-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gu2Iteq8QgOlvgnM3IWv5sH4NLFXBL8y/a80NEjFUZAy2mXgPABI5pebu601sZQf 9scPRj5ve1wv5mD+nF+PmQ== 0000914233-97-000038.txt : 19970329 0000914233-97-000038.hdr.sgml : 19970329 ACCESSION NUMBER: 0000914233-97-000038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LA TEKO RESOURCES LTD CENTRAL INDEX KEY: 0000357281 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 870483319 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10104 FILM NUMBER: 97566080 BUSINESS ADDRESS: STREET 1: 50 WEST BROADWAY STREET 2: SUTTE 800 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 BUSINESS PHONE: 8014661402 MAIL ADDRESS: STREET 1: 180 EAST 2100 SOUTH STREET 2: STE 204 CITY: SALT LAKE CITY STATE: UT ZIP: 84115 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended DECEMBER 31, 1996. Commission file number 0-10104 LA TEKO RESOURCES LTD. (Name of small business issuer in its charter) BRITISH COLUMBIA, CANADA 87-0483319 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SUITE 500, 625 HOWE STREET VANCOUVER, B.C. V6C 2T6 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (604) 688-0833 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered under Section 12(g) of the Act: COMMON STOCK, WITHOUT PAR VALUE Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. As of March 21, 1997, the aggregate market price of the voting stock held by non-affiliates was approximately $38,524,000. As of March 21, 1997, the Company had outstanding 23,457,258 shares of its common stock, without par value. DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are incorporated by reference, briefly describe them and identify the part of Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933 ("Securities Act"): The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 31, 1990). NONE TABLE OF CONTENTS PREFACE 3 PART I. 4 ITEM 1. BUSINESS 4 ITEM 2. PROPERTIES 7 ITEM 3. LEGAL PROCEEDINGS 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25 PART II. 25 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 25 ITEM 6. SELECTED FINANCIAL DATA 30 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 46 PART III. 46 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 46 ITEM 11. EXECUTIVE COMPENSATION 53 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 61 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 64 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 64 PREFACE CAUTION RESPECTING FORWARD-LOOKING INFORMATION This annual report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company or management as well as assumptions made by and information currently available to the Company or management. When used in this document, the words "anticipate," believe," "estimate," expect," and "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties, and assumptions, including the risks and uncertainties noted. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended. In each instance, forward-looking information should be considered in light of the accompanying meaningful cautionary statements herein - -------------------------------------------------------------------------- PART I. - -------------------------------------------------------------------------- ITEM 1. BUSINESS GENERAL La Teko Resources Ltd. ("La Teko" or the "Company") explores and develops mineral properties. It has interests in several exploration properties in the Fairbanks area of central Alaska and one gold exploration project, the Margarita, in the Oro Blanco area of southern Arizona. Two of the Alaska projects, True North, under joint venture with Newmont Exploration Limited ("Newmont"), a subsidiary of Newmont Gold Company (NYSE), and Ryan Lode, are at advanced exploration to development stage. The remaining Alaska projects, including Juniper, Twin Buttes, Lucky Gulch, and Discovery, are at an early exploration stage. The Margarita project is under option to Oro Blanco Resources Corp. During 1996, the Company's activities were concentrated on monitoring the exploration of its True North property under a joint venture with Newmont, conducting limited mine maintenance and baseline studies on its Ryan Lode property and analyzing, acquiring, and initiating exploration of additional early exploration stage gold prospects in Alaska. The Company received cash payments of $2,500,000 from Newmont during 1996, the final installment of the $6,000,000 total due the Company from its sale to Newmont of a 65% interest in the property. Newmont continued an active reverse circulation and core drilling program during the year and significantly expanded the project by acquiring adjacent properties. (See "ITEM 2. PROPERTIES: True North Project.") Ryan Lode activities during 1996 were focused on furthering baseline studies that would be required in order to proceed with permitting. No exploration drilling was completed on the Ryan Lode. During 1996 the Company continued its investigation of other possible exploration prospects and, on the basis of initial geological and geophysical reconnaissance, acquired additional properties in Alaska on which the Company intends to conduct limited gold exploration. In 1997, the Company plans to continue to cooperate with Newmont with its ongoing exploration and development of the True North project. In addition, La Teko will commence its own evaluation of the reserves and resource potential of the deposit. At present, the only cash requirements from La Teko for this project are for its 35% share of new property acquisition costs. The Company's evaluation and interpretation of ongoing results are required to assist it in projecting when Newmont might be expected to complete its $21 million in exploration and development expenditures on the property and produce a positive feasibility study, and thus when contributions toward development costs from La Teko might be required. Early in 1997, the Company plans to make a decision as to whether to develop the Ryan Lode property as a gold mine, to joint venture or sell the project to another mining company, or to complete the reclamation program on the property without any further production. Should a development option be chose, the Company will immediately commence the permitting application process and begin detailed drilling and engineering studies leading to a feasibility study. La Teko will continue its efforts to enhance shareholder value through the discovery of new mineral reserves. To this end, the Company will be continuing to explore its several Fairbanks area gold exploration projects and will be seeking more acquisition opportunities. The Company's strategy will be to focus on advanced projects in areas with known mining history, while it will consider farming out or joint venturing its early stage exploration projects in order to reduce cost and risk to the Company. The Company was formed on November 27, 1968, under the laws of British Columbia. The registered office of the Company is 889 West Pender Street, Suite 800, Vancouver, B.C. V6C 3B2. The head office and principal place of business of the Company is 625 Howe Street, Suite 500, Vancouver, B.C. V6C 2T6. When used herein, the terms "La Teko" or the "Company" include La Teko Resources Ltd. and its wholly-owned subsidiaries, La Teko Resources, Inc., the Nevada property- holding entity, and Ryan Lode Mines, Inc., the Alaska operating entity. EMPLOYEES As of March 1997, the Company had 15 employees, one of whom is the Company's president and a director. All of the Company's employees, except the corporate president and four administrative personnel in the corporate offices, work in Fairbanks, Alaska, and at the nearly Ryan Lode and True North sites. Certain employees part-time employees are also employed part-time by Newmont n the True North venture. The Company regularly engages consultants and other advisors to provide specific geological and other professional services. OFFICES The Company has moved its corporate offices from Salt Lake City, Utah, to Vancouver, British Columbia, at 625 Howe Street, Suite 500. Facilities in British Columbia are leased on a month-to-month basis for $1,620 per month. The Company's office at 180 East 2100 South, Suite 204, Salt Lake City, Utah that were rented month-to-month for $638 will be consolidated with the Vancouver office on May 1, 1997. The Company's Alaska office at 2173 University Avenue South, Suite 101, Fairbanks, Alaska, is leased from an unrelated party for $1,309 on a month-to- month basis. In the opinion of the Company, the above facilities are adequate for its foreseeable future needs. ITEM 2. PROPERTIES TRUE NORTH PROJECT True North is an advanced exploration project, located in the center of the Fairbanks Mining District, Alaska. The project was acquired by La Teko in 1993 and is now under joint venture with Newmont, subject to its right to terminate the venture and reconvey its 65% interest to the Company. Newmont, as operator of the project, is in the midst of a multi-million dollar drilling program which includes both definition of known gold mineralization and exploration for new gold zones. Location and Access The True North project is located on the west flank of Pedro Dome, approximately 17 miles northeast of Fairbanks, Alaska. The property is accessed by a five-mile dirt and gravel road from the paved Steese Highway, which passes along the south and eastern borders of the property. Land Status The True North project, consisting of 86 leased Alaska state mining claims, aggregating 2,284 acres, was acquired by the Company's wholly-owned subsidiary, La Teko Resources, Inc., from AMAX Gold Exploration, Inc. ("AMAX") in 1994 in consideration of the Company's completion of $250,000 in exploration in each of 1994 and 1995. The Company was also required to pay to AMAX $500,000 in 1994 and $250,000 yearly thereafter to a cumulative total payment of $1,500,000 and to pay a 1% net smelter return ("NSR") royalty. All required payments to date have been paid. On June 9, 1994, La Teko Resources, Inc., entered into a joint venture agreement (the "JV Agreement") with Newmont, whereby Newmont acquired a 65% interest in True North. In order to earn that interest, Newmont paid La Teko $6 million and must complete $21 million in exploration and development work on True North ($5.8 million spent as of December 31, 1996) and complete a feasibility study. The Company will receive no further cash payments from Newmont under the JV Agreement. The feasibility study was to have been completed by December 31, 1996. However, Newmont has elected to extend the date for completion. The JV Agreement allows this extension for up to six months beyond the time when Newmont ceases an active program of drilling to expand the gold resource of True North. During such extension, certain of Newmont's exploration costs are not credited against its $21 million funding commitment. After Newmont has earned its 65% interest in True North, La Teko and Newmont will each fund project development costs on a pro rata basis, with Newmont as operator. If either partner fails to contribute its share, its interest in the property will suffer corresponding dilution. Newmont can terminate the JV Agreement by reconveying its 65% interest in the property to the Company, which would then be under no obligation to reimburse Newmont for any payments or expenditures to date. Although Newmont has advised the Company that Newmont proposes further exploration of the True North property during 1997, Newmont's further actions respecting the True North project are beyond the ability of the Company to either control or predict. There can be no assurance that the results of further exploration, development or feasibility analysis will warrant placing the True North property into production by either the Company or Newmont. The terms and conditions of the joint venture with Newmont are more fully discussed in the Company's annual report on Form 10-K for the year ended December 31, 1995. Since acquiring the project, Newmont has added 60 claims by staking and acquired an additional 16 adjacent properties by lease, purchase, or option from third parties, bringing the total project acreage to 7,120 acres. These are all within the joint venture's area of interest, and pursuant to La Teko's election to participate in the acquisition cost, are being added to the joint venture property. Exploration History Placer gold was first discovered in a creek draining the south side of Pedro Dome in 1902 by Felix Pedro. Placer mining on Dome and Eldorado Creeks, immediately adjacent to the True North property, began about eight years later. During the period 1912 to 1914, the Soo Mine reportedly produced between 4,000 and 5,000 ounces of lode gold from a quartz vein in the southern portion of the True North property. Several other small lode occurrences were prospected in the vicinity. In 1916, 200 tons of stibnite ore (antimony) was reportedly produced from the Hindenburg Mine, within the area of the presently defined Hindenburg gold deposit. A further shipment of 16 tons grading 38% antimony was reportedly made in 1942. Another prospect, the Mother Lode, adjacent to the presently defined Shepard deposit, had exploration shafts to 147 and 215 feet. AMAX first acquired an interest in the property covering the Hindenburg Mine in 1990. The property position was expanded as AMAX completed the first drill program on the property, 4,000 feet, in 1991. The table below outlines subsequent exploration on the property, including that conducted since the Company acquired it in 1993. 1992 1993 1994 1995 1996 TOTAL ------ ------ ------ ------ ------ ------- RVC Drilling 5,332 3,450 51,810 14,885 40,428 115,805 Core Drilling 2,042 13,049 24,798 39,888 Geology and Mineralization The True North property lies within a broad belt of metamorphic rocks trending through central Alaska and Yukon known as the Yukon Tanana Terrane. Numerous gold occurrences are found within these rocks, including the famous Klondike gold camp in the Yukon and the Fairbanks Mining District of Alaska. Lode gold occurrences typically occur where the older metamorphic rocks have been intruded by granitic igneous rocks which were emplaced approximately 90 million years ago. Several types of gold mineralization have been exploited. The early miners sought the placer gold in streams and rivers draining the bedrock gold source areas and this mining activity continues today. Initial lode mining concentrated on quartz veins containing high grade gold values. More recently, however, large, low-grade gold deposits have been sought. The best example of this is the Fort Knox deposit, seven miles east of True North, which has just been placed into production by Cyprus-AMAX at a mining rate of approximately 350,000 ounces gold per year. Gold mineralization on the True North property is hosted by metamorphic rock of the Chatanika Terrane, including quartz-mica schist, quartzite, eclogite, amphibolite, marble, and argillite. Some units are graphitic. Gold occurs in nearly flat-lying shear zones and along faulted contacts. These zones are typically 30 to 50 feet thick, are stacked one on top of the other, and can be correlated across the property. The three originally defined zones, Hindenburg, Central, and Shepard, now all appear to be part of a single zone with a continuous strike length of roughly 5,000 feet. Average grades are 0.05 to 0.07 oz. Au per ton (1.7 to 2.4 gm Au per tonne), although higher grades in excess of 1 oz. Au per ton occur locally. A more recently defined zone, the Zeppelin, occurs just north of the Central zone, and is higher grade, averaging approximately 0.12 oz. Au per ton (5.8 gm Au per tonne). Drilling late in 1996 encountered another new zone, which also appears to grade in excess of 0.1 oz. Au per ton. Within the first 150 to 200 feet of surface, the gold mineralization is predominantly oxidized. Below this depth there is a gradual transition to sulfide mineralization. The depth of oxidation is typically greater at higher elevations and less in the valleys, and generally reflects depth to the top of the water table. Reserves In 1995, La Teko announced a proven and probable reserve of 6.9 million tons grading 0.065 oz. Au per ton, or 445,800 contained ounces of gold, as calculated by Mine Development Associates, Inc., of Reno, Nevada. In 1996, La Teko announced a total resource potential of 2 million plus ounces of gold. Newmont has yet to announce a resource or reserve estimate. Metallurgy Preliminary metallurgical testing has demonstrated gold recoveries from in the order of 90% for oxidized mineralization. As the degree of oxidation decreases, gold recoveries also decrease. Bench scale flotation tests of sulfide mineralization indicate gold recoveries of 82 to 96% in the sulfide concentrate. Proposed Program The Company has been advised by Newmont that it has budgeted $2.1 million for the $300,000 property payments due during the year and for an exploration program for January through June 1997. This program will include mainly drilling and some power auger geochemical sampling. The main focus of the drilling program will be step-out drilling to expand the more recently discovered gold zones. RYAN LODE PROJECT The Ryan Lode property has a long history of gold exploration and mining, dating back to the turn of the century. During the period from 1987 to 1989, the Company successfully produced 19,220 ounces of gold from 329,000 tons of ore mined by open pit and extracted by heap leach methods. the Company has subsequently made a substantial investment in the property, both in the reclamation of the previous mining activity and in exploration for more minable reserves. Location The Ryan Lode property is located on the southeast flank of Ester Dome, approximately eight miles west of Fairbanks, Alaska. The Parks Highway, connecting Fairbanks to Anchorage, traverses the southern boundary of the property. The property can be accessed by Gold Hill Road and then Henderson Road, for a total distance of 2.4 miles north from the highway. Power supply also runs very close to the property. Land Status The core Ryan Lode claims, comprised of 10 claims, 14 unpatented claims, and one unpatented placer claim totaling 700 acres, are subject to a lease agreement which calls for a 5% net smelter royalty on production from these claims. Annual advance royalty payments are being made, currently amounting to $150,000 per year, escalating to $200,000 per year in 2013, to $250,000 per year in 2018, to $300,000 per year in 2023, and $300,000 per year from 2028 to 2032. The lease agreement may be extended annually thereafter. A 3% net smelter return royalty is payable on the surrounding Bar and St. Patrick claims comprising a total of 289 acres. A prior lease agreement with LAC Minerals, U.S.A., requires payment of $5 million on the basis of 5% of net profits after recovery of pre-production costs, 10% of net profits after recovery of two times pre-production costs, and 20% of net profits after recovery of three times pre-production costs until the $5 million is paid. Pre-production costs are restricted to a maximum of $1 million. The Company has expanded its Ryan Lode properties so that it now holds 234 additional acres adjacent to the Ryan Lode claim group. These claims are generally subject to 3% to 4% net smelter return royalties based on mineral product mined and removed from the properties. Exploration and Development History Extensive placer mining has taken place in the vicinity of Ester Dome since the turn of the century. The first lode gold interest was during the period 1912 to 1916, when several prospect pits and two shafts were sunk. In 1916, Kennecott Copper Corporation acquired the property, sank a 500-foot shaft and carried out significant development activity. Others continued with sporadic activity and, by 1930, reserves were estimated at 1.3 million tons grading 0.158 oz. Au per ton. In 1938, the property was acquired by Bartholomae Oil Corporation which continued with more exploration and development, culminating in the production of 620 oz. Au from 1,430 tons of ore. All operations ceased during World War II. Minor exploration was carried out from 1954 to 1958 and again from 1969 to 1970. During the period 1974 to 1978, Fourbear Enterprises, Inc., constructed a 400 tpd flotation mill, which encountered gold recovery problems, and operations ceased. St. Joe American Corporation then acquired the lease and carried out further surface and underground exploration. In 1985, the property was acquired by Citigold Mining Company, Ltd., which carried out a 10,000 ton test heap leach before 1986, when it was acquired by La Teko. In the following three years, La Teko mined and leached 329,000 tons of ore at an estimated grade of 0.09 oz. Au per ton, to recover 19,220 ounces of gold. Production ceased in 1990. From 1990 to the present, La Teko has carried out substantial exploration on the property, including 220,236 feet of drilling in 752 drill holes. The Company has also continued a program of baseline environmental monitoring and reclamation of previous mining activity. Geology and Mineralization The principal rock unit in the Ryan Lode area is the Cleary Sequence member of the Fairbanks Schist, consisting of varied rock types, including metamorphosed volcanic rocks, along with marble, calcareous quartz-mica schist and carbonaceous units. Granite intrusions in the area are principally concentrated near and within the Curlew deposit, south of the main Ryan Shear. The gold in both the Ryan and Curlew ore bodies occurs in mineralized quartz veins, breccias, and gouge zones within broad shear zones. The gold occurs with sulfide minerals pyrite, arsenopyrite, and locally stibnite. Higher grade gold mineralization typically occurs next to the hanging wall of the shear, with lower grade mineralization below this. The main shear zone, which reaches 150 feet in thickness in places, has been traced by drilling for over a mile and is contained in metasedimentary and metavolcanic rocks of the Cleary Sequence. The Curlew Shear, which may be an offset, southern continuation of the Ryan Shear, ranges up to 180 feet in thickness. Other subparallel shears also occur on the property, and although these are currently poorly defined, they could add to the future gold resource base. Mineralization is typically oxidized to depths of 200 to 300 feet, with an enriched or supergene zone for 50 to 100 feet below this. The oxidized and supergene zones demonstrate good gold recoveries by leaching, while rates of gold recovery by leaching decreases at increasing depths below the enriched zone. Reserves In 1994, Mine Development Associates, Inc., of Reno Nevada, calculated proved and probable reserves for Ryan and the adjacent Curlew Shear to be 14.5 million tons grading 0.056 oz. Au per ton, with a 0.015 oz. Au per ton cut-off and a stripping ratio of 3.8:1. This is a reserve of 822,200 contained oz. Au within a geological resource of 2.4 million oz. Au. A subsequent "high grade" pit calculation showed a reserve of 4.6 million tons grading 0.09 oz. Au per ton with a strip ratio of 7.5:1 and an underground reserve of 1.46 million tons grading 0.215 oz. Au per ton. The "high grade" pit includes only oxide and supergene mineralization, and is thus totally amenable to heap leach gold recovery. Metallurgy The ore at Ryan Lode requires crushing and agglomeration prior to leaching. Column leach tests show that gold recoveries in the range of 70% to 80% can be expected. A gravity circuit has been shown to recover 45% to 50% of the gold. Gravity in combination with leaching would be expected to provide faster and superior gold recovery to leaching alone. Proposed Program The Company's ongoing program at the Ryan Lode includes baseline studies monitoring air and water quality, noise levels, and other environmental factors. The Company is considering an effort to obtain mining permits and to complete a feasibility study, both of which are required prior to placing the Ryan Lode property into production. Future production is contingent upon obtaining the necessary permits and capital required to fund the permitting, feasibility, and construction phases of the project. Although the Company has funds to continue baseline studies and complete a study of the feasibility of placing the Ryan Lode into production, it does not now have the funds which would be required for pre-production construction or the commencement of mining. The Company will rely on the sales of securities or debt financing to meet its future Ryan Lode capital requirements, or it will seek a joint venture partner to assist with the Ryan Lode project. There can be no assurance that a joint venture partner will be obtained or that funds for these purposes will be available. JUNIPER PROPERTY In February 1995, the Company located 104 state of Alaska prospecting sites on approximately 16,131 acres located 30 miles northeast of Fairbanks, Alaska. This property covers rocks of the Chatanika Terrane, the same as those hosting the True North deposit 15 miles to the southwest. In addition, the property lies along the same, northeast-trending structural linear which intersects both the True North and Ryan Lode gold deposits. There is little evidence of historical prospecting in the area, largely because of the thick cover of wind- blown silt and clay which masks the underlying geology and would effectively hide any bedrock mineralization. However, minor placer gold mining activity is evident in a number of streams which drain the area. During 1995, the Company carried out initial exploration efforts on this property, including geochemical sampling, the results of which suggested that further exploration was warranted. In 1996, the Company continued its exploration effort with additional geologic mapping and soil sampling, and converted the prospecting sites into 405 state claims. The fourth quarter of 1996 cost of conversion amounted to approximately $78,000. During 1997, detailed soil sampling, geologic mapping, and possibly trenching will be undertaken. TWIN BUTTES PROPERTY During April 1996, the Company executed a five-year agreement with the University of Alaska to explore its 12,640-acre Twin Buttes property. Subsequently, the Company paid $30,000 for an exclusive development and mining lease. The property is located 28 miles northeast of Fairbanks, Alaska, adjoining the south side of the Company's Juniper property. The property is underlain by the same rocks as the Juniper property and has similar potential to host gold mineralization. A geochemical sampling program including 297 rock, soil, stream sediment, and pan concentrate samples, was undertaken during the 1996 exploration season. Eight percent of these samples had detectable gold, generally in the range of 5ppb to 50ppb. Although these anomalies are weak, there is extensive overburden cover which could mask the expression of buried mineralization. Additional sampling is required before any definite conclusion may be reached concerning the mineral potential of this property. The budgeted 1997 program includes approximately 1,200 soil samples which will be collected using a track-mounted power auger. This ensures that samples are collected from just above bedrock and beneath the wind-blown sediment. The discovery of a significant anomaly will generate the need to follow-up trenching to bedrock to disclose the source. LUCKY GULCH PROPERTY During July 1996, the Company acquired 12 claims comprising the Lucky Gulch property. The property contains approximately 230 acres located in the Denali Mining District on Lucky Gulch, a tributary of Valdez Creek, Alaska, approximately 115 miles south of Fairbanks. The Lucky Gulch property has a significant lode gold potential, as indicated by the subsequent production from placer gold operations in creeks draining the area. The property was acquired for an initial $10,000 non-refundable payment with annual advance minimum royalty payments of $7,500 the first year, escalating to $15,000 the fourth year and thereafter. The Company has satisfied the requirement to spend $20,000 on exploration in 1996. Annual exploration expenditures of $50,000 are required for subsequent years. The agreement calls for a sliding scale net smelter royalty between 1 and 7%, based on profitability and the price of gold. The 1997 exploration program on this property is budgeted at $50,000. The program includes geological mapping to more clearly define the lithology, structure, and possible bedrock source of placer gold in the creek. The program will also include soil geochemical sampling, followed by up to 2,000 feet of trenching and several hundred feet of reverse circulation drilling. DISCOVERY PROPERTY On May 24, 1996, the Company, through its wholly-owned subsidiary, Ryan Lode Mines, Inc., entered into a letter agreement with Mrs. Helen Warner for an option on approximately 3,000 acres known as Discovery Gulch (the Discovery, Deadwood and Tom group of claims) in the Circle Mining District near the small town of Central, Alaska. The property is on Deadwood Creek, approximately 125 miles northeast of Fairbanks. A formal agreement is to be executed on or before December 1, 1997. The Company paid $15,000 for an exploration lease. Annual payments of $10,000 are required upon each of the two succeeding anniversary dates. Subsequent annual payments, beginning with the third anniversary date, will be $35,000. The property is subject to a 2% net smelter return royalty payment. The Company will have a vested interest in the property upon a $300, 000 cash payment to be made to Warner at the Company's option within one year after completion of a positive feasibility study. Minimum exploration requirements for 1997 and 1998 are $30,000 and $35,000, respectively. During the fourth exploration season, the minimum increases to $100,000 with an additional $50,000 increase annually thereafter. The Company completed a $25,000 exploration program during 1996. This effort included geological mapping, soil sampling, and trenching. A number of samples returned anomalous gold values that confirm results of previous exploration by others. The anomalies appear to be associated with a granitic intrusion that occurs on the property. Placer gold production from the surrounding creeks is further indication that this is an area with lode gold potential. ISSUES AFFECTING MINING OPERATIONS IN ALASKA Climate The climate in the Fairbanks area is variable. The record low temperature of -54 degrees Celsius (-66F) and a record summer high of 37 degrees Celsius (99F). The mean annual temperature is -3 degrees Celsius (26.5F). The average temperature for the months of April through September is 10 degrees Celsius (50.1F), the average temperature for the months of October through March is -16 degrees Celsius (2.75F). Temperature rises above 22 degrees Celsius (70F) 51 days per year and drops below freezing 225 days per year. The rivers in the region begin to freeze in October and thaw in May. Average annual precipitation in Fairbanks is approximately 12 inches, which includes an average snowfall of 69.3 inches. Mining operations can be conducted in the region throughout most of the year, although exploration is restricted during the winter. GOVERNMENT REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS There are extensive federal and state laws designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration and development activities and may result in significant delays, substantial costs, and the alteration of proposed operating plans. These requirements also necessitate significant capital outlays and may result in liability to the owner of the property for damages that may result from specific operations, all of which may materially and adversely affect the business of the Company and the financial results of its operations. The Company believes that it is in material compliance with applicable environmental regulations. Ryan Lode The Ryan Lode property is located eight miles west of Fairbanks, Alaska, and 0.5 miles from rural homes. The Company initiated baseline environmental monitoring for the project in 1993, including air quality, surface water quality, ground water quality, geohydrology, biological inventory, and acid base accounting. The Company plans to expand these programs as well as to initiate noise level monitoring and vibrations testing. These activities will support environmental permitting activities which will commence with the development of an operating plan. The Company expects that obtaining required permits for proposed activities on the Ryan Lode property may be adversely affected because of its location eight miles from the city of Fairbanks and approximately one-half mile from rural homes, which exposes the Company's proposed activities to greater public interest and scrutiny and increases the potential adverse impacts on humans resulting from the use, storage, or discharge of hazardous materials. The Company expects that it may be required to complete an environmental impact statement and be involved in a protracted process with applicable permitting agencies and the public in obtaining required permits. There can be no assurances respecting the time involved to obtain required permits, restrictions on operations that may be imposed as a condition to obtaining such permits, or when production could commence. Further, there can be no assurance that the Company will not have to alter its plans in response to government review or public comment, which could adversely affect the financial return to the Company from its proposed activities. La Teko will be required to demonstrate substantial financial responsibility through bonding, deposits, or other means acceptable to governing agencies before resuming operations at Ryan Lode. True North The True North property is located in a relatively uninhabited area and therefore should not be subject to stringent nuisance factors such as light, noise, dust, and visibility considerations in receiving permits. The Cyprus/Amax Gold, Inc., Fort Knox property, located in close proximity to True North has been issued permits to commence production without the necessity of providing a full environmental impact statement. Production facilities have been completed and the project poured its first gold in December 1996. Newmont, as the operator of the True North project, will have the responsibility of permitting the True North project. There can be no assurance that Newmont will continue with development of the True North project or that it will be able to obtain permits without substantial delays and/or extensive expense. Other Regulation The mining and exploration operations of La Teko are also subject to both federal and state laws and regulations pertaining to employee health and safety. STATE OF ALASKA MINING LICENSE TAX, PRODUCTION ROYALTY, AND CLAIM RENTAL The State of Alaska levies a mining license tax based on net income reported to the federal government and royalties from Alaska mining property at the following rates: there is no tax on taxable income under $40,000; however, if taxable income exceeds $40,000 and is less than $50,000, the tax is 3% of the total taxable income; $50,001 to $100,000 - $1,500 plus 5% of excess over $50,000; $100,001 or over - $4,000 plus 7% of excess over $100,000. The State of Alaska also charges a production royalty of 3% of net income on state mining claims. An annual rental fee must be paid to the State of Alaska for each state claim or fraction thereof. The rent is $20 per claim for the first five years held; $40 per claim for the second five year held; and $100 per year per claim thereafter. Claims staked before 1989 are considered to be staked in 1989 for the purpose of this law. MARGARITA PROPERTY The Margarita property consists of 36 unpatented federal lode mining claims totaling approximately 700 acres. The property is located approximately 75 miles south of Tucson, Arizona, in the Oro Blanco Mining District, approximately three miles from the Mexican border. The property can be reached by traveling 20 miles east from Arivaca on a graded county road The Company's purchase agreement calls for a 3% net smelter return royalty. In addition, prior lessees will receive a 10% net profit interest on the first 20,000 ounces of Gold production and 15% thereafter. During January 1996, the Company completed 14 holes comprising 4,040 feet of reverse circulation drilling on the Margarita property at an estimated cost of $67,500. This program did not increase the previously estimated 30,000 ounce resource. During January 1997, the Company executed a letter agreement with Oro Blanco Resources Corp. whereby Oro Blanco has an exclusive, three-year option to explore the Margarita property. During this period, Oro Blanco must complete $500,000 in exploration and issue 125,000 shares of common stock to La Teko, according to the following schedule. COMMON STOCK EXPLORATION TO LA TEKO EXPENDITURES ------------- ------------ Year 1 25,000 shares $100,000 Year 2 50,000 shares $200,000 Year 3 50,000 shares $200,000 At the end of the option period, Oro Blanco can acquire a 100% interest in the Margarita property by paying the Company $100,000 in cash. The Company retains a 1% net smelter return production royalty. Minimum annual royalties are payable $50,000 on the fourth anniversary date, $75,000 on the fifth anniversary date, and $100,000 on the sixth and subsequent anniversaries. Advance minimum royalties will be applied against net smelter royalties during the life of the mine. FREEGOLD INTERESTS On July 19, 1994, La Teko entered into an agreement with International Freegold Mineral Development, Inc., respecting the acquisition of Freegold stock. Pursuant to the agreement, La Teko acquired 750,000 shares of Freegold common stock for $231,069 in July 1994 and a further 750,000 shares for $269,844 in July 1996, for a total of 1.5 million shares for $500,913. La Teko continues to own 1.5 million shares of Freegold constituting approximately 9% of the issued and outstanding stock of Freegold, which had a current market value as of December 31, 1996, of $780,000, based on the closing sales price for such stock as of such date on the Vancouver Stock Exchange, converted to U.S. dollars. Because of the nature of the limited trading market for Freegold stock, there can be no assurance that the Company would be able to liquidate its position readily or without a loss if it should desire to do so. (See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.") LIMITED TITLE TO UNPATENTED MINING CLAIMS The Ryan Lode and the Margarita claim groups include Federal unpatented mining claims. The Ryan Lode and True North groups include Alaska unpatented mining claims. Such claims are subject to inherent uncertainties. Unpatented mining claims, when properly located, staked, and posted according to regulation, give the claimant possessory rights only. Possessory title to an unpatented mining claim, when validly initiated, endures unless lost through abandonment due to failure to perform and file proof of annual assessment work or through a forfeiture which results from an adverse location made while the prior location is in default with respect to the performance of annual assessment work. Because many of these factors involve findings of fact, title validity cannot be determined solely from an examination of the public record. The continuing validity of these claims is subject to many contingencies, including the availability of land for location at the time the location was made, compliance with federal and state regulations for locating claims, the performance of annual assessment work, the payment of annual rental fees and the making of required annual filings with the Bureau of Land Management and the appropriate state authority in which the claims are located. Failure to pay required annual rentals constitutes a statutory abandonment of the mining claim or site. The Company believes that it has valid possessory title to all of the unpatented federal and state mining claims described herein. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company. No legal proceedings have been threatened or, to the best of the Company's knowledge, are contemplated, by any governmental authorities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the last quarter of 1996 no matters were submitted to the stockholders for approval. - -------------------------------------------------------------------------- PART II. - -------------------------------------------------------------------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common shares are traded on the Vancouver Stock Exchange ("VSE") under the symbol "LAO" and are included on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol "LAORF." The high and low closing sales prices for the quarterly periods indicated on the VSE are as follows: VANCOUVER STOCK EXCHANGE SALES PRICES CANADIAN DOLLAR U.S. DOLLAR* --------------- -------------- LOW HIGH LOW HIGH 1995 ------ ------ ------ ------ 1st quarter $ 3.10 $ 3.90 $ 2.22 $ 2.79 2nd quarter 2.95 3.50 2.15 2.55 3rd quarter 2.35 3.15 1.75 2.35 4th quarter 2.00 4.00 1.47 2.93 1996 1st quarter $ 2.61 $ 5.00 $ 1.91 $ 3.65 2nd quarter 3.00 4.50 2.20 3.30 3rd quarter 2.75 3.95 2.04 2.93 4th quarter 2.45 3.45 1.81 2.52 *Prices converted to U.S. dollars at the approximate exchange rates prevailing during the individual quarter. The high and low closing sales prices for the Company's common stock as quoted on the Nasdaq Stock Market for the quarterly periods indicated are as follows: NASDAQ STOCK MARKET SALES PRICES CANADIAN DOLLAR U.S. DOLLAR* --------------- -------------- LOW HIGH LOW HIGH 1995 ------ ------ ------ ------ 1st quarter $ 3.07 $ 4.02 $ 2.19 $ 2.88 2nd quarter 3.09 3.51 2.25 2.56 3rd quarter 2.35 3.27 1.75 2.44 4th quarter 1.88 3.29 1.38 2.41 1996 1st quarter $ 2.66 $ 4.71 $ 1.94 $ 3.44 2nd quarter 3.31 4.55 2.41 3.31 3rd quarter 2.91 4.13 2.16 3.06 4th quarter 2.54 3.46 1.88 2.56 *Quotations converted to Canadian dollars at the approximate exchange rates prevailing during the individual quarter. As of March 7, 1997, there were 480 United States stockholders of record holding 22,362,026 common shares, or approximately 94% of the shares issued and outstanding, and 124 Canadian stockholders of record holding 1,339,323 shares, or approximately 6% of the shares outstanding. DIVIDEND POLICY The Company has never paid cash dividends on the Common Stock and does not anticipate that it will pay dividends in the foreseeable future. The Company currently intends to continue a policy of using retained earnings primarily for the expansion of its business. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS There are no governmental laws, decrees or regulations in Canada relating to restrictions on the import of capital affecting the remittance of interest, dividends or other payments to non-resident holders of the Company's shares. Any such remittances to United States residents, however, are subject to a 15% withholding tax pursuant to Article X of the reciprocal tax treaty between Canada and the United States. Except as provided in the Investment Canada Act (the "Act"), there are no limitations under the laws of Canada, the Province of British Columbia or in the charter or any other constituent documents of the Company on the right of foreigners to hold and/or vote the shares of the Company. The Act requires a non-Canadian making an investment to acquire control of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with Investment Canada, the federal agency created by the Act. As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in January, 1989 to provide distinct threshold levels for Americans who acquire control of a Canadian business. The threshold levels for Americans were gradually raised until 1992. A Canadian business is defined in the Act as a business carried on in Canada that has a place of business in Canada, an individual or individuals in Canada who are employed or self-employed in connection with the business, and assets in Canada used in carrying on the business. An American, as defined in the Act, includes: an individual who is an American national or a lawful permanent resident of the U.S.; a government or government agency of the U.S.; an American-controlled entity, corporation or limited partnership; and a corporation, limited partnership or trust of which two-thirds of its board of directors, general partners or trustees, as the case may be, are non-Canadians or Americans. Review by Investment Canada is required when investments by Americans for direct acquisition of control exceeds $150 million. For purposes of the Act, "direct acquisition" of control means a purchase of the voting interests of a corporation, partnership, joint venture or trust carrying on a Canadian business, or any purchase of all or substantially all of the assets used in carrying on a Canadian business. A non-Canadian is prohibited from implementing an investment reviewable under the Act unless the investment has been reviewed and the Minister responsible for Investment Canada is satisfied or is deemed to be satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be a net benefit to Canada, the non- Canadian shall not implement the investment or, if the investment has been implemented, shall divest himself of control of the business that is the subject of the investment. A non-Canadian or American making an investment to establish a new Canadian business or an investment to acquire control of a Canadian business which investment is not subject to review under the Act must notify Investment Canada, within prescribed time limits, of such investments. TAXATION Generally, dividends paid by Canadian corporations to non-resident shareholders are subject to a withholding tax of 25% of the gross amount of such dividends. However, Article X of the reciprocal tax treaty between Canada and the United States reduces to 15% the withholding tax on the gross amount of dividends paid to residents of the United States. A further 5% reduction in the withholding tax rate on the gross amount of dividends is applicable when a U.S. corporation owns at least 10% of the voting stock of the Canadian corporation paying the dividends. Prior to the redemption of its convertible debentures, the Company withheld income taxes at applicable rates and forwarded said amounts to Revenue Canada in accordance with regulations applicable to non-resident security holders receiving interest/dividends from a Canadian corporation. DISPOSITION OF SHARES BY NON-RESIDENTS OF CANADA A non-resident who holds shares of the Company as capital property will not be subject to tax on capital gains realized on the disposition of such shares unless such shares are "taxable Canadian property" within the meaning of the Income Tax Act (Canada) and no relief is afforded under any applicable tax treaty. The shares of the Company would be taxable Canadian property of a non- resident if at any time during the five-year period immediately preceding a disposition by the non-resident of such shares not less than 25% of the issued shares of any class of the Company belonged to the non-resident, to persons with whom the non-resident did not deal at arm's length, or to the non-resident and any person with whom the non-resident did not deal at arm's length. RECENT SALES OF UNREGISTERED SECURITIES During 1996, the year covered by this report, the Company did not sell any securities that were not registered under the Securities Act. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the accompanying consolidated financial statements of the Company and the notes thereto. YEARS ENDED DECEMBER 31, -------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Operating revenue $ -- $ -- $ -- $ -- $ -- before expenses........ Income (loss) from operations.............(1,493) (1,200) (1,228) (1,389) (935) Net income (loss)...... 956 (365) (1,370) (1,559) (935) Income (loss) per common share........... .04 (.02) (.06) (.08) (0.06) BALANCE SHEET DATA: Total assets..........$14,491 $13,871 $13,124 $12,111 $ 7,140 Long-term debt......... -- 360 1,073 1,068 -- Cash dividends per -- -- -- -- -- common share........... Accumulated deficit...$(4,294) $(5,249) $(4,884) $(3,515) $(6,240) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Commencing in 1990, the Company discontinued mining operations at the Ryan Lode and embarked upon an extensive exploration program to further delineate the extent of mineral reserves. The Company has had no income from sales of mineral product since 1990 and will continue to sustain exploration, general and administrative and mine property expenses through 1997 without income from operations. The Company has provided for recent years' operations primarily from the receipt of funds from Newmont pursuant to the True North JV Agreement and the cash proceeds from issuance of common stock. It is anticipated that cash currently on hand, including the $2.5 million received from Newmont on December 30, 1996, is sufficient to cover anticipated 1997 expenditures. CURRENCY EXCHANGE RATES All dollar amounts included in the Company's financial statements and related discussion are in US dollars, except where noted otherwise as Canadian dollars (CAN). In accordance with SFAS No. 52, Foreign Currency Translation, any prior period adjustments resulting from transaction of Canadian dollars into US dollars have been accumulated and reported as a separate component of shareholders' equity. Prior to 1990, purchases of balance sheet items were translated at year-end exchange rates except as pertaining to certain asset acquisitions wherein exchange rates on specific dates of acquisition were used. Subsequently, all financial transactions have been reported in US dollars and Canadian transactions translated at exchange rates prevailing on specific transaction dates. Any effects of conversion of Canadian dollars to US dollars related to either current or prior period financial statements are insignificant. The following table sets forth the exchange rates utilized for converting one Canadian dollar to one U.S. dollar for the past five years. EXCHANGE RATE --------------------------------------------------- YEAR- YEAR AVERAGE HIGH LOW END - ------ ------- ------ ------ ------ 1992 0.8274 0.8771 0.7729 0.7868 1993 0.7754 0.8052 0.7442 0.7567 1994 0.7325 0.7631 0.7105 0.7135 1995 0.7282 0.7514 0.7035 0.7334 1996 0.7365 0.7515 0.7234 0.7297 RESULTS OF OPERATIONS Income As noted above, the Company has not received operating revenues during any of the last three years. Expenses During 1996, the Company expended approximately $304,900 for capitalized costs associated with the exploration and development of its mineral properties as further discussed in the statement of cash flows and Note 2 of the accompanying Notes to Consolidated Financial Statements. Operating and mine maintenance expenses increased 82.3% to $276,000 for 1996 as compared to $151,000 in 1995, and decreased 35.5% in 1995 from $234,000 in 1994. The variations between 1996 and 1995 were due principally to changes in salaries, wages and employee benefits and contract services, primarily related to the level of environmental compliance and reclamation efforts associated with the Ryan Lode Mine and its spent heap-leach pads. New prospect evaluation expenses increased 51.4% to $56,000 for 1996 as compared to $37,000 in 1995, reflecting the Company's increased activities in seeking new exploration prospects. The Company had no similar expenditures in 1994. General and administrative expenses, including corporate and project overhead, increased 41.8% to $956,000 for 1996 as compared to $675,000 in 1995, and decreased immaterially in 1995 from $695,000 in 1994. The I996 increase was primarily the result of increases in salaries and wages and related 1996 employee benefits expense, compensatory stock option expense, and consulting fees. The Company recognizes compensatory expense on the issuance of director and employee stock options in accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees." Generally, stock options are issued at an exercise price approximately 15% under the current market price on the date of the grant as authorized by the Vancouver Stock Exchange. Compensatory stock option expense for officers, directors, and employees during 1996 exceeded 1995 by approximately $124,000. Director fees for 1996 were $19,800 compared with $13,500 for 1995. Consulting fees of $105,922 increased approximately $81,000 over 1995 expenses as a result of consulting arrangements initiated in connection with an evaluation of the Company and its gold resources to guide the directors in long range strategic planning for the Company. Depreciation was approximately equal for each of the last three years as the Company had no significant changes in depreciable property. Royalty and lease expenses decreased 47.7% to $150,000 for 1996 as compared to $287,000 in 1995, and increased 18.9% in 1995 from $241,000 in 1994. Royalty expense for 1996 consisted only of its annual minimum royalty payment on the Ryan Lode Mine inasmuch as minimum royalties associated with the True North properties were assumed by Newmont under the JV Agreement. In 1994 and until June 1995, the Company paid minimum royalties on its Ryan Lode and True North properties. True North minimum royalties payable after entering into the joint venture with Newmont in June 1995 have been paid by Newmont. Other Income Gain on sale of mineral property increased 76.9% to $2,447,000 for 1996 as compared to $1,383,000 in 1995. As a result of the $2,500,000 cash receipt from Newmont in 1996, the Company reported a gain of $2,447,248 from the disposition of an interest in its True North property. During 1995, the Company recorded a gain of $1,383,436 applicable to the 1995 receipt of $3.5 million from Newmont. Accordingly, total gain to date is $3,830,684. The Company will receive no further cash payments from Newmont under the JV Agreement. The Company had no abandonment of mineral property in 1996, while it reported $454,000 in 1995 relating to the abandonment of a claim group adjacent to the Company's Ryan Lode property. As a result of net operating losses carried forward for income tax reporting purposes, except as pertaining to nominal alternative minimum taxes, the Company will pay no corporate income tax on income reported from the proceeds received from Newmont. Net Income (Loss) Net income increased to $955,000, or $0.04 per issued and outstanding share, for 1996 as compared to losses of $365,000 in 1995 and $1,370,000 in 1994. Fully diluted earnings per share were not materially lower than primary earnings per share during 1996. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Company relied principally on net cash provided from investing activities, namely the sale of a 65% interest in its True North property to Newmont under the JV Agreement, to fund its cash requirements for general and administrative costs, ongoing exploration and development projects, and redemption of outstanding debentures. During 1995, cash provided from payments from Newmont was supplemented by cash from the sale of securities to fund operations, and in 1994 the Company relied exclusively on cash from the sale of securities to fund operations. The Company will receive no further cash payments from Newmont under the JV Agreement. With no revenue generating operations, operating activities used net cash of $1,254,000 during 1996, a 7.3% increase over $1,155,000 used in 1995, which was a 13.8% decrease from net cash of $1,340,000 used in 1994. During 1996, the Company's $956,000 net profit was impacted by $2,500,000 cash received from Newmont resulting in a $2,447,000 gain on sale of the True North interest discussed as an investment activity below and non-cash expenses of $188,000 for compensatory stock options and $55,000 for depreciation. In 1995, the Company's $365,000 net loss was impacted by Newmont's payment of $3,500,000 resulting in a $1,383,000 gain relating to the True North transaction and non-cash expenses of $454,000 abandonment loss related to the Mohawk claims near the Ryan Lode, $64,000 in compensatory stock options and $51,000 in depreciation. In 1994, the $1,370,000 loss included non-cash expenses of $57,000 in depreciation and $44,000 in compensatory stock options. Investing activities provided net cash of $1,762,000 in 1996, a 39.4% decrease as compared to the $2,906,000 provided from such activities in 1995. In each year, the largest component of this item is the receipt of $2,500,000 and $3,500,000 in 1996 and 1995, respectively, from Newmont related to the sale by the Company of an undivided 65% interest in the True North property. The Company will receive no further cash payments from Newmont under the JV Agreement. The Company invested $413,000 in mineral properties and exploration costs during 1996, associated with the Ryan Lode as well as other early stage exploration prospects acquired during the year. During 1995, the Company invested $595,000 in mineral properties and exploration costs, principally associated with the True North property before such costs were assumed by Newmont in June 1995 under the JV Agreement. (See Note 2 to Consolidated Financial Statements.) During 1994 the Company invested $2,050,000 in mineral properties and exploration costs, consisting of $1,642,000 and $417,000 for the True North and Ryan Lode properties, respectively. Financing activities used net cash of $478,000 in 1996, as $700,000 used to redeem outstanding debentures exceeded the $222,000 in proceeds received from the issuance of common stock on the exercise of options. During 1995, financing activities provided net cash of $946,000, principally from the sale of common stock. In 1994, financing activities provided net cash of $2,441,000, consisting mainly of 2,477,000 in net proceeds from the sale of common stock. In both 1995 and 1994, proceeds from debt financing were approximately equal to principal reductions. Subsequent to December 31, 1996, the Company redeemed all $373,000 in remaining debentures outstanding at December 31, 1996. On December 31, 1996, the Company had working capital of $2,697,000, which the Company believes is sufficient to meet the Company's anticipated expenditures for 1997 as discussed below. As noted above, the Company will receive no further cash payments from Newmont under the True North JV Agreement and has no operating revenue. Therefore, the Company will be dependent on its existing capital resources to meet budgeted expenditures. Beyond 1997, the Company may require additional capital before initiating production on the Ryan Lode property, providing a portion of the capital that may be required for large scale production at the True North property, or undertaking significant other exploration of other activities. In order to meet such long-term needs, it will be necessary to obtain required capital from the sale of securities, possible new joint venture or similar arrangements, project financing or other sources. There can be no assurance that any required additional funds will be available or can be obtained on terms favorable to the Company. The Company has outstanding options exercisable during 1997 to purchase an aggregate of 1,084,000 shares of common stock at an average exercise price of $1.82 per share, for a total of $1,967,900, but cannot predict whether any material number of such options will be exercised. PROJECTED 1997 REQUIREMENTS During 1997, the Company has budgeted approximately $1,998,000 in capital to fund the continuation of permitting and reclamation activities at the Ryan Lode mine and related royalty payments, continue with the True North project under joint venture with Newmont, undertake initial exploration of its other prospects and make related minimum royalty and other property payments, evaluate and perhaps acquire other potential prospects, retire $373,000 in convertible debentures, and meet other ongoing operating expenses. Ryan Lode The Company has budgeted $500,000 during 1997 for operating, mine maintenance, and royalty expenses associated with the Ryan Lode, including the continuation of baseline environmental studies, permitting and environmental compliance and reclamation efforts associated with the spent heap-leach pads. In the near term, the Company plans to determine whether to develop the Ryan Lode property as a gold mine, to joint venture or sell the project to another mining company, or to complete the reclamation program on the property without further production. Should a development option be chosen, the Company will immediately commence the permitting application process and begin detailed drilling and engineering studies leading to a feasibility study. However, the Company has not completed any arrangement with an industry or financial partner to place the Ryan Lode project into production, and there can be no assurance that a suitable partner will be available to assist with the development of the Ryan Lode property. La Teko does not now have the necessary capital to place the Ryan Lode into production. The Company will rely principally on the sales of securities and debt financing or the procurement of an industry or financial joint-venture partner to meet its future Ryan Lode capital requirements. There is no assurance that funds for these purposes will be available or that a suitable partner will be found. Future sale of additional securities could result in dilution of the financial interest of existing shareholders. True North The Company anticipates that Newmont will continue to expand the True North property through additional staking or leases or options with third parties, which will require the Company to reimburse Newmont the Company's 35% proportionate share of related costs. In addition, the Company will continue to monitor Newmont's exploration activities to assist the Company in evaluating its long-range participation on the project, including the feasibility of placing the property into production, possible costs, and sources of project funding should the nature and extent of the project exceed Newmont's obligation to provide the first $21,000,000 in funding as discussed above and in future years require the Company to bear its share of additional costs. (See "ITEM 2. PROPERTIES.") The Company has budgeted approximately $50,000 during 1997 for the foregoing. Newmont has advised of its intent to continue with the True North Joint Venture and that it is planning substantial additional exploration and development work during 1997. However, decisions by Newmont respecting its True North activities are beyond the ability of the Company to predict or control. Newmont's decisions may be affected by the results of its exploration and development work to date or to other external factors impacting Newmont that are only remotely related to the True North property or its potential. Accordingly, the Company has no guarantee that Newmont will continue. In the event of termination by Newmont, the Company will reacquire, at no cost, Newmont's 65% interest in the True North project, including subsequently-acquired acreage, together with all exploration data, and the Company will then become obligated for the continuing carrying costs and expenses of the True North project. As discussed in "ITEM 2. PROPERTIES", Newmont advised La Teko of its intent to delay the completion of a feasibility study pending continued exploration and development drilling designed to delineate the full potential of the True North project. Development drilling, outside of the confines of the Hindenburg/Shepard current reserve area will be at Newmont's sole expense and not considered as credits towards its $18 million obligation required to place the True North property into production. Newmont represents that it has expended funds in excess of its required $3 million commitment for 1995 and 1996. Such excess expenditures will apply towards the remaining $18 million development commitment. La Teko does not have an obligation to contribute towards the True North project until such time as Newmont has expended $27 million for acquisition and development costs and completed a feasibility study which recommends placing the True North property into production. If the True North project were to substantially increase in size so as to require capital investment in excess of the $18 million budgeted by Newmont for the installation of production facilities, La Teko could be called upon to fund its 35% share and/or sustain a dilution in the project in the event it were unable to contribute the required capital. If Newmont determines that the results of the feasibility study do not warrant development of the True North property, then Newmont will be deemed to have elected to terminate the joint venture and will re-convey the 65% interest in the True North property, which was deeded to Newmont upon payment of the initial $2.5 million at the inception of the joint venture, with no required reimbursement of monies paid to La Teko or expended on the property. If Newmont determines, in its sole discretion, that the results of the feasibility study warrant development of the True North property, then the joint venture will proceed with development and the initiation of production pursuant to the terms of the joint-venture agreement. In the event the Company regains control of the True North property as a result of Newmont's election not to continue, the Company would pursue other alternatives for further exploration and development of the project and, if warranted, placing it into production, and for obtaining the necessary funds to do so through the sale of securities, other arrangements with third parties, project financing or other alternatives that may then be available. In the event such circumstances arise, there can be no assurance that La Teko will obtain a satisfactory joint-venture partner or be in a position to acquire the funds necessary for continued development of the property or the acquisition of production facilities. Prospect Exploration and Evaluation During 1997, the Company estimates that it will spend up to $350,000 in preliminary geological, geophysical and other exploration of its Juniper, Twin Buttes, Lucky Gulch, and Discovery prospects and related property payments. The Company also will continue its efforts to expand its mineral property base during 1997. The amount spent on any single existing or potential prospect will vary, depending on the results of initial work, estimated potential and other factors. Other Operating Expenses The Company has budgeted approximately $725,000 for ongoing corporate and project general and administrative expenses. COMMITMENTS AND CONTINGENCIES Operations are subject to certain lease and royalty obligations as described in "ITEM 2. PROPERTIES" and in Note 2 of the Notes to Consolidated Financial Statements. The Company carries insurance against property damage including insurance on its machinery and equipment and motor vehicles and also comprehensive general liability and liability policies applicable to motor vehicles. The Company has elected not to insure against business interruption. The Company cannot insure for environmental pollution and has elected not to insure for mine cave-in's, mine flooding, earthquake and other possible natural hazards consistent with industry practice. La Teko may in the future be exposed to contingencies relating to the foregoing or liabilities that may arise under the governmental regulations relating to the environment as discussed in "ITEM 2. PROPERTIES: Government Regulation and Environmental Considerations." The Company is not aware of any existing material contingencies respecting compliance of its previous activities with environmental requirements. The Company has implemented procedures to minimize the possibility of chemical spills, especially in its drilling and heap-leaching operations and utilizes a special patented process in the neutralization of cyanide and other chemical solutions prior to disseminating liquids from its retention ponds into the environment. CHANGING PRICES, CURRENCY EXCHANGE RATES, AND INFLATION The value of the Company's properties and its proposed operations have been and will continue to be affected generally by changes in gold prices. The Company's ability to obtain exploration capital through joint ventures or other arrangements with other mining firms and attract additional capital, if required, through the sale of securities or borrowings on attractive terms are also affected by gold prices. Such prices are subject to substantial fluctuations that are beyond the ability of the Company to control or predict. Although certain of the Company's costs and expenses are affected by the level of inflation, inflation has not had a significant effect on the Company's operations. Similarly, the Company's operations, all of which except for its executive offices are located in the United States, are not materially affected by fluctuations in the exchange rate between Canadian and US dollars. OTHER The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on the results of operations or financial position of the Company. Based on that review, the Company believes that none of these pronouncements will have any significant effects on current or future operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LA TEKO RESOURCES LTD. Page Independent Auditors' Report.............................. F-1 Consolidated Financial Statements Consolidated Balance Sheets, December 31, 1996 and 1995............................................. F-2 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994................ F-3 Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 1996, 1995 and 1994............................................. F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............... F-5 Notes to Consolidated Financial Statements................ F-6 The financial statements of the Company include the consolidated operations of La Teko Resources Ltd., a Canadian corporation, together with its wholly owned subsidiaries La Teko Resources, Inc., a Nevada corporation, and Ryan Lode Mines, Inc., an Alaska corporation. Differences exist between United States and Canadian generally accepted accounting principles for a company exploring for natural resources, related primarily to the treatment of deferred exploration costs as differentiated from administrative and finance costs. Certain administrative and finance costs related to exploration are capitalized in Canada, whereas, in the U.S., these costs are charged to operations as incurred each year. Amounts which may have been capitalized in accordance with generally accepted accounting principles in Canada have been nominal and inasmuch as the Company adheres to U.S. generally accepted accounting principles, the Company has charged all administrative and finance costs to operations since 1986. There are no material differences relative to application of accounting principles. Under U.S. generally accepted accounting principles, the computation of primary earnings per share considers the weighted average number of shares outstanding during the year, plus common stock equivalents such as common stock options. This method requires that primary earnings per share be computed as if stock options were exercised at the beginning of the year (or at the time of issuance, if later), and as if the funds obtained thereby were used to purchase common stock of the Company at its average market price during the year. Fully diluted earnings per share shows the effect on earnings per share which would result if the proceeds from the exercise of common stock options were used to purchase the Company's common stock at its market price at the end of the year. Earnings (loss) per share have been computed in accordance with the foregoing procedures. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None - -------------------------------------------------------------------------- PART III. - -------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following is a listing of the current directors and officers of the Company: NAME AGE POSITION HELD - ----------------- ----- ------------------------------------------ Gerald G. Carlson 51 President, Treasurer and Director (chief executive and financial officer) Robert W. Gentry 49 Director Gordon Fretwell 43 Secretary and Director John R. Hardesty 56 Director John S. Auston 59 Director Douglas R. Beaumont 64 Director Directors have been elected to serve until the next general meeting of shareholders to be held on June 6, 1997. Directors are elected annually and serve for a period of one year and until their successors are elected and qualified. Based upon Canadian corporate regulatory provisions, a majority of the Company's directors must be Canadian residents. The officers serve at the pleasure of the board of directors. BUSINESS BIOGRAPHIES Officers and Directors GERALD G. CARLSON, PH.D., P. ENG. has been involved in mineral exploration and junior exploration company management for over 25 years. Mr. Carlson's educational background includes the following degrees: B.A. Sc. 1969 from the University of Toronto; M.Sc 1974 from Michigan Technological University and Ph. D. 1978 from Dartmouth College, New Hampshire. He is past president of ConSil Corp. (June 1995 to November 1996), past vice president, exploration, for Dentonia Resources Ltd. (February 1994 to May 1995). Both positions included management of exploration activities in Mexico and the Northwest Territories. He became a director of La Teko on December 2, 1996, and continues to serve as a member of the board of directors of Dentonia Resources Ltd. ROBERT W. GENTRY has held several key positions with the Ford Bank Group from 1982 through 1992 including that of senior vice president, First National Bank, Lubbock, Texas (July 1991 to May 1992), president/CEO of United National Bank of Denton, Texas (December 1987 to July 1991), president/CEO of First National Bank of Borger, Texas (June 1985 to January 1986), organizing president of United National Bank of Dallas, Texas (May 1984 to December 1987), and organizing vice- chairman of Ford Capital, Ltd., Dallas, Texas (January 1986 to May 1992). Mr. Gentry is a graduate of Texas Tech University with a B.A. degree in finance. Mr. Gentry became a director of La Teko in May 1995 and served as President from February 27, 1996 to December 2, 1996. GORDON FRETWELL has been engaged for in excess of 15 years in the private practice of law, in the last several years through his own law firm, in Vancouver, British Columbia. Mr. Fretwell specializes in securities and mining law and acts for several public companies engaged in the mineral resource sector. Mr. Fretwell was appointed as a director of the Company on November 24, 1995 and was elected Corporate Secretary on February 27, 1996. JOHN R. HARDESTY has been for in excess of five years the owner and president of Thermo Dynamics, Inc., Laughlin, Nevada, and Chairman of Electro Dynamics Crystal Corporation, Inc., Overland Park, Kansas. He is a previous owner of Dixson, Inc., Grand Junction, Colorado (January 1988 to March 1995). He is a graduate of Wayne State University with a B.S. degree in business administration, majoring in accounting. He is a non-practicing certified public accountant having been a past audit manager with Ernst & Young, Certified Public Accountants from 1962 through 1968. From 1968 through 1986 he was involved extensively in corporate finance and sales with other business entities. He has been an operations manager with expertise in manufacturing, finance, administration, sales and corporate strategic planning and acquisitions. Mr. Hardesty currently serves as a director of Reno Air, Inc., Reno, Nevada. He became a La Teko director in May 1995. JOHN S. AUSTON is a geologist with 37 years of diversified world-wide experience in the precious metals, base metals, uranium and coal mining industries in Canada, the United States, and Australia. He was involved for many years in Canadian, U.S., and Australian exploration and mining activities of the Selection Trust Group of London (May 1959 to June 1980) and British Petroleum (June 1980 to September 1992). He is past president and CEO of Granges, Inc. (July 1993 to June 1995) and HyCroft Resources of Vancouver (July 1993 to June 1995). Since August 1996 he has served as director, president and chief executive officer of Ashton Mining of Canada Inc., and May 1996 as a director of Lysander Gold Corporation. Mr. Auston is a graduate of McGill University with the degrees of Bachelor of Science and Master of Science (Applied). He became a director of La Teko on June 5, 1996. DOUGLAS R. BEAUMONT is a professional engineer. His forty years of mining experience include project development and design and operation of mineral processing plants. Since 1996 he has served as senior vice president - international for Kilborn, SNC - Lavalin, having joined the Kilborne group of companies in 1979, serving as vice president and general manager for Canadian and international operations in Peru, Chile and Brazil. He is currently a director of Crystallex International Corporation. He became a director of La Teko on June 5, 1996. Office Administration D. SPENCER NILSON, an administrative employee of the Company, has been associat- ed with La Teko since January, 1991, is a certified public accountant licensed in the State of Utah and has been engaged in the practice of public accountancy for approximately 42 years. He is a principal shareholder and part-time employee serving as president and general manager of D. Spencer Nilson & Associates, a Salt Lake City based firm of certified public accountants. Mr. Nilson is a member of the American Institute of Certified Public Accountants and the Utah Association of Certified Public Accountants. Consulting Geologist STUART R. HAVENSTRITE is the project consulting geologist for the Ryan Lode Mine and the Margarita properties. Mr. Havenstrite served as a director of Silver King Mines, Inc., from time to time from 1976 and was its president and chief operating officer from 1987 through 1989. He was the chief geologist of Silver King Mines, Inc., between 1976 and 1987. Mr. Havenstrite was the president and chief operating officer of Alta Gold Co., the successor to Pacific Silver Corporation and Silver King Mines, Inc. from their reorganization in late 1989 through his resignation in 1990. Project Manager RICHARD A. HUGHES is the project manager for the Ryan Lode Mine, a position which he has held since March, 1993. Mr. Hughes was president and mining consultant for BTW Mining & Exploration from 1983 to 1994. From 1988 to 1989, Mr. Hughes was employed by Valdez Creek Mining Company, Inc., as the general manager of a large open-pit placer mining and wash plant operation. Prior to that time, from 1981 to 1987, Mr. Hughes was with ARCO Alaska, Inc., as the quality assurance and safety director at Prudhoe Bay, Alaska. From 1977 to 1981, Mr. Hughes worked with Exxon Minerals Company, where he was the project manager of an underground project in New Mexico and assistant manager of a uranium operation in Wyoming. Mr. Hughes has been employed in the mining industry in various other capacities since 1960. He is a registered professional mining engineer in Alaska and Nevada. Mr. Hughes received a Bachelor of Science degree in Mining Engineering from the University of Nevada in 1960. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely upon a review of Forms 3, 4, and 5 and amendments thereto, furnished to the Company during or respecting its last fiscal year, no person who, at any time during the most recent fiscal year, was a director, officer, beneficial owner of more than 10% of any class of equity securities of the Company or any other person known to be subject to Section 16 of the Exchange Act failed to file, on a timely basis, reports required by Section 16(a) of the Exchange Act, except that Douglas Beaumont failed to timely file the report of his initial ownership after being appointed a director and Gerald Carlson failed to timely file the report of his initial ownership after being appointed an officer and director less than one month late and John Hardesty failed to timely file the report of his initial ownership after being appointed a director less than two days late. ITEM 11. EXECUTIVE COMPENSATION On February 27, 1996, Robert W. Gentry was elected President, Treasurer and Chief Financial Officer of the Company. He served as president of La Teko until December 2, 1996 and continues to serve as a member of its Board of Directors. Mr. Gentry replaced Jack Lane who served as President, Treasurer and Chief Financial Officer until February 27, 1996. Gerald G. Carlson became President, Treasurer and Chief Financial Officer of La Teko and was appointed to the Board of Directors on December 2, 1996. Annual compensation as an employee of the Company is approximately $108,000 per annum. SUMMARY COMPENSATION The following table sets forth the compensation for the preceding three years received by each person who served as the chief executive officer of the Company during 1996 (a "Named Executive Officer"). No executive officer received compensation in excess of $100,000 for any such year.
LONG TERM COMPENSATION --------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ----------------------------- --------------------------------- (A) (B) (C) (D) (E) (F) (H) (I) Year Other Restrict Securities All Other Ended Annual ed Stock Underlying LTIP Compen- Name And Dec. Salary Bonus Compen- Award(S) Options/ SARS Payouts Sation Principal 31, ($)(1) ($) Sation ($) (No.) ($) ($) Position ($) - -------------------------------------------------------------------------------------------------- Gerald G. Carlson 1996 $8,837 -- -- -- 500,000 -- $64,000(2) President, Treasurer, Chief Financial Officer, and Director (CEO after 12/96) Robert W. Gentry 1996 3,100 -- -- -- 125,000 -- 63,377(2) Director (CEO 2/96 to 12/96) Jack Layne 1996 750 -- -- -- -- -- -- Past director 1995 2,250 -- -- -- 200,000(3) -- 30,000(2) (CEO until 2/96) 1994 2,250 -- -- -- 100,000(3) -- 44,000(2)
(1) Includes amounts paid to each Named Executive Officer for services rendered by such Named Executive Officers as directors of the Company. (2) Other compensation consists of the aggregate amount by which the market price as of the date such options first became exercisable exceeded the exercise price of exercisable options. (3) Mr. Layne was granted options to purchase 100,000 shares August 17, 1994. Such options were repriced on November 16, 1995, and are reported as grants of options in both 1994 and 1995. See below for a discussion of certain terms of options granted to Named Executive Officers. The options granted to Gerald G. Carlson are subject to shareholder approval. OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth information respecting all individual grants of options and stock appreciation rights ("SARs") made during the last completed fiscal year to a Named Executive Officer and each other executive officer of the Company.
POTENTIAL REALIZED VALUE AT ASSUMED ANNUAL RATES OF Stock INDIVIDUAL GRANTS Appreciation For Option Term (a) (b) (c) (d) (e) (f) (g) Number Of % Of Total Exercise Market Securities Options/SARS Or Base Price As Underlying Grad To Price Of Date Expiration Options/SARS Employees During ($/Share) Of Grant Date 0%($) 5%($) 10%($) Name Granted (#) Fiscal Year - --------------------------------------------------------------------------------------------------------------------- Gerald G. 200,000 12/10/01 $64,000 $183,905 $328,713 Carlson 100,000 12/10/02 32,000 105,800 199,292 100,000 12/10/03 32,000 120,340 237,722 100,000 12/10/04 32,000 135,607 279,994 500,000(1) 62.5% $1.85 $2.17 $160,000 $545,652 $1,045,721 Robert W. 100,000(2) 12.5% 2.50 2.94 3/14/01 $44,000 $125,226 $223,490 Gentry Jack Layne -- -- -- -- --
(1) Granted December 10, 1996. (2) Granted March 14, 1996. See below for a discussion of the terms of the options granted to executive officers. AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION/SAR VALUES The following table sets forth information respecting the exercise of options and SARs during the last completed fiscal year by Named Executive Officers of the Company and the fiscal year end values of unexercised options and SARs.
(a) (b) (c) (d) (e) Number Of Securities Value Of Unexercised Underlying In-The-Money Unexercised Options/SARS At FY Shares Value Options/SARS At FY End ($) Name Acquired On Realized End (No.) Exercisable/ Exercise ($) Exercisable/ Unexercisable(1) (No.) Unexercisable - ------------------------------------------------------------------------------------- Gerald G. -- -- 200,000/300,000(2) $30,000/$45,000 Carlson Robert W. -- -- 150,000/50,000 $60,000/$20,000 Gentry Jack Layne -- -- 200,000/-- $80,000/--
(1) Market price at December 31, 1996 was $2.00 per share. EXECUTIVE COMPENSATION AND BENEFITS On December 2, 1996, Gerald G. Carlson was employed as President of the Company to succeed Robert W. Gentry and was also appointed a director. At that time, he was granted options to acquire 500,000 shares of La Teko stock at $1.85 per share, 85% of the then-existing market price. Two hundred thousand shares of the options are exercisable upon grant and 100,000 shares each become exercisable on each successive anniversary date following the date of grant. Each option is exercisable for five years following the date they initially become exercisable. Mr. Carlson is employed under a letter agreement dated December 2, 1996, for an initial term of three years as President and Chief Executive Officer of the Company. The Company pays Mr. Carlson a salary of Cdn $12,000 per month and provides him with a leased automobile. In the event of certain change of control transactions which result in Mr. Carlson no longer serving as President and Chief Executive Officer, he will receive a severance package of Cdn $144,000, and 50% of his unvested stock options will immediately vest if the change in control occurs in the first year of employment and all unvested options will immediately vest if the change in control occurs thereafter. On February 27, 1996, Gordon Fretwell, director and corporate counsel was appointed secretary of the Company. The Company has paid or accrued to Mr. Fretwell during 1996 $3,100 in director's fees and $34,575 in legal fees for corporate representation and services in Canada. The Company has no pension, retirement or similar benefits for officers, directors or other employees of the Company except that effective December 10, 1996, the Company implemented a salary reduction simplified employee pension plan to be funded solely by eligible employees during 1996. No contribution to the plan was made by the Company. Effective March 1992, the Company initiated a medical and life insurance plan for the benefit of all eligible employees. Currently, the Company pays approximately 85% of insurance premiums for employees and 50% of insurance premiums for their dependents. DIRECTORS' STOCK OPTIONS AND COMPENSATION There are presently outstanding options for directors, prior directors, consultants and employees of the Company to acquire shares of La Teko stock as follows: NAME NUMBER OF EXERCISE EXPIRATION DATE SHARES PRICE - ------------------ ---------- -------- --------------- DIRECTORS Gerald G. Carlson 500,000 $1.85 12/10/2001-04 Robert W. Gentry 100,000 1.60 11/16/2000-03 100,000 2.50 3/14/2001 Gordon Fretwell 100,000 1.60 11/24/2000-03 John R. Hardesty 100,000 1.60 11/16/2000-03 John S. Auston 100,000 2.41 06/18/2001-04 Douglas R. Beaumont 100,000 2.41 06/18/2001-04 PREVIOUS DIRECTORS: Jack Layne 100,000 1.60 8/17/1999 100,000 1.60 11/16/2000 David Tinsley 25,000 1.60 06/05/1997 OTHERS 100,000 2.13 4/01/1998-99 154,000 1.60 8/17/1999 105,935 1.60 11/16/2000 --------- 1,684,935 Director options were granted for past and future services in behalf of the Company, are subject to shareholder and Vancouver Stock Exchange approval and each of the options listed above is contingent upon the optionee's continued employment with the Company. Options granted to directors in 1995 and 1996, except as pertaining to Gerald G. Carlson as discussed above, are exercisable in increments of 25,000 shares per year, 25,000 shares at the time of the grant and 25,000 shares following each anniversary date thereafter at $1.60 and $2.41 per share as heretofore discussed. Each incremental option has a five-year maturity from the applicable date of exercise. Directors other than Gerald G. Carlson, Robert W. Gentry, and Gordon Fretwell received an aggregate of $10,050 as directors' fees during 1996. Non- employee directors are paid $100 for participating in each board of directors' meeting held by telephone and $750 for each directors' meeting attended in person, plus travel and subsistence. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the Company's security ownership information as of March 7, 1997 for each director and for all officers and directors of the Company as a group. There were no shareholders believed by the Company to own beneficially more than 5% of the Company's common stock. NAME OF BENEFICIAL NATURE OF PERCENTAGE OF OWNER OWNERSHIP(1) NUMBER OWNERSHIP(2) - --------------------- ------------- -------- ------------- DIRECTORS Gerald G. Carlson Common Stock 9,000 -- Options 200,000 0.8 -------- Total 209,000 0.9 Robert W. Gentry Common Stock(3) 316,200 1.3 Options 150,000 0.6 -------- Total 466,200 1.9 John R. Hardesty Common Stock 60,000 0.3 Options 50,000 0.3 -------- Total 110,000 0.5 Gordon Fretwell Common Stock -- -- Options 50,000 0.3 -------- Total 50,000 0.3 John S. Auston Common Stock 4,000 -- Options 25,000 0.1 -------- Total 29,000 0.1 Douglas R. Beaumont Common Stock -- -- Options 25,000 0.1 -------- Total 25,000 0.1 ALL EXECUTIVE OFFICERS Common Stock 389,200 1.6 AS DIRECTORS AS A Options 500,000 2.1 GROUP (6 PERSONS) -------- ---- Total 889,200 3.7 -------- (1) Unless otherwise indicated, all securities are owned beneficially and of record, and such record stockholder has sole voting, investment, and dispositive power. (2) Calculations of total percentages of ownership outstanding for each individual assumes the exercise of options held by that individual to which the percentage relates. Percentages calculated for totals of all executive officers and directors as a group assume the exercise of all options held by the indicated group. (3) Includes 16,200 shares in the names of Mr. Gentry's minor children. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As explained in Note 5 of the Notes to Consolidated Financial Statements, on November 16, 1995, March 14, 1996 and December 10, 1996, the Company granted stock options to officers, directors and employees as listed under "ITEM 11, EXECUTIVE COMPENSATION" of this report. - -------------------------------------------------------------------------- PART IV. - -------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1)FINANCIAL STATEMENTS. See Financial Statement index on page 28. (a)(2)FINANCIAL STATEMENT SCHEDULES. The financial statements schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the financial statements. (a)(3)EXHIBITS. The following exhibits are included as part of this report. (See exhibit index in separate exhibit volume): SEC EXHIBIT REFERENCE NUMBER NUMBER TITLE OF DOCUMENT LOCATION - ------ --------- ----------------------------- ------------- ITEM 3. ARTICLES OF INCORPORATION AND BYLAWS 3.01 3 Restated and Amended Articles Incorporated of Incorporation by Reference(3) 3.02 3 Bylaws Incorporated by Reference(3) ITEM 3 INSTRUMENTS DESCRIBING THE RIGHTS OF SECURITY HOLDERS, INCLUDING DEBENTURES 4.01 4 La Teko Exchanged Debenture Incorporated Certificate and related by Debenture Agreement Reference(3) ITEM 10 MATERIAL CONTRACTS 10.01 10 Agreement dated May 11, 1979, Incorporated between Sara L. Bartholomae by and St. Joe American Reference(1) Corporation, regarding Ryan Lode claim group 10.02 10 Assignment Agreement dated Incorporated May 10, 1985 between St. Joe by American Corporation and Reference(1) Citigold Mining Company Ltd., regarding Ryan Lode claim group 10.03 10 Mineral Claim Purchase Incorporated Agreement dated January 31, by 1987, between James Sorrell, Reference(1) Newfields Minerals, (U.S.), Inc., relating to Margarita claims 10.04 10 Letter Agreement dated Incorporated January 12, 1990, between La by Teko Resources Ltd. and Reference(2) Robert Clifford Emerson regarding St. Patrick claim group 10.05 10 Mining Lease dated effective Incorporated January 1, 1993 between Sara by L. Bartholomae and La Teko Reference(3) Resources, Inc., relating to Ryan Lode claim group 10.06 10 Mineral Claim Purchase Incorporated Agreement between La Teko by Resources Ltd. and Newfields Reference(3) Minerals (U.S.), Inc., relating to Margarita claims 10.07 10 Letter Agreement dated March Incorporated 18, 1988, amending Mineral by Claim Purchase Agreement Reference(3) between James Sorrell and Newfields Minerals, Inc., relating to Margarita claims 10.08 10 Purchase Agreement respecting Incorporated the Long Association placer by claim acquired from the Reference(4) University of Alaska Foundation and the Nature Conservancy July 20, 1993 10.09 10 Evaluation and Earn-in Incorporated Agreement between AMAX Gold by Exploration, Inc. and La Reference(4) Teko Resources Ltd. respecting the True North property, August 30, 1993 10.10 10 Mining Property Transfer Incorporated Agreement of December 6, by 1993 between AMAX Gold Reference(4) Exploration, Inc., and La Teko Resources, Inc., respecting the True North property 10.11 10 Mining Property Transfer Incorporated Agreement, Amendment No. 1 by dated January 10, 1994, Reference(4) between AMAX Gold Exploration, Inc. and La Teko Resources, Inc. 10.12 10 Mining Sublease dated Incorporated December 24, 1990 between by Roger Charles Cope and AMAX Reference(4) Gold Exploration, Inc., respecting the True North property 10.13 10 Amendment to Mining Sublease Incorporated dated May 23, 1991 between by Roger Charles Cope and AMAX Reference(4) Gold Exploration, Inc. 10.14 10 Amendment No. 2 to Mining Incorporated Sublease dated August 25, by 1993 between Roger Charles Reference(4) Cope and AMAX Gold Exploration, Inc. 10.15 10 Mining Lease dated January 1, Incorporated 1992 between M. Dennis by Shepard and AMAX Gold Reference(4) Exploration, Inc. respecting the True North property 10.16 10 Amendment No. 1 to Standard Incorporated Mining Lease dated August by 25, 1993, between M. Dennis Reference(4) Shepard and AMAX Gold Exploration, Inc. 10.17 10 Second amended letter dated Incorporated as of June 6, 1995, from by Newmont Exploration Limited Reference(5) to La Teko Resources, Inc. and Ryan Lode Mines, Inc. 10.18 10 Venture Agreement dated as of Incorporated June 9, 1995, between by Newmont Exploration Limited, Reference(5) La Teko Resources, Inc., and Ryan Lode Mines, Inc. 10.19 10 Letter Agreement dated March Incorporated 6, 1995 between Newmont by Exploration Limited and La Reference(6) Teko Resources, Inc. and Ryan Lode Mines, Inc. 10.20 10 Mining Lease and agreement Incorporated dated August 1, 1995, by between Vincent F. Howard Reference(7) and Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.21 10 Mining Lease and agreement Incorporated dated August 29, 1995, by between Charles B. Woodruff Reference(7) and Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.22 10 Mining Lease and agreement Incorporated dated August 29, 1995, by between M. Dennis Shepard Reference(7) and Ronda D. Benish Shepard and Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.23 10 Letter agreement dated This Filing December 2, 1996 between La Teko Resources Ltd, and Gerald G. Carlson wherein he is hired to become President and Chief Executive Officer of La Teko * 10.24 10 Agreement regarding mining This Filing claims and Special Warranty Deed, each dated October 30, 1996, between Placer Dome U.S. Inc., La Teko Resources, Inc. and Newmont Exploration Limited - True North Project 10.25 10 Letter agreement, offer to This Filing purchase Margarita property by Oro Blanco Resources Corp. dated January 14, 1997 10.26 10 Form of Stock Option This Filing Agreement, with related schedule of options* 10.27 10 Non-Qualified Stock Option This Filing dated December 10, 1996 granted to Gerald G. Carlson* 10.28 10 Indemnification Agreement Incorporated between La Teko Resources by Reference(8) Ltd., including a schedule of indemnitees subject thereto ITEM 21 SUBSIDIARIES OF THE REGISTRANT 21.01 21 Schedule of Subsidiaries This Filing ITEM 23 CONSENTS OF EXPERTS AND COUNSEL 23.01 23 Consent of Bedford Curry Co., This Filing auditors 23.02 23 Consent of Mine Development This Filing Associates, Inc., mining engineers ITEM 27 FINANCIAL DATA SCHEDULE 27.01 27 Financial Data Schedule This Filing * INDICATES MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS FORM PURSUANT TO ITEM 14(C) OF THIS REPORT. (1) Incorporated by reference from Annual Report on Form 20-F for the fiscal year ended December 31, 1988 (2) Incorporated by reference from Annual Report on Form 20-F for the fiscal year ended December 31, 1990 (3) Incorporated by reference from the registration statement on Form S-4, SEC File No. 33-56606 (4) Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference from the registration statement on Form S-2 SEC File No. 33-81886. (6) Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31, 1994. (7) Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31, 1995. (8) Incorporated by reference from the registration statement on Form S-8, SEC File No. 333-21225. (b) Reports on Form 8-K During the last quarter of the year ended December 31, 1996, the Company filed an interim report on Form 8-K dated November 5, 1996. SIGNATURES In accordance with section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 27, l997. LA TEKO RESOURCES LTD. (Registrant) By /s/ Gerald G. Carlson Gerald G. Carlson, President (chief executive and financial officer and controller) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated: March 27, 1997 /s/ Gerald G. Carlson, Director /s/ Robert W. Gentry, Director Gordon J. Fretwell, Director /s/ John R. Hardesty, Director /s/ John S. Auston, Director /s/ Douglas R. Beaumont, Director INDEPENDENT AUDITORS' REPORT To the Shareholders of La Teko Resources Ltd. We have audited the consolidated balance sheets of La Teko Resources Ltd. (a Canadian corporation) as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 1996, 1995, and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1996 and 1995, the changes in shareholders' equity and the consolidated results of its operations and its cash flows for the years ended December 31, 1996, 1995, and 1994 in accordance with United States generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a consistent basis. CHARTERED ACCOUNTANTS Vancouver B.C., Canada March 3, 1997 LA TEKO RESOURCES LTD. CONSOLIDATED BALANCE SHEETS As of December 31, 1996 and 1995 (Expressed in U.S. Dollars) ASSETS 1996 1995 ----------- ----------- Current assets: Cash and short-term deposits ..... $ 3,041,205 $ 2,972,278 Accounts receivable .............. 15,918 124,876 Inventories ...................... 6,295 6,295 Prepaid expenses ................. 200,845 176,541 ----------- ----------- Total current assets ........... 3,264,263 3,279,990 Mineral properties and deferred 10,515,140 10,155,234 costs - (Note 2)................... Plant and equipment (Note 3)....... 210,716 204,589 Investments........................ 500,913 231,069 ----------- ----------- $14,491,032 $13,870,882 =========== =========== LIABILITIES Current liabilities: Accounts payable and accrued $ 194,718 $ 240,441 expenses ......................... Current portion of long-term debt 372,500 712,296 (Note 4) ......................... ----------- ----------- Total current liabilities ...... 567,218 952,737 Long-term debt (Note 4)............ -- 360,289 ----------- ----------- 567,218 1,313,026 SHAREHOLDERS' EQUITY Common capital stock; no par value; authorized: 100,000,000 shares; issued and outstanding 23,457,258 18,217,342 17,807,169 (1995: 23,318,478) (Notes 6 and 7) Accumulated deficit................ (4,293,528) (5,249,313) ----------- ----------- 13,923,814 12,557,856 ----------- ----------- $14,491,032 $13,870,882 =========== =========== The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. LA TEKO RESOURCES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in U.S. Dollars) YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ------ ------ ------ INCOME Sales of gold and silver.... $ -- $ -- $ -- EXPENSES Operating and mine maintenance costs ........ 275,623 151,179 234,362 New prospect evaluation ... 55,708 36,741 -- General and administrative 956,413 674,550 695,203 expenses ................. Depreciation .............. 54,828 51,092 57,348 Royalty and lease ......... 150,000 286,901 241,246 ----------- ---------- ---------- 1,492,572 1,200,463 1,228,159 ----------- ---------- ---------- Income (loss) from operations.................. (1,492,572) (1,200,463) (1,228,159) Other income (expense)...... Gain on sale of mineral property .................. 2,447,248 1,383,436 -- Abandonment of mineral property .................. -- (454,305) -- Gain on sale of investment -- -- 5,180 Interest income (expense) (net) ..................... 7,687 (61,021) (125,088) Gain (loss) on sale of equipment ................. 7,969 (8,132) (18,852) Other ..................... -- (1,872) (2,892) ----------- ---------- ------------ Income (loss) before income 970,332 (342,357) (1,369,811) taxes....................... Provision for income tax expense (benefit) - Note 5 . 14,547 22,500 -- ----------- ----------- ------------- Net income (loss)........... $ 955,785 $ (364,857) $ (1,369,811) =========== =========== ============= Income (loss) per share..... $ .04 $ (.02) $ (.06) =========== =========== ============= Weighted average shares outstanding................. 23,732,008 23,183,057 21,967,856 =========== =========== ============= The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. LA TEKO RESOURCES LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Expressed in U.S. Dollars)
COMMON STOCK -------------------------- ACCUMULATED SHARES AMOUNT DEFICIT TOTAL ----------- ----------- ------------ ---------- Balance, December 31, 1993 ................... 34,933,849 $20,566,202 $(3,514,645) $17,051,557 ---------- ----------- ----------- ----------- 1994 Common stock issued for: Private placement sales 450,000 738,000 -- 738,000 Public offering sales .. 379,480 952,500 -- 952,500 Exercise of options .... 75,000 42,164 -- 42,164 Exercise of warrants ... 444,480 841,600 -- 841,600 Exercise of warrants issued for services .... 5,000 12,500 -- 12,500 Less public offering and private placement costs . -- (143,987) -- (143,987) Compensatory stock 43,500 -- 43,500 options.................. -- Net income (loss)........ -- -- (1,369,811) (1,369,811) ---------- ----------- ----------- ----------- 1,353,960 2,486,277 (1,369,811) 1,116,466 ---------- ----------- ----------- ----------- Balance, December 31, 1994 ................... 36,287,809 $23,052,479 $(4,884,456) $18,168,023 ---------- ----------- ----------- ----------- 1995 Common stock issued for: Public offering sales .. 70,520 177,005 -- 177,005 Exercise of warrants ... 371,120 814,061 -- 814,061 Short-swing profits...... -- 2,100 -- 2,100 Less public offering and private placement costs . -- (45,360) -- (45,360) Compensatory stock -- 64,190 -- 64,190 options ................. Net income (loss)........ -- -- (364,857) (364,857) ---------- ----------- ----------- ----------- 441,640 1,011,996 (364,857) 647,139 Balance, December 31, 1995 ................... 36,729,449 24,064,475 (5,249,313) 18,815,162 1996 Common stock issued for: Exercise of options .... 138,780 222,048 222,048 Compensatory stock 188,125 options.................. 188,125 Net income (loss)........ -- -- 955,785 955,785 ---------- ----------- ----------- ----------- 36,868,229 24,474,648 (4,293,528) 20,181,120 Less cost of treasury shares................... (13,410,971) (6,257,306) -- (6,257,306) ---------- ----------- ----------- ----------- Balance, December 31, 1996 ................... 23,457,258 $18,217,342 $ (4,293,528) $13,923,814 ========== =========== ============ ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. LA TEKO RESOURCES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. Dollars)
YEARS ENDED DECEMBER 31, ------------------------------------------- 1996 1995 1994 ------ ------ ------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Net income (loss) ........................... $ 955,785 $ (364,857) $ (1,369,811) Charges (credits) to operations not affecting cash: Gain on sale of mineral property ........... (2,447,248) (1,383,436) -- Abandonment loss ........................... 2,294 454,305 -- (Gain) on sale of investment ............... -- -- (5,180) (Gain) loss on sale of equipment ........... (7,969) 8,132 18,852 Depreciation ............................... 54,828 51,092 57,348 Compensatory stock options ................. 188,125 64,190 43,500 Adjust gold and silver inventory to fair market value .............................. -- 1,872 2,892 ---------- ---------- ---------- (1,254,185) (1,168,702) (1,252,399) Net changes Decrease in gold inventory ................. -- 5,109 67,983 (Increase) decrease in accounts receivable and pre-paid expenses ..................... 84,654 (92,615) (53,689) Increase (decrease) in accounts payable and accrued expenses .......................... ( 45,723) 101,707 (101,603) ---------- ---------- ---------- Net cash used in operating activities ...... (1,215,254) (1,154,501) (1,339,708) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in mineral properties ........... (107,752) (272,950) (500,602) Exploration costs capitalized .............. (304,906) (321,984) (1,549,658) Proceeds from sale of investment ........... -- -- 6,858 Proceeds from sale of equipment ............ 9,800 13,705 2,075 Purchase of plant and equipment ............ (65,080) (13,047) ( 33,461) Purchase of securities ..................... (269,844) -- -- Investment in advances receivable .......... -- -- (231,069) Proceeds from sale of mineral property ..... 2,500,000 3,500,000 -- ---------- ---------- ---------- Net cash provided by (used in) investing activities ............................... 1,762,218 2,905,724 (2,305,857) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt financing ............... -- 200,000 757,200 Reduction of principal on debt ............. (700,085) (202,115) (792,500) Cash proceeds from issuance of common stock 222,048 991,066 2,574,264 Public offering and reorganization costs ... -- (45,360) (97,564) Short-swing profits ........................ -- 2,100 -- ---------- ---------- ---------- Net cash provided by (used in) financing activities ............................... (478,037) 945,691 2,441,400 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ................................. 68,927 2,696,914 (1,204,165) Cash and cash equivalents, beginning of period ...................................... 2,972,278 275,364 1,479,529 ---------- ----------- ---------- Cash and cash equivalents, end of period .... $3,041,205 $ 2,972,278 $ 275,364 ========== =========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest .... $ 94,196 $ 134,072 $ 147,768 Cash paid during the period for income taxes 37,047 -- 350 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Depreciation capitalized into deferred costs $ -- $ 4,835 $ 8,561 Stock issued as bonus compensation .......... -- -- $ 12,500
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. LA TEKO RESOURCES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 (Expressed in U.S. Dollars) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, La Teko Resources, Inc., a Nevada corporation and Ryan Lode Mines, Inc., an Alaska Corporation. The consolidated financial statements are presented in U.S. dollars and prepared in accordance with accounting principles generally accepted in the United States, which, as applied in these consolidated financial statements, are consistent in all material respects with accounting principles generally accepted in Canada. Had these consolidated financial statements been prepared in accordance with Canadian GAAP, there would have been no significant differences in the reported amounts for shareholders' equity, net income (loss) and income (loss) per share. Use of estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation - Transactions in Canadian dollars, primarily related to certain asset acquisitions and administrative expenses have been translated to U.S. dollars as prescribed by SFAS No. 52 "Foreign Currency Translation." Balance sheet items have been converted to U.S. dollars at exchange rates on specific dates of asset acquisition, where practicable, or at year-end exchange rates. Operating statement amounts have been converted at actual rates on dates of specific transactions. Income (Loss) Per Share - Income (loss) per share of common stock and common equivalent shares is computed based on the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares which include common stock subscriptions and common stock warrants and options were not included in the calculations, because the effects on earnings per share were antidilutive or immaterial. Revenue Recognition - Revenue is recognized when dore, mineral product processed through on-site company smelting procedures, is shipped to the refinery. Cash Equivalents - For purposes of the Statement of Cash Flows, the Company considers all short-term debt instruments with maturities of less than three months as cash equivalents. Inventories - Inventories comprise only mining supplies valued at the lower of average purchase cost or net realizable value. Marketable Securities - The Company has adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of adopting SFAS No. 115 did not have a material impact on the Company's financial statements. The Company classifies its marketable debt securities as "held to maturity" if it has the positive intent and ability to hold the securities to maturity. All other marketable debt and equity securities are classified as "available for sale." Securities classified as "available for sale," are carried in the financial statements at fair value. Realized gains and losses determined using the specific identification method are included in earnings; unrealized holding gains and losses are reported as a separate component of stockholders' equity. Securities classified as held to maturity are carried at amortized cost. For both categories of securities, declines in fair value below amortized costs that are other than temporary are included in earnings. Investment securities owned are carried at cost, which approximates market value. Mineral Properties and Deferred Costs - Mineral properties and deferred costs are recorded at the lower of cost or the present value of estimated recoverable amounts applicable thereto. Exploration and development expenses are deferred until the mineral properties are brought into production, at which time they are amortized on a units-of-production basis, or until the properties are abandoned or sold, at which time the deferred costs are written off or charged against sales proceeds. Capitalized costs and deferred exploration are evaluated at least annually to determine the probability of recovery and the requirement for periodic adjustments. Certain properties are in the exploration or development stage. The ultimate realization of capitalized costs is dependent upon the determination of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete development, future profitable production and/or proceeds from sale of these properties. When a property is determined not to be commercially productive or its value impaired, the accumulated costs are charged to operations to the extent that costs exceed estimated net realizable value. Plant and Equipment - Plant and equipment are recorded at cost and are depreciated on the declining balance method over their estimated useful lives at rates varying from 10% to 30% per year. Maintenance and repairs are expensed as incurred. Replacements and major improvements are capitalized. Fair Value of Financial Instruments that Approximate Carrying Values - The Company has financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of such financial instruments at December 31, 1996 and 1995 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. As a result of the risk associated with these financial instruments, the cost applicable thereto approximates market. Sales of Common Stock - All sales of the Company's common stock, together with the issuance of options and warrants are accomplished pursuant to authorization of the Vancouver Stock Exchange, Vancouver, B.C., Canada. Generally, private placement sales of stock are made at a discount of approximately 15% below the current trading price on the date the Vancouver Stock Exchange approves the issuance. All stock sold is recorded at the amount of the proceeds received therefor. Income Taxes - The Company follows the tax allocation method of accounting for income taxes, whereby deferred taxes and tax benefits are provided to the extent that current taxes are affected by differences in accounting methods for book and income tax purposes, primarily related to capitalization of equipment and exploration and development costs, and depreciation and amortization related thereto. LA TEKO RESOURCES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 (Expressed in U.S. Dollars) NOTE 2 - MINERAL PROPERTIES AND DEFERRED COSTS
CAPITALIZED CAPITALIZED BALANCE ADDITIONS BALANCE ADDITIONS BALANCE DECEMBER 31, (DELETIONS) DECEMBER 31, (DELETIONS) DECEMBER 31, 1994 1995 1995 1996 1996 ----------- ------------ ------------ ------------ ------------ RYAN LODE Acquisition cost......... $ 4,839,376 $ -- $ 4,839,376 $ -- $ 4,839,376 Deferred exploration and development expenses .... 5,221,352 115,946 -- -- -- -- (454,305) (1) 4,882,993 73,570 4,956,563 ------------- ----------- ----------- ----------- ------------ Total Ryan Lode.......... 10,060,728 (338,359) 9,722,369 73,570 9,795,939 ------------- ----------- ----------- ----------- ------------ TRUE NORTH Acquisition cost......... 500,000 272,950 -- 52,752 52,752 (772,950) (2) Deferred exploration and development expenses .... 1,213,950 129,664 -- -- (1,343,614) (2) -- (52,752) (2) (52,752) ------------- ----------- ----------- ----------- ------------ Total True North......... 1,713,950 (1,713,950) -- -- -- ------------- ----------- ----------- ----------- ------------ JUNIPER Deferred exploration and development expenses .... -- 78,211 78,211 90,294 168,505 ------------- ----------- ----------- ----------- ------------ Total Juniper............ -- 78,211 78,211 90,294 168,505 ------------- ----------- ----------- ----------- ------------ MARGARITA Acquisition cost......... 350,100 -- 350,100 -- 350,100 Deferred exploration and development expenses .... 1,556 2,998 4,554 71,540 76,094 ------------- ----------- ----------- ----------- ------------ Total Margarita.......... 351,656 2,998 354,654 71,540 426,194 ------------- ----------- ----------- ----------- ------------ TWIN BUTTES Acquisition cost......... -- -- -- 30,000 30,000 Deferred exploration and development expenses .... -- -- -- 27,634 27,634 ------------- ----------- ----------- ----------- ------------ Total Twin Buttes........ -- -- -- 57,634 57,634 ------------- ----------- ----------- ----------- ------------ LUCKY GULCH Acquisition Company's.... -- -- -- 10,000 10,000 Deferred exploration and development expenses .... -- -- -- 21,313 21,313 ------------- ----------- ----------- ----------- ------------ Total Lucky Gulch........ -- -- -- 31,313 31,313 ------------- ----------- ----------- ----------- ------------ DISCOVERY Acquisition cost......... -- -- -- 15,000 15,000 Deferred exploration and development expenses .... -- -- -- 20,555 20,555 ------------- ----------- ----------- ----------- ------------ Total Lucky Gulch........ -- -- -- 35,555 35,555 ------------- ----------- ----------- ----------- ------------ Total Mineral Properties. $ 12,126,334 $ (1,971,100) $ 10,155,234 $ 359,906 $ 10,515,140 ============= =========== =========== =========== ============
(1) Abandonment of Mohawk claims. (2) Relates to True North sale to Newmont. RYAN LODE MINE The principal Ryan Lode leasehold interest consists of 10 patented lode claims and 15 unpatented lode claims. On November 7, 1992, the Company executed a new mining lease respecting its Ryan Lode properties. The lease provides for a primary term of 20 years commencing January 1, 1993 with four five-year extensions, all subject to the timely payment of production and/or advance royalty payments escalating in $50,000 increments from $150,000 for 1996 to $350,000 per year in 2028 and $350,000 annually thereafter. Advance minimum royalties may be applied against production royalties for the year of production only. The Ryan Lode Mine includes other claims subject to net profits and net smelter returns royalties with advance minimum royalty requirements. Generally, net profits royalties payable to the State of Alaska on future production are 3% whereas the royalties based on gross value of mineral products removed from the mining properties are 5%. Advance minimum royalty payments are to be deducted from production royalties. During 1995, the Mohawk claims, which were considered part of the Ryan Lode group, were abandoned. TRUE NORTH On January 10, 1994, the Company executed a mining property transfer agreement with AMAX and acquired the 2,333-acre True North project. See the preceding cost summary for amounts concerning the acquisition and exploration of the True North project. During 1995, the Company staked additional claims both to the east and to the west of the True North property adding 896 acres to the True North block. In addition, in 1995 1,207 acres were added by lease. During 1996, the True North Joint Venture acquired additional claims, bringing the total True North property to approximately 7,200 acres. During June 1995, the Company executed a joint venture agreement with Newmont Exploration Limited, a subsidiary of Newmont Gold Mining Company, whereby Newmont acquired a 65% interest in the True North property, contingent upon its continued development of the property and the payment of specified amounts required to explore, develop and place the property into production. Generally, Newmont has paid La Teko $6 million cash, was obligated to expend at least $1 million during 1995, and $2 million during 1996 for exploration, development and property payments on the True North property and, if it continues with the project, to expend up to an additional $18 million for a feasibility study and the installation of capital equipment required to place the property into production. Newmont has satisfied its $3 million capital requirement for 1995 and 1996 and has extended the required date for completion of a feasibility study by mutual agreement with La Teko as a result of successful continued drilling. During 1995, as a result of the $3.5 million received in cash, the Company reflected $1,383,436 gain from the sale of mineral properties. In 1996, Newmont paid $2.5 million and La Teko recognized an additional $2,447,248 gain from disposition of the True North project. In accordance with generally accepted accounting principles applicable to the mining industry, the Company has written off all of its previously-capitalized True North costs against the $6 million cash received from Newmont. Newmont's cash contribution for exploration and development, property payments and general and administrative expenses at the True North project through December 31, 1996 approximated $5.8 million. Amounts in excess of the required $3 million for 1995 and 1996 will be credited against Newmont's remaining $18 million of its initial capital contribution required by the joint venture agreement. Inasmuch as the feasibility study was not completed by December 31, 1996, exploration costs incurred by Newmont after December 31, 1996 for exploration drilling outside of the perimeters of the current reserves of the Hindenburg and Shepard ore zones will be paid by Newmont and such costs will not be credited against its initial $21 million capital contribution requirement. If Newmont determines that the results of a forthcoming feasibility study do not warrant development of the True North property, then Newmont will be deemed to have elected to terminate the joint venture. If Newmont determines, in its sole discretion, that the results of the feasibility study warrant development of the True North property, then the joint venture will proceed with development and the initiation of production, with Newmont being obligated to contribute for development up to $18 million, less the amount, if any, by which the True North exploration and development costs for 1995 and 1996 exceed the $3 million requirement for those years. Any amounts by which the True North development costs exceed the $18 million development commitment, as adjusted, will be borne by Newmont and La Teko in proportion to their respective participating interests. Newmont may terminate the joint venture at any time in its sole discretion without further liability, in which case, it would be required to convey to La Teko the 65% interest in the True North property acquired from La Teko and contributed to the joint venture plus its 65% interest in subsequently-acquired property in the area of interest. Newmont will not be entitled to reimbursement of any amounts paid to La Teko, spent on the True North property or contributed to the joint venture prior to termination. Termination of the joint venture by Newmont would not relieve it of the obligation for exploration, development or reclamation costs incurred but not yet paid prior to the date of termination. JUNIPER In February 1995, the Company located 104 state of Alaska prospecting sites on approximately 16,131 acres approximately 30 miles north northeast of Fairbanks, Alaska. The agreement allowed the Company to prospect for up to one year with the right to renew for a second year, during which time it may elect to convert the sites into state mining claims. During 1995 and continuing through 1996, the Company commenced initial exploration efforts on this property, including geo-chemical sampling, mapping and soil sampling, the results of which suggest that further exploration may be warranted. Also during 1996, the Company staked 403 State of Alaska claims on the Juniper property, at a cost of approximately $78,000, as required by a conversion clause in the lease agreement. TWIN BUTTES During April 1996, the Company consummated a five-year agreement with the University of Alaska to explore its Twin Buttes property, located 28 miles northeast of Fairbanks, Alaska, adjacent to La Teko's Juniper property. The initial acquisition cost was $30,000 for an exclusive development and mining lease. A geochemical sampling program was initiated during the 1996 exploration season to assess the near future expression of mineralization. LUCKY GULCH During July 1996, the Company acquired the Lucky Gulch property in the Denali Mining District, Alaska, approximating 230 acres. The lease was acquired for an initial $10,000 non-recoverable payment with advance minimum royalty payments of $7,500 annually, escalating $2,500 per year to a maximum $15,000 each year as long as the contract shall remain in effect. Exploration commitments were $20,000 for 1996 and $50,000 annually thereafter. The property is subject to an NSR royalty based on the ratio of net profits to the price of gold. The agreement calls for a sliding scale net smelter royalty (NSR) between 1 and 7% based on profitability. The formula for calculation of NSR is: NSR, % = (0.085714 x f + 0.005714) x 100. Where f equals profit in dollars per ounce to La Teko divided by price of gold (profit - price of gold). For 4 of 0.05 or less the NSR shall be 1%, and for an f of 0.75 or greater, the NSR shall be 7%. The above expression is used to calculate the royalty between the low and high values for f. The Lucky Gulch agreement relates only to the hardrock potential of the property. The Company has the first right of refusal to obtain placer rights in the future, subject to a current placer lessee dropping this option. DISCOVERY On May 24, 1996, the Company acquired approximately 3,000 acres known as Discovery Gulch in the Circle Mining District, Alaska. The exploration lease required an initial payment of $15,000 plus annual payments of $10,000 on the first two anniversary dates and $35,000 annually thereafter. The property is subject to a 2% NSR royalty on production from the property. Twenty-five thousand dollars was required for exploration during 1996. Exploration requirements for 1997 and 1998 are $30,000 and $35,000, respectively. During the fourth exploration season, the exploration commitment increases to $100,000 with an additional $50,000 increase annually thereafter. MARGARITA The Margarita project comprises 36 unpatented lode mining claims consisting of the Margarita, MX and NWM claims in Santa Cruz County, Arizona. A royalty of 10% of net profits is payable on the first 20,000 ounces of product removed from the property and 15% thereafter. "Net profits" is determined after deduction of exploration costs, capital expenditures and all other operating costs. There are additional obligations to prior owners for a 3% net smelter return royalty on the Margarita properties. During January 1996, La Teko completed exploration drilling of 14 reverse- circulation holes aggregating 4,040 feet on its Margarita property. Results of the drilling did not increase the Company's estimated 30,000-ounce gold resource. NOTE 3 - PLANT AND EQUIPMENT 1996 1995 ----------------------------------- ---------- ACCUMU- LATED DEPRECIA- COST TION NET NET ---------- ---------- --------- ---------- Machinery and $ 578,717 $ 499,370 $ 79,347 $ 81,409 equipment.......... Buildings.......... 166,208 87,394 78,814 85,797 Trucks............. 47,410 34,030 13,380 9,690 Office furniture and equipment ..... 93,072 55,493 37,579 25,698 Site work and roads 10,570 8,974 1,596 1,995 ---------- ---------- --------- ---------- $ 895,977 $ 685,261 $ 210,716 $ 204,589 ========== ========== ========= ========== Depreciation of $54,828 and $51,092 was provided on plant and equipment and charged to operations during 1996 and 1995 respectively. Additional depreciation of $4,835 was capitalized with exploration costs during 1995. NOTE 4 - LONG-TERM DEBT DECEMBER 31, ------------------------- 1996 1995 ---------- ---------- Convertible debentures, interest at 12%, due quarterly ........................... $ 372,500 $1,067,500 Computer lease purchase contract, payable $258 monthly, including interest imputed at 19.6% through December, 1997 ......... -- 5,085 Less: Amounts due within 1 year......... (372,500) (712,296) ----------- ----------- Long-term debt ........................ $ -- $ 360,289 =========== =========== Interest expense on long-term debt was $94,636 and $129,078 for the years 1996 and 1995, respectively. All convertible debentures of the Company maturing during 1997 were called on January 6, 1997 and were redeemed prior to March 15, 1997. NOTE 5 - INCOME TAXES Provision for income taxes at December 31, 1996 consists of $14,547 in alternative minimum taxes paid before December 31, 1996. Comparable alternative minimum taxes for 1995 were $22,500. There were no deferred taxes. Provision for income tax expense (benefit) differs from the amount calculated at the statutory Federal income tax rate due to the following: 1996 1995 ----------- ----------- U.S. Federal income tax expense (benefit) at statutory rate ............ $ 367,145 $ 112,978 Alternative minimum taxes Federal and state .................................. 14,547 22,500 Utilization of net operating loss carryforwards .......................... (367,145) (112,978) Portion of net operating loss for which realization is not assured ............. -- -- ----------- ----------- Provision for income tax expense (benefit) .............................. $ 14,547 $ 22,500 =========== =========== At December 31, 1996, the Company had a net operating loss carryforward available to offset future taxable income of approximately $9,974,000 expiring in 2003 through 2011. No deferred tax assets have been provided for these amounts since realization is not assured. NOTE 6 - CAPITAL STOCK AND RELATED-PARTY TRANSACTIONS On November 16, 1995, the Company extended and re-priced options which had previously been granted on August 17, 1994. In addition, at that time, the Company also granted options to directors and employees. On March 14, 1996, the Company granted an option to its then newly- appointed president for the future issuance of 100,000 shares at $2.50 per share, exercisable for a period of five years. This option was granted in lieu of other compensation for future services. On December 2, 1996, Gerald G. Carlson was employed as President of the Company to succeed Robert W. Gentry and was also appointed a director. At that time, he was granted options to acquire 500,000 shares of La Teko stock at $1.85 per share, 85% of the then-existing market price. Two hundred thousand shares of the options were exercisable upon grant and 100,000 shares each are exercisable on the annual anniversary dates following the date of grant. Each option matures five years following the exercise date. The following summary reflects the total options outstanding at December 31, 1996: EXERCISE SHARES PRICE EXPIRATION DATE NAME --------- --------- --------------- Directors 500,000 $1.85 12/10/2001-04 300,000 $1.60 11/16/2000-03 100,000 $2.50 3/14/2001 200,000 $2.41 06/18/2001-04 Previous Directors 100,000 $1.60 8/17/1999 100,000 $1.60 11/16/2000 25,000 $1.60 06/05/1997 Others 100,000 $2.13 4/01/1998-99 154,000 $1.60 8/17/1999 105,000 $1.60 11/16/2000 --------- 1,684,000 ========= Shares eligible for exercise during 1997 1,084,000 ========= All options granted to officers and directors are subject to approval by shareholders and the Vancouver Stock Exchange. Subsequent to December 31, 1996, employees exercised options for the purchase of 5,000 shares at $1.60 per share. Exercise of all options is contingent upon continued employment with the Company. The option prices on the grant dates were the trading prices on the Vancouver Stock Exchange less a 15% discount allowed by the VSE. Employees exercising options will realize compensation income equal to the stock price on the date of the exercise less the per share option price. Stock options exercised during 1995 and 1996 are reflected in the accompanying Consolidated Statements of Changes in Shareholders' Equity. NOTE 7 - EMPLOYEE BENEFITS During 1996, the Company established a Salary Reduction Simplified Employee Pension Plan (SARSEP). Each eligible employee may elect to have his/her compensation reduced by up to 15% of eligible wages for contribution to the plan. The Company opted not to contribute to the SARSEP plan for 1996. NOTE 8 -STOCK -BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Account Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123) which established financial accounting and reporting standards for stock-based compensation. The new standard defines a fair value method of accounting for an employee stock option or similar equity instrument. This statement gives entities the choice between adopting the fair value method or continuing to use the intrinsic value method under Accounting Principals Board (APB) Opinion No. 25 with footnote disclosure of the pro forma effects as if the fair value method had been adopted. The Company has opted for the latter approach. Had compensation expense for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of FAS No. 123, the Company's results of operations would have been adjusted to the pro forma amounts indicated below. DECEMBER 31, ------------------------- 1996 1995 --------- --------- Net income (loss) - as reported.......... $ 955,785 $(364,857) Net income (loss) - pro forma............ $ 663,202 $(446,719) Earnings per share (loss) - as reported.. $ .04 $ (.02) Earnings per share (loss) - pro forma.... $ .03 $ (.02) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: DECEMBER 31, ------------------- 1996 1995 ------ ------ Expected dividend yield........... -- -- Expected stock price volatility... 39.66% 39.66% Risk-free interest rate........... 6.13% 5.25% Expected life of options.......... 5 years 5 years The weighted average fair value of options granted during 1996 and 1995 are $1.22 and $.80 respectively. NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company has stock options outstanding as discussed in Note 6. The Company is obligated for various royalty payments based on future mining and/or earnings from its mineral properties, as further described in Note 2. La Teko cannot insure for environment pollution and, consistent with industry practice, has elected not to insure for losses from mine cave-ins, mine flooding, earthquake and other possible natural hazards caused by the unavailability of such coverage or the cost thereof. The Company may in the future be exposed to contingencies relating to the foregoing or liabilities that may arise under the governmental regulations relating to the environment. It is not however, aware of any existing material contingencies respecting compliance with environmental requirements or previous activities. Any such contingent environmental liabilities, if any, however, are not expected to have material impact on the Company or its financial statements. EX-10 2 LA TEKO RESOURCES LTD. 180 EAST 2100 SOUTH SALT LAKE CITY, UTAH 84119 December 2nd, 1996 Gerald G. Carlson c/o Suite 500 - 625 Howe Street Vancouver, B.C., V6C 2T6 Dear Mr. Carlson: Re: La Teko Resources Ltd., (the "Company") The purpose of this letter agreement is to document the terms upon which the Company has agreed to hire you as its President and Chief Executive Officer. 1) Employment 1.1 Upon execution of this agreement (the "Agreement"), you will be appointed to the board of directors of the Company (the "Board") and hired as the Company's President and Chief Executive Officer. You will be responsible to the Board for the management of all affairs and business of the Company and you will take such action as may be required to fulfill your duties as President and Chief Executive Officer of the Company. 1.2 You are authorized to sit on the board of directors of Dentonia Resources Ltd. provided that such directorship does not result in a conflict of interest with your position with the Company and provided that such directorship does not impair your ability to fulfill your responsibilities under this Agreement. Any directorships with other companies will require the prior approval of the Board. 1.3 Your employment under this Agreement, subject to the provisions of Section 4 of this Agreement' shall be for an initial term of three years (the "Initial Term") and thereafter for a period to be determined between you and the Board. 2) Compensation 2.1 As compensation for services to be rendered pursuant to this Agreement, the Company agrees to pay you a salary of Cdn$12,000 per month. 2.2 In addition to the salary referred to in paragraph 2.1 above, the Company shall, subject to regulatory approval, grant you stock options entitling you to purchase up to 500,000 shares of the Company which, subject to paragraph 4.4, will vest incrementally as follows: a) 200,000 upon execution of this Agreement; b) a further 100,000 upon the first anniversary of this Agreement; c) a further 100,000 upon the second anniversary of this Agreement; and d) the final l00,000 upon the third anniversary of this Agreement. 2.3 The Company will, upon execution of this Agreement, take such steps as are required to set the exercise price for the entire 500,000 stock options at the lowest price allowable by the policies of the Vancouver Stock Exchange. 2.4 The Company shall pay or reimburse you for all reasonable expenses incurred or paid by you during the period of your employment hereunder in the performance of your services under this Agreement. 2.5 The Company will either include you under its existing medical/dental/life insurance coverage or the Company will provide you with a comparable Canadian policy. 2.6 You will be entitled to four weeks (20 work days), not including holidays or sick leave, of paid vacation each year during your employment. 2.7 The Company will pay the leasing costs for a vehicle to be used by you provided that such costs are reasonable and recognizing that it is your intention to lease a 4-wheel drive vehicle. 3) Annual Objectives 3 1 Each year the Board will, in consultation with you, establish corporate objectives for the forthcoming year which the Board will expect you to work towards having the Company achieve. The Board will act reasonably in establishing such corporate objectives and it is recognized that circumstances may change from time to time which result in such corporate objectives being modified prior to being achieved. 4) Termination of Employment Relationship 4.1 You may terminate this Agreement upon thirty (30) days written notice to the Company. 4.2 The Company may terminate your employment under this Agreement as follows: a) subject to paragraph 4.3, immediately for cause; b) on three months notice if you have become disabled (physically or mentally) to the extent that you have been unable to perform the essential functions of your employment hereunder for a continuous period of six months, and c)on six months notice prior to the end of the Initial Term 4.3 In the event that the cause referred to in sub-paragraph 4.2 (a) is that the Board is not satisfied with your efforts to accomplish the corporate objectives established by the Board in accordance with paragraph 3.1, the Company will provide you with six months notice. For the purposes of this paragraph, the Board must act reasonably and in good faith in determining whether it is satisfied with your efforts to accomplish the corporate objectives in question. 4.4 In the event that the Company is purchased or undergoes a merger or other similar corporate transaction (referred to in this paragraph as a "Transaction", which results in you no longer retaining the position of President and Chief Executive Officer of the Company in accordance with the terms of this Agreement, you will receive a severance package equal to one year's salary (ie Cdn$144,000), payable in a lump sum and the following shall apply to your incentive stock options: a) fifty percent of the unvested stock options will automatically vest if the Transaction occurs in the first year of this Agreement, or b) one-hundred percent of the unvested stock options mil automatically vest if the Transaction occurs after the first anniversary of this Agreement. 5) General 5.1 This Agreement shall be construed in accordance with the laws of the Province of British Columbia and shall enure to the benefit of and be binding upon the parties hereto and their respective personal representative, successors and assigns. Assuming the above accurately sets out the terms agreed to, please evidence your agreement by signing this letter below and returning a copy to us. Yours truly, LA TEKO RESOURCES LTD. AGREED TO AND ACKNOWLEDGED: Per: /s/ Gordon Fretwell /s/ Gerald G. Carlson EX-10 3 RECORD THIS INSTRUMENT IN THE FAIRBANKS RECORDING DISTRICT INDEX THIS INSTRUMENT AS FOLLOWS: Grantor: Placer Dome U.S. Inc. Grantee: La Teko Resources, Inc. Newmont Exploration Limited THE PROPERTY DESCRIBED IN EXHIBIT A ATTACHED HERETO IS SITUATED IN THE FOLLOWING SECTION: Township 3 North, Range 1 East, Fairbanks Meridian: Section 15 RETURN THIS INSTRUMENT TO: Guess & Rudd Attention: Joseph J. Perkins, Jr. 510 L Street, Suite 700 Anchorage, Alaska 99501 SPECIAL WARRANTY DEED THIS SPECIAL WARRANTY DEED (hereinafter referred to as "this Deed"), dated this 30th day of October , 1996, is given by PLACER DOME U.S. INC. ("PDUS"), a California corporation the address of which is Suite 2500, 1 California Street, San Francisco, California 94111, to LA TEKO RESOURCES, INC. ("La Teko"), a Nevada corporation the address of which is Suite 202, 180 East 2100 South, Salt Lake City, Utah 84115, and NEWMONT EXPLORATION LIMITED ("Newmont"), a Delaware corporation the address-of which is Suite 2800, 1700 Lincoln Street, Denver, Colorado 80203. WITNESSETH: For and in consideration of $10.00 and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, PDUS hereby ASSIGNS, CONVEYS, and SPECIALLY WARRANTS (as set forth below but not otherwise) to La Teko (as to an undivided 35%) and Newmont (as to an undivided 65%), and each's respective successors and assigns, as tenants in common, all of PDUS's rights, titles and interests (if any) in and to the- mining claims described in Exhibit A attached hereto, together with any and all rights appurtenant thereto (hereinafter collectively referred to as "the Property"), to have and to hold forever. PDUS hereby SPECIALLY WARRANTS unto La Teko and Newmont, and to each's respective successors and assigns, that the Property is free and clear of any rights, titles, or interests of third parties arising by, through, or under PDUS, but not otherwise. IN WITNESS WHEREOF, PDUS has executed this Deed on the date first set forth above. PLACER DOME U.S. INC. By: /s/ Richard G. Duncan Printed Name: Richard G. Duncan Title: V.P., Exploration STATE OF NEVADA ) )ss. COUNTY OF WASHOE ) THIS CERTIFIES that on the 30th day of October, 1996, at 240 S. Rock Blvd., Ste. 117, Reno, NV 89502, the foregoing instrument was acknowledged before me by (name) Richard G. Duncan (title) V.P. Exploration of PLACER DOME U.S. INC., a California corporation, on behalf of the corporation. (Notary seal) /s/ S. Schaerer Notary Public in and for Washoe County, Nevada My commission expires November 10, 1998 EXHIBIT A MINING CLAIMS The following State of Alaska mining locations: Fairbanks Recording District Claim Name Book/Page DNR Serial Number - -------------------- ------------------ ----------------- Cheker 30 (aka CH 30) 915/416 ADL-570961 Cheker 34 (aka CH 34) 915/420 ADL-57096 Cheker 35 (aka CH 35) 915/421 ADL-570966 RECORD THIS AGREEMENT IN THE FAIRBANKS RECORDING DISTRICT INDEX THIS AGREEMENT AS FOLLOWS: Grantor: Placer Dome U.S. Inc. Grantee: La Teko Resources, Inc. Newmont Exploration Limited THE PROPERTY DESCRIBED IN EXHIBIT A ATTACHED HERETO IS SITUATED IN THE FOLLOWING SECTION: Township 3 North, Range 1 East, Fairbanks Meridian: Section 15 RETURN THIS AGREEMENT TO: Guess & Rudd Attention: Joseph J. Perkins, Jr. 510 L Street, Suite 700 Anchorage, Alaska 99501 AGREEMENT REGARDING MINING CLAIMS THIS AGREEMENT REGARDING MINING CLAIMS (hereinafter referred to as "this Agreement"), dated this 30th day of October , 1996, is entered into by and among PLACER DOME U.S. INC. ("PDUS"), a California corporation the address of which is Suite 2500, 1 California Street, San Francisco, California 94111, LA TEKO RESOURCES, INC. ("La Teko"), a Nevada corporation the address of which is Suite 202, 180 East 2100 South, Salt Lake City, Utah 84115, and NEWMONT EXPLORATION LIMITED ("Newmont"), a Delaware corporation the address of which is Suite 2800, 1700 Lincoln Street, Denver, Colorado 80203 (La Teko and Newmont are sometimes collectively referred to herein as "Buyer"). WITNESSETH: For and in consideration of $10.00 and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and the covenants of each party set forth herein, the parties hereby agree as follows: 1. PROPERTY; FURTHER ACTIONS. The property subject to this Agreement (hereinafter collectively referred to as "the Property") comprises (a) all rights, titles, and interests now owned or hereafter acquired by PDUS in or to the mining claims described in Exhibit A attached hereto or the lands included therein (including but not limited to any and all amendments or relocations of the mining claims described in Exhibit A attached hereto and any and all state mining leases into which one or more of such claims, amendments or relocations are converted), together with (b) any and all rights now or hereafter appurtenant thereto (including but not limited to access rights and water rights). The parties hereby agree to execute, acknowledge, and deliver such other agreements and instruments as may be reasonably required from time to time hereafter to implement the intent of the parties hereto (including but not limited such other agreements and instruments as may be reasonably required from time to time hereafter to subject formally to this Agreement any and all rights, titles, or interests hereafter acquired by PDUS that constitute part of the Property). 2. TERM. The parties hereby agree that the term of this Agreement shall continue from the date first set forth above for so long as PDUS (or any successor or assign of PDUS other than La Teko or Newmont) owns any interest in the Property. 3. SPECIAL WARRANTY. PDUS hereby SPECIALLY WARRANTS unto La Teko and Newmont, and to each's respective successors and assigns, that the mining claims described in Exhibit A attached hereto are free and clear of any rights, titles, or interests of third parties arising by, through, or under PDUS, but not otherwise. 4. PROMISE TO MAINTAIN PROPERTY IN GOOD STANDING. During the term of this Agreement, PDUS (a) shall perform such assessment work, pay such rent, and take any and all other actions necessary to maintain the Property in good standing under the laws of the State of Alaska, and (b) shall deliver to La Teko and Newmont-no later than two weeks prior to any performance, recording, filing, payment, or other deadline-copies of such affidavits of assessment work (as recorded if delivered to establish compliance with any recording requirement), receipts, and other evidence as may be reasonably necessary to establish PDUS's satisfaction of the foregoing obligations. Without limiting the generality of the foregoing, during the term of this Agreement, PDUS shall do the following: (a) perform in a timely manner all assessment work required to be performed for the benefit of the Property to maintain the Property in good standing, for the assessment year beginning on September 1, 1995, and for every assessment year beginning thereafter if this Agreement is in effect on the 60th day prior to the end of the assessment year. If PDUS may satisfy any such assessment work obligation by making a payment in lieu thereof on or after the date on which such obligation accrues hereunder, then PDUS may either perform the required assessment work or make the required payment in lieu thereof in a timely manner for said assessment year. (e.g., if this Agreement is in effect on July 3, 1997 (the 60th day prior to September 1, 1997), PDUS shall perform assessment work for the benefit of the Property or pay the permitted maintenance fee in lieu thereof no later than August 31, 1997, for the assessment year beginning on September 1, 1996.) For purposes of this paragraph, whether assessment work is "required" shall be determined without regard to the value of any assessment work-performed in assessment years commencing prior to the assessment year beginning on September 1, 1995, and carried forward under applicable law for use in future assessment years. (b) pay in a timely manner all rental due on the Property under AS 38.05.211 for the rental year beginning on September 1, 1996, and for every rental year thereafter if this Agreement is in effect on the 30th day prior to the date any required rental fee must be paid in order to maintain the property in good standing. (e.g., if this Agreement is in effect on October 31, 1996, PDUS shall pay the required rental fee that is due no later than November 30, 1996, for the Property for the rental year beginning on September 1, 1996.) (c) prepare, record and file in a proper and timely manner (for every assessment or rental year for which PDUS is obligated hereunder to perform work or pay money) such affidavits and other documents relating thereto as are required to maintain the Property in good standing. 5. AGREEMENT TO OFFER TO CONVEY BEFORE ABANDONMENT. If at any time during the term of this Agreement PDUS determines that it desires to abandon any of the Property, PDUS shall give Buyer written notice of such determination at least 30 days prior to abandoning any of the Property. If Buyer elects, pursuant to a written notice delivered to PDUS no later than 20 days after receipt of said notice of intent to abandon, to have PDUS convey to Buyer the Property described in said notice of intent to abandon, PDUS forthwith shall execute, acknowledge, and deliver a special warranty deed to Buyer conveying said Property to Buyer free and clear of any rights, titles, or interests of third parties arising by, through, or under PDUS, but not otherwise. If Buyer does not so elect to have PDUS convey to Buyer the Property described in said notice of intent to abandon, PDUS shall have up to 30 days beyond the end of said original 30-day period in which to complete its desired abandonment. If PDUS fails to complete said abandonment within said additional 30-day period, the notice requirements of this Paragraph 5 shall again become applicable to said Property. 6. GRANT OF RIGHTS BY SELLER TO BUYER; OPERATIONS OF BUYER PRIOR TO ESTABLISHMENT OF BOUNDARY Seller hereby grants to Buyer (a) the non-exclusive right to conduct, at Buyer's sole risk and expense, mineral exploration operations (including but not limited to drilling) on those portions of the Property situated inside the "Area of Interest" established under that certain unrecorded Conflict of Interest and Confidentiality Agreement by and between Ryan Lode Mines, Inc. (a wholly-owned subsidiary of La Teko Resources, Ltd.) and Placer Dome U.S. Inc. dated August 4, 1994 ("Confidentiality Agreement"), and (b) the exclusive right to conduct, at Buyer's sole risk and expense, mineral development anal production operations for Buyer's sole account on those portions of the Property situated-inside the "Area of Interest" established under the Confidentiality Agreement, to have and to hold said rights forever. Prior to the establishment of the boundary of said "Area of Interest" pursuant to Paragraph 7 below, Buyer's non-exclusive right to conduct mineral exploration operations (including but not limited to drilling) shall extend to those portions of the Property that Buyer believes in good faith to be situated inside said "Area of Interest". 7. AGREEMENT TO ESTABLISH BOUNDARY. PDUS and Buyer hereby agree to establish, as soon as possible after either PDUS or Buyer determines in good faith that "production of minerals for sale in commercial quantities" (as used in AS 38.05.207) from the Property probably will be commenced by either party, the precise boundary of the "Area of Interest" established under the Confidentiality Agreement. PDUS and Buyer shall establish said boundary either by agreement or pursuant to AS 09.45.020-09.45.050 (1994). Costs (except for attorney's fees) of establishing said boundary as described above shall be borne equally by PDUS and Buyer. Either party may seek to establish said boundary sooner than as described above, but the costs (except for attorney's fees) of establishing said boundary sooner shall be borne entirely by the party seeking to establish said boundary sooner. In any case seeking to establish the precise boundary of the "Area of Interest" established under the Confidentiality Agreement, each party shall be bear its own attorney's fees. 8. OPERATIONS OF BUYER AND SELLER AFTER ESTABLISHMENT OF BOUNDARY. After establishment of the boundary described in Paragraph 7 above, Seller shall cease to have any rights to conduct mineral exploration operations on those portions of the Property situated inside the "Area of Interest" established under the Confidentiality Agreement, and all of the rights granted to Buyer pursuant to Paragraph 6 above shall become exclusive rights of Buyer, subject only to applicable law and to the terms of any additional agreement (e.g., a joint operating agreement, a joint venture agreement, or a similar agreement) that may be negotiated and executed by the parties hereto. 9. TRANSFERABILITY: BINDING EFFECT. Each party may freely transfer its rights, obligations, and liabilities hereunder in whole or in part, but no such transfer shall relieve the transferring party of any obligations or liabilities hereunder unless otherwise agreed by the parties hereto in writing. This Agreement shall inure to the benefit of and bind the parties hereto and each party's respective successors and transferees. 10. COVENANTS RUNNING WITH THE LANDS The covenants of PDUS set forth herein shall constitute covenants running with the Property. Either La Teko or Newmont or any successor or assign of either of them shall be entitled to enforce said covenants against PDUS or its successors or assigns and shall otherwise be entitled to pursue any and all remedies available in connection with a breach or breaches thereof. IN WITNESS WHEREOF the parties have executed this Agreement on the date first set forth above. PLACER DOME U.S. INC. By: /s/ Richard G. Duncan Printed Name: Richard G. Duncan Title: V.P., Exploration LA TEKO RESOURCES, INC. By: /s/ Robert Gentry Printed Name: Robert Gentry Title: President NEWMONT EXPLORATION LIMITED By: /s/ Leendert G. Krol Printed Name: Leendert G. Krol Title: President. STATE OF NEVADA ) ss. COUNTY OF WASHOE ) THIS CERTIFIES that on the 30 day of October, 1996, at 240 S. Rock Blvd., Ste 117, Reno, NV 89502, the foregoing instrument was acknowledged before me by (name) Richard G. Duncan, (title) V.P. Exploration of PLACER DOME U.S. INC., a California corporation, on behalf of the corporation. (Notary seal) /s/ S. Schaerer Notary Public in and for Washoe Country, Nevada My commission expires Nov. 1998 STATE OF TEXAS ) ss. COUNTY OF DALLAS ) THIS CERTIFIES THAT ON THE 18th day of November, 1996, at 14785 Preston #35D, Dallas, TX the foregoing instrument was acknowledged be fore me by (name) Robert Gentry (title) President of LA TEKO RESOURCES, INC., a Nevada corporation, on behalf of the corporation (notary seal) /s/ Paul A. Davidson Notary Public in and for Texas My commission expires 3/11/97 STATE OF COLORADO ) ss. COUNTY OF DENVER ) THIS CERTIFIES that on the 15th day of November, 1996, at 1700 Lincoln Street, Denver, Co 80203, the foregoing instrument was acknowledged before me by (name) Leendert G. Krol (title) President of NEWMONT EXPLORATION LIMITED, a Delaware corporation, on behalf of the corporation. (Notary seal) /s/ Beth F. Frankel Notary Public in and for Denver My commission expires 8-2-99 EXHIBIT A Mining Claims The following State of Alaska mining locations: Fairbanks Recording District Claim Name Book/Page DNR Senal Number - -------------------- ----------------- ---------------- Cheker 26 (aka CH 26) 915/412 ADL-570957 Cheker 31 (aka CH 31) 915/417 ADL-570962 Cheker 36 (aka CH 36) 915/422 ADL-570967 (recording stamp) Fairbanks Rec District Requested By Newmont Gold Co. 96 Nov 25 PM 1:43 EX-10 4 ORO BLANCO RESOURCES CORP (company letterhead) January 14, 1997 La Teko Resources Ltd. 180 East 2100 South, Suite 204 Salt Lake City, UT 84115 Attn: Mr. Jerry Carlson Dear Mr. Carlson Oro Blanco Resouces Corp. herein proposes an offer to you regarding an option to acquire the Margarita property in Santa Cruz County, Arizona. 1) Oro Blanco Resources Corp. will enter into an option agreement on the properties with La Teko Resources whereby Oro Blanco would have exclusive right to the claims for a period of three years; 2) During this period of time, Oro Blanco will agree to spend the sum of $500,000 on exploration and/or development of the claim group. The expenditure will be allocated as follows: Year One $ 100,000 Year Two $ 200,000 Year Three $ 200,000 Any excess expenditures may be carried over to the next year. 3) Oro Blanco will make annual payments to La Teko as follows: 1st anniversary 25,000 shares Oro Blanco common stock 2nd anniversary 50,000 shares Oro Blanco common stock 3rd anniversary Exercise of option by payment of 50,000 shares of Oro Blanco common stock plus 100,000 cash 4) Production royalties: 1% net smelter royalty 5) Minimum annual royalties: 4th anniversary $50,000 5th anniversary $75,000 6th anniversary $100,000 Cash payments under Section 5 will apply against net smelter royalties. During the life of the mine. 6) Oro Blanco will make all necessary claim payments and drill core storage payments and will keep the property in good standing with all regulatory bodies during the term of this agreement. 7) Oro Blanco will not drop any of the claims without written permission of La Teko. 8) La Teko will provide Oro Blanco with all data on the property including but not limited to geological reports, test data, and drill results. 9) Oro Blanco will annually provide La Teko with all factual data generated by its exploratory programs. Oro Blanco will annually provide La Teko with all factual data generated by its exploratory programs. Oro Blanco will provide La Teko with timely verification of annual rental payment, etc. This agreement subject to the approval of appropriate regulatory authorities. If this is acceptable, please sign and return by Fax. We will also mail to you a hard copy for your signature. We shall begin preparation of a formal agreement immediately. Both parties will make best efforts to complete the formal agreement within 60 days. Yours very truly, ORO BLANCO RESOURCES CORP. A. John Carter President Agreed to: La Teko Resources Ltd. /s/ Gerald Carlson, President EX-10 5 FORM OF NON-QUALIFIED STOCK OPTION It is important that you retain this document. This original Non-Qualified Stock Option must be delivered to the Company on exercise or transfer of the option. THIS NON-QUALIFIED STOCK OPTION (this "Option") is granted effective the --- day of ---------, by TEKO RESOURCES LTD. a British Columbia, Canada corporation (the "Company") to -------------------------- ("Optionee"). 1. Grant of Option. The Company hereby irrevocably grants to Optionee the right and option to purchase all or any part of an aggregate of ------ shares (the "Shares") of common stock, having no par value per share, of the Company (the "Common Stock") on the terms and conditions hereinafter set forth. The options are exercisable in increments of ------- Shares each over the following terms: Shares Term SEE ATTACHED SCHEDULE 2. Exercise Price. The exercise price of this Option shall be CDN. ------ per share (USD) $------) of Common Stock (the "Exercise Price"). 3. Term of Option. Subject to the other provisions of this Option, this Option may be exercised, in whole or in part, at any time or from time to time on or before 5:00 p.m., Mountain Time on the dates indicated under Grant of Option in Item 1 above. 4. Shareholder's Rights. The Optionee shall have the rights of a shareholder only with respect to Shares fully paid for by Optionee under this Option. 5. Adjustment of Exercise Price and Number of Shares. a) The number of Shares purchasable on the exercise of this Option and the Exercise Price shall be adjusted appropriately from time to time as follows: i) In the event the Company shall declare dividend or make any other distribution on any capital stock of the Company payable in Common Stock, rights to purchase Common Stock, or securities convertible into Common Stock or shall subdivide its outstanding shares of Common Stock into a greater number of shares or combine such outstanding stock into a smaller number of shares, then in each such event, the number of Shares subject to this Option shall be adjusted so that the holder shall be entitled to purchase the kind and number of Shares of Common Stock or other securities of the Company which it would have owned or have been entitled to receive after the happening of any of the events described above, had such Option been exercised immediately prior to the happening of such event or any record date with respect thereto; an adjustment made pursuant to this paragraph a) shall become effective immediately after the effective date of such event retroactive to the record date for such event. ii) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1% in the number of Shares purchasable on the exercise of this Option; provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. iii) Whenever the number of Shares purchasable on the exercise of this Option is adjusted, as herein provided, the Exercise Price payable on exercise shall be adjusted by multiplying the Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Shares purchasable on the exercise of this Option immediately prior to such adjustment and the denominator of which shall be the number of Shares so purchasable immediately thereafter. iv) Whenever the number of Shares purchasable on the exercise of this Option or the Exercise Price of such Shares are adjusted, as herein provided, the Company shall cause to be promptly mailed by first class mail, postage prepaid, to the Optionee of this Option notice of such adjustment or adjustments and shall deliver a resolution of the board of directors of the Company setting forth the number of Shares purchasable on the exercise of this Option and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment, together with the computation by which such adjustment was made. Such resolution, in the absence of manifest error, shall be conclusive evidence of the correctness of adjustment. v) All such adjustments shall be made by the board of directors of the Company, which shall be binding on the Optionee in the absence of demonstrable error. b) No adjustments shall be made in connection with: i) the issuance of any Shares on the exercise of this Option; ii) the conversion of shares of preferred stock; iii) the exercise or conversion of any rights, options, warrants, or convertible securities containing the right to purchase or acquire Common Stock; iv) the issuance of additional Shares or other securities on account of the anti-dilution provisions contained in or relating to this Option or any other option, warrant, or right to acquire Common Stock; v) the purchase or other acquisition by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock; or vi) the sale or issuance by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock or other securities pursuant to options, warrants, or other rights to acquire Common Stock or other securities. 6. Notice of Certain Events. In the event of: a) any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other rights; b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, or any transfer of all or substantially all of the assets of the Company to any other person, or any consolidation, share exchange, or merger involving the Company; or c) any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company will mail to the Optionee(s) of this Option, at least 20 days prior to the earliest date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, or right; the amount and character of such dividend, distribution, or right, or the date on which any such reorganization, reclassification, transfer, consolidation, share exchange, merger, dissolution, liquidation, or winding up of the Company will occur and the terms and conditions of such transaction or event. 7. Method of Exercise. This Option may be exercised, in accordance with all of the terms and conditions set forth in this Option, by delivery of this Option together with a notice of exercise, a form of which is attached hereto as Exhibit "A" and incorporated herein by this reference, indicating the number of Shares which the Optionee then elects to purchase and making payment in full for the Shares in cash. Optionee shall include with the notice of exercise a certified or official bank check payable to the order of the Company in the amount of the full option price of the Shares being purchased for cash. As soon as practicable after receipt by the Company of such notice and of payment in full of the option price of all the Shares of Common Stock with respect to which the Option has been exercised, a certificate or certificates representing such Shares of Common Stock shall be issued in the name of the Optionee, or, if the Optionee shall so request in the notice exercising the Option, in the name of the Optionee and another person jointly, with right of survivorship, and shall be delivered to the Optionee. To the extent required by the terms of this Option, all Common Stock shall be issued only upon receipt by the Company of the Optionee's representation that the shares are purchased for investment and not with a view to distribution thereof. If this Option is not exercised with respect to all Shares subject hereto, Optionee shall be entitled to receive a similar Option of like tenor covering the number of Shares with respect to which this Option shall not have been exercised. 8. Availability of Common Stock. During the term of this Option, the Company shall at all times keep available the number of Shares of Common Stock required to satisfy the Option. 9. Limitation on Exercise. If the board of directors of the Company, in its sole discretion, shall determine that it is necessary or desirable to list, register, or qualify the Common Stock under any state or federal law, this Option may not be exercised, in whole or part, until such listing, registration, or qualification shall have been obtained free of any conditions not acceptable to the board of directors. If an officer or director, the Optionee shall not exercise the Option until such Time as the shareholders of the Company have approved the granting of the Option by the Company and the exercise of the Option by the Optionee. 10. Restrictions on Transfer. The Option and the Shares subject to the Option (collectively referred to as the "Securities") are subject to registration under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities statutes. Optionee acknowledges that unless a registration statement with respect to the Securities is filed and declared effective by the Securities and Exchange Commission and the appropriate state governing agency, the Securities have or will be issued in reliance on specific exemptions from such registration requirements for transactions by an issuer not involving a public offering and specific exemptions under state statutes. Any disposition of the Securities may, under certain circumstances, be inconsistent with such exemptions. The Securities may be offered for sale, sold, or otherwise transferred only if i) registered under the Securities Act, and in some cases, under the applicable state securities acts, or, if not registered, ii) only if pursuant to an exemption from such registration requirements and only after the Optionee provides an opinion of counsel or other evidence satisfactory to the Company to the effect that registration is not required. In some states, specific conditions must be met or approval of the securities regulatory authorities may be required before any such offer or sale. The Company is under no obligation to register the Securities with the Securities and Exchange Commission or any state agency. If rule 144 is available (and no assurance is given that it will be), only routine sales of the Common Stock in limited amounts can be made after one year following the acquisition date of the Securities, as determined under rule 144(d), in accordance with the terms and conditions of rule 144. The Company is under no obligation to make rule 144 available. In the event rule 144 is not available, compliance with regulation A or some other disclosure exemption may be required before the Optionee can sell, transfer, or otherwise dispose of the Securities without registration. The Company and its registrar and transfer agent will maintain a stop transfer order against the transfer of the Securities, and this Option and any other certificate or agreement representing the Securities is subject to the following legend: THE SECURITIES REPRESENTED BY THIS OPTION, AGREEMENT, OR CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT. The Company may refuse to transfer the Securities to any transferee who does not furnish in writing to the Company the same representations and warranties set forth in this paragraph and agree to the same conditions with respect to such Securities as are set forth herein. The Company may further refuse to transfer the Securities if certain circumstances are present reasonably indicating that the proposed transferee's representations are not accurate. In any event, the Company may refuse to consent to any transfer in the absence of an opinion of legal counsel, satisfactory to and independent of counsel of the Company, that such proposed transfer is consistent with the above conditions and applicable securities laws. 11. Registration. The Company will utilize its best efforts to file and maintain the effectiveness of a registration statement on form S-8 with the Securities and Exchange Commission covering the issuance of the Shares issuable on exercise of this option and to maintain the effectiveness of such registration statement or a subsequent registration statement or other qualification in order to permit the exercise of this Option as set forth herein, although, there is no guaranty that such registration statement will be effective when the Option is exercised. If no registration statement is effective on the date of exercise of this Option, the Shares will not be issued unless and until there is available to the Company evidence, including representations from the Optionee, that such Shares are being acquired for investment and not for resale, on which the Company may reasonably rely as to the availability of an exemption from registration in issuing such Shares. 12. Assignment of Option. This Agreement shall not be assignable by the Optionee or his legal representative otherwise than by Will or the law of intestacy and the Option may be exercised, during his or her lifetime, only by the Optionee. If the Optionee dies on or prior to the Expiry Date while an officer or director of the Company, the Option, or such part thereof as remains unexercised, may be exercised by the legal representative of the Optionee at any time up to and including (but not after) the date one (1) year following the date of death of the Optionee or prior to the close of business on the Expiry Date, whichever is earlier. If the Optionee ceases to be an employee of the Company prior to the Expiry Date, the Option shall, on the earlier of the Expiry Date or thirty (30) days from the date the Optionee ceases to be an employee of the Company, terminate and be of no further force or effect whatsoever as to such of the Optioned Shares in respect to which the Option has not been exercised. 13. Amendments. If at any time during the continuance of this Agreement, the parties deem it necessary or expedient to amend, alter or add to this Agreement, they may do so by means of written agreement between them which shall supplement and form part of this Agreement. 14. Withholdings. If the grant or exercise of this Option is subject to withholding or other trust fund payment requirements of the U.S. Internal Revenue Code or applicable Canadian or U.S. Province, state or local laws, such requirements may, to the extent permitted by the then governing provisions of the Code, be met by the holder of such Option delivering shares of common stock or canceling options or other rights to acquire common stock or by the withholding shares of common stock subject to such Option, all with a fair market value equal to such requirements. To the extent that the holder of this Option is subject to the provisions of section 16(b) of the U.S. Securities Exchange Act of 1934, as amended, payment of the withholding and other trust funds requirements of the foregoing methods shall be subject to the transaction qualifying for an exemption from the provisions of section 16(b) under rule 16b- 3 promulgated pursuant to the Securities Exchange Act of 1934, as amended, or an amendment or successor rule of like tenor. 15. Approval. The terms of this Agreement and any amendments are subject to approval by the regulatory authorities having jurisdiction over the affairs of the Company and, if the Optionee is an insider of the Company within the meaning of the Securities Act, by the shareholders of the Company. 16. Total Stock Options. Total stock options do not exceed 10% of the Company's issued and outstanding share capital (unless under a formal Stock Option Plan) and total options to any one optionee does not exceed 5% of the total issued and outstanding share capital of the Company. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first written above. LA TEKO RESOURCES LTD. By ----------------- (printed name) Optionee Signed, Sealed and Delivered by (printed name) in the presence of: (name) Signature of Witness Name (print) Address Occupation of Witness Exhibit A Form of Exercise (to be signed only upon exercise of Option) TO: LA TEKO RESOURCES LTD. The undersigned, the owner of the attached Option, hereby irrevocably elects to exercise the purchase rights represented by the Option for, and to purchase thereunder, shares of Common Stock of La Teko Resources Ltd. Enclosed is payment in the amount of $ , the exercise price of the Common Stock to be acquired, in the form of (insert description of manner of payment) Please have the certificate(s) registered in the name of , Social Security No. and delivered to the following address: If this exercise does not include all of the Common Stock covered by the attached Option, please deliver a new option of like tenor for the balance of the Common Stock to the undersigned at the foregoing address. DATED this day of , 199 . Signature of Optionee (Signature must be guaranteed by a bank or securities broker-dealer) Signature Guarantee: DECLARATION OF STOCK OPTION POSITION (This form is to be completed by the Optionee.) INCENTIVE STOCK OPTIONS TO: The Vancouver Stock Exchange RE: incentive stock options in La Teko Resources Ltd. ("Company") at a price of CDN $ per share, granted on the day of , 199 (the "Options"). The Options are subject to Paragraph (1b) of the Non-Qualified Stock Option Agreement dated and are exercisable over the term which is set out in the Agreement. I, , HEREBY CERTIFY that the aforesaid non-transferable options have been granted to me in compliance with the requirements of V.S.E. Policy 23; and more particularly that at the time of grant, I was not aware of any change in the affairs of the Company which might have affected the trading price or value of the Company's shares and which had not been disclosed to the public. If the Company is classified as a Venture Company as of the date of this declaration, I confirm that I have not been granted a stock option in the Company within 2 years of the date of grant of the above Options. I am a director of the Company, or of , a subsidiary of the Company, or I am an individual employed by , a company providing management services to the Company. (If an employee, my job description is and I work hours per week for the Company or its subsidiaries.) I HEREBY FURTHER CERTIFY (complete either Part I or Part II as applicable): PART I THAT I do not currently have any outstanding options granted by any listed company. DATED this day of , 199 . SIGNATURE: PART II THAT I hold as of the date of this Declaration outstanding stock options which have been granted to me by the Company and/or other listed companies as follows: Name of Listed Company Date of Grant Outstanding Balance (Complete on separate sheet if insufficient space) DATED this day of , 199 SIGNATURE: Enforcement action by the Vancouver Stock Exchange, the British Columbia Securities Commission or other regulatory authorities may result if a person makes a statement in this document that, at the time, and in light of the circumstances under which it was made, is a misrepresentation. THIS DOCUMENT WILL BE PLACED IN THE COMPANY'S PUBLIC FILE SCHEDULE OF OPTIONEES NAME NUMBER EXERCISE EXPIRATION OF PRICE DATE SHARES - ----------------- ------- -------- ------------- DIRECTORS Gerald G. Carlson 500,000 $1.85 12/10/2001-04 Robert W. Gentry 100,000 1.60 11/16/2000-03 100,000 2.50 3/14/2001 Gordon Fretwell 100,000 1.60 11/24/2000-03 John R. Hardesty 100,000 1.60 11/16/2000-03 John S. Auston 100,000 2.41 06/18/2001-04 Douglas R. 100,000 2.41 06/18/2001-04 Beaumont PREVIOUS DIRECTORS: Jack Layne 100,000 1.60 8/17/1999 100,000 1.60 11/16/2000 David Tinsley 25,000 1.60 06/05/1997 EX-10 6 NON-QUALIFIED STOCK OPTION It is important that you retain this document. This original Non-Qualified Stock Option must be delivered to the Company on exercise or transfer of the option. THIS NON-QUALIFIED STOCK OPTION (this "Option") is granted effective the 10th day of December, 1996, by LA TEKO RESOURCES LTD. a British Columbia, Canada corporation (the "Company") to Gerald G. Carlson ("Optionee"). 1. Grant of Option. The Company hereby irrevocably grants to Optionee the right and option to purchase all or any part of an aggregate of 100,000 shares (the "Shares") of common stock, having no par value per share, of the Company (the "Common Stock") on the terms and conditions hereinafter set forth. The options are exercisable in increments of 25,000 Shares each over the following terms: Shares Term ------------ ---------------------- 25,000 Shares 11/16/1995 - 11/16/2000 25,000 Shares 11/16/1996 - 11/16/2001 25,000 Shares 11/16/1997 - 11/16/2002 25,000 Shares 11/16/1998 - 11/16/2003 2. Exercise Price. The exercise price of this Option shall be CDN. $2.51 per share (USD) $1.85) of Common Stock (the "Exercise Price"). 3. Term of Option. Subject to the other provisions of this Option, this Option may be exercised, in whole or in part, at any time or from time to time on or before 5:00 p.m., Mountain Time on the dates indicated under Grant of Option in Item 1 above. 4. Shareholder's Rights. The Optionee shall have the rights of a shareholder only with respect to Shares fully paid for by Optionee under this Option. 5. Adjustment of Exercise Price and Number of Shares. a) The number of Shares purchasable on the exercise of this Option and the Exercise Price shall be adjusted appropriately from time to time as follows: i) In the event the Company shall declare dividend or make any other distribution on any capital stock of the Company payable in Common Stock, rights to purchase Common Stock, or securities convertible into Common Stock or shall subdivide its outstanding shares of Common Stock into a greater number of shares or combine such outstanding stock into a smaller number of shares, then in each such event, the number of Shares subject to this Option shall be adjusted so that the holder shall be entitled to purchase the kind and number of Shares of Common Stock or other securities of the Company which it would have owned or have been entitled to receive after the happening of any of the events described above, had such Option been exercised immediately prior to the happening of such event or any record date with respect thereto; an adjustment made pursuant to this paragraph a) shall become effective immediately after the effective date of such event retroactive to the record date for such event. ii) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1% in the number of Shares purchasable on the exercise of this Option; provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. iii) Whenever the number of Shares purchasable on the exercise of this Option is adjusted, as herein provided, the Exercise Price payable on exercise shall be adjusted by multiplying the Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Shares purchasable on the exercise of this Option immediately prior to such adjustment and the denominator of which shall be the number of Shares so purchasable immediately thereafter. iv) Whenever the number of Shares purchasable on the exercise of this Option or the Exercise Price of such Shares are adjusted, as herein provided, the Company shall cause to be promptly mailed by first class mail, postage prepaid, to the Optionee of this Option notice of such adjustment or adjustments and shall deliver a resolution of the board of directors of the Company setting forth the number of Shares purchasable on the exercise of this Option and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment, together with the computation by which such adjustment was made. Such resolution, in the absence of manifest error, shall be conclusive evidence of the correctness of adjustment. v) All such adjustments shall be made by the board of directors of the Company, which shall be binding on the Optionee in the absence of demonstrable error. b) No adjustments shall be made in connection with: i) the issuance of any Shares on the exercise of this Option; ii) the conversion of shares of preferred stock; iii) the exercise or conversion of any rights, options, warrants, or convertible securities containing the right to purchase or acquire Common Stock; iv) the issuance of additional Shares or other securities on account of the anti-dilution provisions contained in or relating to this Option or any other option, warrant, or right to acquire Common Stock; v) the purchase or other acquisition by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock; or vi) the sale or issuance by the Company of any shares of Common Stock, evidences of its indebtedness or assets, or rights, options, warrants, or convertible securities containing the right to subscribe for or purchase Common Stock or other securities pursuant to options, warrants, or other rights to acquire Common Stock or other securities. 6. Notice of Certain Events. In the event of: a) any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other rights; b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, or any transfer of all or substantially all of the assets of the Company to any other person, or any consolidation, share exchange, or merger involving the Company; or c) any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company will mail to the Optionee(s) of this Option, at least 20 days prior to the earliest date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, or right; the amount and character of such dividend, distribution, or right, or the date on which any such reorganization, reclassification, transfer, consolidation, share exchange, merger, dissolution, liquidation, or winding up of the Company will occur and the terms and conditions of such transaction or event. 7. Method of Exercise. This Option may be exercised, in accordance with all of the terms and conditions set forth in this Option, by delivery of this Option together with a notice of exercise, a form of which is attached hereto as Exhibit "A" and incorporated herein by this reference, indicating the number of Shares which the Optionee then elects to purchase and making payment in full for the Shares in cash. Optionee shall include with the notice of exercise a certified or official bank check payable to the order of the Company in the amount of the full option price of the Shares being purchased for cash. As soon as practicable after receipt by the Company of such notice and of payment in full of the option price of all the Shares of Common Stock with respect to which the Option has been exercised, a certificate or certificates representing such Shares of Common Stock shall be issued in the name of the Optionee, or, if the Optionee shall so request in the notice exercising the Option, in the name of the Optionee and another person jointly, with right of survivorship, and shall be delivered to the Optionee. To the extent required by the terms of this Option, all Common Stock shall be issued only upon receipt by the Company of the Optionee's representation that the shares are purchased for investment and not with a view to distribution thereof. If this Option is not exercised with respect to all Shares subject hereto, Optionee shall be entitled to receive a similar Option of like tenor covering the number of Shares with respect to which this Option shall not have been exercised. 8. Availability of Common Stock. During the term of this Option, the Company shall at all times keep available the number of Shares of Common Stock required to satisfy the Option. 9. Limitation on Exercise. If the board of directors of the Company, in its sole discretion, shall determine that it is necessary or desirable to list, register, or qualify the Common Stock under any state or federal law, this Option may not be exercised, in whole or part, until such listing, registration, or qualification shall have been obtained free of any conditions not acceptable to the board of directors. If an officer or director, the Optionee shall not exercise the Option until such time as the shareholders of the Company have approved the granting of the Option by the Company and the exercise of the Option by the Optionee. 10. Restrictions on Transfer. The Option and the Shares subject to the Option (collectively referred to as the "Securities") are subject to registration under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities statutes. Optionee acknowledges that unless a registration statement with respect to the Securities is filed and declared effective by the Securities and Exchange Commission and the appropriate state governing agency, the Securities have or will be issued in reliance on specific exemptions from such registration requirements for transactions by an issuer not involving a public offering and specific exemptions under state statutes. Any disposition of the Securities may, under certain circumstances, be inconsistent with such exemptions. The Securities may be offered for sale, sold, or otherwise transferred only if i) registered under the Securities Act, and in some cases, under the applicable state securities acts, or, if not registered, ii) only if pursuant to an exemption from such registration requirements and only after the Optionee provides an opinion of counsel or other evidence satisfactory to the Company to the effect that registration is not required. In some states, specific conditions must be met or approval of the securities regulatory authorities may be required before any such offer or sale. The Company is under no obligation to register the Securities with the Securities and Exchange Commission or any state agency. If rule 144 is available (and no assurance is given that it will be), only routine sales of the Common Stock in limited amounts can be made after one year following the acquisition date of the Securities, as determined under rule 144(d), in accordance with the terms and conditions of rule 144. The Company is under no obligation to make rule 144 available. In the event rule 144 is not available, compliance with regulation A or some other disclosure exemption may be required before the Optionee can sell, transfer, or otherwise dispose of the Securities without registration. The Company and its registrar and transfer agent will maintain a stop transfer order against the transfer of the Securities, and this Option and any other certificate or agreement representing the Securities is subject to the following legend: THE SECURITIES REPRESENTED BY THIS OPTION, AGREEMENT, OR CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT. The Company may refuse to transfer the Securities to any transferee who does not furnish in writing to the Company the same representations and warranties set forth in this paragraph and agree to the same conditions with respect to such Securities as are set forth herein. The Company may further refuse to transfer the Securities if certain circumstances are present reasonably indicating that the proposed transferee's representations are not accurate. In any event, the Company may refuse to consent to any transfer in the absence of an opinion of legal counsel, satisfactory to and independent of counsel of the Company, that such proposed transfer is consistent with the above conditions and applicable securities laws. 11. Registration. The Company will utilize its best efforts to file and maintain the effectiveness of a registration statement on form S-8 with the Securities and Exchange Commission covering the issuance of the Shares issuable on exercise of this option and to maintain the effectiveness of such registration statement or a subsequent registration statement or other qualification in order to permit the exercise of this Option as set forth herein, although, there is no guaranty that such registration statement will be effective when the Option is exercised. If no registration statement is effective on the date of exercise of this Option, the Shares will not be issued unless and until there is available to the Company evidence, including representations from the Optionee, that such Shares are being acquired for investment and not for resale, on which the Company may reasonably rely as to the availability of an exemption from registration in issuing such Shares. 12. Assignment of Option. This Agreement shall not be assignable by the Optionee or his legal representative otherwise than by Will or the law of intestacy and the Option may be exercised, during his or her lifetime, only by the Optionee. If the Optionee dies on or prior to the Expiry Date while an officer or director of the Company, the Option, or such part thereof as remains unexercised, may be exercised by the legal representative of the Optionee at any time up to and including (but not after) the date one (1) year following the date of death of the Optionee or prior to the close of business on the Expiry Date, whichever is earlier. If the Optionee ceases to be an employee of the Company prior to the Expiry Date, the Option shall, on the earlier of the Expiry Date or thirty (30) days from the date the Optionee ceases to be an employee of the Company, terminate and be of no further force or effect whatsoever as to such of the Optioned Shares in respect to which the Option has not been exercised. 13. Amendments. If at any time during the continuance of this Agreement, the parties deem it necessary or expedient to amend, alter or add to this Agreement, they may do so by means of written agreement between them which shall supplement and form part of this Agreement. 14. Withholdings. If the grant or exercise of this Option is subject to withholding or other trust fund payment requirements of the U.S. Internal Revenue Code or applicable Canadian or U.S. Province, state or local laws, such requirements may, to the extent permitted by the then governing provisions of the Code, be met by the holder of such Option delivering shares of common stock or canceling options or other rights to acquire common stock or by the withholding shares of common stock subject to such Option, all with a fair market value equal to such requirements. To the extent that the holder of this Option is subject to the provisions of section 16(b) of the U.S. Securities Exchange Act of 1934, as amended, payment of the withholding and other trust funds requirements of the foregoing methods shall be subject to the transaction qualifying for an exemption from the provisions of section 16(b) under rule 16b- 3 promulgated pursuant to the Securities Exchange Act of 1934, as amended, or an amendment or successor rule of like tenor. 15. Approval. The terms of this Agreement and any amendments are subject to approval by the regulatory authorities having jurisdiction over the affairs of the Company and, if the Optionee is an insider of the Company within the meaning of the Securities Act, by the shareholders of the Company. 16. Total Stock Options. Total stock options do not exceed 10% of the Company's issued and outstanding share capital (unless under a formal Stock Option Plan) and total options to any one optionee does not exceed 5% of the total issued and outstanding share capital of the Company. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first written above. LA TEKO RESOURCES LTD. By /s/ Gordon J. Fretwell, Director /s/ Gerald G. Carlson Gerald G. Carlson Signed, Sealed and Delivered by Gerald G. Carlson in the presence of: /s/ Gordon J. Fretwell Signature of Witness Gordon J. Fretwell Name (print) 467 Hadden Drive Address Lawyer Occupation of Witness Exhibit A Form of Exercise (to be signed only upon exercise of Option) TO: LA TEKO RESOURCES LTD. The undersigned, the owner of the attached Option, hereby irrevocably elects to exercise the purchase rights represented by the Option for, and to purchase thereunder, shares of Common Stock of La Teko Resources Ltd. Enclosed is payment in the amount of $ , the exercise price of the Common Stock to be acquired, in the form of (insert description of manner of payment) Please have the certificate(s) registered in the name of , Social Security No. and delivered to the following address: If this exercise does not include all of the Common Stock covered by the attached Option, please deliver a new option of like tenor for the balance of the Common Stock to the undersigned at the foregoing address. DATED this day of , 199 . Signature of Optionee (Signature must be guaranteed by a bank or securities broker-dealer) Signature Guarantee: DECLARATION OF STOCK OPTION POSITION (This form is to be completed by the Optionee.) INCENTIVE STOCK OPTIONS TO: The Vancouver Stock Exchange RE: 500,000 incentive stock options in La Teko Resources Ltd. ("Company") at a price of CDN $2.51 per share, granted on the 10th day of December, 1996 (the "Options"). The Options are subject to Paragraph (1b) of the Non- Qualified Stock Option Agreement dated December 10th, 1996 and are exercisable over the term which is set out in the Agreement. I, Gerald F. Carlson, HEREBY CERTIFY that the aforesaid non-transferable options have been granted to me in compliance with the requirements of V.S.E. Policy 23; and more particularly that at the time of grant, I was not aware of any change in the affairs of the Company which might have affected the trading price or value of the Company's shares and which had not been disclosed to the public. If the Company is classified as a Venture Company as of the date of this declaration, I confirm that I have not been granted a stock option in the Company within 2 years of the date of grant of the above Options. I am a director of the Company, or of n/a , a subsidiary of the Company, or I am an individual employed by n/a , a company providing management services to the Company. (If an employee, my job description is n/a and I work n/a hours per week for the Company or its subsidiaries.) I HEREBY FURTHER CERTIFY (complete either Part I or Part II as applicable): PART I THAT I do not currently have any outstanding options granted by any listed company. DATED this day of , 199 . SIGNATURE: PART II THAT I hold as of the date of this Declaration outstanding stock options which have been granted to me by the Company and/or other listed companies as follows: Name of Listed Company Date of Grant Outstanding Balance Dentonia Resources, Ltd. Oct. 5, 1994 100,000 (Complete on separate sheet if insufficient space) DATED this 8th day of January, 1997. SIGNATURE /s/ Gerald G. Carlson Enforcement action by the Vancouver Stock Exchange, the British Columbia Securities Commission or other regulatory authorities may result if a person makes a statement in this document that, at the time, and in light of the circumstances under which it was made, is a misrepresentation. THIS DOCUMENT WILL BE PLACED IN THE COMPANY'S PUBLIC FILE EX-21 7 SCHEDULE OF SUBSIDIARIES Exhibit 21.01 State of Name Incorporation La Teko Resources, Inc. Nevada EX-23 8 BEDFORD CURRY CHARTERED ACCOUNTANTS [LETTERHEAD] Board of Directors La Teko Resources Ltd. 625 Howe Street, Suite 500 Vancouver, B.C. V6C 2T6 Dear Sirs: LETTER OF CONSENT Bedford Curry & Co. hereby consents to the incorporation by reference into Registration Statements on Form S-8, SEC File Nos. 33-00174, 33-95586 and 33- 21225, and the Registration Statement on Form S-3, SEC File No. 33-81886, of La Teko Resources Ltd. (the "Company") of its report respecting the financial statements of the Company as of December 31, 1996 and 1995, as contained in the Company's annual report on Form 10-K for 1996, and hereby consents to being named in such annual report as having rendered its opinion respecting the financial statements. /s/ Bedford Curry Chartered Accountants EX-23 9 MINE DEVELOPMENT ASSOCIATES MINE ENGINEERING SERVICES La Teko Resources Ltd. Letter of Consent Mine Development Associates, Inc., hereby consents to the discussion relating to the resource and reserve study dated March 10, 1996 prepared for La Teko Resources Ltd. (the "Company") respecting the True North property near Fairbanks, Alaska, as it is contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1996. We also consent to the incorporation by reference into the Registration Statements on Form S-8, SEC File Nos. 33-00174, 33-95586 and 33-21225, and the Registration Statement on Form S-3, SEC File No. 33-81886, of such discussion as it is contained in the Form 10-K. Sincerely, MINE DEVELOPMENT ASSOCIATES, INC. /s/ Neil B. Prenn, P.E. President EX-27 10 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1996, AND STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 3,041,205 500,913 15,918 0 6,295 3,264,263 895,977 685,261 14,491,032 567,218 0 18,217,342 0 0 0 14,491,032 2,509,850 (1) 2,611,733 (2) 54,633 (3) 54,633 (3) 1,492,572 0 94,186 970,332 14,547 (1,499,432) 2,455,217 0 0 955,785 (.04) (.04) PROCEEDS/GAIN FROM NON-RECURRING SALES: SALES COST Newmont J/V $ 2,500,000 $ 52,752 Vehicles 9,850 1,881 $ 2,509,850 (1) 54,633 (3) ----------- --------- Interest Earned 101,883 ----------- Total $ 2,611,733 (2) $ 54,633 (3) =========== =========
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