<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1997
REGISTRATION NO. 333-21665
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FREMONT GOLD CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 1041 65-0110447
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification Identification No.)
Code Number)
777 HORNBY STREET, SUITE 2000
VANCOUVER, B.C., CANADA, V6Z 1S4
(604) 682-4606
(Address and telephone number of principal executive offices)
EDWARD M. TOPHAM
777 HORNBY STREET, SUITE 2000
VANCOUVER, B.C., CANADA, V6Z 1S4
(604) 682-4606
(Name, address, and telephone number of agent for service)
with copies to:
CHRISTIAN J. HOFFMAN, III, ESQ.
SHAWN E. SHEARER, ESQ.
STREICH LANG, P.A.
RENAISSANCE ONE
TWO NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
CLASS OF SECURITIES TO BE REGISTERED REGISTERED PRICE OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, offered by Selling Stockholders 3,600,000 $2.00(1) $7,200,000(1) $2,181.82
Common Stock issuable upon exercise of Warrants... 3,600,000 $1.50 (2) $5,400,000(2) $1,636.36
Total.................. -- -- $12,600,000 $3,818.18(3)
===================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of
registration fee, pursuant to Rule 457 under the Securities
Act of 1933, on the basis of the average of the bid and asked
prices for shares of Common Stock on May 21, 1997.
(2) Estimated for purpose of calculating registration fee based
upon known exercise price of the Warrants.
(3) Of this amount, $2,482.96 was previously paid with the
original filing of this Registration Statement.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
FREMONT GOLD CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION C UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
FILED AS PART OF REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM SB-2 ITEM CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS
- ------------ ------------------------- ---------------------
<S> <C>
1 Front of Registration Statement and Outside Outside Front Cover Page of Prospectus
Front Cover of Prospectus
2 Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of Prospectus; Available Information
3 Summary Information and Risk Factors Prospectus Summary; Risk Factors
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Risk Factors; Determination of Offering
Price
6 Dilution Risk Factors; Dilution
7 Selling Security Holders Selling Stockholders
8 Plan of Distribution Outside Front and Inside Front Cover Pages
of Prospectus; Plan of Distribution
9 Legal Proceedings Business of the Company -- Litigation
10 Directors, Executive Officers, Promoters and Management; Management -- Certain
Control Persons Relationships and Related Transactions;
Risk Factors; Security Ownership of Certain
Beneficial Owners and Management
11 Security Ownership of Certain Beneficial Security Ownership of Certain Beneficial
Owners and Management Owners and Management
12 Description of Securities Description of Securities
13 Interest of Named Experts and Counsel Inapplicable
14 Disclosure of Commission Position on Management -- Indemnification
Indemnification for Securities Act Liabilities
15 Organization Within Last Five Years Inapplicable
16 Description of Business Prospectus Summary; Risk Factors; The
Company; Business of the Company
17 Management's Discussion and Analysis or Plan of Operation
Plan of Operation
18 Description of Property Prospectus Summary; Business of the
Company -- The Properties; Business of the
Company -- Chile
19 Certain Relationships and Related Management -- Certain Relationships and
Transactions Related Transactions
20 Market for Common Equity and Related Outside Front Cover Page ; Risk Factors;
Stockholder Matters Dividend Policy; Shares Eligible for Future
Sale
21 Executive Compensation Management -- Executive Compensation
22 Financial Statements Financial Statements
23 Changes in and Disagreements with Change in Accountants
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
DATED: May 27, 1997 SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
[LOGO]FREMONT GOLD CORPORATION
FREMONT GOLD CORPORATION
7,200,000 SHARES OF COMMON STOCK, PAR VALUE $.001
------------------------
The securities offered hereby are 7,200,000 shares (the "Shares") of
common stock, $.001 par value ("Common Stock"), of Fremont Gold Corporation, a
Delaware corporation (the "Company"). Of the 7,200,000 Shares, (i) 3,600,000
Shares (the "Warrant Shares") are issuable upon the exercise of warrants to
purchase Common Stock (the "Warrants") which have been, or will be, issued upon
conversion of the Company's Series A Convertible Promissory Notes (the "Series A
Notes") and (ii) 3,600,000 Shares (the "Conversion Shares") which have been, or
will be, issued upon conversion of the Series A Notes and are available for sale
pursuant to this Prospectus by certain selling stockholders (the "Selling
Stockholders"). The Common Stock is presently traded on the OTC-Bulletin Board
("OTC-BB") under the symbol "FGLD". On May 21, 1997, the mean closing bid and
asked quotations per share of Common Stock, as provided by market makers in the
Common Stock, was $2.00 per share.
Each of the Company's Series A Notes was, or is, convertible into one
unit (each a "Unit"), consisting of one Conversion Share and one Warrant, for
each $.50 of principal outstanding thereunder. Each Warrant is exercisable, for
a term expiring September 30, 1997, to purchase one Warrant Share at a price per
share equal to the greater of $1.50 or seventy-five percent (75%) of the average
closing bid price for the Common Stock on the OTC-BB, as reported by a generally
accepted reporting service, for the 10 trading days preceding the exercise of
the Warrant. See "Description of Securities." All of the Warrant Shares are
being offered by the Company upon exercise of the Warrants. All of the
Conversion Shares offered hereby may be sold from time to time by certain
Selling Stockholders. See "Selling Stockholders." The Conversion Shares may be
offered from time to time in one or more transactions in the over-the- counter
market, pursuant to Rule 144 under the Securities Act of 1933, pursuant to
Regulation S under the Securities Act of 1933, or otherwise, at market prices
prevailing at the time of the sale at prices relating to such prevailing market
prices, or at negotiated prices, without payment of any underwriting discounts
or commissions except for usual or customary selling commissions paid to brokers
or dealers. The Company will not receive any of the proceeds from the sale of
the Conversion Shares by the Selling Stockholders.
-----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 9 AND "DILUTION" FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
-------------------
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
Underwriting Discounts
Price to Public and Commissions Proceeds to Company
<S> <C> <C> <C>
Per Warrant Share $1.50(1) $0 $1.50
Total (2) $5,400,000 $0 $5,400,000 (3)
</TABLE>
Footnotes appear on inside cover page
The date of this Prospectus is May 27, 1997.
<PAGE> 4
(1) Each Warrant is exercisable, for a term expiring September 30, 1997, to
purchase one Warrant Share at a price per share equal to the greater of
$1.50 or seventy-five percent (75%) of the average closing bid price
for the Common Stock on the OTC-BB, as reported by a generally accepted
reporting service, for the 10 trading days preceding the exercise of
the Warrant. As of May 21, this exercise price would have been $1.50.
However, depending upon bid fluctuations this price could increase.
(2) The Company will receive no proceeds from the conversion of the Series
A Notes; therefore, Conversion Share information is omitted.
(3) Assumes complete conversion of the Series A Notes into Units and
complete exercise of all Warrants included in the Units.
-------------------------
Information contained in this Prospectus contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" beginning on page 9 of the Prospectus constitute
cautionary statements identifying important factors, including certain risks and
uncertainties with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements.
-------------------------
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK. Each prospective investor should carefully read this
Prospectus in its entirety and carefully consider, among other things, the
information set forth under the heading "RISK FACTORS."
THE COMPANY
Current Business Operations
The Company is engaged in the acquisition, exploration and development
of mineral properties, primarily gold and copper properties located in Latin
America. Through the extensive mineral exploration experience and Latin American
knowledge and contacts of the Company's officers and directors, the Company is
continuously assessing new opportunities for the acquisition of properties with
an economical potential. Although the Company is currently in negotiations to
acquire, and/or assessing the advisability of entering into negotiations to
acquire, several mineral properties, the Company has no present commitments or
agreements with respect to any property acquisitions other than those discussed
below. The Company currently is in the exploration stage and there can be no
assurance that a commercially viable ore body (reserve) will be located on any
of the Company's current or future mineral properties. The Company currently has
no plans to commence production on any of its properties in the near future.
The Company's principal mineral property interests consist of mining
concessions located on three exploration properties in Chile. The Resguardo
Property, the Cenizas Property and the Santa Eloisa Property mining concessions
currently are held through existing leases and purchase options. See "Business
of The Company -- The Properties." The Company's mineral property interests are
held by a Chilean operating company, Minera Fremont Gold Chile, S.A. ("MFG"), of
which Flagship Holding Ltd., a Barbados corporation and a wholly owned
subsidiary of the Company ("FHL"), owns 99% of the issued and outstanding shares
of common stock. Unless otherwise indicated, the term "Company" means
collectively Fremont Gold Corporation, FHL and MFG.
The Resguardo Property covers an area of approximately 16,765 hectares
(41,426 acres) along 19 kilometers of the highly productive Atacama Fault System
in Region III of northern Chile. The property, at an altitude of 1,000 meters,
is on the same structural trend and about 10 kilometers south of the Mantoverde
Mine operated by the Anglo-American Company. The property is accessible by paved
and well maintained dirt roads and is approximately a 20 kilometers drive from
the coastal town of Chanoval and approximately 100 kilometers from Copiapo, a
town with a population of about 150,000. Recent geochemical sampling and diamond
drill results completed by the Company and the Company's inspection of a series
of small surface mine workings has indicated gold mineralization at Resguardo
Property along a zone which appears to be at least 5 kilometers long and open to
the north and south ends. The Company's interest in the property is held by MFG
and consists of i) a 99 year lease of mining concessions on 4,765 hectares and
ii) applications for mining concessions on 12,000 hectares to be held directly
by MFG. Pursuant to Chilean mining concession application procedures, the
Company, upon filing its application for an exploration concession, has the
right to conduct exploration activities on such property. See "Business of the
Company--Chile--Mining Concessions." The Company expects this application
process to be completed, and the exploration concessions granted to MFG, in the
third quarter of 1997. See "Business of The Company--The Properties--Resguardo
Property."
The Cenizas Property covers an area of approximately 12,900 hectares
(31,876 acres), on the West Fissure Fault, a regional geological structure that
controls much of the known gold and copper mineralization in northern Chile.
Located midway between, and on the same structural trend as, the major copper
deposits of La Escondida and El Salvador, the property is 20 kilometers south of
the Guanaco gold mine operated by Amax Gold. The property is in Region II of
northern Chile at an altitude of approximately 3,000 meters in the southern
Atacama desert and is easily reached in a three hour drive from the coastal town
of Taltal. Gold mineralization, first discovered in the area by RTZ Mining and
Exploration Limited ("RTZ") with a regional geochemical survey, occurs on the
property in Tertiary
-3-
<PAGE> 6
volcanics and diorite intrusives. RTZ's program consisted of geophysical
surveys, trenching, numerous short rotary drill holes to define gold
mineralization under shallow gravel cover and the drilling of 23
reverse-circulation drill holes. Results of this work have shown highly
anomalous to ore grade gold mineralization in trenches and drill holes in
several areas on the property. The Company's interest in the property is held by
MFG and consists of i) an option to acquire a 51% interest in mining concessions
located on 6,000 hectares by making cash payments to RTZ totaling $350,000 and
completing at least $1,000,000 of exploration work over three years and ii)
applications for mining concessions on 7,500 hectares to be held directly by
MFG. Payments to RTZ during the first year total $50,000 with a first year
exploration commitment by the Company of $200,000. The Company will also grant
to RTZ options to purchase shares of Common Stock as follows: by June 13, 1997
an option to purchase 150,000 shares of Common Stock at a price of $1.50 per
share, by December 13, 1997 an additional option to purchase 150,000 shares of
Common Stock at a price of $2.00. Pursuant to Chilean mining concession
application procedure, the Company, upon filing its application for an
exploration concession, has the right to conduct exploration activities on such
property. See "Business of the Company -- Chile -- Mining Concessions." The
Company expects this application process to be completed and the exploration
concessions granted to MFG, in the third quarter of 1997. See "Business of The
Company--The Properties--Cenizas Property."
The Santa Eloisa Property covers an area of approximately 4,700
hectares (11,600 acres) in the Maricunga Gold Mining District located in Region
II of northern Chile. The geological setting of the Santa Eloisa Property is
similar to that of several large porphyry style gold deposits that have been
discovered in the Maricunga District over the past several years. The property
is at an altitude of between 4,200 and 5,300 meters and can be reached in about
a five hour drive, along mostly dirt roads, from the nearby town of Copiapo. The
Company has an option to acquire a 50% interest in the mining concessions on the
Santa Eloisa Property by making payments totaling $500,000 to the mining
concession owners and completing $1,000,000 of exploration work on the property
before March 31, 1999. After the Company has satisfied its payment and
exploration commitments, and if the mining concession owners do not contribute
on a proportionate basis to further exploration and feasibility expenses, the
Company can increase its ownership interest to 75% by funding and completing a
feasibility study. The Company's interest in the Santa Eloisa Property is held
by MFG. See "Business of the Company--The Properties--Santa Eloisa Property."
History and Prior Activities
The Company was incorporated under the laws of the State of Florida as
Tri-Way Industries, Inc. on June 27, 1986, for the purpose of seeking,
investigating and acquiring business opportunities. The Company did not engage
in any meaningful operations until on or about November 22, 1989, when the
Company acquired The Rothchild Group, Inc. ("Rothchild Group") as its wholly
owned subsidiary. Following the acquisition, the Company changed its name to The
Rothchild Companies, Inc.
From November of 1989 until mid-1993, the Company, through the
Rothchild Group, operated as a full service advertising agency engaged in the
advertising, marketing and public relations businesses. On October 20, 1993,
however, the Rothchild Group filed for bankruptcy protection under Chapter 7 of
the United States Bankruptcy Code in the Bankruptcy Court for the Southern
District of Florida. After the Chapter 7 liquidation of the Rothchild Group, the
Company did not engage in any meaningful business or commercial activities.
On July 12, 1994, an investment group ("Investment Group") completed
the purchase of an aggregate of 315,598 shares of the Company's Common Stock
representing, at that time, approximately 60% of the Company's issued and
outstanding Common Stock. In addition, the Investment Group provided sufficient
funds in the form of loans to ensure the Company's viability and permit the
Company to pursue possible business combinations, mergers or similar
transactions. These loans were subsequently converted into 419,656 shares of
Common Stock of the Company on December 30, 1994.
On April 8, 1996, via a merger into a corporation formed for that
purpose, the Company completed the transfer of its state of incorporation from
Florida to Delaware. Accordingly, the Company is now a Delaware corporation.
-4-
<PAGE> 7
On April 15, 1996, the board of directors of the Company and holders of
a majority of the outstanding Common Stock of the Company authorized a
one-for-twenty (1-for-20) reverse split of the Company's Common Stock, pursuant
to which each 20 shares of the Company's Common Stock outstanding immediately
prior to April 30, 1996 were converted into one share of the Company's Common
Stock. In connection with the reverse split, the Company maintained the par
value of its Common Stock at $.001 per share, and the total number of shares of
Common Stock authorized to be issued by the Company remained unchanged at
20,000,000 shares. The number of issued and outstanding shares of the Company's
Common Stock after the reverse split was 1,000,000 shares. All references to
shares of Common Stock herein have been adjusted to reflect this reverse split.
On June 4, 1996, Laminco Resources, Inc., a British Columbia
corporation engaged in the business of mineral exploration and development
("Laminco"), in a privately negotiated transaction purchased 600,000 shares of
the Company's Common Stock (representing 60% of the Company's issued and
outstanding Common Stock as of the date of the acquisition) from the Investment
Group. The Investment Group and the members thereof were not related to Laminco.
In connection with the completion of the share acquisition by Laminco, the
Company's board of directors and management were completely reconstituted. On
June 4, 1996, among other appointments, Michael J. Hopley was appointed
president, chief operating officer and a director of the Company. On July 25,
196, Mr. Hopley was appointed chief executive officer of the Company. As of May
1, 1997, Mr. Hopley continues to serve in these capacities. In addition,
following Laminco's share acquisition, the Company implemented a new business
plan discussed hereinafter under "Business of The Company." None of the current
officers, directors or employees of the Company were affiliated with or employed
by the Company prior to June 4, 1996.
On July 25, 1996, the Board of Directors of the Company and holders of
a majority of the outstanding shares of the Common Stock of the Company,
authorized the Company, by written consent, to take a series of actions. These
actions included: i) changing the Company's name to Fremont Gold Corporation to
better reflect the proposed business of the Company, ii) approval of an Amended
and Restated Certificate of Incorporation, iii) approval and adoption of a Stock
Option Plan to allow the Company to attract and retain the best available
personnel for positions of responsibility within the Company and to provide
additional incentive to employees of the Company in order to promote the success
of the Company's business; and iv) making certain management and director
changes and forming the Company's Compensation and Audit Committees. These
management and director changes included the expansion of the Company's board to
five members with the appointment of Edwin G. Morrow and David Shaw as directors
and the resignation of Mr. Kelsey Boltz as Chief Executive Officer.
On July 30, 1996 the Company completed a private placement of 500,000
shares of its Common Stock to Laminco in consideration of $140,000.
On July 30, 1996 the Company completed a private placement of 1,000,000
shares of Common Stock at an offering price of $.20 per share, aggregating
$200,000 in proceeds to the Company. Michael J. Hopley, a director, president
and chief executive officer of the Company, Edward M. Topham, a director, chief
financial officer, secretary and treasurer of the Company and David Shaw, a
director of the Company, purchased 154,639, 73,310 and 138,603 shares,
respectively, of the Company's Common Stock in the private placement.
"Management -- Certain Relationships and Related Transactions." On July 30,
1996, after completion of these private placements, Laminco beneficially owned
51.7% of the Company's Common Stock and held 44.0% of the issued and outstanding
Common Stock.
On July 31, 1996, the Company acquired 3,560,000 of the issued and
outstanding shares of FHL common stock not previously owned by the Company. The
shares of FHL common stock were acquired directly from the FHL shareholders in
exchange for 3,560,000 newly issued shares of the Company's Common Stock, in the
aggregate. Upon completion of the share exchange, the Company directly owned all
of the issued and outstanding shares of FHL's common stock. Michael J. Hopley, a
director, president and chief executive officer of the Company, Edward M.
Topham, a director, chief financial officer, secretary and treasurer of the
Company and David Shaw, a director of the Company, received 418,000, 381,000 and
372,000 shares, respectively, of the Company's Common Stock in the exchange.
These individual's interests in FHL were disclosed to the members of the
Company's board and the
-5-
<PAGE> 8
acquisition of FHL was approved by the holders of a majority of the issued and
outstanding Common Stock of the Company. See "Management -- Certain
Relationships and Related Transactions." Upon completion of this acquisition,
Laminco beneficially owned 46.4% of the Company's Common Stock and directly held
18.2% of the issued and outstanding Common Stock.
Certain members of Laminco's board of directors and certain of
Laminco's officers were stockholders in FHL prior to its acquisition by the
Company. Because of FHL's interest in MFG at the time of the Company's
acquisition of FHL and the failure of these individuals to disclose their
interest in FHL to Laminco, pursuant to British Columbian corporate law, the FHL
shares were deemed to be held by such individuals in constructive trust for
Laminco, as were the shares of the Company's Common Stock received by these
individuals upon acquisition of FHL by the Company. On December 30, 1996, these
directors and officers of Laminco agreed to transfer to Laminco, 1,497,000
shares of Common Stock which were subject to such constructive trust. All
references to Laminco's beneficial ownership of Common Stock in the Company
during the time period from the acquisition of FHL on July 31, 1996 to December
30, 1996 give effect to this constructive trust.
On August 21, 1996, the Company commenced an offering of $1,800,000
principal amount of Series A Notes. In December 1996, the Company completed the
offering of Series A Notes and accepted subscriptions aggregating $1,800,000.
Each Series A Note is convertible, at the option of each of holders of the
Series A Notes (each a "Series A Note Holder"), into Units at any time after the
Issue Date (as defined in the Series A Note) prior to the close on the maturity
date at the rate of $.50 of principal per Unit. Each Unit is composed of one
share of Common Stock, each a Conversion Share, and one Warrant. Each Warrant is
exercisable to purchase one share of Common Stock, each a Warrant Share, at the
greater of $1.50 or seventy-five percent (75%) of the ten day average closing
prices, as quoted on the OTC-BB, immediately preceding the notice of exercise.
The Warrants are redeemable by the Company at any time after issuance, upon 15
days written notice to the Warrant holders, at a redemption price of $.10 per
Warrant. The Series A Note Holders, if any, issued Units upon conversion without
an effective Registration Statement under the Securities Act of 1933, as amended
("Act"), covering the Conversion Shares and the Warrant Shares, shall have the
right, at any time, to join with the Company to register the Conversion Shares
and the Warrant Shares in any Registration Statement under the Act filed by the
Company. Each purchaser of the Series A Notes has entered into a Voluntary Stock
Pooling Agreement ("Pooling Agreement"). See "Description of Securities and
Voluntary Stock Pooling Agreements." Under the terms of the Pooling Agreement
each recipient of Units issued pursuant to conversion of the Series A Notes has
agreed with the Company, the Trustee (as defined in the Pooling Agreement) and
each with the other, that they will deliver the certificates representing their
Conversion Shares to the Trustee. The Warrant Shares will not be subject to the
Pooling Agreement. Pursuant to the Pooling Agreement the Trustee shall hold all
Conversion Shares subject to release, on a pro-rata basis, as set forth below:
<TABLE>
PRO-RATA CONVERSION SHARES RELEASE DATE
- -------------------------- ------------
<S> <C>
25% of Conversion Shares April 1, 1997(1)
25% of Conversion Shares July 1, 1997
25% of Conversion Shares October 1, 1997
the balance of Conversion Shares January 1, 1998
</TABLE>
(1) Upon any conversion of the Series A Notes after April 1, 1997, the
first 25% of the Conversion Shares issued upon such conversion will be
immediately released.
On August 23, 1996, the Company's indirectly owned Chilean operating
subsidiary changed its name from Inversiones Mineras Ayl S. A. to Minera Fremont
Gold Chile S.A.
On December 31, 1996, Laminco, pursuant to a Share Purchase and Sale
Agreement, sold 2,597,000 of the Company's Common Stock, representing all of the
shares of the Company's Common Stock beneficially owned by Laminco (other than
400,000 shares underlying a warrant to purchase Common Stock previously issued
to Laminco), to 14 purchasers at $.42 per share. None of these purchasers were
related to Laminco and none of the purchasers as a
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<PAGE> 9
result of this transaction held in excess 7% of the issued and outstanding
shares of Common Stock. Each of the purchasers of these shares entered into a
Stockholders Agreement with the Company, the terms of which restrict the
transferability of the shares purchased from Laminco until December 20, 1997.
See "Description of Securities and Voluntary Stock Pooling Agreements." Upon
completion of these sales, Laminco beneficially owned 6.2% of the Company's
Common Stock and held 0% of the issued and outstanding Common Stock.
On February 27, 1997, the Company extended the expiration date of the
Warrants to be included in the Units from April 15, 1997 to September 30, 1997.
The Company also requested that the Series A Note Holders extend the maturity
date of the Series A Notes from March 1, 1997 to June 30, 1997. As of May 1,
1997, 88% of the Series A Note Holders, representing 92% of the outstanding
principal balance of the Series A Notes, have delivered an executed Maturity
Date Extension Agreement to the Company. The Company is in default of the
remaining Series A Notes. In the event that the remaining Series A Note Holders
do not agree to the maturity date extension, these Series A Note holders may
pursue remedies under their Series A Notes, in accordance with certain terms and
conditions contained in the Series A Notes, including earning default interest
at the rate of 16% per annum. The principal amount of Series A Notes in default
is $141,000. The Company believes that the remaining Series A Note Holders will
agree to the maturity date extension.
On April 1, 1997, the Company borrowed $650,000 from an unaffiliated
lender ("Lender") pursuant to a promissory note (the "Bridge Note"). The Bridge
Note provides for an interest rate of 12% (per annum) and is due on July 31,
1997. The Bridge Note is secured by a pledge agreement ("Pledge Agreement").
Under the terms of the Pledge Agreement, Michael J. Hopley, a director,
president and chief executive officer of the Company, Edward M. Topham, a
director, chief financial officer, secretary and treasurer of the Company and
David Shaw, a director of the Company, pledged, in the aggregate, 1,088,412
shares of Common Stock of the Company owned by them to the Lender as security
for the Bridge Note. The Company also issued the Lender a warrant to purchase
650,000 shares of the Company's Common Stock for a period of two years at a
price of $1.50 per share. In connection with this transaction the Company
granted an unaffiliated individual a loan acquisition fee consisting of a
warrant to purchase 85,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. In consideration of pledging their
Common Stock as security to facilitate this loan, the Company has agreed to
issue Messrs. Hopley, Topham and Shaw an aggregate of 75,000 shares of the
Company's Common Stock. See "Management -- Certain Relationships and Related
Transactions."
The Company's registered office and headquarters is 777 Hornby Street,
Suite 2000, Vancouver, British Columbia V6Z 1S4, its telephone number is
604-682-4606. While its headquarters are in Vancouver, the Company has
established an office in Santiago, Chile from which its Chilean exploration
activities are directed.
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<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Securities Offered:.................................................. 7,200,000 Shares, comprised of 3,600,000
Conversion Shares offered by the Selling
Stockholders and 3,600,000 Warrant Shares
offered by the Company upon exercise of the
Warrants
Common Stock Outstanding Before Offering:............................ 6,060,000 (1)
Common Stock Outstanding After Conversion of Series A Notes
(assumes full conversion of all Series A Notes):..................... 9,660,00 (1)
Common Stock Outstanding After Offering (assumes full conversion
of the Series A Notes and full exercise of the Warrants):............ 13,260,000 (1)
</TABLE>
- -----------------
1. Does not include the following: i) 1,000,000 shares of Common Stock
reserved for issuance upon exercise of options granted pursuant to the
Company's Stock Option Plan, of which, as of May 1, 1997, 950,000
options had been granted, see "Management - Stock Option Plan"; ii)
400,000 shares of Common Stock issuable upon exercise of warrants
granted to Laminco, see "Management -- Certain Relationships and
Related Transactions"; iii) 85,000 shares to be issued as a loan
acquisition fee in connection with the issuance of the Bridge Note, see
"The Company" and "Management -- Certain Relationships and Related
Transactions"; iv) 75,000 shares to be issued as consideration for
pledges of collateral to secure the Bridge Note, see "The Company"; v)
650,000 shares reserved for issuance to the Lender in connection with
the Bridge Note, see "The Company"; and vi) 300,000 shares reserved for
issuance pursuant to options which have been or will be issued to RTZ
in connection with the Company's acquisition of the Cenizas Property ,
see "Business of the Company -- The Properties -- Cenizas Property --
Acquisition of Property."
PLAN OF DISTRIBUTION
All of the Conversion Shares offered hereby may be sold from time to
time by certain Selling Stockholders. See "Selling Stockholders." The Company
will not receive any of the proceeds from the sale of the Conversion Shares. The
Conversion Shares may be offered from time to time in one or more transactions
in the over-the-counter market, pursuant to Rule 144 under the Securities Act of
1933, pursuant to Regulation S under the Securities Act of 1933, or otherwise,
at market prices prevailing at the time of the sale, at prices relating to such
prevailing market prices, or at negotiated prices.
All 3,600,000 Warrant Shares are being offered by the Company to the
holders of the Warrants for issuance upon exercise of the Warrants during the
period that the Registration Statement, of which this Prospectus is a part, is
effective. The Company is unaware of any specific plan of distribution of the
Warrant Shares following exercise of the Warrants, but believes that the Warrant
Shares will be sold at prevailing market prices on the OTC-BB, without the
payment of any underwriting commissions or discounts other than ordinary
brokerage transaction fees. See "Plan of Distribution."
The Company is paying all of the expenses in connection with the
preparation of this Prospectus and the related Registration Statement.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS."
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<PAGE> 11
RISK FACTORS
The securities offered hereby are speculative, involve a high degree of risk and
should not be purchased by anyone who cannot afford the loss of his or her
entire investment. In addition to the other information in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating an investment in the securities offered hereby.
NATURE OF MINERAL EXPLORATION AND DEVELOPMENT. The exploration for mineral
deposits and development of mineral properties entails significant financial
risks which even a combination of careful evaluation, experience and knowledge
may not eliminate. While the discovery of an orebody may result in substantial
rewards, few properties which are explored are ultimately developed into
producing mines. Major expenses may be required to establish ore reserves by
drilling, constructing mining and processing facilities at a site, developing
metallurgical processes and extracting metals from the ore. It is impossible to
ensure that the proposed exploration and development programs of the Company
will result in a profitable commercial mining operation.
Whether a mineral deposit will be commercially viable depends on a number of
factors, some of which are the particular attributes of the deposit, such as
size, grade and proximity to infrastructure, as well as, metal prices which are
highly cyclical and government regulations, including regulations relating to
prices, taxes, royalties, land tenure, land use, importing and exporting of
minerals and environmental protection. The exact effect of these factors cannot
be accurately predicted, but any of these factors could have a material adverse
effect on the business, financial condition and results of operations of the
Company and may result in the Company not receiving an adequate return on
invested capital.
NO RECENT OPERATING HISTORY; ANTICIPATED LOSSES; FLUCTUATING RATES OF GROWTH.
The Company did not commence its current business operations until June 1996.
Accordingly, the Company has no meaningful operating history upon which an
evaluation of the Company and its prospects can be based. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies engaged in the acquisition, exploration and
development of mineral properties. To address these risks, the Company must,
among other things, respond to competitive developments, attract, retain and
motivate qualified personnel, as well as implement and successfully execute its
acquisition, exploration and development programs. Because of the inherent
processes involved in developing a prospective mineral property, it is
anticipated that the Company will record losses until the properties become
operational and/or sold, if ever.
GOING CONCERN UNCERTAINTY. The Company's financial statements have been prepared
assuming the Company will continue as a going concern. Certain factors,
discussed below and in the financial statements (and notes thereto), raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company has a substantial capital deficit at December 31, 1996 and March 31,
1997 due to current debt maturities, and does not have sufficient funds to meet
the exploration objectives presently planned. Management recognizes that the
Company must generate additional resources to enable it to continue operations.
The Company is actively pursuing the sale of equity securities with funds raised
being made available to the Company. See "Plan of Operation." Management expects
these pursuits will result in additional resources to the Company, however, no
assurance can be given that the Company will be successful in raising additional
capital. If the Company is unable to raise additional capital, on terms
acceptable to the Company, the Company may be required to i) cease its current
mineral property acquisition program, ii) suspend or reduce its exploration
programs on one or more of its current mineral properties, iii) enter into joint
venture arrangements with third parties for the exploration of its mineral
properties, which will result in a reduction in the Company's ownership interest
in such mineral properties and/or iv) terminate its existing purchase option or
lease agreements and forfeit its interest in one or more of its current mineral
properties. Further, there can be no assurance, assuming the Company
successfully raises additional funds, that the Company will achieve
profitability or positive cash flow in the future.
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<PAGE> 12
RISKS OF FOREIGN OPERATIONS. In certain countries in which the Company may
obtain mineral rights (whether held directly or indirectly), mineral exploration
and mining activities may be affected in varying degrees by political stability
and government regulations relating to the mining industry. Any changes in
regulations or shifts in political conditions are beyond the control of the
Company and may adversely affect its business, financial condition and results
of operations.
The Company publishes its consolidated financial statements in U.S. dollars, as
the Company uses the U.S. dollar as its functional currency. It is anticipated,
however, that because the location of the Company's executive offices is in
Canada and the Company's primary operation is in Chile, significant portions of
the Company's revenues, when and if earned, and expenses may be collected and
paid in Canadian dollars or Chilean pesos. Transactions recorded in currencies
other than U.S. dollars will be translated (i) income and expense items will be
translated at the weighted average exchange rate prevailing during the period,
(ii) monetary assets and liabilities will be translated at the rates prevailing
at the balance sheet date and (iii) non-monetary assets and liabilities will be
translated at historical rates. As a result, the Company's financial condition
can be materially affected by fluctuations in exchange rates. All references to
"$" in this Prospectus are to United States currency and all monetary amounts
are presented in U.S.
dollars.
RISK OF CHILEAN OPERATIONS. Currently, the Company's primary mineral properties
are located in Chile. Chile has a presidential system of government with a
bicameral legislature consisting of the Senate and the Chamber of Deputies. The
next nationwide congressional election is scheduled for December 1997. The
official monetary unit of Chile is the peso. The exchange rate for the peso is
determined by market prices. The Chilean Central Bank is an independent body
charged with sole control over monetary policy and has the goal of controlling
inflation and maintaining the value of the currency. The foreign investment
statute (also know as Decree Law No. 600) regulates various aspects of foreign
investment in Chile and is intended to ensure non-discrimination in relation to
the rights and benefits conferred upon national investors. The statute applies
to foreign individuals and legal entities and to Chilean citizens who reside out
of the country and who transfer foreign capital into Chile. The 1980
Constitution establishes that the State is the owner of all mineral resources,
but permits the exploration and exploitation of mineral deposits by private
parties through mining concessions. It also establishes that these mining
concessions will be granted by the courts and will have rights and obligations
determined by a Constitutional Organic Law. The 1982 Mining Law, Constitutional
Organic Law No. 18097 of 1982 and the Constitution provide the legal framework
for the exploration and exploitation of mining concessions. This law can only be
changed with the approval of 60 percent of both houses of Congress. Currently,
the political, monetary and economic environment in Chile is stable. In
addition, the current state of foreign investment statutes and mining laws are
clear and considered liberal in relation to other South American countries.
However, there are no assurances that political, monetary or economic changes
may not adversely affect the Company. Also, there are no assurances that future
changes in foreign investment statutes or mining laws will not have a material
adverse effect on the Company's business. See "Business of the Company - Chile."
CHILEAN MINING CONCESSIONS. Chile's 1982 Mining Law, Constitutional Organic Law
No. 18097 of 1982 and the Chilean Constitution provide the legal framework for
the exploration and exploitation of minerals in Chile. Upon proper filing by a
claimant, mining concessions are granted by the Chilean courts. Mining
concessions constitute interests in real property that are distinct and
independent of the ownership of the surface land on which the concession is
granted. Mining concessions can be mortgaged or transferred separate from the
surface rights. An owner of a mining concession has the right to defend
ownership of that concession against the State and third parties.
Mining concessions may be either exploration concessions or exploitation
concessions. An exploration concession is the right to explore the defined area
and to later obtain an exploitation concession over the area. Exploration
concessions are granted for a two-year period and may be renewed once for an
additional two years provided that upon such renewal one-half of the area
covered by the original concession is surrendered. An exploitation concession is
the exclusive right to explore for and exploit minerals from the defined area
for an indefinite period. See "Business of the Company--Chile--Mining
Concessions."
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<PAGE> 13
The courts will grant an exploration or exploitation concession regardless of
the existence of any preexisting concession covering the area. A claimant may
file on top of ("top filed") an existing concession holder, meaning applying for
a concession on an area for which a previous concession has already been
granted. Pursuant to Chilean law, if this top filed claim is in proper form, the
courts will grant a concession to the top filed claimant, notwithstanding the
existence of the prior concession. Once claims are filed, they are gazetted
(published) in the Mining Bulletin which is printed monthly and subscribed to by
the Company. If a claim holder is top filed, the top filer does not have a
preferential right to the mining concession on the area unless the original
concession holder allows the prior granted concession to lapse. Concessions can
lapse, and a top filer gain priority, in the following primary ways: (i) an
exploration concession expires after two years if it is not renewed or converted
to an exploitation concession; (ii) if an exploration concession is renewed and
one-half of the original claim is abandoned as required, a top filer gains
priority on the abandoned portion of the concession; (iii) failure to pay any
patents for the concession and the top filer is the high bidder at the high
public auction of the concession; or (iv) failure to defend an exploration
concession against a top filed claim for a period of four years following
publication of the grant of the top filed concession.
Although the Company has implemented programs to review monthly (i) the aging
status of its exploration concessions, (ii) the annual patents due on its
exploration and exploitation concessions and (iii) newly published claims which
may have been filed on top of the Company's concessions, there can be no
assurance that the Company will be granted an exploitation concession upon
application made for aging exploration concessions or that it will be successful
in defending its concessions against a claim which is filed on top of its
existing concessions. A failure to effectively defend a concession, depending
upon the characteristics of the particular property, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company attempts to minimize its exposure to claims litigation and loss by
completing a diligent review of all claims it seeks to acquire and by
maintaining one full time employee who is responsible to maintain the integrity
of the Company's concession portfolio. However, there can be no assurance that
these policies will be sufficient to protect all of the Company's Chilean mining
concessions.
The State may expropriate a concession, upon payment of indemnification to the
concession holder, when the law specifically authorizes, usually for public
policy, national security or national interest reasons. If the State takes such
action, the concession owner has an opportunity to make a claim regarding the
legality of the State's action. The Company does not believe expropriation of
its current mining concessions is likely; however, there can be no assurances in
that regard. The expropriation of a mining concession, depending upon the
characteristics of the property, could have a material adverse effect on the
business, financial condition and results of operations of the Company.
CAPITALIZATION AND COMMERCIAL VIABILITY. The exploration and development of
mineral properties is a capital intensive enterprise. As a result, the Company
expects it will be necessary to obtain additional funding to continue its
operations. The Company has limited financial resources and there can be no
assurance that additional funding will be available to the Company for
exploration or development of properties it may acquire or to fulfill its
obligations under any applicable agreements. There also can be no assurance that
the Company will be able to obtain adequate financing in the future or that the
terms of such financing will be favorable, or that joint ventures will be
available for the Company's properties once acquired. Failure to obtain such
additional financing could result in delay or indefinite postponement of
exploration and development of acquired properties with the possible loss of
such properties. Such delays or loss could have a material adverse effect on the
Company's business, financial condition and results of operation.
If the Company proceeds to production on a particular property, commercial
viability will be affected by certain factors that are beyond the Company's
control, including the specific attributes of the deposit, the fluctuation in
metal prices, the costs of constructing and operating a mine in a specific
environment, the cost and availability of processing and refining facilities,
the availability of economical sources of energy and water, government
regulations including regulations relating to prices, royalties, duties, taxes,
restrictions on production, quotas on exportation of minerals, as
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<PAGE> 14
well as the costs of protection of the environment and agricultural lands.
Individually or in combination, these factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
REQUIREMENT FOR PERMITS AND LICENSES. The operations of the Company may require
licenses and permits from various governmental authorities. Management believes
that the Company can obtain all necessary licenses and permits to carry on the
activities which it anticipates conducting under applicable laws and regulations
in respect of properties acquired. There can be no assurance, however, that the
Company will be able to obtain or maintain in force all necessary licenses and
permits that may be required to conduct exploration or commence construction or
operation of mining facilities at properties under exploration. The failure to
obtain or maintain a necessary license could have a material adverse effect on
the Company's business, financial condition or results of operations.
Further, many of the mineral rights and interests the Company may acquire may be
subject to government approvals. In all such cases, approval is, as a practical
matter, subject to the discretion of the appropriate governments or governmental
officials. Management of the Company has no reason to believe that such
approvals will not be granted. However, no assurance can be given that the
Company will be successful in obtaining any or all of such approvals. A failure
to obtain such approvals could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION. The mineral exploration and mining business is competitive in all
of its phases. The Company competes with numerous other companies and
individuals in a search for and the acquisition of attractive mineral
properties. Many of these companies possess greater financial and technical
resources. The Company's ability to develop reserves in the future will depend
not only on its ability to develop its present properties, but also on its
ability to select and acquire suitable prospects for mineral exploration. There
can be no assurance that the Company can effectively compete in this
environment.
REGISTRATION STATEMENT NOT EFFECTIVE BY JUNE 30, 1997; SERIES A NOTE DEFAULT The
Company exercised its right, pursuant to the terms of the Series A Notes, and
extended the Maturity Date (as defined in the Series A Note) to March 1, 1997.
On February 27, 1997, the Company extended the expiration date of the Warrants
from April 15, 1997 to September 30, 1997. The Company also requested that the
holders of the Series A Notes (the "Series A Note Holders") extend the maturity
date of the Series A Notes from March 1, 1997 to June 30, 1997. As of May 1,
1997, 88% of the Series A Note Holders, representing 92% of the outstanding
principal balance of the Series A Notes, have delivered an executed Maturity
Date Extension Agreements to the Company. The Company is in default of the
remaining Series A Notes. In the event that the remaining Series A Note Holders
do not agree to the maturity date extension, these Series A Note Holders may
pursue remedies under their Series A Notes, in accordance with certain terms and
conditions of the Series A Notes, including earning default interest at the rate
of 16% per annum. The principal amount of Series A Notes in default is $141,000.
The Company believes that the remaining Series A Note Holders will agree to the
maturity date extension. However, if the maturity dates are not extended on some
of the Series A Notes, the Company will be required to make payment on such
Series A Notes that are not extended. Such payments would reduce the working
capital available to the Company and could have a material adverse effect on the
financial condition of the Company.
In the event the Registration Statement, of which this Prospectus is a part, is
not effective by June 30, 1997, the Company will be required to seek approval
from the Series A Note Holders for an additional extension of the Maturity Date.
It is highly unlikely the Series A Note Holders will elect to convert without an
effective Registration Statement. An election by a Series A Note Holder not to
extend the Maturity Date would result in the Company being required to repay the
principal amount of the Series A Note, together with accrued and unpaid
interest, on June 30, 1997. The Company has been utilizing the proceeds of the
Series A Notes in connection with its business operations. Therefore, if any of
the Series A Note Holders elect not to extend the Maturity Date the Company may
be required to use any or all of the remaining proceeds from the offering of the
Series A Notes to repay principal and interest to those Series A Note Holders
who elect not to extend the Maturity Date. There can be no assurance that the
Company will have sufficient remaining proceeds to repay those Series A Note
Holders who elect not to extend the Maturity Date. The
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<PAGE> 15
Company may be required to seek outside sources of capital to meet its financial
obligations under the Series A Notes if a sufficient number of Series A Note
Holders elect not to extend the Maturity Date. The failure to procure such
financing on acceptable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
ELECTION NOT TO CONVERT BY SERIES A NOTE HOLDERS. Pursuant to the terms of the
Series A Notes, each Series A Note Holder, in his/her sole discretion, may elect
not to convert into the Units. The Company believes that it will be successful
in obtaining conversion of all of the Series A Notes. There is no assurance,
however, in that regard. An election by a Series A Note Holder not to convert
would result in the Company being required to repay the principal amount of the
unconverted Series A Note, together with accrued and unpaid interest, on June
30, 1997. The Company has been utilizing the proceeds of the Series A Notes in
connection with its business operations. Therefore, if any of the Series A Note
Holders elect not to convert the Company may be required to use any or all of
the remaining proceeds from the offering of the Series A Notes to repay
principal and interest to those Series A Note Holders who elect not to convert.
There can be no assurance that the Company will have sufficient remaining
proceeds to repay those Series A Note Holders who elect not to convert. The
Company may be required to seek outside sources of capital to meet its financial
obligations under the Series A Notes if a sufficient number of Series A Note
Holders elect not to convert. The failure to procure such financing on
acceptable terms could have a material adverse effect on the Company's business,
financial condition and results of operations.
NEED FOR ADDITIONAL CAPITAL; SUBSEQUENT OFFERINGS. The Company anticipates that
the funds raised through its placement of the Series A Notes and the loan
evidenced by the Bridge Note will be adequate for its cash requirements through
July 31, 1997. Thereafter, the Company will require substantial additional
capital to finance its proposed business activities and operations described
herein. There can be no assurance that the Company will be able to obtain
additional funds on acceptable terms once it has expended the proceeds of the
Series A Note offering and the Bridge Note borrowing. The failure to procure
such financing on acceptable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company recently obtained $650,000 proceeds in connection with its issuance
of the Bridge Note and presently intends to sell additional securities at a
price sufficient to raise approximately $2,000,000 to $4,000,000, either
pursuant to a registration statement or an exemption from registration under the
Securities Act of 1933 (as amended) within 12 months after the date of this
Prospectus. The Board of Directors, in its sole discretion, may decide to
increase or decrease the amount of funds required and determine the class and
amount of the securities offered and the manner by which they are offered in
such an offering. There is no assurance, however, that the proposed offering
will be completed. The Company believes it can continue operations for a period
of six months from the date of the Prospectus without the proceeds of the
proposed offering. Nevertheless, the Company will not be able to finance the
development of its proposed business at the rate contemplated by management if
such funding is not available.
UNINSURABLE RISKS. In the course of exploration, development and production of
mineral properties, several risks, and in particular, unusual geological or
unexpected operating conditions, including failure of pit walls or dams, fires
and flooding, may occur. The Company may also incur liability as a result of
pollution and other casualties. The Company may not be able to insure fully, if
at all, against such risks due to political or other reasons, or the Company may
decide not to take out insurance against such risks as a result of high premiums
or other reasons. Paying compensation for obligations resulting from such
liability may entail significant costs for the Company and could have a material
adverse effect on the Company's business, financial condition or results of
operations.
CONTROL OF THE COMPANY. Assuming full conversion of all the outstanding Series A
Notes, the exercise of all the Warrants, the issuance of 75,000 shares issuable
in connection with the Bridge Note and the exercise of options granted pursuant
to the Company's Stock Option Plan, the current officers and directors of the
Company will own a total of 1,887,886 shares of Common Stock. These shares will
represent approximately 14% of the outstanding voting securities of the Company
after full conversion of the Series A Notes. See "Security Ownership of Certain
Beneficial Owners and Management."
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<PAGE> 16
SUBSTANTIAL DILUTION TO INVESTORS. The 6,060,000 shares of the Company's Common
Stock outstanding on March 31, 1997 had a net tangible book value of
($1,698,604), or ($.28) per share. After giving effect to the issuance of
3,600,000 Conversion Shares as part of the Units offered hereby, the receipt of
the proceeds from the Series A Note offering and the payment of estimated
offering costs, the pro forma net tangible book value of the Company's
outstanding Common Stock on that date would be $19,596, or $.00 per share.
Therefore, the Series A Note Holders receiving the Conversion Shares will suffer
an immediate dilution of approximately $.49 per share and the present
stockholders of the Company will receive an immediate increase of $.28 per share
in the net tangible book value of the Common Stock held by them. If the Series A
Notes are fully converted into the Units, the contribution by the Series A Note
Holders will constitute approximately 63% of the total contributions to the
capital of the Company and the Conversion Shares will only constitute 37% of the
outstanding stock of the Company. Accordingly, the Series A Note Holders
receiving the Units offered hereby will bear a disproportionately high share of
the total risk. See "Dilution."
After giving effect to the full exercise of the Warrants included in the Units
into the 3,600,000 Warrant Shares offered hereby at an exercise price equal to
the greater of $1.50 or seventy-five percent (75%) of the average closing bid
for the Common Stock on the OTC-BB for the 10 days preceding the exercise of the
Warrant, the pro forma net tangible book value at March 31, 1997, utilizing a
$1.50 exercise price would have been $5,419,596 or $.41 per share of Common
Stock. This represents an immediate increase in net tangible book value of $.41
per share of Common Stock to the existing shareholders and an immediate dilution
of $1.09 per share of Common Stock to new investors. If the Warrants are fully
exercised, the contributions by the Warrant holders will constitute
approximately 66% of the total contributions to the capital of the Company and
the shares of Common Stock received by the Warrant holders will only constitute
27% of the outstanding stock of the Company. Accordingly, the Warrant holders
receiving shares of Common Stock offered hereby will bear a disproportionately
high share of total risk. See "Dilution."
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent on the
services of Michael J. Hopley and Edward M. Topham, each a member of senior
management. The experience of these individuals will be a factor contributing to
the Company's continued success and growth. The loss of one or more of these
individuals could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. The Company
does not currently have key man life insurance on any of these individuals. See
"Management."
NO ASSURANCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
date of this Prospectus, there has been only a limited market for the Common
Stock and no market for the Warrants. There can be no assurance that such a
market for the Common Stock will develop or that, if developed, such market will
be sustained. The exercise price of the Warrants was arbitrarily determined by
the Company and it is not necessarily related to the Company's asset value, net
worth or other established criteria of value. Market prices for the Common Stock
will be influenced by a number of factors, including exploration results
obtained from the Company's mineral properties, the Company's ability to acquire
additional mineral properties, quarterly variations in the financial results of
the Company and its competitors, changes in earnings, estimates by analysts,
conditions in the natural resource markets, the overall economy and financial
markets and political factors.
PENNY STOCK RULES. The Company's Common Stock presently is traded on the OTC-BB
and is not listed on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) or on any securities exchange in the United States. As
a result, the shares of Common Stock are subject to the Penny Stock Rules
promulgated under the Securities Exchange Act of 1934. These rules regulate
broker-dealer practices in connection with transactions in "penny stock." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain nation securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to the transactions in such securities is provided by the exchange or
system). The Penny Stock Rules require a broker-dealer, prior to any transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission that
provides information about penny stocks and the nature and level of risk in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations, the compensation of the broker-dealer and its
sales person salesperson in the transaction, and monthly account statements
showing the market value of each penny stock
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<PAGE> 17
held in the customer's account. The bid and offer quotations and the
broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction in a
penny stock no otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
The disclosure requirements may have the effect of reducing the level of
purchases in the instant offering and trading activity in the secondary market
for the Company's Common Stock. As a result, investors in this offering may find
it more difficult to sell the Common Stock.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISK. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items, (i) the Company's growth strategies,
(ii) the anticipated production of the Company's properties, and exploration
results from the Company's current and future mineral properties. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, exploration results or economic influence. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information in this Prospectus will in fact transpire or prove
to be accurate.
USE OF PROCEEDS
The net proceeds of the offering of the Conversion Shares by a Selling
Stockholder will be received directly by the Selling Stockholder. No proceeds
will be received by the Company from the sale of the Conversion Shares.
Upon exercise of the Warrants, the Company will receive the exercise price for
each Warrant Share issued. The exercise price per Warrant Share is the greater
of $1.50 or seventy-five (75%) of the average closing bid price for the Common
Stock on the OTC-BB, as reported by a generally accepted reporting service, for
the 10 trading days preceding the exercise of the Warrant. The exercise price
for a Warrant exercised on May 1, 1997 would have been $1.50 per Warrant Share.
The Company intends to use the proceeds from the exercise of the Warrants to
meet its short-term debt obligations, finance its property acquisition payment
obligations and its initial geological mapping, geophysical surveys, sampling,
trenching, and limited core drill exploration programs on its Resguardo, Cenizas
and Santa Eloisa properties, for costs associated with identification and
acquisition of additional mineral properties and for general working capital.
The Company's property acquisition obligations aggregate $470,000 over the next
12 months; Resguardo Property $60,000, Cenizas Property $75,000 and the Santa
Eloisa Property $335,000. In addition the Company has budgeted current
exploration programs aggregating $787,300; Resguardo Property $340,050, Cenizas
Property $347,250 and the Santa Eloisa Property $100,000. The Company's
exploration budget anticipates these expenditures to be made in furthering its
current planned exploration programs by December 31, 1997. Future exploration
expenditures on the properties are dependent on results obtained from the above
exploration programs. See "Business of the Company."
PLAN OF DISTRIBUTION
This Prospectus describes the offering of 7,200,000 Shares: 3,600,000
Warrant Shares and 3,600,000 Conversion Shares. The Warrant Shares are offered
by the Company only to holders of the Warrants, issued or issuable upon
conversion of its Series A Notes, during the time which the Registration
Statement of which this Prospectus is a part is effective. Therefore, the
Warrant Shares are offered by the Company to the Warrant holders on a "best
efforts" no minimum basis. The offering period for the Warrant Shares will
commence on the date the Company receives approval from the Securities and
Exchange Commission and the appropriate state regulatory bodies and will
terminate upon the earlier of (i) the termination of the Registration
Statement's effectiveness, or (ii) expiration of the Warrants.
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<PAGE> 18
The Conversion Shares, are being offered by certain Selling
Stockholders. The Selling Stockholders may from time to time offer the
Conversion Shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of the Conversion Shares for
whom they may act as agent. The Selling Stockholders and any underwriter,
dealers or agents that participate in the distribution of the Conversion Shares
may be deemed underwriters, and any profit on the sale of the Conversion Shares
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act of 1934, as amend. At the time of a
particular offering of Conversion Shares is made, to the extent required, a
Prospectus Supplement will be distributed with this Prospectus which will set
forth the aggregate number of Conversion Shares being offered and the terms of
the offering, including the names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts or concessions allowed or reallowed or
paid to dealers. In the event a Selling Stockholder sells the Conversion Shares
through the use of an underwriter, it may be necessary to file a post-effective
amendment to the Registration Statement registering the Conversion Shares.
Alternatively, the Selling Stockholders may from time to time effect
sales of the Conversion Shares offered hereunder in one or more transactions in
the over-the-counter market, pursuant to Rule 144 under the Securities Act,
pursuant to Regulation S under the Securities Act (when applicable), or
otherwise, at market prices prevailing at the time of sale, at prices relating
to such prevailing market prices, or at negotiated prices. It is anticipated
that broker-dealers participating in such sales of Conversion Shares will
receive the usual and customary selling commissions.
The Company will pay substantially all of the expenses incident to the
registration of the Shares. The Company will not pay any expenses incident to
the offering and sale of the Conversion Shares to the public, including, but not
limited to, commissions and discounts of underwriters, dealers or agents.
DETERMINATION OF OFFERING PRICE
The Common Stock of the Company trades on the OTC-BB. The exercise
price of the Warrants pursuant to which the Warrant Shares will be issued was
determined by management and does not necessarily bear any direct relation to
the current market price, asset value or net book value of the Company or the
Common Stock.
This Prospectus may be used from time to time by the Selling
Stockholders who offer the Conversion Shares registered hereby for sale. The
offering price of such Conversion Shares will be determined by the Selling
Stockholder and may be based on market prices prevailing at the time of sale, at
prices relating to such prevailing market prices or at negotiated prices.
DILUTION
"Dilution" represents the difference between the offering price of the
Common Stock and the pro forma net tangible book value per share of Common Stock
immediately after the completion of an offering. "Net tangible book value" is
the amount that results from subtracting the total liabilities of the Company
from its total tangible assets. In this Offering, the level of dilution will be
increased as a result of the negative tangible book value of the Company's
issued and outstanding Common Stock. The net tangible book value of the Company
as of March 31, 1997 was a deficit of $1,698,604, or $.28 per share of Common
Stock. Net tangible book value per common share is determined by dividing the
number of common shares outstanding into the tangible net worth of the Company.
Giving effect to the issuance of 3,600,000 Conversion Shares included in the
Units issuable upon conversion of the Series A Notes at a conversion price of
$.49 per Conversion Share, the full and complete conversion of the Series A
Notes and the payment of estimated offering costs, the pro forma net tangible
book value at March 31, 1997 would have been $19,596, or $.00 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $.28 per share of Common Stock to existing shareholders and an immediate
dilution of $.49 per share of Common Stock to the holders of the Conversion
Shares. Giving effect to the issuance of 3,600,000 Warrant Shares offered
hereby, upon exercise of
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<PAGE> 19
the Warrants included in the Units, at an exercise price equal to the greater of
$1.50 or seventy-five percent (75%) of the average closing bid for the Common
Stock on the OTC-BB for the 10 days preceding the exercise of the Warrant, the
proforma net tangible book value at March 31, 1997 would have been $5,419,596 or
$.41 per share of Common Stock. This represents an immediate increase in net
tangible book value of $.41 per share of Common Stock to existing shareholders
and an immediate dilution of $1.09 per share of Common Stock to new investors.
The foregoing figures give effect to the issuance of the Conversion
Shares pursuant to conversion of the Series A Notes, but do not include the
assigned purchase price of $.01 per Warrant included in the Units. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
After Conversion of After Exercise of
Series A Notes the Warrants
------------------- -----------------
<S> <C> <C> <C> <C>
Offering price per Share .................................. $ .49 $1.50 (2)
Net tangible book value per common share at March 31, 1997
(1) ....................................................... ($.28) $.00
Increase in net tangible book value per common share
attributable to new Common Stock investors ................ .28 .41
------------------ -----------------
Pro forma net tangible book value per common share after
issuance of Common Shares ................................. .00 .41
------------------ -----------------
Dilution in net tangible book value per common share to new
investors ................................................. $.49 $1.09
------------------ -----------------
Dilution per share as a percentage of offering price ...... 100% 73%
================== =================
</TABLE>
(1) Number of shares outstanding assumes no exercise of i) 400,000
warrants granted to Laminco and ii) 950,000 options granted
pursuant to the Company's 1996 Stock Option Plan.
(2) Assumes a Warrant exercise price of $1.50.
The following table sets forth on a pro forma basis at March 31, 1997,
the differences between existing stockholders and new investors assuming full
conversion of the Series A Notes and full exercise of the Warrants with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Amount % Amount % Per Share
---------- ------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders ................... 6,060,000 45.8% $1,065,286 12.9% $ .18
Conversion Share investors .............. 3,600,000 27.1% 1,800,000 21.7% $ .49
Warrant Share investors (1).............. 3,600,000 27.1% 5,400,000 65.3% $ 1.50
---------- ------- ---------- ----- ---------
Total ............................... 13,260,000 100.0% $8,265,286 100%
========== ======= ========== =====
</TABLE>
(1) Assumes a Warrant exercise price of $1.50.
The foregoing table assumes no exercise of i) 400,000 warrants granted
to Laminco and ii) 950,000 options granted pursuant to the Company's 1996 Stock
Option Plan.
-17-
<PAGE> 20
DIVIDEND POLICY
The Company has never paid cash dividends and it is not anticipated
that any cash dividends will be paid in the foreseeable future. While the
Company's dividend policy will be based on the operational results and capital
needs of the business, it is anticipated that all future earnings, if any, will
be retained to finance the expansion of the Company's business. Therefore,
purchasers who need immediate and consistent income from cash dividends should
not purchase the Shares offered hereby.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted to give effect to i) the full and complete
conversion of the Series A Notes into the 3,600,000 Units and payment of costs
associated with this Offering and ii) the full and complete conversion of the
Series A Notes into the 3,600,000 Units, the subsequent full and complete
exercise of the Warrants at an exercise price of $1.50 per Warrant Share and
payment of costs associated with this Offering.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------
AS AS
ACTUAL ADJUSTED(1)(2) ADJUSTED(2)(3)
-------------------------------------------------
<S> <C> <C> <C>
Series A Notes ....................................... $ 1,800,000 $ -- $ --
Non-controlling interest ............................. 2,500 2,500 2,500
Shareholders' equity:
Common Stock, $.001 par value, 20,000,000
authorized; 6,060,000 issued and outstanding;
9,660,000 shares as adjusted (1)(2); 13,260,000 shares
as adjusted(2)(3) .................................... 25,060 28,660 32,260
Additional paid in capital ........................... 1,040,226 2,754,826 8,151,226
Unearned compensation ................................ (144,350) (144,350) (144,350)
Retained earnings .................................... (1,796,574) (1,796,574) (1,796,574)
Total shareholder' equity ....................... (875,638) 842,562 6,242,562
----------- ----------- -----------
Total Capitalization ................................. 926,862 845,062 6,245,062
=========== =========== ===========
</TABLE>
- -----------------------
1. As adjusted for the full and complete conversion of the Series A Notes
into Units and the costs associated with this Offering.
2. Does not include exercise of i) 400,000 warrants granted to Laminco and
ii) 950,000 options granted pursuant to the Company's 1996 Stock Option
Plan.
3. As adjusted for the full and complete exercise of the Warrants, at an
assumed exercise price of $1.50, following full and complete conversion
of the Series A Notes into Units, and the costs associated with this
Offering.
PLAN OF OPERATION
The Company is, and plans to continue to be, engaged in the
acquisition, exploration and, if warranted, development of mineral properties,
primarily gold and copper properties located in Latin America. Currently, the
Company is only involved in the exploration for minerals and does not have an
interest in any operating mines. The Company's near term operational plan is to
complete exploration on its three principal mineral property interests and to
pursue the identification and acquisition of additional mineral properties. The
Company has implemented an
-18-
<PAGE> 21
aggressive plan to assess new opportunities for the acquisition of additional
mineral properties with an economic potential. The financial statements have
been prepared assuming the Company will continue as a going concern. Certain
factors, discussed below and in the notes to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
During 1997, the Company will be required to pay $370,000 in lease and
purchase option payments in connection with its Resguardo, Cenizas and Santa
Eloisa properties. See "Business of the Company--The Properties." In addition,
the Company is required to expend $200,000, $300,000 and $500,000 in conducting
exploration on its Cenizas Property during 1997, 1998 and 1999, respectively,
and $1,000,000 in conducting exploration on its Santa Eloisa Property before
March 31, 1999.
The Company also intends to expend significant additional funds on i)
exploration in excess of contractual commitments, ii) identification and
acquisition of additional mineral properties and iii) general and administrative
costs associated with the implementation of its operational plan. The Company
has the ability to exercise control over the amount and timing of a significant
portion of these additional costs.
The Company has experienced operating losses since inception, resulting
in an accumulated deficit position. These operating losses are a result of the
Company's i) expansion of its administrative staff and technical staff to fully
support the Company's exploration and property acquisition activities, ii)
exploration expenditures on the Company's existing properties, and iii) cost
associated with the Company's mineral property acquisition program. The
Company's financial position and operating results raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are discussed below.
It is anticipated that the proceeds from the Series A Notes and the
Bridge Note will satisfy the Company's cash requirements until July 31, 1997.
The Company may extend this date through reducing its current exploration budget
and acquisition activities. To the extent the additional financial resources
discussed below are not available to the Company, the Company may be required to
substantially reduce or eliminate its exploration and or acquisition activities.
The Company's current operational plan relies upon the full conversion
of all Series A Notes. The Company has been utilizing the proceeds of the Series
A Notes in connection with its business operations. Therefore, if any of the
Series A Note Holders elect not to convert, the Company may be required to use
any or all of the remaining proceeds from the offering of the Series A Notes to
repay principal and interest to those Series A Note Holders who elect not to
convert. There can be no assurance that the Company will have sufficient
remaining proceeds to repay those Series A Note Holders who elect not to
convert. The Company may be required to seek outside sources of capital to meet
its financial obligations under the Series A Notes if a sufficient number of
Series A Note Holders elect not to convert. In addition, to maintain the
Company's current level of exploration and acquisition activities, the Company
will need a significant portion of the Warrants to be exercised during 1997. The
Company currently anticipates that it will sell additional securities at a price
sufficient to raise approximately $2 million to $4 million, either pursuant to
registration or an exemption from registration under the Act within the next 12
months, however, there can be no assurance that the Company will be successful
in completing such sales. If the Company is successful in obtaining proceeds
from a significant number of Warrant exercises and it is successful in selling
additional securities, the Company likely will expand its property acquisition
program and accelerate exploration work on its current properties.
The Company's financial statements have been prepared assuming the
Company will continue as a going concern. Certain factors, discussed below and
in the financial statements (and notes thereto), raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The Company has a substantial capital deficit at December 31, 1996 and
March 31, 1997 due to current debt maturities, and does not have sufficient
funds to meet the exploration objectives presently planned. Management
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<PAGE> 22
recognizes that the Company must generate additional resources to enable it to
continue operations. The Company is actively pursuing the sale of equity
securities with funds raised being made available to the Company. Management
expects these pursuits will result in additional resources to the Company,
however, no assurance can be given that the Company will be successful in
raising additional capital. If the Company is unable to raise additional
capital, on terms acceptable to the Company, the Company may be required to i)
cease its current mineral property acquisition program, ii) suspend or reduce
its exploration programs on one or more of its current mineral properties, iii)
enter into joint venture arrangements with third parties for the exploration of
its mineral properties, which will result in a reduction in the Company's
ownership interest in such mineral properties and/or iv) terminate its existing
purchase option or lease agreements and forfeit its interest in one or more of
its current mineral properties. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will achieve
profitability or positive cash flow in the future.
During the next 12 months the Company will focus its human and
financial resources on i) exploration of its existing properties, ii)
identification and acquisition of additional mineral properties and iii)
exploration of mineral properties subsequently acquired. The Company does not
anticipate any significant purchases or sales of plants or equipment during the
next twelve months.
Currently, the Company has 14 full time employees. The Company also has
two full time and several part time geological consultants. The Company
anticipates hiring one additional full time employee during the first half of
1997. To the extent the Company is successful in acquiring additional mineral
properties, it may hire one or more employees or consultants on a full time
basis in the technical field.
THE COMPANY
The Company was incorporated under the laws of the State of Florida as
Tri-Way Industries, Inc. on June 27, 1986, for the purpose of seeking,
investigating and acquiring business opportunities. The Company did not engage
in any meaningful operations until on or about November 22, 1989, when the
Company acquired The Rothchild Group, Inc. ("Rothchild Group") as its wholly
owned subsidiary. Following the acquisition, the Company changed its name to The
Rothchild Companies, Inc.
From November of 1989 until mid-1993, the Company, through the
Rothchild Group, operated as a full service advertising agency engaged in the
advertising, marketing and public relations businesses. On October 20, 1993,
however, the Rothchild Group filed for bankruptcy protection under Chapter 7 of
the United States Bankruptcy Code in the Bankruptcy Court for the Southern
District of Florida. After the Chapter 7 liquidation of the Rothchild Group, the
Company did not engage in any meaningful business or commercial activities.
On July 12, 1994, an investment group ("Investment Group") completed
the purchase of an aggregate of 315,598 shares of the Company's Common Stock
representing, at that time, approximately 60% of the Company's issued and
outstanding Common Stock. In addition, the Investment Group provided sufficient
funds in the form of loans to ensure the Company's viability and permit the
Company to pursue possible business combinations, mergers or similar
transactions. These loans were subsequently converted into 419,656 shares of
Common Stock of the Company on December 30, 1994.
On April 8, 1996, via a merger into a corporation formed for that
purpose, the Company completed the transfer of its state of incorporation from
Florida to Delaware. Accordingly, the Company is now a Delaware corporation.
On April 15, 1996, the board of directors of the Company and holders of
a majority of the outstanding Common Stock of the Company authorized a
one-for-twenty (1-for-20) reverse split of the Company's Common Stock, pursuant
to which each 20 shares of the Company's Common Stock outstanding immediately
prior to April 30, 1996 were converted into one share of the Company's Common
Stock. In connection with the reverse split, the Company maintained the par
value of its Common Stock at $.001 per share, and the total number of shares of
Common Stock
-20-
<PAGE> 23
authorized to be issued by the Company remained unchanged at 20,000,000 shares.
The number of issued and outstanding shares of the Company's Common Stock after
the reverse split was 1,000,000 shares. All references to shares of Common Stock
herein have been adjusted to reflect this reverse split.
On June 4, 1996, Laminco Resources, Inc., a British Columbia
corporation engaged in the business of mineral exploration and development
("Laminco"), in a privately negotiated transaction purchased 600,000 shares of
the Company's Common Stock (representing 60% of the Company's issued and
outstanding Common Stock as of the date of the acquisition) from the Investment
Group. The Investment Group and the members thereof were not related to Laminco.
In connection with the completion of the share acquisition by Laminco, the
Company's board of directors and management were completely reconstituted. On
June 4, 1996, among other appointments, Michael J. Hopley was appointed
president, chief operating officer and a director of the Company. On July 25,
196, Mr. Hopley was appointed chief executive officer of the Company. As of May
1, 1997, Mr. Hopley continues to serve in these capacities. In addition,
following Laminco's share acquisition, the Company implemented a new business
plan discussed hereinafter under "Business of The Company." None of the current
officers, directors or employees of the Company were affiliated with or employed
by the Company prior to June 4, 1996.
On July 25, 1996, the Board of Directors of the Company and holders of
a majority of the outstanding shares of the Common Stock of the Company,
authorized the Company, by written consent, to take a series of actions. These
actions included: i) changing the Company's name to Fremont Gold Corporation to
better reflect the proposed business of the Company, ii) approval of an Amended
and Restated Certificate of Incorporation, iii) approval and adoption of a Stock
Option Plan to allow the Company to attract and retain the best available
personnel for positions of responsibility within the Company and to provide
additional incentive to employees of the Company in order to promote the success
of the Company's business; and iv) making certain management and director
changes and forming the Company's Compensation and Audit Committees. These
management and director changes included the expansion of the Company's board to
five members with the appointment of Edwin G. Morrow and David Shaw as directors
and the resignation of Mr. Kelsey Boltz as Chief Executive Officer.
On July 30, 1996 the Company completed a private placement of 500,000
shares of its Common Stock to Laminco in consideration of $140,000.
On July 30, 1996 the Company completed a private placement of 1,000,000
shares of Common Stock at an offering price of $.20 per share, aggregating
$200,000 in proceeds to the Company. Michael J. Hopley, a director, president
and chief executive officer of the Company, Edward M. Topham, a director, chief
financial officer, secretary and treasurer of the Company and David Shaw, a
director of the Company, purchased 154,639, 73,310 and 138,603 shares,
respectively, of the Company's Common Stock in the private placement.
"Management --Certain Relationships and Related Transactions." On July 30, 1996,
after completion of these private placements, Laminco beneficially owned 51.7%
of the Company's Common Stock and held 44.0% of the issued and outstanding
Common Stock.
On July 31, 1996, the Company acquired 3,560,000 of the issued and
outstanding shares of FHL common stock not previously owned by the Company. The
shares of FHL common stock were acquired directly from the FHL shareholders in
exchange for 3,560,000 newly issued shares of the Company's Common Stock, in the
aggregate. Upon completion of the share exchange, the Company directly owned all
of the issued and outstanding shares of FHL's common stock. Michael J. Hopley, a
director, president and chief executive officer of the Company, Edward M.
Topham, a director, chief financial officer, secretary and treasurer of the
Company and David Shaw, a director of the Company, received 418,000, 381,000 and
372,000 shares, respectively, of the Company's Common Stock in the exchange.
These individual's interests in FHL were disclosed to the members of the
Company's board and the acquisition of FHL was approved by the holders of a
majority of the issued and outstanding Common Stock of the Company. See
"Management -- Certain Relationships and Related Transactions." Upon completion
of this acquisition, Laminco beneficially owned 46.4% of the Company's Common
Stock and directly held 18.2% of the issued and outstanding Common Stock.
-21-
<PAGE> 24
Certain members of Laminco's board of directors and certain of
Laminco's officers were stockholders in FHL prior to its acquisition by the
Company. Because of FHL's interest in MFG at the time of the Company's
acquisition of FHL and the failure of these individuals to disclose their
interest in FHL to Laminco, pursuant to British Columbian corporate law, the FHL
shares were deemed to be held by such individuals in constructive trust for
Laminco, as were the shares of the Company's Common Stock received by these
individuals upon acquisition of FHL by the Company. On December 30, 1996, these
directors and officers of Laminco agreed to transfer to Laminco, 1,497,000
shares of Common Stock which were subject to such constructive trust. All
references to Laminco's beneficial ownership of Common Stock in the Company
during the time period from the acquisition of FHL on July 31, 1996 to December
30, 1996 give effect to this constructive trust.
On August 21, 1996, the Company commenced an offering of $1,800,000
principal amount of Series A Notes. In December 1996, the Company completed the
offering of Series A Notes and accepted subscriptions aggregating $1,800,000.
Each Series A Note is convertible, at the option of each of holders of the
Series A Notes (each a "Series A Note Holder"), into Units at any time after the
Issue Date (as defined in the Series A Note) prior to the close on the maturity
date at the rate of $.50 of principal per Unit. Each Unit is composed of one
share of Common Stock, each a Conversion Share, and one Warrant. Each Warrant is
exercisable to purchase one share of Common Stock, each a Warrant Share, at the
greater of $1.50 or 75% of the ten day average closing prices, as quoted on the
OTC-BB, immediately preceding the notice of exercise. The Warrants are
redeemable by the Company at any time after issuance, upon 15 days written
notice to the Warrant holders, at a redemption price of $.10 per Warrant. The
Series A Note Holders, if any, issued Units upon conversion without an effective
Registration Statement under the Securities Act of 1933, as amended ("Act"),
covering the Conversion Shares and the Warrant Shares, shall have the right, at
any time, to join with the Company to register the Conversion Shares and the
Warrant Shares in any Registration Statement under the Act filed by the Company.
Each purchaser of the Series A Notes has entered into a Voluntary Stock Pooling
Agreement ("Pooling Agreement"). See "Description of Securities and Voluntary
Stock Pooling Agreements." Under the terms of the Pooling Agreement each
recipient of Units issued pursuant to conversion of the Series A Notes has
agreed with the Company, the Trustee (as defined in the Pooling Agreement) and
each with the other, that they will deliver the certificates representing their
Conversion Shares to the Trustee. The Warrant Shares will not be subject to the
Pooling Agreement. Pursuant to the Pooling Agreement the Trustee shall hold all
Conversion Shares subject to release, on a pro-rata basis, as set forth below:
<TABLE>
<CAPTION>
PRO-RATA CONVERSION SHARES RELEASE DATE
- -------------------------- ------------
<S> <C>
25% of Conversion Shares April 1, 1997(1)
25% of Conversion Shares July 1, 1997
25% of Conversion Shares October 1, 1997
the balance of Conversion Shares January 1, 1998
</TABLE>
(1) Upon any conversion of the Series A Notes after April 1, 1997, the
first 25% of the Conversion Shares issued upon such conversion will be
immediately released.
On August 23, 1996, the Company's indirectly owned Chilean operating
subsidiary changed its name from Inversiones Mineras Ayl S. A. to Minera Fremont
Gold Chile S.A.
On December 31, 1996, Laminco, pursuant to a Share Purchase and Sale
Agreement, sold 2,597,000 of the Company's Common Stock, representing all of the
shares of the Company's Common Stock beneficially owned by Laminco (other than
400,000 shares underlying a warrant to purchase Common Stock previously issued
to Laminco), to 14 purchasers at $.42 per share. None of these purchasers were
related to Laminco and none of the purchasers as a result of this transaction
held in excess 7% of the issued and outstanding shares of Common Stock. Each of
the purchasers of these shares entered into a Stockholders Agreement with the
Company, the terms of which restrict the transferability of the shares purchased
from Laminco until December 20, 1997. See "Description of Securities and
Voluntary Stock Pooling Agreements." Upon completion of these sales, Laminco
beneficially owned 6.2% of the Company's Common Stock and held 0% of the issued
and outstanding Common Stock.
-22-
<PAGE> 25
On February 27, 1997, the Company extended the expiration date of the
Warrants to be included in the Units from April 15, 1997 to September 30, 1997.
The Company also requested that the Series A Note Holders extend the maturity
date of the Series A Notes from March 1, 1997 to June 30, 1997. As of May 1,
1997, 88% of the Series A Note Holders, representing 92% of the outstanding
principal balance of the Series A Notes, have delivered an executed Maturity
Date Extension Agreements to the Company. The Company is in default of the
remaining Series A Notes. In the event that the remaining Series A Note Holders
do not agree to the maturity date extension, these Series A Note holders may
pursue remedies under their Series A Notes, in accordance with certain terms and
conditions contained in the Series A Notes, including earning default interest
at the rate of 16% per annum. The principal amount of Series A Notes in default
is $141,000. The Company believes that the remaining Series A Note Holders will
agree to the maturity date extension.
On April 1, 1997, the Company borrowed $650,000 from an unaffiliated
lender ("Lender") pursuant to a promissory note (the "Bridge Note"). The Bridge
Note provides for an interest rate of 12% (per annum) and is due on July 31,
1997. The Bridge Note is secured by a pledge agreement ("Pledge Agreement").
Under the terms of the Pledge Agreement, Michael J. Hopley, a director,
president and chief executive officer of the Company, Edward M. Topham, a
director, chief financial officer, secretary and treasurer of the Company and
David Shaw, a director of the Company, pledged, in the aggregate, 1,088,412
shares of Common Stock of the Company owned by them to the Lender as security
for the Bridge Note. The Company also issued the Lender a warrant to purchase
650,000 shares of the Company's Common Stock for a period of two years at a
price of $1.50 per share. In connection with this transaction the Company
granted an unaffiliated individual a loan acquisition fee consisting of a
warrant to purchase 85,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. In consideration of pledging their
Common Stock as security to facilitate this loan, the Company has agreed to
issue Messrs. Hopley, Topham and Shaw an aggregate of 75,000 shares of the
Company's Common Stock. See "Management -- Certain Relationships and Related
Transactions."
The Company's registered office and headquarters is 777 Hornby Street,
Suite 2000, Vancouver, British Columbia V6Z 1S4, its telephone number is
604-682-4606. While its headquarters are in Vancouver, the Company has
established an office in Santiago, Chile from which its Chilean exploration
activities are directed.
BUSINESS OF THE COMPANY
GENERAL
The Company is engaged in the acquisition, exploration and development
of mineral properties, primarily gold and copper properties located in Latin
America. Through the extensive mineral exploration experience and Latin American
knowledge and contacts of the Company's officers and directors, the Company is
continuously assessing new opportunities for the acquisition of properties with
an economical potential. Although the Company is currently in negotiations to
acquire, and/or assessing the advisability of entering into negotiations to
acquire, several mineral properties, the Company has no present commitments or
agreements with respect to any property acquisitions other than those discussed
below. The Company currently is in the exploration stage and there can be no
assurance that a commercially viable ore body (reserve) will be located on any
of the Company's current or future mineral properties. The Company currently has
no plans to commence production on any of its properties in the near future.
The Company's principal mineral property interests consist of mining
concessions located on three exploration properties in Chile. The Resguardo
Property, the Cenizas Property and the Santa Eloisa Property mining concessions
currently are held through existing leases and purchase options. See "Business
of The Company -- The Properties." The Company's mineral property interests are
held by a Chilean operating company, MFG, of which FHL, a wholly owned
subsidiary of the Company, owns 99% of the issued and outstanding shares of
common stock. Unless otherwise indicated, the term "Company" means collectively
Fremont Gold Corporation, FHL and MFG. The Company currently
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is only in the exploration stage on the properties. There can be no assurance
that a commercially viable ore body (reserve) will be located on any of these
properties and, even if located, that a final legal and economic feasibility
study will be completed. The Company has no current plans to commence production
on any of the properties.
THE PROPERTIES
Resguardo Property
Summary -- The Resguardo Property covers an area of approximately
16,765 hectares (41,426 acres) along 19 kilometers of the highly productive
Atacama Fault System in Region III of northern Chile. The property, at an
altitude of 1,000 meters, is on the same structural trend and about 10
kilometers south of the Mantoverde Mine operated by the Anglo-American Company.
The property is accessible by paved and well-maintained dirt roads and is
approximately a 20 kilometer drive from the coastal town of Chanoval, and
approximately 100 kilometers from Copiapo, a town with a population of about
150,000. Recent geochemical sampling and diamond drill results completed by the
Company and the Company's inspection of a series of small surface mine workings
has indicated gold mineralization at Resguardo along a zone which appears to be
at least 5 kilometers long and open to the north and south ends. The Company's
interest in the property is held by MFG and consists of i) a 99 year lease of
mining concessions on 4,765 hectares and ii) applications for mining concessions
on 12,000 hectares to be held directly by MFG. See "--Acquisition of
Properties." Pursuant to Chilean mining concession application procedures, the
Company, upon filing its application for an exploration concession, has the
right to conduct exploration activities on such property. See "Chile -- Mining
Concessions." The Company expects this application process to be completed, and
the exploration concessions granted to MFG, in the third quarter of 1997.
General Information -- The Resguardo Property consists of 251 separate
mining concessions owned by the Hochschild family of Copiapo and applications
for 42 mining concessions on the property filed by MFG. Mining concessions
consist of either exploration concessions or exploitation concessions. See
"Chile-- Mining Concessions." The mining concessions underlying the Company's
lease interest consist of a combination of both exploration and exploitation
concessions. MFG has submitted applications for exploration concessions. Under
the lease, the concession owners retain primary responsibility for defending the
mining concessions leased by the Company against competing claims. However,
because of the Company's interest in those mining concessions, the Company, as
it does with its directly held concessions and applications, reviews the status
of the concessions on a monthly basis and, with the cooperation of the owners,
makes application for exploitation status for those exploration concessions
which approach their expiration and assists in the defense of mining concessions
against competing claims.
The property lies in the southern part of the Atacama Desert which is
an extremely arid area with typically little or no precipitation recorded each
year. Therefore, there is only the most sparse vegetation on the property
consisting mostly of small tufts of grass.
Topographically, the property consists of a series of moderately rugged
hills rising from the flat desert floor at an altitude of about 1,000 meters to
peaks of 1,500 to 1,700 meters. The property is easily reached from Chanoval by
automobile in 40 minutes on paved and well maintained dirt roads. In addition,
the property can be easily reached from Copiapo in about two hours by four-wheel
drive vehicles along mostly dirt roads.
Geology and Mineralization -- Selective parts of the property have been
geologically mapped by the Company and the previous concession holders. In
addition, the Company has completed geochemical sampling and limited drilling on
a small area of the property. There are a series of volcanic and intrusive
rocks, mostly andesites and diorites, outcropping on the property. Adjacent
limestones have been subject to varying degrees of recrystallization and
locally, the development of skarn type mineralization. The local north-south
orientation of the Atacama fault system dominates the structural trends of the
property as seen by faulting, fault breccias and vein mineralization.
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<PAGE> 27
The Manoverde Mine, a open-pit heap-leach copper mine recently brought
into production by the Anglo-American Company, appears to be on the same
structural trend some 10 kilometers to the north of the property.
Preliminary field examination and a review of previous exploration data
have shown that there are five primary areas of interest on the property, the
Pamelita, Carbonate Hill, Main Zone, Resguardo Norte and Santa Rosa areas.
Pamelita and Carbonate Hill Areas
The Pamelita and Carbonate Hill areas are located where the east-west
faults and shears appear to intersect the main north-south structural trends.
The north-south structural zone is about 100 meters wide in an east-west
direction, but the northern and southern limits of the mineralization are
unknown; however, small prospect pits continue for several hundred meters to the
north of an apparent structural intersection.
Host rocks for the mineralization at Pamelita and Carbonate Hill
include brecciated mylonites, limestones, skarns, altered andesite, and other
rock types. As on other areas of the Resguardo Property, mafic volcanic rocks
occur west of the limestone/skarn rocks. At least part of the gold
mineralization occurs with quartz veinlets, course crystalline calcite and
secondary iron oxide minerals after pyrite in close spaced shear zones which
both cement and enclose breccia fragments. The widths of the individual zones
vary from about one to five meters. No primary sulfide minerals have been
recognized. The elevated molybdenum values seen in the geochemical samples are
indicative of a hydrothermal system driven by a nearby igneous source.
Main Zone and Resguardo Norte Areas
As in the Pamelita and Carbonate Hill areas, the Main Zone and
Resguardo Norte areas are characterized by a north-south trending structural
zone which appears to be approximately 50 meters wide consisting of a close
spaced fault and breccia zones cutting mylonite. Principal skarn mineralogy in
these areas includes epidote, chlorite, specular hematite, siderite, and lesser
amounts of calcite. No sulfide minerals were observed. Rocks along the west side
of the skarn include basalt and/or aphanitic diorite and gabbro. There is
evidence in the areas that small scale mineral mining and production has been
undertaken in these areas in the past. However, the type of mineralizations
which were being explored and mined is not clear.
Santa Rosa Area
The Santa Rosa area is located about five kilometers south of the
Pamelita area along the southward projection of the main north-south zone.
Spatial relationships among various structural features in this area are not
clear. Brecciated skarn and other types of argillic altered and silicified rocks
occur over a distance of 75 to 100 meters in an east-west direction. Large
amounts of specular hematite and lesser earthy hematite and small quartz
veinlets occur within fault and/or shear zones and cemented breccia fragments.
Secondary copper oxide and silicate minerals are associated with the hematite
breccias. Grab samples from this area were not conclusive, but did contain
elevated molybdenum which is indicative of fluid emplaced mineralization from a
close magmatic source, similar to the Pamelita area.
Exploration Potential -- The Company believes the Resguardo Property
may present a gold target based on its initial surface sampling program and
initial diamond drill results. The dimensions of the outcrop may indicate that a
resource is possible. If the structure extends to significant depth, and more
than a few hundred meters along strike, the potential may be large. The physical
layout seems amenable to both bulk surface and underground mining techniques.
Although the Company believes that the Resguardo Property structures
may host an economically minable resource, exploration programs are ongoing and
there can be no assurances that any portion of the Resguardo Property will
contain a commercially viable mineral deposit.
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<PAGE> 28
Exploration Program -- The Company continues its initial exploration
program consisting of geological mapping and geochemical sampling and trenching
of all five areas within the Resguardo Property.
As of March 31, 1997, 1,526 rock chip samples have been taken along 25
east-west oriented traverses in the central part of the Resguardo Property. Rock
chip samples were taken at approximately five meter intervals, the traverses
cover a strike length of three kilometers, over the Pamelita, Carbonate Hill,
Main Zone and Resguardo Norte areas. Rock type and geological features are being
noted at each interval.
The assay results from the rock chip samples show zones 15 to 60 meters
in width with highly anomalous to ore grade gold mineralization spread over a
three kilometer strike length. A number of these intervals are open to the east
or west.
Earth moving equipment has been on site since the second week of
November 1996, to extend the exposure of bedrock for sampling and to build new
roads and drill pads.
Based on the results of its ongoing exploration, on December 10, 1996,
the Company commenced its initial diamond drill program. The Company made four
initial diamond drill holes, from 180 to 280 meters long, under mineralized
locations identified during its surface sampling program, spread over
approximately a two and one-half kilometer long segment of the identified zone
on the Atacama Fault. The purpose of these widely spaced holes was for the
Company's geological staff to gain a better understanding of the sub-surface
geology at the Resguardo Property.
The Company's geological staff analyzed the drill results (1,338
samples assayed) from the drilling program completed in February and all four
drill holes intersected gold mineralization. In particular, one drill hole,
identified as DDH-97-3 by the Company, located at the northern end of a belt of
surface mine workings on the property, intersected a zone averaging 4.04 g/t
gold over 21.5 meters (0.118 oz/t over 69 feet). This intersection is open in
all directions. Recently the Company completed geochemical sampling which has
shown anomalous gold values up to 1.5 kilometers to the north of drill hole
DDH-97-3.
Set forth below is a table summarizing the Company's initial diamond
drill results on the Resguardo Property.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Drill Hole Depth (meters) Depth Interval (meters) Average Gold Grade (g/t)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DDH-96-1(1) 56.20 - 80.80 24.60 1.26
DDH-96-1 111.35 - 114.05 2.70 5.15
DDH-96-1 132.50 - 136.25 3.95 2.84
DDH-97-1 19.45 - 32.55 13.10 1.13
DDH-97-2 8.55 - 17.75 9.20 1.71
DDH-97-2 36.07 - 39.83 3.76 1.76
DDH-97-2 52.46 - 67.75 15.29 1.02
DDH-97-3 26.40 - 47.55 21.15 4.04
</TABLE>
(1) Results include a gold value of 34.50 g/t over an interval of 0.45
meters from 68.65 meters to 69.10 meters in depth.
The Company's geological staff believes that the results from its
initial diamond drill holes support their belief that the Resguardo Property has
the potential to contain a shear hosted gold deposit which could be initially
exploited
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<PAGE> 29
by surface mining methods. Based on these results, the Company currently plans
to begin reverse-circulation drilling on the Resguardo Property in June, 1997.
In addition, the Company has commenced a comprehensive program of geological
mapping and geochemical sampling on the unexplored portions of the property.
The Company will continue its exploration activities for the
foreseeable future. The Company currently has no definite plans to begin
exploitation of this property.
Acquisition of Property -- On July 17, 1996, MFG entered into a 99-year
lease of the mining concessions totaling 4,765 hectares on the Resguardo
Property. Lease payments are to be made to the concession owners as follows:
$75,000 was paid upon execution of the lease agreement; $60,000 is payable on
the lease's first anniversary; $60,000 is payable on the lease's second
anniversary; and $80,000 is payable on the lease's third anniversary. During the
term of the lease, the Company has the exclusive right to exploit, benefit,
explore, develop and smelt minerals from the property.
The owners retain a net smelter return production royalty, equal to 5%
on gold and 1.5% on all other mineral production from the property, and a
minimum annual royalty payment of $300,000 is payable when the property is in
production. Subsequent to the third anniversary of the lease, the Company must
complete a feasibility study and obtain project financing to begin production on
or before the seventh anniversary of the lease. No payments to the owners are
required during this period. If production financing has not been obtained
during this period, and construction of the mine has not begun by the seventh
anniversary, the Company must pay advance royalty payments of $150,000 in first
year of delay; $200,000 in the second year of delay; $250,000 in the third year
of delay; and 15% annual incremental increases for subsequent delays. The first
royalty payment may be credited to the future net smelter return production
royalty.
MFG has filed applications for the balance of the mining concessions on
the property, covering 12,000 hectares. Pursuant to the Chilean mining
concession application procedures, upon submitting such applications, MFG has
the right to commence exploration activities on such property pending completion
of the application process, which takes approximately six months. Currently, the
Company expects the application process to be completed and the mining
concessions granted in the third quarter of 1997.
Notwithstanding the above described preliminary exploration results and
the Company's planned exploration program, there can be no assurances that the
Company will identify an ore body capable of economical production on the
Resguardo Property. If at any time the Company determines to cease exploration
on the property or elects not to make the required lease payments, the Company
would lose its rights to explore and develop the mining concessions subject to
the lease and would forfeit any lease payments already made. During the term of
the Resguardo Property lease, the Company has the exclusive right to exploit,
benefit, explore, develop and smelt minerals from the leased mining concessions.
Cenizas Property
Summary -- The Cenizas Property covers an area of approximately 12,900
hectares (31,876 acres), on the West Fissure Fault, a regional geological
structure that controls much of the known gold and copper mineralization in
northern Chile. Located midway between, and on the same structural trend as, the
major copper deposits of La Escondida and El Salvador, the property is 20
kilometers south of the Guanaco gold mine operated by Amax Gold. The property is
in Region II of northern Chile at an altitude of approximately 3,000 meters in
the southern Atacama desert and is easily reached in a three hour drive from the
coastal town of Taltal. Gold mineralization, first discovered in the area by RTZ
Mining and Exploration Limited ("RTZ") with a regional geochemical survey,
occurs on the property in Tertiary volcanics and diorite intrusives. RTZ's
program consisted of geophysical surveys, trenching, numerous short rotary drill
holes to define gold mineralization under shallow gravel cover and the drilling
of 23 reverse-circulation drill holes. Results of this work have shown highly
anomalous to ore grade gold mineralization in trenches and drill holes in
several areas on the property. The Company's interest in the property is held by
MFG and consists of i) an option to acquire
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<PAGE> 30
a 51% interest in mining concessions located on 6,000 hectares by making cash
payments to RTZ totaling $350,000 and completing at least $1,000,000 of
exploration work over three years and ii) applications for mining concessions on
7,500 hectares to be held directly by MFG. Payments to RTZ during the first year
total $50,000 with a first year exploration commitment by the Company of
$200,000. The Company will also grant to RTZ options to purchase shares of
Common Stock as follows: by June 13, 1997 an option to purchase 150,000 shares
of Common Stock at a price of $1.50 per share, by December 13, 1997 an
additional option to purchase 150,000 shares of Common Stock at a price of
$2.00. Pursuant to Chilean mining concession application procedure, the Company,
upon filing its application for an exploration concession, has the right to
conduct exploration activities on such property. See "Business of the Company --
Chile -- Mining Concessions." The Company expects this application process to be
completed and the exploration concessions granted to MFG, in the third quarter
of 1997. See "--Acquisition of Property."
General Information -- The property consists of 15 mining concessions
owned by RTZ and applications for 26 mining concessions on the property filed by
MFG. Mining concessions may be either exploration concessions or exploitation
concessions. See "Chile -- Mining Concessions." The mining concessions
underlying the Company's interest consist of both exploration and exploitation
concessions. The Company reviews the status of the mining concessions underlying
its interest in the Cenizas Property on a monthly basis and makes application
for exploitation status for those exploration concessions which approach their
expiration period and assists in the defense of those concessions against
competing claims.
Geology and Mineralization -- Gold mineralization occurs in several
broad areas on the Cenizas Property in association with quartz-sericite and
quartz-chlorite-epidote-magnetite alteration in Tertiary age diorite intrusives
and volcanics. The dominant structural controls of the mineralization appear to
be related to the proximity of the north-northeast oriented West Fissure Fault
system.
Exploration Potential -- The Company's management believes that the
Cenizas Property has the potential to host one or more large scale, bulk
minable, gold deposits. This belief is based on the results of the RTZ
exploration work on the property and the field observations of the Company's
technical staff. Strong to moderate strength gold mineralization has been seen
in areas of the property despite the fact that rock outcrops are limited due to
significant areas of the property being covered by a layer of colluvium one to
three meters in depth. These areas of cover largely remain untested by previous
work.
Exploration Program -- The Company has commenced a program of
geological mapping, aerial photography, trenching and sampling. After this
initial phase of work is complete, the Company plans to start a
reverse-circulation drilling program in July 1997.
The Company will continue its exploration activities for the
foreseeable future. The Company currently has no definite plans to begin
exploitation of this property.
Acquisition of Property -- The Company signed a Letter of Intent with
RTZ on December 13, 1996 whereby the Company can earn an initial 51% interest in
the 15 Cenizas Property mining concessions subject to the option by making cash
payments totaling $350,000 and completing at least $1,000,000 of exploration
work over three years. Payments to RTZ during the first year total $50,000 with
a first year exploration commitment by the Company of $200,000. The Company will
also grant to RTZ options to purchase shares of its Common Stock as follows: by
June 13, 1997 an option to purchase 150,000 shares of Common Stock at a price of
$1.50 per share, by December 13, 1997 an additional option to purchase 150,000
shares of Common Stock at a price of $2.00.
Upon completion of the required payments to RTZ and satisfaction of the
Company's exploration commitments, the Company will be entitled to a 51%
interest in the Cenizas Property mining concessions. At that time, the project
will convert into a joint venture between the Company and RTZ with the Company
serving as manager of the joint venture. It is presently contemplated that at
such time a new entity (the exact form of which has not been specified) will be
formed to hold title to the mining concessions with the Company initially owning
51% of the entity. If at any point
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<PAGE> 31
after the formation of the joint venture either the Company or RTZ chooses not
to contribute pro-rata to the financial requirements of the venture, its
interest can be diluted to a 2% Net Smelter Royalty with a maximum value of
$3,000,000. Within 60 days of the Company earning its 51% interest in the
Cenizas Property mining concessions, RTZ has an option to obtain a 51% interest
in the joint venture, with the Company retaining a 49% interest, by committing
to fund and complete a bankable feasibility study within a 30 month period.
MFG has filed applications for 26 mining concessions on the Cenizas
Property, covering 7,500 hectares. Pursuant to Chilean mining concession
applications procedures, upon submitting such applications, MFG has the right to
commence exploration activities on such property pending completion of the
application process, which takes approximately six months. Currently, the
Company expects the application process to be completed and these mining
concessions granted to MFG in the third quarter of 1997.
Notwithstanding the above described exploration plans and proposed
structure for bringing the Cenizas Property into production, there can be no
assurances that the Company's exploration program will identify an ore body
capable of economical production. If at any time the Company determines to cease
exploration on the property or elects not to make the required payments to RTZ,
the Company would lose its rights to explore and develop the property subject to
the RTZ option and would forfeit any payments already made to RTZ.
Santa Eloisa Property
Summary -- The Santa Eloisa Property covers an area of approximately
4,700 hectares (11,600 acres) in the Maricunga Gold Mining District located in
Region II of northern Chile. The geological setting of the Santa Eloisa Property
is similar to that of several large porphyry style gold deposits that have been
discovered in the Maricunga District over the past several years. The property
is at an altitude of between 4,200 and 5,300 meters and can be reached in about
a five hour drive, along mostly dirt roads, from the nearby town of Copiapo. The
Company's interest in the Santa Eloisa Property is held by MFG. See
"--Acquisition of Property."
General Information -- The property consists of 25 exploration mining
concessions covering approximately 4,700 hectares (11,600 acres). The Company is
responsible for maintaining these mining concessions, and will review their
status on a monthly basis and will make application for exploitation status for
those concessions which approach their expiration period and defend the
concessions against competing claims.
See "Chile -- Mining Concessions."
The property lies in the southern part of the Atacama Desert which is
very arid area with the minimal annual precipitation occurring mostly as snow in
the winter months (May to October). There is only very sparse vegetation, mostly
consisting of small tufts of grass.
Topographically, the property is variable but generally consists of
moderately steep, to very steep, hill slopes rising to elevations of a maximum
of about 5,300 meters from valleys at elevations of about 4,200 meters.
Geology and Mineralization -- The Santa Eloisa Property is on the
western slopes of the Jotabeche volcanic complex and therefore geologically the
area is dominated by a sequence of volcanic flows that have been intruded by a
series of Tertiary age sub-volcanic intrusives of mostly diorites and dacite
composition. Strong hydrothermal alteration, particularly argillic alteration,
has been observed over some areas of the property.
Exploration Potential -- The geological setting of the Santa Eloisa
Property is similar to the geological setting of the Refugio Mine some 20
kilometers to the north, operated by Bema Gold Corporation and Amax Gold Inc.,
and the Cerro Casale prospect some 5 kilometers to the south, and the Cerro
Roman prospect 5 kilometers to the east currently being drilled by Arizona Star
Resources Corporation and Bema Gold Corporation. These are porphyry style gold
deposits, with large gold resources in the case of Refugio and Cerro Casale,
typical of a number of deposits that have been discovered in the Maricunga
District over the past several years. Furthermore, a series of gold mineralized
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<PAGE> 32
veins have been actively explored from both surface and underground by several
operators on the Santa Cecilia property to the north and adjacent to the Santa
Eloisa Property.
Exploration Program -- A property-wide exploration program consisting
of geochemical sampling and geological mapping commenced in February 1997. This
work is being guided by the use of satellite-generated imagery. The initial
phase of this work was completed during March and April, with follow-up to be
completed. The results of the Company's initial exploration program, while not
conclusive, was sufficiently encouraging that the Company elected to retain the
property interest by making its May 31, 1997 Purchase Option Payment (as defined
below). The Company does not plan on conducting further exploration work on the
property until October 1997.
The Company will continue its exploration activities for the
foreseeable future. The Company currently has no definite plans to begin
exploitation of this property.
Acquisition of Property -- On January 22, 1997 the Company entered into
an agreement ("Santa Eloisa Agreement") with certain mining concession owners
("Santa Eloisa Owners"). Pursuant to the Santa Eloisa Agreement, the Santa
Eloisa Owners will cause a new Chilean corporation to be formed, Minera Santa
Eloisa S.A. ("MSE"), and title to all of the mining concessions on the property
held by the Santa Eloisa Owners will be transferred to MSE. In return, the Santa
Eloisa Owners will receive, in the aggregate, 500 MSE series A shares and 1,500
MSE series B shares, together representing 100% of MSE's equity. The Company
will receive: i) 500 MSE series A shares from the Santa Eloisa Owners upon
payment of $500,000 to the Santa Eloisa Owners ("Purchase Option Payment");
$30,000 paid on January 22, 1997, $100,000 payable on May 31, 1997 and 23,333
shares of Common Stock issuable on May 31, 1997, $135,000 payable on November
30, 1997, $100,000 payable on March 31, 1998 and $100,000 payable on March 31,
1999, and ii) 1,000 newly issued MSE series A shares upon its completion of
funding a $1,000,000 exploration work program ("Exploration Commitment") on or
before March 31, 1999. Upon the Company's payment of the Purchase Option and
funding its Exploration Commitment, the Company will own 50% of the capital of
MSE in the form of series A shares, and the Santa Eloisa Owners will own 50% of
the capital of MSE in the form of series B shares. Thereafter, the equity
interest represented by the series B shares cannot be diluted below 25% of the
total equity interest in MSE.
If the Company's exploration results justify, MSE, the Company and the
Santa Eloisa Owners will jointly implement and fund a feasibility study program
("Feasibility Study"). Upon completion of the Feasibility Study, MSE will issue
an aggregate of 3,000 series A shares to the Company and the Santa Eloisa Owners
in proportion to their relative contributions to the costs of the Feasibility
Study.
Upon completion of the Feasibility Study, MSE and the Company will
jointly seek third-party debt financing of production facilities sufficient to
bring the mining concessions into production. Should a third-party financing
source require the shareholders of MSE to provide additional capital in the form
of subordinated debt or additional equity, the Company has agreed to contribute
on behalf of the series B shareholders their proportionate share of said
additional capital ("Carried Interest"). The Carried Interest will bear an
interest rate of LIBOR plus 5% and will be repaid by the series B shareholders
out of distributions made on the series B shares by MSE. The Company will
receive all series B distributions until the Carried Interest plus accrued and
unpaid interest is paid in full.
The Company will manage the business affairs and daily operations of
MSE and will appoint its directors in proportion to its relative ownership
percentage of MSE.
Notwithstanding the above described structure for bringing the Santa
Eloisa Property into production, there can be no assurances that the Company's
exploration program will identify an ore body capable of economical production.
If at any time the Company determines to cease exploration on the property or
elects not to make payments towards the option, the Company would lose its
rights to explore and develop the property and would forfeit any Purchase Option
Payment installments already made to the Santa Eloisa Owners. During the term of
the Santa Eloisa
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<PAGE> 33
Agreement, the Company has the exclusive right to exploit, benefit, explore,
develop and smelt minerals from the property.
CHILE
The following information has been compiled by the Company from
governmental and private publications, and advice of the Company's Chilean
counsel, Ossandon, Uribe & Hubner, Santiago, Chile.
General Information -- Chile is located on the west coast of South
America and extends 4,720 kilometers along the Pacific Ocean from the
continent's southernmost tip to its northern border with Peru. To the east, it
is bordered by Bolivia and Argentina. The country is divided into 12 regions and
a metropolitan area and covers 756,946 square kilometers. The population is
approximately 13.8 million, with over 5 million people residing in the
metropolitan area of Santiago. The official language of Chile is Spanish.
Governmental Organization -- Chile has a presidential system of
government with a bicameral legislature consisting of the Senate and the Chamber
of Deputies. The president is elected directly by the electorate for a term of
six years. The Senate consists of 36 elected and nine appointed senators. Of the
nine appointees, three are selected by the president, two by the Supreme Court,
and one by each of the four Armed Forces. Senators serve for eight years. The
Chamber of Deputies consists of 120 members who serve for four years.
The governmental system is based on the Constitution adopted during the
rule of General Augusto Pinochet. After General Pinochet failed to secure a
further eight-year term as President in a plebiscite held in October 1988,
constitutional reforms were negotiated and then adopted in July 1989. The
reforms received the support of all significant political parties. Under these
reforms, the number of elected Senators was increased from 24 to 36, thereby
diluting the power of the nine appointed Senators. Other reforms included the
reduction of the president's term of office from eight to four years (later
increased to six), increased civilian representation on the National Security
Council and the simplification of amending procedures for the Constitution. The
Constitution was subsequently amended in 1991 to provide for the first election
of municipal councilors and mayors.
General Pinochet's term of office ended March 1990 upon the
inauguration of Mr. Patricio Aylwin who had been elected in December 1989 by
capturing 55% of the vote. Mr. Aylwin was a member of the Christian Democrats
and the candidate of the centre-left coalition, the Democratic Coalition. Mr.
Eduardo Frei was elected president in the December 1993 election. Mr. Frei is
also a member of the Christian Democrats and was the chosen candidate of the
Democratic Coalition. The next nationwide congressional election is scheduled
for December 1997.
Currency -- The official monetary unit of Chile is the peso. The
average 1995 nominal exchange rate was 396.5 pesos to the U.S. dollar and the
comparable 1994 rate was 420.1 pesos to the U.S. dollar. On January 1, 1997, the
exchange rate was approximately 425.6 pesos to the U.S. dollar. The exchange
rate for the peso is determined by market prices.
The Chilean Central Bank is an independent body charged with sole
control over monetary policy and has the goal of controlling inflation and
maintaining the value of the currency. The current policy of the Central Bank is
to maintain the value of the peso within a band of 10% around an official
reference rate based on a basket of currencies which includes the U.S. dollar,
the Yen and the Deutschmark. The official reference rate is adjusted to take
into account domestic inflation rates and the inflation rates of Chile's major
trading partners.
With a few significant exceptions, foreign currency is freely tradable
in an informal market, the participants in which include individuals, business
entities and exchange houses. The informal market is not available to obtain
foreign exchange for imports, to convert foreign exchange into pesos or to
repatriate profits and capital. Instead, a
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<PAGE> 34
formal exchange market, comprised of banks which have received the requisite
authorization from the Central Bank, must be used for these purposes.
The repatriation of profits and capital by investors subject to a
foreign investment regime may require the prior authorization of the Central
Bank. Authorization is routinely granted and it guarantees investors access to
foreign currency through the formal foreign exchange market. See "Chile--Foreign
Investment and Tax."
Foreign Investment and Tax -- Chile's foreign investment laws are
considered to be liberal in relation to other South American countries. Chile's
foreign investment statute (also know as Decree Law No. 600) regulates various
aspects of foreign investment in Chile and is intended to ensure
non-discrimination in relation to the rights and benefits conferred upon
national investors. The statute applies to foreign individuals and legal
entities and to Chilean citizens who reside out of the country and who transfer
foreign capital into Chile. Decree Law No. 600 applies to investments made with
freely convertible foreign currency, tangible assets, technology which may be
capitalized, loans associated with foreign investments and capitalized
convertible foreign currency loans.
Investments in Chile by individuals or entities subject to Decree Law
No. 600 which either: (a) exceed U.S. $5 million or the equivalent in other
currencies; (b) relate to sectors or activities normally developed by the
government; (c) concern the social communications media; or (d) are undertaken
by foreign governments, must be approved by the Foreign Investment Committee.
The members of the Foreign Investment Committee include the Minister of the
Economy, the Minister of Finance, the Minister of Foreign Affairs, the Minister
of National Planning, the President of the Central Bank, and, for investments
which relate to ministries which are not represented above, by that
corresponding minister. Other types of investments may be approved by the
Executive Vice President of the Committee with the consent of the Ministry of
Economy.
After approval, the Chilean government, represented by the Minister of
the Economy or by the Executive Vice President of the Committee, and the
investor enter into a contract establishing the terms under which the foreign
investor may transfer capital into Chile. The Company has applied for and
received approval under Decree Law No. 600 to make foreign investments in Chile
up to $5,000,000 over an indefinite period of time. As a result, Foreign
Investment Committee approval of the Company's investments is not yet required.
If and when the Company decides to invest in excess of $5,000,000 in its Chilean
operations such approval will be necessary. The Company is not aware of any
reason at this time why such approval would not be granted upon request;
however, there can be no assurances in this regard and if approval is not
granted, the Company's operations in Chile would suffer a material adverse
effect.
Investments in mining and industrial activities totaling U.S. $50
million or more may obtain the benefit of locking in certain advantages for a
period of 10 to 20 years, including tax laws in effect at the time of the
investment relating to the depreciation of assets, loss carry forwards and
organization expenses. Official authorization may be granted to maintain
accounting records in foreign currencies. The contract with the Foreign
Investment Committee relating to such investments could also confer upon the
investor the right to be governed by the laws and regulations concerning the
free export of goods that are in force at the time the contract is signed and
such additional benefits as the use of offshore accounts to maintain export
proceeds for certain payments, including principal and interest on loans,
charges for supplies, fees for technical assistance and profits. It is possible
for exporters to deposit foreign exchange earnings outside the country and to
remove profits and dividends when required, subject to the balance being brought
back into Chile.
Foreign currency investments are governed by Chapter XIV of the Foreign
Exchange Regulations. Chapter XIV regulates individuals, corporations and other
entities bringing foreign exchange into Chile. Under Chapter XIV, the Central
Bank approves the contribution and issues a certificate. This certificate
permits the holder to dispose of foreign exchange through commercial banks or
other entities within limitations established by the Central Bank. Under Chapter
XIV, profits may be repatriated annually and capital may be repatriated after
one year. Under Decree Law No. 600, profits and interest earned may be remitted
at any time, and capital may be repatriated after one year. As a result,
clearance under Decree Law No. 600 provides some advantage to foreign investors
in Chile, such as the Company.
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<PAGE> 35
Foreign investors may carry on business in Chile as individuals or
through one of the various types of entities permitted under Chilean law,
including corporations, limited liability companies, branches of foreign
corporation, limited liability or silent partnerships, general partnerships and
joint ventures. There is no limit on ownership for a foreign party investing in
a Chilean company.
Foreign investors are also granted the option under the Foreign
Investment Statute to choose to pay tax on the profits at the same rate as local
companies, currently estimated to be 35%, but subject to future changes, or at a
rate of 42%, which is guaranteed to remain unchanged for ten years.
Mining Industry -- Chile is rich in a wide variety of mineral
resources, including copper, molybdenum, cobalt, silver and gold. Mining
accounted for 7.2% of Chile's gross domestic product in 1995, which was up from
6.7% in 1994.
Of all the minerals with which Chile is endowed, copper is the most
significant. Chile possesses an estimated one-quarter of the world's copper
reserves and is the largest producer of copper in the western world. The largest
single copper producer in Chile is the state-owned corporation, Codelco (Chilean
Copper Corporation). Over the years, copper production has increased
significantly. Copper production was 2.5 million tons in 1995, up significantly
from 2.2 million tons in 1994.
The Pinochet government encouraged foreign investors to develop copper
mining. In addition, a new mining code came into force in 1983. While Codelco's
production has fallen slightly in the 1990's, increased private participation
and increased foreign investment in the non-state owned sector has increased in
significance. The export of copper from Chile is authorized by the Chilean
Copper Commission.
Chilean Gold production is expected to reach 51.5 tons in 1996, up from
1994 gold production of 38.6 tons, representing a 10% increase in production
over 1993 figures. The 1996 increase is a result of the opening of three new
mines: Refugio in the Region II; Andacollo Oro in the Region IV; and Fachinal in
Region XI. These mines should produce 9.5 tons of gold this year. Chilean gold
production nearly trebled between 1985 and 1995 reaching 44.5 tons yielding
$428.5 million in export earnings.
Mining Concessions -- Following a longstanding legal tradition, the
1980 Constitution (the "Constitution") established that the State is the owner
of all mineral resources, but permits the exploration and exploitation of
mineral deposits by private parties through mining concessions. The Constitution
also established that mining concessions are to be granted by the courts with
such concessions having the rights and obligations determined by a
Constitutional Organic Law. For those minerals that are specifically excluded
from mining concessions, such as hydrocarbons, lithium, and ores located
offshore or in areas deemed important to national security, the Constitution
provides that exploration and exploitation can be carried out directly by the
State by administrative concessions or by operating contracts. These
administrative concessions and the operating contracts can be terminated by the
State at any time, provided the corresponding indemnity is paid. The Company
does not hold any administrative concessions.
The 1982 Mining Law, Constitutional Organic Law No. 18097 of 1982 and
the Constitution provide the legal framework for the exploration and
exploitation of minerals in Chile. This law can only be changed with the
approval of 60 percent of both houses of Congress.
Under the 1982 Mining Law, mining concessions may be granted only by
the courts and such concessions constitute interests in real property that can
be mortgaged or transferred. The concession holder also has the right to defend
ownership of the mining concession against the State and third parties.
A Chilean mining concession is a property right, distinct and
independent of the ownership of land on which it is located, even though both
may belong to the same person or entity. If a mining concession is filed on land
owned by third-party, the mining concession holder must negotiate a
"servidumbre" (right of way) with the land owner. If
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<PAGE> 36
reasonable compensation for the right of way cannot be negotiated with the land
owner, the concession holder may seek remedies from the local court having
jurisdiction in the area in which the mining concessions are located. There is a
strong body of law in Chile which gives concession owners the right of access
and the right to explore and develop mining concessions.
Mining concessions may be either exploration concessions or
exploitation concessions. The annual fee for an exploration concession is
approximately $1.00 per hectare and for an exploitation concession approximately
$5.00 per hectare. An exploration concession is the right to explore the defined
area and to later obtain an exploitation concession over the area. The
application process for an exploration concession (a Pedimentos) takes
approximately six months. Exploration concessions are granted for a two-year
period and may be renewed once for an additional two years provided that upon
such renewal one-half of the area covered by the original concession is
surrendered by the concession holder. It is generally the Company's policy to
file for exploration concessions on properties which have had little or no
exploration work completed. An exploitation concession is the exclusive right to
explore for and exploit minerals from the defined area for an indefinite period.
The application process for an exploitation concession (a Manifestaciones) takes
approximately 18 months to complete. However, the filing of an exploitation
concession by an exploration concession holder prior to expiration of the two
year exploration concession is sufficient to preserve the owner's interest in
the concessions until the exploitation concession is granted or denied. The
applicant has the right to proceed with exploration immediately upon filing an
application for a mining concession. It is not necessary to have an exploration
concession prior to an exploitation concession. However, if an exploration
concession is not renewed or an application for an exploitation concession filed
prior to the expiration of an exploration concession, the exploration concession
is lost. Also, exploitation activities are impermissible without an exploitation
concession. If exploitation activities occur prior to the grant of an
exploitation concession, the existing exploration concession could be lost.
Under the Chilean claims system, a claimant may file on top of ("top
filed") an existing concession. All claims filed under the claims procedure are
gazetted (published) in the Mining Bulletin which is printed monthly and
subscribed to by the Company. If a claim holder is top filed, the top filer does
not have a preferential right to the concession unless the original concession
holder lets the concession lapse for lack of payment of patents or lack of
defense. All claim filings can be challenged when made and, with respect to an
exploitation concession, an annulment may be requested by the holder of
preexisting claims for a period of four years from the date of publication of
the grant. If a top filed claim is not challenged, the prior granted concession
loses priority upon lapse. Concessions can lapse, and a top filer gain priority,
in the following primary ways: (i) an exploration concession expires after two
years if it is not renewed or converted to an exploitation concession; (ii) if
an exploration concession is renewed and one-half of the original claim
abandoned as required, a top filer gains priority on the abandoned portion of
the concession; (iii) failure to pay any patents for the concession; or (iv)
failure to defend an exploration concession against a top filed claim for a
period of four years following publication of the grant of the top filed
concession. Even if a concession is defended, there is a potential for the prior
concession to lose priority to the top filed claim if the courts determine that
the prior concession had been improperly filed under the claims procedures.
The Company has instigated a program to review, on a monthly basis, all
newly-published claims against the Company's claims to determine if a top filing
situation exists. If a top filing situation is found during the Company's
systematic review of newly-published claims, the Company is prepared to take
appropriate action to defend its claims position. The Company is not aware of
any material third party top filing situations on its properties.
Environmental Regulation -- Environmental matters are governed by a new
environmental policy system which includes permitting or licensing procedures.
Part of the new environmental policy requires mining companies to submit an
environmental impact statement to the State for approval prior to bringing a
mine into production. In addition, prior to commencing production mining,
companies must assume liability for environmental damage caused by the producing
mine. Because the Company is currently only involved in exploration of its
properties, these laws have no material effect on the Company's current business
operations. However, if the Company desires to commence production of one or
more of its properties, there can be no assurance that the necessary permits can
be obtained.
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<PAGE> 37
ENVIRONMENTAL POLICY
The Company is committed to balancing good stewardship in the
protection of the environment with the need for economic growth. In particular,
it is the Company's policy to measure, maintain and improve its compliance with
environmental laws and regulations, to place a high priority on environmental
considerations in planning, exploring, constructing, operating and closing
facilities. Also, the Company places primary responsibility for compliance with
environmental laws with operations management. In the absence of any regulation,
the Company's policy is to recognize environmental risks and manage these risks
in a cost-effective manner that protects the environment and the Company's
economic future. It is also the Company's policy to promote employee involvement
in implementing its environmental policy and to encourage employee reporting of
suspected environmental problems. There are no environmental regulation issues
which to the Company's knowledge have an adverse impact on the current
exploration programs of the Company. To the Company's knowledge, its proposed
operations are in compliance with applicable environmental laws.
COMPETITION
The mineral exploration and mining businesses are competitive in all of
their phases. The Company competes with numerous other companies and individuals
in a search for and the acquisition of attractive mineral properties. Many of
these companies possess greater financial and technical resources. The Company's
ability to develop reserves in the future will depend not only on its ability to
develop its present properties, but also on its ability to select and acquire
suitable prospects for mineral exploration.
EMPLOYEES
At May 1, 1997, the Company employed 14 individuals on a full time
basis. In addition, the Company has two full time and several part time
geological consultants. The Company anticipates hiring one additional full time
employee during the first half of 1997. To the extent the Company is successful
in acquiring additional mineral properties, it may hire one or more employees or
consultants on a full time basis in the technical field. The Company intends to
utilize the services of outside technical and professional firms and individuals
on a contractual basis to perform specific work.
PROPERTY
A complete description of the Company's mineral exploration properties
is set forth above in "The Properties." The Company leases office space
aggregating 12,855 square feet in Vancouver, British Columbia (corporate
headquarters, 2,303 square feet), Santiago, Chile (MFG exploration office, 7,059
square feet) and Caldera, Chile (Resguardo field office, 3,443 square feet). The
aggregate lease payments for these properties is $4,222 per month.
LITIGATION
There are no material pending legal proceedings to which the Company is
or is likely to be a party or of which any of its subsidiaries or properties are
or are likely to be the subject.
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<PAGE> 38
MANAGEMENT
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company. A summary of the background and
experience of each of these individuals is set forth after the table.
<TABLE>
<CAPTION>
NAME AGE POSITION SERVED SINCE
- ---- --- -------- ------------
<S> <C> <C> <C>
Michael J. Hopley 50 Chairman of the Board, Chief Executive Officer 1996
and President
Edward M. Topham 39 Director, Chief Financial Officer, Secretary, 1996
Treasurer
David Shaw 44 Director 1996
Roberto Ossandon 39 President--MFG 1996
</TABLE>
Michael J. Hopley, has been a Director, Chief Operating Officer and
President of the Company since June 4, 1996. On July 23, 1996, Mr. Hopley become
the Company's Chief Executive Officer. From 1989 to May 1996, Mr. Hopley served
as Vice President of Exploration and Corporate Development for Bema Gold
Corporation, a publicly held exploration and development company with operations
in Chile, Argentina, Venezuela and the United States. Mr. Hopley is a geologist
with over 25 years experience in gold exploration worldwide. After graduating in
1970 with an honors degree in geology from London University he spent eight
years with Consolidated Gold Fields in Great Britain, the United States and
Canada.
Edward M. Topham, has been Chief Financial Officer, Secretary and
Treasurer since August 1, 1996 and a Director since January 22, 1997. From March
of 1995 through March 1996, Mr. Topham was a director and chief financial
officer of RangeStar Telecommunications, Ltd., a publicly held wireless
communications company. Mr. Topham is co-founder of Motorsports Development
Corporation and served as director and chief financial officer from January 1994
through March 1996. From June 1992 through January 1994, Mr. Topham was
executive vice president, chief financial officer and a director of Action
Performance Companies, Inc., a publicly held company engaged in manufacturing
and marketing of motor sports related products. From April 1989 to June 1992,
Mr. Topham was a principal in the investment banking firm of Kachina Capital
Corporation. From March 1988 to April 1989, he was president and director of
International Leisure Enterprises, Inc., a publicly held company engaged in the
development, ownership and sales of resort properties. From December 1984 to
March 1988, he was vice president of corporate finance of Fitzgerald De Armann
and Roberts, Inc. and its predecessor, Century Capital Corporation, an
investment banking and securities brokerage firm. Prior to that time, Mr. Topham
was engaged in public accounting with Peat Marwick Mitchell & Co. (now KPMG Peat
Marwick).
David Shaw, has been a Director of the Company since June 4, 1996. From
December 1995, to present Mr. Shaw has served as President of Yuma Gold Mines,
Inc., a publicly held exploration and development company. In addition, Mr. Shaw
holds board positions with Kilimantan Gold Ltd. and Keylock Resources Ltd., both
publicly held exploration and development companies. From November 1993 to
December 1995, Mr. Shaw served as Senior Mining Analyst, Corporate Finance,
Natural Resource Group, Yorkton Securities Ltd. From August 1991 to November
1993, Mr. Shaw served as President of Bema Resource Management Ltd. a mineral
exploration and development company. From January 1990, to November 1991, Mr.
Shaw was in independent consultant providing technical and financial evaluation
services of base and precious metal exploration and development projects.
Previously Mr. Shaw served eight years with Chevron Canada Resources Ltd. Mr.
Shaw graduated with a B.S. from the University of Sheffield, U.K. and Ph.D.
Structural Geology from Carlton University, Ottawa, Canada.
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<PAGE> 39
Roberto Ossandon, has been President and Director of Minera Fremont
Gold Chile S.A. since January 1996. Mr. Ossandon, since January 1981, has been
senior partner of the law firm Ossandon, Uribe & Hubner located in Santiago,
Chile. Mr. Ossandon's law firm is legal counsel to Placer Dome Sud America
Limited, Baker Hughes Corporation (Houston), Citibank N.A., Data General S.A.,
Keystone Food Corporation (Pennsylvania), Kintetsu World Express (New York),
McDonalds Corporation and Merrill Lynch Multinational Investment Portfolio
(Luxemburgo). Mr. Ossandon is a member of the Chilean Bar Association,
International Bar Association and the International Association of Young Lawyers
(AIYA). Mr. Ossandon is a board member of numerous corporations and former
General Secretary and currently Vice President of Renovacion National political
party in Chile. Mr. Ossandon is a member of the American and Canadian Chamber of
Commerce. Mr. Ossandon graduated from the University of Chile Law School (LL.B.
Maximum Distinction.).
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered in all capacities to the Company for the years
ended December 31, 1994, 1995, and 1996 by Michael J. Hopley, current CEO and
President and Mr. Norman Becker, former President. No other executive officer's
compensation exceeded $100,000 during these time periods. No restricted stock
awards, stock options, long term incentive plan payouts or stock appreciation
rights were granted for the years ended December 31, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payments
------ --------
Restricted Shares
Name of Individual Other Annual Stock Underlying LTIP All Other
and Principal Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- ---------------------- ---- ------ ----- ------------ -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Hopley(1) 1996(2) $57,557 -0- -0- -0- 150,000 -0- -0-
President, CEO
Norman H. Becker 1996(4) -0- -0- -0- -0- -0- -0- -0-
President(3) 1995 -0- -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------
1. Mr. Hopley has been an executive officer of the Company since June 4,
1996.
2. Represents compensation for the period beginning June 4, 1996.
3. Mr. Becker resigned as President of the Company on June 4, 1996.
4. Represents compensation for period ending June 4, 1996.
The following table sets forth the options granted to the Company's
executive officers during fiscal year 1996 pursuant to its 1996 Stock Option
Plan. See "Management -- Stock Option Plan".
OPTION GRANTS DURING FISCAL YEAR 1996
<TABLE>
<CAPTION>
Number of Shares % of Total
Underlying Options Granted Exercise Price
NAME Options in Fiscal Year 1996 ($/sh) Expiration Date
---- ------- ------------------- ------ ---------------
<S> <C> <C> <C> <C>
Michael J. Hopley 150,000 15.7% $1.28 11/11/01
Edward M. Topham 150,000 15.7% $1.28 11/11/01
</TABLE>
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<PAGE> 40
No options to purchase Common Stock were exercised by executive
officers of the Company in 1996. The following table sets forth information
regarding (i) the number of shares of Common Stock underlying unexercised
options held by executive officers and (ii) the aggregate value of in-the-money,
unexercised options held by executive officers based upon the final reported
trade of Common Stock on December 31, 1996.
1996 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Name Number of Securities Underlying Value of Unexercised In-the-
---- Unexercised Options at FY-End (#) Money Options at FY-End ($)
(Exercisable/Unexercisable) (Exercisable/Unexercisable)
--------------------------- ---------------------------
<S> <C> <C>
Michael J. Hopley 0/150,000 $0/$108,000
Edward M. Topham 0/150,000 $0/$108,000
</TABLE>
EMPLOYMENT AGREEMENTS.
On June 4, 1996, the Company entered into an employment agreement with
Michael J. Hopley. The agreement is for a one year term and provides for the
payment of an annual salary of $97,200 to Mr. Hopley. After one year the
agreement may be terminated without cause by either party. Mr. Hopley may
terminate upon 30 days notice. The Company may terminate subject to a severance
salary equal to one month's salary for each two months of engagement to a
maximum of six months' salary. Further, the agreement provides for the payment
of a two years salary if Mr. Hopley is terminated without cause in connection
with a change in control, as defined by the agreement, of the Company and
related change in the constitution of the member of the board of directors of
the Company.
DIRECTORS FEES.
Directors do not receive compensation for serving as members of the
Company's Board of Directors, but are reimbursed for their expenses in attending
meetings of the Board.
STOCK OPTION PLAN
The Company's stockholders have adopted the 1996 Incentive Stock Plan
(the "Plan") which allows the Board of Directors to provide the Company's key
employee with incentive compensation commensurate with their positions and
responsibilities. The Plan permits the grant of incentive equity awards covering
up to 1,000,000 shares of Common Stock and will be administered by the
Compensation Committee of the Board of Directors (the "Committee"), two or more
members of which will be independent directors. The Plan provides for the grant
of non-qualified stock options and incentive stock options (collectively, the
"Incentive Awards"). At May 1, 1997, 950,000 non-qualified stock options have
been granted and are exercisable between $1.17 and $1.28 per share and expire
between September 2001 and January 2002. Key employees of the Company and its
subsidiaries, including officers who are not also members of the Board of
Directors, will be eligible to participate in the Plan.
The Board of Directors may at any time amend the Plan in any respect;
provided, that, without the approval of the Company's shareholders, no amendment
may i) increase the number of shares of Common Stock that may be issued under
the Plan, ii) materially increase the benefits accruing to individuals holding
Incentive Awards, or iii) materially modify the requirements as to eligibility
for participation in the Plan.
Except in certain limited cases, the exercise price of each incentive
stock option ("ISO") granted under the Plan will be the fair market value (as
defined in the Plan) of a share of Common Stock on the date on which such ISO is
granted. The exercise price of each non-qualified stock option ("NQO") granted
under the Plan will be determined by the Committee. NQO's and ISO's are referred
to herein as "Options". Except in certain limited cases regarding grants
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<PAGE> 41
of ISO's, each ISO and NQO is exercisable for a period not to exceed ten years.
The Committee will establish i) the term of each Option and ii) the time or
period of time in which the Option will vest.
On a change in control of the Company (a "Change in Control"), all
Options then issued and outstanding will become immediately exercisable. A
Change in Control is i) a "change in control" as that term is defined in the
federal securities laws, ii) the acquisition by any person, after the effective
date of the Plan, of 20% or more of the shares of voting securities of the
Company, iii) certain changes in the composition of the Board of Directors as a
result of a contested election for positions on the Board of Directors or iv)
any other event which the Committee determines to constitute a change in control
of the Company.
INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation and
Bylaws require the Company to indemnify each of its past, present and future
officers and directors against liabilities and reasonable expenses incurred in
any action or proceeding by reason of such persons being or having been an
officer or director of the Company, of any other corporation for which he of she
serves as such at the request of the Company, to the fullest extent permitted by
Delaware law, including those circumstances in which indemnification would
otherwise be discretionary. However, indemnification is limited to officers and
directors who have acted in good faith and in a manner they reasonably believed
to be in the best interest of the Company and with respect to any criminal
action had no reasonable cause to believe the conduct was unlawful.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 4, 1996, Laminco Resources, Ltd. ("Laminco"), in a privately
negotiated transaction, purchased 600,000 shares of the Company's Common Stock
(representing 60% of the Company's then issued and outstanding Common Stock)
from an unaffiliated group of individuals. None of the members of this group
were related to Laminco. Following this share acquisition, all of the members of
the Company's board of directors and all of the Company's officers resigned and
were replaced by new appointees and the Company implemented a new business plan
discussed above under "The Company--Current Business Operations" and "Business
of The Company." Mr. Hopley was appointed president and chief operating officer
of the Company and Mr. Shaw was appointed as a director at this time.
On June 4, 1996, the Company entered into an employment agreement with
Michael J. Hopley. The agreement is for a one year term and provides for the
payment of an annual salary of $97,200 to Mr. Hopley. See "Management--
Employment Agreements."
On June 14, 1996, FHL, now a wholly owned subsidiary of the Company,
entered into an employment agreement with Michael J. Hopley. The agreement was
for a one year term and provided for the payment of an annual salary of $60,000.
Further, the agreement provided for a $15,000 one time bonus, payable upon
execution of the employment agreement by FHL. The agreement also provided for
the issuance of 418,000 shares of FHL stock in lieu of the bonus payment. In
connection with the Company's July 31, 1996 acquisition of FHL, Mr. Hopley
agreed to waive payment of any salary under the employment agreement for the
remainder of its term.
On June 14, 1996, Edward M. Topham, a director, chief financial
officer, secretary and treasurer of the Company, advanced FHL $60,487 pursuant
to a loan agreement. The loan agreement provided for repayment upon demand with
interest accruing at 10% per annum. In consideration of this loan, Edward M.
Topham was issued 60,000 shares of FHL's common stock. On July 31, 1996, the
Company acquired 100% of FHL. On December 5, 1996, December 6, 1996 and January
15, 1997 the Company, on behalf of FHL, its wholly owned subsidiary, paid
$12,000, $12,000 and $12,000 respectively plus $1,065.20 accrued interest to Mr.
Topham.
On June 4, 1996 and June 20, 1996, Laminco advanced an aggregate of
$200,000 to the Company pursuant to a loan agreement. The Company issued Laminco
a promissory note repayable upon demand with interest accruing
-39-
<PAGE> 42
at the rate of 10% annually. As additional consideration, the Company issued
Laminco a warrant to purchase 400,000 shares of the Company's Common Stock for a
period of two years at a price of $1.00 per share and granted Laminco certain
rights to participate in all future financing completed by the Company on the
same terms offered third parties, subject to termination under certain
conditions relating to changes in control and management of Laminco. On both
July 31, 1996 and October 3, 1996 the Company repaid $100,000 plus $2,547.60
accrued interest to Laminco.
On June 20, 1996, the Company advanced $125,000 pursuant to a loan
agreement to FHL. The loan agreement provided for repayment upon demand with
interest accruing at 10% per annum. In consideration of this loan, the Company
was issued 125,000 shares of FHL's common stock.
On July 30, 1996 the Company completed a private placement of 1,000,000
shares of Common Stock at an offering price of $.20 aggregating $200,000 in
proceeds to the Company. Michael J. Hopley, a director, president and chief
executive officer of the Company, Edward M. Topham, a director, chief financial
officer, secretary and treasurer of the Company and David Shaw, a director of
the Company, purchased 154,639, 73,310 and 138,603 shares, respectively, of the
Company's Common Stock in this private placement.
On July 30, 1996, Laminco purchased 500,000 shares of the Company's
Common Stock for an aggregate purchase price of $140,000. Upon completion of
this purchase, Laminco beneficially owned 51.7% of the Company Common Stock.
On July 31, 1996, the Company acquired 3,560,000 of the issued and
outstanding shares of FHL common stock not previously owned by the Company. The
shares of FHL common stock were acquired directly from the FHL shareholders in
exchange for 3,560,000 shares of the Company's Common Stock which were issued to
FHL stockholders. All 3,560,000 shares of Common Stock issued by the Company
were subject to restrictions on transfer pursuant to a pooling arrangement
between the FHL shareholders and the Company. See "Description of
Securities--Voluntary Pooling Agreements." Upon completion of the share
exchange, the Company directly owned all of the issued and outstanding shares of
FHL's common stock. Michael J. Hopley, a director, president and chief executive
officer of the Company, Edward M. Topham, a director, chief financial officer,
secretary and treasurer of the Company and David Shaw, a director of the
Company, received 418,000, 381,000 and 372,000 shares, respectively, of the
Company's Common Stock in the exchange. These individual's interests in FHL were
disclosed to the members of the Company's board and the acquisition of FHL was
approved by the holders of a majority of the issued and outstanding Common Stock
of the Company.
In September 3, 1996, MFG paid Roberto L. Partarrieu, general manager
of MFG, $14,000 as reimbursement of costs incurred over the period April 1994
through July 31, 1996 associated with identifying mineral property acquisition
targets in Chile. The expense reimbursement was used by Mr. Partarrieu to repay
advances made by Laminco to Mr. Partarrieu to perform those services.
On December 31, 1996, Laminco, pursuant to a Share Purchase and Sale
Agreement, sold 2,597,000 of the Company's Common Stock, representing all of the
shares of the Company's Common Stock beneficially owned by Laminco (other than
400,000 shares underlying a warrant to purchase Common Stock previously issued
to Laminco), to 14 purchasers at $.42 per share. None of these purchasers were
related to Laminco and none of the purchasers as a result of this transaction
held in excess of 7% of the issued and outstanding shares of Common Stock. Each
of the purchasers of these shares entered into a Stockholders Agreement with the
Company, the terms of which restrict the transferability of the shares purchased
from Laminco until December 20, 1997. See "Description of Securities and Stock
Pooling Agreements." Upon completion of these sales, Laminco beneficially owned
6.2% of the Company's Common Stock and held 0% of the Company's issued and
outstanding Common Stock.
On April 1, 1997, the Company borrowed $650,000 from a Lender pursuant
to the Bridge Note. The Bridge Note provides for an interest rate of 12% (per
annum) and is due on July 31, 1997. The Bridge Note is secured by a Pledge
Agreement. Under the terms of the Pledge Agreement, Michael J. Hopley, a
director, president and chief
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<PAGE> 43
executive officer of the Company, Edward M. Topham, a director, chief financial
officer, secretary and treasurer of the Company and David Shaw, a director of
the Company, pledged, in the aggregate, 1,088,412 shares of Common Stock of the
Company owned by them to the Lender as security for the Bridge Note. The Company
also issued the Lender a warrant to purchase 650,000 shares of the Company's
Common Stock for a period of two years at a price of $1.50 per share. In
connection with this transaction the Company granted an unaffiliated individual
a loan acquisition fee consisting of a warrant to purchase 85,000 shares of the
Company's Common Stock for a period of two years at a price of $1.50 per share.
In consideration of pledging their Common Stock as security to facilitate this
loan, the Company has agreed to issue Messrs. Hopley, Topham and Shaw an
aggregate of 75,000 shares of the Company's Common Stock.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of May 1, 1997, as
adjusted to reflect the issuance of 75,000 Shares issuable on April 1, 1997 in
connection with the pledges to secure the Bridge Note, by each person known by
the Company to beneficially own more than 5% of the Common Stock. Shares are
beneficially owned by a person if he, she or it currently owns such shares or
has or will have the right to acquire such shares within 60 days.
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percent of
Beneficial Owner(1) Class
- -------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Common Stock Tom Wikstrom 336,000(2) 5.2%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
Common Stock Robertson Stephens Orphan Fund 1,993,333(3) 25.6%
555 California St., Suite 2600
San Francisco, CA 64104
Common Stock Robertson Stephens Offshore Orphan Fund 406,667(4) 6.3%
c/o Citco Fund Services Limited
Corporate Center
West Bay Road
Georgetown, Grand Cayman
Cayman Islands, B.W.I.
Common Stock Regional Investments, Inc. 606,000 9.9%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
Common Stock Rapid Capital, Inc. 372,000 6.1%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
</TABLE>
-41-
<PAGE> 44
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percent of
Beneficial Owner(1) Class
- -------------- ------------------------------------ -------------------- ----------
<S> <C> <C> <C>
Common Stock Legal Tender Ltd. 375,000(5) 5.9%
Design House, Suite 201
Providenciales, Turks & Caicos Island
B.W.I.
Common Stock Private Banking Advisory Services, Ltd. 1,000,000(6) 14.0%
100 Rue du Rone
1204 Geneva
Switzerland
Common Stock Roberto L. Partarrieu 370,000(7) 5.9%
San Crescente 400
Santiago, Chile
Common Stock International Freedom(8) 825,000(8) 12.2%
Design House, Suite 201
Providenciales, Turks Caicos Island
B.W.I.
Common Stock Laminco Resources, Inc. 400,000(9) 6.1%
700 West Pender, Suite 709
Vancouver, British Columbia
V6C 168
</TABLE>
1. Unless otherwise noted, each person or entity named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned.
2. Includes 150,000 Conversion Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Tom Wikstrom and 150,000 Warrant
Shares issuable upon exercise of Warrants included in such Units.
3. Includes 830,000 Conversion Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Robertson Stephens Orphan Fund and
830,000 Warrant Shares issuable upon exercise of Warrants included in such
Units.
4. Includes 170,000 Conversion Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Robertson Stephens Offshore Orphan
Fund and 170,000 Warrant Shares issuable upon exercise of Warrants included
in such Units.
5. Includes 100,000 Conversion Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Legal Tender Ltd. and 100,000
Warrant Shares issuable upon exercise of Warrants included in such Units.
6. Includes 500,000 Conversion Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Private Banking Advisory Services,
Ltd. and 500,000 Warrant Shares issuable upon exercise of Warrants included
in such Units.
7. Includes 50,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the Company's 1996 Stock Option Plan, 60,000
Conversion Shares to be issued as part of the Units issuable upon conversion
of the Series A Notes held by Mr. Partarrieu and 60,000 Warrant Shares
issuable upon exercise of the Warrants included in such Units. Mr.
Partarrieu is general manager of MFG.
8. Includes 650,000 Shares of Common Stock issuable upon exercise of a warrant
to purchase Common Stock issued to International Freedom in connection with
the Company's issuance of the Bridge Note.
9. Includes 400,000 shares of Common Stock issuable upon exercise of warrants
to purchase Common Stock issued June 20, 1996 in connection with Laminco's
aggregate loan of $200,000 to the Company.
-42-
<PAGE> 45
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 1, 1997 by each director and
executive officer and all of the directors and officers as a group. Shares are
beneficially owned by a person if he, she or it currently owns such shares or
has or will have the right to acquire such shares within 60 days.
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Amount and Nature of Percent of Class
Owner(1) Beneficial Owner(2)
- --------------- ------------------------------ -------------------- ----------------
<S> <C> <C> <C>
Common Stock Michael J. Hopley (3) 655,973(3) 10.5%
Common Stock Edward M. Topham (4) 456,310(4) 7.3%
Common Stock Roberto Ossandon (5) 40,000(5) 0.7%
Common Stock David Shaw (6) 510,603(6) 8.2%
Common Stock All directors and executive 1,662,886 25.5%
officers as a group
</TABLE>
1. Unless otherwise indicated, the address of the beneficial owners listed
below is the address for the Company's headquarters: 777 Hornby Street,
Suite 2000, Vancouver, British Columbia, Canada V6Z 1S4.
2. Except as otherwise noted below, each person or entity named in the
table has the sole voting and investment power with respect to all
Common Stock shown as beneficially owned, subject to applicable
community property laws.
3. Includes a one-third interest in 50,000 Conversion Shares to be issued
as part of the Units issuable upon conversion of Series A Notes held by
HRG, an informal investment partnership between Mr. Hopley and two
other individuals (Tom Garagan and Roger Richer) who are otherwise
unaffiliated with the Company, a one-third interest in 50,000 Warrant
Shares issuable upon exercise of Warrants included in such Units held
by HRG, 75,000 shares of Common Stock issuable upon exercise of stock
options granted to Mr. Hopley pursuant to the Company's 1996 Stock
Option Plan, and 25,000 shares of Common Stock issuable in connection
with loan guarantees provided in connection with the Bridge Note.
4. Includes 75,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the Company's 1996 Stock Option Plan, and
25,000 shares of Common Stock issuable in connection with loan
guarantees provided in connection with the Bridge Note.
5. Includes 20,000 Conversion Shares issuable as part of the Units
issuable upon conversion of Series A Notes held by Mr. Ossandon and
20,000 Warrant Shares issuable upon exercise of the Warrants included
in such Units.
6. Includes 75,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the Company's 1996 Stock Option Plan, and
25,000 shares of Common Stock issuable in connection with loan
guarantees provided in connection with the Bridge Note.
-43-
<PAGE> 46
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
Common Stock beneficially owned by the Selling Stockholders entitled to use this
Prospectus in connection with their offer and sale of Conversion Shares. The
information in the table is as of the date of this Prospectus. Except as
described below, no Selling Stockholder has had a material relationship with the
Company within the past three years other than as a result of the ownership of
the Company's securities. The Conversion Shares offered by this Prospectus may
be offered from time to time by the Selling Stockholders named below or their
nominees.
<TABLE>
<CAPTION>
Conversion Percent of Common
Shares Stock Beneficially
Shares Available for Owned After
Name and Address of Beneficially Sale Under this Completion of
Selling Stockholder (1) Owned (2) Prospectus Offering (3)
- ---------------------------------------- ------------- --------------- ------------------
<S> <C> <C> <C>
John A. Campbell 80,000 40,000 *
1089 Kuma Cr. Delta, B.C. V4M 2K8
MTA Holdings Inc. 100,000 50,000 *
1837 Knutsford Place
Victoria, B.C. V8N 6F3
Geoff Courtnall 300,000 150,000 1.1%
5189 Cordova Bay Rd., Suite #4
Victoria, B.C. V84 2K7
Kathleen E. Newman 100,000 50,000 *
5187 Cordova Bay Rd., Suite #4
Victoria, B.C. V84 2K7
455501 BC Ltd. 80,000 40,000 *
1020 - 800 W. Pender St.
Vancouver, B.C. V6C 2V6
Rita Hecker 80,000 40,000 *
12410 - 102 Ave.
Surrey, B.C. V3V 3E1
Kix International 80,000 40,000 *
10540 Hogarth Dr.,
Richmond, B.C. V7E 3Z8
Hans Knapp 80,000 40,000 *
7220 Arbutus Road
West Vancouver, B.C. V7W 2C5
Blueberry Films Corp.(4) 188,637 80,000 *
4952 Chancellor Blvd.
Vancouver, B.C. V6T 1E1
Whistler Investments Ltd. 200,000 100,000 *
1007 - 750 West Pender Street
Vancouver, B.C. V6C 2T8
Haywood Securities ITF Arie Merrin 120,000 60,000 *
RRSP 62-0090-1, 1100 - 400 Burrard St.,
Vancouver, B.C. V6C 3A6
</TABLE>
-44-
<PAGE> 47
<TABLE>
<CAPTION>
Conversion Percent of Common
Shares Stock Beneficially
Shares Available for Owned After
Name and Address of Beneficially Sale Under this Completion of
Selling Stockholder (1) Owned (2) Prospectus Offering (3)
- ---------------------------------------- ------------- --------------- ------------------
<S> <C> <C> <C>
Private Banking Advisory Services 1,000,000 500,000 3.7%
Limited
100 Rue du Rhone, 1204
Geneva, Switzerland
Allan P. Power 100,000 50,000 *
1314 Cabrillo Ave.,
Venice, CA 90291
Adrian Day 200,000 100,000 *
900 Bestgate Rd., Suite 405
Box 6644
Annapolis, MD 21401
Doug Casey 144,000 72,000 *
12400 Indian Mound Road
Lake Worth, FL 33619
Christine Dixon 100,000 50,000 *
6389 Macdonald Street
Vancouver, B.C. V6N 1E8
Robertson Stephens - Orphan Fund 1,993,333 830,000 8.7%
555 California St., Suite 2600
San Francisco, CA 94104
Robertson Stephens - Offshore Orphan 406,667 170,000 1.8%
Fund, c/o Citco Fund Services
Limited
Corporate Centre, West Bay Road, Grand
Cayman, Cayman Islands B.W.I., George
Town, Grand Cayman, Grand Cayman
Islands, B.W.I.
Robert L. Partarrieu (5) 370,000 60,000 2.3%
San Crescente 400, Santiago, Chile
Legal Tender Ltd. 375,000 100,000 2.1%
Design House, Suite 201,
Providenciales, Turks & Caicos Island,
B.W.I.
Tom Wikstrom 336,000 150,000 1.4%
17 Rue Arthur Herchen, L-1727
Luxembourg
</TABLE>
-45-
<PAGE> 48
<TABLE>
<CAPTION>
Conversion Percent of Common
Shares Stock Beneficially
Shares Available for Owned After
Name and Address of Beneficially Sale Under this Completion of
Selling Stockholder (1) Owned (2) Prospectus Offering (3)
- ---------------------------------------- ------------- --------------- ------------------
<S> <C> <C> <C>
Bjorn E. Clason 80,000 40,000 *
3 Marryat Place
Wimbledon, London,
U.K. SW19 5BL
Gary Bogdanovich 200,000 100,000 *
4484 West 9th
Vancouver, B.C. V6R 2E1
Cherri Nestmann 80,000 40,000 *
112 Arbutus Rd., Salt Spring Island,
B.C. V8K 1A3
Dr. James H. Wood and Mary K. 200,000 100,000 *
Wood JTWRS
1030 Byrnwyck Road
Atlanta, GA 30319
George R. Ireland 40,000 20,000 *
2025 East 4th Avenue
Denver, CO 80206
523831 B.C. Ltd. 100,000 50,000 *
c/o Pacific Opportunity Company Ltd.
2070 - 777 Hornby St.
Vancouver, B.C. V6Z 1S4
HRG(6) 100,000 50,000 *
c/o Roger Richer
1400-510 Burrard St.
Vancouver, B.C. V6C 3A8
A. R. Rule Investments (B.C.) Ltd. 136,000 68,000 *
c/o Pacific Opportunity Company Ltd
2070 - 777 Hornby Street
Vancouver, B.C. V6Z 1S4
Jeffrey L. Taylor 72,000 36,000 *
12760 High Bluff Drive, Suite 240,
San Diego, CA 92130
Glory On Development Ltd. 100,000 50,000 *
c/o Chan, Lau & Wai
6th Floor, China Bldg. 29 Queen Rd.
Central, Hong Kong
</TABLE>
-46-
<PAGE> 49
<TABLE>
<CAPTION>
Conversion Percent of Common
Shares Stock Beneficially
Shares Available for Owned After
Name and Address of Beneficially Sale Under this Completion of
Selling Stockholder (1) Owned (2) Prospectus Offering (3)
- ---------------------------------------- ------------- --------------- ------------------
<S> <C> <C> <C>
AMDG Ltd., Inc. 144,000 72,000 *
Ave. Balboa, Edif. Balboa Plaza,
Ofic.301, Estafeta 6-1097, El Dorado,
Panama, Republic of Panama
Jose Antonio Errazuriz H. 72,000 36,000 *
Las Fresas J109, Vitacura
Santiago, Chile
John Anderson 44,000 22,000 *
1400-510 Burrard Street
Vancouver, B.C. V6C 3A8
John Lea Blue 40,000 20,000 *
11th Floor, 6-10 O'Connell Street,
Sydney, NSW 2000, Australia
Robert Ossandon(7) 40,000 20,000 *
Ossandon, Uribe, Hubner y Cin.
Nueva York 25, P6, Santiago, Chile
Ricardo Harmsen 40,000 20,000 *
Oppenheimer & Co., Inc.
100 N.E. Third Avenue
Fort Lauderdale, FL 33301
Inversiones Raco S.A. 24,000 12,000 *
ProConsult
Calle Callao, Santiago, Chile
Javier Hurtodo 40,000 20,000 *
Chilgener - Div. Naviero Portuario,
Mirafloures 222, P7, Santiago, Chile
Canaccord Capital Corporation ITF 104,000 52,000 *
Mary-Ellen Meyers
2200-609 Granville St.
Vancouver, B.C. V7Y 1H2
------------- ------------- --------------
All Selling Stockholders as a Group 8,089,637 3,600,000 33.5%
(40 Persons)
============= ============= ==============
</TABLE>
* Less than 1%.
(1) Except as indicated below none of the Series A Note Holders have had
any position, office or material relationship with the Company within
the last three years.
(2) Includes Conversion Shares issuable upon conversion of the Series A
Notes, Warrant Shares issuable upon exercise of the Warrants and all
other shares of Common Stock beneficially owned.
-47-
<PAGE> 50
(3) Percentages are based on the assumptions that all Series A Notes are
converted, all Warrants are exercised and the respective Selling
Stockholders have sold the Conversion Shares available for sale under
this Prospectus and are computed on the basis of full dilution.
(4) Includes 28,637 Shares of Common Stock held by Mr. Eric Laverack.
(5) Mr. Roberto Partarrieu is General Manager of Minera Fremont Gold Chile
S.A., an indirectly owned subsidiary of the Company.
(6) Michael J. Hopley, president, chief executive officer and director of
the Company owns a one-third interest in HRG, an informal investment
partnership. "Shares Beneficially Owned" does not include 522,639 owned
directly by Mr. Hopley.
(7) Mr. Robert Ossandon is president and director of Minera Fremont Gold
Chile S.A., an indirectly owned subsidiary of the Company.
DESCRIPTION OF SECURITIES
The following descriptions are qualified in their entirety by reference
to the detailed provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws, copies of which will be furnished to any prospective
investor upon written request.
COMMON STOCK
The Company's authorized capital consists of 20,000,000 shares of
Common Stock, $.001 par value, of which 6,060,000 are issued and outstanding,
75,000 are issuable as of April 1, 1997 and 23,333 are issuable as of May 31,
1997. Assuming full conversion of the Series A Notes into Units, 9,758,333
shares will be issued and outstanding, 3,600,000 shares will be reserved for
issuance as Warrant Shares upon the exercise of the Warrants, 1,000,000 shares
will be reserved for issuance upon exercise of options granted, or available for
grant, under the Company's Stock Option Plan, 400,000 shares will be reserved
for issuance upon the exercise of warrants issued to Laminco in connection with
a Loan Agreement dated June 20, 1996, 300,000 shares will be reserved for
issuance pursuant to options which have been or will be issued pursuant to a
Letter of Intent with RTZ, and 735,000 shares will be reserved for issuance upon
exercise of warrants issued in connection with the April 1, 1997 Bridge Note.
Holders of shares of Common Stock are entitled to one vote for each
share of Common Stock held of record on all matters submitted to a vote of
shareholders. Each share of Common Stock is entitled to receive dividends as may
be declared by the Company's Board of Directors out of funds legally available.
In the event of liquidation, dissolution of winding up of the Company, the
holders of Common Stock are entitled to share ratable in all assets remaining
after payment in full of all creditors of the Company. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock included
in the Units and issuable upon exercise of the Warrants, when issued will be,
fully paid and non-assessable.
The Company's Common Stock presently is traded on the OTC-Bulletin
Board ("OTC-BB") under the symbol "FGLD." As of May 21, 1997, there were
approximately 92 holders of record of the Common Stock. In the Company's
estimation, based upon reliable information available to the Company, there are
over 500 beneficial owners of the Company's Common Stock. The last reported bid
and ask prices for the Common Stock on May 21, 1997, was $1.94 and $2.06 per
share, respectively.
-48-
<PAGE> 51
The following table sets forth the high and low prices on the OTC-BB of
the Common Stock for each quarterly period in 1995 and 1996.
<TABLE>
<CAPTION>
Bid Price
-----------------------
Calendar Quarter High Low
- ---------------- ---- ---
<S> <C> <C>
1995
First Quarter $1.00 $.60
Second Quarter $1.25 $1.00
Third Quarter $1.25 $1.00
Fourth Quarter $1.00 $1.00
1996
First Quarter $1.25 $0.63
Second Quarter $1.75 $1.00
Third Quarter $1.50 $1.25
Fourth Quarter $1.88 $1.38
</TABLE>
REDEEMABLE WARRANTS
Each Warrant is exercisable to purchase one share of Common Stock, each
a Warrant Share, at an exercise price equal to the greater of $1.50 or 75% of
the average closing price for the Company's Common Stock on the OTC-BB during
the ten trading days preceding the exercise of the Warrant. Each Warrant is
immediately exercisable upon issuance and will expire September 30, 1997. The
Company will not issue fractional shares upon exercise of the Warrants but
instead will pay the cash value of any fractional shares otherwise issuable upon
exercise. The exercise price, number and kind of shares and other securities
purchasable upon exercise of the Warrants are subject to adjustment under
certain circumstances, including stock splits, mergers, reclassifications and
stock dividends. The Company may redeem the Warrants at a price of $.10 per
Warrant, commencing upon the date of the effectiveness of the Registration
Statement of which this Prospectus is a part, upon fifteen (15) days' written
notice to the Warrant holders.
The holders of the Warrants are protected against dilution of their
interests in the event of stock splits, mergers, reclassifications and stock
dividends. In the event of liquidation, dissolution or winding-up of the Company
prior to exercise of the Warrants, the Warrant holders are not entitled to
participate in any distribution of assets, but would receive notice thereof.
Holders of Warrants will not have any voting power, preemptive rights, or any
right to consent to or receive notice as stockholders in respect of any meeting
of stockholders or other rights as stockholders of the Company and are not
entitled to dividends.
The Warrants are in registered form and when detached from the Unit
they may be presented for transfer, exchange or exercise at any time on or prior
to their expiration, at which time the Warrants become wholly void and of no
value. However, the Warrants can not be assigned, sold, hypothecated or
otherwise transferred in any manner without the Company's prior written consent.
The Company does not plan to list the Warrants on any securities exchange.
-49-
<PAGE> 52
VOLUNTARY STOCK POOLING AGREEMENTS
Each purchaser of the Series A Notes, as a condition precedent to his,
her or its purchase, entered into a Voluntary Pooling Agreement ("Pooling
Agreement"). Under the terms of the Pooling Agreement each purchaser of Series A
Notes severally agreed with the Company, the Trustee (as defined in the Pooling
Agreement) and each with the other, that they will deliver the certificates
representing the Conversion Shares to the Trustee. Pursuant to the Pooling
Agreement the Trustee will hold all certificates representing the Conversion
Shares subject to release , on a pro-rata basis, as set forth below:
<TABLE>
<CAPTION>
PRO-RATA CONVERSION SHARES RELEASED RELEASE DATE
- ----------------------------------- ------------
<S> <C>
25% of Conversion Shares April 1, 1997
25% of Conversion Shares July 1, 1997
25% of Conversion Shares October 1, 1997
the balance of Conversion Shares January 1, 1998
</TABLE>
Conversion Shares held by the Trustee are not transferable. However the owners
of such Conversion Shares will continue to possess all other rights, including
the right to vote, attendant to their shares.
In connection with the Company's acquisition of FHL, all FHL
shareholders executed a Pooling Agreement (the "FHL Pooling Agreement') with the
Company which restricted the transfer of the 3,560,000 shares of the Company's
Common Stock issued in the acquisition (the "Acquisition Shares"). Pursuant to
the FHL Pooling Agreement, transfer of the Acquisition Shares was prohibited.
However, on a quarterly basis commencing February 1, 1997, 25% of the
Acquisition Shares are to be released from the transfer limitations imposed by
the FHL Pooling Agreement. On November 1, 1997, all of the Acquisition Shares
will have been released. Once released, however, the Acquisition Shares may only
be transferred pursuant to an effective registration statement or an available
exemption from registration under the Act.
On December 31, 1996, in connection with a Share Purchase and Sale
Agreement between Laminco and an unaffiliated syndicate of purchasers, Laminco
sold 2,597,000 shares of the Company's Common Stock; 2,103,000 of such shares
had been released early by the Company from the transfer restrictions of the FHL
Pooling Agreement. Each purchaser in this transaction entered into a
Stockholders' Agreement with the Company, the terms of which restrict the
transferability of the shares purchased until December 20, 1997.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming full conversion of the Series A Notes into the 3,600,000 Units
and issuance of 75,000 shares of Common Stock in connection with the April 1,
1997 Bridge Note transaction, 23,333 shares of Common Stock issuable on May 31,
1997 in connection with the Santa Eloise Property acquisition, 9,758,333 shares
of Common Stock will be issued and outstanding, which includes the 3,600,000
Conversion Shares. Of these shares i) 22,752 shares were sold pursuant to a Form
S-18 Registration Statement filed with the Commission on September 15, 1986 and
are freely transferable without restriction or further registration under the
Securities Act, ii) 2,851,248 shares were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder and accordingly are "Restricted Securities", as the term
is defined in Securities and Exchange Commission (the "Commission") Rule 144
adopted under the Securities Act ("Rule 144"), of these shares, 614,000 were
issued by FHL under the Commission's Rule 701 under the Securities Act and were
subsequently exchanged for the Company's shares and, accordingly, are
"Restricted Securities" under Rule 144, iii) 3,284,333 shares were issued
pursuant to Commission Regulation S and transfer of these securities is
prohibited except in accordance with the provision of Regulation S, and
-50-
<PAGE> 53
iv) 3,600,000 Conversion Shares will have been issued upon conversion of the
Series A Notes and, except for the restriction imposed by the Pooling Agreement,
will be freely transferable without restriction or further registration under
the Securities Act, except that any shares purchased by an existing "affiliate"
of the Company (as that term is defined under the Securities Act) will be
subject to certain resale limitations of Rule 144. In addition, 3,600,000 shares
of Common Stock, the Warrant Shares offered hereby, will be reserved for
issuance upon exercise of the Warrants, 1,000,000 shares of Common Stock will be
reserved for issuance upon exercise of options granted, or are available for
grant, under the Company's Stock Option Plan, 400,000 shares of Common Stock
will be reserved for issuance upon exercise of warrants issued to Laminco,
300,000 shares of Common Stock will be reserved for issuance pursuant to options
which have been or will be issued to RTZ, and 735,000 Shares of Common Stock
will be reserved for issuance upon exercise of warrants issued in connection
with the April 1, 1997 Bridge Note.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly public trading volume of the
Company's Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale and who is
deemed to have owned shares, as provided in Rule 144, for at least two years, is
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provision, public information or notice
requirements. Under Rule 701, shares privately issued under certain compensatory
stock-based arrangements may be resold under Rule 144 by non-affiliates subject
only to the manner of sale requirements, and by affiliates without regard to any
holding requirement, commencing 90 days after the Company becomes subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended. Of the 2,851,248 shares of the Company's Common stock subject to Rule
144, i) 977,248 shares were issued prior to January 1, 1995 and are held by
non-affiliates, ii) 1,185,000 shares were issued in July 1996 and of these
633,448 shares are held by non-affiliates, iii) 614,000 shares were issued to
affiliates of the Company subject to Rule 701, and iv) 75,000 shares are
issuable as of April 1, 1997 to affiliates in connection with the guaranty of
the Bridge Note.
Pursuant to the terms of Regulation S, the Company has offered and sold
3,284,333 shares of the Company's Common Stock in "offshore transactions" (as
defined in Regulation S) and such shares are eligible for offer and sale in the
United States upon expiration of a 40-day "restricted period" (as defined in
Regulation S), subject to applicable pooling arrangement limitations. See
"Description of Securities -- Voluntary Stock Pooling Agreements.".
The Company has reserved 1,000,000 shares for grant under the Stock
Option Plan. See "Management -- Stock Option Plan". As of May 1, 1997, there
were 950,000 options to purchase shares of Common Stock outstanding under the
Company's Stock Option Plan. The Company intends to file a Form S-8 registration
statement under the Securities Act to register all of the shares of Common Stock
reserved for issuance under its Stock Option Plan. Such registration statement
will become effective automatically upon filing. Shares issued upon exercise of
options after the Form S-8 registration statement is filed may thereafter be
sold in the open market, subject, in the case of various holders, to the Rule
144 volume limitations applicable to affiliates.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent to the
Common Stock is American Stock Transfer & Trust Company, 40 Wall Street, New
York, NY 1005 (212) 936-5100.
-51-
<PAGE> 54
LEGAL MATTERS
Certain legal matters will have been passed upon for the Company by
Streich Lang, P.A., Phoenix, Arizona and by Ossandon, Uribe & Hubner, Santiago,
Chile.
INTEREST OF NAMED COUNSEL
The law firm of Ossandon, Uribe & Hubner, Santiago, Chile, has passed
on certain legal matters in this Prospectus, see "Business of the Company --
Chile." Roberto Ossandon, a partner in Ossandon, Uribe & Hubner, is president
and a director of MFG and beneficially owns 40,000 shares of Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management."
EXPERTS
The financial statements of the Company included in this Prospectus for
fiscal years 1996 and 1995 have been examined by KPMG, chartered accountants.
Such reports have been included herein in reliance upon the reports for such
firms given upon their authority as experts in accounting and auditing.
Reference is made to said report.
CHANGE IN ACCOUNTANTS
Pursuant to Board of Directors action on February 12, 1997, the Company
dismissed Thomas W. Klash as its principal independent accountant to audit its
financial statements. Mr. Klash opined on the Company's financial statements for
the years ended December 31, 1994 and 1995. This dismissal arose out of the
change in control of the Company on June 4, 1996 and the subsequent relocation
of the Company's headquarters from Florida to Vancouver, British Columbia,
Canada.
Other than expressing substantial doubt as to the ability of the
registrant to continue as a going concern, Mr. Klash's report on the financial
statements for 1994 and 1995 did not contain an adverse opinion or a disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. During 1994 and 1995 and for the interim period ending
February 12, 1997 (i) there were no disagreements with the former accountant on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure and (ii) there were no "reportable
events" (as defined in Regulation S-K Item 304). This dismissal was previously
reported on Form 8-K and the former accountant has provided the Securities and
Exchange Commission a letter stating that he does not disagree with the
statements contained therein.
On April 8, 1997 the Company engaged KPMG, chartered accountants, as
its accountants to audit its financial statements. KPMG served as the
accountants of FHL prior to its acquisition by the Company. Subsequent to such
acquisition, the Company engaged KPMG to advise on the accounting treatment of
that acquisition. KPMG has reviewed the statements made in this paragraph and
has been given the opportunity to furnish the Company a letter containing any
additional information, clarifications or disagreements with such statements. No
such letter has been provided.
-52-
<PAGE> 55
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
Section 13 of the Securities Exchange Act of 1934, as amended, and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549,
or from the Los Angles Regional Office, 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036, upon payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site on the Internet that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The address of such site is: http://www.sec.gov.
The Company will furnish annual reports to shareholders which contain
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
The Company Common Stock is listed and traded on the OTC-BB. Reports
and proxy statement and other information can be inspected at the offices of the
Company at 777 Hornby Street, Suite 2000, Vancouver, B.C., Canada, V6Z 1S4.
-53-
<PAGE> 56
GLOSSARY OF CERTAIN INDUSTRY TERMS
air photo interpretation: the study of air photos of a region of geologic
interest for the purpose of identifying large scale geologic features.
alteration: any change in the mineral composition of a rock brought about by
physical or chemical means.
andesite: a dark colored, fine grained volcanic rock.
aphanitic: a term applied to fine grained igneous rocks whose constituents are
too small to be distinguished by the unaided eye.
argillic: pertaining to clay or clay minerals.
argillic alteration: an alteration in which certain minerals are converted to
minerals of the clay group.
assay results: the results of an analysis used to determine the proportions of
metals in a rock sample.
Atacama Fault System: a well recognized, north-south trending fault system in
northern Chile, which controls a significant amount of known mineralization in
the area.
Atacama Desert: a desert region of northern Chile.
basalt: a dark colored igneous rock, commonly extrusive, composed primarily of
plagioclase and pyroxene; the fine grained equivalent of gabbro.
bedrock: the solid rock that underlies gravel, soil or other superficial
material.
breccia fragments: angular pieces of broken rock.
breccia: a coarse grained rock composed of large angular pieces of broken rock.
brecciated mylonites: a breccia in which the large angular pieces are a
compacted rock with a streaky or banded structure produced by extreme shearing
during dynamic metamorphism.
bulk minable: able to be mined in bulk, that is on a large scale, typically by
open pit methods.
calcite: calcium carbonate, a common rock forming mineral; usually white or gray
in color.
chlorite: a group of platy, greenish magnesium iron aluminum silicate minerals,
widely distributed in low grade metamorphic rocks or as alteration products of
ferromagnesian minerals.
-54-
<PAGE> 57
colluvium: a general term applied to loose and incoherent deposits, usually at
the foot of a slope or cliff, brought there chiefly by gravity.
copper oxide: a group of minerals that are ores of copper or minor ores of
copper, found in the oxidized zone of sulfide copper deposits.
coarse: as in coarse grained, said of rocks in which the individual minerals or
grains are relatively large and can be seen with the unaided eye.
crystalline: having regular molecular structure.
dacite: a fine grained volcanic rock which is similar in composition to
andesite, except for a greater abundance of quartz crystals that are frequently
visible to the naked eye.
diamond drill program: a planned sequence of drilling bore holes using bits
inset with diamonds as the rock cutting tool to produce a recoverable core of
rock for observation and assay.
diorite: a dark, coarsely crystalline igneous rock, similar in composition to
granite, which is composed principally of silica, aluminum, calcium, and iron.
earthy: said of minerals having a dull luster and a surface rough to the touch.
El Salvador: a large copper mine in Northern Chile operated by Codelco, the
national Chilean copper mining company.
epidote: a green colored, calcium aluminum iron silicate mineral which is common
in low grade metamorphic rocks derived from limestone.
epigenetic: said of a mineral deposit of origin later than that of the enclosing
rocks.
gabbro: a group of dark colored, basic intrusive igneous rocks composed
principally of two specific minerals, plagioclase and pyroxene.
geochemical sampling: the process of sampling rock or soil for the purpose of
having the sample analyzed for the distribution and amounts of the chemical
elements within it.
geological mapping: the process of recording the distribution, nature and age
relationships of rock units and the occurrence of structural features on a map.
geophysical surveys: the use of one or more geophysical techniques - electric,
gravity, magnetic, seismic, or thermal - in the search for economically valuable
mineral deposits.
grade: the relative quantity or percentage of ore mineral content.
-55-
<PAGE> 58
heap-leach copper mine: a copper mine which uses a process whereby a weak
sulfuric acid solution is percolated through copper ore stacked on an impervious
liner, to dissolve minerals.
hematite: a common iron mineral which occurs as both a primary constituent of
rocks and as an alteration product.
host rocks: a body of rock serving as a host for mineral deposits.
hydrothermal: of or pertaining to hot water, to the action of hot water, or to
the products of this action, such as a mineral deposit precipitated from a hot
aqueous solution.
igneous: said of a rock or mineral that solidified from molten or partly molten
material.
intrusive: said of the process, and of rock formed by the process, of
emplacement of magma in a pre-existing rock.
iron oxide: a common mineral found in all rock types as a primary constituent or
alteration product, also an ore of iron.
Jotabeche Volcanic Complex: a recognized set of geologic features pertaining to
the activities, structures and rock types of a volcano, located in the Maricunga
District of northern Chile.
La Escondida: a large open pit copper mine in northern Chile.
limestone: a sedimentary rock consisting chiefly of the mineral calcite.
mafic: said of an igneous rock composed chiefly of dark, ferromagnesian
minerals.
magma: naturally occurring molten rock material, generated within the earth and
capable of intrusion and extrusion, from which igneous rocks have been derived
through solidification and related processes.
magmatic: of, pertaining to, or derived from magma.
magnetite: a black, strongly magnetic opaque mineral; a very common and widely
distributed accessory mineral in rocks of all kinds.
Maricunga District: a recognized precious metal (gold, silver) mineral district
of northern Chile, named after a geographic feature, Salar Maricunga.
mineralization: the process by which a valuable mineral or minerals are
introduced into a rock, resulting in a potential or actual ore deposit.
molybdenum: a base metal element.
outcrop: that part of a geologic formation or structure that appears at the
surface of the earth.
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<PAGE> 59
porphyry: a medium to fine-grained intrusive rock containing numerous larger
sized phenocrysts.
porphyry style: resembles a style of mineralization in which a large body of
rock, typically a porphyry, contains disseminated chalcopyrite and other sulfide
minerals. Such deposits are known as porphyry copper deposits, and are mined in
bulk, on a large scale, generally in open pits, for copper and by-product,
molybdenum.
primary mineral: a mineral formed at the same time as the rock enclosing it.
pyrite: a common iron sulfide mineral with a yellow color and a brilliant
metallic luster.
quartz: crystalline silica; silicon dioxide, an important rock-forming mineral,
the most common gangue mineral of ore deposits.
recrystallization: the formation, essentially in the solid state, of new
crystalline material grains in a rock. The new grains are generally larger than
the original grains, and may have the same or a different mineralogical
composition.
Region I, II, III and IV: political/administrative divisions of the country,
Chile. Chile has 14 designated regions starting at Region I in the north and
ending with Region 14 in the south. Regions I, II, III and IV all correspond to
northern parts of the country.
reverse-circulation drilling: a drilling method using double walled drilling
rods, where compressed air is pumped down the hole through the outer annulus
flushing rock chips produced by the drill bit upward through the inner annulus
to a collection mechanism at the surface.
rock chip samples: the samples of rock produced by the reverse-circulation
drilling process.
rotary drill holes: a drilling method where compressed air is pumped down the
drill stem and the rock chips are flushed to the surface between the drill rod
and the walls of the drill hole.
sample grids: a network composed of two sets of uniformly spaced parallel lines,
usually intersecting at right angles and forming squares, superimposed on a map,
chart, or aerial photograph, to permit identification of ground locations by
means of a system of coordinates, where rock or soil samples will be taken.
sericite: a white, fine grained potassium mica occurring in small scales and
flakes as an alteration product of various aluminosilicate minerals.
satellite-generated imagery: radar or photographically generated images produced
by satellites.
secondary minerals: a mineral formed later than the rock enclosing it, usually
at the expense of an earlier formed primary mineral.
shear zone: a tabular zone of rock that has been crushed and brecciated by many
parallel fractures due to shear strain; such an area is often mineralized by
ore-forming solution.
siderite: a brownish mineral of the calcite group; iron carbonate; also an ore
of iron.
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<PAGE> 60
silicate: a compound whose crystal structure contains SiO4 tetrahedra, either
isolated or joined through one or more of the oxygen atoms to form groups,
chains, sheets, or three dimensional structures with metallic elements.
silicification: the introduction of, or replacement by, silica; especially in
the form of fine grained quartz, chalcedony, or opal, which may fill pores and
replace existing minerals.
silicified: said of a rock altered by silicification.
skarn: iron-garnet, magnetite bearing contact metamorphosed rock derived from
pure limestones or dolomites.
specular hematite: a black or gray variety of hematite with a splendent metallic
luster.
strike length: the length in the strike direction, which is, the direction taken
by a structural surface as it intersects the horizontal plane.
sulfide minerals: mineral compounds characterized by the linkage of sulfur with
a metal.
surface mining: typically refers to open pit mining methods.
Tertiary: the time span between 65 million and 2 million years ago.
sub-volcanic: a term used to describe igneous rock formed at a shallow depth,
that is, in the environment below a surface volcanic environment.
trenching: the process of creating long narrow excavations in the earth's
surface to expose areas of geologic interest.
vein: an epigenetic mineral filling of a fault or other fracture, in tabular or
sheetlike form, often with associated replacement of the host rock.
veinlet: small scale vein structures.
volcanics: those igneous rocks that have reached or nearly reached the Earth's
surface before solidifying.
volcanic flows: a mass movement of unconsolidated volcanic material or magma, in
the plastic or semifluid state.
West Fissure Fault: a well recognized north-south trending fault system in
northern Chile, which controls a significant amount of known mineralization in
the area.
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<PAGE> 61
FREMONT GOLD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Fiscal Year End Financial Statements: Page
- ------------------------------------- ----
<S> <C>
Report of Independent Public Accountants F-3
Financial Statements:
Balance Sheets - December 31, 1996 and 1995 F-4
Statements of Operations - For the Years Ended December 31, 1996 and F-5
1995
Statements of Shareholders' Deficit - For the Years Ended December 31, F-6
1996 and 1995
Statements of Cash Flows - For the Years Ended December 31, 1996 F-7
and 1995
Notes to Financial Statements -December 31, 1996 and 1995 F-8
Interim Financial Statements:
Balance Sheet - March 31, 1997 F-21
Statements of Operations - For the Three Months Ended March 31, 1997 F-22
and 1996
Statements of Cash Flows - For the Three Months Ended March 31, F-23
1997 and 1996
Notes to Financial Statements - March 31, 1997 F-24
</TABLE>
F-1
<PAGE> 62
FREMONT GOLD CORPORATION
YEAR END FINANCIAL STATEMENTS
DECEMBER 31, 1996
F-2
<PAGE> 63
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Fremont Gold Corporation
We have audited the consolidated balance sheet of Fremont Gold Corporation as at
December 31, 1996 and the consolidated statements of operations, shareholders'
deficit and cash flow for the year 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 audit.
We conducted our audit in accordance with 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 consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1996
and the results of its operations and its cash flow for the year then ended in
accordance with generally accepted accounting principles in the United States.
The consolidated financial statements as at December 31, 1995 and for the year
then ended were audited by another auditor who expressed an opinion with a
reservation relating to a going concern contingency on those statements in their
report dated February 20, 1996 under generally accepted auditing standards in
the United States. Had the opinion been expressed in accordance with Canadian
generally accepted auditing standards, the opinion would have been without
reservation.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
April 8, 1997
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph following the opinion paragraph when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
notes 1 and 2 to the consolidated financial statements. Our report to the
shareholders dated April 8, 1997 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditors' report when these are adequately disclosed in the
financial statements.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
April 8, 1997
F-3
<PAGE> 64
FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
------------ ------------
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,014,522 $ 1,035
Accounts receivable 28,829 --
Due from related parties (note 3) 13,039 --
Amounts due on Series A Convertible Notes 30,000 --
Prepaid expenses 7,831 --
----------- ---------
1,094,221 1,035
NON-CURRENT ASSETS:
Mineral properties (note 4) 396,239 --
Property and equipment, net (note 5) 95,026 --
----------- ---------
TOTAL ASSETS $ 1,585,486 $ 1,035
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 128,837 $ --
Due to related parties (note 6) 56,854 --
Loans payable -- 5,000
Promissory note payable (note 7) 22,600 --
Series A Convertible Notes (note 8) 1,800,000 --
Current portion of capital lease obligations (note 12) 24,833 --
----------- ---------
2,033,124 5,000
NON-CURRENT LIABILITIES:
Capital lease obligations, less current portion (note 12) 11,544 --
MINORITY INTEREST 2,500 --
STOCKHOLDERS' DEFICIT Common stock (note 9)
$.001 par value; 20,000,000 authorized; 1,000,000 and
6,060,000 issued and outstanding at December 31,1995
and 1996 respectively 25,060 20,000
Additional paid-in capital 1,004,526 471,100
Unearned compensation (134,081) --
Accumulated deficit (1,357,187) (495,065)
----------- ---------
Total Stockholders' Deficit (461,682) (3,965)
Commitments and Contingencies (notes 4, 8, 12, and 14)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,585,486 $ 1,035
=========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 65
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
-------------------------------
For the Years Ended
-------------------------------
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Interest income $ 15,730 $ --
GENERAL AND
ADMINISTRATIVE EXPENSES:
Compensation expense from stock option grants 25,519 --
Salaries and consulting 235,738 --
Depreciation 6,137 --
Foreign exchange 12,153 --
Legal and accounting 101,442 --
Rent and office expenses 85,075 9,862
Investor services 43,033 --
Travel and public relations 80,751 --
----------- -----------
589,848 9,862
IMPAIRMENT OF MINERAL PROPERTIES (note 4) 153,671
General exploration 77,123 --
----------- -----------
Loss from operations 804,912 9,862
Interest expense 57,210 --
----------- -----------
Net loss $ 862,122 $ 9,862
=========== ===========
Weighted average number
of shares outstanding 3,420,874 1,000,000
=========== ===========
Loss per common share $ (0.25) $ (0.01)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 66
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
----------------------
Common Stock
$ 0.001 Par Value
---------------------- --------------- ------------ ------------ ----------
Shares
(restated, Amount Additional Unearned Accumulated Total
note 9) Paid-In Capital Compensation Deficit
---------- ------- --------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,000,000 $20,000 $ 471,100 $ -- $ (485,203) $ 5,897
Net loss -- -- -- -- (9,862) (9,862)
--------------------- ---------- --------- ----------- ---------
Balance December 31, 1995 1,000,000 $20,000 $ 471,100 $ -- $ (495,065) $ (3,965)
Forgiveness of debt -- -- 12,000 -- -- 12,000
Issuance of stock options -- -- 159,600 (159,600) -- --
Amortization of unearned
compensation -- -- -- 25,519 -- 25,519
Private placement 1,000,000 1,000 199,000 -- -- 200,000
Private placement 500,000 500 139,500 -- -- 140,000
Acquisition of Flagship Holding
Ltd. (note 2(d)) 3,560,000 3,560 23,326 -- -- 26,886
Net loss -- -- -- -- (862,122) (862,122)
--------------------- ---------- --------- ----------- ---------
Balance December 31, 1996 6,060,000 $25,060 $1,004,526 $(134,081) $(1,357,187) $(461,682)
===================== ========== ========= =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 67
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
----------------------------
For the Years Ended
----------------------------
December 31, December 31,
1996 1995
----------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (862,122) $(9,862)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation expense from stock option grants 25,519 --
Depreciation 6,137 --
Expenses paid by issuance of shares by Flagship
Holding Ltd. 24,000 --
Impairment of mineral properties 153,671 --
Increase (decrease) in
Accounts receivable (28,829) --
Due from related parties (13,039) --
Prepaid expenses (7,831) --
Accounts payable and accrued liabilities 128,837 --
----------- -------
Net cash used in operating activities (573,657) (9,862)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties 56,854 --
Lease payments (2,030) --
Loan payable 7,000 5,000
Loan received from affiliate 200,000 --
Repayment of loan from affiliate (200,000) --
Series A Convertible Notes 1,770,000 --
Issuance of shares for cash 340,000 --
Issuance of shares for cash by Flagship Holding Ltd. 2,886 --
Increase in minority interest 2,500 --
----------- -------
Net cash flow from financing activities 2,177,210 5,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mineral properties (549,910) --
Investment in property and equipment (40,156) --
----------- -------
Net cash used in investing activities (590,066) --
Net increase (decrease) in cash 1,013,487 (4,862)
Cash and cash equivalents, beginning of
period 1,035 5,897
----------- -------
Cash and cash equivalents, end of period $ 1,014,522 $ 1,035
=========== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE> 68
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
The Company is a Delaware corporation and its principal business activity is the
acquisition, exploration and development of mineral properties, primarily gold
and copper properties located in Latin America.
During 1996, the Company commenced a program of exploration of certain mineral
properties, and as at December 31, 1996 had not established the existence of
economically recoverable mineral reserves. Continuing operations of the Company
and the recoverability of amounts shown for mineral properties are dependent
upon the discovery of economically recoverable reserves, the ability of the
Company to obtain financing to complete exploration and development and future
profitable operations or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The financial statements have been prepared assuming the Company will continue
as a going concern. Certain factors, discussed below, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company has a substantial working capital deficit at December 31, 1996 due
to current debt maturities, and does not have sufficient funds to meet the
exploration objectives as presently planned. Management recognizes that the
Company must generate additional resources to enable it to continue operations.
The Company is actively pursuing the sale of equity securities with funds raised
being made available to the Company. Management expects these pursuits will
result in additional resources to the Company, however, no assurance can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve profitability or positive cash
flows in the future.
An election by Series A Note holders (see note 8, Series A Convertible Notes)
not to convert such debt to equity would result in the Company being required to
repay the principal amount of the unconverted Series A Note, together with
accrued and unpaid interest, on June 30, 1997. The Company has been utilizing
the proceeds of the Series A Notes in connection with its business operations.
Therefore, if any of the Series A Note holders elect not to convert, the Company
may be required to repay principal and interest to those Series A Note holders
who elect not to convert. There can be no assurance that the Company will have
sufficient funds to repay those Series A Note holders who elect not to convert.
The Company may be required to seek outside sources of capital to meet its
financial obligations under the Series A Notes if a sufficient number of Series
A Note holders elect not to convert. The failure to procure such financing on
acceptable terms could have a material adverse effect on the Company's business,
financial condition and results of operations.
If the Company is unable to obtain adequate additional financing, management
will be required to curtail the Company's exploration and mineral property
acquisition programs.
F-8
<PAGE> 69
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Principles of consolidation
The consolidated statements include the accounts of the Company and its 100%
owned subsidiary, Flagship Holding Ltd. ("FHL"), and 99% owned subsidiary Minera
Fremont Gold Chile S.A. ("MFG"). All significant intercompany transactions and
balances have been eliminated on consolidation.
(d) Accounting treatment of Flagship Holding Ltd. acquisition
Pursuant to a Share Purchase Agreement dated July 31, 1996, with an effective
date of July 1, 1996, the Company acquired 100% of the issued and outstanding
shares of FHL it did not previously own. The Company completed this acquisition
in consideration of the exchange of 3,560,000 shares of its Common Stock.
The acquisition of FHL by the Company has been accounted for at historical cost
in a manner similar to pooling of interest accounting. Accordingly, the
statements of operations and cash flows for the year ended December 31, 1996
include the results of FHL from its inception (June 14, 1996). The effect of the
acquisition of FHL on the number of shares and capital accounts of the Company
is shown in the statement of shareholder's deficit for the year ended December
31, 1996.
(e) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments that are readily
convertible to known amounts of cash and generally have original maturity values
of three months or less.
(f) Mineral properties
All mineral claim acquisition costs and exploration and development expenditures
in the pre production stage relating to mineral properties, net of any
recoveries, are capitalized. General exploration expenditures which do not
relate to specific resource properties are expensed in the period incurred.
The amounts shown as deferred mineral property costs represent net costs to date
and do not necessarily represent present or future values.
On an on-going basis, the Company evaluates each property based on results to
date to determine the nature of exploration work that is warranted in the
future. If there is little prospect of further work on a property being carried
out, the deferred costs related to that property are written down to the
estimated recoverable amount.
The deferred acquisition, exploration and development costs related to a
property from which there is production will be depleted on the
unit-of-production method based upon estimated proven and probable reserves.
F-9
<PAGE> 70
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
(g) Property and equipment
Amortization of office furniture and equipment, computer hardware and software,
leased assets and leasehold improvements is provided on a straight line basis
over a period of three years.
(h) Accounting for the impairment of long-lived assets
In 1996, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, ("SFAS 121"). The
adoption of SFAS 121 had no effect on the Company's financial statements.
(i) Foreign currency translation
The Company and its subsidiaries use the U.S. Dollar as their functional
currency. Transactions recorded in Chilean pesos, Barbados pounds and Canadian
dollars are translated as follows:
(i) Monetary assets and liabilities at the rate prevailing at the
balance sheet date.
(ii) Non-monetary assets and liabilities at historic rates.
(iii) Income and expenses at the average rate in effect during the
period.
Exchange gains or losses are recorded in the consolidated statement of
operations.
(j) Accounting for stock based compensation
The Company uses the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock-based incentive plans.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount an
employee or director must pay to acquire the stock.
(k) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-10
<PAGE> 71
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
(l) Loss per share
Loss per share is computed by dividing the loss by the weighted average number
of common shares outstanding during the period.
3. DUE FROM RELATED PARTIES
Balance represents employee advances for expenditures made by employees on
behalf of the Company.
4. MINERAL PROPERTIES
Accumulated costs in respect to the Company's interest in mineral claims under
option consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Acquisition Balance at Additions during Written off Balance at
and Dec. 31, 1995 the period during period Dec. 31, 1996
Exploration Costs
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOS LEONES & REMOLINO
Acquisition $ -- $130,927 $130,927 $ --
Exploration -- 22,744 22,744 --
- -------------------------------------------------------------------------------------------------
-- 153,671 153,671 --
RESGUARDO
Acquisition -- 288,101 -- 288,101
Exploration -- 83,138 -- 83,138
- -------------------------------------------------------------------------------------------------
-- 371,239 -- 371,239
CENIZAS
Acquisition -- 25,000 -- 25,000
- -------------------------------------------------------------------------------------------------
-- 25,000 -- 25,000
- -------------------------------------------------------------------------------------------------
Total $ -- $549,910 $153,671 $396,239
=================================================================================================
</TABLE>
(a) Remolino Property
On June 17, 1996, the Company entered into a mining option on the Remolino
Property. Under the terms of the agreement, the Company shall pay a total
consideration of $105,000 plus all costs to keep the property in good standing.
The $105,000 is payable $15,000 upon execution of the mining option; $15,000 in
6 months; $25,000 on the first anniversary of the mining option; and $50,000 on
the second anniversary of the mining option. Additional option payments totaling
$135,000 are as follows: $10,000 upon execution of the mining option; $20,000 on
September 10,1996; $50,000 on December 10, 1996; and $55,000 on March 10, 1997.
In December, 1996 the Company elected to discontinue exploration on its Remolino
property and elected not to make any further payments under its June 17, 1996
option to purchase. The Company has no further financial obligations to, nor
ownership interest in the Remolino property and accordingly, exploration
expenditures on this property were written off in 1996.
F-11
<PAGE> 72
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
(b) Los Leones Property
On June 17, 1996, the Company entered into a mining option on the Los Leones
Property. Under the terms of the agreement, the Company shall pay a total
consideration of $100,000 plus all costs to keep the property in good standing.
The $100,000 is payable $10,000 upon execution of the mining option; $15,000 in
6 months; $25,000 on the first anniversary of the mining option; and $50,000 on
the second anniversary of the mining option.
In January, 1997 the Company elected to discontinue exploration on the Los
Leones property and elected not to make further payments under its June 17, 1996
option to purchase the Los Leones mining concessions. The Company has no further
financial obligations to, nor ownership interest in the Los Leones Property, and
accordingly, exploration expenditures on this property were written off in 1996.
(c) Resguardo Property
On July 17, 1996 the Company entered into a 99 year Lease Agreement on the
Resguardo Property. Lease payments are as follows: $75,000 upon execution of the
Lease Agreement; $60,000 payable on each of the lease's first and second
anniversary; and $80,000 payable on the lease's third anniversary. The Company
has the exclusive right to exploit, benefit, explore, develop and smelt minerals
from the 3,417 hectare (8,443 acre) property located on the Atacama Fault System
of northern Chile. The owners retain a net smelter return production royalty,
equal to 5% on gold and 1.5% on all other mineral production from the property,
and a minimum annual royalty payment of $300,000 is payable when the property is
in production. Subsequent to the third anniversary of the lease, the Company
must complete a feasibility study and obtain project financing to begin
production on or before the seventh anniversary of the lease. No payments to the
owners are required during this period. If production financing has not been
obtained during this period, and construction of the mine has not begun by the
seventh anniversary, the Company must pay advance royalty payments of $150,000
in first year of delay; $200,000 in the second year of delay; $250,000 in the
third year of delay; and 15% annual incremental increases for subsequent delays.
The first royalty payment may be credited to the future net smelter return
production royalty.
During the year, the Company applied for exploration claims on an additional
12,000 hectares (29,652 acres) adjacent to the leased property.
(d) Cenizas
The Company signed a Letter of Intent with RTZ Mining & Exploration Limited
("RTZ") on December 13, 1996 whereby the Company can earn an initial 51%
interest in the Cenizas Property mining concessions located on the West Fissure
Fault in northern Chile, by making cash payments totaling $350,000 and
completing at least $1,000,000 of exploration work over three years. Payments
during the first year total $50,000 with a first year exploration commitment by
the Company of $200,000. The Company will also grant to RTZ options to purchase
shares of its Common Stock as follows: by June 13, 1997 an option to purchase
150,000 shares of Common Stock at a price of $1.50 per share, by December 13,
1997 an additional option to purchase 150,000 shares of Common Stock at a price
of $2.00.
Upon completion of the required payments to RTZ and satisfaction of the
Company's exploration commitments, the Company will be entitled to a 51%
interest in the Cenizas Property mining concessions. At that time, the project
will convert into a joint venture between the Company and RTZ with the Company
serving as manager of the joint venture. It is presently contemplated that at
such time, a new entity (the exact form of which has not been specified) will be
formed to hold title to the mining concessions with the Company initially owning
51% of the entity. (If either the Company or RTZ chooses not to contribute
pro-rata, their interest can be diluted to a 2% Net Smelter Royalty with a
maximum value of $3,000,000.) Within 60 days of the Company earning its 51%
interest in the Cenizas Property
F-12
<PAGE> 73
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
mining concessions, RTZ has an option to obtain a 51% interest in the mining
concessions by committing to fund and complete a bankable feasibility study
within a 30 month period.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Cost Accumulated Net
Depreciation 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office furniture and equipment $ 43,306 $2,012 $41,294 $ --
Computer hardware and software 17,285 1,372 15,913 --
Leased assets 38,407 2,633 35,774 --
Leasehold improvements 2,165 120 2,045 --
- -------------------------------------------------------------------------------------------------
Total $101,163 $6,137 $95,026 $ --
=================================================================================================
</TABLE>
6. DUE TO RELATED PARTIES
On April 11, 1996 Minera Fremont Gold Chile S.A. borrowed $20,006 from Roberto
Partarrieu, an employee of the Company. The loan is non-interest bearing and is
repayable upon demand. At December 31, 1996 $20,007 was outstanding.
On June 14, 1996, FHL borrowed $60,847 from Edward M. Topham, an officer and
director of the Company, pursuant to a Loan Agreement. This loan is repayable
upon demand with interest accruing at 10%. In December, payments totaling
$25,065 ($24,000 of principal and $1,065 in interest) were made on the loan. At
December 31, 1996 the principal outstanding was $36,847. $1,964 of interest was
accrued on the loan and is included in accounts payable.
7. PROMISSORY NOTE
On October 31, 1996 the Company entered into a Promissory Note agreement with
Laminco Resources Inc. ("Laminco") for the purchase of office and computer
equipment. The note requires that monthly payments of $2,256 be made on the
first day of each month commencing January 1, 1997 until full repayment has
occurred. If payments are made when due, no interest on the principal is
applied. If payments are not made when due, an interest charge of 1% compounded
monthly applies on the aggregate unpaid principal balance plus accrued interest.
The Company has pledged the assets purchased as additional collateral and has
agreed not to dispose of the assets until the principal has been paid.
8. SERIES A CONVERTIBLE NOTES
On August 28, 1996, the Company commenced an offering of $1,800,000 principal
amount of unsecured 10.5% Series A Convertible Notes ("Series A Notes"). Each
Series A Note is convertible, at the option of the holder into Equity Units at
any time after the issue date and prior to March 1, 1997 (the "Maturity Date"),
at the rate of $0.50 per Equity Unit.
Each Equity Unit is comprised of one share of the Company's Common Stock, par
value $0.001 per share, and one Redeemable Common Stock Purchase Warrant
("Warrant").
F-13
<PAGE> 74
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Each Warrant is exercisable until April 15, 1997 to purchase one share of Common
Stock at the greater of $1.50 or 75% of the ten day average closing prices, as
quoted on the OTC Bulletin Board, immediately preceding the notice of exercise.
The Warrants issued in connection with the conversion of the Series A Notes as a
component of the Equity Unit will be redeemable by the Company upon conversion
of the notes, and upon 15 days notice to the Warrant holder, at a redemption
price of $0.10 per Warrant.
The holders of the Series A Notes, Warrants or Common Stock issued to holders
without an effective Registration Statement under the Securities Act of 1933, as
amended, ("Act") shall have the right, at any time, to join with the Company to
register the Common Stock and the Common Stock underlying the Series A Notes and
Warrants in any Registration Statement under the Act filed by the Company with
the Securities and Exchange Commission. The Company filed a Registration
Statement on Form SB-2 with the Securities and Exchange Commission on February
12, 1997. The Registration Statement includes the Common Stock underlying the
Series A Notes and Warrants.
On August 26, 1996, Roberto L. Partarrieu, general manager of MFG, purchased
Series A Notes in the principal amount of $30,000. On September 3, 1996 HRG, a
private investment partnership, purchased Series A Notes in the principal amount
of $25,000. Michael J. Hopley, president, chief executive and director of the
Company beneficially owns one third of HRG.
Each purchaser of the Series A Notes, as a condition precedent to his, her or
its conversion into Equity Units, must enter into a Voluntary Stock Pooling
Agreement ("Pooling Agreement"). Under the terms of the Pooling Agreement each
recipient of Common Stock pursuant to conversion of the Series A Notes will
severally agree with the Company, the Trustee (as defined in the Pooling
Agreement) and each with the other, that they will deliver or cause to be
delivered to the Trustee certificates representing their respective shares of
Common Stock received in the conversion. The shares of Common Stock issuable
upon exercise of the Warrants will not be subject to the Pooling Agreement.
Pursuant to the Pooling Agreement the Trustee shall hold all certificates
subject to release, on a pro-rata basis, as follows:
<TABLE>
<CAPTION>
PRO-RATA SHARES OF COMMON STOCK RELEASE DATE
- ------------------------------- ------------
<S> <C>
25% of Common Stock purchased April, 1, 1997
25% of Common Stock purchased July 1, 1997
25% of Common Stock purchased October 1, 1997
the balance of Common Stock purchased January 1, 1998
</TABLE>
On February 27, 1997, the Company made amendments to the terms and conditions of
the Series A Notes. The Company extended the expiry date of the Warrant
component of the Units from April 15, 1997 to September 30, 1997. The Company
requested that note holders extend the Maturity Date of the notes from March 1,
1997 to June 30, 1997.
As at March 31, 1997, 80% of the Series A Note holders representing 89% of the
balance of the notes payable had signed and delivered to the Company, Maturity
Date Extension Agreements. While management believes that the remaining note
holders will sign and return their Agreements to the Company, the Company is in
default on the remaining Series A Notes. In the event that the remaining Series
A Note holders do not agree to the maturity date extension, these Series A Note
holders may pursue remedies under the Note, in accordance with certain terms and
conditions including earning default interest at the rate of 16% per annum. The
principal amount of Series A Notes in default is $198,000.
The interest rate of 10.5% will be paid upon the notes until they are converted.
F-14
<PAGE> 75
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Upon conversion of the note, the first 25% release from the Voluntary Pooling
Agreement, originally scheduled for April 1, 1997, will be immediately released.
The balance of the releases will remain unchanged at July 1, 1997, October 1,
1997 and January 1, 1998.
9. SHARE CAPITAL
On April 15, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding Common Stock of the Company authorized the Company,
by written consent, to take a series of actions related to its authorized and
outstanding Common Stock. These actions included a one-for-twenty (1-for-20)
reverse stock split of the Company's Common Stock, pursuant to which each twenty
(20) shares of the Company's Common Stock outstanding immediately prior to April
30, 1996 was converted into one (1) share of the Company's Common Stock.
In connection with the reverse split the Company maintained the par value of its
Common Stock at $0.001 par value per share, and the total number of shares of
Common Stock authorized to be issued by the Company remained unchanged at
20,000,000 shares. The number of issued and outstanding shares of the Company's
Common Stock after the reverse split was 1,000,000 shares. All references to
shares of Common Stock have been retroactively adjusted to reflect this reverse
split.
In May 1996, the Company's Board of Directors approved a private placement of
1,000,000 shares of Common Stock at an offering price of $0.20 aggregating
$200,000 to the Company. This private placement was closed on July 30, 1996.
On July 31, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding shares of the common stock of the Company,
authorized the Company, by written consent, to acquired 100% of FHL stock not
previously owned by the Company. The Company completed this acquisition in
consideration for the exchange of 3,560,000 shares of its Common Stock. Michael
J. Hopley, a director, president and chief executive officer of the Company,
David Shaw, a director of the Company and Edward M. Topham, chief financial
officer of the Company, received 418,000, 372,000, and 381,000 shares,
respectively, of the Company's Common Stock in the exchange.
On August 1, 1996, the Company completed a private placement of 500,000 shares
of its Common Stock to Laminco in consideration of $140,000.
WARRANTS
On June 4, 1996, and June 20, 1996 Laminco, then an affiliate of the Company,
advanced loans to the Company. In consideration of these loans the Company
granted Laminco warrants to purchase 400,000 shares of the Company's Common
Stock at a purchase price of $1.00 for a period of two (2) years. Fair value of
the warrants was considered nominal by the Company. In addition, the Company
granted Laminco certain rights to participate in all future financing completed
by the Company on the same terms offered third parties. Prior to year end the
balance of the loans was repaid.
STOCK OPTIONS
The Company's stockholders have adopted the 1996 Incentive Stock Plan (the
"Plan") which allows the Board of Directors to provide the Company's key
employees with incentive compensation commensurate with their positions and
responsibilities. The Plan permits the grant of incentive equity awards covering
up to 1,000,000 shares of Common
F-15
<PAGE> 76
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Stock and will be administered by the Compensation Committee of the Board of
Directors (the "Committee"), two or more members of which will be independent
directors. The Plan provides for the grant of non-qualified stock options and
incentive stock options (collectively, the "Incentive Awards"). Key employees of
the Company and its subsidiaries, including officers who are not also members of
the Board of Directors, will be eligible to participate in the Plan.
The Board of Directors may at any time amend the Plan in any respect; provided,
that, without the approval of the Company's shareholders, no amendment may (i)
increase the number of shares of Common Stock that may be issued under the Plan,
(ii) materially increase the benefits accruing to individuals holding Incentive
Awards, or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
Changes in stock options for the year ended December 31, 1996 are shown in the
following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Exercise Price Weighted Avg
Share Options Per Share Exercise Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at Dec. 31, 1995 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Granted during the year 780,000 $ 1.17 to 1.28 $ 1.23
- --------------------------------------------------------------------------------------------------------------------------
Outstanding at Dec. 31, 1996 780,000 $ 1.17 to 1.28 $ 1.23
Exercisable at Dec. 31, 1996 12,500 $ 1.17 $ 1.17
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no options granted during 1995 or outstanding at December 31, 1995.
Expiry dates for options granted during the year range from September 27, 2002
to November 11, 2002.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its option plan. Accordingly, compensation costs based on the difference
between the quoted market value of the stock price at the grant date and the
option exercise price has been recognized and will be amortized over the vesting
period. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates, consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
----------------
<S> <C>
Net loss
As reported $ 862,122
Pro forma $ 1,137,153
Net loss per common share
As reported $ 0.25
Pro forma $ 0.33
</TABLE>
The estimated weighted average fair value of options granted during the year was
$0.59, assuming a risk free rate of 7%, an expected volatility of 56% and a
weighted average expected life of 2 years. The estimate was made using the
Black-Scholes Option Pricing Model. The weighted average remaining contractual
life of options outstanding at December 31, 1996 was 5 years.
F-16
<PAGE> 77
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
10. INCOME TAXES
Tax effects of temporary differences that give rise to deferred tax assets at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards $ 293,121 $ 137,962
Valuation allowance (293,121) (137,962)
- ----------------------------------------------------------------------------
Net deferred tax asset $ - $ -
- ----------------------------------------------------------------------------
</TABLE>
As of December 31, 1996 the Company has net operating loss carry forwards for
federal income tax purposes of approximately $862,122. Operating losses of
$405,771 accumulated to December 31, 1995 are no longer available for carry
forward due to the change in the nature of the Company's business operations
that occurred in 1996.
No deferred tax benefit has been recorded due to the uncertainty of the Company
realizing these benefits through profitable operations in the future.
Income tax expense attributable to net losses was nil and nil for the years
ended December 31, 1996 and 1995 respectively. The differences between the total
income tax benefit from operations and the income tax expense (benefit) computed
using the Federal income tax rate of 34% in 1996 and 34% in 1995 were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax benefit $ (293,121) $ (3,353)
Change in valuation allowance 293,121 3,353
- ------------------------------------------------------------------------------
$ - $ -
- ------------------------------------------------------------------------------
Effective tax rate 0% 0%
- ------------------------------------------------------------------------------
</TABLE>
11. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------
Loss for the Year Identifiable Assets Loss for the Year Identifiable
Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ -- $ -- $ 9,862 $ 1,035
Canada 579,829 969,968 -- --
Barbados 38,430 2,019 -- --
Chile 243,863 613,499 -- --
- -------------------------------------------------------------------------------------------------------
Consolidated $ 862,122 $ 1,585,486 $ 9,862 $ 1,035
=======================================================================================================
</TABLE>
F-17
<PAGE> 78
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
The Company is committed under an operating lease to pay for office space in
Vancouver, British Columbia, Canada. The lease is for a term of five years
commencing on the 1st day of August, 1996 and ending on the 30th day of July
2001. The minimum lease payments for the next five years are as follows:
<TABLE>
<CAPTION>
YEAR Amount
<S> <C>
1997 $ 20,174
1998 20,174
1999 20.174
2000 20,174
2001 11,768
----------
Total $ 92,464
==========
</TABLE>
The Company leases vehicles under agreements which are classified as capital
leases. Leased capital assets included in Property and equipment at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C>
Leased Vehicles $ 38,407
Less: Accumulated Depreciation 2,633
- -----------------------------------------------------------------------
Total $ 35,774
=======================================================================
</TABLE>
Following is a summary of future minimum payments under capitalized leases that
have initial or remaining noncancelable lease terms in excess of one year at
December 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 24,833
1998 16,555
- --------------------------------------------------------------------
Total minimum lease payments 41,388
Less: interest 5,011
- --------------------------------------------------------------------
Present value of minimum lease payments 36,377
Current portion 24,833
Long term obligation $ 11,544
==================================================================
</TABLE>
13. SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Increase in Paid-In Capital $ 12,000 $ -
Forgiveness of Debt (12,000) -
Property and equipment acquired 22,600 -
Promissory note payable (22,600) -
- -------------------------------------------------------------------
Cash received (paid) $ - $ -
===================================================================
</TABLE>
F-18
<PAGE> 79
14. SUBSEQUENT EVENTS
(a) The Company granted 170,000 employee stock options to five new employees in
January, 1997 at an option price of $1.17 exercisable until January, 2002. The
option price was based on 85% of ;the market price of $1.38. One quarter of
these options vest 3 months from the date of grant, a further 25% of the options
vest 6 months from the date of grant, a further 25% of the options vest 9 months
from the date of grant, and the remaining options will vest on the anniversary
of the date of grant.
(b) On January 22, 1997 the Company entered into an agreement ("Santa Eloisa
Agreement") with certain mining concession owners ("Santa Eloisa Owners").
Pursuant to the Santa Eloisa Agreement the Santa Eloisa Owners will cause a new
Chilean corporation to be formed, Minera Santa Eloisa S.A. ("MSE") and 100% of
the mining concessions covering approximately 4,700 hectares in the Maricunga
Gold Mining District of northern Chile to be transferred to MSE in consideration
of 500 series A shares and 1,500 series B shares representing 100% of MSE. The
Company, pursuant to the Santa Eloisa Agreement may: (i) purchase 500 series A
shares from the Santa Eloisa Owners upon payment to the Santa Eloisa Owners of
$500,000 ("Purchase Option"); $30,000 paid on January 22, 1997, $135,000 payable
on April 30, 1997, $135,000 payable on November 30, 1997, $100,000 payable on
March 31, 1998 and $100,000 payable on March 31, 1999, and (ii) purchase from
MSE 1,000 series A shares in consideration of funding a $1,000,000 exploration
work program ("Exploration Commitment") on or before March 31, 1999. Upon the
Company's exercise of its Purchase Option and funding its Exploration Commitment
the Company will own 50% of the share capital of MSE in the form of series A
Shares, the Santa Eloisa Owners will own 50% of the share capital of MSE in the
form of series B shares. The series B shares cannot be diluted below 25% of the
total share capital of MSE.
The Company will manage the business affairs and daily operations of MSE and
will appoint its directors in proportion to its relative ownership percentage of
MSE.
(c) On April 1, 1997, the Company borrowed $650,000 from an unaffiliated lender
("Lender") pursuant to a Promissory Note. The Promissory Note provided for an
interest rate of 12% per annum and a maturity date of July 31, 1997, at which
point, principal and accrued and unpaid interest shall be paid. The Promissory
Note is secured by a pledge agreement ("Pledge Agreement"). Under the terms of
the Pledge Agreement, Michael J. Hopley, a director, president and chief
executive officer of the Company, Edward M. Topham, a director and chief
financial officer of the Company and David Shaw, a director of the Company,
granted the Lender a security interest in 1,088,412 shares of Common Stock of
the Company. As additional consideration, the Company issued the Lender a
warrant to purchase 650,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. In connection with this transaction the
Company granted an unaffiliated individual a loan organization fee consisting of
a warrant to purchase 85,000 shares of the Company's Common Stock for a period
of two years at a price of $1.50 per share. In consideration of providing the
security interest to facilitate this loan, the Company has agreed to issue
Messieurs Hopley, Topham and Shaw an aggregate of 75,000 shares of the Company's
Common Stock.
F-19
<PAGE> 80
FREMONT GOLD CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
F-20
<PAGE> 81
FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
--------------
March 31, 1997
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 235,595
Accounts receivable 75,262
Due from related parties (note 3) 25,752
Prepaid expenses 7,831
-----------
344,440
NON-CURRENT ASSETS:
Mineral properties (note 4) 822,966
Property and equipment, net (note 5) 124,002
-----------
TOTAL ASSETS $ 1,291,408
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 278,446
Due to related parties (note 6) 47,315
Promissory note payable (note 7) 11,205
Series A Convertible Notes (note 8) 1,800,000
Current portion of capital lease obligations (note 12) 11,884
-----------
2,148,850
NON-CURRENT LIABILITIES:
Capital lease obligations, less current portion (note 12) 15,696
MINORITY INTEREST 2,500
STOCKHOLDERS' DEFICIT
Common stock (note 9) 25,060
$.001 par value; 20,000,000 authorized;
6,060,000 issued and outstanding at March 31,1997
Additional paid-in capital 1,040,226
Unearned compensation (144,350)
Accumulated deficit (1,796,574)
-----------
Total Stockholders' Deficit (875,638)
Commitments and Contingencies (notes 4, 8, 12, and 13)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,291,408
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-21
<PAGE> 82
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
--------------------------------------
For the Three Months Ended
--------------------------------------
March 31, 1997 March 31, 1996
-------------- ---------------
<S> <C> <C>
Interest income $ 5,942 $ --
GENERAL AND
ADMINISTRATIVE EXPENSES:
Compensation expense from stock option grants 25,431 --
Salaries and consulting 154,492 --
Depreciation 4,025 --
Foreign exchange 339 --
Legal and accounting 61,344 2,758
Rent and office expenses 56,021 321
Investor services 10,302 750
Travel and public relations 62,585 --
----------- -----------
368,597 3,829
Mineral property exploration 450,239 --
Less capitalized exploration costs 426,727 --
----------- -----------
23,512 --
----------- -----------
Loss from operations 392,109 3,829
Interest expense 47,277 --
----------- -----------
Net loss $ 439,386 $ 3,829
=========== ===========
Weighted average number
of shares outstanding 6,060,000 1,000,000
=========== ===========
Loss per common share $ (0.07) $ (0.004)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-22
<PAGE> 83
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
----------------------------------
For the Three Months Ended
----------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (439,386) $(3,829)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation expense from stock option grants 25,431 --
Depreciation 4,025 --
Increase (decrease) in
Accounts receivable (46,433) --
Due from related parties (12,713) --
Prepaid expenses -- --
Accounts payable and accrued liabilities 149,608 --
----------- -------
Net cash used in operating activities (319,468)
(3,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties (9,539) --
Lease payments (8,797) --
Series A Convertible Notes 30,000 --
Promissory Note (11,395) 3,690
Increase in paid in capital -- 1,310
----------- -------
Net cash flow from financing activities 269 5,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mineral properties (426,727) --
Investment in property and equipment (33,001) --
----------- -------
Net cash used in investing activities (459,728) --
Net increase (decrease) in cash (778,927) 1,171
Cash and cash equivalents, beginning of
period 1,014,522 1,035
----------- -------
Cash and cash equivalents, end of period $ 235,595 $ 2,206
=========== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-23
<PAGE> 84
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
The Company is a Delaware corporation and its principal business activity is the
acquisition, exploration and development of mineral properties, primarily gold
and copper properties located in Latin America.
During 1996, the Company commenced a program of exploration of certain mineral
properties, and as at March 31, 1997 had not established the existence of
economically recoverable mineral reserves. Continuing operations of the Company
and the recoverability of amounts shown for mineral properties are dependent
upon the discovery of economically recoverable reserves, the ability of the
Company to obtain financing to complete exploration and development and future
profitable operations or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The financial statements have been prepared assuming the Company will continue
as a going concern. Certain factors, discussed below, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company has a substantial working capital deficit at March 31, 1997 due to
current debt maturities, and does not have sufficient funds to meet the
exploration objectives as presently planned. Management recognizes that the
Company must generate additional resources to enable it to continue operations.
The Company is actively pursuing the sale of equity securities with funds raised
being made available to the Company. Management expects these pursuits will
result in additional resources to the Company, however, no assurance can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve profitability or positive cash
flows in the future.
An election by Series A Note holders (see note 8, Series A Convertible Notes)
not to convert such debt to equity would result in the Company being required to
repay the principal amount of the unconverted Series A Note, together with
accrued and unpaid interest, on June 30, 1997. The Company has been utilizing
the proceeds of the Series A Notes in connection with its business operations.
Therefore, if any of the Series A Note holders elect not to convert, the Company
may be required to repay principal and interest to those Series A Note holders
who elect not to convert. There can be no assurance that the Company will have
sufficient funds to repay those Series A Note holders who elect not to convert.
The Company may be required to seek outside sources of capital to meet its
financial obligations under the Series A Notes if a sufficient number of Series
A Note holders elect not to convert. The failure to procure such financing on
acceptable terms could have a material adverse effect on the Company's business,
financial condition and results of operations.
If the Company is unable to obtain adequate additional financing, management
will be required to curtail the Company's exploration and mineral property
acquisition programs.
F-24
<PAGE> 85
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Principles of consolidation
The consolidated statements include the accounts of the Company and its 100%
owned subsidiary, Flagship Holding Ltd. ("FHL"), and 99% owned subsidiary Minera
Fremont Gold Chile S.A. ("MFG"). All significant intercompany transactions and
balances have been eliminated on consolidation.
(d) Accounting treatment of Flagship Holding Ltd. acquisition
Pursuant to a Share Purchase Agreement dated July 31, 1996, with an effective
date of July 1, 1996, the Company acquired 100% of the issued and outstanding
shares of FHL it did not previously own. The Company completed this acquisition
in consideration of the exchange of 3,560,000 shares of its Common Stock.
The acquisition of FHL by the Company has been accounted for at historical cost
in a manner similar to pooling of interest accounting.
(e) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments that are readily
convertible to known amounts of cash and generally have original maturity values
of three months or less.
(f) Mineral properties
All mineral claim acquisition costs and exploration and development expenditures
in the pre production stage relating to mineral properties, net of any
recoveries, are capitalized. General exploration expenditures which do not
relate to specific resource properties are expensed in the period incurred.
The amounts shown as deferred mineral property costs represent net costs to date
and do not necessarily represent present or future values.
On an on-going basis, the Company evaluates each property based on results to
date to determine the nature of exploration work that is warranted in the
future. If there is little prospect of further work on a property being carried
out, the deferred costs related to that property are written down to the
estimated recoverable amount.
The deferred acquisition, exploration and development costs related to a
property from which there is production will be depleted on the
unit-of-production method based upon estimated proven and probable reserves.
F-25
<PAGE> 86
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
(g) Property and equipment
Amortization of office furniture and equipment, computer hardware and software,
leased assets and leasehold improvements is provided on a straight line basis
over a period of three years.
(h) Accounting for the impairment of long-lived assets
In 1996, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, ("SFAS 121"). The
adoption of SFAS 121 had no effect on the Company's financial statements.
(i) Foreign currency translation
The Company and its subsidiaries use the U.S. Dollar as their functional
currency. Transactions recorded in Chilean pesos, Barbados pounds and Canadian
dollars are translated as follows:
(i) Monetary assets and liabilities at the rate prevailing at the
balance sheet date.
(ii) Non-monetary assets and liabilities at historic rates.
(iii) Income and expenses at the average rate in effect during the
period.
Exchange gains or losses are recorded in the consolidated statement of
operations.
(j) Accounting for stock based compensation
The Company uses the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock-based incentive plans.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount an
employee or director must pay to acquire the stock.
(k) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-26
<PAGE> 87
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
(l) Loss per share
Loss per share is computed by dividing the loss by the weighted average number
of common shares outstanding during the period.
3. DUE FROM RELATED PARTIES
Balance represents employee advances for expenditures made by employees on
behalf of the Company.
4. MINERAL PROPERTIES
Accumulated costs in respect to the Company's interest in mineral claims under
lease or option consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Acquisition Balance at Additions during Written off during Balance at
and Exploration Costs Dec. 31, 1996 the period the period Mar. 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESGUARDO
Acquisition $ 288,101 $ - $ - $ 288,101
Exploration 83,138 333,283 - 416,421
- ------------------------------------------------------------------------------------------------------------------------
371,239 333,283 - 704,522
CENIZAS
Acquisition 25,000 - - 25,000
Exploration - 35,533 - 35,533
- ------------------------------------------------------------------------------------------------------------------------
25,000 35,533 - 60,533
SANTA ELOISA
Acquisition - 30,000 - 30,000
Exploration - 27911 - 27,911
- ------------------------------------------------------------------------------------------------------------------------
- 57,911 - 57,911
- ------------------------------------------------------------------------------------------------------------------------
Total $ 396,239 $ 426,727 $ - $ 822,966
========================================================================================================================
</TABLE>
(a) Resguardo Property
On July 17, 1996, the Company entered into a 99 year Lease Agreement on the
Resguardo Property. Lease payments are as follows: $75,000 upon execution of the
Lease Agreement; $60,000 payable on each of the lease's first and second
anniversary; and $80,000 payable on the lease's third anniversary. The Company
has the exclusive right to exploit, benefit, explore, develop and smelt minerals
from the 4,765 hectare (11,774 acre) property located on the Atacama Fault
System of northern Chile. The owners retain a net smelter return production
royalty, equal to 5% on gold and 1.5% on all other mineral production from the
property, and a minimum annual royalty payment of $300,000 is payable when the
property is in production. Subsequent to the third anniversary of the lease, the
Company must complete a feasibility study and obtain project financing to begin
production on or before the seventh anniversary of the lease. No payments to the
owners are required during this period. If production financing has not been
obtained during this period, and construction of the mine has not begun by the
seventh anniversary, the Company must pay advance royalty payments of $150,000
in first year of delay; $200,000 in the second year of delay; $250,000 in the
third year of delay; and 15%
F-27
<PAGE> 88
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
annual incremental increases for subsequent delays. The first royalty payment
may be credited to the future net smelter return production royalty.
During 1996, the Company applied for exploration claims on an additional 12,000
hectares (29,652 acres) adjacent to the leased property.
(b) Cenizas
The Company signed a Letter of Intent with RTZ Mining & Exploration Limited
("RTZ") on December 13, 1996 whereby the Company can earn an initial 51%
interest in the Cenizas Property mining concessions on 6,000 hectares (14,826
acres) located on the West Fissure Fault in northern Chile, by making cash
payments totaling $350,000 and completing at least $1,000,000 of exploration
work over three years. Payments during the first year total $50,000 with a first
year exploration commitment by the Company of $200,000. The Company will also
grant to RTZ options to purchase shares of its Common Stock as follows: by June
13, 1997 an option to purchase 150,000 shares of Common Stock at a price of
$1.50 per share, by December 13, 1997 an additional option to purchase 150,000
shares of Common Stock at a price of $2.00.
Upon completion of the required payments to RTZ and satisfaction of the
Company's exploration commitments, the Company will be entitled to a 51%
interest in the Cenizas Property mining concessions. At that time, the project
will convert into a joint venture between the Company and RTZ with the Company
serving as manager of the joint venture. It is presently contemplated that at
such time, a new entity (the exact form of which has not been specified) will be
formed to hold title to the mining concessions with the Company initially owning
51% of the entity. (If either the Company or RTZ chooses not to contribute
pro-rata, their interest can be diluted to a 2% Net Smelter Royalty with a
maximum value of $3,000,000.) Within 60 days of the Company earning its 51%
interest in the Cenizas Property mining concessions, RTZ has an option to obtain
a 51% interest in the mining concessions by committing to fund and complete a
bankable feasibility study within a 30 month period.
During 1996 and first quarter of 1997, the Company applied for exploration
claims on an additional 7,500 hectares (18,533 acres) adjacent to the optioned
property.
(c) Santa Eloisa
On January 22, 1997, the Company entered into an agreement ("Santa Eloisa
Agreement") with certain mining concession owners ("Santa Eloisa Owners").
Pursuant to the Santa Eloisa Agreement the Santa Eloisa Owners will cause a new
Chilean corporation to be formed, Minera Santa Eloisa S.A. ("MSE") and 100% of
the mining concessions covering approximately 4,700 hectares in the Maricunga
Gold Mining District of northern Chile to be transferred to MSE in consideration
of 500 series A shares and 1,500 series B shares representing 100% of MSE. The
Company may: (i) purchase 500 series A shares from the Santa Eloisa Owners upon
payment to the Santa Eloisa Owners of $500,000 ("Purchase Option"); $30,000 paid
on January 22, 1997, $135,000 payable on May 31, 1997 ($100,000 in cash and
23,333 issuable shares of the Company's Common Stock), $135,000 payable on
November 30, 1997, $100,000 payable on March 31, 1998 and $100,000 payable on
March 31, 1999, and (ii) purchase from MSE 1,000 series A shares in
consideration of funding a $1,000,000 exploration work program ("Exploration
Commitment") on or before March 31, 1999. Upon the Company's exercise of its
Purchase Option and funding its Exploration Commitment the Company will own 50%
of the share capital of MSE in the form of series A Shares, the Santa Eloisa
Owners will own 50% of the share capital of MSE in the form of series B shares.
The series B shares cannot be diluted below 25% of the total share capital of
MSE.
F-28
<PAGE> 89
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
The Company will manage the business affairs and daily operations of MSE and
will appoint its directors in proportion to its relative ownership percentage of
MSE.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Cost Accumulated Net
Depreciation
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office furniture and equipment $ 49,191 $ 4,688 $ 44,503
Computer hardware and software 24,021 2,997 21,024
Vehicle 20,633 -- 20,633
Field Equipment 203 -- 203
Leased assets 38,407 2,633 35,774
Leasehold improvements 2,165 300 1,863
- --------------------------------------------------------------------------------------------------
Total $ 134,620 $ 10,618 $ 124,002
==================================================================================================
</TABLE>
6. DUE TO RELATED PARTIES
On April 11, 1996, Minera Fremont Gold Chile S.A. borrowed $20,493 from Roberto
Partarrieu, an employee of the Company. The loan is non-interest bearing and is
repayable upon demand. At March 31, 1997, $20,493 was outstanding.
On June 14, 1996, FHL borrowed $60,847 from Edward M. Topham, an officer and
director of the Company, pursuant to a Loan Agreement. This loan is repayable
upon demand with interest accruing at 10%. Payments totaling $37,772 ($36,000 of
principal and $1,772 in interest) have been made on the loan. At March 31, 1997,
the principal outstanding was $24,848 and $1,974 of interest was accrued on the
loan.
7. PROMISSORY NOTE
On October 31, 1996, the Company entered into a Promissory Note agreement with
Laminco Resources Inc. ("Laminco") for the purchase of office and computer
equipment. The note requires that monthly payments of $2,256 be made on the
first day of each month commencing January 1, 1997 until full repayment has
occurred. If payments are made when due, no interest on the principal is
applied. If payments are not made when due, an interest charge of 1%
compounded monthly applies on the aggregate unpaid principal balance plus
accrued interest. The Company has pledged the assets purchased as additional
collateral and has agreed not to dispose of the assets until the principal has
been paid.
8. SERIES A CONVERTIBLE NOTES
On August 28, 1996, the Company commenced an offering of $1,800,000 principal
amount of unsecured 10.5% Series A Convertible Notes ("Series A Notes"). Each
Series A Note is convertible, at the option of the holder into Equity Units at
any time after the issue date and prior to March 1, 1997 (the "Maturity Date"),
at the rate of $0.50 per Equity Unit.
F-29
<PAGE> 90
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
Each Equity Unit is comprised of one share of the Company's Common Stock, par
value $0.001 per share, and one Redeemable Common Stock Purchase Warrant
("Warrant").
Each Warrant is exercisable until April 15, 1997 to purchase one share of Common
Stock at the greater of $1.50 or 75% of the ten day average closing prices, as
quoted on the OTC Bulletin Board, immediately preceding the notice of exercise.
The Warrants issued in connection with the conversion of the Series A Notes as a
component of the Equity Unit will be redeemable by the Company upon conversion
of the notes, and upon 15 days notice to the Warrant holder, at a redemption
price of $0.10 per Warrant.
The holders of the Series A Notes, Warrants or Common Stock issued to holders
without an effective Registration Statement under the Securities Act of 1933, as
amended, ("Act") shall have the right, at any time, to join with the Company to
register the Common Stock and the Common Stock underlying the Series A Notes and
Warrants in any Registration Statement under the Act filed by the Company with
the Securities and Exchange Commission. The Company filed a Registration
Statement on Form SB-2 with the Securities and Exchange Commission on February
12, 1997. The Registration Statement includes the Common Stock underlying the
Series A Notes and Warrants.
On August 26, 1996, Roberto L. Partarrieu, general manager of MFG, purchased
Series A Notes in the principal amount of $30,000. On September 3, 1996, HRG, a
private investment partnership, purchased Series A Notes in the principal amount
of $25,000. Michael J. Hopley, president, chief executive and director of the
Company beneficially owns one third of HRG.
Each purchaser of the Series A Notes, as a condition precedent to his, her or
its conversion into Equity Units, must enter into a Voluntary Stock Pooling
Agreement ("Pooling Agreement"). Under the terms of the Pooling Agreement each
recipient of Common Stock pursuant to conversion of the Series A Notes will
severally agree with the Company, the Trustee (as defined in the Pooling
Agreement) and each with the other, that they will deliver or cause to be
delivered to the Trustee certificates representing their respective shares of
Common Stock received in the conversion. The shares of Common Stock issuable
upon exercise of the Warrants will not be subject to the Pooling Agreement.
Pursuant to the Pooling Agreement the Trustee shall hold all certificates
subject to release, on a pro-rata basis, as follows:
PRO-RATA SHARES OF COMMON STOCK RELEASE DATE
25% of Common Stock purchased April 1, 1997
25% of Common Stock purchased July 1, 1997
25% of Common Stock purchased October 1, 1997
the balance of Common Stock purchased January 1, 1998
On February 27, 1997, the Company made amendments to the terms and conditions of
the Series A Notes. The Company extended the expiry date of the Warrant
component of the Units from April 15, 1997 to September 30, 1997. The Company
requested that note holders extend the Maturity Date of the notes from March 1,
1997 to June 30, 1997.
As at April 30, 1997, 88% of the Series A Note holders representing 92% of the
balance of the notes payable had signed and delivered to the Company, Maturity
Date Extension Agreements. While management believes that the remaining note
holders will sign and return their Agreements to the Company, the Company is in
default on the remaining Series A Notes. In the event that the remaining Series
A Note holders do not agree to the maturity date extension, these Series A Note
holders may pursue remedies under the Note, in accordance with certain terms and
conditions including earning default interest at the rate of 16% per annum. The
principal amount of Series A Notes in default is $141,000.
The interest rate of 10.5% will be paid upon the notes until they are converted.
F-30
<PAGE> 91
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
Upon conversion of the note, the first 25% release from the Voluntary Pooling
Agreement, originally scheduled for April 1, 1997, will be immediately released.
The balance of the releases will remain unchanged at July 1, 1997, October 1,
1997 and January 1, 1998.
9. SHARE CAPITAL
On April 15, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding Common Stock of the Company authorized the Company,
by written consent, to take a series of actions related to its authorized and
outstanding Common Stock. These actions included a one-for-twenty (1-for-20)
reverse stock split of the Company's Common Stock, pursuant to which each twenty
(20) shares of the Company's Common Stock outstanding immediately prior to April
30, 1996 was converted into one (1) share of the Company's Common Stock.
In connection with the reverse split the Company maintained the par value of its
Common Stock at $0.001 par value per share, and the total number of shares of
Common Stock authorized to be issued by the Company remained unchanged at
20,000,000 shares. The number of issued and outstanding shares of the Company's
Common Stock after the reverse split was 1,000,000 shares. All references to
shares of Common Stock have been retroactively adjusted to reflect this reverse
split.
In May 1996, the Company's Board of Directors approved a private placement of
1,000,000 shares of Common Stock at an offering price of $0.20 aggregating
$200,000 to the Company. This private placement was closed on July 30, 1996.
On July 31, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding shares of the common stock of the Company,
authorized the Company, by written consent, to acquired 100% of FHL stock not
previously owned by the Company. The Company completed this acquisition in
consideration for the exchange of 3,560,000 shares of its Common Stock. Michael
J. Hopley, a director, president and chief executive officer of the Company,
David Shaw, a director of the Company and Edward M. Topham, chief financial
officer of the Company, received 418,000, 372,000, and 381,000 shares,
respectively, of the Company's Common Stock in the exchange.
On August 1, 1996, the Company completed a private placement of 500,000 shares
of its Common Stock to Laminco in consideration of $140,000.
WARRANTS
On June 4, 1996 and June 20, 1996, Laminco, then an affiliate of the Company,
advanced loans to the Company. In consideration of these loans the Company
granted Laminco warrants to purchase 400,000 shares of the Company's Common
Stock at a purchase price of $1.00 for a period of two (2) years. Fair value of
the warrants was considered nominal by the Company. In addition, the Company
granted Laminco certain rights to participate in all future financing completed
by the Company on the same terms offered third parties. Prior to year end the
balance of the loans was repaid.
STOCK OPTIONS
The Company's stockholders have adopted the 1996 Incentive Stock Plan (the
"Plan") which allows the Board of Directors to provide the Company's key
employees with incentive compensation commensurate with their positions and
responsibilities. The Plan permits the grant of incentive equity awards covering
up to 1,000,000 shares of Common
F-31
<PAGE> 92
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
Stock and will be administered by the Compensation Committee of the Board of
Directors (the "Committee"), two or more members of which will be independent
directors. The Plan provides for the grant of non-qualified stock options and
incentive stock options (collectively, the "Incentive Awards"). Key employees of
the Company and its subsidiaries, including officers who are not also members of
the Board of Directors, will be eligible to participate in the Plan.
The Board of Directors may at any time amend the Plan in any respect; provided,
that, without the approval of the Company's shareholders, no amendment may (i)
increase the number of shares of Common Stock that may be issued under the Plan,
(ii) materially increase the benefits accruing to individuals holding Incentive
Awards, or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
Changes in stock options for the three months ended March 31, 1997 are shown in
the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Exercise Price Weighted Avg
Share Options Per Share Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at Dec. 31, 1996 780,000 $ 1.17 to 1.28 $ 1.23
Granted during the period 170,000 $ 1.17 $ 1.17
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at Mar. 31, 1997 950,000 $ 1.17 to 1.28 $ 1.22
Exercisable at Mar. 31, 1997 207,500 $ 1.17 to 1.28 $ 1.23
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Expiry dates for options granted range from September 27, 2001 to January 10,
2002.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its option plan. Accordingly, compensation costs based on the difference
between the quoted market value of the stock price at the grant date and the
option exercise price has been recognized and will be amortized over the vesting
period. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates, consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Net loss 1996
----------------
<S> <C>
As reported $ 439,386
Pro forma $ 514,549
Net loss per common share
As reported $ 0.07
Pro forma $ 0.08
</TABLE>
The estimated weighted average fair value of options granted during the quarter
was $0.66 assuming a risk free rate of 7%, an expected volatility of 42% and a
weighted average expected life of 2 years. The estimate was made using the
Black-Scholes Option Pricing Model. The weighted average remaining contractual
life of options outstanding at March 31, 1997 was 4.6 years.
F-32
<PAGE> 93
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
10. INCOME TAXES
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $862,122. Operating losses of
$405,771 accumulated to December 31, 1995 are no longer available for carry
forward due to the change in the nature of the Company's business operations
that occurred in 1996.
No deferred tax benefit has been recorded due to the uncertainty of the Company
realizing these benefits through profitable operations in the future.
11. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------
Loss for the Identifiable Loss for the Identifiable
Quarter Assets Quarter Assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ -- $ -- $ 3,829 $ 2,206
Canada 327,216 326,121 -- --
Barbados 968 1,969 -- --
Chile 111,202 963,318 -- --
- -------------------------------------------------------------------------------------------
Consolidated $ 439,386 $ 1,291,408 $ 3,829 $ 2,206
===========================================================================================
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company is committed under an operating lease to pay for office space in
Vancouver, British Columbia, Canada. The lease is for a term of five years
commencing on the 1st day of August, 1996 and ending on the 30th day of July
2001. The minimum lease payments for the next five years are as follows:
<TABLE>
<CAPTION>
YEAR Amount
<S> <C>
1997 $ 20,174
1998 20,174
1999 20.174
2000 20,174
2001 11,768
----------
Total $ 92,464
==========
</TABLE>
The Company leases vehicles under agreements which are classified as capital
leases. Leased capital assets included in Property and equipment at March 31,
1997 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<S> <C>
Leased Vehicles $ 38,407
Less: Accumulated Depreciation 2,633
- -----------------------------------------------------------------
Total $ 35,774
=================================================================
</TABLE>
F-33
<PAGE> 94
Following is a summary of future minimum payments under capitalized leases that
have initial or remaining noncancelable lease terms in excess of one year at
March 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 14,676
1998 16,555
- ---------------------------------------------------------------------
Total minimum lease payments 31,231
Less: interest 3,651
- ---------------------------------------------------------------------
Present value of minimum lease payments 27,580
Current portion 11,884
Long term obligation $ 15,696
=====================================================================
</TABLE>
13. SUBSEQUENT EVENTS
(a) On April 1, 1997, the Company borrowed $650,000 from an unaffiliated lender
("Lender") pursuant to a Promissory Note. The Promissory Note provided for an
interest rate of 12% per annum and a maturity date of July 31, 1997, at which
point, principal and accrued and unpaid interest shall be paid. The Promissory
Note is secured by a pledge agreement ("Pledge Agreement"). Under the terms of
the Pledge Agreement, Michael J. Hopley, a director, president and chief
executive officer of the Company, Edward M. Topham, a director and chief
financial officer of the Company and David Shaw, a director of the Company,
granted the Lender a security interest in 1,088,412 shares of Common Stock of
the Company. As additional consideration, the Company issued the Lender a
warrant to purchase 650,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. In connection with this transaction the
Company granted an unaffiliated individual a loan origination fee consisting of
a warrant to purchase 85,000 shares of the Company's Common Stock for a period
of two years at a price of $1.50 per share. In consideration of providing the
security interest to facilitate this loan, the Company has agreed to issue
Messieurs Hopley, Topham and Shaw an aggregate of 75,000 shares of the Company's
Common Stock.
F-34
<PAGE> 95
THIS PAGE INTENTIONALLY BLANK
<PAGE> 96
================================================================================
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.......................................................... 3
The Company............................................................ 3
Current Business Operations........................................ 3
History and Prior Activities....................................... 4
The Offering........................................................... 8
Plan of Distribution................................................... 8
Risk Factors........................................................... 8
RISK FACTORS................................................................ 9
Use of Proceeds............................................................ 15
Plan of Distribution....................................................... 15
Determination of Offering Price............................................ 16
Dilution................................................................... 16
Dividend Policy............................................................ 17
Capitalization............................................................. 18
Plan of Operation.......................................................... 18
The Company................................................................ 19
Business of the Company.................................................... 23
General............................................................... 23
The Properties........................................................ 23
Chile................................................................. 30
Environmental Policy.................................................. 34
Competition........................................................... 34
Employees............................................................. 34
Property.............................................................. 35
Litigation............................................................ 35
Management................................................................. 35
Security Ownership of Certain Beneficial Owners
and Management............................................................. 40
Selling Stockholders....................................................... 44
Description of Securities.................................................. 48
Legal Matters.............................................................. 52
Interest of Named Counsel.................................................. 52
Experts.................................................................... 52
Change in Accountants...................................................... 52
Available Information...................................................... 53
Glossary of Certain Industry Terms......................................... 54
Financial Statements...................................................... F-1
</TABLE>
================================================================================
================================================================================
7,200,000 SHARES
OF
COMMON STOCK
MAY 27, 1997
================================================================================
<PAGE> 97
FREMONT GOLD CORPORATION
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation and Bylaws
require the Company to indemnify each of its past, present and future officers
and directors against liabilities and reasonable expenses incurred in any action
or proceeding by reason of such person being or having been an officer or
director of the Company, of any other corporation for which he or she serves as
such at the request of the Company, to the fullest extent permitted by Delaware
law, including those circumstances in which indemnification would otherwise be
discretionary. However, indemnification is limited to officers and directors who
have acted in good faith and in a manner they reasonably believed to be in the
best interest of the Company and with resect to any criminal action had no
reasonable cause to believe the conduct was unlawful. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Article 10 of the Certificate of Incorporation of the Registrant provides
as follows:
10.1 Limitation of Liability. A person who is or was a Director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the Delaware General
Corporate Law; or (iv) for any transaction from which the Director derived
an improper personal benefit. If the Delaware General Corporate Law is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of the Directors of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporate Law, as so amended. The elimination and
limitation of liability provided herein shall continue after a Director has
ceased to occupy such position as to acts or omissions occurring during
such Director's terms or terms of office, and no amendment or repeal of
this Article 10.1 shall apply to or have any effect on the liability or
alleged liability of any Director of the Corporation for or with respect to
any acts or omissions of such Director occurring prior to such amendment or
repeal.
10.2 Indemnification. The Corporation shall indemnify, to the fullest
extent permitted by applicable law and pursuant to the Bylaws, each person
who is or was a Director or officer of the Corporation, and may indemnify
each employee and agent of the Corporation and all other persons whom the
Corporation is authorized to indemnify under the provisions of the Delaware
General Corporate Law.
Section 102(b)(7) and Section 145 of the General Corporation Law of
Delaware, as amended, applies to the Registrant and provide as follows:
Section 102. Certificate of incorporation; contents
(b) In addition to the matters required to be set forth in the
certificate of incorporation by subsection (a) of this section, the
certificate of incorporation may also contain any or all of the following
matters - . . .
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall
not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intention
misconduct or a knowing violation of law, (iii) under section 174 of this
Title, or (iv) for any transaction from which the director derived an
improper personal benefit. No such provision shall eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision becomes effective. All references in this subsection to
a director shall also be deemed to refer to a member of the governing body
of a corporation which is not authorized to lease capital stock.
II-1
<PAGE> 98
The official commentary on Section 102(b)(7) states, as follows:
"This provision enables a corporation in its original certificate of
incorporation or an amendment thereto validly approved by stockholders to
eliminate or limit personal liability of members of its board of directors
or governing body for violations of a director's fiduciary duty of care.
However, the amendment makes clear that no such provision shall eliminate
or limit the liability of a director for breaching his duty of loyalty,
failing to act in good faith, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a stock
repurchase which was illegal under Del.C Section 174, or obtaining an
improper personal benefit. This provision would have no effect on the
availability of equitable remedies, such as an injunction or rescission,
for breach of fiduciary duty."
As indicated above, the Company has included in its Certificate of
Incorporation a provision limiting director liability in accordance with the
statute.
Section 145. Indemnification of Officers, Directors, Employees and Agents;
Insurance.
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party or any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal act or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b), or
in defense of nay claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered
by a court shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections (a) and
(b). Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders.
II-2
<PAGE> 99
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
Section. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as a to
action in his official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer employee or agent of another
corporation, partnership joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under the provisions of this section.
(h) For purposes of this Section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation
if its separate existence had continued.
(i) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
employee befit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; references
to "serving at the request of the corporation" shall include any service as
a director, officer, employee or agent of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
As indicated above, the Registrant has included in its Bylaws and
Certificate of Incorporation, provisions which limit the personal liability of
members of the board of directors for breaches of the director's fiduciary duty
of care and require it to indemnify its officers, directors, employees and
agents in all circumstances permitted by Delaware law.
II-3
<PAGE> 100
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities to be registered. These expenses
will be deducted from the gross proceeds of the offering. The information
contained below is subject to future contingencies. An asterisk to the right of
a dollar figure denotes that the figure is an estimate and the exact amount to
be expended for that category is not yet known.
<TABLE>
<S> <C>
Registration Fee ..................................... $ 3,818
Transfer Agent's Fee ................................. $ 800*
Legal Fees ........................................... $49,000*
Accounting Fees ...................................... $12,000*
Blue Sky Fees and Expenses ........................... $ 1,182*
Printing and Engraving Costs ......................... $15,000*
Total ........................................... $81,800
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On December 30, 1994, the Company issued 30,000 shares of its Common
Stock pursuant to an exemption from registration provided by Section 4(2) and
Regulation D Rule 506. The shares of Common Stock were issued to Howard L.
Rothchild, who, until July 12, 1994, served as director and president of the
Company, in consideration of professional fees totaling $1,758.
On December 30, 1994, the Company issued 419,656 shares of its Common
Stock pursuant to an exemption from registration provided b Section 4(2) and
Regulation D Rule 506. The shares of Common Stock were issued to Corporate
Investment Associates (125,897), LaSala & Company, Inc. (83,931), Bert L. Gusrae
(83,931), David A. Carter (83,931) and Norman H. Becker (41,966) in
consideration of notes payable ($23,650) and accrued and unpaid interest ($909).
At December 30, 1994, Mr. Becker was president and director of the Company and
Mr. Carter was secretary, treasurer and director of the Company.
On June 20, 1996, the company issued a warrant to purchase 400,000
shares of the Company's Common Stock pursuant to an exemption from registration
provided by Section 4(2). The warrant was issued to Laminco in connection with
June 4, 1996 and June 20, 1996 loan advances to the Company aggregating
$200,000. The warrant provides for the purchase, from the Company, of 400,000
shares of the Company's Common Stock at a purchase price of $1.00 per share on
or before June 20, 1998.
On July 30, 1996, the Company issued 1,000,000 shares of its Common
Stock pursuant to an exemption from registration provided by Section 4(2) and
Regulation D Rule 506. The shares of Common Stock were issued in consideration
of $200,000 cash proceeds received by the Company. The shares of Common Stock
were issued to the following individuals and entities;
<TABLE>
<CAPTION>
Individual/Entity Consideration Shares Issued
- ----------------- ------------- -------------
<S> <C> <C>
Kelsey L. Boltz $27,721 138,603
6606 North Hillside Drive
Scottsdale, AZ 85253
Joseph Charland 27,721 138,603
3404 Calder Avenue
North Vancouver, B.C. V7N 3R7
Canada
</TABLE>
II-4
<PAGE> 101
<TABLE>
<CAPTION>
Individual/Entity Consideration Shares Issued
- ----------------- ------------- -------------
<S> <C> <C>
Art Radtke 4,811 24,055
2296 Oberline St.
Palo Alto, CA 94306
Edwin Morrow 9,622 48,110
117 Ponderosa Way
Whitewood, S.D. 57793
482130 B.C. Ltd 12,829 64,147
2555 Keats Road
North Vancouver, B.C. V7H 2M7
Canada
Michael J. Hopley(1) 30,928 154,639
1106 West Racine Drive
Bellingham, WA 98226
David Shaw (3) 27,721 138,603
777 Hornby Street, Suite 2070
Vancouver, B.C. V6Z 1S4
Canada
David Baumann 6,873 34,365
100 Rue Du Rhone
1204 Geneva
Switzerland
Robert Hirsch 6,872 34,364
100 Rue Du Rhone
1204 Geneva
Switzerland
Edward M. Topham (2) 14,662 73,310
15402 North 46th Street
Phoenix, AZ 85032
Kenneth Norwood 4,000 20,000
7750 Dogwood Rd
Germantown, TN 38138
James J. Fritz 4,247 21,237
243 Millcreek Lane
Naperville, IL 60540
Fred Carlisle 2,873 14,364
100 W. Clarendon, Suite 210
Phoenix, AZ 85013
James S. Cole 4,000 20,000
100 W. Clarendon, Suite 210
Phoenix, AZ 85013
</TABLE>
II-5
<PAGE> 102
<TABLE>
<CAPTION>
Individual/Entity Consideration Shares Issued
- ----------------- ------------- -------------
<S> <C> <C>
Eric Lavarack 5,727 28,637
1500 West Georgia Street, 18th
Floor
Vancouver, B.C. V6G 2Z6
Canada
Rick Rule 9,393 46,963
c/o Global Resource Investments
Ltd.
7770 El Camino Real
Carlsbad, CA 92009
</TABLE>
(1) Mr. Hopley is president, chief executive officer and director of the
Company.
(2) Mr. Topham is chief financial officer, secretary, treasurer and director of
the Company.
(3) Mr. Shaw is a director of the Company.
On July 30, 1996, the Company issued 500,000 shares of its Common Stock
pursuant to an exemption from registration provided by Section 4(2). The shares
of Common Stock were issued to Laminco Resources, Inc. in consideration of
$140,000 cash proceeds received by the Company.
On July 31, 1996, the Company issued 3,560,000 shares of its Common
Stock pursuant to exemptions from registration provided by Section 4(2) and
Regulation S Rule 903. The shares of Common Stock were issued in consideration
of 3,560,000 shares of FHL representing 100% of the issued and outstanding
common stock of FHL not owned by the Company. Based upon its review of
documentation certified by the investors, the Company determined that each of
the investors was i) sophisticated (based upon net worth and investment
experience), ii) an institutional investor, iii) not a U.S. Person (as defined
in Regulation S), and/or iv) an executive officer or director of the Company.
The shares of Common Stock were issued to the following individuals and
entities:
<TABLE>
<CAPTION>
Consideration
Individual/Entity (shares of FHL) Shares Issued Exemption
----------------- --------------- ------------- ---------
<S> <C> <C> <C>
Laminco Resources, Inc. (1) 1,497,000 1,497,000 Section 4(2) (affiliate),
777 Hornby Street, Suite 2000 Regulation S
Vancouver, B.C. V6Z 1S4 Rule 903
Canada
Regional Investments, Inc. (2) 606,000 606,000 Section 4(2) (sophisticated,
17 Rue Arthur Herchen institutional), Regulation S
L-1727, Luxembourg Rule 903
Richard Jordan (3) 100,000 100,000 Section 4(2) (sophisticated),
210-355 Holdom Avenue Regulation S
Burnaby, B.C. V5D 2T8 Rule 903
Canada
Edward M. Topham (4) 381,000 381,000 Section 4(2) (sophisticated)
15402 N. 46th Street
Phoenix, AZ 85032
Michael J. Hopley (5) 418,000 418,000 Section 4(2) (sophisticated,
1106 West Racine Drive executive officer, director)
Bellingham, WA 98226
</TABLE>
II-6
<PAGE> 103
<TABLE>
<CAPTION>
Consideration
Individual/Entity (shares of FHL) Shares Issued Exemption
----------------- --------------- ------------- ---------
<S> <C> <C> <C>
David Shaw (6) 372,000 372,000 Section 4(2) (sophisticated,
777 Hornby Street, Suite 2070 director), Regulation S
Vancouver, B.C. V6Z 1S4 Rule 903
Canada
David Baumann 186,000 186,000 Section 4(2) (sophisticated),
100 Rue Du Rhone Regulation S
1204 Geneva Rule 903
Switzerland
</TABLE>
(1) Represents 1,497,000 shares issued to Joseph Charland (372,000)
residing at 3404 Calder Avenue, North Vancouver, B.C., Canada V7N 3R7,
Luis Miguel Garcia Delgado (502,000) residing at Retorno La Joya #2,
Manzana M, Col., Valle Escondido, Teqepan, CP 14600, Mexico D.F.,
Mexico, Karl Vogler (172,000), residing at Habsburgerstr. 20,6002
Luzern, Switzerland and Alicia Castro (451,000), residing at Retorno
La Joya #1, Manzana M, Col., Valle Escondido, Teqepan, CP 14600,
Mexico D.F., Mexico, and held in constructive trust for Laminco
Resources, Inc. The beneficial ownership of these shares resided in
Laminco Resources, Inc. until transfer of these shares to Laminco on
December 30, 1996.
(2) Represents 606,000 shares issued, Luis Miguel Garcia Delgado (27,667),
residing at Retorno La Joya #1, Manzana M, Col., Valle Escondido,
Teqepan, CP 14600, Mexico D.F., Mexico, Erica Ochoa Hurtado (494,666),
residing at Ovalo Cuauhtemoc, Sur #18, Col., Modelo, Ilemosillo 83190,
Sonora, Mexico and Alicia Castro (83,667) residing at Retorno La Joya
#1, Manzana M, Col., Valle Escondido, Teqepan, CP 14600, Mexico D.F.,
Mexico, and held in constructive trust for Regional Investments, Inc.
The beneficial ownership of these shares resided in Regional
Investments, Inc. until transfer of these shares to Regional
Investments, Inc. on December 30, 1996.
(3) Represents 100,000 shares issued Erica Ochoa Hurtado, residing at
Ovalo Cuauhtemoc, Sur #18, Col., Modelo, Hemosillo 83190, Sonora,
Mexico, and held in constructive trust for Mr. Jordan. The beneficial
ownership of these shares resided in Mr. Jordan until transfer of
these shares to Mr. Jordan on December 30, 1996.
(4) Represents 125,000 shares issued Luis Miguel Garcia Delgado (65,000),
residing at Retorno La Joya #1, Manzana M, Col., Valle Escondido,
Teqepan, CP 14600, Mexico D.F., Mexico and Alicia Castro (60,000)
residing at Retorno La Joya #1, Manzana M, Col., Valle Escondido,
Teqepan, CP 14600, Mexico D.F., Mexico, and held in constructive trust
for Mr. Topham. The beneficial ownership of these shares resided in
Mr. Topham until transfer of these shares to Mr. Topham on December
30, 1996. Mr. Topham is chief financial officer, secretary, treasurer
and director of the Company.
(5) Mr. Hopley is president, chief executive officer and director of the
Company.
(6) Mr. Shaw is a director of the Company.
In connection with the Company's acquisition of FHL, all FHL
shareholders executed a Pooling Agreement (the "FHL Pooling Agreement") with the
Company which restricted the transfer of the 3,560,000 shares of the Company's
Common Stock issued in the acquisition (the "Acquisition Shares"). Pursuant to
the FHL Pooling Agreement, transfer of the Acquisition Shares was prohibited.
However, on a quarterly basis commencing February 1, 1997, 25% of the
Acquisition Shares are to be released from the transfer limitations imposed by
the FHL Pooling Agreement. On November 1, 1997, all of the Acquisition Shares
will have been released from the FHL Pooling Agreement. Once released, however,
the Acquisition Shares may only be transferred pursuant to an effective
registration statement or an available exemption from registration.
On December 30, 1996, in connection with the transfer of 1,497,000
shares of the Company's Common Stock to Laminco and 606,000 shares of the
Company's Common Stock to Regional Investments, Inc., 2,103,000 shares were
released from the FHL Pooling Agreement.
Commencing August 21, 1996 and ending December 31, 1996, the Company
issued $1,800,000 principal amount of 10.5% Series A Convertible Promissory
Notes pursuant to exemptions from registration provided by Section 4(2) and
Regulation S Rule 903. Based upon its review of documentation certified by the
investors, the Company determined that each of the investors was i)
sophisticated (based upon net worth and investment experience), ii) an
institutional investor, iii) not a U.S. Person (as defined in Regulation S),
and/or iv) an executive officer or director of
II-7
<PAGE> 104
the Company. The Series A Notes were issued in consideration of cash advances to
the Company in the principal amounts. The Series A Notes were issued to the
following individuals and entities;
<TABLE>
<CAPTION>
Series A Note
Individual/Entity Consideration Principle Exemption
----------------- ------------- --------- ---------
<S> <C> <C> <C>
A. Campbell $20,000 $20,000 Section 4(2) (sophisticated),
1089 Kuma Cr. Regulation S
Delta, B.C. V4M 2K8 Rule 902
MTA Holdings Inc. 25,000 25,000 Section 4(2) (sophisticated),
1837 Knutsford Place Regulation S
Victoria, B.C. V8N 6F3 Rule 903
Geoff Courtnail 75,000 75,000 Section 4(2) (sophisticated),
5189 Cordova Bay Rd., Suite #4 Regulation S
Victoria, B.C. V84 2K7 Rule 903
Kathleen E. Newman 25,000 25,000 Section 4(2) (sophisticated),
5187 Cordova Bay Rd., Suite #4 Regulation S
Victoria, B.C. V84 2K7 Rule 903
455501 BC Ltd 20,000 20,000 Section 4(2) (sophisticated),
1020 - 800 W. Ponder St. Regulation S
Vancouver, B.C. V6C 2V6 Rule 903
Rita Hecker 20,000 20,000 Section 4(2) (sophisticated),
12410 - 102 Ave. Regulation S
Surrey, B.C. V3V 3E1 Rule 903
Kix International 20,000 20,000 Section 4(2) (sophisticated),
10540 Hogarth Dr. Regulation S
Richmond, B.C. V7E 3Z8 Rule 903
Hans Knapp 20,000 20,000 Section 4(2) (sophisticated),
7220 Arbuius Road Regulation S
West Vancouver, B.C. V7W 2C5 Rule 903
Blueberry Films Corp. 40,000 40,000 Section 4(2) (sophisticated),
4952 Chancellor Blvd. Regulation S
Vancouver, B.C. V6T 1E1 Rule 903
Whistler Investments Ltd. 50,000 50,000 Section 4(2) (sophisticated),
1007 - 750 West Pender Street Regulation S
Vancouver, B.C. V6C 2T8 Rule 903
Haywood Securities ITF Arie 30,000 30,000 Section 4(2) (sophisticated),
Merrin RRSP 62-0090-1 Regulation S
1100-400 Burrard St. Rule 903
Vancouver, B.C. V6C 3A6
Private Banking Advisory Services 250,000 250,000 Section 4(2) (sophisticated),
Limited Regulation S
100 Rue du Rhone 1204 Rule 903
Geneva, Switzerland
</TABLE>
II-8
<PAGE> 105
<TABLE>
<CAPTION>
Series A Note
Individual/Entity Consideration Principle Exemption
----------------- ------------- --------- ---------
<S> <C> <C> <C>
Allan P. Power 25,000 25,000 Section 4(2) (sophisticated)
1314 Cabrillo Ave.
Venice, CA 90291
Adrian Day 50,000 50,000 Section 4(2) (sophisticated)
900 Bestgate Rd., Suite 405
Box 6644
Annapolis, MD 21401
Douglas R. Casey 36,000 36,000 Section 4(2) (sophisticated)
12400 Indian Mound Road
Lake Worth, FL 33619
Christine Dixon 25,000 25,000 Section 4(2) (sophisticated),
6389 Macdonald Street Regulation S
Vancouver, B.C. V6N 1E8 Rule 903
Robertson Stephens Orphan Fund 415,000 415,000 Section 4(2) (sophisticated,
555 California St., Suite 200 institutional)
San Francisco, CA 94104
Robertson Stephens Offshore Orphan 85,000 85,000 Section 4(2) (sophisticated,
Fund, c/o Citco Fund Services Limited institutional), Regulation S
Corporate Centre, West Bay Road Rule 903
Grand Cayman, Cayman Islands
B.W.I., George Town, Grand Cayman
Grand Cayman Islands, B.W.I.
Robert L. Partarrieu (1) 30,000 30,000 Section 4(2), Regulation S
San Crescente 400 Rule 903
Santiago, Chile
Legal Tender Ltd. 50,000 50,000 Section 4(2) (sophisticated),
Design House, Suite 201 Regulation S
Providenciales Rule 903
Turks & Caicos Island, B.W.I.
Tom Wikstrom 75,000 75,000 Section 4(2) (sophisticated),
17 Rue Arthur Herchen, L-1727 Regulation S
Luxembourg Rule 903
Bjorn E. Clason 20,000 20,000 Section 4(2) (sophisticated),
3 Marryat Place, Wimbledon Regulation S
London, U.K. SW19 5BL Rule 903
Gary Bogdanovich 50,000 50,000 Section 4(2) (sophisticated),
4484 West 9th Regulation S
Vancouver, B.C. V6R 2E1 Rule 903
Cherri Nestmann 20,000 20,000 Section 4(2) (sophisticated),
112 Arbutus Rd. Regulation S
Salt Spring Island, B.C. V8K 1A3 Rule 903
</TABLE>
II-9
<PAGE> 106
<TABLE>
<CAPTION>
Series A Note
Individual/Entity Consideration Principle Exemption
----------------- ------------- --------- ---------
<S> <C> <C> <C>
Dr. James H. Wood and Mary K. Wood 50,000 50,000 Section 4(2) (sophisticated)
JTWOS
1030 Byrnwyck Road
Atlanta, GA 30319
George R. Ireland 10,000 10,000 Section 4(2) (sophisticated)
2025 East 4th Avenue
Denver, CO 80206
523831 B.C. Ltd. 25,000 25,000 Section 4(2) (sophisticated),
c/o Pacific Opportunity Company Ltd. Regulation S
2070 - 777 Hornby St. Rule 903
Vancouver, B.C. V6Z 1S4
HRG (2) 25,000 25,000 Section 4(2) (sophisticated),
c/o Roger Richer Regulation D
1400-510 Burrard St. Rule 506
Vancouver, B.C. V6C 3A8
A. R. Rule Investments (B.C.) Ltd. 34,000 34,000 Section 4(2) (sophisticated)
c/o Pacific Opportunity Company Ltd.
2070 - 777 Hornby
Street Vancouver, B.C. V6Z 1S4
Jeff Taylor 18,000 18,000 Section 4(2) (sophisticated)
12760 High Bluff Drive, Suite 240
San Diego, CA 92130
Glory On Development Ltd. 25,000 25,000 Section 4(2) (sophisticated),
c/o Chan, Lau & Wai Regulation S
6th Floor, China Bldg. 29 Rule 903
Queen Rd.
Central, Hong Kong
AMDG Ltd., Inc. 36,000 36,000 Section 4(2) (sophisticated),
Ave. Balboa, Edif. Balboa Plaza, Regulation S
Ofic 301, Estafeta 6-1097 Rule 903
El Dorado, Panama
Republic Of Panama
Jose Antonio Errazuriz H. 18,000 18,000 Section 4(2) (sophisticated),
Las Fresas J109, Vitacura Regulation S
Santiago, Chile Rule 903
John Anderson 11,000 11,000 Section 4(2) (sophisticated),
1400-510 Burrard Street Regulation S
Vancouver, B.C. V6C 3A8 Rule 903
John Lea Blue 10,000 10,000 Section 4(2) (sophisticated),
11th Floor, 6-10 O'Connell Street Regulation S
Sydney, NSW 2000, Australia Rule 903
</TABLE>
II-10
<PAGE> 107
<TABLE>
<CAPTION>
Series A Note
Individual/Entity Consideration Principle Exemption
----------------- ------------- --------- ---------
<S> <C> <C> <C>
Robert Ossandon (3) 10,000 10,000 Section 4(2) (sophisticated),
Ossandon, Uribe, Hubner y Cin. Regulation S
Nueva York 25, P6 Rule 903
Santiago, Chile
Ricardo Harmsen 10,000 10,000 Section 4(2) (sophisticated)
Oppenheimer & Co., Inc.
100 N.E. Third Avenue
Fort Lauderdale, FL 33301
Inversiones Raco S.A. 6,000 6,000 Section 4(2) (sophisticated),
c/o ProConsult Regulation S
Calle Callao Rule 903
Santiago, Chile
Javier Hurtodo 10,000 10,000 Section 4(2) (sophisticated),
Chilgener - Div. Naviero Portuario, Regulation S
Miraflouros 222, P7 Rule 903
Santiago, Chile
Canaccord Capital Corporation ITF 26,000 26,000 Section 4(2) (sophisticated),
Mary-Ellen Meyers Regulation S
Canaccord Capital Corporation Rule 903
2200-609 Granville St.
Vancouver, B.C. V7Y 1H2
</TABLE>
(1) Mr. Partarrieu is general manager of MFG, a 99% owned subsidiary of
the Company.
(2) Mr. Hopley, president, chief executive officer and director of the
Company, owns a one-third interest in HRG.
(3) Mr. Ossandon is president and director of MFG, a 99% owned subsidiary
of the Company.
On December 13, 1996, the Company granted to RTZ the right to purchase
300,000 shares of the Company's Common Stock; 150,000 shares of Common Stock may
be purchased on or before June 13, 1997 at a price of $1.50 and 150,000 shares
of Common Stock may be purchased on or before December 13, 1997 at a price of
$2.00. These share purchase rights were granted in connection with a Letter of
Intent executed on December 13, 1997 on the Company's Cenizas Property.
II-11
<PAGE> 108
On December 31, 1996, Laminco, pursuant to a Share Purchase and Sale
Agreement, sold 2,597,000 of the Company's Common Stock, representing all of the
shares of the Company's Common Stock beneficially owned by Laminco (other than
400,000 shares underlying a warrant to purchase Common Stock previously issued
to Laminco) to purchasers at $.42 per share, aggregating $1,090,740. The shares
of Common Stock were sold by Laminco to the following individuals and entities;
<TABLE>
<CAPTION>
Individual/Entity Consideration Shares Sold Exemption
- ----------------- ------------- ----------- ---------
<S> <C> <C> <C>
Logicom S.A.R.L. $145,320 346,000 Section 4(2), Regulation S
17 Rue Arthur Herchen Rule 903
L-1727, Luxembourg
Matti Ruhala 10,080 24,000 Section 4(2), Regulation S
17 Rue Arthur Herchen Rule 903
L-1727, Luxembourg
Tom Wikstrom 15,120 36,000 Section 4(2), Regulation S
17 Rue Arthur Herchen Rule 903
L-1727, Luxembourg
Robertson Stephens Orphan 140,000 333,333 Section 4(2)
Fund (institutional investor)
555 California St., Suite
2600
San Francisco, CA 94104
Robertson Stephens Offshore 28,000 66,667 Section 4(2), Regulation S
Orphan Fund, c/o Citco Fund Rule 903
Services Limited
Corporate Centre, West Bay
Road,
Grand Cayman, Cayman Islands
Rapid Capital, Inc. 156,240 372,000 Section 4(2), Regulation S
17 Rue Arthur Herchen Rule 903
L-1727, Luxembourg
Baker Street Management 84,000 200,000 Section 4(2), Regulation S
Limited Rule 903
Genesis House, Jennett Street
Cayman, B.W.I.
International Freedom 73,500 175,000 Section 4(2), Regulation S
Design House, Suite 201 Rule 903
Providenciales
Turks & Caicos Island, B.W.I.
Legal Tender Ltd. 73,500 175,000 Section 4(2), Regulation S
Design House, Suite 201 Rule 903
Providenciales
Turks & Caicos Island, B.W.I.
Roger Richer 73,500 175,000 Section 4(2), Regulation S
1400-510 Burrard St. Rule 903
Vancouver, B.C. V6C 3A8
</TABLE>
II-12
<PAGE> 109
<TABLE>
<CAPTION>
Individual/Entity Consideration Shares Sold Exemption
- ----------------- ------------- ----------- ---------
<S> <C> <C> <C>
Banque Edouard Constant SA - 73,500 175,000 Section 4(2), Regulation S
Geneve Rule 903
11 Cours De Rive, Casa
postale 3754
CM-1211 Geneve 3
Switzerland
Rob Hartviksom 73,500 175,000 Section 4(2), Regulation S
709-700 W. Pender St. Rule 903
Vancouver, B.C. V6C 1G8
The Ferris Family Trust 72,240 172,000 Section 4(2), Regulation S
4640 Ramsay Road Rule 903
North Vancouver, B.C. V7K 2N5
Catalina Capital S.A. 72,240 172,000 Section 4(2), Regulation S
P.O. Box HM 2257 Rule 903
Hamilton HMJX
Bermuda
</TABLE>
On April 1, 1997, the Company issued two warrants to purchase an
aggregate of 735,000 shares of the Company's Common Stock pursuant to an
exemption from registration provided by Section 4(2). On April 1, 1997, the
Company borrowed $650,000 from a Lender pursuant to the Bridge Note. The Bridge
Note provides for an interest rate of 12% (per annum) and is due on July 31,
1997. The Company issued the Lender, International Freedom, a Turks & Caicos
corporation with an address of Design House, Suite 201, P.O. Box 150,
Providenciales, Turks & Caicos Island, B.W.I., a warrant to purchase 650,000
shares of the Company's Common Stock on or before April 1, 1999, at a purchase
price of $1.50. The Company also issued Dean Danielsen, with an address of 112
West San Francisco, Suite 303, Santa Fe, NM 87501, a warrant to purchase 85,000
shares of the Company's Common Stock on or before April 1, 1999, at a purchase
price of $1.50 as a finders fee.
Other than the foregoing transactions, the Registrant has not offered
or sold any unregistered securities within the last three years.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits. The following Exhibits are included pursuant to
Regulation SB, Item 601.
<TABLE>
<CAPTION>
No. Description Reference
- ------------- --------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
2.1 Stock Purchase Agreement between Laminco Resources, Inc., The Rothchild (1)
Companies, Inc. and the Selling Shareholders listed therein dated June 6,
1996
2.2 Stock Purchase Agreement by and between Fremont Gold Corporation, Flagship (3)
Holding Ltd. and the Selling Shareholders listed therein dated July 31, 1996
3.1 Certificate of Incorporation of Fremont Gold Corporation, as amended and (2)
restated
3.2 Bylaws of Fremont Gold Corporation
4.1 Form of Common Stock Certificate
4.2 Form of Common Stock Warrant **
4.3 Form of 10.5% Series A Convertible Note (4)
4.4 Form of Maturity Date Extension Agreement between the Company and 10.5% (6)
Series A Convertible Note Holders
</TABLE>
II-13
<PAGE> 110
<TABLE>
<CAPTION>
No. Description Reference
- ------------- --------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
4.5.1 $650,000 Promissory Note, dated April 1, 1997 issued by Company in favor of (6)
International Freedom
4.5.2 Warrant to purchase 650,000 shares of Common Stock, dated April 1, 1997, (6)
issued to International Freedom
5 Opinion of Streich Lang, P.A. (includes Consent) *
10.1 Fremont Gold Corporation Stock Option Plan (3)
10.2 Bases of Agreement between Minera Fremont Gold Chile, S.A. and Alejandro **
Moreno P. and Others, dated January 22, 1997 (Santa Eloisa Property)
10.3 Letter of Intent between RTZ Mining and Exploration Limited and Fremont Gold **
Corporation, dated December 12, 1996 (Cenizas Property)
10.4 Agreement by and between Sali Hochschild S.A. and Inversiones Mineras AyL **
S.A., dated July 19, 1996 (Resguardo Property)
10.5 Employment Agreement, dated June 4, 1996, by and between Fremont Gold **
Corporation and Michael J. Hopley
10.6 Employment Agreement, dated November 20, 1996, by and between Minera Fremont **
Gold Chile, S.A. and Roberto E. Partarrieu
10.8 Form of Series A Note Voluntary Stock Pooling Agreement (6)
10.9.1 Form of Stock Purchase Agreement by and between Laminco and Non-U.S. Person (6)
Purchasers
10.9.2 Form of Stock Purchase Agreement by and between Laminco and U.S. Person (6)
Purchasers
10.9.3 Form of Stockholders Agreement by and between the Company and Laminco (6)
Purchasers
10.10 Pledge Agreement dated April 1, 1997 by and between Messrs. Hopley, Shaw and (6)
Topham
10.11 Form of Voluntary Stock Pooling Agreement dated July 31, 1997, by and between (6)
the Company and former FHL Shareholders
16 Letter of Thomas W. Klush re: Change in accountants (5)
22 List of Subsidiaries of Fremont Gold Corporation **
23.1 Consent of Streich Lang (Included in Item 5) *
23.2 Consent of Thomas W. Klash, Certified Public Accountant **
23.3 Consent of KPMG Chartered Accountants *
23.4 Consent of Ossandon, Uribe & Hubner *
24 Powers of Attorney **
</TABLE>
* Filed herewith
** Previously Filed
(1) Filed with current report on Form 8-K, dated June 7, 1996.
(2) Filed with current report on Form 8-K, dated July 29, 1996.
(3) Filed with Form 10-Q quarterly report, dated June 30, 1996.
(4) Filed with Form 10-Q quarterly report, dated September 30, 1996.
(5) Filed with Current Report on Form 8-K, dated February 12, 1997 (as
amended March 7, 1997).
(6) Filed with Form 10-KSB for the fiscal year ended December 31, 1996
II-14
<PAGE> 111
ITEM 28. UNDERTAKINGS.
e. Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
f. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
ITEM 29. FINANCIAL STATEMENTS AND SCHEDULES.
The financial statements of the Company are included in the Prospectus
beginning at page F-1. All schedules are included in the financial statements of
the Company or are included in Part II of the Registration Statement.
II-15
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Vancouver, British
Columbia, Canada, on May 27, 1997.
FREMONT GOLD CORPORATION
By /s/ Michael J. Hopley
----------------------------------
Michael J. Hopley, President
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
/s/ Michael J. Hopley May 27, 1997
- ---------------------
Michael J. Hopley, Chairman of the Board, Chief
Executive Officer and President
/s/ Edward M. Topham May 27, 1997
- --------------------
Edward M. Topham, Director, Chief Financial Officer,
Secretary and Treasurer
/s/ David Shaw May 27, 1997
- --------------------
David Shaw, Director
</TABLE>
Date: May 27, 1997
II-16
<PAGE> 1
EXHIBIT 5
[STREICH LANG, P.A. LETTERHEAD]
May 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Fremont Gold Corporation Amendment No. 1 to Form SB-2 Registration
Statement (Reg. No. 333-21665)
Ladies and Gentlemen:
This firm is counsel for Fremont Gold Corporation, a Delaware
corporation (the "Company"). As such, we are familiar with the Certificate of
Incorporation and Bylaws of the Company. We have also acted as counsel for the
Company with respect to certain matters in connection with the preparation of
Amendment No. 1 to the Registration Statement on Form SB-2 referenced above
registering 7,200,000 shares of the Company's Common Stock, $.001 par value (the
"Shares") under the Securities Act of 1933. In addition, we have examined such
documents and undertaken such further inquiry as we consider necessary for
rendering the opinion hereinafter set forth below.
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware.
2. The Shares, when issued, will be duly and validly issued, fully
paid and nonassessable.
We acknowledge that we are referred to under the heading "Legal
Matters" of the Prospectus which is part of the Registration Statement and we
hereby consent to the use of our name in such Registration Statement. We further
consent to the filing of this opinion as Exhibit 5 to the Registration Statement
and with the state regulatory agencies in such states as may require such filing
in connection with the registration of the Shares for offer and sale in such
states.
Very truly yours,
/s/ Christian J. Hoffmann, III
Christian J. Hoffmann, III
FOR THE FIRM
<PAGE> 1
EXHIBIT 23.3
[KPMG LETTERHEAD]
INDEPENDENT PUBLIC ACCOUNTANT'S CONSENT
The Board of Directors
Fremont Gold Corporation
We consent to the use in the Registration Statement and Prospectus on Form SB-2
of Fremont Gold Corporation of our Auditors' Report to the Shareholders dated
April 8, 1997 on the consolidated balance sheet of Fremont Gold Corporation as
at December 31, 1996 and the consolidated statements of operations,
shareholders' deficit and cash flows for the years then ended included in this
Registration Statement and Prospectus, and to the reference to our firm under
the heading "Experts" in the Prospectus.
Our auditors' report relating to the financial statements referred to in the
preceding paragraph is supplemented by a report entitled "Comments By Auditors
For U.S. Readers On Canada-U.S. Reporting Conflict" that statements that
Canadian reporting standards do not permit reference to uncertainties such as
the Company's ability to continue as a going concern as discussed in Notes 1 and
2 to the consolidated financial statements, when the uncertainties are
adequately disclosed in the financial statements and accompanying notes. Under
United States reporting standards such uncertainties would be described in the
auditors' report in an explanatory paragraph following the opinion paragraph.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
May 27, 1997
<PAGE> 1
EXHIBIT 23.4
[OSSANDON, URIBE & HUBNER LETTERHEAD]
CHILE
Santiago, May 15, 1997.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
U.S.A.
RE: Fremont Gold Corporation
Dear Sirs,
This firm is counsel for Fremont Gold Corporation, a Delaware corporation
(the "Company") and has provided certain advice to the Company regarding the
laws of Chile. We acknowledge that we are referred to under the heading "Legal
Matters" of the Prospectus which is part of the Company's Amendment No. 1 to
Registration Statement on Form SB-2 (Reg. No. 333-21665), registering 7,200,000
shares of Common Stock and we hereby consent to the use of our name in such
Registration Statement. We further consent to the filing of this consent as
Exhibit 23 to the Registration Statement and with state regulatory agencies in
such states as may require such filing in connection with the registration of
the shares of Common Stock.
Sincerely,
/s/ Robert Ossandon
Robert Ossandon
