<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1997
REGISTRATION NO. 333-21665
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
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. HOFFMANN, 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
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<S> <C> <C> <C> <C>
Common Stock, offered by Selling Stockholders 4,097,333 $1.97(1) $8,071,746(1) $2,445.98
- ---------------------------------------------------------------------------------------------------------------------------------
Total................ -- -- $8,071,746 $2,445.98(2)
=================================================================================================================================
</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 July 1, 1997.
(2) An aggregate of $3,818.18 was previously paid with the
original filing and first amendment 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
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: JULY 16, 1997 SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
[FREMONT GOLD CORPORATION LOGO]
FREMONT GOLD CORPORATION
4,097,333 SHARES OF COMMON STOCK, PAR VALUE $.001
The securities offered hereby are 4,097,333 shares (the "Shares") of
common stock, $.001 par value ("Common Stock"), of Fremont Gold Corporation, a
Delaware corporation (the "Company"). All of the Shares are available for sale
pursuant to this Prospectus by certain selling stockholders (the "Selling
Stockholders"). Of the 4,097,333 Shares, i) 1,932,000 Shares have been, or will
be, issued upon conversion of the Company's Series A Convertible Promissory
Notes (the "Series A Notes"); ii) 1,932,000 Shares have been, or will be, issued
upon the exercise of warrants to purchase Common Stock (the "Warrants") which
have been, or will be, issued upon conversion of the Series A Notes; and iii)
233,333 Shares issuable upon exercise of warrants to purchase Common Stock,
issued in connection with an April 1, 1997 loan to the Company. The Common Stock
is presently traded on the OTC-Bulletin Board ("OTC-BB") under the symbol
"FGLD." On July 1, 1997, the average of the closing bid and asked quotations per
share of Common Stock, as provided by market makers in the Common Stock, was
$1.97 per share.
Each of the Company's Series A Notes was, or is, convertible into one
unit (each a "Unit"), consisting of one share of Common Stock and one Warrant,
for each $.50 of principal outstanding thereunder. Each Warrant is exercisable,
for a term expiring September 30, 1997, to purchase one share of Common Stock 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. All of the Shares offered hereby may be sold from time
to time by certain Selling Stockholders. See "Selling Stockholders." The 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 Shares by the Selling Stockholders. The Company is
paying all of the expenses in connection with the preparation of this Prospectus
and the related Registration Statement, estimated at $81,800.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 8 AND "DILUTION" FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
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.
The date of this Prospectus is July 16, 1997.
<PAGE> 3
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 8 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.
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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
fourth quarter of 1997. See "Business of The Company--The Properties--Resguardo
Property."
The Cenizas Property covers an area of approximately 13,500 hectares
(33,358 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
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<PAGE> 5
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 fourth 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
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 a group of the
Company's stockholders. The members of this group 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,
1996, Mr. Hopley was appointed chief executive officer of the Company. As of
July 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 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 of record 44.0% of the issued and
outstanding Common Stock.
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On July 31, 1996, the Company acquired 3,560,000 of the issued and
outstanding shares of FHL common stock. 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 for 418,000,
381,000 and 372,000 shares of FHL held respectively. 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
of record 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 of business on
the maturity date at the rate of $.50 of principal per Unit. Each Unit is
composed of one share of Common Stock and one Warrant. Each Warrant is
exercisable to purchase one share of Common Stock 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 received certain registration rights with respect to the
shares of Common Stock included in the Units and underlying the Warrants. See
"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."
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 of record 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.
On April 1, 1997, the Company borrowed $650,000 from International
Freedom Ltd., an unaffiliated lender ("Bridge Lender") pursuant to a promissory
note (the "Bridge Note"). The Bridge Note provides for an interest rate of
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<PAGE> 7
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 Bridge Lender as security for the Bridge Note. The Company also issued the
Bridge 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."
On June 13, 1997, the Company borrowed an aggregate of $1,500,000 from
Robertson Stephens Orphan Fund ($1,245,000) and Robertson Stephens Offshore
Orphan Fund ($255,000) (together "Demand Lenders"), pursuant to two promissory
notes (the "Demand Notes"). The Demand Notes provide for an interest rate of
10.5% (per annum) and are due upon demand by the Demand Lenders. The Demand
Notes are unsecured and represent advances to the Company until the Demand
Lenders convert their Series A Notes and are able to exercise the Warrants
received upon such conversion. In consideration of this loan, the Company also
issued the Demand Lenders warrants to purchase an aggregate of 250,000 shares of
the Company's Common Stock for a period of two years at a price of $2.00 per
share. The Demand Lenders also received certain registration rights in
connection with shares of Common Stock underlying these warrants. See "The
Company."
On June 17, 1997 the Company, in accordance with the provisions of the
Series A Note, prepaid $834,000 principal amount of the outstanding balance of
the Series A Notes. The aggregate principal balance remaining after this
prepayment is $966,000.
As of June 30, 1997, Series A Note Holders representing $66,000
principal amount of the outstanding balance of the Series A Notes had exercised
their conversion rights. At June 30, 1997, the Company is in default of the
remaining $900,000 principal amount of the outstanding balance of the Series A
Notes. 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 default interest at the rate of 16% per annum. The Company has
elected to treat the remaining Series A Notes as due and payable upon demand and
allow the Series A Holders to exercise their conversion rights until such time
as the Series A Note is paid. The Company believes the remaining Series A Note
Holders intend to exercise their conversion rights upon the effectiveness of
this Registration Statement.
On July 7, 1997, the Bridge Note lender exercised warrants to purchase
233,333 shares of the Company's Common Stock in consideration of a $350,000
reduction in the principal amount of the Bridge Note.
As of July 7, 1997, no Series A Note Holders have requested payment of
their outstanding Series A Note balance.
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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THE OFFERING
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Securities Offered:.................................................. 4,097,333 Shares
Common Stock Outstanding as of the date of this Prospectus:.......... 6,500,333 (1)
Common Stock Outstanding After Conversion of Series A Notes:......... 8,300,333 (2)
Common Stock Outstanding After Exercise of Warrants:................. 10,232,333 (2)(3)
</TABLE>
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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 July 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 issuable upon exercise of
warrants granted as a loan acquisition fee in connection with the
Bridge Note, see "The Company"; iv) 416,667 shares issuable upon
exercise of warrants granted to the Bridge Lender in connection with
the Bridge Note, see "The Company"; v) 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;" and vi) 250,000 shares issuable upon exercise
of warrants granted to the Demand Lenders in connection with the Demand
Notes, see "The Company."
2. Assumes full conversion of all the outstanding of Series A Note as of
the date of this Prospectus.
3. Assumes full exercise of all the Warrants to purchase 1,932,000 Shares
outstanding, but unexercised as of the date of this Prospectus.
PLAN OF DISTRIBUTION
All of the 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 Shares. The 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.
The Company is paying all of the expenses in connection with the
preparation of this Prospectus and the related Registration Statement, estimated
at $81,800.
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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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.
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
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<PAGE> 10
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 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."
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
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<PAGE> 11
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 Chilean government 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 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
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<PAGE> 12
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 and extend the maturity date
of the Series A Notes from March 1, 1997 to June 30, 1997. The Company may be
required to repay the principal amount of the Series A Note, together with
accrued and unpaid interest, upon demand after June 30, 1997. The Company has
been utilizing the proceeds of the Series A Notes in connection with its
business operations. Therefore, 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 demand payment of
their Series A Note after June 30, 1997. There can be no assurance that the
Company will have sufficient remaining proceeds to repay those Series A Note
Holders who demand payment of their Series A Note after June 30, 1997. 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 demand payment of their Series A Note after June 30, 1997. 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 the
date on which the Series A Note Holder demands payment. 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 loans
evidenced by the Bridge Note and Demand Notes, and assuming exercise of the
Warrants, will be adequate for its cash requirements through November 30, 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
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<PAGE> 13
the proceeds of the Series A Notes, the Bridge Note and Demand 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 $1,500,000 proceeds in connection with the Demand Notes
and presently intends to sell additional securities at a price sufficient to
raise approximately $6,000,000 to $10,000,000, 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 five 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.
NON-U.S. SELLING STOCKHOLDERS. A significant portion of the Selling Stockholders
are located outside of the United States. See "Selling Stockholders." The
Company is not aware of any agent for the service of process located in the
United States for those non-U.S. Selling Stockholders. As a result, proper and
valid service of process on such Selling Stockholders could be difficult, time
consuming and expensive.
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. There can be no assurance that such a market for the Common Stock will
develop or that, if developed, such market will be sustained. 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 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
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<PAGE> 14
the broker-dealer and its sales person salesperson in the transaction, and
monthly account statements showing the market value of each penny stock 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.
PLAN OF DISTRIBUTION
This Prospectus describes the offering of 4,097,333 Shares by the
Selling Stockholders. The Selling Stockholders may from time to time offer the
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 Shares for whom they may act as agent. The
Selling Stockholders and any underwriter, dealers or agents that participate in
the distribution of the Shares may be deemed underwriters, and any profit on the
sale of the 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
amended. At the time of a particular offering of Shares is made, to the extent
required, a Prospectus Supplement will be distributed with this Prospectus which
will set forth the aggregate number of 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 Shares through the
use of an underwriter, it may be necessary to file a post-effective amendment to
the Registration Statement registering the Shares.
Alternatively, the Selling Stockholders may from time to time effect
sales of the 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 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 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. This Prospectus
may be used from time to time by the Selling Stockholders who offer the Shares
registered hereby for sale. The offering price of such Shares will be
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<PAGE> 15
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.
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 Company's Bridge Note
borrowings, ii) the Company's Demand Note borrowings, iii) prepayment of
$834,000 principal amount of Series A Notes; (iv) full and complete conversion
of the remaining Series A Notes into 1,932,000 Units, v) the subsequent exercise
of 1,000,000 Warrants held by the Demand Lenders at an exercise price of $1.50
per Share, vi) the subsequent exercise of 233,333 Warrants held by the Bridge
Lender at an exercise price of $1.50 per Share, vii) the payment of $350,000
principal amount of the Bridge Note and $1,500,000 principal amount of the
Demand Notes, and viii) costs associated with this Offering.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
AS
ACTUAL ADJUSTED(1)
----------- -----------
<S> <C> <C>
Series A Notes .............................. $ 1,800,000 $ --
Bridge Note ................................. -- 300,000
Demand Note ................................. -- --
Non-controlling interest .................... 2,500 2,500
Shareholders' equity:
Common Stock, $.001 par value, 20,000,000
authorized; 6,135,000 issued and outstanding; 25,060 28,225
9,300,333(1)
Additional paid in capital .................. 1,040,226 3,771,261
Unearned compensation ....................... (144,350) (144,350)
Retained earnings ........................... (1,796,574) (1,796,574)
Total shareholders' equity ............. (875,638) 1,858,562
----------- -----------
Total Capitalization ........................ 926,862 2,161,062
=========== ===========
</TABLE>
- -----------------------
1. Does not include exercise of 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 July 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 issuable upon exercise of
warrants granted as a loan acquisition fee in connection with the
Bridge Note, see "The Company"; iv) 416,667 shares issuable upon
exercise of warrants granted to the Bridge Lender in connection with
the Bridge Note, see "The Company"; v) 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;" and vi) 250,000 shares issuable upon exercise
of warrants granted to the Demand Lenders in connection with the Demand
Notes, see "The Company."
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<PAGE> 16
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 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 $435,000 in lease and
purchase option payments in connection with its Resguardo, Cenizas and Santa
Eloisa properties of which $70,000 has been paid as of July 1, 1997. 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, the Bridge
Note and the Demand Notes, and assuming the exercise of the Warrants, will
satisfy the Company's cash requirements until November 30, 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, Bridge Note and Demand Notes in connection with prepayment of a portion
of the Series A Notes and 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,
the Bridge Note and Demand 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 will 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 $6 million to
$10 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.
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<PAGE> 17
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. In addition, the Company's
capital deficit has increased significantly after March 31, 1997 as a result of
the Company's short term borrowing under the Bridge Note and Demand Notes. The
Company does not currently 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. 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 two additional full time employee during the second 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.
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<PAGE> 18
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 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,
1996, Mr. Hopley was appointed chief executive officer of the Company. As of
July 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 of record 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
-17-
<PAGE> 19
Company, received 418,000, 381,000 and 372,000 shares, respectively, of the
Company's Common Stock in the exchange for 418,000, 381,000 and 372,000 Shares
of FHL held respectively. 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 held of record 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 of business on
the maturity date at the rate of $.50 of principal per Unit. Each Unit is
composed of one share of Common Stock and one Warrant. Each Warrant is
exercisable 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-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"), shall have the right, at any
time, to join with the Company to register the shares of Common Stock included
in the Units and underlying the Warrants 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 shares of Common Stock included in the Units to
the Trustee. However, the Shares issuable upon exercise of the Warrants will not
be subject to the Pooling Agreement. Pursuant to the Pooling Agreement the
Trustee shall hold all delivered Shares subject to release, on a pro-rata basis,
as set forth below:
PRO-RATA SHARES OF COMMON STOCK Release Date
- ------------------------------- ------------
25% of shares April 1, 1997(1)
25% of shares July 1, 1997(2)
25% of shares October 1, 1997
The balance of shares January 1, 1998
(1) Upon any conversion of the Series A Notes between April 1, 1997 and
July 1, 1997, the first 25% of the shares issued upon such conversion
will be immediately released.
(2) Upon conversion of the Series A Notes after July 1, 1997, the first 50%
of the shares issued upon such conversion will be 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.
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<PAGE> 20
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 of record 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. The Series A
Note Holders may now demand payment of principal and interest at any time.
On April 1, 1997, the Company borrowed $650,000 from International
Freedom Ltd., an unaffiliated lender ("Bridge 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
Bridge Lender as security for the Bridge Note. The Company also issued the
Bridge 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."
On June 13, 1997, the Company borrowed an aggregate of $1,500,000,
Robertson Stephens Orphan Fund ($1,245,000) and Robertson Stephens Offshore
Orphan Fund ($255,000) (together "Demand Lenders"), pursuant to the two Demand
Notes. The Demand Notes provide for an interest rate of 10.5% (per annum) and
are due upon demand by the Demand Lenders. The Demand Notes are unsecured and
represent advances to the Company until the Demand Lenders convert their Series
A Notes and are able to exercise the Warrants received upon conversion. In
consideration of this loan, the Company also issued the Demand Lenders warrants
to purchase an aggregate of 250,000 shares of the Company's Common Stock for a
period of two years at a price of $2.00 per share. The Demand Lenders also
received certain registration rights in connection with shares of Common Stock
underlying these warrants.
On June 17, 1997 the Company, in accordance with the provisions of the
Series A Note, prepaid $834,000 principal amount of the outstanding balance of
the Series A Notes. The aggregate principal balance remaining after this
prepayment is $966,000.
As of June 30, 1997, Series A Note Holders representing $66,000
principal amount of the outstanding balance of the Series A Notes had exercised
their conversion rights. At June 30, 1997, the Company is in default of the
remaining $900,000 principal amount of the outstanding balance of the Series A
Notes. 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 default interest at the rate of 16% per annum. The Company has
elected to treat the remaining Series A Notes as due and payable upon demand and
allow the Series A Holders to exercise their conversion rights until such time
as the Series A Note is paid. The Company believes the remaining Series A Note
Holders intend to exercise their conversion rights upon the effectiveness of
this Registration Statement.
-19-
<PAGE> 21
On July 7, 1997, the Bridge Note lender exercised warrants to purchase
233,333 shares of the Company's Common Stock in consideration of a $350,000
reduction in the principal amount of the Bridge Note.
As of July 7, 1997, no Series A Note Holders have requested payment of
their outstanding Series A Note balance.
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 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
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<PAGE> 22
Concessions." The Company expects this application process to be completed, and
the exploration concessions granted to MFG, in the fourth 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.
The Mantoverde 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.
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<PAGE> 23
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.
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. See "Glossary of Certain Industry Terms".
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
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<PAGE> 24
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. See
"Glossary of Certain Industry Terms".
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 by surface mining methods. Based on these results, the Company has
commenced a 4,000 meter reverse-circulation drilling on the Resguardo Property.
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.
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<PAGE> 25
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 13,500
hectares (33,358 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 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 fourth 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.
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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 September 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 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
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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
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 April 30, 1997 Purchase Option Payment (as
defined below). The April 30, 1997 Purchase Option Payment, upon mutual
agreement between the Company and Santa Eloisa Owners (as defined below), has
been extended pending the formation of a Chilean corporation and completion of
definitive agreements with respect to the share purchase rights and
administrative management of the Chilean corporation. It is anticipated this
payment will be made by July 31, 1997. 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, Sociedad
Contractual Minera Santa Eloisa ("SCMSA") and title to all of the mining
concessions on the property held by the Santa Eloisa Owners will be transferred
to SCMSA. In return, the Santa Eloisa Owners will receive, in the aggregate, 500
SCMSA series A shares and 1,500 MSE series B shares, together representing 100%
of SCMSA's equity. The Company will receive: i) 500 SCMSA 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, $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) 1,000 newly
issued
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SCMSA 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 SCMSA in the form of series A shares,
and the Santa Eloisa Owners will own 50% of the capital of SCMSA 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 SCMSA. The
April 30, 1997 Purchase Option Payment, upon mutual agreement between the
Company and Santa Eloisa Owners (as defined below), has been extended pending
the formation of a Chilean corporation and completion of definitive agreements
with respect to the share purchase rights and administrative management of the
Chilean corporation. It is anticipated this payment will be made by July 31,
1997.
If the Company's exploration results justify, SCMSA, the Company and
the Santa Eloisa Owners will jointly implement and fund a feasibility study
program ("Feasibility Study"). Upon completion of the Feasibility Study, SCMSA
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, SCMSA 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 SCMSA 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 SCMSA. 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
SCMSA and will appoint its directors in proportion to its relative ownership
percentage of SCMSA.
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 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.
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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 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.
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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.
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.
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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 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
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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.
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 July 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
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<PAGE> 33
hire two 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.
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
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<PAGE> 34
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.
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) $57,557 -0- -0- -0- 150,000 -0- -0-
President, CEO
Norman H. Becker 1996(4) -0- -0- -0- -0- -0- -0- -0-
President(3) 1995 -0- -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------
1. Mr. Hopley has been an executive officer of the Company since June 4,
1996.
2. Represents compensation for the period beginning June 4, 1996.
3. Mr. Becker resigned as President of the Company on June 4, 1996.
4. Represents compensation for period ending June 4, 1996.
-33-
<PAGE> 35
The following table sets forth the options granted to the Company's
executive officers during fiscal year 1996 pursuant to its 1996 Stock Option
Plan. See "Management -- Stock Option Plan".
OPTION GRANTS DURING FISCAL YEAR 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE PRICE
NAME OPTIONS IN FISCAL YEAR 1996 ($/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% $1.28 11/11/01
</TABLE>
No options to purchase Common Stock were exercised by executive
officers of the Company in 1996. The following table sets forth information
regarding (i) the number of shares of Common Stock underlying unexercised
options held by executive officers and (ii) the aggregate value of in-the-money,
unexercised options held by executive officers based upon the final reported
trade of Common Stock on December 31, 1996.
<TABLE>
<CAPTION>
1996 FISCAL YEAR END OPTION VALUES
Name Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at FY-End (#) Money Options at FY-End ($)
(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, with automatic one year
renewal terms, 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 July 1, 1997, 950,000 non-qualified stock options
-34-
<PAGE> 36
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 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
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<PAGE> 37
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, January 15,
1997 and June 19, 1997 the Company, on behalf of FHL, its wholly owned
subsidiary, paid $12,000, $12,000, $12,000 and $24,487 respectively plus
$3,729.92 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 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 and
held of record 44% 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 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 for 418,000, 381,000 and 372,000 shares
of FHL held respectively. 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, $140,000 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
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<PAGE> 38
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 of record
0% of the Company's issued and outstanding Common Stock.
On April 1, 1997, the Company borrowed $650,000 from the Bridge 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 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, representing
16.7% of the issued and outstanding shares of Common Stock of the Company, to
the Bridge Lender as security for the Bridge Note. The Company also issued the
Bridge 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.
On June 13, 1997, the Company borrowed an aggregate of $1,500,000,
Robertson Stephens Orphan Fund ($1,245,000) and Robertson Stephens Offshore
Orphan Fund ($255,000) (together "Demand Lenders"), pursuant to the two Demand
Notes. The Demand Notes provide for an interest rate of 10.5% (per annum) and
are due upon demand by the Demand Lenders. The Demand Notes are unsecured and
represent advances to the Company until the Demand Lenders convert their Series
A Notes and are able to exercise the Warrants received upon conversion. In
consideration of this loan, the Company also issued the Demand Lenders warrants
to purchase an aggregate of 250,000 shares of the Company's Common Stock for a
period of two years at a price of $2.00 per share. The Demand Lenders also
received certain registration rights in connection with shares of Common Stock
underlying these warrants.
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 July 1, 1997, by each
person (other than directors and executive officers) known by the Company to
beneficially own more than 5% of the Common Stock, as adjusted to reflect the
issuance of 233,333 Shares issuable on July 7, 1997 in connection with the
exercise of warrants granted to the Bridge Lender. 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 Logicum S.A.R.L. 346,000(2) 5.3%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
Common Stock Robertson Stephens Orphan Fund 2,200,833(3) 26.3%
555 California St., Suite 2600
San Francisco, CA 64104
</TABLE>
-37-
<PAGE> 39
<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 Robertson Stephens Offshore Orphan Fund 449,167(4) 6.5%
c/o Citco Fund Services Limited
Corporate Center
West Bay Road
Georgetown, Grand Cayman
Cayman Islands, B.W.I.
Common Stock Regional Investments, Inc. 492,000(5) 7.6%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
Common Stock Rapid Capital, Inc. 516,000(6) 7.8%
17 Rue Arthur Herchen
Luxembourg L-1727
Germany
Common Stock Legal Tender Ltd. 520,000(7) 7.6%
Design House, Suite 201
Providenciales, Turks & Caicos Island
B.W.I.
Common Stock International Freedom(8) 490,000(8) 7.4%
Design House, Suite 201
Providenciales, Turks Caicos Island
B.W.I.
Common Stock Laminco Resources, Inc. 400,000(9) 5.8%
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. Logicom S.A.R.L. is wholly owned by Tom Wikstrom.
3. Includes 830,000 Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Robertson Stephens Orphan
Fund, 830,000 Shares issuable upon exercise of Warrants included in
such Units and 207,500 shares of Common Stock issuable upon exercise of
warrants issued in connection with the Demand Notes.
4. Includes 170,000 Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Robertson Stephens Offshore
Orphan Fund, 170,000 Shares issuable upon exercise of Warrants included
in such Units and 42,500 Shares of Common Stock issuable upon exercise
of warrants issued in connection with the Demand Notes.
5. Regional Investments, Inc. is wholly owned by Grieta Schmidlin, located
at Fundo Santo Matilda, Camino Antuco, Los Angeles, Chile.
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<PAGE> 40
6. Includes 72,000 shares to be issued as part of the Units upon
conversion of the Series A Notes held by Victor Garica (60,000) and
Inversiones Raco S.A. (12,000) and 72,000 shares issuable upon
exercise of the Warrants included in such Units. Rapid Capital is
wholly owned by Victor Garcia, located a Calle Callo, Santiago, Chile.
7. Includes 100,000 Shares to be issued as part of the Units upon
conversion of the Series A Notes held by Legal Tender Ltd. and
100,000 Shares issuable upon exercise of Warrants included in
such Units. Catherine Bruce is the director and secretary of Legal
Tender Ltd.
8. Includes 81,667 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. Catherine
Bruce is the director and secretary of International Freedom Ltd.
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. Laminco is a
publicly held corporation traded on the Toronto Stock Exchange.
-39-
<PAGE> 41
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 1, 1997 by each director and
executive officer, as adjusted to reflect the issuance of 233,333 Shares
issuable on July 7, 1997 in connection with the exercise of warrants granted to
the Bridge Lender. 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) 622,639(3) 9.5%
Common Stock Edward M. Topham(4) 446,310(4) 6.8%
Common Stock Roberto Ossandon(5) 40,000(5) 0.7%
Common Stock David Shaw(6) 510,603(6) 7.8%
Common Stock All directors and executive 1,619,552 23.9%
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 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 Shares issuable as part of the Units issuable upon
conversion of Series A Notes held by Mr. Ossandon and 20,000 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.
-40-
<PAGE> 42
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 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 Shares offered by this Prospectus may be offered from time to
time by the Selling Stockholders named below or their nominees.
<TABLE>
<CAPTION>
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>
Haywood Securities ITF Arie Merrin 120,000 120,000 *
RRSP 62-0090-1, 1100 - 400 Burrard St.,
Vancouver, B.C. V6C 3A6
Allan P. Power 100,000 100,000 *
1314 Cabrillo Ave.,
Venice, CA 90291
Adrian Day 160,000 160,000 *
900 Bestgate Rd., Suite 405
Box 6644
Annapolis, MD 21401
Christine Dixon 50,000 50,000 *
6389 Macdonald Street
Vancouver, B.C. V6N 1E8
Robertson Stephens - Orphan Fund(4) 2,200,833 1,660,000 5.1%
555 California St., Suite 2600
San Francisco, CA 94104
Robertson Stephens - Offshore 449,167 340,000 1.0%
Orphan Fund, c/o Citco Fund Services
Limited(5)
Corporate Centre, West Bay Road,
Grand Cayman, Cayman Islands
B.W.I., George Town, Grand
Cayman, Grand Cayman Islands,
B.W.I.
Legal Tender Ltd.(6) 520,000 200,000 3.0%
Design House, Suite 201,
Providenciales, Turks & Caicos
Island, B.W.I.
Gary Bogdanovich 160,000 160,000 *
4484 West 9th
Vancouver, B.C. V6R 2E1
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
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>
Cherri Nestmann 80,000 80,000 *
112 Arbutus Rd., Salt Spring Island,
B.C. V8K 1A3
Dr. James H. Wood and Mary K. 100,000 100,000 *
Wood JTWRS
1030 Byrnwyck Road
Atlanta, GA 30319
523831 B.C. Ltd.(7) 80,000 80,000 *
c/o Pacific Opportunity Company Ltd.
2070 - 777 Hornby St.
Vancouver, B.C. V6Z 1S4
A. R. Rule Investments (B.C.) Ltd.(8) 100,000 100,000 *
c/o Pacific Opportunity Company Ltd
2070 - 777 Hornby Street
Vancouver, B.C. V6Z 1S4
Jeffrey L. Taylor 72,000 72,000 *
12760 High Bluff Drive, Suite 240,
San Diego, CA 92130
Glory On Development Ltd.(10) 50,000 50,000 *
c/o Chan, Lau & Wai
6th Floor, China Bldg. 29 Queen Rd.
Central, Hong Kong
AMDG Ltd., Inc.(11) 120,000 120,000 *
Ave. Balboa, Edif. Balboa Plaza,
Ofic.301, Estafeta 6-1097, El Dorado,
Panama, Republic of Panama
Jose Antonio Errazuriz H. 72,000 72,000 *
Las Fresas J109, Vitacura
Santiago, Chile
John Anderson 44,000 44,000 *
1400-510 Burrard Street
Vancouver, B.C. V6C 3A8
Robert Ossandon(12) 40,000 40,000 *
Ossandon, Uribe, Hubner y Cin.
Nueva York 25, P6, Santiago, Chile
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
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>
Ricardo Harmsen 40,000 40,000 *
Oppenheimer & Co., Inc.
100 N.E. Third Avenue
Fort Lauderdale, FL 33301
Victor Garcia(13) 144,000 144,000 *
Calle Callao, Santiago, Chile
Javier Hurtodo 40,000 40,000 *
Chilgener - Div. Naviero Portuario,
Mirafloures 222, P7, Santiago, Chile
Canaccord Capital Corporation ITF 92,000 92,000 *
Mary-Ellen Meyers
2200-609 Granville St.
Vancouver, B.C. V7Y 1H2
International Freedom(9) 490,000 233,333 2.5%
Design House, Suite 201
Providenciales, Turks & Caicos
Island, B.W.I.
-----------------------------------------------------------------
All Selling Stockholders as a Group 4,834,000 4,097,333 6.8%
(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 shares issuable upon conversion of the Series A Notes as part
of the Units shares issuable upon exercise of the Warrants and all
other shares of Common Stock beneficially owned.
(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 Shares available for sale under this
Prospectus and are computed on the basis of full dilution.
(4) Includes 207,500 warrants issued in connection with Demand Note.
(5) Includes 42,500 warrants issued in connection with Demand Note.
(6) Includes 145,000 warrants issued in connection with Bridge Note.
Catherine Bruce is the director and secretary of Legal Tender Ltd.
(7) John Brown is the executive officer of 523831 B.C. Ltd.
(8) A.R. Rule is the principle shareholder of A.R. Rule Investments (B.C.)
Ltd.
(9) Includes 81,667 warrants issued in connection with Bridge Note.
(10) The Company, after making reasonable inquiries, does not have knowledge
of the names of the principles controlling Glory on Development Ltd.
(11) The Company, after making reasonable inquiries, does not have knowledge
of the names of the principles controlling AMDG Ltd, Inc.
(12) Mr. Robert Ossandon is president and director of Minera Fremont Gold
Chile S.A., an indirectly owned subsidiary of the Company.
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<PAGE> 45
(13) Includes shares held by Inversiones Raco S.A., a Chilean corporation
wholly owned by Victor Garcia.
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 6,500,333 are issued and outstanding as
of the date of this Prospectus. Assuming full conversion of the Series A Notes
into Units, 8,300,333 shares will be issued and outstanding, 1,932,000 shares
will be reserved for issuance upon 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, 501,667 shares will be reserved for issuance upon
exercise of warrants issued in connection with the April 1, 1997 Bridge Note and
250,000 shares will be reserved for issuance upon exercise of warrants issued in
connection with the June 13, 1997 Demand Notes.
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 July 1, 1997 was $1.94 and $2.00 per
share, respectively.
The following table sets forth the high and low prices, quoted by
security dealers on the OTC-BB of the Common Stock for each quarterly period in
1995 and 1996. These quotations are not actual transactions but only quotations
between dealers.
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<PAGE> 46
<TABLE>
<CAPTION>
BID PRICE
-----------------------------------------
CALENDAR QUARTER HIGH LOW
<S> <C> <C>
1995
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
1997
First Quarter $1.88 $1.00
Second Quarter $2.25 $1.50
</TABLE>
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 shares of Common Stock included in the Units 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(1)
25% of Conversion Shares July 1, 1997(2)
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 between April 1, 1997 and
July 1, 1997, the first 25% of the shares issued upon such conversion
will be immediately released.
(2) Upon conversion of the Series A Notes after July 1, 1997, the first 50%
of the Shares issued upon such conversion will be released.
Shares held by the Trustee are not transferable. However the owners of such
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
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<PAGE> 47
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 1,932,000
Units, 8,300,333 shares of Common Stock will be issued and outstanding, which
includes the 1,932,000 Shares included in the Units. 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 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"), and of these shares, 614,000 were issued by the
Company in exchange for Shares issued by FHL under the Commission's Rule 701
under the Securities Act and, accordingly, are "Restricted Securities" under
Rule 144, iii) 3,261,000 shares were issued pursuant to Commission Regulation S
and transfer of these securities is prohibited except in accordance with the
provision of Regulation S, iv) 1,932,000 Shares will have been issued upon
conversion of the Series A Notes, and v) 233,333 Shares will have been issued
upon exercise of warrants granted to the Bridge Lender in connection with the
April 1, 1997 Bridge Note, 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, 1,932,000 shares of Common Stock 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, 501,667 shares of Common Stock will be reserved for issuance
upon exercise of warrants issued in connection with the April 1, 1997 Bridge
Note and 250,000 shares of Common Stock will be reserved for issuance upon
exercise of warrants issued in connection with the June 13, 1997 Demand Notes.
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
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<PAGE> 48
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
3,261,000 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 July 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.
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.
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<PAGE> 49
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.
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.
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<PAGE> 50
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.
anomalous gold: Rock or surficial material that, through geochemical analyses,
has been determined to contain a higher gold content than the surrounding area.
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.
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<PAGE> 51
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.
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.
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<PAGE> 52
gold mineralization: Rock material that, by means of chemical analyses and
geological observations, has been determined to have had gold added through
natural geological processes.
grade: the relative quantity or percentage of ore mineral content.
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.
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<PAGE> 53
molybdenum: a base metal element.
ore grade gold mineralization: in the context of the Company's properties, this
is assumed to be 1.0 gram/tonne or greater.
outcrop: that part of a geologic formation or structure that appears at the
surface of the earth.
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.
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<PAGE> 54
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.
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.
-53-
<PAGE> 55
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.
-54-
<PAGE> 56
FREMONT GOLD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Fiscal Year End Financial Statements: Page
- ------------------------------------ ----
<S> <C>
Report of Independent Public Accountants - December 31, 1996 F-3
Report of Independent Public Accountants - December 31, 1995 F-4
Financial Statements:
Balance Sheets - December 31, 1996 and 1995 F-5
Statements of Operations - For the Years Ended December 31, 1996 and F-6
1995
Statements of Shareholders' Deficit - For the Years Ended December 31, F-7
1996 and 1995
Statements of Cash Flows - For the Years Ended December 31, 1996 F-8
and 1995
Notes to Financial Statements -December 31, 1996 and 1995 F-9
Interim Financial Statements:
Balance Sheet - March 31, 1997 F-22
Statements of Operations - For the Three Months Ended March 31, 1997 F-23
and 1996
Statements of Cash Flows - For the Three Months Ended March 31, F-24
1997 and 1996
Notes to Financial Statements - March 31, 1997 F-25
</TABLE>
F-1
<PAGE> 57
FREMONT GOLD CORPORATION
YEAR END FINANCIAL STATEMENTS
DECEMBER 31, 1996
F-2
<PAGE> 58
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> 59
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Fremont Gold Corporation
(Formerly known as The Rothchild Companies, Inc.)
Vancouver, Canada
I have audited the balance sheet of Fremont Gold Corporation (formerly known as
The Rothchild Companies, Inc.) as of December 31, 1995, and the related
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of the Fremont Gold Corporation
(formerly known as The Rothchild Companies, Inc.) as at December 31, 1995, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The 1995 financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note E to the December 31, 1995
financial statements, the Company has experienced operating losses since
inception, resulting in an accumulated deficit position. 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 in Note E to the December 31, 1995 financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Thomas Klash
Thomas W. Klash, C.P.A.
Hollywood, Florida
February 20, 1996
F-4
<PAGE> 60
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-5
<PAGE> 61
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-6
<PAGE> 62
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-7
<PAGE> 63
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-8
<PAGE> 64
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
- ------------------------------------------------------------------------------
- --------------
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-9
<PAGE> 65
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-10
<PAGE> 66
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.
(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.
F-11
<PAGE> 67
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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.
(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
F-12
<PAGE> 68
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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.
The $288,101 acquisition cost is comprised of the $75,000 payment made upon
execution of the Lease Agreement and $213,101 in costs related to the
acquisition including legal fees and due diligence expenses.
(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 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.
F-13
<PAGE> 69
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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").
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
F-14
<PAGE> 70
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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.
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.
F-15
<PAGE> 71
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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 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
F-16
<PAGE> 72
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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>
Net loss 1996
----------
<S> <C>
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-17
<PAGE> 73
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>
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.
F-18
<PAGE> 74
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
- --------------
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>
Year ending December 31,
<S> <C>
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>
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
F-19
<PAGE> 75
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-20
<PAGE> 76
FREMONT GOLD CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
F-21
<PAGE> 77
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-22
<PAGE> 78
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-23
<PAGE> 79
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-24
<PAGE> 80
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-25
<PAGE> 81
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-26
<PAGE> 82
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-27
<PAGE> 83
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% annual incremental increases for subsequent delays.
The first royalty payment may be credited to the future net smelter return
production royalty.
F-28
<PAGE> 84
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
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.
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
F-29
<PAGE> 85
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
<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.
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
F-30
<PAGE> 86
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
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 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.
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
F-31
<PAGE> 87
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
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 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:
F-32
<PAGE> 88
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
<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.
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
F-33
<PAGE> 89
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
<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>
<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
March 31, 1997:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
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>
F-34
<PAGE> 90
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 issued Messieurs Hopley,
Topham and Shaw an aggregate of 75,000 shares of the Company's Common Stock. On
July 7, 1997, the Bridge Note lender exercised warrants to purchase 233,333
shares of the Company's Common Stock in consideration of a $350,000 reduction in
the principal amount of the Bridge Note.
(b) On June 13, 1997, the Company borrowed an aggregate of $1,500,000, Robertson
Stephens Orphan Fund ($1,245,000) and Robertson Stephens Offshore Orphan Fund
($255,000) (together "Demand Lenders"), pursuant to the two Demand Notes. The
Demand Notes provide for an interest rate of 10.5% (per annum) and are due upon
demand by the Demand Lenders. The Demand Notes are unsecured and represent
advances to the Company until the Demand Lenders convert their Series A Notes
and are able to exercise the Warrants received upon conversion. In consideration
of this loan, the Company also issued the Demand Lenders warrants to purchase an
aggregate of 250,000 shares of the Company's Common Stock for a period of two
years at a price of $2.00 per share. The Demand Lenders also received certain
registration rights in connection with shares of Common Stock underlying these
warrants.
(c) On June 17, 1997 the Company, in accordance with the provisions of the
Series A Note, prepaid $834,000 principal amount of the outstanding balance of
the Series A Notes. The aggregate principal balance remaining after this
prepayment is $966,000.
As of June 30, 1997, Series A Note Holders representing $66,000 principal amount
of the outstanding balance of the Series A Notes had exercised their conversion
rights. At June 30, 1997, the Company is in default of the remaining $900,000
principal amount of the outstanding balance of the Series A Notes. 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
default interest at the rate of 16% per annum. The Company has elected to treat
the remaining Series A Notes as due and payable upon demand and allow the Series
A Holders to exercise their conversion rights until such time as the Series A
Note is paid. The Company believes the remaining Series A Note Holders intend to
exercise their conversion rights upon the effectiveness of this Registration
Statement. As of July 7, 1997, no Series A Note Holders have requested payment
of their outstanding Series A Note balance.
F-35
<PAGE> 91
THIS PAGE INTENTIONALLY BLANK
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................................................................. 3
The Company................................................................... 3
Current Business Operations............................................... 3
History and Prior Activities.............................................. 4
The Offering.................................................................. 7
Plan of Distribution.......................................................... 7
Risk Factors.................................................................. 7
RISK FACTORS....................................................................... 8
Plan of Distribution............................................................... 13
Determination of Offering Price.................................................... 14
Dividend Policy.................................................................... 14
Capitalization..................................................................... 15
Plan of Operation.................................................................. 15
The Company........................................................................ 17
Business of the Company............................................................ 21
General....................................................................... 21
The Properties................................................................ 21
Chile......................................................................... 28
Environmental Policy.......................................................... 32
Competition................................................................... 32
Employees..................................................................... 33
Property...................................................................... 33
Litigation.................................................................... 33
Management......................................................................... 33
Security Ownership of Certain
Beneficial Owners and Management................................................... 39
Selling Stockholders............................................................... 42
Description of Securities.......................................................... 45
Legal Matters...................................................................... 48
Interest of Named Counsel.......................................................... 48
Experts............................................................................ 48
Change in Accountants.............................................................. 49
Available Information.............................................................. 49
Glossary of Certain Industry Terms................................................. 50
Financial Statements............................................................... F-1
</TABLE>
4,097,333 SHARES
OF
COMMON STOCK
JULY 16, 1997
<PAGE> 93
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> 94
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> 95
(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.
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<PAGE> 96
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> 97
<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> 98
<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> 99
<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. Messrs. Garcia, Ochoa and
Castro are not affiliated with Regional Investments, Inc.
(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> 100
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(4) Section 4(2) (sophisticated),
1089 Kuma Cr. Regulation S
Delta, B.C. V4M 2K8 Rule 902
MTA Holdings Inc. 25,000 25,000(4) Section 4(2) (sophisticated),
1837 Knutsford Place Regulation S
Victoria, B.C. V8N 6F3 Rule 903
Geoff Courtnail 75,000 75,000(4) 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(4) 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(4) Section 4(2) (sophisticated),
1020 - 800 W. Ponder St. Regulation S
Vancouver, B.C. V6C 2V6 Rule 903
Rita Hecker 20,000 20,000(4) Section 4(2) (sophisticated),
12410 - 102 Ave. Regulation S
Surrey, B.C. V3V 3E1 Rule 903
Kix International 20,000 20,000(4) Section 4(2) (sophisticated),
10540 Hogarth Dr. Regulation S
Richmond, B.C. V7E 3Z8 Rule 903
Hans Knapp 20,000 20,000(4) Section 4(2) (sophisticated),
7220 Arbuius Road Regulation S
West Vancouver, B.C. V7W 2C5 Rule 903
Blueberry Films Corp. 40,000 40,000(4) Section 4(2) (sophisticated),
4952 Chancellor Blvd. Regulation S
Vancouver, B.C. V6T 1E1 Rule 903
Whistler Investments Ltd. 50,000 50,000(4) 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(4) Section 4(2) (sophisticated),
Limited Regulation S
100 Rue du Rhone 1204 Rule 903
Geneva, Switzerland
</TABLE>
II-8
<PAGE> 101
<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(6) Section 4(2) (sophisticated)
900 Bestgate Rd., Suite 405
Box 6644
Annapolis, MD 21401
Douglas R. Casey 36,000 36,000(4) Section 4(2) (sophisticated)
12400 Indian Mound Road
Lake Worth, FL 33619
Christine Dixon 25,000 25,000(7) 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(13) 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(4) Section 4(2) (sophisticated),
17 Rue Arthur Herchen, L-1727 Regulation S
Luxembourg Rule 903
Bjorn E. Clason 20,000 20,000(4) 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> 102
<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(8) Section 4(2) (sophisticated)
JTWOS
1030 Byrnwyck Road
Atlanta, GA 30319
George R. Ireland 10,000 10,000(4) Section 4(2) (sophisticated)
2025 East 4th Avenue
Denver, CO 80206
523831 B.C. Ltd. 25,000 25,000(9) 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(4) 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(10) 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(11) 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(12) 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(4) Section 4(2) (sophisticated),
11th Floor, 6-10 O'Connell Street Regulation S
Sydney, NSW 2000, Australia Rule 903
</TABLE>
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<PAGE> 103
<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(5) 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.
(4) On June 13, 1997, the principal amount outstanding of the Series A Note
was prepaid in its entirety.
(5) On June 13, 1997, $3,000 principal amount outstanding of the Series A
Note was prepaid.
(6) On June 13, 1997, $10,000 principal amount outstanding of the Series A
Note was prepaid.
(7) On June 13, 1997, $12,500 principal amount outstanding of the Series A
Note was prepaid.
(8) On June 13, 1997, $25,000 principal amount outstanding of the Series A
Note was prepaid.
(9) On June 13, 1997, $5,000 principal amount outstanding of the Series A
Note was prepaid.
(10) On June 13, 1997, $9,000 principal amount outstanding of the Series A
Note was prepaid.
(11) On June 13, 1997, $12,500 principal amount outstanding of the Series A
Note was prepaid.
(12) On June 13, 1997, $6,000 principal amount outstanding of the Series A
Note was prepaid.
(13) On June 6, 1997, Mr. Partarrieu sold and transferred the Series A Note to
Victor Garcia.
(14) On June 13, 1997, $10,000 principal amount outstanding of Series A Note
was prepaid.
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> 104
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> 105
<TABLE>
<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.
On June 13, 1997, the Company issued two warrants to purchase an
aggregate of 250,000 shares of the Company's Common Stock pursuant to an
exemption from registration provided by Section 4(2). On June 13, 1997, the
Company borrowed $1,500,000 from two Lenders pursuant to the Demand Note. The
Demand Note provides for an interest rate of 10.5% (per annum) and is due on
demand. The Company issued the Lenders Robertson Stephens Orphan Fund and
Robertson Stephens Offshore Orphan Fund, a warrant to purchase 207,500 and
42,500, respectively, shares of the Company's Common Stock on or before June 13,
1999, at a purchase price of $2.00.
On July 4, 1997, the Company issued 75,000 shares of its Common Stock
pursuant to exemptions from registration provided by Section 4(2). The shares of
Common Stock were issued in consideration of security granted to the Bridge
Lender in connection with the April 1, 1997 Bridge Loan evidenced by a Pledge
Agreement of even date. 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 aggregate,
1,088,412 shares of Common Stock of the company owned by them to the Bridge
Lender as security for the Bridge Note. The shares were issued, 25,000 to Mr.
Hopley, 25,000 to Mr. Topham and 25,000 to Mr. Shaw.
On July 4, 1997, the Company issued Jose Antonio Errazuriz H. 36,000
Units comprised of 36,000 shares of its Common Stock and 36,000 Warrants
pursuant to exemptions from registration provided by Section 4(2) and Regulation
S Rule 903. The Warrant is exercisable, for a term expiring on September 30,
1997, to purchase one share of Common Stock 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 for the 10 trading days preceding the
exercise of the Warrant. The Units were issued in connection with the June 27,
1997 conversion of $18,000 principal amount of Series A Notes held by Mr.
Errazuriz.
On July 4, 1997, the Company issued Jeffrey L. Taylor 36,000 Units
comprised of 36,000 shares of its Common Stock and 36,000 Warrants pursuant to
exemptions from registration provided by Section 4(2). The Warrant is
exercisable, for a term expiring on September 30, 1997, to purchase one share of
Common Stock at a price per share
II-13
<PAGE> 106
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 for the 10 trading days
preceding the exercise of the Warrant. The Units were issued in connection with
the June 12, 1997 conversion of $18,000 principal amount of Series A Notes held
by Mr. Taylor.
On July 4, 1997, the Company issued Haywood Securities, in Trust for
Arie Merrin, RRSP 06-0090-1, 60,000 Units comprised of 60,000 shares of its
Common Stock and 60,000 Warrants pursuant to exemptions from registration
provided by Section 4(2) and Regulation S Rule 903. The Warrant is exercisable,
for a term expiring on September 30, 1997, to purchase one share of Common Stock
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 for the 10
trading days preceding the exercise of the Warrant. The Units were issued in
connection with the June 25, 1997 conversion of $30,000 principal amount of
Series A Notes held by Mr. Merrin.
On July 4, 1997, the Company issued International Freedom 233,333
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 exercise of a warrant granted International Freedom in
connection with an April 1, 1997 $650,000 Bridge Loan. Consideration of the
warrant exercise was the forgiveness of $350,000 principal amount of the Bridge
Loan.
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
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
4.6.1 Form of Demand Note *
4.6.2 Form Warrant issued with Demand Notes *
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)
</TABLE>
II-14
<PAGE> 107
<TABLE>
<CAPTION>
No. Description Reference
- ----------- ----------------------------------------------------------------------------------- -------------
<S> <C> <C>
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. (6)
Person 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 (6)
between the Company and former FHL Shareholders
16 Letter of Thomas W. Klash 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
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
II-15
<PAGE> 108
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-16
<PAGE> 109
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 July 15, 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.
Signature and Title Date
------------------- ----
/s/ Michael J. Hopley July 15, 1997
- ---------------------
Michael J. Hopley, Chairman of the Board, Chief
Executive Officer and President
/s/ Edward M. Topham July 15, 1997
- --------------------
Edward M. Topham, Director, Chief Financial Officer,
Secretary and Treasurer
/s/ David Shaw July 15, 1997
- --------------------
David Shaw, Director
Date: July 15, 1997
II-17
<PAGE> 1
Exhibit 4.6.1
FREMONT GOLD CORPORATION
PROMISSORY NOTE
$__________USD JUNE 13, 1997
FOR VALUE RECEIVED, the undersigned, FREMONT GOLD CORPORATION, a
Delaware corporation ("Maker"), promises to pay to ___________ (together with
its successors and assigns, "Payee,") or order, in the manner and at the place
hereinafter provided, the principal amount of ______________ DOLLARS
($___________ USD), on the Maturity Date (capitalized terms used herein and not
otherwise defined herein shall have the meanings provided in Article VI below).
On the Maturity Date, the entire remaining unpaid principal balance of this
Promissory Note (this "Note"), together with any and all costs and expenses and
other amounts provided for hereunder and accrued and unpaid interest, shall be
due and payable.
Maker also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid in full at the rate of ten and one half
percent (10.5%) per annum. Interest on this Note shall be payable in arrears on
the Maturity Date. All computations of interest shall be made by Payee on the
basis of a 365-day year, for the actual number of days elapsed in the relevant
period (including the first day but excluding the last day). In no event shall
the interest rate payable on this Note exceed the maximum rate of interest
permitted to be charged under applicable law.
ARTICLE I
TERMS OF PAYMENT
1.1 Payments. Each payment under this Note shall first be credited
against costs and expenses provided for hereunder, second to the payment of
accrued and unpaid interest, and the remainder shall be credited against
principal. All amounts due hereunder shall be payable in lawful money of the
United States of America, and in same day funds and delivered to Payee by wire
transfer to Payee's account, as set forth in the wire instructions below, or at
such other place as Payee or any holder hereof shall designate in writing for
such purpose from time to time. If a payment hereunder otherwise would become
due and payable on a Saturday, Sunday or legal holiday, the due date thereof
shall be extended to the next succeeding Business Day, and interest shall be
payable thereon during such extension.
PAYEE WIRE INSTRUCTIONS
-------------------------------
-------------------------------
-------------------------------
<PAGE> 2
1.2 Prepayments. This Note may be prepaid in whole or in part at any
time without penalty.
1.3 Exemption from Restrictions. It is the intent of Maker and Payee in
the execution of this Note and the other Loan Documents that the indebtedness
hereunder be exempt from the restrictions of the usury laws of any applicable
jurisdiction. Maker and Payee agree that none of the terms and provisions
contained herein or in any of the other Loan Documents shall be construed to
create a contract for the use, forbearance or detention of money requiring
payment of interest at a rate in excess of the maximum interest rate permitted
to be charged by the laws of any applicable jurisdiction. In such event, if any
holder of this Note shall collect monies which are deemed to constitute interest
which would otherwise increase the effective interest rate on this Note to a
rate in excess of the maximum rate permitted to be charged by the laws of any
applicable jurisdiction, all such sums deemed to constitute interest in excess
of such maximum rate shall, at the option of such holder, be credited to the
payment of the sums due hereunder or returned to Maker.
ARTICLE II
CONDITIONS
2.1 Conditions to Effectiveness. The obligation of Payee to extend
credit under this Note is subject to the prior or concurrent satisfaction of the
following conditions precedent (the date of satisfaction of such conditions
being referred to herein as the "Closing Date"). On or before the Closing Date,
Maker shall deliver to Payee the following with respect to Maker unless
otherwise noted, dated the Closing Date:
(a) Executed originals of the Loan Documents (including
this Note); and
(b) Such other documents as Payee may reasonably request.
Upon satisfaction of such conditions, Payee shall deliver $___________ payable
in lawful money of the United States of America, and in same day funds, to Maker
by wire transfer to Maker's account, as set forth in the wire instructions
below, or at such place as Maker may designate in writing.
MAKER WIRE INSTRUCTIONS
FREMONT GOLD CORPORATION
-------------------------------
-------------------------------
-------------------------------
<PAGE> 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Maker hereby represents and warrants to Payee, as of the date hereof,
as follows:
3.1 Organization. Maker is a corporation, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to conduct its business
and to own and lease its properties.
3.2 Authorization. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action of the
Maker. The Loan Documents executed on or prior to the date of this Note are, and
the Loan Documents executed subsequent thereto will be, legal, valid and binding
obligations of the Maker to the extent it is a party thereto, enforceable
against it with their respective terms.
3.3 Consents and Approvals. No consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority, or any other person or entity, is required to be made or obtained by
the Maker in connection with the execution, delivery and performance of the Loan
Documents and the consummation of the transactions contemplated thereby, except
those which have been obtained or made.
3.4 Disclosure. No representation or warranty of the Maker contained in
any Loan Document or any other document, certificate or written statement
furnished to Payee by or on behalf of the Maker for use in connection with the
transactions contemplated by the Loan Documents contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
ARTICLE IV
COVENANTS
4.1 Affirmative Covenants. So long as any amount under this Note or any
other Loan Document shall remain unpaid, Maker will, unless Payee otherwise
consents in writing:
(a) Accounting Records. Maintain, and cause each of its
Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit
preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP").
(b) Litigation. Promptly upon any officer of Maker obtaining
knowledge of (i) the institution of any action, suit, proceeding,
governmental investigation or arbitration against or affecting the
Maker or any property of the Maker where alleged damages or the amount
in controversy exceeds $100,000 or the imposition of any administrative
penalty or fine in excess of $25,000 or (ii) any material development
in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting the Maker or any
property of the Maker which is
<PAGE> 4
reasonably likely to have a material adverse effect, Maker will, within
three Business Days, give written notice thereof to Payee and provide
such other information as may be reasonably available to it to enable
Payee and its counsel to evaluate such matter.
(c) Payment of Taxes and Claims. Pay, and cause each of its
Subsidiaries to pay, (i) all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or with
respect to any of its franchises, business, income or property before
any penalty accrues thereon and (ii) all claims (including claims for
labor, services, materials and supplies) for sums that have become due
and payable and that by law have or may become a lien upon any of its
properties or assets before any penalty or fine is incurred with
respect thereto; provided that no such tax, charge or claim need be
paid if Maker or such Subsidiary is contesting same in good faith by
appropriate proceedings promptly instituted and diligently conducted.
(d) Compliance with Laws. (i) Comply with, and cause each of
its Subsidiaries to comply in all material respects with, the
requirements of all applicable laws, rules, regulations and orders of
any governmental authority as now in effect and which may be imposed in
the future in all jurisdictions in which it or any such Subsidiary is
now doing business or may hereafter be doing business, and (ii)
maintain and will cause each of its Subsidiaries to maintain all
licenses and permits now held or hereafter acquired by Maker or any
such Subsidiary.
(e) Notices. Promptly (but in no event more than two Business
Days after the occurrence of each such event or matter) give written
notice to Payee in reasonable detail of the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice
or the passage of time or both would constitute an Event of Default.
4.2 Negative Covenants. So long as any amounts under this Note or any
other Loan Document shall remain unpaid, Maker will not, without the written
consent of Payee:
(a) No Restrictions on Distributions to Maker. Except pursuant
to the Loan Documents, create or otherwise cause or suffer to exist or
become effective, or permit any of its Subsidiaries to create or
otherwise cause or suffer to exist or become effective, any consensual
encumbrance or restriction of any kind on the ability of any such
Subsidiary to: (i) pay dividends or make any other distribution on any
of such Subsidiary's capital stock owned by Maker or any Subsidiary;
(ii) pay any indebtedness owed to Maker or any Subsidiary of Maker;
(iii) make loans or advances to Maker or any Subsidiary of Maker; or
(iv) transfer any of its property or assets to Maker or any Subsidiary
of Maker.
(b) Disposal of Stock. Permit any of its Subsidiaries to
issue, sell, assign, pledge or otherwise encumber or dispose of, any
shares of capital stock or other equity securities in any of its
Subsidiaries including warrants, rights or options to
<PAGE> 5
acquire shares or other equity securities of any of its Subsidiaries,
except to Maker or any wholly-owned Subsidiary of Maker.
ARTICLE V
EVENTS OF DEFAULT
5.1 If any of the following events (each an "Event of Default") shall
occur and be continuing:
(a) Failure of Maker to pay any principal or fee, under this
Note when due, whether at stated maturity, by declaration,
acceleration, demand or otherwise, or failure of Maker to pay any
interest or other amount under this Note within five Business Days
after the date due; or
(b) Any default by any Loan Party in the performance of or
compliance with any obligation, covenant, agreement or other provision
contained herein or in any other Loan Document, which if reasonably
susceptible to cure, is not cured within 30 days after the Maker has
knowledge thereof or Maker receives written notice thereof from Payee;
or
(c) Maker or any of its Subsidiaries shall become insolvent,
or shall suffer or consent to or apply for the appointment of a
receiver, trustee, custodian or liquidator of itself or any of its
property, or shall generally fail to pay its debts as they become due,
or shall make a general assignment for the benefit of creditors; Maker
or any of its Subsidiaries shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under Title 11 of
the United States Code entitled "Bankruptcy," as amended or ratified
from time to time (the "Bankruptcy Code"), or under any state or
federal law granting relief to debtors, whether now or hereafter in
effect, or take any action in furtherance of the foregoing; or any
involuntary petition or proceeding pursuant to said Bankruptcy Code or
any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced
against Maker or any of its Subsidiaries, and such proceeding continues
undischarged, undismissed or unstayed for a period of 30 days (or 45
days, if such event occurs during the Term Period, if any), or Maker or
any of its Subsidiaries shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition;
or Maker or any of its Subsidiaries shall be adjudicated a bankrupt, or
an order for relief shall be entered by any court of competent
jurisdiction under said Bankruptcy Code or any other applicable state
or federal law relating to bankruptcy, reorganization or other relief
for debtors; or
(d) The dissolution or liquidation of the Maker, or if any of
the respective directors or stockholders of the Maker, shall take
action seeking to effect the dissolution or liquidation of the Maker;
or
<PAGE> 6
(e) Maker shall cease to own directly 100% of the outstanding
capital stock of Flagship; or
(f) Flagship shall cease to own directly at least 99% of the
outstanding capital stock of Minera;
then, and in any such event, (A) Payee may, by notice to Maker, declare this
Note, all interest thereon and all other amounts payable under this Note to be
forthwith due and payable, whereupon this Note, all such interest and all such
amounts shall become and be forthwith due and payable in full, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by Maker, and (B) Payee shall have all rights, powers
and remedies available hereunder and under each of the other Loan Documents, or
accorded by law or otherwise.
ARTICLE VI
DEFINITIONS
6.1 Definitions. The following terms used in this Note shall have the
following meanings (and any of such terms may, unless the context otherwise
requires, be used in the singular or the plural depending on the reference):
"Bankruptcy Code" has the meaning specified in Section 7.1(g).
"Business Day" means any day other than a Saturday, Sunday or legal
holiday under the laws of the State of Arizona or any other day on which banking
institutions located in such state are authorized or required by law or other
governmental action to close.
"Closing Date" has the meaning specified in Section 3.1.
"Event of Default" means any of the events set forth in Article V.
"Flagship" means Flagship Holding Ltd., a Barbados corporation.
"GAAP" has the meaning specified in Section IV.I(a).
"Loan Documents" means and includes this Note, the Warrant and all
other instruments, documents and agreements executed by or on behalf of any Loan
Party and delivered concurrently with this Note or at any time thereafter to or
for the benefit of Payee in connection with the extensions of credit evidenced
by this Note and other transactions contemplated by this Note, all as amended,
supplemented or modified from time to time.
"Loan Parties" means the Maker and any Subsidiary of Maker which
hereafter becomes a party to any Loan Document.
"Maker" has the meaning specified in the first paragraph of this Note.
<PAGE> 7
"Maturity Date" means UPON DEMAND OF PAYEE.
"Minera" means Minera Fremont Gold Chile S.A., a Chile corporation.
"Note" has the meaning specified in the first paragraph of this
document.
"Payee" has the meaning specified in the first paragraph of this Note.
"Subsidiary" means, with respect to Maker, any corporation,
association, partnership, joint venture or other business entity of which 50% or
more of the voting stock or other equity interests is owned or controlled
directly or indirectly by Maker.
"Warrant" means that certain warrant, dated JUNE 13, 1997, issued by
Maker to Payee, to purchase ________ shares of Maker's Common Stock, par value
$.001, at $2.00US per share for a period expiring JUNE 13, 1999.
ARTICLE VII
MISCELLANEOUS
7.1 Amendments, Etc. No amendment or waiver of any provision of this
Note, nor consent to any departure by Maker herefrom, shall in any event be
effective unless the same shall be in writing and signed by Payee, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
7.2 Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier communication) and mailed,
telecopied, or delivered, to Maker or Payee, as applicable, at their respective
addresses specified on the signature pages hereof, or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other party. All such notices and communications shall, when mailed or
telecopied, be effective when deposited in the mails or telecopied with receipt
confirmed, respectively.
7.3 No Waiver; Remedies. No failure on the part of Payee to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. All rights, powers and remedies of Payee in connection with each of the
Loan Documents are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.
7.4 Severability; Headings. In the event that any one or more
provisions of this Note shall be held to be illegal, invalid or otherwise
unenforceable, the same shall not affect any other provisions of this Note and
the remaining provisions of this Note shall remain in full force and effect.
Section and subsection headings in this Note are included herein for convenience
of reference only and shall not constitute a part of this Note for any other
purpose or be given any substantive effect.
<PAGE> 8
7.5 Binding Effect, Etc. This Note shall be binding upon and inure to
the benefit of Maker and Payee and their respective successors and assigns.
Payee may assign or otherwise transfer, or grant participations in, this Note or
all or any portion of its rights hereunder or its interest herein to any person
or entity, but Maker may not assign or otherwise transfer its rights or
obligations hereunder or any interest herein without the prior written consent
of Payee and any attempted assignment by Maker shall be null and void and of no
force or effect.
7.6 Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
7.7 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default or event which with notice or lapse of
time or both would become an Event of Default if such action is taken or
condition exists.
7.8 Representation of Payee. By its acceptance of this Note, Payee
hereby represents that (i) it is an "accredited investor" as defined in Rule 501
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and (ii) it is acquiring this Note and the Warrant for
investment purposes and without a view to, or for resale in connection with, any
public distribution.
7.9 Interpretation. Payee hereby waives the benefit of any statute or
rule of law or judicial decision which would otherwise require that the
provisions of this Note be construed or interpreted more strongly against the
party responsible for the drafting thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 9
IN WITNESS WHEREOF, Maker has caused this Note to be executed by its
officer thereunto duly authorized, as of the date first written above.
FREMONT GOLD CORPORATION, a Delaware
corporation
By:
Name: Edward M. Topham
Title: Chief Financial Officer
Notice Address: 777 Hornby Street, Suite 2000
Vancouver, British Columbia V6Z1S4
ACCEPTED AND AGREED as of
this _____ day of _______________,
1997:
____________________________, a
_____________ corporation
By:
Name:
Title:
Notice Address:
<PAGE> 1
Exhibit 4.6.2
THIS WARRANT HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE "ACTS").
NEITHER THIS WARRANT NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE PROPOSED TRANSACTION DOES NOT
REQUIRE REGISTRATION OR QUALIFICATION UNDER ALL OF THE APPLICABLE ACTS, OR AN
OPINION OF COUNSEL SATISFACTORY TO FREMONT GOLD CORPORATION TO THE EFFECT THAT
SUCH REGISTRATIONS ARE NOT REQUIRED OR THE PROPOSED TRANSACTION IS REGISTERED OR
QUALIFIED AS REQUIRED BY ANY APPLICABLE ACTS. THIS WARRANT IS SUBJECT TO OTHER
LIMITATIONS ON TRANSFER.
WARRANT
TO PURCHASE COMMON STOCK OF
FREMONT GOLD CORPORATION
EXPIRING ON JUNE 13, 1999
Fremont Gold Corporation ("Company"), a Delaware corporation, hereby
certifies that, for value received, _________ ("Holder"), whose address is
_________________ is entitled, subject to the terms set forth below at any time
or from time to time after the date hereof and before the Expiration Date (as
defined below), to purchase from the Company _________ shares ("Shares") of
Common Stock ("Common Stock"), par value $.001 per share, at a purchase price
per Share of US$2.00 (the purchase price per Share, as adjusted from time to
time pursuant to the provisions herein set forth, is referred to in this Warrant
as the "Purchase Price").
This Warrant is being issued to the Holder pursuant to the terms of
that certain Promissory Note in the original principal amount of
US$________________, dated JUNE 13, 1997, issued by the Company in favor of
Holder.
1 TERM OF THE WARRANT.
1.1 Time of Exercise. Subject to the provisions of Sections 1.5,
"Transfer and Assignment," this Warrant may be exercised at any time and from
time to time after its issuance but no later than 5:00 p.m., M.S.T., JUNE 13,
1999 ("Expiration Date"), at which point it shall become void and all rights
under this Warrant shall cease.
1.2 Manner of Exercise.
1.2.1 The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its corporate
office at 777 Hornby Street, Suite 2000, Vancouver,
<PAGE> 2
British Columbia, Canada V62 1S4, together with the full Purchase Price for each
Share to be purchased in lawful money of the United States, or by certified
check, bank draft or postal or express money order payable in United States
dollars to the order of the Company, and upon compliance with and subject to the
conditions set forth in this Warrant.
1.2.2 Upon receipt of this Warrant with the form of
subscription duly executed and accompanied by payment of the aggregate Purchase
Price for the Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates or other evidence of ownership, for the
total number of whole Shares for which this Warrant is being exercised in such
denominations as are required for delivery to the Holder, and the Company shall
thereupon deliver such documents to the Holder or its nominee.
1.2.3 If the Holder exercises this Warrant with respect to
fewer than all of the Shares that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when
due and payable any and all taxes which may be payable in respect of the issue
of this Warrant, or the issue of any Shares upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of this Warrant
or of the Shares in a name other than that of the Holder at the time of
surrender, and until the payment of such tax, the Company shall not be required
to issue such Shares.
1.2.5 Holder understands and agrees that the Shares issued
upon exercise hereof will be "restricted securities," as that term is defined in
the Securities and Exchange Commission's Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act), and as such will be
subject to the restrictions on transfer and sale.
1.3 Exchange of Warrant. This Warrant may be split-up, combined or
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any other
Warrants to be so split-up, combined or exchanged, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of a Share. The Company may
require the Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants. The term "Warrant" as used herein includes any Warrants
issued in substitution for or replacement of this Warrant, or into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction of reasonably
satisfactory indemnification, including a surety bond if required by the
Company, and upon surrender and cancellation of this Warrant, if mutilated, the
Company
<PAGE> 3
will cause to be executed and delivered a new Warrant of like tenor and date.
Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this Warrant
so lost, stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
1.4 Holder as Owner. Subject to the limitations on transfer pursuant to
Section 1.5 hereof, prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing hereon)
for the purpose of any exercise hereof and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Irrespective of the
date of issue and delivery of certificates for any Common Stock issuable upon
the exercise of the Warrant, each person in whose name any such certificate is
issued shall be deemed to have become the holder of record of the Shares
represented thereby on the date on which all or a portion of the Warrant
surrendered in connection with the subscription therefor was surrendered and
payment of the purchase price was tendered. No surrender of all or a portion of
the Warrant on any date when the stock transfer books of the Company are closed,
however, shall be effective to constitute the person or persons entitled to
receive Shares upon such surrender as the record holder of such Shares on such
date, but such person or persons shall be constituted the record holder or
holders of such Shares at the close of business on the next succeeding date on
which the stock transfer books are opened. Each person holding any Shares
received upon exercise of Warrant shall be entitled to receive only dividends or
distributions payable to holders of record on or after the date on which such
person shall be deemed to have become the holder of record of such Shares.
1.5 Transfer and Assignment. This Warrant may not be sold,
hypothecated, assigned or transferred in any other manner except with the prior
written consent of the Company. All requests for the Company's written consent
to the sale, hypothecation, assignment or transfer, in any manner (each a
"Transfer") of this Warrant shall be made in a writing delivered to the Company
at its corporate office located at 777 Hornby Street, Vancouver, British
Columbia, Canada V6Z 1S4. The Company shall be entitled, for any reason or no
reason, to refuse to grant consent to the Transfer of this Warrant and nothing
contained herein shall be deemed to obligate the Company, in any manner, to
grant its consent to any Transfer of this Warrant. Prior to any Transfer of this
Warrant, the registered holder of this Warrant agrees to deliver to the Company
an opinion of counsel, concurred in by the reasonable opinion of Counsel to the
Company, that the proposed transfer may be effected without registration or
qualification under the Securities Act and any other applicable securities laws.
1.6 Method for Assignment. Any Transfer permitted under this Warrant
shall be made by surrender of this Warrant to the Company at its corporate
office with the form of assignment attached hereto duly executed and funds
sufficient to pay any transfer tax. In such event, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee designated
in such instrument of assignment and this Warrant shall promptly be canceled.
This Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation thereof at the corporate office of the Company together
with a written notice signed by the Holder, specifying the names and
denominations in which such new Warrants are to be issued.
<PAGE> 4
1.7 Rights of Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or consent or receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company. If, however, at any time prior to the expiration
of this Warrant and prior to its exercise, any of the following shall occur:
1.7.1 The Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings; as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
1.7.2 The Company shall offer to the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
1.7.3 There shall be proposed any capital reorganization or
reclassification of the Common Stock, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another entity; or
1.7.4 There shall be proposed a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
thirty (30) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Common Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution, liquidation or
winding up of the Company, the right to exercise this Warrant shall terminate).
Without limiting the obligation of the Company to provide notice to the Holder
of actions hereunder, it is agreed that failure of the Company to give notice
shall not invalidate such action of the Company.
1.8 Lost Warrant Certificate(s). If this Warrant is lost, stolen,
mutilated or destroyed, the Company shall, on such reasonable terms as to
indemnity or otherwise as it may impose, which shall, in the case of a mutilated
Warrant, include the surrender thereof, issue a new Warrant of like denomination
and tenor as, and in substitution for, this Warrant, which shall thereupon
become void.
<PAGE> 5
Any such new Warrant shall constitute an additional contractual obligation of
the Company, whether or not the Warrant so lost, stolen, destroyed or mutilated
shall be at any time enforceable by anyone.
1.9 Registration Rights.
1.9.1 The Holder of the Warrant or Common Stock issued to such
Holder without an effective Registration Statement under the Act ("Restricted
Shares") shall have the right, at any time, to join with the Company to register
the Common Stock underlying the Warrant ("Underlying Common Stock") or
Restricted Shares in any Registration Statement under the Securities Act 1993,
as amended ("Act"), filed by the Company with the Securities and Exchange
Commission ("Commission"), which includes a public offering of equity securities
for cash, either for the account of the Company or for the account of any other
person. This right to join with the Company in a Registration Statement under
the Act is not applicable to a Registration Statement filed by the Company with
the Commission on Form S-4, S-8, or any other inappropriate form. If, at any
time, the Company proposes to file a Registration Statement as described above
with the Commission, it shall, at least thirty (30) days prior to such filing,
give written notice of such proposed filing to the Holder and its designees at
their addresses appearing on the records of the Company and shall offer to
include in any such filing any proposed disposition of the Restricted Shares or
Underlying Common Stock. Within fifteen (15) days of receipt of the Company's
notice of filing, the owners of the Restricted Shares and Underlying Common
Stock may request registration of the Restricted Shares and Underlying Common
Stock pursuant to a written request setting forth the intended method of
distribution and such other data or information as the Company or its counsel
shall reasonably require and such Restricted Shares and Underlying Common Stock
shall be included in the Registration Statement under the Act to the maximum
extent permissible. The Company shall supply said owner(s) with copies of such
Registration Statement, and of the prospectus included therein, in such
quantities as may be reasonably necessary for the purpose of the proposed
disposition.
1.9.2 The Company shall use its best efforts to have such
Registration Statement declared effective by the Commission as soon as
practicable after filing. The Company agrees to use its reasonable best efforts
to keep the Registration Statement continuously effective, and to take any and
all other actions reasonably necessary in order to permit the public resale of
the Common Stock covered by the Registration Statement, until the termination
date of the Warrant. The Company further agrees, if necessary, to supplement or
amend the Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Registration Statement or by the Act or by any other rules or regulations for
registration, including any registration statements filed pursuant to state
securities laws, and the Company agrees to furnish to the Holder of the Warrant
copies of any such supplement or amendment promptly after its being used or
filed with the Commission. The Company shall pay all registration expenses in
connection with the registration pursuant to this paragraph. Such reasonably
expenses shall include all registration of filing fees, all fees and expenses of
compliance with securities or blue sky laws, including reasonable fees and
disbursements of one firm of counsel for the Holder and any placement agents in
connection with blue sky qualifications of the securities being registered,
printing expenses and reasonable fees and disbursements of counsel for the
Company and its independent certified public accountants, the fees and expenses
associated with any
<PAGE> 6
required filing with the National Association of Dealers, Inc. ("NASD"). The
Company is not required to pay any fees or expenses of the Holder, placement
agents or Holder's or placement agent's counsel, other than the blue sky counsel
referred to above, or accountant or any other advisors, including any transfer
taxes, underwriting, brokerage or other discounts and commissions and finder's
or similar fees payable with respect to the Common Stock registered in the
Registration Statement.
1.9.3 The Holder shall pay all costs and expenses incurred by
such Holder, including all transfer taxes, underwriting, brokerage and other
discounts and commissions and finder's and similar fees payable with respect to
the Restricted Shares and Underlying Common Stock registered pursuant to this
Paragraph 1.9, "Registration Rights." To the extent any registration expenses
are incurred, assumed or paid by any Holder or any placement or sales agent
therefor or underwriter thereof with the Company's prior consent, the Company
shall reimburse such person for the full amount of the registration expenses so
incurred, assumed or paid within a reasonable time after receipt of a written
request for the same. Any registration expenses submitted by any Holder,
placement agent, sales agent or underwriter on behalf of any such person for
payment by the Company shall be itemized in detail and contain clear and
accurate receipts of all expenditures made by such parties.
1.9.4 The Company and the Holder shall indemnify and hold
harmless each other and their respective Affiliates from and against any loss,
liability, claim, damage and expense (including reasonable attorneys' fees) to
the extent resulting from any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement pursuant to which the
Restricted Shares and Underlying Common Stock were registered under the Act, or
any amendment thereto, including all documents incorporated by reference, or
from the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statement not misleading; provided
that the obligations of any Holder to indemnify the Company and its Affiliates
shall be limited to the proceeds received by such Holder from the sale of the
Restricted Shares and Underlying Common Stock pursuant to the Registration
Statement and shall only apply with respect to the information furnished in
writing by such Holder or on such Holder's behalf expressly for use in the
Registration Statement or any prospectus relating to the Restricted Shares and
Restricted Shares and Underlying Common Stock or any amendment or supplement
thereto. The indemnification required by this subparagraph 1.9.4 shall be in a
form typical for transactions of such nature.
2. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE UPON
EXERCISE.
2.1 Recapitalization. If the Company shall, while this Warrant remains
unexercised, in whole or in part, and in force effect a recapitalization of such
character that the Shares purchasable hereunder shall be changed into or become
exchangeable for a larger or smaller number of Shares, then, after the date of
record for effecting such recapitalization, the number of Shares which the
Holder hereof shall be entitled to purchase hereunder shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason such recapitalization, and of
the Purchase Price, whether or not in effect immediately prior to the time of
such recapitalization, of such recapitalized Common Stock shall in the case of
an
<PAGE> 7
increase in the number of such Shares be proportionately reduced, and in the
case of a decrease in the number of such Shares shall be proportionately
increased. For the purposes of this Section 2.1, a stock dividend, stock
split-up or reverse split shall be considered as a recapitalization and as an
exchange for a larger or smaller number of shares, as the case may be.
2.2 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then, as a condition of such consolidation, merger or sale or
conveyance, adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant, such shares of stock or securities as may be issued
in connection with such consolidation, merger, or sale or conveyance with
respect to or in exchange for the number of outstanding shares of Common Stock
equal to the number of Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented by this Warrant had such
consolidation, merger, sale or conveyance not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions of this Warrant shall
be applicable as nearly as may be in relation to any Shares thereafter
deliverable upon the exercise hereof.
2.3 Notice of Dissolution or Liquidation. Except as otherwise provided
in Section 2.2, "Merger or Consolidation," in the case of any sale or conveyance
of all or substantially all of the assets of the Company in connection with a
plan of complete liquidation of the Company, or in the case of the dissolution,
liquidation or winding-up of the Company, all rights under this Warrant shall
terminate on a date fixed by the Company, such date so fixed to be not earlier
than the date of the commencement of the proceedings for such dissolution,
liquidation or winding-up and not later than thirty (30) days after such
commencement date. Notice of such termination of purchase rights shall be given
to the Holder at least thirty (30) days prior to such termination date.
2.4 Statement of Adjustment. Any adjustment pursuant to the provisions
of this Section 2 shall be made on the basis of the number of Shares which the
Holder would have been entitled to acquire by exercise of this Warrant
immediately prior to the event giving rise to such adjustment and, as to the
Purchase Price in effect immediately prior to the rise to such adjustment.
Whenever any such adjustment is required to be made, the Company shall forthwith
determine the new number of Shares which the Holder hereof shall be entitled to
purchase hereunder and/or such new Purchase Price and shall prepare, retain on
file and transmit to the Holder within ten (10) days after such preparation a
statement describing in reasonable detail the method used in calculating such
adjustment.
2.5 No Fractional Shares. The Company shall not issue any fraction of a
Share in connection with the exercise of this Warrant, and in any case where the
Holder would, except for the provisions of this Section 2.5, be entitled under
the terms of this Warrant to receive a fraction of a Share upon such exercise,
the Company shall upon the exercise and receipt of the Purchase Price, issue the
largest number of whole Shares purchasable upon exercise of this Warrant. The
Company
<PAGE> 8
shall not be required to make any cash or other adjustment in respect of such
fraction of a Share to which the Holder would otherwise be entitled. The Holder,
by the acceptance of this Warrant, expressly waives his right to receive a
certificate for any fraction of a Share upon exercise hereof.
2.6 No Change in Form Required. The form of Warrant need not be changed
because of any change pursuant to this Section 2 in the Purchase Price or in the
number of Shares purchasable upon the exercise of a Warrant.
3. RESERVATION OF SHARES. The Company shall at all times reserve, for the
purpose of issuance on exercise of this Warrant such number of shares of Common
Stock or such class or classes of capital stock or other securities as shall
from time to time be sufficient to comply with this Warrant and the Company
shall take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized and unissued shares of Common Stock or such
other class or classes of capital stock or other securities to such number as
shall be sufficient for that purpose. All Shares issued upon exercise of this
Warrant shall be duly authorized, validly issued and outstanding, fully paid and
non-assessable.
4. SURVIVAL. All agreements, covenants, representations and warranties herein
shall survive the execution and delivery of this Warrant and any investigation
at any time made by or on behalf of any parties hereto and the exercise, sale
and purchase of this Warrant (and any other securities or property) issuable on
exercise hereof.
5. REMEDIES. The Company agrees that the remedies at law of the Holder, in the
event of any default or threatened default by the Company in the performance or
compliance with any of the terms of this Warrant, may not be adequate and such
terms may, in addition to and not in lieu of any other remedy, be specifically
enforced by a decree of specific performance of any agreement contained herein
or by an injunction against a violation of any of the terms hereof or otherwise.
6. OTHER MATTERS.
6.1 Binding Effect. All the covenants and provisions of this Warrant by
or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
6.2 Notices. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
and addressed, until another address is designated in writing by the Company, as
follows:
Fremont Gold Corporation
777 Hornby Street
Suite 2000
Vancouver, British Columbia, Canada V6Z 1S4
Attn: Chief Financial Officer
<PAGE> 9
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at the Holder's last
known address as it shall appear on the books of the Company.
6.3 Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of Delaware.
6.4 Parties Bound and Benefitted. Nothing in this Warrant expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and, if
permitted, its assignees.
6.5 Headings. The Article headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
7. ARBITRATION.
7.1 Arbitration. The parties waive their right to seek remedies in
court, including any right to a jury trial. The parties agree that in the event
of any dispute arising relating to this contract, such dispute shall be settled
only by arbitration to be conducted only in San Francisco, California, in
accordance with the rules of the Judicial Arbitration and Mediation Services
("JAMS") applying the laws of California. Any award rendered by the arbitrators
shall be final and binding and any judgment may be entered upon it in any court
of competent jurisdiciton.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 10
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under its
corporate seal as of the _____ day of June, 1997.
FREMONT GOLD CORPORATION
By:
Edward M. Topham, Chief Financial Officer
<PAGE> 11
FREMONT GOLD CORPORATION
ASSIGNMENT
FOR VALUE RECEIVED, and with the prior written consent of Fremont Gold
Corporation, Holder hereby sells, assigns and transfers unto
______________________________ the right to purchase ________________ shares
subject to the Warrant and the rights represented thereby, and does hereby
irrevocably constitute and appoint ______________________________ Attorney, to
transfer said Warrant, or portion thereof, on the books of the Company, with
full power of substitution.
Dated:
Signed:
Print Name:
<PAGE> 12
SUBSCRIPTION FORM
FREMONT GOLD CORPORATION
777 HORNBY STREET
SUITE 2000
VANCOUVER, BRITISH COLUMBIA, CANADA V62 1S4
The undersigned hereby irrevocably subscribes for the purchase of
_____________ shares of Common Stock ("Shares"), pursuant to and in accordance
with the terms and conditions of this Warrant, and herewith makes payment,
covering the purchase of the Shares, which should be delivered to the
undersigned at the address stated below, and, if such number of Shares shall not
be all of the Shares purchasable hereunder, then a new Warrant of like tenor for
the balance of the remaining Shares purchasable under this Warrant be delivered
to the undersigned at the address stated below.
Signed:
Dated:
Address:
<PAGE> 1
EXHIBIT 5
[STREICH LANG, P.A. LETTERHEAD]
July 15, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Fremont Gold Corporation Amendment No. 2 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 4,097,333 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 are, or 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 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
I hereby consent to the incorporation by reference in this Amendment #2 to the
Registration Statement on Form SB-2 of my report dated February 20, 1996
relating to the financial statements of Fremont Gold Corporation, formerly
known as The Rothchild Companies, Inc., as of December 31, 1995, and for each
of the years ended December 31, 1995 and 1994. I also consent to the reference
to myself under the caption "Experts" in the Prospectus included in the
Registration Statement.
/s/ Thomas Klash
- ------------------------------
Thomas W. Klash
Certified Public Accountant
Hollywood, Florida
July 15, 1997
<PAGE> 1
Exhibit 23.3
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
The Board of Directors
Fremont Gold Corporation
We consent to the use of 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
of December 31, 1996 and the consolidated statements of operations,
shareholders' deficit and cash flows for the year 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 states 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
July 16, 1997
<PAGE> 1
EXHIBIT 23.4
[OSSANDON FIRM LETTERHEAD]
July 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Fremont Gold Corporation
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. 2 to Form SB-2 Registration Statement registering 4,097,333 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 opinion as
Exhibit 23 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 of Common Stock for offer and sale in such states.
Sincerely,
/s/ Roberto Ossandon
Roberto Ossandon
