(Date tender offer first published, sent or given to security
holders)
CALCULATION OF REGISTRATION FEE
Transaction
Amount of
Title of Securities to be Registered
Valuation(2)
Filing Fee(2)
US Gold Holdings Corporation common stock, par value $0.0001 per
share(1)
$160,404,232
$17,164
US Gold Canadian Acquisition Corporation exchangeable shares,
without par value(1)
$160,404,232
(3)
(1)
This Tender Offer Statement relates to common stock of US Gold
Holdings Corporation, which is intended to be the successor
registrant to U.S. Gold Corporation, a Colorado
corporation, and up to an identical number of exchangeable
shares of US Gold Canadian Acquisition Corporation, to be issued
(a) in exchange for all of the issued and outstanding
common shares of White Knight Resources Ltd., a corporation
existing under the Business Corporations Act (British Columbia)
(“White Knight”), pursuant to the offer to purchase
all of the issued and outstanding common shares of White Knight,
(b) in connection with a proposed subsequent acquisition
transaction to acquire any White Knight common shares not
acquired in the offer to purchase and (c) upon exercise of
options and warrants to purchase White Knight common shares, to
the extent assumed and converted into options and warrants to
purchase US Gold Holdings Corporation or US Gold Canadian
Acquisition Corporation stock in connection with a subsequent
acquisition transaction.
(2)
The transaction valuation and the amount of filing fee has been
calculated pursuant to the instructions in Schedule 14D-1F
in accordance with the
Rule 0-11 of the
Securities Exchange Act of 1934. The transaction valuation was
determined based on an offer to purchase approximately
66,009,972 common shares of White Knight outstanding on
February 27, 2006, at an average of the high and low prices
for White Knight common shares reported on the TSX Venture
Exchange on April 26, 2006, for a price of $2.42 per share.
(3)
The filing fee for the exchangeable shares is reflected in the
fee payable for the US Gold Holdings Corporation common stock.
þ
Check box if any part of the fee is offset as provided by
Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
Offer to Purchase dated May 1, 2006, including Letter of
Acceptance and Transmittal, Notice of Guaranteed Delivery and
Summary Term Sheet.
Item 2.
Informational Legends
See “Notice to Shareholders in the United States” in
the Offer to Purchase dated May 1, 2006.
The information contained herein may be
changed. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. The
registrants may not complete the offer to purchase and issue
these securities until the registration statement is effective.
This offer to purchase is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state or jurisdiction in which such offer is not permitted.
This document is important and requires your immediate
attention. If you have any questions as to how to deal with it,
you are encouraged to consult your investment dealer, lawyer or
other professional advisor. No securities regulatory authority
has expressed an opinion about the securities that are subject
to this offer to purchase and it is an offence to claim
otherwise. This offer to purchase has not been approved by any
securities regulatory authority nor has any securities
regulatory authority passed upon the fairness or merits of this
offer to purchase or upon the adequacy of the information
contained in this document. Any representation to the contrary
is an offence.
either of the following per 1.0 White Knight common share, at
the election of the depositing holder:
0.35 shares of common stock of US Gold Holdings Corporation;
or
0.35 Exchangeable Shares of US Gold Canadian Acquisition
Corporation
subject to the procedures and limitations described in this
offer to purchase and the related letter of acceptance and
transmittal
The Offer by U.S. Gold Corporation (“U.S. Gold”) and
its wholly-owned subsidiaries, US Gold Holdings Corporation
(“New US Gold”) and US Gold Canadian Acquisition
Corporation (“Canadian Exchange Co.” and together with
U.S. Gold and New US Gold, the “Offerors”) to purchase
all of the outstanding common shares (the “Common
Shares”) of White Knight Resources Ltd. (“White
Knight”) will be open for acceptance until 5:00 p.m.
(Vancouver time) on June 28, 2006, unless the Offer is
extended or withdrawn by the Offerors (the “Expiry
Time”).
The Common Shares are listed for trading on the TSX Venture
Exchange (the “TSX-V”) under the symbol
“WKR-V.” Common stock of U.S. Gold is traded over the
counter and quoted on the Over-the-Counter Bulletin Board
(the “OTCBB”) under the symbol “USGL.” The
following table sets forth the closing prices of the Common
Shares as reported on the TSX-V and common stock of U.S. Gold as
reported on the OTCBB on: (i) March 3, 2006, the last
trading day preceding the initial public announcement of U.S.
Gold’s proposed business combination with White Knight; and
(ii) April 28, 2006, the most recent trading day
practicable before the filing of this Offer.
TSX-V
OTCBB
March 3,
April 28,
March 3,
April 28,
Issuer
2006
2006
2006
2006
White Knight
Cdn$1.79
Cdn$2.78
—
—
U.S. Gold
—
—
US$5.65
US$8.95
On March 3, 2006, the exchange rate for one U.S. dollar
expressed in Canadian dollars based upon the noon exchange rate
provided by the Bank of Canada was Cdn$1.13. On April 28,2006, the exchange rate for one U.S. dollar expressed in
Canadian dollars based upon the noon exchange rate provided by
the Bank of Canada was Cdn$1.12.
Prior to the consummation of the Offer, subject to approval by
U.S. Gold’s shareholders, U.S. Gold will effect a
reorganization whereby it will become a wholly-owned subsidiary
of New US Gold and the name of New US Gold will be changed to
“US Gold Corporation.” All of the outstanding shares
of common stock of U.S. Gold will become, without any further
action on the part of the holders thereof, shares of common
stock of New US Gold having rights and privileges substantially
the same as the existing shares of common stock of U.S. Gold.
Common Shares which are taken up will be exchanged for either
shares of common stock of New US Gold or exchangeable shares
(“Exchangeable Shares”) of Canadian Exchange Co., at
the election of the White Knight shareholder
(“Shareholder”) who deposits such Common Shares under
the Offer. The Exchangeable Shares will, under the circumstances
described herein, be exchangeable for shares of common stock of
New US Gold on a one-for-one basis.
The Offer is subject to certain conditions, including, without
limitation, there being properly deposited under the Offer and
not withdrawn at the Expiry Time that number of Common Shares
that constitutes at least
662/3
% of the Common Shares outstanding calculated on a
fully-diluted basis at the time Common Shares are taken up under
the Offer, the shares of common stock of New US Gold shall have
been approved for listing on the TSX and the AMEX and the
Exchangeable Shares shall have been approved for listing on the
TSX. Each of the conditions of the Offer is set forth in the
section entitled “Conditions of the Offer” on
page 29 of this Offer.
Shareholders who wish to accept the Offer must follow the
instructions in the section entitled “Manner of
Acceptance” on page 27 of this Offer.
The Offer is being made only for Common Shares and is not being
made for any warrants (“Warrants”), options or other
securities that may entitle the holder to acquire Common Shares.
Any holder of such securities who wishes to accept the Offer
must exercise those securities and deposit the Common Shares
issued in accordance with the Offer. Any such exercise must be
sufficiently in advance of the Expiry Time to permit the Common
Shares acquired on the exercise of those securities to be
deposited under the Offer in accordance with the procedures
described under the sections entitled “Time for
Acceptance” and “Manner of Acceptance” on
page 27, respectively, of this Offer. However, if, after
completion of the Offer, the Offerors implement a Subsequent
Acquisition Transaction (as defined herein), the Offerors intend
to structure such transaction so that Warrants would be
exchanged for warrants to purchase Exchangeable Shares and the
White Knight stock option plan would be replaced with a stock
option plan of Canadian Exchange Co. or New US Gold. See the
section entitled “Acquisition of Common Shares Not
Deposited — Subsequent Acquisition Transaction”
on page 54 of this Offer.
The securities offered in this Offer involve certain risks.
For a discussion of risk factors that Shareholders should
consider in evaluating the Offer, see the section entitled
“Risk Factors” on page 23 of this Offer.
The Dealer Managers for the Offer are
GMP SECURITIES L.P.
In Canada:
In the United States:
GMP SECURITIES LTD.
GRIFFITHS McBURNEY CORP.
The Offerors have not authorized anyone to provide any
information or make any representation about the Offerors or
their affiliates that is different from, or in addition to, the
information and representations contained in this Offer or in
any of the materials regarding the Offerors or their affiliates
accompanying this document. Shareholders should not rely on any
information or representations regarding the Offerors or their
affiliates not contained in this Offer. The Offer does not apply
to any jurisdiction where offers to sell, or solicitations of
offers to purchase, the securities offered by this document are
unlawful, or to persons to whom it is unlawful to direct these
types of activities. The information contained in this document
speaks only as of the date of this document, and the Offerors do
not undertake any duty to update any such information, except to
reflect a material change in the information previously
disclosed as required by applicable law.
THIS OFFER, WHICH THE OFFER TO PURCHASE AND CIRCULAR ARE
INCORPORATED INTO AND FORM PART OF, AND THE ACCOMPANYING LETTER
OF ACCEPTANCE AND TRANSMITTAL AND NOTICE OF GUARANTEED DELIVERY
CONTAIN IMPORTANT INFORMATION. YOU SHOULD CAREFULLY READ THESE
DOCUMENTS IN THEIR ENTIRETY BEFORE MAKING A DECISION WITH
RESPECT TO THE OFFER.
NOTICE TO SHAREHOLDERS IN THE UNITED STATES
Securities and Tax Law Matters
The Offer is made for the securities of a Canadian issuer and by
an issuer that is permitted, under a multijurisdictional
disclosure system adopted by the United States, to prepare this
Offer in accordance with the disclosure requirements of Canada.
Shareholders should be aware that such requirements are
different from those of the United States.
Shareholders should be aware that the disposition of the Common
Shares and the acquisition of shares of common stock of New US
Gold or Exchangeable Shares by them as described herein may have
tax consequences both in the United States and in Canada. Such
consequences may not be fully described herein and Shareholders
are encouraged to consult their tax advisors. See the sections
entitled “Material Canadian Federal Income Tax
Considerations” and “Material U.S. Federal Income
Tax Considerations” on pages 59 and 69,
respectively, of this Offer.
The enforcement by Shareholders of civil liabilities under
United States federal securities laws may be affected adversely
by the fact that White Knight is located outside the United
States, that some or all of the Offerors’ officers and
directors may be residents of a foreign country, that some or
all of the experts herein may be residents of a foreign country
and that all or a substantial portion of the assets may be
located outside the United States.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFER
AND CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This tender offer is made for the securities of a foreign
issuer and while the offer is subject to disclosure requirements
of the country in which the subject company is incorporated or
organized, investors should be aware that these requirements are
different from those of the United States. Financial statements
included herein, if any, have been prepared in accordance with
foreign generally accepted accounting principles and thus may
not be comparable to financial statements of United States
companies.
The enforcement by investors of civil liabilities under the
federal securities laws may be affected adversely by the fact
that the subject company is located in a foreign country, and
that some or all of its officers and directors are residents of
a foreign country.
Investors should be aware that the bidder or its affiliates,
directly or indirectly, may bid for or make purchases of the
issuer’s securities subject to the offer, or of the
issuer’s related securities, during the period of the
tender offer, as permitted by applicable Canadian laws or
provincial regulations.
Investors should be aware that the bidder or its affiliates,
directly or indirectly, may bid for or make purchases of the
issuer’s securities subject to the offer or of the
issuer’s related securities, or of the bidder’s
securities to be distributed or of the bidder’s related
securities, during the period of the tender offer, as permitted
by applicable Canadian laws or provincial laws or
regulations.
WE ARE NOT ASKING YOU FOR AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
Information Regarding U.S. Gold
The SEC allows U.S. Gold to “incorporate by
reference” information into this Offer. This means that
U.S. Gold can disclose information about U.S. Gold,
U.S. Gold’s financial condition and information
relating to the Strategic Offers to Shareholders that reside in
the U.S. by referring Shareholders to another document
filed separately with the SEC. The information incorporated by
reference is considered to be part of this Offer, except for any
information that is superseded by information that is included
directly in this document. The following documents filed with
the SEC are incorporated by reference into this Offer:
•
U.S. Gold’s Annual Report on
Form 10-KSB for
the fiscal year ended December 31, 2005, filed with the SEC
on April 7, 2006 (a copy of which is attached hereto
as Appendix A);
•
U.S. Gold’s Current Reports on
Form 8-K filed on
February 27, March 6, March 31, and May 1,2006; and
•
the description of U.S. Gold common stock contained in
U.S. Gold’s Registration Statement on
Form SB-2 (File
No. 333-133228),
filed on April 12, 2006, and any amendments or reports
filed for the purpose of updating that description.
(ii)
Whenever U.S. Gold files reports or documents under
Sections 13(a), 13(c), 14 or 15(d) of the
U.S. Securities Exchange Act, after the date of this Offer,
those reports and documents will be deemed to automatically be
incorporated into and become a part of this Offer; provided that
no documents that U.S. Gold furnishes under Items 2.02
or 7.01 of
Form 8-K will be
incorporated into this Offer. Any information contained in such
subsequently filed reports that updates, modifies, supplements
or replaces information contained in this Offer automatically
shall supersede and replace such information. Any information
that is modified or superseded by a subsequently filed report or
document shall not be deemed, except as so modified or
superseded, to constitute a part of this Offer.
You may request a copy of these filings incorporated herein by
reference, including exhibits to such documents that are
specifically incorporated by reference, at no cost, by writing
or calling U.S. Gold at the following address or telephone
number:
Documents filed electronically by U.S. Gold with the SEC
also may be obtained without charge at the SEC’s website at
www.sec.gov.
Statements contained in this Offer as to the contents of any
contract or other documents are not necessarily complete, and in
each instance investors are referred to the copy of the contract
or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects
by such reference and the exhibits and schedules thereto.
Certain Financial Information of White Knight
White Knight’s audited consolidated financial statements
for the year ended June 30, 2005 and unaudited consolidated
financial statements for the six months ended December 31,2005 and December 31, 2004, together, in each case, with
management’s discussion and analysis for such period, can
be found in the current report on
Form 8-K filed by
U.S. Gold with the SEC on May 1, 2006, which is
incorporated by reference into this Offer. An audit report was
issued by White Knight’s auditors in connection with the
audit of White Knight’s consolidated financial statements
for the year ended June 30, 2005. The Offerors requested
permission from White Knight’s auditors to include the
audit report in the
Form 8-K filed by
U.S. Gold with the SEC on May 1, 2006. White
Knight’s auditors indicated that they would consent to the
inclusion of the audit report subject to the completion of
certain procedures. If and when such procedures are completed
and the auditors’ consent is granted, U.S. Gold will
file an amended
Form 8-K to
include the audit report. The audit report is available in White
Knight’s publicly filed documents. See the section entitled
“Where You Can Find Additional Information” on
page (iv) of this Offer.
CURRENCY
All references to “$” or “dollars” in this
document refer to United States dollars, unless otherwise
indicated.
FORWARD-LOOKING STATEMENTS
Some of the information included in this Offer (as well as
information included in other documents accompanying this Offer)
may contain forward-looking statements. Forward-looking
statements do not relate strictly to historical or current
facts, often will be phrased in the future-tense, and may
include the words “may,”“could,”“should,”“would,”“believe,”“expect,”“anticipate,”“estimate,”“intend,”“plan” or
other words or expressions of similar meaning. Forward-looking
statements that relate to U.S. Gold or its business are
based on the Offerors’ beliefs and expectations about
future events, and include statements that reflect
management’s beliefs, plans, objectives, goals,
expectations, anticipations and intentions with respect to
U.S. Gold’s financial condition, results of
operations, future performance and business, including
statements relating to U.S. Gold’s business strategy
and U.S. Gold’s current and future development plans.
Although the Offerors believe that the expectations reflected in
its forward-looking statements are reasonable, any or all of the
forward-looking statements in this Offer or in such documents
accompanying this Offer may prove to be incorrect. This may
occur as a result of inaccurate assumptions or as a consequence
of known or unknown risks and uncertainties. Many factors
discussed in this Offer and in such documents accompanying this
Offer, some of which are beyond the Offerors’ control, will
be important in determining U.S. Gold’s or the
combined companies’ future performance. Consequently,
actual results may differ materially from those predicted in or
that might be anticipated from forward-looking statements.
Therefore, Shareholders should not regard such forward-looking
statements as a representation that the predictions or
expectations reflected in the forward-looking statements will be
achieved, and Shareholders should not place undue reliance on
such forward-looking statements.
The Offerors undertake no obligation to publicly update or
revise any forward-looking statements, other than to reflect a
material change in the information previously disclosed, as
required by applicable law. However, Shareholders should review
U.S. Gold’s subsequent reports filed from time to time with
the United States Securities and Exchange Commission on
Forms 10-KSB, 10-QSB and 8-K and any amendments thereto.
(iii)
REPORTING CURRENCIES AND FINANCIAL PRINCIPLES
All financial information contained in this Offer is reported in
U.S. dollars unless otherwise noted. U.S. Gold’s
financial statements are prepared in accordance with United
States generally accepted accounting principles (“US
GAAP”). White Knight’s audited consolidated financial
statements and the notes thereto are stated by White Knight to
have been prepared in accordance with Canadian generally
accepted accounting principles (“Canadian GAAP”), and
all reconciliations of White Knight’s Canadian GAAP
information to US GAAP are based exclusively on information
taken directly from White Knight’s public reports and
filings, unless expressly noted otherwise.
INFORMATION CONCERNING WHITE KNIGHT, CORAL GOLD, NEVADA
PACIFIC,
AND TONE RESOURCES
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold Resources Ltd. (“Coral Gold”), Nevada Pacific
Gold Ltd. (“Nevada Pacific”) and Tone Resources
Limited (“Tone Resources”) as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
See the section entitled “Intentions of the
Offerors — Strategic Rationale for the Offer” on
page 52 of this Offer.
The Offerors have not had access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific or Tone
Resources. As a result, all historical information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources
contained herein, including all historical financial information
used in the preparation of the pro forma financial
information reflecting the pro forma effects of a
combination of (i) U.S. Gold and White Knight, and
(ii) U.S. Gold and White Knight, Coral Gold, Nevada
Pacific and Tone Resources, has been derived from the publicly
filed documents of White Knight, Coral Gold, Nevada Pacific and
Tone Resources. Although the Offerors have no reason to doubt
the accuracy or completeness of the publicly filed documents of
White Knight, Coral Gold, Nevada Pacific and Tone Resources, the
Offerors are not in a position to independently assess or verify
the information in such publicly filed documents, including any
financial statements. See the section entitled “Risk
Factors — The Offerors have been unable to
independently verify the reliability of information in this
Offer regarding White Knight, Coral Gold, Nevada Pacific and
Tone Resources” on page 24 of this Offer.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
U.S. Gold files annual, quarterly and special reports,
proxy statements and other information with the SEC.
Shareholders may read and copy this information at the
SEC’s public reference room located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549.
Shareholders may obtain information on the operation of the
Public Reference Rooms by calling the SEC at
1-800-SEC-0330.
Shareholders may also obtain copies of this information by mail
from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. The SEC also maintains a website at
www.sec.gov from which any electronic filings made by
U.S. Gold may be obtained without charge.
Each of White Knight, Coral Gold, Nevada Pacific and Tone
Resources files audited annual financial statements and
management’s discussion and analysis related thereto,
unaudited interim financial statements and management’s
discussion and analysis related thereto, information circulars
and other information with the Canadian Securities
Administrators on the System for Electronic Document Analysis
and Retrieval, or SEDAR. The Canadian Securities Administrators
maintain a website at www.sedar.com from which any electronic
filings made by White Knight, Coral Gold, Nevada Pacific and
Tone Resources may be obtained without charge. In addition,
White Knight and Coral Gold are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
applicable to foreign private issuers and accordingly file or
furnish reports, including annual reports on
Form 20-F, reports
on Form 6-K and
other information with the SEC, which may be obtained in the
manner described in the immediately preceding paragraph.
(iv)
EXCHANGE RATES
The following table sets forth the average exchange rate for one
U.S. dollar expressed in Canadian dollars for each period
indicated and the exchange rate at the end of such period based
upon the noon exchange rate provided by the Bank of Canada.
On March 3, 2006, the last trading day prior to the
announcement of U.S. Gold’s proposed business
combination with White Knight, the exchange rate for one
U.S. dollar expressed in Canadian dollars based upon the
noon exchange rate provided by the Bank of Canada was Cdn$1.13.
On April 28, 2006, the exchange rate for one
U.S. dollar expressed in Canadian dollars based upon the
noon exchange rate provided by the Bank of Canada was Cdn$1.12.
TERMINOLOGY
Because the Offer is being made pursuant to applicable Canadian
and United States law, certain terms used may be unfamiliar to
you. In particular, the Canadian term “taken up” is
equivalent to “accepted for purchase” in United States
tender offer terminology; shares “deposited under” the
offer to purchase is the Canadian equivalent to the United
States concept of “tendered pursuant to” the offer to
purchase; and an “amalgamation” is the Canadian
equivalent to the United States concept of a “merger.”
In addition, this Offer refers in certain instances to a
“Circular,” which is a Canadian term. Although
described as a separate document to comply with Canadian
practice, the disclosure in the “Circular,” which
begins on page 37 of this Offer, is part of this Offer and
not a separate document.
APPROVAL AND CERTIFICATE OF US GOLD HOLDINGS CORPORATION
98
APPROVAL AND CERTIFICATE OF US GOLD CANADIAN ACQUISITION
CORPORATION
99
APPENDIX A — INFORMATION CONCERNING U.S. GOLD
CORPORATION
A-1
APPENDIX B — CERTAIN INFORMATION REGARDING TONKIN
SPRINGS GOLD PROPERTY OF U.S. GOLD CORPORATION
B-1
APPENDIX C — CERTAIN FINANCIAL STATEMENTS OF U.S. GOLD
CORPORATION
C-1
APPENDIX D — UNAUDITED FINANCIAL STATEMENTS OF US GOLD
HOLDINGS CORPORATION
D-1
APPENDIX E — UNAUDITED FINANCIAL STATEMENTS OF US GOLD
CANADIAN ACQUISITION CORPORATION
E-1
APPENDIX F — UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF U.S. GOLD CORPORATION
F-1
APPENDIX G — UNAUDITED PRO FORMA CONSOLIDATED
SUPPLEMENTARY FINANCIAL STATEMENTS OF U.S. GOLD CORPORATION
G-1
APPENDIX H — RIGHTS, PRIVILEGES, RESTRICTIONS AND
CONDITIONS ATTACHING TO THE EXCHANGEABLE SHARES OF US GOLD
CANADIAN ACQUISITION CORPORATION
H-1
(vii)
DEFINITIONS
In this Offer, unless the subject matter or context is
inconsistent therewith, the following terms have the meanings
set forth below:
“ABCA” means the Business Corporations Act
(Alberta).
“Affected Securities” has the meaning ascribed
thereto in the section entitled “Acquisition of Common
Shares Not Deposited — Subsequent Acquisition
Transaction” on page 54 of this Offer.
“Alberta ULC” means US Gold Alberta ULC, an
unlimited liability corporation existing and governed by the
laws of the Province of Alberta.
“AMEX” means the American Stock Exchange.
“AMF” means l’Agence nationale
d’encadrement du secteur financier for the Province of
Quebec, also known as l’Autorité des marchés
financiers.
“AMF Regulation Q-27”means the regulation
entitled Regulation Q-27 — “Protection of
Minority Securityholders in the Course of Certain
Transactions” of the AMF, as the same may be amended.
“Ancillary Rights” has the meaning ascribed
thereto in the section entitled “Material Canadian Federal
Income Tax Considerations — Shareholders Resident in
Canada — Receipt of Ancillary Rights” on
page 60 of this Offer.
“BCBCA” means the Business Corporations Act
(British Columbia).
“Call Rights” means the rights of New
US Gold or Alberta ULC under the Share Provisions to
acquire Exchangeable Shares from the holders thereof in the
circumstances set forth therein.
“Canadian Exchange Co.” means US Gold Canadian
Acquisition Corporation, a corporation existing under and
governed by the ABCA.
“Canadian GAAP” means Canadian generally
accepted accounting principles.
“Circular” means the take-over bid circular,
which begins on page 37 of this Offer and which is
incorporated into and forms part of this Offer.
“Code” has the meaning ascribed thereto in the
section entitled “Material U.S. Federal Income Tax
Considerations” on page 69 of this Offer.
“Colorado Act” means the Colorado Business
Corporation Act, as amended.
“Coral Gold” means Coral Gold Resources Ltd., a
corporation existing under and governed by the BCBCA.
“Commissioner” has the meaning ascribed thereto
in the section entitled “Regulatory Matters —
Competition Act (Canada)” on page 58 of this Offer.
“Common Shares” means the common shares in the
capital of White Knight.
“CRA” means the Canada Revenue Agency.
“Dealer Manager” means, collectively, GMP
Securities Ltd. in Canada and Griffiths McBurney Corp. in the
United States.
“Deferred Plans” has the meaning ascribed
thereto in the section entitled “Material Canadian Federal
Income Tax Considerations — Shareholders Resident in
Canada — Qualified Investments” on page 66
of this Offer.
“Delaware Law” means the Delaware General
Corporation Law, as amended.
“Depositary” means Kingsdale Shareholder
Services Inc.
“Effective Date” has the meaning ascribed
thereto in the section entitled “Manner of
Acceptance — Power of Attorney” on page 28
of this Offer.
“Elected Amount” has the meaning ascribed
thereto in the section entitled “Material Canadian Federal
Income Tax Considerations — Shareholders Resident in
Canada — Section 85 Election” on
page 62 of this Offer.
“Eligible Institution” means a Canadian
Schedule I chartered bank, a major trust company in Canada,
a member of the Securities Transfer Agents Medallion Program
(STAMP), a member of the Stock Exchanges Medallion Program
(SEMP) or a member of the New York Stock Exchange, Inc.
Medallion Signature Program (MSP).
1
“Exchangeable Shares” means the exchangeable
shares of Canadian Exchange Co., which, in the circumstances
described herein, will be exchangeable for shares of common
stock of New US Gold on a one-for-one basis and have attached
thereto substantially the attributes set out in the Share
Provisions.
“Expiry Time” means 5:00 p.m. (Vancouver time)
on June 28, 2006, or such later time and date as may be
fixed by the Offerors from time to time pursuant to the
provisions of the section entitled “Extension of the Expiry
Time or Variation or Change of the Offer” on page 31
of this Offer.
“Letter of Acceptance and Transmittal” means
the letter of acceptance and transmittal in the form printed on
BLUE paper accompanying this Offer.
“Nevada Pacific” means Nevada Pacific Gold
Ltd., a corporation existing under and governed by the BCBCA.
“New US Gold” means US Gold Holdings
Corporation, a corporation existing under and governed by the
Delaware Law.
“Non-Resident Shareholder” has the meaning
ascribed thereto in the section entitled “Material Canadian
Federal Income Tax Considerations — Shareholders Not
Resident in Canada” on page 68 of this Offer.
“Notice of Guaranteed Delivery” means the
notice of guaranteed delivery in the form printed on GREEN
paper accompanying this Offer.
“Offer” means, as the context may require, this
offer document, which the Offer to Purchase and Circular are
incorporated into and form part of, or the offer by the Offerors
to purchase all of the outstanding Common Shares, the terms and
conditions of which are set forth in this Offer, the Letter of
Acceptance and Transmittal and the Notice of Guaranteed Delivery.
“Offerors” means, collectively, U.S. Gold, New
US Gold and Canadian Exchange Co.
“Offer to Purchase” means the offer to
purchase, which begins on page 26 of this Offer and which
is incorporated into and forms part of this Offer.
“OSC” means the Ontario Securities Commission.
“OSC Rule 61-501” means
Rule 61-501 — Insider Bids, Issuer Bids, Business
Combinations and Related Party Transactions, of the OSC, as the
same may be amended.
“OTCBB” means the Over-the-Counter
Bulletin Board.
“Other Securities” has the meaning ascribed
thereto in the section entitled “Manner of
Acceptance — Power of Attorney” on page 28
of this Offer.
“Purchased Common Shares” has the meaning
ascribed thereto in the section entitled “Manner of
Acceptance — Power of Attorney” on page 28
of this Offer.
“Reorganization” means the holding company
reorganization whereby U.S. Gold will become a wholly-owned
subsidiary of New US Gold and the name of New US Gold will be
changed to “US Gold Corporation.” See the section
entitled “The Offerors — New US Gold and the
Reorganization” on page 38 of this Offer.
“SEC” means the United States Securities and
Exchange Commission.
“Shareholder” means a holder of Common Shares.
“Share Provisions” means the rights,
privileges, restrictions and conditions attaching to the
Exchangeable Shares substantially in the form included in
Appendix H (Rights, Privileges, Restrictions and Conditions
Attaching to the Exchangeable Shares of US Gold Canadian
Acquisition Corporation), which is incorporated into and forms
part of the Circular.
“Soliciting Dealer Group” has the meaning
ascribed thereto in the section entitled “Dealer Manager
and Soliciting Dealer Group; Information Agent” on
page 90 of this Offer.
“Strategic Offers” means the offers by the
Offerors to purchase all of the outstanding shares of each of
White Knight, Coral Gold, Nevada Pacific and Tone Resources.
“Subsequent Acquisition Transaction” has the
meaning ascribed thereto in the section entitled
“Acquisition of Common Shares Not Deposited —
Subsequent Acquisition Transaction” on page 54 of this
Offer.
“Support Agreement” means the support agreement
to be entered into between U.S. Gold, New US Gold, Alberta ULC
and Canadian Exchange Co. See the section entitled
“Exchangeable Shares — Support Agreement” on
page 49 of this Offer.
2
“Tax Act” means the Income Tax Act
(Canada), as amended.
“Tone Resources” means Tone Resources Limited,
a corporation existing under and governed by the BCBCA.
“TSX” means the Toronto Stock Exchange.
“TSX-V” means the TSX Venture Exchange.
“US GAAP” means United States generally
accepted accounting principles.
“U.S. Gold” means U.S. Gold Corporation, a
corporation existing under and governed by the Colorado Act.
“U.S. Gold Special Committee” has the meaning
ascribed thereto in the section entitled “Background to the
Offer” on page 50 of this Offer.
“U.S. Gold Subscription Receipts” means the
16,700,000 subscription receipts issued by U.S. Gold in February
2006 by way of private placement in Canada and the United
States, which, upon the satisfaction of certain conditions, will
be automatically converted into shares of common stock of U.S.
Gold and warrants to purchase shares of common stock of U.S.
Gold.
“U.S. Securities Act” means the United States
Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“U.S. Securities Exchange Act” means the United
States Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
“Voting and Exchange Trust Agreement”
means the voting and exchange trust agreement to be entered into
between U.S. Gold, New US Gold, Canadian Exchange Co., Alberta
ULC and the Voting and Exchange Trustee. See the section
entitled “Exchangeable Shares — Voting and
Exchange Trust Agreement” on page 47 of this
Offer.
“Voting and Exchange Trustee” means the trustee
chosen by the Offerors to act as trustee under the Voting and
Exchange Trust Agreement, being a corporation organized and
existing under the laws of Canada or any province thereof and
authorized to carry on the business of a trust company in all
the provinces of Canada, and any successor trustee appointed
under the Voting and Exchange Trust Agreement.
“Warrants” means the warrants to acquire Common
Shares.
“White Knight” means White Knight Resources
Ltd., a corporation existing under and governed by the BCBCA.
3
SUMMARY TERM SHEET
The following are some of the questions that you, as a
Shareholder of White Knight, may have and the answers to those
questions. This summary term sheet is not meant to be a
substitute for the information contained in this Offer, the
Letter of Acceptance and Transmittal and the Notice of
Guaranteed Delivery. The information contained in this summary
term sheet is qualified in its entirety by the more detailed
descriptions and explanations contained in this Offer, the
Letter of Acceptance and Transmittal and the Notice of
Guaranteed Delivery. Therefore, we urge you to carefully read
the entire Offer, the Letter of Acceptance and Transmittal and
the Notice of Guaranteed Delivery prior to making any decision
regarding whether or not to deposit your Common Shares under the
Offer. Certain capitalized words and terms used in this summary
are defined in the Definitions, which begin on page 1 of
this Offer.
WHAT IS THE OFFER?
The Offerors are offering to purchase, upon the terms and
subject to the conditions described in this Offer, all of the
outstanding White Knight Common Shares, including any Common
Shares that may be issued after the date of the Offer and prior
to the Expiry Time, on the basis of either:
•
0.35 shares of common stock of New US Gold; OR
•
0.35 Exchangeable Shares, which will, under the
circumstances described in this Offer, be exchangeable for
shares of common stock of New US Gold on a one-for-one
basis,
per 1.0 White Knight Common Share.
Shareholders are free to choose among the above two types of
consideration, although the election must be made as to all
Common Shares deposited under the Offer. Shareholders who
properly deposit Common Shares but do not elect a specific type
of consideration will be deemed to have elected to receive
shares of common stock of New US Gold.
See the sections entitled “The Offer;”“Conditions of the Offer;” and “Extension of the
Expiry Time or Variation or Change of the Offer” on
pages 26, 29 and 31, respectively, of this Offer.
WHO IS OFFERING TO BUY THE COMMON SHARES?
We are U.S. Gold Corporation, US Gold Holdings Corporation and
US Gold Canadian Acquisition Corporation. U.S. Gold Corporation,
or U.S. Gold, is a corporation organized under the laws of the
State of Colorado and is engaged in the exploration for gold and
other precious metals. US Gold Holdings Corporation, or New US
Gold, and US Gold Canadian Acquisition Corporation, or Canadian
Exchange Co., are currently wholly-owned subsidiaries of
U.S. Gold, which were formed solely for the purpose of
making the Strategic Offers, being the offers to purchase all of
the outstanding shares of White Knight, Coral Gold, Nevada
Pacific and Tone Resources.
See the sections entitled “The Offerors” and
“Intentions of the Offerors — Strategic Rationale
for the Offer” on pages 37 and 52, respectively, of
this Offer.
HOW LONG DO I HAVE TO ACCEPT THE OFFER?
The Offer is open for acceptance until the Expiry Time, being
5:00 p.m. (Vancouver Time) on June 28, 2006, unless
extended or withdrawn by the Offerors.
See the section entitled “Time for Acceptance” on
page 27 of this Offer.
WHAT ARE THE CLASSES OF SECURITIES SOUGHT IN THE OFFER?
The Offer is being made only for Common Shares and is not being
made for any Warrants, options or other securities that may
entitle the holder to acquire Common Shares. Any holder of such
securities who wishes to accept the Offer must exercise those
securities and deposit the Common Shares issued in accordance
with the Offer. However, if, after completion of the Offer, the
Offerors implement a Subsequent Acquisition Transaction, the
Offerors intend to structure such transaction so that Warrants
would be exchanged for warrants to purchase Exchangeable Shares
and the White Knight stock option plan would be replaced with a
stock option plan of Canadian Exchange Co. or New US Gold.
See the sections entitled “The Offer” and
“Acquisition of Common Shares Not Deposited —
Subsequent Acquisition Transaction” on pages 26 and
54, respectively, of this Offer.
4
WHY SHOULD I TENDER MY COMMON SHARES?
The Offerors are offering to acquire, upon the terms and subject
to the conditions of the Offer, all of the outstanding Common
Shares, including any Common Shares that may be issued after the
date of the Offer and prior to the Expiry Time, on the basis of
0.35 shares of common stock of New US Gold or 0.35 Exchangeable
Shares per 1.0 Common Share. The Exchangeable Shares
will, under the circumstances described herein, be exchangeable
for shares of common stock of New US Gold on a one-for-one
basis. Based on the closing prices of the Common Shares on the
TSX-V and shares of common stock of U.S. Gold on the OTCBB on
March 3, 2006, the last trading day prior to the
announcement of U.S. Gold’s proposed business combination
with White Knight, this exchange ratio of 0.35 shares of common
stock of New US Gold represented a premium of approximately 25%
to Shareholders over the trading price prior to the announcement
of the Offer. Based on the closing prices of the Common Shares
on the TSX-V and the
shares of common stock of U.S. Gold on the OTCBB on
April 28, 2006, the most recent trading day practicable
before the filing of this Offer, this exchange ratio represented
a premium of approximately 26% to Shareholders over the trading
price before the filing of this Offer.
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin Springs
exploration gold property. The Offerors believe that there are
significant benefits to bringing together U.S. Gold, White
Knight, Coral Gold, Nevada Pacific and Tone Resources, including
that the combined company will have:
•
a larger land position within the Cortez Trend and a larger
exploration program;
•
a stronger cash position and reduced costs;
•
enhanced trading liquidity and better market focus; and
•
greater technical expertise.
Upon successful completion of the Strategic Offers, the combined
company would strive to become the premier exploration company
in Nevada. However, Shareholders should be aware that the
successful completion of any or all of the Offerors’ offers
to purchase all of the outstanding shares of Coral Gold, Nevada
Pacific and Tone Resources is not a condition of the Offer.
See the sections entitled “Investment
Considerations” and “Intentions of the
Offerors — Strategic Rationale for the Offer” on
pages 51 and 52, respectively, of this Offer.
HOW DO I DEPOSIT MY COMMON SHARES?
Shareholders who wish to accept the Offer must take one of the
following steps:
•
properly complete and duly execute the accompanying letter of
acceptance and transmittal (the “Letter of Acceptance and
Transmittal”) (printed on BLUE paper) or a facsimile
thereof and deposit it, together with certificates representing
their Common Shares, in accordance with the instructions in the
Letter of Acceptance and Transmittal; OR
•
follow the procedures for guaranteed delivery set forth in the
section entitled “Manner of Acceptance —
Procedure for Guaranteed Delivery” on page 27 of this
Offer, using the accompanying notice of guaranteed delivery
(printed on GREEN paper) or a facsimile thereof; OR
•
contact their broker, investment dealer, bank, trust company or
other nominee for assistance in depositing their Common Shares
under the Offer if their Common Shares are registered in the
name of a nominee.
See the section entitled “Manner of Acceptance” on
page 27 of this Offer.
Shareholders should contact the Dealer Manager, the Depositary,
the information agent (see the back page of this Offer for
contact information) or their broker or other financial advisor
for assistance.
WILL I HAVE TO PAY ANY FEES OR COMMISSIONS TO DEPOSIT MY
COMMON SHARES?
No fee or commission will be payable by a Shareholder who
delivers such shares directly to the Depositary or utilizes the
facilities of a Soliciting Dealer to accept the Offer.
5
See the section entitled “Manner of
Acceptance — General” on page 28 of this
Offer.
WHEN WILL THE OFFERORS TAKE UP AND PAY FOR COMMON SHARES
DEPOSITED UNDER THE OFFER?
If all conditions described in the Offer have been satisfied or
waived by the Offerors at the Expiry Time, all Common Shares
that have been properly deposited and not withdrawn will be
required to be taken up promptly following the Expiry Time and,
in any event, not later than 10 days after the Expiry Time.
All Common Shares taken up under the Offer will be paid for
promptly and, in any event, within three business days of having
been taken up.
See the section entitled “Take up of, and Payment for,
Deposited Common Shares” on page 33 of this Offer.
HOW WILL CANADIAN RESIDENTS BE TAXED FOR CANADIAN FEDERAL
INCOME TAX PURPOSES?
The disposition of Common Shares for shares of common stock of
New US Gold or Exchangeable Shares (and Ancillary Rights)
pursuant to the Offer will generally be a taxable event to a
Canadian resident Shareholder. However, a Canadian resident
Shareholder who disposes of his or her Common Shares for
consideration that includes Exchangeable Shares (and Ancillary
Rights) and who makes a valid tax election with Canadian
Exchange Co., may obtain a full or partial tax deferral
(rollover) of any capital gains otherwise arising upon the
disposition of those shares. A Non-Resident Shareholder for
which Common Shares are not “taxable Canadian
property” will not be subject to tax under the Tax Act on
the disposition of those shares.
The Exchangeable Shares and shares of common stock of New US
Gold will be “qualified investments” for Deferred
Plans for Canadian income tax purposes provided they are listed
on a “prescribed stock exchange” (which currently
includes the TSX and the AMEX).
See the section entitled “Material Canadian Federal
Income Tax Considerations” on page 59 of this Offer.
HOW WILL U.S. HOLDERS BE TAXED FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES?
The Offer is structured with the intent that the exchange of
Common Shares for shares of common stock of New US Gold
generally should qualify as a tax-free exchange under
section 351 of the Code for U.S. federal income tax
purposes to Shareholders who are U.S. holders (as defined
in the section entitled “Material U.S. Federal Income
Tax Considerations — U.S. Federal Income Tax
Consequences to U.S. Holders of Common Shares” on page
70 of this Offer), provided that the completion of the Offer and
the Reorganization are treated as part of the same transaction
for U.S. federal income tax purposes, and assuming that certain
other conditions and requirements are met. However, there are
uncertainties concerning the U.S. federal income tax
treatment of elements of the transaction, and as a result there
are risks that the U.S. Revenue Service will take the
position that the exchange of Common Shares for shares of common
stock of New US Gold is a taxable event. The exchange
of Common Shares for Exchangeable Shares (and Ancillary Rights)
is expected to be a taxable event for U.S. federal income
tax purposes to Shareholders who are U.S. holders.
See the section entitled “Material U.S. Federal Income
Tax Considerations” on page 69 of this Offer.
WILL WHITE KNIGHT CONTINUE AS A PUBLIC COMPANY?
Depending on the number of Shareholders depositing Common Shares
and the number of Common Shares acquired by the Offerors under
the Offer, it is possible that, following the completion of the
Offer and prior to any Subsequent Acquisition Transaction, the
Common Shares would fail to meet the criteria for continued
listing on the TSX-V. If this were to happen, the Common Shares
could be delisted and this could, in turn, adversely affect the
market or result in a lack of an established market for such
shares. New US Gold intends to cause White Knight to apply to
delist the Common Shares from the TSX-V as soon as practicable
after the successful completion of the Offer and any Subsequent
Acquisition Transaction.
See the sections entitled “Investment
Considerations” and “Intentions of the
Offerors — Plans for White Knight” on pages 51
and 54, respectively, of this Offer.
6
WHAT ARE THE MOST IMPORTANT CONDITIONS TO THE OFFER?
The Offer is subject to a number of conditions, including:
(a)
there shall have been properly deposited under the Offer and not
withdrawn at the Expiry Time that number of Common Shares that
constitutes at least
662/3
% of the Common Shares outstanding calculated on a
fully-diluted basis at the time Common Shares are taken up under
the Offer;
(b)
White Knight shall not have entered into or effectuated any
other agreement or transaction with any person or entity having
the effect of impairing the Offerors’ ability to acquire
White Knight or otherwise diminishing the expected economic
value to the Offerors of the acquisition of White Knight
including, but not limited to, any material issuance of new
securities of White Knight, the declaration of any extraordinary
dividend, the adoption of a shareholder rights plan or any other
transaction not in the ordinary course of White Knight’s
business;
(c)
the shares of common stock of New US Gold shall have been
approved for listing on the TSX and the AMEX and the
Exchangeable Shares shall have been approved for listing on the
TSX;
(d)
the registration statements for the shares of common stock of
New US Gold and the Exchangeable Shares to be issued pursuant to
the Offer and the shares of common stock of New US Gold that may
be issued upon the exchange of any such Exchangeable Shares
shall have become effective under the U.S. Securities Act, and
no stop order suspending the effectiveness of the registration
statements or a proceeding seeking a stop order shall have been
issued nor shall there have been proceedings for that purpose
initiated or threatened by the SEC and New US Gold shall have
received all necessary state securities law or blue sky
authorizations;
(e)
a receipt for a final prospectus qualifying the distribution of
securities underlying the U.S. Gold Subscription Receipts and
qualifying New US Gold as a reporting issuer shall have been
issued in all jurisdictions of Canada;
(f)
all necessary orders shall have been obtained from relevant
Canadian securities regulatory authorities in respect of the
Exchangeable Shares to be issued pursuant to the Offer, the
shares of common stock of New US Gold that may be issued upon
the exchange of any such Exchangeable Shares and the resale of
any such Exchangeable Shares or shares of common stock of New US
Gold;
(g)
the holders of shares of common stock of U.S. Gold, voting at a
meeting of such holders, shall have approved the following prior
to the Expiry Time:
•
the agreement and plan of merger and the Reorganization, as
described in the section entitled “The Offerors —
New US Gold and the Reorganization” on page 38 of this
Offer, which will require the affirmative vote of the holders of
a majority of the outstanding shares of common stock of U.S.
Gold and the Reorganization shall have been implemented; and
•
the issuance of shares of common stock of New US Gold
(i) in the Strategic Offers, (ii) in any Subsequent
Acquisition Transaction relating to the Strategic Offers,
(iii) upon the exchange of Exchangeable Shares, as
described herein, and (iv) upon the exercise of warrants
and options of White Knight, Coral Gold, Nevada Pacific or Tone
Resources, which will require the affirmative vote of the
holders of a majority of the shares of common stock of U.S. Gold
entitled to vote at such meeting; and
(h)
the Offerors shall have obtained or received all approvals,
consents, clearances or waivers required to be obtained or
received from any governmental regulatory agency, authority or
commission in connection with the Offer and the Subsequent
Acquisition Transaction.
See the section entitled “Conditions of the Offer”
on page 29 of this Offer.
WHAT IS THE MARKET VALUE OF MY COMMON SHARES AS OF A RECENT
DATE?
On March 3, 2006, which was the last trading day preceding
our announcement of a proposed business combination with White
Knight, the closing price of the Common Shares on the TSX-V was
Cdn$1.79. On April 28, 2006, which was the most recent
trading day practicable before we filed this Offer, the closing
price of the Common Shares on the
TSX-V was Cdn$2.78. We
urge you to obtain a recent quotation for Common Shares before
deciding whether to deposit your Common Shares under the Offer.
7
See the section entitled “White Knight — Price
Range and Trading Volume of the Common Shares” on page 40
of this Offer.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?
You can call Kingsdale Shareholder Services Inc. at
1-866-639-8026. Kingsdale Shareholder Services Inc. is acting as
the Depositary and the information agent for the Offer in both
Canada and the United States.
See the sections entitled “Depositary” and
“Dealer Manager and Soliciting Dealer Group; Information
Agent” on page 90 of this Offer.
8
SUMMARY
This summary highlights information more fully described
elsewhere herein and may not contain all the information that is
important to Shareholders. Shareholders should read the
following summary and the more detailed information, financial
data and statements about the Offerors and the Offer provided
elsewhere herein, including the “Risk Factors”
section, U.S. Gold’s unaudited pro forma consolidated
financial statements and the notes thereto and
U.S. Gold’s unaudited pro forma consolidated
supplementary financial statements and the notes thereto.
Certain capitalized words and terms used in this summary are
defined in the Definitions which begin on page 1 of this
Offer.
Offer to Purchase
The Offer
Common Shares
The Offerors are offering to purchase, upon the terms and
subject to the conditions of the Offer, all of the outstanding
White Knight Common Shares, including any Common Shares that may
be issued after the date of the Offer and prior to the Expiry
Time, on the basis of either:
•
0.35 shares of common stock of New US Gold; OR
•
0.35 Exchangeable Shares, which will, under the circumstances
described herein, be exchangeable for shares of common stock of
New US Gold on a one-for-one basis,
per 1.0 White Knight Common Share.
Shareholders are free to choose among the above two types of
consideration, although the election must be made as to all
Common Shares deposited under the Offer. Shareholders who
properly deposit Common Shares but do not elect a specific type
of consideration will be deemed to have elected to receive
shares of common stock of New US Gold.
The above two types of consideration may provide tax advantages
and disadvantages and will result in different tax consequences
to the Shareholder, depending upon facts specific to each
Shareholder. Shareholders should carefully review the
description of the tax consequences of the proposed transactions
under the sections entitled “Material Canadian Federal
Income Tax Considerations” and “Material
U.S. Federal Income Tax Considerations,” on pages 59
and 69, respectively, of this Offer and are encouraged to seek
independent tax advice in determining which election may be best
under the Shareholder’s specific circumstances.
Warrants, Options or Other Securities
The Offer is being made only for Common Shares and is not being
made for any Warrants, options or other securities that may
entitle the holder to acquire Common Shares. Any holder of such
securities who wishes to accept the Offer must exercise those
securities and deposit the Common Shares issued in accordance
with the Offer. Any such exercise must be sufficiently in
advance of the Expiry Time to permit the Common Shares acquired
on the exercise of those securities to be deposited under the
Offer in accordance with the procedures described under the
sections entitled “Time for Acceptance” and
“Manner of Acceptance” on page 27 of this Offer.
However, if, after completion of the Offer, the Offerors
implement a Subsequent Acquisition Transaction (as defined
herein), the Offerors intend to structure such transaction so
that Warrants would be exchanged for warrants to purchase
Exchangeable Shares and the White Knight stock option plan would
be replaced with a stock option plan of Canadian Exchange Co. or
New US Gold. See the section entitled “Acquisition of
Common Shares Not Deposited — Subsequent Acquisition
Transaction” on page 54 of this Offer.
Fractional Shares
Fractional shares of common stock of New US Gold or
Exchangeable Shares will not be issued pursuant to the Offer.
Instead, the number of shares of common stock of New
US Gold or Exchangeable Shares to be issued to each
Shareholder will be either rounded up (if the fractional
interest is 0.5 or more) or down (if the fractional interest is
less than 0.5) to the next whole number. For purposes of such
rounding up or down, all Common Shares deposited by a
Shareholder will be aggregated.
9
Time for Acceptance
The Offer is open for acceptance, unless withdrawn or extended
at the sole discretion of the Offerors, until the Expiry Time,
being 5:00 p.m. (Vancouver Time) on June 28, 2006, or such
later time or times and date or dates as may be fixed by the
Offerors from time to time.
See the section entitled “Extension of the Expiry Time or
Variation or Change of the Offer” on page 31 of this
Offer.
Manner of Acceptance
Shareholders who wish to accept the Offer must:
•
deliver to the Depositary at the office specified in the Letter
of Acceptance and Transmittal, so as to arrive there not later
than the Expiry Time: the certificate(s) representing Common
Shares in respect of which the Offer is being accepted; a Letter
of Acceptance and Transmittal (printed on BLUE paper) in
the form accompanying the Offer or a facsimile thereof, properly
completed and duly executed as required by the instructions set
out in the Letter of Acceptance and Transmittal; and any other
document required by the instructions set forth in the Letter of
Acceptance and Transmittal; OR
•
follow the procedures for guaranteed delivery set forth in the
section entitled “Manner of Acceptance —
Procedure for Guaranteed Delivery” on page 27 of this
Offer, using the accompanying Notice of Guaranteed Delivery
(printed on GREEN paper) or a facsimile thereof; OR
•
contact their broker, investment dealer, bank, trust company or
other nominee for assistance in depositing their Common Shares
under the Offer if their Common Shares are registered in the
name of a nominee.
See the section entitled “Manner of Acceptance” on
page 27 of this Offer.
Conditions of the Offer
The Offerors may withdraw the Offer (in which event no Offeror
shall be required to take up and/or pay for any Common Shares
deposited under the Offer) or extend the period of time during
which the Offer is open (in which event the Offerors may
postpone taking up and paying for any Common Shares deposited
under the Offer) unless each of the conditions described in the
section entitled “Conditions of the Offer” on
page 29 of this Offer has been satisfied or has been waived
by the Offerors at or prior to the Expiry Time. Those conditions
include there having been properly deposited under the Offer and
not withdrawn at the Expiry Time that number of Common Shares
that constitutes at least
662/3
% of the Common Shares outstanding calculated on a
fully-diluted basis at the time Common Shares are taken up under
the Offer.
Right to Withdraw
Common Shares deposited under the Offer may be withdrawn by or
on behalf of the depositing Shareholder in the circumstances
discussed in the section entitled “Right to Withdraw”
on page 32 of this Offer. Except as so indicated or as
otherwise required by applicable law, deposits of Common Shares
are irrevocable.
Take Up of, and Payment for, Deposited Common Shares
If all conditions described in the section entitled
“Conditions of the Offer” on page 29 of this
Offer have been satisfied or waived by the Offerors at the
Expiry Time, all Common Shares that have been properly deposited
and not withdrawn will be required to be taken up promptly
following the Expiry Time and, in any event, not later than
10 days after the Expiry Time. All Common Shares taken up
under the Offer will be paid for promptly and, in any event,
within three business days of having been taken up. The Offerors
reserve the right to determine which of the Offerors or the
Offerors’ designees will take up individual Common Shares
deposited under the Offer. The Offerors expect that Canadian
Exchange Co. will take up any Common Shares in respect of which
Exchangeable Shares are issued as consideration and that New US
Gold will take up any Common Shares in respect of which shares
of common stock of New US Gold are issued as consideration.
The Offerors expect that any Common Shares taken up by New
US Gold will be immediately transferred to
Alberta ULC. In any such event, the Offerors will take
appropriate steps to ensure that the consideration which a
depositing Shareholder elects to receive pursuant to the Offer
is available. See the section entitled “Take Up of, and
Payment for, Deposited Common Shares” on page 33 of
this Offer.
10
The Offerors
U.S. Gold
U.S. Gold was organized under the laws of the State of
Colorado on July 24, 1979 under the name Silver State
Mining Corporation. On June 21, 1988, U.S. Gold
changed its name from Silver State Mining Corporation to
U.S. Gold Corporation.
U.S. Gold is engaged in the exploration for gold and other
precious metals. It holds a 100% interest in the Tonkin
Springs exploration gold property in Eureka County, Nevada,
subject to paramount title in the United States. The Tonkin
Springs exploration gold property is located on the Battle
Mountain-Eureka Trend in Nevada, also known as the Cortez Trend.
U.S. Gold is planning an extensive two-year, property-wide,
integrated exploration program at the Tonkin Springs exploration
gold property beginning in 2006, focusing on evaluation of the
structural and stratigraphic setting of the project. Its
objectives are to expand the known mineralization and to
discover new mineralization in areas previously untested,
targeting deeper mineralization. U.S. Shareholders are
cautioned that, although National Instrument
43-101 requires
disclosure in Canada of measured, indicated and inferred mineral
resources, the SEC does not recognize these classification
categories for U.S. reporting purposes.
U.S. Gold’s principal executive offices are located at
2201 Kipling Street, Suite 100, Lakewood, Colorado,
U.S.A. 80215 and its telephone number is
(303) 238-1438.
U.S. Gold’s website is www.usgold.com. Information
contained on the website is not incorporated by reference into
this Offer and Shareholders should not consider information
contained on the website as part of this Offer.
New US Gold and the Reorganization
US Gold Holdings Corporation, or New US Gold, is a
corporation formed under the laws of the State of Delaware and a
wholly-owned subsidiary of U.S. Gold. New US Gold was
formed solely for the purpose of making the Strategic Offers and
effecting the Reorganization, and has no significant assets or
capitalization and has not engaged in any business or other
activities to date. Following the Reorganization, the current
directors and executive officers of U.S. Gold identified in
U.S. Gold’s annual report on
Form 10-KSB filed
with the SEC on April 7, 2004 and included in
Appendix A (Information Concerning U.S. Gold
Corporation), which is incorporated into and forms part of the
Circular, will be the directors and executive officers of New US
Gold. New US Gold’s principal executive offices are
located at 2201 Kipling Street, Suite 100 Lakewood,
Colorado, U.S.A. 80215 and its telephone number is
(303) 238-1438.
Prior to the taking up of Common Shares deposited under the
Offer, U.S. Gold will, subject to shareholder approval,
effect the Reorganization to create a holding company structure.
Upon completion of the Reorganization, U.S. Gold will be a
wholly-owned subsidiary of New US Gold and the name of New
US Gold will be changed to “US Gold
Corporation.” All of the outstanding shares of common stock
of U.S. Gold will become, without any further action on the
part of holders thereof, shares of common stock of New
US Gold having rights and privileges substantially the same
as the existing shares of common stock of U.S. Gold. It is
a condition of the Offer that the common stock of New
US Gold be approved for listing on the TSX and the
AMEX.
Canadian Exchange Co.
US Gold Canadian Acquisition Corporation, or Canadian
Exchange Co., is a corporation incorporated under
the ABCA and a wholly-owned subsidiary of U.S. Gold.
Canadian Exchange Co. was formed solely for the purpose of
making the Strategic Offers and effecting the Reorganization and
has no significant assets or capitalization and has not engaged
in any business or other activities to date. In connection with
the Strategic Offers, among other things, Canadian
Exchange Co. will acquire the benefit of the Support
Agreement and, to the extent the Strategic Offers are completed,
will acquire common shares of White Knight, Coral Gold, Nevada
Pacific and Tone Resources and incur liabilities in connection
with the Strategic Offers. Canadian Exchange Co.’s
registered office is located at 2900 Manulife Place,
10180-101 Street,
Edmonton, Alberta, Canada T5J 3V5 and its telephone
number is
(780) 423-7100.
Description of Exchangeable Shares
The Exchangeable Shares are included in the Offer to enable
certain Shareholders, by virtue of the redemption and exchange
rights attaching to the Exchangeable Shares and the provisions
of the Voting and Exchange Trust Agreement and the Support
Agreement, to acquire a security of a Canadian issuer having
economic and voting rights that are, as
11
nearly as practicable, equivalent to those of a share of common
stock of New US Gold. The Exchangeable Shares may permit
Shareholders to take advantage of a full or partial tax deferral
available under the Tax Act. See the section entitled
“Material Canadian Federal Income Tax Considerations”
on page 59 of this Offer. For this reason, Shareholders
resident in Canada for tax purposes may want to elect to receive
Exchangeable Shares rather than shares of common stock of New
US Gold. See the sections entitled “The Offer” in
this Offer and “Exchangeable Shares — Description
of Exchangeable Shares” on pages 26 and 42,
respectively, of this Offer.
Investment Considerations and Risk Factors
Investment Considerations
The Offerors believe that the consideration offered for the
Common Shares under the Offer is fair. Shareholders are urged to
consider the following factors in making their decision to
accept the Offer: (i) the consideration offered under the
Offer provides a significant premium for Shareholders;
(ii) the Offerors believe that there are significant
benefits to bringing together U.S. Gold with four other
companies exploring in the Cortez Trend; (iii) the
liquidity and trading price of the Common Shares may be
adversely affected if the Offerors are not successful in
acquiring 100% of the Common Shares; and (iv) the Common
Shares may fail to meet the criteria for continued listing on
the TSX-V even if the
Offerors are not successful in acquiring 100% of the Common
Shares. See the section entitled “Investment
Considerations” on page 51 of this Offer.
Risk Factors
An investment in common stock of New US Gold or
Exchangeable Shares and the possible business combination of New
US Gold and White Knight are subject to certain risks. See
the section entitled “Risk Factors” on page 23 of
this Offer. Shareholders should also consider the risk factors
set forth in Appendix A (Information Concerning
U.S. Gold Corporation), which is incorporated into and
forms part of the Circular.
Intentions of the Offerors
Strategic Rationale for the Offer
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin
Springs exploration gold property. The Offerors believe that
there are significant benefits to bringing together
U.S. Gold, White Knight, Coral Gold, Nevada Pacific and
Tone Resources, including that the combined company will have:
•
a larger land position within the Cortez Trend and a larger
exploration program;
•
a stronger cash position and reduced costs;
•
enhanced trading liquidity and better market focus; and
•
greater technical expertise.
Upon successful completion of the Strategic Offers, the combined
company would strive to become the premier exploration company
in Nevada. However, Shareholders should be aware that the
successful completion of any or all of the Offerors’ offers
to purchase all of the outstanding shares of Coral Gold, Nevada
Pacific and Tone Resources is not a condition of the Offer.
See the section entitled “Intentions of the
Offerors — Strategic Rationale for the Offer” on
page 52 of this Offer.
Purpose of the Offer
The Offerors are making the Offer in order for New US Gold
to acquire, directly or indirectly, all of the outstanding
Common Shares. If the conditions of the Offer are satisfied or
waived and the Offerors take up and pay for Common Shares
validly deposited under the Offer, the Offerors currently intend
to acquire, directly or indirectly, all of the outstanding
Common Shares in accordance with applicable law by way of a
Subsequent Acquisition Transaction. See the section entitled
“Acquisition of Common Shares Not Deposited” on
page 54 of this Offer.
12
Plans for White Knight
Upon successful completion of the Offer and any Subsequent
Acquisition Transaction, New US Gold intends to take
appropriate actions to optimize and rationalize the combined
entities’ assets, operations, management, personnel,
general and administrative functions and corporate structure.
If permitted by applicable law, subsequent to the completion of
the Offer and any Subsequent Acquisition Transaction, if
necessary, the Offerors intend to delist the Common Shares from
the TSX-V and cause
White Knight to cease to be a reporting issuer under the
securities laws of the applicable jurisdictions.
Other Target Companies
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin
Springs exploration gold property.
Coral Gold. Coral Gold is a natural resource company
primarily engaged in the exploration and development of natural
resource properties. Coral Gold’s principal business
activities are the exploration of certain mineral properties
located in Nevada and California. Since Coral Gold’s 2002
fiscal year, Coral Gold has made aggregate principal
expenditures of Cdn$2,498,084 on the Robertson mining Claims in
Nevada. The Offerors intend to offer to purchase all of the
outstanding shares of Coral Gold on the basis of
0.63 shares of common stock of New US Gold or 0.63
Exchangeable Shares per 1.0 common share of Coral Gold. Coral
Gold’s common shares are listed on the TSX-V under the
symbol “CGR-V” and on the OTCBB under the symbol
“CGREF.”
Nevada Pacific. Nevada Pacific is a mining company based
in Vancouver, British Columbia. Nevada Pacific owns, among other
things, an exploratory property portfolio covering approximately
75 square miles of mineral rights including portions of two
significant gold producing belts in Nevada. The Offerors intend
to offer to purchase all of the outstanding shares of Nevada
Pacific on the basis of 0.23 shares of common stock of New
US Gold or 0.23 Exchangeable Shares per 1.0 common share of
Nevada Pacific. Nevada Pacific’s common shares are listed
on the TSX-V under the symbol “NPG-V.”
Tone Resources. Tone Resources is an exploration stage
company engaged in the acquisition and exploration of mineral
properties primarily located on the major gold trends in the
north-central region of Nevada. Tone Resources holds 410 mining
claims in Nevada. The Offerors intend to offer to purchase all
of the outstanding shares of Tone Resources on the basis of
0.26 shares of common stock of New US Gold or 0.26
Exchangeable Shares per 1.0 common share of Tone Resources. Tone
Resources’ common shares are listed on the TSX-V under the
symbol “TNS-V” and quoted on the Pink Sheets in the
United States under the symbol “TONRF.”
Pro Forma Financial Information
Pro forma financial information for (1) the
acquisition of White Knight separately, and (2) the
acquisition of all four of the target companies combined, is
included in this summary under the headings “Summary of
Selected Historical Financial Data of U.S. Gold and
Unaudited Pro Forma Consolidated Financial Data” and
“Summary of Selected Historical Financial Data of
U.S. Gold and Unaudited Pro Forma Consolidated
Supplementary Financial Data,” on pages 18 and 19,
respectively. In addition, Shareholders should consider the
pro forma financial information included in
Appendix F (Unaudited Pro Forma Consolidated
Financial Statements of U.S. Gold Corporation) and
Appendix G (Unaudited Pro Forma Consolidated
Supplementary Financial Statements of U.S. Gold
Corporation), which are incorporated into and form part of the
Circular.
Certain Effects of the Strategic Offers
If all of the Strategic Offers are successfully completed, the
voting power of the Shareholders in New US Gold will be
diluted and it is expected that the shareholders of White
Knight, Coral Gold, Nevada Pacific and Tone Resources will own,
in the aggregate, approximately 55% of the outstanding shares
and voting power of New US Gold (50% on a fully-diluted basis).
13
Information Concerning White Knight, Coral Gold, Nevada
Pacific and Tone Resources
The Offerors have not had access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific or Tone
Resources. As a result, all historical information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources
contained herein, including all historical financial information
used in the preparation of the pro forma financial
information reflecting the pro forma effects of a
combination of (i) U.S. Gold and White Knight, and
(ii) U.S. Gold and White Knight, Coral Gold, Nevada
Pacific and Tone Resources, has been derived from the publicly
filed documents of White Knight, Coral Gold, Nevada Pacific and
Tone Resources. Although the Offerors have no reason to doubt
the accuracy or completeness of the publicly filed documents of
White Knight, Coral Gold, Nevada Pacific or Tone Resources, the
Offerors are not in a position to independently assess or verify
the information in such publicly filed documents, including any
financial statements.
See the section entitled “Risk Factors —
The Offerors have been unable to independently verify the
reliability of information in this Offer regarding White Knight,
Coral Gold, Nevada Pacific and Tone Resources” on
page 24 of this Offer.
Acquisition of Common Shares Not Deposited
Subsequent Acquisition Transaction
If the Offerors take up and pay for Common Shares validly
deposited under the Offer, the Offerors currently intend to
acquire, directly or indirectly, all of the remaining
outstanding Common Shares in accordance with applicable law by
way of a Subsequent Acquisition Transaction. The Offerors
currently intend to cause a special meeting of Shareholders to
be called to consider a statutory arrangement whereby:
(i) a subsidiary of Canadian Exchange Co. would
amalgamate with White Knight; (ii) in connection with the
amalgamation, Warrants would be exchangeable for warrants to
purchase Exchangeable Shares; (iii) Shareholders who did
not deposit their Common Shares under the Offer would be
entitled to elect to receive shares of common stock of New
US Gold or Exchangeable Shares in the same exchange ratio
offered pursuant to the Offer; and (iv) the White Knight
stock option plan would be replaced with a stock option plan of
Canadian Exchange Co. or New US Gold. The timing and
details of any such transaction will depend on a number of
factors, including the number of Common Shares acquired pursuant
to the Offer and the terms of White Knight’s warrant
indentures and stock option plan and there can be no assurance
that any such transaction will be proposed, or if proposed,
effected. See the section entitled “Acquisition of Common
Shares Not Deposited” on page 54 of this Offer.
Income Tax Considerations
Material Canadian Federal Income Tax Considerations
The disposition of Common Shares for shares of common stock of
New US Gold or Exchangeable Shares (and Ancillary Rights)
pursuant to the Offer will generally be a taxable event to a
Canadian resident Shareholder. However, a Canadian resident
Shareholder who disposes of his or her Common Shares for
consideration that includes Exchangeable Shares (and Ancillary
Rights) and who makes a valid tax election with Canadian
Exchange Co., may obtain a full or partial tax deferral
(rollover) of any capital gains otherwise arising upon the
disposition of those shares. A Non-Resident Shareholder for
which Common Shares are not “taxable Canadian
property” will not be subject to tax under the Tax Act on
the disposition of those shares.
The Exchangeable Shares and common stock of New US Gold
will be “qualified investments” for Deferred Plans for
Canadian income tax purposes provided they are listed on a
“prescribed stock exchange” (which currently includes
the TSX and the AMEX). See the section entitled
“Material Canadian Federal Income Tax Considerations”
on page 69 of this Offer.
A more detailed description of the Canadian federal income tax
consequences of the Offer is set forth in this Offer. Canadian
resident Shareholders should be aware that the Canadian federal
income tax consequences of the Offer may depend upon their own
individual situations, and that participating in the Offer may
subject them to federal, provincial or foreign tax consequences
that are not discussed in this Offer. Shareholders are urged to
consult their own tax advisors for a full understanding of the
tax consequences of participating in the Offer.
14
Material U.S. Federal Income Tax Considerations
The Offer is structured with the intent that the exchange of
Common Shares for shares of common stock of New US Gold
generally should qualify as a tax-free exchange under
section 351 of the Code for U.S. federal income tax
purposes to Shareholders who are U.S. holders (as defined
in the section entitled “Material U.S. Federal Income
Tax Considerations — U.S. Federal Income Tax
Consequences to U.S. Holders of Common Shares” on
page 70 of this Offer), assuming that certain conditions
and requirements are met. However, there is no direct authority
addressing the proper characterization of instruments similar to
the Exchangeable Shares and the exchange of Common Shares for
Exchangeable Shares for U.S. federal income tax purposes.
As a result, there is uncertainty concerning the treatment of
the exchange of Common Shares for shares of common stock of New
US Gold, and there is a risk that such exchange could be
taxable for U.S. federal income tax purposes. Also, one of
the requirements for qualifying under section 351 of the
Code is that the completion of the Offer and the Reorganization
are treated as part of the same transaction. Generally, it is
expected that the Reorganization and the completion of the Offer
will be treated as part of the same transaction if the two
transactions occur at the same time, although there is
uncertainty on this matter. Further, the timing of the
completion of the Offer is not subject to the control of the
Offerors, so it is uncertain as to whether the Reorganization
and the completion of the Offer will occur at the same time. No
rulings will be requested from the U.S. Internal Revenue
Service in connection with the Offer on the U.S. tax
consequences of the Offer.
The exchange of Common Shares for Exchangeable Shares (and
Ancillary Rights) is expected to be taxable to Shareholders who
are U.S. holders, causing such Shareholders to recognize a
gain or loss equal to the difference between the fair market
value of the Exchangeable Shares (and Ancillary Rights) received
and the adjusted tax basis in the Common Shares exchanged.
A more detailed description of the U.S. federal income tax
consequences of the Offer is set forth in this Offer.
Shareholders should be aware that the U.S. federal income
tax consequences of the Offer may depend upon their own
individual situations, and that participating in the Offer may
subject them to state, local or foreign tax consequences that
are not discussed in this Offer. Shareholders are urged to
consult their own tax advisors for a full understanding of the
tax consequences of participating in the Offer.
Additional Matters Relating to the Offer
Valuation Requirements for Insider Bids
The Offer is an “insider bid” within the meaning of
applicable securities legislation by virtue of Mr. Robert
R. McEwen’s insider status in U.S. Gold and his equity
interest in White Knight. As a result, a formal valuation of the
Common Shares and of the consideration being offered in exchange
for them under the Offer is required in the absence of waivers
or exemptions. Exemptions from the insider bid valuation
requirement are contained in OSC Rule 61-501 and AMF
Regulation Q-27 and may be relied upon if neither the
offeror nor any joint actor with the offeror has, or has had
within the preceding 12 months, any board or management
representation in respect of the offeree issuer or has knowledge
of any material information concerning the offeree issuer or its
securities that has not been generally disclosed. Neither the
Offerors nor any person acting jointly or in concert with the
Offerors have had board or management representation at White
Knight or have any such knowledge with respect to White Knight.
Accordingly, in making the Offer, the Offerors are relying upon
the foregoing valuation exemptions. The Offerors have applied
for waivers of the valuation requirements in each of the other
provinces where a valuation would be otherwise required.
See the section entitled “Valuation Requirements for
Insider Bids” on page 57 of this Offer.
Regulatory Matters
The Offerors’ obligation to take up and pay for Common
Shares deposited under the Offer is conditional upon obtaining
all governmental or regulatory consents or approvals that New US
Gold, in its sole discretion, views as necessary or desirable to
enable the Offerors to consummate the Offer, on terms and
conditions satisfactory to New US Gold.
See the section entitled “Regulatory Matters” on
page 58 of this Offer.
Accounting Treatment
If consummated, the transaction described in this Offer will be
accounted for as a purchase transaction, with U.S. Gold as
the acquirer of White Knight.
15
See the section entitled “Accounting Treatment” on
page 59 of this Offer.
Dissenters’ Rights
No dissenters’ rights are available in connection with the
Offer. However, any Subsequent Acquisition Transaction may
result in Shareholders having the right to dissent and demand
payment of the fair value of their Common Shares under
Section 238 of the BCBCA. If the statutory procedures are
complied with, this right could lead to a judicial determination
of the fair value required to be paid to such dissenting
shareholders for their Common Shares. The fair value of Common
Shares so determined could be more or less than the amount paid
per Common Share pursuant to the Subsequent Acquisition
Transaction or the Offer.
See the section entitled “Dissenters’ Rights” on
page 59 of this Offer.
Summary Selected Financial Data
Summary of Selected Historical Financial Data of
U.S. Gold
The following are summary selected consolidated financial data
for U.S. Gold for each of the years in the three-year
period ended December 31, 2005. The information with
respect to the three years ended December 31, 2005 has been
derived from the audited consolidated financial statements of
U.S. Gold. All historical financial information presented
with respect to U.S. Gold is in accordance with US GAAP.
Historical results are not indicative of the results to be
expected in the future.
This summary information is derived from and should be read in
conjunction with the financial statements and related notes
included in U.S. Gold’s Annual Report on
Form 10-KSB for
the fiscal year ended December 31, 2005, filed with the SEC
on April 7, 2006 and included in Appendix A
(Information Concerning U.S. Gold Corporation) and for the
fiscal year ended December 31, 2004, filed with the SEC on
March 29, 2005. This summary data should be read together
with the unaudited pro forma consolidated financial data
included in Appendix F (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold
Corporation) and Appendix G (Unaudited Pro Forma
Consolidated Supplementary Financial Statements of
U.S. Gold Corporation), which are incorporated into and
form part of the Circular.
Data for New US Gold or Canadian Exchange Co. has not been
included because they had not yet been formed and did not
conduct business during any of the periods discussed below.
Net loss from operations before cumulative-effect gain on
accounting change
$
(2,991
)
$
(794
)
$
(1,027
)
Net loss from operations
$
(2,991
)
$
(794
)
$
(623
)
Basic and diluted loss per share
$
(0.12
)
$
(0.04
)
$
(0.04
)
Weighted average shares
25,931,172
20,028,173
17,696,098
Balance sheet data
Cash, cash equivalents and short term investments
$
678
$
75
$
198
Inventories
0
0
0
Property, plant and equipment
53
104
8
Other assets
4,810
1,256
1,595
Total assets
$
5,541
$
1,435
$
1,801
Current liabilities
$
1,791
$
35
$
80
Long-term debt
16
570
545
Other long-term liabilities and deferred gain
1,201
0
0
Shareholders’ equity
$
2,533
$
830
$
1,176
Total liabilities and shareholders’ equity
$
5,541
$
1,435
$
1,801
16
Summary of Selected Historical Financial Data of White
Knight
The following summary selected historical financial data of
White Knight is derived from White Knight’s publicly filed
audited consolidated financial statements for each of the years
in the three-year period ended June 30, 2005 and the
unaudited consolidated financial statements for the six months
ended December 31, 2005 and December 31, 2004. This
summary data should be read together with White Knight’s
financial statements and the accompanying notes included in the
current report on
Form 8-K filed by
U.S. Gold with the SEC on May 1, 2006. See the section
entitled “Notice to Shareholders in the United
States — Certain Financial Information of White
Knight” on page (iii) of this Offer. White
Knight’s publicly filed financial statements (which are
excerpted below) are according to White Knight, prepared in
accordance with Canadian GAAP, which differs from US GAAP in
certain respects. Historical results are not indicative of the
results to be expected in the future and results of interim
periods are not necessarily indicative of results for the entire
year.
This summary data should be read together with the unaudited
pro forma consolidated financial data included in
Appendix F (Unaudited Pro Forma Consolidated
Financial Statements of U.S. Gold Corporation), which is
incorporated into and forms part of the Circular.
White Knight Historical Financial Data
Six Months Ended,
Year Ended June 30,
December 31,
December 31,
Canadian GAAP
2005
2004
2005
2004
2003
(Cdn$ in thousands except per share data)
Operating data
Other revenue
$
196
$
142
$
262
$
98
$
8
Net loss
$
(481
)
$
(549
)
$
(1,063
)
$
(1,664
)
$
(358
)
Basic and diluted loss per share
$
(0.01
)
$
(0.01
)
$
(0.02
)
$
(0.04
)
$
(0.01
)
Balance sheet data
Cash, cash equivalents and short term investments
$
15,098
$
11,934
$
11,178
$
9,846
$
133
Inventories
0
0
0
0
0
Property, plant and equipment
302
144
139
86
7
Mineral properties and deferred exploration costs
6,017
3,643
3,965
2,487
1,611
Other assets
397
254
415
301
161
Total assets
$
21,814
$
15,975
$
15,697
$
12,720
$
1,912
Current liabilities
$
444
$
128
$
180
$
130
$
234
Long-term debt
0
0
0
0
0
Other long-term liabilities
0
0
0
0
0
Shareholders’ equity
$
21,370
$
15,847
$
15,517
$
12,590
$
1,678
Total liabilities and shareholders’ equity
$
21,814
$
15,975
$
15,697
$
12,720
$
1,912
17
Summary Selected Historical Financial Data of U.S. Gold
and Unaudited Pro Forma Consolidated
Financial Data
The following summary selected unaudited pro forma
consolidated financial data has been prepared to give effect
to U.S. Gold’s acquisition of White Knight. The
Offerors have not had access to the non-public books and records
of White Knight. As a result, all historical financial
information regarding White Knight used in the preparation of
this summary selected unaudited pro forma consolidated
financial data has been derived from the publicly filed
documents of White Knight. Although the Offerors have no reason
to doubt the accuracy or completeness of White Knight’s
publicly filed documents, the Offerors are not in a position to
independently assess or verify the information in White
Knight’s publicly filed documents, including its financial
statements. This summary data should be read together with the
unaudited pro forma consolidated financial statements of
U.S. Gold as at December 31, 2005 and for the year
then ended included in Appendix F (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold
Corporation), which is incorporated into and forms part of this
Circular.
Data for New US Gold or Canadian Exchange Co. has not been
included because they had not yet been formed and did not
conduct business during any of the periods discussed below.
Unaudited
Pro Forma
Consolidated
U.S. Gold Historical Financial Data
Year Ended
Year Ended December 31,
December 31,
US GAAP
2005
2005
2004
2003
($ in thousands except per share data)
Operating data
Other revenue
$
1,349
$
1,052
$
39
$
636
Net loss from operations before cumulative-effect gain on
accounting change
$
(6,125
)
$
(2,991
)
$
(794
)
$
(1,027
)
Net loss
$
(6,125
)
$
(2,991
)
$
(794
)
$
(623
)
Basic and diluted loss per share
$
(0.09
)
$
(0.12
)
$
(0.04
)
$
(0.04
)
Weighted average shares
65,018,912
25,931,172
20,028,173
17,696,098
Balance sheet data
Cash, cash equivalents and short term investments
$
42,219
$
678
$
75
$
198
Inventories
0
0
0
0
Property, plant and equipment
313
53
104
8
Mineral properties and deferred exploration costs
153,601
0
0
0
Other assets
42,726
4,810
1,256
1,595
Total assets
$
238,859
$
5,541
$
1,435
$
1,801
Current liabilities
$
2,173
$
1,791
$
35
$
80
Long-term debt
16
16
570
545
Other long-term liabilities and deferred gain
33,851
1,201
0
0
Shareholders’ equity
$
202,819
$
2,533
$
830
$
1,176
Total liabilities and shareholders’ equity
$
238,859
$
5,541
$
1,435
$
1,801
18
Summary Selected Historical Financial Data of U.S. Gold
and Unaudited Pro Forma Consolidated Supplementary
Financial Data
The following summary selected unaudited pro forma
consolidated supplementary financial data has been prepared
to give effect to U.S. Gold’s acquisition of White
Knight, Coral Gold, Nevada Pacific and Tone Resources. The
Offerors have not had access to the non-public books and records
of White Knight, Coral Gold, Nevada Pacific and Tone Resources.
As a result, all historical financial information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources used
in the preparation of this summary selected unaudited pro
forma consolidated supplementary financial data has been
derived in part from the publicly filed documents of White
Knight, Coral Gold, Nevada Pacific and Tone Resources. Although
the Offerors have no reason to doubt the accuracy or
completeness of the publicly filed documents of White Knight,
Coral Gold, Nevada Pacific and Tone Resources, the Offerors are
not in position to independently assess or verify the
information in such publicly filed documents, including any
financial statements. See the section entitled “Risk
Factors — The Offerors have been unable to
independently verify the reliability of information in this
Offer regarding White Knight, Coral Gold, Nevada Pacific and
Tone Resources” on page 24 of this Offer.
This summary data should be read together with the unaudited
pro forma consolidated supplementary financial statements
of U.S. Gold as at December 31, 2005 and for the year
then ended included in Appendix G (Unaudited Pro
Forma Consolidated Supplementary Financial Statements of
U.S. Gold), which is incorporated into and forms part of
the Circular.
Data for New US Gold or Canadian Exchange Co. has not been
included because they had not yet been formed and did not
conduct business during any of the periods discussed below.
Unaudited
Pro Forma
Consolidated
Supplementary
U.S. Gold Historical Financial Data
Year Ended
Year Ended December 31,
December 31,
US GAAP
2005
2005
2004
2003
($ in thousands except per share data)
Operating data
Mining revenue
$
8,881
Other revenue
$
1,459
$
1,052
$
39
$
636
Net loss from operations before cumulative-effect gain on
accounting change
$
(12,886
)
$
(2,991
)
$
(794
)
$
(1,027
)
Net loss
$
(12,886
)
$
(2,991
)
$
(794
)
$
(623
)
Basic and diluted loss per share
$
(0.14
)
$
(0.12
)
$
(0.04
)
$
(0.04
)
Weighted average shares
94,806,954
25,931,172
20,028,173
17,696,098
Balance sheet data
Cash, cash equivalents and short term investments
$
43,914
$
678
$
75
$
198
Inventories
2,033
0
0
0
Property, plant and equipment
13,621
53
104
8
Mineral properties and deferred exploration costs
332,306
0
0
0
Other assets
44,016
4,810
1,256
1,595
Total assets
$
435,890
$
5,541
$
1,435
$
1,801
Current liabilities
$
3,449
$
1,791
$
35
$
80
Long-term debt
16
16
570
545
Other long-term liabilities and deferred gain
72,184
1,201
0
0
Shareholders’ equity
$
360,241
$
2,533
$
830
$
1,176
Total liabilities and shareholders’ equity
$
435,890
$
5,541
$
1,435
$
1,801
19
Share Information
Comparative Per Share Information
The following table summarizes unaudited per share information
for U.S. Gold and White Knight separately on a historical
basis and on an equivalent unaudited pro forma
consolidated basis. This information should be read in
conjunction with the audited consolidated financial statements
of U.S. Gold included in Appendix C (Certain Financial
Statements of U.S. Gold Corporation) and White Knight, the
unaudited pro forma consolidated financial statements of
U.S. Gold as at December 31, 2005 and for the year
then ended included in Appendix F (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold
Corporation) and the unaudited pro forma consolidated
supplementary financial statements of U.S. Gold as at
December 31, 2005 and for the year then ended included in
Appendix G (Unaudited Pro Forma Consolidated
Supplementary Financial Statements of U.S. Gold
Corporation), each of which is incorporated into and forms part
of the Circular. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative
of the actual operating results or financial position that would
have resulted if U.S. Gold and White Knight, or
U.S. Gold, White Knight, Coral Gold, Nevada Pacific and
Tone Resources, had combined at the beginning of the period
presented, nor is it necessarily indicative of the future
operating results or financial position of the combined company.
The historical book value per share is computed by dividing
total shareholders’ equity by the number of shares
outstanding at the end of the period. The unaudited pro forma
consolidated income per share is computed by dividing the
unaudited pro forma consolidated income from continuing
operations available to holders of common stock by the unaudited
pro forma consolidated weighted average number of shares
outstanding. The unaudited pro forma consolidated book
value per share is computed by dividing total unaudited pro
forma consolidated shareholders’ equity by the
unaudited pro forma consolidated number of common shares
outstanding at the end of the period. The historical per share
information of U.S. Gold and White Knight was derived from
U.S. Gold’s and White Knight’s respective
historical annual financial statements.
The Offerors have not had access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific or Tone
Resources. Although the Offerors have no reason to doubt the
accuracy or completeness of the public filings of White Knight,
Coral Gold, Nevada Pacific and Tone Resources, the Offerors are
not in a position to independently assess or verify the
information in such publicly filed documents, including any
financial statements. See the section entitled “Risk
Factors — The Offerors have been unable to
independently verify the reliability of information in this
Offer regarding White Knight, Coral Gold, Nevada Pacific and
Tone Resources” on page 24 of this Offer.
With the exception of pro forma per share information
regarding share of common stock of New US Gold, data for
New US Gold or Canadian Exchange Co. has not been included
because they had not yet been formed and did not conduct
business during any of the periods discussed below.
Unaudited Pro Forma Condensed Combined —
U.S. Gold and White Knight (US GAAP)
Unaudited pro forma condensed combined per common share
of New US Gold:
Income per basic share
$
(0.09
)
Income per diluted share
$
(0.09
)
Dividends declared
$
0
Book value per share
$
2.80
Unaudited Pro Forma Condensed Combined —
U.S. Gold and White Knight, Coral Gold, Tone Resources and
White Knight (US GAAP)
Unaudited pro forma condensed combined per common share
of New US Gold:
Income per basic share
$
(0.14
)
Income per diluted share
$
(0.14
)
Dividends declared
$
0
Book value per share
$
3.53
Comparative Market Data
The Common Shares are currently traded on the
TSX-V under the symbol
“WKR-V.”
Common stock of U.S. Gold is currently traded over the
counter and quoted on the OTCBB under the symbol
“USGL.” The following table sets forth the closing
prices of the Common Shares as reported on the
TSX-V and shares of
common stock of U.S. Gold as reported on the OTCBB on:
(i) March 3, 2006, the last trading day preceding the
initial public announcement of U.S. Gold’s proposed
business combination with White Knight; and
(ii) April 28, 2006, the most recent trading day
practicable before the filing of this Offer. This information
should be read in conjunction with the information under
“Comparative Per Share Market Price and Dividend
Information” below.
TSX-V
OTCBB
March 3,
April 28,
March 3,
April 28,
Issuer
2006
2006
2006
2006
White Knight
Cdn$
1.79
Cdn$
2.78
—
—
U.S. Gold
—
—
$
5.65
$
8.95
21
Comparative Per Share Market Price and Dividend
Information
The following table sets forth, for each of the calendar
quarters ending on the dates indicated and for the month of
April 2006, the high and low closing sales prices per share, and
the average daily trading volumes, reported by the TSX-V and the
OTCBB, as applicable. Neither U.S. Gold nor White Knight
declared dividends on the shares of common stock of
U.S. Gold or the Common Shares, respectively, during such
periods.
Data for New US Gold or Canadian Exchange Co. has not been
included because they had not yet been formed and did not
conduct business during any of the periods discussed below.
U.S. Gold OTCBB
White Knight TSX-V
Avg. Daily
Avg. Daily
High
Low
Volume
High
Low
Volume
($)
(Cdn$)
2004
March 31
1.85
0.81
71,116
0.92
0.55
84,905
June 30
1.03
0.60
39,022
1.61
0.50
235,841
September 30
0.72
0.38
40,000
1.49
0.87
178,946
December 31
0.54
0.40
22,006
1.20
0.70
111,059
2005
March 31
0.42
0.34
39,099
0.93
0.60
71,839
June 30
0.53
0.30
23,781
0.92
0.55
27,852
September 30
2.81
0.35
297,451
1.80
0.85
311,711
December 31
3.95
1.94
231,105
2.10
1.31
154,997
2006
March 31
9.25
3.48
252,088
2.75
1.40
256,490
April 1 to April 30
10.15
7.60
429,887
2.80
2.07
17,625
22
RISK FACTORS
An investment in shares of common stock of New US Gold or
Exchangeable Shares involves certain risks. Shareholders should
consider the following discussion of risks in addition to the
other information in this Offer before depositing and exchanging
Common Shares. In addition to historical information, the
information in this Offer contains “forward-looking”
statements about U.S. Gold’s future business and
performance, as described above in “Forward-Looking
Statements.” U.S. Gold’s actual business, operating
results, financial performance and the price of common stock of
New US Gold or the Exchangeable Shares may be very different
from what U.S. Gold expects as of the date of the Offer. The
risks below address some specific risks and uncertainties
relating to the Offer, the anticipated Subsequent Acquisition
Transaction, the proposed combination of U.S. Gold and White
Knight, and the receipt and ownership of shares of common stock
of New US Gold or Exchangeable Shares as a result of such
transactions. Shareholders should also consider the risk factors
set forth in Appendix A (Information Concerning U.S. Gold
Corporation), which is incorporated into and forms part of the
Circular.
Shareholders may receive securities with a market value
lower than they expected.
The Offerors are offering to purchase, upon the terms and
subject to the conditions of the Offer, all of the outstanding
Common Shares, including any Common Shares that may be issued
after the date of the Offer and prior to the Expiry Time, on the
basis of 0.35 shares of common stock of New US Gold or 0.35
Exchangeable Shares per 1.0 Common Share. The Exchangeable
Shares will, under the circumstances described herein, be
exchangeable for shares of common stock of New US Gold on a
one-for-one basis and are therefore subject to substantially the
same economic risks as common stock of New US Gold. Based on the
closing prices of the Common Shares on the
TSX-V and shares of
common stock of U.S. Gold on the OTCBB on March 3, 2006,
the last trading day prior to the announcement of U.S.
Gold’s proposed business combination with White Knight,
this exchange ratio represented a premium of approximately 25%
to Shareholders over the trading price prior to the announcement
of the Offer. Based on the closing prices of the Common Shares
on the TSX-V and the
shares of common stock of U.S. Gold on the OTCBB on
April 28, 2006, the most recent trading day practicable
before the filing of this Offer, this exchange ratio represented
a premium of approximately 26% to Shareholders over the trading
price before the filing of this Offer. If the market price of
U.S. Gold (or, after the Reorganization, New US Gold) common
stock declines, the value of the consideration received by
Shareholders will decline as well. Variations may occur as a
result of changes in, or market perceptions of changes in, the
business, operations or prospects of New US Gold, market
assessments of the likelihood the Strategic Offers will be
consummated, regulatory considerations, general market and
economic conditions and other factors over which U.S. Gold has
no control.
The market and listing for Common Shares may be
affected.
The acquisition of any Common Shares by the Offerors under the
Offer will reduce the number of Common Shares that might
otherwise trade publicly, as well as the number of Shareholders.
Depending on the number of Shareholders depositing and the
number of Common Shares acquired by the Offerors under the
Offer, following the completion of the Offer and prior to any
Subsequent Acquisition Transaction, the liquidity and market
value of the remaining Common Shares held by the public would
likely be adversely affected. After the purchase of the Common
Shares under the Offer, it may be possible for White Knight to
take steps towards the elimination of any applicable public
reporting requirements under applicable securities legislation
in any province in which it has an insignificant number of
Shareholders.
The rules and regulations of the TSX-V establish certain
criteria that, if not met, could lead to the delisting of the
Common Shares from the TSX-V. Among such criteria are the number
of Shareholders, the number of Common Shares publicly held and
the aggregate market value of the Common Shares publicly held.
Depending on the number of Shareholders depositing Common Shares
and the number of Common Shares acquired by the Offerors under
the Offer, it is possible that, following the completion of the
Offer and prior to any Subsequent Acquisition Transaction, the
Common Shares would fail to meet the criteria for continued
listing on the TSX-V. If this were to happen, the Common Shares
could be delisted and this could, in turn, adversely affect the
market or result in a lack of an established market for such
shares. New US Gold intends to cause White Knight to apply to
delist the Common Shares from the TSX-V as soon as practicable
after the successful completion of the Offer and any Subsequent
Acquisition Transaction.
Market for Exchangeable Shares may not appear.
Although the economic value of the Exchangeable Shares is
designed to be closely linked to the trading value of common
stock of New US Gold due to the right to exchange at any time,
under the circumstances described herein,
23
Exchangeable Shares for shares of common stock of New US Gold,
there can be no assurance that an active trading market in the
Exchangeable Shares will be sustained or that the Exchangeable
Shares will continue to meet the listing requirements of the
TSX. The price at which the Exchangeable Shares will trade will
be based upon the market for such shares on the TSX and the
price at which shares of common stock of New US Gold will
trade will be based upon the market for such shares on the TSX
and the AMEX. Although the market price for the Exchangeable
Shares on the TSX and the market price for the shares of common
stock of New US Gold on the TSX and the AMEX are intended
to reflect essentially equivalent values, there can be no
assurance that the market price of the shares of common stock of
New US Gold will be identical, or even similar, to the market
price of the Exchangeable Shares. Furthermore, although the
Exchangeable Shares are exchangeable, under the circumstances
described herein, for an equivalent number of shares of common
stock of New US Gold, such securities have no trading history,
will be less widely held than the common stock of New US Gold,
and accordingly may trade at a lower market price, or be less
liquid, than either Common Shares or the common stock of New US
Gold into which they may be exchanged.
The Offerors have been unable to independently verify the
reliability of information in this Offer regarding White Knight,
Coral Gold, Nevada Pacific and Tone Resources.
The Offerors have not had access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific or Tone
Resources. As a result, all historical information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources
contained herein, including all historical financial information
used in connection with the preparation of the pro forma
financial information reflecting the pro forma
effects of a combination of (i) U.S. Gold and
White Knight, and (ii) U.S. Gold and White Knight,
Coral Gold, Nevada Pacific and Tone Resources, has been derived
from the publicly filed documents of White Knight, Coral Gold,
Nevada Pacific and Tone Resources. Although U.S. Gold has
no reason to doubt the accuracy or completeness of the publicly
filed documents of White Knight, Coral Gold, Nevada Pacific or
Tone Resources, any inaccuracy or material omission in such
publicly filed documents, including the information about or
relating to White Knight, Coral Gold, Nevada Pacific or Tone
Resources contained in this Offer, could result in unanticipated
liabilities or expenses, increase the cost of integrating the
companies, or adversely affect the operational plans of the
combined company and its results of operations and financial
condition.
Change of control provisions in agreements triggered upon
the acquisition of White Knight, Coral Gold, Nevada Pacific or
Tone Resources may lead to adverse business or financial
consequences.
Any of White Knight, Coral Gold, Nevada Pacific or Tone
Resources may be a party to agreements that contain change of
control provisions that may be triggered following the
completion of the applicable Strategic Offer as a result of New
US Gold owning common shares representing a majority of the
voting rights of such company. The operation of these change of
control provisions, if triggered, could result in unanticipated
expenses following the consummation of the applicable Strategic
Offer or adversely affect such company’s results of
operations and financial condition. Unless these change of
control provisions are waived by the other party, the operation
of any of these provisions could adversely affect such
company’s operations and the financial condition of the
combined company. As mentioned above, the Offerors have not had
access to the non-public books and records of White Knight,
Coral Gold, Nevada Pacific or Tone Resources, and there can be
no assurance as to the existence or absence of such agreements
or provisions, or the magnitude of payments or expenses or other
adverse consequences, if any, which could result.
The Offerors may not be successful in completing the
Strategic Offers.
On March 5, 2006, U.S. Gold announced its intention to
acquire four companies with mineral properties adjacent to or
near U.S. Gold’s Tonkin Springs exploration gold property.
The Offerors are unable to predict when, if ever, the Strategic
Offers will be completed. Further, management of one or more of
the companies may resist the Offerors’ efforts. In
addition, the Offerors’ current estimates of the value of
these entities is based only on publicly available information,
and the Offerors may determine through due diligence
investigation of any or all of these companies that acquiring
one or more of them would be less advantageous than the Offerors
currently believe. As a result of these or other factors, the
Offerors may choose to withdraw one or more of the Strategic
Offers, or the Offerors may be unable to complete any or all of
the Strategic Offers. If the Offerors do not consummate the
acquisition of one or more of those companies, the price of the
shares of common stock of U.S. Gold may decline.
The integration of any companies that may be acquired by
the Offerors will present significant challenges.
Upon completion of any of the Strategic Offers, the integration
of U.S. Gold’s operations with those of the acquired
company or companies and the consolidation of those operations
will require the dedication of management
24
resources, which will temporarily divert attention from the
day-to-day business of the combined company. The difficulties of
assimilation may be increased by the necessity of coordinating
separate organizations, integrating operations, systems and
personnel with disparate business backgrounds and combining
different corporate cultures. The process of combining the
organizations may cause an interruption of, or a loss of
momentum in, the activities of any or all of the companies’
businesses, which could have an adverse effect on the revenues
and operating results of the combined company for an
indeterminate period of time. The failure to successfully
integrate any companies that the Offerors may acquire, to retain
key personnel and to successfully manage the challenges
presented by the integration process may prevent U.S. Gold from
achieving the anticipated potential benefits of any such
acquisition. If U.S. Gold fails to realize the anticipated
benefits of any acquisition, the market value of its stock may
be adversely affected.
After the Offer is completed, White Knight would become a
majority-owned subsidiary of New US Gold and New US Gold’s
interests could differ from those of Shareholders who do not
deposit shares.
If pursuant to the Offer, the Offerors take up and pay for that
number of Common Shares that constitutes at least
662/3
% of the Common Shares outstanding at the time Common
Shares are taken up under the Offer, New US Gold would have the
power to elect directors, appoint new management and approve
certain actions requiring the approval of Shareholders,
including adopting certain amendments to White Knight’s
organizational and governing documents and approving mergers or
sales of White Knight’s assets. In particular, after the
consummation of the Offer, the Offerors intend to implement a
Subsequent Acquisition Transaction. In any of these contexts,
New US Gold’s interests with respect to White Knight may
differ from, or be adverse to, those of any remaining minority
Shareholders who do not deposit Common Shares.
U.S. Gold shareholders may not approve the Reorganization
or other matters necessary to complete the Offer.
In order for U.S. Gold to consummate the Offer and the
Reorganization, the holders of common stock of U.S. Gold,
voting at a meeting of such holders, shall have approved the
Reorganization, as described in the section entitled “The
Offerors — New US Gold and the Reorganization” on
page 38 of this Offer, and approved the issuance of shares of
common stock of New US Gold for use as consideration in
connection with the Strategic Offers. Approval of the
Reorganization will require the affirmative vote of the holders
of a majority of the outstanding shares of common stock of
U.S. Gold, and the issuance of shares of common stock of
New US Gold will require the affirmative vote of the
holders of a majority of the outstanding shares of common stock
of U.S. Gold entitled to vote at such meeting where a quorum is
present. U.S. Gold’s shareholders may not approve the
Reorganization or the issuance of shares of common stock of New
US Gold. If so, specific conditions to the Offer would not
be satisfied and the Offerors would have no obligation to
complete the Offer. The Offerors will not waive this condition.
Although U.S. Gold is unaware of any specific reason its
shareholders would not approve these necessary steps, there can
be no assurance that U.S. Gold’s shareholders will agree or
will grant the necessary approvals.
The exchange of Common Shares pursuant to the Offer could
be taxable to U.S. holders of the Common Shares.
Although the Offer is structured with the intent that the
exchange of Common Shares for shares of common stock of New
US Gold generally should qualify as a tax-free exchange
under section 351 of the Code for U.S. federal income
tax purposes to U.S. holders of the Common Shares, there is
no authority addressing elements of the transaction, so certain
aspects of the U.S. federal income tax treatment of the
exchange are uncertain. As a result, there are risks that
U.S. holders of the Common Shares will recognize a gain or
loss on the exchange. It is generally expected that the exchange
of Common Shares for Exchangeable Shares will be taxable to
U.S. holders of the Common Shares. See the section entitled
“Material U.S. Federal Income Tax Considerations”
on page 69 of this Offer. Further, the exchange of Common
Shares for New US Gold Shares or Exchangeable Shares could
have state or local tax consequences to Shareholders.
Shareholders are urged to consult their own tax advisors
concerning the tax consequences of the proposed transaction.
The Offerors will incur substantial costs in connection
with the Strategic Offers, even if they are never
completed.
The Offerors expect to incur acquisition-related expenses of
approximately Cdn$6.4 million, consisting of investment
banking, legal and accounting fees and financial printing and
other related charges. These amounts are preliminary estimates
and the actual amounts may be higher or lower. Moreover, New US
Gold is likely to incur additional expenses in future periods in
connection with the integration of any acquired company’s
business with its business.
TO: THE SHAREHOLDERS OF WHITE KNIGHT RESOURCES LTD.
This Offer and the accompanying Letter of Acceptance and
Transmittal and Notice of Guaranteed Delivery contain important
information which should be read carefully before making a
decision with respect to the Offer.
1.
The Offer
Common Shares
The Offerors hereby offer to purchase, upon the terms and
subject to the conditions of the Offer, all of the outstanding
Common Shares, including any Common Shares that may be issued
after the date of the Offer and prior to the Expiry Time, on the
basis of either:
•
0.35 shares of common stock of New US Gold; OR
•
0.35 Exchangeable Shares, which will, under the circumstances
described herein, be exchangeable for shares of common stock of
New US Gold on a one-for-one basis,
per 1.0 Common Share.
Shareholders are free to choose among the above two types of
consideration, although the election must be made as to all
Common Shares deposited under the Offer. Shareholders who
properly deposit Common Shares but do not elect a specific type
of consideration will be deemed to have elected to receive
shares of common stock of New US Gold.
The above two types of consideration may provide tax advantages
and disadvantages and will result in different tax consequences
to the Shareholder, depending upon facts specific to each
Shareholder. For example, while each Shareholder is free to
request common stock of New US Gold or Exchangeable Shares
regardless of where the holder resides, it is anticipated that
Shareholders resident in Canada for tax purposes may realize
some tax benefits from electing to receive Exchangeable Shares
while Shareholders resident in the United States for tax
purposes may benefit from electing to receive common stock of
New US Gold. Alternatively, Shareholders who are residents of
the United States for tax purposes and who receive Exchangeable
Shares and Shareholders who are residents of Canada for tax
purposes and who receive shares of common stock of New US Gold
may be subject to certain adverse tax consequences. Shareholders
are encouraged to consult their own advisors regarding the tax
consequences of the proposed transactions. Shareholders should
carefully review the description of the tax consequences of the
proposed transactions under the sections entitled “Material
Canadian Federal Income Tax Considerations” and
“Material U.S. Federal Income Tax Considerations”
on pages 59 and 69, respectively, of this Offer and
are encouraged to seek independent tax advice in determining
which election may be best under the Shareholder’s specific
circumstances.
Warrants, Options or Other Securities
The Offer is being made only for Common Shares and is not being
made for any Warrants, options or other securities that may
entitle the holder to acquire Common Shares. Any holder of such
securities who wishes to accept the Offer must exercise those
securities and deposit the Common Shares issued in accordance
with the Offer. Any such exercise must be sufficiently in
advance of the Expiry Time to permit the Common Shares acquired
on the exercise of those securities to be deposited under the
Offer in accordance with the procedures described under the
sections entitled “Time for Acceptance” and
“Manner of Acceptance” on page 27, respectively,
of this Offer. However, if, after completion of the Offer, the
Offerors implement a Subsequent Acquisition Transaction, the
Offerors intend to structure such transaction so that Warrants
would be exchanged for warrants to purchase Exchangeable Shares
and the White Knight stock option plan would be replaced with a
stock option plan of Canadian Exchange Co. or New US Gold. See
the section entitled “Acquisition of Common Shares Not
Deposited — Subsequent Acquisition Transaction”
on page 54 of this Offer.
26
Fractional Shares
Fractional shares of common stock of New US Gold or Exchangeable
Shares will not be issued pursuant to the Offer. Instead, the
number of shares of common stock of New US Gold or Exchangeable
Shares to be issued to each Shareholder will be either rounded
up (if the fractional interest is 0.5 or more) or down (if the
fractional interest is less than 0.5) to the next whole number.
For purposes of such rounding up or down, all Common Shares
deposited by a Shareholder will be aggregated.
2.
Time for Acceptance
The Offer is open for acceptance, unless withdrawn or extended
at the sole discretion of the Offerors, until the Expiry Time,
being 5:00 p.m. (Vancouver Time) on June 28, 2006, or such
later time or times and date or dates as may be fixed by the
Offerors from time to time.
See the section entitled “Extension of the Expiry Time or
Variation or Change of the Offer” on page 31 of this Offer.
3.
Manner of Acceptance
Letter of Acceptance and Transmittal
The Offer may be accepted by delivering to the Depositary at the
office specified in the Letter of Acceptance and Transmittal, so
as to arrive there not later than the Expiry Time:
•
the certificate(s) representing Common Shares in respect of
which the Offer is being accepted; AND
•
a Letter of Acceptance and Transmittal (printed on BLUE
paper) in the form accompanying the Offer or a facsimile
thereof, properly completed and duly executed as required by the
instructions set out in the Letter of Acceptance and
Transmittal; AND
•
any other document required by the instructions set forth in the
Letter of Acceptance and Transmittal.
Except as otherwise provided in the instructions set out in the
Letter of Acceptance and Transmittal or as may be permitted by
the Offerors, the signature on the Letter of Acceptance and
Transmittal must be guaranteed by an Eligible Institution. If a
Letter of Acceptance and Transmittal is executed by a person
other than the registered holder of the Common Shares
represented by the certificate(s) deposited therewith, the
certificate(s) must be endorsed or be accompanied by an
appropriate share transfer power of attorney duly and properly
completed by the registered holder, with the signature on the
endorsement panel or share transfer power of attorney guaranteed
by an Eligible Institution.
Alternatively, Common Shares may be deposited in compliance with
the procedures set forth below for guaranteed delivery not later
than the Expiry Time.
Procedure for Guaranteed Delivery
If a Shareholder wishes to deposit Common Shares pursuant to the
Offer and the certificate(s) representing the Common Shares are
not immediately available or such Shareholder cannot deliver the
certificate(s) and all other required documents to the
Depositary at or prior to the Expiry Time, those Common Shares
may nevertheless be deposited if all of the following conditions
are met:
•
the deposit is made by or through an Eligible Institution;
AND
•
a Notice of Guaranteed Delivery (printed on GREEN paper)
in the form accompanying the Offer or a facsimile thereof,
properly completed and duly executed, including a guarantee by
an Eligible Institution in the form specified in the Notice of
Guaranteed Delivery, is received by the Depositary at the office
set out in the Notice of Guaranteed Delivery, at or prior to the
Expiry Time; AND
•
the certificate(s) representing the deposited Common Shares in
proper form for transfer together with a Letter of Acceptance
and Transmittal in the form accompanying the Offer or a
facsimile thereof, properly completed and duly executed, with
any required signature guarantees and all other documents
required by the Letter of Acceptance and Transmittal, are
received by the Depositary at the office set out in the Notice
of Guaranteed
27
Delivery at or prior to 5:00 p.m. (Vancouver time) on the third
trading day on the TSX-V after the Expiry Time.
The Notice of Guaranteed Delivery may be delivered by hand or
courier, transmitted by facsimile or mailed to the Depositary at
the office set out in the Notice of Guaranteed Delivery and must
include a guarantee by an Eligible Institution in the form set
out in the Notice of Guaranteed Delivery.
General
In all cases, payment for Common Shares deposited and taken up
by the Offerors will be made only after timely receipt by the
Depositary of the certificate(s) representing the Common Shares,
a Letter of Acceptance and Transmittal or a facsimile thereof,
properly completed and duly executed, covering those Common
Shares with the signatures guaranteed, if required, in
accordance with the instructions set out in the Letter of
Acceptance and Transmittal, and any other required documents.
The method of delivery of certificates representing the
Common Shares, the Letter of Acceptance and Transmittal and all
other required documents is at the option and risk of the person
depositing same. The Offerors recommend that all such documents
be delivered by hand to the Depositary and a receipt obtained,
or, if mailed, that registered mail, with return receipt
requested, be used and that proper insurance be obtained.
Shareholders whose Common Shares are registered in the name of a
nominee should contact their broker, investment dealer, bank,
trust company or other nominee for assistance in depositing
their Common Shares under the Offer.
All questions as to the validity, form, eligibility (including
timely receipt) and acceptance of any Common Shares deposited
under the Offer will be determined by the Offerors in their sole
discretion. Depositing Shareholders agree that such
determination shall be final and binding. The Offerors reserve
the absolute right to reject any and all deposits that it
determines not to be in proper form or that may be unlawful to
accept under the laws of any jurisdiction. The Offerors reserve
the absolute right to waive any defects or irregularities in the
deposit of any Common Shares. There shall be no duty or
obligation on the Offerors or the Depositary or any other person
to give notice of any defects or irregularities in any deposit
and no liability shall be incurred by any of them for failure to
give any such notice. The Offerors’ interpretation of the
terms and conditions of this Offer, the Letter of Acceptance and
Transmittal and the Notice of Guaranteed Delivery will be final
and binding.
No fee or commission will be payable by a Shareholder who
delivers such shares directly to the Depositary or utilizes the
facilities of a Soliciting Dealer to accept the Offer.
The Offerors reserve the right, in accordance with applicable
law, to permit a Shareholder to accept the Offer in a manner
other than as set out above.
Power of Attorney
The execution of a Letter of Acceptance and Transmittal by a
Shareholder irrevocably appoints New US Gold or its designees as
the true and lawful agent, attorney and attorney in fact of that
Shareholder with respect to Common Shares deposited and
purchased under the Offer (the “Purchased Common
Shares”) and with respect to any and all stock dividends,
securities, rights, warrants or other interests or distributions
accrued, declared, paid, issued, transferred, made or
distributed on or in respect of the Purchased Common Shares on
or after March 5, 2006 (collectively, “Other
Securities”). This appointment is effective from and after
the date (the “Effective Date”) the Purchased Common
Shares are taken up and paid for under the Offer and affords New
US Gold full power of substitution (such power of attorney being
coupled with an interest being irrevocable), in the name and on
behalf of the holder who deposited those Common Shares, to:
•
register, record, transfer and enter the transfer of the
Purchased Common Shares and any Other Securities on the books of
White Knight;
•
vote, execute and deliver any instruments of proxy,
authorizations and consents in form and on terms satisfactory to
New US Gold in respect of any Purchased Common Shares and any or
all Other Securities, revoke any such instrument, authorization
or consent given prior to or after the Effective Date, designate
in
28
any such instruments of proxy any person(s) as the proxy or the
proxy nominee(s) of the Shareholder in respect of those
Purchased Common Shares and those Other Securities for all
purposes; and
•
execute, endorse and negotiate any cheques or other instruments
representing any distribution payable to the holder; and
exercise any and all other rights of a holder of Purchased
Common Shares and any Other Securities.
In addition, a Shareholder who executes a Letter of Acceptance
and Transmittal agrees, from and after the date on which the
Purchased Common Shares are taken up and paid for under the
Offer:
•
not to vote any of the Purchased Common Shares or Other
Securities at any meeting of holders of those securities;
•
not to exercise any other rights or privileges attached to any
of those securities; and
•
to deliver to New US Gold any and all instruments of proxy,
authorizations or consents received in respect of all those
securities.
All prior proxies given by a holder of Purchased Common Shares
with respect to those Purchased Common Shares and to those Other
Securities shall be revoked at the date on which the Purchased
Common Shares are taken up and paid for under the Offer and no
subsequent proxies may be given by that holder with respect to
those Purchased Common Shares or Other Securities.
Depositing Shareholders’ Representations and
Warranties
The deposit of Common Shares pursuant to the Offer will create
and constitute a binding agreement between the applicable
Shareholder and each of the Offerors upon the terms and subject
to the conditions of the Offer, including the Shareholder’s
representation and warranty that:
•
such Shareholder has full power and authority to deposit, sell,
assign and transfer the Common Shares (and any Other Securities)
being deposited and has not sold, assigned or transferred or
agreed to sell, assign or transfer any of such Common Shares
(and Other Securities) to any other person;
•
the Shareholder owns the Common Shares (and any Other
Securities) being deposited within the meaning of applicable
securities laws;
•
the deposit of those Common Shares (and any Other Securities)
complies with applicable securities laws; and
•
when those Common Shares (and any Other Securities) are taken up
and paid for under the Offer, New US Gold or Canadian
Exchange Co., as the case may be, will acquire good title
thereto free and clear of all liens, restrictions, charges,
encumbrances and claims.
4.
Conditions of the Offer
The Offerors may withdraw the Offer (in which event no Offeror
shall be required to take up and/or pay for any Common Shares
deposited under the Offer) or extend the period of time during
which the Offer is open (in which event the Offerors may
postpone taking up and paying for any Common Shares deposited
under the Offer), unless each of the following conditions has
been satisfied or has been waived by the Offerors at or prior to
the Expiry Time:
(a)
there shall have been properly deposited under the Offer and not
withdrawn at the Expiry Time that number of Common Shares that
constitutes at least
662/3
% of the Common Shares outstanding calculated on a
fully-diluted basis at the time Common Shares are taken up under
the Offer;
(b)
White Knight shall not have entered into or effectuated any
other agreement or transaction with any person or entity having
the effect of impairing the Offerors’ ability to acquire
White Knight or otherwise diminishing the expected economic
value to the Offerors of the acquisition of White Knight
including, but not limited to, any material issuance of new
securities of White Knight, the declaration of any extraordinary
dividend, the adoption of a shareholder rights plan or any other
transaction not in the ordinary course of White Knight’s
business;
29
(c)
the shares of common stock of New US Gold shall have been
approved for listing on the TSX and the AMEX and the
Exchangeable Shares shall have been approved for listing on the
TSX;
(d)
the registration statements for the shares of common stock of
New US Gold and the Exchangeable Shares to be issued pursuant to
the Offer and the shares of common stock of New US Gold that may
be issued upon the exchange of any such Exchangeable Shares
shall have become effective under the U.S. Securities Act, as
amended, and no stop order suspending the effectiveness of the
registration statements or a proceeding seeking a stop order
shall have been issued nor shall there have been proceedings for
that purpose initiated or threatened by the SEC and New US Gold
shall have received all necessary state securities law or blue
sky authorizations;
(e)
a receipt for a final prospectus qualifying the distribution of
securities underlying the U.S. Gold Subscription Receipts and
qualifying New US Gold as a reporting issuer shall have been
issued in all jurisdictions of Canada;
(f)
all necessary orders shall have been obtained from relevant
Canadian securities regulatory authorities in respect of the
Exchangeable Shares to be issued pursuant to the Offer, the
shares of common stock of New US Gold that may be issued upon
the exchange of any such Exchangeable Shares and the resale of
any such Exchangeable Shares or shares of common stock of New US
Gold;
(g)
the Offerors shall have received waivers relating to any change
of control provisions in any note, bond, mortgage, indenture,
license, lease, contract, agreement or other instrument or
obligation to which White Knight or any of its subsidiaries is a
party or by which any of them or any of their properties or
assets may be bound, except such waivers the absence of which
would not in the aggregate materially adversely affect White
Knight and its subsidiaries;
(h)
the holders of shares of common stock of U.S. Gold, voting at a
meeting of such holders, shall have approved the following prior
to the Expiry Time:
•
the agreement and plan of merger and the Reorganization, as
described in the section entitled “The Offerors —
New US Gold and the Reorganization” on page 38 of this
Offer, which will require the affirmative vote of the holders of
a majority of the outstanding shares of common stock of U.S.
Gold and the Reorganization shall have been implemented; and
•
the issuance of shares of common stock of New US Gold
(i) in the Strategic Offers, (ii) in any Subsequent
Acquisition Transaction relating to the Strategic Offers,
(iii) upon the exchange of Exchangeable Shares, as
described herein, and (iv) upon the exercise of warrants
and options of White Knight, Coral Gold, Nevada Pacific or Tone
Resources, which will require the affirmative vote of the
holders of a majority of the shares of common stock of U.S. Gold
entitled to vote at such meeting;
(i)
there shall not be in effect or threatened as of the Expiry
Time, as it may be extended, any temporary restraining order,
preliminary or permanent injunction or other order or decree
issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition challenging the Offer or
preventing the completion of the Offer or any of the other
transactions described in this Offer, and there shall be no
statute, rule, regulation, order, injunction or decree enacted,
entered, promulgated or enforced by any court, administrative
agency or commission or other governmental authority or
instrumentality which requires consent or approval or
challenges, prohibits, restricts or makes illegal the completion
of the Offer or the Subsequent Acquisition Transaction;
(j)
there shall not be pending or threatened any suit, action or
proceeding by any governmental entity: (i) challenging the
Offer, seeking to restrain or prohibit the completion of the
Offer or seeking to obtain from New US Gold or White Knight or
their respective subsidiaries any damages that are material in
relation to White Knight and its subsidiaries, on a consolidated
basis, or New US Gold and its subsidiaries, on a consolidated
basis; (ii) seeking to prohibit or limit the ownership or
operation by New US Gold or White Knight or any of New US
Gold’s subsidiaries of any material portion of the business
or assets of White Knight or New US Gold or any of New US
Gold’s subsidiaries or to compel White Knight or New US
Gold or any of New US Gold’s subsidiaries to dispose of or
hold separate any material portion of the business or assets of
New US Gold or White Knight or any of New US Gold’s
subsidiaries as a result of the
30
Offer; (iii) seeking to prohibit New US Gold from
effectively controlling in any material respect the business or
operations of White Knight; or (iv) which otherwise is
reasonably likely to have a material adverse effect on New
US Gold and its subsidiaries, on a consolidated basis, or
White Knight and its subsidiaries, on a consolidated basis;
(k)
there shall be no change or threatened change in the business,
properties, assets, liabilities, capitalization,
shareholders’ equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or
prospects of White Knight or any of its subsidiaries, on a
consolidated basis, that, in the reasonable judgment of the
Offerors, has or may have a material adverse effect on White
Knight and its subsidiaries, on a consolidated basis, and the
Offerors shall not have become aware of any fact that, in the
reasonable judgment of the Offerors, has or may have a material
adverse effect on White Knight and its subsidiaries or their
business or prospects or the value to New US Gold of the common
shares of White Knight;
(l)
the Offerors shall have obtained or received all approvals,
consents, clearances or waivers required to be obtained or
received from any governmental regulatory agency, authority or
commission in connection with the Offer and the Subsequent
Acquisition Transaction; and
(m)
there shall not have occurred or been threatened: (i) any
general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States or Canada;
(ii) any extraordinary or material adverse change in the
financial markets or major stock exchange indices in the United
States or Canada or in the market price of the Common Shares;
(iii) any change in the general political, market, economic
or financial conditions in the U.S. or Canada that could, in the
reasonable judgment of U.S. Gold, have a material adverse effect
upon the business, properties, assets, liabilities,
capitalization, shareholders equity, condition (financial or
otherwise), operations, licenses or franchises, results of
operations or prospects of White Knight or any of its
subsidiaries; (iv) any material change in U.S. or Canadian
currency exchange rates or a suspension of, or limitation on,
the markets therefor; (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States or Canada; (vi) any limitation (whether
or not mandatory) by any government, domestic, foreign or
supranational, or governmental entity on, or other event that,
in the reasonable judgment of U.S. Gold, might affect the
extension of credit by banks or other lending institutions;
(vii) a commencement of war or armed hostilities or other
national or international calamity involving the U.S. or Canada;
or (viii) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material
acceleration or worsening thereof.
The conditions listed above are for the exclusive benefit of the
Offerors, and the Offerors may assert them regardless of the
circumstances giving rise to any of the conditions. Unless
precluded from doing so by applicable law, the Offerors may, in
their sole discretion, waive any of these conditions in whole or
in part. The determination as to whether any condition has been
satisfied shall be final and binding on all parties. The failure
by the Offerors at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any right and each right
shall be deemed to be a continuing right that may be asserted at
any time and from time to time until immediately following the
Expiry Time and, as to conditions involving receipt of necessary
government approvals, thereafter.
Any waiver of a condition or withdrawal of the Offer shall be
effective upon written notice or other communication confirmed
in writing by the Offerors to that effect to the Depositary at
its principal office in Toronto. The Offerors shall make a
public announcement of the waiver or withdrawal promptly after
giving notice to the Depositary and shall cause the Depositary
to promptly provide a copy of such notice in the manner provided
in the section entitled “Notices and Delivery” on page
35 of this Offer to all Shareholders whose Common Shares have
not been taken up under the Offer at the date of the occurrence
of such waiver or withdrawal, if required by applicable law.
The Offerors reserve the right to terminate the Offer on or
prior to the Expiry Time if any condition to the Offer remains
unsatisfied or has not been waived or to comply with any
applicable law.
5.
Extension of the Expiry Time or Variation or Change of the
Offer
The Offer is open for acceptance until the Expiry Time, being
5:00 p.m. (Vancouver Time) on June 28, 2006, unless earlier
withdrawn.
31
The Offerors reserve the right at any time and from time to time
to extend the Offer or to vary or change the terms of the Offer
by giving written notice or other communication (confirmed in
writing) of such extension or variation to the Depositary at its
principal office in Toronto, and by causing the Depositary to
provide as soon as practicable thereafter a copy of such notice
in the manner set forth in the section entitled “Notices
and Delivery” on page 35 of this Offer to all Shareholders.
The Offerors shall make a public announcement of the extension
or variation as soon as possible after giving notice of an
extension or variation to the Depositary (and in the case of an
extension of the Offer, no later than 9:00 a.m. (Vancouver time)
on the day following the Expiry Time) and provide a copy of the
notice to the TSX-V. Any notice of extension or variation will
be deemed to have been given and to be effective on the day it
is delivered or otherwise communicated in writing to the
Depositary at its principal office in Toronto.
Where the terms of the Offer are varied, the Offer will not
expire before 10 business days after the notice of such
variation has been mailed to Shareholders, unless otherwise
permitted by applicable law.
If, before the expiration of all rights of withdrawal with
respect to the Offer, a material change occurs in the
information contained in this Offer, as amended from time to
time, that would reasonably be expected to affect the decision
of a Shareholder to accept or reject the Offer (other than a
change that is not within the control of the Offerors or their
affiliates), the Offerors will give written notice of such
change to the Depositary at its principal office in Toronto, and
will cause the Depositary to promptly provide a copy of such
notice in the manner provided in the section entitled
“Notices and Delivery” on page 35 of this Offer to all
Shareholders, if required by applicable law. As soon as
practicable after giving notice of such a material change to the
Depositary, the Offerors will make a public announcement of the
change in information and provide a copy of the notice thereof
to the TSX-V in accordance with the section entitled
“Notices and Delivery” on page 35 of this Offer.
During any such extension or in the event of a material
variation or change in information, all Common Shares previously
deposited and not taken up or withdrawn will remain subject to
the Offer and may be accepted for purchase by the Offerors in
accordance with the terms of the Offer, subject to the
withdrawal rights described in the section entitled “Right
to Withdraw” below. An extension of the Expiry Time, a
variation of the terms of the Offer or a change in information
does not constitute a waiver by any of the Offerors of any
rights described above in the section entitled “Conditions
of the Offer” on page 29 of this Offer. If the
consideration under the Offer is increased, the increased
consideration will be paid to all depositing Shareholders whose
Common Shares are taken up under the Offer.
The Offerors will follow any extension, termination, variation,
amendment or delay as promptly as practicable, with a public
announcement. In the case of an extension, variation or
amendment, any related announcement will be issued no later than
5:00 p.m. (Vancouver time), on the date on which the Expiry Time
previously was to occur. Subject to applicable law and without
limiting the manner in which the Offerors may choose to make any
public announcement, the Offerors assume no obligation to
publish, advertise or otherwise communicate any public
announcement of this type other than in accordance with the
section entitled “Notices and Delivery” on page 35 of
this Offer.
6.
Right to Withdraw
Except as indicated herein or as otherwise required by
applicable law, deposits of Common Shares are irrevocable.
Common Shares deposited under the Offer may be withdrawn by or
on behalf of the depositing Shareholder (unless otherwise
required or permitted by applicable law):
(a)
at any time before the Common Shares have been taken up by the
Offerors under the Offer;
(b)
if the Common Shares have not been paid for by the Offerors
within three business days after having been taken up; or
(c)
at any time before the expiration of 10 days from the date
upon which either:
(i)
a notice of change relating to a change in the information
contained in the Offer, as amended from time to time, that would
reasonably be expected to affect the decision of a Shareholder
to accept or reject the Offer (other than a change that is not
within the control of the Offerors or an affiliate of the
Offerors, unless it is a change in a material fact relating to
the shares of common stock of New US Gold or the Exchangeable
Shares), in the event that such change occurs at or before the
Expiry Time or after the Expiry Time but before the expiry of
all rights of withdrawal in respect of the Offer; or
32
(ii)
a notice of variation concerning a variation in the terms of the
Offer (other than a variation consisting solely of an increase
in the consideration offered for the Common Shares where the
Expiry Time is not extended for more than 10 days);
is mailed, delivered, or otherwise properly communicated, but
subject to abridgement of that period pursuant to such order or
orders as may be granted by applicable courts or securities
regulatory authorities and only if such Deposited Shares have
not been taken up by the Offerors at the date of the notice.
Notice of withdrawal of deposited Common Shares must:
(i) be made by a method that provides the Depositary with a
written or printed copy of such notice (which includes a
facsimile); (ii) be made by or on behalf of the depositing
Shareholder; (iii) be signed by or on behalf of the
Shareholder who signed the Letter of Acceptance and Transmittal
that accompanied the Common Shares being withdrawn;
(iv) specify such Shareholder’s identity, the number
of Common Shares to be withdrawn, the name of the registered
Shareholder of, and the certificate number shown on each
certificate evidencing, the Common Shares being withdrawn; and
(v) be actually received by the Depositary within the
applicable time specified above. Any signature in the withdrawal
notice must be guaranteed in the same manner as in the Letter of
Acceptance and Transmittal.
Withdrawals may not be rescinded. Any Common Shares withdrawn
will be deemed not properly deposited for the purposes of the
Offer, but may be re-deposited at any time on or prior to the
Expiry Time by following the applicable procedures described in
the section entitled “Manner of Acceptance” on page 27
of this Offer.
In addition to the foregoing withdrawal rights, Shareholders in
certain provinces of Canada are entitled to statutory rights of
rescission in certain circumstances. See the section entitled
“Offerees’ Statutory Rights” on page 91 of this
Offer.
7.
Take Up of, and Payment for, Deposited Common Shares
If all conditions described in the section entitled
“Conditions of the Offer” on page 29 of this Offer
have been satisfied or waived by the Offerors at the Expiry
Time, all Common Shares that have been properly deposited and
not withdrawn will be required to be taken up promptly following
the Expiry Time and, in any event, not later than 10 days
after the Expiry Time. All Common Shares taken up under the
Offer will be paid for promptly and, in any event, within three
business days of having been taken up.
Subject to applicable law, the Offerors expressly reserve the
right to delay taking up and paying for any Common Shares. No
Common Shares properly deposited under the Offer will be taken
up unless all Common Shares then properly deposited under the
Offer are taken up.
Common Shares properly deposited and not withdrawn pursuant to
the Offer will be deemed to have been taken up and accepted for
payment if, as and when the Offerors give written notice or
other communication confirmed in writing to the Depositary at
its principal office in Toronto to that effect.
The Offerors reserve the right to determine which of the
Offerors or the Offerors’ designees will take up individual
Common Shares deposited under the Offer. The Offerors expect
that Canadian Exchange Co. will take up any Common Shares in
respect of which Exchangeable Shares are issued as consideration
and that New US Gold will take up any Common Shares in
respect of which shares of common stock of New US Gold are
issued as consideration. The Offerors expect that any Common
Shares taken up by New US Gold will be immediately
transferred to Alberta ULC. In any such event, the Offerors will
take appropriate steps to ensure that the consideration which a
depositing Shareholder elects to receive pursuant to the Offer
is available.
New US Gold and Canadian Exchange Co., as applicable, will pay
for Common Shares properly deposited under the Offer and not
withdrawn by providing the Depositary with certificates for
shares of common stock of New US Gold and Exchangeable Shares,
as applicable, for transmittal to depositing Shareholders. Under
no circumstances will interest accrue or be paid to persons
depositing Common Shares by any of the Offerors or the
Depositary, regardless of any delay in making payment for those
shares.
Fractional shares of common stock of New US Gold or Exchangeable
Shares will not be issued pursuant to the Offer. Instead, the
number of shares of common stock of New US Gold or Exchangeable
Shares to be issued to each Shareholder will be rounded up to
the next whole number. For purposes of such rounding up, all
Common Shares deposited by a Shareholder will be aggregated.
33
The Depositary will act as the agent of Shareholders who have
properly deposited Common Shares under the Offer for the
purposes of receiving payment under the Offer and transmitting
that payment to those Shareholders, and receipt of payment by
the Depositary will be deemed to constitute receipt of payment
by those Shareholders who have properly deposited Common Shares.
Settlement with each Shareholder who has properly deposited
Common Shares under the Offer will be made by the Depositary
forwarding a certificate for the shares of common stock of New
US Gold or Exchangeable Shares, representing payment for the
Common Shares taken up. Unless otherwise specified by the
Shareholder in the Letter of Acceptance and Transmittal, share
certificates will be issued in the name of the registered holder
of the Common Shares so deposited and forwarded by first class
mail to the address specified in the Letter of Acceptance and
Transmittal. If no address is specified, share certificates will
be sent to the address of the Shareholder as shown on the
register of Shareholders maintained by or on behalf of White
Knight. Share certificates mailed in accordance with this
paragraph will be deemed to be delivered and payment will be
deemed to be made by New US Gold at the time of mailing.
If the consideration payable pursuant to the Offer is increased
before the Expiry Time, the increased consideration will be paid
in respect of all Common Shares acquired pursuant to the Offer,
regardless of whether those shares were deposited before that
increase in the consideration.
8.
Return of Common Shares
If any Common Shares deposited under the Offer are not taken up
pursuant to the Offer, or certificates are submitted for more
Common Shares than are properly deposited, certificates for
those Common Shares that are not taken up (or were not properly
deposited) will be returned to the depositing Shareholder
without expense to the Shareholder as soon as practicable after
the Expiry Time or withdrawal or termination of the Offer by
sending certificates representing Common Shares not purchased by
first class mail in the name of and to the address specified by
the Shareholder in the Letter of Acceptance and Transmittal or,
if such name or address is not so specified, in such name and to
such address as shown on the share register maintained by or on
behalf of White Knight.
9.
Mail Service Interruption
Notwithstanding any other provisions of this Offer, the Letter
of Acceptance and Transmittal and the Notice of Guaranteed
Delivery, share certificates and other relevant documents will
not be mailed if New US Gold determines, in its reasonable
discretion, that delivery by mail may be delayed by a disruption
of mail service. Shareholders entitled to share certificates
and/or other relevant documents that are not mailed for this
reason may take delivery thereof at the office of the Depositary
at which they deposited their Common Shares until such time as
the Offerors have determined, in their reasonable discretion,
that delivery by mail will no longer be delayed. Notwithstanding
the section entitled “Take Up of, and Payment for,
Deposited Common Shares” on page 33 of this Offer, but
subject to the section entitled “Notices and Delivery”
on page 35 of this Offer, share certificates and other relevant
documents not mailed for this reason will, subject to applicable
law, be conclusively deemed to have been delivered on the first
day upon which they are available for delivery at the office of
the Depositary at which the Common Shares were deposited. Notice
of any such determination by New US Gold shall be given to
holders of Common Shares in accordance with the section entitled
“Notices and Delivery” on page 35 of this Offer.
10.
Dividends and Distributions
If, on or after the date of the Offer, White Knight should
subdivide, consolidate or otherwise materially change any of the
Common Shares or its capitalization or disclose that it has
taken any such action, the Offerors may make such adjustments as
it deems appropriate to reflect such subdivision, consolidation
or other change in the purchase price and other terms of the
Offer including (without limitation) the type of securities
offered to be purchased and the amounts payable therefor.
Common Shares acquired pursuant to the Offer shall be acquired
free and clear of all encumbrances, together with all rights and
benefits arising therefrom including the right to any and all
cash and stock dividends, securities, rights, warrants or other
interests or distributions which may be accrued, declared, paid,
issued, distributed, made or transferred on or in respect of
such Common Shares and which are made payable or distributable
to the holders of those Common Shares of record on a date on or
after the date of the Offer. If White Knight should declare or
pay any cash or
34
stock dividend or make any other distribution on, or issue any
securities, rights, warrants or other interests or distributions
in respect of, deposited Common Shares after the date of the
Offer, such dividend, distribution or rights will be received
and held by the depositing Shareholder for the account of New US
Gold or Canadian Exchange Co., as the case may be, and:
(i) in the case of cash dividends, distributions or
payments, the amount of the dividends, distributions or payments
shall be received and held by the depositing Shareholders for
their own account, and to the extent that such dividends,
distributions or payments do not exceed the value of the
consideration per Common Share payable by the Offerors pursuant
to the Offer (as determined by the Offerors), the consideration
will be reduced by that number of shares of common stock of New
US Gold or Exchangeable Shares having a value equal to the
amount of such dividend, distribution or payment; (ii) in
the case of non-cash dividends, distributions, payments, rights
or other interests, the whole of any such non-cash dividend,
distribution, payment, right or other interest shall be received
and held by depositing Shareholders to the Depositary for the
account of the Offerors, accompanied by appropriate
documentation of transfer; and (iii) in the case of any
cash dividends, distributions or payments in an amount that
exceeds the consideration per Common Share payable by the
Offerors (as determined by the Offerors), the whole of any such
cash dividend, distribution or payment shall be received and
held by the depositing Shareholders for the account of the
Offerors and shall be required to be promptly remitted and
transferred by the depositing Shareholders to the Depositary for
the account of the Offerors, accompanied by appropriate
documentation of transfer. Pending such remittance (in the case
of (ii) and (iii) above), the Offerors will be
entitled to all rights and privileges as owner of any such
dividend, distribution, payment, right or other interest and may
withhold all of the shares of common stock of New US Gold or
Exchangeable Shares, as applicable, otherwise issuable by the
Offerors to the non-remitting Shareholder pursuant to the Offer
or deduct from the number of New US Gold or Exchangeable Shares
with a value equal to the amount or value equal to the amount or
value of the dividend, distribution, payment right or other
interest, as determined by the Offerors in its sole discretion.
11.
Notices and Delivery
Except as otherwise provided in this Offer, any notice that the
Offerors or the Depositary may provide, give or cause to be
given under the Offer will be deemed to have been properly given
if mailed to the registered holders of Common Shares at their
respective addresses appearing in the registers maintained in
respect of such Common Shares and will be deemed to have been
delivered and received on the mailing date. These provisions
shall apply notwithstanding any accidental omission to provide
or give notice to any one or more holders of Common Shares and
notwithstanding interruption of mail service in Canada, the
United States or elsewhere following mailing. In the event of
any interruption of mail service, the Offerors intend to make
reasonable efforts to disseminate the notice by other means,
such as publication. Subject to the approval of applicable
regulatory authorities, in the event of any interruption of mail
service, any notice that the Offerors or the Depositary may
provide, give or cause to be given under the Offer will be
deemed to have been properly provided or given to or received by
holders of Common Shares if: (i) it is given to the TSX-V
for dissemination through their facilities; (ii) it is
published once in the National Edition of The Globe and Mail or
The National Post; or (iii) it is given to the Canada
Newswire Service or Dow Jones Newswire.
12.
Market Purchases
None of the Offerors will acquire beneficial ownership of Common
Shares while the Offer is outstanding, other than pursuant to
the Offer.
13.
Other Terms
The Offerors reserve the right to transfer to one or more of
their affiliates the right to purchase all or any portion of the
Common Shares deposited under the Offer, but any such transfer
will not relieve the Offerors of their obligations under the
Offer and will in no way prejudice the rights of persons
depositing Common Shares to receive payment for Common Shares
validly deposited and accepted for payment pursuant to the Offer.
No broker, dealer or other person has been authorized to give
any information or to make any representation or warranty on
behalf of the Offerors or any of their affiliates in connection
with the Offers other than as contained in the Offers, and, if
any such information, representation or warranty is given or
made, it must not be relied upon as having been authorized.
35
The provisions of this Offer, and the Letter of Acceptance and
Transmittal and the Notice of Guaranteed Delivery accompanying
this Offer collectively comprise the terms and conditions of the
Offer.
The Offerors shall determine in their reasonable discretion all
questions relating to the interpretation of this Offer, the
Letter of Acceptance and Transmittal and the Notice of
Guaranteed Delivery, the validity (including time of receipt) of
any acceptance of the Offer and any withdrawal of Common Shares,
including, without limitation, the satisfaction or
non-satisfaction of any condition, the validity, time and effect
of any deposit of Common Shares or notice of withdrawal of
Common Shares, and the due completion and execution of the
Letter of Acceptance and Transmittal. The Offerors’
determination of such matters shall be final and binding for all
purposes. The Offerors reserve the right to waive any defect in
acceptance with respect to any particular Common Share or any
particular Shareholder. There shall be no obligation on the
Offerors, the Soliciting Dealers or the Depositary to give
notice of any defects or irregularities in any acceptance or
notice of withdrawal and no liability shall be incurred by any
of them for failure to give any such notification.
This document does not constitute an offer or a solicitation to
any person in any jurisdiction in which such offer or
solicitation is unlawful. The Offer is not being made to, nor
will deposits be accepted from or on behalf of, Shareholders in
any jurisdiction in which the making or acceptance of the Offer
would not be in compliance with the laws of any such
jurisdiction. However, the Offerors may, in their sole
discretion, take such action as they may deem necessary to
extend the Offer to Shareholders in any such jurisdiction.
This Offer, which the Offer to Purchase and Circular are
incorporated into and form part of, constitutes the take-over
bid circular required under Canadian provincial securities
legislation with respect to the Offer. Shareholders are urged to
refer to the Circular for additional information relating to the
Offer.
U.S. GOLD CORPORATION
US GOLD HOLDINGS CORPORATION
(signed) Robert R.
McEwen
Chairman of the Board
and Chief Executive Officer
This Circular is furnished in connection with the offer dated
May 1, 2006 by the Offerors to purchase all of the
outstanding Common Shares, including Common Shares that may
become outstanding upon the exercise of options, warrants or
other rights to acquire Common Shares after the date of the
Offer. Shareholders should refer to the Offer to Purchase
beginning on page 26 of this Offer for details of the terms and
conditions, including details as to payment and withdrawal
rights.
Appendix A (Information Concerning U.S. Gold
Corporation), Appendix B (Certain Information Regarding
Tonkin Springs Gold Property of U.S. Gold Corporation),
Appendix C (Certain Financial Statements of U.S. Gold
Corporation), Appendix D (Unaudited Financial Statements of
US Gold Holdings Corporation), Appendix E (Unaudited
Financial Statements of US Gold Canadian Acquisition
Corporation), Appendix F (Unaudited Pro Forma Consolidated
Financial Statements of U.S. Gold Corporation), Appendix G
(Unaudited Pro Forma Consolidated Supplementary Financial
Statements of U.S. Gold Corporation) and Appendix H
(Rights, Privileges, Restrictions and Conditions Attaching to
the Exchangeable Shares of US Gold Canadian Acquisition
Corporation) are incorporated into and form part of this
Circular. Certain capitalized words and terms used in this
Circular are defined in the Definitions, which begin on
page 1 of this Offer.
The information concerning White Knight contained in this
Circular, including Appendix F (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold Corporation) and
Appendix G (Unaudited Pro Forma Consolidated Supplementary
Financial Statements of U.S. Gold Corporation), has been taken
from or is based upon publicly available documents and records
of White Knight on file with securities regulatory authorities
in Canada and the United States and other public sources.
Although the Offerors have no reason to doubt the accuracy or
completeness of White Knight’s publicly filed documents,
the Offerors are not in a position to independently assess or
verify the information in White Knight’s publicly filed
documents, including its financial statements.
1.
The Offerors
U.S. Gold
U.S. Gold was organized under the laws of the State of Colorado
on July 24, 1979 under the name Silver State Mining
Corporation. On June 21, 1988, U.S. Gold changed its name
from Silver State Mining Corporation to U.S. Gold Corporation.
U.S. Gold is engaged in the exploration for gold and other
precious metals. It holds a 100% interest in the Tonkin Springs
exploration gold property in Eureka County, Nevada, subject to
paramount title in the United States. This property consists of
approximately 36 square miles of unpatented lode mining claims
and millsite claims located on the Battle Mountain-Eureka Trend,
approximately 45 miles northwest of the town of Eureka, in
north-central Nevada. Some of the claims are leased from an
independent third party. U.S. Gold is presently in the
exploration stage at the Tonkin Springs exploration gold
property, where it has a milling facility in place and an
estimate of mineralized material of 29.7 million tons with
average grade of 0.043 ounces of gold per ton. U.S. Gold has not
generated revenue from mining operations since 1990. U.S. Gold
is planning an extensive two-year, property-wide, integrated
exploration program at the Tonkin Springs exploration gold
property beginning in 2006, focusing on evaluation of the
structural and stratigraphic setting of the project. Its
objectives are to expand the known mineralization and to
discover new mineralization in areas previously untested,
targeting deeper mineralization. U.S. Shareholders are
cautioned that, although National Instrument 43-101 requires
disclosure in Canada of measured, indicated and inferred mineral
resources, the SEC does not recognize these classification
categories for U.S. reporting purposes.
Following the Reorganization, the current directors and
executive officers of U.S. Gold identified in
U.S. Gold’s annual report on
Form 10-KSB filed
with the SEC on April 7, 2004 and included in
Appendix A (Information Concerning U.S. Gold
Corporation), which is incorporated into and forms part of this
Circular, will be the directors and executive officers of New US
Gold. Information regarding the qualifications and compensation
of such individuals, and the existence of certain relationships
and transactions between such individuals and U.S. Gold and
its subsidiaries, can be found in Appendix A.
U.S. Gold’s principal executive offices are located at 2201
Kipling Street, Suite 100, Lakewood, Colorado, U.S.A. 80215
and its telephone number is (303) 238-1438. U.S.
Gold’s website is www.usgold.com. Information contained on
the website is not incorporated by reference into this Offer,
and Shareholders should not consider information contained on
the website as part of this Offer.
37
Additional information regarding U.S. Gold’s business and
operations is included in Appendix A (Information
Concerning U.S. Gold Corporation), Appendix B (Certain
Information Regarding Tonkin Springs Gold Property of U.S. Gold
Corporation), Appendix C (Certain Financial Statements of
U.S. Gold Corporation), Appendix F (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold Corporation)
and Appendix G (Unaudited Pro Forma Consolidated
Supplementary Financial Statements of U.S. Gold Corporation),
which are incorporated into and form part of this Circular.
New US Gold and the Reorganization
US Gold Holdings Corporation, or New US Gold, is a corporation
formed under the laws of the State of Delaware and a
wholly-owned subsidiary of U.S. Gold. New US Gold was formed
solely for the purpose of making the Strategic Offers and
effecting the Reorganization and has no significant assets or
capitalization and has not engaged in any business or other
activities to date. Following the Reorganization, the current
directors and executive officers of U.S. Gold identified in
U.S. Gold’s annual report on
Form 10-KSB filed
with the SEC on April 7, 2004 and included in
Appendix A (Information Concerning U.S. Gold
Corporation), which is incorporated into and forms part of this
Circular, will be the directors and executive officers of New US
Gold. New US Gold’s principal executive offices
are located at 2201 Kipling Street, Suite 100,
Lakewood, Colorado, U.S.A. 80215 and its telephone number is
(303) 238-1438.
Prior to the taking up of Common Shares deposited under the
Offer, U.S. Gold will, subject to shareholder approval, effect
the Reorganization to create a holding company structure. Upon
completion of the Reorganization, U.S. Gold will be a
wholly-owned subsidiary of New US Gold and the name of New US
Gold will be changed to “US Gold Corporation.” All of
the outstanding shares of common stock of U.S. Gold will become,
without any further action on the part of holders thereof,
shares of common stock of New US Gold having rights and
privileges substantially the same as the existing shares of
common stock of U.S. Gold. It is a condition of the Offer that
the common stock of New US Gold will be approved for listing on
the TSX and the AMEX. Additional information regarding New US
Gold is included in Appendix D (Unaudited Financial
Statements of US Gold Holdings Corporation), which is
incorporated into and forms part of this Circular.
Canadian Exchange Co.
US Gold Canadian Acquisition Corporation, or Canadian Exchange
Co., is a corporation incorporated under the ABCA and a
wholly-owned subsidiary of U.S. Gold. Canadian Exchange Co.
was formed solely for the purpose of making the Strategic Offers
and effecting the Reorganization and has no significant assets
or capitalization and has not engaged in any business or other
activities to date. In connection with the Strategic Offers,
among other things, Canadian Exchange Co. will acquire the
benefit of the Support Agreement and, to the extent the
Strategic Offers are completed, will acquire common shares of
White Knight, Coral Gold, Nevada Pacific and Tone Resources and
incur liabilities in connection with the Strategic Offers.
Canadian Exchange Co.’s registered office is located at
2900 Manulife Place, 10180-101 Street, Edmonton, Alberta, Canada
T5J 3V5 and its telephone number is (780) 423-7100.
Mr. Robert R. McEwen, Ms. Ann S. Carpenter and
Mr. William F. Pass are the current directors of Canadian
Exchange Co. Each of Mr. McEwen, Ms. Carpenter and
Mr. Pass has served as a director of Canadian Exchange Co.
since Canadian Exchange Co.’s incorporation on
April 18, 2006. The term of office of each director will
expire not later than the close of the next annual meeting of
shareholders of Canadian Exchange Co. In addition,
Mr. McEwen currently serves as the Chairman and Chief
Executive Officer, Ms. Carpenter currently serves as the
President, and Mr. Pass currently serves as the Vice
President, Secretary and Treasurer, of Canadian Exchange Co.
Additional information regarding Mr. McEwen,
Ms. Carpenter and Mr. Pass is included in
Appendix A (Information Concerning U.S. Gold
Corporation), which is incorporated into and forms part of this
Circular.
Additional information regarding Canadian Exchange Co. is
included in Appendix E (Unaudited Financial Statements of
US Gold Canadian Acquisition Corporation), which is incorporated
into and forms part of this Circular.
In addition to an unlimited number of common and preferred
shares, Canadian Exchange Co. is authorized to issue the
Exchangeable Shares, as described in the section entitled
“Exchangeable Shares — Description of
Exchangeable Shares” on page 42 of this Offer, having
substantially the attributes set out in Appendix H (Rights,
Privileges, Restrictions and Conditions Attaching to the
Exchangeable Shares of US Gold Canadian Acquisition
Corporation), which is incorporated into and forms part of this
Circular.
38
2.
White Knight
The Offerors have not had access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific and Tone
Resources. As a result, all historical information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources
contained herein, including all historical financial information
used in the preparation of the pro forma financial
information reflecting the pro forma effects of a
combination of (i) U.S. Gold and White Knight, and
(ii) U.S. Gold and White Knight, Coral Gold, Nevada
Pacific and Tone Resources, has been derived from the publicly
filed documents of White Knight, Coral Gold, Nevada Pacific and
Tone Resources. Although the Offerors have no reason to doubt
the accuracy or completeness of the publicly filed documents of
White Knight, Coral Gold, Nevada Pacific and Tone Resources, the
Offerors are not in a position to independently assess or verify
the information in such publicly filed documents, including any
financial statements. See the section entitled “Risk
Factors — The Offerors have been unable to
independently verify the reliability of information in this
Offer regarding White Knight, Coral Gold, Nevada Pacific and
Tone Resources” on page 24 of this Offer. In
addition, all reconciliations of White Knight’s financial
information, which White Knight records in accordance with
Canadian GAAP, to US GAAP is based exclusively on information
taken directly from White Knight’s public reports and
securities filings, unless expressly noted otherwise.
White Knight’s audited consolidated financial statements
for the year ended June 30, 2005 and unaudited consolidated
financial statements for the six months ended December 31,2005 and December 31, 2004, together, in each case, with
management’s discussion and analysis for such period, can
be found in the current report on
Form 8-K filed by
U.S. Gold with the SEC on May 1, 2006. See the section
entitled “Notice to Shareholders in the United
States — Certain Financial Information of White
Knight” on page (iii) of this Offer. An audit report
was issued by White Knight’s auditors in connection with
the audit of White Knight’s consolidated financial
statements for the year ended June 30, 2005. The Offerors
requested permission from White Knight’s auditors to
include the audit report in the
Form 8-K filed by
U.S. Gold with the SEC on May 1, 2006. White
Knight’s auditors indicated that they would consent to the
inclusion of the audit report subject to the completion of
certain procedures. If and when such procedures are completed
and the auditors’ consent is granted, U.S. Gold will
file an amended
Form 8-K to
include the audit report. The audit report is available in White
Knight’s publicly filed documents. See the section entitled
“Where You Can Find Additional Information” on
page (iv) of this Offer.
White Knight is an exploration company active in finding and
generating new mineral prospects. White Knight has been
exploring for Carlin-type gold deposits in Nevada since 1993.
Its portfolio includes 18 properties (over 68,000 acres), 15 of
which are located in the Cortez Trend. Five are joint ventures
subject to earn-in agreements with the remainder 100% held by
White Knight (with White Knight having a net ownership position
of between 46,000 and 50,000 acres).
White Knight was incorporated on December 18, 1986 under
the Company Act (British Columbia). On March 29,2004, the Company Act (British Columbia) was replaced by
the BCBCA. White Knight completed a mandatory transition to the
BCBCA on December 21, 2005. White Knight’s registered
office is located at Suite 3350, 1055 Dunsmuir Street,
Vancouver, British Columbia, Canada V7X 1L2 and its head office
is located at 922, 510 West Hastings Street, Vancouver, British
Columbia, Canada V6B 1L8. White Knight is a reporting issuer in
the Provinces of British Columbia and Alberta and files its
continuous disclosure documents with the securities regulatory
authorities in those provinces. Such documents are available
without charge at www.sedar.com.
Authorized and Outstanding Share Capital of White
Knight
White Knight is authorized to issue an unlimited number of
common shares without par value. Based on information contained
in White Knight’s management discussion and analysis dated
February 27, 2006 for the second quarter ended
December 31, 2005, there were: (i) 59,239,972 Common
Shares issued and outstanding as at February 15, 2006;
(ii) 5,270,000 Common Shares issuable upon exercise of
outstanding options as at February 27, 2006; and
(iii) 1,500,000 Common Shares issuable upon exercise of
outstanding Warrants as at December 31, 2005.
Shareholders are entitled to receive notice of and attend any
meetings of Shareholders and to one vote per Common Share at all
such meetings. Shareholders are entitled to receive such
dividends as White Knight’s board of directors may declare
from time to time, according to the number of shares held and
subject to the rights, privileges, restrictions and conditions
attaching to any other class of shares of White Knight.
39
Price Range and Trading Volume of the Common Shares
The following table sets forth, for the periods indicated, the
reported high and low sale prices and the aggregate volume of
trading of the Common Shares on the TSX-V:
Period
High
Low
Volume
(Cdn$)
(Cdn$)
2005
January
0.83
0.65
1,491,938
February
0.78
0.60
1,521,150
March
0.93
0.67
1,386,683
April
0.73
0.57
693,994
May
0.68
0.55
128,506
June
0.92
0.60
960,001
July
1.14
0.85
9,421,613
August
1.80
1.26
7,285,067
September
1.80
1.33
2,931,114
October
1.62
1.31
3,594,704
November
2.10
1.45
3,989,138
December
1.95
1.58
2,025,977
2006
January
2.13
1.70
3,461,395
February
1.79
1.40
3,654,899
March
2.39
1.65
9,299,027
April
2.80
2.07
6,362,824
Source: TSX Inc.
The following table sets forth the closing price of the Common
Shares as reported on the TSX-V on: (i) March 3, 2006,
the last trading day preceding the initial public announcement
of U.S. Gold’s proposed business combination with White
Knight; (ii) March 6, 2006, the first trading day
following the initial public announcement of U.S. Gold’s
proposed business combination with White Knight; and
(iii) April 28, 2006, the most recent trading day
practicable before the filing of this Offer.
TSX-V
March 3,
March 6,
April 28,
Issuer
2006
2006
2006
White Knight
Cdn$
1.79
Cdn$
2.13
Cdn$
2.78
The weighted average closing price of the Common Shares on the
TSX-V for the 60 trading days ended on March 3, 2006 was
Cdn$1.73.
Dividends and Dividend Policy
Based on publicly-available information, White Knight has never
declared any dividends on the Common Shares. Further, White
Knight has not publicly stated that it has the intention to pay
dividends in the future.
Previous Purchases and Sales
Based on publicly-available information, no securities of White
Knight, excluding securities purchased or sold pursuant to the
exercise of employee stock options, warrants and conversion
rights, have been purchased or sold by White Knight during the
12 months preceding the date of the Offer, except for the
following:
Number of
Securities
Purchase or
Aggregate
Purchased
Sale Price
Gross
Date
Description of Purchase or Sale
or Sold
per Security
Proceeds
(Cdn$)
(Cdn$)
January 2006
Mineral property interests
40,000
Unknown
Unknown
40
Previous Distributions
Based on publicly-available information, no distributions of
Common Shares were effected during the five years preceding the
date of the Offer, except for the following:
Each unit consists of one Common Share and one warrant entitling
the holder to purchase one Common Share at a price of Cdn$0.25
on or before June 27, 2002.
(2)
Each unit consists of one Common Share and one warrant entitling
the holder to purchase one Common Share at a price of Cdn$0.60
on or before October 24, 2005.
(3)
Each unit consists of one Common Share and one warrant entitling
the holder to purchase one Common Share at a price of Cdn$1.25
for 18 months.
(4)
Each unit consists of one Common Share and one warrant entitling
the holder to purchase one Common Share at a price of Cdn$1.25
for one year.
(5)
Each unit consists of one Common Share and one warrant entitling
the holder to purchase one Common Share at a price of Cdn$2.50
for one year.
(6)
Does not include the Common Shares issuable upon exercise of the
warrants.
(7)
Weighted average.
3.
Exchangeable Shares
Description of Exchangeable Shares
The Exchangeable Shares are included in the Offer to enable
certain Shareholders, by virtue of the redemption and exchange
rights attaching to the Exchangeable Shares and the provisions
of the Voting and Exchange Trust Agreement and the Support
Agreement, to acquire a security of a Canadian issuer having
economic and voting rights that are, as nearly as practicable,
equivalent to those of a share of common stock of New US Gold.
The Exchangeable Shares may permit Shareholders to take
advantage of a full or partial tax deferral (rollover) available
under the Tax Act. See the section entitled “Material
Canadian Federal Income Tax Considerations” on page 59 of
this Offer. For this reason, Shareholders resident in Canada for
tax purposes may want to elect to receive Exchangeable Shares
rather than shares of common stock of New US Gold. See the
section entitled “The Offer” on page 26 of this Offer.
The retraction and redemption rights of holders are subject to
certain overriding Call Rights (hereinafter defined as the
Liquidation Call Rights, Redemption Call Rights and
Retraction Call Rights) in the Share Provisions.
Shareholders should be aware that, it is the Offerors’
intention that pursuant to the other Strategic Offers,
shareholders of Coral Gold, Nevada Pacific and Tone Resources
may also elect to receive Exchangeable Shares in exchange for
their shares in such companies.
Risks of holding Exchangeable Shares include the possibility
that there will be a limited or no active trading market for the
shares and that the market prices at which Exchangeable Shares
and shares of common stock of New US Gold may be different
due to exchange rates, trading volumes and liquidity, and
differences between the exchanges and markets in which they are
traded. See the section entitled “Risk Factors —
Market for Exchangeable Shares may not
appear” on page 23 of this Offer. Moreover, if
the Call Rights are not exercised on redemption or retraction of
the Exchangeable Shares, a holder of Exchangeable Shares may
realize a dividend for Canadian tax purposes that may exceed the
holder’s economic gain. Different Canadian federal income
tax consequences to a holder of Exchangeable Shares will arise
depending upon whether the Call Rights are exercised or whether
the relevant Exchangeable Shares
42
are redeemed by Canadian Exchange Co. pursuant to the Share
Provisions in the absence of the exercise of the Call Rights.
See the section entitled “Material Canadian Federal Income
Tax Considerations” on page 59 of this Offer.
The following is a summary description of the material
provisions of the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares and is qualified
in its entirety by reference to the full text of the Share
Provisions included in Appendix H (Rights, Privileges,
Restrictions and Conditions Attaching to the Exchangeable Shares
of US Gold Canadian Acquisition Corporation), which is
incorporated into and forms part of this Circular. Capitalized
terms used in this section 3 entitled “Exchangeable
Shares” and not otherwise defined have the meaning
attributed to them in the Share Provisions.
Retraction of Exchangeable Shares by Holders
Subject to the Retraction Call right described below, holders of
Exchangeable Shares will be entitled at any time to retract
(i.e., to require Canadian Exchange Co. to redeem) any or all
Exchangeable Shares held by them and to receive the Retraction
Price per Exchangeable Share to be satisfied by issuance of one
share of common stock of New US Gold, plus the Dividend Amount
equivalent to the full amount of all declared and unpaid
dividends, if any, on the Exchangeable Shares and all dividends
and distributions declared on a share of common stock of New US
Gold that have not yet been declared on the Exchangeable Shares.
Holders of Exchangeable Shares may effect such retraction by
presenting to Canadian Exchange Co. or its Transfer Agent the
certificate(s) representing the Exchangeable Shares the holder
desires to have Canadian Exchange Co. redeem, together with such
other documents and instruments as may be required under the
ABCA or the by-laws of Canadian Exchange Co. or by its Transfer
Agent, and a duly executed Retraction Request specifying that
the holder desires to have all or any number specified therein
of the Retracted Shares redeemed by Canadian Exchange Co.
Upon receipt by Canadian Exchange Co. of a Retraction Request,
Canadian Exchange Co. will promptly notify New US Gold and
Alberta ULC of the Retraction Request. If New US Gold or Alberta
ULC exercises the Retraction Call Right and provided that the
Retraction Request is not revoked by the holder in the manner
described below, Canadian Exchange Co. will not redeem the
Retracted Shares and New US Gold or Alberta ULC, as the case may
be, will purchase from such holder and such holder will sell to
New US Gold or Alberta ULC, as the case may be, on the
Retraction Date the Retracted Shares for the Retraction Price.
See the section entitled “— Call Rights” on
page 44 of this Offer. In the event that New US Gold or Alberta
ULC does not exercise the Retraction Call Right, and provided
that the Retraction Request is not revoked by the holder in the
manner described below, Canadian Exchange Co. will redeem the
Retracted Shares on the Retraction Date for the Retraction Price.
A holder of Retracted Shares may, by notice in writing given by
the holder to Canadian Exchange Co. before the close of business
on the Business Day immediately preceding the Retraction Date,
withdraw its Retraction Request, in which event such Retraction
Request will be null and void and the revocable offer
constituted by the Retraction Request to sell the Retracted
Shares to New US Gold or Alberta ULC will be deemed to have been
revoked.
If, as a result of solvency provisions of applicable law,
Canadian Exchange Co. is not permitted to redeem all
Exchangeable Shares tendered by a retracting holder, Canadian
Exchange Co. will redeem only those Exchangeable Shares tendered
by the holder as would not be contrary to such provisions of
applicable law. The holder of any Exchangeable Shares not
redeemed by Canadian Exchange Co. will be deemed to have
required New US Gold or Alberta ULC to purchase such unretracted
Exchangeable Shares in exchange for shares of common stock of
New US Gold on the Retraction Date pursuant to the optional
exchange right described below. See the section entitled
“— Voting and Exchange Trust
Agreement — Optional Exchange Upon Canadian Exchange
Co. Insolvency Event” on page 48 of this Offer.
Distribution on Liquidation
In the event of the liquidation, dissolution or winding up of
Canadian Exchange Co. or any other distribution of the assets of
Canadian Exchange Co. among its shareholders for the purpose of
winding up its affairs, subject to the exercise by New US Gold
or Alberta ULC of the Liquidation Call Right, a holder of
Exchangeable Shares shall be entitled, subject to applicable
law, to receive from the assets of Canadian Exchange Co. in
respect of each Exchangeable Share held by such holder on the
date of liquidation, before any distribution of any part of the
assets of Canadian Exchange Co. among the holders of the common
shares or any other shares of Canadian Exchange Co.
43
ranking junior to the Exchangeable Shares, the Liquidation
Amount, being an amount to be satisfied by issuance of one share
of common stock of New US Gold, plus the Dividend Amount, if any.
Automatic Exchange Upon Liquidation of New US Gold
Pursuant to the Voting and Trust Agreement, in the event of
the liquidation of New US Gold, New US Gold or Alberta ULC will
purchase all of the Exchangeable Shares from the holders thereof
on the fifth business day prior to the effective date of such
liquidation. The purchase price payable for each Exchangeable
Share purchased pursuant to the liquidation of New US Gold will
be satisfied by the issuance of one share of common stock of New
US Gold plus the Dividend Amount, if any.
Redemption of Exchangeable Shares by Canadian Exchange Co.
The Redemption Date will be the earlier of: (i) the
seventh anniversary of the date on which Exchangeable Shares are
first issued; and (ii) any date established by the board of
directors of Canadian Exchange Co. for the redemption of
Exchangeable Shares on which there are outstanding fewer than
that number of Exchangeable Shares equal to 10% of the total
number of Exchangeable Shares issued in connection with the
Strategic Offers (other than Exchangeable Shares held by New US
Gold or its Subsidiaries and subject to necessary adjustments to
such number of shares to reflect permitted changes to
Exchangeable Shares).
Notice of the Redemption Date will be sent to New US Gold
and Alberta ULC at the same time as it is sent to the holders of
Exchangeable Shares and, notwithstanding any proposed redemption
of the Exchangeable Shares, each of New US Gold and Alberta ULC
will have a Redemption Call Right to purchase all, but not
less than all, of the outstanding Exchangeable Shares on the
Redemption Date by delivery of the Redemption Price to
each holder thereof. See the section entitled “ —
Call Rights” below.
Unless the relevant Canadian tax legislation is amended, any
Canadian tax deferral obtained by a Shareholder who receives
Exchangeable Shares under the Offer will end on the exchange or
redemption of Exchangeable Shares for shares of common stock of
New US Gold. Moreover, if the Call Rights are not exercised upon
a redemption (including a retraction) of the Exchangeable Shares
by Canadian Exchange Co., a holder of Exchangeable Shares may
realize a dividend for Canadian tax purposes that may exceed the
holder’s economic gain. Different Canadian federal income
tax consequences to a holder of Exchangeable Shares will arise
depending upon whether the Call Rights are exercised or whether
the relevant Exchangeable Shares are redeemed by Canadian
Exchange Co. pursuant to the Share Provisions in the absence of
the exercise of the Call Rights. See the sections entitled
“Risk Factors” and “Material Canadian Federal
Income Tax Considerations” on pages 23 and 59,
respectively, of this Offer.
Subject to applicable law, and provided that New US Gold and
Alberta ULC have not exercised the Redemption Call Right, on the
Redemption Date, Canadian Exchange Co. will, upon at least
60 days prior notice to the holders of the Exchangeable
Shares, redeem the whole of the then outstanding Exchangeable
Shares by delivery of the Redemption Price per Exchangeable
Share, to be satisfied by the issuance of one share of common
stock of New US Gold, plus the Dividend Amount, if any.
Call Rights
The following description of the Call Rights is qualified in its
entirety by reference to the full text of the Share Provisions.
In the circumstances described below, New US Gold and Alberta
ULC will have certain overriding rights to acquire Exchangeable
Shares from holders thereof. Different Canadian federal income
tax consequences to a holder of Exchangeable Shares will arise
depending upon whether the Call Rights are exercised or whether
the relevant Exchangeable Shares are redeemed by Canadian
Exchange Co. pursuant to the Share Provisions in the absence of
the exercise of the Call Rights. See the section entitled
“Material Canadian Federal Income Tax Considerations”
on page 59 of this Offer.
Retraction Call Right
Pursuant to the Share Provisions, a holder requesting Canadian
Exchange Co. to redeem the Exchangeable Shares will be deemed to
offer such shares to New US Gold and Alberta ULC and, subject to
Alberta ULC only being entitled
44
to exercise its Retraction Call Right with respect to those
holders of Exchangeable Shares, if any, in respect of which New
US Gold has not exercised its Retraction Call Right, New US
Gold and Alberta ULC will each have an overriding Retraction
Call Right to acquire all but not less than all of the
Exchangeable Shares that the holder has requested Canadian
Exchange Co. to redeem for an amount equal to the Retraction
Call Purchase Price, to be satisfied by the issuance of one
share of common stock of New US Gold plus the Dividend Amount,
if any, on the last Business Day prior to the Retraction Date.
At the time of a Retraction Request by a holder of Exchangeable
Shares, Canadian Exchange Co. will promptly notify New US Gold
and Alberta ULC and the exercising party must then advise
Canadian Exchange Co. within five Business Days of its
determination to exercise the Retraction Call Right. If New US
Gold or Alberta ULC does not advise Canadian Exchange Co. within
such five-Business Day period, Canadian Exchange Co. will notify
the holder as soon as possible thereafter that neither will
exercise the Retraction Call Right. If the holder does not
revoke his or her Retraction Request, on the Retraction Date the
Exchangeable Shares that the holder has requested Canadian
Exchange Co. to redeem will be acquired by New US Gold or
Alberta ULC (assuming either New US Gold or Alberta ULC
exercises its Retraction Call Right) or redeemed by Canadian
Exchange Co., as the case may be, in each case for the
Retraction Call Purchase Price on the last Business Day prior to
the Retraction Date.
Liquidation Call Right
Pursuant to the Share Provisions, and subject to Alberta ULC
only being entitled to exercise its Liquidation Call Right with
respect to those holders of Exchangeable Shares, if any, in
respect of which New US Gold has not exercised its Liquidation
Call Right, each of New US Gold and Alberta ULC have an
overriding Liquidation Call Right, in the event of and
notwithstanding the proposed liquidation, dissolution or winding
up of Canadian Exchange Co., to acquire all but not less than
all of the Exchangeable Shares then outstanding for an amount
equal to the Liquidation Call Exercise Price, to be satisfied by
the issuance of one share of common stock of New US Gold plus
the Dividend Amount, if any, on the last Business Day prior to
the Liquidation Date and, upon the exercise by New US Gold or
Alberta ULC of the Liquidation Call Right, the holders thereof
will be obligated to transfer such shares to New US Gold or
Alberta ULC. The acquisition by New US Gold or Alberta ULC of
all of the outstanding Exchangeable Shares upon the exercise of
the Liquidation Call Right will occur on the effective date of
the voluntary or involuntary liquidation, dissolution or winding
up of Canadian Exchange Co.
To exercise the Liquidation Call Right, New US Gold or Alberta
ULC must notify Canadian Exchange Co.’s Transfer Agent in
writing, as agent for the holders of Exchangeable Shares, and
Canadian Exchange Co. of US Gold’s or Alberta ULC’s
intention to exercise such right at least 55 days before
the Liquidation Date in the case of a voluntary liquidation,
dissolution or winding up of Canadian Exchange Co. and at least
five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding up of Canadian
Exchange Co. Such Transfer Agent will notify the holders of
Exchangeable Shares as to whether or not New US Gold or Alberta
ULC has exercised the Liquidation Call Right forthwith after the
expiry of the date by which the same may be exercised by New US
Gold or Alberta ULC. If New US Gold or Alberta ULC exercises the
Liquidation Call Right on the Liquidation Date, New US Gold or
Alberta ULC will purchase and the holders will sell all of the
Exchangeable Shares for an amount equal to the Liquidation Call
Exercise Price applicable on the last Business Day prior to the
Liquidation Date.
Redemption Call
Right
Pursuant to the Share Provisions, and subject to Alberta ULC
only being entitled to exercise its Redemption Call Right
with respect to those holders of Exchangeable Shares, if any, in
respect of which New US Gold has not exercised its
Redemption Call Right, each of New US Gold and Alberta ULC
have an overriding Redemption Call Right, notwithstanding
the proposed automatic redemption of the Exchangeable Shares by
Canadian Exchange Co. pursuant to the Share Provisions, to
acquire on the Redemption Date all but not less than all of
the Exchangeable Shares then outstanding for an amount equal to
the Redemption Call Purchase Price, to be satisfied by the
issuance of one share of common stock of New US Gold plus the
Dividend Amount, if any, on the last Business Day prior to the
Redemption Date and, upon the exercise by New US Gold or
Alberta ULC of the Redemption Call Right, the holders
thereof will be obligated to transfer such shares to New US Gold
or Alberta ULC, as the case may be.
To exercise the Redemption Call Right, New US Gold or
Alberta ULC must notify Canadian Exchange Co.’s Transfer
Agent in writing, as agent for the holders of Exchangeable
Shares, and Canadian Exchange Co. of US Gold’s or Alberta
ULC’s intention to exercise such right at least
30 days before the Redemption Date. Such Transfer Agent
45
will notify the holders of Exchangeable Shares as to whether or
not New US Gold or Alberta ULC has exercised the
Redemption Call Right forthwith after the date by which the
same may be exercised by New US Gold or Alberta ULC. If New US
Gold or Alberta ULC exercises the Redemption Call Right on
the Redemption Date, New US Gold or Alberta ULC will
purchase and the holders will sell all of the Exchangeable
Shares for an amount equal to the Redemption Call Purchase
Price applicable on the last Business Day prior to the
Redemption Date.
Effect
of Call Rights Exercise
If New US Gold or Alberta ULC exercises one or more of its Call
Rights, shares of common stock of New US Gold will be
directly issued to holders of Exchangeable Shares and New US
Gold or Alberta ULC, as the case may be, will become the holder
of such Exchangeable Shares. New US Gold or Alberta ULC will not
be entitled to exercise any voting rights attached to the
Exchangeable Shares it acquires. If New US Gold or Alberta ULC
declines to exercise its Call Rights when applicable, New US
Gold will be required, pursuant to the Support Agreement, to
issue shares of common stock of New US Gold to the holders of
Exchangeable Shares. The Canadian tax consequences resulting
from the exercise by New US Gold or Alberta ULC, as the case may
be, of one or more of the Call Rights are discussed in the
section entitled “Material Canadian Federal Income Tax
Considerations” on page 59 of this Offer.
Voting Rights
Pursuant to the Voting and Exchange Trust Agreement,
holders of Exchangeable Shares will be entitled to receive
notice of and attend any meeting of the stockholders of New US
Gold and to vote at any such meeting. See the section entitled
“— Voting and Exchange Trust
Agreement — Voting Rights in New US Gold” on page
47 of this Offer.
Except as required by applicable law, or as provided in the
rights, privileges, restrictions and conditions of the
Exchangeable Shares, the holders of the Exchangeable Shares
shall not be entitled as such to receive notice of or to attend
any meeting of the shareholders of Canadian Exchange Co. or to
vote at any such meeting.
Ranking
Holders of Exchangeable Shares will be entitled to a preference
over holders of common shares of Canadian Exchange Co. and any
other shares ranking junior to the Exchangeable Shares with
respect to the payment of dividends and the distribution of
assets in the event of the liquidation, dissolution or winding
up of Canadian Exchange Co., whether voluntary or involuntary,
or any other distribution of the assets of Canadian Exchange Co.
among its shareholders for the purpose of winding up its affairs.
Dividends
Holders of Exchangeable Shares will be entitled to receive
dividends equivalent to dividends, if any, paid from time to
time by New US Gold on shares of common stock of New US Gold.
The declaration date, record date and payment date for dividends
on the Exchangeable Shares will be the same as that for any
corresponding dividends on shares of common stock of New US Gold.
Certain Restrictions
Except with the approval of the holders of the Exchangeable
Shares, Canadian Exchange Co. will not be permitted to:
•
pay any dividends on the common shares or any other shares of
Canadian Exchange Co. ranking junior to the Exchangeable Shares,
other than stock dividends payable in common shares or any such
other shares of Canadian Exchange Co. ranking junior to the
Exchangeable Shares, as the case may be;
•
redeem or purchase or make any capital distribution in respect
of common shares or any other shares of Canadian Exchange Co.
ranking junior to the Exchangeable Shares;
•
redeem or purchase any other shares of Canadian Exchange Co.
ranking equally with the Exchangeable Shares with respect to the
payment of dividends or the distribution of assets in the event
of the liquidation, dissolution or winding up of Canadian
Exchange Co., whether voluntary or involuntary, or any other
distribution of the assets of Canadian Exchange Co. among its
shareholders for the purpose of winding up its affairs; or
46
•
issue any shares other than Exchangeable Shares and common
shares in the capital of Canadian Exchange Co. and any other
shares not ranking superior to the Exchangeable Shares,
unless, in the case of the first three bullet points above, all
dividends on the outstanding Exchangeable Shares corresponding
to dividends declared and paid to date on the shares of common
stock of New US Gold have been declared and paid on the
Exchangeable Shares.
Amendment and Approval
Any approval required to be given by the holders of the
Exchangeable Shares to add to, change or remove any right,
privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval
or consent of the holders of the Exchangeable Shares in
accordance with applicable law shall be deemed to have been
sufficiently given if it has been given in accordance with
applicable law, subject to a minimum requirement that such
approval be evidenced by a resolution passed by not less than
662/3
% of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held, excluding
Exchangeable Shares beneficially owned by New US Gold or
any of its Subsidiaries.
Voting and Exchange Trust Agreement
The following is a summary description of the material
provisions of the Voting and Exchange Trust Agreement and
is qualified in its entirety by reference to the full text of
the Voting and Exchange Trust Agreement.
The purpose of the Voting and Exchange Trust Agreement will
be to create a trust for the benefit of the registered holders
from time to time of Exchangeable Shares (other than New
US Gold and its Subsidiaries). The Voting and Exchange
Trustee will hold the one issued and outstanding share of
special voting stock of New US Gold in order to enable the
Voting and Exchange Trustee to exercise the voting rights
attached thereto and will hold exchange rights in order to
enable the Voting and Exchange Trustee to exercise such rights,
in each case as trustee for and on behalf of such registered
holders.
Voting Rights in New US Gold
Pursuant to the Voting and Exchange Trust Agreement, New US
Gold will issue to the Voting and Exchange Trustee one share of
special voting stock of New US Gold to be held of record by the
Voting and Exchange Trustee as trustee for and on behalf of, and
for the use and benefit of, the registered holders from time to
time of Exchangeable Shares (other than Subsidiaries of New US
Gold) and in accordance with the provisions of the Voting and
Exchange Trust Agreement. During the term of the Voting and
Exchange Trust Agreement, and pursuant to the terms of the
Support Agreement, New US Gold will not be permitted to issue
any additional shares of special voting stock of New US Gold
without the consent of the holders of Exchangeable Shares.
Under the Voting and Exchange Trust Agreement, the Voting
and Exchange Trustee will be entitled to all of the voting
rights, including the right to vote in person or by proxy,
attaching to the one share of special voting stock of New US
Gold on all matters that may properly come before the
shareholders of New US Gold at a meeting of shareholders. The
share of special voting stock of New US Gold will have that
number of votes, which may be cast by the Voting and Exchange
Trustee at any meeting at which New US Gold shareholders are
entitled to vote, equal to the number of outstanding
Exchangeable Shares (other than shares held by New US Gold or
its Subsidiaries).
Each holder of an Exchangeable Share (other than New US Gold or
its Subsidiaries) on the record date for any meeting at which
New US Gold shareholders are entitled to vote will be entitled
to instruct the Voting and Exchange Trustee to exercise one of
the votes attached to the share of special voting stock of New
US Gold for such Exchangeable Share. The Voting and Exchange
Trustee will exercise each vote attached to the share of special
voting stock of New US Gold only as directed by the relevant
holder and, in the absence of instructions from a holder as to
voting, the Voting and Exchange Trustee will not have voting
rights with respect to such Exchangeable Share. A holder may,
upon instructing the Voting and Exchange Trustee, obtain a proxy
from the Voting and Exchange Trustee entitling the holder to
vote directly at the relevant meeting the votes attached to the
share of special voting stock of New US Gold to which the holder
is entitled.
The Voting and Exchange Trustee will send to the holders of the
Exchangeable Shares the notice of each meeting at which the New
US Gold shareholders are entitled to vote, together with the
related meeting materials and a statement
47
as to the manner in which the holder may instruct the Voting and
Exchange Trustee to exercise the votes attaching to the share of
special voting stock of New US Gold, at the same time as New US
Gold sends such notice and materials to the New US Gold
shareholders. The Voting and Exchange Trustee will also send to
the holders of Exchangeable Shares copies of all information
statements, interim and annual financial statements, reports and
other materials sent by New US Gold to the New US Gold
shareholders at the same time as such materials are sent to the
New US Gold shareholders. New US Gold will endeavour to obtain
copies of materials sent by third parties to New US Gold
shareholders generally, including dissident proxy circulars and
tender and exchange offer circulars, as soon as possible after
such materials are first sent to New US Gold shareholders and to
deliver such materials to the Voting and Exchange Trustee, which
will send such materials to holders of Exchangeable Shares.
All rights of a holder of Exchangeable Shares to exercise votes
attached to the share of special voting stock of New US Gold
will cease upon the exchange of such holder’s Exchangeable
Shares for shares of common stock of New US Gold.
Optional Exchange Upon Canadian Exchange Co. Insolvency
Event
New US Gold and Alberta ULC will agree in the Voting and
Exchange Trust Agreement that, upon the occurrence of the
insolvency of Canadian Exchange Co., a holder of Exchangeable
Shares will be entitled to instruct the Voting and Exchange
Trustee to exercise an exchange right with respect to any or all
of the Exchangeable Shares held by such holder, thereby
requiring New US Gold or Alberta ULC to purchase such
Exchangeable Shares from the holder. The purchase price payable
for each Exchangeable Share purchased pursuant to such event of
insolvency of Canadian Exchange Co. will be satisfied by the
issuance of one share of common stock of New US Gold plus an
additional amount equivalent to the full amount of all declared
and unpaid dividends, if any, on the Exchangeable Share and all
dividends and distributions declared on a share of common stock
of New US Gold that have not yet been declared on the
Exchangeable Shares.
As soon as practicable following the occurrence of such an event
of insolvency of Canadian Exchange Co. or any event that may,
with the passage of time or the giving of notice or both, become
an event of insolvency of Canadian Exchange Co., Canadian
Exchange Co. and New US Gold will give written notice thereof to
the Voting and Exchange Trustee. As soon as practicable after
receiving such notice, or upon the Trustee becoming aware of the
insolvency of Canadian Exchange Co., the Voting and Exchange
Trustee will give notice to each holder of Exchangeable Shares
of such event or potential event and will advise the holder of
its rights with respect to the exchange right.
If, as a result of solvency provisions of applicable law,
Canadian Exchange Co. is unable to redeem all of a holder’s
Exchangeable Shares which such holder is entitled to have
redeemed in accordance with the Share Provisions, the holder
will be deemed to have exercised the optional exchange right
with respect to the unredeemed Exchangeable Shares and New US
Gold or Alberta ULC will be required to purchase such shares
from the holder in the manner set forth above.
Automatic Exchange Right Upon New US Gold Liquidation
Event
New US Gold will agree in the Voting and Exchange
Trust Agreement that it will notify the Voting and Exchange
Trustee, upon the occurrence of either (a) a determination
by the board of directors of New US Gold to institute voluntary
liquidation, dissolution or winding up proceedings with respect
to New US Gold or to affect any other distribution of assets of
New US Gold among its shareholders for the purpose of winding up
its affairs, or (b) the earlier of (i) receipt by New
US Gold of notice of, and (ii) New US Gold otherwise
becoming aware of any threatened or instituted claim, suit
petition or other proceeding with respect to involuntary
liquidation, dissolution or winding up of New US Gold or to
effect any other distribution of assets of New US Gold among its
shareholders for the purpose of winding up its affairs.
Immediately following receipt by the Voting and Exchange Trustee
of notice of such an event or potential event of insolvency, the
Voting and Exchange Trustee will give notice to each holder of
Exchangeable Shares of such event or potential event and will
advise the holder of its rights with respect to the automatic
exchange right.
On the fifth Business Day prior to the effective date of such
event of insolvency, New US Gold will automatically exchange all
of the then outstanding Exchangeable Shares (other than
Exchangeable Shares held by it or its Subsidiaries) for a
purchase price per Exchangeable Share of one share of common
stock of New US Gold plus an
48
additional amount equivalent to the full amount of all declared
and unpaid dividends, if any, on the Exchangeable Shares and all
dividends and distributions declared on a share of common stock
of New US Gold that have not yet been declared on the
Exchangeable Shares.
Support Agreement
The following is a summary description of the material
provisions of the Support Agreement and is qualified in its
entirety by reference to the full text of the Support Agreement.
Pursuant to the Support Agreement, New US Gold will covenant
that, so long as Exchangeable Shares not owned by New US Gold or
its Subsidiaries are outstanding, New US Gold will, among other
things: (a) not declare or pay any dividend on the shares
of common stock of New US Gold unless (i) on the same day
Canadian Exchange Co. declares or pays, as the case may be, an
equivalent dividend on the Exchangeable Shares and
(ii) Canadian Exchange Co. has sufficient money or other
assets or authorized but unissued securities available to enable
the due declaration and the due and punctual payment, in
accordance with applicable law, of an equivalent dividend on the
Exchangeable Shares; (b) advise Canadian Exchange Co. in
advance of the declaration of any dividend on the shares of
common stock of New US Gold and take other actions reasonably
necessary to ensure that the declaration date, record date and
payment date for dividends on the Exchangeable Shares are the
same as those for any corresponding dividends on the shares of
common stock of New US Gold; (c) ensure that the record
date for any dividend declared on the shares of common stock of
New US Gold is not less than ten days after the declaration date
of such dividend; and (d) take all actions and do all
things reasonably necessary or desirable to enable and permit
Canadian Exchange Co., in accordance with applicable law, to pay
the liquidation amount, the retraction price or the redemption
price to the holders of the Exchangeable Shares in the event of
a liquidation, dissolution or winding up of Canadian Exchange
Co., a retraction request by a holder of Exchangeable Shares or
a redemption of Exchangeable Shares by Canadian Exchange Co., as
the case may be.
The Support Agreement will also provide that, without the prior
approval of Canadian Exchange Co. and the holders of
Exchangeable Shares, New US Gold will not distribute additional
shares of common stock of New US Gold or rights to subscribe
therefor or other property or assets to all or substantially all
holders of shares of common stock of New US Gold, nor change any
of the rights, privileges or other terms of the common stock of
New US Gold, unless the same or an equivalent distribution on,
or change to, the Exchangeable Shares (or in the rights of the
holders thereof) is made simultaneously. In the event of any
proposed tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction affecting the common stock
of New US Gold, New US Gold will use reasonable efforts to take
all actions necessary or desirable to enable holders of
Exchangeable Shares to participate in such transaction to the
same extent and on an economically equivalent basis as the
holders of common stock of New US Gold.
The Support Agreement will also provide that, as long as any
outstanding Exchangeable Shares are owned by any person or
entity other than New US Gold or any of its Subsidiaries, New US
Gold will, unless approval to do otherwise is obtained from the
holders of the Exchangeable Shares, remain the direct or
indirect beneficial owner of all issued and outstanding voting
shares of Canadian Exchange Co. and Alberta ULC.
With the exception of changes for the purpose of:
(i) adding to the covenants of any or all of the parties;
(ii) evidencing successors of New US Gold;
(iii) making certain necessary amendments or;
(iv) curing ambiguities or clerical errors (provided, in
each case, that the board of directors of each of New US Gold,
Canadian Exchange Co. and Alberta ULC are of the opinion that
such amendments are not prejudicial to the interests of the
holders of the Exchangeable Shares), the Support Agreement may
not be amended without the approval of the holders of the
Exchangeable Shares.
Under the Support Agreement, each of New US Gold and Alberta ULC
will not exercise, and will prevent their affiliates from
exercising, any voting rights attached to the Exchangeable
Shares owned by New US Gold or Alberta ULC or their affiliates
on any matter considered at meetings of holders of Exchangeable
Shares (including any approval sought from such holders in
respect of matters arising under the Support Agreement).
49
4.
Background to the Offer
On June 28, 2005, Mr. Robert R. McEwen, prior to the
time he became the Chairman and Chief Executive Officer of
U.S. Gold, purchased 5,681,705 Common Shares representing a
10.5% ownership in White Knight. Mr. McEwen purchased such
Common Shares in a private purchase from Goldcorp Inc. for an
average purchase price of Cdn$0.81.
On July 5, 2005, Mr. McEwen purchased 2,270,700 Common
Shares representing a 4.2% ownership in White Knight. Following
such purchase, Mr. McEwen held 7,952,427 Common Shares (or
14.7% of the outstanding Common Shares). Mr. McEwen
purchased such Common Shares on the TSX-V for an average
purchase price of Cdn$0.91 per Common Share.
In July 2005, Mr. McEwen was given a tour of certain of the
White Knight properties in Nevada by Mr. John M. Leask, the
Chairman of White Knight, Mr. Gordon P. Leask, a director
of White Knight, and certain members of White Knight management.
During this tour, Mr. McEwen engaged in preliminary
discussions with Messrs. Leask and Leask about the concept
of consolidating properties along the Cortez Trend in Nevada.
On July 22, 2005, Mr. McEwen purchased 1,600,000
Common Shares representing a 2.9% ownership in White Knight.
Following such purchase, Mr. McEwen held 9,552,427 common
shares of White Knight (or 17.1% of the outstanding Common
Shares). Mr. McEwen purchased such Common Shares on the
TSX-V for an average
purchase price of Cdn$1.26 per Common Share.
On August 11, 2005, Mr. McEwen, Mr. Ian Ball, an
employee of U.S. Gold, and Mr. Stefan Spears, a consultant
to U.S. Gold, met with Messrs. Leask and Leask and
Mr. Brian Edgar, a director of White Knight, at U.S.
Gold’s office in Toronto, Ontario. On November 16,2005, Messrs. McEwen and Ball met with Mr. John M.
Leask and Mr. William Rand, an advisor to White Knight and
partner of Mr. Edgar, in Vancouver, British Columbia. In
addition, during the summer and fall of 2005, Mr. McEwen
and the representatives of White Knight engaged in a few
telephone conversations. During these meetings and telephone
conversations, the representatives of each company engaged in
further preliminary discussions regarding the concept of
consolidating properties along the Cortez Trend in Nevada.
On March 5, 2006, U.S. Gold announced that it intended to
acquire in stock transactions, all of the outstanding common
shares of White Knight, Nevada Pacific, Coral Gold and Tone
Resources, each of which is exploring in the Cortez Trend in
Nevada. This proposal was made in letters sent on March 5,2006 by Mr. McEwen to the chief executive officers of each
of the subject companies. U.S. Gold announced that its proposal
represented a premium of 25% to the closing stock prices of each
company’s shares on March 3, 2006 and that the board
of directors of U.S. Gold had formed a special committee (the
“U.S. Gold Special Committee”) to evaluate the terms
of each of the transactions in recognition of, among other
things, the equity interests of Mr. McEwen in each of the
four companies.
On March 6, 2006, White Knight announced that management
was evaluating the proposed offer by U.S. Gold.
On March 7, 2006, Mr. McEwen announced that, in his
capacity as a holder of Common Shares, he intended to support
the proposal of U.S. Gold to acquire each of White Knight, Coral
Gold, Nevada Pacific and Tone Resources.
On March 22, 2006, White Knight announced that the board of
directors of White Knight had engaged Genuity Capital Markets
(“Genuity”) to act as financial advisor, to provide a
fairness opinion and to assist in responding to the Offer.
On March 27, 2006, the U.S. Gold Special Committee
retained Wellington West Capital Markets Inc. to provide its
opinion as to the fairness of the Offer, from a financial point
of view, to the shareholders of U.S. Gold. Based upon and
subject to the matters described in their fairness opinion,
Wellington West Capital Markets Inc. concluded that, as at
April 6, 2006, the Offer was fair, from a financial point
of view, to the shareholders of U.S. Gold.
During the week of April 24, 2006, there were a number of
discussions among Genuity, GMP Securities L.P. (“GMP”)
and Canadian counsel to U.S. Gold and White Knight regarding,
among other things, the proposed timing and structure of this
Offer and whether U.S. Gold would be prepared to enter into a
support agreement with White Knight in relation to the Offer.
U.S. Gold responded through GMP that it was going to proceed
with the Offer as originally contemplated.
50
5.
Investment Considerations
The Offerors believe that the consideration offered for the
Common Shares under the Offer is fair. Shareholders are urged to
consider the following factors in making their decision to
accept the Offer.
The consideration offered under the Offer provides a
significant premium for Shareholders.
The Offerors are offering to purchase, upon the terms and
subject to the conditions of the Offer, all of the outstanding
Common Shares, including any Common Shares that may be issued
after the date of the Offer and prior to the Expiry Time, on the
basis of 0.35 shares of common stock of New US Gold or 0.35
Exchangeable Shares per 1.0 Common Share. The
Exchangeable Shares will, under the circumstances described
herein, be exchangeable for shares of common stock of New US
Gold on a one-for-one basis. Based on the closing prices of the
Common Shares on the TSX-V and shares of common stock of U.S.
Gold on the OTCBB on March 3, 2006, the last trading day
prior to the announcement of U.S. Gold’s proposed business
combination with White Knight, this exchange ratio represented a
premium of approximately 25% to Shareholders over the trading
price prior to the announcement of the Offer. Based on the
closing prices of the Common Shares on the
TSX-V and the shares of
common stock of U.S. Gold on the OTCBB on April 28, 2006,
the most recent trading day practicable before the filing of
this Offer, this exchange ratio represented a premium of
approximately 26% to Shareholders over the trading price before
the filing of this Offer.
The Offerors believe that there are significant benefits
to bringing together U.S. Gold with four other companies
exploring in the Cortez Trend.
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies, is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin Springs
exploration gold property. See the section entitled
“Intentions of the Offerors — Strategic Rationale
for the Offer” on page 52 of this Offer. The Offerors
believe that there are significant benefits to bringing together
U.S. Gold, White Knight, Coral Gold, Nevada Pacific and Tone
Resources, including that the combined company will have:
•
a larger land position within the Cortez Trend and a larger
exploration program;
•
a stronger cash position and reduced costs;
•
enhanced trading liquidity and better market focus; and
•
greater technical expertise.
Upon successful completion of the Strategic Offers, the combined
company would strive to become the premier exploration company
in Nevada. However, Shareholders should be aware that the
successful completion of any or all of the Offerors’ offers
to purchase all of the outstanding shares of Coral Gold, Nevada
Pacific and Tone Resources is not a condition of the Offer.
The liquidity and trading price of the Common Shares may
be adversely affected if the Offerors are not successful in
acquiring 100% of the Common Shares.
The acquisition of any Common Shares by the Offerors under the
Offer will reduce the number of Common Shares that might
otherwise trade publicly, as well as the number of Shareholders.
Depending on the number of Shareholders depositing and the
number of Common Shares acquired by the Offerors under the
Offer, following the completion of the Offer and prior to any
Subsequent Acquisition Transaction, the liquidity and market
value of the remaining Common Shares held by the public would
likely be adversely affected. After the purchase of the Common
Shares under the Offer, it may be possible for White Knight to
take steps towards the elimination of any applicable public
reporting requirements under applicable securities legislation
in any province in which it has an insignificant number of
Shareholders.
51
The Common Shares may fail to meet the criteria for
continued listing on the TSX-V even if the Offerors are not
successful in acquiring 100% of the Common Shares.
The rules and regulations of the TSX-V establish certain
criteria that, if not met, could lead to the delisting of the
Common Shares from the TSX-V. Among such criteria are the number
of Shareholders, the number of Common Shares publicly held and
the aggregate market value of the Common Shares publicly held.
Depending on the number of Shareholders depositing Common Shares
and the number of Common Shares acquired by the Offerors under
the Offer, it is possible that, following the completion of the
Offer and prior to any Subsequent Acquisition Transaction, the
Common Shares would fail to meet the criteria for continued
listing on the TSX-V. If this were to happen, the Common Shares
could be delisted and this could, in turn, adversely affect the
market or result in a lack of an established market for such
shares. New US Gold intends to cause White Knight to apply to
delist the Common Shares from the TSX-V as soon as practicable
after the successful completion of the Offer and any Subsequent
Acquisition Transaction.
6.
Intentions of the Offerors
Strategic Rationale for the Offer
U.S. Gold is engaged in the exploration for gold and other
precious metals. It holds a 100% interest in the Tonkin Springs
exploration gold property in Eureka County, Nevada, subject to
paramount title in the United States. U.S. Gold is planning an
extensive two-year, property-wide, integrated exploration
program at the Tonkin Springs exploration gold property
beginning in 2006, focusing on evaluation of the structural and
stratigraphic setting of the project. Its objectives are to
expand the known mineralization and to discover new
mineralization in areas previously untested, targeting deeper
mineralization. U.S. Shareholders are cautioned that,
although National
Instrument 43-101
requires disclosure in Canada of measured, indicated and
inferred mineral resources, the SEC does not recognize these
classification categories for U.S. reporting purposes.
White Knight is an exploration company active in finding and
generating new mineral prospects. White Knight has been
exploring for Carlin-type gold deposits in Nevada since 1993.
Its portfolio includes 18 properties (over 68,000 acres), 15 of
which are located in the Cortez Trend. Five are joint ventures
subject to earn-in agreements with the remainder 100% held by
White Knight (with White Knight having a net ownership position
of between 46,000 and 50,000 acres).
In addition to this Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin Springs
exploration gold property.
•
Coral Gold. Coral Gold is a natural resource company
primarily engaged in the exploration and development of natural
resource properties. Coral Gold’s principal business
activities are the exploration of certain mineral properties
located in Nevada and California. Since Coral Gold’s 2002
fiscal year, Coral Gold has made aggregate principal
expenditures of Cdn$2,498,084 on the Robertson Mining Claims in
Nevada. The Offerors intend to offer to purchase all of the
outstanding shares of Coral Gold on the basis of
0.63 shares of common stock of New US Gold or
0.63 Exchangeable Shares per 1.0 common share of Coral
Gold. Coral Gold’s common shares are listed on the
TSX-V under the symbol
“CGR-V” and
on the OTCBB under the symbol “CGREF.”
•
Nevada Pacific. Nevada Pacific is a mining company based
in Vancouver, British Columbia. Nevada Pacific owns, among other
things, an exploratory property portfolio covering approximately
75 square miles of mineral rights including portions of two
significant gold producing belts in the State of Nevada. The
Offerors intend to offer to purchase all of the outstanding
shares of Nevada Pacific on the basis of 0.23 shares of
common stock of New US Gold or 0.23 Exchangeable
Shares per 1.0 common share of Nevada Pacific. Nevada
Pacific’s common shares are listed on the
TSX-V under the symbol
“NPG-V.”
•
Tone Resources. Tone Resources is an exploration stage
company engaged in the acquisition and exploration of mineral
properties primarily located on the major gold trends in the
north-central region of Nevada. Tone Resources holds 410 mining
claims in Nevada. The Offerors intend to offer to purchase all
of the outstanding shares of Tone Resources on the basis of 0.26
shares of common stock of New US Gold or
0.26 Exchangeable
52
Shares per 1.0 common share of Tone Resources. Tone
Resources’ common shares are listed on the
TSX-V under the symbol
“TNS-V” and
quoted on the Pink Sheets in the United States under the symbol
“TONRF.”
If all of the Strategic Offers are successfully completed, the
voting power of the Shareholders in New US Gold will be
diluted and it is expected that the shareholders of White
Knight, Coral Gold, Nevada Pacific and Tone Resources will own,
in the aggregate, approximately 55% of the outstanding shares
and voting power of New US Gold (50% on a fully-diluted basis).
The Offerors believe that there are significant benefits to
bringing together U.S. Gold, White Knight, Coral Gold, Nevada
Pacific and Tone Resources, including that the combined company
will have:
•
A larger land position within the Cortez Trend and a larger
exploration program. U.S. Gold holds a 100% interest in
the Tonkin Springs exploration gold property in Eureka County,
Nevada, subject to paramount title in the United States. This
property consists of approximately 36 square miles of
unpatented lode mining claims and millsite claims located on the
Battle Mountain-Eureka Trend, approximately 45 miles
northwest of the town of Eureka, in north- central Nevada. Upon
successful completion of the Strategic Offers,
U.S. Gold’s land position would increase by
approximately 344% to approximately 160 square miles. Over
the next two years, U.S. Gold has planned 400,000 feet
of exploration drilling on its Tonkin Springs exploration gold
property at a cost of $30 million. If the Strategic Offers
are successfully completed, U.S. Gold intends to
aggressively explore the properties of White Knight, Coral Gold,
Nevada Pacific and Tone Resources over the next two years to
coincide with its explorations program at its Tonkin Springs
exploration gold property.
•
A stronger cash position and reduced costs. On
February 22, 2006, U.S. Gold completed a private
placement of 16,700,000 subscription receipts for aggregate
gross proceeds of $75.15 million. Of the companies
currently exploring for gold in Nevada, U.S. Gold has one
of the strongest cash positions. Successful completion of one or
more of the Strategic Offers will also give U.S. Gold
access to the additional cash resources of the companies
acquired. Due to the strategic locations in Nevada of the assets
of each of White Knight, Coral Gold, Nevada Pacific and Tone
Resources and the elimination of redundant fees and costs, the
Offerors expect that New US Gold will realize lower total costs
than if each company was to remain a separate entity.
•
Enhanced trading liquidity and better market focus. The
Offerors expect that the successful completion of the Strategic
Offers will result in increased market capitalization and
trading liquidity of the combined company, resulting in better
market focus. Because of the increased market capitalization and
liquidity of the combined company, the Offerors expect that the
combined company will have greater access to equity and debt
capital markets than U.S. Gold currently does, and greater
appeal to institutional investors. The Offerors expect that this
access will provide management of the combined company greater
flexibility to execute its business plan under various financial
market conditions.
•
Greater technical expertise. The Offerors believe that
each of White Knight, Coral Gold, Nevada Pacific and Tone
Resources has quality employees with good technical expertise.
The Offerors hope to retain these key employees following the
successful completion of the Strategic Offers to help drive New
US Gold’s business and operations going forward.
Upon successful completion of the Strategic Offers, the combined
company would strive to become the premier exploration company
in Nevada. However, Shareholders should be aware that the
successful completion of any or all of the Offerors’ offers
to purchase all of the outstanding shares of Coral Gold, Nevada
Pacific and Tone Resources is not a condition of the Offer.
Purpose of the Offer
The Offerors are making the Offer in order for New US Gold to
acquire, directly or indirectly, all of the outstanding Common
Shares. If the conditions of the Offer are satisfied or waived
and the Offerors take up and pay for Common Shares validly
deposited under the Offer, the Offerors currently intend to
acquire, directly or indirectly, all of the outstanding Common
Shares in accordance with applicable law by way of a Subsequent
Acquisition Transaction. See the section entitled
“Acquisition of Common Shares Not Deposited” on page
54 of this Offer.
53
Plans for White Knight
Upon successful completion of the Offer and any Subsequent
Acquisition Transaction, New US Gold intends to take appropriate
actions to optimize and rationalize the combined entities’
assets, operations, management, personnel, general and
administrative functions and corporate structure.
If permitted by applicable law, subsequent to the completion of
the Offer and any Subsequent Acquisition Transaction, if
necessary, the Offerors intend to delist the Common Shares from
the TSX-V and cause White Knight to cease to be a reporting
issuer under the securities laws of the applicable jurisdictions.
7.
Acquisition of Common Shares Not Deposited
Subsequent Acquisition Transaction
If the Offerors take up and pay for Common Shares validly
deposited under the Offer, the Offerors currently intend to take
such action as is necessary or advisable, including causing a
special meeting of Shareholders to be called to consider an
amalgamation, capital reorganization, share consolidation,
statutory arrangement or other transaction involving White
Knight and the Offerors or an affiliate of the Offerors, for the
purpose of enabling the Offerors or an affiliate of the Offerors
to acquire all Common Shares not acquired pursuant to the Offer
(a “Subsequent Acquisition Transaction”). The Offerors
currently intend to cause a special meeting of Shareholders to
be called to consider a statutory arrangement whereby:
(i) a subsidiary of Canadian Exchange Co. would amalgamate
with White Knight; (ii) in connection with the
amalgamation, Warrants would be exchangeable for warrants to
purchase Exchangeable Shares; (iii) Shareholders who did
not deposit their Common Shares under the Offer would be
entitled to elect to receive shares of common stock of New US
Gold or Exchangeable Shares in the same exchange ratio offered
pursuant to the Offer; and (iv) the White Knight stock
option plan would be replaced with a stock option plan of
Canadian Exchange Co. or New US Gold. The timing and details of
any such transaction will depend on a number of factors,
including the number of Common Shares acquired pursuant to the
Offer and the terms of White Knight’s warrant indentures
and stock option plan and there can be no assurance that any
such transaction will be proposed, or if proposed, effected.
A Subsequent Acquisition Transaction described above may
constitute a “business combination” or a “going
private transaction” within the meaning of certain
applicable Canadian securities legislation including
OSC Rule 61-501
and AMF Regulation Q-27. Under OSC Rule 61-501 and AMF
Regulation Q-27, subject to certain exceptions, a
Subsequent Acquisition Transaction may constitute a
“business combination” or a “going private
transaction” if it would result in the interest of a holder
or beneficial owner of Common Shares being terminated without
such holder’s or beneficial owner’s consent,
irrespective of the nature of the consideration provided in
substitution therefor. The Offerors expect that any Subsequent
Acquisition Transaction relating to Common Shares will be a
“business combination” or a “going private
transaction” under OSC Rule 61-501 and AMF
Regulation Q-27.
In certain circumstances, the provisions of OSC Rule 61-501
and AMF Regulation Q-27 may also deem certain types of
Subsequent Acquisition Transactions to be “related party
transactions.” However, if the Subsequent Acquisition
Transaction is a “business combination” or a
“going private transaction” carried out in accordance
with OSC Rule 61-501 and AMF Regulation Q-27 or
an exemption therefrom, the “related party
transaction” provisions therein do not apply to such
transaction. The Offerors intend to carry out any such
Subsequent Acquisition Transaction in accordance with OSC
Rule 61-501 and AMF Regulation Q-27, or any successor
provisions, or exemptions therefrom, such that the “related
party transaction” provisions of OSC Rule 61-501 and
AMF Regulation Q-27 will not apply to such Subsequent
Acquisition Transaction.
OSC Rule 61-501 and AMF Regulation Q-27 provide that
unless exempted, a corporation proposing to carry out a business
combination or a going private transaction is required to
prepare a formal valuation of the Common Shares (and, subject to
certain exceptions, any non-cash consideration being offered
therefor) and provide to the holders of the Common Shares a
summary of such valuation or the entire valuation. In connection
therewith, the Offerors intend to rely on any exemption then
available or to seek waivers pursuant to
OSC Rule 61-501 and AMF Regulation Q-27 exempting
the Offerors or White Knight or their affiliates, as
appropriate, from the requirement to prepare a valuation in
connection with any Subsequent Acquisition Transaction. An
exemption is available under OSC Rule 61-501 and AMF
Regulation Q-27 for certain business combinations or going
private transactions completed within 120 days after the
expiry of a formal take-over bid where the consideration under
such transaction is at least equal in value to and is in the
same form as the consideration that tendering Shareholders were
entitled to receive in the take-over bid, provided
54
that certain disclosure is given in the take-over bid disclosure
documents. The Offerors currently intend that the consideration
offered under any Subsequent Acquisition Transaction proposed by
it would be equal in value to, and in the same form as, the
consideration offered under the Offer and that such Subsequent
Acquisition Transaction will be completed no later than
120 days after the Expiry Date and, accordingly, the
Offerors expect to rely on these exemptions.
Depending on the nature and the terms of the Subsequent
Acquisition Transaction, the provisions of the BCBCA may require
the approval of at least
662/3
% of the votes cast by holders of the outstanding Common
Shares at a meeting duly called and held for the purpose of
approving a Subsequent Acquisition Transaction. OSC
Rule 61-501 and AMF Regulation Q-27 would in effect
also require that, in addition to any other required
securityholder approval, in order to complete a business
combination or a going private transaction, the approval of a
majority of the votes cast by “minority” holders of
the Common Shares must be obtained unless an exemption is
available or discretionary relief is granted by the OSC and the
AMF. In relation to any Subsequent Acquisition Transaction, the
“minority” holders will be, subject to any available
exemption or discretionary relief granted by the OSC and the
AMF, as required, all Shareholders other than the Offerors, any
“related party” of the Offerors or any other
“interested party” (within the meaning of OSC
Rule 61-501 and AMF Regulation Q-27) including any
director or senior officer of the Offerors, affiliate or insider
of the Offerors or any of their directors or senior officers or
any person acting jointly or in concert with any of the
foregoing.
OSC Rule 61-501 and AMF Regulation Q-27 also provide
that the Offerors may treat Common Shares acquired pursuant to
the Offer as “minority” shares and vote them, or
consider them voted, in favour of a Subsequent Acquisition
Transaction that is a business combination or a going private
transaction, provided that, among other things: (a) the
business combination or going private transaction is completed
not later than 120 days after the Expiry Date; (b) the
consideration for each security in the Subsequent Acquisition
Transaction is at least equal in value to and in the same form
as the consideration paid pursuant to the Offer; and
(c) the Shareholder who tendered such Common Shares to the
Offer was not (i) acting jointly or in concert with the
Offerors in respect of the Offer, (ii) a direct or indirect
party to any “connected transaction” (as defined in
OSC Rule 61-501) to the Offer, or (iii) entitled to
receive, directly or indirectly, in connection with the Offer, a
“collateral benefit” (as defined in
OSC Rule 61-501) or consideration per security that is
not identical in amount and form to the entitlement of
Shareholders in Canada. The Offerors currently intend that the
consideration offered under any Subsequent Acquisition
Transaction proposed by it would be equal in value to, and in
the same form as, the consideration offered under the Offer and
that such Subsequent Acquisition Transaction will be completed
no later than 120 days after the Expiry Date and,
accordingly, the Offerors intend to cause Common Shares acquired
pursuant to the Offer to be voted in favour of such transaction
and to be counted as part of any minority approval required in
connection with any such transaction.
In addition, under OSC Rule 61-501 and AMF
Regulation Q-27, if, following the Offer, the Offerors and
their affiliates are the registered holders of 90% or more of
the Common Shares at the time the business combination or going
private transaction is initiated, the requirement for minority
approval under OSC Rule 61-501 and AMF
Regulation Q-27 would not apply to the transaction if an
enforceable right to dissent and seek fair value or a
substantially equivalent right is made available to the minority
Shareholders.
Any Subsequent Acquisition Transaction may also result in
Shareholders having the right to dissent and demand payment of
the fair value of their Common Shares under Section 238 of
the BCBCA. If the statutory procedures are complied with, this
right could lead to a judicial determination of the fair value
required to be paid to such dissenting shareholders for their
Common Shares. The fair value of Common Shares so determined
could be more or less than the amount paid per Common Share
pursuant to the Subsequent Acquisition Transaction or the Offer.
The tax consequences to a Shareholder of a Subsequent
Acquisition Transaction may differ from the tax consequences to
such Shareholder of accepting the Offer. See the sections
entitled “Material Canadian Federal Income Tax
Considerations” and “Material U.S. Federal Income Tax
Considerations” on pages 59 and 69, respectively, of this
Offer. Shareholders should consult their legal advisors for a
determination of their legal rights with respect to a Subsequent
Acquisition Transaction if and when proposed.
The timing and details of any Subsequent Acquisition Transaction
involving White Knight will necessarily depend on a variety of
factors, including the number of Common Shares acquired pursuant
to the Offer. Although the Offerors currently intend to propose
a Subsequent Acquisition Transaction on the same terms as the
Offer, it is possible that, as a result of the number of Common
Shares acquired under the Offer, delays in the Offerors’
ability to effect such a
55
transaction, information hereafter obtained by the Offerors,
changes in general economic, industry, regulatory or market
conditions or in the business of White Knight, or other
currently unforeseen circumstances, such a transaction may not
be so proposed or may be delayed or abandoned. The Offerors
expressly reserve the right not to propose a Subsequent
Acquisition Transaction involving White Knight.
Rule 13e-3 under the U.S. Securities Exchange Act is
applicable to certain “going-private” transactions in
the United States and may under certain circumstances be
applicable to a Subsequent Acquisition Transaction. The Offerors
believe that Rule l3e-3 should not be applicable to a Subsequent
Acquisition Transaction unless the Subsequent Acquisition
Transaction is consummated more than one year after the
termination of the Offer. If applicable, Rule 13e-3 would
require, among other things, that certain financial information
concerning White Knight and certain information relating to the
fairness of the Subsequent Acquisition Transaction, and the
consideration offered to minority Shareholders be filed with the
SEC and distributed to minority Shareholders before the
consummation of any such transaction.
The foregoing discussion of certain provisions of the U.S.
Securities Exchange Act is not a complete description of the
U.S. Securities Exchange Act or such provisions thereof and is
qualified in its entirety by the reference to the U.S.
Securities Exchange Act.
If the Offerors are unable or decide not propose a Subsequent
Acquisition Transaction, or propose a Subsequent Acquisition
Transaction but cannot obtain any required approvals or
exemptions promptly, the Offerors will evaluate its other
alternatives. Such alternatives could include, to the extent
permitted by applicable law, purchasing additional Common Shares
in the open market, in privately negotiated transactions, in
another take-over bid or exchange offer or otherwise, or from
White Knight, or taking no actions to acquire additional Common
Shares. Subject to applicable law, any additional purchases of
Common Shares could be at a price greater than, equal to, or
less than the price to be paid for Common Shares under the Offer
and could be for cash, securities and/or other consideration.
Alternatively, the Offerors may take no action to acquire
additional Common Shares, or may even sell or otherwise dispose
of any or all Common Shares acquired pursuant to the Offer, on
terms and at prices then determined by the Offerors, which may
vary from the price paid for Common Shares under the Offer.
Judicial Developments
Prior to the pronouncement of OSC Rule 61-501 (or its
predecessor OSC Policy 9.1) and AMF
Regulation Q-27,
Canadian courts had, in a few instances, granted preliminary
injunctions to prohibit transactions which constituted going
private transactions or business combinations within the meaning
of OSC Rule 61-501 and AMF Regulation Q-27. The
Offerors have been advised that more recent notices and judicial
decisions indicate a willingness to permit business combinations
to proceed subject to compliance with requirements intended to
ensure procedural and substantive fairness to the minority
shareholders.
Shareholders should consult their legal advisors for a
determination of their legal rights with respect to any
transaction that may constitute a business combination or going
private transaction.
8.
Relationships Between the Offerors and White Knight
Beneficial Ownership of and Trading in Securities of White
Knight
As at the date hereof, Mr. Robert R. McEwen, the Chairman
and Chief Executive Officer of U.S. Gold, beneficially owns
9,552,405 Common Shares, which, based on information contained
in White Knight’s management discussion and analysis dated
February 27, 2006, represents approximately 16.1% of the
outstanding Common Shares. Other than such securities, no
securities of White Knight, are owned beneficially, directly or
indirectly, nor is control or direction exercised over any
securities of White Knight, by the Offerors or the
Offerors’ directors or executive officers or, to the
knowledge of such directors and executive officers after
reasonable inquiry, by any of the Offerors’ associates or
affiliates, by any associate of the Offerors’ directors or
executive officers or by any person or company owning, directly
or indirectly, more than 10% of any class of securities of the
Offerors. No person is acting jointly or in concert with the
Offerors with respect to the Offer.
Except for the purchases by Mr. McEwen of Common Shares
described in the section entitled “Background to the
Offer” on page 50 of this Offer, no securities of White
Knight have been purchased or sold during the 12-month period
preceding the date of the Offer by the Offerors or the
Offerors’ directors or executive officers or, to the
knowledge of
56
such directors and executive officers after reasonable inquiry,
by any of the Offerors’ associates or affiliates, by any
associate of the Offerors’ directors or executive officers
or by any person or company owning, directly or indirectly, more
than 10% of any class of securities of the Offerors.
Commitments to Acquire Securities of White Knight
Except pursuant to the Offer, neither the Offerors nor any of
the Offerors’ directors or executive officers, nor to the
knowledge of the Offerors’ directors and executive officers
after reasonable inquiry, any of the Offerors’ associates
or affiliates, any associate of any of the Offerors’
directors or executive officers or any person or company owning,
directly or indirectly, more than 10% of any class of securities
of the Offerors has entered into any commitments to acquire any
equity securities of White Knight.
Arrangements, Agreements or Understandings
Except as described herein or in the appendices or documents
attached hereto, neither the Offerors nor, to the best of the
Offerors’ knowledge, any of the Offerors’ directors,
executive officers or other affiliates has any contract,
arrangement, understanding or relationship with any other person
with respect to any securities of White Knight, including, but
not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any
securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies. Except as described in the
Offer, there have been no contacts, negotiations or transactions
between the Offerors or, to the best of the Offerors’
knowledge, any of the Offerors’ directors, executive
officers or other affiliates on the one hand, and White Knight
or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale
or other transfer of a material amount of assets. Neither the
Offerors, nor, to the best of the Offerors’ knowledge, any
of the Offerors’ directors, executive officers or other
affiliates has had any transaction with White Knight or any of
its executive officers, directors or affiliates that would
require disclosure under the rules and regulations of the SEC
applicable to the Offer.
There are no arrangements or agreements made or proposed to be
made between the Offerors and any of the directors or executive
officers of White Knight and no payments or other benefits are
proposed to be made or given by the Offerors to such directors
or executive officers as compensation for loss of office or as
compensation for remaining in or retiring from office if the
Offer is consummated.
Acceptance of the Offer
To the Offerors’ knowledge, after reasonable inquiry, none
of the Offerors’ directors or senior officers nor any
associate of the Offerors’ directors or senior officers,
nor any person or company holding more than
10 per cent of any class of equity securities of any
of the Offerors, nor any person or company acting jointly or in
concert with the Offerors, propose to accept the Offer, except
Mr. Robert R. McEwen. On March 7, 2006,
Mr. McEwen announced that, in his capacity as a holder of
Common Shares, he intended to support the proposal of
U.S. Gold to acquire each of White Knight, Coral Gold,
Nevada Pacific and Tone Resources. As at the date hereof,
Mr. McEwen beneficially owns 9,552,405 Common Shares,
which, based on information contained in White Knight’s
management discussion and analysis dated February 27, 2006,
represents approximately 16.1% of the outstanding Common Shares.
See the sections entitled “Background to the Offer”
and “Relationships Between the Offerors and White
Knight — Beneficial Ownership of and Trading in
Securities of White Knight” on pages 50 and 56,
respectively, of this Offer.
Material Changes and Other Information
Except for the Offer and as otherwise disclosed publicly by
White Knight, U.S. Gold is not aware of any information which
indicates that any material change has occurred in the affairs
of White Knight since the date of the last available published
financial statements of White Knight.
9.
Valuation Requirements for Insider Bids
The Offer is an “insider bid” within the meaning of
applicable provincial securities legislation by virtue of
Mr. Robert R. McEwen’s insider status in U.S. Gold and
his equity interest in White Knight. As a result, a formal
valuation of the Common Shares and of the consideration being
offered in exchange for them under the Offer is
57
required in the absence of waivers or exemptions. Exemptions
from the insider bid valuation requirement are contained in
OSC Rule 61-501 and AMF Regulation Q-27 and may
be relied upon if neither the offeror nor any joint actor with
the offeror has, or has had within the preceding 12 months,
any board or management representation in respect of the offeree
issuer or has knowledge of any material information concerning
the offeree issuer or its securities that has not been generally
disclosed. Neither the Offerors nor any person acting jointly or
in concert with the Offerors have had board or management
representation at White Knight or have any such knowledge with
respect to White Knight. Accordingly, in making the Offer, the
Offerors are relying upon the foregoing valuation exemptions.
The Offerors have applied for waivers of the valuation
requirements from the securities regulators of each of the other
provinces where a valuation would be otherwise required.
10.
Prior Valuations
The Offerors, and the directors and senior officers of the
Offerors, after reasonable inquiry, are not aware of any prior
valuations, as defined in applicable provincial legislation
relating to insider bids, of White Knight or of its material
assets or securities within the 24-month period preceding the
date of the Offer.
11.
Expenses of the Offer
The Offerors estimate the total amount of the fees and expenses
related to the Offer will be approximately Cdn$6.4 million.
12.
Regulatory Matters
The Offerors’ obligation to take up and pay for Common
Shares deposited under the Offer is conditional upon, among
other things, obtaining all governmental or regulatory consents
or approvals that New US Gold, in its sole discretion, views as
necessary or desirable to enable the Offerors to consummate the
Offer, on terms and conditions satisfactory to New US Gold. See
the section entitled “Conditions of the Offer” on page
29 of this Offer.
Competition Act (Canada)
The acquisition of the Common Shares by the Offerors pursuant to
the Offer is not a transaction which requires pre-merger
notification to the Commissioner of Competition appointed under
Part IX of the Competition Act (Canada) (the
“Commissioner”). Whether or not a pre-merger filing is
required, however, the Commissioner may apply to the Competition
Tribunal, a special-purpose quasi-judicial tribunal empowered to
deal with certain matters under the Competition Act
(Canada), to seek relief in respect of merger transactions
(including share acquisitions) and, if the Competition Tribunal
finds that a merger is likely to prevent or lessen competition
substantially, it may order that the merger not proceed or, in
the event that the merger has been completed, order its
dissolution or the disposition of some of the assets or shares
involved. Proceedings under the merger provisions of the
Competition Act (Canada) may be instituted by the
Commissioner for a period of three years after a merger
transaction has been substantially completed. The Offerors are
not aware of any grounds upon which such proceedings could be
taken.
Investment Canada Act
The acquisition of Common Shares by the Offerors pursuant to the
Offer is not a transaction which is subject to governmental
review or notification pursuant to the Investment Canada Act
(Canada).
Hart-Scott-Rodino Act
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules promulgated thereunder by the United States
Federal Trade Commission (the “FTC”), certain
transactions, including certain tender offers, may not be
consummated unless notification has been given and certain
information has been furnished to the FTC and the Antitrust
Division of the United States Department of Justice (the
“Antitrust Division”) and certain waiting period
requirements have been satisfied. The Offerors have determined
that the Offer is not subject to the notification and reporting
requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
58
Filings Under Other Jurisdictions
The Offerors have determined that filings under foreign
jurisdictions are not required.
Canadian Securities Regulatory Matters
The distribution of the shares of common stock of New US Gold
and Exchangeable Shares under the Offer is being made pursuant
to statutory exemptions from the prospectus qualification and
dealer registration requirements under applicable Canadian
securities laws. Although the resale of shares of common stock
of New US Gold and Exchangeable Shares issued under the Offer is
subject to restrictions under the securities laws of certain
Canadian jurisdictions, shareholders in such jurisdictions
generally will be able to rely on statutory exemptions from such
restrictions. Where such statutory exemptions are not available,
the Offerors have applied for exemptive relief from the
applicable securities regulatory authorities to the effect that
the shares of common stock of New US Gold and Exchangeable
Shares to be issued under the Offer may be resold without a
prospectus.
United States Securities Regulatory Matters
The Offerors have filed a registration statement with the SEC on
Form S-4
registering the issuance of shares of common stock of New US
Gold and Exchangeable Shares to be offered in connection with
the Offer. One of the conditions of the Offer is that such
registration statement has become and remains effective until
the Expiry Time. See the section entitled “Conditions of
the Offer” on page 29 of this Offer.
13.
Accounting Treatment
If consummated, the transaction described in this Offer will be
accounted for as a purchase transaction, with U.S. Gold as
the acquirer of White Knight. Although the Offer is being made
only for Common Shares and is not being made for any Warrants,
options or other securities that may entitle the holder to
acquire Common Shares. If after completion of the Offer, the
Offerors implement a Subsequent Acquisition Transaction, the
Offerors intend to structure such transaction so that Warrants
would be exchanged for warrants to purchase Exchangeable Shares
and the White Knight stock option plan would be replaced with a
stock option plan of Canadian Exchange Co. or New US Gold.
As a result, for purposes of preparing Appendix F
(Unaudited Pro Forma Consolidated Financial Statements of
U.S. Gold Corporation), the exchange ratio was determined
on a fully-diluted basis, assuming that all outstanding Warrants
and options of White Knight, as disclosed in the most recent
publicly available financial statements, had been exercised.
Similarly, for purposes of preparing Appendix G (Unaudited
Pro Forma Consolidated Supplementary Financial Statements
of U.S. Gold Corporation), the exchange ratio was
determined on a fully-diluted basis, assuming that all
outstanding warrants and options of each of White Knight, Coral
Gold, Nevada Pacific and Tone Resources, as disclosed in their
respective most recent publicly available financial statements,
had been exercised.
14.
Dissenters’ Rights
No dissenters’ rights are available in connection with the
Offer. However, any Subsequent Acquisition Transaction may
result in Shareholders having the right to dissent and demand
payment of the fair value of their Common Shares under
Section 238 of the BCBCA. If the statutory procedures are
complied with, this right could lead to a judicial determination
of the fair value required to be paid to such dissenting
shareholders for their Common Shares. The fair value of Common
Shares so determined could be more or less than the amount paid
per Common Share pursuant to the Subsequent Acquisition
Transaction or the Offer.
15.
Material Canadian Federal Income Tax Considerations
In the opinion of Fraser Milner Casgrain LLP, Canadian counsel
to the Offerors, the following is, at the date hereof, a summary
of the material Canadian federal income tax considerations
applicable to Shareholders who dispose of their Common Shares
pursuant to the Offer and who, for purposes of the Tax Act and
at all relevant times, hold their Common Shares and will hold
any Exchangeable Shares and shares of common stock of New US
Gold as capital property and deal at arm’s length with, and
are not affiliated with, U.S. Gold, New US Gold, Canadian
Exchange Co., Alberta ULC and White Knight.
59
The Common Shares, the Exchangeable Shares and the shares of
common stock of New US Gold will be considered to be capital
property to a holder thereof provided such securities are not
held in the course of carrying on a business of buying and
selling securities and such securities are not acquired in a
transaction considered to be an adventure in the nature of
trade. A Canadian resident holder of Common Shares or
Exchangeable Shares may in certain circumstances make an
irrevocable election under subsection 39(4) of the Tax Act to
have his or her Common Shares and Exchangeable Shares and every
other “Canadian security” (as defined in the Tax Act)
owned by such holder in the taxation year of election and in all
subsequent taxation years deemed to be capital property. Where a
Shareholder makes an election under section 85 of the Tax Act in
respect of the disposition of Common Shares, as described below,
the Exchangeable Shares received in exchange will not be
Canadian securities for this purpose.
This summary is not applicable to a Shareholder: (i) that
is a “financial institution” (as defined in the Tax
Act for purposes of the mark-to-market rules); (ii) an
interest in which is a “tax shelter investment” (as
defined in the Tax Act); or (iii) with respect to whom
U.S. Gold or New US Gold is or will be a “foreign
affiliate” within the meaning of the Tax Act.
This summary is based on the facts set out in this Offer, the
current provisions of the Tax Act, the regulations thereunder
and counsel’s understanding of the current published
administrative policies and assessment practices of the Canada
Revenue Agency (“CRA”). This summary also takes into
account all proposed amendments to the Tax Act and the
regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) before the date of the Offer
(“Tax Proposals”). There can be no assurance that any
such Tax Proposals will be implemented in their current form or
at all. This summary is not exhaustive of all possible Canadian
federal income tax considerations and, except as mentioned
above, does not otherwise take into account or anticipate
changes in the law, whether by judicial, governmental or
legislative action or decision, or changes in the administrative
policies or assessment practices of the CRA, nor does it
take into account provincial, territorial or foreign income tax
legislation or considerations, which may differ from the
Canadian federal income tax considerations described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED
TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO
ANY PARTICULAR SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS ARE
ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF DISPOSING OF THEIR COMMON SHARES PURSUANT TO THE
OFFER AND ACQUIRING, HOLDING AND DISPOSING OF EXCHANGEABLE
SHARES AND SHARES OF COMMON STOCK OF NEW US GOLD, HAVING REGARD
TO THEIR PARTICULAR CIRCUMSTANCES.
For the purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of Exchangeable Shares or
shares of common stock of New US Gold, including dividends,
adjusted cost base and proceeds of disposition, must be
converted into Canadian dollars using the Canadian/
U.S. dollar exchange rate prevailing at the time such
amounts arise.
Shareholders Resident in Canada
The following portion of this summary is applicable to a
Shareholder who, for the purposes of the Tax Act and any
applicable income tax treaty or convention, is or is deemed to
be a Canadian resident at all relevant times. A Shareholder may
elect to receive Exchangeable Shares or shares of common stock
of New US Gold in consideration for his or her Common Shares
disposed of pursuant to the Offer.
Receipt of Ancillary Rights
A Shareholder who receives Exchangeable Shares on a disposition
of Common Shares pursuant to the Offer will also be entitled to
certain rights and benefits (the “Ancillary Rights”)
under the Voting and Exchange Trust Agreement, as discussed in
the section entitled “Exchangeable Shares —
Voting and Exchange Trust Agreement” on page 47 of
this Offer. A Shareholder will be required to account for the
Ancillary Rights in determining the proceeds of disposition of
such holder’s Common Shares and the cost of the
Exchangeable Shares received pursuant to the Offer. New
US Gold is of the view that the Ancillary Rights have a
nominal fair market value given the other rights and benefits
that Shareholders also have upon completion of the Offer
including, without limitation, the right to exchange their
Exchangeable Shares for shares of common stock of New US Gold on
a one-for-one basis. Any such determination of value is not
binding upon the CRA. Counsel expresses no opinion as to
the appropriateness or
60
accuracy of this valuation. A reference to Exchangeable Shares
will be deemed to include a reference to Ancillary Rights, where
applicable.
Grant of Call Rights
New US Gold is of the view that the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right, as
discussed in the section entitled “ — Call
Rights” on page 44 of this Offer, have a nominal fair
market value and that accordingly, no amount should be allocated
to the Call Rights. Any such determination of value is not
binding upon the CRA. Counsel expresses no opinion as to
the appropriateness or accuracy of this valuation. Provided that
the valuation with respect to such Call Rights is correct, the
granting of the Call Rights will not result in any material
adverse income tax consequences to a Shareholder. However,
should the CRA challenge this valuation and ultimately
succeed in establishing that the Call Rights have a fair market
value in excess of a nominal amount, a Shareholder receiving
Exchangeable Shares pursuant to the Offer will realize a capital
gain in an amount equal to the fair market value of the Call
Rights. See “Taxation of Capital Gains or Capital
Losses” below.
Exchange of Common Shares
Exchange of Common Shares for Exchangeable Shares
No Election Transaction. Subsection 85.1(1) of the
Tax Act provides that where a taxpayer exchanges shares (the
“exchanged shares”) of any particular class of the
capital stock of a taxable Canadian corporation for shares of
another taxable Canadian corporation (the “purchaser
corporation”) and receives no consideration for the
transfer of the exchanged shares other than shares of the
purchaser corporation, the taxpayer is deemed to dispose of the
exchanged shares for an amount equal to the adjusted cost base
of the exchanged shares to the taxpayer immediately before the
exchange and to acquire the shares of the purchaser corporation
at a cost then equal to the adjusted cost base to the taxpayer
of the exchanged shares immediately before the exchange.
Subsection 85.1(1) does not apply if the taxpayer elects in the
taxpayer’s return of income for the year in which the
exchange occurs to recognize any gain or loss on the exchange or
if the taxpayer makes a joint tax election pursuant to
subsection 85(1) or (2) with respect to the exchanged
shares. If section 85.1(1) applies to the exchange by a
Shareholder of Common Shares for Exchangeable Shares, the
Shareholder would dispose of the Common Shares for an amount
equal to the Shareholder’s adjusted cost base of the Common
Shares immediately before the exchange and receive Exchangeable
Shares with a cost to the Shareholder equal to the adjusted cost
base of the Common Shares immediately before the exchange. If
the Ancillary Rights represent consideration to the Shareholders
for the disposition of Common Shares, section 85.1 would
not apply to the exchange by a Shareholder of Common Shares for
Exchangeable Shares. Shareholders are advised to consult their
tax advisors as to whether subsection 85.1 may apply to an
exchange by them of their Common Shares and whether they should
make an election pursuant to subsection 85(1) or (2)
as described below under “Section 85 Election.”
If subsection 85.1(1) does not apply to a Shareholder, a
Shareholder who exchanges Common Shares for Exchangeable Shares
will be considered to have disposed of such Common Shares for
proceeds of disposition equal to the fair market value of the
Exchangeable Shares (including the value of the Ancillary
Rights) acquired by such Shareholder on the exchange, unless
such Shareholder makes a joint tax election under
subsection 85(1) or 85(2) of the Tax Act. As a result,
such Shareholder will realize a capital gain (or capital loss)
to the extent that such proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are less than) the
adjusted cost base of such Common Shares. See “Taxation of
Capital Gains or Capital Losses” below. The cost to a
holder of Exchangeable Shares acquired on the exchange will be
equal to the fair market value thereof at the time
of acquisition.
Election Transaction. A Shareholder who exchanges Common
Shares for Exchangeable Shares may make a joint tax election
with Canadian Exchange Co. pursuant to
subsection 85(1) of the Tax Act (or, in the case of a
Shareholder who is a partnership, pursuant to
subsection 85(2) of the Tax Act). Such election may result
in the full or partial deferral of capital gains otherwise
arising on the exchange of Common Shares as described under
“Non-Rollover Transaction.” Provided that, on the
Effective Date, the adjusted cost base of such
Shareholder’s Common Shares equals or exceeds the fair
market value of the Ancillary Rights acquired by such
Shareholder on the exchange, that Shareholder may elect so as to
not realize a capital gain for the purposes of the Tax Act on
the exchange. The
61
Elected Amount (as defined herein) will be determined by each
Shareholder who makes such a joint tax election, subject to the
limitations under the Tax Act described below under
“Section 85 Election.”
Exchange of Common Shares for Shares of Common Stock of New
US Gold
A Shareholder who exchanges Common Shares for shares of common
stock of New US Gold will be considered to have disposed of
such Common Shares for proceeds of disposition equal to the fair
market value of the shares of common stock of New US Gold
acquired by such Shareholder on the exchange. The Shareholder
will realize a capital gain (or capital loss) equal to the
amount by which the proceeds of disposition of such Common
Shares, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the Shareholder of such
Common Shares. See “Taxation of Capital Gains or Capital
Losses” below.
The cost to a Shareholder of shares of common stock of New
US Gold acquired on the exchange will be equal to the fair
market value thereof at the time of acquisition and will be
averaged with the adjusted cost base of any other shares of
common stock of New US Gold held by a Shareholder as
capital property for the purposes of determining the
holder’s adjusted cost base of such shares.
Section 85 Election
Canadian Exchange Co. will make a joint tax election under
subsection 85(1) or subsection 85(2), as applicable,
of the Tax Act (and the corresponding provisions of any
applicable provincial tax legislation) with a Shareholder who
receives Exchangeable Shares on the exchange of Common Shares
and at the amount elected by the Shareholder, subject to the
limitations under the Tax Act. The joint tax election allows a
Shareholder to elect an amount which, subject to the limitations
under the Tax Act described below, will be treated for the
purposes of the Tax Act as the Shareholder’s proceeds of
disposition of his or her Common Shares. Canadian Exchange Co.
agrees only to execute any properly completed election forms and
to forward such election forms by mail (within 30 days
after the receipt thereof by Canadian Exchange Co.) to the
applicable tax authorities with a copy to the Shareholder.
With the exception of the execution and filing of the
election by Canadian Exchange Co., compliance with the
requirements to ensure the validity of a joint tax election will
be the sole responsibility of the Shareholder making the
election. Accordingly, neither Canadian Exchange Co.
nor the Depositary will be responsible or liable for taxes,
interest, penalties, damages or expenses resulting from the
failure by anyone to properly complete any election within the
time prescribed and in the form prescribed under the Tax Act (or
the corresponding provisions of any applicable provincial
legislation).
The relevant federal tax election form is
CRA Form T2057 (or, in the event that the Common
Shares are held as partnership property,
CRA Form T2058). For Shareholders required to file in
Québec, Québec
Form TP-518V (or,
in the event that the Common Shares are held as partnership
property, Québec
Form TP-529V) will
also be required. A tax election package, consisting of the
relevant tax election forms, a tax election filing authorization
letter, and a letter of instructions, may be obtained from the
Depositary. A Shareholder interested in making a joint tax
election should so indicate on the Letter of Acceptance and
Transmittal in the space provided therein and a tax election
package will be sent to such Shareholder.
In order to make a joint tax election, a Shareholder must
provide to the Depository at the address set forth on the back
page hereof, on behalf of Canadian Exchange Co., two signed
copies of the necessary election forms on or before the day
which is 90 days after the Effective Date, duly completed
with the details of the number of the Common Shares transferred
and the applicable Elected Amount for the purposes of the
election. Certain provincial jurisdictions may require that a
separate joint tax election be filed for provincial income tax
purposes. Canadian Exchange Co. will also make a provincial
joint tax election with a Shareholder under the provision of any
relevant provincial income tax legislation with similar effect
to subsection 85(1) or subsection 85(2) of the Tax Act
(and, if requested, an election pursuant to sections 518
or 529 of the Taxation Act (Quebec) or analogous
provincial tax legislation). Shareholders are encouraged to
consult their own tax advisors to determine whether separate
election forms must be filed with any provincial taxing
authority. It will be the responsibility of each Shareholder who
wishes to make such a joint tax election to obtain the necessary
provincial election forms and to submit such forms to the
Depositary for execution and filing by Canadian Exchange Co.
Where Common Shares are held in joint ownership and two or more
of the co-owners wish
to elect, one of the
co-owners designated
for such purpose should file the designation and a copy of the
CRA Form T2057 (and where
62
applicable, the corresponding Québec form) for each
co-owner, along with a
list of all co-owners
electing, which list should contain each co-owner’s
percentage of ownership, the address and social insurance number
or tax account number of each
co-owner. Where the
Common Shares are held as partnership property, a partner
validly designated by the partnership may file one copy of the
CRA Form T2058 on behalf of all members of the
partnership (and where applicable, the corresponding form in
duplicate with the Québec taxation authorities). Such
CRA Form T2058 (and Québec form, if applicable)
must be accompanied by a letter signed by each partner
authorizing the designated partner to complete and file the
form, and a list containing the name, address, social insurance
number or tax account number of each partner.
Where a joint tax election is made, pursuant to the limitations
imposed by the Tax Act, the Elected Amount may not be:
•
less than the fair market value of the Ancillary Rights received
on a disposition of Common Shares pursuant to the Offer;
•
less than the lesser of: (a) the adjusted cost base to the
Shareholder of the Shareholder’s Common Shares disposed of
pursuant the Offer, and (b) the fair market value of the
Common Shares; and
•
greater than the fair market value of the Common Shares so
disposed of,
in each case, determined immediately before the time of the
disposition. The amount elected by a Shareholder in accordance
with the foregoing limitations is referred to herein as the
Elected Amount.
Elected Amounts which do not comply with the foregoing
limitations will be automatically adjusted pursuant to the
provisions of the Tax Act.
Where a Shareholder and Canadian Exchange Co. make a joint
tax election, the tax treatment to the Shareholder will be as
follows:
•
the Shareholder will be deemed to have been disposed of Common
Shares for proceeds of disposition equal to the Elected Amount;
•
if the proceeds of disposition of the Common Shares are equal to
the aggregate of the adjusted cost base of the
Shareholder’s Common Shares, determined immediately before
the time of the disposition, and any reasonable costs of
disposition, no capital gain or capital loss will be realized by
the Shareholder;
•
to the extent that the proceeds of disposition of the Common
Shares exceed (or are less than) the aggregate of the adjusted
cost base to the Shareholder of his or her Common Shares,
determined immediately before the time of the disposition, and
any reasonable costs of disposition, a capital gain (or capital
loss) will be realized by the Shareholder; and
•
the cost to a Shareholder of the Exchangeable Shares received in
exchange for the Common Shares will be equal to the amount by
which the Elected Amount exceeds the fair market value of the
Ancillary Rights received on the disposition of the Common
Shares pursuant to the Offer.
In order for the CRA (and, where applicable, the
Ministère du Revenu du Québec) to accept a joint tax
election without a late filing penalty being paid by the
Shareholder, the election must be received by such revenue
authorities on or before the day that is the earliest of the
days on or before which either Canadian Exchange Co. or the
Shareholder is required to file an income tax return for the
taxation year in which the exchange occurs. Canadian Exchange
Co.’s taxation year is scheduled to end on
December 31. Thus, where the exchange occurs prior to
December 31, 2006, the tax election will, in the case of a
Shareholder who is an individual (other than a trust), generally
have to be received by the revenue authorities by April 30,2007 (being generally the last day for filing a tax return for
the individual’s 2006 taxation year). Shareholders, other
than individuals, are encouraged to consult their own advisors
as soon as possible respecting the deadlines applicable to their
own particular circumstances. However, regardless of such
deadline, the tax election forms of a Shareholder must be
received by the Depositary, as indicated above, no later than
the 90th day after the Effective Date. If, for whatever
reason, the current taxation year of Canadian Exchange Co.
were to terminate before December 31, 2006, the joint tax
election may have to be filed earlier to avoid late filing
penalties. In such event, Canadian Exchange Co. has agreed
to notify forthwith, through the Depositary, every Shareholder
who received Exchangeable Shares on the exchange of their Common
Shares of such change.
63
Any Shareholder who does not ensure that the Depositary has
received a duly completed election form on or before the
90th day after the Effective Date, will not be able to
benefit from the joint tax election. Accordingly, all
Shareholders who wish to enter into a joint tax election with
Canadian Exchange Co. should give their immediate attention
to this matter. The instructions for requesting a tax election
package are set out in the Letter of Acceptance and Transmittal.
Shareholders are referred to Information
Circular 76-19R3
and Interpretation
Bulletin IT-291R3
issued by the CRA for further information respecting the
joint tax election. Joint tax election forms are also available
from the CRA and provincial tax authorities. Shareholders
wishing to make the joint tax election are encouraged to consult
their own tax advisors. The comments herein with respect to such
elections are provided for general assistance only. The law in
this area is complex and contains numerous technical
requirements.
As discussed above, Shareholders will be required to account for
the Ancillary Rights in determining the proceeds of disposition
of such Shareholder’s Common Shares and the cost of the
Exchangeable Shares received pursuant to the Offer. New
US Gold is of the view that the Ancillary Rights have a
nominal fair market value given the other rights and benefits
that Shareholders also have upon completion of the Offer
including, without limitation, the right to exchange their
Exchangeable Shares for shares of common stock of New
US Gold on a one-for-one basis. Any such determination of
value is not binding upon the CRA. Counsel expresses no opinion
as to the appropriateness or accuracy of this valuation. A
reference to Exchangeable Shares will be deemed to include a
reference to Ancillary Rights, where applicable.
Exchangeable Shares/ Shares of Common Stock of New
US Gold
Dividends on Exchangeable Shares
Dividends received or deemed to be received on Exchangeable
Shares by a Shareholder who is an individual (including most
trusts) will be included in computing the individual’s
income for the taxation year in which such dividends are
received and will be subject to the
gross-up and dividend
tax credit rules generally applicable to taxable dividends
received from taxable Canadian corporations.
On November 23, 2005, the Minister of Finance (Canada)
tabled in the House of Commons a Notice of Ways and Means Motion
to introduce an enhanced federal gross-up and dividend tax
credit for “eligible dividends” paid after 2005 and
received by individuals resident in Canada. If legislation is
enacted as described in the Notice of Ways and Means Motion,
dividends received or deemed to be received on the Exchangeable
Shares by a holder may qualify for the enhanced
gross-up and dividend
tax credit. However, there can be no assurance that the federal
government, which was elected on January 23, 2006, will
enact this proposal in its present form or at all.
A Shareholder that is a corporation will be required to include
in computing its income for a taxation year any dividends
received on the Exchangeable Shares and will generally be
entitled to deduct such dividends in computing its taxable
income.
A Shareholder that is a “private corporation” as
defined in the Tax Act or any other corporation resident in
Canada and controlled or deemed to be controlled by or for the
benefit of an individual (other than a trust) or a related group
of individuals (other than trusts) may be liable to pay a
refundable tax under Part IV of the Tax Act equal to
331/3
% of dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are
deductible in computing the holder’s taxable income.
The Exchangeable Shares will be “taxable preferred
shares” and “short-term preferred shares” for
purposes of the Tax Act. Accordingly, Canadian Exchange Co.
will be subject to a tax under Part VI.1 of the Tax Act
equal to
662/3
% (to be reduced to 50% under the Tax Proposals
retroactively effective to dividends paid by a corporation in
its 2003 and subsequent taxation years) of all dividends paid or
deemed to be paid on the Exchangeable Shares. Canadian
Exchange Co. will also be entitled to deduct 9/4 (to be
increased to 3 times under the Tax Proposal retroactively
effective to dividends paid by a corporation in its 2003 and
subsequent taxation years) of any Part VI.1 tax payable in
computing its taxable income. Dividends received or deemed to be
received on the Exchangeable Shares will not be subject to the
10% tax under Part IV.1 of the Tax Act.
64
Dividends on Shares of Common Stock of New US Gold
Dividends received on shares of common stock of New US Gold
will be included in a Shareholder income for the purposes of the
Tax Act. Such dividends received by a Shareholder who is an
individual will not be subject to the
gross-up and dividend
tax credit rules in the Tax Act. A Shareholder that is a
corporation will not be entitled to deduct the amount of such
dividends in computing its taxable income. A Shareholder that is
a “Canadian-controlled private corporation” as defined
in the Tax Act may be liable to pay an additional refundable tax
of
62/3
% on its “aggregate investment income” for the
year which will include such dividends. Subject to the detailed
rules in the Tax Act, a Shareholder may be entitled to a foreign
tax credit or deduction for any United States non-resident
withholding tax paid on dividends received on shares of common
stock of New US Gold.
Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable
Share by Canadian Exchange Co., the Shareholder will be
deemed to have received a dividend equal to the amount, if any,
by which the redemption proceeds (being the fair market value at
that time of the share of common stock of New US Gold plus
the accrued and unpaid dividends, if any, received by the
Shareholder on the redemption) exceeds the paid-up capital for
purposes of the Tax Act of the Exchangeable Share at the time of
the redemption. A Shareholder will be subject to tax on the
amount of any such deemed dividend in the manner described above
under the heading “Dividends on Exchangeable Shares.”
On the redemption, the Shareholder will also be considered to
have disposed of the Exchangeable Share for proceeds of
disposition equal to the redemption proceeds less the amount of
such deemed dividend, and will realize a capital gain (or a
capital loss) equal to the amount by which such proceeds of
disposition, net of any reasonable costs of disposition, exceed
(or are less than) the adjusted cost base of the Exchangeable
Share to the Shareholder. See “Taxation of Capital Gains or
Capital Losses” below. In some circumstances, the amount of
any such deemed dividend received by a Shareholder that is a
corporation on the redemption of an Exchangeable Share may be
treated as proceeds of disposition and not as a dividend.
Where an Exchangeable Share is exchanged with New US Gold
or Alberta ULC for a share of common stock of New
US Gold, the Shareholder will realize a capital gain (or a
capital loss) to the extent the proceeds of disposition of the
Exchangeable Share, net of any reasonable costs of disposition,
exceed (or are less than) the Shareholder’s adjusted cost
base of the Exchangeable Share. For this purpose, the proceeds
of disposition will be the aggregate of the fair market value,
at the time of the exchange, of the shares of common stock of
New US Gold received on the exchange and any accrued and
unpaid dividends received by the Shareholder as part of the
exchange consideration. See “Taxation of Capital Gains or
Capital Losses” below.
Because of the existence of the Call Rights and certain
rights provided in the Voting and Exchange Trust Agreement,
a holder of Exchangeable Shares cannot control whether such a
holder will receive shares of common stock of New US Gold by way
of redemption of the Exchangeable Shares by Canadian
Exchange Co. or by way of a purchase of the Exchangeable
Shares by New US Gold or Alberta ULC. If the Call
Rights are not exercised on redemption or retraction of the
Exchangeable Shares, a holder of Exchangeable Shares may realize
a dividend for Canadian tax purposes that may exceed the
holder’s economic gain.
As described above, the Canadian federal income tax consequences
of a redemption by Canadian Exchange Co. differ from those
of a purchase by New US Gold or Alberta ULC.
Acquisition and Disposition of shares of Common Stock of New
US Gold
The cost of the shares of common stock of New US Gold
received on the retraction, redemption, exchange or purchase of
Exchangeable Shares will be equal to the fair market value of
such shares of common stock of New US Gold at that time and
will be averaged with the adjusted cost base of all other shares
of common stock of New US Gold held by the Shareholder as
capital property at that time for the purposes of determining
the adjusted cost base of such shares of common stock of New
US Gold.
A disposition or deemed disposition of shares of common stock of
New US Gold by a Shareholder will result in a capital gain
(or capital loss) to the extent that the proceeds of
disposition, net of any reasonable costs of disposition, exceed
(or are less than) the Shareholder’s adjusted cost base of
such shares of common stock of New US Gold. See “Taxation
of Capital Gains or Capital Losses” below.
65
Taxation of Capital Gains or Capital Losses
A Shareholder will be required to include one-half of the amount
of any capital gain (a “taxable capital gain”) in
income, and will generally be required to deduct one-half of the
amount of any capital loss (an “allowable capital
loss”) against taxable capital gains realized by the
Shareholder in the year of disposition. Allowable capital losses
not deducted in the taxation year in which they are realized may
be carried back and deducted in any of the three preceding
taxation years or carried forward and deducted in any subsequent
taxation year against taxable capital gains realized in such
years, to the extent and under the circumstances specified in
the Tax Act.
A Shareholder that is a “Canadian-controlled private
corporation,” as defined in the Tax Act, may be liable to
pay an additional refundable tax of
62/3
% on its “aggregate investment income” for the
year which will include an amount in respect of taxable capital
gains.
If the holder of Exchangeable Shares is a corporation, the
amount of any capital loss arising from a disposition or deemed
disposition of such shares may be reduced by the amount of any
dividends, including deemed dividends, which have been
previously received on such shares to the extent and under the
circumstances specified in the Tax Act. Similar rules may apply
where the corporation is a member of a partnership or
beneficiary of a trust that owns Exchangeable Shares or where
the trust or partnership of which a corporation is beneficiary
or a member is a member of a partnership or beneficiary of a
trust that owns Exchangeable Shares. Shareholders to whom these
rules may be relevant should consult their own tax advisors.
Alternative Minimum Tax
Individuals and certain trusts that receive or are deemed to
receive taxable dividends on Exchangeable Shares, or realize a
capital gain on the disposition or deemed disposition of the
Common Shares, the Exchangeable Shares or shares of common stock
of New US Gold, may realize an increase in their liability
for alternative minimum tax under the Tax Act.
Qualified Investments
The Exchangeable Shares issued pursuant to the Offer, will be
“qualified investments” under the Tax Act for trusts
governed by registered retirement savings plans, registered
retirement income funds, deferred profit sharing plans or
registered education savings plans (collectively, “Deferred
Plans”), as defined in the Tax Act, provided the
Exchangeable Shares are listed on a “prescribed stock
exchange” (which currently includes the TSX and the
AMEX).
The Ancillary Rights will not be qualified investments under the
Tax Act for such Deferred Plans. However, New US Gold is of
the view that the Ancillary Rights have a nominal fair market
value. Counsel expresses no opinion as to the appropriateness or
the accuracy of this valuation. Any determination of value is
not binding on the CRA. Where Plans acquire property that
is not a qualified investment, the Plans are required to pay tax
on the income and capital gains in respect of such property in
accordance with the Tax Act. In addition, where a non-qualified
investment is acquired by a trust governed by a registered
retirement savings plan or a registered retirement income fund,
the fair market value of the non-qualified investment at the
time of acquisition will be included in the income of the
annuitant under the plan. Where a non-qualified investment is
acquired by a trust governed by a deferred profit sharing plan,
the trust will be liable for a tax equal to the fair market
value of the investment at the time the investment is acquired.
The registration of a registered education savings plan becomes
revocable if it acquires a non-qualified investment and,
accordingly, Exchangeable Shares (by reason of the attached
Ancillary Rights) are not suitable investments for trusts
governed by registered education savings plans.
The shares of common stock of New US Gold issued pursuant
to the Offer, will be qualified investments under the Tax Act
for Plans, provided such shares are listed on a “prescribed
stock exchange” (which currently includes the TSX and
the AMEX).
Foreign Property Information Reporting
A holder of Exchangeable Shares or shares of common stock of New
US Gold who is a “specified Canadian entity” for
a taxation year or a fiscal period and whose total cost amount
of “specified foreign property,” including such
Exchangeable Shares or shares of common stock of New
US Gold, at any time in the year or fiscal period exceeds
Cdn$100,000 will be required to file an information return
for the year or period disclosing prescribed information.
66
Subject to certain exceptions, a taxpayer resident in Canada in
the year will be a specified Canadian entity. Holders are
encouraged to consult their tax advisors as to whether they must
comply with these rules.
Foreign Investment Entity Status
On July 18, 2005, the Minister of Finance (Canada) released
revised draft legislation relating to the income tax treatment
of investments by Canadian residents in non-resident entities
that constitute “foreign investment entities”
(“FIEs”) applicable for taxation years commencing
after 2002 (the “FIE Tax Proposals”). The
FIE Tax Proposals, as currently drafted, would apply to
require a Shareholder that holds a “participating
interest” (that is not an “exempt interest”) in a
non-resident entity that is an FIE at the entity’s
taxation year-end to take into account in computing the
Shareholder’s income for the Shareholder’s taxation
year that includes such taxation year-end: (i) an amount
based on a prescribed rate of return on the “designated
cost” of such participating interest held by a Shareholder
at the end of each month ending in the holder’s taxation
year at which time the participating interest is held by the
Shareholder; (ii) in certain limited circumstances, any
gains and losses accrued on such participating interest for the
year; or (iii) in certain limited circumstances, a
Shareholder’s proportionate share of the FIE’s
income (or loss) for the year calculated using Canadian tax
rules. For the purposes of the FIE Tax Proposals,
Exchangeable Shares and shares of common stock of New
US Gold will constitute participating interests in
New US Gold.
New US Gold will not be an FIE at the end of its
taxation year provided that, at that time, the “carrying
value” of all of New US Gold’s “investment
property” is not greater than one-half of the
“carrying value” of all its property. The
determination of whether or not New US Gold is an FIE
must be made on an annual basis at the end of each taxation
year-end of New US Gold.
Even if New US Gold were an FIE at the end of one of
its taxation years, an Exchangeable Share or a share of common
stock of New US Gold, respectively, may be an exempt
interest provided that throughout the period that such a
security is held by a holder during such taxation year of New
US Gold: (i) New US Gold is resident in the
United States for the purposes of the Tax Act; (ii) the
Exchangeable Share or the share of common stock of New
US Gold (as applicable) is listed on a “prescribed
stock exchange”; and (iii) the Exchangeable Share or
the share of common stock of New US Gold (as applicable)
constitutes an “arm’s length interest” (as
defined for the purposes of the FIE Tax Proposals). It is
expected that the Exchangeable Shares and the shares of common
stock of New US Gold will be “arm’s length
interests” of a particular Shareholder thereof for the
purposes of the FIE Tax Proposals provided that such
Shareholder (together with entities and individuals with whom
the holder does not deal at arm’s length) does not hold, in
the aggregate, more than 10% of the Exchangeable Shares or
10% of the shares of common stock of New US Gold, as
applicable, based on the fair market value of such securities.
In addition, an Exchangeable Share or share of common stock of
New US Gold will only constitute an exempt interest at the
end of U.S. Gold’s taxation year if, at that time, it
is reasonable to conclude that the Shareholder has no “tax
avoidance motive” in respect of such Exchangeable Share or
share of common stock of New US Gold. For this purpose, the
Shareholder will be regarded as having a tax avoidance motive
only if it is reasonable to conclude that the main reasons for
acquiring or holding such Exchangeable Shares or shares of
common stock of New US Gold include directly or indirectly
benefiting principally from income, profits, gains or increases
in value in respect of investment property and from the deferral
or reduction of tax that would have been payable on such income,
profits or gains. Shareholders are encouraged to consult their
own tax advisors regarding the determination of whether or not
they have such a tax avoidance motive. The determination of
whether Exchangeable Shares or shares of common stock of New
US Gold constitute an exempt interest must be made on an
annual basis at the end of the taxation year of New US Gold
and no assurances can be given that the Exchangeable Shares or
shares of common stock of New US Gold will constitute an
exempt interest at any subsequent taxation year-end of
New US Gold.
In the Economic Statement released on October 18, 2000 (the
“Economic Statement”), the Minister of Finance
(Canada) announced a proposal to formulate and introduce a rule
to permit shares of a Canadian corporation held by a Canadian
resident to be exchanged for shares of a foreign corporation on
a tax-deferred basis. This statement included no details of the
circumstances in which such tax-deferred share-for-share
exchanges could occur but rather indicated that these rules
would be developed in consultation with the private sector. The
Economic Statement indicated that any such rules would not be
effective before the public release of draft legislation
including such rules. The Canadian
67
Federal Budget of February 18, 2003, reiterated the
statements made in the Economic Statement and indicated that
draft legislative proposals would be released in the near future
for public review and comment.
The Canadian Federal Budget of March 23, 2004 (the
“2004 Budget”) indicated that it is intended that
detailed proposals will be released for public comment within
months after the release of the 2004 Budget. The
2004 Budget also indicated that the proposals are expected
to be in the form of draft legislation and there has been no
indication as to an effective date for the proposals.
It is not known whether the draft legislation containing the
proposed amendments described above will be released in time to
affect a subsequent exchange of Exchangeable Shares for shares
of common stock of New US Gold, and it is therefore
possible that such exchange of Exchangeable Shares may be
achieved on a tax-deferred basis. In any case, until such rules
are developed and released, it is not possible to state whether
those rules would apply to a Shareholder who exchanges
Exchangeable Shares for shares of common stock of New
US Gold. Shareholders are encouraged to consult their own
tax advisors once the draft legislation is released, if at all,
to determine how the draft legislation might apply to the
holder’s particular circumstances.
Subsequent Acquisition Transaction
If Common Shares validly deposited under the Offer are taken up
and paid for, the Offerors currently intend to acquire, directly
or indirectly, all of the remaining outstanding Common Shares in
accordance with applicable law by way of a Subsequent
Acquisition Transaction. The tax treatment of a Subsequent
Acquisition Transaction to a Shareholder will depend upon the
exact manner in which the Subsequent Acquisition Transaction is
carried out and may be materially less favourable than would
apply if Common Shares were deposited under the Offer.
Shareholders are encouraged to consult their own tax advisors
for advice with respect to the income tax consequences to them
of having their Common Shares acquired pursuant to a Subsequent
Acquisition Transaction.
The Offerors currently intend to effect a Subsequent Acquisition
Transaction in the form of an amalgamation as discussed above
under the caption “Acquisition of Common Shares Not
Deposited — Subsequent Acquisition Transaction.”
On the amalgamation, holders of Warrants will receive warrants
to purchase Exchangeable Shares on a tax-deferred basis. In
addition, the White Knight stock option plan will be replaced on
a tax-deferred basis with a stock option plan of Canadian
Exchange Co. or New US Gold.
Under the current administrative practice of the CRA,
Shareholders who exercise their right of dissent in respect of
an amalgamation should be considered to have disposed of their
Common Shares for proceeds of disposition equal to the amount
paid by the amalgamated corporation to the dissenting
shareholder therefore, other than interest awarded by the court
(if any). Because of uncertainties under the relevant
legislation as to whether such amounts paid to a dissenting
shareholder would be treated entirely as proceeds of
disposition, or in part as the payment of a deemed dividend,
dissenting shareholders are encouraged to consult with their own
tax advisors in this regard.
Shareholders Not Resident in Canada
The following portion of the summary is applicable to holders of
Common Shares who, for purposes of the Tax Act or any applicable
income tax treaty or convention, have not been and will not be
resident or deemed to be resident in Canada at any time while
they have held Common Shares or will hold Exchangeable Shares
and/or shares of common stock of New US Gold and who do not
use or hold or are not deemed to use or hold such Common Shares,
Exchangeable Shares and/or shares of common stock of New
US Gold in carrying on a business in Canada (a
“Non-Resident
Shareholder”). Special rules, which are not discussed in
this summary, may apply to a non-resident that is an insurer
carrying on business in Canada and elsewhere.
Disposition of Common Shares or Exchangeable Shares
A Non-Resident
Shareholder will not be subject to capital gains tax under the
Tax Act on the disposition of Common Shares pursuant to the
Offer or a disposition of Exchangeable Shares unless the Common
Shares or Exchangeable Shares, as the case may be, constitute
“taxable Canadian property” of the Shareholder for
purposes of the Tax Act and the Shareholder is not entitled to
relief under an applicable income tax treaty or convention.
Generally, Common Shares or Exchangeable Shares, as the case may
be, will not be taxable Canadian property at a particular time
provided that such shares are listed on a “prescribed stock
exchange” (which currently includes
68
the TSX and the AMEX), and the Shareholder, alone or
together with persons with whom such Shareholder does not deal
at arm’s length, has not owned 25% or more of the
issued shares of any class or series of shares in the capital of
White Knight or Canadian Exchange Co., as the case may be,
at any time during the five year period immediately preceding
the particular time.
A Non-Resident
Shareholder whose Common Shares constitute taxable Canadian
property may be eligible to make a joint tax election with
Canadian Exchange Co. (See “Shareholders Resident in
Canada — Section 85 Election”).
Non-Resident
Shareholders whose Common Shares or Exchangeable Shares
constitute taxable Canadian property should consult their own
tax advisors with respect to the Canadian tax consequences,
including the effects thereon of the provisions of any income
tax treaty or convention, of disposing of such shares.
Dividends On Exchangeable Shares
Dividends paid or deemed to be paid to a
Non-Resident
Shareholder on Exchangeable Shares (including on a redemption of
such shares by Canadian Exchange Co.) (See
“Shareholders Resident in Canada — Redemption or
Exchange of Exchangeable Shares”) will be subject to
Canadian withholding tax at the rate of 25% unless the rate
is reduced under the provisions of an applicable income tax
treaty or convention. For example, under the Canada-United
States tax treaty, the withholding tax rate is generally reduced
to 15% in respect of a dividend paid to a person who is the
beneficial owner thereof and who is resident in the United
States for purposes of the Canada-United States tax treaty.
16.
Material U.S. Federal Income Tax Considerations
In the opinion of Holme Roberts & Owen LLP,
U.S. counsel to the Offerors, the following is, as of the
date of the Offer, an accurate summary of the material
U.S. federal income tax considerations applicable to
Shareholders who dispose of their Common Shares pursuant to the
Offer. This summary is included for general information purposes
only and does not purport to be a complete technical analysis or
listing of all potential U.S. tax consequences that may be
relevant to holders of Common Shares. It is not intended to be,
nor should it be construed as being, legal or tax advice. For
this reason, holders of Common Shares should consult their own
tax advisors concerning the tax consequences of the proposed
transaction. Further, this summary does not address any tax
consequences arising under the income or other tax laws of any
state, local or foreign jurisdiction or any tax treaties.
This discussion has been prepared to support the promotion or
marketing of the transaction described herein. Holme Roberts
& Owen LLP is required by U.S. Treasury
regulations to inform you that this discussion is not intended
or written to be used, and cannot be used, by a Shareholder or
other person for the purpose of avoiding penalties that may be
imposed by U.S. federal tax laws. Each Shareholder should
seek advice from an independent tax advisor based upon the
Shareholder’s individual circumstances.
This discussion is based upon the provisions of the
U.S. Internal Revenue Code of 1986, as amended (the
“Code”), the related Treasury regulations,
administrative interpretations and court decisions, in each case
as in effect or available as of the date of the Offer, all of
which are subject to change, possibly with retroactive effect.
Any such change could affect the accuracy of the statements and
the conclusions discussed below and the tax consequences of the
proposed transaction.
This discussion applies only to persons that hold their Common
Shares, and will hold their shares of common stock of New
US Gold or their Exchangeable Shares, as capital assets
within the meaning of section 1221 of the Code, and assumes
(without verification by the Offerors) that White Knight is not,
and has not been, a “passive foreign investment
company” or “controlled foreign corporation” for
U.S. federal income tax purposes. If White Knight is a
controlled foreign corporation or a passive foreign investment
company, or was a passive foreign investment company during the
period that U.S. holders (defined below) have held their
Common Shares, special U.S. tax rules not discussed herein
would need to be considered by U.S. holders to determine
the tax consequences to them of the proposed transaction. This
summary does not address all aspects of U.S. federal income
taxation that may be relevant to holders of Common Shares in
light of their particular circumstances or that may be
applicable to them if they are
69
subject to special treatment under the U.S. federal income
tax laws. Specifically, this summary does not address tax
consequences that may apply to a holder of Common Shares
that is:
•
a financial institution, thrift, insurance company or mutual
fund;
•
a tax-exempt organization;
•
an S corporation, an entity taxable as a partnership for U.S.
federal income tax purposes or other pass-through entity or an
owner thereof;
•
a dealer in stocks and securities or foreign currencies or a
trader or an investor in Common Shares who elects the
mark-to-market method of accounting for such stock;
•
a shareholder who received Common Shares from the exercise of
employee stock options, stock purchase plans or otherwise as
compensation, or from a tax-qualified retirement plan,
individual retirement account or other qualified savings account;
•
a U.S. holder (defined below) that has a functional currency
other than the U.S. dollar;
•
an expatriate or former long-term resident of the United States;
•
a shareholder that owns (or is deemed to own) shares
representing 10% or more of the voting power of White Knight; or
•
a shareholder who holds Common Shares as part of a hedge against
currency risk, straddle or a constructive sale or conversion
transaction, or other risk reduction or integrated investment
transaction.
U.S. Federal Income Tax Consequences to U.S. Holders of
Common Shares
For purposes of this summary, the term “U.S. holder”
means a beneficial owner of Common Shares who is (i) an
individual who is a citizen of the United States or who is
resident in the United States for U.S. federal income tax
purposes; (ii) a corporation or other entity taxable as a
corporation for U.S. federal income tax purposes, created or
organized under the laws of the United States, any state thereof
or the District of Columbia; (iii) a trust, if either
(A) a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all
substantial decisions of the trust or (B) the trust has a
valid election in effect under applicable Treasury regulations
to be treated as a U.S. person; or (iv) an estate that is
subject to U.S. federal income tax on its income regardless
of its source.
An entity that is classified as a partnership for U.S. federal
income tax purposes is neither a U.S. holder nor a non-U.S.
holder. The U.S. federal income tax treatment of a partnership
and its partners depends upon a variety of factors, including
the activities of the partnership and the partners. Holders of
Common Shares that are partnerships for U.S. federal income
tax purposes, and partners in any such partnership, should
consult their tax advisors concerning the U.S. federal income
tax consequences of the exchange of Common Shares pursuant to
the Offer and of owning and disposing of Exchangeable Shares or
shares of common stock of New US Gold.
U.S. Federal Income Tax Characterization of the Exchangeable
Shares and the Exchange of Common Shares
There is no direct authority addressing the proper
characterization and treatment of instruments with
characteristics similar to the Exchangeable Shares and the
Ancillary Rights for U.S. federal income tax purposes.
Because the Exchangeable Shares are exchangeable into shares of
New US Gold common stock, have dividend rights based on the
dividends paid with respect to New US Gold common stock,
and have the benefit of voting rights similar to the voting
rights attributable to the shares of common stock of New
US Gold, there are risks that the U.S. Internal
Revenue Service will recharacterize the Exchangeable Shares as
something other than shares of Canadian Exchange Co., or will
recharacterize other aspects of the exchange of Common Shares
for Exchangeable Shares (and Ancillary Rights). Based upon the
relevant guidance and other aspects of the Offer, and in the
absence of specifically applicable authority, the Offerors
intend to take the position, and, except as otherwise discussed,
this summary assumes, that the Exchangeable Shares should be
treated as stock of Canadian Exchange Co., and not stock of New
US Gold, for U.S. federal income tax purposes, and
that the exchange of Common Shares for Exchangeable Shares (and
Ancillary Rights) should not adversely affect the expected
U.S. federal income tax consequences to U.S. holders
of exchanging Common Shares for shares of common stock of New
US Gold pursuant to the Offer. However, this treatment is
not
70
binding on the U.S. Internal Revenue Service, and the
U.S. Internal Revenue Service could treat the Exchangeable
Shares, and the exchange of Common Shares for Exchangeable
Shares (and Ancillary Rights), in a different manner.
U.S. Federal Income Tax Consequences Arising from the
Exchange of Common Shares
The tax consequences to a U.S. holder of exchanging Common
Shares pursuant to the Offer depend upon whether the holder
receives shares of common stock of New US Gold or Exchangeable
Shares.
Exchange
of Common Shares for Shares of Common Stock of New US Gold
The transaction has been structured with the intent that the
exchange of Common Shares for shares of common stock of New US
Gold pursuant to the Offer, taken together with the
Reorganization, should satisfy the requirements of section 351
of the Code. Due to the uncertainty about the treatment of the
Exchangeable Shares and the Ancillary Rights, and about the
treatment of the exchange of the Common Shares for Exchangeable
Shares, for U.S. federal income tax purposes, the
U.S. Internal Revenue Service might not accept the
characterization of the transaction as satisfying the
requirements of section 351 of the Code. Our determination
as to the treatment of the transaction is not binding upon the
U.S. Internal Revenue Service or the courts. There is no
assurance that the U.S. Internal Revenue Service or (if the
issue is litigated) the courts will accept the position that the
exchange of Common Shares pursuant to the Offer will be part of
a transaction satisfying the requirements of section 351 of
the Code. The Offerors do not intend to obtain a ruling from the
U.S. Internal Revenue Service concerning the treatment of
the exchange of Common Shares pursuant to the Offer.
For the exchange of Common Shares pursuant to the Offer to
satisfy the requirements of section 351 of the Code, the
exchange must occur in conjunction with and as part of an
overall plan involving the Reorganization, and the transaction
must satisfy certain other requirements. The Offerors have
structured the exchange as part of an overall plan involving the
Reorganization, and intend, if circumstances permit, to complete
the exchange pursuant to the Offer in conjunction with the
Reorganization. However, the Offerors do not control the timing
of the Offer, and there is no assurance that the completion of
the exchange will be completed in conjunction with the
Reorganization, particularly due to the fact that this Offer is
being conducted at the same time as other offers being conducted
by the Offerors. For example, if completion of the exchange
pursuant to the Offer is delayed, and the Offerors decide that
it is in their best interest to complete the Reorganization and
take up and pay for the shares deposited in connection with one
or more of the other Strategic Offers without completing the
exchange pursuant to the Offer at the same time, then the
subsequent completion of the exchange for Common Shares might
not qualify under section 351 of the Code.
In addition, if the exchange pursuant to the Offer is to satisfy
the requirements of section 351 of the Code, certain factual
circumstances and other conditions must exist. The Offerors have
assumed, or obtained representations supporting the
determination that, the necessary factual circumstances and
other conditions will exist. If these assumptions and
representations are not accurate, a U.S. holder of Common Shares
could recognize gain or loss on the exchange of Common Shares
for shares of common stock of New US Gold if the exchange does
not satisfy the requirements of section 351 of the Code.
If the exchange of Common Shares for shares of common stock of
New US Gold pursuant to the Offer satisfies the requirements of
section 351 of the Code, a U.S. holder of Common Shares will not
recognize gain or loss on such exchange. A U.S. holder’s
aggregate tax basis in the shares of common stock of New US Gold
received in the exchange will equal such holder’s aggregate
adjusted tax basis of the Common Shares surrendered. A U.S.
holder’s holding period in the shares of common stock of
New US Gold received in the exchange will include the period for
which the U.S. holder held the Common Shares. U.S. holders who
acquired multiple blocks of Common Shares at different times
should consult their tax advisors concerning the allocation of
basis and the holding period to the shares of common stock of
New US Gold received in the exchange pursuant to the Offer.
The foregoing discussion assumes that the Exchangeable Shares
should be treated as stock of Canadian Exchange Co., and not as
stock of New US Gold, for U.S. federal income tax
purposes. If the Exchangeable Shares are determined to be stock
of New US Gold for such purposes, the U.S. Internal
Revenue Service could take the position that the exchange of
Common Shares for shares of common stock of New US Gold
pursuant to the Offer does not satisfy the requirements of
section 351 of the Code. If such exchange does not satisfy
the requirements of section 351 of the Code, then the
exchange should be treated as a taxable transaction for
U.S. federal income tax purposes, and a
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U.S. holder should recognize gain or loss in an amount
equal to the difference between the fair market value of the
common stock of New US Gold received and the
U.S. holder’s adjusted tax basis in the Common Shares
surrendered.
Exchange of Common Shares for Exchangeable Shares and Ancillary
Rights
The exchange of Common Shares for Exchangeable Shares and
Ancillary Rights generally will not qualify as part of a
transaction satisfying the requirements of section 351 of the
Code unless, for U.S. federal income tax purposes, the
Exchangeable Shares and Ancillary Rights are collectively
treated as stock of New US Gold, the Common Shares are treated
as taken up and paid for by New US Gold rather than by Canadian
Exchange Co., and certain other requirements are satisfied. As
discussed above, although there is no direct authority
addressing the proper characterization and treatment of
instruments with characteristics similar to the Exchangeable
Shares and the Ancillary Rights for U.S. federal income tax
purposes, the Offerors intend to take the position that the
Exchangeable Shares should be treated as stock of Canadian
Exchange Co., and not stock of New US Gold, for U.S. federal
income tax purposes.
Assuming that the Exchangeable Shares should be treated as stock
of Canadian Exchange Co. for U.S. federal income tax purposes,
and not stock of New US Gold, U.S. holders of Common Shares who
receive Exchangeable Shares and Ancillary Rights should
recognize gain or loss equal to the difference between the
respective U.S. holder’s aggregate adjusted tax basis
in the Common Shares surrendered and the fair market value of
the Exchangeable Shares and Ancillary Rights received. Gain or
loss will be long-term capital gain or loss if the holding
period for the Common Shares surrendered is more than one year.
The amount and character of gain or loss will be computed
separately for each block of Common Shares disposed of in the
same transaction. The shares of common stock of New US Gold and
Ancillary Rights will have a tax basis equal to the fair market
value of such shares and rights, respectively, and will have a
holding period commencing on the day after completion of the
exchange pursuant to the Offer.
U.S. Federal Income Tax Consequences Arising from Holding the
Shares of Common Stock of New US Gold
Receipt of Distributions
Distributions, if any, paid with respect to shares of common
stock of New US Gold out of New US Gold’s current or
accumulated earnings and profits, as determined for U.S. federal
income tax purposes, will be taxable as dividend income to U.S.
holders. In the case of U.S. holders who are individuals, trusts
or estates, any such dividend income will be subject to tax at
the same preferential rates as net capital gains if the
applicable requirements are satisfied. To the extent that the
amount of any distribution exceeds New US Gold’s current
and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of
capital to the extent of the U.S. holder’s tax basis, and
any excess will be treated as capital gain.
Dispositions of Shares of Common Stock of New US Gold
Generally, a U.S. holder will recognize gain or loss on any
sale, exchange or other disposition of the shares of common
stock of New US Gold equal to the difference between the
U.S. holder’s adjusted tax basis in the shares of
common stock of New US Gold and the amount realized from the
sale, exchange or other disposition. Gain or loss will be
long-term capital gain or loss if the U.S. holder’s holding
period is more than one year. In the case of U.S. holders who
are individuals, trusts or estates, any such long-term capital
gain may be taxed at preferential rates. The deductibility of
losses may be subject to limitations.
U.S. Federal Income Tax Consequences Arising from Holding the
Exchangeable Shares.
Receipt of Distributions
As discussed above, the Offerors intend to take the position
that the Exchangeable Shares are shares of Canadian Exchange
Co., and not shares of New US Gold. Distributions, if any, paid
with respect to the Exchangeable Shares out of Canadian Exchange
Co.’s current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes, will be taxable
as dividend income to U.S. holders. Dividends paid with respect
to the Exchangeable Shares would only qualify for the lower tax
rates applicable to net capital gains if Canadian Exchange Co.
were treated as a “qualified foreign corporation” for
U.S. federal income tax purposes. To the extent that the amount
of any distribution exceeds Canadian Exchange Co.’s current
and accumulated earnings and profits for a taxable year, the
distribution will
72
first be treated as a tax-free return of capital to the extent
of the U.S. holder’s tax basis, and any excess will be
treated as capital gain. Subject to certain conditions and
limitations, Canadian income tax withheld on dividends with
respect to the Exchangeable Shares generally may be deducted in
determining a U.S. holder’s federal taxable income or
credited against a U.S. holder’s federal income tax
liability.
Dispositions of Exchangeable Shares
Generally, a U.S. holder will recognize gain or loss on any
sale, exchange or other disposition of the Exchangeable Shares,
including on the exercise of the retraction and redemption
rights and the call rights described under “Exchangeable
Shares — Description of Exchangeable Shares.” The
amount of gain or loss recognized will equal the difference
between the holder’s adjusted tax basis in the Exchangeable
Shares and the amount realized from the sale, exchange or other
disposition, unless the disposition transaction qualifies for
non-recognition treatment. Gain or loss will be long-term
capital gain or loss if the U.S. holder’s holding
period is more than one year. In the case of U.S. holders
who are individuals, trusts or estates, any such long-term
capital gain may be taxed at preferential rates. The
deductibility of losses may be subject to limitations.
Certain Passive Foreign Investment Company Considerations
If Canadian Exchange Co. were treated as a “passive foreign
investment company” for U.S. federal income tax purposes,
this could have potentially adverse U.S. tax consequences to
U.S. holders who dispose of or receive distributions with
respect to Exchangeable Shares, which consequences may be
different from the consequences discussed above under “U.S.
Federal Income Tax Consequences Arising from Holding the
Exchangeable Shares — Receipt of Distributions”
and under “U.S. Federal Income Tax Consequences Arising
from Holding the Exchangeable Shares — Dispositions of
Exchangeable Shares.” U.S. holders should consult their own
tax advisors with respect to the potential application of the
rules governing passive foreign investment companies.
U.S. Federal Income Tax Consequences of the Subsequent
Acquisition Transaction.
If Common Shares validly deposited under the Offer are taken up
and paid for, the Offerors currently intend to acquire, directly
or indirectly, all of the remaining outstanding Common Shares in
accordance with applicable law by way of a Subsequent
Acquisition Transaction. The U.S. federal income tax treatment
of a Subsequent Acquisition Transaction to a Shareholder will
depend upon the exact manner in which the Subsequent Acquisition
Transaction is carried out and may be materially less favorable
than would apply if Common Shares were deposited under the
Offer. For example, depending upon how the Subsequent
Acquisition Transaction is carried out, the Subsequent
Acquisition Transaction could be fully taxable to a U.S. holder.
Shareholders are encouraged to consult their own tax advisors
for advice with respect to the income tax consequences to them
of having their Common Shares acquired pursuant to a Subsequent
Acquisition Transaction.
U.S. Federal Income Tax Consequences to Non-U.S. Holders
of Common Shares
For purposes of this summary, the term non-U.S. holder means a
beneficial owner of Common Shares that is not treated as a
partnership for U.S. federal income tax purposes, and that is
not a U.S. holder. An entity that is classified as a partnership
for U.S. federal income tax purposes is neither a U.S. holder
nor a non-U.S. holder. The U.S. federal income tax treatment of
a partnership and its partners depends upon a variety of
factors, including the activities of the partnership and the
partners. Holders of Common Shares that are partnerships for
U.S. federal income tax purposes, and partners in any such
partnership, should consult their tax advisors concerning the
U.S. federal income tax consequences of the exchange of Common
Shares pursuant to the Offer and of owning and disposing of
Exchangeable Shares or shares of common stock of New US Gold.
As previously stated, this summary does not address the U.S.
federal income tax consequences to shareholders that are subject
to special rules. With respect to a shareholder who is a
non-U.S. holder, this summary also does not apply to a
shareholder that is affected by the provisions of an income tax
treaty to which the United States is a party, and does not
address currency exchange issues. Any non-U.S. holder that
may be subject to any of these tax rules is urged to consult his
or her own tax advisor to determine the tax consequences to him
or her of the exchange pursuant to the Offer.
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U.S. Federal Income Tax Consequences Arising from the
Exchange of Common Shares
Generally, subject to the discussion below, a non-U.S. holder
will not be subject to U.S. federal income tax on the income or
gain (if any) realized on the exchange of Common Shares for
Exchangeable Shares and Ancillary Rights or for shares of common
stock of New US Gold pursuant to the Offer, unless:
•
the income or gain is effectively connected with the conduct by
the non-U.S. holder of a trade or business, or, if a tax treaty
applies, attributable to a permanent establishment maintained by
the non-U.S. holder, in the United States; or
•
the non-U.S. holder is an individual who is present in the
United States for 183 days or more in the taxable year of
disposition and certain other conditions are met, unless an
applicable income tax treaty provides otherwise.
U.S. Federal Income Tax Consequences Arising from Holding the
Shares of Common Stock of New US Gold and the Exchangeable
Shares.
Receipt of Distributions on Shares of Common Stock of New US Gold
Dividends received by a non-U.S. holder with respect to shares
of common stock of New US Gold could be subject to U.S.
withholding tax at a rate of 30%. The withholding tax rate could
be reduced by an applicable income tax treaty in effect between
the United States and the non-U.S. holder’s country of
residence. For example, the withholding rate under the
Canada-United States tax treaty on dividends paid by a U.S.
corporation to residents of Canada is generally 15%. In
addition, (a) a non-U.S. holder will be taxed in the same
manner as a U.S. holder on dividends paid that are effectively
connected with the non-U.S. holder’s conduct of a trade or
business in the United States (unless otherwise provided in an
applicable treaty) and will not be subject to the U.S.
withholding tax provided that the non-U.S. holder provides the
proper certification, and (b) a corporate non-U.S. holder
may also be subject to an additional branch profits tax at a 30%
rate (or such lower rate as may be specified in an applicable
income tax treaty) on dividend income that is effectively
connected with a U.S. trade or business.
Receipt of Distributions on Exchangeable Shares
Assuming, as discussed above under “U.S. Federal Income Tax
Consequences to U.S. Holders of Common Shares —
Exchange of Common Shares for Exchangeable Shares and Ancillary
Rights,” that the Exchangeable Shares should be treated as
shares of Canadian Exchange Co. for U.S. federal income tax
purposes, rather than shares of common stock of New US Gold, and
that dividends paid on Canadian Exchange Co. shares do not
constitute U.S. source income, dividends received by a
non-U.S. holder with respect to the Exchangeable Shares should
not be subject to U.S. withholding tax. Based upon these
assumptions, neither Canadian Exchange Co. nor New US Gold
intends to withhold any U.S. tax from any dividends paid with
respect to the Exchangeable Shares. However, a non-U.S. holder
will be taxed in the United States on the receipt of such
dividends in the same manner as a U.S. holder if the
non-U.S. holder has an office or other fixed place of
business within the United States to which the dividend is
attributable and the dividend is derived in the active conduct
of a banking, financing or similar business within the United
States or is received by a corporation the principal business of
which is trading stock or securities for its account (unless
otherwise provided in an applicable treaty).
Dispositions of Shares of Common Stock of New US Gold or
Exchangeable Shares
Subject to the rules discussed below, a non-U.S. holder will not
be subject to U.S. federal income tax on gain (if any) realized
on the sale or exchange of Exchangeable Shares or on the sale or
exchange of shares of common stock of New US Gold, unless:
•
the gain is effectively connected with the conduct by the
non-U.S. holder of a trade or business, or, if a tax treaty
applies, attributable to a permanent establishment maintained by
the non-U.S. holder, in the United States;
•
in the case of sale or exchange of shares of common stock of New
US Gold, such non-U.S. holder is an individual who is present in
the United States for 183 days or more in the taxable year
of disposition and certain other conditions are met, unless an
applicable income tax treaty provides otherwise; or
74
•
in the case of sale or exchange of Exchangeable Shares (assuming
that such shares are not treated as shares of common stock of
New US Gold), such non-U.S. holder is an individual who is
present in the United States for 183 days or more in the
taxable year of disposition and certain other conditions are
met, unless an applicable income tax treaty provides otherwise.
Under the Foreign Investment in Real Property Tax Act of 1980
(“FIRPTA”), if New US Gold is treated as a “U.S.
real property holding corporation” (“USRPHC”) and
the requirements set forth below are satisfied, then gain or
loss recognized by a non-U.S. holder on the sale or exchange of
Exchangeable Shares or shares of common stock of New US Gold
will be subject to regular U.S. federal income tax, as if such
gain or loss were effectively connected with the conduct of a
U.S. trade or business by the holder. New US Gold will be
treated as a USRPHC if at any time during the shorter of
(x) the five-year period ending on the date of the sale or
exchange of Exchangeable Shares or shares of common stock of New
US Gold (as the case may be) or (y) the period during which
a holder held such Exchangeable Shares or shares of common stock
of New US Gold (as the case may be), the fair market value of
New US Gold’s United States real property interests equals
or exceeds 50% of the sum of the fair market values of all of
its interests in real property and all of its other assets used
or held for use in a trade or business (as defined in applicable
regulations). In the absence of additional knowledge about the
composition of assets of White Knight, and (to the extent the
other Strategic Offers are completed) the composition of the
assets of Coral Gold, Nevada Pacific and Tone Resources. It is
not possible to determine at this time whether New US Gold will
be treated as a USRPHC after the consummation of the proposed
transaction.
If New US Gold is treated as a USRPHC after the consummation of
the proposed transaction, gain or loss from the sale or exchange
of Exchangeable Shares or shares of common stock of New US Gold
will be subject to tax under FIRPTA in the following
circumstances:
•
In the case of a non-U.S. holder who owns only shares of common
stock of New US Gold (actually and constructively), the shares
of common stock of New US Gold are treated as “regularly
traded on an established securities market” and the
non-U.S. holder holds more than 5% of the total fair market
value of the shares of common stock of New US Gold outstanding
(on a non-diluted basis) at the relevant determination time;
•
In the case of a non-U.S. holder who owns only Exchangeable
Shares (actually and constructively, other than shares of common
stock of New US Gold constructively owned by reason of ownership
of Exchangeable Shares), either:
•
The Exchangeable Shares are treated as “regularly traded on
an established securities market” and such non-U.S. holder
holds more than 5% of the total fair market value of the
Exchangeable Shares outstanding at the relevant determination
time, or
•
The Exchangeable Shares are not treated as “regularly
traded on an established securities market,” but the shares
of common stock of New US Gold are “regularly traded on an
established securities market,” and such non-U.S. holder
holds Exchangeable Shares with a fair market value on the
relevant date of determination greater than 5% of the total fair
market value of the shares of common stock of New US Gold
outstanding (on a non-diluted basis) on such date;
•
In the case of a non-US holder who actually or constructively
owns shares of common stock of New US Gold or Exchangeable
Shares, such shares and Exchangeable Shares are not treated as
“regularly traded on an established securities market.”
The Offerors expect that the shares of common stock of New US
Gold will be traded on the AMEX and the TSX, and that the
Exchangeable Shares will be traded on the TSX. The AMEX and the
TSX should each be considered an “established securities
market” for FIRPTA purposes. The shares of common stock of
New US Gold generally will be considered to be
“regularly traded” on the AMEX for FIRPTA purposes for
any calendar quarter during which they are regularly quoted by
brokers or dealers making a market in such shares within the
meaning of applicable Treasury regulations. Since the Offerors
do not intend to register the Exchangeable Shares under
Section 12 of the U.S. Securities Exchange Act, it is
likely the Exchangeable Shares will not be considered
“regularly traded” on the TSX for FIRPTA purposes.
75
If income from the sale or exchange of Exchangeable Shares or
shares of common stock of New US Gold is subject to tax based on
FIRPTA, the transferee of such shares may be required to deduct
and withhold a tax equal to 10 percent of the amount
realized on the disposition, unless certain exceptions apply.
Any tax withheld may be credited against the U.S. federal income
tax owed by the non-U.S. holder for the year in which the sale
or exchange occurs.
The foregoing summary of the possible application of FIRPTA
rules to non-U.S. holders is only a summary of certain material
aspects of these rules. If at any time the Exchangeable Shares
are traded on an established securities market located in the
United States, different rules, not described herein, may apply.
Because the U.S. federal income tax consequences to a non-U.S.
holder under FIRPTA may be significant and are complex and
subject to uncertainty, non-U.S. holders are encouraged to
discuss those consequences with their tax advisors.
U.S. Federal Income Tax Consequences of the Subsequent
Acquisition Transaction
Generally, the U.S. federal income tax treatment of the
Subsequent Acquisition Transaction to a non-U.S. holder will be
the same as the treatment of the exchange of Common Shares for
Exchangeable Shares and Ancillary Rights or for shares of common
stock of New US Gold pursuant to the Offer, as described above
under “— U.S. Federal Income Tax Consequences
Arising From the Exchange of Common Shares.” Non-U.S.
holders of Common Shares should be aware that the benefits of
section 351 of the Code might not be available in connection
with the Subsequent Acquisition Transaction.
Backup Withholding and Information Reporting
Information returns may be filed with the U.S. Internal Revenue
Service in connection with payments on the shares of common
stock of New US Gold or Exchangeable Shares and the proceeds
from a sale or other disposition of such stock. Holders of
shares of common stock of New US Gold or Exchangeable Shares may
be subject to U.S. backup withholding tax on these payments
if they fail to provide their taxpayer identification numbers to
the paying agent and comply with certification procedures or
otherwise establish an exemption from backup withholding. The
amount of any backup withholding from a payment will be allowed
as a credit against the holder’s U.S. federal income tax
liability and may entitle the holder to a refund, provided that
the required information is timely furnished to the
U.S. Internal Revenue Service.
THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT LEGAL OR
TAX ADVICE. EACH SHAREHOLDER IS ENCOURAGED TO CONSULT ITS OWN
TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF PARTICIPATING
IN THE OFFER AND TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF EXCHANGEABLE SHARES OR SHARES OF COMMON STOCK OF
NEW US GOLD, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR NON-U.S. TAX LAWS, AND OF ANY PROPOSED CHANGES
IN APPLICABLE LAWS.
17.
Comparison of Shareholder Rights
Upon completion of the Offer and a Subsequent Acquisition
Transaction, Shareholders will become shareholders of New US
Gold, rather than shareholders of White Knight. Since New US
Gold is a Delaware corporation, the rights of the shareholders
of New US Gold are governed by the applicable laws of the State
of Delaware, including the Delaware Law, and by New US
Gold’s articles of incorporation and bylaws. Since White
Knight was incorporated in the Province of British Columbia, the
rights of shareholders of White Knight are governed by the
BCBCA, and other laws of Canada, and by White Knight’s
articles and by-laws.
Although the rights and privileges of shareholders of a British
Columbia corporation are in many instances comparable to those
of shareholders of a Delaware corporation, there are a number of
differences. The following is a summary of the material
differences in the rights of Shareholders and New US Gold
shareholders. These differences arise from the differences
between the BCBCA and the Delaware Law and between White
Knight’s notice of articles and articles and New US
Gold’s certificate of incorporation and bylaws, as both
documents will be amended and restated in the Reorganization.
This summary is not intended to be complete and the statements
in this section are qualified in their entirety by reference to,
and are subject to, the detailed provisions of the BCBCA, the
Delaware Law, the notice of articles and articles of White
Knight and New US Gold’s certificate of incorporation,
as amended and
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restated in connection with the Reorganization, and bylaws, as
amended and restated in connection with the Reorganization.
Authorized Capital Stock
White Knight
The authorized capital share structure of White Knight is an
unlimited number of common shares without par value.
New US Gold
The authorized capital stock of New US Gold will be a total of
250,000,001 shares consisting of 250,000,000 shares of
common stock, par value $0.0001 per share, and 1 share of
preferred stock, par value $0.0001 per share. The share of
preferred stock will be designated the “Special Voting
Share.”
Dividends
White Knight
Dividends may be declared at the discretion of the White Knight
board of directors, subject to the rights, privileges,
restrictions and conditions attaching to any other class of
shares of White Knight. Dividends may be paid in cash, assets of
White Knight, shares, bonds, debentures or other securities of
White Knight, or in any one or more of those ways.
New US Gold
New US Gold’s amended and restated bylaws will provide
that, subject to the certificate of incorporation and pursuant
to the Delaware Law, the board of directors may declare
dividends. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the certificate of
incorporation and the Delaware Law.
Sources of Dividends
White Knight
Under the BCBCA, White Knight may declare and pay dividends out
of profits, capital or otherwise unless there are reasonable
grounds for believing that White Knight is, or would after such
payment be, insolvent.
New US Gold
Dividends may be paid by a Delaware corporation out of:
•
surplus; or
•
in case there is no surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the
preceding fiscal year, except, dividends may not be paid out of
net profits when the capital is diminished to an amount less
than the aggregate amount of capital represented by issued and
outstanding stock having a preference on the distribution of
assets.
Size of the Board of Directors
White Knight
The BCBCA provides that a public corporation must have at least
three directors.
White Knight’s articles provide that the number of
directors may be determined by the shareholders from time to
time by ordinary resolution.
Under the BCBCA and White Knight’s articles, the directors
may appoint a person as a director either to fill a casual
vacancy on the board of directors or as an addition to the board
of directors. The number of additional directors so appointed,
however, cannot at any time exceed one-third of the number of
directors elected or appointed at the last
77
annual general meeting of shareholders. Any director so
appointed shall hold office only until the commencement of the
next annual general meeting, but shall be eligible for election
at such meeting.
New US Gold
The Delaware Law provides that a corporation’s board must
consist of one or more members and that the number of directors
shall be fixed by, or in the manner provided in, the
corporation’s bylaws, unless the certificate of
incorporation fixes the number of directors, in which case a
change in the number of directors may be made only by amendment
to the certificate of incorporation.
New US Gold’s amended and restated certificate of
incorporation and bylaws will provide that the number of
directors shall be specified by the Board of Directors, provided
that the number shall be not less than five nor more than twelve.
Classification of the Board of Directors
White Knight
Neither White Knight’s articles nor the BCBCA provide for
classes of directors.
New US Gold
The Delaware Law provides that the directors of a corporation
may be divided into one, two or three classes and that the
classes may have staggered terms.
New US Gold’s amended and restated certificate of
incorporation and bylaws will provide that the New US Gold board
of directors is not divided into classes. All directors will be
elected each year at the annual meeting of the corporation.
Cumulative Voting
White Knight
Neither White Knight’s articles nor the BCBCA provide for
cumulative voting.
New US Gold
The Delaware Law permits cumulative voting, but New US
Gold’s amended and restated certificate of incorporation
will not provide for cumulative voting.
Removal and Retirement of Directors
White Knight
Under the BCBCA, a director may be removed before the expiration
of his or her term by a special resolution (see “Required
Vote for Certain Transactions”) or, if the articles of the
corporation permit, by a resolution of less than a special
majority or other method.
White Knight’s articles provide that the shareholders may
by special resolution remove any director and by ordinary
resolution either appoint another person in his or her stead, or
authorize the directors to do so.
White Knight’s articles state that at each annual general
meeting, all of the directors shall retire (but be eligible for
re-election) and the shareholders shall subsequently elect a
board of directors. If in any calendar year White Knight does
not hold an annual general meeting, the directors appointed at
the last annual general meeting shall be deemed to have been
elected or appointed as directors on the last day of which the
meeting could have been held pursuant to the BCBCA and the
directors so appointed or elected may hold office until other
directors are appointed or elected or until the day on which the
next annual general meeting is held.
78
New US Gold
The amended and restated certificate of incorporation will
provide that any director may generally be removed, with or
without cause, by the affirmative vote of a majority of the
shares then entitled to vote at an election of directors.
New US Gold’s amended and restated certificate of
incorporation and amended and restated bylaws will provide that
each director elected shall hold office until such
director’s successor is elected and qualified or until such
director’s earlier resignation or removal.
Filling Vacancies on the Board of Directors
White Knight
Under the BCBCA and White Knight’s articles, the directors
may appoint a person as a director either to fill a casual
vacancy on the board of directors or as an addition to the
board. The number of additional directors so appointed, however,
cannot at any time exceed one-third of the number of directors
elected or appointed at the last annual general meeting of
shareholders. Any director so appointed shall hold office only
until the commencement of the next following annual general
meeting, but shall be eligible for election at such meeting.
New US Gold
New US Gold’s amended and restated certificate of
incorporation will provide that if any vacancy occurs on the
board caused by the death, resignation, retirement,
disqualification or removal from office of any director, a
majority of the directors then in office, even if less than a
quorum, may choose the successor or fill the newly created
directorship. If any new directorship is created by any increase
in the authorized number of directors, either a majority of the
directors then in office or the shareholders may elect the
successor. The director so chosen will hold office until the
next annual election of that director’s class and until
such director’s successor is duly elected and qualified or
until such director’s earlier resignation or removal.
Quorum of Directors
White Knight
White Knight’s articles provide that a quorum shall be a
majority of the board of directors, or such number of directors
as may be determined from time to time by resolution of the
directors.
New US Gold
New US Gold’s amended and restated bylaws will provide that
a majority of directors then in office constitutes a quorum.
However, if less than a majority of the directors then in office
are present, a majority of the directors present may adjourn the
meeting from time to time without further notice.
Required Vote for Certain Transactions
White Knight
Under the BCBCA, certain extraordinary corporate actions, such
as continuances, certain amalgamations, sales, leases or other
dispositions of all, or substantially all of, the property of a
corporation (other than in the ordinary course of business),
liquidations, dissolutions and certain arrangements, are
required to be approved by special resolution of the
shareholders.
For White Knight, a special resolution means a resolution passed
at a general meeting by a majority of at least two-thirds of the
votes cast on the resolution, or a resolution passed by being
consented to in writing by all of the shareholders holding
shares that carry the right to vote at general meetings.
In certain cases, an action that prejudices or interferes with a
right or special right attached to issued shares of a class or
series of shares must be approved separately by the holders of
the class or series of shares being affected.
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New US Gold
To effect a merger under the Delaware Law, a corporation’s
board of directors must approve and adopt an agreement of merger
and recommend it to the stockholders. The agreement must be
adopted by holders of a majority of the outstanding shares of
the corporation entitled to vote thereon unless the certificate
of incorporation requires a greater vote. New US Gold’s
amended and restated certificate of incorporation does not
require a greater vote. Under the Delaware Law, the sale, lease
or exchange of all or substantially all of a Delaware
corporation’s property or assets requires the approval of
the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon.
Calling a Meeting of Shareholders
White Knight
Under the White Knight articles, the directors have the power at
any time to call special meetings of shareholders.
Under the BCBCA, the holders of not less than 5% of the issued
shares of a corporation that carry the right to vote at a
general meeting may requisition the directors to call a meeting
of shareholders. Upon meeting the technical requirements set out
in the BCBCA for making such a requisition, the directors of the
corporation must call a meeting of shareholders, the meeting to
be held not more than four months after receiving the
requisition. If the directors do not call such meeting within
21 days after receiving the requisition, the requisitioning
shareholders or any of them holding in aggregate not less than
2.5% of the issued shares of the corporation that carry the
right to vote at general meetings may call the meeting.
New US Gold
Under the Delaware Law, a special meeting of stockholders may be
called only by a corporation’s board of directors or such
person or persons as may be authorized in the certificate of
incorporation or bylaws. New US Gold’s amended and restated
bylaws will provide that a special meeting of New US Gold
stockholders may be called at any time by the President, by the
Chairman of the Board, by a majority of the board of directors
or upon written demand by stockholders holding 10% or more of
all the votes entitled to be cast on any issue proposed to be
considered at the meeting.
Quorum of Shareholders
White Knight
The BCBCA provides that a quorum for the transaction of business
at any general meeting is the quorum established by a
corporation’s articles, or if no quorum is established by
the articles, two shareholders entitled to vote at the meeting
whether present in person or by proxy.
White Knight’s articles provide that a quorum for the
transaction of business at any general meeting of shareholders
is two shareholders or proxyholders representing two
shareholders, or one shareholder and a proxyholder representing
another shareholder, in both cases personally present at the
commencement of the meeting and holding or representing by proxy
in the aggregate not less than 5% of the issued shares of a
class of shares the holders of which are entitled to attend and
vote at such meeting.
If within one half hour from the time appointed for a general
meeting a quorum is not present, the general meeting, if
convened by requisition of the shareholders, shall be dissolved.
In any other case the meeting shall stand adjourned to the same
day in the next week at the same time and place. If at such
adjourned meeting a quorum is not present within one half hour
from the time appointed, the person or persons present and being
or representing by proxy, a shareholder or shareholders entitled
to attend and vote at the meeting shall constitute a quorum.
New US Gold
New US Gold’s amended and restated bylaws will provide that
the holders of a one-third of the New US Gold stock issued and
outstanding and entitled to vote at the meeting, present in
person or represented by proxy, constitutes a quorum at any
meeting of New US Gold stockholders, except as otherwise
provided by statute or by New US Gold’s certificate of
incorporation.
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Notice of Meeting of Shareholders
White Knight
Under the BCBCA, notices of the date, time and place of a
general meeting of shareholders must be sent not less than
21 days nor more than two months before the meeting to each
director and to each shareholder entitled to attend the meeting.
New US Gold
The Delaware Law provides that, whenever stockholders are
required or permitted to take any action at a meeting, a written
notice of the meeting stating, among other things, the place,
date and hour of the meeting must be given not less than ten nor
more than 60 days before the date of the meeting to each
stockholder entitled to vote at the meeting. The Delaware Law
further provides that if the meeting will entail consideration
of a transaction that could result in appraisal rights, notice
shall be given at least 20 days prior to the meeting, shall
state that appraisal rights may be available, and include a copy
of the pertinent statutory section.
New US Gold’s amended and restated bylaws will provide that
written notice stating the place, day, hour and purpose of the
meeting, must be delivered not less than 10 nor more than
60 days before the date of the meeting, either by mail or
electronic transmission consented to by the stockholder, except
where the matter to be acted on is a merger or consolidation of
New US Gold or a sale, lease or exchange of substantially all of
its assets, in which case notice shall be given not less than 20
nor more than 60 days prior to the meeting.
Consistent with the Delaware Law, New US Gold’s
amended and restated bylaws do not include a separate notice
period if the authorized shares of New US Gold are to be
increased. Under the Delaware Law, if a shareholder meeting is
adjourned for more than 30 days (in which case a new record
date is to be fixed by the board of directors of
New US. Gold), notice shall be given to record holders
as of the new record date.
Record Date for Notice of Meetings of Shareholders
White Knight
The BCBCA provides that the directors may fix in advance a date
as the record date for the determination of shareholders
entitled to receive notice of and vote at a meeting of
shareholders, but such record date shall not precede by more
than two months, or four months in the case of a meeting
requisitioned by shareholders, or by less than 21 days the
date on which the meeting is to be held. If no record date is
fixed, the record date for the determination of shareholders
entitled to receive notice of a meeting of shareholders shall be
at 5:00 p.m. on the day immediately preceding the day on
which the notice is given or, if no notice is given, the
beginning of the meeting.
White Knight’s articles provide that the record date for
the determination of shareholders entitled to receive notice and
vote at a meeting of shareholders shall not be more than two
months or, in the case of a general meeting requisitioned by the
shareholders under the BCBCA, not more than four months before
the date of the meeting. If no record date is fixed, the record
date for the determination of those shareholders entitled to
notice and to vote at such meeting is deemed to be the date on
which the notice calling the meeting is mailed.
New US Gold
The Delaware Law does and New US Gold’s amended and
restated bylaws will provide that, for the purposes of
determining the stockholders entitled to notice of and to vote
at any stockholder meeting, the board of a corporation may fix a
record date that does not precede the date upon which the
resolution fixing the record date is adopted by the board and
that is not more than 60 nor less than ten days before the date
of the meeting. The Delaware Law does and New US Gold’s
amended and restated bylaws will further provide that if no
record date is fixed, the record date shall be the close of
business on the day next preceding the date on which notice of
the meeting is given, or if notice is waived, then the close of
business on the day next preceding the date on which the meeting
is held.
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Proxies
White Knight
The BCBCA provides that, unless the articles provide otherwise,
a shareholder is entitled to vote by proxy.
White Knight’s articles provide that a shareholder holding
more than one share in respect of which he is entitled to vote
shall be entitled to appoint a proxyholder to attend, act and
vote for him on the same occasion.
A corporation, not being a subsidiary of White Knight, that is a
shareholder may vote by its proxyholder or by its duly
authorized representative. Such proxyholder or duly authorized
representative is entitled to speak, vote, and in all other
respects exercise the rights of a shareholder and shall be
deemed to be a shareholder for all purposes in connection with
any general meeting of White Knight.
A proxy or an instrument appointing a duly authorized
representative of a corporation may be sent to White Knight by
written instrument, fax or any other method of transmitting
legibly recorded messages.
The instrument appointing a corporate representative must be
deposited at the registered office of White Knight or at such
other place as is specified for that purpose in the notice
calling the meeting two business days, or such other time period
as is set out in the notice calling the meeting, before the time
for holding the meeting at which the person named in the proxy
proposes to vote, or must be deposited with the chairman of the
meeting prior to the time the proxy is to be used.
New US Gold
The Delaware Law provides that each stockholder entitled to vote
at a stockholder meeting or to express consent or dissent to
corporate action in writing without a meeting may authorize
another person or persons to act for the stockholder by proxy,
but no proxy may be voted or acted upon after three years from
its date unless the proxy provides for a longer period.
New US Gold’s amended and restated bylaws will provide
that, at all meetings of stockholders, a stockholder may vote by
proxy if the proxy is properly submitted by the stockholder or
the stockholder’s authorized attorney in fact. No proxy
shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy The proxy must
be filed with the corporate secretary of New US Gold before or
at the time of the meeting. Unless and until voted, each proxy
is revocable, unless an irrevocable proxy permitted by statute
has been given.
A stockholder may authorize another person or persons to act for
him as proxy in any manner, including, by executing a writing
authorizing another person or persons to act for him as proxy,
or transmitting or authorizing the transmission of a telephone,
telegram, cablegram, or other means of electronic transmission
to the person who will be the holder of the proxy or to a proxy
solicitation firm or other similar agent duly authorized by the
person who will be the holder of the proxy to receive such
transmission.
Amendment of Constating Documents
White Knight
Under the BCBCA, any amendment to the notice of articles or
articles generally requires approval by special resolution, as
described above, of the shareholders.
In the event that an amendment to the articles would prejudice
or interfere with a right or special right attached to issued
shares of a class or series of shares, such amendment must be
approved separately by the holders of the class or series of
shares being affected.
New US Gold
The Delaware Law provides that a corporation may amend its
certificate of incorporation if its board has adopted a
resolution setting forth the amendment proposed and declared its
advisability, followed by the affirmative votes of a majority of
the outstanding shares entitled to vote on the amendment and a
majority of the outstanding shares of each class entitled to
vote on the amendment as a class.
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New US Gold’s amended and restated certificate of
incorporation provides that it may be amended in a manner
consistent with the Delaware Law and any other applicable
provisions of the amended and restated certificate of
incorporation.
New US Gold’s authorized share structure includes one share
of preferred stock which will be designated as the Special
Voting Share.
The Delaware Law provides that the stockholders entitled to vote
have the power to adopt, amend or repeal by-laws. A corporation
may also confer, in its certificate of incorporation, such power
upon the board.
New US Gold’s amended and restated certificate of
incorporation will empower the board to make and amend the
bylaws, provided that such bylaws may be amended or repealed by
the board or by the shareholders.
New US Gold’s amended and restated bylaws will allow the
board of directors to amend the bylaws without obtaining
stockholder approval. If the stockholders wish to amend the
bylaws, the bylaws generally require the affirmative vote of at
least a majority of the outstanding shares to amend the bylaws.
Dissent or Appraisal Rights
White Knight
The BCBCA provides that shareholders of a corporation are
entitled to exercise dissent rights in respect of certain
matters and to be paid the fair value of their shares in
connection therewith. The dissent right is applicable where the
corporation resolves to:
•
alter its articles to alter the restrictions on the powers of
the corporation or on the business it its permitted to carry on;
•
approve certain amalgamations;
•
approve an arrangement, where the terms of the arrangement
permit dissent;
•
sell, lease or otherwise dispose of all or substantially all of
its undertaking; or
•
continue the corporation into another jurisdiction.
New US Gold
The Delaware Law provides that a holder of shares of any class
or series has the right, in certain circumstances, to demand an
appraisal of the fair value of his or her shares. The Delaware
Law grants these appraisal rights only in the case of mergers or
consolidations and not in the case of a sale or transfer of
assets or a purchase of assets for stock. Further, no appraisal
rights are available for shares of any class or series that is
listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 stockholders, unless the
agreement of merger or consolidation requires the holders to
accept for their shares anything other than:
•
shares of stock of the surviving corporation;
•
shares of stock of another corporation that are either listed on
a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 stockholders;
•
cash in lieu of fractional shares of the stock described in the
two preceding bullets; or
•
any combination of the above.
In addition, appraisal rights are not available to holders of
shares of the surviving corporation if the merger did not
require the vote of the stockholders of the surviving
corporation.
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Oppression Remedy
White Knight
Under the BCBCA, a registered or beneficial shareholder may
apply to the court for an order on the grounds that:
•
the affairs of the corporation are or have been conducted, or
the powers of the directors are being or have been exercised, in
a manner oppressive to one or more of the shareholders,
including the applicant; or
•
some act of the corporation has been done or is threatened, or
that some resolution of the shareholders or of the shareholders
holding shares of a class or series of shares has been passed or
is proposed, that is unfairly prejudicial to one or more of the
shareholders, including the applicant.
The court is entitled to make any order it sees fit under the
circumstances, including an order prohibiting a corporation from
taking a proposed action or an order to vary or set aside a
transaction.
New US Gold
The Delaware Law does not provide for a similar remedy. However,
the Delaware courts have developed rules of fiduciary duty that
could be invoked to provide similar relief to minority
stockholders under certain circumstances.
Shareholder Derivative Actions
White Knight
Under the BCBCA, a beneficial or registered shareholder or
director of White Knight, may, with leave of the court, and in
the name and on behalf of White Knight:
•
prosecute a legal proceeding to enforce a right, duty or
obligation owed to White Knight that could be enforced by White
Knight itself, or to obtain damages for any breach of such a
right, duty or obligation; or
•
defend a legal proceeding brought against White Knight.
Under the BCBCA, the court may grant leave on terms it considers
appropriate, if:
•
the complainant has made reasonable efforts to cause the
directors of the corporation to prosecute or defend the legal
proceeding;
•
notice of the application for leave has been given to the
corporation and to any other person the court may order;
•
the complainant is acting in good faith; and
•
it appears to the court that it is in the best interests of the
corporation for the legal proceeding to be prosecuted or
defended.
Under the BCBCA, the court in a derivative action may make any
order it considers appropriate.
New US Gold
Under the Delaware Law, New US Gold stockholders may bring
derivative actions on behalf of, and for the benefit of, New US
Gold. The plaintiff in a derivative action on behalf of New US
Gold either must be or have been a stockholder of New US Gold at
the time of the transaction of which the stockholder complains
or must be a stockholder who received shares of common stock of
New US Gold automatically due to the transaction. A stockholder
may not sue derivatively on behalf of New US Gold unless the
stockholder first makes demand on New US Gold that it bring suit
and such demand is refused, unless it is shown that such a
request would not likely succeed.
Inspection of Shareholders List
White Knight
Each shareholder of a corporation may inspect the register of
securities of the corporation by following the procedures and
meeting certain conditions set forth in the BCBCA.
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New US Gold
Under the Delaware Law, any record or beneficial shareholder of
New US Gold may, upon five days’ written demand, inspect
the list of shareholders and certain other corporate records,
including minutes of the meetings of board of directors of New
US Gold.
Advance Notice Provisions for Shareholder Nominations and
Proposals
White Knight
Neither the BCBCA nor White Knight’s notice of articles or
articles contain any provision regarding the nomination of
directors.
Under the BCBCA, a registered or beneficial shareholder may
provide to a corporation written notice setting out a matter
that the submitter wishes to have considered at the next annual
general meeting of the corporation.
To be eligible to submit a proposal, a shareholder must be the
registered or beneficial holder of, or have the support of the
registered or beneficial holders of, (a) at least 1% of the
total number of issued voting shares of the corporation or
(b) shares whose fair market value is at least Cdn $2,000.
The shareholders must have been a registered or beneficial owner
of one or more of the corporation’s voting shares for an
uninterrupted period of at least two years before the date of
the signing of the proposal.
A proposal under the BCBCA must include the name and address of
the person submitting the proposal, the names and addresses of
the person’s supporters (if applicable), the number of
voting shares of the corporation owned by the person and the
registered owner of those shares.
If the proposal is submitted at least three months before the
anniversary date of the previous annual meeting of shareholders,
and the proposal meets other specified requirements, the
corporation shall set out the proposal in the notice of meeting
and proxy statement of the corporation. In addition, the
corporation shall include in the notice of meeting and proxy
statement a statement in support of the proposal by the person,
if any, and the name and address of the person. If a corporation
refuses to include a proposal in the proxy statement, then the
corporation must notify the person in writing within
21 days of its receipt of the proposal of its intention to
omit the proposal and the reasons therefore. In any such event,
the person submitting the proposal may make application to a
court for a review of the corporation’s decision, and a
court may restrain the holding of the meeting and make any
further order it sees fit. In addition, a corporation may apply
to a court for an order permitting the corporation to omit the
proposal from the proxy statement, and the court may make such
order as it thinks fit.
New US Gold
New US Gold’s amended and restated bylaws will provide
that, subject to any special rights of any holders of preferred
stock, nominations for the election of directors may be made by
the board, a committee appointed by the board or any New US Gold
stockholder entitled to vote in the election of directors
generally if at least 90 days’ notice is provided.
Written notice of stockholder proposals and director nominations
must be timely delivered in writing to New US Gold. Notice is
timely if it is received by New US Gold not less than
90 days nor more than 120 days prior to the first
anniversary of the preceding year’s annual stockholder
meeting or, in the event of a special meeting or an annual
meeting called for a date not within 30 days of such
anniversary date, the stockholder must provide notice within
10 days of announcement of the meeting date.
Each notice relating to nominations of directors must include:
•
the name, age, principal occupation or employment, business
address and residence address of the stockholder and the person
or persons to be nominated;
•
the class and number of shares of stock held of record, owned
beneficially and represented by proxy by the stockholder and by
the person or persons to be nominated as of the date of the
notice;
85
•
a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons
(naming the person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder;
•
any other information regarding each nominee proposed by the
stockholder required pursuant to the U.S. Securities
Exchange Act; and
•
the consent of each nominee to serve as a director of the
corporation if so elected.
Each notice relating to a proposed item of business must set
forth:
•
a description of the proposed item of business and the reasons
for conducting such business at the annual meeting;
•
the name and record address of the stockholder who proposes to
bring the item of business;
•
the class and number of shares of stock held of record, owned
beneficially and represented by proxy by the stockholder as of
the date of such notice;
•
any material interest of the stockholder in such proposed
business; and
•
all other information that is required to be provided by the
stockholder pursuant to regulations promulgated under the
U.S. Securities Exchange Act.
Shareholder Action by Written Consent
White Knight
Under the BCBCA, shareholder action without a meeting may be
taken by written resolution signed by all shareholders who would
be entitled to vote on the relevant issue at a general meeting.
New US Gold
New US Gold’s amended and restated bylaws will permit
stockholder action by written consent in lieu of a meeting if
all stockholders entitled to vote thereon consent to such action
in writing.
Indemnification of Directors and Officers
White Knight
Under the BCBCA, a corporation may indemnify an individual who:
•
is or was a director or officer of the corporation;
•
is or was a director or officer of another corporation,
(i) at the time when the corporation is or was an affiliate
of the corporation, or, (ii) at the request of the
corporation; or
•
at the corporation’s request, is or was, acting in a
similar capacity of another entity, against a judgment, penalty
or fine awarded or imposed in, or an amount paid in settlement
of any legal proceeding or investigative action, whether
current, threatened, pending or completed, in which such
eligible party is involved because of that association with the
corporation or other entity.
However, indemnification is prohibited if:
•
such eligible party did not act honestly and in good faith with
a view to the best interests of such corporation (or the other
entity, as the case may be); and
•
in the case of a proceeding other than a civil proceeding, such
eligible party did not have reasonable grounds for believing
that such person’s conduct was lawful.
A corporation may not indemnify or pay the expenses of an
eligible party in respect of an action brought against an
eligible party by or on behalf of the corporation.
The BCBCA allows for the corporation to pay, as they are
incurred in advance of a final disposition of a proceeding, the
expenses actually and reasonably incurred by the eligible party,
provided that, the corporation receives
86
from such eligible party an undertaking to repay the amounts
advanced if it is ultimately determined that such payment is
prohibited.
Despite the foregoing, on application of a corporation or
eligible party, a court may:
•
order a corporation to indemnify an eligible party in respect of
an eligible proceeding;
•
order a corporation to pay some or all of the expenses incurred
by an eligible party in an eligible proceeding;
•
order enforcement of or any payment under an indemnification
agreement;
•
order the corporation to pay some or all of the expenses
actually and reasonably incurred by a person in obtaining the
order of the court; and/or
•
make any other order the court considers appropriate.
The BCBCA provides that a corporation may purchase and maintain
insurance for the benefit of an eligible party (or their heirs
and personal or other legal representatives of the eligible
party) against any liability that may be incurred by reason of
the eligible party being or having been a director or officer,
or in an equivalent position of, the corporation or an
associated corporation.
White Knight’s articles require White Knight to indemnify
directors of White Knight, former directors of White Knight or
alternate directors of White Knight and their heirs and legal
personal representative against all costs, charges and expenses
reasonably incurred (including amounts paid to settle an action
or satisfy a judgment) in respect of any civil, criminal,
administrative, investigative or other proceeding threatened,
pending or completed in which they are a party or threatened to
be made a party because of their association with White Knight
or the other entity. White Knight’s articles also provide
that White Knight may indemnify any person.
New US Gold
The Delaware Law provides that a corporation may indemnify its
present and former directors, officers, employees and agents (as
well as any individual serving with another corporation in such
capacity at the corporation’s request) against, except in
actions initiated by or in the right of the corporation, all
reasonable expenses (including attorneys fees), judgments, fines
and amounts paid in settlement of actions or reasonably incurred
in connection with an action brought against them, if such
individuals acted in good faith and in a manner that they
reasonably believed to be in, or not opposed to, the best
interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe their conduct was
unlawful.
A corporation may not indemnify a current or former director or
officer of the corporation against expenses to the extent that
such person is adjudged to be liable to the corporation unless
and only to the extent that the court in which such action is
brought determines that such person is fairly and reasonably
entitled to indemnity. A corporation shall indemnify such person
to the extent they are successful on the merits or otherwise in
defense of the action or matter at issue.
In addition, the Delaware Law allows for the advance payment of
expenses of an officer or director who is indemnified prior to
the final disposition of an action, provided that, in the case
of a current director or officer, such person undertakes to
repay any such amount advanced if it is later determined that
such person is not entitled to indemnification with regard to
the action for which the expenses were advanced.
New US Gold’s amended and restated certificate of
incorporation will require New US Gold to indemnify
the directors and officers of New US Gold to the fullest extent
authorized by the Delaware Law against all expenses (including
attorneys’ fees), judgments fines and amounts paid in
settlement, in respect of all matters referred to or covered by
Section 145 of the Delaware Law; provided, however,
New US Gold shall not indemnify any director or
officer in connection with any action against
New US Gold initiated by such director or officer
without prior approval of New US Gold’s board of
directors.
New US Gold’s amended and restated bylaws will
provide that New US Gold shall indemnify any person who was or
is a director or officer of New US Gold who is made or
threatened to be made a party to any action, suit or proceeding
by reason of the fact that such person is or was a director or
officer of New US Gold (or is or was serving at the
request of New US Gold as a director, officer,
employee or agent of another entity) against expenses (including
attorney’s fees), judgment, fines, and amounts paid in
settlement reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good
faith and in a manner he or she reasonably believed to be in
87
or not opposed to the best interests of New US Gold,
and, with respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful.
New US Gold’s amended and restated bylaws will
provide that New US Gold may indemnify any person who is made or
threatened to be made a party to any action, suit or proceeding
by reason of the fact that such person is or was an employee or
agent of New US Gold or while not serving as a
director or officer of New US Gold (or is or was
serving at the request of New US Gold as a director,
officer, employee or agent of another entity) against expenses
(including attorneys’ fees), judgment, fines, and amounts
paid in settlement reasonably incurred by such person in
connection with such action, suit or proceeding if such person
acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of
New US Gold, and, with respect to any criminal action
or proceeding, had no reason to believe such conduct was
unlawful.
New US Gold’s amended and restated bylaws will also provide
that expenses incurred in defending any action, suit or
proceeding by any person by reason of the fact that such person
was or is a director or officer of New US Gold shall be paid by
New US Gold in advance of the final disposition, provided that
New US Gold shall first receive an undertaking by or
on behalf of such person to repay the advanced amount if it is
ultimately determined that such person is not entitled to
indemnification by New US Gold.
New US Gold’s amended and restated bylaws will also provide
that expenses incurred in defending any action suit or
proceeding by any person by reason of he fact that such person
is or was an employee or agent of New US Gold or while not
serving as a director or officer of New US Gold may, in the
discretion of New US Gold, be paid by New US Gold in advance of
the final disposition upon such terms and conditions as New US
Gold deems appropriate.
New US Gold’s amended and restated bylaws will provide that
New US Gold may purchase and maintain insurance against
liability asserted against or incurred by any of the persons
referred to in the paragraphs above whether or not it would have
the power to indemnify them against such liability under the
Delaware Law.
Director Liability
White Knight
Under the BCBCA, directors of a corporation who vote for or
consent to a resolution that authorizes the corporation to do
any of the following are jointly and severally liable to restore
to the corporation any amount paid or distributed as a result
and not otherwise recovered by the corporation:
•
carry on its business or exercise any power that it is
restricted by its articles from carrying on or exercising;
•
pay a commission or allow a discount contrary to the provisions
of the BCBCA;
•
pay a dividend or acquire or redeem any of its shares where
there are reasonable grounds for believing that the corporation
is insolvent or the payment of the dividend or the acquisition
or redemption would render the corporation insolvent; or
•
indemnify a person in contravention of the BCBCA.
A director is not liable for the foregoing if the director
relied, in good faith, on:
•
financial statements of the corporation represented to the
director by an officer of the corporation or in a written report
of the auditor of the corporation to fairly reflect the
financial position of the corporation;
•
a written report of a lawyer, accountant, engineer, appraiser or
other person whose profession lends credibility to a statement
made by that person;
•
a statement of fact represented to the director by an officer of
the corporation to be correct; or
•
any record, information or representation that the court
considers provides reasonable grounds for the actions of the
director, whether or not that record was forged, fraudulently
made or inaccurate.
Furthermore, a director is not liable if the director did not
know and could not reasonably have known that the act done by
the director or authorized by the resolution voted for or
consented to by the director was contrary to the BCBCA.
88
New US Gold
New US Gold’s amended and restated certificate of
incorporation provides that directors shall not be personally
liable to New US Gold or its stockholders for monetary damages
for breach of fiduciary duty, except as prohibited by the
Delaware Law, as follows:
•
for any breach of the director’s duty of loyalty to New US
Gold or its stockholders;
•
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
•
for unlawful dividends under the Delaware Law; or
•
for any transaction from which the director derived an improper
personal benefit.
Interested Shareholder Transactions
White Knight
The BCBCA does not contain a provision comparable to
Section 203 of the Delaware Law with respect to business
combinations. However, rules or policies of certain Canadian
securities regulatory authorities, including OSC
Rule 61-501 and
AMF
Regulation Q-27,
contain requirements in connection with “related party
transactions.” A related party transaction means,
generally, any transaction by which an issuer, directly or
indirectly, completes one or more specified transactions with a
related party including purchasing or disposing of an asset,
issuing securities and assuming liabilities. A “related
party” is defined in OSC Rule 61-501 and AMF
Regulation Q-27 and includes directors and senior officers of
the issuer and holders of voting securities carrying more than
10% of the voting rights attaching to all issued and outstanding
voting securities or of a sufficient number of any securities of
the issuer to materially affect control of the issuer.
OSC Rule 61-501 and AMF Regulation Q-27 require more
detailed disclosure in the proxy material sent to
securityholders in connection with a related party transaction,
and, subject to certain exceptions, the preparation of a formal
valuation with respect to the subject matter of the related
party transaction and any non cash consideration offered in
connection therewith, and the inclusion of a summary of the
valuation in the proxy material.
OSC Rule 61-501
and AMF Regulation Q-27
also require that, subject to certain exceptions, an issuer
shall not engage in a related party transaction unless approval
of the disinterested shareholders of White Knight for the
related party transaction has been obtained.
New US Gold
New US Gold’s amended and restated articles of
incorporation opt New US Gold out of Section 203 of
the Delaware Law. Section 203 of the Delaware Law prohibits
a public Delaware corporation from engaging in a “business
combination” between the corporation and an
“interested stockholder” within three years of the
stockholder becoming an “interested stockholder,”
except where (1) the corporation approved a business
combination or transaction prior to the time that resulted in
the stockholder becoming an interested stockholder, (2) the
interested stockholder owned at least
eighty-five percent of
the voting stock at the time the transaction commenced which
results in the interested stockholder becoming an interested
stockholder, or (3) the business combination is approved by
the board and by at least two-thirds of the disinterested
stockholders.
An interested stockholder is defined as one who (1) is the
beneficial owner of more than 15% of outstanding voting stock,
or (2) is an affiliate of New US Gold and, at any time
during the previous two year period, was the beneficial owner of
more than 15% of the outstanding voting stock.
Transactions with Directors and Officers
White Knight
Under the BCBCA, subject to certain exceptions, a director or
senior officer of a corporation holds a “disclosable
interest” in a contract or transaction if: (i) the
contract is material to the corporation; (ii) the
corporation has entered, or proposes to enter, into the contract
or transaction; and (iii) the director or senior officer
has a direct or indirect material interest in the contract or
transaction. Subject to certain exceptions under the BCBCA and
unless the court orders otherwise, a director or senior officer
of a corporation is liable to account to the corporation for any
profit that accrues to the director or senior officer under or
as a result of a contract or transaction in which the director
or senior officer
89
holds a disclosable interest. The exemptions from the
requirement to account to the corporation for any profit include
where the disclosable interest is disclosed to the directors of
the corporation and the directors approve of the contract or
transaction with any directors that hold a disclosable interest
abstaining or the contract is approved by a special resolution
of the shareholders. If all directors have a disclosable
interest in a contract or transaction, any or all of those
directors may vote on a directors’ resolution to approve
the contract or transaction. Directors with a disclosable
interest may be counted in the quorum at the directors’
meeting to approve the contract or transaction whether or not
such directors vote at the directors’ meeting.
New US Gold
Section 144 of the Delaware Law prohibits contracts and
transactions between a corporation and one or more of its
directors and officers, or between a corporation and any other
entity in which one or more of its directors or officers are
directors or officers or have a financial interest may be void
or voidable unless: (1) the material facts of the
director’s or officer’s relationship or interest are
disclosed or known to the board of directors or committee and
the board of directors or committee authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors, (2) the material facts of the
director’s or officer’s relationship or interest are
disclosed or known to the shareholders and the contract or
transaction is approved in good faith by a vote of the
shareholders, or (3) the contract or transaction is fair as
to the corporation as of the time it is authorized, approved or
ratified by the board of directors, a committee or the
shareholders.
18.
Depositary
The Offerors have engaged Kingsdale Shareholder Services Inc. to
act as Depositary for the receipt of certificates in respect of
Common Shares and related Letters of Acceptance and Transmittal
and Notices of Guaranteed Delivery deposited under the Offer and
for the payment for Common Shares purchased by the Offerors
under the Offer. The Depositary will receive reasonable and
customary compensation from the Offerors for its services
relating to the Offer and will be reimbursed for certain
out-of-pocket expenses. The Offerors have also agreed to
indemnify the Depositary against certain liabilities and
expenses in connection with the Offer, including certain
liabilities under the provisional securities laws of Canada.
Questions and requests for assistance concerning the Offer
should be made directly to the Depositary.
19.
Dealer Manager and Soliciting Dealer Group; Information
Agent
U.S. Gold has retained GMP Securities Ltd. as Dealer Manager in
Canada and Griffiths McBurney Corp. as Dealer Manager in the
United States in connection with the Offer and to provide
various financial advisory services to U.S. Gold in connection
with the Offer and the Subsequent Acquisition Transaction. The
Dealer Manager will receive customary compensation for their
services in connection with the transactions contemplated by the
Offer and the Subsequent Acquisition Transaction and will be
reimbursed for out-of-pocket expenses, including reasonable
expenses of counsel and other advisors. U.S. Gold has agreed to
indemnify the Dealer Manager and its affiliates against various
liabilities and expenses in connection with its services in
connection with the transactions contemplated by the Offer and
the Subsequent Acquisition Transaction, including various
liabilities and expenses under securities laws. From time to
time, the Dealer Manager and its affiliates may actively trade
the debt and equity securities of U.S. Gold and White Knight for
their own account or for the accounts of customers and,
accordingly, may hold a long or short position in those
securities. The Dealer Manager has in the past performed various
investment banking and financial advisory services for U.S. Gold
for which it has received customary compensation.
GMP Securities Ltd. has the right to form a soliciting dealer
group (the “Soliciting Dealer Group”) comprised of
members of the Investment Dealers Association of Canada to
solicit acceptances of the Offer from persons who are not
resident in the United States and Griffiths McBurney Corp. has
the right to appoint sub-agents who are registered under
applicable United States securities laws to solicit acceptances
of the Offer from persons who are resident in the United States.
Each member of the Soliciting Dealer Group, including the Dealer
Manager, is referred to herein as a “Soliciting
Dealer.” The Offerors have agreed to pay each Soliciting
Dealer whose name appears in the appropriate space in the Letter
of Acceptance and Transmittal accompanying a deposit of Common
Shares a fee of $0.01 for each such Common Share deposited and
taken up by the Offerors under the Offer. The aggregate amount
payable to any Soliciting Dealer with respect to any single
depositing holder of Common Shares will be not less than $25.00
nor more
90
than $1,500.00, provided that such holder deposits no less than
1,000 Common Shares. If Common Shares deposited and registered
in a single name are beneficially owned by more than one
beneficial owner, the minimum and maximum amounts will be
applied separately in respect of each such beneficial owner. The
Offerors may require each Soliciting Dealer to furnish evidence
of such beneficial ownership satisfactory to the Offerors at the
time of deposit.
Shareholders should contact the Depositary, the Dealer Manager
or a broker or dealer for assistance in accepting the Offer and
in depositing the Common Shares with the Depositary.
The Offerors have retained Kingsdale Shareholder Services Inc.
to act as information agent in connection with the Offer. The
information agent will receive reasonable and customary
compensation from the Offerors for services in connection with
the Offer, will be reimbursed for certain out-of-pocket expenses
and will be indemnified against certain liabilities, including
liabilities under securities laws and expenses incurred in
connection therewith.
Other than as set forth above, U.S. Gold will not pay any fees
or commissions to any broker, dealer or other person for
soliciting deposits of Common Shares pursuant to the Offer. U.S.
Gold will reimburse brokers, dealers, commercial banks and trust
companies and other nominees, upon request, for customary
clerical and mailing expenses incurred by them in forwarding
offering materials to their customers.
20.
Experts
Technical Reports
The scientific and technical information in Appendix B
(Certain Information Regarding Tonkin Springs Gold Property of
U.S. Gold Corporation) relating to the Tonkin Springs
exploration gold property in Nevada is based on a current
technical report in respect of the property filed on SEDAR
(www.sedar.com) in accordance with the requirements of
NI 43-101. This
report was prepared by Richard M. Gowans and Alan Noble at Micon
International Limited. Each of Messrs. Gowans and Noble is
a qualified person under NI 43-101. Messrs. Gowans and
Noble beneficially own shares of common stock of U.S. Gold,
including shares issuable upon exercise of options, consisting
of less than 1% of the outstanding common stock of U.S. Gold.
Independent Registered Accounting Firm
The consolidated financial statements of U.S. Gold
Corporation as and for the years ended December 31, 2005,
2004 and 2003, the unaudited balance sheet of US Gold Holdings
Corporation as of April 30, 2006, and the balance sheet of
US Gold Canadian Acquisition Corporation as of April 30,2006, have been included in Appendices C, D and E, respectively
herein, in reliance upon the reports of Stark Winter Schenkein
Co., LLP, independent registered accounting firm, appearing
elsewhere herein and upon the authority of said firm as experts
in accounting and auditing.
21.
Legal Matters
Matters of Canadian law, including the legality of the
Exchangeable Shares offered hereby, will be passed upon on
behalf of the Offerors by, and the opinion contained in the
section entitled “Material Canadian Federal Income Tax
Considerations” on page 59 of this Offer has been
provided by, Fraser Milner Casgrain LLP. The legality of the
common stock of New US Gold offered hereby will be passed upon
on behalf of the Offerors by Dufford & Brown, P.C.
The opinions contained in the section entitled “Material
U.S. Federal Income Tax Considerations” on
page 69 of this Offer has been provided by Holme
Roberts & Owen LLP. As of the date hereof, the partners
and associates of Fraser Milner Casgrain LLP, Dufford &
Brown, P.C. and Holme Roberts & Owen LLP, as a
group, beneficially own directly or indirectly less than 1% of
the issued and outstanding shares of common stock of
U.S. Gold.
22.
Offerees’ Statutory Rights
Securities legislation in certain of the provinces and
territories of Canada provides holders of Common Shares with, in
addition to any other rights they may have at law, rights of
rescission or to damages, or both, if there is misrepresentation
in a circular or a notice that is required to be delivered to
such shareholders. However, such rights must be exercised within
prescribed time limits. Holders of Common Shares should refer to
the applicable provisions of the securities legislation of their
province or territory for particulars of those rights or consult
with a lawyer.
91
23.
Directors’ Approval
The contents of this Offer, which the Offer to Purchase and
Circular are incorporated into and form part of, have been
approved, and the sending thereof to the Shareholders has been
authorized, by the board of directors of each of U.S. Gold, New
US Gold and Canadian Exchange Co.
The Directors of US Gold Canadian Acquisition Corporation
We hereby consent to the reference to our opinion contained
under “Material Canadian Federal Income Tax
Considerations” and “Legal Matters” in the
circular included in the offer to purchase dated May 1,2006 made by U.S. Gold Corporation and US Gold Holdings
Corporation, US Gold Canadian Acquisition Corporation to the
holders of common shares of White Knight Resources Ltd.
The Directors of US Gold Canadian Acquisition Corporation
We hereby consent to the reference to our opinion contained
under “Legal Matters” in the circular included in the
offer to purchase dated May 1, 2006 made by U.S. Gold
Corporation, US Gold Holdings Corporation and US Gold
Acquisition Corporation to the holders of common shares of White
Knight Resources Ltd.
The Directors of US Gold Canadian Acquisition Corporation
We hereby consent to the reference to our opinion contained
under “Material U.S. Federal Income Tax
Considerations” and “Legal Matters” in the
circular included in the offer to purchase dated May 1,2006 made by U.S. Gold Corporation, US Gold Holdings Corporation
and US Gold Canadian Acquisition Corporation to the holders of
common shares of White Knight Resources Ltd.
The Directors of US Gold Canadian Acquisition Corporation
We have read the take-over bid circular of U.S. Gold
Corporation, US Gold Holdings Corporation and US Gold
Canadian Acquisition Corporation dated May 1, 2006 relating
to the offer to purchase all of the outstanding common shares of
White Knight Resources Ltd. We have complied with Canadian
generally accepted standards for an auditor’s involvement
with offering documents. We consent to the use in the
above-mentioned offer,
of our reports dated March 20, 2006 and March 22, 2005.
We report that we have no reason to believe that there are any
misrepresentations in the information contained therein that is
derived from the consolidated financial statements upon which we
have reported or that is, within our knowledge, as a result of
our audit of such consolidated financial statements.
The foregoing contains no untrue statement of a material fact
and does not omit to state a material fact that is required to
be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was
made. In addition, the foregoing does not contain any
misrepresentation likely to affect the value or the market price
of the securities which are the subject of the offer to purchase.
(signed) Robert R.
McEwen
Chairman of the Board and
Chief Executive Officer
(signed)William F. Pass
Vice President and
Chief Financial Officer
The foregoing contains no untrue statement of a material fact
and does not omit to state a material fact that is required to
be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was
made. In addition, the foregoing does not contain any
misrepresentation likely to affect the value or the market price
of the securities which are the subject of the offer to purchase.
(signed) Ann S.
Carpenter
President
(signed) William F.
Pass
Vice President, Secretary
and Treasurer
On behalf of the Board of Directors
(signed) Ann S.
Carpenter
Director
(signed) William F.
Pass
Director
98
APPROVAL AND CERTIFICATE OF US GOLD CANADIAN ACQUISITION
CORPORATION
The foregoing contains no untrue statement of a material fact
and does not omit to state a material fact that is required to
be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was
made. In addition, the foregoing does not contain any
misrepresentation likely to affect the value or the market price
of the securities which are the subject of the offer to purchase.
(signed) Robert R.
McEwen
Chairman of the Board and
Chief Executive Officer
(signed) William F.
Pass
Vice President, Secretary
and Treasurer
On behalf of the Board of Directors
(signed) Ann S.
Carpenter
Director
(signed) William F.
Pass
Director
99
APPENDIX A
INFORMATION CONCERNING U.S. GOLD CORPORATION
1. United States Disclosure
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(303) 238-1438
(Issuer’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
N/A
Title of each class
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act Yes þ No o.
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
þ Yes o No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB þ.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
State issuer’s revenues for its most recent fiscal year: $1,052,478.
The aggregate market value (at the last trade price of $9.09 per share) of the Common Stock of U.S.
Gold Corporation held by non-affiliates as of March 31, 2006 was approximately $149,486,286. As of
March 31, 2006, there were 33,296,755 shares of Common Stock outstanding.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A-10
PART II
A-11
ITEM 5:
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A-11
ITEM 6:
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
A-12
ITEM 7:
FINANCIAL STATEMENTS
A-24
ITEM 8:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
A-39
ITEM 8A:
CONTROL AND PROCEDURES
A-39
PART III
A-39
ITEM 9:
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
A-39
ITEM 10:
EXECUTIVE AND DIRECTOR COMPENSATION
A-42
ITEM 11:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
A-45
ITEM 12:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A-46
PART IV
ITEM 13:
EXHIBITS
A-47
ITEM 14:
PRINCIPAL ACCOUNTANT FEES AND SERVICES
A-49
SIGNATURES
A-50
ADDITIONAL INFORMATION
Descriptions of agreements or other documents in this report are intended as summaries and are not
necessarily complete. Please refer to the agreements or other documents filed or incorporated
herein by reference as exhibits. Please see the exhibit index at the end of this report for a
complete list of those exhibits.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Please see the note under “Item 6. Management’s Discussion and Analysis or Plan of Operation,” for
a description of special factors potentially affecting forward-looking statements included in this
report.
A-2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Background
U.S. Gold Corporation (“we” or the “Company”) is engaged in the exploration for gold and other
precious metals. We hold a 100% interest in the Tonkin Springs property in Eureka County, Nevada,
subject to paramount title in the United States. This property consists of approximately 36 square
miles of unpatented lode mining claims and millsite claims located on the Battle Mountain-Eureka
Trend, approximately 45 miles northwest of the town of Eureka in north-central Nevada. We are
presently in the exploration stage at the Tonkin Springs property. We have not generated revenue
from mining operations since 1990.
We were organized under the laws of the State of Colorado on July 24, 1979 under the name Silver
State Mining Corporation. On June 21, 1988, we changed our name to U.S. Gold Corporation.
Recent Events
In July 2005, Robert McEwen became our largest shareholder by purchasing 11,100,000 shares of our
common stock, representing 33.3% of our outstanding shares prior to the financing discussed
immediately below. In August 2005, he became our Chairman and Chief Executive Officer. In November
2005, at a meeting of our shareholders, nominees of Mr. McEwen’s were elected as a majority of our
board of directors. At that meeting, our shareholders also approved an increase in our authorized
capital from 35 million shares of common stock to 250 million shares.
On February 22, 2006, we completed a private placement of 16,700,000 subscription receipts at $4.50
per subscription receipt, from which we received $75,150,000 in gross proceeds, of which
$37,575,000 was placed in escrow pending satisfaction of certain conditions. See Item 6:
“MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION-Recent Financing” for a more complete
description of that transaction.
On March 5, 2006, we announced our intention to acquire four companies with properties in the
Battle Mountain-Eureka Trend in Nevada. These companies, White Knight Resources Ltd., Nevada
Pacific Gold Ltd., Coral Gold Resources Ltd. and Tone Resources Limited, have mineral properties
that are adjacent to or near our Tonkin Springs property. Our intention is to acquire all of these
companies in exchange for the issuance of shares of our common stock. No formal offer has been
commenced for any of these companies. We are unable to predict when, if ever, such an offer will be
made or whether any of these transactions will be completed. Mr. McEwen owns an equity interest in
each of these companies and has stated his intention to support our proposed acquisition of each of
these companies.
Overview.
The Tonkin Springs property is a gold mining property in which we hold a 100% interest and which
most recently produced gold in 1990. The property has been the focus of mineral exploration,
development and intermittent production for approximately 25 years, since the early 1980s. We are
currently focusing on property-wide exploration of mineral resources at Tonkin Springs.
The Tonkin Springs property is located on lands administered by the United States Department of
Interior, Bureau of Land Management (BLM), Battle Mountain Field Office, in Nevada. Currently, the
property is comprised of a total of 1,182 unpatented mining and 33 millsite claims encompassing
approximately 36 square miles. Of the 1,215 claims comprising the Tonkin Springs property, 269 are
leased from an unaffiliated third party under a lease that is due to expire in January 2009. Our
property extends approximately 12 linear miles along the central Battle Mountain-Eureka Trend,
located in north-central Nevada.
In December 2005, we retained Micon International Limited (Micon) to compile a technical report for
the Tonkin Springs property. This report provides a technical summary of the exploration and
development activities and results, and the mineral potential of the Tonkin Springs property. This
report was prepared in accordance with the standards of National Instrument 43-101- Standards of
Disclosure for Mineral Projects of the Canadian Securities Administrators. Those standards are
different than those prescribed by rules of the Securities and Exchange Commission (SEC). The SEC
only permits the disclosure of proven or probable reserves, which in turn, require the preparation
of a feasibility study demonstrating the economic feasibility of mining and processing the
mineralization. We have not received a feasibility study with regard to our Tonkin Springs
property. See Item 2, “DESCRIPTION OF PROPERTIES,” for additional information regarding our Tonkin
Springs property.
A-3
We are presently in the exploration stage for gold at the Tonkin Springs property where we have an
estimate of mineralized material of 29.7 million tons with average grade of 0.043 ounce of gold per
ton. These mineral resource estimates are based on resource models that were constructed by Ore
Reserves Engineering in 1996, with revision to the O-15 model in 2001 to incorporate new drilling
data in that deposit. The mineral envelopes were drawn for the 1996 and 2001 resource models to
restrict interpolation within areas that could be classified as at least an indicated resource. In
preparing this estimate, Micon has reviewed and analyzed data provided by U.S. Gold and previous
operators of the mine, and has drawn its own conclusions therefrom, augmented by its direct field
examination. Micon used all reasonable diligence in checking, confirming and validating the data.
However, Micon has not carried out any independent exploration or drilling work, or carried out any
sampling and assaying. The metallurgical, geological, mineralization and exploration technique and
results descriptions used in this report are taken from previous reports prepared by us and Micon.
As an exploration stage mining company, our activities include, at various times and to various
degrees, exploration, land acquisition, geological evaluation and feasibility studies of properties
and, where warranted, efforts to develop and construct mining and processing facilities, mining and
processing and the sale of gold and other metals and by-products. We may also enter into joint
ventures, partnerships or other arrangements to accomplish these activities.
Competitive Business Conditions
We compete with many companies in the mining business, including large, established mining
companies with substantial capabilities, personnel and financial resources. There is a limited
supply of desirable mineral lands available for claim-staking, lease or acquisition in the United
States, and other areas where we may conduct exploration activities. We may be at a competitive
disadvantage in acquiring mineral properties, since we compete with these individuals and
companies, many of which have greater financial resources and larger technical staffs. From time to
time, specific properties or areas which would otherwise be attractive to us for exploration or
acquisition are unavailable due to their previous acquisition by other companies or our lack of
financial resources. Competition in the industry is not limited to the acquisition of mineral
properties but also extends to the technical expertise to find, advance, and operate such
properties; the labor to operate the properties; and the capital for the purpose of funding such
properties. Many competitors not only explore for and mine precious metals, but conduct refining
and marketing operations on a world-wide basis. Such competition may result in our company being
unable not only to acquire desired properties, but to recruit or retain qualified employees, to
obtain equipment and personnel to assist in our exploration activities or to acquire the capital
necessary to fund our operation and advance our properties. Our inability to compete with other
companies for these resources would have a material adverse effect on our results of operation and
business.
General Government Regulations
Mining in the State of Nevada is subject to federal, state and local law. Three types of laws are
of particular importance to the Tonkin Springs property: those affecting land ownership and mining
rights; those regulating mining operations; and those dealing with the environment.
The development, operation, closure and reclamation of mining projects in the United States require
numerous notifications, permits, authorizations and public agency decisions. Compliance with
environmental and related laws and regulations requires us to obtain permits issued by regulatory
agencies and to file various reports and keep records of our operations. Certain of these permits
require periodic renewal or review of their conditions and may be subject to a public review
process during which opposition to our proposed operations may be encountered. We are currently
operating under various permits for activities connected to mineral exploration, reclamation and
environmental considerations. Unless and until a mineral source is proved, it is unlikely our
operations will move beyond the exploration stage. If in the future we decide to proceed beyond
exploration, there will be numerous notifications, permit applications and other decisions to be
addressed at that time. This section does not attempt to exhaustively identify all of the permits
that may need to be modified or obtained in order to expand our operations. See Item 2,
“DESCRIPTION OF PROPERTIES — Environmental and Governmental Regulations,” for additional
information on government regulation affecting our business.
Employees
We currently have four paid employees, two of whom serve as our executive officers. These
individuals devote a majority of their business time to our affairs. Robert R. McEwen also serves
as our Chief Executive Officer, presently in an unpaid capacity. He does not devote 100% of his
business time to our affairs. We engage independent contractors in connection with the exploration
of our mining property.
A-4
ITEM 2. DESCRIPTION OF PROPERTIES
Our Tonkin Springs Property
Location and Access. The Tonkin Springs property is located on the eastern slope of the
Northern Simpson Park Mountains in Nevada at an elevation of between approximately 6,700 feet and
7,600 feet above sea level. The topography varies from flat to moderately steep. The property area
is approximately 45 miles northwest of Eureka, Nevada in Eureka County and is accessed by two
county roads from Nevada State Road 278. The county gravel roads to the site are maintained by
Eureka County and are periodically graded as required to provide year round access.
The Battle Mountain-Eureka Trend, as it is currently defined, extends from near Winnemucca to the
north, southeast to south of Eureka. Within this trend is the locally named “Cortez Trend.” The
Battle Mountain-Eureka Trend is west of and subparallel to the Carlin Trend, and both are host to a
large number of producing gold mines and other prospects.
The Tonkin Springs property is approximately 48 miles by road, northwest from Eureka (County
population approximately 1,600), 85 miles by road southwest from Elko (population approximately
18,000) and 245 miles by road east from Reno (population approximately 200,000). The nearest
airport is located in Elko.
In general, the area is characterized by hot summers and cold winters with monthly average maximum
and average minimum temperatures ranging from 82 °F (28°C) to 7 °F (-14°C). The hottest month is
July and the coldest is January. The average annual precipitation on site is estimated to be 11.3
inches. Evaporation in the area is significant with the average annual potential evaporation
estimated at 62.6 inches.
Native vegetation in the project area is characterized by sagebrush/bunch grass communities with
Sandberg bluegrass, Thuber needlegrass and bottlebrush squirreltail as the dominant species. On the
north and east facing slopes fairly dense stands of Pinyon/Juniper exist with little understory of
grasses or forbs. Much of the project area had been subjected to considerable grazing pressures
from domestic livestock in years past. Consequently, much of the native vegetation has degenerated
to what is considered degraded stands of sagebrush with an understory of cheatgrass on the more
hilly areas, or halogeton, or other annual forbs, on the lowlands.
Improvements.
The Tonkin Springs property includes a mine site, several small open pits, stockpile areas and some
established infrastructure. Remnants of an oxide heap leach operation from the 1980s include the
pits and the stockpile areas. In 1988 and 1989, an integrated carbon-in-leach bacterial oxidation
plant was built. The plant and associated infrastructure was decommissioned and mothballed in June
1990, but apart from the SAG mill, which has been removed, it is complete and we believe it is in
relatively good condition. However, since we intend to conduct extensive exploration at the
property and do not intend to use the plant, we may sell it in the future. Other existing
improvements include access roads to different portions of the property.
The existing infrastructure available for the project also includes a water supply, water storage
and distribution, sewage disposal, trailer park, fuel storage and distribution, grid and emergency
power supply and distribution. Electrical power is supplied via existing 64kV power lines and a
substation on the property. The power lines and substation are owned and maintained by Sierra
Pacific Power Company. Existing facilities include an administration building, truck shop, assay
laboratory, mill building, warehouse and plant maintenance shop.
History of Operations.
We obtained the first of the claims which now comprise the Tonkin Springs property in 1985. Between
1985 and 1988, approximately 26,000 ounces of gold were produced from the heap leach operation from
about 871,000 tons of ore.
In 1988 and 1989, we constructed a mill with the proceeds of a debt financing. In 1989, oxide ore
from the “Rooster” deposit was processed through the mill, producing 1,753 ounces of gold. In 1990,
using bio-oxidation and the carbon-in-leach circuits of the mill, 2,735 ounces of gold were
produced from approximately 70,000 tons of sulfide ore mined from TSP-1 deposit. To date, a total
of approximately 30,517 ounces of gold has been produced at the Tonkin Springs property.
A-5
We have had a series of joint venture partners at the Tonkin Springs property. In 1991, Homestake
Mining Company (Homestake), through its subsidiaries Homestake Nevada Corporation and Denay Creek
Gold Mining Company (Denay), purchased 51% of the project and created the Tonkin Springs Venture
Limited Partnership, a partnership organized under the laws of the State of Nevada (TSVLP). TSVLP
completed data compilation, geologic mapping, rock and soil sampling, geophysical surveying and
drilled 85,949 feet of reverse circulation core and mud rotary. In 1992, Homestake terminated the
agreement, leaving 100% ownership of TSVLP to us.
In 1993, we sold an undivided 60% interest in the Tonkin Springs property to Gold Capital
Corporation (Gold Capital), a newly-formed Colorado corporation, and established a mining joint
venture. Gold Capital was unable to obtain necessary financing and was acquired by Globex Mining
Enterprises Inc. (Globex) in 1997. In 1999, Globex terminated its agreement with us.
In 1999, Sudbury Contact Mines Limited (Sudbury), a subsidiary of Agnico-Eagle Mines Limited
(Agnico), purchased Gold Capital’s 60% undivided interest in the Tonkin Springs property. Together
with Sudbury, we contributed all of the Tonkin Springs property to Tonkin Springs Limited Liability
Company (TSLLC), a Delaware limited liability company. Sudbury held a 60% managing interest in
TSLLC. Between 1999 and 2001, Sudbury completed data compilation, chemical sampling and drilling on
the project. In 2001, Sudbury withdrew from TSLLC, leaving us 100% ownership of TSLLC.
In 2003, BacTech Mining Corporation (formerly, BacTech Enviromet Corporation), through its
subsidiary, BacTech Nevada Corporation (BacTech), obtained a 55% interest in TSLLC. BacTech
conducted a number of surveys, including commissioning a technical report from Micon. A technical
report entitled “A Review of the Tonkin Springs Property, Eureka County, Nevada, USA” was issued to
BacTech in August 2003. Micon also completed a feasibility study and supporting technical report
for BacTech in May 2004. BacTech withdrew from TSLLC in April 2005 due to a lack of working
capital, returning 100% ownership of TSLLC to us. We assumed management of the property in May
2005.
Other than our past arrangements with Gold Capital and BacTech, which we believe were terminated
due to a lack of working capital by those entities, we are unable to definitively state why the
other partners terminated their relationship with us. Larger mining companies like Homestake and
Agnico have budgets and exploration philosophies that dictate the projects they pursue and to which
we are not privy.
A significant amount of exploration work has been conducted over the years at the Tonkin Springs
property, focusing mainly on near-surface oxide and later sufilde mineralization. A total of 2,797
drill holes have been completed at the Tonkin Springs property between 1966 and 2004. The total
length drilled is 168,970 meters (554,222 feet), and the average length per hole drilled is 60.4
meters (198 feet). Most of our former joint venture partners were focused on defining shallow
mineralization with the potential for immediate production of gold and silver from known
mineralization and did not conduct significant exploration on the Tonkin Springs property. Two
companies, Denay (Homestake) and Sudbury (Agnico), focused on testing deeper styles of
mineralization, although each of these two drilling campaigns did not test the property to
significant depths. Denay completed 86 exploration drill holes during 1991 and 1992 at a cost of
approximately $2.5 million. The average depth of these 86 holes is just under 300 feet. Sudbury
completed 107 exploration drill holes during 1999 through October 2001, and the average depth of
these holes is just under 600 feet. The most recent drilling was completed by BacTech, with 29
holes drilled during 2003 and 2004, mainly as part of their feasibility studies, targeting resource
confirmation and metallurgical testing. The average depth of this drilling is approximately 270
feet.
The following table summarizes drilling activities at the Tonkin Springs property since 1966:
A-6
Summary of Drilling at Tonkin Springs
No. of
No. of
No. of
Drilling
Period
Company
Holes
Total Length
Intervals
Assays
Type
(metres)
(feet)
1966-67
Homestake Mining Company
10
655
2,147
850
419
Rotary
1970-71
American Selco (Amselco)
4
316
1,035
410
204
Rotary
1974-75
Chevron Resources
20
1,480
4,854
1,922
951
Rotary
1976
Placer Amex
19
1,601
5,250
1,519
769
Rotary
1978-79
Earth Resources
15
1,087
3,565
699
339
Rotary
1980
Freeport Exploration
34
2,971
9,745
3,864
1,910
Rotary
1981-84
Precambrian Exploration
421
32,227
105,705
41,861
21,104
Rotary
1985-89
U.S. Gold
1,976
97,805
320,802
125,389
61,823
Rotary & Core
1991-92
Homestake Mining Company
(Denay)
86
7,723
25,332
83,088
17,644
Rotary & Core
1995-98
Gold Capital Corporation
76
1,339
4,392
14,405
2,344
Rotary & Core
1999-2001
Agnico-Eagle/Sudbury Contact
107
19,381
63,570
15,018
7,308
Rotary & Core
2003-04
BacTech
29
2,386
7,825
1,565
189
Rotary & Core
Total
2,797
168,970
554,222
290,590
115,004
Claims.
Currently, the Tonkin Springs property consists of a total of 1,182 unpatented lode mining and 33
millsite claims encompassing approximately 36 square miles. Of that amount, 269 unpatented lode
mining claims are leased from unaffiliated third parties pursuant to a mining lease, with the
remainder owned by us. The claims are contiguous, with the exception of four claims where a trailer
park is located, as well as some claims within the project boundary that we no longer own or lease.
Obligations that must be met to retain the property include annual claim maintenance fees to the
BLM of $125 per claim per year and additional fees to Eureka County of $8.50 per claim per year
(2005 assessment year fee rate). Rates may change over time. Other obligations include obtaining
and maintaining all necessary regulatory permits and any mining lease requirements, such as lease
and option payments to claim owners. The rights to the unpatented lode claims and millsites
continue on an annual basis so long as the obligations are met to maintain the validity of the
claims. As the owner or lessee of the claims, we are allowed to explore, develop and mine the
property, subject to procurement of required operating permits and approvals, compliance with
applicable federal, state and local laws, regulations and ordinances.
Of the 1,182 unpatented lode mining claims that comprise the Tonkin Springs property, 269 claims
cover the lease at the area of the property called Tonkin North, and are owned by unaffiliated
parties. The term of this lease expires January 1, 2009 and may be extended from year to year, up
to a maximum term of 99 years, by production from the leased claims. The Tonkin North lease
requires payment of an annual advance royalty in the amount of $150,000, or the value of 455 ounces
of gold, whichever is greater, due in January of each year. The lease also requires production
royalties of 5% of the gross sale price of gold or silver but provides for recapture of annual
advance royalties previously paid. The existing balance of the advance royalties, after recognition
of the January 2006 payment, is approximately $3.22 million, meaning that we would not be required
to pay any additional production royalties until we produced approximately $65.5 million of gross
revenue from the leased claims. Certain of the claims which are included in the Tonkin North lease
are also subject to a 1% net smelter return royalty payable to Precambrian Exploration, Inc.
(Precambrian) after $15 million in gross revenues are realized from the claims. We are required to
perform an annual work commitment on these claims with an annual report submitted to the lessors
summarizing the work completed. The lease includes a defined area of interest extending from the
boundaries of certain claims; any claims within this area of interest that are acquired through
staking or joint ventures with other property owners falls under the parameters of this lease.
We own the remaining 913 unpatented lode mining claims comprising the Tonkin Springs property, as
well as 33 millsite claims. A total of 317 of these claims are subject to a royalty equal to 2% of
net smelter returns, which becomes payable to Precambrian after $50 million in gross revenues is
realized from the claims. Precambrian may elect to receive its royalty in kind. Precambrian is an
unaffiliated third party and predecessor in interest to the claims.
In 1994, 215 claims covering approximately 4,400 acres adjacent to the Tonkin Springs property were
acquired from United States Exploration Inc., an unaffiliated third party. The claims are subject
to a royalty of 1% of net smelter returns for gold when the indexed price of gold is $350 per ounce
or more, and a royalty of 1% of net smelter returns for silver when the indexed price of silver is
$3.50 per ounce or more. No royalties are payable at lower indexed prices. The indexed prices shall
reflect adjustments based on the Producer Price Index, sub-index Finished Goods Excluding Foods, as
published by the United States Department of Commerce. Of the total of 1,215 mining claims
encompassing the Tonkin Springs property, 381 are not subject to any royalties.
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We are currently attempting to update title on the claims.
Geology.
The geology in the vicinity of the Tonkin Springs property is complex both lithologically and
structurally. The rocks in the area of Tonkin Springs range in age from Quaternary gravels and
alluvium, Tertiary volcanic rocks, and Paleozoic sediments. There is a strong northwest structural
fabric in the area, cross cut by several prominent north northeast and northeast structures that
appear to be key to focusing mineralization in the area. These structures help to fracture the host
rocks, and act as conduits for the mineralizing fluids to migrate up from depth. The host rocks for
the gold mineralization currently identified at Tonkin Springs consist of a sequence of Paleozoic
rocks that were subsequently faulted, intruded and mineralized by gold-bearing solutions which
originated at depth and migrated up along fracture systems until reaching fractured and/or
chemically favorable rock suitable for deposition. Tertiary volcanism followed by faulting and
erosion have affected the mineralized material.
In both the Carlin and Battle Mountain-Eureka Trends, there are structural and stratigraphic
features that help to focus mineralization, making this area of North-central Nevada what we
believe to be one of the most important gold provinces in the world. In evaluating the known
deposits in both of these trends, there are similar structures and stratigraphic units that host
the largest, most significant deposits. It is these favorable features that we will be attempting
to identify and target at depth at the Tonkin Springs property during our two-year exploration
program.
We believe the stratigraphy, structure and alteration styles currently identified at the Tonkin
Springs property are similar to Carlin-type deposits identified elsewhere in the Battle
Mountain-Eureka and Carlin trends. Carlin-type mineralization is the main focus of exploration
efforts at Tonkin, both near-surface as well as at depth. Carlin-style deposits are characterized
by sediment-hosted, low grade disseminated gold mineralization occurring typically in carbonate
rocks. Deposits are both structurally and stratigraphically controlled, where the gold is so fine
grained that it is typically not visible. Typical deposits are structurally controlled, with
sub-microscopic gold particles hosted in strongly altered sedimentary host rocks near controlling
structures. Gold is usually associated with anomalous levels of arsenic, antimony and mercury. U.S.
Gold believes that the Tonkin Springs property has potential to host similar large-scale
sediment-hosted deposits as are identified elsewhere in the Carlin and Battle Mountain-Eureka
Trends. Most of the previous exploration and development programs at the project have mainly
focused on near-surface oxide and sulphide mineralized material.
Environmental and Governmental Regulations
The operation of mines is governed by both federal and state laws. The Tonkin Springs property is
administered by the BLM. In general, the federal laws that govern mining claim location and
maintenance and mining operations on Federal Lands, including the Tonkin Springs property, are
administered by the BLM. Additional federal laws, such as those governing the purchase, transport
or storage of explosives, and those governing mine safety and health, also apply.
The State of Nevada likewise requires various permits and approvals before mining operations can
begin, although the state and federal regulatory agencies usually cooperate to minimize duplication
of permitting efforts. Among other things, a detailed reclamation plan must be prepared and
approved, with bonding in the amount of projected reclamation costs. The bond is used to ensure
that proper reclamation takes place, and the bond will not be released until that time. The Nevada
Division of Environmental Protection (NDEP) is the state agency that administers the reclamation
permits, mine permits and related closure plans on the project. Local jurisdictions (such as Eureka
County) may also impose permitting requirements, such as conditional use permits or zoning
approvals.
Mining activities at the Tonkin Springs property are also subject to various environmental laws,
both federal and state, including but not limited to the federal National Environmental Policy Act,
CERCLA (as defined below), the Resource Recovery and Conservation Act, the Clean Water Act, the
Clean Air Act and the Endangered Species Act, and certain Nevada state laws governing the discharge
of pollutants and the use and discharge of water. Various permits from federal and state agencies
are required under many of these laws. Local laws and ordinances may also apply to such activities
as waste disposal, road use and noise levels.
We are committed to fulfilling our requirements under applicable environmental laws and
regulations. These laws and regulations are continually changing and, as a general matter, are
becoming more restrictive. Our policy is to conduct our business in a manner that safeguards public
health and mitigates the environmental effects of our business activities. To comply with these
laws and regulations, we have made, and in the future may be required to make, capital and
operating expenditures.
A-8
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
(CERCLA), imposes strict, joint, and several liability on parties associated with releases or
threats of releases of hazardous substances. Liable parties include, among others, the current
owners and operators of facilities at which hazardous substances were disposed or released into the
environment and past owners and operators of properties who owned such properties at the time of
such disposal or release. This liability could include response costs for removing or remediating
the release and damages to natural resources. We are unaware of any reason why our properties would
currently give rise to any potential liability under CERCLA. We cannot predict the likelihood of
future liability under CERCLA with respect to our property or surrounding areas that have been
affected by historic mining operations.
Under the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies
may incur costs for generating, transporting, treating, storing, or disposing of hazardous or solid
wastes associated with certain mining-related activities. RCRA costs may also include corrective
action or clean up costs.
Mining operations may produce air emissions, including fugitive dust and other air pollutants, from
stationary equipment, such as crushers and storage facilities, and from mobile sources such as
trucks and heavy construction equipment. All of these sources are subject to review, monitoring,
permitting, and/or control requirements under the federal Clean Air Act and related state air
quality laws. Air quality permitting rules may impose limitations on our production levels or
create additional capital expenditures in order to comply with the permitting conditions.
Under the federal Clean Water Act and delegated state water-quality programs, point-source
discharges into “Waters of the State” are regulated by the National Pollution Discharge Elimination
System (NPDES) program. Section 404 of the Clean Water Act regulates the discharge of dredge and
fill material into “Waters of the United States,” including wetlands. Stormwater discharges also
are regulated and permitted under that statute. All of those programs may impose permitting and
other requirements on our operations.
The National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of
“major” federal actions. The “federal action” requirement can be satisfied if the project involves
federal land or if the federal government provides financing or permitting approvals. NEPA does not
establish any substantive standards. It merely requires the analysis of any potential impact. The
scope of the assessment process depends on the size of the project. An “Environmental Assessment”
(EA) may be adequate for smaller projects. An “Environmental Impact Statement” (EIS), which is much
more detailed and broader in scope than an EA, is required for larger projects. NEPA compliance
requirements for any of our proposed projects could result in additional costs or delays.
Several environmental assessments have been filed on the Tonkin Springs property in the past, and a
finding of no significant impact was made prior to commencement of mining in the 1980’s. However,
while BacTech managed the property, the BLM suggested that an EIS was required for the project, and
that effort was commenced in 2005. However, since we assumed control of the project later that
year, we have ceased all activity on the EIS, since it is not anticipated that we will be in
production in the near future.
The Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S.
Department of Interior. The purpose of the ESA is to conserve and recover listed endangered and
threatened species and their habitat. Under the ESA, “endangered” means that a species is in danger
of extinction throughout all or a significant portion of its range. The term “threatened” under
such statute means that a species is likely to become endangered within the foreseeable future.
Under the ESA, it is unlawful to “take” a listed species, which can include harassing or harming
members of such species or significantly modifying their habitat. We currently are unaware of any
endangered species issues at our project that would have a material adverse effect on our
operations. Future identification of endangered species or habitat in our project areas may delay
or adversely affect our operations.
U.S. federal and state reclamation requirements often mandate concurrent reclamation and require
permitting in addition to the posting of reclamation bonds, letters of credit or other financial
assurance sufficient to guarantee the cost of reclamation. If reclamation obligations are not met,
the designated agency could draw on these bonds or letters of credit to fund expenditures for
reclamation requirements. Reclamation requirements generally include stabilizing, contouring and
re-vegetating disturbed lands, controlling drainage from portals and waste rock dumps, removing
roads and structures, neutralizing or removing process solutions, monitoring groundwater at the
mining site, and maintaining visual aesthetics. With the exception of the notice from the NDEP
discussed below, we believe that we are in substantial compliance with our permits and applicable
laws and are committed to maintaining all of our financial assurance and reclamation obligations.
We are currently operating under various permits issued in connection with ongoing activities at
the Tonkin Springs project. An exploration permit has been issued by the BLM and is jointly
monitored with the NDEP. There is also a water pollution control permit, two permits for
reclamation, an air quality permit and plan of operations for the property.
A-9
We have a plan of operations for the property and the BLM, in conjunction with the NDEP, issued an
exploration permit to us. Under the plan submitted for the exploration permit, the BLM holds bonds
of U.S. Gold Corporation totaling $2,891,033 to secure our reclamation obligation. The most
significant bond, in the amount of $2,856,633, covers reclamation of the previously mined area. We
anticipate a review and update of the plan of operations and reclamation plan during the third
quarter of 2006 and that process could result in an increase to the current reclamation cost
estimate and the corresponding bonding requirement. Changes to the reclamation plans are submitted
contemporaneously to both the NDEP and the BLM and require their review and approval. Before our
expanded exploration activities can be pursued as we anticipate, existing permits may need to be
modified or new ones obtained.
In May 2005, the NDEP issued a notice of alleged violation under the mine permit relating to
disturbances at a portion of the property where mining was formerly conducted. Specifically, these
reclamation issues involve the heap leach used in prior years, the tailings seepage collection pond
and the area previously mined and designated TSP-1 pit. As a result of that notice, we are under a
compliance order to submit and implement a final closure plan for certain of the disturbances by
August 2006. We have budgeted approximately $1.6 million to be spent in 2006 to complete these
reclamation programs. We are working with the NDEP to address the terms of the order and believe
that we are on schedule to meet the deadline.
We also plan to update the remaining plan of reclamation and to submit that revised plan to the BLM
and NDEP by the end of the third quarter of 2006. That revised plan will include updated cost
estimates and possibly an accelerated completion schedule of activities as compared to the plan
submitted to those agencies in September 2004 by BacTech. We may also be required to post an
additional bond for revised plan.
Past mining activities at Tonkin Springs which may give rise to other obligations include:
•
a mill and associated tailings storage impoundment, which will ultimately require closure and reclamation;
•
exposed sulfide bearing rocks located in the upper benches of TSP-1, which are generating a small amount
of acidic waters that are high in metals;
•
water captured in TSP-5 pit, which is neutral and high in metals;
•
existing waste rock dumps that require re-grading and reclamation;
•
the existing gold heap leach pad, which must be closed and reclaimed; and
•
roads related to the past mining operations and exploration, which must be reclaimed.
Office Facilities
We rent offices at two locations in Lakewood, Colorado and Reno, Nevada, totaling approximately
1,600 square feet. Rent equals a total of $26,400 per year payable in monthly installments. We also
share office space in Toronto with certain entities in which our Chairman has an interest. We
believe this space and these arrangements are adequate for our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
We are not currently subject to any legal proceedings, and to the best of our knowledge, no such
proceeding is threatened, the results of which would have a material impact on our properties,
results of operation, or financial condition. Nor, to the best of our knowledge, are any of our
officers or directors involved in any legal proceedings in which we are an adverse party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of shareholders on November 14, 2005. At the meeting, all nominees for
election to the Board of Directors were elected. The shareholders also ratified amendments to the
Articles of Incorporation increasing the number of shares of authorized common stock to 250,000,000
shares and eliminating the par value of such shares, eliminated the requirements for a super
majority vote of shareholders to approve certain matters, increased the amount of common stock
reserved under the Non-Qualified Stock Option and Stock Grant Plan (Plan) to 5,000,000 shares, and
ratified the appointment of Stark Winter Schenkein & Co., LLP as our auditors for the fiscal year
ended December 31, 2005. The votes on these last five resolutions were as follows:
A-10
Increase of authorized shares to 250,000,000-
Votes For: 29,552,819
Votes Against: 1,075,887
Abstain: 42,750
Elimination of par value of shares-
Votes For: 29,711,170
Votes Against: 872,121
Abstain: 88,165
Elimination of the super majority voting requirements-
Votes For: 23,875,025
Votes Against: 744,719
Abstain: 114,592
Increase in number of shares reserved under Plan:
Votes For: 23,605,603
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock trades over the counter and is quoted on the OTC Bulletin Board under the symbol
“USGL.” The table below sets forth the high and low bid prices for our common stock as reflected
on the OTC Bulletin Board as reported by the Nasdaq Stock Market, Inc. for the two years ended
December 31, 2005, and the first quarter of 2006 through March 31. Quotations represent prices
between dealers, do not include retail markups, markdowns or commissions, and do not necessarily
represent prices at which actual transactions were effected.
Our shares are also traded on the Berlin Stock Exchange under symbol “US 8.”
The high and low sales price on March 31, 2006 were $9.09 and $8.25, respectively.
As of March 31, 2006, there were approximately 7,000 record holders of our common stock.
Transfer Agent
Equity Transfer Services Inc. is the transfer agent for our common stock. The principal office of
Equity Transfer Services is located at 120 Adelaide Street West, Suite 420, Toronto, Ontario,
Canada M5H 4C3 and its telephone number is (416) 361-0930.
A-11
Dividend Policy
We have never declared or paid dividends on our common stock. Payment of future dividends, if any,
will be at the discretion of our Board of Directors after taking into account various factors,
including the terms of any credit arrangements, our financial condition, operating results, current
and anticipated cash needs and plans for growth. Our initial earnings, if any, will likely be
retained to finance our growth. At the present time, we are not party to any agreement that would
limit our ability to pay dividends.
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
The following discussion summarizes our plan of operation for the foreseeable future. It also
analyzes our financial condition at December 31, 2005 and compares it to our financial condition at
December 31, 2004. Finally, the discussion summarizes the results of our operations for the year
ended December 31, 2005 and compares those results to the year ended December 31, 2004.
We hold a 100% interest in the Tonkin Springs gold property in Eureka County, Nevada through wholly
owned subsidiaries. Effective May 12, 2005, we assumed 100% ownership of and management
responsibilities for the Tonkin Springs property effective with the withdrawal of BacTech from
TSLLC, the entity which holds the property. Subsequent to the withdrawal of BacTech from TSLLC, we
consolidated the assets, liabilities, and operating results of TSLLC in our financial statements.
In July 2005, we disposed of our interest in Gold Resource Corporation (GRC), terminating our
interest in a mining prospect located in Oaxaca, Mexico.
We underwent a change in control in July 2005 when Robert R. McEwen purchased 11,100,000 shares of
common stock for $4 million and became our largest shareholder. In August 2005, Mr. McEwen became
our Chairman and Chief Executive Officer. While Mr. McEwen and our President have significant
experience in the mining industry, we are also using the services of additional technical and other
staff which may include use of consultants and/or full time employees.
Recent Financing
On February 22, 2006, we completed a private placement of 16,700,000 subscription receipts at $4.50
per subscription receipt, from which we received $75,150,000 in gross proceeds, of which
$37,575,000 was placed in escrow pending the satisfaction of the conditions listed below. Each
subscription receipt is convertible, for no additional payment and subject to adjustments and
penalties, into one share of our common stock and one-half of one common stock purchase warrant
upon satisfaction of certain conditions. Each whole common stock purchase warrant is exercisable
until February 22, 2011 to acquire one additional share of common stock at an exercise price of
$10.00. The conditions for release of the escrowed proceeds include, among other things, the filing
of a final prospectus which qualifies the distribution of our securities in certain provinces in
Canada, the listing of our common stock on the Toronto Stock Exchange and the declaration by the
Securities and Exchange Commission of the effectiveness of the registration statement of which this
prospectus is a part. If the release conditions are not satisfied by February 22, 2007, the
escrowed proceeds will be returned to holders of the subscription receipts in exchange for 50% of
the subscription receipts held by each subscriber. The remaining subscription receipts will
automatically convert into shares of our common stock and warrants upon the earlier of August 22,2007 and the satisfaction or waiver by the placement agent of the release conditions.
In the event that the release conditions are not satisfied by August 22, 2006, we are obligated to
issue 1.1 share of common stock (in lieu of one share) and 0.55 warrants (in lieu of 0.5 warrant)
in exchange for each subscription receipt.
Plan of Operation
Our plan of operation for 2006 is to begin an extensive two-year exploration and evaluation program
of the Tonkin Springs property, budgeted for approximately $25 to $30 million, of which
approximately $12 million is targeted to be spent in 2006. We also plan to address various
permitting and reclamation issues at the property, with $1.6 million budgeted for this in 2006.
Finally, we plan to evaluate potential corporate transactions which could include, but are not
limited to, merger with, or the acquisition of, one or more companies, joint venture arrangements
on mineral properties held by other companies, or outright purchase of mineral properties.
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Our exploration program at the Tonkin Springs property will focus on the evaluation of the
structural and stratigraphic setting of the property. This program and its timing are subject to
our ability to obtain required drilling and other regulatory agency permits and the availability of
drill rigs and contract personnel. An objective of our program is to identify new mineralization in
areas previously untested, specifically targeting deeper mineralization. Our exploration budget for
2006 includes geochemical sampling, geophysical surveys, and remote sensing technologies leading to
target definition and drill testing, with approximately 150,000 feet of proposed drilling. This
systematic and integrated approach is anticipated to result in cost effective use of exploration
funds and will have the potential to lead to discovery of new mineralization.
Previous efforts to explore and develop the Tonkin Springs property were primarily focused on
relatively shallow mineral deposits in a limited portion of our 36-square mile property. While
these deposits remain of interest, our immediate plan is to explore elsewhere on the property and,
overall, to explore deeper, for potentially larger deposits suggested by other mineralization on
the Cortez Trend and similar to discoveries on the Carlin Trend. The Carlin Trend is adjacent and
parallel to the Cortez Trend. To date, the Carlin Trend has mined over 60 million ounces of gold.
Past exploration at the Tonkin Springs property was predominately close to the surface and was not
focused on finding a “Carlin-style” deposit found deeper in the ground, located in what is referred
to as the Lower Plate. This Lower Plate has not been clearly located on our property.
In order to address prior concerns of the BLM and the NDEP at the Tonkin Springs property, we have
committed to submit closure plans and to complete reclamation of certain existing disturbances at
the Tonkin Springs property during 2006. The specific areas to be addressed include the heap leach
used in prior years, the tailings seepage collection pond, and the area previously mined and
designated as the TSP-1 pit. We have budgeted $1.6 million, which we anticipate will be spent in
2006, to complete these reclamation programs. We also anticipate updating the plan of reclamation
for the remaining disturbances at the Tonkin Springs property and to submit that revised plan to
the BLM and NDEP by September 30, 2006. We expect that this revised plan will include updated cost
estimates and an accelerated schedule for planned actual reclamation.
Proposed Acquisitions. On March 5, 2006, we announced our intention to acquire four
companies holding interests in the Battle Mountain-Eureka Trend in Nevada. These companies, White
Knight Resources Ltd., Nevada Pacific Gold Ltd., Coral Gold Resources Ltd. and Tone Resources
Limited, have mineral properties that are adjacent to or near our Tonkin Springs property. Our
intention is to acquire all of these companies in exchange for our common stock. No formal offer
has been made for or agreement reached with any of these companies and we are unable to predict
when, if ever, such an offer will be commenced, agreement made or any transaction will be
completed.
We expect to devote substantial efforts during 2006 to the formal commencement and completion of
some or all of these acquisitions. This process will involve significant executive time,
considerable expenditures related to professional fees, and other related costs and there can be no
assurance that any of these acquisitions will be completed. If any of these acquisitions are
successful, we plan to integrate the business plans, assets and the management of the companies
acquired, including operational aspects, exploration plans and staffing issues. These efforts are
not expected to directly impact our exploration and evaluation of the Tonkin Springs property,
although there is no assurance of this expectation.
Liquidity and Capital Resources
As noted above, we sold 11,100,000 shares of our common stock for $4 million in a private placement
in July 2005, which improved our liquidity and capital position significantly. As of December 31,2005, we had working capital deficit of $(1,002,461), consisting of $788,668 of current assets and
$1,791,129 of current liabilities including $1,597,032 of anticipated reclamation activities at the
Tonkin Springs property for 2006. As noted above, on February 22, 2006, we completed a private
placement of subscription receipts for aggregate gross proceeds of $75,150,000, of which
$34,944,750 after commissions but before deduction of expenses of the offering are immediately
available to us, further improving our liquidity and working capital. For 2006, we have budgeted
approximately $12 million in exploration expenditures, approximately $1.6 million in reclamation
activities, approximately $1 million in holding costs at the Tonkin Springs property, and
approximately $1.3 million for corporate overhead. We have budgeted approximately $2.5 million for
costs associated with the proposed acquisitions. We expect that the available proceeds from this
private placement will be more than adequate for the 2006 company-wide budget of $18.4 million.
Since we have received no revenue from the production of gold or other metals since 1990, we have
historically relied on payments from our joint venture partners and equity financings to finance
our ongoing operations. We experienced net losses for the years ended December 31, 2005 and 2004 of
$(2,990,721) and $(793,801) respectively. In 2004 and 2005, we relied on payments from BacTech and
$4,374,492 in equity financing to fund operations.
A-13
The net proceeds of the private placement completed in July 2005 were used, in part, to fund an
increase in the reclamation bond, for payments related to termination of employment agreements with
one current and two former officers, and operating costs. Some of the proceeds were also used for
paying certain holding costs associated with the Tonkin Springs property and other short term
corporate obligations. We used $1,118,733 to secure the increased bonding requirements in favor of
the BLM and NDEP to cover estimated reclamation costs at the Tonkin Springs property. An additional
$1,000,000 was used to pay certain former and current executive officers pursuant to agreements
which terminated their employment agreements. The remainder was added to working capital.
We are dependent on additional financing to continue our exploration efforts in the future and if
warranted, to develop and commence mining operations. While we have no current plans or
arrangements for these additional capital requirements, we anticipate that we will be seeking
additional equity financing in the future.
Net cash used in operations during 2005 increased to $2,427,266 from $798,401 for 2004. Cash paid
to suppliers and employees increased to $2,630,620 during 2005 from $853,033 during 2004, primarily
reflecting $1 million in cash payments under the termination agreements with executive officers,
holding costs of $761,081 for the Tonkin Springs property subsequent to the withdrawal of BacTech,
and fees and costs related to the various transactions we investigated or consummated in an effort
to obtain required funding. Partially offsetting these cash expenditures was our receipt of a
$200,000 earnest money payment related to a proposed merger with another mining company, which did
not materialize.
Cash used in investing activities was $978,024 for 2005 compared to cash provided of $217,385 in
2004, reflecting the increase of $1,118,733 to the restrictive investments securing the reclamation
obligation for the Tonkin Springs property as well as $55,067 in capital expenditures, reduced in
part by $185,776 paid by BacTech as installments toward its purchase of the Tonkin Springs
property.
Cash flow from financing activities increased to $4,007,820 in 2005 compared to $458,012 in 2004,
primarily reflecting the $4 million sale of stock to Mr. McEwen in July 2005 compared to $374,492
raised from the sale of equity in 2004.
Effective February 21, 1992, we entered into a Loan Settlement Agreement with our former senior
secured lender, French American Banking Corporation (FABC). As partial consideration to FABC under
that agreement, Tonkin Springs Gold Mining Company (TSGMC), our wholly owned subsidiary, is
required to pay a limited portion of certain distributions, if any, from TSVLP to FABC. TSVLP has
complete control of such distributions, if any, to TSGMC. Under the terms of the agreement, TSGMC
is required to pay to FABC (i) the first $30,000 of retained distributions, as defined in such
agreement, received from the TSVLP, plus (ii) an amount equal to 50% of such retained distributions
after TSGMC has first received and retained $500,000 of such retained distributions. This
obligation to FABC shall terminate after FABC has been paid a total of $2,030,000 thereunder. No
amounts have been paid to FABC to date under this obligation.
Results of Operations
General. For the year ended December 31, 2005, we recorded a net loss of $(2,990,721), or
$(.12) per share, compared to a net loss for 2004 of $(793,801) or $(.04) per share.
Revenue. Other revenue during 2005 totaled $1,052,478 from a number of components while in
2004 only interest income of $38,750 was recognized. In 2005, other revenue included $200,000
received as an earnest money payment related to a proposed merger with another mining company which
did not materialize, $330,000 in management fees from GRC, and $520,428 in realized gain on the
disposition of GRC shares pursuant to the termination agreements with certain executive officers.
Expenses. General and administrative expenses for 2005 increased $244,226 compared to 2004,
primarily reflecting approximately $170,000 in additional legal expenses related to various
corporate transactions and preparation for the 2005 meeting of shareholders, and approximately
$111,000 increase in investor relations expenses primarily relating to the meeting of shareholders
and other shareholder communication activities. These expenses were partially off-set by
approximately $55,000 of lower salary and employee benefit costs.
During 2005, we wrote off the remaining purchase price of $182,748 due from BacTech upon receipt of
its notice withdrawing from TSLLC effective May 12, 2005. For 2005, we recognized holding costs of
$761,081 in connection with the Tonkin Springs property subsequent to the withdrawal of BacTech.
BacTech was responsible for funding the expenses related to the Tonkin Springs property in 2004. We
did not spend any money on exploration in 2005.
A-14
Contract termination payments with current and former executive officers resulted in expenses of
$1,423,824 in 2005, and reflects the aggregate termination payments of $2,012,331 reduced by
deferred and accrued salaries owned to these individuals, all of which were settled and discharged
with the termination agreements. Included in the expense of the termination agreements were
1,025,000 shares of our common stock valued at $399,750 which we issued to the individuals. We
believe these were one time expenses and will not be repeated in the future.
Stock compensation expense increased for 2005 compared to 2004 due to the issuance of shares in
satisfaction of outstanding warrants and other obligations valued at $114,400, and stock grants to
directors valued at $180,000. The GRC shares received in satisfaction of a management fee of
$320,000 were determined by an independent third party to have a fair value of $151,040, leading to
a realization reserve expense of $168,960.
Accretion of asset retirement obligation by the Company subsequent to the withdrawal of BacTech was
$110,243 while prior to that date in 2005 and for all of 2004, BacTech, as manager, recognized the
expense.
Also in 2005, we reported our share of losses from our investment in equity securities of GRC of
$58,888 under equity accounting, as we determined that the shares of GRC acquired in 2005 had a
determinable value. In 2004, under equity accounting, we did not record our share of GRC’s
operating losses, since such recognition would reduce our zero basis investment below zero. As
noted above, we disposed of all of the GRC stock effective July 28, 2005.
These facts, among others, contributed to a substantial increase in the Company’s costs and
expenses for 2005 compared to 2004.
With the assumption by us of control and responsibility for the Tonkin Springs property, we
evaluated reclamation and remediation issues at the property and made commitments to perform
certain tasks during 2006. These 2006 plans were included in an evaluation for accounting purposes
of the asset retirement obligation of the Company which resulted in a $942,924 increase to the
asset retirement obligation and a corresponding balance sheet asset entitled “Long-lived
asset-asset retirement.”
Critical Accounting Policies
We believe the following critical accounting policies are used in the preparation of our
consolidated financial statements.
Exploration and Development Costs. Costs of acquiring mining properties and any exploration
and development costs are expensed as incurred unless proven and probable reserves exist and the
property is a commercially minable property. Mine development costs incurred either to develop new
ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in
advance of current production are also capitalized. Costs incurred to maintain current production
or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. The company evaluates, at least quarterly, the carrying
value of capitalized mining costs and related property, plant and equipment costs, if any, to
determine if these costs are in excess of their net realizable value and if a permanent impairment
needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any
related property, plant and equipment costs are based upon expected future cash flows and/or
estimated salvage value in accordance with Statement of Financial Accounting Standards (SFAS) No.
144, “Accounting for Impairment or Disposal of Long-Lived Assets.”
Property Retirement Obligation. The company implemented SFAS 143, “Accounting for Asset
Retirement Obligations,” effective January 1, 2003. SFAS 143 requires the fair value of a liability
for an asset retirement obligation to be recognized in the period that it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. Ongoing environmental and
reclamation expenditures are credited to the asset retirement obligation as incurred to the extent
they relate to asset retirement obligation and to expense to the extent they do not so apply.
Use of Estimates. The preparation of the company’s consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America requires
the company’s management to make estimates and assumptions that affect the amounts of assets and
liabilities, the 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.
A-15
Recent Pronouncements
In December 2004, the U.S. Financial Accounting Standards Board (FASB) issued SFAS 123 (revised
2004) “Share-Based Payment.” This Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement establishes fair value as the
measurement objective in accounting for share-based payment arrangements and requires all entities
to apply a fair-value-based measurement in accounting for share-based payment transactions with
employees. The Statement also establishes fair value as the measurement objective for transactions
in which an entity acquires goods or services from non-employees in share-based payment
transactions. The Statement replaces SFAS 123 “Accounting for Stock-Based Compensation” and
supersedes Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to
Employees.” The provisions of this Statement will be effective for the company beginning with its
fiscal year ending December 31, 2007. The company is currently evaluating the impact this new
Standard will have on its financial position, results of operations or cash flows.
In March 2005, the SEC issued Staff Accounting Bulletin No.107 (SAB 107) which provides guidance
regarding the interaction of SFAS 123(R) and certain SEC rules and regulations. The new guidance
includes the SEC’s view on the valuation of share-based payment arrangements for public companies
and may simplify some of SFAS 123(R)’s implementation challenges for registrants and enhance the
information investors receive.
In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations,”
which clarifies that the term “conditional asset retirement obligation” as used in SFAS 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity. FIN 47 requires an entity to
recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value can be reasonably estimated. FIN 47 is effective no later than the end of the fiscal year
ending after December 15, 2005. The company does not believe that FIN 47 will have a material
impact on its financial position or results from operations.
Risk Factors
This report, including management’s discussion and analysis or plan of operations, contains forward
looking statements that may be materially affected by several risk factors, including those
summarized below:
The feasibility of mining our Tonkin Springs property, our only property, has not been established,
meaning that we have not completed exploration or other work necessary to determine if it is
commercially feasible to develop the property. We are currently an exploration stage company. We
have no proven or probable reserves on our property. A “reserve,” as defined by regulation of the
SEC, is that part of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination. A reserve requires a feasibility study
demonstrating with reasonable certainty that the deposit can be economically extracted and
produced. We have received no feasibility study with regard to all or a portion of our Tonkin
Springs property. As a result, we have no reserves.
The mineralized material identified to date on our Tonkin Springs property does not and may never
have demonstrated economic viability. Substantial expenditures are required to establish reserves
through drilling and there is no assurance that reserves will be established. The feasibility of
mining has not been, and may never be, established. Whether a mineral deposit can be commercially
viable depends upon a number of factors, including the particular attributes of the deposit,
including size, grade and proximity to infrastructure; metal prices, which can be highly variable;
government regulations, including environmental and reclamation obligations. If we are unable to
establish some or all of our mineralized material as proven or probable reserves in sufficient
quantities to justify commercial operations, we may not be able to raise sufficient capital to
develop a mine, even if one is warranted. If we are unable to establish such reserves, the market
value of our securities may decline.
We are dependent upon production of gold or other precious metals from a single property, have
incurred substantial losses since our inception in 1979, and may never be profitable. Since our
inception in 1979, we have not been profitable. As of December 31, 2005, our accumulated deficit
was approximately $38 million. To become profitable, we must identify additional mineralization and
establish reserves, and then either develop our property or locate and enter into agreements with
third party operators. It could be years before we receive any revenues from gold production. We
may suffer significant additional losses in the future and may never be profitable. We do not
expect to receive revenue from operations in the foreseeable future, if at all. Even if we do
achieve profitability, we may not be able to sustain or increase profitability on a quarterly or
annual basis.
A-16
We last produced gold from our Tonkin Springs property in 1990. We have no proven or probable
reserves, and we may be unable to produce gold or other precious metals with a value exceeding
existing and future costs and expenses. If we are unable to economically produce gold from our
Tonkin Springs property, which is currently our sole property, we would be forced to identify and
invest substantial sums in one or more additional properties. Such properties may not be available
to us on favorable terms or at all. Because of the numerous risks and uncertainties associated with
exploration and development of mining properties, we are unable to predict the extent of any future
losses or when we will become profitable, if at all.
We may not be successful in completing the acquisition of one or more of the companies that we
recently announced. On March 5, 2006, we announced our intention to acquire four companies with
mineral properties adjacent to or near our Tonkin Springs property. However, as of March 29, 2006,
we have not commenced an offer for, or entered into an acquisition agreement with, any of the
companies. We are unable to predict when, if ever, an offer will be made or when, if ever, any of
these transactions will be completed. Further, management of one or more of the companies may
resist our efforts. In addition, our current estimates of the value of these entities is based only
on publicly available information, and we may determine through due diligence investigation of any
or all of these companies that acquiring one or more of them would be less advantageous than we
currently believe. As a result of these or other factors, we may choose not to proceed with one or
more of the proposed acquisitions, or we may otherwise be unable to complete any or all of the
proposed transactions. If we are unable to consummate the acquisition of one or more of those
companies, the price of our common stock may decline.
The integration of any companies that we acquire will present significant challenges. Upon
completion of any of the proposed acquisitions that we recently announced, the integration of our
operations with those of the acquired company or companies and the consolidation of those
operations will require the dedication of management resources, which will temporarily divert
attention from the day-to-day business of the combined company. The difficulties of assimilation
may be increased by the necessity of coordinating separate organizations, integrating operations,
systems and personnel with disparate business backgrounds and combining different corporate
cultures. The process of combining the organizations may cause an interruption of, or a loss of
momentum in, the activities of any or all of the companies’ businesses, which could have an adverse
effect on the revenues and operating results of the combined company for an indeterminate period of
time. The failure to successfully integrate any companies that we may acquire, to retain key
personnel and to successfully manage the challenges presented by the integration process may
prevent us from achieving the anticipated potential benefits of any such acquisition. If we fail to
realize the anticipated benefits of any acquisition, the market value of our stock may be adversely
affected.
Historical production of gold at our Tonkin Springs property may not be indicative of the potential
for future development or revenue. Historical production from our Tonkin Springs property came from
relatively shallow deposits, and in very limited quantities. In the future, we intend to explore
deeper zones in an effort to identify additional mineralized material. However, due to the
uncertainties associated with exploration, including variations in geology and structure, there is
no assurance that our efforts will be successful. Investors in our common stock should not rely on
our historical operations as an indication that we will ever place the property into commercial
production again. We expect to incur losses unless and until such time as our property enters into
commercial production and generates sufficient revenues to fund our continuing operations.
We will require significant additional capital to continue our exploration activities, and, if
warranted, to develop mining operations. Substantial expenditures will be required to establish
proven and probable reserves through drilling and analysis, to develop metallurgical processes to
extract metal and develop the mining and processing facilities and infrastructure at any mine site.
In addition to significant funds we have budgeted for drilling commencing in 2006, we will require
significant additional funding for geological and geochemical analysis, assaying, and, if
warranted, feasibility studies with regard to the results of our exploration. We may not benefit
from such investments if we are unable to identify commercially exploitable mineralized material.
If we are successful in identifying reserves, we will require significant additional capital to
construct a mill and other facilities necessary to mine those reserves. That funding, in turn,
depends upon a number of factors, including the state of the national and worldwide economy and the
price of gold. Our company may not be successful in obtaining the required financing for these or
other purposes, in which case, our ability to continue operating would be adversely affected.
Failure to obtain such additional financing could result in delay or indefinite postponement of
further exploration and the possible, partial or total loss of our company’s potential interest in
certain properties.
A-17
We may be forced to forfeit our share of $37.6 million currently held in escrow pursuant to the
provisions of our financing arrangement in connection with our recent private placement. Under the
terms of a subscription receipt agreement executed in connection with the private placement which
closed in February 2006, one-half of the $75 million gross proceeds is being held in escrow pending
satisfaction of certain conditions. Those conditions include, among others, the listing of our
common stock on the Toronto Stock Exchange, the filing of a final prospectus which qualifies the
distribution of our securities in certain provinces in Canada and receipt of an effective date for
the registration statement of which this prospectus is a part. If we are unable to satisfy the
escrow release conditions before February 22, 2007, the entire amount held in escrow must be
refunded to holders of the subscription receipts in exchange for 50% of their subscription
receipts. In such event, we may be forced to curtail our exploration efforts and acquisition
intentions and seek additional financing. We may not be able to raise additional capital on
commercially reasonable terms or at all and as such our exploration program may be adversely
affected.
If we are unable to satisfy the compliance order issued with regard to our Tonkin Springs property,
we may forfeit our mine permit. In May 2005, the NDEP issued a notice of alleged violation under
the mine permit relating to disturbances at a portion of the Tonkin Springs property where mining
was formerly conducted. As a result of that notice, we are under a compliance order to submit and
implement a final closure plan for the mining operation by August 2006. Our failure or inability to
comply with that order and satisfy other regulations affecting our property could cause us to
forfeit our existing permit and adversely affect our ability to obtain additional necessary
permits.
Our continuing reclamation obligations at the Tonkin Springs property could require significant
additional expenditures. We are responsible for the reclamation obligations related to disturbances
located on the Tonkin Springs property. The current estimate of reclamation costs for existing
disturbances on the property in the form required by the Federal Bureau of Land Management and NDEP
is approximately $2.9 million. A preliminary and recent internal study indicates that an additional
$800,000 may be required to perform the reclamation activities. As required by applicable
regulations, we have in place a cash bond in the amount of $2.9 million to secure the reclamation
of the property. Reclamation bond estimates are required to be updated every three years or prior
to new disturbances taking place that are not already bonded. We anticipate updating the
reclamation obligation by September 2006, which could raise our potential obligation and the amount
of the bond. There is a risk that any cash bond, even if augmented, could be inadequate to cover
the costs of reclamation which could subject us to additional bond funding obligations or actual
reclamation costs. The satisfaction of bonding requirements and continuing reclamation obligations
will require a significant amount of capital. There is a risk that we will be unable to fund these
additional bonding requirements and further that the regulatory authorities may increase
reclamation and bonding requirements to such a degree that it would not be commercially reasonable
to continue exploration activities.
Fluctuating gold prices could negatively impact our business plan. The potential for profitability
of gold mining operations at the Tonkin Springs property and the value of the Tonkin Springs
property is directly related to the market price of gold. The price of gold may also have a
significant influence on the market price of our common stock. In the event that we obtain positive
drill results and progress to a point where a commercial production decision can be made, our
decision to put a mine into production and to commit the funds necessary for that purpose must be
made long before any revenue from production would be received. A decrease in the price of gold at
any time during future exploration and development may prevent our property from being economically
mined or result in the writeoff of assets whose value is impaired as a result of lower gold prices.
The price of gold is affected by numerous factors beyond our control, including inflation,
fluctuation of the United States dollar and foreign currencies, global and regional demand, the
purchase or sale of gold by central banks, and the political and economic conditions of major gold
producing countries throughout the world. During the last five years, the average annual market
price of gold has ranged between $271 per ounce and $445 per ounce, as shown in the table below:
Average Annual Market Price of Gold, 2001-2005
2001
2002
2003
2004
2005
$271
$
310
$
364
$
406
$
445
Although it may in the future be possible for us to protect some price fluctuations by hedging if
we identify commercially minable reserves on the Tonkin Springs property, the volatility of mineral
prices represents a substantial risk, which no amount of planning or technical expertise can
eliminate. In the event gold prices decline and remain low for prolonged periods of time, we might
be unable to develop our property or produce any revenue.
A-18
Our ongoing operations, including past mining activities, are subject to environmental risks which
could expose us to significant liability and delay, suspension or termination of our operations at
the Tonkin Springs property. All phases of our operations will be subject to federal, state and
local environmental regulation. These regulations mandate, among other things, the maintenance of
air and water quality standards and land reclamation. They also set forth limitations on the
generation, transportation, storage and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental assessments of
proposed projects, and a heightened degree of responsibility for companies and their officers,
directors and employees. Future changes in environmental regulation, if any, may adversely affect
our operations, make our operations prohibitively expensive, or prohibit them altogether.
Environmental hazards may exist on the Tonkin Springs property and on properties which we may hold
interests in the future that are unknown to us at the present and that have been caused by us or
previous owners or operators of the properties, or that may have occurred naturally.
We have transferred our interest in several mining properties over past years, some of which are
now being operated by third parties. Under applicable federal and state environmental laws, as a
prior owner of these properties, we may be liable for remediating any damage that we may have
caused. The liability could include response costs for removing or remediating the release and
damage to natural resources, including ground water, as well as the payment of fines and penalties.
Failure to comply with applicable environmental laws, regulations and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory or judicial
authorities, causing operations to cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or remedial actions.
Production, if any, at our project will involve the use of hazardous materials. Should these
materials leak or otherwise be discharged from their containment systems, then we may become
subject to liability for hazards. We have not purchased insurance for environmental risks including
potential liability for pollution or other hazards as a result of the disposal of waste products
occurring from exploration and production as it is not generally available at a reasonable price.
Our operations are subject to permitting requirements which could require us to delay, suspend or
terminate our operations at the Tonkin Springs property. Our operations, including our proposed
two-year exploration drilling program, require permits from the state and federal governments. We
may be unable to obtain these permits in a timely manner, on reasonable terms, or at all. If we
cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits,
our timetable and business plan for exploration of the Tonkin Springs property will be adversely
affected.
Title to mineral properties can be uncertain, and we are at risk of loss of ownership of our
property. The Company’s ability to explore and operate its properties depends on the validity of
title to its properties. The mineral properties making up the Tonkin Springs property consist of
leases of unpatented mining claims and unpatented mining claims and unpatented millsite claims.
Unpatented mining claims are unique property interests and are generally considered to be subject
to greater risk than other real property interests because the validity of unpatented mining claims
is often uncertain. Unpatented mining claims provide only possessory title and their validity is
often subject to contest by third parties or the Federal government. These uncertainties relate to
such things as the sufficiency of mineral discovery, proper posting and marking of boundaries,
assessment work and possible conflicts with other claims not determinable from descriptions of
record. Since a substantial portion of all mineral exploration, development and mining in the
United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining
industry. We have not obtained a title opinion on our entire property, with the attendant risk that
title to some claims, particularly title to undeveloped property, may be defective. There may be
valid challenges to the title to our property which, if successful, could impair development and/or
operations.
We remain at risk that the mining claims may be forfeited either to the United States or to rival
private claimants due to failure to comply with statutory requirements as to location and
maintenance of the claims or challenges to whether a discovery of a valuable mineral exists on
every claim.
A significant portion of the lode claims comprising our Tonkin Springs property are subject to a
lease in favor of a third party which expires in 2009 and which provides for a 5% royalty on
production. A total of 269 of our mining and millsite claims are subject to this lease. The lease
requires annual payments of $150,000 or 455 ounces of gold, whichever is greater, and payment of a
net smelter returns royalty of 5% of the gross sales price of gold or silver from the property.
This lease expires January 1, 2009. In the event we are unable to extend the lease or purchase the
claims from the owner, we would be forced to forfeit the underlying claims, which in turn may
adversely affect our ability to explore and develop the property. If we are successful in
identifying sufficient mineralization to warrant placing the property into production, we will be
obligated to pay the leaseholder a royalty of 5% of the gross revenue from production, which will
reduce our potential revenue.
A-19
We cannot assure you that we will have an adequate supply of water to complete desired exploration
or development of the Tonkin Springs property. In accordance with Nevada law, we have obtained
permits to drill the water wells that we currently use to service the Tonkin Springs property.
However, the amount of water that we are entitled to use from those wells has not been finally
determined by the appropriate regulatory authorities. A final determination of these rights is
dependent in part on our ability to demonstrate a beneficial use for the amount water that we
intend to use. Unless we are successful in developing the project to a point where we can commence
commercial production of gold or other precious metals, we may not be able to demonstrate such
beneficial use. Accordingly, there is no assurance that we will have access to the amount of water
needed to operate a mine at the property.
Estimates of mineralized material at our Tonkin Springs property are based on drill results from
shallow deposits and are not necessarily indicative of the results we may achieve from drilling at
greater depths. Previous operators at the Tonkin Springs property were focused on producing gold
from shallow deposits in an effort to achieve immediate revenue. Our proposed drilling program for
2006 and 2007 targets mineralization at greater depths and at different locations on our property.
Estimates of mineralization in shallow zones is not necessarily indicative of mineralization at
greater depths. In addition, estimates of mineralization are based on limited samples and many
assumptions, and are inherently imprecise. Our ability to identify and delineate additional
mineralization depends on the results of our future drilling efforts and our ability to properly
interpret those results. We may be unable to identify any additional mineralization or reserves.
We depend on a limited number of personnel and the loss of any of these individuals could adversely
affect our business. Our company is dependent on three persons, namely our chairman and chief
executive officer, president and chief operating officer and vice president and chief financial
officer. Mr. McEwen, our Chairman and Chief Executive Officer, is responsible for strategic
direction and the oversight of our business. Ms. Carpenter, our President and Chief Operating
Officer, is responsible for company management and overseeing our exploration and regulatory
compliance. Mr. Pass is our principal financial officer and responsible for our public reporting
and administrative functions. We rely heavily on these individuals for the conduct of our business.
The loss of any of our existing officers would significantly and adversely affect our business. In
that event, we would be forced to identify and retain an individual to replace the departed
officer. We may not be able to replace one or more of these individuals on terms acceptable to us.
We have no life insurance on the life of any officer.
Our Chairman and Chief Executive Officer may face conflicts of interest which may affect, among
other things, the time he devotes to the affairs of our company and the price we agree to pay for
the acquisition of one or more of the companies that we have recently announced. Mr. McEwen is a
principal shareholder of each of the companies which we have proposed to acquire and a member of
the board of directors of three of those companies. He is also an investor and director in other
companies that have no present relationship to our company. In his capacity as a director and
shareholder of the companies we have proposed to acquire, he is subject to conflicts of interest
with regard to, among other things, the price we agree to pay for those other companies. If we
complete one or more of these acquisitions, Mr. McEwen would profit from his investment in the
other company. While we have sought to mitigate that risk by forming a special committee of our
Board of Directors to evaluate those transactions, this step may not be sufficient to eliminate the
entire risk. If we are unable or unwilling to consummate one or more of those acquisitions, Mr.
McEwen may continue as a member of the board of directors of that entity. Mr. McEwen has interests
in a variety of companies, including those we have targeted for acquisition. As a result, he may
also be subject to a conflict with regard to the amount of time he devotes to our affairs. Mr.
McEwen does not devote all of his business time to our affairs.
Legislation has been proposed that would significantly affect the mining industry. Periodically,
members of the U.S. Congress have introduced bills which would supplant or alter the provisions of
the Mining Law of 1872, which governs the unpatented claims that we control. One such amendment has
become law and imposed a moratorium on patenting of mining claims, which reduced the security of
title provided by unpatented claims such as those on our Tonkin Springs property. If additional
legislation is enacted, it could substantially increase the cost of holding unpatented mining
claims by requiring payment of royalties and could significantly impair our ability to develop
mineral resources on unpatented mining claims. Such bills have proposed, among other things, to
make permanent the patent moratorium, to impose a federal royalty on production from unpatented
mining claims and to declare certain lands as unsuitable for mining. Although it is impossible to
predict at this time what any royalties might be, such royalties could adversely affect the
potential for development of such mining claims, and the economics of existing operating mines on
federal unpatented mining claims. Passage of such legislation could adversely affect our business.
We will incur substantial costs in connection with the proposed acquisitions, even if they are
never completed. We expect to incur acquisition-related expenses of approximately $2.5 million,
consisting of investment banking, legal and accounting fees and financial printing and other
related charges. These amounts are preliminary estimates and the actual amounts may be higher or
lower. Moreover, we are likely to incur additional expenses in future periods in connection with
the integration of any acquired company’s business with our business.
A-20
Our industry is highly competitive, attractive mineral lands are scarce, and we may not be able to
obtain quality properties. We compete with many companies in the mining business, including large,
established mining companies with substantial capabilities, personnel and financial resources.
There is a limited supply of desirable mineral lands available for claim-staking, lease or
acquisition in the United States, and other areas where we may conduct exploration activities. We
may be at a competitive disadvantage in acquiring mineral properties, since we compete with these
individuals and companies, many of which have greater financial resources and larger technical
staffs. From time to time, specific properties or areas which would otherwise be attractive to us
for exploration or acquisition are unavailable due to their previous acquisition by other companies
or our lack of financial resources. Competition in the industry is not limited to the acquisition
of mineral properties but also extends to the technical expertise to find, advance, and operate
such properties; the labor to operate the properties; and the capital for the purpose of funding
such properties. Many competitors not only explore for and mine precious metals, but conduct
refining and marketing operations on a world-wide basis. Such competition may result in our company
being unable not only to acquire desired properties, but to recruit or retain qualified employees
or to acquire the capital necessary to fund our operation and advance our properties. Our inability
to compete with other companies for these resources would have a material adverse effect on our
results of operation and business.
The nature of mineral exploration and production activities involves a high degree of risk and the
possibility of uninsured losses that could materially and adversely affect our operations.
Exploration for minerals is highly speculative and involves greater risk than many other
businesses. Many exploration programs do not result in the discovery of mineralization and any
mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Few
properties that are explored are ultimately advanced to producing mines. Our current exploration
efforts are, and any future development or mining operations we may elect to conduct will be
subject to all of the operating hazards and risks normally incident to exploring for and developing
mineral properties, such as, but not limited to:
•
economically insufficient mineralized material;
•
fluctuations in production costs that may make mining uneconomical;
•
labor disputes;
•
unanticipated variations in grade and other geologic problems;
•
environmental hazards;
•
water conditions;
•
difficult surface or underground conditions;
•
industrial accidents;
•
metallurgical and other processing problems;
•
mechanical and equipment performance problems;
•
failure of pit walls or dams;
•
unusual or unexpected formations;
•
personal injury, fire, flooding, cave-ins and landslides; and
•
decrease in reserves due to a lower gold price.
Any of these risks can materially and adversely affect, among other things, the development of
properties, production quantities and rates, costs and expenditures and production commencement
dates. We currently have no insurance to guard against any of these risks. If we determine that
capitalized costs associated with any of our mineral interests are not likely to be recovered, we
would incur a writedown of our investment in such interest. All of these factors may result in
losses in relation to amounts spent which are not recoverable.
We do not insure against all risks to which we may be subject in our planned operations. While we
currently maintain insurance to insure against general commercial liability claims, our insurance
will not cover all of the potential risks associated with our operations. For example, we do not
have insurance on the mill at our Tonkin Springs property and we do not have business interruption
insurance. We may also be unable to obtain insurance to cover other risks at economically feasible
premiums or at all. Insurance coverage may not continue to be available, or may not be adequate to
cover any resulting liability. We might also become subject to liability for pollution or other
hazards associated with mineral exploration and production which may not be insured against, which
may exceed the limits of our insurance coverage, or which we may elect not to insure against
because of premium costs or other reasons. Losses from these events may cause us to incur
significant costs that could materially adversely affect our financial condition and our ability to
fund activities on our property. A significant loss could force us to reduce or terminate our
operations.
A-21
While we believe we have adequate internal controls over financial reporting, we will be required
to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any
adverse results from such evaluation could result in a loss of investor confidence in our financial
reports and have an adverse effect on the price of our common stock. Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we expect that we will be required to furnish a report by our
management on internal controls for the fiscal year ending December 2007. Such report must contain,
among other matters, an assessment of the effectiveness of our internal control over financial
reporting, including a statement as to whether or not our internal control is effective. This
assessment must include disclosure of any material weaknesses in our internal control over
financial reporting identified by our management. Such report must also contain a statement that
our auditors have issued an attestation report on our management’s assessment of such internal
controls. While we believe our internal control over financial reporting is effective, we are still
constructing the system and processing documentation and performing the evaluations needed to
comply with Section 404, which is both costly and challenging. We may not be able to complete our
evaluation, testing and any required remediation in a timely fashion. If we are unable to assert
that our internal control over financial reporting is effective, or if we disclose significant
deficiencies or material weaknesses in our internal controls, investors could lose confidence in
the accuracy and completeness of our financial reports, which would have a material adverse effect
on our stock price.
Colorado law and our Articles of Incorporation may protect our directors from certain types of
lawsuits. Colorado law provides that our directors will not be liable to us or our stockholders for
monetary damages for all but certain types of conduct as directors of our company. Our Articles of
Incorporation permit us to indemnify our directors and officers against all damages incurred in
connection with our business to the fullest extent provided or allowed by law. The exculpation
provisions may have the effect of preventing stockholders from recovering damages against our
directors caused by their negligence, poor judgment or other circumstances. The indemnification
provisions may require us to use our limited assets to defend our directors and officers against
claims, including claims arising out of their negligence, poor judgment, or other circumstances.
Risks Related to our Common Stock
The sale of our common stock by selling shareholders may depress the price of our common stock due
to the limited trading market which exists. We intend to file a registration statement with the SEC
to permit the public sale of securities sold by us in a private placement in February 2006. That
action will result in up to 40,158,000 additional shares of our common stock available for sale in
the public market. Due to a number of factors, including the lack of listing of our common stock on
a national securities exchange, the trading volume in our common stock has historically been
limited. Trading volume over the last 12 months has averaged approximately 200,000 shares per day.
As a result, the sale of a significant amount of common stock by the selling shareholders may
depress the price of our common stock. As a result, the price of our common stock may decline.
Completion of one or more of the acquisitions that we recently announced would result in the
issuance of a significant amount of additional common stock which may depress the trading price of
our common stock. While no formal offer has been made, or agreement reached, with regard to the
acquisition of one or more of the companies that we recently announced, completion of one or more
of those acquisitions would result in the issuance of a significant amount of common stock. If all
of the acquisitions were completed on the terms currently proposed, of which there is no assurance,
we would issue up to approximately 45 million shares of our common stock, without taking into
account options and warrants that such other companies may have outstanding. This would represent
approximately 72% of the common stock we presently have outstanding, assuming conversion of all of
the subscription receipts and exercise of all outstanding warrants. The issuance of such a
significant amount of common stock could depress the trading price of our common stock.
Our stock price may be volatile and as a result you could lose all or part of your investment. In
addition to volatility associated with OTC securities in general, the value of your investment
could decline due to the impact of any of the following factors upon the market price of our common
stock:
•
changes in the worldwide price for gold;
•
disappointing results from our exploration or development efforts;
•
failure to meet our revenue or profit goals or operating budget;
•
decline in demand for our common stock;
•
downward revisions in securities analysts’ estimates or changes in general market conditions;
•
technological innovations by competitors or in competing technologies;
•
investor perception of our industry or our prospects; and
•
general economic trends
A-22
In addition, stock markets have experienced extreme price and volume fluctuations and the market
prices of securities generally have been highly volatile. These fluctuations are often unrelated to
operating performance of a company and may adversely affect the market price of our common stock.
As a result, investors may be unable to resell their shares at a fair price.
A small number of existing shareholders own a significant portion of our common stock, which could
limit your ability to influence the outcome of any shareholder vote. Our executive officers and
directors, together with our largest shareholder, beneficially own approximately 42% of our common
stock as of the date of this report. Under our Articles of Incorporation and Colorado law, the vote
of a majority of the shares outstanding is generally required to approve most shareholder action.
As a result, these individuals and entities will be able to influence the outcome of shareholder
votes for the foreseeable future, including votes concerning the election of directors, amendments
to our Articles of Incorporation or proposed mergers or other significant corporate transactions.
We have never paid dividends on our common stock and we do not anticipate paying any in the
foreseeable future. We have not paid dividends on our common stock to date, and we may not be in a
position to pay dividends in the foreseeable future. Our ability to pay dividends will depend on
our ability to successfully develop one or more properties and generate revenue from operations.
Further, our initial earnings, if any, will likely be retained to finance our growth. Any future
dividends will depend upon our earnings, our then-existing financial requirements and other factors
and will be at the discretion of our Board of Directors.
Forward-Looking Statements
This prospectus contains forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 concerning our ability to develop and produce gold or
other precious metals from our Tonkin Springs property, future business plans and strategies, the
proposed acquisition of other companies, future revenue and the receipt of working capital, and
other statements that are not historical in nature. In this prospectus, forward-looking statements
are often identified by the words “anticipate,”“plan,”“believe,”“expect,”“estimate,” and the
like. These forward-looking statements reflect our current beliefs, expectations and opinions with
respect to future events, and involve future risks and uncertainties which could cause actual
results to differ materially from those expressed or implied.
In addition to the specific factors identified under RISK FACTORS above, other uncertainties that
could affect the accuracy of forward-looking statements, include:
•
decisions of foreign countries and banks within those countries;
•
technological changes in the mining industry;
•
our costs;
•
changes in our business strategy;
•
interpretation of drill hole results and the geology, grade and continuity of mineralization;
•
the uncertainty of reserve estimates and timing of development expenditures; and
•
commodity price fluctuations
This list, together with the factors identified under RISK FACTORS, is not exhaustive of the
factors that may affect any of the company’s forward-looking statements. You should read this
report completely and with the understanding that our actual future results may be materially
different from what we expect. These forward-looking statements represent our beliefs, expectations
and opinions only as of the date of this prospectus. We do not intend to update these
forward-looking statements except as required by law. We qualify all of our forward-looking
statements by these cautionary statements.
Prospective investors are urged not to put undue reliance on forward-looking statements.
A-23
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements:
22
Report of Independent Registered Public Accounting Firm
23
Consolidated Statements of Operations for the years ended December 31, 2005 and 2004
Consolidated Statements of Changes in Shareholders’ Equity for the years ended
December 31, 2005 and 2004
26
Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004
27
Notes to Consolidated Financial Statements
28
A-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Gold Corporation
Lakewood, Colorado
We have audited the accompanying consolidated balance sheet of U.S. Gold Corporation as of December31, 2005 and the related consolidated statements of operations, changes in shareholders’ equity and
cash flows for the years ended December 31, 2005 and 2004. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based upon our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of U.S. Gold Corporation as of December 31, 2005, and the
results of its operations and its cash flows for the years ended December 31, 2005 and 2004, in
conformity with accounting principles generally accepted in the United States of America.
Increase to restricted investments securing reclamation
(1,118,733
)
—
Capital expenditures
(55,067
)
(101,507
)
Sale of assets
10,000
—
Cash (used in) provided by investing activities
(978,024
)
217,385
Cash flows from financing activities:
Sale of common stock for cash
4,000,000
374,492
Purchase of treasury stock
(248
)
(470
)
Proceeds from (payments on) installment purchase contracts
8,068
83,990
Cash provided by financing activities
4,007,820
458,012
Increase (decrease) in cash and cash equivalents
602,530
(123,004
)
Cash and cash equivalents, beginning of year
74,988
197,992
Cash and cash equivalents, end of year
$
677,518
$
74,988
Reconciliation of net (loss) to cash (used in) operating activities:
Net (loss)
$
(2,990,721
)
$
(793,801
)
Items not providing/requiring cash:
Management fee paid with GRC shares
(320,000
)
—
Realized gain from GRC shares
(520,428
)
—
Equity share of GRC loss
58,888
—
Non-cash portion of employment termination expense
433,400
—
Write-off of BacTech purchase price receivable
182,748
—
Loss on sale of asset
29,982
—
Interest income
(25,667
)
—
Stock compensation expense
294,400
43,229
Realization reserve-GRC stock
168,960
—
Accretion of asset retirement obligation-SFAS 143
110,243
—
Depreciation
12,850
4,878
(Increase) decrease in other assets related to operations
22,341
(623
)
Increase (decrease) in liabilities related to operations
115,738
(52,084
)
Cash (used in) operating activities
$
(2,427,266
)
$
(798,401
)
Non-cash financing and investing activities:
Net assets received from BacTech withdrawal from TSLLC
$
757,035
$
—
Payments pursuant to Employment Termination Agreements with GRC common stock
$
612,580
$
—
Exercise of stock options utilizing cashless exercise
$
—
$
24,000
The accompanying notes are an integral part of these consolidated financial statements.
A-29
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005
1. Summary of Significant Accounting Policies
Basis of Presentation: U.S. Gold Corporation (the “Company”) was organized under the laws of the
State of Colorado on July 24, 1979. Since its inception, the Company has been engaged in the
exploration for, development of, and the production and sale of gold and silver.
Reclassifications: Certain adjustments have been made in the financial statements for the year
ended December 31, 2004, to conform to accounting and financial statement presentation for the year
ended December 31, 2005. On November 14, 2005, the shareholders of the Company approved an
amendment to the articles of incorporation increasing the authorized capital from 35,000,000 shares
of $0.10 par value common stock to 250,000,000 shares of no par value common stock. All
presentations have been restated to reflect these changes to the capital of the Company.
Basis of Consolidation: The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
Statements of Cash Flows: The Company considers cash in banks, deposits in transit, and highly
liquid debt instruments purchased with original maturities of three months or less to be cash and
cash equivalents.
Property and Equipment: Office furniture, equipment and vehicles are carried at cost not in excess
of their estimated net realizable value. Normal maintenance and repairs are charged to earnings
while expenditures for major maintenance and betterments are capitalized. Gains or losses on
disposition are recognized in operations.
Exploration and Development Costs: Costs of acquiring mining properties and any exploration and
development costs are expensed as incurred unless proven and probable reserves exist and the
property is a commercially minable property. Mine development costs incurred either to develop new
ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in
advance of current production are also capitalized. Costs incurred to maintain current production
or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying
value of capitalized mining costs and related property, plant and equipment costs, if any, to
determine if these costs are in excess of their net realizable value and if a permanent impairment
needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any
related property, plant and equipment costs are based upon expected future cash flows and/or
estimated salvage value in accordance with Statement of Financial Accounting Standards (“SFAS”) No.
144, “Accounting for Impairment or Disposal of Long-Lived Assets.”
Depreciation: Depreciation of office furniture, equipment and vehicles is computed using
straight-line methods. Office furniture, equipment and vehicles are being depreciated over the
estimated economic lives ranging from 3 to 5 years.
Property Retirement Obligation: The Company implemented SFAS 143, “Accounting for Asset Retirement
Obligations,” effective January 1, 2003. SFAS 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period that it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. Ongoing environmental and reclamation expenditures
are credited to the asset retirement obligation as incurred to the extent they relate to asset
retirement obligation and to expense to the extent they do not so apply.
Stock Option Plans: The Company applies APB Opinion 25, “Accounting for Stock Issued to
Employees,” and related interpretations in accounting for all stock option plans. Under APB Opinion
25, no compensation cost has been recognized for stock options issued to employees as the exercise
price of the Company’s stock options granted equals or exceeds the market price of the underlying
common stock on the date of grant.
SFAS 123, “Accounting for Stock-Based Compensation,” requires the Company to provide pro forma
information regarding net income as if compensation costs for the Company’s stock option plans had
been determined in accordance with the fair value based method prescribed in SFAS 123. To provide
the required pro forma information, the Company estimates the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing model.
A-30
Revenue Recognition: Gains on the sale of mineral interests, if any, includes the excess of the
net proceeds from sales over the Company’s net book value in that property. Generative exploration
program fees, received as part of an agreement whereby a third party agrees to fund a generative
exploration program in connection with mineral deposits in areas not previously recognized as
containing mineralization in exchange for the right to enter into a joint venture in the future to
further explore or develop specifically identified prospects, are recognized as revenue in the
period earned.
Management contract fees are recognized as revenue earned is determined to be realizable. Sales
revenue is recognized upon the production of metals having a fixed monetary value. Metal
inventories are recorded at estimated net realizable value, except in cases where there is no
immediate marketability at a quoted market price, in which case they are recorded at the lower of
cost or net realizable value.
Per Share Amounts: SFAS 128, “Earnings Per Share,” provides for the calculation of “Basic” and
“Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted-average number of shares
outstanding during the period (20,028,173 for 2004 and 25,931,172 for 2005). Diluted earnings per
share reflect the potential dilution of securities that could share in the earnings of the Company,
similar to fully diluted earnings per share. As of December 31, 2005 and 2004, warrants and options
are not considered in the computation of diluted earnings per share as their inclusion would be
antidilutive.
Income Taxes: The Company accounts for income taxes under SFAS 109, “Accounting for Income Taxes.”
Temporary differences are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or deductible amounts in
future years.
Business Risks: The Company continually reviews the mining risks it encounters in its operations.
It mitigates the likelihood and potential severity of these risks through the application of high
operating standards. The Company’s operations have been and in the future may be, affected to
various degrees by changes in environmental regulations, including those for future site
restoration and reclamation costs. The Company’s business is subject to extensive license, permits,
governmental legislation, control and regulations. The Company endeavors to be in compliance with
these regulations at all times.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires the
Company’s management to make estimates and assumptions that affect the amounts of assets and
liabilities, the 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.
Fair Value of Financial Instruments: SFAS 107, “Disclosures About Fair Value of Financial
Instruments,” requires disclosure of fair value information about financial instruments. Fair value
estimates discussed herein are based upon certain market assumptions and pertinent information
available to management as of December 31, 2005.
The respective carrying value of certain on-balance-sheet financial instruments approximate their
fair values. These financial instruments include cash, cash equivalents, interest receivable,
accounts payable, and installment purchase contracts. Fair values were assumed to approximate
carrying values for these financial instruments since they are short term in nature and their
carrying amounts approximate fair value or they are receivable or payable on demand. The carrying
value of the Company’s long-term purchase contracts approximates fair values of similar debt
instruments.
Recent Pronouncements
In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 151, “Inventory
Costs.” This Statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). In addition, this Statement requires that allocation of fixed production
overhead to the costs of conversion be based on the normal capacity of the production facilities.
The provisions of this Statement will be effective for the Company beginning with its fiscal year
ending December 31, 2006. The Company is currently evaluating the impact this new Standard will
have on its operations, but believes that it will not have a material impact on the Company’s
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 153, “Exchanges of Non monetary Assets — an amendment of APB
Opinion No. 29.” This Statement amended APB Opinion 29 to eliminate the exception for non monetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of
non monetary assets that do not have commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. The adoption of this Standard is not expected to have any material impact on the
Company’s financial position, results of operations or cash flows.
A-31
In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment.” This Statement
requires that the cost resulting from all share-based transactions be recorded in the financial
statements. The Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement also establishes
fair value as the measurement objective for transactions in which an entity acquires goods or
services from non-employees in share-based payment transactions. The Statement replaces SFAS 123,
“Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25 “Accounting for Stock
Issued to Employees.” The provisions of this Statement will be effective for the Company beginning
with its fiscal year ending December 31, 2006. The Company is currently evaluating the impact this
new Standard will have on its financial position, results of operations or cash flows.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin
No.107 (SAB 107) which provides guidance regarding the interaction of SFAS 123(R) and certain SEC
rules and regulations. The new guidance includes the SEC’s view on the valuation of share-based
payment arrangements for public companies and may simplify some of SFAS 123(R)’s implementation
challenges for registrants and enhance the information investors receive.
In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations,”
which clarifies that the term ‘conditional asset retirement obligation’ as used in SFAS 143
“Accounting for Asset Retirement Obligations,” which refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. FIN 47 requires an entity to
recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value can be reasonably estimated. FIN 47 is effective no later than the end of the fiscal year
ending after December 15, 2005. The Company does not believe that FIN 47 will have a material
impact on its financial position or results from operations.
In August 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections.” This
statement applies to all voluntary changes in accounting principles and to changes required by an
accounting pronouncement if the pronouncement does not include specific transition provisions, and
it changes the requirements for accounting for and reporting them. Unless it is impractical, the
statement requires retrospective application of the changes to prior periods’ financial statements.
This statement is effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005.
2. Tonkin Springs Project
The Company owns 100% of Tonkin Springs LLC, a Delaware limited liability company (“TSLLC”) which,
in turn, owns the Tonkin Springs gold mine property located in Eureka County, Nevada.
The Company intends to initiate an exploration program at the Tonkin Springs project commencing in
2006 subject to receipt of necessary governmental permits.
Effective May 12, 2005, BacTech Nevada Corporation, a Nevada corporation and subsidiary of BacTech
Mining Corporation (“BacTech”), a Canadian corporation based in Ontario, withdrew from TSLLC and
its 55% interest reverted back to the Company. BacTech withdrew from TSLLC as provided in the TSLLC
agreements dated July 31, 2003, and the Company assumed responsibilities for management and funding
for the project.
As set forth under the July 31, 2003, TSLLC agreements, BacTech Nevada was responsible to fund and
satisfy all unfunded liabilities to third parties (whether such accrued before or after such
withdrawal) arising out of operations conducted subsequent to July 31, 2003, but prior to the date
of BacTech’s withdrawal, May 12, 2005. BacTech has guaranteed the performance of BacTech Nevada
under the TSLLC agreements. The Company believes it has certain claims against BacTech related to
TSLLC related to payments by the Company to vendors of BacTech and other matters. The Company
considers collection of any claims against BacTech to be doubtful and has provided a reserve for
realization for the entire amount of any such claims at December 31, 2005.
On September 30, 2004, TSLLC filed an updated reclamation cost estimate with the BLM of $2,856,633
related to existing disturbances for Tonkin Springs. On November 5, 2004, BacTech was notified by
the BLM of the need to increase the reclamation bond relating to the Tonkin Springs project by
$1,118,733. On March 8, 2005, BacTech was notified that TSLLC was not in compliance with this
financial obligation. Subsequent to the withdrawal of BacTech, the Company posted the additional
bonding from a portion of the proceeds from the sale of shares of the Company (see Note 3 and 10)
and TSLLC is now in compliance with bonding requirements. The Company anticipates completing an
updated reclamation cost estimate during the third quarter of 2006 for submission to the BLM by
September 30, 2006.
A-32
The projected estimate of “Retirement Obligation” for the Tonkin Springs property, reflecting the
requirements of SFAS 143 and an update for increase in the current estimated costs of reclamation
of approximately $860,000, and changes in the anticipated timing of certain future reclamation
costs developed in early 2006, as well as changes to the cost of capital of the Company reflecting
the financing transaction closed in February 2006 (See Note 14), totals $2,724,721 as of December31, 2005. Of this amount, $1,597,032 is budgeted to be expended in certain property reclamation
activities during 2006 and has therefore been reflected as a current liability and $1,127,689 is
classified non-current. This estimated Retirement Obligation is anticipated to be further revised
in the fourth quarter of 2006 when an updated estimate of reclamation obligations is finalized and
submitted for regulatory review including the BLM as noted above. This submission is anticipated to
be made in September 2006 and may include changes to estimated costs as well as the expected time
frames for actual reclamation activities at the Tonkin Springs property. Actual asset retirement
and reclamation, generally, will be commenced upon the completion of operations at the property.
The following is a reconciliation of the aggregate of asset retirement obligation projected for
books since January 1, 2005:
The components of the above $942,924 adjustment at December 31, 2005 are as follows:
Decrease in the cost of capital assumption from 17.3% to 8.72%
$
575,200
Increase to estimated reclamation cost
277,300
Reduction of time frame to complete reclamation from 8.25 years
to 6 years from December 31, 2005
90,424
Total
$
942,924
It is anticipated that the capitalized asset retirement costs will be charged to expense based on
the units of production method commencing with gold production at Tonkin Springs. There was no
projected adjustment during 2005 for amortization expense of capitalized asset retirement cost
required under SFAS 143 since the Tonkin Springs property was not in operation.
When BacTech withdrew from TSLLC in May 2005, the total reclamation bonding was $1,819,013. The
Company subsequently increased the restrictive time deposits for reclamation bonding by $1,118,733
for a total of $2,937,746, as required by various governmental agencies.
The purchase price for BacTech’s 55% equity ownership interest in TSLLC was $1,750,000 of which
$1,567,252 was paid through the date of BacTech’s withdrawal. The Company wrote off and expensed
the remaining purchase price receivable from BacTech of $182,748 during 2005. BacTech Nevada has
reported that it spent approximately $437,875 on property holding and annual lease payments in 2005
through the effective date of their withdrawal, May 12, 2005. Such amounts are not included in the
Consolidated Statement of Operations for the year ended December 31, 2005, since BacTech was
responsible for funding.
3. Change in Control
On July 29, 2005, the Company sold an aggregate of 11,100,000 shares of its common stock to Robert
R. McEwen for $4 million in cash. Following the closing of this transaction, Mr. McEwen became the
Company’s largest shareholder, owning slightly more than 33.3% of its then outstanding stock. With
this transaction and Mr. McEwen’s subsequent appointment as Chairman of the Board and Chief
Executive Officer, the Company underwent a change in control. Mr. McEwen also nominated a majority
of the Company’s Board of Directors.
In a filing with the United States Securities and Exchange Commission, NovaGold Resources Inc., a
Nova Scotia corporation with securities traded on the American and Toronto Stock Exchanges
(“NovaGold”), reported that it had purchased 5,374,544 shares of the Company’s common stock in two
separate private transactions effective July 27, 2005. NovaGold is a natural resource company
engaged in the exploration and development of gold properties in North America. As a result of
these transactions, NovaGold owns approximately 15% of the Company’s outstanding common stock as of
December 31, 2005.
A-33
4. Termination and Other Agreements
As a condition to completion of the McEwen transaction discussed in Note 3 above, and in
consideration of prior uncompensated services and termination of outstanding stock options, the
Company consummated agreements with each of its then existing executive officers pursuant to which
their employment contracts with the Company were terminated (“Termination Agreements”). These
Termination Agreements provided for cash payments to the three individuals in the aggregate amount
of $1,000,000, issuance of 1,025,000 shares of the Company’s common stock (see Note 10) and
distribution of 5,191,352 shares of common stock of Gold Resource Corporation (“GRC”), representing
all of the GRC stock owned by the Company prior to the transaction (see Note 6). The GRC stock was
valued at $0.118 per share or $612,580, the fair value as determined by an independent third party.
The Termination Agreements were effective July 28, 2005.
The Company also issued an aggregate of 450,000 shares of its common stock (see Note 10) to its
then-existing four independent members of the Board of Directors as a condition to completion of
the McEwen transaction discussed in Note 3 above. These shares were issued under the Company’s
Non-Qualified Stock Option and Stock Grant Plan. Outstanding stock options with each of these
directors and the three executive officers were also cancelled.
5. Terminated Proposed Merger
On June 21, 2005, the Company entered into an agreement (the “Romarco Letter Agreement”) with
Romarco Minerals Inc. (“Romarco”) which proposed a merger of the Company with both Romarco and
Western Goldfields Inc. The Romarco Letter Agreement provided a 30-day “exclusivity period” within
which the Company was limited in discussions for a merger or acquisition with any entity other than
Romarco, and contemplated that the parties would negotiate a definitive merger agreement. Romarco
paid earnest money of $200,000 to the Company with the Romarco Letter Agreement. The exclusivity
period expired without Romarco providing the requisite financing to the Company. Following
consummation of the McEwen Transaction discussed in Note 3, the Company terminated negotiations
with Romarco. The Company, Romarco and Western Goldfields have no further obligations to each other
except as provided under confidentiality agreements among and between the parties. The Company
recorded the $200,000 earnest money as revenue upon the expiration of the Romarco Letter Agreement.
6. Gold Resource Corporation
As discussed in Note 3 and Note 4 above, effective July 29, 2005, related to the Termination
Agreements, the Company disposed of 5,191,352 shares (approximately 32.65%) of the common stock of
GRC, a private Colorado corporation, representing all of the Company’s interest in GRC. The
Company’s share of GRC’s net loss for 2005 prior to the disposition of its interest in GRC was
$(58,888).
GRC owed the Company $330,000 under a 2002 management contract that expired by its term December31, 2002, and that amount had not been previously recognized as a receivable or as revenue by the
Company until the amount was realized. In June 2005, GRC paid $10,000 of the amount in cash and
issued to the Company 1,280,000 shares of GRC stock with an agreed upon value of $0.25 per share in
full satisfaction of its obligations under the 2002 management contract. Since the shares of GRC
are not publicly traded, the 1,280,000 shares of GRC received in satisfaction of the 2002
management contract were determined by third party evaluation to have a fair value of $151,040 and
the Company recorded a reserve for realization of $168,960 related to the value of the 1,280,000
shares during the quarter ended June 30, 2005.
In June 2005, GRC purchased a used truck from the Company for cash of $10,000 which resulted in a
loss on disposition of $12,034.
7. Loan Settlement Agreement with FABC
On February 21, 1992, the Company entered into a Loan Settlement Agreement with its senior secured
lender, The French American Banking Corporation (“FABC”). The Company discharged its debt to FABC
and terminated all prior security interests related thereto. As part of the consideration to FABC
under the Loan Settlement Agreement, Tonkin Springs Gold Mining Company, a wholly-owned subsidiary
of the Company (“TSGMC”) entered into an agreement with FABC entitled “Agreement To Pay
Distributions,” which requires TSGMC to pay a limited portion of certain distributions from TSVLP
to FABC. TSVLP, another subsidiary of the Company, has complete control of such distributions, if
any, to TSGMC. Under the terms of the Agreement To Pay Distributions, TSGMC is required to pay to
FABC (i) the first $30,000 in cash or value of asset distributions, as defined in such agreement,
received from TSVLP, plus (ii) an amount equal to 50 percent of such retained distributions in cash
or value of asset distributions after TSGMC has first received and retained $500,000 of such
retained distributions. This obligation to FABC shall terminate after FABC has been paid a total of
$2,030,000 thereunder. No payments have been made under this obligation.
A-34
8. Property and Equipment
At December 31, 2005, property and equipment consisted of the following:
Office furniture and equipment
$
45,922
Trucks and autos
38,950
Other equipment
19,263
Subtotal
104,135
Less: accumulated depreciation
(50,830
)
Total
$
53,305
Depreciation expense for 2005 and 2004 was $12,850 and $4,878, respectively.
9. Income Taxes
In various transactions entered into February 21, 1992 as well as transactions during 2005, the
Company had ownership changes, as that term is defined under Section 382 (g), IRC. As a result, the
tax net operating loss carry forwards and the investment tax credit carry forwards are subject to
annual limitations under Section 382 IRC, following the date of such ownership change. Except as
noted below, the Company will receive delayed future benefits from net operating loss carryforwards
or investment tax credit carryforwards existing as of the dates of the ownership change. At
December 31, 2005, the Company estimates that tax loss carry forwards to be $12,447,000 expiring
through 2025.
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2005, are presented below:
Deferred tax assets:
Alternative minimum tax credit carryfoward
$
11,200
Reclamation obligation
345,900
Net operating (loss) carryforward
2,738,200
Capital (loss) carryforward
268,400
Total gross deferred tax assets
3,363,700
Less valuation allowance
(3,249,100
)
Net deferred tax assets
114,600
Deferred tax liabilities:
Basis in TSVLP
(114,600
)
Total net deferred tax asset
$
—
The Company believes that it is unlikely that the net deferred tax asset will be realized.
Therefore, a valuation allowance has been provided for net deferred tax assets. The change in
valuation allowance of approximately $1,231,100 primarily reflects an increase of net operating
(loss) carryforwards.
A reconciliation of the tax provision for 2005 and 2004 at statutory rates is comprised of the
following components:
2005
2004
Statutory rate tax provision on book loss
$
(658,000
)
$
(174,600
)
Book to tax adjustments:
Valuation allowance
658,000
174,600
Tax provision
$
—
$
—
10. Shareholders’ Equity
On November 14, 2005, shareholders of the Company approved an amendment to the Articles of
Incorporation increasing the number of shares of common stock authorized from 35,000,000 to
250,000,000 and eliminating the par value of the shares. The shareholders also approved an increase
in the number of shares reserved under the Company’s Non-Qualified Stock Option and Stock Grant
Plan (the “Plan”) from 3,500,000 to 5,000,000 shares on November 14, 2005.
A-35
As discussed further in Note 3 above, on July 29, 2005, the Company sold 11,100,000 shares of its
common stock to a single investor for $4 million cash. Related to this transaction, the Company
issued 450,000 shares of its stock valued at $0.40 per share, or $180,000, to its then four
independent directors as a stock grant under the Plan. Directors terminated option agreements for
aggregate 450,000 shares of stock. Related to the Termination Agreements with three executive
officers discussed further in Note 5, the Company issued 1,025,000 shares of its stock valued at
the closing market price on the day of the agreements of $0.39 per share, or $399,750, under the
Plan. Those executives terminated option agreements covering aggregate 225,000 shares of stock.
During June 2005, the Company issued 120,000 shares of its stock valued at $0.47 per share, or
$56,400 in the aggregate, to an investor in exchange for cancellation of warrants to purchase
100,000 shares of the Company’s stock expiring in June 2006, and settlement of other issues. In
July 2005, the Company issued 145,000 shares of its stock valued at $0.40 per shares, or $58,000,
in exchange for cancellation of warrants to purchase 145,000 shares of the Company’s stock expiring
through June 29, 2006. The Company recorded stock compensation expense of $114,400 related to these
transactions. As of December 31, 2005, there are no remaining warrants to purchase shares of the
Company’s stock.
Effective February 25, 2004, the Company entered into a Finder’s Fee Agreement with Meridian
Capital Ltd. (“Meridian”), a Canadian merchant bank, whereby Meridian agreed to provide consulting
services to the Company. With Unit Subscription Agreements, the Company sold Units at $0.90 where
each Unit was made up of one share of common stock and one Unit Purchase Warrant. Unit Purchase
Warrants are exercisable for 2 years from date of issue and provide that one share of common stock
can be purchased for $1.25 plus four (4) Unit Purchase Warrants for up to 25,000 shares of common
stock. Through the March 12, 2004 termination date of the Meridian agreement, the Company raised
net proceeds of $72,350 through the sale of 100,000 Units. Meridian was paid a fee of 8.5% of
monies raised through the sale of Units plus $10,000 for expenses, and warrants exercisable for 2
years to purchase 20,000 shares of the Company (equal to 20% of the Units sold) at a warrant
exercise price of $0.90 per share (the “Meridian Warrants”). No value was assigned to the Unit
Purchase Warrants since the exercise price of those warrants were above the market price of the
common stock at the date of the closing of the transaction. A value of $21,800 was assigned to the
Meridian Warrants based on the Black-Scholes pricing model and was recorded as finance fees in the
first quarter of 2004. As noted above, the warrants were cancelled during 2005.
In June 2004, the Company sold 400,000 Units, with each Unit consisting of one share of common
stock and one Unit Purchase Warrant at $0.50 per Unit. These Unit Purchase Warrants are exercisable
for two years from date of issue and provide that one share of common stock can be purchased for
$0.80 plus two (2) Unit Purchase Warrants for up to 200,000 shares of common stock. The offering
netted $195,000. An independent director of the Company was paid a success fee of $5,000 related to
one of these private placement sales of stock. Also during June 2004, warrants to exercise 428,572
shares at exercise price of $0.30 per share were exercised at a reduced price of $0.25 per share
for total proceeds of $107,142. The Company agreed to the reduced exercise price to induce the
holder to exercise the warrants and recognized stock compensation expense of $21,429 for the
reduction of the exercise price of these warrants. As noted above, the warrants were cancelled
during 2005.
Also during 2004, options to purchase a total of 340,000 shares at an exercise price of $0.16 per
share were exercised. In connection with those transactions, 34,286 option shares were surrendered
and cancelled under a cashless exercise to fund the exercise price of 150,000 of the option shares
and accrued director fees were reduced for exercise of 190,000 additional option shares. Options to
purchase 375,550 shares at exercise price of $0.16 per share expired by their terms during 2004.
Stock Options-
Stock options have been granted to key employees, directors and others under the Plan. Options to
purchase shares under the Plan were granted at market value as of the date of the grant. Effective
November 14, 2005, the shareholders of the Company increased the total number of shares under the
Plan to 5,000,000. During 2005, stock options were granted to directors, executive officers, and
consultants of the Company covering 1,072,000 shares at exercise prices of $2.09 and $2.12 per
share.
A-36
Analysis of Stock Options
2005
2004
Weighted
Weighted
Average
Average
Exercise
Exercise
Shares
Prices
Shares
Prices
Outstanding, beginning of year
675,000
$
.50-.86
1,367,695
$
.16-.86
Granted
1,072,000
$
2.09-2.12
—
—
Exercised
—
340,000
$
.16
Canceled including through cashless exercise
675,000
$
.50-.86
34,286
$
.16
Expired
—
—
318,407
$
.16
Outstanding and exercisable, end of year
1,072,000
$
2.09-2.12
675,000
$
.50-.86
Weighted average fair value of Option granted during year
$
2,076,180
$
—
The fair value for the options was estimated at the date of grant, using the Black-Scholes Option
Valuation Model, with the following weighted-average assumptions: risk-free interest rate of
4.61%; a dividend yield of 0.0%; a volatility factor of the expected market price of the common
stock of 1.02; and a weighted–average expected life of the option of 10 years.
The following table summarizes information about stock options outstanding at December 31, 2005:
Options Outstanding
Weighted Average
Remaining
Average
Exercise
Number
Contractual
Exercise
Number
Exercise
Prices
Outstanding
Life
Price
Exercisable
Price
$2.09
200,000
9.8 yrs.
$
2.09
200,000
$
2.09
$2.12
872,000
9.9 yrs.
$
2.12
100,000
$
2.12
The effect of applying SFAS 123 pro forma net (loss) is not necessarily representative of the
effects on reported net income (loss) for future years due to, among other things, the vesting
period of the stock options and the fair value of additional stock options in future years. For
purpose of pro forma disclosure, the estimated fair value of the options is charged to expense in
the year that the options were granted. In 2004, the Company’s pro forma loss is equal to its net
(loss) since no options were granted in 2004. Under the accounting provisions of SFAS 123, the
Company’s net loss and net loss per share for 2005 would have been adjusted to the following pro
forma amounts:
2005 Net (loss)
As reported
Pro forma
Net (loss)
$
(2,990,721
)
$
(5,066,901
)
Basic and diluted Net (loss) per share
As reported
Pro forma
Net (loss)
Basic
$
(0.12
)
$
(0.20
)
Diluted
$
(0.12
)
$
(0.20
)
11. Employee Benefit Plans
On December 10, 1985, the Company’s Board of Directors adopted a Simplified Employee Pension Plan
(“SEP”). The Company intends to make a determination of contributions under the SEP on an annual
basis, based upon review by the Board of Directors of the Company’s financial statements as of its
fiscal year end. The Company has determined not to make contributions to the SEP for the years
ended December 31, 2005 and 2004. Contributions made under the SEP in any one calendar year for any
one employee may not be more than the smaller of $40,000 or 25% of that employee’s total
compensation.
12. Rental Expense and Commitments and Contingencies
During the years ended December 31, 2005 and 2004, the Company had no rental expense under
operating leases but had $9,200 in rental expense under other occupancy arrangements.
A-37
The Company has transferred its interest in several mining properties over the past years. The
Company could remain potentially liable for environmental enforcement actions related to its prior
ownership interest of such properties. However, the Company has no reasonable belief that any
violation of relevant environmental laws or regulations has occurred regarding these transferred
properties.
13. Installment Purchase Contracts
The Company has installment purchase contracts aggregating $23,468, due in monthly installments of
$715, collateralized by a vehicle bearing an average interest rate of 6 percent per annum. In
addition, the Company is financing the cost of an 18-month insurance policy covering directors and
officers with monthly installments of $7,761 through November 2006 with an average interest rate of
7.75 per cent per annum. Future maturities under these contracts as of December 31, 2005 are as
follows:
2006
$
97,303
2007
$
7,837
2008
$
8,246
14. Subsequent Events
On February 22, 2006 (the “Closing Date”), the Company completed a $75,150,000 financing
transaction (the “Transaction”). One half of the gross proceeds of the Transaction are being held
in an escrow account (the “Escrow Funds”) pending satisfaction of the “Release Conditions”,
discussed further below. The remaining net proceeds of $34,944,750, after commissions but before
deduction of expense of the offering, are unrestricted and were paid to the Company at Closing. The
Company believes that the Transaction will adequately fund its operations for two years.
In the Transaction, the Company sold 16,700,000 “Subscription Receipts” at a price of $4.50 each.
Each Subscription Receipt is automatically convertible, subject to adjustment and penalties
discussed below, without payment of any additional consideration, into one unit (“Unit”). Each Unit
will consist of one share of the Company’s common stock and one-half common stock purchase warrant
(“Warrant”). Each full Warrant entitles the holder to purchase one share of common stock for $10.00
for 5 years from the Closing Date.
GMP Securities L.P. and Griffiths McBurney Corp. (the “Agents”) assisted the Company in the
Transaction under an Agency Agreement. The Company agreed to pay cash commission of 7% to the
Agents and to issue compensation options (“Compensation Options”) for their services. The Company
also agreed to reimburse the Agents for their reasonable expenses incurred in connection with the
offering. One-half of the cash commission was paid on the Closing Date and one-half plus accrued
interest will be paid if the escrowed funds are released to the Company. The Company also issued
Compensation Options to the Agents which allow them to acquire, for no additional consideration,
broker warrants (“Broker Warrants”) which, in turn, allow them to acquire up to 1,002,000 Units at
an exercise price of $4.50 per Unit for a period of 18 months from the Closing Date. The Agent
shall be entitled to convert up to 501,000 of the Compensation Options at an exercise price of
$4.50 per Unit (the “Initial Options”) at any time prior to August 22, 2007 (the “Conversion
Deadline”). Any of the Broker Warrants not so converted, plus any of the remaining 501,000
Compensation Options, will be deemed converted into Units upon satisfaction of the Release
Conditions and payment of an exercise price of $4.50 per Unit. Warrants included in the Units allow
the Agents to purchase 501,000 shares at an exercise price of $10.00 per share.
The Subscription Receipts were issued pursuant to the terms of a Subscription Receipt Indenture
between the Agents and Equity Transfer Services Inc. of Toronto, Ontario, Canada (“ETS”) dated as
of the Closing Date. Pursuant to the terms of the Subscription Receipt Indenture, ETS agreed to act
as the Company’s agent and registrar for the transfer, exchange and conversion of the Subscription
Receipts. ETS will also hold the Escrow Funds in escrow pending satisfaction of the Release
Conditions, or return of the Escrow Funds to the subscribers of the Subscription Receipts.
If all the common stock provided under the Transaction are issued, a total of 26,553,000 shares of
common stock will have been issued related to the transaction, exclusive of any penalty or
adjustment in connection with the conversion of the Subscription Receipts.
As noted above, $37,575,000 of the gross proceeds of this transaction are being held in escrow
pending the satisfaction of the Release Conditions.
A-38
The Release Conditions include, among other things, filing of a final prospectus which qualifies
the distribution of the Units in Canada, the receipt from the Securities and Exchange Commission of
an effective date for a registration statement covering the Units, and the listing of the common
stock of the Company for trading on the Toronto Stock Exchange. If the release conditions are not
satisfied by February 22, 2007, the escrow proceeds will be returned to subscribers. The remaining
subscription receipts will automatically convert into shares of our common stock and warrants not
later than August 22, 2007.
The Company has agreed to use its commercially reasonable efforts to satisfy the Release Conditions
as soon as possible. If the Release Conditions are satisfied, the Company will receive the balance
of the proceeds.
In the event that the Release Conditions are not satisfied on or before February 22, 2007, the
Company has agreed that each Subscription Receipt shall be converted into 1.1 share of common stock
(instead of one share) and 0.55 Warrants (instead of one-half Warrant).
The Subscription Receipts were sold by the Company in transactions exempt from the registration
requirements of the 1933 Act pursuant to Rule 506 of Regulation D and in transactions that did not
require registration pursuant to Rule 903 of Regulation S. Each subscriber of the Subscription
Receipts in the United States was an “accredited investor” within the meaning of Rule 501. The
remainder of the Subscription Receipts were sold to persons who were not in the United States at
the time of purchase or who were not U.S persons as defined in Rule 902.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in our accountants during the last two fiscal years, and we have not had
any disagreements with our existing accountants during that time.
ITEM 8A. CONTROLS AND PROCEDURES
Regulations under the Securities Exchange Act of 1934 require public companies to maintain
“disclosure controls and procedures,” which are defined to mean a company’s controls and other
procedures that are designed to ensure that information required to be disclosed in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms.
Under the supervision and with the participation of our management, including our Chief Executive
Officer (our principal executive officer) and our Chief Financial Officer (our principal financial
officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined
under Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based
on this evaluation performed as of the end of the period covered by this report, our Chief
Executive Officer and our Chief Financial Officer concluded that our disclosure and controls and
procedures as of December 31, 2005 were effective to ensure that information we are required to
disclose in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. There were
no significant changes in our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following individuals serve as our officers and directors as of the date of filing this report:
Each of our directors is serving a term which expires at the next annual meeting of shareholders
and until his or her successor is elected and qualified or until he or she resigns or is removed.
Our officers serve at the will of our Board of Directors.
The following information summarizes the business experience of each of our officers and directors
for at least the last five years:
Robert R. McEwen. Mr. McEwen became our Chairman of our Board of Directors and our Chief Executive
Officer on August 18, 2005, shortly following his purchase of our common stock. He is also the
chairman and chief executive officer of Lexam Exploration Inc., a public company engaged in the
exploration and development of oil and gas properties in Colorado, and a position he has held since
2003. Mr. McEwen was the chairman of Goldcorp Inc. from 1986 to October 2005, and the chief
executive officer of that company from June 1986 until February 2005. Goldcorp is a corporation
organized under the laws of the Province of Ontario, Canada, engaged in the business of exploring
for and producing gold and other precious metals. The securities of Goldcorp are traded on the
Toronto and New York Stock Exchanges. Mr. McEwen is also the non-executive chairman of Coral Cold
Resources Ltd. and a member of the board of directors of Nevada Pacific Gold, Tone Resources, and
Coral Gold Resources Ltd. All of these companies have securities traded on the TSX Venture Exchange
and Coral Gold has securities which are quoted on the OTC Bulletin Board.
Michele L. Ashby. Ms. Ashby is the chief executive officer and founder of MINE, LLC, a Colorado
limited liability company organized to promote natural resource companies to the investment
community through private conferences. She has occupied that position since July 2005. From 1998 to
2005, she was the chief executive officer and founder of Denver Gold Group Inc., a Colorado
non-profit corporation organized and operated as a trade association for the mining industry. In
that capacity, she developed, marketed and organized annual conferences for participants in the
industry and the investment community. From 1987 to 1995, she was a stockbroker and mining analyst
with a regional firm located in Denver, Colorado.
Dr. Leanne M. Baker. Dr. Baker is managing director of Investor Resources LLC and a registered
representative with Puplava Securities, Inc., a U.S. broker-dealer. Dr. Baker has been consulting
to the mining and financial services industries since January 2002. She was an equity research
analyst (and promoted to managing director) at Salomon Smith Barney from 1990 to 2001, where she
helped build a research and investment banking franchise in the metals and mining sectors. Dr.
Baker is a director of Agnico-Eagle Mines Ltd. and New Sleeper Gold Corporation, both Canadian
corporations, the former with securities traded on the Toronto and New York Stock Exchange and the
latter with securities traded on the Toronto Venture Exchange. Dr. Baker has a M.S. and a Ph.D. in
mineral economics from the Colorado School of Mines.
Peter Bojtos. Mr. Bojtos is licensed as a professional engineer in the Province of Ontario, Canada
and for the past ten years, has been an independent director of several U.S. and Canadian precious
and base-metal mining and exploration companies operating in all corners of the world. From 1996 to
2005, Mr. Bojtos was Vice-Chair and Vice-President of Fischer-Watt Gold Company Inc., a public
company organized in Nevada and developing a copper mine in Mexico, and since August 2005, he has
been the Chairman and President of that entity. He also serves on the board of directors of Desert
Sun Mining, Queenstake Resources Ltd, Tournigan Gold Corp., and Apolo Gold & Energy Inc. of which
he is also chairman and president. All these companies have their securities registered with the
United States Securities and Exchange Commission.
A-40
Declan J. Costelloe. Mr. Costelloe is a chartered engineer (UK Engineering Council) and a mining
geologist. He is president of Celtic Mining LLC, an independent mining consulting firm. Until March13, 2006, he held the position of investment manager for Veneroso Associates Gold Advisors, an
investment company focusing on the gold industry, a position he occupied since 2003. Prior to that,
he was the research director for that entity, a position he occupied from August 2000 to September
2003. He has worked with a number of gold mining and exploration companies including BHP Gold and
Golden Star Resources. He has also worked with SRK International, a mining consulting firm. He is a
director of Vedron Gold Inc. and Alexandria Minerals Corporation, both Canadian corporations with
securities traded on the Toronto Ventures Exchange.
Ann S. Carpenter. On October 24, 2005, Ann S. Carpenter was hired as the Company’s President and
Chief Operating Officer. From 2003 until she was hired by the Company, Ms. Carpenter was an
independent consultant in the mining industry, focusing on resource assessment, evaluations and
project development for properties in the United States, Mexico and South America. From November
1997 to 2003, she was the vice-president exploration and business development for NCGI, a private
mining company. Since 1996, she has also worked with the Women’s Mining Coalition, a nonprofit
entity, as a lobbyist for the mining industry.
William F. Pass. Mr. Pass joined us in June 1988 and was appointed Corporate Secretary on September
1, 1991 and Vice President Administration on January 1, 1994. Effective February 1, 1996, Mr. Pass
was appointed Vice President, Chief Financial Officer and Corporate Secretary.
Board Committees
Our Board of Directors maintains a standing Audit, Compensation and Nominating Committee. The Audit
Committee recommends the selection and appointment of our independent accountants to the Board of
Directors and reviews the proposed scope, content and results of the audit performed by the
accountants and any reports and recommendations made by them. All the members of the Audit
Committee meet the definition of “independent” as defined in Rule 4200(a)(15) of the Marketplace
Rules of the NASDAQ Stock Market, Inc.
Our Board of Directors has determined that Leanne Baker, the chairperson of the Audit Committee,
qualifies as an audit committee financial expert in that she has (i) an understanding of generally
accepted accounting principles and financial statements; (ii) the ability to assess the general
application of such principles in connection with the accounting for estimates, accruals and
reserves; (iii) experience preparing, auditing, analyzing or evaluating financial statements that
present a breadth and level of complexity of accounting issues that are generally comparable to the
breadth and complexity of issues that can reasonably be expected to be raised by our financial
statements, or experience actively supervising one or more persons engaged in such activities; (iv)
an understanding of internal controls over financial reporting; and (v) an understanding of the
audit committee functions. Dr. Baker acquired these attributes through experience in analyzing
financial statements of companies, and through her experience as an audit committee member for
other companies.
The compensation committee is responsible for evaluating and recommending the compensation of our
executive officers and the members of the Board. Our nominating committee is responsible for
identifying, evaluating and recommending nominees to our Board.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished to the Company during
2005 and Forms 5 and amendments thereto, if any, furnished to the Company with respect to 2005, the
Company is not aware that any person, who at any time during the fiscal year was a director,
officer, beneficial owner of more than ten percent of the stock of the Company, failed to file on a
timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Securities
Exchange Act of 1934 during the most recent fiscal year or prior years.
Code of Ethics
The Company has adopted, effective December 31, 2003, a code of ethics that applies to all the
executive officers of our company.
A-41
Corporate Opportunity Policy
Effective February 13, 2006, our Board of Directors adopted a Corporate Opportunity Policy which
covers all of our officers and directors in their capacities as such. The Policy provides that if a
possible corporate opportunity becomes available to an officer or director, he or she must disclose
the opportunity in reasonable detail to our Board of Directors and may not consummate the
opportunity unless and until he or she has received the approval or ratification of the affirmative
vote of a majority of the disinterested directors. For purposes of the Policy, a “corporate
opportunity” is any business opportunity in which we have expressed an interest or which we have
identified as an opportunity by resolution of our Board of Directors. It includes the acquisition
of, or participation in, the ownership of an interest in any enterprise or right to extract
minerals from any property located in the State of Nevada. The Policy further provides that with
regard to the ownership of any interest in an enterprise or property located within the Cortez
Trend in the State of Nevada by one of our officers or directors, the holder of the interest must
first offer it to us at the price and on the terms upon which the party proposes to sell the
interest to a third party. If we are unable or unwilling to accept the offer on those terms, the
holder of the interest may sell the interest free of restrictions.
The interests of Mr. McEwen in certain companies with properties located on the Battle
Mountain-Eureka Trend in Nevada are subject to this policy. Those companies include White Knight
Resources Ltd., Nevada Pacific Gold Ltd., Coral Gold Resources Ltd. and Tone Resources Limited. Mr.
McEwen has not notified us of his intent to transfer any of these interests to a third party.
However, he has advised us that he intends to support our proposed acquisition of these four
companies.
ITEM 10. EXECUTIVE AND DIRECTOR COMPENSATION
The following table summarizes the total compensation for the last three years of all persons who
served as our chief executive officer during 2005 and the other executive officers who were serving
at fiscal year end December 31, 2005 (Named Executive Officers) for the periods indicated:
Ann S. Carpenter was appointed as President and Chief Operating Officer effective October 24,2005.
(3)
Includes imputed income for use of vehicle.
A-42
(4)
Represents payments under a termination agreement dated July 28, 2005 where the employment
agreement with the individual was terminated. Also includes payment of deferred salary,
including $144,925 and $282,533 for William Pass and William Reid, respectively.
(5)
Represents prior year accrued salary of $44,764 paid to William Pass during 2003, and $34,311
and $99,475 paid to William Reid during 2004 and 2003, respectively.
(6)
Options were voluntarily terminated in connection with a termination agreement.
(7)
During 2003 and 2004, the executive officers exercised certain of their respective stock
options at an exercise price of $0.16 per share which resulted in compensation for federal tax
purposes based upon the market price of our common stock on the day of each exercise. William
Reid exercised options to purchase 300,000 shares of our common stock in 2003 and 150,000
shares of our common stock in 2004, and William Pass exercised options to purchase an
aggregate of 232,326 shares of our common stock in 2003.
(8)
William W. Reid resigned as president, chief executive officer and chairman of the Board of
Directors effective August 18, 2005 and terminated his employment with us on September 30,2005.
Option Grants in Last Fiscal Year
The following grants of stock options were made during calendar year 2005 to our Named Executive
Officers:
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Table Value
Shown below is information for the year ended December 31, 2005, with respect to the exercised and
unexercised options to purchase our common stock issued to the Named Executive Officers:
Aggregate Option/SAR Exercises for 2005 Fiscal Year and
Year Ended December 31, 2005 Option/SAR Values
Our Non-Qualified Stock Option and Stock Grant Plan, as amended (the “Plan”), was adopted effective
March 17, 1989. The Plan terminates in accordance with its terms on March 16, 2009. Under the Plan,
as amended by our shareholders on November 14, 2005, a total of 5,000,000 shares of our common
stock are reserved for issuance thereunder.
A-43
Under the Plan, non-qualified stock options and/or grants of our common stock may be granted to key
persons assisting in our development, including officers, directors, employees and consultants.
This Plan gives the Board broad authority to grant options and make stock grants to key persons
selected by the Board, while considering criteria such as employment position or other relationship
with the company, duties and responsibilities, ability, productivity, length of service or
association, morale, interest in the company, recommendations by supervisors, and other matters, to
set the option price, term of option, and other broad parameters. Options may not be granted at a
price less than the fair market value of our common stock at the date of grant and may not have a
term in excess of 10 years.
Options granted under the Plan do not generally give rise to taxable income to the recipient or any
tax consequence to us, since the Plan requires that the options be issued at a price not less than
the fair market value of the common stock on the date of grant. However, when an option is
exercised, the holder is subject to tax on the difference between the exercise price of the option
and the fair market value of the stock on the date of exercise. We receive a corresponding
deduction for income tax purposes. Recipients of stock grants are subject to tax on the fair market
value of the stock on the date of grant and we receive a corresponding deduction.
Securities granted under the Plan are “restricted securities” as defined under the Securities Act
of 1933, unless a registration statement covering such shares is in effect. Restricted shares
cannot be freely sold and must be sold pursuant to an exemption from registration (such as Rule
144), which exemptions typically impose conditions on the sale of the shares. Options granted under
the Plan are non-transferable except by will or the laws of descent and distribution.
As of December 31, 2005, 1,072,000 Options were outstanding under the Plan, of which 300,000 were
immediately exercisable and all of which were issued in 2005.
Pension Plan
On December 10, 1985, the Company’s Board of Directors adopted a Simplified Employee Pension Plan
(“SEP”). The Company evaluates annually contributions to the SEP based upon review by the Board of
Directors of the performance of the Company. The Company has determined not to make a contribution
for 2005. No contribution was made for 2004 or 2003. Under the SEP, the Company has the option of
contributing a certain amount directly to its employees’ Individual Retirement Accounts. The Plan
covers all employees of the Company with certain participation requirements, however the Company is
not required to make any contributions in a given year. If contributions are made, they must be
made to all eligible employees. Contributions made under the SEP in any one calendar year for any
one employee may not be more than the smaller of $40,000 for year 2005 or 25% of that employee’s
total compensation.
Securities Authorized for Issuance Under Equity Compensation Plans
Set out below is information as of December 31, 2005 with respect to compensation plans (including
individual compensation arrangements) under which our equity securities are authorized for
issuance. This information relates to our Non-Qualified Stock Option and Stock Grant Plan.
Equity Compensation Plan Information
Number of
securities remaining
Number of
Weighted-
available for future
securities to be
average exercise
issuance under
issued upon
price of
equity compensation
exercise of outstanding
outstanding
plans (excluding
options, warrants
options,
securities reflected
and rights
warrants and
in column (a))
Plan Category
(a)
rights (b)
(c)
Equity
compensation plans
approved by
$
2.11
security holders
1,072,000
per share
740,637
Equity compensation
plans not approved
by security holders
0
—
0
TOTAL
1,072,000
740,637
A-44
Compensation of Directors
We reimburse our directors for reasonable expenses incurred by them in attending meetings of the
Board of Directors or of any committees thereof. Effective October 1, 2005, non-executive directors
are compensated at $20,000 per year. In November 2005, each director received stock options to
acquire 100,000 shares of our common stock at an exercise price of $2.12 per share, exercisable
33.3% on or after November 14, 2006, 33.3% on or after November 14, 2007 and the remainder on or
after November 14, 2008. These options expire October 14, 2015.
Employment Contracts
On October 24, 2005, we entered into an employment agreement with Ann S. Carpenter as our President
and Chief Operating Officer. The agreement has a three year term and provides for a base salary of
$170,000 per year plus certain additional benefits. In addition, we issued stock options to Ms.
Carpenter under our Non-Qualified Stock Option and Stock Grant Plan granting her the right to
purchase 300,000 shares of common stock for a period of 10 years. Ms. Carpenter may only be
terminated by us for “cause,” as defined in the agreement, and if we terminate her without cause or
she resigns with good reason, including if we experience a “change in control,” she would be
entitled to a severance payment equal to one year of salary if she terminates within the first 180
days of the agreement or two years of salary if she terminates thereafter.
On March 30, 2006, we entered into an employment agreement with William F. Pass, our Vice President
and Chief Financial Officer. The agreement is for a term of three years and provides for a base
salary of $115,267 per year plus certain additional benefits. Mr. Pass may only be terminated by us
for “cause,” as defined in the agreement and if he resigns for good reason, including a change in
control, or is otherwise terminated, he would be entitled to a severance payment equal to six
months salary.
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
As of March 29, 2006, there are a total of 33,296,755 shares of our common stock outstanding, our
only class of voting securities currently outstanding. The amount of common stock outstanding
excludes any shares of common stock issuable upon automatic conversion of the subscription receipts
issued in connection with our private placement completed in February 2006. Since a minimum of
8,350,000 additional shares of common stock will be issued upon conversion of the subscription
receipts, we have assumed, for purposes of the table below, that those shares are outstanding.
Thus, the calculations which follow assume 41,646,755 shares of common stock outstanding. Under
certain conditions, an additional 10,020,000 shares may be issued pursuant to the exchange of
subscription receipts, exclusive of shares issuable upon exercise of outstanding warrants and
options.
The following table describes the ownership of our voting securities as of March 29, 2006 by: (i)
each of our officers and directors; (ii) all of our officers and directors as a group; and (iii)
each shareholder known to us to own beneficially more than 5% of our common stock. Unless otherwise
stated, the address of each individual is the address of our executive office, 2201 Kipling Street,
Suite 100, Lakewood, Colorado80215-1545. All ownership is direct, unless otherwise stated.
In calculating the percentage ownership for each shareholder, we assumed that any options or
warrants owned by an individual and exercisable within 60 days is exercised, but not the options or
warrants owned by any other individual.
NovaGold
Resources, Inc.
P.O. Box 24, Suite 2300
200 Granville Street
Vancouver, British Columbia V6C 1S4, Canada
5,374,544
12.9
%
All officers and directors as a group
(seven individuals)
12,379,575
29.19
%
*
Less than one percent.
(1)
Officer or director.
(2)
Includes 335,000 shares of common stock issuable upon automatic conversion of subscription
receipts owned by the individual and 167,500 shares of common stock issuable upon exercise of
warrants which will be issued upon conversion of the subscription receipts. Excludes an
additional 335,000 shares of common stock and an additional 167,500 shares of common stock
underlying warrants which may be issuable upon conversion of the subscription receipts.
(3)
Excludes stock options which are not exercisable within 60 days of the date of this
prospectus.
(4)
Includes 300,000 shares underlying options that are exercisable within 60 days of the date of
this prospectus.
Changes in Control
In a filing with the SEC, NovaGold Resources Inc. (“NovaGold”), a corporation existing under the
laws of the Province of Nova Scotia, Canada, with securities traded on the American and Toronto
Stock Exchanges, reported that it had purchased 5,374,544 shares of our common stock in two
separate private transactions effective July 27, 2005. NovaGold is a natural resource company
engaged in the exploration and development of gold properties in North America. As a result of
these transactions, NovaGold owns approximately 12.9% of our outstanding common stock as of March31, 2006.
On March 5, 2006, we announced our intention to acquire four companies holding interests in the
Battle Mountain-Eureka Trend in Nevada. Our intention is to acquire all of these companies in
exchange for the issuance of our common stock. No formal offer has been commenced or agreement made
with for any of these companies and there is no assurance that an offer will be made or that any
acquisition will be completed. However, if all of these acquisitions were completed, we would issue
up to 45,202,017 additional shares of our common stock, exclusive of shares issuable upon exercise
of options and warrants to these companies. The issuance of these shares may result in a change in
control.
We know of no other arrangement or events, the happening of which may result in a change in
control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert R. McEwen. On July 29, 2005, we sold 11,100,000 shares of our common stock to Robert
R. McEwen for $4 million, or $0.36036 per share. After completion of that transaction, Mr. McEwen
became our Chairman and Chief Executive Officer. The sale price of the common stock in that
transaction was determined with reference to the trading price of our stock in the time period
preceding execution of the agreement.
In addition to the foregoing terms, the agreement pursuant to which Mr. McEwen acquired such
securities, included the following terms:
•
We agreed to issue an aggregate of 450,000 shares of our
common stock to the four then-existing non-executive members of the
Board of Directors. These shares were issued under our Plan. Each
of these directors also agreed to cancel any outstanding stock
options.
A-46
•
We agreed to use our commercially reasonable efforts to cause
the shares purchased by Mr. McEwen to be registered for resale with
the SEC as promptly as practical after the closing of the
transaction and to pay the costs associated with such registration.
In addition, Mr. McEwen was granted “piggyback” registration rights
on all registrations filed by the Company other than registrations
on Form S-4 and S-8.
•
We and Mr. McEwen agreed to indemnify each other and their
respective representatives and agents from breach of any
representation or warranty contained in the underlying agreements.
Further, on February 22, 2006, Mr. McEwen purchased 667,000 subscription receipts for $4.50 per
subscription receipt upon the same terms as the other investors.
Other Executive Officers. Related to the July 29, 2005 transaction with Mr. McEwen
described above, and in consideration of prior uncompensated services and termination of
outstanding stock options, we also consummated agreements with each of our then-existing executive
officers pursuant to which their employment contracts with us were terminated (“Termination
Agreements”). These Termination Agreements provided for cash payments to the three executive
officers in the aggregate amount of $1,000,000, issuance of 1,025,000 shares of our common stock
and the distribution of 5,191,352 shares of common stock of GRC, representing all of the GRC stock
owned by us prior to the transaction. These Termination Agreements were effective July 28, 2005.
William Pass, our current Vice President, Chief Financial Officer and Secretary, was party to a
Termination Agreement as described below and continues as our employee.
The following table details the payments made by us to each of the former officers and Mr. Pass:
The Termination Agreements also provided the following additional material terms:
•
All of our previous obligations to the officers were cancelled.
•
We distributed three automobiles and the associated installment purchase obligations to the officers.
•
Each officer agreed to cancel any outstanding stock options that we previously granted to them.
ITEM 13. EXHIBITS
The following exhibits are filed with or incorporated by referenced in this report:
3.1.1
Articles of Incorporation of the Company filed with the Secretary of State of Colorado on
June 24, 1979 (incorporated by reference from the Report on Form 10-KSB dated March 27, 1996,
Exhibit 3.1 File No. 000-09137)
3.1.2
Articles of Amendment to the Articles of Incorporation of the Company filed with the
Secretary of State of Colorado on June 22, 1988 (incorporated by reference from Report on Form
10-K dated March 30, 1988, Exhibit 3.1 File No. 000-9137)
3.1.3
Articles of Amendment to the Articles of Incorporation of the Company filed with the
Secretary of State of Colorado on July 5, 1988 (incorporated by reference from Report on Form
10-K dated March 30, 1988, Exhibit 3.2 File No. 000-9137)
3.1.4
Articles of Amendment to the Articles of Incorporation of the Company filed with the
Secretary of State of Colorado on December 20, 1991 (incorporated by reference from Report on
Form 10-K dated March 29, 1991, Exhibit 3.3 File No. 000-9137)
3.1.5
Articles of Amendment to the Articles of Incorporation of the Company filed with the
Secretary of State of Colorado on November 15, 2005.
Amendment to the Bylaws of the Company effective as of October 3, 2005.
A-47
10.1
Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean C. Simpson, and
Tonkin Springs Gold Mining Company, effective as of January 1, 1986.
10.2
First Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, effective as of January 10, 1986.
10.3
Sixth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, dated June 29, 1989.
10.4
Seventh Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, executed April 18, 1990.
10.5
Eighth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, dated April 20, 1992.
10.6
Ninth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, dated January 22, 1992.
10.7
Tenth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, dated April 30, 1993.
10.8
Eleventh Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and
Jean C. Simpson, and Tonkin Springs Gold Mining Company, dated June 28, 1993.
10.9
Twelfth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and Jean
C. Simpson, and Tonkin Springs Gold Mining Company, dated November 27, 1995.
10.10
Thirteenth Amendment to Mining Lease by and between Lyle F. Campbell, Julian E. Simpson and
Jean C. Simpson, and Tonkin Springs Gold Mining Company, dated February 1, 2003.
Purchase Agreement between BacTech Nevada Corporation and U.S. Gold Corporation dated
effective July 31, 2003 related to the purchase by BacTech of 55% interest in Tonkin Springs
LLC from Tonkin Springs Venture L.P., a subsidiary of the Company (incorporated by reference
from the Report on Form 8-K dated August 6, 2003, Exhibit 10.1, File No. 000-09137).
10.13
Amended and Restated Members’ Agreement of the Tonkin Springs LLC between Tonkin Springs
Venture L.P. and BacTech Nevada Corporation dated effective July 31, 2003 (incorporated by
reference from the Report on Form 8-K dated August 6, 2003, Exhibit 10.2, File No. 000-09137).
10.14
Amended and Restated Operating Agreement of the Tonkin Springs LLC between Tonkin Springs
Venture L.P. and BacTech Nevada Corporation dated effective July 31, 2003 (incorporated by
reference from the Report on Form 8-K dated august 6, 2003, Exhibit 10.3, File No. 000-09137).
Form of Subscription Agreement between the Company and Subscribers (incorporated by
reference from Form 8-K dated February 27, 2006, Exhibit 10.5, File No. 000-09137).
10.28
Registration Rights Agreement between the Company and GMP Securities L.P. dated February 22, 2006.
The following table sets forth fees paid to (or accrued to) our principal accounting firm of
Stark Winter Schenkein & Co., LLP in the last two years:
2005
2004
Audit Fees
$
12,100
$
14,500
Audit Related Fees
$
10,799
$
10,974
Tax Fees
0
0
All Other Fees
0
0
Total Fees
$
22,899
$
25,474
It is the policy of the Audit Committee of our Board of Directors to engage the principal
accounting firm selected to conduct the financial audit for the Company and to confirm, prior to
such engagement, that such principal accounting firm is independent of the Company. All services of
the principal accounting firm reflected above were approved by the Audit Committee.
A-49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Company caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this Report has been signed below by the following
persons on behalf of the Company and in the capacities and on the dates indicated.
In accordance with the requirements of applicable Canadian law, the disclosure in this Appendix A,
which is incorporated into and forms part of the Circular, is supplemented with the following
additional disclosure. All dollar amounts in this Circular are stated in U.S. dollars except where
otherwise indicated.
RISK FACTORS
U.S. Gold Corporation (“U.S. Gold”) is incorporated under the laws of the State of Colorado, United
States. Although U.S. Gold has a director resident in Ontario, Canada and has appointed Fraser
Milner Casgrain LLP, 1 First Canadian Place, 39th Floor, 100 King Street West, Toronto,
Ontario, M5X 1B2, as agent for service of process in Ontario, it may not be possible for investors
to effect service of process within Canada upon the directors of U.S. Gold or to collect from the
U.S. Gold any judgments obtained in courts in Canada predicated on the civil liability provisions
of securities legislation.
INTERCORPORATE RELATIONSHIPS
The following diagram illustrates the intercorpoate relationships among U.S. Gold and its
subsidiaries.
A-51
CAPITALIZATION
The following table sets forth certain information relating to U.S. Gold’s capitalization: (i) as
of December 31, 2005; (ii) as of December 31, 2005, after giving effect to the sale of 16,700,000
subscription receipts (“Subscription Receipts”) on February 22, 2006; and (iii) as of December 31,2005, after giving effect to the conversion of the Subscription Receipts, exercise of the warrants
and exercise of the broker warrants. The pro forma presentation giving effect to the conversion of
the Subscription Receipts assumes the issuance of 16,700,000 additional shares of common stock,
8,350,000 shares of common stock issuable upon exercise of the warrants and 1,503,000 shares of
common stock upon exercise of the broker warrants and the warrants included in the broker warrants,
of which there is no assurance.
Excludes outstanding options to acquire 1,072,000 shares at a weighted average exercise price
of $2.11 per share.
(2)
Represents gross proceeds of $75,150,000 (16,700,000 Subscription Receipts at $4.50 each)
less agents’ commission of $5,260,500 and estimated offering expenses of $589,500, for net
proceeds of $69,300,000. Assumes that all of the Subscription Receipts are converted, of
which there is no assurance.
(3)
Excludes 8,350,000 warrants and 1,002,000 compensation options convertible into up to
1,002,000 broker warrants.
(4)
Excludes the effect of any penalty in the event that certain release conditions are not
satisfied on or before August 22, 2006.
A-52
PRIOR SALES
No securities of U.S. Gold have been purchased or sold by U.S. Gold during the last 12 months
preceding the Offer, except for the following.
Price
Underwriting
Number of
Per Share
Total
Fee
Date
Purchaser
Units
($)
($)
($)
1.
6/08/05
Excalibur Limited Partnership
120,000
(6)
.47
56,400
0
2.
7/26/05
Individual and two entities
145,000
(6)
.40
58,000
0
3.
7/28/05
Directors
375,000
(7)
.40
150,000
0
4.
7/28/05
Officer and former officers
1,025,000
(8)
.39
399,750
0
5.
7/29/05
Robert McEwen
11,100,000
.36
4,000,000
0
(1)
Shares issued in exchange for the cancellation of warrants.
(2)
Shares issued to directors for compensation.
(3)
Shares issued to officers and former officers in settlement of accrued salary and
other obligations.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
No officer or director of U.S. Gold is or has been, within the preceding ten years, a director,
officer or director of any company that, while that person was acting in such capacity:
(i)
was the subject of a cease trade or similar order or an order
that denied the company access to any exemption under securities legislation for
a period of more than 30 consecutive days;
(ii)
was subject to an event that resulted, after that person ceased
to be a director or officer in the company being the subject of a cease trade or
similar order that denied that company access to any exemption under securities
legislation for a period of more than 30 consecutive days; or
(iii)
within a year of that person ceasing to act in that capacity,
became bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or was subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold its assets,
except for Peter Bojtos. Mr. Bojtos was a director of Sahelian Goldfields Inc., which in 2001, made
a proposal to its creditors under the Bankruptcy and Insolvency Act (Canada) which was accepted by
its creditors and successfully completed. On May 21, 1999, the British Columbia Securities
Commission issued a cease trade order and on June 1, 2000, the Ontario Securities Commission issued
a cease trade order in respect of Sahelian Goldfields Inc.’s securities as a result of the
corporation’s failure to file annual financial statements. The filings have since been brought up
to date. On September 15, 2003, both the British Columbia Securities Commission and the Ontario
Securities Commission cease trade orders were fully revoked. In June 2000, the Ontario Securities
Commission and in August 2001, the British Columbia Securities commission, ordered that the
management and insiders of Link Minerals Ventures Inc., of which Peter Bojtos was a director, were
prohibited from trading in the securities of this corporation until the annual financial statements
were filed.
INDIVIDUAL BANKRUPTCIES
No officer or director of U.S. Gold is or has, within the preceding ten years, become
bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become
subject to or instituted any proceedings, arrangement or compromise with creditors, or had a
receiver, receiver manager or trustee appointed to hold the assets of that individual.
A-53
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
The following summarizes our plan of operation for the foreseeable future. It also analyzes our
financial condition at December 31, 2005 and 2004, and compare those to our financial condition at
December 31, 2004 and 2003. Finally, the discussion summarizes the results of our operations for
the years ended December 31, 2005 and 2004 and compares those results to the years ended December31, 2004 and 2003.
We hold a 100% interest in the Tonkin Springs property in Eureka County, Nevada through wholly
owned subsidiaries. Effective May 12, 2005, we assumed 100% ownership of and management
responsibilities for the Tonkin Springs property effective with the withdrawal of BacTech from
TSLLC, the entity which holds the property. Subsequent to the withdrawal of BacTech from TSLLC, we
consolidated the assets, liabilities, and operating results of TSLLC in our financial statements.
From July 31, 2003 until May 12, 2005, BacTech was 55% owner of TSLLC and was responsible for
management and funding for the project. In July 2005, we disposed of our interest in Gold Resource
Corporation (GRC), terminating our interest in a mining prospect located in Oaxaca, Mexico.
We underwent a change in control in July 2005 when Robert R. McEwen purchased 11,100,000 shares of
common stock for $4 million, and became our largest shareholder. In August 2005, Mr. McEwen became
our Chairman and Chief Executive Officer. While Mr. McEwen and our President have significant
experience in the mining industry, we are also using the services of additional technical and other
staff which may include use of consultants and/or full time employees.
Recent Financing
On February 22, 2006, we completed a private placement of 16,700,000 Subscription Receipts at $4.50
per Subscription Receipt, from which we received $75,150,000 in gross proceeds, of which
$37,575,000 was placed in escrow pending the satisfaction of the conditions listed below. Each
Subscription Receipt is convertible, for no additional payment and subject to adjustments and
penalties, into one share of our common stock and one-half of one common stock purchase warrant
upon satisfaction of certain conditions. Each whole common stock purchase warrant is exercisable
until February 22, 2011 to acquire one additional share of common stock at an exercise price of
$10.00. The conditions which permit conversion of the Subscription Receipts include the last to
occur of the following events:
(i) the third business day after the date on which a final receipt has been issued for a final
prospectus which qualifies the distribution of the securities underlying the subscription receipts
in those provinces in Canada where the subscription receipts were sold;
(ii) the completion and filing of a current technical report regarding the Tonkin Springs
property that complies with National Instrument 43-101- Standards of Disclosure for Mineral
Projects of the Canadian Securities Administrators;
(iii) our common stock is listed for trading on the Toronto Stock Exchange;
(iv) the receipt of an effective date for the registration statement of which this prospectus
is a part; and
(v) the delivery of a “10b-5” opinion to the agent who acted in connection with the private
placement of subscription receipts provided by our United States counsel.
If the release conditions are not satisfied by February 22, 2007, the escrowed proceeds will be
returned to holders of the Subscription Receipts in exchange for 50% of the Subscription Receipts
held by each subscriber. The remaining Subscription Receipts will automatically convert into
shares of our common stock and warrants upon the earlier of August 22, 2007 and the satisfaction or
waiver by the placement agent of the release conditions. In the event that the release conditions
are not satisfied by August 22, 2006, we are obligated to issue 1.1 shares of common stock (in lieu
of one share) and 0.55 warrants (in lieu of 0.5 warrants) in exchange for each Subscription
Receipt.
A-54
Plan of Operation
Our plan of operation for 2006 is to begin an extensive two-year exploration and evaluation program
of the Tonkin Springs property, budgeted for approximately $25 to $30 million, of which
approximately $12 million is targeted to be spent in 2006. We also plan to address various
permitting and reclamation issues at the property, with $1.6 million budgeted for this in 2006.
Finally, we plan to evaluate potential corporate transactions which could include, but are not
limited to, merger with, or the acquisition of, one or more companies, joint venture arrangements
on mineral properties held by other companies, or outright purchase of mineral properties.
Our exploration program at the Tonkin Springs property will focus on the evaluation of the
structural and stratigraphic setting of the property. This program and its timing are subject to
our ability to obtain required drilling and other regulatory agency permits and the availability of
drill rigs and contract personnel. An objective of our program is to identify new mineralization
in areas previously untested, specifically targeting deeper mineralization. Our exploration budget
for 2006 includes geochemical sampling, geophysical surveys, and remote sensing technologies
leading to target definition and drill testing, with approximately 150,000 feet of proposed
drilling. We anticipate that this systematic and integrated approach will result in a
cost-effective use of exploration funds and has the potential to lead to discovery of new
mineralization.
Previous efforts to explore and develop the Tonkin Springs property were primarily focused on
relatively shallow mineral deposits in a limited portion of our 36-square mile property. While
these deposits remain of interest, our immediate plan is to explore elsewhere on the property and,
overall, to explore deeper, for potentially larger deposits suggested by other mineralization on
the Cortez Trend and similar to discoveries on the Carlin Trend. The Carlin Trend is adjacent and
parallel to the Cortez Trend. To date, the Carlin Trend has mined over 60 million ounces of gold.
Past exploration at the Tonkin Springs property was predominately close to the surface and was not
focused on finding a “Carlin-style” deposit found deeper in the ground, located in what is referred
to as the Lower Plate. This Lower Plate has not been clearly located on the Tonkin Springs
property.
In order to address prior concerns of the BLM and/or NDEP at the Tonkin Springs property, we have
committed to submit closure plans and to complete reclamation of certain existing disturbances at
the Tonkin Springs property during 2006. The specific areas to be addressed include the heap leach
used in prior years, the tailings seepage collection pond, and the area previously mined and
designated as the TSP-1 pit. We have budgeted $1.6 million, which we anticipate will be spent in
2006, to complete these reclamation programs. We also plan to update the plan of reclamation for
the remaining disturbances at the Tonkin Springs property and to submit that revised plan to the
BLM and NDEP by September 30, 2006. We expect that this revised plan will include updated cost
estimates and an accelerated schedule for planned actual reclamation.
Proposed Acquisitions. On March 5, 2006, we announced our intention to acquire four
companies with properties in the Battle Mountain-Eureka Trend in Nevada. These companies, White
Knight Resources Ltd., Nevada Pacific Gold Ltd., Coral Gold Resources Ltd. and Tone Resources
Limited, have mineral properties that are adjacent to or near our Tonkin Springs property. Our
intention is to acquire all of these companies in exchange for the issuance of shares of our common
stock as follows:
•
0.35 shares of our common stock for each outstanding share of White Knight;
•
0.23 shares of our common stock for each outstanding share of Nevada Pacific Gold;
•
0.63 shares of our common stock for each outstanding share of Coral Gold; and
•
0.26 shares of our common stock for each outstanding share of Tone Resources.
While it is presently anticipated that we will proceed to acquire these companies by means of
tender offers, no formal offer has been mailed to the shareholders of any of those companies. We
are unable to predict when, if ever, such an offer will be made or whether any of these
transactions will be completed.
We expect to devote substantial efforts during 2006 to the formal commencement and completion of
some or all of these acquisitions. This process will involve significant executive time,
considerable expenditures related to professional fees, and other related costs and there can be no
assurance that any of these acquisitions will be completed. If any of these acquisitions are
successful, we plan to integrate the business plans, assets and the management of the companies
acquired, including operational aspects, exploration plans and staffing issues. These efforts are
not expected to directly impact our exploration and evaluation of the Tonkin Springs property,
although there is no assurance of this expectation.
A-55
Liquidity and Capital Resources
As noted above, we sold 11,100,000 shares of our common stock for $4 million in a private placement
in August 2005, which improved our liquidity and capital position significantly. As of December31, 2005, we had working capital deficit of $(1,002,461), consisting of $788,668 of current assets
and $1,791,129 of current liabilities including $1,597,032 of anticipated reclamation activities at
the Tonkin Springs property for 2006. As noted above, on February 22, 2006, we completed a private
placement of Subscription Receipts for aggregate gross proceeds of $75,150,000, of which
approximately $35 million was immediately available to us, further improving our liquidity and
working capital. For 2006, we have budgeted approximately $12 million in exploration expenditures,
approximately $1.6 million in reclamation activities, approximately $1 million in holding costs at
the Tonkin Springs property, and approximately $1.3 million for corporate overhead. We have
budgeted approximately $2.5 million for costs associated with the proposed acquisitions. We expect
that the available proceeds from the private placement completed in February 2006 will be more than
adequate for the 2006 company-wide budget of $18.4 million.
Since we have received no revenue from the production of gold or other metals since 1990, we have
historically relied on payments from our joint venture partners and equity financings to finance
our ongoing operations. We experienced net losses for the years ended December 31, 2005 and 2004
of $(2,990,721) and $(793,801) respectively. In 2004 and 2005, we relied on $504,688 of payments
from BacTech and $4,374,492 in equity financing to fund operations.
The net proceeds of the private placement completed in July 2005 were used, in part, to fund an
increase in the reclamation bond, for payments related to termination of employment agreements with
one current and two former officers, and operating costs. Some of the proceeds were also used for
paying certain holding costs associated with the Tonkin Springs property and other short term
corporate obligations. As noted above, $1,118,733 was used to secure the increased bonding
requirements in favor of the BLM and NDEP to cover estimated reclamation costs at the Tonkin
Springs property. An additional $1,000,000 was used to pay certain former and current executive
officers pursuant to agreements which terminated their employment agreements. The remainder was
added to working capital.
We are dependent on additional financing to continue our exploration efforts in the future and if
warranted, to develop and commence mining operations. While we have no current plans or
arrangements for these additional capital requirements, we anticipate that we will be seeking
additional equity financings in the future.
Net cash used in operations during 2005 increased to $2,427,266 from $798,401 for 2004. Cash paid
to suppliers and employees increased to $2,630,620 during 2005 from $853,033 during 2004, primarily
reflecting $1 million in cash payments under the termination agreements with executive officers,
holding costs of $761,081 for the Tonkin Springs property subsequent to the withdrawal of BacTech,
and fees and costs related to the various transactions we investigated or consummated in an effort
to obtain required funding. Partially offsetting these cash expenditures was our receipt of a
$200,000 earnest money payment related to a proposed merger with another mining company, which did
not materialize.
Cash used in investing activities was $978,024 for 2005 compared to cash provided of $217,385 in
2004, reflecting the increase of $1,118,733 in the restrictive investments securing the reclamation
obligation for the Tonkin Springs property as well as $55,067 in capital expenditures, reduced in
part by $185,776 paid by BacTech as installments toward its purchase of the Tonkin Springs
property.
Cash flow from financing activities in 2005 increased to $4,007,820 compared to $458,012 in 2004,
primarily reflecting the $4 million sale of stock in July 2005 compared to $374,492 raised from the
sale of equity in 2004.
Effective February 21, 1992, we entered into a Loan Settlement Agreement with our former senior
secured lender, French American Banking Corporation (FABC). As partial consideration to FABC under
that agreement, Tonkin Springs Gold Mining Company (TSGMC), our wholly owned subsidiary, is
required to pay a limited portion of certain distributions, if any, from Tonkin Springs Venture
Limited Partnership, a wholly-owned entity of the Company (TSVLP), to FABC. TSVLP has complete
control of such distributions, if any, to TSGMC. Under the terms of the agreement, TSGMC is
required to pay to FABC (i) the first $30,000 of retained distributions, as defined in such
agreement, received from the TSVLP, plus (ii) an amount equal to 50% of such retained distributions
after TSGMC has first received and retained $500,000 of such retained distributions. This
obligation to FABC will terminate after FABC has been paid a total of $2,030,000 thereunder. No
amounts have been paid to FABC to date under this obligation.
Overall, our cash decreased $123,004 during 2004 as we continued to rely on financing and investing
activities to sustain cash flow and our operations did not generate any cash. In fact, our
operations used $798,401 for the year ended December 31, 2004, which represents a decrease from
$1,252,172 used for the corresponding period in 2003. Cash paid to suppliers and employees
decreased to $853,033 during the 2004 period from $1,253,584 during the 2003 period, reflecting
higher payment during 2003 of accrued salaries to executive officers of $196,789, payment of third
party expenses related to TSLLC in 2003 of net $184,605, payment of expenses related to the
Company’s 2003 annual meeting of shareholders of approximately $45,000, and reduction of other
liabilities to vendors in 2003. BacTech assumed funding responsibilities for TSLLC effective July31, 2003 and through their withdrawal May 12, 2005. In 2004, interest received increased $56,108
from $3,047 in 2003, primarily from imputed interest related to the BacTech purchase price payment
obligations.
Cash flows from investing activities decreased to $217,385 for the year ended December 31, 2004 as
compared to $1,004,000 in the 2003 period reflecting primarily receipt of $1,000,000 in purchase
price payments from BacTech in 2003 compared to $318,892 in 2004, and capital expenditures of
$101,507 in 2004.
Cash flow from financing activities increased to $458,012 for the year ended December 31, 2004 from $441,727 in 2003 reflecting lower levels of common stock sales in 2004 with
$374,492 in net proceeds raised from the sale of common stock in 2004 compared to $450,000 in 2003,
and proceeds from installment purchase contracts of $83,990 in 2004 compared to payments of $8,273
in 2003.
General. For the year ended December 31, 2005, we recorded a net loss of $(2,990,721), or $(.12)
per share, compared to a net loss for 2004 of $(793,801) or $(.04) per share.
Revenue. Other revenue from a number of components during 2005 totaled $1,052,478 while in 2004
only interest income of $38,750 was recognized. In 2005 we realized $200,000 as an earnest money
payment related to a proposed merger with another mining company which did not materialize,
$330,000 in management fees from GRC, and $520,428 in realized gain on the disposition of GRC
shares related to the termination agreements.
Expenses. General and administrative expenses for 2005 increased $244,226 compared to 2004,
primarily reflecting approximately $170,000 in additional legal expenses related to various
corporate transactions and preparation for the 2005 meeting of shareholders, and approximately
$111,000 increase in investor relations expenses primarily relating to the meeting of shareholders
and other shareholder communication activities. These expenses were partially off-set by
approximately $55,000 of lower salary and employee benefit costs.
During 2005, we wrote off the remaining purchase price of $182,748 due from BacTech upon receipt of
its notice withdrawing from TSLLC effective May 12, 2005. For 2005, we recognized holding costs of
$761,081 in connection with the Tonkin Springs property subsequent to the withdrawal of BacTech.
BacTech was responsible for funding the expenses related to the Tonkin Springs property in 2004 and
the first part of 2005 prior to its withdrawal. We did not spend any money on exploration in 2005.
Contract termination payments to current and former executive officers resulted in expenses of
$1,423,824 in 2005, and reflects the aggregate termination payments of $2,012,331 reduced by
deferred and accrued salaries owed to these individuals, all of which were settled and discharged
with the termination agreements. Included in the expense of the termination agreements were
1,025,000 shares of our common stock valued at $399,750 which we issued to the individuals. We
believe these were one time expenses and will not be repeated in the future.
Stock compensation expense increased for 2005 compared to 2004 due to the issuance of shares in
satisfaction of outstanding warrants and other obligations valued at $114,400, and stock grants to
directors valued at $180,000. The fair value of the GRC shares received in satisfaction of a
management fee of $320,000 was determined to have a fair value of $151,040 as determined by an
independent third party, leading to a realization reserve expense of $168,960.
Accretion of asset retirement obligation by the Company subsequent to the withdrawal by BacTech was
$110,243 while prior to that date in 2005 and for all of 2004, BacTech, as manager, recognized the
expense.
Also in 2005, we reported our share of losses from our investment in equity securities of GRC of
$58,888 under equity accounting, as we determined that the shares of GRC acquired in 2005 had a
determinable value. In 2004, under equity
A-57
accounting, we did not record our share of GRC’s operating losses, since such recognition would
reduce our zero basis investment below zero. As noted above, we disposed of all of the GRC stock
effective July 28, 2005.
These facts, among others, contributed to a substantial increase in the Company’s costs and
expenses for 2005 compared to 2004.
With the assumption by the Company of control and responsibility for the Tonkin Springs property,
an evaluation of reclamation and remediation issues at the property was made and commitments to
perform certain of these tasks during 2006 were made. These 2006 plans were included in an
evaluation for accounting purposes of the asset retirement obligation of the Company which resulted
in a $942,924 increase to the asset retirement obligation and a corresponding balance sheet asset
entitled “Long-lived asset-asset retirement.”
General. For the year ended December 31, 2004, the Company recorded a net loss of $(793,801), or
$(.04) per share, compared to a net loss for 2003 of $(622,738) or $(.04) per share. During 2003,
the Company recorded a cumulative-effect gain on implementation of SFAS 143 of $404,000, or $0.02
per share as discussed further below, while no similar item was recorded during 2004. Without the
effect of the accounting change, our loss in 2003 would have been $(1,026,738).
Revenue. Imputed interest income related to the BacTech purchase price, representing our only
revenue for 2004, was $38,750 compared to $30,219 for 2003. In 2003, the Company also recognized a
gain of $601,924 on the sale to BacTech reflecting the $1,678,506 net present value of the
$1,750,000 purchase price payment schedule, at an imputed rate of interest of 6% per annum, reduced
by the Company’s basis of $1,076,582 in the 55% interest in TSLLC sold to BacTech. We also
reported a minor amount of revenue from the sale of other assets during 2003. Overall, our revenue
dropped significantly in 2004.
Expenses. Overall, our expenses were reduced 50% from 2003 to 2004, as responsibility for the
holding costs at Tonkin Springs were transferred to BacTech and we reduced our compensation expense
significantly. However, general and administrative expense increased $290,092 in 2004 to $782,968,
primarily reflecting $258,613 of 2003 general and administrative expense being allocated in that
year to “Property holding costs” while no similar allocation was made in 2004, and an increase of
$21,000 in directors fees in 2004 reflecting additional directors. Total property holding costs
for the Tonkin Springs property were $443,218 during 2003, through July 31, 2003 when BacTech
assumed responsibilities for funding TSLLC. Stock compensation expense of $43,229 was recognized
in 2004 related to value assigned to warrants and exercise of warrants at a reduced price while
$290,000 was recognized in 2003 related to the sale of 1,000,000 shares of Common Stock to its
largest shareholder at a price below the market price of the shares on the date of the transaction.
Also in 2003, the Company took an expense charge as a realization reserve for the full value
($363,165) of shares of its common stock issued in exchange for 675,676 shares of stock of GRC as a
result of an exchange of stock with RMB International (Dublin) Ltd. In 2003, accretion of asset
retirement obligation under SFAS 143 totaled $56,583 while no similar expense was recognized in
2004 since the Company reflected its ownership interest in TSLLC as an investment subsequent to the
July 31, 2003 sale of 55% interest to BacTech. Depreciation expense decreased during 2004 to
$4,878 compared to $15,404 for 2003 primarily reflecting fully depreciated assets.
The implementation of SFAS 143 effective January 1, 2003 resulted in a cumulative effect gain on
implementation of SFAS 143 of $404,000 related to the reversal of reclamation obligation expense in
prior years for the Tonkin Springs project reduced by amortization capitalized costs related to
SFAS 143 computed asset retirement reflecting prior years’ gold production. The gain on
implementation of SFAS 143 and the accretion of asset retirement obligation had no impact on the
Consolidated Statement of Cash Flows for 2003.
GRC’s net comprehensive loss for the year ended December 31, 2004 and 2003 was $(853,666) and
$(496,017), respectively, of which the Company’s share would be approximately $(292,701) and
$(199,994), respectively. Under equity accounting, the Company did not record its share of GRC’s
operating losses since such recognition would reduce its zero basis investment in GRC to below
zero.
Critical Accounting Policies
We believe the following critical accounting policies are used in the preparation of our
consolidated financial statements.
Exploration and Development Costs. Costs of acquiring mining properties and any exploration and
development costs are expensed as incurred unless proven and probable reserves exist and the
property is a commercially minable property. Mine
A-58
development costs incurred either to develop new ore deposits, expand the capacity of operating
mines, or to develop mine areas substantially in advance of current production are also
capitalized. Costs incurred to maintain current production or to maintain assets on a standby
basis are charged to operations. Costs of abandoned projects are charged to operations upon
abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining
costs and related property, plant and equipment costs, if any, to determine if these costs are in
excess of their net realizable value and if a permanent impairment needs to be recorded. The
periodic evaluation of carrying value of capitalized costs and any related property, plant and
equipment costs are based upon expected future cash flows and/or estimated salvage value in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for
Impairment or Disposal of Long-Lived Assets.”
Property Retirement Obligation. The Company implemented SFAS 143, “Accounting for Asset Retirement
Obligations,” effective January 1, 2003. SFAS 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period that it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. Ongoing environmental and reclamation expenditures
are credited to the asset retirement obligation as incurred to the extent they relate to asset
retirement obligation and to expense to the extent they do not so apply.
Use of Estimates. The preparation of the Company’s consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires the
Company’s management to make estimates and assumptions that affect the amounts of assets and
liabilities, the 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.
Recent Pronouncements
In December 2004, the FASB issued SFAS 123 (revised 2004) “Share-Based Payment”. This Statement
requires that the cost resulting from all share-based transactions be recorded in the financial
statements. The Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement also establishes
fair value as the measurement objective for transactions in which an entity acquires goods or
services from non-employees in share-based payment transactions. The Statement replaces SFAS 123
“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock
Issued to Employees”. The provisions of this Statement will be effective for the Company beginning
with its fiscal year ending December 31, 2006. The Company is currently evaluating the impact this
new Standard will have on its financial position, results of operations or cash flows.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) which provides guidance
regarding the interaction of SFAS 123(R) and certain SEC rules and regulations. The new guidance
includes the SEC’s view on the valuation of share-based payment arrangements for public companies
and may simplify some of SFAS 123(R)’s implementation challenges for registrants and enhance the
information investors receive.
In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations”
which clarifies that the term “conditional asset retirement obligation” as used in SFAS 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity. FIN 47 requires an entity to
recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value can be reasonably estimated. FIN 47 is effective no later than the end of the fiscal year
ending after December 15, 2005. The Company does not believe that FIN 47 will have a material
impact on its financial position or results from operations.
A-59
APPENDIX B
CERTAIN INFORMATION REGARDING TONKIN SPRINGS GOLD PROPERTY
OF U.S. GOLD CORPORATION
DEFINITIONS AND INTERPRETATION
oC
degrees Celsius
oF
degrees Fahrenheit
allochthonous
formed or produced elsewhere than in its present place
autochthonous
formed or produced in the place now found
CIL
carbon-in-leach
forbs
any nongrass-like plant having little or no woody material
halogeton
type of plant common in dry dessert areas
O-15/ TSP-1/ TSP-5/ Rooster:
names of pits/prospects on the property, from south to north
oz
troy ounce(s)
oz/ T
troy ounces per short ton
redox
reduction/oxidation
SAG
semi-autogenous grinding
T
short ton(s)
Definitions of measured, indicated and inferred mineral
resources are those prescribed by NI
43-101 Standards of
Disclosure for Mineral Projects
(“NI 43-101”)
and conform to the Canadian Institute of Mining,
Metallurgy & Petroleum (“CIM”) Standards on
Mineral Resources and Reserves, Definitions and Guidelines
adopted by CIM Council on August 20, 2000 (the “CIM
Standards”).
TONKIN SPRINGS GOLD PROPERTY, NEVADA
The scientific and technical information in this Appendix B
relating to the Tonkin Springs gold property in Nevada is based
on a current technical report in respect of the property filed
on SEDAR (www.sedar.com) in accordance with the requirements of
NI 43-101 (the
“Technical Report”). The Technical Report was prepared
by Richard M. Gowans and Alan Noble at Micon International
Limited. Both Mr. Gowans and Mr. Noble are qualified
persons under NI 43-101.
U.S. shareholders are cautioned that, although National
Instrument 43-101
requires disclosure in Canada of measured, indicated and
inferred mineral resources, the SEC does not recognize these
classification categories for U.S. reporting purposes.
Property Description and Location
Tonkin Springs is a gold project owned by Tonkin Springs LLC
(“TSLLC”), which is wholly owned by U.S. Gold.
Tonkin Springs is located in the Battle Mountain —
Eureka Trend approximately 72 kilometres (45 miles)
northwest of the town of Eureka in Eureka County, Nevada, and
has licences for a total area of approximately 36 square
miles. Currently, the property is comprised of 1,182 unpatented
claims and 33 mill site claims, and has an integrated milling
facility and support facilities on approximately
23,640 acres (9,567 hectares) of land administered by
U.S. Bureau of Land Management (“BLM”), Battle
Mountain Field Office, Nevada. The property has been surveyed as
per the Nevada State legal requirements.
Obligations that must be met to retain the property include
annual claim maintenance fees to the BLM of $125 per claim
per year and additional fees to Eureka County of $8.50 per
claim per year (2005 assessment year fee rate). Other
obligations include obtaining and maintaining all necessary
regulatory permits and any mining lease requirements, such as
lease and option payments to claim owners. The rights to the
unpatented lode claims and mill sites continue on an annual
basis so long as the obligations are met to maintain the
validity of the claims. As the owner or lessee of the claims.
U.S. Gold is allowed to explore, develop and mine the
property, subject to procurement of required operating permits
and approvals, compliance with applicable federal, state and
local laws, regulations and ordinances.
B-1
The unpatented claims at Tonkin Springs are contiguous with the
exception of four claims where the support facilities are
located. Of the 1,182 unpatented lode claims, 269 are
leased from the claimants, the remaining 913 unpatented
lode claims and all of the 33 mill sites are held by
U.S. Gold which has the right to mine minerals from these
claims and to use the surface for mining related activities.
Of the 1,182 unpatented lode mining claims, 269 claims cover the
lease at Tonkin North, and are owned by unaffiliated parties.
The term of this lease expires January 1, 2009 and may be
extended from year to year, up to a maximum term of
99 years, by production from the leased claims. The Tonkin
North lease requires payment of an annual advance royalty in the
amount of $150,000, or the value of 455 ounces of gold,
whichever is greater, due in January of each year. The lease
also requires production royalties of 5% of the gross sales
price of gold or silver but provides for recapture of annual
advance royalties previously paid. The existing balance of the
advance royalties, after recognition of the January 2006
payment, is approximately $3.2 million. Although not set
out in the Technical Report certain of the claims which are
included in the Tonkin North lease are also subject to a 1% net
smelter return royalty payable to Precambrian Exploration, Inc.
after $15 million in gross revenues are realized from the
claims. An annual work commitment is required in respect of
these claims with an annual report submitted to the lessors
summarizing the work completed. The lease includes a defined
area of interest extending from the boundaries of certain
claims; any claims within this area of interest that are
acquired through staking or joint ventures with other property
owners fall under the parameters of this lease.
The remaining aggregate of 913 of the unpatented lode mining
claims, as well as 33 millsites claims, are owned by
U.S. Gold. A total of 317 of these claims are subject to a
royalty of 2% of net smelter returns, which becomes payable to
Precambrian Exploration, Inc. after $50 million in gross
revenue is realized from the claims. Precambrian Exploration,
Inc. is an unaffiliated third party and predecessor holder of
the claims. Precambrian may elect to receive its royalty in kind
in the form of gold and silver.
In 1994, in addition to the 1,182 claims, 215 claims
covering approximately 4,400 acres adjacent to the Tonkin
Springs property were acquired from United States Exploration
Inc., an unaffiliated third party. The claims are subject to a
royalty of 1% of net smelter returns for gold when the indexed
price of gold is $350 per ounce or more, and a royalty of
1% of net smelter returns for silver when the indexed price of
silver is $3.50 per ounce or more. No royalties are payable
at lower indexed prices. The indexed prices shall reflect
adjustments based on the Producer’s Price Index, sub-index
Finished Goods Excluding Foods, as published by the United
States Department of Commerce. Of the total of 1,215 mining
claims encompassing the Tonkin Springs, 381 are not subject to
any royalties.
In May 2005, the Nevada Division of Environmental
Protection (“NDEP”) issued a notice of alleged
violation under the mine permit relating to disturbances at a
portion of the property where mining was formerly conducted. As
a result, U.S. Gold is under a compliance order to submit
and implement a final closure plan for certain of the
disturbances by August 2006. U.S. Gold has budgeted
approximately $1.6 million to be spent in 2006 to complete
these reclamation programs and is working with the NDEP to
address the terms of the order and the deadline. U.S. Gold
also plans to update the remaining plan of reclamation to
include updated cost estimates and possibly an accelerated
completion schedule.
Past mining activities at Tonkin Springs which may give rise to
other obligations include a mill and associated tailings storage
impoundment, which will ultimately require closure and
reclamation; exposed sulfide bearing rocks located in the upper
benches of TSP-1, which are generating a small amount of acidic
waters that are high in metals; water captured in TSP-5 pit,
which is neutral and high in metals; existing waste rock dumps
that require re-grading and reclamation; the existing gold heap
leach pad, which must be closed and reclaimed; and, roads
related to the past mining operations and exploration, which
must be reclaimed.
Various permits have been issued in connection with ongoing
activities at the Tonkin Springs project. An exploration permit
has been issued by the BLM and is jointly monitored by BLM and
the NDEP. There is also a water pollution control permit, two
permits for reclamation, an air quality permit and plan of
operations for the property.
Under a plan submitted for the exploration permit, the BLM holds
bonds totaling $2,891,033 to secure the reclamation obligation.
The most significant bond, in the amount of $2,856,633, covers
reclamation of the mined area. A review and update of the plan
of operations and reclamation plan is anticipated to be
completed in the third quarter of 2006 which may result in an
increase to the current reclamation cost estimate and the
corresponding bonding requirement. Changes to the reclamation
plans are submitted contemporaneously to both the NDEP and the
BLM and
B-2
require their review and approval. Before U.S. Gold’s
expanded exploration activities can be pursued, existing permits
may need to be modified or new ones obtained.
Accessibility, Climate, Local Resources, Infrastructure
and Physiography
The Tonkin Springs property is located in the Simpson Park
Mountains area approximately 72 kilometres (45 miles)
northwest of Eureka in Eureka County, Nevada, at an elevation of
6,700 ft above mean sea level. The site is accessible by a paved
all-weather road, Highway 278, and then approximately
24 miles of county maintained gravel road into the site.
The property is accessed by one of two country roads, from the
Nevada State Road 278. The county gravel roads to the site are
maintained by Eureka County and are periodically graded as
required to provide good access. Topography varies from
moderately flat to moderately steep.
Surface rights applicable to mining claims allow development and
extraction from those claims. Certain locations are subject to
restrictions or obligations associated with historical Native
American cultural sites, however, none of the currently
identified mineralized areas are affected by those sites.
In general, the area is characterized by hot summers and cold
winters with monthly average maximum and average minimum
temperatures ranging from 82 °F (28°C) to 7 °F
(-14°C). The hottest month is July and the coldest is
January. The average annual precipitation on site is estimated
to be 11.3 inches. The estimated
24-hour precipitation
event for a 100 year return period is 2.8 in. Evaporation
in the area is significant with the average annual potential
evaporation estimated at 62.6 inches.
The Tonkin Springs property has been a producing mine for two
periods during its life. The existing site includes an
established mine infrastructure and adequate ancillary services
and facilities to support the majority of the requirements for
the project exploration and development activities. The existing
infrastructure that is available includes water supply, storage
and distribution, sewage disposal, campsite, fuel storage and
distribution, grid and emergency power supply and distribution.
Existing facilities include an administration building, truck
shop, assay laboratory, warehouse and plant maintenance shop.
Native vegetation in the project area is characterized by
sagebrush/bunch grass communities with Sandberg bluegrass,
Thuber needlegrass, bottlebrush squirreltail and Pinyon/
Juniper. Due to considerable grazing pressures from domestic
livestock in years past, much of the native vegetation has
degenerated to degraded stands of sagebrush with an understory
of cheatgrass in the more hilly areas, or halogeton, or other
annual forbs, on the lowlands.
History
Exploration and other mineral-related activities have occurred
at the Tonkin Springs property area since the 1950’s. The
first claims staked for gold in the area include those located
by Homestake Mining Company and an individual prospector in 1966
in the “Rooster” area that is now part of the
Campbell-Simpson lease area.
Between 1966 and 1985, several companies including Homestake
Mining Company (“Homestake”), Placer Amex, American
Selco, Chevron Resources, Earth Resources, Freeport Exploration
Energy Reserves Group and Mineral Ventures, Inc. (subsequently
Precambrian Exploration, Inc. (“PEX”)) conducted
exploration. Their activities included road building, surface
sampling and drilling on portions of the property. In 1985,
U.S. Gold Corporation (named Silver State Mining
Corporation at that time) joint ventured the property with PEX
forming Tonkin Springs Gold Mining Company (“TSGMC”).
In 1987, U.S. Gold bought out PEX’s interest.
Between 1985 and 1988, TSGMC built and operated an oxide heap
leach operation and in late 1989, completed construction of a
1,500 ton-per-day milling facility at the Tonkin Springs
property, designed to process sulphide gold mineralization
through the use of bacterial oxidation and cyanidation
technology. Due to severe liquidity problems, the plant and
associated infrastructure was decommissioned in June, 1990.
Apart from the SAG mill, which has been removed, the
infrastructure is complete and in good condition, and can be put
back into production with a minimum of refurbishment.
From 1991 to 1999, U.S. Gold joint-ventured the project
with various parties, including Homestake Mining Company, Gold
Capital Corporation and finally Agnico-Eagle Mines Ltd.
(“Agnico-Eagle”). An outcome of all of these joint
ventures was a combination of all the Tonkin Springs assets and
properties into TSLLC.
In March, 2003, BacTech Mining Corporation (“BacTech”)
signed a Letter of Agreement with U.S. Gold to
purchase 55 per cent of TSLLC. BacTech issued a
feasibility study in May 2004 which recommended the open-pit
mining and processing of both oxide and sulphide mineralization
using proprietary bacterial vat-leach technology. Due
B-3
to timing and money constraints, BacTech decided not to pursue
production at the project, returning the property to
U.S. Gold in 2004.
In mid-2005, Robert McEwen purchased a significant stake in the
company, with the previous management team retiring. Under the
guidance of new management, the property development has shifted
away from production, back into a property-wide exploration
focus with the objective of identifying additional Carlin-style
mineralization targeting lower plate rocks at depth.
During 1985 through 1988, approximately 26,029 oz of gold from
an oxide ore heap leach was produced from about 871,000 T of ore
from an oxide cap overlying the current sulphide resource in
TSP-1 and several other smaller oxide orebodies in the same
vicinity. In 1989, oxide ore from the Rooster deposit was
processed through the CIL portion of the mill producing 1,753 oz
of gold. In 1990, using the bio-oxidation and CIL circuits of
the mill, 2,735 ounces of gold were produced from approximately
70,000 T of sulphide ore mined from the TSP-1 deposit. A total
of approximately 30,517 ounces of gold have been produced at
Tonkin Springs to date.
Geological Setting
Regional Setting
The Tonkin Springs Mining District (the “Tonkin
District”) is located in a physiographic region of the
Western United States known as the Basin and Range Province.
Centred on Nevada and extending from southern Oregon to western
Texas, the Basin and Range Province is an immense region of
alternating, north-south-trending, faulted mountains and flat,
sediment-filled valley floors. It was created approximately
20 million years ago as a result of block faulting during
extensional tectonics. At this time the Earth’s crust
stretched, thinned, and then, during a period of rifting, broke
into some 400 mountain blocks that partly rotated from their
original horizontal positions. The Tonkin District is
structurally associated with the Cortez Rift within the Battle
Mountain-Eureka Trend, a northwest trending structural zone
located along the eastern flank of the Simpson Park Mountains.
Local and Property Geology
The geology in the vicinity of the Tonkin Springs mine is
complex both lithologically and structurally. Numerous geologic
events ranging in age from Ordovician or older, through the
Holocene, are recorded in the rock and structures of the region.
The host rocks for the gold mineralization currently identified
at Tonkin Springs consist of a sequence of Paleozoic rocks that
were subsequently faulted, intruded and mineralized by
gold-bearing solutions which originated at depth and migrated up
along fracture systems until reaching fractured and/or
chemically favourable rock suitable for deposition. Later
volcanism, faulting, erosion and sedimentation have affected the
mineralized material.
Movement within the Roberts Mountains Thrust zone (the principal
source of Mississippian Antler deformation in the district)
separates allochthonous deep-water clastic rocks of the upper
plate from autochthonous carbonate rocks lying within the lower
plate of the thrust. The dominant structures mapped at Tonkin
Springs include a series of high angle northwest trending faults
that dissect the range. Crosscutting these are less prominent
west-northwest-, north-and northeast-trending high angle faults.
The northern Nevada rift passes along the eastern side of the
property, as supported by regional geophysical data.
West-northwest, east-west and northeast trending folds are also
observed in the Tonkin Springs project area. Southeast low angle
shearing is evident in pit wall exposures.
Exploration
The Tonkin Springs property is a former producing mine and has
been known for approximately 40 years to host mercury,
barite, and gold mineralization. Over the decades, a significant
amount of exploration work has been conducted, focusing mainly
on shallow oxide and sulphide (refractory) mineralization
types. The result of these various exploration programs is a
database of drill holes generally clustered in a corridor, from
O-15/ TSP-1 in the south to Rooster in the north. This
“mine corridor” represents a relatively small portion
of the surface area of the property, but is the only area
extensively drilled. The remainder of the property has received
only scattered drilling and exploration.
Mineralization
Gold mineralization at Tonkin Springs is hosted by strongly
decalcified and locally silicified rocks, currently interpreted
as being hosted in the upper plate Vinini Formation. The main
zones of gold mineralization are hosted by thin bedded
carbonaceous siltstones, carbonate rocks and siliceous shales.
Sulphide minerals, barite and remobilized carbon are associated
with the ore zones and silicified carbonate rocks away from and
adjacent to the gold
B-4
mineralization. Gold mineralization is controlled both by high
angle structures that served as feeders to the deposits and by
stratigraphic and lithologic controls. Ore zones appear to have
formed in structural closures or fluid traps, the best
apparently being permeable zones sealed laterally by structures
and vertically by lithology.
The mineralization occurs as relatively thin zones conformable
with bedding and sill-like intrusive bodies. Typical ore
thicknesses are 20 to 50 feet, however larger intercepts
have been intersected. The zones have distinct contacts between
mineralized and unmineralized material at both the hanging wall
and foot wall.
Microprobe analyses performed on TSP-l unoxidized mineralization
indicate that about 75% of the gold occurs in micron sized
pyrite and arsenopyrite. The remaining 25% was thought to occur
as free gold in silica veinlets, although silica encapsulation
has not been documented as a problem. In the siliceous ores at
the Rooster Main area gold is recoverable by cyanidation below
the redox boundary indicating that gold was localized on
fractures. In mineralization hosted by the carbonate-rich
Telephone Member, a converse relationship has been noted. Gold
occurring above the redox boundary is occasionally only
partially cyanide soluble. Dark coloration in material has been
shown to be due to abundant, finely disseminated sulphide.
Sulphide minerals identified by examination of polished sections
are pyrite, arsenopyrite, marcasite, realgar, orpiment,
sphalerite, and stibnite. Realgar/orpiment, in particular, is
closely associated with the gold mineralization. Common
secondary minerals at Tonkin Springs are goethite, jarosite,
scorodite, and variscite. Barite is widespread throughout the
Tonkin Springs area and does not seem to be in strict spatial
association with the gold mineralization.
Zones of mineralization identified to date occur in clusters
located along a northwest trend. There is a strong
east-northeast component to each of these clusters which
possibly represents an east-northeast fold axis created by
strike slip faulting along master faults on the eastern and
western edges of the range. The increased ground preparation due
to folding and the intersection with northwest shearing and
thrust faulting appears to be the locus of mineralization. In
some instances mineralization is also spatially associated with
igneous dikes and sills.
Drilling
The table below summarizes the drilling on the Tonkin Springs
property.
Summary of Drilling at Tonkin Springs
Total length
Period
Company
No. of holes
(metres)
(feet)
No. of intervals
No. of assays
Drilling type
1966-67
Homestake Mining Co.
10
655
2,147
850
419
Rotary
1970-71
American Selco (Amselco)
4
316
1,035
410
204
Rotary
1974-75
Chevron Resources
20
1,480
4,854
1,922
951
Rotary
1976
Placer Amex
19
1,601
5,250
1,519
769
Rotary
1978-79
Earth Resources
15
1,087
3,565
699
339
Rotary
1980
Freeport Exploration
34
2,971
9,745
3,864
1,910
Rotary
1981-84
Precambrian Exploration
421
32,227
105,705
41,861
21,104
Rotary
1985-89
U.S. Gold Corporation
1,976
97,805
320,802
125,389
61,823
Rotary & Core
1991-92
Homestake Mining Co.
86
7,723
25,332
83,088
17,644
Rotary & Core
1995-98
Gold Capital Corp.
76
1,339
4,392
14,405
2,344
Rotary & Core
1999-2001
Agnico-Eagle/ Sudbury Contact
107
19,381
63,570
15,018
7,308
Rotary & Core
2003-04
BacTech
29
2,386
7,825
1,565
189
Rotary & Core
Total
2,797
168,970
554,222
290,590
115,004
Available records indicate that all drilling on the property was
conducted using reputable drilling contractors under supervision
of experienced geologists, and was performed to industry
standards.
Sampling and Analysis
Exploration work that has been conducted over the years at the
Tonkin Springs property, has focused mainly on near-surface
oxide and later sufilde mineralization. Most of
U.S. Gold’s former partners were focused on defining
shallow mineralization with the potential for immediate
production of gold and silver from known mineralization and did
not conduct significant exploration efforts at significant depth
on the Tonkin Springs property. Former partners focused on
shallow mineralization included Homestake Mining Co.,
Amselco, Chevron Resources, Placer Amax, Earth Resources,
Freeport Exploration, Precambrian Exploration, US Gold,
Gold Capital Corp., and BacTech. Those
B-5
companies interested in deeper potential included Homestake
Mining Co. in the early 1990s and Agnico/ Sudbury in
1999-2001. Two companies, Denay (Homestake) and Sudbury (Agnico
Eagle) focused on testing deeper styles of mineralization,
although each of these two drilling campaigns did not test the
property to significant depths. Denay completed 86 exploration
drill holes during 1991 and 1992 at a cost of approximately
$2.5 million. The average depth of these 86 holes is just
under 300 feet. Sudbury completed 107 exploration drill
holes during 1999 through October 2001, and the average depth of
these holes is just under 600 ft. The most recent drilling was
completed by BacTech, with 29 holes drilled during 2003 and
2004, mainly as part of their feasibility studies, targeting
resource confirmation and metallurgical testing. The average
depth of this drilling is approximately 270 feet.
Sampling completed by the various companies conducting
exploration and development on the project was performed to
industry standards at the time by respected industry
professionals. Micon International Limited has recommended
verification of the drill hole database.
U.S. Gold has not conducted additional drill sampling on
the Tonkin Springs project since coming under new management.
Security of Samples and Sample Preparation and
Analysis
No special procedures were used for security of the samples.
This is typical for work completed during the period, 1967 to
1991, which accounted for over 85% of the total drilling.
Mineral Resources
The most recent mineral resource estimates for the Tonkin
Springs deposits, which was published in the “Technical
Report on the Tonkin Springs Project, Nevada, U.S.A”, dated
May, 2004 (the “May 2004 Technical Report”), are based
on resource models that were constructed by Ore Reserves
Engineering in 1996, with revision to the O-15 model in 2001 to
incorporate new drilling data in that deposit. The mineral
envelopes were drawn for the 1996 and 2001 resource models to
restrict interpolation within areas that could be classified as
at least an indicated resource. The table below presents a
summary of the mineral resource estimate.
Cautionary Note to U.S. Investors concerning estimates
of Measured and Indicated Resources. This section uses the terms
“measured” and “indicated resources”. We
advise U.S. investors that while those terms are recognized
and required by Canadian regulations, the U.S. Securities
and Exchange Commission does not recognize them.
U.S. investors are cautioned not to assume that any
part or all of mineral deposits in these categories will ever be
converted into reserves.
Cautionary Note to U.S. Investors concerning estimates
of Inferred Resources. This section uses the term
“inferred resources.” We advise U.S. investors
that while this term is recognized and required by Canadian
regulations, the U.S. Securities and Exchange Commission
does not recognize it. “Inferred resources” have a
great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an Inferred Mineral
Resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not
form the basis of feasibility or pre-feasibility studies, except
in rare cases. U.S. investors are cautioned not to
assume that part of all of an inferred resource exists, or is
economically or legally minable.
Tonkin Springs Mineral Resource Estimate
Cut-Off
Category
Ore type
Tons
Gold grade
Gold
(oz/T)
(Thousands)
(oz/T)
(Thousand oz)
0.018
Measured
Sulphide
2,654
0.066
175.8
0.018
Indicated
Sulphide
20,659
0.044
903.6
0.012
Indicated
Oxide
6,359
0.029
186.3
Total measured and indicated sulphide and oxide
29,672
0.043
1,265.6
0.018
Inferred
Sulphide
3,466
0.044
152.5
The resources presented above are categorized as per the CIM
Standards. Resource classifications were updated for the May
2004 Technical Report, in order to conform to current CIM
Standards. Resources for the Main Zone at TSP-1 were assigned a
measured resource class because the mineralization is very
continuous and the Main Zone has been drilled with a
75 feet to 100 feet drill hole spacing. The remaining
areas are assigned an indicated resource class
B-6
because of slightly less continuity and/or wider drill hole
spacing. A few minor zones with poor continuity were assigned a
resource class of inferred. In late 2003, the F-Grid deposit
model was reviewed in more detail, and was found to have
sufficient continuity and drilling to be upgraded from the
inferred to the indicated category.
Resources were estimated using three dimensional block models to
define mineralized envelopes and to estimate gold grade. A five
food bench height was used for initial grade modeling for the
TSP-1 area including
the TSP-1,
TSP-6,
TSP-8 and
O-15 deposits. Adjacent
benches from the five foot bench model were averaged to
incorporate mining dilution from 10 foot mining benches.
Modeling of the F-Grid and Rooster deposits was done using
10 foot benches without the intermediate five foot bench
model.
A 20 foot by 20 foot horizontal block width was used
to provide adequate resolution of the geometry of ore zones,
which can be as narrow as 50 to 100 feet. A block size of
10 feet horizontal block width was used for the
F-Grid deposit to
better define the geometry.
Exploration and Development
U.S. Gold is planning an extensive
two-year,
property-wide, integrated exploration program at Tonkin Springs,
focusing on evaluation of the structural and stratigraphic
setting of the project. The program includes a proposed
400,000 feet of drilling and a budget of $25 to
$30 million of which $12 million is anticipated to be
spent in 2006, subject to the timely obtaining of necessary
drill permits and securing of drill rigs and contract personnel.
An objective is to identify new mineralization in areas
previously untested, targeting deeper mineralization. The
program also includes:
•
data compilation;
•
detailed property-wide geologic mapping ;
•
structural analysis and interpretation using regional
aeromagnetics, remote sensing, and district-scale gravity ;
•
detailed geophysical surveys including gravity, and possibly
induced polarization and magneto-telluric surveys to map
specific ore-controlling structures and define the presence of
Lower Plate/ favourable rock units;
•
rock, soil, and drill hole geochemistry to prioritize structural
targets; and
•
drilling (mainly core drilling, with some reverse circulation)
to test targets and concepts defined through this integrated
process.
Management intends that the 2006 proposed program will also
include geochemical sampling, geophysical surveys, and remote
sensing technologies leading to target definition and drill
testing, with an approximate 150,000 feet drill program
targeted for 2006. This systematic and integrated approach is
anticipated to result in a cost effective use of exploration
funds, and has the greatest opportunity to lead to discovery.
B-7
APPENDIX C
CERTAIN FINANCIAL STATEMENTS OF U.S. GOLD CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity
for the years ended December 31, 2005, 2004 (Restated) and
2003 (Restated)
C-6
Notes to Consolidated Financial Statements
C-8
C-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Gold
Corporation
Lakewood, Colorado
We have audited the accompanying consolidated balance sheet of
U.S. Gold Corporation as of December 31, 2005 and the
related consolidated statements of operations, changes in
shareholders’ equity and cash flows for the years ended
December 31, 2005 and 2004. These consolidated financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of U.S. Gold Corporation as of December 31, 2005,
and the results of its operations and its cash flows for the
years ended December 31, 2005 and 2004, in conformity with
accounting principles generally accepted in the United States of
America.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Gold
Corporation
Lakewood, Colorado
We have audited the accompanying consolidated balance sheet of
U.S. Gold Corporation as of December 31, 2004 and the
related consolidated statements of operations, changes in
shareholders’ equity and cash flows for the years ended
December 31, 2004 and 2003. These consolidated financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses from
operations, has no current source of operating revenues, and
needs to secure financing to remain a going concern. These
factors 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.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of U.S. Gold Corporation as of December 31, 2004,
and the results of its operations and its cash flows for the
years ended December 31, 2004 and 2003, in conformity with
accounting principles generally accepted in the United States of
America.
Basis of Presentation: U.S. Gold Corporation (the
“Company”) was organized under the laws of the State
of Colorado on July 24, 1979. Since its inception, the
Company has been engaged in the exploration for, development of,
and the production and sale of gold and silver.
Reclassifications: Certain adjustments have been made in
the financial statements for the years ended December 31,2004 and 2003, to conform to financial statement presentation
for the year ended December 31, 2005. On November 14,2005, the shareholders of the Company approved an amendment to
the articles of incorporation increasing the authorized capital
from 35,000,000 shares of $0.10 par value common stock to
250,000,000 shares of no par value common stock. All
presentations have been restated to reflect these changes to the
capital of the Company.
Basis of Consolidation: The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Statements of Cash Flows: The Company considers cash in
banks, deposits in transit, and highly liquid debt instruments
purchased with original maturities of three months or less to be
cash and cash equivalents.
Property and Equipment: Office furniture, equipment and
vehicles are carried at cost not in excess of their estimated
net realizable value. Normal maintenance and repairs are charged
to earnings while expenditures for major maintenance and
betterments are capitalized. Gains or losses on disposition are
recognized in operations.
Exploration and Development Costs: Costs of acquiring
mining properties and any exploration and development costs are
expensed as incurred unless proven and probable reserves exist
and the property is a commercially minable property. Mine
development costs incurred either to develop new ore deposits,
expand the capacity of operating mines, or to develop mine areas
substantially in advance of current production are also
capitalized. Costs incurred to maintain current production or to
maintain assets on a standby basis are charged to operations.
Costs of abandoned projects are charged to operations upon
abandonment. The Company evaluates, at least quarterly, the
carrying value of capitalized mining costs and related property,
plant and equipment costs, if any, to determine if these costs
are in excess of their net realizable value and if a permanent
impairment needs to be recorded. The periodic evaluation of
carrying value of capitalized costs and any related property,
plant and equipment costs are based upon expected future cash
flows and/or estimated salvage value in accordance with
Statement of Financial Accounting Standards (SFAS) No. 144,
“Accounting for Impairment or Disposal of Long-Lived
Assets.”
Depreciation: Depreciation of office furniture,
equipment and vehicles is computed using straight-line methods.
Office furniture, equipment and vehicles are being depreciated
over the estimated economic lives ranging from 3 to 5 years.
Property Retirement Obligation: The Company implemented
SFAS 143, “Accounting for Asset Retirement
Obligations,” effective January 1, 2003. SFAS 143
requires the fair value of a liability for an asset retirement
obligation to be recognized in the period that it is incurred if
a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. Ongoing environmental and
reclamation expenditures are credited to the asset retirement
obligation as incurred to the extent they relate to asset
retirement obligation and to expense to the extent they do not
so apply.
Stock Option Plans: The Company applies APB Opinion 25,
“Accounting for Stock Issued to Employees,” and
related interpretations in accounting for all stock option
plans. Under APB Opinion 25, no compensation cost has been
recognized for stock options issued to employees as the exercise
price of the Company’s stock options granted equals or
exceeds the market price of the underlying common stock on the
date of grant.
SFAS 123, “Accounting for Stock-Based
Compensation,” requires the Company to provide pro forma
information regarding net income as if compensation costs for
the Company’s stock option plans had been determined in
accordance with the fair value based method prescribed in
SFAS 123. To provide the required pro forma information,
the Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model.
Revenue Recognition: Gains on the sale of mineral
interests, if any, includes the excess of the net proceeds from
sales over the Company’s net book value in that property.
Generative exploration program fees, received as part of an
agreement whereby a third party agrees to fund a generative
exploration program in connection with mineral deposits in areas
not previously recognized as containing mineralization in
exchange for the right to enter into a joint venture in the
future to further explore or develop specifically identified
prospects, are recognized as revenue in the period earned.
Management contract fees are recognized as revenue earned is
determined to be realizable. Sales revenue is recognized upon
the production of metals having a fixed monetary value. Metal
inventories are recorded at estimated net realizable value,
except in cases where there is no immediate marketability at a
quoted market price, in which case they are recorded at the
lower of cost or net realizable value.
Per Share Amounts: SFAS 128, “Earnings Per
Share,” provides for the calculation of “Basic”
and “Diluted” earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average number
of shares outstanding during the period (25,931,172 for 2005,
20,028,173 for 2004 and 17,696,098 for 2003). Diluted earnings
per share reflect the potential dilution of securities that
could share in the earnings of the Company, similar to fully
diluted earnings per share. As of December 31, 2005, 2004
and 2003, warrants and options are not considered in the
computation of diluted earnings per share as their inclusion
would be antidilutive.
C-8
Income Taxes: The Company accounts for income taxes
under SFAS 109, “Accounting for Income Taxes.”
Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the
financial statements that will result in taxable or deductible
amounts in future years.
Business Risks: The Company continually reviews the
mining risks it encounters in its operations. It mitigates the
likelihood and potential severity of these risks through the
application of high operating standards. The Company’s
operations have been and in the future may be, affected to
various degrees by changes in environmental regulations,
including those for future site restoration and reclamation
costs. The Company’s business is subject to extensive
license, permits, governmental legislation, control and
regulations. The Company endeavors to be in compliance with
these regulations at all times.
Use of Estimates: The preparation of the Company’s
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
requires the Company’s management to make estimates and
assumptions that affect the amounts of assets and liabilities,
the 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.
Fair Value of Financial Instruments: SFAS 107,
“Disclosures About Fair Value of Financial
Instruments,” requires disclosure of fair value information
about financial instruments. Fair value estimates discussed
herein are based upon certain market assumptions and pertinent
information available to management as of December 31, 2005.
The respective carrying value of certain on-balance-sheet
financial instruments approximate their fair values. These
financial instruments include cash, cash equivalents, interest
receivable, accounts payable, and installment purchase
contracts. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term
in nature and their carrying amounts approximate fair value or
they are receivable or payable on demand. The carrying value of
the Company’s long-term purchase contracts approximates
fair values of similar debt instruments.
Recent
Pronouncements
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS 151, “Inventory Costs.” This
Statement amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). In addition, this
Statement requires that allocation of fixed production overhead
to the costs of conversion be based on the normal capacity of
the production facilities. The provisions of this Statement will
be effective for the Company beginning with its fiscal year
ending December 31, 2006. The Company is currently
evaluating the impact this new Standard will have on its
operations, but believes that it will not have a material impact
on the Company’s financial position, results of operations
or cash flows.
In December 2004, the FASB issued SFAS 153,
“Exchanges of Non monetary Assets — an amendment
of APB Opinion No. 29.” This Statement amended APB
Opinion 29 to eliminate the exception for non monetary exchanges
of similar productive assets and replaces it with a general
exception for exchanges of non monetary assets that do not have
commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The adoption
of this Standard is not expected to have any material impact on
the Company’s financial position, results of operations or
cash flows.
In December 2004, the FASB issued SFAS 123 (revised 2004),
“Share-Based Payment.” This Statement requires that
the cost resulting from all share-based transactions be recorded
in the financial statements. The Statement establishes fair
value as the measurement objective in accounting for share-based
payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based
payment transactions with employees. The Statement also
establishes fair value as the measurement objective for
transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions. The Statement
replaces SFAS 123, “Accounting for Stock-Based
Compensation,” and supersedes APB Opinion No. 25
“Accounting for Stock Issued to Employees.” The
provisions of this Statement will be effective for the Company
beginning with its fiscal year ending December 31, 2006.
The Company is currently evaluating the impact this new Standard
will have on its financial position, results of operations or
cash flows.
In March 2005, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 107
(SAB 107) which provides guidance regarding the interaction
of SFAS 123(R) and certain SEC rules and regulations. The
new guidance includes the SEC’s view on the valuation of
share-based payment arrangements for public companies and may
simplify some of SFAS 123(R)’s implementation
challenges for registrants and enhance the information investors
receive.
In March 2005, the FASB issued FIN 47, “Accounting
for Conditional Asset Retirement Obligations,” which
clarifies that the term ‘conditional asset retirement
obligation’ as used in SFAS 143 “Accounting for
Asset Retirement Obligations,” which refers to a legal
obligation to perform an asset retirement activity in which the
timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity.
FIN 47 requires an entity to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair
value can be reasonably estimated. FIN 47 is effective no
later than the end of the fiscal year ending after
December 15, 2005.
The Company does not believe that FIN 47 will have a
material impact on its financial position or results from
operations.
In August 2005, the FASB issued SFAS 154, “Accounting
Changes and Error Corrections.” This statement applies to
all voluntary changes in accounting principles and to changes
required by an accounting pronouncement if the pronouncement
does not include specific transition provisions, and it changes
the requirements for accounting for and reporting them. Unless
it is impractical, the statement requires retrospective
application of the changes to prior periods’ financial
statements. This statement is effective for accounting changes
and correction of errors made in fiscal years beginning after
December 15, 2005.
C-9
2. Tonkin Springs Project
The Company owns 100% of Tonkin Springs LLC, a Delaware limited
liability company (“TSLLC”) which, in turn, owns the
Tonkin Springs gold mine property located in Eureka County,
Nevada.
The Company intends to initiate an exploration program at the
Tonkin Springs project commencing in 2006 subject to receipt of
necessary governmental permits.
Effective May 12, 2005, BacTech Nevada Corporation, a
Nevada corporation and subsidiary of BacTech Mining Corporation
(“BacTech”), a Canadian corporation based in Ontario,
withdrew from TSLLC and its 55% interest reverted back to the
Company. BacTech withdrew from TSLLC as provided in the TSLLC
agreements dated July 31, 2003, and the Company assumed
responsibilities for management and funding for the project.
At December 31, 2004, the Company owned 45% of TSLLC.
Effective July 31, 2003, the Company sold a 55% equity
ownership interest in TSLLC to BacTech and BacTech then assumed
management and funding responsibilities for TSLLC until their
withdrawal effective May 12, 2005.
The purchase price for BacTech Nevada’s equity ownership
interest in TSLLC was $1,750,000 at July 31, 2003. BacTech
Nevada paid a total of $1,375,000 of the purchase price through
December 31, 2004 with the remaining $375,000 scheduled to
be paid in monthly payments through June 2005. The present value
of the $1,750,000 purchase price payments of BacTech Nevada at
July 31, 2003 was $1,678,506. The sale to BacTech Nevada
resulted in a gain of $601,924 in 2003. In 2003, BacTech also
reimbursed the Company for all holding costs at the Tonkin
Springs property from March 25, 2003 through July 31,2003 of approximately $68,500.
At December 31, 2004 TSLLC, on a 100% basis, had total
assets of $6,980,165, liabilities and obligations of $1,817,578
and equity of $5,162,587. The Company’s equity account is
$5,465,907 and BacTech Nevada’s is $(303,320). For the year
ended December 31, 2004, total expenses of TSLLC were
$2,645,203 which included $121,442 in accretion expense related
to asset retirement obligation, exploration costs of $1,714,961,
and property holding and other costs of $808,800. Since BacTech
Nevada was funding all costs, BacTech Nevada’s
members’ equity account is credited for its funding and
charged for 100% of the results of operations as provided in the
TSLLC agreements.
On September 30, 2004, TSLLC filed an updated reclamation
cost estimate with the BLM of $2,856,633 related to existing
disturbances for Tonkin Springs. On November 5, 2004,
BacTech was notified by the BLM of the need to increase the
reclamation bond relating to the Tonkin Springs project by
$1,118,733. On March 8, 2005, BacTech was notified that
TSLLC was not in compliance with this financial obligation.
Subsequent to the withdrawal of BacTech, the Company posted the
additional bonding from a portion of the proceeds from the sale
of shares of the Company (see Note 3 and 10) and TSLLC
is now in compliance with bonding requirements. The Company
anticipates completing an updated reclamation cost estimate
during the third quarter of 2006 for submission to the BLM by
September 30, 2006.
The projected estimate of “Retirement Obligation” for
the Tonkin Springs property, reflecting the requirements of
SFAS 143 and an update for increase in the current
estimated costs of reclamation of approximately $860,000, and
changes in the anticipated timing of certain future reclamation
costs developed in early 2006, as well as changes to the cost of
capital of the Company reflecting the financing transaction
closed in February 2006 (See Note 14), totals $2,724,721 as
of December 31, 2005. Of this amount, $1,597,032 is
budgeted to be expended in certain property reclamation
activities during 2006 and has therefore been reflected as a
current liability and $1,127,689 is classified non-current. This
estimated Retirement Obligation is anticipated to be further
revised in the fourth quarter of 2006 when an updated estimate
of reclamation obligations is finalized and submitted for
regulatory review including the BLM as noted above. This
submission is anticipated to be made in September 2006 and may
include changes to estimated costs as well as the expected time
frames for actual reclamation activities at the Tonkin Springs
property. Actual asset retirement and reclamation, generally,
will be commenced upon the completion of operations at the
property.
The following is a reconciliation of the aggregate of asset
retirement obligation projected for books since January 1,2004:
Asset retirement and reclamation liability —
January 1, 2004
$
1,193,508
Increase reflecting 2004 updated cost projections
281,620
Accretion of liability at assumed 8.5% annual rate
121,442
Asset retirement and reclamation liability —
January 1, 2005
1,596,570
Adjustment at December 31, 2005 reflecting updated cost
estimate, cost of capital and timing projections
942,924
Accretion of liability while BacTech was manager
74,984
Accretion of liability at assumed 17.3% annual rate
The components of the above $942,924 adjustment at
December 31, 2005 are as follows:
Decrease in the cost of capital assumption from 17.3% to 8.72%
$
575,200
Increase to estimated reclamation cost
277,300
Reduction of time frame to complete reclamation from
8.25 years to 6 years from December 31, 2005
90,424
Total
$
942,924
It is anticipated that the capitalized asset retirement costs
will be charged to expense based on the units of production
method commencing with gold production at Tonkin Springs. There
was no projected adjustment during 2005 for amortization expense
of capitalized asset retirement cost required under
SFAS 143 since the Tonkin Springs property was not in
operation.
When BacTech withdrew from TSLLC in May 2005, the total
reclamation bonding was $1,819,013. The Company subsequently
increased the restrictive time deposits for reclamation bonding
by $1,118,733 for a total of $2,937,746, as required by various
governmental agencies.
C-10
The purchase price for BacTech’s 55% equity ownership
interest in TSLLC was $1,750,000 of which $1,567,252 was paid
through May 12, 2005, the date of BacTech’s
withdrawal. The Company wrote off and expensed the remaining
purchase price receivable from BacTech of $182,748 during 2005.
BacTech Nevada has reported that it spent approximately $437,875
on property holding and annual lease payments in 2005 through
the effective date of their withdrawal, May 12, 2005. Such
amounts are not included in the Consolidated Statement of
Operations for the year ended December 31, 2005, since
BacTech was responsible for funding.
As set forth under the July 31, 2003, TSLLC agreements,
BacTech Nevada was responsible to fund and satisfy all unfunded
liabilities to third parties (whether such accrued before or
after such withdrawal) arising out of operations conducted
subsequent to July 31, 2003, but prior to the date of
BacTech’s withdrawal, May 12, 2005. BacTech has
guaranteed the performance of BacTech Nevada under the TSLLC
agreements. The Company believes it has certain claims against
BacTech related to TSLLC related to payments by the Company to
vendors of BacTech and other matters. The Company considers
collection of any claims against BacTech to be doubtful and has
provided a reserve for realization for the entire amount of any
such claims at December 31, 2005.
3. Change in Control
On July 29, 2005, the Company sold an aggregate of
11,100,000 shares of its common stock to Robert R. McEwen for
$4,000,000 in cash. Following the closing of this transaction,
Mr. McEwen became the Company’s largest shareholder,
owning slightly more than 33.3% of its then outstanding stock.
With this transaction and Mr. McEwen’s subsequent
appointment as Chairman of the Board and Chief Executive
Officer, the Company underwent a change in control.
Mr. McEwen also nominated a majority of the Company’s
Board of Directors.
In a filing with the United States Securities and Exchange
Commission, NovaGold Resources Inc., a Nova Scotia corporation
with securities traded on the American and Toronto Stock
Exchanges (“NovaGold”), reported that it had purchased
5,374,544 shares of the Company’s common stock in two
separate private transactions effective July 27, 2005.
NovaGold is a natural resource company engaged in the
exploration and development of gold properties in North America.
As a result of these transactions, NovaGold owns approximately
16% of the Company’s outstanding common stock as of
December 31, 2005.
4. Termination and Other Agreements
As a condition to completion of the McEwen transaction
discussed in Note 3 above, and in consideration of prior
uncompensated services and termination of outstanding stock
options, the Company consummated agreements with each of its
then existing executive officers pursuant to which their
employment contracts with the Company were terminated
(“Termination Agreements”). These Termination
Agreements provided for cash payments to the three individuals
in the aggregate amount of $1,000,000, issuance of 1,025,000
shares of the Company’s common stock (see Note 10) and
distribution of 5,191,352 shares of common stock of Gold
Resource Corporation (“GRC”), representing all of the
GRC stock owned by the Company prior to the transaction (see
Note 6). The GRC stock was valued at $0.118 per share or
$612,580, the fair value as determined by an independent third
party. The Termination Agreements were effective July 28,2005.
The Company also issued an aggregate of 450,000 shares of its
common stock (see Note 10) to its then-existing four
independent members of the Board of Directors as a condition to
completion of the McEwen transaction discussed in Note 3
above. These shares were issued under the Company’s
Non-Qualified Stock Option and Stock Grant Plan. Outstanding
stock options with each of these directors and the three
executive officers were also cancelled.
5. Terminated Proposed Merger
On June 21, 2005, the Company entered into an agreement
(the “Romarco Letter Agreement”) with Romarco Minerals
Inc. (“Romarco”) which proposed a merger of the
Company with both Romarco and Western Goldfields Inc. The
Romarco Letter Agreement provided a 30-day “exclusivity
period” within which the Company was limited in discussions
for a merger or acquisition with any entity other than Romarco,
and contemplated that the parties would negotiate a definitive
merger agreement. Romarco paid earnest money of $200,000 to the
Company with the Romarco Letter Agreement. The exclusivity
period expired without Romarco providing the requisite financing
to the Company. Following consummation of the McEwen Transaction
discussed in Note 3, the Company terminated negotiations
with Romarco. The Company, Romarco and Western Goldfields have
no further obligations to each other except as provided under
confidentiality agreements among and between the parties. The
Company recorded the $200,000 earnest money as revenue upon the
expiration of the Romarco Letter Agreement.
6. Gold Resource Corporation
As discussed in Note 3 and Note 4 above, effective
July 29, 2005, related to the Termination Agreements, the
Company disposed of 5,191,352 shares (approximately 32.65%) of
the common stock of GRC, a private Colorado corporation,
representing all of the Company’s interest in GRC. The
Company’s share of GRC’s net loss for 2005 prior to
the disposition of its interest in GRC was $(58,888).
GRC owed the Company $330,000 under a 2002 management contract
that expired by its term December 31, 2002, and that amount
had not been previously recognized as a receivable or as revenue
by the Company until the amount was realized. In June 2005, GRC
paid $10,000 of the amount in cash and issued to the Company
1,280,000 shares of GRC stock with an agreed upon value of $0.25
per share in full satisfaction of its obligations under the 2002
management contract. Since the shares of GRC are not publicly
traded, the 1,280,000 shares of GRC received in satisfaction of
the 2002 management contract were determined by third party
evaluation to have a fair value of $151,040 and the Company
recorded a reserve for realization of $168,960 related to the
value of the 1,280,000 shares during the quarter ended
June 30, 2005.
In June 2005, GRC purchased a used truck from the Company for
cash of $10,000 which resulted in a loss on disposition of
$12,034.
As of December 31, 2004, the Company owned 1,955,676
shares of common stock (approximately 32.3%) of GRC. The shares
of GRC are not publically traded and have been assessed by the
Company to have indeterminable market value and have therefore
been recorded at a zero basis. GRC has reported audited
financial information as of December 31, 2004. GRC had
assets of $11,141, total liabilities of $758,476, and
shareholders’ (deficit) of $(747,335). For the year ended
December 31, 2004, GRC has reported a loss of $(853,666)
made up of $257,383 in
C-11
mineral property exploration and evaluation, $68,951 in property
acquisition and related costs, and $377,732 in general and
administrative costs and $150,000 in stock compensation. Under
equity accounting, the Company has not recorded its share of
GRC’s operating losses to date since such recognition would
reduce its zero basis investment in GRC to below zero.
GRC’s net comprehensive losses for the two years ended
December 31, 2004 and 2003 were $(853,666) and $(496,017),
respectively, of which the Company’s share is approximately
$(292,701) and $(199,994), respectively.
7. Loan Settlement Agreement with FABC
On February 21, 1992, the Company entered into a Loan
Settlement Agreement with its senior secured lender, The French
American Banking Corporation (“FABC”). The Company
discharged its debt to FABC and terminated all prior security
interests related thereto. As part of the consideration to FABC
under the Loan Settlement Agreement, Tonkin Springs Gold Mining
Company, a wholly-owned subsidiary of the Company
(“TSGMC”) entered into an agreement with FABC entitled
“Agreement To Pay Distributions,” which requires TSGMC
to pay a limited portion of certain distributions from TSVLP to
FABC. TSVLP, another subsidiary of the Company, has complete
control of such distributions, if any, to TSGMC. Under the terms
of the Agreement To Pay Distributions, TSGMC is required to pay
to FABC (i) the first $30,000 in cash or value of asset
distributions, as defined in such agreement, received from
TSVLP, plus (ii) an amount equal to 50 percent of such
retained distributions in cash or value of asset distributions
after TSGMC has first received and retained $500,000 of such
retained distributions. This obligation to FABC shall terminate
after FABC has been paid a total of $2,030,000 thereunder. No
payments have been made under this obligation.
In various transactions entered into February 21, 1992 as
well as transactions during 2005, the Company had ownership
changes, as that term is defined under
Section 382 (g), IRC. As a result, the tax net
operating loss carry forwards and the investment tax credit
carry forwards are subject to annual limitations under
Section 382 IRC, following the date of such ownership
change. Except as noted below, the Company will receive delayed
future benefits from net operating loss carryforwards or
investment tax credit carryforwards existing as of the dates of
the ownership change. At December 31, 2005, the Company
estimates that tax loss carry forwards to be $12,447,000
expiring through 2025.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2005 and 2004, are presented
below:
2005
2004
Deferred tax assets:
Alternative minimum tax credit carryforward
$
11,200
$
11,200
Reclamation obligation
345,900
114,200
Net operating (loss) carryforward
2,738,200
1,739,100
Capital (loss) carryforward
268,400
268,400
Total gross deferred tax assets
3,363,700
2,132,900
Less valuation allowance
(3,249,100
)
(2,018,300
)
Net deferred tax assets
114,600
114,600
Deferred tax liabilities:
Basis in TSVLP
(114,600
)
(114,600
)
Total net deferred tax asset
$
—
$
—
The Company believes that it is unlikely that the net deferred
tax asset will be realized. Therefore, a valuation allowance has
been provided for net deferred tax assets. The change in
valuation allowance of approximately $1,231,100 for 2005 and
$770,800 for 2004 primarily reflects an increase of net
operating (loss) carryforwards.
C-12
A reconciliation of the tax provision for 2005, 2004 and 2003
at statutory rates is comprised of the following components:
2005
2004
2003
Statutory rate tax provision on book loss
$
(658,000
)
$
(174,600
)
$
(137,000
)
Book to tax adjustments:
Valuation allowance
658,000
174,600
137,000
Tax provision
$
—
$
—
$
—
10. Shareholders’ Equity
On November 14, 2005, shareholders of the Company approved
an amendment to the Articles of Incorporation increasing the
number of shares of common stock authorized from 35,000,000 to
250,000,000 and eliminating the par value of the shares. The
shareholders also approved an increase in the number of shares
reserved under the Company’s Non-Qualified Stock Option and
Stock Grant Plan (the “Plan”) from 3,500,000 to
5,000,000 shares on November 14, 2005.
As discussed further in Note 3 above, on July 31,2005, the Company sold 11,100,000 shares of its common stock to
a single investor for $4,000,000 in cash. Related to this
transaction, the Company issued 450,000 shares of its stock
valued at $0.40 per share, or $180,000, to its then four
independent directors as a stock grant under the Plan. Directors
terminated option agreements for aggregate 450,000 shares of
stock. Related to the Termination Agreements with three
executive officers discussed further in Note 5, the Company
issued 1,025,000 shares of its stock valued at the closing
market price on the day of the agreements of $0.39 per share, or
$399,750, under the Plan. Those executives terminated option
agreements covering aggregate 225,000 shares of stock.
During June 2005, the Company issued 120,000 shares of its
stock valued at $0.47 per share, or $56,400 in the aggregate, to
an investor in exchange for cancellation of warrants to purchase
100,000 shares of the Company’s stock expiring in June
2006, and settlement of other issues. In July 2005, the Company
issued 145,000 shares of its stock valued at $0.40 per shares,
or $58,000, in exchange for cancellation of warrants to purchase
145,000 shares of the Company’s stock expiring through
June 29, 2006. The Company recorded stock compensation
expense of $114,400 related to these transactions. As of
December 31, 2005, there are no remaining warrants to
purchase shares of the Company’s stock.
Effective February 25, 2004, the Company entered into a
Finder’s Fee Agreement with Meridian Capital Ltd.
(“Meridian”), a Canadian merchant bank, whereby
Meridian agreed to provide consulting services to the Company.
With Unit Subscription Agreements, the Company sold Units at
$0.90 where each Unit was made up of one share of common stock
and one Unit Purchase Warrant. Unit Purchase Warrants are
exercisable for 2 years from date of issue and provide that
one share of common stock can be purchased for $1.25 plus four
(4) Unit Purchase Warrants for up to 25,000 shares of
common stock. Through the March 12, 2004 termination date
of the Meridian agreement, the Company raised net proceeds of
$72,350 through the sale of 100,000 Units. Meridian was paid a
fee of 8.5% of monies raised through the sale of Units plus
$10,000 for expenses, and warrants exercisable for 2 years
to purchase 20,000 shares of the Company (equal to 20% of the
Units sold) at a warrant exercise price of $0.90 per share (the
“Meridian Warrants”). No value was assigned to the
Unit Purchase Warrants since the exercise price of those
warrants were above the market price of the common stock at the
date of the closing of the transaction. A value of $21,800 was
assigned to the Meridian Warrants based on the Black-Scholes
pricing model and was recorded as finance fees in the first
quarter of 2004. As noted above, the warrants were cancelled
during 2005.
In June 2004, the Company sold 400,000 Units, with each Unit
consisting of one share of common stock and one Unit Purchase
Warrant at $0.50 per Unit. These Unit Purchase Warrants are
exercisable for two years from date of issue and provide that
one share of common stock can be purchased for $0.80 plus two
(2) Unit Purchase Warrants for up to 200,000 shares of
common stock. The offering netted $195,000. An independent
director of the Company was paid a success fee of $5,000 related
to one of these private placement sales of stock. Also during
June 2004, warrants to exercise 428,572 shares at exercise price
of $0.30 per share were exercised at a reduced price of $0.25
per share for total proceeds of $107,142. The Company agreed to
the reduced exercise price to induce the holder to exercise the
warrants and recognized stock compensation expense of $21,429
for the reduction of the exercise price of these warrants. As
noted above, the warrants were cancelled during 2005.
Also during 2004, options to purchase a total of 340,000 shares
at an exercise price of $0.16 per share were exercised. In
connection with those transactions, 34,286 option shares were
surrendered and cancelled under a cashless exercise to fund the
exercise price of 150,000 of the option shares and accrued
director fees were reduced for exercise of 190,000 additional
option shares. Options to purchase 375,550 shares at exercise
price of $0.16 per share expired by their terms during 2004.
On April 30, 2003, the Company and Excalibur Limited
Partnership (“Excalibur), an Ontario, Canada limited
partnership, agreed to reduce the exercise price of warrants
held by Excalibur for the purchase of 428,572 shares of stock of
the Company from $.53 per share to $.30 per share (the market
price of the shares on April 30, 2003) and to extend the
exercise period under the warrants from May 30, 2004 to
May 30, 2006. In exchange, Excalibur agreed to forgive
current and future penalties incurred by the Company for failure
to have an effective registration statement with the Securities
and Exchange Commission for the Excalibur purchased shares and
warrants completed on May 30, 2002. Penalties forgiven by
Excalibur aggregated $25,500 through April 30, 2003, which
was credited to common stock.
Exchange of stock for shares in GRC-
Effective September 30, 2003, the Company acquired the
675,676 shares of GRC common stock owned by RMB International
(Dublin) Ltd. (“RMB”) in exchange for 672,528 shares
of unregistered common stock of the Company valued at $0.54 per
share (for an aggregate value of $363,165). This transaction
with RMB terminates the “Bring Along Obligation” under
a subscription agreement dated May 6, 2002 that included
obligations of the Company. The independent directors of the
Company unanimously approved this transaction with RMB.
C-13
Stock Options-
Stock options have been granted to key employees, directors and
others under the Plan. Options to purchase shares under the Plan
were granted at market value as of the date of the grant.
Effective November 14, 2005, the shareholders of the
Company increased the total number of shares under the Plan to
5,000,000. During 2005, stock options were granted to directors,
executive officers, and consultants of the Company covering
1,072,000 shares at exercise prices of $2.09 and $2.12 per share.
Analysis of Stock Options
2005
2004
2003
Weighted Average
Weighted Average
Weighted Average
Shares
Exercise Prices
Shares
Exercise Prices
Shares
Exercise Prices
Outstanding, beginning of year
675,000
$
.50-.86
1,367,695
$
.16-.86
2,048,295
$
.16
Granted
1,072,000
$
2.09-2.12
—
—
675,000
$
.50-.86
Exercised
—
340,000
$
.16
1,063,128
$
.16
Canceled including through cashless exercise
675,000
$
.50-.86
34,286
$
.16
292,474
$
.16
Expired
—
—
318,407
$
.16
—
—
Outstanding and exercisable, end of year
1,072,000
$
2.09-2.12
675,000
$
.50-.86
1,367,695
$
.16-.86
Weighted average fair value of Option granted during year
$
2,076,180
$
—
$
.71
For 2005, the fair value for the options was estimated at the
date of grant, using the Black-Scholes Option Valuation Model,
with the following weighted-average
assumptions: risk-free
interest rate of 4.61%; a dividend yield of 0.0%; a volatility
factor of the expected market price of the common stock of 1.02;
and a weighted-average expected life of the option of
10 years. For 2003, the fair value for the options was
estimated at the date of grant, using the Black-Scholes Option
Valuation Model, with the following weighted-average
assumptions: risk-free interest rate of 5.0%; a dividend yield
of 0.0%; a volatility factor of the expected market price of the
common stock of 0.97; and a weighted-average expected life of
the option of 5 years
The following table summarizes information about stock options
outstanding at December 31, 2005 and 2005:
The effect of applying SFAS 123 pro forma net (loss) is
not necessarily representative of the effects on reported net
income (loss) for future years due to, among other things, the
vesting period of the stock options and the fair value of
additional stock options in future years. For purpose of pro
forma disclosure, the estimated fair value of the options is
charged to expense in the year that the options were granted. In
2004, the Company’s pro forma loss is equal to its net
(loss) since no options were granted in 2004. Under the
accounting provisions of SFAS 123, the Company’s net
loss and net loss per share for 2005 would have been adjusted to
the following pro forma amounts:
Net (loss)
2005
2003
As reported
Pro forma
As reported
Pro forma
(Loss) before cumulative effect of accounting change
$
(2,990,721
)
$
(3,328,197
)
$
(1,026,738
)
$
(1,389,738
)
Accounting change: cumulative-effect gain on Implementation of
SFAS 143
—
—
404,000
404,000
Net (loss)
$
(2,990,721
)
$
(3,328,197
)
$
(622,738
)
$
(985,738
)
C-14
Basic and diluted net (loss) per share
2005
2003
As reported
Pro forma
As reported
Pro forma
Basic and diluted per share data:
(Loss) before accounting change
Basic and diluted
$
(0.12
)
$
(0.13
)
$
(0.06
)
$
(0.08
)
Accounting change
Basic and diluted
$
—
$
—
$
0.02
$
0.02
Net (loss)
Basic and diluted
$
(0.12
)
$
(0.13
)
$
(0.04
)
$
(0.06
)
11. Employee Benefit Plans
On December 10, 1985, the Company’s Board of
Directors adopted a Simplified Employee Pension Plan
(“SEP”). The Company intends to make a determination
of contributions under the SEP on an annual basis, based upon
review by the Board of Directors of the Company’s financial
statements as of its fiscal year end. The Company has determined
not to make contributions to the SEP for the years ended
December 31, 2005, 2004 and 2003. Contributions made under
the SEP in any one calendar year for any one employee may not be
more than the smaller of $40,000 or 25% of that employee’s
total compensation.
12. Rental Expense and Commitments and Contingencies
During the years ended December 31, 2005, 2004 and 2003,
the Company had no rental expense under operating leases but had
approximately $9,200 in rental expense under other occupancy
arrangements for each year. The Company has transferred its
interest in several mining properties over the past years. The
Company could remain potentially liable for environmental
enforcement actions related to its prior ownership interest of
such properties. However, the Company has no reasonable belief
that any violation of relevant environmental laws or regulations
has occurred regarding these transferred properties.
13. Installment Purchase Contracts
The Company has installment purchase contracts aggregating
$23,468, due in monthly installments of $715, collateralized by
a vehicle bearing an average interest rate of 6 percent per
annum. In addition, the Company is financing the cost of an
18-month insurance policy covering directors and officers with
monthly installments of $7,761 through November 2006 with an
average interest rate of 7.75 per cent per annum.
Future maturities under these contracts as of December 31,2005 are as follows:
2006
$
97,303
2007
$
7,837
2008
$
8,246
14. Subsequent Events
On February 22, 2006 (the “Closing Date”), the
Company completed a $75,150,000 financing transaction (the
“Transaction”). One half of the gross proceeds of the
Transaction are being held in an escrow account (the
“Escrow Funds”) pending satisfaction of the
“Release Conditions”, discussed further below. The
remaining net proceeds of $34,944,750, after commissions but
before deduction of expense of the offering, are unrestricted
and were paid to the Company at Closing. The Company believes
that the Transaction will adequately fund its operations for two
years.
In the Transaction, the Company sold 16,700,000
“Subscription Receipts” at a price of $4.50 each. Each
Subscription Receipt is automatically convertible, subject to
adjustment and penalties discussed below, without payment of any
additional consideration, into one unit (“Unit”). Each
Unit will consist of one share of the Company’s common
stock and one-half common stock purchase warrant
(“Warrant”). Each full Warrant entitles the holder to
purchase one share of common stock for $10.00 for 5 years
from the Closing Date.
GMP Securities L.P. and Griffiths McBurney Corp. (the
“Agents”) assisted the Company in the Transaction
under an Agency Agreement. The Company agreed to pay cash
commission of 7% to the Agents and to issue compensation options
(“Compensation Options”) for their services. The
Company also agreed to reimburse the Agents for their reasonable
expenses incurred in connection with the offering. One-half of
the cash commission was paid on the Closing Date and one-half
plus accrued interest will be paid if the escrowed funds are
released to the Company. The Company also issued Compensation
Options to the Agents which allow them to acquire, for no
additional consideration, broker warrants (“Broker
Warrants”) which, in turn, allow them to acquire up to
1,002,000 Units at an exercise price of $4.50 per Unit for a
period of 18 months from the Closing Date. The Agent shall
be entitled to convert up to 501,000 of the Broker Warrants an
exercise price of $4.50 per Unit (the “Initial
Options”) at any time prior to August 22, 2007 (the
“Conversion Deadline”). Any of the Brokers Warrants
not so converted, plus any of the remaining 501,000 Compensation
Options, will be deemed converted into Units upon satisfaction
of the Release Conditions and payment of an exercise price of
$4.50 per Unit. Warrants included in the Units allow the Agents
to purchase 501,000 shares at an exercise price of $10.00 per
share.
The Subscription Receipts were issued pursuant to the terms of
a Subscription Receipt Indenture between the Agents and Equity
Transfer Services Inc. of Toronto, Ontario, Canada
(“ETS”) dated as of the Closing Date. Pursuant to the
terms of the Subscription Receipt Indenture, ETS agreed to act
as the Company’s agent and registrar for the transfer,
exchange and conversion of the Subscription Receipts. ETS will
also hold the Escrow Funds in escrow pending satisfaction of the
Release Conditions, or return of the Escrow Funds to the
subscribers of the Subscription Receipts.
C-15
If all the common stock provided under the Transaction are
issued, a total of 26,553,000 shares of common stock will have
been issued related to the Transaction, exclusive of any penalty
or adjustment in connection with the conversion of the
Subscription Receipts.
As noted above, $37,575,000 of the gross proceeds of this
transaction are being held in escrow pending the satisfaction of
the Release Conditions.
The Release Conditions include, among other things, filing of a
final prospectus which qualifies the distribution of the Units
in Canada, the receipt from the Securities and Exchange
Commission of an effective date for a registration statement
covering the Units, and the listing of the common stock of the
Company on the Toronto Stock Exchange. If the release conditions
are not satisfied by February 22, 2007, the escrow proceeds
will be returned to subscribers. The remaining subscription
receipts will automatically convert into shares of our common
stock and warrants not later than August 22, 2007.
The Company has agreed to use its commercially reasonable
efforts to satisfy the Release Conditions as soon as possible.
If the Release Conditions are satisfied, the Company will
receive the balance of the proceeds.
In the event that the Release Conditions are not satisfied on
or before February 22, 2006, the Company has agreed that
each Subscription Receipt shall be converted into 1.1 share of
common stock (instead of one share) and 0.55 Warrants (instead
of one-half Warrant).
The Subscription Receipts were sold by the Company in
transactions exempt from the registration requirements of the
1933 Act pursuant to Rule 506 of Regulation D and in
transactions that did not require registration pursuant to
Rule 903 of Regulation S. Each subscriber of the
Subscription Receipts in the United States was an
“accredited investor” within the meaning of
Rule 501. The remainder of the Subscription Receipts were
sold to persons who were not in the United States at the time of
purchase or who were not U.S. persons as defined in
Rule 902.
C-16
APPENDIX D
UNAUDITED FINANCIAL STATEMENTS OF US GOLD HOLDINGS
CORPORATION
Common shares, authorized — unlimited, issued and
outstanding — 1,000 shares
$
10.00
Total shareholder’s equity
$
10.00
The accompanying notes are an integral part of this unaudited
balance sheet.
D-2
US GOLD HOLDINGS CORPORATION
NOTES TO UNAUDITED BALANCE SHEET
Note 1 — Nature of Business:
US Gold Holdings Corporation was incorporated under the laws of
the State of Delaware on April 17, 2006 for the purpose of
making an offer to purchase the outstanding common shares in the
capital of each of Coral Gold Resources Ltd., Nevada Pacific
Gold Ltd., Tone Resources Limited and White Knight Resources Ltd.
US Gold Holdings Corporation is a wholly-owned subsidiary of
U.S. Gold Corporation and has no material assets or
liabilities and no operating history.
Note 2 — Basis of Reporting:
The balance sheet of US Gold Holdings Corporation is prepared in
accordance with accounting principles generally accepted in the
United States of America under the accrual method of accounting.
The presentation of a statement of income, a statement of
changes in shareholder’s equity and a statement of cash
flows is not included as there has been no activity, except for
the sale of 1,000 shares of common stock, to U.S. Gold
Corporation on April 17, 2006 for $10.00.
D-3
APPENDIX E
UNAUDITED FINANCIAL STATEMENTS OF US GOLD CANADIAN
ACQUISITION CORPORATION
Shareholder’s equity Common shares, authorized —
unlimited, issued and outstanding — 1 share
$
1.00
Total shareholder’s equity
$
1.00
The accompanying notes are an integral part of this unaudited
balance sheet.
E-2
US GOLD CANADIAN ACQUISITION CORPORATION
NOTES TO UNAUDITED BALANCE SHEET
Note 1 — Nature of Business:
US Gold Canadian Acquisition Corporation was incorporated on
April 18, 2006 for the purpose of making an offer to
purchase the outstanding common shares in the capital of each of
Coral Gold Resources Ltd., Nevada Pacific Gold Ltd., Tone
Resources Limited and White Knight Resources Ltd.
US Gold Canadian Acquisition Corporation is a wholly-owned
subsidiary of U.S. Gold Corporation and has no material
assets or liabilities and no operating history.
Note 2 — Basis of Reporting:
The balance sheet of US Gold Canadian Acquisition Corporation is
prepared in accordance with accounting principles generally
accepted in the United States of America under the accrual
method of accounting.
The presentation of a statement of income, a statement of
changes in shareholder’s equity and a statement of cash
flows is not included as there has been no activity, except for
the sale of one common share to U.S. Gold Corporation on
April 18, 2006 for $1.00.
E-3
APPENDIX F
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF
U.S. GOLD CORPORATION
INDEX
Compilation Report
F-2
Unaudited Pro Forma Consolidated Balance Sheet
F-4
Unaudited Pro Forma Consolidated Statement of Operations
F-5
Notes to the Unaudited Pro Forma Consolidated Financial
Statements
F-6
F-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF
U.S. GOLD CORPORATION
Compilation Report on Unaudited Pro Forma Consolidated
Financial Statements to the Board of Directors of U.S. GOLD
CORPORATION
We have read the accompanying unaudited pro forma
consolidated balance sheet of U.S. Gold Corporation
(U.S. Gold or the Company) as at December 31, 2005 and
unaudited pro forma consolidated statement of operations
for the year then ended, and have performed the following
procedures:
1.
Compared the figures in the columns captioned
“U.S. Gold Corporation” on the unaudited pro
forma consolidated balance sheet to the audited consolidated
balance sheet of the Company as at December 31, 2005 and
found them to be in agreement. Compared the figures in the
columns captioned “U.S. Gold Corporation” on the
unaudited pro forma consolidated statement of operations
for the year ended December 31, 2005 to the audited
consolidated statement of operations of the Company for the year
ended December 31, 2005 and found them to be in agreement.
2.
Compared the figures in the column captioned “White Knight
Resources Ltd.” on the unaudited pro forma
consolidated balance sheet to the unaudited consolidated balance
sheet of White Knight Resources Ltd (“White Knight”)
as at December 31, 2005 and found them to be in agreement.
Compared the figures in the column captioned “White Knight
Resources Ltd.” on the unaudited pro forma
consolidated statement of operations for the twelve months ended
December 31, 2005 to the results of White Knight by adding
together (a) the results for the six months ended
June 30, 2005 (derived from White Knight’s audited
consolidated financial statements for the year ended
June 30, 2005 and the unaudited interim results for the six
months ended December 31, 2004) and (b) the unaudited
interim results for the six months ended December 31, 2005,
and found them to be in agreement.
3.
Made enquiries of certain officials (“the officials”)
of the Company who have responsibility for financial and
accounting matters about:
(a)
the basis for determination of the pro forma adjustments;
and
(b)
whether the unaudited pro forma consolidated financial
statements comply as to form in all material respects with the
regulatory requirements of the various securities commissions
and similar regulatory authorities in Canada.
The officials:
(a)
described to us the basis for determination of the pro
forma adjustments; and
(b)
stated that the unaudited pro forma consolidated
financial statements comply as to form in all material respects
with the regulatory requirements of the various securities
commissions and similar regulatory authorities in Canada.
4.
Read the notes to the unaudited pro forma consolidated
financial statements, and found them to be consistent with the
basis described to us for determination of the pro forma
adjustments.
5.
Recalculated the application of the pro forma adjustments
to the aggregate of the amounts in the columns captioned
“Pro Forma Adjustments” and “Pro
Forma Adjustments US GAAP” and found the amounts in
those columns to be arithmetically correct.
A pro forma financial statement is based on management
assumptions and adjustments which are inherently subjective. The
foregoing procedures are substantially less than either an audit
or a review conducted under the relevant standards as described
in the Handbook of the Canadian Institute of Chartered
Accountants. The objective of these procedures is the expression
of assurance with respect to management’s assumptions, the
pro forma adjustments, and the application of the
adjustments to the historical financial information.
Accordingly, we express no such assurance.
The foregoing procedures would not necessarily reveal matters of
significance to the unaudited pro forma consolidated
financial statements, and we therefore make no representation
about the sufficiency of the procedures for the purposes of a
reader of such statements.
Comments for United States readers on differences between
Canadian and United States reporting standards
The above report, provided solely pursuant to Canadian
requirements, is expressed in accordance with standards of
reporting generally accepted in Canada. To report in conformity
with United States standards on the reasonableness of the
pro forma adjustments and their application to the
pro forma financial statements requires an
examination or review substantially greater in scope then the
review we have conducted. Consequently, we are unable to express
any opinion in accordance with standards of reporting generally
accepted in the United States with respect to the compilation of
the accompanying unaudited pro forma financial
information.
On March 5, 2006 U.S. Gold Corporation (“U.S.
Gold” or the “Company”) announced that it intends
to acquire, in stock transactions, all of the outstanding common
shares of White Knight Resources Ltd., Nevada Pacific Gold Ltd,
Coral Gold Resources Ltd and Tone Resources Limited. This
proposal was made in letters sent on the same day by
Mr. Robert R. McEwen, Chairman and Chief Executive
Officer of U.S. Gold, to the chief executive officers of each of
the subject companies.
These unaudited pro forma consolidated financial
statements have been prepared to give effect to the
Company’s acquisition of White Knight. The combined effects
of the proposed transactions with each of the four companies
have been presented separately under “Unaudited Pro
Forma Consolidated Supplementary Financial Statements,”
included elsewhere in this Circular. These unaudited pro
forma consolidated financial statements have been prepared
on the basis that each shareholder will receive shares of common
stock of U.S. Gold Corporation in exchange for their White
Knight common shares.
The unaudited pro forma consolidated financial
statements of U.S. Gold as at December 31, 2005 and for the
year then ended have been prepared by management after giving
effect to the:
(i)
White Knight acquisition (the “Acquisition”) and
(ii)
Private placement dated February 22, 2006 for gross
proceeds of $75,150,000 of which $37,575,000 is being held in an
escrow account pending satisfaction of certain release
Conditions.
These unaudited pro forma consolidated financial
statements have been compiled from and include:
(a)
A unaudited pro forma consolidated balance sheet
combining the audited balance sheet of U.S. Gold as at
December 31, 2005 with the unaudited balance sheet of White
Knight Resources Ltd. as at December 31, 2005 giving effect
to the transactions as if they occurred on December 31,2005.
(b)
A unaudited pro forma consolidated statement of
operations combining the audited statement of operations of the
Company for the year ended December 31, 2005, giving effect
to the transactions as if they occurred on January 1, 2005,
with the unaudited constructed statement of operations of White
Knight for the twelve months ended December 31, 2005. White
Knight’s statement of operations for the twelve months
ended December 31, 2005 has been constructed by adding
together (a) the results for the six months ended
June 30, 2005 (derived from White Knight’s audited
financial statements for the year ended June 30, 2005 and
the unaudited interim results for the six months ended
December 31, 2004) and (b) the unaudited interim
results for the six months ended December 31, 2005.
The unaudited pro forma consolidated balance sheet and
statement of operations have been presented on the above basis
to ensure that the unaudited pro forma consolidated
financial statements reflect the acquired business financial
statements for a period that is no more than 93 days from
U.S. Gold’s year-end, as required pursuant to pro
forma presentation requirements contained in the securities
rules.
The unaudited pro forma consolidated financial
statements should be read in conjunction with the historical
financial statements and notes thereto of the Company and White
Knight described above.
The unaudited pro forma consolidated financial
statements have been prepared using publicly available
information of White Knight. Management of U.S. Gold has
consolidated certain line items from White Knight’s
financial statements in an attempt to conform to the
presentation of the Company’s financial statements. Due to
limited publicly available information, management of
U.S. Gold cannot be certain such reclassifications are in
accordance with the accounting policies of the Company or
whether additional reclassifications may be required. It is
management’s opinion that these unaudited pro forma
consolidated financial statements include all adjustments
necessary for the fair presentation of the transactions
described in Note 3 in accordance with Canadian generally
accepted accounting principles. U.S. Gold prepares its financial
statements in accordance with US GAAP, which conform in all
material respects to Canadian GAAP except as described in
Note 4(d).
White Knight prepares its financial statements in accordance
with Canadian GAAP and in Canadian dollars. The conversion from
Canadian dollars to U.S. dollars has been reflected at the rates
described in the following table.
For restatement in U.S. dollars, the Company followed the
method suggested by the Emerging Issues Committee
(“EIC”) in release number EIC-130. The consensus of
the EIC was that financial statements for all prior years should
be translated using the current rate method.
The unaudited pro forma consolidated financial
statements are not intended to reflect the results of operations
or the financial position of the Company which would have
actually resulted had the proposed transactions been effected on
the dates indicated. Further, the unaudited pro forma
financial information is not necessarily indicative of the
results of operations that may be obtained in the future. The
pro forma
F-6
adjustments and allocations of the purchase price for White
Knight are based in part on estimates of the fair value of the
assets acquired and liabilities assumed. The final purchase
price allocation will be completed after asset and liability
valuations are finalized. The final valuation will be based on
the actual net tangible and intangible assets of White Knight
that exist as of the date of the completion of the acquisition.
Any final adjustments may change the allocation of purchase
price which could affect the fair value assigned to the assets
and liabilities and could result in a change to the unaudited
pro forma consolidated financial statements. In addition,
the impact of integration activities, the timing of completion
of the acquisition and other changes in White Knight’s net
tangible and intangible assets prior to the completion of the
acquisition, which have not been incorporated into these
unaudited pro forma consolidated financial statements,
could cause material differences in the information presented.
2. Summary of significant accounting policies
The unaudited pro forma consolidated financial
statements have been compiled using the significant accounting
policies as set out in the audited financial statements of U.S.
Gold for the year ended December 31, 2005 which are
included elsewhere in this Circular.
3. Business acquisitions
White Knight
Acquisition
In consideration for the acquisition of White Knight, the
Company will issue 0.35 shares of U.S. Gold common stock for
each outstanding common share of White Knight totalling
approximately 22,387,740 common shares to shareholders of White
Knight on a fully diluted basis, representing approximately
$127.8 million total value based on the closing price of
U.S. Gold’s common stock. For accounting purposes, the
measurement of the purchase consideration in the unaudited
pro forma consolidated financial statement information is
based on the market prices of U.S. Gold common shares over a
reasonable period before and after the announcement date, and is
estimated at $5.90 per each U.S. Gold share. The value of the
purchase consideration for accounting purposes may differ from
the amount assumed in the unaudited pro forma
consolidated financial statement information due to any future
changes in the negotiation process.
The business combination will be accounted for as a purchase
transaction, with U.S. Gold as the acquirer of White Knight. The
initial bid will not include the White Knight warrants and
options. However, since U.S. Gold intends to acquire these in a
subsequent transaction, the exchange ratio has been determined
on a fully diluted basis, assuming that all outstanding options
and warrants of White Knight as disclosed in the most recent
publicly available financial statements, have been exercised.
Due to the limited nature of publicly available information,
U.S. Gold has not been able to determine the fair value of all
identifiable assets and liabilities acquired or the complete
impact of applying purchase accounting on the income statement.
After reflecting the pro forma purchase adjustments, the
excess of the purchase consideration over the adjusted book
values of White Knight’s assets and liabilities has been
allocated in full to Acquired Mineral Property Interests. Upon
consummation of the proposed acquisition of White Knight, the
fair value of all identifiable assets and liabilities acquired
will be determined. On completion of valuations, with a
corresponding adjustment to the historic carrying amounts of
property, plant and equipment, or on recording of any finite
life intangible assets on acquisition, these adjustments will
impact the measurement of amortization recorded in consolidated
income statements of U.S. Gold for periods after the date of
acquisition. Typically, any increase in the values assigned by
U.S. Gold to White Knight’s capital assets would result in
increased amortization charges. The fair value of the net assets
of White Knight to be acquired will ultimately be determined
after the closing of the transaction. Therefore, it is likely
that the fair values of assets and liabilities acquired will
vary from those shown below and the differences may be material.
The preliminary purchase price allocation is subject to change
and is summarized as follows:
Purchase price:
Shares issued on acquisition
$
127,765,909
Acquisition costs (estimated at 5% of purchase price)
6,388,295
$
134,154,204
Net assets acquired:
Cash and cash equivalents
$
88,540
Temporary investments
12,896,077
Accounts receivable
103,212
Other current assets — prepaid expenses
2,708
Property and equipment, net
259,410
Mineral property interests
2,348,693
Deferred exploration costs
2,825,715
Restrictive time deposits for reclamation bonding
201,259
Other assets
34,400
Accounts payable and accrued liabilities
(326,618
)
Due to related parties
(55,107
)
Future income tax liability
(32,651,043
)
Acquired mineral property interests
148,426,958
$
134,154,204
F-7
4. Pro forma assumptions and adjustments
The unaudited pro forma consolidated financial
statements incorporate the following pro forma
assumptions:
(a)
Cash proceeds of $75,150,000 from the February 22, 2006
private placement, of which $34,944,750 (net of commission but
before deduction of expenses of the offering) is included under
cash and cash equivalents and $37,575,000 is included under
restricted cash pending release from escrow. An amount of
$72,519,750 has been added to share capital.
(b)
Elimination of acquired business capital stock, equity accounts
and accumulated deficit.
(c)
Transaction costs have been assumed to be $6,388,295
representing 5 per cent of the total fair value of shares issued
in connection with the Acquisition.
(d)
Stock compensation expense in the amount of $337,476 has been
recognized in U.S. Gold’s unaudited pro forma
statement of operations to reflect Canadian GAAP requirements.
(e)
Future income taxes have been taken into consideration in
connection with the purchase price allocation where assumed fair
values are not the same as the carry forward book values.
5. Pro forma share capital
Pro forma share capital as at December 31, 2005 has
been determined as follows:
Number of
shares
Amount
Issued common shares of U.S. Gold
33,296,755
$
40,465,812
Issue of subscription receipts
16,700,000
72,519,750
Shares issued for White Knight
20,732,240
122,320,217
Impact of outstanding options and warrants in White Knight as if
they were exercised
1,655,500
5,445,693
Pro forma balance
72,384,495
$
240,751,472
On February 22, 2006 (the “Closing Date”), the
Company closed a $75,150,000 financing transaction (the
“Transaction”). One half of the gross proceeds of the
Transaction are being held in an escrow account pending
satisfaction of certain release conditions. The remaining
proceeds of $34,944,750, after commissions but before deduction
of expense of the offering, are unrestricted and were paid to
the Company at Closing.
6. Pro forma loss per share
Pro forma basic loss per share for the year ended
December 31, 2005 has been calculated based on U.S. Gold
common shares outstanding for the year and the other issuances
being effective on January 1, 2005, as follows:
(Shares or
US dollars)
Actual weighted average number of U.S. Gold common shares
outstanding
25,931,172
Assumed number of U.S. Gold common shares issued to White Knight
shareholders
20,732,240
Issue of subscription receipts
16,700,000
Impact of outstanding warrants and options in White Knight as if
they were exercised
1,655,500
Pro forma weighted average number of U.S. Gold common
shares outstanding
65,018,912
Pro forma net loss
$
(4,154,704
)
Pro forma adjusted basic loss per share
$
(0.06
)
7. Reconciliation to United States Generally
Accepted Accounting Principles
(i) Mining and exploration expenses
For Canadian GAAP purposes companies typically capitalize mine
development costs on properties after proven and probable
reserves have been found. Companies are also permitted to
capitalize costs on properties with non-reserve material that
does not meet all the criteria required for classification as
proven or probable reserves. Management’s determination as
to whether the existence of non-reserve material should result
in the capitalization of costs or the material should be
included in the amortization and recoverability calculations is
based on various factors, including, but not limited to: the
existence and nature of known mineralization; the location of
the property (for example, whether the presence of existing
mines and ore bodies in the immediate vicinity increases the
likelihood of development of a mine on the property); the
existence of proven and probable reserves on the property;
whether the ore body is an extension of an existing producing
ore body on an adjacent property; the results of recent drilling
on the property; and the existence of a feasibility study or
other analysis to demonstrate that the ore is commercially
recoverable. Under US GAAP, exploration and development
expenditures incurred
F-8
on properties where mineralization has not been classified as a
proven and probable reserve under SEC rules are expensed as
incurred. As a result the following adjustments have been
recorded:
The US GAAP unaudited pro forma statement of operations
for the 12 months ended December 31, 2005 reflects
increased mining and exploration expenditures amounting to
$1,970,167 that are capitalized for Canadian GAAP purposes but
are expensed under US GAAP.
The US GAAP unaudited pro forma balance sheet at
December 31, 2005 reflects nil balances for each of Mineral
Property Interests ($2,348,693 under Canadian GAAP) and Deferred
Exploration Costs ($2,825,715 under Canadian GAAP).
(ii) Temporary Investments
Under US GAAP (FAS 115), temporary investments are re-measured
at fair value, with changes in fair value recorded in net income
or Other Comprehensive Income. Under Canadian GAAP, these assets
are recorded at the lower of cost and market value and are not
re-measured to fair value prior to the date they are realized or
settled. As at December 31, 2005 and June 30, 2005
temporary investments of C$12,896,077 (market value not publicly
available) and C$10,895,443 (market value C$10,931,677) were
held by White Knight. As the information required to calculate
the increase or decrease in the fair value of temporary
investments at December 31, 2005 is not publicly available,
the unaudited pro forma consolidated financial statements
have not been adjusted to US GAAP.
(iii)
Stock Option Plans
U.S. Gold’s Canadian GAAP pro forma statement of
operations reflects stock option cost of $337,476 representing
the fair value of stock options issued to the employees. The
effect of the above adjustments is to portray the unaudited
pro forma consolidated financial statements as if U.S.
Gold had elected to early adopt the provisions of SFAS 123
(revised 2004) “Share-Based Payment” which conforms in
all material respects to Canadian GAAP. Accordingly no
additional adjustments are necessary to conform to US GAAP.
Further discussion is provided in the following paragraphs.
In its historical audited financial statements, U.S. Gold
applies APB Opinion 25, “Accounting for Stock Issued
to Employees”, and related interpretations in accounting
for all stock option plans. Under APB Opinion 25, no
compensation cost has been recognized for stock options issued
to employees as the exercise price of the Company’s stock
options granted equals or exceeds the market price of the
underlying common stock on the date of grant.
SFAS 123, “Accounting for Stock-Based
Compensation”, requires the Company to provide pro
forma information regarding net income as if compensation
costs for the Company’s stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS 123. To provide the required pro
forma information, the Company estimates the fair value of
each stock option at the grant date by using the Black-Scholes
option-pricing model.
In December 2004, the FASB issued SFAS 123 (revised 2004)
“Share-Based Payment”. This Statement requires that
the cost resulting from all share-based transactions be recorded
in the financial statements. The Statement establishes fair
value as the measurement objective in accounting for share-based
payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based
payment transactions with employees. The Statement also
establishes fair value as the measurement objective for
transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions. The Statement
replaces SFAS 123 “Accounting for Stock-Based
Compensation” and supersedes APB Opinion No. 25
“Accounting for Stock Issued to Employees”. The
provisions of this Statement will be effective for the Company
beginning with its fiscal year ending December 31, 2006.
(iv)
Acquired mineral property interests
By reference to the discussion in note 7(i) deferred
mining and exploration expenses that have been included in the
purchase price allocation under Canadian GAAP (note 3)
would be written off under US GAAP. The net effect on
acquired mineral property interests would be as follows:
Acquired mineral property interests under Canadian GAAP
$
148,426,958
Add: Acquired mineral exploration costs written off
5,174,408
Acquired mineral property interests under US GAAP
$
153,601,366
(v)
The pro forma net loss per share under US GAAP is as
follows:
Pro forma weighted average number of U.S. Gold common
shares outstanding
65,018,912
Pro forma net loss
$
(6,124,871
)
Pro forma adjusted basic loss per share
$
(0.09
)
F-9
APPENDIX G
UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY
FINANCIAL STATEMENTS OF
U.S. GOLD CORPORATION
INDEX
Unaudited Pro Forma Consolidated Supplementary Balance
Sheet
G-2
Unaudited Pro Forma Consolidated Supplementary Statement
of Operations
G-3
Notes to the Unaudited Pro Forma Consolidated
Supplementary Financial Statements
G-4
G-1
U.S. GOLD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY BALANCE
SHEET
(Expressed in United States dollars unless otherwise stated)
On March 5, 2006 U.S. Gold Corporation (“U.S.
Gold” or the “Company”) announced that it intends
to acquire, in stock transactions, all of the outstanding common
shares of White Knight Resources Ltd. (“White
Knight”), Nevada Pacific Gold Ltd. (“Nevada
Pacific”), Coral Gold Resources Ltd. (“Coral
Gold”) and Tone Resources Limited (“Tone
Resources”) (together, the “Target Companies” or
“Targets”). This proposal was made in letters sent on
the same day by Mr. Robert R. McEwen, Chairman and
Chief Executive Officer of U.S. Gold, to the chief executive
officers of each of the subject companies.
The combined effects of the proposed transactions with each of
the Target Companies have been presented in these Unaudited
Pro Forma Consolidated Supplementary Financial
Statements. The unaudited pro forma consolidated
financial statements giving effect to the Company’s
acquisition of White Knight Resources Ltd. have been presented
separately in the Circular. These unaudited pro forma
consolidated supplementary financial statements have been
prepared on the basis that each shareholder will receive shares
of common stock of U.S. Gold Corporation in exchange for their
White Knight common shares.
These unaudited pro forma consolidated supplementary
financial statements have been compiled from and include:
(a)
A unaudited pro forma consolidated supplementary balance
sheet combining the audited balance sheet of U.S. Gold as at
December 31, 2005 with the unaudited consolidated balance
sheet of White Knight as at December 31, 2005, the
unaudited consolidated balance sheet of Nevada Pacific as at
December 31, 2005, the unaudited consolidated balance sheet
of Tone Resources as at November 30, 2005 and the unaudited
consolidated balance sheet of Coral Gold as at October 31,2005, giving effect to the transactions as if they occurred on
December 31, 2005.
(b)
A unaudited pro forma consolidated supplementary
statement of operations combining the audited statement of
operations of the Company for the year ended December 31,2005 with unaudited constructed statement of operations of White
Knight for the twelve months ended December 31, 2005, the
unaudited constructed statement of operations of Nevada Pacific
for the twelve months ended December 31, 2005, the
unaudited constructed statement of operations of Tone Resources
for the twelve months ended November 30, 2005 and the
unaudited constructed statement of operations of Coral Gold for
the twelve months ended October 31, 2005, giving effect to
the transactions as if they occurred on January 1, 2005.
The unaudited pro forma consolidated supplementary
balance sheet and statement of operations have been presented on
the above basis to ensure that the unaudited pro forma
consolidated supplementary financial statements reflect the
acquired business financial statements for a period that is no
more than 93 days from U.S. Gold’s year-end, as
required pursuant to pro forma presentation requirements
contained in the securities rules.
The unaudited pro forma consolidated supplementary
financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company
and the publicly available financial statements of the Target
Companies that may be accessed at www.sedar.com.
The unaudited pro forma consolidated supplementary
financial statements have been prepared using publicly available
information of the Target Companies. Management of U.S. Gold has
consolidated certain line items from the Target Companies
financial statements in an attempt to conform to presentation of
the Company’s financial statements. Due to limited publicly
available information, management of U.S. Gold cannot be certain
such reclassifications are in accordance with the accounting
policies of the Company or whether additional reclassifications
may be required. It is management’s opinion that these
unaudited pro forma consolidated supplementary financial
statements include all adjustments necessary for the fair
presentation of the transactions described in Note 3 in
accordance with Canadian generally accepted accounting
principles applied on a basis consistent with the Company’s
accounting policies. U.S. Gold prepares its financial statements
in accordance with US GAAP, which conform in all material
respects to Canadian GAAP except as described in note 4(e).
These unaudited pro forma consolidated supplementary
financial statements reflect the conversion from Canadian
dollars to U.S. dollars in accordance with the method suggested
by the Emerging Issues Committee (“EIC”) in release
number EIC-130. The consensus of the EIC was that financial
statements for all prior years should be translated using the
current rate method.
The unaudited pro forma consolidated supplementary
financial statements are not intended to reflect the results of
operations or the financial position of the Company which would
have actually resulted had the proposed transactions been
effected on the dates indicated. Further, the unaudited pro
forma consolidated supplementary financial information is
not necessarily indicative of the results of operations that may
be obtained in the future. The pro forma adjustments and
allocations of the purchase price for the Target Companies are
based in part on estimates of the fair value of the assets
acquired and liabilities assumed. The final purchase price
allocation will be completed after asset and liability
valuations are finalized. The final valuation will be based on
the actual net tangible and intangible assets of the Target
Companies that exist as of the date of the completion of the
acquisition. Any final adjustments may change the allocation of
purchase price which could affect the fair value assigned to the
assets and liabilities and could result in a change to the
unaudited pro forma consolidated supplementary financial
G-4
statements. In addition, the impact of integration activities,
the timing of completion of the acquisitions and other changes
in the Target Companies net tangible and intangible assets prior
to the completion of the acquisitions, which have not been
incorporated in these unaudited pro forma consolidated
supplementary financial statements, could cause material
differences in the information presented.
2. Summary of significant accounting policies
The unaudited pro forma consolidated supplementary
financial statements have been compiled using the significant
accounting policies as set out in the audited financial
statements of U.S. Gold for the year ended December 31,2005 which are included elsewhere in this prospectus.
3. Business acquisitions
In consideration for the acquisition of White Knight, the
Company will issue 0.35 shares of U.S. Gold common stock for
each outstanding common share of White Knight totalling
approximately 22,387,740 common shares to shareholders of White
Knight, representing approximately US$127.8 million.
In consideration for the acquisition of Nevada Pacific, the
Company will issue 0.23 shares of U.S. Gold common stock for
each outstanding common share of Nevada Pacific totalling
approximately 18,449,595 common shares to shareholders of Nevada
Pacific, representing approximately US$97.4 million.
In consideration for the acquisition of Coral Gold, the Company
will issue 0.63 shares of U.S. Gold common stock for each
outstanding common share of Coral Gold totalling approximately
5,080,222 common shares to shareholders of Coral Gold,
representing approximately US$25.9 million.
In consideration for the acquisition of Tone Resources the
Company will issue 0.26 shares of U.S. Gold common stock for
each outstanding common share of Tone Resources totalling
approximately 6,258,225 common shares to shareholders of Tone
Resources, representing approximately US$34.1 million.
The measurement of the purchase consideration in the unaudited
pro forma consolidated supplementary financial statement
information is based on the market prices of U.S. Gold common
shares over a reasonable period before and after the
announcement date. The value of the purchase consideration for
accounting purposes may differ from the amount assumed in the
unaudited pro forma consolidated supplementary financial
statement information due to any future changes in the
negotiation process.
The business combination will be accounted for as a purchase
transaction, with U.S. Gold as the acquirer of each of the
Targets. The initial bid will not include the Targets’
warrants and options. However, since U.S. Gold intends to
acquire these in a subsequent transaction, the exchange ratio
has been determined on a fully diluted basis, assuming that all
outstanding options and warrants of the Targets as disclosed in
the most recent publicly available financial statements, have
been exercised.
Due to the limited nature of publicly available information,
U.S. Gold has not been able to determine the fair value of all
identifiable assets and liabilities acquired or the complete
impact of applying purchase accounting on the income statement.
After reflecting the pro forma purchase adjustments, the
excess of the purchase consideration over the adjusted book
values of the Targets’ assets and liabilities has been
allocated in full to Acquired Mineral Property Interests. Cash
and cash equivalents have been adjusted to include proceeds from
share issuances subsequent to the balance sheet date to the
extent determinable from publicly available records. Upon
consummation of the proposed acquisitions of the Targets, the
fair value of all identifiable assets and liabilities acquired
will be determined. On completion of valuations, with a
corresponding adjustment to the historic carrying amounts of
property, plant and equipment, or on recording of any finite
life intangible assets on acquisition, these adjustments will
impact the measurement of amortization recorded in consolidated
income statements of U.S. Gold for periods after the date of
acquisition. Typically, any increase in the values assigned by
U.S. Gold to the Targets’ capital assets would result in
increased amortization charges. The fair value of the net assets
of the Targets to be acquired will ultimately be determined
after the closing of the transaction. Therefore, it is likely
that the fair values of assets and liabilities acquired will
vary from the preliminary purchase allocation and the
differences may be material.
4. Pro forma assumptions and adjustments
The unaudited pro forma consolidated supplementary
financial statements incorporate the following pro forma
assumptions:
(a)
Transaction costs have been assumed to be 5 per cent of the
total fair value of shares issued in connection with the
acquisition of the Targets.
(b)
Cash and cash equivalents have been adjusted to include proceeds
from share issuances up to March 5, 2006, the date of the
press release announcing the proposed transaction to the extent
determinable from publicly available records.
(c)
After reflecting the pro forma purchase adjustments, the
excess of the purchase consideration over the adjusted book
values of the Targets’ assets and liabilities has been
allocated in full to Acquired Mineral Property Interests,
together with the related future income tax liability.
(d)
Elimination of acquired business capital stock, other equity
accounts and accumulated deficit.
(e)
Stock compensation expense in the amount of $337,476 has been
recognized in U.S. Gold’s pro forma statement of
operations and shareholders’ equity to reflect Canadian
GAAP requirements.
G-5
(f)
Under US GAAP, exploration and development expenditures incurred
on properties where mineralization has not been classified as a
proven and probable reserve under SEC rules are expensed as
incurred.
5. Pro forma share capital
Supplementary pro forma share capital as at
December 31, 2005 has been compiled as follows:
Number of
shares
Amount
Issued common shares of U.S. Gold
33,296,755
$
40,465,812
Issue of subscription receipts
16,700,000
72,519,750
Shares issued for acquisition of Targets
45,202,018
266,691,904
Impact of outstanding options and warrants in Targets as if they
were exercised
6,973,764
18,495,958
Pro forma balance
102,172,537
$
398,173,424
On February 22, 2006 (the “Closing Date”), the
Company closed a $75,150,000 financing transaction (the
“Transaction”). One half of the gross proceeds of the
Transaction are being held in an escrow account pending
satisfaction of certain release conditions. The remaining
proceeds of $34,944,750, after commissions but before deduction
of expense of the offering, are unrestricted and were paid to
the Company at Closing.
6. Pro forma loss per share
Pro forma basic loss per share for the year ended
December 31, 2005 has been calculated based on U.S. Gold
common shares outstanding for the year and the other issuances
being effective on January 1, 2005, as follows:
(Shares or
US dollars)
Actual weighted average number of U.S. Gold common shares
outstanding
25,931,172
Issue of subscription receipts
16,700,000
Shares issued for acquisition of Targets
45,202,018
Impact of outstanding warrants and options in Targets as if they
were exercised
6,973,764
Pro forma weighted average number of U.S. Gold common
shares outstanding
94,806,954
Pro forma net loss
$
(8,736,826
)
Pro forma adjusted basic loss per share
$
(0.09
)
7. Reconciliation to United States Generally
Accepted Accounting Principles
Reference should be made to note 7 to the pro forma
financial statements giving effect to the White Knight
acquisition included elsewhere in this circular.
Supplementary pro forma loss per share for the year
ended December 31, 2005, as adjusted for US GAAP, has been
compiled as follows:
(Shares or
US dollars)
Pro forma weighted average number of U.S. Gold common
shares outstanding
94,806,954
Pro forma net loss
$
(12,886,090
)
Pro forma adjusted basic loss per share
$
(0.14
)
G-6
APPENDIX H
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO
THE EXCHANGEABLE
SHARES OF US GOLD CANADIAN ACQUISITION CORPORATION
Exchangeable Shares
The rights, privileges, restrictions and conditions attaching to
the Exchangeable Shares are as follows:
ARTICLE 1
INTERPRETATION
1.1
Definitions
For the purposes of these share provisions, unless something in
the subject matter or context is inconsistent therewith:
“ABCA” means the Business Corporations Act
(Alberta), as amended from time to time.
“AMEX” means the American Stock Exchange.
“Alberta ULC” means US Gold Alberta ULC, an
unlimited liability corporation existing and governed by the
laws of the Province of Alberta.
“Board of Directors” means the board of
directors of the Corporation.
“Business Day” means any day other than a
Saturday, Sunday, a public holiday or a day on which commercial
banks are not open for business in Toronto, Ontario or Denver,
Colorado under applicable law.
“Canadian Dollar Equivalent” means in respect
of an amount expressed in a currency other than Canadian dollars
(the “Foreign Currency Amount”) at any date the
product obtained by multiplying:
(a)
the Foreign Currency Amount; by
(b)
the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank
of Canada or, in the event such spot exchange rate is not
available, such spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as may be deemed by the
Board of Directors to be appropriate for such purpose.
“Common Shares” means the common shares in the
capital of the Corporation.
“Current Market Price” means, in respect of a
share of US Gold Common Stock on any date, the Canadian Dollar
Equivalent of the average closing sales price (computed and
rounded to the third decimal point) on the TSX or the AMEX
during a period of 20 consecutive trading days ending not more
than five trading days prior to such date or, if the shares of
US Gold Common Stock are not then listed on the TSX or the AMEX,
on such other stock exchange or automated quotation system on
which the shares of US Gold Common Stock are listed or quoted,
as the case may be, as may be selected by the Board of Directors
for such purpose; provided, however, that if in the opinion of
the Board of Directors the public distribution or trading
activity of shares of US Gold Common stock during such period is
inadequate to create a market that reflects the fair market
value of a share of US Gold Common Stock, then the Current
Market Price of a share of US Gold Common Stock shall be
determined by the Board of Directors based upon the advice of
such qualified independent financial advisors as the Board of
Director may deem to be appropriate, and provided further that
any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding.
“Dividend Amount” means an amount equal to the
full amount of all dividends and distributions declared and
unpaid on each Exchangeable Share and all dividends and
distributions declared on a share of US Gold Common Stock that
have not been declared on each Exchangeable Share in accordance
with Section 3.1, in each case with a record date prior to
the effective date of the purchase, redemption or other
acquisition of such Exchangeable Share pursuant to
ARTICLE 5, ARTICLE 6 or ARTICLE 7.
“Exchangeable Shares” means the exchangeable
shares in the capital of the Corporation, having the rights,
privileges, restrictions and conditions set forth in these Share
Provisions.
“LCR Exercising Party” has the meaning set out
in Section 5.2(1).
H-1
“Liquidation Amount” has the meaning ascribed
thereto Section 5.1(1).
“Liquidation Call Purchase Price” has the
meaning set out in Section 5.2(1).
“Liquidation Call Right” has the meaning
ascribed thereto in Section 5.2(1).
“Liquidation Date” has the meaning ascribed
thereto in Section 5.1(1).
“New US Gold” means US Gold Holdings
Corporation, a corporation existing under the laws of Delaware.
“Person” includes any individual, firm,
partnership, limited partnership, joint venture, venture capital
fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal
personal representative, estate, group, body corporate,
corporation, unincorporated association or organization,
governmental entity, syndicate or other entity, whether or not
having legal status.
“RCR Exercising Party” has the meaning set out
in Section 6.2(1).
“Redemption Call Purchase Price” has the
meaning set out in Section 7.2(1).
“Redemption Call Right” has the meaning
ascribed thereto in Section 7.2(1).
“Redemption CR Exercising Party” has the
meaning set out in Section 7.2(1).
“Redemption Date” means the earlier of
(i) the seventh anniversary of the date on which
Exchangeable Shares are first issued; and (ii) the date
established by the Board of Directors for the redemption by the
Corporation of all but not less than all of the outstanding
Exchangeable Shares on which there are outstanding fewer than
that number of Exchangeable Shares equal to 10% of the total
number of Exchangeable Shares issued in connection with the
offers to purchase all of the outstanding common shares of Coral
Gold Resources Ltd., Nevada Pacific Gold Ltd., Tone Resources
Limited and White Knight Resources Ltd. outstanding (other than
Exchangeable Shares held by US Gold or its Subsidiaries), and as
such number of shares may be adjusted as deemed appropriate by
the Board of Directors to give effect to any subdivision,
combination or consolidation of or stock dividend on the
Exchangeable Shares, any issue or distribution of rights to
acquire Exchangeable Shares or securities exchangeable for or
convertible into Exchangeable Shares, any issue or distribution
of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction
affecting the Exchangeable Shares.
“Redemption Price” has the meaning
ascribed thereto in Section 7.1(1).
“Retracted Shares” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Call Purchase Price” has the
meaning set out in Section 6.2(1).
“Retraction Call Right” has the meaning
ascribed thereto in Section 6.2(1).
“Retraction Date” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Price” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Request” has the meaning ascribed
thereto in Section 6.1(1).
“Share Provisions” means the rights,
privileges, restrictions and conditions set out herein.
“Subsidiary” means, when used with reference to
US Gold, any corporation more than 50% of the outstanding stock
of which is owned, directly or indirectly, by US Gold, by one or
more other Subsidiaries of US Gold, or by US Gold and one or
more other Subsidiaries of US Gold.
“Support Agreement” means a support agreement
to be entered into prior to the issuance by the Corporation of
any Exchangeable Shares among U.S. Gold Corp., New US Gold,
Alberta ULC and the Corporation, the purpose of which will be
for US Gold (for itself and on behalf of Alberta ULC) and the
Corporation to covenant to do all things reasonably necessary
and desirable to enable and permit the Corporation or Alberta
ULC to perform its obligations hereunder.
“Transfer Agent” means any Person as may from
time to time be appointed by the Corporation as the registrar
and transfer agent for the Exchangeable Shares.
“Trustee” means the trustee chosen by US Gold
to act as trustee under the Voting and Exchange
Trust Agreement, being a corporation organized and existing
under the laws of Canada or any Province thereof and authorized
to carry on the business of a trust company in all the provinces
of Canada, and any successor trustee appointed under the Voting
and Exchange Trust Agreement.
H-2
“TSX” means the Toronto Stock Exchange.
“US Gold” means, prior to the US Gold
Reorganization, U.S. Gold Corp. and, following the US Gold
Reorganization, New US Gold, which is intended to be the
successor registrant to U.S. Gold Corp.
“US Gold Call Notice” has the meaning ascribed
thereto in Section 6.2(2).
“US Gold Common Stock” means the shares of
common stock of US Gold, par value US$1.00 per share,
having voting rights of one vote per share, and any other
securities into which such shares may be changed or for which
such shares may be exchanged (whether or not US Gold shall be
the issuer of such securities) or any other consideration which
may be received by the holders of such shares pursuant to a
recapitalization, reconstruction, reorganization or
reclassification of, or amalgamation, merger, liquidation or
similar transaction affecting, such shares.
“US Gold Dividend Declaration Date” means the
date on which the board of directors of US Gold declares any
dividend or other distribution on the shares of US Gold Common
Stock.
“US Gold Reorganization” means the holding
company reorganization whereby: (i) U.S. Gold Corp.
will become a wholly-owned subsidiary of New US Gold;
(ii) the name of New US Gold will be changed to “US
Gold Corporation”; and (iii) US Gold will be
reincorporated under the laws of the State of Delaware, and in
connection therewith New US Gold will become the successor
registrant to U.S. Gold Corp.
“U.S. Gold Corp.” means U.S. Gold
Corporation, a corporation existing under the laws of Colorado.
“Voting and Exchange Trust Agreement”
means the agreement to be entered into prior to the issuance by
the Corporation of any Exchangeable Shares made between
U.S. Gold Corp., New US Gold, Alberta ULC, the Corporation
and the Trustee, the purpose of which will be to create a trust
for the benefit of the registered holders of Exchangeable Shares
that will enable the Trustee to exercise voting rights on behalf
of the holders of Exchangeable Shares similar to those of
holders of US Gold Common Stock.
1.2
Sections and Headings
The division of these Share Provisions into articles and
sections and the insertion of headings are for reference
purposes only and shall not affect the interpretation of these
Share Provisions. Unless otherwise indicated, any reference in
these Share Provisions to an article or section refers to the
specified article or section of these Share Provisions.
1.3
Number Gender and Persons
In these Share Provisions, unless the context otherwise
requires, words importing the singular number include the plural
and vice versa, words importing any gender include all genders
and words importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business
entities of any kind.
1.4
Payments
All payments to be made hereunder shall be made without interest
and less any tax required by Canadian law to be deducted and
withheld.
1.5
Currency
In these Share Provisions, unless stated otherwise, all dollar
amounts are in Canadian dollars.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1
Ranking
The Exchangeable Shares shall be entitled to a preference over
the Common Shares, and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends as
and to the extent provided in ARTICLE 3 and with respect to
the distribution of assets in the event of the liquidation,
dissolution or
winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs as and to
the extent provided in ARTICLE 5.
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ARTICLE 3
DIVIDENDS
3.1
Dividends
A holder of an Exchangeable Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, on
each US Gold Dividend Declaration Date, declare a dividend on
each Exchangeable Share:
(a)
in the case of a cash dividend or distribution declared on the
shares of US Gold Common Stock, in an amount in cash for each
Exchangeable Share equal to the Canadian Dollar Equivalent of
the cash dividend or distribution declared on each share of US
Gold Common Stock on the US Gold Dividend Declaration Date;
(b)
in the case of a stock dividend or distribution declared on the
shares of US Gold Common Stock to be paid in shares of US Gold
Common Stock, by the issue or transfer by the Corporation of
such number of Exchangeable Shares for each Exchangeable Share
as is equal to the number of shares of US Gold Common Stock to
be paid on each share of US Gold Common Stock; or
(c)
in the case of a dividend or distribution declared on the shares
of US Gold Common Stock in property other than cash or shares of
US Gold Common Stock, in such type and amount of property for
each Exchangeable Share as is the same as or economically
equivalent to (to be determined by the Board of Directors as
contemplated by Section 3.5 hereof) the type and amount of
property declared as a dividend or distribution on each share of
US Gold Common Stock.
Such dividends shall be paid out of the assets of the
Corporation properly applicable to the payment of dividends, or
out of authorized but unissued shares or other securities of the
Corporation, as applicable. The holders of Exchangeable Shares
shall not be entitled to any dividends other than or in excess
of the dividends referred to in this Section 3.1.
3.2
Payment of Dividends
Cheques of the Corporation payable at par at any branch of the
bankers of the Corporation shall be issued in respect of any
cash dividends or distributions contemplated by
Section 3.1(a) hereof and the sending of such cheque to
each holder of an Exchangeable Share shall satisfy the cash
dividend represented thereby unless the cheque is not paid on
presentation. Certificates registered in the name of the
registered holder of Exchangeable Shares shall be issued or
transferred in respect of any stock dividends or other
distributions contemplated by Section 3.1(b) hereof and the
sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend or other distribution
represented thereby. Such other type and amount of property in
respect of any dividends or distributions contemplated by
Section 3.1(c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by
the Corporation to each holder of an Exchangeable Share shall
satisfy the dividend or other distribution represented thereby.
No holder of an Exchangeable Share shall be entitled to recover
by action or other legal process against the Corporation any
dividend that is represented by a cheque that has not been duly
presented to the Corporation’s bankers for payment or that
otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
3.3
Record and Payment Dates
The record date for the determination of the holders of
Exchangeable Shares entitled to receive payment of, and the
payment date for, any dividend or distribution declared on the
Exchangeable Shares under Section 3.1 hereof shall be the
same dates as the record date and payment date, respectively,
for the corresponding dividend or distribution declared on the
shares of US Gold Common Stock.
3.4
Partial Payment
If on any payment date for any dividends or distributions
declared on the Exchangeable Shares under Section 3.1
hereof the dividends or distributions are not paid in full on
all of the Exchangeable Shares then outstanding, any such
dividends that remain unpaid shall be paid on a subsequent date
or dates determined by the Board of Directors on which the
Corporation shall have sufficient moneys or other assets
properly applicable to the payment of such dividends or
distributions.
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3.5
Economic Equivalence
For the purposes of Section 3.1 hereof, the Board of
Directors shall determine, acting in good faith and in its sole
discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the board
may require), economic equivalence and each such determination
shall be conclusive and binding on the Corporation and its
shareholders. In making each such determination, the following
factors shall, without excluding other factors determined by the
Board of Directors to be relevant, be considered by the Board of
Directors:
(a)
in the case of any stock dividend or other distribution payable
in shares of US Gold Common Stock, the number of such shares
issued in proportion to the number of shares of US Gold Common
Stock previously outstanding;
(b)
in the case of the issuance or distribution of any rights,
options or warrants to subscribe for or purchase shares of US
Gold Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of US Gold Common
Stock), the relationship between the exercise price of each such
right, option or warrant and the Current Market Price of a share
of US Gold Common Stock;
(c)
in the case of the issuance or distribution of any other form of
property (including, without limitation, any shares or
securities of US Gold of any class other than US Gold Common
Stock, any rights, options or warrants other than those referred
to in Section 3.5(b), any evidences of indebtedness of US
Gold or any assets of US Gold), the relationship between the
fair market value (as determined by the Board of Directors in
the manner above contemplated) of such property to be issued or
distributed with respect to each outstanding share of US Gold
Common Stock and the Current Market Price of a share of US Gold
Common Stock;
(d)
in the case of any subdivision, redivision or change of the then
outstanding shares of US Gold Common Stock into a greater number
of shares of US Gold Common Stock or the reduction, combination,
consolidation or change of the then outstanding shares of US
Gold Common Stock into a lesser number of shares of US Gold
Common Stock or any amalgamation, merger, reorganization or
other transaction affecting the US Gold Common Stock, the effect
thereof upon the then outstanding shares of US Gold Common
Stock; and
(e)
in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent
that such consequences may differ from the taxation consequences
to holders of shares of US Gold Common Stock as a result of
differences between taxation laws of Canada and the United
States (except for any differing consequences arising as a
result of differing marginal taxation rates and without regard
to the individual circumstances of holders of Exchangeable
Shares).
ARTICLE 4
CERTAIN RESTRICTIONS
4.1
Certain Restrictions
(1)
Except as provided in Section 4.1(2), so long as any of the
Exchangeable Shares are outstanding, the Corporation shall not
at any time without, but may at any time with, the approval of
the holders of the Exchangeable Shares given as specified in
Section 9.2 hereof:
(a)
pay any dividends on the Common Shares or any other shares
ranking junior to the Exchangeable Shares with respect to the
payment of dividends, other than stock dividends payable in
Common Shares or in any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
(b)
redeem or purchase or make any capital distribution in respect
of Common Shares or any other shares ranking junior to the
Exchangeable Shares with respect to the distribution of the
assets in the event of the liquidation, dissolution or winding
up of the Corporation;
(c)
redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the payment
of dividends or the distribution of assets in the event of the
liquidation, dissolution or
winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs; or
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(d)
issue any shares other than (i) Exchangeable Shares,
(ii) Common Shares, and (iii) any other shares not
ranking superior to the Exchangeable Shares.
(2)
The restrictions in Sections 4.1(1)(a), 4.1(1)(b) and
4.1(1)(c) hereof shall not apply if all dividends and
distributions on the outstanding Exchangeable Shares
corresponding to dividends and distributions declared and paid
to date on the shares of US Gold Common Stock shall have been
declared and paid in full on the Exchangeable Shares.
ARTICLE 5
LIQUIDATION
5.1
Participation Upon Liquidation, Dissolution or Winding Up
of the Corporation
(1)
Subject to applicable law and the due exercise by US Gold or
Alberta ULC of a Liquidation Call Right, in the event of the
liquidation, dissolution or winding up of the Corporation or any
other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder
of Exchangeable Shares shall be entitled to receive from the
assets of the Corporation in respect of each Exchangeable Share
held by such holder on the effective date of such liquidation,
dissolution or winding up or other distribution (the
“Liquidation Date”), before any distribution of
any part of the assets of the Corporation among the holders of
the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to (a) the
Current Market Price of a share of US Gold Common Stock on the
last Business Day prior to the Liquidation Date, which shall be
satisfied in full by the Corporation causing to be delivered to
such holder one share of US Gold Common Stock, plus (b) the
Dividend Amount, if any (collectively, the “Liquidation
Amount”).
(2)
In the case of a distribution on Exchangeable Shares under this
Section 5.1 and provided the Liquidation Call Right has not
been exercised, on or promptly after the Liquidation Date, the
Corporation shall cause to be delivered to the holders of the
Exchangeable Shares the Liquidation Amount for each such
Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together
with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the ABCA and the
Articles of the Corporation and such additional documents and
instruments as the Transfer Agent and the Corporation may
reasonably require, at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by
the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the aggregate Liquidation Amount for such
Exchangeable Shares shall be made by causing to be delivered to
each holder, at the address of the holder recorded in the
securities register of the Corporation for the Exchangeable
Shares or by holding for
pick-up by the holder
at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, certificates
representing the aggregate number of shares of US Gold Common
Stock deliverable by the Corporation to such holder (which
shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) and a cheque of the
Corporation payable at par at any branch of the bankers of the
Corporation in payment of the Dividend Amount, if any, payable
to such holder, without interest (less any amounts withheld on
account of tax required to be deducted and withheld therefrom).
On and after the Liquidation Date, the holders of the
Exchangeable Shares shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof (including any rights
under the Voting and Exchange Trust Agreement), other than the
right to receive the Liquidation Amount, unless payment of the
total Liquidation Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in
accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the
Liquidation Amount has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time after
the Liquidation Date to transfer or cause to be issued or
transferred, and deposited in a custodial account with any
chartered bank or trust company in Canada named in such notice,
the Liquidation Amount in respect of the Exchangeable Shares
represented by certificates that have not at the Liquidation
Date been surrendered by the holders thereof, such Liquidation
Amount to be held by such bank or trust company as trustee for
and on behalf of, and for the use and benefit of, such holders.
Upon such deposit being made, the rights of a holder of
Exchangeable Shares after such deposit shall be limited to
receiving its proportionate part of the
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Liquidation Amount for such Exchangeable Shares so deposited,
without interest, and when received by such bank or trust
company, all dividends and other distributions with respect to
the shares of US Gold Common Stock to which such holder is
entitled with a record date after the date of such deposit and
before the date of transfer of such shares of US Gold Common
Stock to such holder (in each case less any amounts withheld on
account of tax required to be deducted and withheld therefrom)
against presentation and surrender of the certificates for the
Exchangeable Shares held by them in accordance with the
foregoing provisions. Upon such payment or deposit of the total
Liquidation Amount (less any amounts withheld on account of tax
required to be deducted and withheld therefrom), the holders of
the Exchangeable Shares shall thereafter be considered and
deemed for all purposes to be holders of the US Gold Common
Stock delivered to them or the custodian on their behalf.
(3)
After the Corporation has satisfied its obligations to pay the
holders of the Exchangeable Shares the total Liquidation Amount
pursuant to this Section 5.1, such holders shall not be
entitled to share in any further distribution of the assets of
the Corporation.
5.2
Liquidation Call Rights
(1)
Subject to the limitations set forth in Section 5.2(2),
including that Alberta ULC shall only be entitled to
exercise its Liquidation Call Right with respect to those
holders of Exchangeable Shares, if any, in respect of which
US Gold has not exercised its Liquidation Call Right, US
Gold and Alberta ULC shall each have the overriding right (a
“Liquidation Call Right”), in the event of and
notwithstanding the proposed liquidation, dissolution or winding
up of the Corporation pursuant to Section 5.1 hereof, to
purchase from all but not less than all of the holders of
Exchangeable Shares on the Liquidation Date (other than US Gold
and its Subsidiaries) all but not less than all of the
Exchangeable Shares held by each such holder on payment by
whichever of US Gold or Alberta ULC is exercising such right
(the “LCR Exercising Party”) of an amount per
share equal to (a) the Current Market Price of a share of
US Gold Common Stock on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by delivery
to such holder of one share of US Gold Common Stock, plus
(b) the Dividend Amount, if any (collectively, the
“Liquidation Call Purchase Price”). In the
event of the exercise of a Liquidation Call Right, each holder
of Exchangeable Shares (other than Alberta ULC and its
Subsidiaries) shall be obligated to sell all the Exchangeable
Shares held by such holder to the LCR Exercising Party on the
Liquidation Date on payment by the LCR Exercising Party to the
holder of the Liquidation Call Purchase Price for each such
share and the Corporation shall have no obligation to pay any
Liquidation Amount to the holders of such shares so purchased by
the LCR Exercising Party.
(2)
Alberta ULC shall only be entitled to exercise its Liquidation
Call Right with respect to those holders of Exchangeable Shares,
if any, in respect of which US Gold has not exercised its
Liquidation Call Right. In order to exercise its Liquidation
Call Right, an LCR Exercising Party must notify in writing the
Transfer Agent, as agent for the holders of Exchangeable Shares,
the Trustee and the Corporation of its intention to exercise
such right at least 55 days before the Liquidation Date in
the case of a voluntary liquidation, dissolution or winding up
of the Corporation and at least five Business Days before the
Liquidation Date in the case of an involuntary liquidation,
dissolution or winding up of the Corporation. The Transfer Agent
will notify the holders of Exchangeable Shares as to whether or
not a Liquidation Call Right has been exercised (such notice to
specify the LCR Exercising Party) forthwith after the expiry of
the date by which the same may be exercised, such form of notice
to be provided by US Gold to the Transfer Agent. If an LCR
Exercising Party exercises its Liquidation Call Right in
accordance with this Section 5.2, all obligations of the
Corporation under Section 5.1 shall terminate and on the
Liquidation Date such LCR Exercising Party will purchase and the
holders of Exchangeable Shares (other than US Gold and its
Subsidiaries) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call
Purchase Price.
(3)
For the purposes of completing a purchase of the Exchangeable
Shares pursuant to the exercise of a Liquidation Call Right, the
LCR Exercising Party shall deposit with the Transfer Agent, on
or before the Liquidation Date, certificates representing the
total number of shares of US Gold Common Stock deliverable by
the LCR Exercising Party (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any
lien, claim, encumbrance, security interest or adverse claim) in
payment of the total Liquidation Call Purchase Price and a
cheque in the amount of the remaining portion, if any, of the
total Liquidation Call Purchase Price and any interest allowed
on such deposit shall belong to the LCR
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Exercising Party. Provided that the total Liquidation Call
Purchase Price has been so deposited with the Transfer Agent, on
and after the Liquidation Date the rights of each holder of
Exchangeable Shares (other than US Gold and its Subsidiaries)
will be limited to receiving such holder’s proportionate
part of the total Liquidation Call Purchase Price payable by the
LCR Exercising Party, without interest, and when received by the
Transfer Agent, all dividends and other distributions with
respect to the shares of US Gold Common Stock to which such
holder is entitled with a record date after the date of such
deposit and before the date of transfer of such shares of US
Gold Common Stock to such holder (in each case less any amounts
withheld on account of tax required to be deducted and withheld
therefrom) against presentation and surrender of the
certificates for the Exchangeable Shares held by them in
accordance with the following provisions. Upon surrender to the
Transfer Agent of a certificate representing Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the ABCA and such additional documents and instruments as
the Transfer Agent and the Corporation may reasonably require,
the holder of such surrendered certificate shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf
of the LCR Exercising Party shall deliver to such holder, a
certificate representing the shares of US Gold Common Stock to
which such holder is entitled and a cheque in payment of the
Dividend Amount, if any, without interest (less any amounts
withheld on account of tax required to be deducted and withheld
therefrom). If neither US Gold nor Alberta ULC exercises its
Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of Exchangeable Shares shall be
entitled to receive in exchange therefor the Liquidation Amount
otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding up of the Corporation
pursuant to Section 5.1 hereof.
ARTICLE 6
RETRACTION AT OPTION OF HOLDER
6.1
Retraction at Option of Holder
(1)
Subject to applicable law and the due exercise by either US Gold
or Alberta ULC of a Retraction Call Right, a holder of
Exchangeable Shares shall be entitled at any time to require the
Corporation to redeem, on the fifth Business Day after the date
on which the Retraction Request is received by the Corporation
(the “Retraction Date”), any or all of the
Exchangeable Shares registered in the name of such holder for an
amount per share equal to (a) the Current Market Price of a
share of US Gold Common Stock on the last Business Day prior to
the Retraction Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder one share of
US Gold Common Stock, plus (b) the Dividend Amount, if any
(collectively, the “Retraction Price”). The
holder must give notice of a requirement to redeem by presenting
and surrendering at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares the
certificate representing the Exchangeable Shares that the holder
desires to have the Corporation redeem, together with such other
documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the ABCA and such
additional documents and instruments as the Transfer Agent and
the Corporation may reasonably require, together with a duly
executed statement (the “Retraction Request”)
in the form of Schedule A hereto or in such other form as
may be acceptable to the Corporation specifying that the holder
desires to have all or any number specified therein of the
Exchangeable Shares represented by such certificate (the
“Retracted Shares”) redeemed by the Corporation.
(2)
In the case of a redemption of Exchangeable Shares under this
Section 6.1, upon receipt by the Corporation or the
Transfer Agent in the manner specified in Section 6.1(1)
hereof of a certificate representing the number of Exchangeable
Shares which the holder desires to have the Corporation redeem,
together with a Retraction Request, and provided that the
Retraction Request is not revoked by the holder in the manner
specified in Section 6.1(5) and that neither US Gold or
Alberta ULC has exercised a Retraction Call Right, the
Corporation shall redeem the Retracted Shares effective at the
close of business on the Retraction Date. On the Retraction
Date, the Corporation shall deliver or cause to be delivered to
the relevant holder, at the address of the holder recorded in
the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder’s
Retraction Request or by holding for
pick-up by the holder
at the registered office of the Corporation or at any office of
the Transfer Agent, as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, a certificate
representing the number of shares
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of US Gold Common Stock to which such holder is entitled (which
shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) registered in the name of
the holder or in such other name as the holder may request in
payment of the Retraction Price and a cheque of the Corporation
payable at par at any branch of the bankers of the Corporation
in payment of the remaining portion, if any, of the aggregate
Retraction Price to which such holder is entitled (less any
amounts withheld on account of tax required to be deducted and
withheld therefrom) and such delivery of such certificate and
cheque by or on behalf of the Corporation by the Transfer Agent
shall be deemed to be payment of and shall satisfy and discharge
all liability for the Retraction Price to the extent that the
same is represented by such share certificates and cheque,
unless such cheque is not paid on due presentation. If only a
part of the Exchangeable Shares represented by any certificate
is redeemed, a new certificate for the balance of such
Exchangeable Shares shall be issued to the holder at the expense
of the Corporation.
(3)
On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of
such Retracted Shares and shall not be entitled to exercise any
of the rights of a holder in respect thereof, other than the
right to receive its proportionate part of the total Retraction
Price, unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the
aggregate Retraction Price payable to such holder shall not be
made, in which case the rights of such holder shall remain
unaffected until such aggregate Retraction Price has been paid
in the manner hereinbefore provided. On and after the close of
business on the Retraction Date, provided that presentation and
surrender of certificates and payment of such aggregate
Retraction Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so redeemed by
the Corporation shall thereafter be considered and deemed for
all purposes to be a holder of the shares of US Gold Common
Stock delivered to such holder.
(4)
Notwithstanding any other provision of this Section 6.1,
the Corporation shall not be obligated to redeem Retracted
Shares specified by a holder in a Retraction Request to the
extent that such redemption of Retracted Shares would be
contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any
Retraction Date it would not be permitted by any of such
provisions to redeem the Retracted Shares tendered for
redemption on such date, and neither US Gold nor Alberta ULC
shall have exercised its Retraction Call Right with respect to
the Retracted Shares, the Corporation shall only be obligated to
redeem Retracted Shares specified by a holder in a Retraction
Request to the extent of the maximum number that may be so
redeemed (rounded down to a whole number of shares) as would not
be contrary to such provisions and shall notify the holder at
least two Business Days prior to the Retraction Date as to the
number of Retracted Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to solvency
requirements or other provisions of applicable law and more than
one holder has delivered a Retraction Request, the Corporation
shall redeem Retracted Shares in accordance with
Section 6.1(2) on a pro rata basis and shall issue to each
such holder of Retracted Shares a new certificate, at the
expense of the Corporation, representing the Retracted Shares
not redeemed by the Corporation pursuant to Section 6.1(2)
hereof. If the Retraction Request is not revoked by the holder
in the manner specified in Section 6.1(5) and neither US
Gold nor Alberta ULC shall have exercised its Retraction Call
Right in respect of any such Retracted Shares, an Insolvency
Event (as defined in the Voting and Exchange
Trust Agreement) shall, to the extent it has not
theretofore occurred, be deemed thereupon to have occurred and
the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.1(2) as a result of
solvency requirements or other provisions of applicable law
shall be deemed by giving the Retraction Request to have
exercised its Exchange Right (as defined in the Voting and
Exchange Trust Agreement) so as to require US Gold or, at
the option of US Gold, Alberta ULC to purchase the unredeemed
Retracted Shares from such holder on the Retraction Date or as
soon as practicable thereafter on payment by US Gold or, at the
option of US Gold, Alberta ULC to such holder of the Retraction
Price, all as more specifically provided in the Voting and
Exchange Trust Agreement.
(5)
A holder of Retracted Shares may, by notice in writing given by
the holder to the Corporation before the close of business on
the Business Day immediately preceding the Retraction Date,
withdraw its Retraction Request in which event such Retraction
Request shall be null and void and, for greater certainty, the
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revocable offer constituted by the Retraction Request to sell
the Retracted Shares to US Gold or Alberta ULC shall be deemed
to have been revoked.
(6)
Notwithstanding any other provision of this ARTICLE 6, if:
(a)
exercise of the rights of the holders of the Exchangeable
Shares, or any of them, to require the Corporation to redeem any
Exchangeable Shares pursuant to this ARTICLE 6 on any
Retraction Date would require listing particulars or any similar
document to be issued in order to obtain the approval of AMEX or
TSX to the listing and trading (subject to official notice of
issuance) of, the shares of US Gold Common Stock that would be
required to be delivered to such holders of Exchangeable Shares
in connection with the exercise of such rights; and
(b)
as a result of (a) above, it would not be practicable
(notwithstanding the reasonable endeavours of US Gold) to obtain
such approvals in time to enable all or any of such shares of US
Gold Common Stock to be admitted to listing and trading by AMEX
or TSX (subject to official notice of issuance) when so
delivered, that Retraction Date shall, notwithstanding any other
date specified or otherwise deemed to be specified in any
relevant Retraction Request, be deemed for all purposes to be
the earlier of (i) the second business day immediately
following the date the approvals referred to in
Section 6.1(6)(a) are obtained, and (ii) the date
which is 30 Business Days after the date on which the relevant
Retraction Request is received by the Corporation, and
references in these share provisions to such Retraction Date
shall be construed accordingly.
6.2
Retraction Call Rights
(1)
In the event that a holder of Exchangeable Shares delivers a
Retraction Request pursuant to Section 6.1 and subject to
the limitations set forth in Section 6.2(2), including that
Alberta ULC shall only be entitled to exercise its Retraction
Call Right with respect to those holders of Exchangeable Shares,
if any, in respect of which US Gold has not exercised its
Retraction Call Right, US Gold and Alberta ULC shall each have
the overriding right (a “Retraction Call
Right”), notwithstanding the proposed redemption of the
Exchangeable Shares by the Corporation pursuant to
Section 6.1 hereof, to purchase from such holder on the
Retraction Date all but not less than all of the Retracted
Shares held by such holder on payment by whichever of US Gold or
Alberta ULC is exercising such right (the “RCR
Exercising Party”) of an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to the Retraction Date,
which shall be satisfied in full by the RCR Exercising Party
causing to be delivered to such holder one share of US Gold
Common Stock, plus (b) the Dividend Amount, if any (the
“Retraction Call Purchase Price”). In the event
of the exercise of a Retraction Call Right, a holder of
Exchangeable Shares who has delivered a Retraction Request shall
be obligated to sell all the Retracted Shares to the RCR
Exercising Party on the Retraction Date on payment by the RCR
Exercising Party of an amount per share equal to the Retraction
Call Purchase Price for each such share.
(2)
Upon receipt by the Corporation of a Retraction Request, the
Corporation shall promptly notify US Gold and Alberta ULC
thereof. Alberta ULC shall only be entitled to exercise its
Retraction Call Right with respect to those holders of
Exchangeable Shares, if any, in respect of which US Gold
has not exercised its Retraction Call Right. In order to
exercise its Retraction Call Right, the RCR Exercising Party
must notify the Corporation in writing of its determination to
do so (a “US Gold Call Notice”) within five
Business Days of notification to such RCR Exercising Party by
the Corporation of the receipt by the Corporation of the
Retraction Request. If either US Gold or Alberta ULC does not so
notify the Corporation within such five Business Day period, the
Corporation shall notify the holder as soon as possible
thereafter that neither will exercise the Retraction Call Right.
If either US Gold or Alberta ULC delivers a US Gold Call Notice
within such five Business Day period and duly exercises its
Retraction Call Right in accordance with this Section 6.2,
the obligation of the Corporation to redeem the Retracted Shares
shall terminate and, provided that the Retraction Request is not
revoked by the holder in the manner specified in
Section 6.1(5), the RCR Exercising Party shall purchase
from such holder and such holder shall sell to the RCR
Exercising Party on the Retraction Date the Retracted Shares for
the Retraction Call Purchase Price. Provided that the aggregate
Retraction Call Purchase Price has been so deposited with the
Transfer Agent as provided in Section 6.2(3), the closing
of the purchase and sale of the Retracted Shares pursuant to the
Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater
certainty, no
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redemption by the Corporation of such Retracted Shares shall
take place on the Retraction Date. In the event that neither US
Gold nor Alberta ULC delivers a US Gold Call Notice within such
five Business Day period, and provided that the Retraction
Request is not revoked by the holder in the manner specified in
Section 6.1(5), the Corporation shall redeem the Retracted
Shares on the Retraction Date and in the manner otherwise
contemplated in Section 6.1.
(3)
For the purpose of completing a purchase of Exchangeable Shares
pursuant to the exercise of a Retraction Call Right, the RCR
Exercising Party shall deliver or cause to be delivered to the
relevant holder, at the address of the holder recorded in the
securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder’s
Retraction Request or by holding for
pick-up by the holder
at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, a certificate
representing the number of shares of US Gold Common Stock to
which such holder is entitled (which shares shall be duly issued
as fully paid and non-assessable and shall be free and clear of
any lien, claim, encumbrance, security interest or adverse
claim) registered in the name of the holder or in such other
name as the holder may request in payment of the Retraction Call
Purchase Price and a cheque of the RCR Exercising Party payable
at par and in Canadian dollars at any branch of the bankers of
US Gold, Alberta ULC or of the Corporation in Canada in payment
of the remaining portion, if any, of such aggregate Retraction
Call Purchase Price (less any amounts withheld on account of tax
required to be deducted and withheld therefrom) and such
delivery of such certificate and cheque on behalf of the RCR
Exercising Party by the Transfer Agent shall be deemed to be
payment of and shall satisfy and discharge all liability for the
Retraction Call Purchase Price to the extent that the same is
represented by such share certificates and cheque, unless such
cheque is not paid on due presentation.
(4)
On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall not be entitled to exercise
any of the rights of a holder in respect thereof, other than the
right to receive its proportionate part of the total Retraction
Call Purchase Price unless upon presentation and surrender of
certificates in accordance with the foregoing provisions,
payment of the aggregate Retraction Call Purchase Price payable
to such holder shall not be made, in which case the rights of
such holder shall remain unaffected until such aggregate
Retraction Call Purchase Price has been paid in the manner
hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of
certificates and payment of such aggregate Retraction Call
Purchase Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so purchased by
the RCR Exercising Party shall thereafter be considered and
deemed for all purposes to be a holder of the shares of US Gold
Common Stock delivered to such holder.
ARTICLE 7
REDEMPTION BY THE CORPORATION
7.1
Redemption by the Corporation
(1)
Subject to applicable law and the due exercise by either US Gold
or Alberta ULC of a Redemption Call Right, the Corporation
shall on the Redemption Date redeem all of the then
outstanding Exchangeable Shares for an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to such
Redemption Date, which shall be satisfied in full by the
Corporation causing to be delivered one share of US Gold Common
Stock, plus (b) the Dividend Amount, if any (collectively,
the “Redemption Price”).
(2)
In any case of a redemption of Exchangeable Shares under this
Section 7.1, the Corporation shall, at least 60 days
before the Redemption Date, send or cause to be sent to
each holder of Exchangeable Shares a notice in writing of the
redemption by the Corporation or the purchase by US Gold or
Alberta ULC under its Redemption Call Right, as the case
may be, of the Exchangeable Shares held by such holder (other
than US Gold and its Subsidiaries in the case of a purchase by
US Gold or Alberta ULC). Such notice shall set out the formula
for determining the Redemption Price or the
Redemption Call Purchase Price, as the case may be, such
Redemption Date and, if applicable, particulars of the
Redemption Call Right.
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(3)
On or after the Redemption Date and subject to the exercise
by US Gold or Alberta ULC of a Redemption Call Right, the
Corporation shall cause to be delivered to the holders of the
Exchangeable Shares to be redeemed the Redemption Price for
each such Exchangeable Share upon presentation and surrender at
the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation in such
notice of the certificates representing such Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the ABCA and such additional documents and instruments as
the Transfer Agent and the Corporation may reasonably require.
Payment of the aggregate Redemption Price for Exchangeable
Shares held by a holder shall be made by delivery to such
holder, at the address of such holder recorded in the securities
register of the Corporation or by holding for
pick-up by the holder
at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation in
such notice, of a certificate representing the aggregate number
of shares of US Gold Common Stock deliverable by the Corporation
to such holder (which shares shall be duly issued as fully paid
and non- assessable and shall be free and clear of any lien,
claim, encumbrance, security interest or adverse claim) and a
cheque of the Corporation payable at par at any branch of the
bankers of the Corporation in respect of the remaining portion,
if any, of such aggregate Redemption Price (less any
amounts withheld on account of tax required to be deducted and
withheld therefrom). On and after the Redemption Date, the
holders of the Exchangeable Shares called for redemption shall
not be entitled to exercise any of the rights of holders in
respect thereof, other than the right to receive their
proportionate part of the total Redemption Price, unless
payment of the aggregate Redemption Price deliverable to a
holder for Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance
with the foregoing provisions, in which case the rights of the
holder shall remain unaffected until the aggregate
Redemption Price deliverable to such holder has been paid
in the manner hereinbefore provided.
(4)
The Corporation shall have the right at any time after the
sending of notice of its intention to redeem the Exchangeable
Shares as aforesaid to deposit or cause to be deposited the
total Redemption Price of the Exchangeable Shares so called
for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such
deposit been surrendered by the holders thereof in connection
with such redemption, in a custodial account with any chartered
bank or trust company in Canada named in such notice and any
interest allowed on such deposit shall belong to the
Corporation. Provided that such total Redemption Price has
been so deposited prior to the Redemption Date, on and
after the Redemption Date, the Exchangeable Shares shall be
redeemed and the Rights of the holders thereof after the
Redemption Date shall be limited to receiving their
proportionate part of the total Redemption Price for such
Exchangeable Shares so deposited, against presentation and
surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment
or deposit of the total Redemption Price, the holders of
the Exchangeable Shares shall thereafter be considered and
deemed for all purposes to be holders of the shares of US Gold
Common Stock delivered to them.
7.2
Redemption Call Rights
(1)
Subject to the limitations set forth in Section 7.2(2),
including that Alberta ULC shall only be entitled to
exercise its Redemption Call Right with respect to those holders
of Exchangeable Shares, if any, in respect of which US Gold
has not exercised its Redemption Call Right, US Gold and Alberta
ULC shall each have the overriding right (a
“Redemption Call Right”), notwithstanding
the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Section 7.1 hereof, to purchase
from all but not less than all of the holders of Exchangeable
Shares (other than US Gold and its Subsidiaries) on the last
Business Day prior to the Redemption Date in respect of
which the Redemption Call Right is exercised all but not
less than all of the Exchangeable Shares held by each such
holder on payment by whichever of US Gold or Alberta ULC is
exercising such right (the “Redemption CR
Exercising Party”) of an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to such
Redemption Date, which shall be satisfied in full by
causing to be delivered to such holder one share of US Gold
Common Stock plus (b) the Dividend Amount, if any
(collectively, the “Redemption Call Purchase
Price”). In the event of the exercise of a
Redemption Call Right, each holder of Exchangeable Shares
(other than US Gold and its Subsidiaries) shall be obligated to
sell all the Exchangeable Shares held by such holder to the
Redemption CR Exercising Party on the last Business Day
prior to such
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Redemption Date on payment by the Redemption CR
Exercising Party to such holder of the Redemption Call
Purchase Price for each such share.
(2)
Alberta ULC shall only be entitled to exercise its
Redemption Call Right with respect to those holders of
Exchangeable Shares, if any, in respect of which US Gold has not
exercised its Redemption Call Right. In order to exercise
its Redemption Call Right, a Redemption CR Exercising
Party must notify in writing the Transfer Agent, as agent for
the holders of Exchangeable Shares and the Corporation of its
intention to exercise such right at least 30 days before
the Redemption Date. The Transfer Agent will notify the
holders of Exchangeable Shares as to whether or not a
Redemption Call Right has been exercised (such notice to
specify the Redemption CR Exercising Party) forthwith after
the expiry of the date by which the same may be exercised, such
form of notice to be provided by US Gold to the Transfer Agent.
If a Redemption CR Exercising Party duly exercises its
Redemption Call Right in accordance with this
Section 7.2, the right of the Corporation to redeem any
Exchangeable Shares pursuant to Section 7.1 on the
Redemption Date shall terminate at such time and on the
last Business Day prior to such Redemption Date such
Redemption CR Exercising Party will purchase and the
holders of Exchangeable Shares (other than US Gold and its
Subsidiaries) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the
Redemption Call Purchase Price.
(3)
For the purposes of completing a purchase of the Exchangeable
Shares pursuant to the exercise of a Redemption Call Right,
the Redemption CR Exercising Party shall deposit with the
Transfer Agent, on or before the last Business Day prior to the
Redemption Date, certificates representing the total number
of shares of US Gold Common Stock deliverable by the
Redemption CR Exercising Party (which shares shall be duly
issued as fully paid and non-assessable and shall be free and
clear of any lien, claim, encumbrance, security interest or
adverse claim) in payment of the total Redemption Call
Purchase Price and a cheque in the amount of the remaining
portion, if any, of the total Redemption Call Purchase
Price, without interest (less any amounts withheld on account of
tax required to be deducted and withheld therefrom) and any
interest allowed on such deposit shall belong to the
Redemption CR Exercising Party. Provided that the total
Redemption Call Purchase Price has been so deposited with
the Transfer Agent, on and after the last Business Day prior to
the Redemption Date the rights of each holder of Exchangeable
Shares (other than US Gold and its Subsidiaries) will be limited
to receiving such holder’s proportionate part of the total
Redemption Call Purchase Price payable by the
Redemption CR Exercising Party upon presentation and
surrender by such holder of certificates representing the
Exchangeable Shares held by such holder in accordance with the
following provisions and such holder shall on and after the last
Business Day prior to such Redemption Date be considered
and deemed for all purposes to be the holder of the shares of US
Gold Common Stock delivered to such holder. Upon surrender to
the Transfer Agent of a certificate representing Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the ABCA and such additional documents and instruments as
the Transfer Agent and the Corporation may reasonably require,
the holder of such surrendered certificate shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf
of the Redemption CR Exercising Party shall deliver to such
holder, a certificate representing the shares of US Gold Common
Stock to which such holder is entitled and a cheque in payment
of the remaining portion, if any, of the holder’s
proportionate part of the total Redemption Call Purchase
Price, without interest (less any amounts withheld on account of
tax required to be deducted and withheld therefrom). If neither
US Gold nor Alberta ULC exercises the Redemption Call Right
in the manner described above, on the Redemption Date a
holder of Exchangeable Shares shall be entitled to receive in
exchange therefor the Redemption Price otherwise payable by
the Corporation in connection with the redemption of the
Exchangeable Shares pursuant to Section 7.1 hereof.
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ARTICLE 8
VOTING RIGHTS
8.1
Voting Rights
Except as required by applicable law and by the provisions of
Sections 9.1, 10.1 and 11.2 hereof, the holders of the
Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1
Amendment
The rights, privileges, restrictions and conditions attaching to
the Exchangeable Shares may be added to, changed or removed only
with the approval of the holders of the Exchangeable Shares
given as hereinafter specified.
9.2
Approval
Any approval given by the holders of the Exchangeable Shares to
add to, change or remove any right, privilege, restriction or
condition attaching to the Exchangeable Shares or any other
matter requiring the approval or consent of the holders of the
Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable
law, subject to a minimum requirement that such approval be
evidenced by resolution passed by not less than two-thirds of
the votes cast on such resolution at a meeting of holders of
Exchangeable Shares duly called and held at which the holders of
at least 10% of the outstanding Exchangeable Shares at that time
are present or represented by proxy; provided that such approval
must be given also by the affirmative vote of holders of more
than two-thirds of the Exchangeable Shares represented in person
or by proxy at the meeting excluding Exchangeable Shares
beneficially owned by US Gold or any of its Subsidiaries. If at
any such meeting the holders of at least 10% of the outstanding
Exchangeable Shares at that time are not present or represented
by proxy within one-half hour after the time appointed for such
meeting, then the meeting shall be adjourned to such date not
less than five days thereafter and to such time and place as may
be designated by the Chairman of such meeting. At such adjourned
meeting the holders of Exchangeable Shares present or
represented by proxy thereat may transact the business for which
the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of
the votes cast on such resolution at such meeting excluding
Exchangeable Shares beneficially owned by US Gold or any of its
Subsidiaries shall constitute the approval or consent of the
holders of the Exchangeable Shares.
ARTICLE 10
RECIPROCAL CHANGES, ETC. IN RESPECT OF US GOLD COMMON
STOCK
10.1
Reciprocal Changes
(1)
Each holder of an Exchangeable Share acknowledges that the
Support Agreement provides, in part, that US Gold will not,
except as provided in the Support Agreement, without the prior
approval of the Corporation and the prior approval of the
holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof:
(a)
issue or distribute shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire US Gold Common Stock) to the holders of all or
substantially all of the then outstanding shares of US Gold
Common Stock, by way of stock dividend or other distribution,
other than an issue of shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire US Gold Common Stock) to holders of shares of
US Gold Common Stock who exercise an option to receive dividends
in shares of US Gold Common Stock (or securities exchangeable
for or convertible into or carrying rights to acquire US Gold
Common Stock) in lieu of receiving cash dividends;
(b)
issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding shares of US
Gold Common Stock entitling them to subscribe for or to purchase
shares of
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US Gold Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of US Gold
Common Stock); or
(c)
issue or distribute to the holders of all or substantially all
of the then outstanding shares of US Gold Common Stock:
(i)
shares or securities (including evidence of indebtedness) of US
Gold of any class other than US Gold Common Stock (other than
shares convertible into or exchangeable for or carrying rights
to acquire US Gold Common Stock);
(ii)
rights, options or warrants other than those referred to in
Section 10.1(1)(b) above; or
(iii)
assets of US Gold,
unless the economic equivalent on a per share basis of such
rights, options, securities, shares, evidences of indebtedness
or other assets is issued or distributed simultaneously to
holders of the Exchangeable Shares.
(2)
Each holder of an Exchangeable Share acknowledges that the
Support Agreement further provides, in part, that US Gold will
not, except as provided in the Support Agreement, without the
prior approval of the Corporation and the prior approval of the
holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof:
(a)
subdivide, redivide or change the then outstanding US Gold
Common Stock into a greater number of shares of US Gold Common
Stock;
(b)
reduce, combine, consolidate or change the then outstanding
shares of US Gold Common Stock into a lesser number of shares of
US Gold Common Stock; or
(c)
reclassify or otherwise change the shares of US Gold Common
Stock or effect an amalgamation, merger, reorganization or other
transaction affecting the US Gold Common Stock,
unless the same or an economically equivalent change shall
simultaneously be made to, or in, the rights of the holders of
the Exchangeable Shares.
The Support Agreement further provides, in part, that the
aforesaid provisions of the Support Agreement shall not be
changed without the approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 hereof.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1
Actions by the Corporation
The Corporation will take all such actions and do all such
things as shall be necessary or advisable to perform and comply
with and to facilitate performance and compliance by US Gold and
Alberta ULC with all provisions of the Support Agreement
applicable to US Gold, Alberta ULC and the Corporation,
respectively, in accordance with the terms thereof including,
without limitation, taking all such actions and doing all such
things as shall be necessary or advisable to enforce to the
fullest extent possible for the direct benefit of the
Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
11.2
Changes to Support Agreement
The Corporation shall not agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or
obligations under, the Support Agreement without the approval of
the holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the
purposes of:
(a)
adding to the covenants of the other parties to such agreement
for the protection of the Corporation or the holders of the
Exchangeable Shares;
(b)
making such provisions or modifications not inconsistent with
such agreement as may be necessary or desirable with respect to
matters or questions arising thereunder which, in the opinion of
the Board of Directors, it may be expedient to make, provided
that the Board of Directors shall be of the good faith
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opinion, after consultation with counsel, that such provisions
and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(c)
making such changes in or corrections to such agreement which,
on the advice of counsel to the Corporation, are required for
the purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the good faith opinion, after consultation
with counsel, that such provisions and modifications will not be
prejudicial to the interests of the holders of the Exchangeable
Shares.
ARTICLE 12
LEGEND; CALL RIGHTS; WITHHOLDING RIGHTS
12.1
Legend
The certificates evidencing the Exchangeable Shares shall
contain or have affixed thereto a legend in form and on terms
approved by the Board of Directors, with respect to the Support
Agreement and the Voting and Exchange Trust Agreement
(including, but not limited to the provisions with respect to
the call rights, voting rights and exchange rights thereunder).
12.2
Call Rights
Each holder of an Exchangeable Share, whether of record or
beneficial, by virtue of becoming and being such a holder shall
be deemed to acknowledge each of the Liquidation Call Right, the
Retraction Call Right and the Redemption Call Right, in
each case, in favour of US Gold and Alberta ULC, and the
overriding nature thereof in connection with the liquidation,
dissolution or
winding-up of the
Corporation or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up
its affairs, or the retraction or redemption of Exchangeable
Shares, as the case may be, and to be bound thereby in favour of
US Gold or Alberta ULC, as the case may be, as herein provided.
12.3
Withholding Rights
US Gold, Alberta ULC, the Corporation and the Transfer Agent
shall be entitled to deduct and withhold from any consideration
otherwise payable under to any holder of Exchangeable Shares
such amounts as US Gold, Alberta ULC, the Corporation or the
Transfer Agent is required to deduct and withhold with respect
to such payment under the Income Tax Act (Canada) or
United States tax laws or any provision of provincial, state,
federal, local or foreign tax law, in each case as amended or
succeeded. The Transfer Agent may act and rely on the advice of
counsel with respect to such matters. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all
purposes as having been paid to the holder of the Exchangeable
Shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted
to the appropriate taxing authority. To the extent that the
amount so required to be deducted or withheld from any payment
to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, US Gold, Alberta ULC, the
Corporation and the Transfer Agent are hereby authorized to sell
or otherwise dispose of such portion of the consideration as is
necessary to provide sufficient funds to US Gold, Alberta ULC,
the Corporation or the Transfer Agent, as the case may be, to
enable it to comply with such deduction or withholding
requirement and US Gold, Alberta ULC, the Corporation or the
Transfer Agent shall notify the holder thereof and remit to such
holder any unapplied balance of the net proceeds of such sale.
ARTICLE 13
NOTICES
13.1
Notices
Subject to applicable law, any notice, request or other
communication to be given to the Corporation by a holder of
Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or
by delivery to the registered office of the Corporation and
addressed to the attention of the Secretary of the Corporation.
Any such notice, request or other communication, if given by
mail, telecopy or delivery, shall only be deemed to have been
given and received upon actual receipt thereof by the
Corporation.
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13.2
Certificates
Any presentation and surrender by a holder of Exchangeable
Shares to the Corporation or the Transfer Agent of certificates
representing Exchangeable Shares in connection with the
liquidation, dissolution or
winding-up of the
Corporation or the retraction or redemption of Exchangeable
Shares shall be made by registered mail (postage prepaid) or by
delivery to the registered office of the Corporation or to such
office of the Transfer Agent as may be specified by the
Corporation, in each case, addressed to the attention of the
Secretary of the Corporation. Any such presentation and
surrender of certificates shall only be deemed to have been made
and to be effective upon actual receipt thereof by the
Corporation or the Transfer Agent, as the case may be. Any such
presentation and surrender of certificates made by registered
mail (postage prepaid) shall be at the sole risk of the holder
mailing the same.
13.3
Notices to Shareholders
Subject to applicable law, any notice, request or other
communication to be given to a holder of Exchangeable Shares by
or on behalf of the Corporation shall be in writing and shall be
valid and effective if given by mail (postage prepaid) or by
delivery to the address of the holder recorded in the resister
of shareholders of the Corporation or, in the event of the
address of any such holder not being so recorded, then at the
last known address of such holder. Any such notice, request or
other communication, if given by mail, shall be deemed to have
been given and received on the fifth Business Day following the
date of mailing and, if given by delivery, shall be deemed to
have been given and received on the date of delivery. Accidental
failure or omission to give any notice, request or other
communication to one or more holders of Exchangeable Shares, or
any defect in such notice, shall not invalidate or otherwise
alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
In the event of any interruption of mail service immediately
prior to a scheduled mailing or in the period following a
mailing during which delivery normally would be expected to
occur, the Corporation will make reasonable efforts to
disseminate any notice by other means, such as publication.
Except as otherwise required or permitted by law, if post
offices in Canada or the United States are not open for the
deposit of mail, any notice which the Corporation or the
Transfer Agent may give or cause to be given will be deemed to
have been properly given and to have been received by holders of
Exchangeable Shares if (i) it is given to the TSX for
dissemination or (ii) it is published once in the National
Edition of The Globe and Mail and in the daily newspapers of
general circulation in each of the French and English languages
in the City of Montreal, provided that if the National Edition
of The Globe and Mail is not being generally circulated,
publication thereof will be made in any other daily newspaper of
general circulation published in the City of Toronto.
Notwithstanding any other provisions of these share provisions,
notices, other communications and deliveries need not be mailed
if the Corporation determines that delivery thereof by mail may
be delayed. Persons entitled to any deliveries (including
certificates and cheques) which are not mailed for the foregoing
reason may take delivery thereof at the office of the Transfer
Agent to which the deliveries were made, upon application to the
Transfer Agent, until such time as the Corporation has
determined that delivery by mail will no longer be delayed. The
Corporation will provide notice of any such determination not to
mail made hereunder as soon as reasonably practicable after the
making of such determination and in accordance with this
Section 13.3. Such deliveries in such circumstances will
constitute delivery to the persons entitled thereto.
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SCHEDULE A
RETRACTION REQUEST
To:
US Gold Corporation, US Gold Alberta ULC and US Gold Canadian
Acquisition Corporation, c/of the Trustee
This notice is given pursuant to ARTICLE 6 of the
provisions (the “Share Provisions”) attaching to the
share(s) represented by this certificate and all capitalized
words and expressions used in this notice that are defined in
the Share Provisions have the meanings ascribed to such words
and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to
the Retraction Call Right referred to below, the undersigned
desires to have the Corporation redeem in accordance with
ARTICLE 6 of the Share Provisions:
o
all share(s) represented by this certificate; or
o
share(s) only represented by this certificate.
The undersigned acknowledges the Retraction Call Right of US
Gold and Alberta ULC to purchase all but not less than all the
Retracted Shares from the undersigned and that this notice is
and shall be deemed to be a revocable offer by the undersigned
to sell the Retracted Shares to US Gold or Alberta ULC in
accordance with the Retraction Call Right on the Retraction Date
for the Retraction Call Purchase Price and on the other terms
and conditions set out in Section 6.2 of the Share
Provisions. If neither US Gold or Alberta ULC determines to
exercise its Retraction Call Right, the Corporation will notify
the undersigned of such fact as soon as possible. This
Retraction Request, and this offer to sell the Retracted Shares
to US Gold or Alberta ULC, may be revoked and withdrawn by the
undersigned only by notice in writing given to the Corporation
at any time before the close of business on the Business Day
immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, the Corporation is unable to
redeem all Retracted Shares and provided that neither US Gold
nor Alberta ULC has exercised the Retraction Call Right with
respect to the Retracted Shares, the undersigned will be deemed
to have exercised the Exchange Right (as defined in the Voting
and Exchange Trust Agreement) so as to require US Gold or,
at the option of US Gold, Alberta ULC to purchase the unredeemed
Retracted Shares.
The undersigned hereby represents and warrants to the
Corporation, US Gold and Alberta ULC that the undersigned has
good title to, and owns, the share(s) represented by this
certificate to be acquired by the Corporation, US Gold or
Alberta ULC, as the case may be, free and clear of all liens,
claims, encumbrances, security interests and adverse claims.
(Date)
(Signature of Shareholder)
(Guarantee of Signature)
o
Please check box if the securities and any cheque(s) resulting
from the retraction or purchase of the Retracted Shares are to
be held for pick-up by
the shareholder at the principal transfer office of the Transfer
Agent in Toronto, failing which such securities and any cheque
will be mailed to the last address of the shareholder as it
appears on the register.
H-18
NOTE:
This panel must be completed and this certificate, together with
such additional documents as the Transfer Agent and the
Corporation may require, must be deposited with the Transfer
Agent at its principal transfer office in Toronto. The
securities and any cheque resulting from the retraction or
purchase of the Retracted Shares will be issued and registered
in, and made payable to respectively, the name of the
shareholder as it appears on the register of the Corporation and
the securities and cheque resulting from such retraction or
purchase will be delivered to such shareholder as indicated
above, unless the form appearing immediately below is duly
completed, all exigible transfer taxes are paid and the
signature of the registered holder is guaranteed by a Canadian
chartered bank or trust company, member of a recognized stock
exchange in Canada or a member of the Securities Transfer
Association Medallion (STAMP) Program.
Date:
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print)
Street Address or P.O. Box
Signature of Shareholder
City, Province and Postal Code
Signature Guaranteed by
NOTE:
If this Retraction Request is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining share of the Corporation will be issued and registered
in the name of the shareholder as it appears on the register of
the Corporation, unless the Share Transfer Power on the share
certificate is duly completed in respect of such share(s).
H-19
The Depositary for the Offer is
KINGSDALE SHAREHOLDER SERVICES INC.
For Delivery by Mail:
The Exchange Tower
130 King Street West
Suite 2950, P.O. Box 361
Toronto, Ontario
M5X 1E2
For Delivery by Courier or by Hand:
The Exchange Tower
130 King Street West
Suite 2950
Toronto, Ontario
M5X 1C7
The instructions accompanying this Letter of Acceptance and
Transmittal should be read carefully before completing this
Letter of Acceptance and Transmittal. The Dealer Manager or the
Depositary and Information Agent (see the back page of this
document for addresses and telephone numbers) or your broker or
other financial advisor will assist you in completing this
Letter of Acceptance and Transmittal.
LETTER OF ACCEPTANCE AND TRANSMITTAL
To accompany certificates for
Common Shares
of
WHITE KNIGHT RESOURCES LTD.
To be deposited pursuant to the Offer dated May 1, 2006
of
This Letter of Acceptance and Transmittal or a facsimile hereof,
properly completed and duly executed in accordance with the
instructions set out below, together with all other required
documents, must accompany certificates representing Common
Shares deposited pursuant to the Offer. Shareholders whose
certificates are not immediately available or who cannot deliver
certificates and all other required documents to the Depositary
at or prior to the Expiry Time may deposit such Common Shares
according to the procedure for guaranteed delivery set forth in
the Offer in the section entitled “Offer — Manner
of Acceptance — Procedure for Guaranteed
Delivery” and Instruction 2 to this Letter of
Acceptance and Transmittal. The terms and conditions of the
Offer are incorporated by reference in this Letter of Acceptance
and Transmittal. Capitalized terms used but not defined in this
Letter of Acceptance and Transmittal shall have the respective
meanings set out in the Offer.
SHAREHOLDERS SHOULD CAREFULLY COMPLETE THE
CONSIDERATION ELECTION IN ITEM 4.
The Exchangeable Shares may permit Shareholders to take
advantage of a full or partial tax deferral available under the
Income Tax Act (Canada). Shareholders are encouraged to
consult their own advisors regarding the tax consequences of the
proposed transactions.
SHAREHOLDERS WHO DO NOT MAKE AN ELECTION WILL BE DEEMED TO
HAVE ELECTED TO, AND WILL, RECEIVE SHARES OF COMMON STOCK OF NEW
US GOLD, PURSUANT TO THE OFFER.
TO:
U.S. GOLD CORPORATION
US GOLD HOLDINGS CORPORATION
US GOLD CANADIAN ACQUISITION CORPORATION (the
“Offerors”)
AND TO:
KINGSDALE SHAREHOLDER SERVICES INC., AS DEPOSITARY
The undersigned delivers to you the enclosed certificate(s) for
Common Shares and, subject only to the provisions of the Offer
regarding withdrawal, irrevocably accepts the Offer upon the
terms and conditions contained in the Offer. The following are
the details of the enclosed certificate(s):
DESCRIPTION OF COMMON SHARES DEPOSITED
Name(s) and address(es) of registered holder(s) (Please
Common Share Certificate(s) and Common Share(s) deposited
fill in exactly as name(s) appear(s) on Common Share
(attach additional list if necessary)
Certificate(s))
Total Number
Number of
Cost of
Common
of Common
Common
Common
Share
Shares
Share(s)
Shares***
Certificate
Represented by
Deposited**
Number(s)*
Certificate(s)
Total Common Shares
*
Need not be completed by Shareholder delivering by book-entry
transfer.
**
Unless otherwise indicated it will be assumed that all Common
Shares evidenced by any certificates delivered to the Depositary
are being deposited. See Instruction 6.
***
This information is necessary because our tax basis in your
Common Shares for United States Federal income tax purposes may
be determined by reference to your tax basis in such Common
Shares (which is generally the price that you paid for such
Common Shares).
(Please print or type. If space is insufficient, please
attach a list to this letter of acceptance and transmittal in
the above form).
The undersigned Shareholder:
1.
acknowledges receipt of the Offer dated May 1, 2006;
2.
delivers the enclosed certificate(s) representing Common Shares
and, subject only to the rights of withdrawal set out in the
Offer, irrevocably accepts the Offer for and in respect of those
Common Shares that are being deposited under the Offer as
indicated in the above “Description of Common Shares
Deposited” box of this Letter of Acceptance and Transmittal
represented by such certificate(s) (the “Deposited
Securities”) and, on and subject to the terms and
conditions of the Offer, deposits, sells, assigns and transfers
to the Offerors or the Offerors’ designees all rights,
title and interest in and to the Deposited Securities, including
Other Securities, effective on and after Effective Date;
3.
represents and warrants that: (a) the undersigned has full
power and authority to deposit, sell, assign and transfer the
Deposited Securities (and any Other Securities) being deposited
and has not sold, assigned or transferred or agreed to sell,
assign or transfer any of such Deposited Securities and/or Other
Securities to any other person; (b) the undersigned owns
the Deposited Securities and any Other Securities being
deposited within the meaning of applicable securities laws;
(c) the deposit of those Deposited Securities (and any
Other Securities) complies with applicable securities laws; and
(d) when those Deposited Securities and any Other
Securities are taken up and paid for under the Offer, New US
Gold or Canadian Exchange Co. as the case may be, will acquire
good title thereto free and clear of all liens, restrictions,
charges, encumbrances, claims;
4.
elects, in respect of the shares hereby deposited, as follows:
CONSIDERATION ELECTION
Shareholders should complete this election carefully and are encouraged to consult
their advisors regarding the tax consequences of this election.
o
0.35 shares of common stock of New
US Gold for each Common Share
o
0.35 Exchangeable Shares for each Common Share
2
5.
directs the Offerors and the Depositary, upon taking up the
Deposited Securities: (a) to issue or cause to be issued
certificates representing shares of common stock of New US Gold
or certificates representing Exchangeable Shares to which the
undersigned is entitled for the Deposited Securities under the
Offer in the name indicated below and to send such certificates
representing shares of common stock of New US Gold or
certificates representing Exchangeable Shares by first class
insured mail, postage prepaid, to the address indicated below;
and (b) to return any certificates for shares not deposited
to or purchased under the Offer to the address indicated below
(and, in the case of both (a) and (b) above, if no
name, address or delivery instructions are indicated, to the
undersigned at the address of the undersigned as shown on the
books of White Knight);
6.
in the event that the undersigned has indicated under “Tax
Election Package” that he or she wishes to receive a tax
election package, the undersigned hereby:
(i) requests that a tax election package be forwarded to
the undersigned at the address specified herein;
(ii) acknowledges that it is the undersigned’s
responsibility to prepare the appropriate document(s) that will
be included in the tax election package and to send such
documents to the Depositary on or before the date that is
90 days after the Effective Date;
(iii) acknowledges that none of the Offerors or the
Depositary are responsible for the proper completion of any tax
election and that the undersigned will be solely responsible for
the payment of any late filing penalty;
(iv) acknowledges that the Offerors agree only to execute
and file with the applicable tax authorities any properly
completed tax election form submitted to the Depositary in
duplicate and return them by mail to such Shareholder;
(v) acknowledges that with the exception of the execution
and filing of the tax election forms by the Offerors, compliance
with the requirements for a valid tax election will be the sole
responsibility of the undersigned and that none of the Offerors
are responsible or liable for taxes, interest, penalties,
damages or expenses resulting from the failure by anyone to
properly complete or file any tax election in the form and
manner prescribed under the Tax Act (or the corresponding
provisions of any applicable provincial legislation); and
(vi) acknowledges that a full or partial deferral may be
available only to the extent the undersigned receives
Exchangeable Shares as full or partial consideration for the
disposition of his, her or its Common Shares and to the extent
permitted under the Tax Act. See “Material Canadian Federal
Income Tax Considerations” in the Offer.
7.
irrevocably appoints New US Gold or its designees as the true
and lawful agent, attorney and attorney in fact of that
Shareholder with respect to the Deposited Securities deposited
and with respect to any and all stock dividends, securities,
rights, warrants or other interests or distributions accrued,
declared, paid, issued, transferred, made of distributed on or
in respect of the Deposited Securities on or after March 5,2006, effective on and after the Effective Date, and affords
full power of substitution (such power of attorney being coupled
with an interest being irrevocable), in the name and on behalf
of the undersigned to (a) register, record, transfer and
enter the transfer of Deposited Securities and any Other
Securities on the books of White Knight; and (b) vote,
execute and deliver any instruments of proxy, authorizations and
consents in form and on terms satisfactory to New US Gold in
respect of any Deposited Securities and any or all Other
Securities, revoke any such instrument, authorization or consent
given prior to or after the Effective Date, designate in any
such instruments of proxy any person(s) as the proxy or the
proxy nominee(s) of the Shareholder in respect of those
Deposited Securities and those Other Securities for all
purposes; and (c) execute, endorse and negotiate, any
cheques or other instruments, respecting any distribution
payable to or to the holder; and exercise any and all other
rights of a holder of Deposited Securities and any Other
Securities;
8.
agrees, from and after the Effective Date, not to vote any of
the Deposited Securities or Other Securities at any meeting of
holders of securities not to exercise any other rights or
privileges attached to those securities, and to
3
deliver to New US Gold any and all instruments of proxy,
authorizations or consents in respect of the those securities;
9.
agrees that if White Knight should declare or pay any cash
dividend, stock dividend or make any other distribution on or
issue any rights with respect to any of the Deposited Securities
which is or are payable or distributable to the Shareholders of
record on a record date which is prior to the date of transfer
into the name of the Offerors or their nominees or transferees
on the books of White Knight of such Deposited Securities
following acceptance thereof for purchase pursuant to the Offer,
then (i) in the case of any cash dividend or distribution
that does not exceed the purchase price per Deposited Security,
the purchase price per Deposited Security payable by the
Offerors pursuant to the Offer will be reduced by the amount of
any such dividend or distribution paid or payable per Deposited
Security in respect of which the dividend or distribution is
made; and (ii) in the case of any such cash dividend or
cash distribution in an amount that exceeds the purchase price
per Deposited Security in respect of which the dividend or
distribution is made, or in the case of any other dividend,
distribution or right, the whole of any such dividend,
distribution or right will be received and held by the
depositing Shareholder for the account of the Offerors and shall
be promptly remitted and transferred by the undersigned to the
Depositary for the account of the Offerors, accompanied by
appropriate documentation of transfer. Pending such remittance,
the Offerors will be entitled to all rights and privileges as
the owner of any such dividend, distribution or right, and may
withhold the entire consideration payable by the Offerors
pursuant to the Offer or deduct from the consideration payable
by the Offerors pursuant to the Offer the amount or value
thereof, as determined by the Offerors in their sole discretion;
10.
covenants to execute, upon request, any additional documents,
transfers and other assurances as may be necessary or desirable
to complete the sale, assignment and transfer of the Deposited
Securities and Other Securities to the Offerors;
11.
acknowledges that all authority conferred or agreed to be
conferred by the undersigned herein is irrevocable and may be
exercised during any subsequent legal incapacity of the
undersigned and shall survive the death or incapacity,
bankruptcy or insolvency of the undersigned and all obligations
of the undersigned herein shall be binding upon the heirs,
personal representatives, successors and assigns of the
undersigned; and
12.
by virtue of the execution of this Letter of Acceptance and
Transmittal, shall be deemed to have agreed that all questions
as to validity, form, eligibility (including timely receipt) and
acceptance of any Common Shares deposited pursuant to the Offer
will be determined by the Offerors in their sole discretion and
that such determination shall be final and binding, and
acknowledges that the Offerors reserve the absolute right to
reject any and all deposits that it determines not to be in
proper form or that may be unlawful to accept under the laws of
any jurisdiction and to waive any defects or irregularities in
the deposit of any Common Shares but there shall be no duty or
obligation on the Offerors or the Depositary or any other person
to give notice of any defects or irregularities in any deposit
and no liability shall be incurred by any of them for failure to
give such notice.
4
By reason of the use by the undersigned of an English language
form of Letter of Acceptance and Transmittal, the undersigned
shall be deemed to have required that any contract evidenced by
the Offer as accepted through this Letter of Acceptance and
Transmittal, as well as all documents related thereto, be drawn
exclusively in the English language. En raison de
l’usage d’une version anglaise de la préesente
lettre de transmission par le soussigné, ce dernier et les
destinataires sont réputés avoir demandé que tout
contrat attesté par l’offre, telle qu’elle est
acceptée au moyen de cette lettre de transmission, de
même que tous les documents qui s’y rapportent, soient
rédigés exclusivement en anglais.
BOX A
REGISTRATION AND PAYMENT INSTRUCTIONS
ISSUE CERTIFICATES FOR SHARES OF COMMON STOCK OF NEW US GOLD OR
CERTIFICATES FOR EXCHANGEABLE SHARES IN THE NAME OF:
(please print or type)
(Name)
(Street Address and Number)
(City and Province or State)
(Country and Postal (Zip) Code)
(Telephone — Home)
(Telephone — Business)
(e-mail address)
(Canadian Social Insurance Number)
(U.S. Resident/Citizen must
provide their Taxpayer
Identification Number)
BOX B
DELIVERY INSTRUCTIONS
SEND CERTIFICATES FOR SHARES OF COMMON STOCK OF NEW US GOLD OR
CERTIFICATES FOR EXCHANGEABLE SHARES TO:
(please print or type):
o
Same address as Box A or to:
(Name)
(Street Address and Number)
(City and Province or State)
(Country and Postal (Zip) Code)
(Telephone — Home)
(Telephone — Business)
BOX C
SPECIAL PICK-UP INSTRUCTIONS
o
HOLD CERTIFICATES FOR SHARES OF COMMON STOCK OF NEW US GOLD, OR
CERTIFICATES FOR EXCHANGEABLE SHARES FOR PICK-UP AT THE OFFICES
OF THE DEPOSITARY (Check box).
5
BOX D
DEPOSIT PURSUANT TO NOTICE OF GUARANTEED DELIVERY
(See Instruction 2)
o
CHECK HERE IF COMMON SHARES ARE BEING DEPOSITED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO KINGSDALE
SHAREHOLDER SERVICES INC. AND COMPLETE THE FOLLOWING (please
print or type):
Name of Registered Holder:
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
Signature guaranteed by
Date: --------------------, 2006
(if required under Instruction 4):
Authorized Signature or Guarantor
Signature of Shareholder or Authorized
Representative (See Instruction 3, 4 and 5)
Name of Guarantor (please print or type)
Name of Shareholder (please print or type)
or Authorized Representative
Address of Guarantor (please print or type)
Daytime telephone number and facsimile of Shareholder
or Authorized Representative
BOX E
INVESTMENT DEALER OR BROKER SOLICITING ACCEPTANCE OF THE
OFFER
See Instruction 7
(please print or type)
(Firm)
(Telephone Number)/(Fax Number)
(Registered Representative)
(Address)
FINS Number
o
CHECK HERE IF LIST OF BENEFICIAL HOLDERS IS
ATTACHED.
o
CHECK HERE IF DISKETTE TO FOLLOW
TAX ELECTION PACKAGE
To be completed ONLY by holders of Common Shares who wish to
avail themselves of the joint tax election described in the
Offer under “Material Canadian Federal Income Tax
Considerations”.
o
Check
here if you wish to receive the tax election package
o
Check
here if Shareholder is a partnership
o
Check
here if the Shareholder is required to file in Québec
6
INSTRUCTIONS AND RULES
1.
Use of Letter of Acceptance and Transmittal
(a)
This Letter of Acceptance and Transmittal (or manually signed
facsimile hereof) properly completed and duly executed as
required by the instructions set forth below, together with the
certificate(s) representing the Deposited Securities in respect
of which the Offer is being accepted and any other document
required by the instructions set forth below must be received by
the Depositary by the Expiry Time.
(b)
The method of delivery of this Letter of Acceptance and
Transmittal, certificates representing the Common Shares and all
other required documents is at the option and risk of the person
depositing the same. The Offerors recommend that such documents
be delivered by hand to the Depositary and a receipt obtained,
or, if mailed, that registered mail, with return receipt
requested be used and that proper insurance be obtained.
Shareholders whose Common Shares are registered in the name
of a nominee should contact their broker, investment dealer,
bank, trust company or other nominee for assistance in
depositing their Common Shares under the Offer.
2.
Procedures for Guaranteed Delivery
If a Shareholder wishes to deposit shares pursuant to the Offer
and the certificate(s) representing the Common Shares are not
immediately available, or that Shareholder cannot deliver such
certificate(s) and all other required documents to the
Depositary at or prior to the Expiry Time, those Common Shares
may nevertheless be deposited if all of the following conditions
are met:
(a) the deposit is made by or through an Eligible
Institution;
(b)
a Notice of Guaranteed Delivery (printed on GREEN paper)
in the form accompanying the Offer or a facsimile thereof
properly completed and duly executed including a guarantee by an
Eligible Institution in the form specified in the Notice of
Guaranteed Delivery, is received by the Depositary at the office
set out in the Notice of Guaranteed Delivery at or prior the
Expiry Time; and
(c)
the certificate(s) representing the deposited Common Shares in
proper form for transfer, together with this Letter of
Acceptance and Transmittal or facsimile thereof, properly
completed and duly executed, with any required signature
guarantees and all other documents required by this Letter of
Acceptance and Transmittal, are received by the Depositary at
the office set out in the Notice of Guaranteed Delivery at or
prior to 5:00 p.m. (Vancouver time) on the third trading
day on the TSX-V after to the Expiry Time.
The Notice of Guaranteed Delivery may be delivered by hand or
courier, transmitted by facsimile or mailed to the Depositary at
the office set out in the Notice of Guaranteed Delivery and must
include a guarantee by an Eligible Institution in the form set
forth in the Notice of Guaranteed Delivery.
An “Eligible Institution” means a Canadian
Schedule I chartered bank, a major trust company in Canada,
a member of the Securities Transfer Agents Medallion Program
(STAMP), a member of the Stock Exchanges Medallion Program
(SEMP) or a member of the New York Stock Exchange, Inc.
Medallion Signature Program (MSP).
3.
Signatures
This Letter of Acceptance and Transmittal must be completed and
signed by the holder of Common Shares accepting the Offer or by
such holder’s duly authorized representative (in accordance
with Instruction 5 below).
(a)
If this Letter of Acceptance and Transmittal is signed by the
registered owner(s) of the accompanying certificate(s), such
signature(s) on this Letter of Acceptance and Transmittal must
correspond with the name(s) as registered or as written on the
face of such certificate(s) without any change whatsoever, and
the certificate(s) need not be endorsed. If such transmitted
certificate(s) is held of record by two or more joint owners,
all such owners must sign this Letter of Acceptance and
Transmittal.
(b)
If this Letter of Acceptance and Transmittal is executed by a
person other than the registered owner(s) of the accompanying
certificate(s) or shares of common stock of New US Gold or
Exchangeable Shares are to be issued to a person other than the
registered owner(s):
(i)
such deposited certificate(s) must be endorsed or be accompanied
by an appropriate share transfer power of attorney duly and
properly completed by the registered owner(s); and
7
(ii)
the signature(s) on such endorsement or power of attorney must
correspond exactly to the name(s) of the registered owner(s) as
registered or as appearing on the certificate(s) and must be
guaranteed as noted in Instruction 4 below.
4.
Guarantee of Signatures
If this Letter of Acceptance and Transmittal is executed by a
person other than the registered owner(s) of the Deposited
Securities, or if certificates representing Common Shares not
deposited to or purchased under the Offer are to be returned to
a person other than such registered owner(s) or sent to an
address other than the address of the registered owner(s) as
shown on the books of White Knight, such signature must be
guaranteed by an Eligible Institution, or in some other manner
satisfactory to the Depositary (except that no guarantee is
required if the signature is that of an Eligible Institution).
5.
Fiduciaries, Representatives and Authorizations
Where this Letter of Acceptance and Transmittal or any
certificate or share transfer or power of attorney is executed
by a person on behalf of an executor, administrator, trustee,
guardian,
attorney-in-fact,
agent, corporation, partnership or association, or is executed
by any other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and this
Letter of Acceptance and Transmittal must be accompanied by
satisfactory evidence of the authority to act. Either of the
Offerors or the Depositary, at their discretion, may require
additional evidence of authority or additional documentation.
6.
Partial Tenders
If less than the total number of Common Shares evidenced by any
certificate submitted is to be deposited under the Offer, fill
in the number of Common Shares to be deposited in the
appropriate space on this Letter of Acceptance and Transmittal.
In such case, new certificate(s) for the number of shares not
deposited will be sent to the registered holder as soon as
practicable following the Expiry Time. The total number of
Common Shares evidenced by all certificates delivered will be
deemed to have been deposited unless otherwise indicated. If
certificate(s) representing Common Shares not deposited to or
purchased under the Offer are to be returned other than in the
name of, and to the address, as shown on the books of White
Knight, complete the appropriate box on this Letter of
Acceptance and Transmittal.
7.
Solicitation
Identify the investment dealer or broker, if any, who solicited
acceptance of the Offer by completing the appropriate box on
this Letter of Acceptance and Transmittal and present a list of
beneficial holders if applicable in electronic format.
8.
Backup Withholding
Under U.S. federal income tax law, a Shareholder whose
Deposited Securities are accepted for payment pursuant to the
Offer may be subject to backup withholding at a rate of 28%.
U.S. Residents
To prevent backup withholding, a Shareholder that is a resident
of the United States for United States federal income tax
purposes is required to notify the Depositary of the
Shareholder’s current taxpayer identification number
(“TIN”) by completing the enclosed Substitute
Form W-9,
certifying that the TIN provided on that form is correct (or
that such Shareholder is awaiting receipt of a TIN), and that
(i) the Shareholder has not been notified by the Internal
Revenue Service that the Shareholder is subject to backup
withholding as a result of failure to report all interest or
dividends or (ii) after being so notified, the Internal
Revenue Service has notified the Shareholder that the
Shareholder is no longer subject to backup withholding. If the
Depositary is not provided with the correct TIN, such
Shareholder may be subject to a $50 penalty imposed by the
Internal Revenue Service and payments that are made to such
Shareholder pursuant to the Offer may be subject to backup
withholding (see below).
Each Shareholder is required to give the Depositary the TIN
(e.g., Social Security number or employer identification number)
of the record holder of the Common Shares. If the Common Shares
are registered in more than one name or are not registered in
the name of the actual owner, consult the enclosed
“Guidelines for Certification of Taxpayer Identification
Number on Substitute
Form W-9” for
additional guidance on which number to report. A Shareholder who
does not have a TIN may check the box in Part 3 of the
Substitute
Form W-9 if such
Shareholder has applied for a TIN or intends to apply for a TIN
in the near future. If the box in Part 3 is checked, the
Shareholder must also complete the “Certificate of Awaiting
Taxpayer Identification Number” below in order to avoid
backup withholding. If the box is checked, payments made will be
8
subject to backup withholding unless the Shareholder has
furnished the Depositary with his or her TIN by the time payment
is made. A Shareholder who checks the box in Part 3 in lieu
of furnishing a TIN should furnish the Depositary with the
Shareholder’s TIN as soon as it is received.
Certain Shareholders are not subject to these backup withholding
requirements. To avoid possible erroneous backup withholding, a
Shareholder who is a resident of the United States for United
States federal income tax purposes and is exempt from backup
withholding should complete the Substitute
Form W-9 by
providing his or her correct TIN, signing and dating the form,
and writing “exempt” on the face of the form.
Non-U.S. Residents
A Shareholder who is not a resident of the United States for
United States federal income tax purposes should submit to the
Depositary the appropriate Form W-8. Generally, a foreign
individual or a foreign corporation that is not a pass-through
entity for U.S. federal income tax purposes and is not
engaged in a trade or business within the United States would
provide a
Form W-8BEN. A
foreign entity that is a pass-through entity for
U.S. federal income tax purposes and is not engaged in a
trade or business within the United States would generally
provide a
Form W-8IMY (which
may require an additional
W-8BEN for its
beneficial owners). A foreign individual or a foreign entity
that is engaged in a trade or business within the United States
may be required to provide a
Form W-8ECI.
Form W-8BEN is
enclosed herein. Forms
W-8IMY and
W-8ECI will be provided
to you by the Depositary upon request.
All Shareholders are urged to consult their own tax advisors
to determine whether they are exempt from these backup
withholding and reporting requirements and to determine which
form should be used to avoid backup withholding.
If backup withholding applies, the Depositary is required to
withhold 28% of any payments to be made to the Shareholder.
Backup withholding is not an additional tax. Rather, the
U.S. tax liability of persons subject to backup withholding
will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained by
filing a tax return with the Internal Revenue Service. The
Depositary cannot refund amounts withheld by reason of backup
withholding.
9.
Miscellaneous
(a)
If the space on this Letter of Acceptance and Transmittal is
insufficient to list all certificates for Deposited Securities,
additional certificate numbers and numbers of Deposited
Securities may be included in a separate signed list affixed to
this Letter of Acceptance and Transmittal.
(b)
If Deposited Securities are registered in different forms (e.g.
“Joe Doe” and “J. Doe”), a separate Letter
of Acceptance and Transmittal should be signed for each
different registration.
(c)
No alternative, conditional or contingent deposits will be
accepted. All depositing Shareholders by execution of this
Letter of Acceptance and Transmittal (or a manually signed
facsimile thereof) waive any right to receive any notice of
acceptance of Deposited Securities for payment.
(d)
The Offer and any agreement resulting from the acceptance of the
Offer will be construed in accordance with and governed by the
laws of the Province of Ontario and the laws of Canada
applicable therein. The Shareholder covered by this Letter of
Acceptance and Transmittal hereby unconditionally and
irrevocably attorns to the jurisdiction of the courts of the
Province of Ontario and the courts of appeal therefrom.
(e)
Additional copies of the Offer, this Letter of Acceptance and
Transmittal and the Notice of Guaranteed Delivery may be
obtained from the Dealer Manager or the Information Agent at the
addresses listed below.
10.
Lost Certificates
If a share certificate has been lost, destroyed or stolen, the
Shareholder should promptly notify White Knight’s transfer
agent. The Shareholder then will be instructed as to the steps
that must be taken in order to replace such share
certificate(s). This Letter of Acceptance and Transmittal and
related documents cannot be processed until the procedures for
replacing lost or destroyed share certificates have been
followed.
9
Kingsdale Shareholder Services Inc.:
SUBSTITUTE
Form W-9
Part 1 — PLEASE PROVIDE YOUR TIN IN
THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
Social Security Number OR
Taxpayer Identification
Number (“TIN”)
Department of the Treasury
Internal Revenue Service
Part 2 — Certification —
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be issued
to me); and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service (the
“IRS”) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or
(c) after being so notified, the IRS has notified me that I
am no longer subject to backup withholding.
Part 3 —
Awaiting TIN o
Payer’s
Request for
Taxpayer Identification
Number (“TIN”)
Certification Instructions — You must cross out
item (2) above if you have been notified by the IRS
that you are subject to backup withholding because of
underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you
were subject to backup withholding you received another
notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2)
above.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY
RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU
PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL
DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM
W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate IRS Center or
Social Security Administration Office, or (b) I intend to
mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the
time of payment, 28% of all reportable payments made to me will
be withheld.
Signature:
Date:
, 2006
10
Form W-8BEN
(Rev. December 2000)
Department of the Treasury
Internal Revenue Service
Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding
► Section references are to the Internal Revenue
Code.
► See separate instructions.
► Give this form to the withholding agent or payer.
Do not send to the IRS.
OMB No. 1545-1621
Do not use this form for:
Instead, use Form:
• A U.S. citizen or other U.S. person, including a
resident alien individual
W-9
• A person claiming an exemption from
U.S. withholding on income effectively connected with the
conduct of a trade or business in the United States
W-8ECI
• A foreign partnership, a foreign simple trust, or a
foreign grantor trust (see instructions for exceptions)
W-8ECI or W-8IMY
• A foreign government, international organization,
foreign central bank of issue, foreign tax-exempt organization,
foreign private foundation, or government of a
U.S. possession that received effectively connected income
or that is claiming the applicability of
section(s) 115(2), 501(c), 892, 895, or 1443(b) (see
instructions)
W-8ECI or W-8EXP
Note: These entities should use Form W-8BEN if they
are claiming treaty benefits or are providing the form only to
claim they are a foreign person exempt from backup
withholding.
• A person acting as an intermediary
W-8IMY
Note: See instructions for additional
exceptions.
Part IIdentification
of Beneficial Owner (See instructions)
1
Name of individual or organization that is the beneficial owner
2 Country of incorporation or organization
3
Type of beneficial owner:
o
Individual
o
Corporation
o
Disregarded entity
o
Partnership
o
Simple trust
o
Grantor trust
o
Complex trust
o
Estate
o
Government
o
International organization
o
Central bank of issue
o
Tax-exempt organization
o
Private foundation
4
Permanent resident address (street, apt. or suite no., or rural
route). Do not use a P.O. box or in-care-of address.
City or town, state or province. Include postal code where
appropriate.
Country (do not abbreviate)
5
Mailing address (if different from above)
City or town, state or province. Include postal code where
appropriate.
Country (do not abbreviate)
6
U.S. taxpayer identification number, if required (see
instructions)
7 Foreign tax identifying number, if any (optional)
o SSN or
ITIN o
EIN
8
Reference number(s) (see instructions)
Part
IIClaim
of Tax Treaty Benefits (if applicable)
9
I certify that (check all that apply):
a
o
The beneficial owner is a resident
of within
the meaning of the income tax treaty between the United States
and that country.
b
o
If required, the U.S. taxpayer identification number is
stated on line 6 (see instructions).
c
o
The beneficial owner is not an individual, derives the item (or
items) of income for which the treaty benefits are claimed, and,
if applicable, meets the requirements of the treaty provision
dealing with limitation on benefits (see instructions).
d
o
The beneficial owner is not an individual, is claiming treaty
benefits for dividends received from a foreign corporation or
interest from a U.S. trade or business of a foreign
corporation, and meets qualified resident status (see
instructions).
e
o
The beneficial owner is related to the person obligated to pay
the income within the meaning of section 267(b) or 707(b),
and will file Form 8833 if the amount subject to
withholding received during a calendar year exceeds, in the
aggregate, $500,000.
10
Special rates and conditions (if applicable —
see instructions): The beneficial owner is claiming the
provisions of
Article of
the treaty identified on line 9a above to claim
a %
rate of withholding on (specify type of income:
Explain the reasons the beneficial owner meets the terms of the
treaty article:
Part
IIINotional
Principal Contracts
11
o
I have provided or will provide a statement that identifies
those notional principal contracts from which the income is
not effectively connected with the conduct of a trade or
business in the United States. I agree to update this statement
as required.
Part
IVCertification
Under penalties of perjury, I declare that I have examined the
information on this form and to the best of my knowledge and
belief it is true, correct, and complete. I further certify
under penalties of perjury that:
•
I am the beneficial owner (or am authorized to sign for the
beneficial owner) of all the income to which this form relates,
•
The beneficial owner is not a U.S. person,
•
The income to which this form relates is not effectively
connected with the conduct of a trade or business in the United
States or is effectively connected but is not subject to tax
under an income tax treaty, and
•
For broker transactions or barter exchanges, the beneficial
owner is an exempt foreign person as defined in the instructions.
Furthermore, I authorize this form to be provided to any
withholding agent that has control, receipt, or custody of the
income of which I am the beneficial owner or any withholding
agent that can disburse or make payments of the income of which
I am the beneficial owner.
Sign Here ►
Signature of beneficial owner (or individual authorized to sign
for beneficial owner)
Date (MM-DD-YYYY)
Capacity in which acting
For Paperwork Reduction Act Notice, see separate
instructions.
Cat. No. 25047Z
Form W-8BEN (Rev. 12-2000)
The Depositary for the Offer is
KINGSDALE SHAREHOLDER SERVICES INC.
For Delivery by Mail:
The Exchange Tower
130 King Street West
Suite 2950, P.O. Box 361
Toronto, Ontario
M5X 1E2
For Delivery by Courier or by Hand:
The Exchange Tower
130 King Street West
Suite 2950
Toronto, Ontario
M5X 1C7
The Dealer Manager or the Depositary and Information Agent
(see the back page of the Letter of Acceptance and Transmittal
for addresses and telephone numbers) or your broker or other
financial advisor will assist you in completing this Notice of
Guaranteed Delivery.
THIS IS NOT A LETTER OF ACCEPTANCE AND TRANSMITTAL
NOTICE OF GUARANTEED DELIVERY
for
Common Shares
of
WHITE KNIGHT RESOURCES LTD.
To be deposited pursuant to the Offer dated May 1, 2006
of
U.S. GOLD CORPORATION
US GOLD HOLDINGS CORPORATION and
US GOLD CANADIAN ACQUISITION CORPORATION
The terms and conditions of the Offer are incorporated by
reference in this Notice of Guaranteed Delivery. Capitalized
terms used, but not defined, in this Notice of Guaranteed
Delivery which are defined in the Offer, shall have the
respective meanings set out in the Offer.
WHEN AND HOW TO USE THIS NOTICE OF GUARANTEED DELIVERY.
If a Shareholder wishes to deposit Common Shares pursuant to the
Offer and (i) the certificate(s) representing the Common
Shares are not immediately available, or (ii) such
Shareholder cannot deliver the certificate(s) and all other
required documents to the Depositary at or prior to the Expiry
Time, those Common Shares may nevertheless be deposited pursuant
to the Offer by utilizing the procedures contemplated by this
Notice of Guaranteed Delivery provided that all of the following
conditions are met:
1.
the deposit is made by or through an Eligible Institution;
2.
a properly completed and duly executed copy of this Notice of
Guaranteed Delivery, or a facsimile hereof, including a
guarantee by an Eligible Institution as specified herein is
received by the Depositary at the office set out below, at or
prior to the Expiry Time; and
3.
the certificate(s) representing the deposited Common Shares in
proper form for transfer, together with a properly completed and
duly executed Letter of Acceptance and Transmittal, or a
facsimile thereof, with any required signature guarantees and
all other documents required by the Letter of Acceptance and
Transmittal, are received by the Depositary at the office set
out below at or prior to 5:00 p.m. (Vancouver Time) on the
third trading day on the TSX-V after the Expiry Time.
This Notice of Guaranteed Delivery may be delivered by hand or
courier or transmitted by facsimile or mailed to the Depositary
at the office set out below and must be guaranteed by an
Eligible Institution in the form set out below.
This form is not to be used to guarantee signatures. If a
signature on the Letter of Acceptance and Transmittal is
required to be guaranteed by an Eligible Institution, such
signature guarantee must appear in the applicable space provided
in the Letter of Acceptance and Transmittal.
TO:
U.S. GOLD CORPORATION
US GOLD HOLDINGS CORPORATION
US GOLD CANADIAN ACQUISITION CORPORATION
(the “Offerors”)
AND TO:
KINGSDALE SHAREHOLDER SERVICES INC., AS DEPOSITARY
By Mail:
By Courier or By Hand:
The Exchange Tower
The Exchange Tower
130 King Street West
130 King Street West
Suite 2950, P.O. Box 361
Suite 2950
Toronto, Ontario
Toronto, Ontario
M5X 1E2
M5X 1C7
Delivery of this Notice of Guaranteed Delivery to an address
or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than set forth above does not
constitute a valid delivery.
The undersigned hereby deposits with the Offerors, upon the
terms and subject to the conditions set forth in the Offer, and
the Letter of Acceptance and Transmittal, receipt of which is
hereby acknowledged, the Common Shares described below, pursuant
to the guaranteed delivery procedures set forth in the section
entitled “Offer — Manner of
Acceptance — Procedure for Guaranteed Delivery”
of the Offer and Instruction 2 to the Letter of Acceptance
and Transmittal.
Name and address of Shareholder of Record
(please print)
Certificate Number(s)
(if available)
Number of
Common Shares
Represented by Certificates
Number of
Common Shares
Deposited
TOTAL:
* Unless otherwise indicated, all shares evidenced by any
certificate(s) submitted to the Depositary will be deemed to
have been deposited under the Offer.
Area Code and Telephone Number during Business Hours:
( )
Date:
Signature
NOTE: DO NOT SEND CERTIFICATES FOR COMMON SHARES WITH THIS
NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR COMMON SHARES SHOULD BE
SENT WITH
YOUR LETTER OF ACCEPTANCE AND TRANSMITTAL.
CONSIDERATION ELECTION
Shareholders should complete this election carefully and are encouraged to consult their
advisors regarding the tax consequences of this election.
o
0.35 shares of common stock of New
US Gold for each Common Share
o
0.35 Exchangeable Shares for each Common Share
2
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution, hereby guarantees
delivery to the Depositary (at its address set forth herein) of
the certificate(s) representing Common Shares deposited hereby,
in proper form for transfer, together with a properly completed
and duly executed Letter of Acceptance and Transmittal in proper
form (or a facsimile thereof) and all other documents required
by such Letter of Acceptance and Transmittal, on or prior to
5:00 p.m. (Vancouver time) on the third trading day on the
TSX-V after the Expiry Time.
An “Eligible Institution” means a Canadian
Schedule I chartered bank, a major trust company in Canada,
a member of the Securities Transfer Agents Medallion Program
(STAMP), a member of the Stock Exchange Medallion Program
(SEMP) or a member of the New York Stock Exchange, Inc.
Medallion Signature Program (MSP).
Name of
Firm: ________________________________________________________________________________
Address of
Firm: ________________________________________________________________________________
The following are some of the questions that you, as a
Shareholder of White Knight, may have and the answers to those
questions. This summary term sheet is not meant to be a
substitute for the information contained in the Offer and the
accompanying Letter of Acceptance and Transmittal and Notice of
Guaranteed Delivery. The information contained in this summary
term sheet is qualified in its entirety by the more detailed
descriptions and explanations contained in the Offer and the
accompanying Letter of Acceptance and Transmittal and Notice of
Guaranteed Delivery. Therefore, we urge you to carefully read
the entire Offer and the accompanying Letter of Acceptance and
Transmittal and the Notice of Guaranteed Delivery prior to
making any decision regarding whether or not to deposit your
Common Shares under the Offer. Certain capitalized words and
terms used in this summary are defined in the Definitions, which
begin on page 1 of the Offer.
WHAT IS THE OFFER?
The Offerors are offering to purchase, upon the terms and
subject to the conditions described in the Offer, all of the
outstanding White Knight Common Shares, including any Common
Shares that may be issued after the date of the Offer and prior
to the Expiry Time, on the basis of either:
•
0.35 shares of common stock of New US Gold; OR
•
0.35 Exchangeable Shares, which will, under the
circumstances described in the Offer, be exchangeable for shares
of common stock of New US Gold on a one-for-one basis,
per 1.0 White Knight Common Share.
Shareholders are free to choose among the above two types of
consideration, although the election must be made as to all
Common Shares deposited under the Offer. Shareholders who
properly deposit Common Shares but do not elect a specific type
of consideration will be deemed to have elected to receive
shares of common stock of New US Gold.
WHO IS OFFERING TO BUY THE COMMON SHARES?
We are U.S. Gold Corporation, US Gold Holdings Corporation and
US Gold Canadian Acquisition Corporation. U.S. Gold Corporation,
or U.S. Gold, is a corporation organized under the laws of the
State of Colorado and is engaged in the exploration for gold and
other precious metals. US Gold Holdings Corporation, or New US
Gold, and US Gold Canadian Acquisition Corporation, or Canadian
Exchange Co., are currently wholly-owned subsidiaries of
U.S. Gold, which were formed solely for the purpose of
making the Strategic Offers, being the offers to purchase all of
the outstanding shares of White Knight, Coral Gold, Nevada
Pacific and Tone Resources.
HOW LONG DO I HAVE TO ACCEPT THE OFFER?
The Offer is open for acceptance until the Expiry Time, being
5:00 p.m. (Vancouver Time) on June 28, 2006, unless
extended or withdrawn by the Offerors.
WHAT ARE THE CLASSES OF SECURITIES SOUGHT IN THE OFFER?
The Offer is being made only for Common Shares and is not being
made for any Warrants, options or other securities that may
entitle the holder to acquire Common Shares. Any holder of such
securities who wishes to accept the Offer must exercise those
securities and deposit the Common Shares issued in accordance
with the Offer. However, if, after completion of the Offer, the
Offerors implement a Subsequent Acquisition Transaction, the
Offerors intend to structure such transaction so that Warrants
would be exchanged for warrants to purchase Exchangeable Shares
and the White Knight stock option plan would be replaced with a
stock option plan of Canadian Exchange Co. or New US Gold.
WHY SHOULD I TENDER MY COMMON SHARES?
The Offerors are offering to acquire, upon the terms and subject
to the conditions of the Offer, all of the outstanding Common
Shares, including any Common Shares that may be issued after the
date of the Offer and prior to the Expiry Time, on the basis of
0.35 shares of common stock of New US Gold or 0.35 Exchangeable
Shares per 1.0 Common Share. The Exchangeable Shares
will, under the circumstances described herein, be exchangeable
for shares of common stock of New US Gold on a one-for-one
basis. Based on the closing prices of the Common Shares on the
TSX-V and shares of common stock of U.S. Gold on the OTCBB on
March 3, 2006, the last trading day prior to the
announcement of U.S. Gold’s proposed business combination
with White Knight, this exchange ratio of 0.35 shares of common
stock of New US Gold represented a premium of approximately 25%
to Shareholders over the trading price prior to the announcement
of the Offer. Based on the closing prices of the Common Shares
on the TSX-V and the
shares of common stock of U.S. Gold on the OTCBB on
April 28, 2006, the most recent trading day practicable
before the filing of the Offer, this exchange ratio represented
a premium of approximately 26% to Shareholders over the trading
price before the filing of the Offer.
In addition to the Offer, U.S. Gold expects to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin Springs
exploration gold property. The Offerors believe that there are
significant benefits to bringing together U.S. Gold, White
Knight, Coral Gold, Nevada Pacific and Tone Resources, including
that the combined company will have:
•
a larger land position within the Cortez Trend and a larger
exploration program;
•
a stronger cash position and reduced costs;
•
enhanced trading liquidity and better market focus; and
•
greater technical expertise.
Upon successful completion of the Strategic Offers, the combined
company would strive to become the premier exploration company
in Nevada. However, Shareholders should be aware that the
successful completion of any or all of the Offerors’ offers
to purchase all of the outstanding shares of Coral Gold, Nevada
Pacific and Tone Resources is not a condition of the Offer.
HOW DO I DEPOSIT MY COMMON SHARES?
Shareholders who wish to accept the Offer must take one of the
following steps:
•
properly complete and duly execute the accompanying letter of
acceptance and transmittal (the “Letter of Acceptance and
Transmittal”) (printed on BLUE paper) or a facsimile
thereof and deposit it, together with certificates representing
their Common Shares, in accordance with the instructions in the
Letter of Acceptance and Transmittal; OR
•
follow the procedures for guaranteed delivery set forth in the
section entitled “Manner of Acceptance —
Procedure for Guaranteed Delivery” in the Offer, using the
accompanying Notice of Guaranteed Delivery (printed on
GREEN paper) or a facsimile thereof; OR
•
contact their broker, investment dealer, bank, trust company or
other nominee for assistance in depositing their Common Shares
under the Offer if their Common Shares are registered in the
name of a nominee.
Shareholders should contact the Dealer Manager, the Depositary,
the information agent (see the back page of the Offer for
contact information) or their broker or other financial advisor
for assistance.
WILL I HAVE TO PAY ANY FEES OR COMMISSIONS TO DEPOSIT MY
COMMON SHARES?
No fee or commission will be payable by a Shareholder who
delivers such shares directly to the Depositary or utilizes the
facilities of a Soliciting Dealer to accept the Offer.
WHEN WILL THE OFFERORS TAKE UP AND PAY FOR COMMON SHARES
DEPOSITED UNDER THE OFFER?
If all conditions described in the Offer have been satisfied or
waived by the Offerors at the Expiry Time, all Common Shares
that have been properly deposited and not withdrawn will be
required to be taken up promptly following the Expiry Time and,
in any event, not later than 10 days after the Expiry Time.
All Common Shares taken up under the Offer will be paid for
promptly and, in any event, within three business days of having
been taken up.
HOW WILL CANADIAN RESIDENTS BE TAXED FOR CANADIAN FEDERAL
INCOME TAX PURPOSES?
The disposition of Common Shares for shares of common stock of
New US Gold or Exchangeable Shares (and Ancillary Rights)
pursuant to the Offer will generally be a taxable event to a
Canadian resident Shareholder. However, a Canadian resident
Shareholder who disposes of his or her Common Shares for
consideration that includes Exchangeable Shares (and Ancillary
Rights) and who makes a valid tax election with Canadian
Exchange Co., may obtain a full or partial tax deferral
(rollover) of any capital gains otherwise arising upon the
disposition of those shares. A Non-Resident Shareholder for
which Common Shares are not “taxable Canadian
property” will not be subject to tax under the Tax Act on
the disposition of those shares.
The Exchangeable Shares and shares of common stock of New US
Gold will be “qualified investments” for Deferred
Plans for Canadian income tax purposes provided they are listed
on a “prescribed stock exchange” (which currently
includes the TSX and the AMEX).
HOW WILL U.S. HOLDERS BE TAXED FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES?
The Offer is structured with the intent that the exchange of
Common Shares for shares of common stock of New US Gold
generally should qualify as a tax-free exchange under
section 351 of the Code for U.S. federal income tax
purposes to Shareholders who are U.S. holders (as defined
in the section entitled “Material U.S. Federal Income
Tax Considerations — U.S. Federal Income Tax
Consequences to U.S. Holders of Common Shares” in the
Offer), provided that the completion of the Offer and the
Reorganization are treated as part of the same transaction for
U.S. federal income tax purposes, and assuming that certain
other conditions and requirements are met. However, there are
uncertainties concerning the U.S. federal income tax
treatment of elements of the transaction, and as a result there
are risks that the U.S. Internal Revenue Service will take
the position that the exchange of Common Shares for shares of
common stock of New US Gold is a taxable event. The exchange of
Common Shares for Exchangeable Shares (and Ancillary Rights) is
expected to be a taxable event for U.S. federal income tax
purposes to Shareholders who are U.S. holders.
WILL WHITE KNIGHT CONTINUE AS A PUBLIC COMPANY?
Depending on the number of Shareholders depositing Common Shares
and the number of Common Shares acquired by the Offerors under
the Offer, it is possible that, following the completion of the
Offer and prior to any Subsequent Acquisition Transaction, the
Common Shares would fail to meet the criteria for continued
listing on the TSX-V. If this were to happen, the Common Shares
could be delisted and this could, in turn, adversely affect the
market or result in a lack of an established market for such
shares. New US Gold intends to cause White Knight to apply to
delist the Common Shares from the TSX-V as soon as practicable
after the successful completion of the Offer and any Subsequent
Acquisition Transaction.
WHAT ARE THE MOST IMPORTANT CONDITIONS TO THE OFFER?
The Offer is subject to a number of conditions, including:
(a)
there shall have been properly deposited under the Offer and not
withdrawn at the Expiry Time that number of Common Shares that
constitutes at least
662/3
% of the Common Shares outstanding calculated on a
fully-diluted basis at the time Common Shares are taken up under
the Offer;
(b)
White Knight shall not have entered into or effectuated any
other agreement or transaction with any person or entity having
the effect of impairing the Offerors’ ability to acquire
White Knight or otherwise diminishing the expected economic
value to the Offerors of the acquisition of White Knight
including, but not limited to, any material issuance of new
securities of White Knight, the declaration of any extraordinary
dividend, the adoption of a shareholder rights plan or any other
transaction not in the ordinary course of White Knight’s
business;
(c)
the shares of common stock of New US Gold shall have been
approved for listing on the TSX and the AMEX and the
Exchangeable Shares shall have been approved for listing on the
TSX;
(d)
the registration statements for the shares of common stock of
New US Gold and the Exchangeable Shares to be issued pursuant to
the Offer and the shares of common stock of New US Gold that may
be issued upon the exchange of any such Exchangeable Shares
shall have become effective under the U.S. Securities Act, and
no stop order suspending the effectiveness of the registration
statements or a proceeding seeking a stop order shall have been
issued nor shall there have been proceedings for that purpose
initiated or threatened by the SEC and New US Gold shall have
received all necessary state securities law or blue sky
authorizations;
(e)
a receipt for a final prospectus qualifying the distribution of
securities underlying the U.S. Gold Subscription Receipts and
qualifying New US Gold as a reporting issuer shall have been
issued in all jurisdictions of Canada;
(f)
all necessary orders shall have been obtained from relevant
Canadian securities regulatory authorities in respect of the
Exchangeable Shares to be issued pursuant to the Offer, the
shares of common stock of New US Gold that may be issued upon
the exchange of any such Exchangeable Shares and the resale of
any such Exchangeable Shares or shares of common stock of New US
Gold;
(g)
the holders of shares of common stock of U.S. Gold, voting at a
meeting of such holders, shall have approved the following prior
to the Expiry Time:
•
the agreement and plan of merger and the Reorganization, which
will require the affirmative vote of the holders of a majority
of the outstanding shares of common stock of U.S. Gold and the
Reorganization shall have been implemented; and
•
the issuance of shares of common stock of New US Gold
(i) in the Strategic Offers, (ii) in any Subsequent
Acquisition Transaction relating to the Strategic Offers,
(iii) upon the exchange of Exchangeable Shares, as
described herein, and (iv) upon the exercise of warrants
and options of White Knight, Coral Gold, Nevada Pacific or Tone
Resources, which will require the affirmative vote of the
holders of a majority of the shares of common stock of U.S. Gold
entitled to vote at such meeting; and
(h)
the Offerors shall have obtained or received all approvals,
consents, clearances or waivers required to be obtained or
received from any governmental regulatory agency, authority or
commission in connection with the Offer and the Subsequent
Acquisition Transaction.
WHAT IS THE MARKET VALUE OF MY COMMON SHARES AS OF A RECENT
DATE?
On March 3, 2006, which was the last trading day preceding
our announcement of a proposed business combination with White
Knight, the closing price of the Common Shares on the TSX-V was
Cdn$1.79. On April 28, 2006, which was the most recent
trading day practicable before we filed the Offer, the closing
price of the Common Shares on the
TSX-V was Cdn$2.78. We
urge you to obtain a recent quotation for Common Shares before
deciding whether to deposit your Common Shares under the Offer.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?
You can call Kingsdale Shareholder Services Inc. at
1-866-639-8026. Kingsdale Shareholder Services Inc. is acting as
the Depositary and the information agent for the Offer in both
Canada and the United States.
PART II
INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS
None.
PART III
UNDERTAKINGS AND CONSENT TO SERVICE OF PROCESS
Undertakings
a.
The bidder undertakes to make available, in person or by
telephone, representatives to respond to inquiries made by the
Commission staff, and to furnish promptly, when requested to do
so by the Commission staff, information relating to this
Schedule or to transactions in said securities.
b.
The bidder undertakes to disclose in the United States, on the
same basis as it is required to make such disclosure pursuant to
applicable Canadian federal and/or provincial or territorial
laws, regulations or policies, or otherwise discloses,
information regarding purchases of the issuer’s securities
in connection with the exchange offer covered by this Schedule.
Such information shall be set forth in amendments to this
Schedule.
c.
The bidder undertakes to disclose in the United States, on the
same basis as it is required to make such disclosure pursuant to
any applicable Canadian federal and/or provincial or territorial
law, regulation or policy, or otherwise discloses, information
regarding purchases of the issuer’s or bidder’s
securities in connection with the offer.
PART IV
SIGNATURES
By signing this Schedule, bidder consents without power of
revocation that any administrative subpoena may be served, or
any administrative proceeding, civil suit or civil action where
the cause of action arises out of or relates to or concerns any
offering made or purported to be made in connection with the
filing on Schedule 14D-1F or any purchases or sales of any
security in connection therewith, may be commenced against it in
any administrative tribunal or in any appropriate court in any
place subject to the jurisdiction of any state or of the United
States by service of said subpoena or process upon the
registrant’s designated agent.
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
