or (ii) if demands
for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date of the determination of
shareholders entitled to vote on the reorganization and (i) were not
voted in favor of the reorganization or, (ii) if described in clause (i)
or (ii) of paragraph (1) (without regard to the provisions in that
paragraph), were voted against the reorganization, or which were held of
record on the effective date of a short-form merger, provided, however,
that clause (i) rather than clause (ii) of this paragraph applies in any
case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
<section>1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION
APPROVAL; DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation
to purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase to shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair marker value. The demand is not effective for any
purpose unless it is received by the corporation or any transfer agent thereof
(1) in the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
<section> 1302. STAMPING OR ENDORSING DISSENTING SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certified securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be uncertified securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
<section> 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE TO BE PAID
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgements from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
<section> 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE DISSENTING
SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER OF
SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES; APPOINTMENT OF
APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting share or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
<section> 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF REPORT;
DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND PAYMENT; APPEAL;
COSTS OF ACTION
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the
court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to the
appraisers to be fixed by the court, shall be assessed or appointed as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorney's fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301.)
<section> 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR
MARKET VALUE; EFFECT
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
<section> 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
<section> 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
<section> 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their status upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who is initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares
of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files compliant or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
<section> 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION PENDING
LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation.
<section> 1311. SHARES TO WHICH CHAPTER INAPPLICABLE
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
<section> 1312. ATTACK ON VALIDITY OR REORGANIZATION OR SHORT-FORM MERGER;
RIGHTS OF SHAREHOLDERS; BURDEN OF PROOF
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders or which such shareholder
is a member.
(c) If one of the parties to a reorganization of short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden or proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party as controlled.
SECTION 231 OF
THE COMPANY ACT (BRITISH COLUMBIA)
231. (1) Dissent procedure.-Where,
(a) being entitled to give notice of dissent to a resolution as
provided in section 36, 127, 150, 246, 268, 273 or 313, a member of a
company (in this Act called a "dissenting member") gives notice of
dissent;
(b) the resolution to in paragraph (a) is passed; and
(c) the company or its liquidator proposes to act on the authority
of the resolution referred to in paragraph (a).
(2) On receiving a notice of intention to act in accordance with
subsection (1), a dissenting member is entitled to require the company to
purchase all his shares in respect of which the notice of intention to act,
(3) The dissenting member shall exercise his right under subsection (2)
be delivering to the registered office of the company, within 14 days after the
company, or the liquidator, gives the notice of intention to act,
(a) a notice that he requires the company to purchase all his
shares referred to in subsection (2); and
(b) the share certificates representing all his shares referred to
in subsection (2);
and thereupon he is bound to sell those share to the company and the
company is bound to purchase them.
(4) A dissenting member who has complied with subsection (3), the
company, or if there has been an amalgamation, the amalgamated company may
apply to the court, which may
(a) require the dissenting member to sell, and the company or the
amalgamated company to purchase, the shares in respect of which the
notice of dissent has been given;
(b) fix the price and terms of the purchase and sale, or order that
the price and terms be established by arbitration, in either case having
due regard for the rights of creditors;
(c) join in the application any other dissenting member who has
complied with subsection (3); and
(d) make consequential orders and give directions it considers
appropriate.
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<PAGE>
(5) The price to be paid to a dissenting member for his shares shall be
their fair value as of the day before the date on which the resolution referred
to in subsection (1) was passed, including any appreciation or depreciation in
anticipation of the vote on the resolution, and every dissenting member who has
complied with subsection (3) shall be paid the same price.
(6) The amalgamation or winding up of the company, or any change in its
capital, assets or liabilities resulting from the company acting on the
authority of the resolution referred to in subsection (1), shall not affect the
right of the dissenting member and the company under this section or the price
to be paid for the shares.
(7) Every dissenting member who has complies with subsection (3) may
(a) not vote, or exercise or assert any rights of a member, in
respect of the shares for which notice of dissent has been given, other
than under this section;
(b) not withdraw the requirement to purchase his shares, unless the
company consents; and
(c) until he is paid in full, exercise and assert all the rights of
a creditor of the company.
(8) Where to court determines that a person is not a dissenting member,
or is not otherwise entitled to the right provided by subsection (2), the court
may make the order, without prejudice to any acts or proceedings which the
company, its members, or any class of members may have taken during the
intervening period, it considers appropriate to remove the limitations imposed
on him by subsection (7).
(9) The relief provided by this section is not available if, subsequent
to giving his notice of dissent, the dissenting member acts inconsistently with
his dissent; but a request to withdraw the requirement to purchase his shares
is not an act inconsistent with his dissent.
(10) A notice of dissent ceases to be effective if the member giving it
consents to or votes in favor of the resolution of the company to which he is
dissenting, except where the consent or vote is given solely as a proxy holder
for a person whose proxy required an affirmative vote.
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<PAGE>
EXHIBIT I
[SPECIAL] RESOLUTION OF THE SHAREHOLDERS
OF THERMAL EXPLORATION COMPANY (CALIFORNIA)
REINCORPORATION RESOLUTION
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EXHIBIT II
SPECIAL RESOLUTION OF THE SHAREHOLDERS
OF THERMAL EXPLORATION COMPANY (WYOMING)
CONTINUATION OF THERMAL EXPLORATION COMPANY (WYOMING)
INTO BRITISH COLUMBIA UNDER SECTION 36
OF THE COMPANY ACT (British Columbia)
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. The directors of Thermal-WY be and are hereby authorized and directed to
make application pursuant to Section 36 of the Company Act (British
Columbia) (the "BCCA") to the Registrar of Companies appointed under the
BCCA to continue Thermal-WY as if it had been incorporated pursuant to the
BCCA;
2. Thermal-WY change its name to "Thermal Exploration Company Ltd." to come
into effect when the proper officer of the Registrar of Companies
appointed under the BCCA issues a certificate of continuation continuing
Thermal-WY as if it had been incorporated under the BCCA;
3. Thermal-WY adopt the Memorandum and Articles in the form set out as
Schedule "B" in the Proxy Statement of Thermal-WY, in substitution for the
existing charter of Thermal-WY, such Memorandum and Articles to come into
effect when the proper officer of the Registrar of Companies appointed
under the BCCA issues a certificate of continuation continuing Thermal-WY
as if it had been incorporated under the BCCA;
4. Any one director of Thermal-WY be and he is hereby authorized and
instructed to take all such acts and proceedings and to execute and
deliver all such applications, authorizations, certificates, documents and
instruments, including without limitation the Instrument of Continuation,
Memorandum and Articles, and a Notice of Offices in the forms prescribed
by the BCCA, as in his opinion may be necessary or desirable for the
implementation of this resolution.
5. The directors of Thermal-WY may, in their absolute discretion, by
resolution abandon the application for continuance under the BCCA at any
time prior to the issuance of a Certificate of Continuation without
further approval of the shareholders of Thermal-WY.
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<PAGE>
EXHIBIT III
SPECIAL RESOLUTION OF THE SHAREHOLDERS
OF THERMAL EXPLORATION COMPANY LTD. (BRITISH COLUMBIA)
ARRANGEMENT UNDER SECTION 276 OF THE
COMPANY ACT (BRITISH COLUMBIA)
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement (the "Arrangement") pursuant to section 276 of the
Company Act (British Columbia) which will result in, among other things:
(a) the transfer by Thermal-BC to Pacific Cascade Resources Corp., a
wholly-owned British Columbia corporate subsidiary of Thermal-BC,
("Pacific") of all of the assets of Thermal-BC (except for
Thermal-BC's interest in the Carmacks Copper Project, Yukon
Territory ("Thermal Carmacks Interest")) in exchange for common
shares of Pacific ("Pacific Shares");
(b) the distribution of the Pacific Shares by Thermal-BC to the
shareholders of Thermal-BC (except for Western Copper Holdings
Limited ("Western")) in exchange for a portion of their Thermal-
BC shares on the basis of one (1) Pacific Share for one percent
(1%) of each Thermal-BC share;
(c) the amalgamation of Thermal-BC and No. 385 Sail View Ventures
Ltd. ("Sailview"), a wholly-owned subsidiary of Western, to form
Carmacks Copper Ltd. ("Copper"), a B.C. company wholly owned by
Western;
(d) the holders of Thermal-BC shares (other than Western) receiving
one (1) common share of Western for each five (5) Thermal-BC
shares held;
(e) Copper issuing to Western one common share of Copper for each
common share of Western issued to former holders of Thermal-BC
shares;
(f) all of the outstanding Thermal-BC shares being cancelled without
repayment of capital;
(g) each existing share of Sailview being converted into one common
shares of Copper; and
(h) the holders of stock options to purchase Thermal-BC shares (other
than Western) receiving from Western warrants and stock options
to purchase one-fifth of the number of common share of Thermal-BC
shares at five times the exercise price of their Thermal-BC
warrants or stock option;
all as set out in the Plan of Arrangement which is attached as Exhibit I to the
arrangement agreement dated as of the ______ day of ______, 1995 among Thermal,
Western and Pacific (the "Arrangement Agreement") be, and it hereby is,
authorized, approved and adopted;
2. the Arrangement Agreement, including any amendments thereto or to the
Plan of Arrangement made in accordance with the terms of the Arrangement
Agreement, be, and it is hereby, confirmed, ratified and approved;
3. notwithstanding that this special resolution has been passed by the
members of Thermal-BC, the directors of Thermal-BC be, and they hereby are,
authorized and empowered in their sole discretion to revoke this special
resolution at any time prior to the acceptance for filing by the Registrar of
Companies under the COMPANY ACT (British Columbia) of a certified copy of the
final order issued by the Supreme Court of British Columbia in respect of the
Arrangement, and to determine not to proceed with the Arrangement, without the
further approval of the members of Thermal-BC; and
4. any one officer or any one director of Thermal-BC be, and any one
officer or any one director of Thermal-BC hereby is, authorized and empowered,
acting for, in the name of and on behalf of Thermal-BC, to execute or to cause
to be executed, under the seal of Thermal-BC or otherwise, and to deliver or to
cause to be delivered, all such other documents and instruments, and to do or
to cause to be done all such other acts and things, as in the opinion of such
one officer or one director of Thermal-BC may be necessary or desirable in
order to complete the Arrangement or to fulfil the intent of the foregoing
paragraphs of this special resolution.
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<PAGE>
EXHIBIT IV
INTERIM ORDER
No. A______
Vancouver Registry
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF SECTION 276 OF THE COMPANY ACT,
R.S.B.C. 1979, C.59, AS AMENDED
AND
IN THE MATTER OF AN ARRANGEMENT
INVOLVING THERMAL EXPLORATION COMPANY,
PACIFIC CASCADE CAPITAL CORP. AND THEIR
RESPECTIVE SHAREHOLDERS AND
WESTERN COPPER HOLDINGS LIMITED
ORDER
BEFORE ) ______, THE ______ DAY
MASTER ______ ) OF ______, 199______.
)
THIS PETITION of Thermal Exploration Company ("Thermal") and Pacific Cascade
Capital Corp. ("Pacific") coming on for EX-PARTE hearing at Vancouver, British
Columbia, this day; AND UPON READING the petition herein dated the ______ day
of ______, 1995 and filed; the affidavit of F. Dale Corman sworn the ______ day
of ______, 1995 and the exhibits thereto and filed; AND UPON HEARING Counsel on
behalf of Thermal and Pacific;
THE COURT ORDERS THAT
1. Subject to Thermal holding a special meeting of its shareholders in
accordance with the following provisions:
(a) Thermal calling, holding and conducting a special meeting of the
holders of its shares of Series A Preferred Stock and Common Stock
(the "Meeting"), on or about ______, ______, 1996 to, among other
things, consider and, if deemed advisable, to pass, with or without
variation, special resolutions as follows:
(i) a [SPECIAL] resolution ("Reincorporation Resolution") approving
the reincorporation of Thermal from the state of California to
the state of Wyoming;
(ii) conditional upon the approval of the Reincorporation
Resolution, to consider, and if deemed advisable, to pass, with
or without variation, a [SPECIAL] resolution ("Continuance
Resolution") authorizing Thermal Exploration Company, a Wyoming
corporation ("Thermal-WY") to apply to the Registrar of
Companies (British Columbia for a certificate of continuance
continuing (reincorporating) Thermal-WY under the COMPANY ACT
(British Columbia) as Thermal Exploration Company Ltd., a
British Columbia corporation ("Thermal-BC");
(iii) conditional upon the approval of the Continuance Resolution, to
consider and, if deemed advisable, to pass, with or without
variation, a special resolution ("Arrangement Resolution")
approving an arrangement ("Arrangement"), pursuant to section
276 of the COMPANY ACT (British Columbia) which will result in,
among other things:
(A) the transfer by Thermal-BC to Pacific Cascade Capital
Corp., a wholly-owned British Columbia corporate
subsidiary of Thermal-BC, ("Pacific") of all of the assets
of Thermal-BC (except for Thermal-BC's interest in the
Carmacks Copper Project, Yukon Territory ("Thermal
Carmacks Interest") in exchange for common shares of
Pacific ("Pacific Shares");
(B) the distribution of the Pacific Shares by Thermal-BC to
the shareholders of Thermal-BC (except for Western Copper
Holdings Limited ("Western")) in exchange for a portion of
their Thermal-BC shares on the basis of five (5) Pacific
Shares for one (1) Thermal-BC share;
(C) the amalgamation of Thermal-BC and No. 385 Sail View
Ventures Ltd. ("Sailview"), a wholly-owned subsidiary of
Western, to form Carmacks Copper Ltd. ("Copper"), a B.C.
company wholly owned by Western;
(D) the holders of Thermal-BC shares (other than Western)
receiving one (1) common share of Western for each five
(5) Thermal-BC shares held;
(E) the holders of warrants to purchase Thermal-BC shares
(other than Western) receiving from Western warrants to
purchase one fifth the number of common shares of Western
at five times the exercise price of their Thermal-BC
warrants;
(F) the holders of incentive stock options to purchase
Thermal-BC shares (other than Western) receiving from
Western incentive stock options to purchase one fifth the
number of common shares of Western at five times the
exercise price of their Thermal-BC incentive stock
options;
(G) all outstanding warrants and incentive stock options to
purchase Thermal-BC Shares being cancelled;
(H) Copper issuing to Western one common share of Copper for
each common share of Western issued to former holders of
Thermal-BC shares;
(I) all of the outstanding Thermal-BC shares being cancelled
without any repayment of capital; and
(J) each existing share of Sailview being converted in one
common share of Copper.
all as more particularly set out in the Plan of Arrangement attached
as Exhibit I to the arrangement agreement dated as of ______, 1995
among Thermal, Pacific and Western and which Plan of Arrangement is
attached as Schedule A to the proxy statement of Thermal attached as
Exhibit "B" to the aforesaid affidavit of F. Dale Corman filed
herewith (the "Corman Affidavit");
(b) The Meeting being called, held and conducted in accordance with the
applicable provisions of the CALIFORNIA CORPORATIONS CODE, the
WYOMING BUSINESS CORPORATIONS ACT and the COMPANY ACT and the
articles of incorporation and by-laws of each of Thermal and Thermal-
WY and of the memorandum and articles of Thermal-BC.
(c) Each of the notice of the Meeting with attachments in the form which
has been attached as Exhibit "A" to the Corman Affidavit, the proxy
statement with attachments in the form which has been attached as
Exhibit "B" to the Corman Affidavit, and the form of proxy in the
form which has been attached as Exhibit "C" to the Corman Affidavit
(collectively the "Proxy Documents"), with such amendments thereto as
counsel for Western may advise are necessary or desirable, provided
that such amendments are not inconsistent with the terms of this
Order are mailed, on or before ______, 199______, by prepaid ordinary
mail addressed to each holder of shares of Class A Preferred and
Common Stock at their addresses as they appear on the register of the
shareholders of Thermal as at the close of business on ______,
199______ (the "Record Date"), such date being the record date fixed
by the directors of Thermal for that purpose in accordance with the
CALIFORNIA CORPORATIONS CODE and the by-laws of Thermal.
and to:
(d) Thermal being continued under the COMPANY ACT (British Columbia); and
(e) the Arrangement, with or without variation, being approved and
adopted by separate special resolutions of each of the holders of
shares of Class A Preferred Stock, as a group, and of the holders of
shares of Common Stock, as a group, at the Meeting
then, unless the directors of Thermal-BC by resolution determine to abandon the
Arrangement and subject to all other conditions to the completion of the
Arrangement being met or waived, Thermal-BC shall be at liberty to apply to
this Court on ______, the ______ day of February, 1996, or such earlier or
later date as this Court may on application of Thermal-BC direct, for an Order
approving the Arrangement for the purpose of effecting the Arrangement by
filing a certified copy of the Order with the Registrar of Companies under the
COMPANY ACT, without further notice to the holders of the common shares of
Thermal-BC.
2. The mailing of the Notice of Hearing of Petition attached as Exhibit
III to Exhibit "A" of the Corman Affidavit shall constitute good and sufficient
service of the Notice of Hearing upon all persons who are entitled to receive
such notice and no other form of service be made, such service shall be
effective on the fifth day after the Notice of Hearing is so mailed.
3. No material other than that contained in the Proxy Documents need be
served on such persons in respect of these proceedings and, in particular, the
service of the Petition and the Corman Affidavit is dispensed with.
4. Notwithstanding that the Company Act does not grant the members of
Thermal-BC a right to dissent in respect of the Arrangement, the registered
holders of common shares of Thermal-BC shall be entitled to dissent in respect
of the Arrangement pursuant to section 231 of the Company Act and the terms of
the Plan of Arrangement and to seek fair value for their common shares of
Thermal-BC so long as the Reincorporation Resolution and the Continuation
Resolution are each passed and Thermal is continued as Thermal-BC and such
holders provide written objection to the Arrangement Resolution to be received
by Thermal no later than 10:00 a.m. (Vancouver time) on ______, ______, 1995
and otherwise comply with the requirements of section 231 of the Company Act
and the terms of the Plan of Arrangement and provided the Arrangement becomes
effective.
<TABLE>
<CAPTION>
BY THE COURT
"DEPUTY DISTRICT REGISTRAR"
<S> <C>
Approved as to Form:
"LAWRENCE W. TALBOT"
Counsel for Thermal Exploration Company and
Pacific Cascade Capital Corp.
</TABLE>
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<PAGE>
EXHIBIT V
NOTICE OF HEARING OF PETITION
No. A______
Vancouver Registry
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF SECTION 276 OF THE COMPANY ACT,
R.S.B.C. 1979, C.59, AS AMENDED
AND
IN THE MATTER OF AN ARRANGEMENT
INVOLVING THERMAL EXPLORATION COMPANY,
PACIFIC CASCADE CAPITAL CORP. AND THEIR
RESPECTIVE SHAREHOLDERS AND
WESTERN COPPER HOLDINGS LIMITED
NOTICE OF HEARING OF PETITION
TO HOLDERS OF securities of Thermal Exploration Company
NOTICE IS HEREBY GIVEN that a Petition has been filed by Thermal
Exploration Company ("Thermal") and Pacific Cascade Capital Corp. ("Pacific")
for approval of an arrangement (the "Arrangement") involving Thermal, Pacific,
their respective shareholders and Western Copper Holdings Limited ("Western")
pursuant to section 276 of the COMPANY ACT, R.S.B.C. 1979, c.59, as amended
(the "Company Act").
AND NOTICE IS FURTHER GIVEN that by an Order of the Court dated
______, 1995 (the "Interim Order") the Court ordered that, upon Thermal calling
a meeting of the holders of its shares of Series A Preferred and Common Stock
for the purpose of, INTER ALIA, considering the Arrangement, Thermal
Exploration Company Ltd. ("Thermal-BC"), a British Columbia company formed upon
the reincorporation of Thermal into the State of Wyoming and thereafter
continuation into British Columbia under the provisions of the Company Act, was
entitled to apply to this Honourable Court for an order approving the
Arrangement.
AND NOTICE IS FURTHER GIVEN that pursuant to the Interim Order the
application in the said Petition for an Order approving the Arrangement is
directed to be heard before a Justice of the Supreme Court of British Columbia
at the Court House at 800 Smithe Street, in the City of Vancouver, in the
Province of British Columbia, on ______, ______, 199______ at the hour of 9:45
in the forenoon, or as soon thereafter as Counsel may be heard.
AND NOTICE IS FURTHER GIVEN that in support of the application will
be read certain affidavits.
At the hearing of the application, the Court will be requested to
review and approve the fairness of the terms and conditions of the Arrangement.
Any holder of securities of Thermal-BC is entitled to appear in person or by
counsel and make submissions regarding the Arrangement at the hearing of the
application. In addition, the Court will be informed at the hearing of the
application that, if issued, the order of the Court approving the Arrangement
and the fairness of the terms and conditions thereof will constitute the basis
for an exemption from the registration requirements of the Securities Act of
1933, as amended, of the United States and of the securities acts of certain
states of the United States with respect to the securities of each of Pacific
and Western to be issued pursuant to the Arrangement and such securities of
each of Pacific and Western will therefore not be registered under such
statutes.
Any holder of securities of Thermal-BC desiring to support or oppose
the making of an Order on the application may file an appearance at any time
prior to the time of hearing of the application in person or by counsel.
IF YOU WISH TO BE HEARD AT THE HEARING OF THE APPLICATION IN THE
PETITION OR WISH TO BE NOTIFIED OF ANY FURTHER PROCEEDINGS, YOU MUST GIVE
NOTICE of your intention by filing a form entitled "Appearance" at the
Vancouver Registry of the Supreme Court of British Columbia (the "Registry")
prior to the date of the hearing of the application and YOU MUST ALSO DELIVER a
copy of the "Appearance" to the Petitioners' address for delivery, which is set
out below.
YOU OR YOUR SOLICITOR may file the "Appearance". You may obtain a
form of "Appearance" at the Registry.
The address of the Registry is:
800 Smithe Street
Vancouver, British Columbia
If you do not file an Appearance and attend either in person or by
counsel at the time of the hearing, the Court may approve the Arrangement, as
presented, or may approve it subject to such terms and conditions as the Court
shall deem fit, all without any further notice to you. If the Arrangement is
approved it will significantly affect the legal rights of holders of securities
of Western.
A copy of the said Petition and other documents in the proceedings
will be furnished to any holder of securities of Thermal or Thermal-BC upon
request in writing addressed to the solicitors for the Petitioners at their
address for delivery set out below.
The Petitioners' address for delivery is c/o Smith, Lyons, Torrance,
Stevenson & Mayer, Barristers and Solicitors, World Trade Centre, 550-999
Canada Place, Vancouver, British Columbia V6C 3C8, Attention: Lawrence W.
Talbot.
"LAWRENCE W. TALBOT"
Solicitor for the Petitioner
This matter is expected to be of a non-contentious nature and is not within the
jurisdiction of the Master.
Estimated time for hearing - 10 minutes.
This Notice of Hearing is filed by Lawrence W. Talbot, Esq., of the firm Smith,
Lyons, Torrance, Stevenson & Mayer, Barristers and Solicitors, whose place of
business and address for service is 550 - 999 Canada Place, Vancouver, British
Columbia, V6C 3C8, (604) 662-8082.
therm-1p.rx
<PAGE>
THERMAL EXPLORATION COMPANY
11525 Caroline Lane, Nevada City, CA 95959
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dale Corman and James E. Lanigan, and each
of them, as proxies with the power to appoint his or their successor, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of THERMAL EXPLORATION COMPANY ("Thermal"), held of
record by the undersigned on _____ 1996, at the Special Meeting of Shareholders
to be held on ____, 1996, at 10:00 a.m. (PDT), at the offices of Smith, Lyons,
Torrance, Stevenson & Mayer, World Trade Centre, Suite 550, 999 Canada Place,
Vancouver, British Columbia, Canada V6C 3G8 and at any and all adjournments
thereof.
1. The reincorporation of Thermal from the State of California to the State of
Wyoming ("Proposal 1");
2. The continuation (reincorporation) of Thermal Exploration Company, a
Wyoming corporation ("Thermal-WY") from the State of Wyoming to the Province of
British Columbia, Canada to become Thermal Resources Company Ltd., a British
Columbia company ("Thermal-BC") ("Proposal 2");
3. Conditional upon the approval of Proposals 1 and 2, the arrangement,
pursuant to Section 276 of the COMPANY ACT (British Columbia) which will result
in the following:
a. the transfer by Thermal-BC to Pacific Cascade Resources Corp., a
wholly-owned British Columbia corporate subsidiary of Thermal-BC,
("Pacific") of all of the assets of Thermal-BC (except for Thermal-
BC's interest in the Carmacks Copper Project, Yukon Territory) in
exchange for common shares of Pacific ("Pacific Shares");
b. the distribution of the Pacific Shares by Thermal-BC to the
shareholders of Thermal-BC (except for Western Copper Holdings
Limited ("Western")) in exchange of their Thermal-BC shares on the
basis of one Pacific Share for one percent (1%) of each Thermal-BC
share;
c. the consolidation of every five outstanding Pacific Shares in
exchange for one new Pacific Share.
d. the amalgamation of Thermal-BC and No. 385 Sail View Ventures Ltd.
("Sailview"), a wholly-owned subsidiary of Western, to form Carmacks
Copper Ltd. ("Copper"), a British Columbia company wholly owned by
Western;
e. the holders of Thermal-BC shares (other than Western) receiving one
(1) common share of Western for each five (5) Thermal-BC shares held;
and
f. the holders of warrants to purchase Thermal-BC shares (other than
Western) receiving from Western warrants to purchase one-fifth the number of
common shares of Western at five times the exercise price of their Thermal-BC
warrants;
g. the holders of incentive stock options to purchase Thermal-BC shares
(other than Western) receiving from Western incentive stock options to purchase
one fifth the number of
common shares of Western at five times the exercise price of their Thermal-BC
incentive stock options;
h. all outstanding warrants and incentive stock options to purchase
Thermal-BC Shares
being cancelled;
i. Copper issuing to Western one common share of Copper for each common
share of
Western issued to former holders of Thermal-BC shares;
j. all of the outstanding Thermal-BC shares being cancelled without any
repayment of capital; and
k. each existing share of Sailview being converted to one common share
of Copper.
("Proposal 3"); and
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, AND 3.
Please sign exactly as your name appears on your share certificates. When
shares are held by joint tenants, all joint tenants should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If the signatory is a corporation, please sign the full
corporate name by the president or another authorized officer. If the
signatory is a partnership, please sign in the partnership name by an
authorized person.
__________________________________________
____________________________________________________
Name (Print) Name (Print) (if held jointly)
__________________________________________
___________________________________________________
Signature Signature (if held jointly)
__________________________________________
___________________________________________________
__________________________________________
___________________________________________________
(Address) (Address)
Dated:_____________ Dated:_______________
I will ___ attend the meeting.
Number of persons to attend _____.
I will not ___ attend the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
