-----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, NOxPbzhsXL/9fjRr8e/Y6t53NYqG2yeDQF6TNIJTszNEHi8Mml+OIL5m3fDp0Tqg xK5aL6dDXTn17CmCCwJwTQ== 0000950148-97-001586.txt : 19970529 0000950148-97-001586.hdr.sgml : 19970529 ACCESSION NUMBER: 0000950148-97-001586 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 10 REFERENCES 429: 333-17423 FILED AS OF DATE: 19970528 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEVADA MANHATTAN MINING INC CENTRAL INDEX KEY: 0000848821 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 880219765 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-27923 FILM NUMBER: 97615285 BUSINESS ADDRESS: STREET 1: 5038 N PARKWAY STREET 2: STE 100 CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8185914400 MAIL ADDRESS: STREET 1: 5038 N PARKWAY STREET 2: STE 100 CITY: CALABASAS STATE: CA ZIP: 91302 SB-2 1 FORM SB-2, REVISED ORIGINAL FILING 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1997. REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NEVADA MANHATTAN MINING INCORPORATED (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) ------------------------ NEVADA 1041 88-0219765 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
5038 NORTH PARKWAY CALABASAS, SUITE 100 CALABASAS, CALIFORNIA 91302 (818) 591-4400 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) ------------------------ JEFFREY S. KRAMER CHIEF FINANCIAL OFFICER NEVADA MANHATTAN MINING INCORPORATED 5038 PARKWAY CALABASAS, SUITE 100 CALABASAS, CALIFORNIA 91302 (818) 591-4400 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ COPIES TO: LLOYD S. PANTELL, ESQ. LLOYD S. PANTELL, APLC 10940 WILSHIRE BOULEVARD, SUITE 1550 LOS ANGELES, CALIFORNIA 90024 TELEPHONE (310) 443-9559 FACSIMILE (310) 443-3281 ------------------------ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ________ If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE ================================================================================================== PROPOSED PROPOSED TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM PRICE MAXIMUM OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value(2)..................... $ $22,755,000 $6,896(3) - -------------------------------------------------------------------------------------------------- Total............................................................................ $6,896(3) ==================================================================================================
(1) Estimated solely for the purpose of completing the amount of the registration fee pursuant to Rule 457 based upon a bona fide estimate of the maximum offering price. (2) Includes 2,100,000 shares of Common Stock held by, or to be issued to, certain shareholders referred to in the Prospectus as "Selling Shareholders." (3) The Prospectus contained in this Registration Statement is identical to the Prospectus contained in Amendment No. 1 to Form SB-2 filed in connection with Registration No. 333-17423 on May 1, 1997. Applicant hereby combines such Prospectus pursuant to Rule 429(a). For the purposes of Rule 429, all securities sought to be registered pursuant to Registration No. 333-17423 (i.e. $22,755,000) are being carried forward. The entire filing fee ($6,896) associated with the securities sought to be registered pursuant to this Registration Statement has been previously paid. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 NEVADA MANHATTAN MINING INCORPORATED CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
FORM SB-2 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS ---------------------------------------------------------- ------------------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus................................................ Outside Front Cover 2. Inside Front and Outside Back Cover Pages of Prospectus... Inside Front Cover Page 3. Summary Information and Risk Factors...................... Summary of Offering; Risk Factors and Special Material Considerations 4. Use of Proceeds........................................... Use of Proceeds 5. Determination of Offering Price........................... Risk Factors and Special Material Considerations 6. Dilution.................................................. Risk Factors and Special Material Considerations; Description of Securities Being Offered 7. Selling Security Holders.................................. Principal and Selling Shareholders 8. Plan of Distribution...................................... Plan of Distribution 9. Legal Proceedings......................................... Legal Matters, Auditors, and Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons................................................... Management; Principal and Selling Shareholders 11. Security Ownership of Beneficial Owners and Management.... Management; Principal and Selling Shareholders 12. Description of Securities................................. Description of Securities Being Offered 13. Interest of Named Experts and Counsel..................... Management 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Management -- Limitations on Director and Officer Liability 15. Organization Within Last Five Years....................... Inapplicable 16. Description of Business................................... Description of Company's Business and Property 17. Management's Discussion and Analysis of Financial Position and Results of Operations................................. Management's Discussion and Analysis of Financial Position and Results of Operations 18. Description of Property................................... Description of Company's Business and Property 19. Certain Relationships and Related Transactions............ Management -- Significant Employees and Consultants; Management -- Summary Compensation Table; Management -- Options and Stock Appreciation Rights; Description of Company's Business and Property -- the Nevada Property
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FORM SB-2 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS ---------------------------------------------------------- ------------------------------- 20. Market for Common Equity and Related Stockholder Matters................................................... Summary of Offering; Risk Factors and Special Material Considerations; Plan of Distribution; Principal and Selling Shareholders; Description of Securities Being Offered 21. Executive Compensation.................................... Management -- Significant Employees and Consultants; Management -- Executive Compensation 22. Financial Statements...................................... Financial Statements of Company 23. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure....................... Inapplicable
4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 28, 1997 [LOGO] NEVADA MANHATTAN MINING, INC. MINING - DEVELOPMENT - EXPLORATION SHARES OF COMMON STOCK ($.01 PAR VALUE) AT $ PER SHARE Nevada Manhattan Mining, Inc. (The "Company"), is a Nevada corporation which was formed in 1985 (originally under the name "Epic Enterprises, Ltd.") for the purpose of engaging in the mining of precious metals with an emphasis in the mining of gold and silver. On the terms and conditions which follow, the Company and certain of its existing shareholders (the "Selling Shareholders") hereby offer a minimum of shares and a maximum of shares of its common stock (the "Common Stock") at a price of $ per share which shall be issued, if at all, on or before the Offering Commitment Date (presently scheduled for October 31, 1997). The minimum investment for each prospective Investor will be 500 shares of Common Stock. Of the amount hereby offered, up to 1,500,000 shares represent Common Stock offered by the Company. The balance of the shares hereby offered represent Common Stock in the possession of the Selling Shareholders and up to 1,500,000 shares which are required to be registered in order to effect the conversion of convertible debt securities recently issued by the Company. The Common Stock will be offered only to persons who meet the suitability requirements outlined elsewhere in this Prospectus. To the extent that sufficient investment Subscriptions are accepted by the Offering Termination Date, the Company intends to utilize the Net Proceeds received from such Subscriptions to further develop the mining property known as the Manhattan property (the "Nevada Property"); to enter into a binding agreement with New Concept Mining, Inc. ("New Concept Mining") to purchase an interest in the mill currently located in the vicinity of the Nevada Property; to provide for mill services and/or to purchase various crushing, grinding, gravity separation, cyanide leach flotation and thickening equipment and to construct its own mill on site at the Property; to explore and develop the gold and coal mining properties located on the Indonesian portion of the island of Borneo known as Kalimantan and on the island of Sumatra, Indonesia (the "Indonesian Concessions"); to acquire additional timber properties or concessions adjacent to, in the vicinity of, or compatible with its existing timber properties located in the state of Para, Brazil (the "Brazilian Timber Properties"); and/or for working capital. The offering represented by this Prospectus (the "Offering") involves certain factors which should be considered by all prospective Investors. See "RISK FACTORS AND SPECIAL MATERIAL CONSIDERATIONS." (Cover continued on next page) THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PUBLIC(1) AND COMMISSIONS(2) COMPANY(3) - --------------------------------------------------------------------------------------------------------- Per Unit..................................... $ $ $ - --------------------------------------------------------------------------------------------------------- Total Minimum................................ $ $ $ - --------------------------------------------------------------------------------------------------------- Total Maximum................................ $ $ $ =========================================================================================================
(1) The minimum amount of shares which may be purchased by a prospective Investor will be Five Hundred (500) shares at a price of Dollars ($ .00) per share or a total of Thousand Dollars ($ ,000). The Company reserves the right to sell the Common Stock in additional increments of one hundred (100) shares provided the minimum number of shares (500) is purchased. (2) The Company intends to offer the Common Stock on a best-efforts basis. Sales will only be made by Affiliates of the Company including the Company's board of directors and executive officers. The Company may also enter into Underwriting Agreements with broker-dealers who are members of the National Association of Securities Dealers, Inc. It is anticipated that sales and underwriting commissions equal to ten percent (10%) of Subscriptions will be paid to those persons or entities entering into Underwriting Agreements. (3) Does not include the provision of up to One Hundred Twenty Thousand Dollars ($120,000) for Organization and Offering Expenses or the use of proceeds relative to the sale of Common Stock by the Selling Shareholders. See Section of the Prospectus entitled "USE OF PROCEEDS." THE DATE OF THIS PROSPECTUS IS , 1997. 5 (Cover page continued) In particular, prospective Investors should consider that: - the Company intends to expend up to approximately One Million Five Hundred Thousand Dollars ($1,500,000) of the Net Proceeds for the further development of the Nevada Property up to approximately One Million Five Hundred Thousand Dollars ($1,500,000) in exploration costs relative to the Indonesian Concessions, up to approximately Three Million Four Hundred Fifteen Thousand Two Hundred Dollars ($3,415,200) to acquire and develop existing and additional timber properties or concessions in Brazil and up to One Million Dollars ($1,000,000) for general and administrative expenses. - the Company is a development-stage company which has recently commenced the mining and extraction of precious metals from the Nevada Property, timber production on certain of the Brazilian Timber Properties, and exploration activities on certain of the Indonesian Concessions. The Company has generated $ in revenues as of , 1997 all due from its operations in Brazil. No revenue has been generated to date from the Nevada Property or from the Indonesian Concessions. No assurance can be given that the Company will be able to profitably conduct mining or timber operations even if all Subscriptions are sold pursuant to this Offering. - mining and natural resources operations are speculative by their nature. Even though the Company has located what it believes are commercial quantities of precious metals on the Nevada Property, has generated positive cash flow from its Brazilian Timber Properties, and has commenced exploration on the Indonesian Concessions, Prospective Investors should consider that unexpected problems, expenses, and delays are typically encountered in the development of complex mining and timber properties thereby further complicating the ability of companies to successfully develop its mining properties. - having completed the initial phase of exploration and development on the Nevada Property and having received permits to commence operations thereon, additional development and other expenses and further permitting related to the Nevada Property is likely to be ongoing. - the Company's operations are subject to substantial governmental regulation including federal, state, and local regulations concerning mine safety and environmental protection. Compliance with these regulations may cause significant delays in the ongoing permitting process or may prevent the Company from ultimately maintaining the permits necessary to continue commercial mining operations on the Nevada Property, to continue operations on the Brazilian Timber Properties, and/or continue its operations on the Indonesian Concessions. - prospective Investors who subscribe to the Common Stock will be subject to an immediate dilution of up to Dollars Cents ($ ) per share. - the Company does not currently intend to pay dividends and the rights of shareholders of the Common Stock to receive dividends are subordinate to the holders of the Company's Preferred Stock. - this Prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Prospective Investors are cautioned that such statements assume the existence of events in the future which cannot be assured will occur or even predicted with any reasonable level of certainty. - while the Company is currently trading on the Electronic Bulletin Board of NASDAQ and has applied for listing on the American Stock Exchange, no assurance that the current market for the Common Stock can be maintained. i 6 SUMMARY OF THE OFFERING This summary is provided for quick reference only and is qualified in its entirety by the terms and conditions outlined in the remainder of this Prospectus and by the financial statements including the notes thereto appended to this Prospectus. Prospective Investors are urged to carefully review the entire Prospectus and to consult with their legal and/or professional advisors before reaching an investment decision. THE COMPANY Nevada Manhattan Mining Incorporated (the "Company") was formed on June 10, 1985, in the state of Nevada under the name of Epic Enterprises, Ltd. On September 11, 1987, the Company amended its Articles of Incorporation changing its name to Nevada Manhattan Mining Incorporated. The Company's articles currently authorize the issuance of 49,750,000 shares of Common Stock with a par value of one cent ($.01) per share and 250,000 shares of Series A Preferred Stock with a par value of $1.00 per share (the "Preferred Stock") convertible into Common Stock on the terms and conditions described elsewhere in this Prospectus. There were 12,208,412 shares of the Company's Common Stock and 228,919 shares of the Preferred Stock issued and outstanding as of February 28, 1997. The average price per share paid for the Common Stock issued directly by the Company has been approximately $2.00 per share. Holders of the Preferred Stock have paid $10.00 per share with an effective purchase price for the Common Stock (after giving effect to the conversion thereof on a one-for-ten basis) of $1.00 per share. In addition, the Company has recently issued $2,000,000 of 8% Senior Secured Convertible Debentures in a privately-negotiated transaction to Silenus Limited. The Company was formed primarily to develop the Nevada Property, other gold mining properties which it had previously owned, and certain gold mining properties which it has recently acquired. Pursuant to prior action of both the Company's directors and its shareholders, certain gold mining properties have been abandoned. The Company has recently acquired the rights to seven (7) gold mining concessions and three (3) coal mining concessions in Indonesia, as well as three (3) timber properties in Brazil. The Company has its principal executive offices at 5038 North Parkway Calabasas, Suite 100, Calabasas, California 91302. Its telephone number is (818) 591-4400 and its facsimile number is (818) 591-4411. Management of the Company presently consists of a five-member board of directors (two of which are neither executive officers nor employees) and employs two (2) full-time executive officers and seven (7) full-time employees at its principal offices. The Company's subsidiary, Equatorial Resources, Ltd., also employs 62 persons with respect to current operations on the Brazilian Timber Properties. In 1989, the Company formed a Shareholder Advisory Committee (the "Advisory Committee") comprised of up to 12 outside shareholders. The purpose of the Advisory Committee is to participate in directors' meetings and compensation meetings, as well as planning meetings related to all aspects of corporate development. Members are selected annually from a group of shareholders who respond to Company inquiries regarding interest in participating on the Advisory Committee. Membership is rotated annually. One of the primary purposes of this Committee is to provide independent, shareholder participation in critical decisions relating to overall corporate strategy. The Company has contracted with Harrison Western Mining and Construction, Lakeland, Colorado, to supply labor, service, materials and equipment for its operations on the Nevada Property. The Company has also entered into agreements with: Gold King Mines Corporation to provide mining consulting services with respect to the Nevada Property; Behre Dolbear & Company, Inc., to provide oversight and third-party validation services relative to the exploration and development activities on the Indonesian Concessions; Eco-Rating International, Inc., to provide an economic and environmental evaluation of the Company's Brazilian Timber Properties; with Thyssen Sudamerica N.V. to market and sell all timber harvested and milled by the Company with respect to the Jonasa Concessions; and with British Far East Holdings Ltd. to provide certain financial and management consulting services. See "MANAGEMENT," "PRINCIPAL AND SELLING SHAREHOLDERS," and "DESCRIPTION OF SECURITIES BEING OFFERED." 1 7 PRINCIPAL OBJECTIVES OF THIS OFFERING The Net Proceeds derived from this Offering will be used for the purposes of: 1. Expending approximately One Million Five Hundred Thousand Dollars ($1,500,000) to further develop the Nevada Property consistent with the Company's business plan prepared by William R. Wilson and dated as of July 1995 (the "Nevada Business Plan"); 2. Expanding and/or delineating (to increase reserves and potential reserves of) the Nevada Property and, to the extent that it enters into a binding agreement with New Concept Mining, acquiring up to a fifty percent (50%) interest in the mill currently operating approximately one mile from the Nevada Property. In addition or in the alternative, the Company may enter into a contract for milling services with New Concept Mining or purchase all of the equipment necessary to construct a mill on site at the Nevada Property; 3. Expending up to Three Million Four Hundred Fifteen Thousand Two Hundred Dollars ($3,415,200) to further develop the Brazilian Timber Properties and to acquire and develop additional timber concessions or properties located adjacent to, in the vicinity of, or in areas compatible with the Brazilian Timber Properties. 4. Expending up to One Million Five Hundred Thousand Dollars ($1,500,000) to explore and develop the Indonesian Concessions; 5. Paying up to One Million Dollars ($1,000,000) in general and administrative expenses and/or retaining all or a portion of said sum as working capital. THE OFFERING The Offering represents a proposal by the Company to sell up to shares of the Common Stock at $ per share and to register up to 2,100,000 shares of outstanding Common Stock held by or which may be issued to the Selling Shareholders. The Offering will expire at 5:00 p.m. (PDT) on October 31, 1997 (the "Offering Commitment Date"), unless extended by the Company for a period or periods up to and through March 31, 1998 (the "Offering Termination Date"), or unless this Offering is terminated prior to such date by the Company. The Company has designated U.S. Stock Transfer Corporation, Glendale, California, its current transfer agent and registrar, to act as Transfer Agent. Prior to the Offering Commitment Date, all Subscription funds will be held in an escrow account with (the "Bank"). Provided the minimum number of Subscriptions are accepted by the Offering Commitment Date, the Company will offer and sell shares of the Common Stock through the Offering Termination Date. If the minimum amount of Subscription funds are not accepted by the Offering Commitment Date (i.e. $1,500,000), all funds held in the escrow account will be returned to the prospective Investors who tendered such funds. Any interest earned on Subscription funds will be distributed to the prospective Investors tendering such funds upon activation or termination of the Offering, as the case may be. The minimum Subscription will be 500 shares or $ . The Company reserves the right to sell additional one hundred (100) share lots of the Common Stock provided each prospective Investor agrees to subscribe to a minimum of 500 shares. SUITABILITY REQUIREMENTS Offers and sales of shares of Common Stock will only be made to persons who meet the following minimum suitability requirements: 1. He/she (either alone or together with his/her spouse) has a net worth (exclusive of home, furnishings, and automobiles) in excess of Fifty Thousand Dollars ($50,000); or 2. He/she (either alone or together with his/her spouse) has a net worth (exclusive of home, furnishings, and automobiles) in excess of Thirty-Five Thousand Dollars ($35,000) plus, during the year of investment, anticipates gross income as defined by Internal Revenue Code section 61 in excess of Sixty-Five Thousand Dollars ($65,000). 2 8 PLAN OF DISTRIBUTION The Common Stock will be offered by the Company and Affiliates on a "best-efforts" basis to persons whom the Company believes to possess the minimum suitability standards. In cases where offer and sales of the Common Stock are affected by the Company and/or its Affiliates, no sales or underwriting commissions will be paid. In the event the Company enters into Underwriting Agreements with persons or entities who are broker-dealers and members of the National Association of Securities Dealers, Inc. ("NASD"), the Company may allot up to ten percent (10%) of the Subscription price for the Common Stock as sales and underwriting commissions and an additional two percent (2%) of such Subscription price as "due diligence" fees and expenses. APPLICATION OF PROCEEDS Net Proceeds derived from this Offering will be used to attain the principal objectives of this Offering. If only the minimum Subscriptions are accepted by the Company prior to the Offering Termination Date, only some of the principal objectives of this Offering will be met. See "USE OF PROCEEDS." NO BOARD RECOMMENDATION An investment in the Common Stock must be made pursuant to a prospective Investor's independent investment evaluation. The advisability of such an investment will depend upon a number of factors unique to each prospective Investor as well as such independent evaluation of the merits of an investment in the Common Stock. Accordingly, the Company's board of directors makes no recommendation to prospective Investors or others regarding whether they should purchase Common Stock. 3 9 RISK FACTORS AND SPECIAL MATERIAL CONSIDERATIONS THE PURCHASE OF SHARES OF COMMON STOCK INVOLVES A SUBSTANTIAL DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT. THIS SECTION OF THE PROSPECTUS SETS FORTH THE RISKS AND SPECIAL CONSIDERATIONS WHICH THE COMPANY BELIEVES MAY EXIST CONCERNING AN INVESTMENT IN THE COMMON STOCK. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT FACTORS OTHER THAN THOSE SET FORTH BELOW MAY ULTIMATELY AFFECT AN INVESTMENT IN A MANNER AND TO A DEGREE WHICH CANNOT BE FORESEEN AT THIS TIME. ALL PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR ADVISORS PRIOR TO MAKING AN INVESTMENT IN COMMON STOCK SO THAT THEY UNDERSTAND FULLY THE NATURE OF THE UNDERTAKING AND THE RISKS WHICH MAY BE INVOLVED PRIOR TO INVESTING. FURTHERMORE, ALL PROSPECTIVE INVESTORS ARE URGED TO REVIEW WITH THEIR COUNSEL, ACCOUNTANTS, AND PROFESSIONAL ADVISORS THE FINANCIAL STATEMENTS ATTACHED TO THE PROSPECTUS. ANY DOCUMENTS DESCRIBED IN THIS PROSPECTUS WHICH HAVE NOT BEEN ATTACHED AS EXHIBITS MAY BE OBTAINED BY PROSPECTIVE INVESTORS AND/OR THEIR ADVISORS UPON REQUEST FROM THE COMPANY. THIS PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION THAT ARE BASED UPON MANAGEMENT'S BELIEFS AS WELL AS ON ASSUMPTIONS MADE BY AND UPON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS PROSPECTUS, THE WORDS "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "BELIEVE," "SEEK" AND "ESTIMATE" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. HOWEVER, THIS PROSPECTUS ALSO CONTAINS OTHER FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING RISK FACTORS, WHICH COULD CAUSE THE COMPANY'S FUTURE RESULTS AND STOCK VALUES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY. MANY OF SUCH FACTORS ARE BEYOND THE COMPANY'S ABILITY TO CONTROL OR PREDICT. READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY ANY AND ALL FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. FINANCIAL CONDITION OF COMPANY Although the Company was formed in 1985 to engage in precious metal mining activities, its net worth is limited. The Company is and still should be considered in its development stage, having a net worth of $9,862,768 as of February 28, 1997. Moreover, the Company's net worth and the value of its Common Stock will ultimately be dependent upon the overall success of mining operations conducted on the Nevada Property, the Indonesian Concessions, and upon timber operations currently being conducted and to be conducted on the Brazilian Timber Properties. Under the terms of the Nevada Property Agreement, the sum of Three Hundred Eighty-Four Thousand Eight Hundred Dollars ($384,800) was to be due and owing under the Nevada Note and Deed of Trust on January 20, 1999. This amount has been adjusted pursuant to the agreement entered into on February 6, 1997 with the Selig Entities as described in more detail in the Section of this Prospectus entitled "THE COMPANY'S BUSINESS & PROPERTIES." The Company made the first payment of One Hundred Thousand Dollars ($100,000) in March 1997. The balance remaining to be paid to the Selig Entities is currently being held in an escrow account. In addition, the Company has recently executed a deed of trust in principal amount of Two Million Dollars ($2,000,000) to Silenus Limited pursuant to a privately-negotiated placement of 8% Senior Secured Convertible Debentures described elsewhere in this Prospectus. Until such 4 10 time as all obligations due under the February 6, 1997 agreement with the Selig Entities are paid in full, the Debentures issued to Silenus Limited are paid, converted or redeemed, and the encumbrances on the Nevada Property are reconveyed to the Company, one of the primary assets of the Company, namely the Nevada Property, will be subject to the terms and conditions of such instruments. Any default under such agreement or the Deed of Trust which remains uncured would subject the Company to the possible loss of the Nevada Property. In addition, the Company, through its subsidiaries, has undertaken to expend considerable amounts for exploration activities on certain of the Indonesian Concessions and considerable amounts on timber-related activities with respect to certain of the Brazilian Timber Properties. The failure to generate the significant cash flow from its current operations may result in the Company's inability to adequately develop its holdings thereby jeopardizing the Company's ability to continue to hold such assets. DEPENDENCE UPON MANAGEMENT The business of the Company is and will be greatly dependent upon the active participation of Christopher D. Michaels and Jeffery S. Kramer. The Company also anticipates that it will be dependent upon the active participation of other key personnel and/or consultants in the future. The Company presently has employment agreements with both Mr. Michaels and Mr. Kramer and has entered into agreements with key consultants; nevertheless, the loss of the services of Mr. Michaels, Mr. Kramer and/or other key personnel (including such consultants) regardless of reason could adversely affect the Company and the Company's business. The Company does not maintain any life insurance policies enabling it to receive benefits in the case of either Mr. Michaels' or Mr. Kramer's death. To the extent that the services of Mr. Michaels or Mr. Kramer would be unavailable to the Company for any reason, the Company might be required to employ other executive personnel to manage and operate the Company. There is no assurance that the Company under such circumstances would be able to employ qualified persons on terms suitable to the Company to assure the fulfillment of the objectives stated in this Prospectus. LACK OF DIVERSIFICATION The Company has, in the past, maintained other mining properties for exploration and development. These properties were located in Bolivia, South America and Vancouver, British Columbia. Through its board of directors and shareholders, the Company previously elected to abandon such other properties. The Company's primary assets presently consist of the Nevada Property, the Indonesian Concessions and the Brazilian Timber Properties. No assurance can be given that once the Company completes its present exploration and development of the Company's properties in Nevada and increases or continues its timber operations in Brazil as described in further detail in this Prospectus, it will be able to establish and produce significant revenues from such operations or become profitable. In addition, there can be no assurance that exploration activities currently being conducted on the Indonesian Concessions will result in the establishment of commercial quantities of mineralization. As a result, persons reading this Prospectus should be aware that investment in the Common Stock represents an additional risk because the Company's activities are presently confined to the exploration, development and gold production of only one mining property, preliminary exploration activities on certain of the Indonesian Concessions and the continued conduct of timber operations on the Brazilian Timber Properties. RISKS ASSOCIATED WITH THE COMPANY'S OPERATIONS There are a number of risks inherent in the mining of precious metals and timber operations which may have a dramatic impact on the value of the Company and the liquidity of the Common Stock. These risks include, but are not limited to, the ability to obtain permits, licenses and other governmental approvals; equipment availability; implementation of proper mining and milling techniques; title problems; compliance with environmental laws, rules, and regulations; accuracy of reserve forecasts; and dramatic fluctuations in the price of precious metals and timber/lumber prices. Because of these and other risk factors associated with natural resource operations, the Company can give no assurance that its shareholders will be able to realize either a return on investment or a return of capital. 5 11 TITLE TO THE NEVADA PROPERTY Mineral interests in the United States are frequently owned by federal and state governments and private parties. When a prospective mineral property is owned by a private party or by a state, some type of property acquisition agreement is necessary in order for a company to explore or develop such property. Generally, these agreements take the form of purchase agreements, as in the case of the mining agreement and property agreement discussed below, or long-term mineral leases. All such purchase agreements and leases are generally subject to termination in the event of a default. In addition to the acquisition of mineral rights by state or private parties, the Company also may acquire rights to explore for and produce minerals on federally-owned lands. This acquisition is accomplished through the location of unpatented mining claims upon unappropriated federal land pursuant to procedures established by the General Mining Law of 1872, the Federal Land Policy and Management Act of 1976 and various state laws (or the acquisition of previously-located mining claims from a private party). The location of a valid mining claim on federal lands requires the discovery of a valuable mineral deposit, the erection of appropriate monuments, the posting of a location notice at the point of discovery, the marking of the boundaries of the claim in accordance with federal law and the laws of the state in which it is located and the filing of a notice or certificate of location and a map with the Bureau of Land Management and the real property recording official of the county in which the claim is located. Failure to follow the required procedures will render the mining claim void. If the statutes and regulations for the location of a mining claim are complied with, the locator obtains a valid possessory right to develop and produce minerals from the claim. This right can be freely transferred and is protected against appropriation by the government without just compensation. The interests represented by unpatented mining claims possess certain unique vulnerabilities not associated with other types of property interests. For example, in order to maintain each unpatented mining claim, the claimant must pay a claim maintenance fee or, if qualified to do so under the small miner exemption, annually perform not less than $100-worth of work or improvements on or for the benefit of the claim and must file with state and federal authorities appropriate documentation. Failure to pay the claim maintenance fee or perform assessment work will render the claim subject to being declared void or subject to relocation by third parties. Failure to make the required filings will make the property deemed to be abandoned. In addition, under applicable regulations and court decisions, in order for an unpatented mining claim to be valid, the claimant must be able to prove that the mineral deposit on which the claim is based can be mined at a profit both at the time the claim is located and at all times thereafter. Thus, it is conceivable that, during times of declining metal prices, claims which were valid when located could be invalidated by the federal government. No generally applicable title opinions or title insurance has been obtained with respect to the Nevada Property with the attendant risk that some titles may be defective. In fact, the agreements which relate to the current ownership of the parties (i.e. the 1993 Joint Venture Agreement and the Amended Joint Venture Agreement) contain incomplete and inadequate descriptions of the mining claims. However, on the basis of periodic status reports and reviews by the Company's employees of the relevant land records, the Company has concluded that it has satisfactory title to the Nevada Property subject to exceptions which the Company does not believe materially impair the ability to continue to mine and process the ore and to obtain the economic benefits thereof. The Company first acquired its rights in and to the Nevada Property pursuant to a mining agreement dated April 4, 1987 (the "Nevada Property Agreement"), with Anthony C. Selig & Associates, Dixie Exploration Corporation and Anthony C. Selig (the "Selig Entities"). The Selig Entities acquired their rights pursuant to a lease and option to purchase agreement which it had entered into on November 15, 1982 with Argus Resources, Inc. ("Argus"), pursuant to which the Selig Entities leased all of Argus' patented and unpatented mining claims comprising the Nevada Property. Under the terms of the Nevada Property Agreement, the Company was required to pay the Selig Entities the purchase price for the Nevada Property (ultimately determined to be $600,000). Additionally, the Company was required to and did issue 1,300,000 shares of Common Stock to Argus. The installment obligations owed to the Selig Entities were secured by a 6 12 deed of trust on the Nevada Property (the "Deed of Trust"). The stock issued to Argus was subject to a one-for-ten reverse stock split approved by the Company's shareholders and effected in 1995. In 1992, the Company entered into an agreement with Argus, whereby Argus was to control sixty percent (60%) of the Nevada Property and was to act as operator in consideration of Argus' assumption of all remaining payments due to the Selig Entities under the Nevada Property Agreement. Argus and the Company subsequently entered into a joint venture agreement with Marlowe Harvey/Maran Holdings, Inc. ("Marlowe Harvey"), whereby in consideration of Marlowe Harvey assuming all of the then remaining obligations owed to the Selig Entities, Marlowe Harvey would acquire a fifty-one percent (51%) interest in the joint venture, Argus would earn a twenty-four and one-half percent (24.5%) interest in the joint venture, and the Company would earn a twenty-four and one-half percent (24.5%) interest in the joint venture. In turn, the Nevada Property was to be conveyed to the joint venture. The Company has executed agreements with interested parties which may result in the Company increasing its interest in the joint venture from twenty-four and one-half percent (24.5%) to a minimum fifty percent (50%) interest in the joint venture. The rights and responsibilities of both the Company and Marlowe Harvey/Maran Holdings, Inc., are currently the subject of a lawsuit filed by the Company on November 4, 1996, in Nye County, Nevada. This lawsuit, described in the section of this Prospectus entitled "LEGAL PROCEEDINGS", will not affect the Company's right to its interest in the Nevada Property acquired pursuant to the various agreements previously entered into by the Company. As a result of the issues raised by the lawsuit, however, the Company may be required to hold or pay a portion of the revenues generated from mining operations for the benefit of Argus and Marlowe Harvey. In March 1997, the Company entered into a Sale and Purchase Agreement with the Selig Entities. Under the terms of this latest agreement, the Selig Entities agreed to sell to the Company one hundred percent (100%) of their interests in the Nevada Note, the Deed of Trust, and the Nevada Property for the sum of Three Hundred Seventy Five Thousand Dollars ($375,000) payable as follows: One Hundred Thousand Dollars ($100,000) in March 1997 and the balance plus all accrued and unpaid interest (calculated at the rate of 5.25%) on or before February 6, 1999. The Company in fact paid the first installment of One Hundred Thousand Dollars ($100,000) in March 1997. The balance of the funds due the Selig Entities is currently being held in a trust account. The agreement also acknowledges that the Company is the only person or entity legally entitled to conduct mineral operations on the Nevada Property. The Company is also required to pay all U.S. Bureau of Land Management annual maintenance fees associated with the claims comprising the Nevada Property. On April 14, 1997, the Company issued Two Million Dollars ($2,000,000) of 8% Senior Secured Convertible Debentures (the "Debentures") to Silenus Limited ("Silenus"). Pursuant to such issuance (described in greater detail elsewhere in this Prospectus), the Company granted to Silenus a deed of trust encumbering the Nevada Property. Until the Debentures are converted, redeemed or paid in full, Silenus will be entitled to maintain such encumbrance on the Nevada Property. TITLE TO THE INDONESIAN CONCESSIONS Mineral interests in Indonesia are controlled exclusively by the federal government through the Ministry of Mines and Energy. Title to a mineral property in Indonesia is subject to obtaining various forms of licenses for the extraction of commercial quantities of minerals after obtaining property rights from the fee owner. Title is confirmed by the issuance of a government seal affixed to specific property location maps. Under Indonesian law, a foreign mining company may not own a mining concession. Instead, it may obtain a "Contract of Work," known as a "COW" which allows the foreign concern the right to conduct certain mining activities including general surveying, mapping and limited exploration. The COW is intended to provide assurances to the foreign concern that if commercial mineralization is established, the government of Indonesia will issue guarantees as to title, fix taxation rates, permit exports of profit and other conditions defining the rights of the foreign concern to profit from the enterprise. While awaiting COW approval, a foreign company may obtain a "SIPP" which allows the company to conduct preliminary exploration work on a property pending approval of a COW application. 7 13 In lieu of obtaining a COW, a foreign company may elect to enter into a joint venture with an Indonesian limited liability company known as a "PT". Under this approach, the PT would hold the various licenses issued by the Ministry of Mines and Energy for the benefit of the joint venture. Another alternative is to enter into a transfer agreement with a PT company which holds the mining concession. Under this arrangement, the PT company would agree to transfer its licenses to the foreign company at such time as the foreign company received approval from Indonesian Investment Coordinating Board (the "BKPM") to form and thereafter forms a "PP20" or "PMA" joint venture company. The first step in establishing a PP20 or PMA company is to obtain the approval of the President of Indonesia to form the company. No approval can be obtained if the BKPM has identified a particular industry or line of business as closed to foreign investment, and has identified such line on its "Negative List." If such line of business is open to foreign investment, an application to the BKPM is submitted for approval. If approved, the PMA or PP20 company may hold the mining concession directly. Because direct foreign ownership of mining concessions is difficult, if not prohibited by Indonesian law, the Company and its subsidiary, Kalimantan Resources, must rely upon its contractual rights under the various agreements into which they and/or their predecessors have entered. These contracts are described in greater detail elsewhere in this Prospectus. Should a dispute arise as to the interpretation or enforcement of such agreements, resort to the Indonesian judicial system will likely be required. It should be noted that since members of the judicial branch are employed by the executive branch of the government, a fair opportunity to assert a foreign company's rights under such agreement may be limited. The Company has not currently completed its title investigations with respect to any of the Indonesian Concessions. However, prior to the time at which any payments will be made to the current holders of the licenses, the Company will have satisfied itself that either it, Kalimantan Resources, or the parties with whom it has contracted (and/or their predecessors in interest) will have good and merchantable title to the particular licenses purported to be owned by such third parties. Ownership of licenses to explore for and/or exploit natural resources in foreign countries is also subject to political risks. The United States has important economic, commercial and security interests in Indonesia because of its growing economy and markets and its strategic location in relation to key international straits. The U.S. and Indonesia maintain cordial and cooperative relations, although the two countries are not bound by formal security treaties. Indonesia is a republic based upon its 1945 constitution providing for a limited separation of executive, legislative and judicial power. The president, elected to a five-year term, is the overwhelmingly dominant government and political figure. The president appoints the cabinet, currently composed of four coordinating ministers (in the fields of political and security affairs, economic and financial affairs, people's welfare and industrial and trade affairs), thirteen state ministers, twenty-four ministers and three high officials with the status of state ministers. Moreover, judges are employees of the executive branch. Unlike Western democratic systems, the legislative branch meets only once during its five-year term, to formulate the overall principles and aims of the government and to elect the president and vice president. Representative bodies at all levels in Indonesia eschew voting, preferring to arrive at decisions through "consultation and consensus." The party system currently in place in Indonesia reflects the Soeharto Government's determination to shift the political focus from Indonesia's deep ethnic, religious and ideological differences which contributed to the collapse of an earlier Parliamentary democracy in that country. Soeharto's preferred strategy is an authoritarian program-based development-oriented politics. The military, especially the army, has provided key advisors to Soeharto and has wielded great influence on policy. Under a dual function concept, military officers serve in the civilian bureaucracy at all government levels, although there has been a recent tendency to somewhat reduce the military's direct involvement in civilian bureaucracies. 8 14 Because of the presence of a strong executive branch, some foreign companies have been forced to accede to government demands to revise licenses to include the participation of Indonesian-owned companies, larger foreign companies and, in some instances, the Indonesian government. The inability of a foreign company to effectively enforce its rights in licenses issued by the Indonesian government represents a risk unique to doing business in a developing country as compared to the United States. TITLE TO BRAZILIAN TIMBER PROPERTIES The Company has acquired its rights to the Brazilian Timber Properties pursuant to agreements entered into by and between the Company's subsidiary, Equatorial Resources, Ltd. ("Equatorial Resources"), and Madeira Intex, S.A., International Exports ("Madeira"), with respect to the two timber concessions referred to in this Prospectus as the "Jonasa Concessions"; Joao Salim, et al., with respect to the timber concession referred to in this Prospectus as the "Salim Concession"; and Dario Jose Balieiro Bernardes with respect to three timber concessions referred to in this Prospectus as the "Bernardes Concessions." The Company has performed preliminary title work on the Jonasa Concessions by examining the property files of Companhia Agropecuaria do Rio Jabuti, a company formed under the laws of the Federative Republic of Brazil ("Jonasa"), and has confirmed that Jonasa purchased its rights to the timber directly from the state government of Para in 1961. While Equatorial Resources has commenced timber production from the Jonasa Concessions pursuant to the terms of the Madeira Joint Venture, there can be no assurance that title problems and other claims hostile to the chain of title on which the Company has relied will not arise in the future. As of the date of this Prospectus, title work has not been completed on either the Salim Concession or the Bernardes Concessions. Before any sums are expended by the Company on timber operations on these concessions, the Company intends to employ legal counsel to advise it of the status of title to these concessions. In addition to the title problems and environmental problems commonly associated with the development of timber properties in the United States, foreign ownership of timber rights in foreign countries subjects a U.S.-based company to the additional risk of political instability. This risk would appear to be minimal in light of Brazil's political history. Brazil is a federative republic with broad powers granted to its federal government. The country is divided into twenty-seven (27) states and a federal district. It is a country rich in resources and natural advantages, but has lagged behind its potential according to U.S. State Department publications. The State Department further reports that the United States is Brazil's most important commercial partner and largest investor. Bilateral agreements between the two countries include a treaty of peace and friendship, an extradition treaty, a joint participation agreement on communication satellites and scientific cooperation, civil aviation, and maritime agreements. Brazil's current federal government is headed by President Fernando Henrique Cardoso who received 54% of the popular vote in 1994. President Cardoso's stated agendas for Brazil include constitutional amendments for solidifying economic stabilization and other measures designed to establish long-term stability and growth and to improve Brazil's socioeconomic imbalances. GOVERNMENTAL REGULATION Mining operations on the Nevada Property are and will be subject to substantial federal, state and local regulation concerning mine safety and environmental protection. Some of the laws and regulations which will pertain to mining operations include maintenance of air and water quality standards; the protection of threatened, endangered and other species of wildlife and vegetation; the preservation of certain cultural resources and the reclamation of exploration, mining and processing sites. These laws are continually changing and, as a general matter, are becoming more restrictive. The location of the Nevada Property is found in an area which strongly encourages mining operation. However, the Company's inability to comply with such federal, state or local ordinances and regulations on an ongoing basis may cause significant delays in the permitting process or in the operations anticipated to be conducted on the Nevada Property. In addition, delays in such compliance could result in unexpected and substantial capital expenditures. Although no such problems or delays are anticipated, no assurances can be given that the Company will be able to comply with 9 15 all applicable law and regulations and maintain all necessary permits, licenses and approvals or, in the alternative, that compliance and/or permitting will be obtained without substantial delays and/or expenses. With regard to the Nevada Department of Conservation and Natural Resources, Division of Environmental Protection ("NDEP"), the Company has received authorization to proceed with its currently planned mining operations on the Nevada Property pursuant to the applicable statutes and regulations relating to a small mining operation. In the event, however, the Company's operations exceed the designated limits for a limited mining operation, a full reclamation plan will need to be prepared, submitted and approved by NDEP. The Company is currently preparing such a reclamation plan. While the Company believes that it will be able to obtain such approval, there is no guarantee that the required approval will in fact be obtained by the Company. A change in the nature or magnitude of the Company's presently anticipated operations on the Nevada Property may trigger the need to obtain additional NDEP and other federal, state or local governmental approvals, licenses or permits. For example, water processing discharge needs may trigger the requirement that the Company obtain a water pollution control permit. The Company is currently preparing for submission of an application for a water pollution control permit. Other significant permits, required by a change in operations on the Nevada Property, might include an NDEP permit, air quality permit, waste management permit, archeological clearance and wildlife permit. There is no guaranty that the Company will be able to obtain any or all of the required federal, state or local permits that might be required to expand its operations on the Nevada Property. Even if the Company does not change its currently planned operations on the Nevada Property, the Company is nevertheless vulnerable to the various federal, state and local laws and regulations governing regulations and protection of the environment, occupational health, labor standards and other matters. The reason for this is that these laws are continually changing, and as a general matter, are becoming more restrictive. To comply with these federal, state and local laws, the Company may in the future be required to make capital and operating expenditures on environmental projects both with respect to maintaining currently planned operations and the initiation of new operations. Such projects may include, for example, air and water pollution control equipment; treatment, storage and disposal facilities for solid and hazardous waste; remedial actions required for the containment of tailings pond seepage; continuous testing programs; data collection and analysis land reclamation (specifically including existing mine and processing waste on the Nevada Property); landscaping and construction projects. There is no guaranty that the Company will technically or financially be able to comply with any or all of these potential requirements. ENVIRONMENTAL REGULATION AND LIABILITY The Company's proposed mineral operations on the Nevada Property are and will be subject to environmental regulation by federal, state and local authorities. Under applicable federal and state law, the Company may become jointly and severally liable with all prior property owners for the treatment, cleanup, remediation and/or removal of substances discovered at the Property which are deemed by federal and/or state law to be toxic or hazardous ("Hazardous Substances"). Liability may be imposed among other things for the improper release, discharge, storage, use, disposal or transportation of Hazardous Substances only in the areas which the Company disturbs. Applicable law imposes strict joint and several liability on, among others, "owners" and "operators" of properties contaminated with Hazardous Substances. Such liability may result in any and all "owners", "operators" and "transporters" of contaminated property being required to bear the entire cost of remediation. The Company may utilize substances which have been deemed by applicable law to be Hazardous Substances. The potential liability of the Company under such laws will be derived from the Company's classification as both an "owner" and "operator" of a contaminated property. While the Company intends to employ all reasonably practicable safeguards to prevent any liability under applicable laws relating to Hazardous Substances, mineral exploration by its very nature will subject the Company to substantial risk that remediation may be required. If the cleanup or remediation of hazardous substances is required on the Nevada 10 16 Property, substantial delays could occur in the permitting process and/or in the further extraction of gold and other precious minerals on the Nevada Property. Much like environmental laws found in the United States, both the federal and state governments in Brazil have adopted laws and standards relating to the harvesting and reclamation of forests. While the Company and its subsidiary, Equatorial Resources, has not yet fully familiarized itself with all of these laws and standards, Equatorial Resources has entered into an agreement with Eco-Rating International, Incorporated ("Eco-Rating"), Zurich, Switzerland, to better assist the Company and Equatorial Resources in understanding and complying with such laws and standards. Under the terms of its agreement with the Company, Eco-Rating has agreed to establish an "eco-efficiency model" designed to enable Equatorial Resources to establish environmental management guidelines for the conduct of activities on the Jonasa Concessions and ultimately the remainder of the Brazilian Timber Properties consistent with all applicable environmental laws and standards. PUBLIC MARKET The Company received approval for trading of its Common Stock on the Electronic Bulletin Board (NASDAQ) in March 1996. From the period from December 1995 until March 1996, the Company published "bid" and "ask" prices on the "pink sheets". The low and high prices for the Common Stock since commencement of quotations are as follows:
HIGH DATE LOW DATE - ------ ---------------------------- ------ ---------------------------- $14.25 March 3, 1997 $1.25 December 1995
Since the commencement of trading on the Electronic Bulletin Board, the average monthly volume of trading of the Company's Common Stock has been approximately 200,000 shares. Prospective Investors should be aware that the volume of trading on the Electronic Bulletin Board traditionally has been limited and there can be no assurance that the Electronic Bulletin Board will provide an effective market for a shareholder to sell his or her Common Stock of the Company. The Company has applied for listing with the American Stock Exchange ("AMEX") by requesting a preliminary listing eligibility opinion. The Company anticipates that it will be admitted to list its Common Stock prior to or as of the Effective Date of this Prospectus. SEC INVESTIGATION In May 1989, the Company received notice that the Securities and Exchange Commission (the "Commission") had commenced an informal investigation into the Company's compliance with the registration and disclosure requirements of the Securities Act of 1933 (the " '33 Act") and the Securities Exchange Act of 1934 (the " '34 Act"). Thereafter the Commission commenced an extensive review of the Company's books and records relating to the Company's business and mining operations, its capital raising activities, and its financial condition and history. Through all stages of the investigation, the Company cooperated with the Commission. The Commission and the Company agreed to terminate the Commission's investigation by the entry of a consent judgment against the Company and certain of the Company's past and present key employees. These key employees include Christopher D. Michaels, Jeffrey Kramer and Stanley Mohr. The terms and conditions of the consent judgment can be summarized as follows: 1. The Company neither admitted nor denied any of the allegations alleged by the Commission; 2. The Company and its officers, agents, servants, employees, and others receiving actual notice of the consent judgment are permanently restrained and enjoined from selling securities in interstate commerce unless and until a registration statement is in effect or the security or transaction is exempt from the registration provisions of the '33 Act and/or the '34 Act; 3. The Company and its officers, agents, servants, employees, and others receiving actual notice of the consent judgment are permanently restrained from engaging in any transaction, practice, or course of 11 17 conduct, employing any course of conduct, or obtaining any money or property by means of an untrue statement of a material fact, or any omission to state a material fact, necessary to make the statements made in light of the circumstances under which they were made not misleading. On April 7, 1994, the Company and the Commission entered into a stipulation regarding the resolution of all outstanding issues which then existed, which stipulation was entered as an order by the United States District Court for the Central District of California. Such stipulation contained an acknowledgement that the Company and its executive officers had received no ill-gotten gains as a result of prior activities by the Company in offering and selling its securities, and that the consent judgment resolved once and for all, all issues raised by the Commission as a result of the Company's prior activities. The Company was not required to pay any fines or required to disgorge any monies previously received by it in connection with its securities. RELATIONSHIP WITH OTHER OFFERINGS This Offering has been registered pursuant to Regulation S-B promulgated by the Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934 (the "Federal Securities Laws"). From the period March 1, 1994, through February 28, 1997, the Company has offered and sold 8,342,619 shares of its Common Stock and 228,919 shares of Preferred Stock. In addition, the Company concluded a private placement of its Debentures in a negotiated limitation with Silenus Limited more particularly described in the Section of the Prospectus entitled "PRINCIPAL AND SELLING SHAREHOLDERS." With the exception of the placement of the Debentures, these sales were made primarily to its existing shareholders. The Company has relied upon applicable exemptions from the registration requirements of the Federal Securities Laws and upon compatible exemptions from securities registration under applicable state ("blue sky") laws. In the event that it is determined that the Company sold and issued these securities without complying with either the Federal Securities Laws or blue sky laws, the purchasers of these securities may have the right to rescind the sale of these securities and to recover the purchase price paid to the Company plus interest accrued on such purchase price. The Company does not currently have funds with which it could repay the purchase price and accrued interest from any prior sale of securities. Moreover, it is doubtful that the Company could continue operations if a significant number of existing shareholders were to seek to rescind their purchases of securities. The financial statements of the Company do not reflect a contingent liability for any such rescission rights. FINANCIAL RISK OF PROPOSED ACTIVITIES The Net Proceeds derived from this Offering may not be sufficient to finance the completion of the exploration and development activities contemplated pursuant to this Offering. Moreover, if not all of the Common Stock offered pursuant to this Offering is sold, the Company's activities will be financed through existing capital which the Company then possesses. If the activities contemplated by the Company's Business Plan do not prove to be profitable or successful, the Company may suffer a loss with respect to operations conducted on the Properties, or in the alternative, will abandon either or both of the Properties as noneconomic. If such is the case, prospective Investors risk all or a substantial loss of their investment in the Common Stock. VALUATION OF COMMON STOCK The price per share of the Common Stock has been established based upon the current market price for the Common Stock. The current price is substantially higher than the average share price paid by existing shareholders of the Company. The Company has also considered several factors in determining the purchase price per share for the Common Stock including the state of development of the Properties, Company's management, the Company's current financial condition, and the general condition of the securities market. Prospective Investors should be advised that the price per share is not related to the Company's value of its assets, net worth, or results of operations conducted on the Properties. As a result, there is no assurance that prospective Investors will be able to liquidate their investment in the Common Stock or on terms resulting in any ultimately favorable return on their investment or upon any terms. 12 18 SIGNIFICANT DILUTION The net book value of the Company per share as of February 28, 1997, was approximately cents ($. ) per share. After taking into consideration the conversion rights of the shareholders holding or entitled to hold Preferred Stock as of February 28, 1997 (but exclusive of any dividends paid in stock), the total number of shares of Common Stock outstanding as of February 28, 1997, other transactions described elsewhere in this Prospectus requiring the Company to issue shares to others within sixty (60) days, and assuming all 1,500,000 shares of the Company's Common Stock are sold pursuant to this Offering, the net tangible book value of the Common Stock immediately after the Offering after deducting One Million Thousand Dollars ($ ) in Organization and Offering Expenses will be approximately Dollar and Cents ($ ) per share of Common Stock. Investors who subscribe to shares of Common Stock will therefore realize an immediate dilution of Dollars and Cents ($ ) per share of Common Stock. Assuming only the minimum number of shares are sold pursuant to this Offering, the net tangible book value of the Common Stock immediately after the Offering after deducting One Hundred Thousand Dollars ($ ) in Organization and Offering Expenses will be approximately cents ($. ) per share. Investors who subscribe to shares of Common Stock under these circumstances will therefore realize an immediate dilution of Dollars and Cents ($ ) per share. The price to be paid by Investors pursuant to this Offering should be compared to the prices paid by and the options granted to certain of the Company's executive officers, directors and the Selling Shareholders. See "DESCRIPTION OF SECURITIES BEING OFFERED" and "PRINCIPAL AND SELLING SHAREHOLDERS." FLUCTUATION OF COMMODITY PRICES Since its deregulation in August 1971, the market price for gold has been highly speculative and volatile. Since 1980, gold has fluctuated from a high of approximately $850 per ounce in January 1980 to a low of approximately $285 per ounce in 1985. Currently gold is trading at approximately $350 per ounce. In 1996, gold averaged over $380 per ounce. Instability in gold prices may effect the profitability of the Company's future operations. Similarly coal and timber prices fluctuate. Natural resources have traditionally evidenced volatile swings in pricing, thereby affecting overall the relative profitability of engaging in these lines of business. For example, timber prices increased fifty-two percent (52%) in 1996 while coal prices have remained relatively stable for the past several years. DIVIDENDS The Company has not paid cash dividends on any of its Common Stock and does not anticipate paying any cash dividends on any of its Common Stock for the foreseeable future. Holders of the Preferred Stock are entitled to an annual cash or stock dividend offered at the rate of eight percent (8%) per year payable out of any funds legally available therefor and payable on January 1, April 1, July 1, and October 1 of each year. Such dividends are cumulative so that if the full dividends in respect of any previous dividend period is not paid, holders of the Preferred Stock are entitled to receive any deficiency before any dividend or other distribution may be made or declared by the Company with respect to any other class of stock including other series of preferred shares should the Company elect to issue such additional series. As of the date of this Prospectus, no quarterly dividends have been paid to holders of the Preferred Stock. Management of the Company is presently scheduling payment of accrued dividends in Common Stock as authorized in the Company's "Certificate of Determination of Preferences of Series A Preferred Stock" filed with the Nevada Secretary of State on October 25, 1995. FINANCIAL DATA The financial information accompanying this Prospectus reflects the current financial condition of the Company. It should be noted that the Company has not reported a profit from operations since its inception to the present. Management projects that the further exploration and development of its properties will result in 13 19 profitable operations although, for the reasons stated elsewhere in this Prospectus, no guarantee to that effect can be made. USE OF FORWARD-LOOKING STATEMENTS This Prospectus contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are found in the Sections of the Prospectus entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION", "DESCRIPTION OF COMPANY'S BUSINESS AND PROPERTY" and elsewhere. Prospective Investors are cautioned that the assumptions upon which such statements are based cannot be guarantied by the Company to occur in the future or that the overall success of the Company might be materially adversely affected should such bases (or some of them) not occur. ADDITIONAL RISK FACTORS Prospective Investors should review the Company's audited financial statements included with this Prospectus and the remainder of this Prospectus in its entirety. Other sections of this Prospectus identify other potential risks and special material considerations which should be analyzed by each prospective Investor prior to a decision as to whether to invest in the Common Stock pursuant to this Offering. Prospective Investors are also cautioned that, as with any security, there may be other risks and special material considerations which are not foreseeable at this time which may also materially adversely affect an investment in the Common Stock. TERMS OF THE OFFERING GENERAL The Company is hereby offering a minimum of shares and a maximum of shares of its Common Stock at $ . An additional 2,100,000 shares of Common Stock held in the names of or which may be issued to the Selling Shareholders are being registered pursuant to this Offering. The primary purposes for which Net Proceeds derived from this Offering are to be used include the following: 1. Further developing the Nevada Property consistent with the Nevada Business Plan; 2. Expanding and/or delineating (to increase reserves and potential reserves) the Nevada Property, acquiring up to a fifty percent (50%) interest in the mill constructed approximately one mile from the Nevada Property and/or constructing its own mill on the Property. In addition or in the alternative, the Company may enter into a contract for milling services with New Concept Mining or to purchase all of the equipment necessary to construct a mill on site at the Nevada Property; 3. Expending up to One Million Five Hundred Thousand Dollars ($1,500,000) to explore and develop the Indonesian Concessions; and 4. Expending up to Three Million Four Hundred Fifteen Thousand Two Hundred Dollars ($3,415,200) to further develop the Brazilian Timber Properties and to acquire and develop additional timber concessions or properties located adjacent to, in the vicinity of, or in areas comparable with the Brazilian Timber Properties; 5. Paying up to One Million Dollars ($1,000,000) in general and administrative expenses and/or retaining all or a portion of said sum as working capital. SUBSCRIPTION There are hereby offered a total of 1,500,000 shares of the Company's Common Stock at a price of $ per share. In addition, the Selling Shareholders are registering shares pursuant to this Offering. 14 20 Each prospective Investor must purchase a minimum of 500 shares of Common Stock. In addition, each prospective Investor will have the right to purchase additional blocks of 100-share lots of Common Stock. The Offering Commitment Date is presently scheduled for October 31, 1997, although the Company hereby reserves the right to extend this Offering through March 31, 1998 (the "Offering Termination Date"). On or before the Offering Commitment Date, the Company will be required to accept Subscriptions amounting to the purchase of at least shares of Common Stock or to terminate the Offering without having sold any of the Common Stock. The Company reserves the right to accept Subscriptions through the Offering Commitment Date unless this Offering is terminated by the Company prior to such date. Each Subscription for the Common Stock will be held in an escrow account established with ________ (the "Bank"). Until such time as a minimum number of Subscriptions are accepted or the Offering Commitment Date is reached without the acceptance of the minimum number of Subscriptions necessary to activate this Offering, Subscription funds will be held in the escrow account but may be invested in short-term certificates of deposit, short-term government securities, demand deposits and bank money market accounts. If Subscriptions amounting to at least $1,500,000 (i.e. shares) are not accepted on or before the Offering Commitment Date, all Subscription funds together with any interest earned on such funds held in the escrow account will be returned to the persons whose funds were deposited in the escrow account. If Subscriptions amounting to at least $1,500,000 are accepted by the Offering Commitment Date, further Subscriptions which are accepted by the Company will be deposited into an account opened up on behalf of the Company at the Bank and will not be subject to the terms and conditions of the escrow account. Any interest earned on Subscription funds will be distributed to prospective Investors tendering such funds upon activation or termination of the Offering as the case may be. The Company reserves the right to discontinue this Offering at any time and also reserves the right, in its absolute discretion, to reject, in whole or in part, any Subscription. No assurance can be given that any or all of the Common Stock will be sold. SUITABILITY OF INVESTORS Sales of Common Stock may be made pursuant to this Offering only to persons who represent that they meet the following minimum requirements: 1. He/she (either alone or together with his/her spouse) has a net worth (inclusive of home, furnishings, and automobiles) in excess of $50,000; or 2. He/she (either alone or together with his/her spouse) has a net worth (exclusive of home, furnishings, and automobiles) in excess of $35,000 and during the year of investment anticipates gross income as defined by Internal Revenue Code section 61 in excess of $65,000. 15 21 PLAN OF DISTRIBUTION The Common Stock will be offered by the Company through its Affiliates on a "best-efforts" basis to prospective Investors who the Company believes to possess the minimum suitability standards outlined elsewhere in this Prospectus. In cases where offers and sale of the Common Stock are affected by the Company and/or its Affiliates, no sales or underwriting commissions will be paid. In the event the Company enters into Underwriting Agreements with persons or entities who are broker-dealers and members of the National Association of Securities Dealers, Inc. ("NASD"), the Company may allot up to ten percent (10%) of the Subscription price for the Common Stock as sales and underwriting commissions and an additional two percent (2%) of such Subscription price as "due diligence" fees and expenses. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DESCRIPTION OF COMPANY'S BUSINESS AND PROPERTY THE COMPANY Nevada Manhattan Mining Incorporated (the "Company") was formed on June 10, 1985, in the state of Nevada under the name of Epic Enterprises, Ltd. On September 11, 1987, the Company amended its Articles of Incorporation changing its name to Nevada Manhattan Mining Incorporated. The Company's articles currently authorize the issuance of 49,750,000 shares of Common Stock with a par value of one cent ($.01) per share and 250,000 shares of Series A Preferred Stock with a par value of $1.00 per share (the "Preferred Stock") convertible into Common Stock on the terms and conditions described elsewhere in this Registration Statement. There were 12,208,412 shares of the Company's Common Stock and 228,919 shares of the Preferred Stock issued and outstanding as of February 28, 1997. The average price per share paid for the Common Stock issued directly by the Company has been approximately $2.00 per share. Holders of the Preferred Stock have paid $10.00 per share with an effective purchase price for the Common Stock (after giving effect to the conversion thereof on a one-for-ten basis) of $1.00 per share. In addition, the Company has recently issued $2,000,000 of 8% Senior Secured Convertible Debentures in a privately-negotiated transaction to Silenus Limited. The Company was formed primarily to develop the Nevada Property, other gold mining properties which it had previously owned, and certain gold mining properties which it has recently acquired. Pursuant to prior action of both the Company's directors and its shareholders, certain gold mining properties have been abandoned. The Company has recently acquired the rights to seven (7) gold mining concessions and three (3) coal mining concessions in Indonesia, as well as three (3) timber properties in Brazil. The Company has its principal executive offices at 5038 North Parkway Calabasas, Suite 100, Calabasas, California 91302. Its telephone number is (818) 591-4400 and its facsimile number is 818 591-4411. Management of the Company presently consists of a five-member board of directors (two of which are neither executive officers nor employees) and employs two (2) full-time executive officers as well as seven (7) full-time employees at its principal offices. The Company's subsidiary, Equatorial Resources, Ltd., also employs 62 persons with respect to current operations on the Brazilian timber concessions. In 1989, the Company formed a Shareholder Advisory Committee (the "Advisory Committee") comprised of up to 12 outside shareholders. The purpose of the Advisory Committee is to participate in directors' meetings and compensation meetings, as well as planning meetings related to all aspects of corporate development. Members are selected annually from a group of shareholders who respond to Company inquiries regarding interest in participating on the Advisory Committee. Membership is rotated annually. One of the primary purposes of this Committee is to provide independent, shareholder participation in critical decisions relating to overall corporate strategy. 16 22 The Company has contracted with Harrison Western Mining and Construction, Lakeland, Colorado, to supply labor, service, materials and equipment for Nevada property operations. The Company has also entered into agreements with: Gold King Mines Corporation to provide mining consulting services with respect to the Nevada Property; Behre Dolbear & Company, Inc. and its affiliates, to provide oversight and third-party validation services relative to the exploration and development activities on the Indonesian Concessions; Eco-Rating International, Inc., to provide an economic and environmental evaluation of the Company's Brazilian Timber Properties; with Thyssen Sudamerica N.V. to market and sell all timber harvested and milled by the Company with respect to the Jonasa Concessions; and with British Far East Holdings Ltd. to provide certain financial and management consulting services. THE COMPANY'S BUSINESS The Company's business is the exploration and mining of precious metals and coal in Nevada and Indonesia and the harvesting of timber and other wood products in Brazil. To this end the Company has recently acquired the right to conduct exploration activities on three (3) coal properties in Indonesia and the right to develop and/or own three (3) timber properties located in the state of Para, Brazil. The Company holds various rights in and to the following properties: (i) twenty-eight (28) patented and sixty-five (65) unpatented claims aggregating approximately 1,800 acres (the "Nevada Property") which are located near the town of Manhattan, Nevada (approximately 45 miles northeast of Tonopah, Nevada); (ii) seven (7) gold concessions aggregating 39,400 hectares (98,500 acres) which are located in both the gold belt area of Kalimantan, Indonesia, and on the island of Sumatra (see "Indonesian Gold Concessions"); (iii) three (3) coal properties located in Kalimantan, Indonesia, comprising 290,000 hectares (725,000 acres) (the "Indonesian Coal Concessions"); and (iv) three (3) timber properties aggregating 693,000 hectares which are located in the state of Para, Brazil (the "Brazilian Timber Properties"). A more thorough description of the properties is contained within portions of this Section of this Prospectus entitled "The Nevada Property," "The Indonesian Concessions" and "The Brazilian Timber Properties." Management of the Company generally reviews all proposed mining projects submitted by third parties. The Company initially will be heavily dependent upon the mill constructed approximately one mile from the Nevada Property which is currently owned and operated by New Concept Mining, Inc. ("New Concept"). The Company presently intends to use the New Concept mill for milling the ore produced from the Nevada Property and selling bullion dore bars or concentrate for sale to third party buyers. Under the terms of an agreement entered into with the Company, New Concept has agreed to provide the Company with the capacity to initially process between 1000-1200 tons of ore per month. New Concept has also agreed to increase processing capacity once the Company's development program expands. The Company has also been engaged in preliminary discussions with New Concept to purchase up to one half of the mill for the sum of Two Hundred Fifty Thousand Dollars ($250,000). These discussions have not yet resulted in a binding agreement between the Company and New Concept. However, the Company intends to reserve that amount in Net Proceeds to enable it to purchase an interest in the mill should a definitive agreement with New Concept be reached and the Company is successful in selling a sufficient number of shares of Common Stock pursuant to this Offering. In the alternative, the Company may use the amount so reserved from Net Proceeds to help finance the cost of constructing its own mill on the Nevada Property. The Company has budgeted the sum of One Hundred Thousand Dollars ($100,000) from sums anticipated to be spent for compliance with applicable environmental laws. However, the Company can provide no assurance that the amount so budgeted for environmental compliance will be consistent with the amounts actually spent for compliance or that the actual amount of such compliance may not be substantially greater than that which has been projected to be spent by the Company pursuant to the budget. It should be noted that over the past three years, the Company has expended almost dollars ($ ) on research and development expenses on or relating to the Nevada Property. These expenses relate primarily to developing the most effective means by which to extract the ore and transport it to the New Concept mill approximately one mile from the Nevada Property. 17 23 THE NEVADA PROPERTY The Nevada Property consists of twenty-eight (28) patented and sixty-five (65) unpatented claims aggregating approximately 1,800 acres. The Company originally acquired its rights to the Nevada Property pursuant to a mining agreement dated April 4, 1987 (the "Nevada Property Agreement") with Anthony C. Selig and related entities (the "Selig Entities"). On December 9, 1987, the Selig Entities and the Company entered into an amendment to the Nevada Property Agreement reducing both the area of interest and the purchase price of the Nevada Property from Two Million One Hundred Thousand Dollars ($2,100,000) to Six Hundred Thousand Dollars ($600,000) and modifying, amongst other things, the schedule of semiannual payments due from the Company to the Selig Entities in consideration of the purchase of the Nevada Property. On March 2, 1989, the Company entered into an agreement entitled "Manhattan Mining Property Agreement" with Argus Resources, Inc., a Nevada corporation, and Argus Mines, Inc., a Nevada corporation (the "Argus Companies"); and the Selig Entities (the "Nevada Property Agreement"). This agreement was entered into after a dispute had arisen between Argus Resources, Inc., and the Selig Entities under the lease/purchase agreement which had been previously entered into between such parties and which originally formed the basis upon which the Company derived its rights to the Property. This agreement also modified certain terms and conditions contained within the Nevada Property Agreement. Under the terms of the Nevada Property Agreement, as amended, the Company was required to pay, and did pay, to the other parties the sum of Twenty-Five Thousand Dollars ($25,000) upon execution of the agreement. The Company also agreed to pay the Argus Companies the additional sum of One Hundred Sixty-Five Thousand Dollars ($165,000) in monthly installments of Seven Thousand Five Hundred Dollars ($7,500) commencing on April 15, 1989, and continuing thereafter until the entire sum was paid in full. The Nevada Property Agreement, as amended, further required the Company to issue 1,000,000 (pre-reverse split) shares of Common Stock as additional consideration to Argus Resources, Inc. In fact, the Company paid the Argus Companies, Inc., and the Selig Entities all amounts due under the Nevada Property Agreement, as amended, and issued 100,000 (post-reverse split) shares of Common Stock to Argus Resources, Inc. Pursuant to the terms and conditions of the Nevada Property Agreement, as amended, the Argus Companies executed a Corporation Quitclaim Deed conveying a forty percent (40%) undivided interest in the Nevada Property to the Company on March 9, 1989. Concurrently therewith, the Company delivered a Deed of Trust and Assignment of Rents (the "Deed of Trust") to the Selig Entities to further secure the obligations under the Nevada Property Agreement. Both the Corporation Quitclaim Deed and the Deed of Trust were duly recorded in the office of the county records by and for Nye County, Nevada. In June 1993, the Company entered into a Joint Venture Agreement with Marlowe Harvey/Maran Holdings, Inc. ("Marlowe Harvey"); Argus Resources, Inc.; and the Selig Entities respecting the Nevada Property. Under the terms of the Joint Venture Agreement, Marlowe Harvey was entitled to a fifty-one percent (51%) interest in the Nevada Property in consideration of Marlowe Harvey assuming certain obligations, including the purchase of the Deed of Trust from the Selig Entities. The remaining forty-nine percent (49%) interest in the Nevada Property was to be held equally by Argus Resources, Inc., and the Company in consideration of their payment of their pro rata share of all amounts due under the promissory note (the "Nevada Note") secured by the Deed of Trust created by the Nevada Property Agreement, as amended. The failure of either Argus Resources, Inc., or the Company to pay any amounts due under the note during the first year of the joint venture was to be deemed a default requiring the defaulting party to quitclaim its interest in the Nevada Property to the remaining parties. The Argus Companies, Marlowe Harvey and the Company were also responsible for their pro rata share of all property development expenses. At the time, Marlowe Harvey was the operator of the Nevada Property and responsible for all operations relating to maintaining the Nevada Property in accordance with the Mining Agreement. On October 20, 1995, the Company and Mr. Harvey "as an individual and for Maran Holdings and Argus Resources" executed an agreement (the "Amended Joint Venture Agreement") which purports to amend the 18 24 June 1993 Joint Venture Agreement. The Amended Joint Venture Agreement obligates Marlowe Harvey to convey to the Company within ten (10) days of the date of execution of such Agreement fifty-two percent (52%) of the outstanding and issued stock in Argus Resources, Inc.("Argus"), in exchange for the payment of One Hundred Forty-Seven Thousand Dollars ($147,000) to be paid in the future from a percentage of Argus' share of the net proceeds realized from the sale of gold production on the Nevada Property. In addition, Marlowe Harvey agreed to convey a one percent (1%) interest in the Nevada Property to the "management" of the Company (Messrs. Michaels and Kramer) in exchange for a "production payment" of Forty-Seven Thousand Dollars ($47,000) likewise to be paid from future production attributable to Argus Resources, Inc. It was, and is, the intention of the Company's officers to convey their rights under the Amended Joint Venture Agreement to the Company in exchange for the Company's assumption of such officers' obligations under such Agreement. Both the obligations of the Company and its officers under the Amended Joint Venture Agreement were to be secured by the pledge of Common Stock (in the case of the Company, 1,235,429 shares) with "piggyback" registration rights to be granted to Marlowe Harvey in two (2) years in the event $147,000 is not paid from production by that time. If only a portion of the production payment is made by October 20, 1997, the obligation to seek registration was to be ratably reduced. The Company was further required to issue 1,186,981 shares of its Common Stock to Maran Holdings, Inc., an affiliate of Argus, at the time at which it was obligated to issue to Argus the shares to be used as security for the production payment. The Amended Joint Venture Agreement also required both the Company and its joint venture partners to each make one-half of the property tax payments and the payments due to the Selig Entities under the Nevada Property Agreement. Both of these payments are due in January of each year. In January 1996, the Company notified Marlowe Harvey that it had been "ready, willing, and able" to convey the Common Stock pursuant to the terms of the Amended Joint Venture Agreement. In addition, the Company made all of the required property tax payments relating to the Nevada Property and the payments due to the Selig Entities in reliance upon the terms of the Amended Joint Venture Agreement. Marlowe Harvey has failed to reimburse the Company for its one-half share of the property tax payments and the payments due to the Selig Entities which were advanced on its behalf by the Company and has failed to make the conveyances required by the terms and conditions of the Amended Joint Venture Agreement. As a result, the Company instituted an action in Nye County, Nevada, on November 4, 1996, originally seeking specific performance and damages against Marlowe Harvey; Maran Holdings Inc.; Calais Resources Inc.; and Argus Resources, Inc. The Company has recently amended the complaint to seek a judicial determination that the Harvey Entities have forfeited all rights in and to the Joint Venture Agreement and the Nevada Property. This action is described in further detail under the Section of this Prospectus entitled "LEGAL MATTERS, AUDITORS, AND LEGAL PROCEEDINGS." Regardless of the outcome of this action, the Company will continue to operate this property and believes it will continue to own the interest in the Nevada Property which it acquired by virtue of the previous agreements it entered into which relate to the Nevada Property. In March 1997, the Company entered into a Sale and Purchase Agreement with the Selig Entities. Under the terms of this agreement, the Selig Entities agreed to sell to the Company one hundred percent (100%) of their interests in the Nevada Note, the Deed of Trust, and the Nevada Property for the sum of Three Hundred Seventy Five Thousand Dollars ($375,000) payable as follows: One Hundred Thousand Dollars ($100,000) in March 1997 and the balance plus all accrued and unpaid interest (calculated at the rate of 5.25%) on or before February 6, 1999. The Company in fact paid the first installment of One Hundred Thousand Dollars ($100,000) in March 1997. The agreement also acknowledges that the Company is the only person or entity legally entitled to conduct mineral operations on the Nevada Property. The Company is also required to pay all U.S. Bureau of Land Management annual maintenance fees associated with the claims comprising the Nevada Property. The Company entered into a Subscription Agreement with Silenus Limited on April 14, 1997 (the "Subscription Agreement"). As a result of entering into the Subscription Agreement, the balance remaining under the March 1997 Sale and Purchase Agreement with the Selig Entities is currently being held in a trust account in anticipation of paying such balance and obtaining a reconveyance of the Deed of Trust. In addition, 19 25 the Company granted to Silenus Limited a $2,000,000 deed of trust encompassing the Nevada Property until the Debentures issued to Silenus are converted, redeemed or paid in full. The Nevada Property is located in an historic mining district which has experienced mining operations from 1866 to the present with the major activity in the late 1860s, between 1906 and 1921 and from 1960 to the present. Placer and lode mining took place principally in the Reliance Mine, the White Caps Mine, the Union Amalgamated Mine, the Manhattan Consolidated Mine, the Earle Mine, the Big Four Mine and the April Fool Mine. The United States Geological Survey reports historic production through 1959 of 260,000 ounces of lode gold and 206,000 ounces of placer gold mined in the Manhattan Mining District. Since 1959, the more significant gold production has occurred from the Echo Bay and Nevada Gold Fields mines which border the Nevada Property. Such mines have yielded production in excess of 500,000 ounces of gold. The Nevada Property lies in several shallow gullies in a general area which is located between 7,500 to 7,800 feet in elevation. Mineralization of the Nevada Property appears to be structurally controlled by a series of parallel east-northeast trending faults dipping from 50 to 75 degrees southwest and with some cross or perpendicular faults. The Nevada Property consists of two distinct areas which require different mining and production techniques. Gold mineralization in the vicinity of "Litigation Hill" is near the surface and much less expensive to mine. The lower grade ore can be "leached" while higher grades of ore must be milled. Gold mineralization located in the White Caps Mine has revealed two delineated ore bodies below the 600-foot level and a deeper exploration target requiring substantially higher costs for extraction as compared to "Litigation Hill." "Dewatering" the mine and driving a decline to the 800-foot level could become quite costly. Additionally, gold ore obtained from the White Caps Mine may be required to be processed using autoclave technology or other proven methods in order to comply with environmental regulations due to the ore's high content of antimony, mercury, arsenic and sulphur; nevertheless, the Company believes that the deep ore bodies located within the White Caps Mine may have sufficient potential to justify the large development program. Both the "Litigation Hill" and White Caps Mine areas of the Property will be discussed below. The Nevada Property is adjacent to three (3) existing gold mines. Immediately adjacent to the west of the Nevada Property is the Manhattan Mine formerly owned by Echo Bay Minerals Company now a part of the Smokey Valley Combined Operation. This mine has produced approximately 500,000 ounces of gold over the last 10 to 15 years. Operations at this mine have been suspended. Immediately to the south of the Nevada Property is the Keystone Mine which was developed by Nevada Gold Fields Company. Proven reserves were reported at 100,000 tons of gold ore averaging .21 ounces per ton. Probable reserves were reported at an additional 100,000 tons. Approximately 14 miles to the north of the Property are the Smokey Valley Combined Operation mining activities known as the Round Mountain Mine. This mine is currently the largest producer of gold ore in the district with production estimated at more than 350,000 ounces of gold per year and 7,000,000 ounces in reserve and is one of the largest heap leach operations in the world. The White Caps Mine was historically one of the more prolific gold mines in the state of Nevada and is located in the Manhattan Mining District. Production of gold began in 1911 and remained in production until 1935 when the vein was lost and the lower levels of the mine encountered water. A total of 120,000 ounces of gold were produced during that period. The mine was closed in 1942 by executive order relating to all "mining activities non-essential to the [World War II] effort." The mine was found to be flooded from its deepest point at the 1,300-foot level to the 450-foot level. Beginning in 1957, a $400,000 program was put in place to "dewater", renovate and reactivate the mine. Pumping of water began that year and by 1958, the water level was down to the 800-foot level. At that time some exploration resumed at the upper levels of the mine. At the 300-foot level, antimony-mercury ore grading 60 percent and 8 percent, respectively, was discovered. An extensive antimony deposit (also containing gold and mercury values) was located near the 500-foot level and plans were made to begin mining activities after the renovation of the mine was completed. While 20 26 continuing to explore for gold mineralization on the lower levels of the mine, the owners leased out the right to mine antimony-gold-mercury ore above the 600-foot levels in 1962 and production thereafter began. A diamond drilling program in 1962 relocated the gold ore vein which had been lost in 1935 when it faulted out at the 600-foot level. Drilling of the formation began at the head of the winze (i.e. incline shaft) and continued down to the 1,200-foot level. Eight regularly-spaced holes of approximately 100 feet in length were drilled. These holes revealed a gold mineralized area 65 feet wide with values ranging as high as 7.7 ounces per ton and averages over .8 ounces per ton. This mineralization is found in the foot wall of the old winze. The next phase of the 1962 drilling program consisted of diamond drilling a "hole" starting at the 1,200-foot level. Six holes of approximately 100 feet in length each were drilled and revealed gold values averaging over 3 ounces per ton with a high of 6 ounces per ton. This drilling program blocked out a proven ore reserve of over 14,000 ounces of gold according to a 1964 report published by the California Mining Journal. The program also indicated that an ore body containing several hundred thousand ounces of gold is present in the relocated vein which runs from the 600-foot level down to the 800-foot level and from the 1,200-foot level down to at least the 1,300-foot level. Before production could begin, a fire was accidentally started by a pumping subcontractor at the 300-foot level. The ore bins, shaft and head frame were destroyed and the mine was closed in 1964. The low price of gold (then $35 per ounce), high costs to rebuild the damaged mine and the lack of funds caused the White Caps Mine to close in 1964 and has remained closed since that time. The Company's plans include reentering this mine and resuming gold exploration and production. By contrast, "Litigation Hill" was the site of both Earle and Consolidated Mines, all early producers of high-grade ore until the veins ran out. Recent geomagnetic activity and a drilling program have located several small commercial-sized deposits of medium-grade gold ore which can be either milled or heap leached. The Company has conducted a geophysics and geochemical survey of "Litigation Hill." A Schlumberger resistivity survey indicated gold mineralization down to a depth of 1,000 feet (the limit of the instrument's sensitivity). Bulk sampling of the ore dumps remaining at these mines indicated that an overall average grade of the dumps was .206 ounces of gold per ton. Over 1,500 tons of ore were proven with another 500 tons considered to be probable reserves. The 1987 exploration of underground workings on "Litigation Hill" showed that the Earle Mine had experienced massive cave-ins. Two samples were taken from channel cuts. These samples indicated values of .120 ounces of gold per ton. The Bath Mine was accessible through a stope which leads directly to the main haulage decline. Channel cut samples were taken on pillars left in previously-worked stopes. Values varied from .64 to 1.288 ounces of gold per ton. The Company initiated a rotary drilling program in 1988. Holes drilled pursuant to the program varied in depth from 200 feet to 525 feet. Gold values located in the carbonates at a depth of 70 feet indicate that open pit mining is suitable for the lower grade ores which are present. The Company commenced an exploration program during the years 1989 and 1990. This program consisted of two parts: conducting a magnetic survey of the property and drilling 25 reverse circulation drill-angle holes varying in depth from 50 to 150 feet. The magnetic survey identified the areas around "Litigation Hill" and the White Caps Mine as strong targets for further exploration. The drilling program located several areas of gold mineralization and a small ore body of about 5,500 tons containing gold values of .18 ounces per ton. In September 1993, the joint venture partners began a decline (i.e. tunnel) in order to intercept a drill hole which had been drilled by Freeport Mining Company in 1983. The drill hole revealed that from 465 feet to 505 feet below the surface, an average gold grade of .886 ounces of gold per ton over 40 feet existed. The decline was completed during the Spring of 1994 and drill stations were prepared. Exploration and drilling activities commenced and are ongoing as of the date of this Prospectus. The decline is approximately nine feet 21 27 by nine feet and runs at an approximate twelve-degree grade. At the 500-foot level, a turnaround or transfer bay has been added to enable the operators of the mine to successfully remove ore in a cost-effective method. The 1993 drilling program also included the mapping and sampling of the old workings of the Consolidated Mine (which was closed in 1939) as well as the drilling and sampling of the decline itself in the immediate potential ore zones contained within the decline. In July 1995, the Company engaged the services of William R. Wilson, a minerals industry consultant, to prepare a plan to develop the Nevada Property (the "Nevada Business Plan"). According to the Nevada Business Plan, two alternative plans for exploration and development of the Property exist. The first plan would extend the existing decline in the White Caps Mine to the 565-foot level, rehabilitate and mine old workings in the Consolidated Manhattan Mine, drift and mine a new area near the drill hole which was intercepted by the decline formed during the 1993 program, rehabilitate the White Caps Shaft, and mine the 565-foot level, 670-foot level, 800-foot level, 910-foot level, 1,120-foot level, 1,200-foot level and 1,300-foot level of the White Caps Mine. According to the Nevada Business Plan, the major advantage to this alternative would be that access to the lower levels of the White Caps Mine would be considerably improved. It is anticipated that the lower levels may yield higher grade ore as compared to the yields anticipated at current levels of the mine. A cash analysis pertaining to the first alternative projected capital costs during the first year of operations to be $1,463,290, operating costs of $1,719,699 and production of 7,960 ounces of gold resulting in revenues of $3,088,430. As a result, the cash analysis prepared for the first alternative projected a positive cash flow of $92,804 after taking into account depreciation, depletion and amortization. The second alternative identified in the Nevada Business Plan would extend the decline in the White Caps Mine to the 565-foot level, rehabilitate and mine old workings in the Consolidated Manhattan Mine, drift and mine a new area near the drill hole which was intercepted by the decline formed during the 1993 program, mine the 565-foot level only in the White Caps Mine and conduct underground sampling in the White Caps Mine in the 670-foot through 1,300-foot levels. The Nevada Business Plan identifies the major advantage to this alternative to be significantly reduced capital costs combined with the opportunity to sample underground the White Caps Mine without rehabilitating the White Caps shaft. The disadvantages of this alternative are that mining access to the lower portions of the White Caps Mine may not be completed and it is still not known whether access can be obtained to each of the levels below the 560-foot level. A cash analysis pertaining to the second alternative projected capital costs during the first year of operations to be $605,840, operating costs of $1,046,063 and production of 4,568 ounces of gold resulting in revenues of $1,772,539. As a result, the cash analysis prepared for this second alternative projected a positive cash flow of $425,326 after taking into account depreciation, depletion and amortization. The Nevada Business Plan concludes by recommending the second alternative as the preferable alternative for the Company to follow. In June 1996, the Company initiated the second alternative by contracting with Harrison Western Mining and Construction Company, Lakeland, Colorado, to execute this plan. In July 1995, the Company notified Marlowe Harvey and related companies, then the operator of the Nevada Property, that Marlowe Harvey was not in compliance with contractual operations under the Nevada Property Agreement as well as several applicable mining laws and regulations. At that time the Company assumed the position of operator and continues to act in this capacity. The Company has begun to establish near-surface gold deposits. Initial exploration of this nature has revealed two near-surface targets showing commercial grades and quantities. These are now being developed for processing and the Company has established an ongoing exploration plan of this nature due to this success. All permits for this operation have been issued and the Company is in compliance with all state, federal and environmental regulations to the best of its knowledge and belief. 22 28 The Company's operations in Nevada initially will be heavily dependent upon the mill constructed approximately one mile from the Nevada Property which is currently owned and operated by New Concept Mining, Inc. ("New Concept"). The Company presently intends to use the New Concept mill for milling the ore produced from the Nevada Property and selling gold bullion dore bars or concentrate for sale to third-party buyers. Under the terms of an agreement entered into with the Company, New Concept has agreed to provide the Company with the capacity to initially process between 1,000-1,200 tons of ore per month. New Concept has also agreed to increase processing capacity once the Company's development program expands. The Company has also been engaged in preliminary discussions with New Concept to purchase up to one half of the mill. These discussions have not yet resulted in a binding agreement between the Company and New Concept. The Company has also budgeted the sum of One Hundred Thousand Dollars ($100,000) to be spent in the foreseeable future for compliance with applicable environmental laws. However, the Company can provide no assurance that the amount so budgeted for environmental compliance will be consistent with the amounts actually spent for compliance or that the actual amount of such compliance may not be substantially greater than that which has been projected to be spent by the Company pursuant to the budget. Over the past three (3) years, the Company has expended approximately One Million Five Hundred Thousand Dollars ($1,500,000) on development expenses on or relating to the Nevada Property. These expenses relate primarily to developing the most effective means by which to extract the ore and transport it to the New Concept mill approximately one mile from the Nevada Property. THE INDONESIAN CONCESSIONS General. In August 1996, the Company entered into an agreement to acquire a fifty-one percent (51%) interest in a gold exploration property comprising 10,000 hectares (25,000 acres) located in East Kalimantan, Indonesia (the "Kalimantan Property"). More recently, the Company has entered into two (2) additional agreements to acquire an additional six (6) gold mining concessions aggregating over 23,400 hectares (58,500 acres) and three (3) coal mining concessions comprising 290,000 hectares (725,000 acres). In January 1997, the Company and Maxwells Energy and Metals Technology Ltd., a Bahamian Company ("Maxwells"), agreed to substitute the original 10,000 hectare property (i.e. the Kalimantan Property) for a 16,000 hectare (40,000 acre) tract (the "Sopang Property") located elsewhere on the island of Kalimantan. Ownership of the Indonesian Concessions will be acquired through the Company's new wholly-owned subsidiary formed under the laws of the British Virgin Islands known as Kalimantan Resources, Ltd. ("Kalimantan Resources"). Mineralization of the Indonesian islands known as Kalimantan (the Indonesian section of Borneo) and Sumatra occurred as a result of rifting of the earth's crust at the ocean floor. There are approximately fifteen known mineralized "arcs" comprising all of Indonesia. Six (6) of these arcs contain the majority of the gold and copper deposits currently discovered in Indonesia. The Central Kalimantan Arc is the area which has evidenced the majority of recent attention of mineral exploration efforts although significant work is also being undertaken in other areas. Located within the Central Kalimantan Arc is the Kelian Mine which has been operating since 1992 and produces approximately 450,000 ounces of gold per annum from ore grading approximately 1.8 grams per tonne of gold. Over seventy (70) tonnes of gold has been produced to date. Based upon current estimated reserves, the mine is scheduled to operate until 2003. Further south is the Mt. Muro Mine. Production for 1996 at this mine was 187,000 ounces of gold. At present, it is impossible to predict whether the Indonesian Concessions possesses any recoverable reserves of gold ore or whether the yields noted in the above-described mines will be indicative of the yields to be established on the Indonesian Concessions. Three (3) agreements cover the various concessions which the Company and Kalimantan Resources have acquired: (i) the Principles of Agreement by and between the Company and Maxwells, as amended; (ii) the Acquisition Agreement dated January 26,1997 by and between Kalimantan Resources and Singkamas Agung Ltd.; and (iii) the Acquisition Agreement dated February 18, 1997, by and between Kalimantan Resources and Kaliman Jaya Ltd. As described in further detail elsewhere in this Prospectus, the Company has developed a business plan (the "1997 Business Plan") relating to the activities to be conducted on the concessions acquired under the 23 29 above-described agreements as well as the Brazilian Timber Properties. The proposed activities described in this section of this Prospectus summarizes a portion of the 1997 Business Plan. The Sopang Property. The Company acquired its interest in the Sopang Property pursuant to a document entitled "Principles of Agreement" dated August 19, 1996 ("POA"). The parties to the POA are Maxwells and the Company. The Company and Maxwells originally agreed to conduct exploration activities on a 10,000 hectare tract, but pursuant to an addendum to the POA, substituted the 16,000 hectare Sopang Property. In exchange for a fifty-one percent (51%) interest in the concession relating to the Sopang Property, the Company agreed to convey to Maxwells Four Hundred Thousand (400,000) shares of its Common Stock. In addition, the Company must issue an additional Four Million (4,000,000) shares of its Common Stock to Maxwells should an investment banker confirm by independent appraisal that the Sopang Property is valued to be at least Twelve Million Dollars ($12,000,000 U.S.) and/or such investment banker provides financing to the Company based upon an evaluation of at least Twelve Million Dollars ($12,000,000 U.S.) or upon the appreciation of the Common Stock in an aggregate amount exceeding Twelve Million Dollars ($12,000,000) within ninety (90) days of an announcement by the Company of its acquisition of the Indonesian Property. The POA further required the Company to issue One Million shares (1,000,000) of Common Stock regardless of whether the Company receives financing or the above-referenced appraisals are performed if the Company's Common Stock traded consecutively for a period of at least thirty (30) days. The Company recently received a letter from Maxwells acknowledging that other than the issuance of 10,800 shares, no additional shares of Common Stock will be required to be issued until the independent appraisal mentioned above has been performed. A provision of the POA allows Maxwells to obtain a "nondilutive" percentage ownership in the Common Stock to be issued under the POA should the Sopang Property produce at least 2,000,000 ounces of gold. As of the date of this Registration Statement, Three Hundred Eighty Nine Thousand Two Hundred (389,200) of the Four Hundred Thousand (400,000) shares required to be issued to Maxwells have in fact been issued (200,000 shares of which are currently held in the name of Singkamas Agung, Ltd. but which will be reissued in the name of Maxwells). While the Company was entitled to defer exploration activities for six (6) months, exploration activities have commenced and are ongoing on the Sopang Property. Under the POA, the Company is responsible for one hundred percent (100%) of all exploration and operating expenses relating to the Sopang Property. Maxwells also enjoys antidilution rights with respect to the Common Stock to be issued under the POA provided exploration activities result in a valuation evidencing a yield of at least two million (2,000,000) ounces of gold. Maxwells has agreed to provide a voting trust in favor of existing management. Maxwells is not, however, required to vote its shares with existing management in connection with the registration of Common Stock issued or to be issued to Maxwells. Maxwells' consent is also required in the case of any issuance of the Company's capital stock exceeding Two Hundred Fifty Thousand Dollars ($250,000). The Company has undertaken efforts to confirm the chain of title which it believes to exist with respect to the Sopang Property. Silobat Property. On January 26, 1997, the Company's wholly-owned subsidiary, Kalimantan Resources, entered into an Acquisition Agreement with Singkamas Agung Ltd., a Bahamian corporation ("Singkamas"), relating to one (1) gold mining concession and three (3) coal mining concessions located in Kalimantan, Indonesia (the "Acquisition Agreement"). Singkamas is an affiliate of Maxwells and is owned and controlled by the same persons who own and control Maxwells. The gold mining concession subject to the Acquisition Agreement relates to a 62-hectare (155-acre) tract located in West Kalimantan and is known as the "Silobat Property." Currently, PT Kajiwahida Mandiri, an Indonesian limited liability company ("PT Kajiwahida"), holds a Kuasa Pertambangan Eksploitasi license ("KPE") and a Kuasa Pertambangan Pengangkutan and Penjualan license ("KPPE") issued by the Indonesian Directorate General of General Mining and the Ministry of Mines and Energy on October 7, 1996. On December 21, 1996, PT Kajiwahida entered into a Mining Authorization Transfer Agreement with PT 24 30 Duta Sena Rahayu, an Indonesian limited liability company ("PT Duta"), whereby PT Kajiwahida agreed to transfer its KPE and KPPE licenses to PT Duta in exchange for $5,000,000 payable as follows: $100,000 at the time of execution of the Acquisition Agreement; four consecutive installment payments of $100,000 each on the fourth days of February, March, April and May 1997; and a final payment of $4,500,000 at such time as official test results from exploration activities demonstrate the existence of at least 2,000,000 ounces of gold reserves. Should exploration activities reveal gold reserves of less than 2,000,000 ounces, the final payment is to be adjusted in relation to the amount of gold reserves so established. In addition, PT Kajiwahida is obligated to seek the appropriate governmental authority to expand its licenses to include a 2,000-hectare tract contiguous to the 62-hectare tract currently comprising the Silobat Property. On December 21, 1996, the shareholders of PT Duta and Kalimantan Resources entered into a Cooperation Agreement whereby in exchange for assuming the financial responsibilities under the Transfer Agreement, the shareholders of PT Duta agreed to hold the shares of such limited liability company for the benefit of Kalimantan Resources. On the same date, Kalimantan Resources entered into a Participation Agreement with Singkamas whereby Kalimantan Resources agreed to grant to Singkamas a net profits interest derived from the exploitation of the Silobat Property. The Acquisition Agreement with Singkamas requires Kalimantan to secure the issuance by the Company of Four Million (4,000,000) shares of Common Stock as follows: Two Hundred Thousand (200,000) upon execution of the Acquisition Agreement and the balance to be issued upon verification by an independent evaluation that the value of the Silobat Property and the three (3) Indonesian Coal Concessions equal or exceed Forty Million Dollars ($40,000,000). In the case of the initial issuance of shares and twenty-five percent (25%) of the balance of the shares of Common Stock to be issued, Singkamas is entitled to "piggyback" registration rights. The Company has issued Four Hundred Thousand (400,000) shares of its Common Stock to Singkamas as of the date of this Prospectus. Of this amount, Two Hundred Thousand (200,000) shares are to be reissued to Maxwells. To date, no funds have been transferred by Kalimantan to PT Kajiwahida or any other party. However, Kalimantan Resources has been given authority to conduct trenching and pitting and has conducted preliminary mapping, sampling and trench hole pitting under the supervision of Behre Dolbear & Co. for the purpose of evaluating the Silobat Property. Results of these tests have not yet been made public pending verification. The Company (through its association with Singkamas) is currently in negotiations with PT Kajiwahida to amend the terms of the Acquisition Agreement to reflect the accord reached by the parties to enable Kalimantan to conduct further exploration activities on the Silobat Property and to forego any payments due under the Acquisition Agreement until such time as all governmental approvals associated with annexing the 2,000-hectare tract have been secured. The Silobat Property forms part of what was known as the Chinese district of Western Borneo and has been the location of substantial exploitation by the Chinese since the 1880s. In the 1960s, a Dutch company was granted a concession to conduct mining operations on the Silobat Property, but such property was abandoned shortly thereafter because of political unrest, sabotage and lack of funding. The property is located 1 degree 1 minute north longitude and 109 degrees 12 minutes east latitude in the subdistrict of Sambas, Kalimantan Barat. The topography of the property is characterized by swampy lowlands with isolated hilly outcrops covered mainly with revegetation and local rubber plantations. The geology is characterized by green-black mudstone, fine silt stone, quartz-feldspar porphyry and quartz diorite rock types. In 1977, 21 rock chip and 7 stream sediment samples were submitted for analysis to the Superintendent Laboratories in Jakarta. Only small traces of gold were detected in all rock samples submitted while stream sediment samples yielded values of .5 to 1.05 ppm in four of the seven samples. In 1982, R.A. Watters conducted an evaluation of the Silobat Property. A synthesis of the work performed on previous investigations was attempted. Geological traverses were carried out and samples of rock types were taken. A portion of the rock type samples was dollied in a pot and washed to a concentrate representing approximately one kilogram of original material. The concentrates were then submitted to Rio 25 31 Tinto Laboratories in Jakarta for analysis. Six (6) large samples were taken sluiced with existing equipment. The concentrate obtained was cleaned with gravity traps and the gold separated and weighed on a balance. Four (4) heavy mineral concentrates were collected from small creeks located on the most southwestern hill on the property. Visible gold occurred in all samples of alluvial material. The rock and stream concentrates were not measurable but gold was detected in four of the stream concentrates. The R.A. Watters report suggests that it might be possible to extract up to one gram of gold per cubic meter and that the previous evaluation estimating 0.33 grams per tonne for hard rock mining activities was "remarkably realistic." Munung (Monroe) Property. The Company's wholly-owned subsidiary, Kalimantan Resources, entered into an Acquisition Agreement for Gold and Coal Concessions February 18, 1997, with Kalimas Jaya Ltd., a Bahamian corporation ("Kalimas"), relating to five (5) gold mining concessions and one (1) coal mining concession (the "Kalimas Acquisition Agreement"). Kalimas is also an affiliate of Maxwells and is owned and controlled by the same persons who own and control Maxwells. Kalimas acquired its rights to the concession relating to the Monroe Property pursuant to a Development Agreement dated February 14, 1997, by and between PT Muara Mayang Coal Utama ("PT Muara") and Kalimas. Under the Development Agreement, Kalimas obtained the right to acquire an 80% interest in a Kuasa Pertambangan Penyelidikan ("KP") issued to PT Muara for the sum of $1,000,000 payable as follows: $150,000 upon execution of the Development Agreement and verification by Kalimas that PT Muara possesses marketable title to the concession without encumbrances and $850,000 upon commencement of production and generation of net profits. The Monroe Property comprises 6,096 hectares and is located in Central Kalimantan, Indonesia. It is located in the same general area of the Kelian gold mining concession which has produced over 450,000 per annum ounces of gold since 1992. The existing KP issued on the Monroe Property allows PT Muara to conduct a general survey and perform exploration activities for gold and other precious metals. The Development Agreement requires PT Muara to use its "expert abilities and efforts" to obtain additional licenses for the exploitation, production and refining, and transportation and sale of all minerals obtained from the Monroe Property. The Kalimas Acquisition Agreement requires Kalimas to convey a 51% interest in all current and future licenses which it acquires with respect to the Monroe Property. To date, no sums have been paid by Kalimas or Kalimantan Resources to PT Muara nor has any exploration work been performed on the Monroe Property. Kalimantan Resources currently intends to complete title work prior to engaging in any exploration activities. Telen (Tomak) Property. The second gold concession in which Kalimantan Resources received rights under the Kalimas Acquisition Agreement is known as the Telen or Tomak Property. This property comprises 687 hectares and is located in East Kalimantan, Indonesia. Kalimas acquired its rights to the property pursuant to a Development Agreement dated February 14, 1997, which it entered into with PT Walea Bahimas, an Indonesian limited liability company. PT Walea Bahimas currently holds a KP for general survey and exploration on the property. Kalimas is required to pay a purchase price of $1,000,000 to acquire an 80% interest in the current KP. The Development Agreement contains provisions similar to those contained within the Development Agreement relating to the Monroe Property with respect to payment terms. Moreover, PT Walea Bahimas will only be entitled to receive the final $850,000 payment upon commencement of commercial production and obtaining licenses for exploration and exploitation, production and refining, and transportation and sale. Kalimas is obligated to commence exploration in or before April 1997 or at such other time as agreed upon by the parties. In addition to being required to dig test pits as part of the exploration program, Kalimas has agreed to: conduct shallow drilling to a depth of approximately 60 meters during the first 90-day period, conduct deep drilling to a depth of at least 200 meters during the second 90-day period, and securing a commitment of at least $300,000 during the first three (3) years of exploration activities. 26 32 The Kalimas Acquisition Agreement requires Kalimas to convey a 51% interest in all current and future licenses which it acquires with respect to the Tomak Property. In addition, Kalimas and the Company have agreed that Kalimas will be entitled to receive a number of shares of Common Stock the amount of which is to be determined no later than July 1997. The Kalimas Acquisition Agreement further provides that the value of the Common Stock is to be determined at $10 per share, which was the approximate value as of January 26, 1997. To date, no sums have been paid by Kalimas or Kalimantan Resources to PT Walea Balimas nor has any exploration work been performed on the Tomak Property. Kalimantan Resources currently intends to complete title work prior to engaging in any exploration activities. Long Beleh (La Bella) Property. The La Bella Property represents the third gold concession in which Kalimantan Resources acquired rights pursuant to the Kalimas Acquisition Agreement. This property currently comprises 4,637 hectares and is located in East Kalimantan, Indonesia. Kalimas acquired its rights in and to a KP for general survey and exploration pursuant to a Development Agreement dated February 14, 1997, with PT Muara Koman Mas ("PT Muara Koman"). The terms and conditions for the acquisition of an eighty percent (80%) interest in the current license and all future licenses held or to be held by PT Muara Koman are identical to the terms and conditions described above and relating to the Tomak Property. The obligations of Kalimas under the Kalimas Acquisition Agreement are identical to the obligations which it possesses with respect to the Tomak Property. To date, no sums have been paid by either Kalimas or Kalimantan Resources to PT Muara Koman nor has any exploration been performed on the La Bella Property. Kalimantan Resources currently intends to complete title work prior to engaging in any exploration activities. Sengingi Property. The Sengingi Property is the fourth gold concession in which Kalimantan Resources acquired rights pursuant to the Kalimas Acquisition Agreement. Unlike the previous gold concessions mentioned in this Section of the Prospectus, the Sengingi Property is a 4,000-hectare (10,000-acre) tract which is located on the island of Sumatra in the province of Riau, Indonesia. Kalimas acquired the right to obtain an eighty percent (80%) interest in a KP for exploration and a KPE for exploitation with respect to 3,000 hectares of this property from PT Aksara Mina Artha ("PT Aksara") pursuant to a Development Agreement dated February 14, 1997. Under the terms of its agreement with PT Aksara, Kalimas is obligated to pay PT Aksara $1,000,000 to be paid from production derived from the property. In all other material respects, the terms and conditions of the Development Agreement between Kalimas and PT Aksara and the terms and conditions of the Kalimas Acquisition Agreement between Kalimas and Kalimantan Resources are identical to the terms and conditions described above with respect to the other gold concessions subject to the Kalimas Acquisition Agreement. Kuantan Property. The last gold concession subject to the Kalimas Acquisition Agreement is known as the Kuantan Property. The Kuantan Property is also located in Riau Province, Sumatra, Indonesia, and comprises 8,000 hectares. Kalimas derives its rights pursuant to a Development Agreement dated February 14, 1997, between it and PT Aksara Tama Pramita ("PT Aksara Tama"). PT Aksara Tama currently holds a KP for general survey and exploration. The general terms and conditions upon which Kalimas is to acquire an eighty percent (80%) interest in all current and future licenses on the Kuantan Property are similar to the terms and conditions upon which all other licenses subject to the Kalimas Acquisition Agreement have been acquired. The purchase price which Kalimas will be required to pay for the Kuantan Property is $1,000,000 payable as follows: $250,000 upon execution of the Development Agreement and verification by Kalimas that PT Aksara Tama possesses marketable title to the concession without encumbrances, and $750,000 to be paid upon commencement of production and generation of net profits. Indonesian Coal Concessions. As previously mentioned, Kalimantan Resources and Singkamas entered into an Acquisition Agreement on January 26, 1997. In addition to acquiring rights to the Silobat Property, Kalimantan Resources obtained rights to three coal mining concessions aggregating over 286,000 hectares. Singkamas acquired its rights to these three coal mining concessions pursuant to Development agreements entered into with the PT Andhika Group of Companies, three Indonesian limited liability brother-sister companies (collectively referred to as "PT Andhika"). Under the terms of these Development Agreements, 27 33 Singkamas received the right to acquire seventy-seven and one-half percent (77.5%) interest in the three contracts of work ("COWs") currently held by PT Andhika. Under the terms of the Acquisition Agreement between Singkamas and Kalimantan Resources, Singkamas has agreed to assign a fifty-one percent (51%) in and to the COWs (as well as a fifty-one percent [51%] interest in the Silobat Property) in consideration of the issuance of 4,000,000 shares of the Company's Common Stock described elsewhere in this Prospectus in greater detail. In March 1997, Kalimantan Resources, engaged an Indonesian exploration crew to travel to the properties and to perform preliminary evaluations of possible coal reserves in place on the three (3) coal concessions located in Indonesia where the Company and Kalimantan Resources have entered into contracts to acquire certain exploration and exploitation rights. Behre Dolbear & Co. will review the results of these activities and present recommendations based upon such review. The Company has been contacted by several large coal mining companies for the purpose of entering into proposed joint ventures to conduct further exploration and subsequent development of such properties. At present, no joint venture agreements have been entered into by the Company. The Company has entered into an agreement with Behre Dolbear & Company, Inc. ("Behre Dolbear"), an internationally recognized mining consulting firm which was established in 1988. Behre Dolbear will be responsible for providing independent technical advisory third-party validation services to the Company as more particularly outlined in the agreement. A more thorough description of this agreement is described in the Section of this Prospectus entitled "MANAGEMENT." THE BRAZILIAN TIMBER PROPERTIES The Company has acquired various rights to 693,000 hectares of timber properties located in the state of Para, Brazil. In evaluating these properties, the Company has considered only the Jonasa Concessions (comprising 276,000 hectares) in developing its economic forecasts. The property areas contain a variety of timber species of which initially only seventeen (17) of the most commercial of the one hundred twenty-five (125) available species have been selected and factored into the Company's economic forecasts. The other species will be harvested at the appropriate time. Of the four existing saw mills located on the Jonasa Concessions, two are currently operational, while two mills are currently being placed into production. Immediate expansion plans call for the construction of up to eight additional mills. The purpose of several small mills as opposed to one large facility, is to accommodate different varieties of timber and minimize downtime in the event of mechanical failure or schedule maintenance of any of the mills. All appropriate infrastructure including power, housing, roads and auxiliary equipment as well as trained labor and strong management are in place and are believed to be adequate to accommodate the phased increase in mill capacity. All shipping and associated transportation services will be provided by the Jonasa Group, one of the largest private shipping companies in the Amazon Basin. Their expertise and political position are anticipated to provide invaluable support to the operation, and as a participant in the joint venture, allow for operating efficiencies that greatly enhance profitability. The joint venture also holds the lands in fee title and the existing operations have virtually no debt. Equatorial Resources has standing orders for all of its initial start-up production at 200 cubic meters per day capacity. Additional orders for up to 1,000 cubic meters per day have been submitted to Equatorial Resources and appear to demonstrate the viability of the immediate expansion noted above. Five Hundred Thousand Dollars ($500,000) has been provided by the Company for initial start-up. The Company will also provide $1,500,000 for the additional expansion noted above. The United Nations Food and Agricultural Organization (F.A.O.), Simons Corporation (Canada) and Reid, Collins & Associates, Ltd. (Canada), highly respected forestry experts, have evaluated 24,000 hectares of the total holdings and have posited that each hectare will yield approximately 200 cubic meters of raw 28 34 timber. If these evaluations are accurate with respect to the entire Concession, the total potential asset value of all 276,000 hectares would be approximately 55.2 million cubic meters of raw, hard wood timber. The description of the Company's proposed activities relating to the Brazilian Timber Properties which follows summarizes the activities more particularly described in the 1997 Business Plan which is appended to the Registration Statement of which this Prospectus is a part. The Jonasa Concessions. On November 11, 1996, the Company, through Equatorial Resources Ltd. ("Equatorial Resources"), entered into a letter agreement with Madeira Intex, S.A., International Exports, a company formed under the laws of the Greek Democratic Republic ("Madeira"), whereby Madeira agreed to assign its rights in and to a Joint Venture Agreement which Madeira had entered into on June 29, 1984, with Companhia Agropecuaria do Rio Jabuti ("Jonasa"). The Joint Venture Agreement required Jonasa to assign to Madeira the exclusive rights to extract and market all lumber licensed by the appropriate Brazilian authorities for export. In turn, Madeira was required to provide the financing for the management of cutting, preserving, protecting, inspecting and shipping of the lumber species permitted and located on the timber property owned by Jonasa. All such activities are required to be conducted in accordance with the Association Technique International des Bois Tropicaux. The original term of the agreement was for the period needed to extract 13,000,000 cubic meters from an area of 100,000 hectares. At such time as this quantity was extracted from the property, Madeira was required to provide the expertise and financing necessary to reclaim the areas harvested under the Joint Venture Agreement. Among the other obligations required to be performed by Madeira were the obligations to provide all labor associated with the transportation and harvesting of the timber; purchase all lumber cut up to 13,000,000 cubic meters; issue a letter of credit allowing Jonasa to present sight drafts representing the purchase price of the lumber to be harvested from the property and stevedoring costs for the shipment of such lumber; comply with the rules and regulations of the Association Technique International des Bois Tropicaux; and supervise all shipping activities. The Joint Venture Agreement required Madeira to purchase a minimum of 60,000 cubic meters per year. The purchase price of the lumber to be sold by Jonasa and purchased by Madeira was as follows: for all "merchantable quality" lumber, $90 per cubic meter; for "fair/average" quality, $80 per cubic meter; and for "second quality", $67 per cubic meter. The above purchase prices were to be revised annually commencing in 1986 based upon a formula involving the average price increase or decrease of the usual international price variations for same or similar tropical lumber from West Africa, Central America and the Far East. Through various addenda, the rights and responsibilities of Madeira have been modified so as to allow the original joint venture to remain in effect and to allow Madeira to assign its rights and delegate its responsibilities to Equatorial Resources. On July 12, 1984, Madeira entered into an agreement with Thyssen Sudamerica N. V., a Netherlands Antilles company. Under the terms of this agreement, Madeira agreed to sell through Thyssen all wood logs, sawed lumber and byproducts purchased and sold exclusively to the Far East, including Japan, South Korea, Taiwan, Singapore and the Philippines. Similarly, Thyssen agreed to exclusively purchase all such products for shipment to such regions of the Far East. The price which the parties agreed to sell such products was to be determined on a quarterly basis. Additional provisions of the contract identified the standards to be met by Madeira as to quality, species types, quantity and measurements. The Company has received confirmation that Thyssen is ready, willing and able to abide by the terms of the contract. In July, 1985, United Amazon Resources Limited, a company owned and controlled by Madeira ("U.A.R."), and Jonasa entered into a Managing and Marketing Agreement which effectively gives U.A.R. control over management and supervision of operations conducted on the Jonasa Concessions. Among other things, U.A.R. has been granted the authority to manage all of Jonasa's timber operations, including the Jonasa Concessions. The Company has also agreed to issue two million (2,000,000) shares of its Common Stock to Ignatius Z. Theodorou, the sole shareholder and executive officer of Madeira pursuant to a tax-free stock for assets transaction. To date, the Company has neither completed its agreement with Mr. Theodorou to effect such transaction nor issued said shares to him. 29 35 The Company has recently commenced timber operations on the Jonasa Concessions and has recently obtained a preliminary evaluation of a sample of the Jonasa Concessions, suggesting a possible yield of 200 cubic meters of hardwood timber per hectare. The Company through its subsidiary, Equatorial Resources, Ltd., has begun to harvest and cut only a few of the species of trees located on the Jonasa Concessions, and commenced milling operations at three of the mills located in the vicinity of the concessions. At present, production at the mill has aggregated approximately 670 cubic meters since late December 1996. In mid-March 1997, daily production was increased to 80 cubic meters. The Company has received approximately $200,000 for the sawed lumber produced to date. All of this revenue has been reinvested in improvements to the mills and infrastructure on the property. The Company's subsidiary, Equatorial Resources, Ltd., currently employs 62 persons to operate the mills and conduct the activities contemplated under the agreements pertaining to these concessions. Potential markets for the lumber include the Far East, Brazil, Europe and the United States. The Company now projects daily production of sawed timber to increase to 140 cubic meters by April 1997. Salim Concession. On February 28, 1997, Equatorial Resources accepted a sales proposal from Joao Salim, et al., to purchase the rights to cut and harvest up to 300,000 hectares of land located near Portel, Brazil. The property on which these rights are located is adjacent to one of the properties relating to the Jonasa Concessions. Under the terms of this proposal, the owner has agreed to license to Equatorial Resources the right to cut up to 500,000 cubic meters of timber on the property and to pay to the owners approximately $7.50 per cubic meter. In addition, Equatorial Resources has been granted the right to purchase the 300,000 hectares for $3,500,000 on terms and conditions to be agreed upon by the parties. The proposed purchase price for the acquisition of this license calls for Equatorial Resources to pay seven and one-half Reals (approximately $7.50) per cubic meter of logs of any and all species cut pursuant to the concession upon payment of approximately One Million Dollars ($1,000,000). Once this amount is paid, Salim, et al., have agreed to issue the concession to all 300,000 hectares. Equatorial Resources will also be responsible for all extraction and transportation expenses. The parties have further agreed to employ counsel to reach a definitive agreement on or before March 30, 1997. Equatorial Resources is currently evaluating the viability of commercial production on the Salim Concession and continuing its title investigation. Bernardes Concessions. On March 2, 1997, Equatorial Resources received and accepted a proposal to participate in a joint venture pertaining to a timber property aggregating 117,000 hectares. Under the terms of the proposal, Equatorial Resources has been granted the right to cut timber and to pay the sum of $5.00 per cubic meter upon payment of approximately $50,000 as an advance towards the purchase of the timber. Equatorial Resources has conditionally accepted this proposal subject to the execution of definitive agreements and completion of all title work necessary to confirm the merchantability of these concessions. 30 36 USE OF PROCEEDS The gross proceeds from the sale of the Common Stock by the Company will range from a minimum of $1,500,000 to a maximum of $9,000,000. The Company expects the proceeds derived from the sale of the Common Stock to be expended as follows:
MINIMUM MAXIMUM SUBSCRIPTIONS SUBSCRIPTIONS ------------- ------------- Subscriptions(1)................................. $ 2,000,000 $ 9,000,000 Sales and Underwriting Commissions(2)............ 240,000 1,080,000 Legal and Accounting Fees........................ 80,000 120,000 NET PROCEEDS TO COMPANY.......................... 1,680,000 7,800,000 ========== ========== Expansion of Mine, Exploration and Development of Nevada Property, and Mill Expansion(3)......... $ 500,000 $ 1,500,000 Exploration Activities on Indonesian Concessions(4)................................. 440,000 1,500,000 Acquisition and Development of Additional Brazilian Timber Properties(5)................. 500,000 3,415,200 General and Administrative Expenses(6)........... 240,000 1,000,000 ========== ==========
- --------------- (1) A minimum of 250,000 shares and a maximum of 1,500,000 shares of Common Stock will be sold at a price of $ per share. (2) The Company has allocated up to $1,080,000 from the sale of the Common Stock for sales and underwriting commissions. The Company may enter into Underwriting Agreements with broker-dealers who are members in good standing with the National Association of Securities Dealers, Inc. Under the terms of these agreements, the Company will pay up to ten percent in sales commissions and an additional two percent for "due diligence" fees and expenses. (3) The Company anticipates expending up to $1,500,000 to expand mining operations on the Nevada Property consistent with the Business Plan as more fully described in the Section of the Prospectus entitled "DESCRIPTION OF COMPANY'S BUSINESS AND PROPERTY." Such expansions would include extending the existing decline to the White Caps Mine at the 565-foot level, rehabilitation and mining old workings in the White Caps Mine, drifting and mining a new area near a drill hole which was intercepted by the decline formed during the 1993 drilling program, rehabilitation of the White Caps Shaft, and mining the 565-foot level, 670-foot level, 800-foot level, 910-foot level, 1120-foot level, 1200-foot level, and 1300-foot level of the White Caps Mine. If only the minimum number of Subscriptions are raised pursuant to this Offering, the Company will continue with its present course of business and use revenues derived from ongoing operations to finance and execute the above-described expansion. The Company has also been engaged in discussions with the owner of the mill, New Concept Mining, Inc., concerning the acquisition of up to a fifty percent interest in the mill currently adjacent to the Nevada Property. To date, no definitive agreement has been reached. The Company anticipates that if such an agreement is reached, the Company intends to expend up to $250,000 in consideration of acquiring up to a fifty percent interest in the mill. In the alternative, the Company will utilize such amount to help finance the construction of its own mill on the Nevada Property. (4) The Company anticipates that up to $4,915,200 will be expended on data collection, reconnaissance surveying, reporting, field work, sampling, data processing, laboratory analyses, prospect evaluation, mineralization mapping, additional acquisitions, and exploration drilling activities. All of these activities will be undertaken subject to the advice and independent consulting services provided to the Company by Behre Dolbear & Company, Inc. ("Behre Dolbear"), pursuant to a Consulting Services Agreement dated October 7, 1996, and more particularly described elsewhere in this Prospectus. The actual work on the Indonesian Property will be performed by Five Engineering Consultants, Bandung, Indonesia, under the supervision of Behre Dolbear. 31 37 (5) To date, three (3) separate timber properties are under the control and/or management of the Company's subsidiary, Equatorial Resources, Ltd. The Company has targeted an additional five (5) properties and/or concessions for acquisition. The funds allocated in the above-referenced chart represents the amounts currently projected by the Company to acquire the rights to own and/or control and develop such properties. (6) The Company currently expends approximately $60,000 per month in general and administrative expenses. These expenses include salaries of all employees (including its executive officers and directors), rent, health insurance, travel and entertainment expenses, postage and courier and stock transfer expenses. It is anticipated that once exploration and development occurs on the Properties, general and administrative expenses may be paid from such operations. To the extent that the Company does not utilize all funds allocated for general and administrative expenses, such excess will be retained by the Company as additional working capital. 32 38 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The Company's Bylaws authorize the creation of the offices of President, Treasurer (Chief Financial Officer), one or more Vice Presidents, Secretary, and one or more Assistant Secretaries and Assistant Treasurers as the Board of Directors deems proper. The Bylaws also provide for not less than three directors and not more than seven directors who shall hold office until the following annual meeting of the shareholders. The Bylaws further provide that the number of directors may be increased by the affirmative vote of the Board of Directors or a majority in interest of the shareholders at an annual or special meeting. The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ------------------------ --- ----------------------------------------------- Christopher D. Michaels 53 President and Chairman of the Board Jeffrey S. Kramer 42 Senior Vice President, Chief Financial Officer and Director Stanley J. Mohr 61 Vice President of Shareholder Relations and Director Edna Pollock 60 Director Joseph Rude III, M.D. 52 Director William Michaels 79 Vice President of Client Relations Ignatius Z. Theodorou 55 President and Director of Equatorial Resources, Ltd.
CHRISTOPHER D. MICHAELS cofounded the Company in June 1986. Since then he has served as President, Chief Executive Officer, and Chairman of the Board and is entitled to retain his positions with the Company until the next annual meeting of the Company's shareholders. Mr. Michaels is also a director, vice president and chairman of the Board of Equatorial Resources, Ltd. and the chairman and a director of Kalimantan Resources, Ltd., subsidiaries of the Company. Mr. Michaels received a bachelor of arts degree from Alfred University located in New York. After graduation, he accepted a post with the United States government overseas in the Peace Corps. Since 1980, Mr. Michaels has acted in sales and management positions in corporations whose primary business consists of mining and minerals. Mr. Michaels has extensive background and experience in international relations and has spent considerable time at the Company's Bolivian mine site (closed in 1992) as well as on the Nevada Property. Mr. Michaels is a party and is subject to the permanent injunction more particularly described in the Section of the Prospectus entitled "LEGAL MATTERS, AUDITORS, AND PENDING LEGAL PROCEEDINGS." Mr. Michaels has also been and is subject to a cease and desist order issued by the Pennsylvania Securities Commission issued February 27, 1989 prohibiting the Company, Mr. Michaels and other executive officers from violating Section 201 of the Pennsylvania Securities Act of 1972 relating to the sale of unregistered "penny stocks." JEFFREY S. KRAMER, Senior Vice President, Chief Financial Officer, Secretary-Treasurer and Director, has held these positions since 1989 and is entitled to retain these positions with the Company until the next annual meeting of the Company's shareholders. Mr. Kramer is also a director, vice president and the secretary-treasurer of Equatorial Resources, Ltd. and a director and the secretary-treasurer of Kalimantan Resources, Ltd. He has held management positions with Continental Cafes. As Chief Financial Officer, Mr. Kramer's responsibilities include business affairs, contract administration, public relations and broker and shareholder relations. Mr. Kramer was also responsible for management oversight of the Nevada Property operations since 1995 and was management's liason in negotiating the Company's settlement with the Securities and Exchange Commission more particularly described in the Section of this Prospectus entitled "LEGAL MATTERS, AUDITORS AND LEGAL PROCEEDINGS." Mr. Kramer is a party and is subject to the regulatory proceedings described in the Section of this Prospectus entitled "LEGAL MATTERS, AUDITORS AND LEGAL PROCEEDINGS" and the action taken by the Pennsylvania Securities Commission detailed above with respect to Mr. Michaels. STANLEY J. MOHR, has been Vice President Client Relations with Nevada Manhattan since 1986. Mr. Mohr became a Director in 1992 and is entitled to retain his current positions with the Company until the next annual meeting of the Company's shareholders. He is also a director of Kalimantan Resources, Ltd. 33 39 Mr. Mohr has been employed as a marketing executive with several mining and mineral related companies and has gained extensive experience in many phases of operations in the mining industry. Mr. Mohr held a real estate license issued by the state of California from 1976 to 1984. Mr. Mohr was a party and is subject to the regulatory proceedings more particularly described in the Section of the Prospectus entitled "LEGAL MATTERS, AUDITORS, AND LEGAL PROCEEDINGS." EDNA POLLOCK was elected to the Board of Directors on April 3, 1995 and is entitled to retain her position as director until the next annual meeting of the Company's shareholders. Ms. Pollock is a court reporter in North Carolina and has been a shareholder of record since 1989. She has been an active member of the Shareholders' Advisory Committee for several years representing shareholders at Director's meetings. Ms. Pollock is a graduate of Columbia University, New York, New York, having received her bachelor of arts degree in Journalism. She spent twenty-eight years as a freelance reporter for both the federal and state courts in North Carolina and acted in her official capacity as a court reporter at numerous depositions, arbitrations, hearings, and conventions. DR. JOE RUDE' III was elected to the Board of Directors on April 3, 1995 and is entitled to retain his position as a director until the next annual meeting of the Company's shareholders. Dr. Rude' is a radiologist and has been practicing his medical specialty since 1977 Georgia. Dr. Rude' has been a shareholder of record since 1989 and has been an active member of the Shareholders' Advisory Committee for several years representing shareholders at Director's meetings. Since 1995, Dr. Rude' has been a diagnostic radiologist at Quantum Radiology, Atlanta, Georgia. From 1977 to 1995, he was associated with Cobb Radiology Associates, Austell, Georgia, which merged with Quantum Radiology in 1995. Dr. Rude' is a graduate of the University of Texas, Austin, Texas, where he received his bachelor of arts degree in 1966. In 1970, he was awarded a medical degree from the University of Texas Southwestern Medical School, Dallas, Texas. Dr. Rude' is board certified in radiology and served in the United States Air Force as a flight medical officer from 1971 to 1973. WILLIAM MICHAELS, Vice President of Client Relations, has served in such capacity or in other capacities since the Company's inception. Mr. Michaels is the father of Christopher D. Michaels, the Company's President and Chairman of the Board. Mr. Michaels is a party and is subject to the regulatory proceedings more particularly described in the Section of the Prospectus entitled "LEGAL MATTERS, AUDITORS AND PENDING LEGAL PROCEEDINGS." IGNATIUS Z. THEODOROU, President and Director of Equatorial Resources, Ltd. has served in such capacities since the formation of the Company's Brazilian-based subsidiary. Mr. Theodorou is the remaining shareholder of Equatorial Resources, owning twenty percent (20%) of such company. Mr. Theodorou was born in Greece but has spent a substantial portion of the last thirty-seven (37) years in the United States. Mr. Theodorou holds dual citizenship (Greek and U.S.) and is currently managing the Company's operations at the Jonasa Concessions. His employment experience has included consulting arrangements with Dames & Moore Consulting Company, employment as Managing Director of the Liberian-owned shipping company Crest Lines Inc., and founder and chief executive officers of the timber companies known as Madira Intex, S.A. International Imports and United Amazonian Resources, Limited. SIGNIFICANT EMPLOYEES AND CONSULTANTS The Company has entered into employment agreements dated January 1, 1995, with Christopher D. Michaels and Jeffery S. Kramer relating to their respective positions as executive officers and directors of the Company. Under the terms and conditions of these employment agreements, both Mr. Michaels and Mr. Kramer are required to devote substantially all of their business time and effort during normal business hours to the Company through December 31, 1997. As compensation for the services rendered and to be rendered to the Company, Mr. Michaels is entitled to receive annual salaries equal to One Hundred Forty-Eight Thousand Seven Hundred Twenty-Seven Dollars ($148,727) per annum which Mr. Kramer is entitled to a salary of One Hundred Thirty-Seven Thousand Two Hundred Twelve Dollars ($137,212) per annum. Both the salaries of Mr. Michaels and Mr. Kramer are to be reviewed on each anniversary date of the Agreement by the board of directors for the purposes of either increasing or decreasing such base salary. The Board, however, may not reduce the base salary of either Mr. Michaels or Mr. Kramer by more than twenty percent (20%) of the base salary for the immediately preceding year. In addition, both Mr. Michaels and 34 40 Mr. Kramer have each received 900,000 shares of the Company's Common Stock as part of their compensation under the terms of their employment agreements. In addition to the base salaries and stock options, both Mr. Michaels and Mr. Kramer are entitled to receive reimbursement on a monthly basis for all reasonable expenses incurred in connection with the performance of their duties under the employment agreement. Mr. Michaels and Mr. Kramer are also entitled to certain fringe benefits (including but not limited to paid vacation and participation in medical insurance plans and employee benefit plans) which now are or may thereafter become available to all executive officers of the Company and such other benefits (if any) as may be authorized from time to time by the board of directors of the Company. The employment agreements also authorize these officers to receive a "merit bonus" ranging between twenty-five percent (25%) and seventy-five percent (75%) of such officer's base salary in the event the Company experiences operating cash flow for a fiscal year equal to not less than One Million Dollars ($1,000,000). Specifically, if the Company's operating cash flow for any fiscal year ranges between One Million Dollars ($1,000,000) and Two Million Dollars ($2,000,000), both Mr. Michaels and Mr. Kramer will be entitled to a "merit bonus" equal to twenty-five percent(25%) of his base salary; if the operating cash flow is between Two Million Dollars ($2,000,000) and Three Million Dollars ($3,000,000) for any fiscal year, the "merit bonus" will be equal to fifty percent (50%) of such officer's base pay; and if the Company's operating cash flow is over Three Million Dollars ($3,000,000) or more during any fiscal year, during the term of the Agreement, such officer's "merit bonus" will be equal to seventy-five percent (75%) of such officer's base salary. In the event of termination of the employment agreement by the Company for cause or by such officer without cause, the "merit bonus" is not required to be paid. In the event of termination for any other reason, the "merit bonus" will be prorated for the fiscal year in which termination occurs. The employment agreements with Messrs. Michaels and Kramer contain a covenant prohibiting such officer from engaging directly or indirectly as a principal partner or director or officer of any business competitive with the Company. However, such officer may hold up to a five percent (5%) equity interest in any entity engaged in a business competitive with the Company without violating such covenant. The agreements contain provisions for termination in the event of such officer's permanent disability, death, or for cause. In addition, the agreements provide for severance compensation equal to such officer's highest monthly base salary times thirty-six. Both Mr. Michaels and Mr. Kramer also possess an option to acquire up to twenty-five percent (25%) of the number of then outstanding shares of the Company's capital stock at a price of five cents per share in the event of an occurrence of a "Change in Control." For the purposes of such employment agreements, the term "Change in Control" shall be deemed to have occurred if the Company sells substantially all of its assets to a single purchaser or to a group of associated purchasers in a single transaction or series of related transactions; shares of the Company's outstanding capital stock constituting more than twenty percent (20%) of the voting power of the Company's outstanding capital stock are sold, exchanged, or otherwise disposed of in one transaction or in a series of related transactions; or the Company is a party to a merger or consolidation in which the Company is not the surviving entity or the Company's shareholders receive shares of capital stock of the new or continuing corporation constituting less than eighty percent (80%) of the voting power of the new or continuing corporation. The Company has engaged the services of Arthur J. Mendenhall to act as project geologist for the Nevada Property. His duties include acting as the on-site representative of the Company and to provide geological exploration and mining grade control of the Nevada Property on a daily basis. Mr. Mendenhall is an experienced mining geologist. He received his bachelor of science degree in 1971 and his master of science degree in geology from Utah State University, Logan, Utah. Mr. Mendenhall's work experience includes roles supervising and monitoring the work of senior geologists in the coring and sampling of ore; working as senior geologist in the sampling and mapping of tertiary volcanic rock formations in gold exploration projects; collecting cuttings and core samples for geochemical analyses; drafting drill hole cross sections; and supervised drilling operations for bentonite and iron ore. Mr. Mendenhall has completed the Occupational & Safety Hazard Agency ("OSHA") forty-hour hazardous waste site training course and OSHA'S refresher course, and has attended other geological seminars and courses relevant mining. Mr. Mendenhall is a registered geologist in the Commonwealth of Pennsylvania and a member of the Geological Society of America. 35 41 AGREEMENT WITH GOLD KING MINES CORPORATION On April 1, 1995, the Company entered into an Agreement with Gold King Mines Corporation ("Gold King"), Denver, Colorado. Under the terms of this Agreement, Gold King has agreed to provide the services of William R. Wilson on a consulting basis at the rate of $400 per day. The initial term of the consulting agreement was through December 31, 1995, and extended for one-year periods upon mutual agreement between Gold King and the Company. Gold King and the Company have extended this consulting agreement for two years. Mr. Wilson has provided various services to the Company including the preparation of the Business Plan. Mr. Wilson possesses a professional degree in metallurgical engineering from the Colorado School of Mines, Golden, Colorado, and has been awarded a Master's in Business Administration from the University of Southern California, Los Angeles, California. In his more than thirty years of experience, Mr. Wilson has, for the past fifteen years served in various seniority executive capacities with engineering, construction, and consulting firms, many of such capacities as president or the chief executive officer of mining companies operating in the United States and internationally. Mr. Wilson is the past chairman of the Colorado Mining Association. Gold King is a subsidiary of Sheridan Reserve Corporation, a publicly-traded resource company based in Toronto, Canada. Mr. Wilson's primary responsibility to the Company has been and will be to act as project manager for the Nevada Property and to act as the Company's representative to Harrison Western Mining & Construction Company, the mining contractor for the Nevada Property. Mr. Wilson will also provide technical and managerial consulting to the Company on the Indonesian Property. AGREEMENT WITH BEHRE DOLBEAR & COMPANY, INC. The Company entered into a Consulting Services Agreement (the "Consulting Agreement") with Behre Dolbear & Company, Inc. ("Behre Dolbear"), an internationally recognized mining consulting firm. Under the terms of the Consulting Agreement, Behre Dolbear will be responsible for providing independent technical advisory services relating to the Indonesian Property. Such services initially require Behre Dolbear to advise and validate the exploration program contemplated by the Company, and would include related technical input for other aspects of project development. The term of the Consulting Agreement is for six months or upon satisfactory completion of the consulting services contemplated prior to such expiration date. The Company has agreed to pay Behre Dolbear the hourly rate of $137.50 up to a maximum of $1,100 per diem for the services contemplated under the Consulting Agreement and has committed to utilize Behre Dolbear a minimum of two days per month. Unused days will accrue under the Consulting Agreement but will be forfeited if not utilized prior to the expiration of the term of the agreement. The Company must also reimburse Behre Dolbear for any travel; reasonable and necessary lodging expenses (including meals); telegram, cable, telex charges; a 2.5% "flat" labor charge in lieu of actual telephone charges; printing, copies, reproduction, and fax charges; postage, courier, express, and freight charges; use of personal automobiles; royalties on computer software; professional liability insurance (assessed on a 1.5% flat fee basis); clerical fees at the rate of $35 per hour; and other costs and expenses incurred by Behre Dolbear and/or its personnel in performing the services contemplated by the Consulting Agreement. AGREEMENT WITH BRITISH FAR EAST HOLDINGS LTD. On April 30, 1997, the Company entered into a financial and management services agreement with British Far East Holdings Ltd. ("BFE"). Under this agreement, BFE has agreed to provide the personal services of Arthur Lipper III to the Company for a period of thirty-six months to assist the Company with respect to financial and business matters. The Company has agreed to pay BFE $5,000 per month for the first three days of service and $1,000 per diem for each additional day of service rendered by Mr. Lipper under the contract. The agreement also grants to BFE warrants to purchase up to 100,000 shares of the Company's Common Stock at one hundred twenty percent (120%) of the April 30, 1997 market price of $5.75 per share (subject to adjustment for certain events) vesting at the rate of thirty-three and one-third percent (33 1/3%) per year after the first twelve months of service. 36 42 AGREEMENT WITH ECO-RATING INTERNATIONAL In order to better assure compliance with applicable Brazilian environmental laws and regulations, the Company has entered into an agreement with Eco-Rating International, Zurich, Switzerland ("Eco-Rating"). Under the terms of the agreement, Eco-Rating has agreed to develop an "eco-efficiency model" designed to establish environmental management guidelines for the Company's operations in Brazil. It is the objective of the Company to establish a reputation as a leader in the timber industry in environmentally-related issues and to develop its properties in a manner best designed to properly reclaim any areas harvested pursuant to its concessions. SHAREHOLDERS' ADVISORY COMMITTEE In 1989, the Company formed a Shareholder Advisory Committee (the "Advisory Committee") comprised of up to 12 outside shareholders. The purpose of the Advisory Committee is to participate in directors' meetings and compensation meetings, as well as planning meetings related to all aspects of corporate development. Members are selected annually from a group of shareholders who respond to Company inquiries regarding interest in participating on the Advisory Committee. Membership is rotated annually. One of the primary purposes of this Committee is to provide independent, shareholder participation in critical decisions relating to overall corporate strategy. EXECUTIVE COMPENSATION The table set forth below identifies the compensation paid to the Company's executive officers for the last three completed fiscal years (i.e. fiscal years ending May 31, 1994; May 31, 1995; and May 31, 1996): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ----------------------------------------------------- AWARDS PAYOUTS ANNUAL COMPENSATION ------------------------- ----------------------- ------------------------------------------------ RESTRICTED SECURITIES ALL NAME AND OTHER STOCK UNDERLYING LTIP OTHER PRINCIPAL ANNUAL AWARD(S) OPTIONAL/ PAYOUTS COMPENSATION POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) ($) SARS(#) ($) ($) - ----------------------- ---- --------- -------- ------------------ ---------- ---------- -------- ------------ Christopher Michaels, President and Chairman of the Board........... 1996 $100,449 -- $6,316.00 $225,000(2) 10,000(3) -- -- 1995 $148,727 -- $5,712.00 -- 10,000 -- -- 1994 $137,222 -- $5,712.00 -- 10,000 -- -- Jeffrey Kramer, Senior Vice 1996 $117,791 -- $7,658.00 $225,000(4) 10,000(5) -- -- President and Director............. 1995 $137,212 -- $6,564.00 -- 10,000 -- -- 1994 $135,117 -- $6,564.00 -- 10,000 -- --
- --------------- (1) The Company incurs the annual cost of health insurance for Messrs. Michaels and Kramer and their respective dependents. (2) The Company granted Messrs. Michaels and Kramer the option to purchase 900,000 shares of Common Stock each at an average price of $1.50 per share. These options were exercised during the year ended May 31, 1996, at which time the Company's board of directors agreed to issue these shares for services rendered. The Company has valued these restricted securities to be worth twenty-five cents ($.25) per share. (3) The Company has granted stock options to all members of its board of directors in the amount of 10,000 shares per full year of service as an active member of the board. These options may be exercised at $1.00 per share of Common Stock. Options may not be exercised after the expiration of 10 years from the date of the grant and are nontransferable other than by inheritance. As of the date of this Prospectus, the Company has granted options aggregating 100,000 shares to Mr. Michaels and 70,000 shares to Mr. Kramer. (4) See Footnote 2. (5) See Footnote 3. 37 43 OPTIONS AND STOCK APPRECIATION RIGHTS The table set forth below provides certain information concerning individual grants of stock options and stock appreciation rights (whether granted in connection with stock options or as "freestanding" rights made during the last fiscal year of the Company ending May 31, 1996) to each of the named executive officers noted below:
INDIVIDUAL GRANTS ---------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS/ UNDERLYING SARS OPTIONS/ GRANTED TO EXERCISE SARS EMPLOYEES OR BASE EXPIRATION NAME GRANTED(4) IN FISCAL YEAR PRICE($/SH) DATE (A) (B) (C) (D) (E) - ---------------------------------------------- ----------- -------------- ------------ ----------- Christopher D. Michaels....................... 100,000 10% $ 1.00 May 31, '06 Jeffrey S. Kramer............................. 70,000 14% $ 1.00 May 31, '06 Stanley Mohr.................................. 40,000 25% $ 1.00 May 31, '06 Edna Pollock.................................. 10,000 100% $ 1.00 May 31, '06 Joe Rude' III................................. 10,000 100% $ 1.00 May 31, '06 Lloyd S. Pantell, Esq.(4)..................... 100,000 100% $ 4.00 May 31, '06
- --------------- (1) The Company has granted stock options to all members of its board of directors pursuant to Stock Option Agreements executed at various times. Under the terms of these agreements, each director has been granted options to purchase 10,000 shares of Common Stock per full year of service. The exercise price for such options is $1.00 per share. The years in which stock options were initially granted to each respective board member are as follows: Christopher Michaels, 1986; Jeffrey Kramer, 1989; Stanley Mohr, 1993; Edna Pollock, 1996; and Joe Rude' III, 1996. In 1996, the Stock Option Agreements relating to Messrs. Michaels, Kramer and Mohr were extended so that they may be exercised through May 31, 2006. The remaining may not be exercised after the expiration of ten (10) years from the date of grant and are nontransferable other than by inheritance. (2) See Footnote 1. (3) See Footnote 1. (4) Mr. Pantell is an attorney who is a principal in Lloyd S. Pantell, APLC who has performed substantial legal services to the Company in connection with this Offering. LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY The Company's Bylaws do not contain a provision entitling any director or executive officer to indemnification against liability under the Securities Act of 1933 (the " '33 Act"). Sections 78.751 et seq. of the Nevada Revised Statutes allow a company to indemnify its officers, directors, employees, and agents from any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, except under certain circumstances. Indemnification may only occur if a determination has been made that the officer, director, employee, or agent acted in good faith and in a manner which such person believed to be in the best interests of the company. A determination made be made by the shareholders; by a majority of the directors who were not parties to the action, suit, or proceeding confirmed by opinion of independent legal counsel; or by opinion of independent legal counsel in the event a quorum of directors who were not a party to such action, suit, or proceeding does not exist. Provided the terms and conditions of these provisions under Nevada law are met, officers, directors, employees, and agents of the Company may be indemnified against any cost, loss, or expense arising out of any liability under the '33 Act. Insofar as indemnification for liabilities arising under the '33 Act may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy and is, therefore, unenforceable. 38 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company is a development-stage company, with corporate offices in Calabasas, California, and with interest(s) in certain mining properties located in the (1) Manhattan Mining District, Nye County, Nevada, (the "Nevada Property"); (2) in the Indonesian Gold Belt, Kalimantan, Indonesia (the "Indonesian Gold Concessions"); (3) in the Kutai District of East Kalimantan, Indonesia (the "Indonesian Coal Concessions"); (4) on the island of Sumatra, Indonesia; and (5) in the state of Para, Brazil (the "Brazilian Timber Properties"). COMPARISON OF RESULTS OF OPERATIONS -- NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO NINE MONTHS ENDED FEBRUARY 29, 1996 Net loss for the first three fiscal quarters of 1996-97 was $1,319,759 as compared to $468,453 for the same period ended February 29, 1996. The principal increases in expenses during the nine months ended February 28, 1997 were attributed to expenses in Brazil (approximately $124,000), office salaries (approximately $50,000), travel (approximately $125,000), stock for services to employees ($240,000), minority interest expense ($49,500) and a general increase in other expenses attributable to the Company's increased development activities from the previous year. During the period from July 1996 to February 28, 1997, the Company invested $4,000,000 in Common Stock towards the purchase of certain contractual rights to the seven (7) gold mining concessions comprising the Indonesian Gold Concessions; $123,147 towards certain exploration activities relating to the Silobat Property (one of the Indonesian Gold Concessions): and $1,055,000 ($700,000 in Common Stock) towards the acquisition of and improvements to the infrastructure relating to the Brazilian Timber Properties; and $1,565,313 ($250,000 in Common Stock) in development activities on the Nevada Property. YEAR ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995 During the year ended May 31, 1996, the Company reported an operating loss of $1,198,506 as compared to an operating loss of $611,073 for the year ended May 31, 1995. The difference between these two periods was principally due to the issuance of stock to officers for services rendered of $485,000. There was an increase of $233,981 in cash and cash equivalents for the year ended May 31, 1996 as compared to a decrease in cash and cash equivalents of $78,613 for the previous fiscal year. The improvement in the availability of cash and cash equivalents to the Company was the result of the sale of $1,255,325 in stock offered and sold through private placements. By contrast, the Company sold $726,013 in stock through private placements for the year ended May 31, 1995. YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994 The Company incurred a net loss of $611,073 in fiscal 1995 compared to a net loss of $480,473 during fiscal 1994. The principal reason for the increased loss was due to an increase in salaries of approximately $150,000. The Company used $616,013 cash in developmental activities in 1995 compared to $749,057 in 1994. Investment in property and equipment was similar each year: $146,496 in 1995 compared to $116,777 in 1994. Proceeds from issuance of stock amounted to $726,013 in 1995 compared to $975,469 in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital position as of February 28, 1997 was a deficit of approximately $553,000. Almost since inception, the Company has experienced pressure on its working capital position due to operating losses, and the need to continually invest in exploration activities on the Nevada Property and, more recently, the Silobat Property, the remainder of the Indonesian Concessions, and the Brazilian Concessions. To raise funds in the past, the Company has relied upon private placements of its equity securities. Over the past three years, the Company has raised approximately $4,340,000 pursuant to three such private 39 45 placements. The Brazilian operations represent an immediate opportunity for the Company to generate significant cash flows for the first time. The Company believes that with the anticipated increase in daily production at its Brazilian operations to 140 cubic meters per day, much of its continued operations in Brazil, Indonesia, and on the Nevada Property will be funded by the cash flow generated on the Jonasa Concessions. The Company has also recently concluded a privately-negotiated placement of Two Million Dollars ($2,000,000) of 8% Senior Convertible Debentures with Silenus Limited. This private placement, together with the cash flow anticipated from the Company's operations in Brazil, should satisfy the Company's immediate need for the significant amounts of capital for its overseas acquisitions and operations in both Indonesia and Brazil. PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information as of February 28, 1997, regarding the record and beneficial ownership of the Common Stock and Preferred Stock with respect to: (i) any individual or group of affiliated individuals or persons owning, of record or beneficially, five percent (5%) or more of the outstanding shares of the Common Stock or the Preferred Stock; (ii) the amount of shares of Common Stock or Preferred Stock owned by each executive officer and director of the Company; and (iii) the number of shares of Common Stock and/or Preferred Stock owned, of record or beneficially, by the directors of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners listed below, based upon information provided by such owners, have sole voting and investment power with respect to such shares. PRINCIPAL SHAREHOLDERS
NAME AND ADDRESS AMOUNT AND NATURE TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS - -------------- ------------------------------- ------------------- ---------------- Common Christopher D. Michaels 1,294,510(2) 10.31% 876 Ballina Court Newbury Park, California 91320 Common Jeffrey S. Kramer 1,180,000(3) 9.40% 6053 Paseo Canyon Drive Malibu, California 90265 Common Joseph C. Rude' III, M.D. 1,274,150(4) 10.15% 3065 River N. Pkwy. Atlanta, Georgia 30328 Common David Weissberg, M.D. 1,109,900 8.84% 29 Blair Drive Huntington, New York 11743 Common All Officers and 3,992,160(5) 31.79% Directors as a Group 6 persons)
- --------------- (1) In addition to the 12,208,412 shares of Common Stock outstanding as of February 28, 1997, the percentages noted in this column assume the issuance of 340,000 shares of Common Stock pursuant to various options primarily to existing management which may be issued in whole or in part within 60 days of the date of this Prospectus and the issuance of an additional 10,800 shares of Common Stock required to be issued to Maxwells Energy & Metals Technology Ltd. pursuant to the August 26, 1996 Principles of Agreement. (2) Includes options to purchase up to 100,000 shares of Common Stock which may be exercised in whole or in part within 60 days of the date of this Registration Statement. (3) Includes options to purchase up to 70,000 shares of Common Stock which may be exercised in whole or in part within 60 days of the date of this Registration Statement. 40 46 (4) Includes shares owned by Carolyn Rude and Quantum Radiology (an affiliate of Dr. Rude) as well options to purchase up to 10,000 shares of Common Stock which may be exercised in whole or in part within 60 days of the date of this Registration Statement. (5) Includes options to purchase up to 230,000 shares of Common Stock by all Directors or Officers as a group which may be exercised in whole or in part within 60 days of the date of this Prospectus. In addition, Ignatius Z. Theodorou, the President and a director of the Company's eighty percent (80%) controlled subsidiary, Equatorial Resources, Ltd., will be entitled to receive Two Million (2,000,000) shares of the Company's Common Stock at such time as the Company and he complete the preparation of a tax-free stock for assets agreement consistent with the November 11, 1996 letter agreement pertaining to the Jonasa Concessions. SELLING SHAREHOLDERS
SHARES BENEFICIALLY OWNED PRIOR TO NUMBER OF SHARES BENEFICIALLY OFFERING SHARES OWNED AFTER OFFERING ------------------------ BEING --------------------- NAME NUMBER PERCENT(1) OFFERED NUMBER PERCENT - ------------------------------- --------- ---------- --------- --------- ------- Maxwells Energy & Metals Technology 1901 Avenue of the Stars Suite 1925 Los Angeles, CA 90067 400,000(2) % 200,000 200,000(3) % Singkamas Aging Ltd. c/o Maxwells Energy & Metals Technology 1901 Avenue of the Stars Suite 1925 Los Angeles, CA 90067 200,000 % 200,000 (4) % Silenus Limited c/o Betuvo AG, Baoerostrase 73 Postfach 6302 Zug, Switzerland 395,834(5) % 1,500,000(6) %
- --------------- (1) Except where otherwise described in these footnotes, the percentages noted in this column represent the ratio that a shareholder's beneficial ownership bears to the total number of shares outstanding and issued as of February 28, 1997 (12,208,412), plus the issuance of an additional shares of Common Stock for the period February 28, 1997 through April , 1997, the conversion of all Preferred Stock issued and outstanding as of February 28, 1997, into the Common Stock on a ten-to-one basis (2,289,190 shares of Common Stock) plus the number of stock options issued and outstanding as of February 28, 1997 (340,000 shares). (2) Does not include the right to receive an additional 4,000,000 shares of Common Stock pursuant to the Principles of Agreement dated August 19, 1996. Such right is contingent upon events which have not presently occurred. (3) See Footnote 10. (4) Does not include the issuance of an additional 4,000,000 shares of Common Stock which only may be issued, if at all, upon the fulfillment of conditions identified in the Acquisition Agreement dated January 26, 1997 by and between Singkamas Aging Ltd. and the Company's subsidiary, Kalimantan Resources, Ltd. As of the date of this Prospectus, such conditions have not been met. (5) Assumes the conversion of all of the 8% Senior Secured Convertible Debentures at $6.00 per share (based upon seventy-five percent (75%) of the closing "bid" price of the Common Stock as of April 16, 1997), plus the exercise of the warrant to purchase up to 62,500 shares of Common Stock pursuant to the 41 47 terms and conditions of the April 14, 1997 Subscription Agreement and related documents as described in further detail below. (6) The Subscription Agreement requires the Company to register 1,500,000 shares of Common Stock in the event all five tranches aggregating Ten Million Dollars ($10,000,000) in 8% Senior Secured Convertible Debenture are issued warrants to purchase all 312,500 shares of Common Stock are granted and exercised. AGREEMENT WITH SILENUS LIMITED On April 14, 1997, the Company entered into a Subscription Agreement with Silenus Limited ("Silenus") in a negotiated private placement. This transaction was made in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933. As a result, the Company issued $2,000,000 of 8% Senior Secured Convertible Debentures due March 31, 2000 (the "Debentures") and granted to Silenus a warrant to purchase 62,500 shares of the Company's Common Stock (the "Warrant"). The Debentures may be converted into shares of Common Stock at any time commencing June 2, 1997 through August 16, 1997 at a price equal to the lesser of: seventy-five percent (75%) of the closing bid price of the Common Stock on April 16, 1997 (i.e. 75% X $8.00, or $6.00 per share); seventy-five percent (75%) of the closing bid price of the Common Stock on the day prior to the funding of any subsequent funding ("tranche"); or seventy-five percent (75%) of the average closing bid price for the five trading days immediately preceding the actual date of conversion of the Debentures. If conversion is made after August 16, 1997, the conversion price will be seventy-two and one-half percent (72.5%) of the above-referenced valuation standards. The Company is required to use its "best efforts" to cause the Registration Statement of which this Prospectus is a part to become effective prior to August 16, 1997. If the Registration Statement does not become effective by July 17, 1997, the Company is required to pay liquidated damages to Silenus equal to two percent (2%) of the Debentures for the first thirty days and three percent (3%) per month thereafter until the Registration Statement becomes effective. Subject to the existence of certain conditions subsequent and the continuing accuracy of the warranties and covenants within the Subscription Agreement, Silenus has the right to fund the issuance of additional Debentures in up to four additional tranches aggregating $8,000,000. The second tranche will close, if at all, commencing the later of: five business days after the effective date of the Company's Registration Statement filed April 3, 1997, on Form 10 pursuant to Section 12(b) of the Securities Exchange Act of 1934; or the conversion of the Debentures. Subsequent tranches may fund, if at all, on the later of: ninety days after the funding of the previous tranche: or the conversion of the Debentures issued in the immediately preceding tranche. Provided Silenus and the Company fund at least two tranches of $2,000,000 each, Silenus will be entitled to a right of first refusal for one year to participate in all or any part of any equity securities (i.e., stock or securities convertible into equity) subsequently issued or proposed to be issued by the Company. In addition, the Company will be prohibited from issuing any of its securities at a discount (other than in connection with any merger, acquisition, or certain benefit plans) for a period of ninety days following the funding of the last tranche. The Company may notify Silenus that a funding is requested at any time after the effective date of the Registration Statement of which this Prospectus is a part until the funding of the last tranche. In such event, should Silenus elect not to fund the tranche so requested, the Company may issue its securities at a discount to a third party, provided a public distribution of the securities sold to such third party is not made until at the earlier of: ninety days following the effective date of the Company's Registration Statement on Form 10; or the date on which at least seventy-five percent (75%) of the Debentures are converted. Until Silenus has not converted at least seventy-five percent (75%) of the Debentures, a deed of trust on the Nevada Property and the pledge of 1,000,000 shares of Common Stock will secure the Debentures. 42 48 The Company has also issued to Silenus a Warrant to purchase 62,500 shares of Common Stock. The Warrant may be exercised at any time up to and through April 16, 2002 at the price of $8.00 per share, the closing bid price as of April 15, 1997. The exercise price is subject to adjustment to account for payments of dividends, stock splits, reverse stock splits, and similar events. Funding of each subsequent tranche will likewise entitle Silenus to purchase an additional 62,500 shares of Common Stock at $8.00 per share (subject to adjustments noted above). In order to provide for the issuance of all shares of Common Stock, which may be issued pursuant to the Subscription Agreement and the Warrants, the Company agreed to register 1,500,000 shares of Common Stock pursuant to this Prospectus. DESCRIPTION OF SECURITIES BEING OFFERED The following description of the capital stock of the Company and certain provisions of the Company's Amended Articles of Incorporation and Certificate of Determination of Preferences of Series A Preferred Stock is a summary and is qualified in its entirety by the provisions of those documents which have been filed as exhibits to the Company's Registration Statement of which this Prospectus is a part. COMMON STOCK The issued and outstanding shares of Common Stock, including the shares being offered hereby, are validly issued, fully paid and nonassessable. Subject to the rights of holders of Preferred Stock, the holders of outstanding shares of the Common Stock are entitled to receive dividends out of assets legally available therefor at such time and at such amounts as the board of directors may, from time to time, determine. See "Dividend Policy." The shares of Common Stock are neither redeemable nor convertible and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution, or winding up of the Company, the holders of the Common Stock are entitled to receive, pro rata, the assets of the Company which are legally available for distribution after payment of all debts and other liabilities and subject to the rights of any holders of the Preferred Stock then outstanding. Before declaring any dividends, the board of directors may set apart out of any funds of the Company available for dividends such sum or sums as they may, from time to time, deem in their discretion to be proper working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the Company. Each outstanding share of the Common Stock is entitled to one vote on all matters submitted to a vote of stockholders if there is no cumulative voting in the election of directors. PREFERRED STOCK The Company's Amended Articles of Incorporation and its Certificate of Determination of Preferences of Series A Preferred Stock authorized the Company to issue up to 250,000 shares of the Preferred Stock. The holders of the Preferred Stock are entitled to receive dividends at the rate of eight percent per annum of the original issue price per share out of any funds legally viable therefor payable on each January 1, April 1, July 1, and October 1 after the issuance of the Preferred Stock. Dividends on the Preferred Stock are cumulative so that if the full dividends in respect of any preference dividend is not paid, the deficiency will be fully paid or declared and set apart for such shares (without interest) before any dividend or other distribution is paid on or declared or set apart for any other class or series of the Common Stock or preferred shares of the Company. The Company enjoys the right to pay any dividend on the Preferred Stock in cash or through the issuance of additional shares of Preferred Stock or Common Stock having an issue price equal to the amount of the dividend or through a combination of cash and stock. In the event of any liquidation, dissolution, or winding up of the Company, either voluntarily or involuntarily, the holders of the Preferred Stock will be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the Common Stock or any other class of preferred shares of the Company an amount equal to $10 per share plus a further amount equal to any dividends declared but unpaid on such shares. In the event of any consolidation or merger of the Company, or a sale of all or substantially all of the assets of the Company, or a 43 49 series of related instructions in which more than fifty percent of the voting power of the Company is disposed of, holders of the Preferred Stock will not be entitled to treat such event as a liquidation, dissolution, or winding up of the Company The Company has and intends to implement the right granted to each holder of the Preferred Stock to convert each such share into 10 shares of fully priced and nonaccessable shares of the Common Stock as of the date of this Prospectus. DIVIDEND POLICY The Company has established a policy of not paying dividends on the Common Stock and anticipates that this policy shall remain in effect until further notice. To date, the Company has not paid any dividends in cash or in stock on the Preferred Stock. Management of the Company is currently planning and arranging for payment of all cumulative dividends on the Preferred Stock through the issuance of shares of Common Stock after giving effect to the conversion of Preferred stock to Common Stock on a ten-for-one basis. DILUTION The net tangible book value of the Company at February 28, 1997, was approximately cents ($. ) per share. After taking into consideration the conversion rights of the shareholders holding Preferred Stock as of February 28, 1997 (but exclusive of any dividends paid in stock), the total number of shares of Common Stock outstanding as of February 28, 1997, the conversion by Silenus Limited of all Debentures at an effective conversion price of $ per share and assuming all shares of the Company's Common stock are sold pursuant to this Offering, the net tangible book value of the Common Stock immediately after the Offering (after deducting $ for Organization and Offering Expenses) will be approximately per share of Common Stock. Investors who subscribe to shares of the Common Stock under circumstances whereby all shares of Common Stock are sold pursuant to this Offering will therefore realize an immediate dilution of Dollars Cents ($ ) per share of Common Stock. The following table illustrates this per share dilution: Offering price per share........................................ $ Net tangible book value before Offering(1)...................... $ Increase attributable to new Investors.......................... $ Pro forma net tangible book value after Offering................ $ ----- Dilution to new Investors(2).................................... $ -----
- --------------- (1) Determined by dividing the tangible net worth of the Company at February 28, 1997 by the number of shares outstanding as of that date (after taking into consideration the conversion rights of Preferred Shareholders). (2) The difference between the Subscription price of the Common Stock and the net tangible book value per share of Common Stock after the Offering, assuming all shares are sold pursuant to the Offering. By contrast, the net tangible book value of the Common Stock immediately after the Offering (after deducting $ in Organization and Offering Expenses) will be approximately ($ ) per share of Common Stock. Investors who subscribe to Common Stock under these circumstances will therefore realize an immediate dilution of ($ ) per share of Common Stock. The following table illustrates this per share dilution: Offering price per share........................................ $ Net tangible book value before Offering(3)...................... $ Increase attributable to new Investors.......................... $ Pro forma net tangible book value after Offering................ $ ----- Dilution to new Investors(4).................................... $ -----
- --------------- (3) See Footnote 2 above. 44 50 (4) The difference between the Subscription price of the Common Stock and the net tangible book value per share of Common Stock after the Offering, assuming only shares are sold pursuant to the Offering. The Offering price for the Common Stock offered pursuant to this Offering must be compared to the prices paid by and options granted to certain of the Company's executive officers and the Selling Shareholders. In the case of all options to purchase Common Stock, each recipient has the right to purchase shares for a period of ten (10) years from the date of the grant as described in further detail in the section of this Prospectus entitled "MANAGEMENT -- Executive Compensation" and "MANAGEMENT -- Options and Stock Appreciation Rights." In the case of the sale of Common Stock, Messrs. Michaels and Kramer have paid, on the average, $2.53 and $2.03 per share, respectively, while the Selling Shareholders have paid between $ and $ per share for the Common Stock. REGISTRATION RIGHTS The Company has entered into agreements with various shareholders (the "Selling Shareholders") to attempt to effect registration of their shares of Common Stock. The Company has obtained registration of all persons who are Selling Shareholders pursuant to Form BD filed in connection with this Offering. The Selling Shareholders and their relation to the Company are more particularly described in Form BD and in the section of the Prospectus entitled "PRINCIPAL AND SELLING SHAREHOLDERS". TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock and the Preferred Stock is US Stock Transfer Corporation, Glendale, California. LEGAL MATTERS, AUDITORS, AND LEGAL PROCEEDINGS COUNSEL Lloyd S. Pantell, APLC has acted as Special Counsel. As such Special Counsel has assisted the Company in the preparation of this Prospectus and the registration statement. As required by applicable federal and state securities laws, Special Counsel has rendered an opinion to the effect that, when issued, the Common Stock shall be duly and validly issued in accordance with applicable law. AUDITORS The Company has retained Jackson and Rhodes, P.C., Dallas, Texas, to serve at Company's accountants for fiscal year 1997. The financial statements accompanying this Prospectus have been audited by such firm. LEGAL PROCEEDINGS In May 1989, the Company received notice that the Securities and Exchange Commission (the "Commission") had commenced an informal investigation into the Company's compliance with the registration and disclosure requirements of the Securities Act of 1933 (the "'33 Act") and the Securities Exchange Act of 1934 (the "'34 Act"). Thereafter the Commission commenced an extensive review of the Company's books and records relating to the Company's business and mining operations, its capital raising activities, and its financial condition and history. Through all stages of the investigation, the Company cooperated with the Commission. The Commission and the Company agreed to terminate the Commission's investigation by the entry of a consent judgment against the Company and certain of the Company's past and present key employees. These 45 51 key employees include Christopher D. Michaels, Jeffrey Kramer and Stanley Mohr. The term and conditions of the consent judgment can be summarized as follows: 1. The Company neither admitted nor denied any of the allegations alleged by the Commission; 2. The Company and its officers, agents, servants, employees, and others receiving actual notice of the consent judgment are permanently restrained and enjoined from selling securities in interstate commerce unless and until a registration statement is in effect or the security or transaction is exempt from the registration provisions of the '33 Act and/or '34 Act; 3. The Company and its officers, agents, servants, employees, and others receiving actual notice of the consent judgment are permanently restrained from engaging in any transaction, practice, or course of conduct, employing any course of conduct, or obtaining any money or property by means of an untrue statement of a material fact, or any omission to state a material fact, necessary to make the statements made in light of the circumstances under which they were made not misleading. On April 7, 1994, the Company and the Commission entered into a stipulation regarding the resolution of all outstanding issues which then existed, which stipulation was entered as an order by the United States District Court for the Central District of California. Such stipulation contained an acknowledgement that the Company and its executive officers had received no ill-gotten gains as a result of prior activities by the Company in offering and selling its securities, and that the consent judgment resolved once and for all, all issues raised by the Commission as a result of the Company's prior activities. The Company was not required to pay any fines or required to disgorge any monies previously received by it in connection with its securities. On November 4, 1996, the Company filed a complaint (the "Action") in Nye County, Nevada against Marlowe Harvey, Maran Holdings Inc., Calais Resources Inc., and Argus Resources, Inc. (the "Harvey Entities"). The complaint in the Action alleges, amongst other things, that the Harvey Entities breached their obligations under various agreements (including the October 20, 1995 amendment to the Joint Venture Agreement discussed in further detail in the Section of this Prospectus entitled "DESCRIPTION OF COMPANY'S BUSINESS AND PROPERTY -- The Nevada Property"). The Action originally sought to require the Harvey Entities to specifically perform their obligations to convey a 1% interest in the joint venture Nevada Property to the officers of the Company (namely Messrs. Michaels and Kramer) and a 52% interest in the outstanding and issued stock in Argus Resources, Inc. The Action also seeks damages of approximately $4,000,000 resulting from the actions or inactions of the defendants. It is unknown at the present time whether the Harvey Entities have the ability to transfer the required 52% interest in Argus Resources, Inc. as required under the Amended Joint Venture Agreement, whether the Harvey Entities have substantive defenses which would prevent the Company from obtaining specific performance, or whether the remaining shareholders of Argus Resources, Inc. have approved and/or ratified the Amended Joint Venture Agreement at any time. If the Company is successful in obtaining specific performance of the agreements alleged in the Action, it will effectively continue to own or control an undivided 50% interest in the Nevada Property. To date the complaint has been served on all defendants. In January 1997, the parties held an initial joint case management conference. The parties have voluntarily exchanged documents pursuant to local court rules. The Company has recently amended its complaint to eliminate its request for specific performance of the various agreements and to seek from the Court a judicial determination that the Harvey Entities have breached such agreements and that the Harvey Entities have failed to earn any interest in the Nevada Property. The Company currently intends to commence formal discovery within the next several days. The Company anticipates that the Harvey Entities will vigorously defend the Action. 46 52 DEFINITIONS The terms noted below shall, when used in this Prospectus, have the following meanings ascribed to them: "Accredited Investor" shall mean any Investor who meets one or more of the categories defined by Rule 501(a) of Regulation D and who also is excluded from the number of purchasers for the purposes of California Corporations Code Section 25102(f)(1). "Affiliate" shall mean (i) any person who directly or indirectly controls or is controlled by or under a common control with, a person or entity; (ii) a person owning or controlling ten percent (10%) or more of the outstanding voting securities of the entity to which said definition relates; and (iii) any officer or director of such entity. "Brazilian Timber Properties" shall mean the three (3) timber properties on which the Company's subsidiary, Equatorial Resources, Ltd. holds certain licensing and/or ownership rights more particularly described in this Prospectus. "Company" shall mean Nevada Manhattan Mining, Inc., a Nevada corporation. "Debentures" shall mean the 8% Senior Secured Convertible Debentures pursuant to the terms and conditions, the Subscription Agreement dated April 14, 1997 with Silenus Limited. "Deed of Trust" shall mean the encumbrance currently affecting the Nevada Property and created in favor of Anthony C. Selig & Associates, Dixie Exploration, and Anthony C. Selig by virtue of the Nevada Property Agreement. "Indonesian Concessions" shall mean the exploration prospects located on the Indonesian portion of the island of Borneo known as Kalimantan and on the island of Sumatra, Indonesia and more particularly described in this Prospectus. "Investors" shall mean such persons and/or any authorized and qualified successors who consider an investment in the Company as described in the Prospectus and who submit completed and executed subscription documents to the Company. "Net Proceeds" shall mean those proceeds after deduction of Organization and Offering Expenses which shall be applied in furtherance of the Company's business plan in accordance with this Offering. "Nevada Business Plan" shall mean the report prepared by William R. Wilson dated as of July 1995 and entitled "Nevada Manhattan Mining, Inc., Manhattan Mine Project Review and Business Plan." "Nevada Property" shall mean the 28 patented and 65 unpatented mining claims comprising approximately 1,800 acres and located in Nye County, Nevada near the town of Manhattan as more particularly described in this Prospectus. "Nevada Property Agreement" shall mean the Mining Agreement dated April 4, 1987 by and among the Company and Anthony C. Selig, Anthony C. Selig & Associates, and Dixie Exploration as amended by subsequent agreements. "Offering" shall mean the offer of the Common Stock pursuant to the terms and conditions specified in the Prospectus. "Offering Commitment Date" shall mean the date on which Subscription ownership to at least One Million Five Hundred Thousand Dollars ($1,500,000) are accepted by the Company. The Offering Commitment Date is presently scheduled for October 31, 1997 "Offering Termination Date" shall mean the date on which the Company shall issue, it at all, at least 250,000 shares of Common Stock pursuant to the Offering. At present, such Date is set for December 31, 1997. In no event shall the Offering Termination Date extend beyond March 31, 1998. "Organization and Offering Expenses" shall mean all costs and expenses incurred on behalf of the Company for professional fees (legal and accounting), printing expenses, regulatory compliance, and all other costs associated with the offer and sale of Common Stock. The amount of One Hundred Twenty Thousand Dollars ($120,000) has been allocated for such expenses. 47 53 "Properties" shall mean the Nevada Property and the Indonesian Property. "Prospectus" shall mean the offering materials dated , 1997 describing the terms and conditions of the Offering. "Registration Statement" shall mean Form BD and all amendments thereto filed with the Securities and Exchange Commission and relating to the offer and sale of Common Stock pursuant to this Offering. "Special Counsel" shall mean Lloyd S. Pantell, APLC, a professional law corporation. "Subscription" shall mean the number of shares of Common Stock which a prospective Investor agrees to purchase in the Company or the purchase price for such purchase of shares as the context requires. "Transfer Agent" shall mean U.S. Stock Transfer Corporation which shall be authorized to accept Subscriptions, deposit Subscription funds into the Bank, instruct the Bank to invest Subscriptions prior to the Offering Termination Date, and to issue the Common Stock, all in accordance with this Offering. "Underwriting Agreement" shall mean the agreement entered into between the Company and broker-dealers who are members in good standing with the National Association of Securities Dealers, Inc. and who agree to use their "best efforts" to effect sales of the Common Stock pursuant to this Offering. FURTHER INFORMATION The Company is not currently a reporting company within the meaning of Section 12(g) of the Securities Exchange Act of 1934, but anticipates that it will become a reporting company on or before the Offering Commitment Date. The Company has applied for listing on the American Stock Exchange. If approved for listing, certain reports and information not necessarily contained in this Prospectus will be available for inspection through the American Stock Exchange, 86 Trinity Place, New York, New York 10006-1881. The Company has and intends to continue to furnish its shareholders annual reports containing financial statements examined by an independent accounting firm and quarterly reports for the first three fiscal quarters of each fiscal year containing interim unaudited financial information. The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act of 1933, as amended, with respect to the Common Stock offered pursuant to this Offering. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules accompanying the Registration Statement. For further information with respect to the Company and such the common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules accompanying the Registration Statement. Copies of the Registration Statement and such exhibits and schedules may be inspected, without charge, at the public reference facilities of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D. C. 20549. Until , 1997, all dealers effecting transactions in the Common Stock registered pursuant to the Registration Statement, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or Subscriptions. 48 54 NEVADA MANHATTAN MINING INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE -------- Independent Auditors' Report........................................................ F-2 Consolidated Balance Sheet at February 28, 1997 (Unaudited) and May 31, 1996 and 1995.............................................................................. F-3 Consolidated Statements of Operations for the Nine Months Ended February 28, 1997 and 1996 (Unaudited) and the Years Ended May 31, 1996, 1995 and 1994.............. F-4 - 5 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended February 28, 1997 and 1996 (Unaudited) and the Years Ended May 31, 1996, 1995 and 1994.............................................................................. F-6 Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 1997 and 1996 (Unaudited) and the Years Ended May 31, 1996, 1995 and 1994.............. F-7 - 8 Notes to Consolidated Financial Statements.......................................... F-9
F-1 55 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Nevada Manhattan Mining Incorporated (A Development Stage Company) We have audited the accompanying consolidated balance sheets of Nevada Manhattan Mining Incorporated (a development stage company) as of May 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended May 31, 1996. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nevada Manhattan Mining Incorporated as of May 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 1996, in conformity with generally accepted accounting principles. /s/ JACKSON & RHODES P.C. -------------------------------------- Jackson & Rhodes P.C. Dallas, Texas March 21, 1997 (except as to Note 7, which is as of April 16, 1997) F-2 56 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS ASSETS
MAY 31, ----------------------------- 1996 1995 FEBRUARY 28, ------------ ------------ 1997 ------------ (UNAUDITED) Current assets: Cash........................................... $ 135,534 $ 233,981 $ -- Accounts receivable............................ -- -- 1,846 Prepaid expenses............................... 164,500 -- 2,545 ----------- ---------- ---------- Total current assets........................ 300,034 233,981 4,391 ----------- ---------- ---------- Property and equipment (Note 2): Domestic mining properties and equipment....... 5,510,369 3,961,047 3,696,295 Indonesian mining property (Note 7)............ 4,123,147 -- -- Brazilian timber concession (Note 7)........... 700,000 -- -- Furniture and fixtures......................... 162,833 63,842 64,046 Less accumulated depreciation............... (66,567) (59,067) (52,867) ----------- ---------- ---------- 10,429,782 3,965,822 3,707,474 ----------- ---------- ---------- $ 10,729,816 $ 4,199,803 $ 3,711,865 =========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................... $ 86,761 $ 88,226 $ 124,983 Accrued liabilities............................ 306,175 181,162 283,169 Notes payable to stockholders.................. 256,196 136,751 93,182 Current portion of long-term debt (Note 3)..... 68,150 44,388 23,278 ----------- ---------- ---------- Total current liabilities................... 717,282 450,527 524,612 Long-term debt (Note 3).......................... 100,266 115,723 105,919 ----------- ---------- ---------- Total liabilities........................... 817,548 566,250 630,531 ----------- ---------- ---------- Minority interest in subsidiary.................. 49,500 -- -- ----------- ---------- ---------- Commitments and contingencies (Note 4)........... -- -- -- Stockholders' equity (Note 5): Common stock to be issued, 10,800 shares (Notes 5 and 7).................................... 108 -- 495,000 Preferred stock to be issued, $1 par value, 250,000 shares authorized................... -- -- 737,327 Stock subscriptions receivable................. -- -- (50,500) Preferred stock, $1 par, 250,000 shares authorized, 228,919 and 132,510 shares issued...................................... 228,919 132,510 -- Common stock, $.01 par; 49,750,000 shares authorized; 12,208,412, 8,353,881 and 4,658,481 shares issued each period......... 122,084 83,539 46,585 Additional paid-in capital..................... 22,629,435 15,079,460 12,305,772 Deficit accumulated during the development state....................................... (13,117,778) (11,661,956) (10,452,850) ----------- ---------- ---------- Total stockholders' equity............. 9,862,768 3,633,553 3,081,334 =========== ========== ========== $ 10,729,816 $ 4,199,803 $ 3,711,865 =========== ========== ==========
See accompanying notes to consolidated financial statements. F-3 57 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, YEARS ENDED MAY 31, ------------------------ ------------------------------------- 1997 1996 1996 1995 1994 ----------- ---------- ----------- ---------- ---------- (UNAUDITED) Expenses: Costs and expenses of development stage activities.............. $ 1,319,759 $ 468,453 $ 1,198,506 $ 611,073 $ 480,473 ---------- --------- ----------- --------- --------- Net loss........................... (1,319,759) (468,453) (1,198,506) (611,073) (480,473) Cumulative preferred dividends..... (136,063) -- (10,600) -- -- ---------- --------- ----------- --------- --------- Net loss attributable to common shareholders..................... $(1,455,822) $ (468,453) $(1,209,106) $ (611,073) $ (480,473) ========== ========= =========== ========= ========= Net loss per common share.......... $ (0.14) $ (0.07) $ (0.16) $ (0.12) $ (0.15) ========== ========= =========== ========= ========= Weighted average shares outstanding...................... 10,405,727 6,414,837 7,428,081 5,021,801 3,146,727 ========== ========= =========== ========= =========
See accompanying notes to consolidated financial statements. F-4 58 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION (JUNE 10, 1985) TO FEBRUARY 28, 1997 (UNAUDITED) Expenses: Costs and expenses of development stage activities........................... $ 12,809,932 Loss on disposition of mining properties..................................... 161,183 ----------- 12,971,115 ----------- Net loss....................................................................... (12,971,115) Cumulative preferred dividends................................................. (146,663) ----------- Net loss attributable to common shareholders................................... $(13,117,778) ===========
See accompanying notes to consolidated financial statements. F-5 59 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STATE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK SUBSCRIPTIONS -------------------- --------------------- PAID-IN TO BE ISSUED RECEIVABLE SHARES AMOUNT SHARES AMOUNT CAPITAL ------------ ------------- --------- -------- ---------- -------- ----------- Stock issued from inception (June 10, 1985) to May 31, 1993 (unaudited): For cash........................... $ -- $ -- $ -- 2,450,460 $ 24,505 $11,019,902 For services....................... 219,016 2,190 113,545 For property....................... 140,000 1,400 Shares borrowed from officers (Note 8)................................. (495,000) Losses from inception to May 31, 1993 (unaudited)........................ --------- -------- --------- -------- --------- ------- ----------- Balance, May 31, 1993................ -- -- -- -- 2,809,476 28,095 10,638,447 Stock issued for cash................ -- -- -- -- 1,155,225 11,552 963,917 Net loss............................. -- -- -- -- -- -- -- --------- -------- --------- -------- --------- ------- ----------- Balance, May 31, 1994................ -- -- -- -- 3,964,701 39,647 11,602,364 Shares to be issued to officers (Note 5)................................. 495,000 -- -- -- -- -- -- Shares issued for cash (Note 5)...... 131,500 (50,000) -- -- 647,213 6,472 638,541 Shares issued in settlement of claims (Note 5)........................... -- -- -- -- 32,500 325 32,175 Shares issued as conversion of debt (Note 5)........................... 605,827 -- 14,067 141 32,692 Net loss............................. -- -- -- -- -- --------- -------- --------- -------- --------- ------- ----------- Balance, May 31, 1995................ 1,232,327 (50,000) -- -- 4,658,481 46,585 12,305,772 Issuance of stock previously purchased.......................... (1,232,327) -- 13,150 13,150 554,400 5,544 1,213,633 Cash received from stock subscriptions...................... -- 50,500 -- -- -- -- -- Shares issued for cash............... -- -- 119,360 119,360 1,001,000 10,010 1,075,455 Shares issued for services (Note 5)................................. -- -- -- -- 1,940,000 19,400 465,600 Shares issued in connection with shareholder loan................... -- -- -- -- 200,000 2,000 19,000 Preferred dividend................... -- -- -- -- -- -- -- Net Loss............................. -- -- -- -- -- -- -- --------- -------- --------- -------- --------- ------- ----------- Balance, May 31, 1996................ -- -- 132,510 132,510 8,353,881 83,539 15,079,460 Shares issued for property (Note 7)................................. 108 -- -- -- 789,200 7,892 4,942,000 Shares issued for cash............... -- -- 226,926 226,926 989,762 9,897 2,122,714 Shares issued for services........... -- -- -- -- 120,000 1,200 238,800 Shares issued for conversion of debt............................... -- -- -- -- 650,400 6,504 128,996 Conversion of preferred.............. -- -- (130,517) (130,517) 1,305,169 13,052 117,465 Preferred dividend................... -- -- -- -- -- -- -- Net Loss............................. -- -- -- -- -- -- -- --------- -------- --------- -------- --------- ------- ----------- Balance, February 28, 1997 (unaudited)........................ $ 108 $ -- 228,919 $228,919 12,208,412 $122,084 $22,629,435 ========= ======== ========= ======== ========= ======= =========== DEFICIT ACCUMULATED DURING THE DEVELOPMENTAL STAGE TOTAL ------------ ----------- < Stock issued from inception (June 10, 1985) to May 31, 1993 (unaudited): For cash........................... $ -- $11,044,407 For services....................... 115,735 For property....................... 1,400 Shares borrowed from officers (Note 8)................................. (495,000) Losses from inception to May 31, 1993 (unaudited)........................ (9,361,304) (9,361,304) ------------ ----------- Balance, May 31, 1993................ (9,361,304) 1,305,238 Stock issued for cash................ -- 975,469 Net loss............................. (480,473) (480,473) ------------ ----------- Balance, May 31, 1994................ (9,841,777) 1,800,234 Shares to be issued to officers (Note 5)................................. -- 495,000 Shares issued for cash (Note 5)...... -- 726,013 Shares issued in settlement of claims (Note 5)........................... -- 32,500 Shares issued as conversion of debt (Note 5)........................... -- 638,660 Net loss............................. (611,073) (611,073) ------------ ----------- Balance, May 31, 1995................ (10,452,850) 3,081,334 Issuance of stock previously purchased.......................... -- -- Cash received from stock subscriptions...................... -- 50,500 Shares issued for cash............... -- 1,204,825 Shares issued for services (Note 5)................................. -- 485,000 Shares issued in connection with shareholder loan................... -- 21,000 Preferred dividend................... (10,600) (10,600) Net Loss............................. (1,198,506) (1,198,506) ------------ ----------- Balance, May 31, 1996................ (11,661,956) 3,633,553 Shares issued for property (Note 7)................................. -- 4,950,000 Shares issued for cash............... -- 2,359,537 Shares issued for services........... -- 240,000 Shares issued for conversion of debt............................... -- 135,500 Conversion of preferred.............. -- -- Preferred dividend................... (136,063) (136,063) Net Loss............................. (1,319,759) (1,319,759) ------------ ----------- Balance, February 28, 1997 (unaudited)........................ $(13,117,778) $ 9,862,768 ============ ===========
See accompanying notes to consolidated financial Statements F-6 60 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, YEARS ENDED MAY 31, ----------------------- ----------------------------------- 1997 1996 1996 1995 1994 ----------- --------- ----------- --------- --------- (UNAUDITED) Cash flows from developmental activities: Net loss.................................... $(1,319,759) $(468,453) $(1,198,506) $(611,073) $(480,473) Adjustments to reconcile net loss to net cash used in developmental activities: Common stock issued for services......... 240,000 -- 485,000 -- -- Loss on disposition of property.......... -- -- -- -- -- Settlement of claim with debt............ -- -- -- 32,500 -- Depreciation............................. 7,500 4,650 6,200 9,150 6,708 Minority interest expense................ 49,500 -- -- -- -- Changes in assets and liabilities: Accounts receivable.................... -- -- 1,846 (1,846) -- Prepaid expenses....................... (164,500) 2,545 2,545 -- -- Accounts payable and accrued liabilities......................... (12,515) (51,773) (149,364) (44,744) (275,292) ----------- --------- ----------- --------- --------- Net cash used in developmental activities............................. (1,199,774) (513,031) (852,279) (616,013) (749,057) ----------- --------- ----------- --------- --------- Cash flows from investing activities: Purchase of property and equipment.......... (1,521,460) (109,512) (187,481) (146,496) (116,777) ----------- --------- ----------- --------- --------- Cash flows from financing activities: Additions to long-term debt................. 14,556 -- -- -- -- Change in bank overdraft.................... -- 55,569 -- -- -- Payments on long-term debt.................. (6,251) (54,000) (46,153) (42,117) (31,133) Net change in notes payable to stockholders............................. 254,945 30,000 64,569 -- -- Proceeds from issuance of stock and stock to be issued................................ 2,359,537 601,200 1,255,325 726,013 975,469 ----------- --------- ----------- --------- --------- Net cash provided by financing activities............................. 2,622,787 632,769 1,273,741 683,896 944,336 ----------- --------- ----------- --------- --------- Net increase (decrease) in cash and cash equivalents............................ (98,447) 10,226 233,981 (78,613) 78,502 Cash and cash equivalents: Beginning of period......................... 233,981 -- -- 78,613 111 ----------- --------- ----------- --------- --------- End of period............................... $ 135,534 $ 10,226 $ 233,981 $ -- $ 78,613 =========== ========= =========== ========= ========= Supplemental cash flow information: Cash paid during the period for interest.... $ -- $ -- $ 9,647 $ 12,701 $ 12,701 =========== ========= =========== ========= =========
Non-cash transactions: During the year ended May 31, 1995, the Company issued stock for conversion of notes payable (see Note 5). During the year ended May 31, 1996, the Company issued 200,000 shares of common stock, valued at $21,000 in connection with a loan from a shareholder. Also during the year ended May 31, 1996, the Company assumed $77,067 in debt in connection with acquiring an additional interest in the mine (Note 2). During the period ended February 28, 1997, the Company issued 789,200 shares of common stock in connection with the Indonesian mining property acquisitions, 100,000 shares for domestic mining services and 100,000 shares for a Brazilian timber concession (Note 7). See accompanying notes to consolidated financial statements. F-7 61 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (JUNE 10, 1985) TO FEBRUARY 28, 1997 (UNAUDITED) Cash flows from developmental activities: Net loss................................................................... $(12,971,115) Adjustments to reconcile net loss to net cash used in developmental activities: Common stock issued for services........................................ 725,000 Loss on disposition of property......................................... 156,183 Settlement of claim with debt........................................... 97,265 Depreciation............................................................ 66,567 Minority interest expense............................................... 49,500 Changes in assets and liabilities: Prepaid expenses...................................................... (164,500) Accounts payable and accrued liabilities.............................. 246,273 ------------ Net cash used in developmental activities.................................. (11,794,827) ------------ Cash flows from investing activities: Purchase of property and equipment......................................... (5,625,466) ------------ Cash flows from financing activities: Additions to long-term debt................................................ 330,011 Payments on long-term debt................................................. (165,291) Net change in notes payable to stockholders................................ 256,196 Proceeds from issuance of stock and stock to be issued..................... 17,134,911 ------------ Net cash provided by financing activities.................................. 17,555,827 ------------ Net increase in cash and cash equivalents.................................... 135,534 Cash and cash equivalents: Beginning of period........................................................ -- ------------ End of period.............................................................. $ 135,534 ============
See accompanying notes to consolidated financial statements. F-8 62 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Nevada Manhattan Mining Incorporated was organized under the Laws of the State of Nevada on June 10, 1985, to acquire, explore, develop, finance and sell mining rights and properties. As of May 31, 1996 the Company is in the development stage, in that planned principal operations have not commenced. The Company has to date acquired properties and begun exploration and development. Preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Basis of Presentation The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is reporting a net loss of $1,198,506 and $611,073 for the years ended May 31, 1996 and 1995 and $1,319,759 for the period ended February 28, 1997 and net cash resources were used in developmental activities for each year and for the period then ended. The following is a summary of managements' plan to raise capital and generate additional operating funds. Management has reached an agreement to have gold ore milled adjacent to its Nevada property by a third party, reducing capital requirements of the Company. The Company and its joint venture partners in the Nevada property have constructed a 1,200 foot decline underground access to enhance exploration and facilitate the extraction of gold ore. The Company has negotiated an agreement with Harrison Western Mining and Construction Company to begin production in July 1996. The Company has acquired and commenced the exploration and development of its mineral holdings in Indonesia and its Brazilian timber operations. Management will attempt to raise additional capital through a private or public sale of common stock or by loans. Though the Company has been able to raise funds from private placement of its equity securities in recent years, there is no assurance of future availability of funds from these sources. Statement of Cash Flows For statement of cash flow purposes, the Company considers short-term investments with original maturities of three months or less to be cash equivalents. Property and Equipment Mining properties acquisition, exploration and development costs are capitalized as incurred and will be amortized on the units-of-production method based on economically recoverable mineral reserves. The Company assesses impairment of mineral properties on an area-by-area basis which aggregates contiguous areas. Estimated site restoration and closure costs in which the Company has reclamation responsibilities are charged against operating earnings on the units-of-production method over the expected economic life of the mines. Other property and equipment are carried at cost. Depreciation of other property and equipment is provided using the straight-line method over the seven year estimated useful lives of the related assets. Maintenance and repairs are charged to operations as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement of property and equipment are included in operations. F-9 63 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes The Company accounts for income taxes pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which requires the use of the asset and liability method of computing deferred income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Net Loss Per Common Share Per share amounts have been computed on the weighted average number of common shares outstanding for each period. All share and per share amounts have been restated to retroactively reflect the reverse stock split explained in Note 5. Convertible preferred shares are considered antidilutive since conversion would decrease loss per share. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. 2. MINING PROPERTIES AND EQUIPMENT The Company previously owned a 24.5 percent undivided interest in a mining property in the Manhattan Mining District, Nye County, Nevada. The property consists of 28 patented (fee) and 65 unpatented mine claims which include the Whitecaps Mine, Union Mine, Consolidated Mine, Earl Mine, Bath Mine and other assorted mines and claims which cover approximately 1,200 acres. Under contractual understandings reached during October 1995, which are in the final stages of confirmation, the Company has increased its interest to 50 percent and has assumed an additional $77,067 in debt (Note 3) in connection therewith. In March 1997, the Company entered into an agreement to purchase the note and deed of trust in its entirety which is secured by the property (see Note 7). Management of the Company is active in the supervision of work taking place, plus future planning of all aspects of operations. The operating permits for the Manhattan Gold Mine were issued to the Company by the State of Nevada during April 1996. The Company has negotiated an agreement with Harrison Western Mining and Construction Company for the beginning of production in July 1996. The work was begun in July 1996 and included placement of mine shops and support facilities; mining in the existing workings of the mine and extension of the existing decline from its end location of 1,200 linear feet from the surface to the White Caps Level. Underground flooding and caving of the existing decline required an alternate access way and a new decline was driven from approximately 800 feet on the existing decline. As of the end of December 1996, the new decline has been driven starting from approximately 350 feet with an additional 450 feet expected to be completed by the end of March 1997. Ore is expected to begin to be milled in May 1997. Previously, the Company had an interest in a gold producing property in Bolivia, South America and mining claims in British Columbia, Canada. The management, directors and stockholders voted to release these properties as they felt they were not economical to the Company and the future exploration and development of the Nevada, Indonesian and Brazil properties would offer the greatest return to the Company (see Note 7). F-10 64 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 3. LONG-TERM DEBT AND NOTES PAYABLE Notes payable to stockholders accrue interest at rates from 9 percent to 12 percent, are due on demand and are guaranteed by certain Company officers. Long-term debt consisted of the following:
FEBRUARY 28, MAY 31, ----------- --------------------- 1997 1996 1995 ----------- -------- -------- (UNAUDITED) Obligation to a stockholder as a result of a lawsuit settlement, interest imputed at 9%, payable $1,000 per month until April 2001....... $ 48,426 $ 50,770 $ 52,330 Note payable to an individual at $2,000 per month, including interest at 9%........................ 35,649 -- -- 10% note payable to an individual under terms of a joint venture agreement, payable $50,000 per year including interest......................... 84,341 109,341 76,867 -------- -------- -------- 168,416 160,111 129,197 Current portion................................... 68,150 44,388 23,278 -------- -------- -------- Long-term debt.................................... $ 100,266 $115,723 $105,919 ======== ======== ========
Maturities of long-term debt are as follows for the years ending May 31: 1997....................................................... $44,388 1998....................................................... $48,925 1999....................................................... $40,978 2000....................................................... $10,267 2001....................................................... $15,553
The Company has capitalized $26,693, $34,242, $82,906 and $74,543 of interest into the mining properties during the years ended May 31, 1996, 1995 and 1994 and for the period ended February 28, 1997, respectively. 4. COMMITMENTS AND CONTINGENCIES Lease The Company leases office space under terms of an operating lease expiring on February 28, 1997. Future minimum lease payments for the year ending May 31, 1997 are $20,394. Rent expense amounted to $20,726, $20,394, $21,922 and $18,621 for the years ended May 31, 1996, 1995 and 1994, and the period ended February 28, 1997, respectively. Securities and Exchange Commission During May 1989, the Company received notice that the Securities and Exchange Commission ("Commission") had commenced an investigation into the Company's business activities. In 1993, the Board of Directors of the Company determined that the entry of a proposed consent judgment and the termination of the investigation was in the best interest of the Company and received confirmation that the investigation had been completed. On March 19, 1994, the Company received the following "Stipulation Regarding Resolution of Outstanding Issues" from the Commission closing out the investigation and all related issues: F-11 65 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 4. COMMITMENTS AND CONTINGENCIES (CONTINUED) "Whereas the disposition of funds analysis conducted pursuant to the Judgment of Permanent Injunction and Other Relief against Defendant Nevada Manhattan Mining Incorporated entered on August 3, 1993 has revealed no ill-gotten gains received by any defendant, the undersigned parties hereby stipulate that all outstanding issues in this action have been resolved, including disgorgement, and that the judgment entered against the defendants are final." While the Company believes that it was in the best interests of the Company and its stockholders to enter the consent judgment, the entry of the judgment may impose certain burdens on the Company with respect to its future activities. The more significant of such burdens are as follows: (i) The Company may not be able to utilize the exemptions from registration available under Regulation A and Rule 701 under the 1933 Act. (ii) The Company may not be able to rely on the private placement exemptions provided in various state securities laws in connection with the offer and sale of securities in a transaction which qualifies as an exempt sale of securities under the 1933 Securities Act. In such case, the Company would be required to qualify the transaction under the state securities laws which may not be available. This qualification would increase the cost of, and extend the time for completing, such private placement of securities. Other Contingencies In January 1995, a group of stockholders and creditors asserted a claim in regards to a January 1988 settlement agreement. The Company has not been formally served or any legal process initiated by the stockholders and creditors in asserting this claim. Management does not believe the ultimate outcome of this contingency will have a material effect on financial position or results of operations. Fair Value of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents and notes and accounts payable approximate carrying value due to the short-term maturity of the instruments. 5. STOCKHOLDERS' EQUITY Stock Options The Company has granted stock options to all members of the Board of Directors in the amount of 10,000 shares per full year of service as an active member of the Board of Directors. The exercise price of options granted is $1.00 per share of common stock. Options may not be exercised after expiration of ten (10) years from the date of grant and are non-transferable other than by will or inheritance. These options are the only compensation received for service as Director. F-12 66 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 5. STOCKHOLDERS' EQUITY (CONTINUED) The following table sets forth information regarding options for the periods ended:
FEBRUARY 28, MAY 31, ------------ ----------------- 1997 1996 1995 ------------ ------- ------- (UNAUDITED) Outstanding at beginning of period........... 240,000 190,000 160,000 Granted...................................... -- 50,000 30,000 ------- ------- ------- Outstanding at end of period................. 240,000 240,000 190,000 ======= ======= =======
In connection with their employment contracts, the Company also granted two officers the right to purchase 900,000 common shares each at an average price of $1.50 per share. The officers exercised these options during the year ended May 31, 1996 and the Company's Board of Directors then agreed to give the officers the shares for services rendered. These shares have been valued at $.25 per share ($450,000) in the accompanying financial statements. The Company has also granted its chief legal counsel an option to acquire 100,000 common shares at $4 per share. Reverse Split In February 1995, the Company's stockholders approved a one-for-ten reverse split of the Company's common stock. The stated par value per share was not changed. All share and per share amounts herein have been retroactively restated to reflect the reverse split. Stock to be Issued and Stock Subscriptions Receivable The Company sold 647,213 shares of common stock and 13,150 shares of Series A Preferred Stock in separate private placements during the year ended May 31, 1995. The preferred stock had not been formally issued as of May 31, 1995, but was issued during the year ended May 31, 1996. The Company raised $776,513 in the private placements of which $50,500 was still receivable at May 31, 1995 and has been reflected as an offsetting amount in stockholders' equity at that date. During the year ended May 31, 1995, the Company also agreed to issue 73,467 shares of common stock in exchange for conversion of $638,660 of notes payable to certain individuals. During the year ended May 31, 1995, the Company also agreed to issue 32,500 shares of common stock to certain individuals to settle certain claims made by the individuals. The $32,500 value of the shares was charged to general and administrative expense. The preferred stock has a $1 par value, a $10 liquidation preference and an 8 percent cumulative dividend payable in cash or kind. Each share is convertible to ten common shares for a period of thirty months. During 1988, two Company officers loaned 495,000 (post-reverse split) common shares to the Company as treasury stock in return for the Company's promise to return the shares when common shares became available as a result of a reverse split or an increase in authorized shares. The shares were reissued to the officers in November 1995. The Company has accounted for the shares, valued at the market price of the shares when they were loaned to the Company, as a long-term obligation in the financial statements until the year ended May 31, 1995, when the reverse split occurred and the shares became available for issuance. At that time, the obligation was considered as common stock to be issued and included in stockholders' equity. F-13 67 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 5. STOCKHOLDERS' EQUITY (CONTINUED) Warrants In connection with the private placement of common stock, in October 1994, the Company also issued warrants to purchase 50,300 shares of common stock at $1.00 per share. None of these warrants, which expire in October 1996, have been exercised as of May 31, 1996. 6. INCOME TAXES The Company has recorded no income tax benefit, nor has deferred taxes in any year due to a net operating loss carryforward amounting to approximately $10,000,000 at May 31, 1996, which will expire, if not utilized, from 2002 to 2011. 7. SUBSEQUENT EVENTS In March 1997, the Company entered into a Sale and Purchase Agreement with the Selig Entities. Under the terms of this latest agreement, the Selig Entities agreed to sell to the Company one hundred percent (100%) of their interests in the Nevada Note, the Deed of Trust, and the Nevada Property for the sum of Three Hundred Seventy Five Thousand Dollars ($375,000) payable as follows: One Hundred Thousand Dollars ($100,000) in March 1997 and the balance plus all accrued and unpaid interest (calculated at the rate of 5.25%) on or before February 6, 1999. The Company in fact paid the first installment of One Hundred Thousand Dollars ($100,000) in March 1997. The agreement also acknowledges that the Company is the only person or entity legally entitled to conduct mineral operations on the Nevada Property. The Company is also required to pay all U.S. Bureau of Land Management annual maintenance fees associated with the claims comprising the Nevada Property. Indonesia The Company has made certain acquisitions in Indonesia subsequent to May 31, 1996: On August 19, 1996, the Company entered into an agreement to acquire a 51% interest in a metals/minerals mining property in Kalimantan, Indonesia (Sopang Gold Concession). Consideration for the purchase consisted of 400,000 shares of common stock due upon the signing of the agreement (of which 10,800 are unissued as of February 28, 1997) and an additional 4,000,000 shares to be released dependent upon the value of an independent valuation of the property. The Company has valued the 400,000 shares at $1,200,000. The Sopang Gold Concession ("Sopang") consists of 16,480 hectares and is held under Indonesian title as a KP, a form of Indonesian citizen ownership with a joint venture agreement. The concession is located in southeast Kalimantan. Because of the lack of major infrastructure in the area, initial work will be limited to surface trenching and geochemical sampling. Field work at Sopang will be initiated in the first quarter of 1997 with more extensive exploration including airborne geophysical surveys and drilling to be initiated later in 1997. The West Kalimantan Gold Project ("West Kalimantan") is 75 kilometers south of the Sarawak region of Malaysia and contains 62 hectares with the intent to expand to at least 2,000 hectares. The Project is held under a KPPE title, a form of Indonesian citizen ownership in joint venture with the Company. Access to the property is by road and motorized canoe for initial field work and helicopter support for advanced exploration activities. Infrastructure is limited but the proximity to the west coast of Kalimantan and low relief terrain indicates no unusual development problems will be encountered. Following a survey and additional ground F-14 68 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 7. SUBSEQUENT EVENTS (CONTINUED) sampling, key core drill targets will be identified and drilling will start as early as the second quarter of 1997. Further property acquisition is an integral part of the development program at West Kalimantan. Exploration has commenced in the first quarter of 1997. The Cepa Coal Project ("Cepa") in East Kalimantan covers an area of approximately 286,000 hectares and is held in three concessions as Contracts of Work ("COW's"). Initial work on the property will include reasonable expansion of ownership to include promising additional property containing similar coal. Surface sampling, shallow drilling for coal characterization and general market surveys began in the first quarter of 1997. The Silobat and Cepa projects, collectively, were acquired in January 1997 for 400,000 common shares issued upon signing of the agreement (valued at $2,800,000) and an additional 4,000,000 shares to be released dependent upon an independent valuation of the property of $40,000,000. The Company is also contingently liable to issue 1,000,000 common shares regardless of the valuation. The Company has contractually acquired the controlling interest in five additional gold concessions in Indonesia. The Company is currently reviewing these properties to determine an applicable acquisition structure. The Company has retained the firm of Behre Dolbear & Co. to provide review and third party validation with respect to its Indonesian operations. Brazil The Company, through its 80% owned subsidiary, Equatorial Resources ("ER"), has entered into a joint venture agreement with a Brazilian company to develop and operate 276,000 hectares of virgin timberland located in the state of Para, Brazil. The Company has an option to buy an additional 420,000 hectares. Under this joint venture arrangement, ER will manage the property and will earn a fifty percent interest in all operations, including timber harvesting and milling activities currently being conducted on the property. Of the four existing saw mills acquired by ER, two are operational in Phase I and Phase II, and the other two mills will be put into operation by the end of February 1997. Immediate expansion plans call for the construction of up to eight additional mills in Phase III. The Company is providing $500,000 for Phase I and Phase II and will provide $1,500,000 for Phase III. In addition to the cash capital requirements for the property, the Company has issued 100,000 shares (valued at $700,000) and is required to issue 2,000,000 shares of common stock to the seller in 1997 upon closing of a stock-for-assets reorganization agreement. Agreement with Silenus Limited On April 14, 1997, the Company entered into a Subscription Agreement with Silenus Limited ("Silenus") in a negotiated private placement. This transaction was made in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933. As a result, the Company issued $2,000,000 of 8% Senior Secured Convertible Debentures due March 31, 2000 (the "Debentures") and granted to Silenus a warrant to purchase 62,500 shares of the Company's Common Stock (the "Warrant"). The Debentures may be converted into shares of Common Stock at any time commencing June 2, 1997 through August 16, 1997 at a price equal to the lesser of: seventy-five percent (75%) of the closing bid price of the Common Stock on April 16, 1997 (i.e. 75% X $8.00, or $6.00 per share); seventy-five percent (75%) of the closing bid price of the Common Stock on the day prior to the funding of any subsequent funding ("tranche"); or seventy-five percent (75%) of the average closing bid price for the five trading days F-15 69 NEVADA MANHATTAN MINING INCORPORATED (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1996 AND 1995 AND FEBRUARY 28, 1997 AND 1996 7. SUBSEQUENT EVENTS (CONTINUED) immediately preceding the actual date of conversion of the Debentures. If conversion is made after August 16, 1997, the conversion price will be seventy-two and one-half percent (72.5%) of the above-referenced valuation standards. The Company is required to use its "best efforts" to cause the Registration Statement of which this Prospectus is a part to become effective prior to August 16, 1997. If the Registration Statement does not become effective by July 17, 1997, the Company is required to pay liquidated damages to Silenus equal to two percent (2%) of the Debentures for the first thirty days and three percent (3%) per month thereafter until the Registration Statement becomes effective. Subject to the existence of certain conditions subsequent and the continuing accuracy of the warranties and covenants within the Subscription Agreement, Silenus has the right to fund the issuance of additional Debentures in up to four additional tranches aggregating $8,000,000. The second tranche will close, if at all, commencing the later of: five business days after the effective date of the Company's Registration Statement filed April 3, 1997, on Form 10 pursuant to Section 12(b) of the Securities Exchange Act of 1934; or the conversion of the Debentures. Subsequent tranches may fund, if at all, on the later of: ninety days after the funding of the previous tranche: or the conversion of the Debentures issued in the immediately preceding tranche. Until Silenus has not converted at least seventy-five percent (75%) of the Debentures, a deed of trust on the Nevada Property and the pledge of 1,000,000 shares of Common Stock will secure the Debentures. The Company has also issued to Silenus a Warrant to purchase 62,500 shares of Common Stock. The Warrant may be exercised at any time up to and through April 16, 2002 at the price of $8.00 per share, the closing bid price as of April 15, 1997. The exercise price is subject to adjustment to account for payments of dividends, stock splits, reverse stock splits, and similar events. Funding of each subsequent tranche will likewise entitle Silenus to purchase an additional 62,500 share of Common Stock at $8.00 per share (subject to adjustments noted above). 8. GEOGRAPHIC AND SEGMENT INFORMATION The Company's operations during the three years ended May 31, 1996 were entirely gold mining operations in the United States. Beginning in the nine months ended February 28, 1997, the Company began operating in Indonesia (gold mining and coal) and Brazil (timber). Financial data by geographic area as of and for the period ended February 28, 1997 were as follows:
OPERATING IDENTIFIABLE LOSS ASSETS ----------- ----------- (UNAUDITED) United States..................................... $(1,105,472) $ 5,659,169 Indonesia......................................... (79,955) 4,123,147 Brazil............................................ (134,332) 947,500 ----------- ----------- Total................................... $(1,319,759) $10,729,816 =========== ===========
F-16 70 ====================================================== NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ------ Summary of the Offering................ 1 Risk Factors and Special Material Considerations....................... 4 Terms of the Offering.................. 14 Plan of Distribution................... 16 Description of Company's Business and Property............................. 16 Use of Proceeds........................ 31 Management............................. 33 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 39 Principal and Selling Shareholders..... 40 Description of Securities Being Offered.............................. 43 Legal Matters, Auditors, and Pending Legal Proceedings.................... 45 Definitions............................ 47 Further Information.................... 48 Financial Statements of Company........ F-1
====================================================== ====================================================== LOGO SHARES NEVADA MANHATTAN MINING, INC. MINING DEVELOPMENT EXPLORATION COMMON STOCK --------------------------- PROSPECTUS --------------------------- , 1997 ====================================================== 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Bylaws do not contain a provision entitling any director or executive officer to indemnification against liability under the Securities Act of 1933 (the " '33 Act"). Sections 78.751 et seq. of the Nevada Revised Statutes allow a company to indemnify its officers, directors, employees, and agents from any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, except under certain circumstances. Indemnification may only occur if a determination has been made that the officer, director, employee, or agent acted in good faith and in a manner which such person believed to be in the best interests of the company. A determination made be made by the shareholders; by a majority of the directors who were not parties to the action, suit, or proceeding confirmed by opinion of independent legal counsel; or by opinion of independent legal counsel in the event a quorum of directors who were not a party to such action, suit, or proceeding does not exist. Provided the terms and conditions of these provisions under Nevada law are met, officers, directors, employees, and agents of the Company may be indemnified against any cost, loss, or expense arising out of any liability under the '33 Act. Insofar as indemnification for liabilities arising under the '33 Act may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification for violations of the '33 Act is against public policy and is, therefore, unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates except the registration fee and the Amex fee.
AMOUNT TO BE PAID --------- Registration fee.................................................. $ 8,888 Amex fee.......................................................... $ 50,000 Printing and engraving............................................ $ 60,000 Translation Services.............................................. $ 3,000 Legal fees and expenses........................................... $ 70,000 Accounting fees and expenses...................................... $ 50,000 Blue sky fees and expenses........................................ $ 10,000 Transfer agent fees............................................... $ 2,500 Miscellaneous..................................................... $ 5,000 ------- Total................................................... $ 259,388 =======
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. From the period March 1, 1994, through February 28, 1997, the Company has offered and sold 8,342,619 shares of its Common Stock and 228,919 shares of Preferred Stock. Sales of both the Common Stock and the Preferred Stock were effected through the executive officers of the Company to existing shareholders. No underwriters were employed in connection with the offer and sale of the aforementioned securities. Thus no underwriting discounts or commissions were paid. All of the above-referenced sales were made by the Company in reliance upon the exemptions from registration contained in Section 4(2) of the Securities Act of 1933 and Regulation D promulgated pursuant to such exemption. II-1 72 ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ---------- ------------------------------------------------------------------------ 3.(i) Articles of Incorporation of Epic Enterprises, Ltd., Filed June 10, 1985* 3.(ii) Certificate of Amendment to Articles of Incorporation of Epic Enterprises, Ltd., Filed September 11, 1987* 3.(iii) Certificate of Amendment to Articles of Incorporation of Nevada Manhattan Mining Incorporated Filed October 26, 1987* 3.(iv) Certificate of Amendment of Articles of Incorporation of Nevada Manhattan Mining Incorporated Filed August 31, 1995* 3.(v) Certificate of Determination of Preferences of Series A Preferred Stock of Nevada Manhattan Mining Incorporated Filed October 25, 1995* 3.(vi) Bylaws of Epic Enterprises, Ltd.* 3.(vii) Memorandum and Articles of Association of Equatorial Resources, Ltd.+ 3.(viii) Memorandum and Articles of Association of Kalimantan Resources, Ltd.+ 4.(i) Pages 1, 3, 4, and 5 of the Bylaws of Epic Enterprises, Ltd.* 4.(ii) Pages 1 through 9 of Certificate of Determination of Preferences of Series A Preferred Stock of Nevada Manhattan Mining Incorporated Filed October 25, 1995* 4.(iii) Stock Options Issued to Directors+ 4.(iv) Subscription Agreement dated April 14, 1997 with Silenus Limited 4.(v) Warrant to Purchase Common Stock 4.(vi) Deed of Trust in favor of Silenus Limited 4.(vii) Form of Debenture 5 Opinion on Legality* 10.(i) Mining Agreement Dated April 4, 1987* 10.(ii) Amendment to Mining Agreement Dated December 9, 1987* 10.(iii) Manhattan Mining Property Agreement Dated March 2, 1989* 10.(iv) Corporation Quitclaim Deed Filed March 9, 1989* 10.(v) Deed of Trust and Assignment of Rents Recorded March 9, 1989* 10.(vi) Joint Venture Agreement Dated June 1993* 10.(vii) Letter Agreement Dated August 10, 1995* 10.(viii) Amendment to Joint Venture Agreement Dated October 20, 1995* 10.(ix) Contract Between Nevada Manhattan Mining, Inc, and Harrison Western Construction Corp.* 10.(x) Principles of Agreement Dated August 19, 1996* 10.(xi) Employment Agreement Dated January 1, 1995 with Christopher D. Michaels* 10.(xii) Employment Agreement Dated January 1, 1995 with Jeffrey Kramer* 10.(xiii) Consulting Agreement with Gold King Mines Corporation Dated April 1, 1995* 10.(xiv) Consulting Services Agreement Dated October 7, 1996 with Behre Dolbear & Company, Inc.* 10.(xv) Letter Agreement Dated March 25, 1996 with David Weissberg, M.D.* 10.(xvi) Letter Agreement Dated May 13, 1996 with David Weissberg, M.D.*
II-2 73
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ---------- ------------------------------------------------------------------------ 10.(xvii) Letter Agreement Dated September 25, 1996 with Mr. John Holsten* 10.(xviii) Letter Agreement dated April 23, 1997 with British Far East Holdings Ltd. 10.(xix) Addendum Agreement to Principles of Agreement+ 10.(xx) Acquisition Agreement by and between Sinkamas Agunbg Ltd. and Kalimantan Resources, Ltd. dated January 26, 1997+ 10.(xxi) Acquisition Agreement for Gold and Coal Concessions by and between Kalimas Jaya Ltd. and Kalimantan Resources, Ltd.+ 10.(xxii) November 11, 1996 letter Agreement with Maderia Intex, S.A. International Exports+ 10.(xxiii) Proposal for Sale and Purchase and Authorization for Exploration of Timber+ 10.(xxiv) Eco-Rating Standard Agreement dated December 17, 1996+ 10.(xxv) Sale and Purchase Agreement dated February 6, 1997+ 21 Subsidiaries of Small Business Issuer+ 23.(i) Consent of Jackson & Rhodes P.C. 23.(ii) Consent of William R. Wilson 23.(iii) Consent of Behre Dolbear & Company, Inc. 27 Financial Data Schedule 99(i) Business Plan Dated July 1995* 99(ii) Business Plan Dated January 1997+
- --------------- * Filed with Registration Statement on Form SB-2 on December 8, 1996 (Registration No. 333-17423). + Incorporated by reference to the Company's Registration Statement on Form 10 filed April 3, 1997 (Registration No. 001-12867). (B) FINANCIAL STATEMENT SCHEDULES. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 28. UNDERTAKINGS. The Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective Registration Statement. II-3 74 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that the undertakings set forth in paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Company pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The Company hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described in the Prospectus or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. If a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed a part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 75 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Calabasas, State of California on May 28, 1997. NEVADA MANHATTAN MINING INCORPORATED By /s/ CHRISTOPHER D. MICHAELS ------------------------------------ Christopher D. Michaels President In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE - --------------------------------------------- -------------------------------- --------------- /s/ CHRISTOPHER D. MICHAELS President and Director May 28, 1997 - --------------------------------------------- CHRISTOPHER D. MICHAELS /s/ JEFFREY S. KRAMER Senior Vice President May 28, 1997 - --------------------------------------------- Chief Financial Officer JEFFREY S. KRAMER /s/ STANLEY J. MOHR Director May 28, 1997 - --------------------------------------------- STANLEY J. MOHR /s/ JOSEPH RUDE III, M.D. Director May 28, 1997 - --------------------------------------------- JOSEPH RUDE III, M.D. /s/ EDNA POLLOCK Director May 28, 1997 - --------------------------------------------- EDNA POLLOCK
II-5 76 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------- ------------ 3.(i) Articles of Incorporation of Epic Enterprises, Ltd., Filed June 10, 1985*.................................................................. 3.(ii) Certificate of Amendment to Articles of Incorporation of Epic Enterprises, Ltd., Filed September 11, 1987*........................... 3.(iii) Certificate of Amendment to Articles of Incorporation of Nevada Manhattan Mining Incorporated Filed October 26, 1987*.................. 3.(iv) Certificate of Amendment of Articles of Incorporation of Nevada Manhattan Mining Incorporated Filed August 31, 1995*................... 3.(v) Certificate of Determination of Preferences of Series A Preferred Stock of Nevada Manhattan Mining Incorporated Filed October 25, 1995*........ 3.(vi) Bylaws of Epic Enterprises, Ltd.*...................................... 3.(vii) Memorandum and Articles of Association of Equatorial Resources, Ltd.+.................................................................. 3.(viii) Memorandum and Articles of Association of Kalimantan Resources, Ltd.+.................................................................. 4.(i) Pages 1, 3, 4, and 5 of the Bylaws of Epic Enterprises, Ltd.*.......... 4.(ii) Pages 1 through 9 of Certificate of Determination of Preferences of Series A Preferred Stock of Nevada Manhattan Mining Incorporated Filed October 25, 1995*...................................................... 4.(iii) Stock Options Issued to Directors+..................................... 4.(iv) Subscription Agreement dated April 14, 1997 with Silenus Limited....... 4.(v) Warrant to Purchase Common Stock....................................... 4.(vi) Deed of Trust in favor of Silenus Limited.............................. 4.(vii) Form of Debenture...................................................... 5 Opinion on Legality*................................................... 10.(i) Mining Agreement Dated April 4, 1987*.................................. 10.(ii) Amendment to Mining Agreement Dated December 9, 1987*.................. 10.(iii) Manhattan Mining Property Agreement Dated March 2, 1989*............... 10.(iv) Corporation Quitclaim Deed Filed March 9, 1989*........................ 10.(v) Deed of Trust and Assignment of Rents Recorded March 9, 1989*.......... 10.(vi) Joint Venture Agreement Dated June 1993*............................... 10.(vii) Letter Agreement Dated August 10, 1995*................................ 10.(viii) Amendment to Joint Venture Agreement Dated October 20, 1995*........... 10.(ix) Contract Between Nevada Manhattan Mining, Inc. and Harrison Western Construction Corp.*.................................................... 10.(x) Principles of Agreement Dated August 19, 1996*......................... 10.(xi) Employment Agreement Dated January 1, 1995 with Christopher D. Michaels*.............................................................. 10.(xii) Employment Agreement Dated January 1, 1995 with Jeffrey Kramer*........ 10.(xiii) Consulting Agreement with Gold King Mines Corporation Dated April 1, 1995*.................................................................. 10.(xiv) Consulting Services Agreement Dated October 7, 1996 with Behre Dolbear & Company, Inc. *...................................................... 10.(xv) Letter Agreement Dated March 25, 1996 with David Weissberg, M.D.*...... 10.(xvi) Letter Agreement Dated May 13, 1996 with David Weissberg, M.D. *....... 10.(xvii) Letter Agreement Dated September 25, 1996 with Mr. John Holsten*....... 10.(xviii) Letter Agreement dated April 23, 1997 with British Far East Holding Ltd.................................................................... 10.(xix) Addendum Agreement to Principles of Agreement+......................... 10.(xx) Acquisition Agreement by and between Sinkamas Agunbg Ltd. and Kalimantan Resources, Ltd. dated January 26, 1997+..................... 10.(xxi) Acquisition Agreement for Gold and Coal Concessions by and between Kalimas Jaya Ltd. and Kalimantan Resources, Ltd.+......................
77
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------- ------------ 10.(xxii) November 11, 1996 letter Agreement with Maderia Intex, S.A. International Exports+................................................. 10.(xxiii) Proposal for Sale and Purchase and Authorization for Exploration of Timber+................................................................ 10.(xxiv) Eco-Rating Standard Agreement dated December 17, 1996+................. 10.(xxv) Sale and Purchase Agreement dated February 6, 1997+.................... 21 Subsidiaries of Small Business Issuer+................................. 23.(i) Consent of Jackson & Rhodes P.C. ...................................... 23.(ii) Consent of William R. Wilson........................................... 23.(iii) Consent of Behre Dolbear & Company, Inc................................ 27 Financial Data Schedule................................................ 99(i) Business Plan Dated July 1995*......................................... 99(ii) Business Plan Dated January 1997+......................................
- --------------- * Filed with Registration Statement on Form SB-2 on December 6, 1996 (Registration No. 333-17423). + Incorporated by reference to the Company's Registration Statement on Form 10 filed April 3, 1997 (Registration No. 001-12867)' EX-4.(IV) 2 EXHIBIT 4.(IV) 1 EXHIBIT 4.(iv) SUBSCRIPTION AGREEMENT NEVADA MANHATTAN MINING INCORPORATED 8% SENIOR SECURED CONVERTIBLE DEBENTURES THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED UNDER SUCH LAWS, OR UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES BEING OFFERED BY THE ISSUER ARE SECURITIES AS THAT TERM HAS BEEN DEFINED IN THE ACT. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE ACT IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 4(2) THEREOF, AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER. FURTHER, THESE SECURITIES MAY ONLY BE SOLD PURSUANT TO EXEMPTIONS FROM REGISTRATION OR QUALIFICATION IN THE VARIOUS STATES, AND MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER IN SUCH JURISDICTIONS. This Agreement has been executed by the undersigned in connection with the private placement of Eight Percent (8%) Senior Secured Convertible Debentures and Common Stock Purchase Warrants (hereinafter referred to as the "Securities") of Nevada Manhattan Mining Incorporated, 5038 North Parkway Calabasas, Suite 100, Calabasas, California 91302, a corporation organized under the laws of Nevada (hereinafter referred to as the "Issuer"). The undersigned, a corporation organized under the laws of the Isle of Man, (hereinafter referred to as the "Purchaser") hereby represents and warrants to, and agrees with the Issuer as follows: 1. Agreement to Subscribe: Purchase Price. a) The undersigned hereby subscribes for and agrees to purchase up to $10,000,000 aggregate principal amount of the Issuer's 8% Senior Secured Convertible Debentures convertible into shares of the Issuer's common stock ("Common Stock") in the form attached as Schedule "A" hereto (the "Debentures"), and Common Stock Purchase Warrants attached as Schedule "B" hereto (the "Warrants") for a total consideration, including all fees and commissions, if all Debentures are purchased, of $10,000,000 (the "Purchase Price") under the terms and conditions specified in Paragraph 10 hereof. 1 2 b) Form of Payment. Purchaser shall pay such portion of the Purchase Price as may be required to purchase the Debentures being purchased, from time to time, by delivering good funds by wire transfer in United States Dollars into an escrow account (the "Escrow Account") as follows: Preferred Bank 1801 Century Park East Los Angeles, California 90067 ABA No. 1220 42205 Account Name: David L. Kagel Special Trust Account Account No.: 004 603 451 2. General Understanding Purchaser understands that the Securities have not been registered under the Act, and, accordingly, that the Issuer must be satisfied that the offer and sale of the Securities to the Purchaser will satisfy the requirements of Section 4(2) under the Act. Purchaser and Issuer intend that the representations, declarations, and warranties set out in this Agreement will be relied upon in determining Purchaser's suitability as a purchaser of the Securities. 3. Purchaser Representations and Covenants Purchaser represents, warrants, and acknowledges to the Issuer as follows: a) The Securities are being acquired for the account of Purchaser and its affiliates for investment, with no present intention of distributing or selling any portion thereof, and will not be transferred by Purchaser in violation of the Act. No one other than Purchaser has any interest in or any right to acquire the Securities. b) The Securities have not been registered under the Act or qualified under any state securities law in reliance on an exemption from registration and qualification for private offerings. Purchaser is purchasing the Securities without being furnished any offering literature or prospectus other than the SEC Filings (as defined in Section 3(k) below). C) Purchaser is an "accredited investor" under Rule 501(a)(3) of Regulation D under the Act and will sign the Accredited Investor Declaration, substantially in the form of Schedule "C", attached hereto, contemporaneously with the execution of this Agreement. d) No representations or warranties have been made to Purchaser by the Issuer or any agent of the Issuer other 2 3 than those set forth in this Agreement. e) Purchaser has investigated the acquisition of the Securities to the extent it deems necessary or desirable and the Issuer has provided it with any assistance it has requested in connection therewith. f) The address set forth below is the true and correct address of Purchaser's principal business office. g) Purchaser has full power and authority to make the representations referred to herein, to purchase the Securities, and to execute and deliver this Agreement. h) If Purchaser is not located in the United States, Purchaser has satisfied himself as to the full observance of the laws of the Purchaser's jurisdiction in connection with the offer and sale of the Securities or any use of this Agreement, including (i) the legal requirements of the Purchaser's jurisdiction for the purchase of Securities, (ii) any foreign exchange restrictions applicable to such purchase, and (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, which may be material to the purchase, holding, redemption, exchange, sale or transfer of the Securities. Purchaser's purchase and payment for, and Purchaser's continued beneficial ownership of the Securities will not violate any applicable securities or other laws of Purchaser's jurisdiction. i) Purchaser is aware that this is a private offering and that no United States federal, state or other agency has made any finding or determination as to the fairness of the investment nor made any recommendation or endorsement of the Securities; j) Purchaser acknowledges and represents that Purchaser has had access to information concerning the Issuer and its subsidiaries, its management, its current and proposed business and other details of the investment believed by Purchaser to be sufficient to enable Purchaser to make an informed investment decision regarding Purchaser's acquisition of the Securities. Purchaser has had an opportunity to ask questions of, and receive answers from, and obtain additional information from representatives of the Issuer concerning (i) the business and financial condition of the Issuer; (ii) the current and proposed business of the Issuer; and (iii) the terms of this Agreement and the purchase of the Securities, all to the extent such information is available or could be 3 4 acquired without unreasonable effort or expense. k) Purchaser represents that Purchaser or its representative has received copies of the Form 10 Registration Statement under the Securities Exchange Act of 1934 filed by the Issuer on April 3, 1997 and will receive all amendments thereto (collectively "SEC Filings"). l) Purchaser represents that all data or information requested by Purchaser from the Issuer or any of its officers or affiliates concerning the Issuer has been furnished to Purchaser. m) Purchaser represents and warrants to the Issuer that (i) Purchaser is able to bear the economic risk of an investment in the Securities; (ii) Purchaser has adequate means of providing for Purchaser's current needs and contingencies; (iii) Purchaser is purchasing the Securities for investment with the intention of holding the Securities for an indefinite period, and is able to afford to hold the Securities for an indefinite period; (iv) Purchaser has such knowledge and experience in financial and business matters that Purchaser is capable of evaluating the merits and risks of the investment in the Securities; (v) Purchaser can afford a complete loss of Purchaser's investment in the Securities; and (vi) Purchaser is willing to accept the foregoing investment risks. n) Purchaser represents and warrants to the Issuer that Purchaser's acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme to evade the registration provisions of the Act. o) Purchaser understands that there is currently no trading market for the Securities and that none is expected to arise. Purchaser further acknowledges that, although there currently exists a trading market for the Issuer's Common Stock, such market may not exist or be accessible in sufficient volume at such time as the Securities are converted into Common Stock. Purchaser covenants to the Issuer that: excluding the SEC Filings, Purchaser has not distributed, and will not distribute any materials and has not divulged, and will not divulge, the contents thereof to anyone other than such legal or financial advisors as Purchaser has deemed necessary for purposes of evaluating an investment in the Securities and no one (except such 4 5 advisors) has used such materials, and Purchaser has not made, and will not make, any copies thereof. 4. Issuer Representations and Covenants. In order to induce Purchaser to enter into this Agreement, the Issuer represents and warrants to the Purchaser as follows: This private placement of Securities in the aggregate principal amount of up to $10,000,000.00 is being made on a "best efforts" basis pursuant to Section 4(2) of the Act. Such Securities may be issued in from one to five tranches of up to $2,000,000 per tranche, at one or more closings (each a "Closing") with no aggregate minimum investment amount, but all such Securities shall have identical rights, and privileges in all respects. a) The Securities, when issued and delivered pursuant hereto, and the Common Stock issuable upon conversion and/or exercise thereof, when issued and delivered upon such conversion and/or exercise thereof, will be duly and validly authorized and under federal or state law issued, fully paid and non-assessable and will not subject the Purchaser thereof to any liability solely by reason of being such Purchaser. b) The Issuer has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and, when accepted by the Issuer, this Agreement will have been duly authorized by all necessary actions of the directors and (if necessary) the shareholders of Issuer, validly executed and delivered on behalf of the Issuer and be a legally binding obligation of the Issuer, enforceable in accordance with its terms. c) The execution and delivery of this Agreement and the sale of the Securities pursuant hereto and the issuance of the Common Stock issuable upon conversion and/or exercise thereof of such Securities, and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by the Issuer of any of the terms or provisions of, or constitute a default under, the Articles of Incorporation or By-Laws of the Issuer or any indenture, mortgage, deed of trust or other material agreement or instrument to which the Issuer is a party or by which it or any of its property or assets are bound or any existing applicable law, rule or regulation or any applicable decree, judgment or order of any court, federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the Issuer or any of its properties or assets. 5 6 d) There are no facts or circumstances existing, and there has been no event, which has had or which reasonably could be expected to have in the future a material adverse effect with respect to the financial condition, business affairs or prospects of the Issuer other than as disclosed in the SEC Filings provided to Purchaser. e) Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and is duly qualified and in good standing as a foreign corporation in all jurisdictions where the failure to so qualify would have a material adverse effect on the Issuer. The Issuer has not registered its Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") but filed a registration statement on Form 10 under the Exchange Act on April 3, 1997, and the Common Stock is traded on the Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol NVMH. f) The Purchaser shall, upon the purchase of the Securities and at each Closing, receive an opinion letter from the Issuer's counsel to the effect that (i) the Issuer is duly incorporated and validly existing; (ii) this Agreement, the issuance of the Securities, the issuance of Common Stock upon conversion and/or exercise thereof and the other transactions contemplated by this Agreement have been approved and duly authorized by all required corporate action; (iii) the Securities, upon delivery, shall be validly issued and outstanding, fully paid and nonassessable; and (iv) the Issuer has reserved from its authorized but unissued shares of Common Stock a sufficient number of shares to permit full conversion and/or exercise thereof at the then applicable conversion and/or exercise rate for all outstanding Securities. (9) Contemporaneously with the Closing of the first tranche the Issuer will pay all existing liens and encumbrances on the Issuer's Nevada mining properties and deliver a first trust deed on such properties in favor of Purchaser so that Purchaser shall have a senior security interest in such properties. Covenants of the Issuer. For so long as any Securities held by Purchaser remain outstanding, the Issuer covenants and agrees with the Purchaser that: a) Issuer will undertake its best efforts to maintain the listing of its Common Stock on the Electronic Bulletin 6 7 Board, the NASDAQ SmallCap Stock Market or the American Stock Exchange; b) Except as expressly set forth in Section 7 below, and only until the Registration Statement (as hereinafter defined) has been declared effective, Issuer will not issue stop transfer instructions to its transfer agent in regard to the Securities or the Common Stock issuable upon conversion and/or exercise thereof of the Securities; C) The SEC Filings and any amendments thereto (i) do and will conform in all material respects to the rules and regulations of the Commission with respect thereto; (ii) do not and will not contain an untrue statement of a material fact or omit to state any material fact required to make the statements contained therein not misleading; d) Issuer will reserve from its authorized shares of Common Stock One Million Five Hundred Thousand (1,500,000) shares to permit conversion and/or exercise thereof in full of all outstanding Securities; e) Notwithstanding the foregoing, the conversion and/or exercise right of the Purchaser set forth herein shall be limited such that in no instance shall the maximum number of shares of Common Stock into which the Purchaser may convert these Securities exceed, at any one time, an amount equal to the remainder of (i) 4.99% of the then issued and outstanding shares of Common Stock of the Issuer following such conversion and/or exercise thereof, minus (ii) the number of shares of common Stock of the Issuer then held by the Purchaser; f) Neither the SEC Filings nor the Registration Statement (as hereinafter defined) or any amendments thereto, when declared effective will contain a misstatement of material fact or will omit a material fact necessary to make the statements contained therein not misleading; and g) The President and the Senior Vice President of the Issuer will confirm the warranties, representations and covenants contained in this Agreement at each Closing. 5. Attorney's Fees: Due Diligence Fees. The Issuer agrees to pay all costs and expenses, including reasonable attorneys' fees, which may be incurred by the Purchaser in collecting any amount due or exercising the conversion and/or exercise rights under these Securities. Further, the Issuer agrees to pay from escrow the Purchaser's legal fees and due diligence costs incurred in an amount of 7 8 Twenty Five Thousand Dollars ($25,000.00), payable on the first tranche Closing and due diligence costs (estimated at $15,000) for representatives of Purchaser to travel to Issuer's facilities in Nevada, Brazil and Indonesia. 6. Registration Rights; Liquidated Damages. The Purchaser will be entitled to registration rights in respect of the shares of Common Stock issuable upon conversion of the Debentures and exercise of the Warrants (the terms of which are set forth below) as follows: (1) The Issuer shall prepare and file, within 30 days of the initial Closing Date, and amendment to its registration statement under the Act on Form SB-2 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") on December 6, 1996, covering the resale of the shares of Common Stock issuable upon conversion of the Debentures and the shares of Common Stock issuable upon exercise of the Warrants. The Issuer shall use its best efforts to cause the Registration Statement to be declared effective by the Commission no later than 120 days following the initial Closing Date and shall promptly deliver to Purchaser copies of all amendments to such Registration Statement and correspondence with the Commission with respect thereto. The Issuer shall maintain the effectiveness of the Registration Statement until all of the Common Stock issuable or issued upon conversion or exercise of the Securities has been sold. The Issuer shall pay all expenses of registration (other than underwriting fees and discounts in respect of shares of Common Stock offered and sold under such registration statement by the Purchaser, if any). (2) If the Registration Statement is not declared effective by the Commission during the 120-day period mentioned above, the Company shall pay in cash (or common stock valued at Market Price, as hereinafter defined) to the Purchaser, as liquidated damages and not as a penalty, an amount equal to two percent (2%) per month (commencing 90 and ending 120 days after the initial Closing) of the outstanding principal amount of the Debentures, in the event that the Registration Statement is not declared effective by the Commission within 90 days of the initial Closing Date and three percent (3%) from 120 days after the Closing Date until the Registration Statement is declared effective. 7. Transfer Agent Instructions, Book-Entry System, Liquidated Damages. Each conversion of the Debentures and/or exercise of the Warrants will be effected through a "book-entry" mechanism. Pursuant to this book-entry mechanism, (1) immediately following each Closing, the Escrow Agent will wire payment of the net offering proceeds to the Issuer and the Issuer will instruct the Issuer's transfer agent to register the Debentures in the name of the Purchaser on a Debenture 8 9 Register to be maintained by such transfer agent for the benefit of the Issuer and the Purchaser; (2) the transfer agent will establish a set of book-entry procedures to record transfers and conversions of the Debentures; and (3) the Issuer will irrevocably instruct the transfer agent to issue shares of Common Stock, bearing such legend as may be required by law, to the Purchaser upon the valid exercise of the conversion privilege and the fulfillment of other requirements of the transfer agent, including but not limited to the effectiveness of the Registration Statement and the delivery of an opinion of the Company's counsel (which the Company shall promptly supply) as to the issuance of such shares of Common Stock. If the Company willfully fails to deliver shares of Common Stock without restrictive legends or stop-transfer orders within four (4) New York Stock Exchange Trading Days of delivery of a notice of conversion following the effectiveness of the Registration Statement, or fails to deliver legended certificates if requested prior thereto, liquidated damages will accrue in an amount equal to $1,000.00 for each $100,000.00 principal amount of Debentures as to which conversion has been requested then outstanding for each day that such shares of Common Stock are not delivered up to 10 days, and $2,000.00 for each $100,000.00 principal amount of Debentures as to which conversion has been requested then outstanding for each day that such shares of Common Stock are not delivered in excess of 10 days. Such amounts will accrue and be payable to the Purchaser by the Issuer upon demand notices of conversion shall be submitted by facsimile transmission and shall be deemed to have been received on the date transmitted. 8. Indemnification. Each of the Issuer and the Purchaser agrees to indemnify and to hold the other harmless from and against any and all losses, damages, liabilities, costs and expenses which the other may sustain or incur in connection with the breach by the indemnifying party of any representation, warranty or covenant made in this agreement. Each of the Issuer and the Purchaser agrees that the Escrow Agent shall be relieved of any liability arising out of acting as escrow agent and each also hereby agrees to indemnify the Escrow Agent against expenses including attorneys fees, judgements, fines and amounts paid in settlement incurred by the Escrow Agent as a result of any threatened, pending or completed action, suit or proceeding of every nature by reason of the fact that it served as escrow agent. 9. Notices. All notices, requests, demands and other communications provided for herein (collectively "Notices") shall be in writing. All Notices shall be sent by hand delivery, U.S. 9 10 mail with return receipt requested, overnight courier, or facsimile with all delivery charges prepaid. All notices will be effective when received by the addressee as indicated by the return receipt, the receipt of the courier service, or on the facsimile. All notices to the Purchaser and/or the Issuer shall be delivered to the Escrow Agent (who may also act as counsel to Purchaser) at the address indicated below: Escrow Agent: David L. Kagel 1801 Century Park East, #2500 Los Angeles, California 90067 Telephone: (310) 553 - 9009 Facsimile: (310) 553 - 9693 The Escrow Agent shall be entitled to a fee of $3,000 for each of the last four tranches which shall close. 10. Closing Date. This agreement shall be effective from the date of execution by the Purchaser. Each Closing shall be effected through delivery of funds and certificates to the Escrow Agent. The Closing Date, which shall be so designated by a "Closing Certificate" from the Escrow Agent, shall be deemed to be that date upon which the Escrow Agent shall have the Securities available for delivery to the Purchaser and the Purchaser's funds in the Escrow Agent's account available for delivery to the Issuer. The Debentures will be issuable in five tranches of $2,000,000 each. The first tranche will close no later than April 15, 1997. Subject to the provisions of Paragraph 11 the second tranche will close within five business days after the later of (a) the effective date of the SEC Filing, or (b) the conversion of the entire principal amount of Debentures purchased in the first tranche. Each of the next three tranches will close on the later of (a) ninety days following the Closing of the previous tranche, or (b) the conversion of the entire principal amount of Debentures purchased in the previous tranche. 11. Right of First Refusal. Provided the Purchaser funds at least two tranches the Issuer will not sell any new equity securities (or securities convertible into equity securities) at a discount to the then-current market price per share of Common Stock, other than offerings in connection with mergers, acquisitions and certain benefit plans of the Issuer (a "discounted equity offering") for a period of ninety (90) Days from the funding of the last tranche. At any time after the effective date of the Registration Statement and prior to the funding of all tranches contemplated hereunder Issuer may give written notice (a "Funding Notice") to Purchaser that funding of a tranche is 10 11 requested. Funding of any tranche after the first is at the sole discretion of the Purchaser. If Purchaser shall elect not to fund such tranche by written notice to Issuer or by failing to effect a Closing within five days of receipt of a Funding Notice, and provided that such failure to is not the result of Issuer's inability or unwillingness to satisfy its obligations for such Closing, Issuer shall be free to sell any of its securities to any third party. In the event of such sale the Purchaser of such securities shall not effect a public distribution of Common stock of Issuer until the earlier of (a) 90 days following the effective date of the SEC Filing, or (b) the conversion of 75 percent of the Common Stock issuable upon exercise of the Debentures. Provided the Purchaser funds at least two tranches, for a period of one year from the Closing of the last tranche the Company will offer the Purchaser the opportunity to participate in all or any portion of any such financings on a right of first refusal basis. The Purchaser will have five (5) days from the date of receipt of a notice of such offering to respond to any notice by the Issuer of any right of first refusal. 12. Security. In order to secure its obligations under this Subscription Agreement and the Debentures Issuer will (a) grant Purchaser a first lien on the Issuer's gold mining claims and properties in the state of Nevada, which shall be released upon the conversion by Purchaser of 75% of the Debentures, and (b) arrange for Issuer to pledge 1,000,000 shares of common stock of Issuer in favor of Purchaser. 13. Origination Fee. Issuer will pay from Escrow (and execute appropriate instructions with respect thereto) an origination fee of ten percent (10%) of the gross proceeds of the closing of the first two tranches and seven percent of the gross proceeds of each tranche thereafter to such persons and in such manner as Purchaser may advise. 14. Conditions to the Issuer's Obligation to Sell. Issuer shall have the right to reject any given executed Agreement which is tendered to the Issuer hereunder, but only for the reason that the Issuer reasonably believes any representations and warranties of such Purchaser contained therein to be untrue, and in such event Issuer shall promptly provide Purchaser written notice of such rejection and the reason therefor and shall provide reasonable opportunity for a response to such stated reason. Purchaser understands that Issuer's obligation to sell the Securities is conditioned upon: (i) The receipt and acceptance by Issuer of this 11 12 Agreement for all of the Securities evidenced by execution of this Agreement by the Issuer or Issuer's duly authorized agent. In the absence of a written acknowledgement of this Agreement by the Issuer, the delivery of Securities to the designated Escrow Agent and/or the transfer of funds to the Issuer shall be deemed to be constructive acceptance of this Agreement. (ii) Delivery to the Escrow Agent by Purchaser of good funds as payment in full of the Purchase Price of the securities subscribed for and all fees and commissions hereunder. 15. Conditions to Purchaser's Obligation to Purchase. Issuer understands that Purchaser's obligation to purchase the Securities is conditioned upon delivery of (i) the opinion of counsel specified in Section 4(i)(f) herein, (ii) the Securities as described herein, and (iii) such documents, certificates and other evidence of the Issuer's compliance with necessary corporate and statutory formalities as Purchaser shall reasonably require. Further, the Purchaser anticipates being in a position to close and fund the initial tranche no later than April 15, 1997. However, each Closing is conditioned upon (a) the execution and delivery of, and performance under, appropriate documentation (including but not limited to an executed agreement, form of debenture, warrants, and book entry transfer agreement), all in form and substance mutually acceptable to the parties and containing representations, warranties and agreements customary for transactions of this type; (b) the truth and accuracy of each of the representations and warranties contained herein, both when made and as of each Closing Date; (c) satisfactory completion of due diligence by Purchaser (applies to the initial Closing only); (d) the absence of any material adverse change in the business, condition (financial or otherwise), earnings or prospects of the Issuer; and (e) the availability of a valid exemption under the Act regarding the offering and sale of the Securities and shares of Common Stock issuable on the conversion or exercise thereof. 16. Governing Law. This agreement shall be governed by and construed under the laws of the State of California without regard to its choice of law principles. 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereof with respect to the subject matter hereof and supersedes any and all prior or contemporaneous 12 13 representations, warranties, agreements and understandings in connection therewith. This Agreement may be amended only by a writing executed by all parties hereto. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original. 18. Announcements No public announcement concerning the events and transactions contemplated by this Agreement shall be made by Issuer without the prior approval of Purchaser, which approval shall not be unreasonably withheld. Full Name and Address of Purchaser for Registration Purposes: NAME: Silenus Limited ADDRESS: c/o Betuvo AG, Baarestrasse 73 Portfach 6302, Zug, Switzerland Tel No. 011-4141-710-0823 Fax No. 011-4141-710-7583 Contact Name: Mr. Bernard Muller 19. Delivery Instructions: (If different from Registration Name) NAME: Soreg Inc. ADDRESS: 620 Wilson Avenue, Suite 501 Toronto, Ontario Canada M5K 1Z3 Tel No. 416-630-9130 Fax No. 416-638-5023 Contact Name: Sheldon Salcman 13 14 Special Instructions: In each tranche closing, Purchaser will receive Debentures representing One Hundred Percent (100%) of its subscription for that tranche in denominations of $100,000 each. Each Debenture will specify a First Conversion Date of the earlier of the date of effective registration, or forty-five (45) Days from the First Closing Date. The Purchase Warrants being purchased will have a five (5) year term and will have an Exercise Price set at the lesser of the Conversion Price applicable to the Debenture being purchased at (a) the first Closing, or (b) the subsequent Closing. The value of the Warrants will equal 25% of the principal amount of the Debenture (valued based on a Black-Scholes or similar model). IN WITNESS WHEREOF, this Agreement was duly executed on the date first written below. This Agreement must be accepted by the Issuer no later than 5:00 pm Eastern Time, on the third United States business day after the date of execution by the Purchaser or it shall be deemed to be null and void. Dated this 14th day of April, 1997. Purchaser Name: SILENUS LIMITED [SEAL] By: ------------------------------------------ Bernard Muller Official signatory of Purchaser Name (Printed) : Bernard Muller ------------------------------------------ Title: President ------------------------------------------ Country of Execution: Switzerland ------------------------------------------ Accepted this 14th day of April, 1997. 14 15 A MANHATTAN MINING INCORPORATED By: /s/ JEFFREY KRAMER ----------------------------- Official Signatory of Issuer I have full authority to bind Nevada Manhattan Mining Incorporated JSK (initial) Name (Printed): /s/ JEFFREY KRAMER ---------------------------------- Jeffrey Kramer Title: C.O.O. - --------------------------------------------------- 15 16 SCHEDULE "A" FORM OF DEBENTURE No.________ $100,000 NEVADA MANHATTAN MINING INCORPORATED 8% SENIOR SECURED CONVERTIBLE DEBENTURE DUE MARCH 31, 2000 The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the "Act") and may not be sold, transferred or hypothecated, except pursuant to registration under the Act or an exemption from the registration requirements of the Act. This Debenture is one of a duly authorized issue of Debentures of Nevada Manhattan Mining Incorporated, a corporation duly organized and existing under the laws of the state of Nevada (the "Issuer") designated as Eight Percent (8%) Convertible Debentures Due March 31, 2000, in an aggregate principal amount not exceeding Ten Million Dollars ($10,000,000.00). FOR VALUE RECEIVED, the Issuer promises to pay to Silenus Limited, the registered holder hereof and its successors and assigns (the "Holder"), the principal sum of One Hundred Thousand Dollars ($100,000), on March 31, 2000 ("Maturity Date"), and to pay interest on the principal sum outstanding at the rate of 8% per annum. Interest shall be due and payable quarterly on the last day of June, September, December and March in each year. Accrual of interest shall commence on the first business day to occur after the date hereof and shall continue until payment in full of the principal amount has been made or duly provided for. At the option of Issuer interest may be paid in common stock of the Issuer ("Common Stock") at the average of the closing "bid" prices for the common stock for the five trading days immediately prior to the date on which such interest payment is due. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor Debentures) is registered on the records of the Issuer regarding registration and transfers of the Debentures (the "Debenture Register"); provided, however, that the Issuer's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Subscription Agreement dated as of April 14, 1997 between the Issuer and Holder (the "Subscription Agreement"). Except as set forth above, the principal of, and interest on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Issuer as designated in writing by the Holder hereof from time to time. The Issuer will pay the principal of and all accrued and unpaid interest due upon 16 17 this Debenture on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder at the last address as set forth on the Debenture Register. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars ($100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holders surrendering the same. No service charge will be made for registration, transfer or exchange. 2. The Issuer shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original Holder hereof and may be transferred or exchanged in compliance with the Act and applicable state securities laws. Prior to the due presentment for transfer of this Debenture, the Issuer and any agent of the Issuer may treat the person in whose name this Debenture is duly registered on the Issuer's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and all other purposes, whether or not this Debenture be overdue, and neither the Issuer nor any such agent shall be affected by notice to the contrary. 4. The Holder of this Debenture is entitled, at its option, at any time commencing forty-five days from the date hereof, to convert the principal amount of this Debenture into shares of Common Stock of the Issuer (the "Common Stock") at a conversion price for each share of Common Stock equal to Seventy-Five percent (75%) of the Market Price (as defined below) of the Common Stock for all conversions for which notice is received after the date hereof and a conversion price of Seventy-two and one-half percent (72 1/2%) of the Market Price thereafter. For purposes of this Section 4, the "Market Price" shall be the lesser of (a) the closing bid price of the Common Stock on the day prior to the Closing of the first tranche; (b) the closing bid price of the Common Stock on the day prior to the Closing of any subsequent tranche; or (c) the average closing bid price of the Common Stock for the five (5) New York Stock Exchange Trading days immediately preceding each conversion date, in each case as reported by the National Association of Securities Dealers Automated Quoting System, or as reported by the American Stock Exchange of the Common Stock 17 18 shall then be listed in trading upon such exchange. Such conversion shall be effected by surrendering the Debentures to be converted (with a copy by facsimile or courier, to the Issuer) to the Issuer, with the form of conversion notice attached hereto as Exhibit 1, executed by the Holder of this Debenture or a specified portion (as provided) hereof, and accompanied, if required by the Issuer, by proper assignment hereof in blank. No fractional shares or scrip representing fractions of shares will be issued on conversion or payment in lieu of interest, but the number of shares issuable shall be rounded to the nearest whole share, with the fraction paid in cash at the discretion of the Issuer. For purposes of this Debenture, the "Conversion Date" on which notice of conversion is given shall be deemed to be the date on which the Holder has delivered by facsimile transmission a duly executed notice of conversion followed by delivery by mail or courier of this Debenture, with the conversion notice duly executed, to the Issuer, if such notice of conversion and this Debenture are received by mail or courier by the Issuer within three (3) business days. 5. No provision of this Debenture shall alter or impair the obligation of the Issuer which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the place, time, and rate, and in the coin or currency, herein prescribed. 6. The Issuer hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of any without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 7. The Issuer agrees to pay all costs and expenses, including reasonable attorneys' fees which may be incurred by the Holder in collecting any amount due or exercising the conversion rights under this Debenture. 8. If one or more of the following described "Events of Default" shall occur: (a) The Issuer shall default in the payment of principal or interest on this Debenture; or (b) Any of the representations or warranties made by the Issuer herein, in the Subscription Agreement, or in any certificate or financial or other statements heretofore 18 19 or hereafter furnished by or on behalf of the Issuer in connection with the execution and delivery of this Debenture or the Subscription Agreement shall be false or misleading in any material respect at the time made; or (c) The Issuer shall fail to perform or observe any other covenant, term, provision, condition, agreement or obligation of the Issuer under this Debenture or the Subscription Agreement, including but not limited to conversion of this Debenture as provided herein and therein, and such failure shall continue uncured for a period of seven (7) days after notice from the Holder of such failure; or (d) The Issuer shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for it or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Issuer for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Issuer and shall not be dismissed within thirty (30) calendar days thereafter; or (g) Any money judgment, writ or warrant of attachment or similar process in excess of Four Hundred Thousand Dollars ($400,000.00) in the aggregate shall be entered or filed against the Issuer or any of its properties or other assets and shall remain unvacated, unbonded or unstayed for a period of fifteen (15) calendar days or in any event later than five (5) calendar days prior to the date of any proposed sale thereunder; or (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Issuer, and if instituted against the Issuer, shall not be dismissed within thirty (30) calendar days after such institution or the Issuer shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material 19 20 allegations of, or default in answering a petition filed in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or (i) The Issuer shall have its Common Stock delisted from an exchange or an over-the-counter market; then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand protest or notice of any kind, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 9. This Debenture is subject in all respects to the provisions, terms and conditions of the Subscription Agreement which is, in its entirety, incorporated herein by this reference. 10. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or any successor corporation, whether by virtue of any constitution, statute, or rule of law, or by enforcement by any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 11. The Holder of this Debenture, by execution of the Subscription Agreement and acceptance hereof, agrees that this Debenture is being acquired for investment purposes and that such Holder will not offer, sell or otherwise dispose of this Debenture or the shares of Common Stock issuable upon exercise thereof except under circumstances which shall not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 12. The Issuer undertakes to file and amendment to Registration Statement on Form SB-2 to register the Common Stock to be issued upon conversion of this Debenture with the Securities and Exchange Commission on or before May 15, 1997. 20 21 13. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 14. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Issuer and the Holder with respect hereto. Neither this Debenture nor any terms hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Issuer and the Holder. This Debenture is in all respects subject to the terms and conditions contained in the Subscription Agreement. 15. Payment of the liabilities and obligations of the Issuer under this Debenture and the other Debentures authorized pursuant to the Subscription Agreement, and the Subscription Agreement, are secured by a Trust Deed on certain patented and unpatented mining claims held by the issuer near Manhattan, Nevada. The Issuer agrees to execute such documents and take such action as may be necessary to perfect the security interest of the Issuer in such claims. 16. This Debenture shall be governed by and construed in accordance with the laws of the state of California. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed by an officer thereunto duly authorized. NEVADA MANHATTAN MINING INCORPORATED By: ------------------------------------------ Official Signatory of Issuer - --------------------------------------------------- Name (Printed) - --------------------------------------------------- Title - --------------------------------------------------- Date 21 22 EXHIBIT 1 NEVADA MANHATTAN MINING INCORPORATED NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned (the "Holder") hereby irrevocably elects to convert____________($____________) principal amount of the above Debenture No. ___________ into ___________ (_____________) shares of Common Stock of Nevada Manhattan mining Incorporated (the "Issuer") and to receive a Debenture in the principal, amount of ____________. ($___________) representing the unconverted principal amount of Debenture in accordance with the conditions set forth in such Debenture, as of the date written below. The shares are to be issued in the "Street Name" written below. The undersigned represents and warrants as follows: (1) The undersigned is the Holder of the Debenture referred to above, is duly authorized to execute this Notice of Conversion and has not sold, transferred, hypothecated or encumbered the Debenture. (2) The undersigned will not sell, transfer or hypothecate the shares of common stock of the Issuer issued pursuant to this Notice except in full compliance with federal and state securities laws, rules and regulations applicable thereto. Holder: - -------------------------------------------------- By: ---------------------------------------------- Official Signatory of Holder - -------------------------------------------------- Title - -------------------------------------------------- Date of Conversion * - -------------------------------------------------- Applicable Conversion Price - -------------------------------------------------- Name of Holder for Registration 22 23 - -------------------------------------------------- Address for Registration - -------------------------------------------------- "Street Name" for Certificates * The original Debenture and this Notice of Conversion must be received by the Issuer within five (5) New York Stock Exchange Trading Days following the Date of Conversion. 23 EX-4.(V) 3 EXHIBIT 4.(V) 1 EXHIBIT 4.(v) NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL (i) THEY ARE SO REGISTERED OR, (ii) RULE 144, RULE 144A OR ANY SUCCESSOR RULE UNDER THE ACT PERMITS SUCH SALE OR TRANSFER, OR (iii) UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER UNDER ANY OTHER EXEMPTION UNDER THE ACT, PROVIDED THAT THE HOLDER OF THIS WARRANT OR SHARES OF COMMON STOCK ISSUABLE HEREUNDER DELIVERS TO THE COMPANY AN OPINION OF HOLDER'S COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF NEVADA MANHATTAN MINING INCORPORATED THIS CERTIFIES that, for value received, Silenus Limited, (herein called "Holder") is entitled to subscribe for and purchase from Nevada Manhattan Mining Incorporated (herein called the "Company") a corporation organized and existing under the laws of the State of Nevada, at the price of $8.00 per share, (the "Warrant Exercise Price") (subject to adjustment as set forth in paragraph 3 below) at any time up to and including April 16, 2002 62,500 fully paid and nonassessable shares of the Company's Common Stock, no par value. This warrant is issued in accordance with the Subscription Agreement dated as of April 14, 1997 (the "Agreement") between the Company and Silenus Limited and is subject in all respects to the relevant provisions of the Agreement. This Warrant is subject to the following provisions, 1 2 terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional share) at the principal office of the Company at 5038 Parkway Calabasas, Suite 100, Calabasas, California 91302 (or such office or agency of the Company as it may from time to time reasonably designate) at any time within the aforementioned period, and by payment to the Company by certified check or bank draft of the Warrant Exercise Price for such shares. The Holder may also exercise this Warrant in whole or in part in a "cashless" or "net-issue", exercise. In the latter event, the Holder will deliver this Warrant to the Company with a notice stating the number of shares to be delivered to the Holder and the number of shares with respect to which the Warrant is being surrendered in payment of the aggregate Warrant Exercise Price for the shares to be delivered to the Holder. For purposes of this provision, all shares as to which the Warrant is surrendered will be valued at the Current Market Price (as defined below). The notice accompanying the Warrant shall also set forth the number of shares remaining subject to the Warrant. As an example of the foregoing, if the Warrant Exercise Price is $5.00 per share, the Current Market Price is $10.00 per share, and the Warrant were exercised for 1,000 shares, the Company would deliver 500 shares of the Company's Common Stock to the 2 3 Holder and the Warrant would be surrendered for exercise with respect to the remaining 500 shares in payment of the $5,000 Aggregate Warrant Exercise Price. The Company shall not be obligated to issue fractional shares of Common Stock upon exercise of this Warrant but shall pay to the Holder an amount in cash equal to the Current Market Price per share multiplied by such fraction (rounded to the nearest cent). The Company agrees that the shares so purchased shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Subject to the provisions of the next succeeding paragraph and this paragraph 1, certificates for the shares of stock so purchased shall be delivered to the Holder within four business days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised or surrendered shall also be delivered to the Holder hereof within two business days. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees: (i) That all Common Stock which may be issued upon the exercise of the rights represented by this Warrant, will, upon issuance, be fully paid and nonassessable and free from all preemptive rights, and taxes, liens and charges with respect to 3 4 the issuance thereof; (ii) That during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of the issuance upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant; (iii) That the Company will take all such action as may be necessary to assure that the Common Stock issuable upon the exercise hereof may be so issued without violation of any applicable law or regulation or of any requirements of any domestic securities exchange or market upon which any capital stock of the Company may be listed or traded; (iv) That the Company will not take any action if the total number of shares of Common Stock issuable after such action and upon exercise of all warrants and other rights to purchase or acquire Common Stock, together with all shares of Common Stock then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. In the event any stock or securities of the Company other than Common Stock are issuable upon the exercise hereof, the company will take or refrain from taking any action referred to in clauses (i) through (iv) of this paragraph 2 as though such clauses applied to such other shares or securities then issuable upon the exercise hereof; (v) The Company has all requisite corporate power 4 5 and authority to execute and deliver this Warrant; the execution and delivery of this Warrant have been duly and validly authorized by the Company's Board of Directors and no other corporate proceedings on the part of the Company are necessary to authorize this Warrant; this Warrant has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms; (vi) No order, permit, consent, approval, license, authorization or validation of, and no registration or filing of notice with, any governmental entity is necessary to authorize or permit, or is required in connection with, the execution, delivery or performance of this Warrant or the consummation by the Company of the transactions contemplated hereby and; (vii) Neither the execution, delivery nor compliance by the Company with any of the provisions hereof will (a) violate, conflict with or result in any breach of any provision of the Company's charter documents, (b) result in a violation or breach or termination of, or constitute a default under or conflict with any provision of, any note, bond, mortgage, indenture, license, lease, agreement or other instrument or obligation to which the Company is subject, or (c) violate any judgment, order, writ, injunction, decree, award, statute, rule or regulation to which the company is subject. 3. ADJUSTMENT OF SHARES ISSUABLE OR WARRANT EXERCISE 5 6 PRICE. The above provisions are subject to the following: If the Company shall pay a dividend or make a distribution in shares of its Common Stock, subdivide (split) its outstanding shares of Common Stock, combine (reverse split) its outstanding shares of Common Stock, issue by reclassification of its shares of Common Stock any shares or other securities of the company, or distribute to holders of its Common Stock any securities or any assets of the Company or of another entity, the number of shares of Common Stock or other securities the Holder hereof is entitled to purchase pursuant to this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive upon exercise the number of shares of Common Stock or other securities or assets which such Holder would have owned or would have been entitled to receive after the happening of any of the events described above had this Warrant been exercised in full immediately prior to the happening of such event, and the Warrant Exercise Price per share shall be correspondingly adjusted. The Warrant Exercise Price shall also be adjusted in accordance with the Special Instructions continued with the Subscription Agreements. An adjustment made pursuant to this Section 3 shall become effective immediately after the record date in the case of a stock dividend or other distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. The Holder of this Warrant shall be entitled to participate in any subscription or other rights offering made to holders of shares of Common Stock as if such Holder had purchased the full number of shares as to which this 6 7 Warrant remains unexercised immediately prior to the record date for such subscription rights offering. If the Company is consolidated or merged with or into another corporation or entity or if all or substantially all of its assets are conveyed to another corporation or entity this Warrant shall thereafter be exercisable for the purchase of the kind and number of shares of stock or other securities or property, if any, receivable upon such consolidation, merger or conveyance by a Holder of the number of shares of Common Stock of the Company which could have been purchased on the exercise of this Warrant in full immediately prior to such consolidation, merger or conveyance; and, in any such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of shares of Common Stock the Holder of this Warrant is entitled to purchase) shall thereafter be applicable, as nearly as possible, in relation to any shares of Common Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such consolidation, merger or conveyance, unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation in any such transaction and is not the issuer of the shares of stock or other securities or property to be 7 8 delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or other property as the Holder shall be entitled to purchase in accordance with the foregoing provisions. 4. NOTICE OF ADJUSTMENT. Upon any adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant or the Warrant Exercise Price, then and in each such case, the Company shall give written notice thereof by first class mail, postage prepaid, addressed to the Holder at the address of such Holder as shown on the books of the Company and pursuant to Paragraph 17, which notice shall state the Warrant Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 5. OTHER NOTICES. In case at any time: 1. The Company shall declare any cash dividend upon its Common Stock payable in stock or make any special dividend or other distribution (other than regular cash dividends) to the Holders of its Common Stock; 8 9 2. The Company shall offer for subscription to the Holders of any of its Common Stock any additional shares of Common Stock of any class or other rights; 3. There shall be any capital reorganization or reclassification of the capital stock of the Company or consolidation or merger of the Company with or sale of all or substantially all of its assets to another corporation or entity; or 4. There shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; Then in any one or more of said cases the Company shall give by first class mail postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company and pursuant to Paragraph 17 (i) at least 20 days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger or sale, dissolution, liquidation or winding and (ii) in the case of such reorganization or reclassification, consolidation, merger or sale, dissolution, liquidation or winding up, at least 20 days prior written notice of the date when the same shall take place. Any notice required by clause (i) shall also specify in the case of any such dividend, distribution or subscription rights the date on which the holders of Common Stock shall be entitled thereto and a notice required by (ii) shall also specify the date on which the holders of the Common Stock shall be entitled 9 10 to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger or sale, dissolution, liquidation or winding up as the case may be. 6. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other that of the Holder of the Warrant exercised. 7. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of this Warrant or of any shares of Common Stock issued or issuable upon the exercise of this Warrant in any matter which interferes with a timely exercise of this Warrant. The Company will not, by any action, seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith seek to carry out all such terms and take all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. 8. NO VOTING RIGHTS. This warrant shall not entitle the Holder hereof to 10 11 any voting rights or other rights as a stockholder of the Company. 9. REGISTRATION AND TRANSFER OF SECURITIES; DEFINITIONS. "Holder" means Silenus Limited and its successors, representatives and assigns. If there is more than one Holder at any time, each such Holder shall be entitled to the rights and privileges granted hereunder. "Company" means Nevada Manhattan Mining Incorporated and its successors and assigns. "Registration", "register" and like words mean compliance with all of the Federal and state laws, rules, regulations and provisions of agreements and corporate documents pertaining to lawful and unconditional transfer of the securities by way of a public offering or distribution. "Security", or "securities" means the shares of stock of all classes, type and series, and all rights however evidenced or contained, to which the Holder shall be entitled upon the exercise of this Warrant. 10. TRANSFERS. Prior to any transfer or attempted transfer of any securities (except a transfer by a Holder to an affiliate, subsidiary, employee or shareholder of the Holder), the Holder shall give written notice to the Company of such Holder's intention to effect such transfer. Holder will not transfer or dispose of 11 12 this Warrant and will not sell or transfer any securities except pursuant to (i) an effective registration statement under the Act, (ii) Rule 144, Rule 144A or any successor rule under the Act permitting such sale or transfer or (iii) any other exemption under the Act provided that the Holder delivers an opinion of Holder's counsel reasonably satisfactory to counsel to the Company that an exemption from registration under the Act is available. Each certificate evidencing the securities issued upon such transfer shall bear the restrictive legend set forth on the first page of this Warrant modified to delete references to the Warrant, if appropriate, unless in the reasonable opinion of Holder's counsel such legend is not required in order to insure compliance with the Act. 11. REGISTRATION. (a) The Company shall comply with its obligation to register this Warrant and the Common Stock issuable upon exercise thereof as set forth in paragraph 1 of this Agreement. (b) Each time the Company shall propose the registration under the Act of any securities of the Company, the Company shall give written notice (the "Company Notice") of such proposed registration to the Holder. The Company will include in any such Registration Statement any securities (or portion thereof) of any Holder who 15 days after the mailing of a Company Notice shall request inclusion. Upon receipt of such notice (a "Holder Notice") from a Holder, the Company will (i) as expeditiously as possible but in any event within 60 days of any request hereunder file a 12 13 Registration Statement on such form as the Company shall deem appropriate; (ii) cause such Registration Statement to be declared effective and keep it effective as long as required to allow the Holder to effect the disposition of the securities registered and thereafter as long as required by the Act; (iii) notify the Holder immediately after it shall receive notice thereof, of the time when such Registration Statement has become effective or any supplement to any prospectus forming a part of such Registration Statement has been filed; (iv) notify the Holder immediately of any request by the Securities and Exchange Commission (hereinafter referred to as the "Commission") for the amending or supplementing of such Registration Statement or prospectus; (v) prepare and immediately file with the Commission and immediately notify the Holder of the filing of such amendment or supplement to such Registration statement or prospectus as may be necessary to correct any statement or omission, if at any time when a prospectus relating to the security is required to be delivered under the Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (vi) in case the Holder or any underwriter for the Holder is required to deliver a prospectus, at a time when the prospectus then in effect may no longer comply with the requirements of the Act, prepare promptly upon request of the Holder such amendment or amendments to such Registration Statement and such prospectus or prospectuses as 13 14 may be necessary to permit compliance with the requirements of Section 10 of the Act; (vii) not file any amendment or supplement to the Registration Statement or prospectus to which the Holder shall reasonably object after having been furnished a copy at a reasonable time prior to the filing thereof; (viii) advise the Holder immediately after it shall receive notice or obtain knowledge thereof of the issuance of any stop order by the Commission suspending the effectiveness of any such Registration Statement or of the initiation or threatening of any proceeding for that purpose and use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (ix) qualify the security for transfer under the securities laws of such states as may be designated by the Company; (x) furnish to the Holder as soon as available copies of any such Registration Statement and each preliminary or final prospectus, or supplement required to be prepared pursuant to this Paragraph 11, all in such quantities as the Holder may from time to time reasonably request and (xi) make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Act, no later than 30 days after the end of any 12 month period commencing at the end of any fiscal quarter in which securities are sold to underwriters in an underwritten offering or if not sold to underwriters in an underwritten offering beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration statement. The Company shall have no obligation to register 14 15 securities of a Holder if, at the time of such request the securities may be sold pursuant to Rule 144 under the Act. The Company will pay the costs and expenses incident to the performance of its obligations under this Paragraph 11, including the fees and expenses of its counsel, the fees and expenses of its accountants and all other costs and expenses incident to the preparation, printing and filing under the Act of any such Registration Statement, each prospectus and all amendments and supplements thereof, the costs incurred in connection with the qualification of the securities under the laws of various jurisdictions (including fees and disbursements of counsel to the Company), the cost of furnishing to the Holder copies of any such Registration Statement, each preliminary prospectus, the final prospectus and each amendment and supplement thereto, all expenses incident to delivery of the security to any underwriter or underwriters, but not any underwriting commissions or discounts charged to the Holder. Holder will pay all fees and expenses of one counsel for the Holder in connection with the registration of securities. 12. INDEMNIFICATION. The company will indemnify and hold harmless each Holder and any underwriter (as defined in the Act) for such Holder and each person, if any, who controls the Holder or underwriter within the meaning of the Act against any losses, claims, damages or 15 16 liabilities (or actions in respect thereof), joint or several, to which the Holder or underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) are caused by any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which the securities were registered under the Act, any preliminary prospectus or prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Holder, underwriter and each such controlling person for any legal or other expenses reasonably incurred by the Holder, underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, expense or liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with written information furnished by the Holder or underwriter in writing specifically for use in the preparation thereof. Each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said Registration Statement, and each person, if any, who controls the company within the meaning of the Act, against any losses, claims, 16 17 damages or liabilities to which the Company, or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) are caused by any untrue or alleged untrue statement of any material fact contained in said Registration Statement, said preliminary prospectus or prospectus, or amendment or amendments or supplements thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with written information furnished by the Holder for use in the preparation thereof; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. It shall be a condition of the Company under paragraphs 11 and 12 hereof that the Holder confirm to the Company in writing, prior to the effective date of any Registration Statement in which are included securities of such Holder, the agreement of such Holder as set forth in the previous sentence. Promptly after receipt by an indemnified party pursuant hereto of notice of any claim or the commencement of any action to which indemnity would apply, such indemnified party will, if a 17 18 claim thereof is to be made against the indemnifying party pursuant hereto, notify the indemnifying party of such claim or action; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, provided, however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person and not of the indemnifying party unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assure the defense of such claim and employ counsel reasonably satisfactory to such indemnified party, or (c) in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claims (in which case, if the indemnified party notifies the indemnifying part in writing that such indemnified party elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such indemnified party.) 18 19 13. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the Holder of this Warrant and of the Holder of the shares of Common Stock issuable upon exercise of this warrant contained herein shall survive the exercise of this Warrant. 14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant is being delivered and is intended to be performed in the State of California and shall be construed and enforced in accordance with such law and the rights of the Holder shall be governed by the law of such state. 15. RULE 144. The Company covenants that it will file, on a timely basis, the reports required to be filed by it under the Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the Commission thereunder, and it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell securities without registration under the Act within the limitation of the conditions provided by (a) Rule 144 and Rule 144A under the Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. upon the request of the Holder the Company will deliver to such 19 20 Holder a written statement verifying that it has complied with such information and requirements. 16. ARBITRATION. Any controversies, claims or disputes arising out of or under this Warrant or the obligations of the parties hereunder shall be resolved by binding arbitration to be held in Los Angeles, California under the auspices and subject to the rules than pertaining of the American Arbitration Association. The provisions of Section 1283.05 of the California Code of Civil Procedure shall be applicable to any arbitration proceeding conducted in accordance with the terms hereof. The arbitrators shall apply California and Federal law in such arbitration and shall have the power to grant injunctive relief. Any decision of the arbitrators shall be enforceable in any court of competent jurisdiction. 17. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, or delivered either by hand or by messenger, addressed (a) if to the Company, to the principal offices of the Company in California to the attention of its president, (b) if to the Holder, to Soreq, Inc. 620 Wilson Avenue, Suite 501, Toronto, Ontario, Canada M3K 1Z3, or such other address as the Holder shall have furnished to the Company. All such notices or communications shall be deemed given when actually 20 21 delivered by hand or messenger or, if mailed, three days after deposit in the U.S. Mail. 18. SUCCESSORS AND ASSIGNS. All covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective successors and assigns. 19. DAMAGES. Without limiting in any way any of the rights the Holder may otherwise have at law or in equity, for damages or otherwise, the Company hereby agrees to indemnify and hold harmless the Holder from and against any loss or expense that may be incurred or suffered by the Holder which arises from any of the following: (i) any registration statement under paragraph 11(a) is not filed with the Commission on or before the time required in the Agreement and paragraph 11(a), or (ii) the Company is not able for any reason within its control (A) to cause a registration statement under the Agreement and paragraph 11(a) to be declared effective by the Commission within the time required by the Agreement and to remain effective until completion of the offering, or (B) to cause the securities to be qualified or registered for sale in all appropriate jurisdictions as provided in paragraph 11(a) and to remain so qualified or registered thereafter during the applicable period under applicable law. 21 22 20. NO INCONSISTENT AGREEMENTS. The Company has not previously entered into, and will not on or after the date of this Warrant enter into, any agreement with respect to its securities which is inconsistent with the terms of this Warrant, including any agreement which impairs or limits the rights granted to the Holder in this Warrant, or which otherwise conflicts with the provisions hereof or would preclude the Company from discharging its obligations hereunder. 21. SEVERABILITY. In the event than any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 22. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement of the parties with respect to the subject matter hereof. 23. AMENDMENT. Any provision of this Warrant may be amended, waived or modified by a writing signed by the Company and the Holder. 22 23 24. CONFIDENTIALITY. The parties hereto agree that the existence of this Warrant, and the terms hereof, shall be held in the strictest confidence and shall not be disclosed to any third party unless (a) such disclosure is required by law, or (b) such disclosure is agreed upon in writing by the Holder and the Company. NEVADA MANHATTAN MINING INCORPORATED By: ________________________________________ JEFFREY S. KRAMER, SENIOR VICE PRESIDENT 23 EX-4.(VI) 4 EXHIBIT 4.(VI) 1 EXHIBIT 4.(vi) Recorded at the request of and when recorded return to: Silenus Limited c/o David Kagel 1801 Century Park East Suite 2500 Los Angeles, California 90067 DEED OF TRUST This Deed of Trust is made by Nevada Manhattan Mining, Inc., a Nevada corporation ("Trustor"), whose address is 5038 North Parkway Calabasas, Suite 100, Calabasas, California 91302, as Trustor, and Stewart Title of Northern Nevada, a Nevada corporation ("Trustee), whose address is 401 Ryland Street. Reno, Nevada 89502, as Trustee, and Silenus Limited, a company organized under the laws of the Isle of Man ("Beneficiary"), whose address is c/o Betuvo A.G., Baarestrasse 73, Potfach 6302, Zug, Switzerland, as Beneficiary. RECITALS A. Effective April 14,1997, Trustor and Beneficiary, entered into a Subscription Agreement (the "Subscription Agreement"), in accordance with which Beneficiary agreed to purchase certain 8% Senior Secured Convertible Debentures issuable by Trustor (each a "Debenture" and collectively the "Debentures") are convertible into the shares of Trustor's common stock ("Common Stock") and Common Stock Purchase Warrants (the "Warrants"). B. In accordance with the terms of the Subscription Agreement and the Debentures, Trustor has agreed and covenanted to grant to Beneficiary a security interest in certain property held or owned by Trustor to secure Trustor's obligations under the Subscription Agreement and the Debentures (collectively the "Obligations"). Now, therefore, for the purpose of securing, in such order of priority as Beneficiary may determine, Trustor's payment of the Debentures and Trustor's performance of its obligations under the Subscription Agreement and the Debentures, Trustor agrees with the Trustee and Beneficiary as follows: 1. GRANT. To secure payment and performance of the Obligations, Trustor grants, bargains, sells, conveys, transfers and assigns to Trustee in trust, with power of sale, and grants a security interest to the Beneficiary in, all of the following collateral: a. All of Trustor's present or after acquired right, title or interest in and to the mining claims, unpatented mining claims, millsite claims and mining or other leases, and other real property interests (collectively the "Lands") situated in Nye County, Nevada, more Particularly 1 2 described in Schedules I through III, inclusive, attached to and by this reference incorporated in this Deed of Trust. b. All of Trustor's present or after acquired right, title and interest in and to buildings, fixtures, improvements and structures now or subsequently located in, on or under, affixed to or erected on the Lands (collectively the "Improvements"), and all easements, licenses, privileges, rights-of-way and uses now or subsequently appurtenant to the Lands or the Improvements, including all water and water rights. The Land and Improvements are sometimes referred to in this Deed of Trust as the "Property". c. All awards made to Trustor for the taking by eminent domain or by zoning of all or any part of the Lands or the Improvements. d. To have and to hold the Property, together with all of the benefits, privileges and rights belonging, incidental or appertaining to the Lands and the Improvements, to the Trustee, in trust for the security and benefit of the Beneficiary, to secure and enforce the payment and satisfaction of Trustor's Obligations. 2. MAINTENANCE OF COLLATERAL. Trustor agrees to pay when due all claims for labor performed and materials furnished for any alteration, construction or repair on the Lands or to the Improvements, to comply with all laws and regulations affecting the Lands and the Improvements and to maintain Trustor's title to the Land and Improvements. 3. ADOPTION OF STATUTORY COVENANTS. Covenants 1, 2 (in an amount deemed reasonable by Trustor), 3, 4 (interest at the rate provided in the Subscription Agreement and the Debentures), 6, 8 and 9 of Nevada Revised Statutes 107.030 are adopted and made part of this Deed of Trust. 4. DEFAULT. The term "Event of Default" means any one or more of the following events: 4.1 Failure by Trustor to pay (a) any payment of interest or principal which shall become due and payable under the Debentures; (b) the outstanding principal balance on the Debentures, together with interest accrued, at maturity or upon acceleration; (c) any assessments or taxes against The Lands or the Improvements when due; or (d) any other sums when due to be paid by Trustor under this Deed of Trust or under the Subscription Agreement or the Debentures. 4.2 Failure by Trustor to keep, perform, and observe any other covenant, condition or agreement in the Subscription Agreement, the Debentures or this Deed of Trust. 4.3 If (a) a petition is filed by or against Trustor seeking or acquiescing any arrangement, composition, dissolution, liquidation, readjustment or reorganization or similar relief under any law relating to bankruptcy or insolvency; (b) Trustor acquiesces in, consents to or seeks or is subject to the appointment of any liquidator, receiver or trustee; (c) Trustor makes any general assignment for the benefit of its creditors; (d) Trustor becomes insolvent. 2 3 5. REMEDIES. In addition to the remedies afforded to Beneficiary under the laws of the State of Nevada, Beneficiary shall have the following powers concerning enforcement of this Deed of Trust: 5.1 In the Event of Default by Trustor, Beneficiary may, at its option and in its sole and absolute discretion, deliver to the Trustee written declaration of default and demand for sale and of written Notice of Breach and Election to Sell to cause the Property to be sold to satisfy Trustor's obligations, which Notice the Trustee shall cause to be filed for record. Beneficiary also may deposit with the Trustee the Debentures and all documents evidencing the secured expenditures. 5.2 After the lapse of such time as may then be required by law following the recordation of the Notice of Breach and Election to Sell, the notice of sale having been given as then required by law, the Trustee without demand on Trustor, shall sell the Property at the time and place fixed by it in the notice, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. The Trustee may, for any cause it deems expedient, postpone the sale of all or any portion of the Property until it shall be completed and, in every case, notice of postponement shall be given by public announcement at the time and place last appointed for the sale and from time to time the Trustee nay postpone such sale by public announcement at the time fixed by the preceding postponement. The Trustee shall execute and deliver to the purchaser its deed conveying said property so sold, but without any covenant or warranty, express or implied. The recitals in the Trustee's deed of any matters or facts shall be conclusive proof of their truthfulness. Any person, including Beneficiary, may bid at the sale. After deducting all costs, fees and expenses of the Trustee and of this Trust, including the cost of any evidence of title procured in connection with such sale, the Trustee shall apply the proceeds of sale to the payment of all sums expended under the terms of this Deed of Trust, not then repaid, with accrued interest at the Default Rate, all other secured sums, and the remainder, if any, to the persons legally entitled to the remainder. 5.3 If an Event of Default occurs, Beneficiary may, either with or without entry or taking possession or otherwise, and without regard to whether or not the indebtedness and other secured sums shall be due and without prejudice to the right of Beneficiary later to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding to enforce payment of the Debentures or the performance of its terms or any other right; to foreclose this Deed of Trust in the manner provided by law for the foreclosure of mortgages on real property and to sell, as an entirety or in separate lots or parcels, the Property pursuant to the laws of the State of Nevada or under the judgment or decree of a court or courts of competent jurisdiction and Beneficiary shall be entitled to recover in any such proceeding all incidental costs and expenses, including reasonable attorneys' fees and costs (including, expressly, costs incurred for services of paralegals and for computer-assisted legal research) in such amount as shall be awarded by the court; and to 3 4 pursue any other remedy available to it at law or in equity. 6. FURTHER ASSURANCES. At any time and from time to time, upon Beneficiary's request, Trustor shall make, execute and deliver or cause to be made, executed and delivered to Beneficiary, and, where appropriate, shall cause to be recorded or filed, and from time to time to be re-recorded and refiled at such time and in such offices and places as shall be deemed desirable by Beneficiary, any and all such further deeds of trust, instruments of further assurance, certificates and other documents as Beneficiary may consider necessary or desirable in order to effectuate, complete or perfect, or to continue and preserve the obligations of Trustor under the Debentures and this Deed of Trust, and the lien of this Deed of Trust as a lien upon all of the Property, whether now owned or later acquired by Trustor, and unto all and every person or persons deriving any estate, right, title or interest under this Deed of Trust or the power of sale granted under this Deed of Trust. Upon any failure by Trustor to do so, Beneficiary may make, execute, record, file, re-record and refile any and all such deeds of trust, instruments, certificates and documents for and in the name of Trustor, and Trustor irrevocably appoints Beneficiary the agent and attorney-in-fact of Trustor to do so. 7. DELAY OR OMISSION NO WAIVER. No delay or omission of Trustee or Beneficiary or any holder of the Debentures to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence. Every right, power and remedy given to Trustee or Beneficiary may be exercised from time to time and as often as may be deemed expedient by Trustee or Beneficiary. 8. NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any Event of Default under this Deed of Trust shall extend to or affect any subsequent or any other Event of Default. If Beneficiary grants forbearance or any extension of time for the payment of any secured sums, takes other or additional security for the payments, waives or does not exercise any right granted in the Debentures, this Deed of Trust or any other Loan Document, releases any part of the Property from the lien of this Deed of Trust or any other instrument securing the Debentures, consents to the filing of any map, plat or replat of the land, consents to the granting of any easement on the land, or makes or consents to any agreement changing the terms of this Deed of Trust or subordinating the lien or any change of this Deed of Trust, no such act or omission shall release, discharge, modify, change or affect the original liability under the Debentures, this Deed of Trust or otherwise of Trustor, or any subsequent purchaser of the Property or any maker, obligor, co-signor, surety or guarantor. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege granted to Beneficiary or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien of this Deed of Trust be altered except to the extent of any release. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Property, Beneficiary without notice to any person, firm or corporation, is authorized and empowered to deal with any vendee or transferee with reference to the Property or the secured indebtedness, or with reference to any 4 5 of the terms or conditions of this Dead of Trust, as fully and to the same extent as it might deal with the original parties and without in any way releasing or discharging any of the Trustor's liabilities or undertakings. 9. DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If Beneficiary proceeds to enforce any right or remedy under this Deed of Trust by foreclosure, entry or otherwise and such proceedings are discontinued or abandoned for any reason, or such proceedings result in a final determination adverse to Beneficiary, then and in every such case, Trustor and Beneficiary shall be restored to their former positions and rights, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had been taken. 10. REMEDIES CUMULATIVE. No right, power or remedy conferred upon or reserved to Trustee or Beneficiary by the Debentures, this Deed of Trust or any other instrument or document securing the Debentures or otherwise executed in connection with the secured indebtedness is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent to any other right, power and remedy now or later existing at law or in equity or given under this Deed of Trust or under the Debentures or the Subscription Agreement. 11. HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS. Except as otherwise prohibited by the terms of this Deed of Trust, whenever one of the parties is named in this Deed of Trust, the heirs, successors and assigns of such party shall be included and all covenants, agreements. terms, provisions and conditions contained in this Deed of Trust, by or on behalf of Trustor, Trustee or Beneficiary shall bind and inure to the benefit of their respective heirs, legal representatives, successors and assigns, whether so expressed or not. In the event Trustor is composed of more than one party, the obligations arising under this Deed of Trust, are the joint and several obligations of each such party. 12. ADDRESSES FOR NOTICES. Wherever provision is made in this Deed of Trust for the giving, service, or delivery of any notice, statement, or other instrument, the same shall be deemed to have been duly given, served, and delivered: (a) on the date personally delivered; (b) on the date of receipt by the addressee of any item transmitted by United States registered or certified mail (return receipt requested), postage prepaid; (c) on the date of receipt by the addressee of any item transmitted by facsimile, telegraph, telex or other electronically transmitted means, or (d) on the first (1st) business day following the date on which delivered to a commercially-responsible overnight courier which provides service between the point of origin and the point of destination, addressed to the party which is to receive such notice at the address stated above or to such other address(es) as may be designated in writing by the other parties. 13. HEADINGS; CONSTRUCTION. The headings of the articles, sections, paragraphs and subdivisions of this Deed of Trust are for convenience of reference only, are not to be considered a part of this Deed of Trust, and shall not limit or expand or otherwise affect any of the terms. Wherever the context so requires, words used in the singular may be read in the plural, words 5 6 used in the plural may be read in the singular, words importing the neuter shall include the masculine and feminine genders, words importing the feminine sender shall include the masculine and the neuter, and words importing the masculine gender shall include the feminine and the neuter. 14. SEVERABILITY. In the event that any of the covenants, agreements, terms or provisions contained in the Debentures, in this Deed of Trust or in any other Loan Document shall be invalid, illegal or unenforceable in any respect, the validity of the remaining covenants, terms or provisions contained in the Debentures, in this Deed of Trust or in any other Loan Document shall in no way be prejudiced or disturbed. 15. MODIFICATION. Neither this Deed of Trust nor any of its terms, may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any agreement later made by Trustor and Beneficiary relating to this Deed of Trust shall be superior to the rights of the holder of any intervening lien or encumbrance. Whenever a power of attorney is conferred upon Beneficiary, it is understood and agreed that such power is conferred with full power of substitution and Beneficiary may elect in its sole discretion to exercise such power itself or to delegate all or any part of such power to one or more subagents. 16. GOVERNING LAW; JURISDICTION; VENUE. This Deed of Trust is made by Trustor and accepted by Beneficiary to be governed by and under the laws of the State of Nevada and shall be construed, interpreted, enforced and governed by and in accordance with the laws of the State of Nevada. Trustor and Beneficiary agree to the exclusive jurisdiction of the Fifth Judicial District Court located in Tonopah, Nevada, and waives any objection based on venue or forum non conveniens with respect to any action instituted and agrees that any dispute concerning the relationship among Trustor, Trustee and Beneficiary or the conduct of any party in connection with this Deed of Trust or any Loan Document shall be heard only in the courts described in this paragraph. Despite the foregoing, Beneficiary shall have the right to bring any action or proceeding against Trustor or its property in the courts of any other jurisdiction Beneficiary deems necessary or appropriate in order to enforce the security interest and lien granted to Beneficiary or to realize on the Property or other security for Trustor's obligations. 17. SUBSTITUTION OF TRUSTEE. Beneficiary, or any successor in ownership of any secured indebtedness may from time to time, by instrument in writing, substitute a successor to any Trustee named or acting trustee, which instrument, executed by Beneficiary and duly acknowledged and recorded in the Office of the Recorder of Nye County, Nevada, shall be conclusive proof of proper substitution of such successor trustee or trustees, who shall succeed to all title, estate, rights, powers and duties of the Trustee. The instrument must contain the name of the original Trustor, Trustee and Beneficiary the book and page where this Deed of Trust is recorded and the name and address of the new trustee. 6 7 18. RECONVEYANCE. Upon written request of Beneficiary stating that all secured sums have been paid or that Debentures representing seventy-five percent (75 %) of the principal balance of all of the issued Debentures shall have been converted to Common Shares in accordance with the terms of the Subscription Agreement and the Debentures, and upon surrender of this Deed of Trust and the Debentures to the Trustee for cancellation and retention and upon payment of its fees, the Trustee shall reconvey, without warranty, the Property then held by Trustee. The recitals in such reconveyance of any matters or facts shall be conclusive proof of their truthfulness. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Five years after issuance of such full reconveyance, the Trustee may destroy the Debentures and this Deed of Trust (unless directed in such request to retain them). 19. ATTORNEYS' FEES. Without limiting any other provision in this Deed of Trust, Trustor agrees to pay all costs of Beneficiary or Trustee incurred in connection with the enforcement of this Deed of Trust or the taking of this Deed of Trust as security for the repayment of the Debentures, including, without limitation, all attorneys' fees (including, expressly, costs of services of paralegals and computer-assisted legal research) whether or not suit is commenced, and including specifically fees incurred in connection with any appellate, bankruptcy, deficiency, or any other litigation proceedings, all of which sums shall be secured by this Deed of Trust. Dated effective April 14, 1997. Nevada Manhattan Mining, Inc. By: Jeffrey Kramer ---------------------------------------- Title: Sr. V.P., COO ------------------------------------- STATE OF ) ss. COUNTY OF ) This Deed of Trust was acknowledged before me on April 17, 1997, by Jeffrey Steven Kramer as Sr. V.P., COO of Nevada At Manhattan Mining, Inc. Anita Bedrosian -------------------------------- Notary Public My commission expires January 3, 2001 [SEAL] 7 8 SCHEDULE 1: THE ANGUS CLAIMS(1)
MINERAL SURVEY PATENTED CLAIM NAME NUMBER PATENT NUMBER - ------------------- --------------- ------------- Annie Lauris 2874 441202 Dexter #7 2502 48212 Earl 2544 375993 Eva 3667 537035 Flying Cloud 3667 537035 lvanhoe 2773 46617 Katie #1 2651 46321 Keystone 2692 555879 Morning Glory 4073 552989 Muleskinner 2882 123980 Pine Nut #2 4073 552989 Red Boy or Red Roy 2693 676958 Silver Pick #1 2528 Am. 674983 Snow Drift 2764 469515 Snowman 3667 537035 Union 2625 46616 Union #1 2625 46616 Union #2 2552 114749 Union #3 2553 32959 Union #4 2554 46332 Union #5 2555 94281 Uno 2695 98424 White Cap 2579 46176 White Cap No. 1 2579 46176 White Cap Extension or Extension No. 1 4335 734331 White Cap Extension No. 1 or No. 2 4335 734331 Whoopee Fraction 2694 46320 Dexter #8 2602 46212
SUBTOTAL; 28 PATENTED ARGUS CLAIMS ____________ (1) The "Argus" patented and unpatented claims are in the Manhattan Mining District, Sections 20, 21, 22, 27, 28 and 29, Township 8 North, Range 44 East, Mt. Diablo Meridian, Nye County, Nevada. SCHEDULE I: THE ARGUS CLAIMS PAGE 1 9
Unpatented Claim Name NMC. No, - ---------------------- -------- Combination 93112 Lillie Fraction 93108 Little Joe #1 93115 Little Joe #2 93116 Little Joe #3 93117 Little Joe #4 93118 Little Joe #5 93119 Little Joe #6 93120 Little Joe #7 93121 Little Joe #8 93122 Little Joe #9 93123 Little Joe #10 93124 Little Joe #11 93125 Little Joe #12 93126 Little Joe #13 93127 Little Joe #14 93128 Little Joe #15 93129 Little Joe #16 93130 Little Joe #17 93131 Little Joe #18 93132 Little Joe Fraction #19 93133 Little Joe Fraction #20 93134 Little Joe Fraction #21 93135 Little Johnnie Fraction 93109 Mable A 93107 Pandora Fraction 93110 Turtle Dove Fraction 93111 Granny Fraction 93113 Yellow Horse Fraction 93114
SUBTOTAL: 29 UNPATENTED ARGUS CLAIMS TOTAL: 57 ARGUS CLAIMS SCHEDULE I: THE ARGUS CLAIMS PAGE 2 10 SCHEDULE II: THE SOUTH MAIN CLAIMS(1) Unpatented Claim Name Year Located/NMC Year Relocated/NMC ---------------------- ---------------- ------------------ South Main 1982/241433 1 1982/241434 2 1982/241435 3 1982/241436 4 1982/241437 5 1982/241438 6 1982/241439 7 1982/241440 8 1982/241441 9 1982/241442 10 1996/735896 12 1982/241445 14 1982/241447 15 1982/241448 16 1982/241449 17 1982/241450 18 1996/735897 19 1996/735898 20 1996/735899 21 1982/241454 22 1982/241455 23 1982/241456 24 1982/241457 25 1982/241458 26 1982/241459 1987/443759
TOTAL: 25 UNPATENTED SOUTH MAIN CLAIMS _____________ (1) The "South Main" unpatented claims are in the Manhattan Mining District, Sections 20-21 and 28-29, Township 8 North, Range 44 East, Mt. Diablo Meridian, Nye County, Nevada. SCHEDULE II: THE SOUTH MAIN CLAIMS PAGE 1 11 SCHEDULE III: THE WC CLAIMS(1)
Unpatented Claim Name NMC No. - --------------------- ------- #2 280866 #4 260868 #6 736900 #8 735901 #10 443686 #12 443688 #13 443689 #14 443690 #15 260879 #16 443691 #17 260881 #18 443692 #19 260883 #20 443693 #21 735902 #22 443694 #23 735903 #24 443695 #25 735904 #26 735905 #27 443696 #28 443697 #29 443598 #30 443699 #31 443700 #32 443701 #33 443702 #34 443703 #35 735906 #36 260900 #37 260901 #38 260902 #39 260903 #40 260904 #41 260905 #42 260906 #43 260907 #44 260908 #46 260910 #46 735907
_______________ (1) The "WC" unpatented claims are in the Manhattan Mining District, Sections 20-22 and 27-34 in Township 8 North and Sections 4-6 in Township 7 North, Range 44 East, Mt. Diablo Meridian, Nye Count, Nevada. SCHEDULE III: THE WC CLAIMS Page 1 12
Unpatented Claim Name NMC No. --------------------- ------- #50 735908 #52 735909 #54 735910 #56 735911 #57 443708 #58 735912 #59 443709 #60 735913 #61 443710 #62 443711 #69 443718 #70 443719 #71 443720 #72 443721 #73 443722 #74 443723 #75 443724 #76 443725 #77 443726 #78 443727 #79 443728 #80 443729 #81 443730 #82 443731 #83 443732 #84 443733 #85 443734 #86 443735 #87 443736 #88 443737 #89 443738 #90 443739 #91 443740 #92 443741 #93 443742 #94 443743 #95 443744 #96 443745 #97 260981 #98 735914 #99 735915 #100 443747 #101 260965 #102 735916 #103 260967 #104 443749
SCHEDULE III: THE WC CLAIMS Page 2 13
Unpatented Claim Name NMC No. - --------------------- ------- #105 260969 #106 443750 #107 260971 #108 443751 #109 260973 #110 443752 #111 260975 #112 443753 #113 260977 #114 260978 #115 260979 #116 260980 #117 260981 #118 260982 #119 260983 #120 280984 #121 260985 #122 260986 #123 260987 #124 260988 #125 735884 #126 260990 #127 735885 #128 260992 #129 735886 #130 260994 #131 735887 #132 260996 #133 735888 #134 260998 #135 735889 #136 261000 #137 735890 #138 735891 #139 735892 #140 261004 #141 261005 #142 261006 #143 261007 #144 735893 #146 735894 #147 735895 Grannie Lode 594683 Boogie Lode 569966
TOTAL: 130 UNPATENTED WC CLAIMS SCHEDULE III: THE WC CLAIMS Page 3 EX-4.(VII) 5 EXHIBIT 4.(VII) 1 EXHIBIT 4.(vii) SCHEDULE "A" FORM OF DEBENTURE No. A-1 NEVADA MANHATTAN MINING INCORPORATED 8% SENIOR SECURED CONVERTIBLE DEBENTURE DUE MARCH 31, 2000 The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the "Act") and may not be sold, transferred or hypothecated, except pursuant to registration under the Act or an exemption from the registration requirements of the Act. This Debenture is one of a duly authorized issue of Debentures of Nevada Manhattan Mining Incorporated, a corporation duly organized and existing under the laws of the state of Nevada (the "Issuer") designated as Eight Percent (8%) Convertible Debentures Due March 31, 2000, in an aggregate principal amount not exceeding Ten Million Dollars ($10,000,000.00). FOR VALUE RECEIVED, the Issuer promises to pay to Silenus Limited, the registered holder hereof and its successors and assigns (the "Holder"), the principal sum of One Hundred Thousand Dollars ($100,000), on March 31, 2000 ("Maturity Date"), and to pay interest on the principal sum outstanding at the rate of 8% per annum. Interest shall be due and payable quarterly on the last day of June, September, December and March in each year. Accrual of interest shall commence on the first business day to occur after the date hereof and shall continue until payment in full of the principal amount has been made or duly provided for. At the option of Issuer interest may be paid in common stock of the Issuer ("Common Stock") at the average of the closing "bid" prices for the common stock for the five trading days immediately prior to the date on which such interest payment is due. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor Debentures) is registered on the records of the Issuer regarding registration and transfers of the Debentures (the "Debenture Register"); provided, however, that the Issuer's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Subscription Agreement dated as of April 14, 1997 between the Issuer and Holder (the "Subscription Agreement"). Except as set forth above, the principal of, and interest on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Issuer as designated in writing by the Holder hereof from time to time. The Issuer will pay the principal of and all accrued and unpaid interest due upon this Debenture on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder at the last address as set forth on the Debenture Register. 2 This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars ($100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holders surrendering the same. No service charge will be made for registration, transfer or exchange. 2. The Issuer shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original Holder hereof and may be transferred or exchanged in compliance with the Act and applicable state securities laws. Prior to the due presentment for transfer of this Debenture, the Issuer and any agent of the Issuer may treat the person in whose name this Debenture is duly registered on the Issuer's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and all other purposes, whether or not this Debenture be overdue, and neither the Issuer nor any such agent shall be affected by notice to the contrary. 4. The Holder of this Debenture is entitled, at its option, at any time commencing forty-five days from the date hereof, to convert the principal amount of this Debenture into shares of Common Stock of the Issuer (the "Common Stock") at a conversion price for each share of Common Stock equal to Seventy-Five percent (75%) of the Market Price (as defined below) of the Common Stock for all conversions for which notice is received after the date hereof and a conversion price of Seventy-two and one-half percent (72-1/2%) of the Market Price thereafter. For purposes of this Section 4, the "Market Price" shall be the lesser of (a) the closing bid price of the Common Stock on the day prior to the Closing of the first tranche; (b) the closing bid price of the Common Stock on the day prior to the Closing of any subsequent tranche; or (c) the average closing bid price of the Common Stock for the five (5) New York Stock Exchange Trading days immediately preceding each conversion date, in each case as reported by the National Association of Securities Dealers Automated Quoting System, or as reported by the American Stock Exchange of the Common Stock shall then be listed in trading upon such exchange. Such conversion shall be effected by surrendering the Debentures to be converted (with a copy by facsimile or courier, to the Issuer) to the Issuer, with the form of conversion notice 2 3 attached hereto as Exhibit 1, executed by the Holder of this Debenture or a specified portion (as provided) hereof, and accompanied, if required by the Issuer, by proper assignment hereof in blank. No fractional shares or scrip representing fractions of shares will be issued on conversion or payment in lieu of interest, but the number of shares issuable shall be rounded to the nearest whole share, with the fraction paid in cash at the discretion of the Issuer. For purposes of this Debenture, the "Conversion Date" on which notice of conversion is given shall be deemed to be the date on which the Holder has delivered by facsimile transmission a duly executed notice of conversion followed by delivery by mail or courier of this Debenture, with the conversion notice duly executed, to the Issuer, if such notice of conversion and this Debenture are received by mail or courier by the Issuer within three (3) business days. 5. No provision of this Debenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the place, time, and rate, and in the coin or currency, herein prescribed. 6. The Issuer hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of any without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 7. The Issuer agrees to pay all costs and expenses, including reasonable attorneys' fees which may be incurred by the Holder in collecting any amount due or exercising the conversion rights under this Debenture. 8. If one or more of the following described "Events of Default" shall occur: (a) The Issuer shall default in the payment of principal or interest on this Debenture; or (b) Any of the representations or warranties made by the Issuer herein, in the Subscription Agreement, or in any certificate or financial or other statements heretofore or hereafter furnished by or on behalf of the Issuer in connection with the execution and delivery of this Debenture or the Subscription Agreement shall be false or misleading in any material respect at the time made; or 3 4 (c) The Issuer shall fail to perform or observe any other covenant, term, provision, condition, agreement or obligation of the Issuer under this Debenture or the Subscription Agreement, including but not limited to conversion of this Debenture as provided herein and therein, and such failure shall continue uncured for a period of seven (7) days after notice from the Holder of such failure; or (d) The Issuer shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for it or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Issuer for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Issuer and shall not be dismissed within thirty (30) calendar days thereafter; or (g) Any money judgment, writ or warrant of attachment or similar process in excess of Four Hundred Thousand Dollars ($400,000.00) in the aggregate shall be entered or filed against the Issuer or any of its properties or other assets and shall remain unvacated, unbonded or unstayed for a period of fifteen (15) calendar days or in any event later than five (5) calendar days prior to the date of any proposed sale thereunder; or (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Issuer, and if instituted against the Issuer, shall not be dismissed within thirty (30) calendar days after such institution or the Issuer shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or 4 5 (i) The Issuer shall have its Common Stock delisted from an exchange or an over-the-counter market; then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand protest or notice of any kind, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 9. This Debenture is subject in all respects to the provisions, terms and conditions of the Subscription Agreement which is, in its entirety, incorporated herein by this reference. 10. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or any successor corporation, whether by virtue of any constitution, statute, or rule of law, or by enforcement by any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 11. The Holder of this Debenture, by execution of the Subscription Agreement and acceptance hereof, agrees that this Debenture is being acquired for investment purposes and that such Holder will not offer, sell or otherwise dispose of this Debenture or the shares of Common Stock issuable upon exercise thereof except under circumstances which shall not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 12. The Issuer undertakes to file and amendment to Registration Statement on Form SB-2 to register the Common Stock to be issued upon conversion of this Debenture with the Securities and Exchange Commission on or before May 15, 1997. 13. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and 5 6 enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 14. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Issuer and the Holder with respect hereto. Neither this Debenture nor any terms hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Issuer and the Holder. This Debenture is in all respects subject to the terms and conditions contained in the Subscription Agreement. 15. Payment of the liabilities and obligations of the Issuer under this Debenture and the other Debentures authorized pursuant to the Subscription Agreement, and the Subscription Agreement, are secured by a Trust Deed on certain patented and unpatented mining claims held by the issuer near Manhattan, Nevada. The Issuer agrees to execute such documents and take such action as may be necessary to perfect the security interest of the Issuer in such claims. 16. This Debenture shall be governed by and construed in accordance with the laws of the state of California. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed by an officer thereunto duly authorized. NEVADA MANHATTAN MINING INCORPORATED By: [sig] ---------------------------------------------- Official Signatory of Issuer /s/ JEFFREY KRAMER - ------------------------------------------------- Name (Printed) Senior Vice President and Chief Operating Officer - ------------------------------------------------- Title April 17, 1997 - ------------------------------------------------- Date 6 EX-10.(XVIII) 6 EXHIBIT 10.(XVIII) 1 EXHIBIT 10. (xviii) [NEVADA MANHATTAN MINING, INC. LETTERHEAD] April 30, 1997 Mr. Arthur Lipper III British Far East Holdings Ltd. 14911 Caminito Ladera Del Mar, CA 92014-3929 RE: Financial and Management Services Dear Arthur: This letter is intended to memorialize the agreement between Nevada Manhattan Mining Incorporated (the "Company") and British Far East Holdings Ltd. ("BFE"). On the terms and conditions which follow, BFE has agreed to provide the personal services of Arthur Lipper III to the Company for a period of thirty-six months commencing May 1, 1997. During this period, you will provide your personal services requested from time to time by the Company and relating to financial and management matters, including but not limited to decisions relating to the Company's market makers, financial arrangements to be entered into by the Company, proposed acquisitions of properties, selection of an Audit Committee, and other matters generally affecting the financial affairs of the Company. The Company also anticipates that you will participate as a non-voting invitee at all meetings of the Board of Directors and shareholders' meetings. For the services to be rendered by you, the Company has agreed to pay BFE $5,000 for the first three days of service per month and $1,000 for each additional day of service. Payment will be made by the tenth day of the month following the month during which services are rendered. The Company will also reimburse BFE within five days of presentation of invoice any expenses incurred by BFE in connection with the personal services 2 rendered by you under this agreement. Any expenses in excess of $500 shall be pre-authorized and approved by the Company. You will be entitled to travel first class or business class on any international travel and business class on any domestic travel requested by the Company. The Company hereby grants BFE or its designee the right to purchase up to 100,000 shares of its Common Stock. Commencing on the first day of the month following the first twelve months of service, BFE shall be entitled to exercise this warrant to the extent of thirty-three and one-third percent (33 1/3%) of the shares which BFE is hereby entitled to purchase. Each successive twelve-month period will vest an additional thirty-three and one-third percent (33 1/3%) of such rights so that upon completion of the thirty-six month term, BFE shall be entitled to purchase all shares granted pursuant to this warrant. The purchase price per share for each share to be purchased under this warrant shall be one hundred twenty percent (120%) of the current market price of $5.75 per share, subject to adjustment to account for any stock split, reverse stock split, corporate reorganization, or similar events. This agreement shall be for a term of thirty-six months and shall not be terminated except "for cause." For the purposes of this agreement, the term "for cause" shall mean any act or omission by you which would constitute misfeasance, malfeasance, an illegal act, an act or acts considered ultra vires, acts which are detrimental to the Company or which constitute a breach of a fiduciary duty. Provided an event does not occur creating a right to terminate this agreement for cause, you and BFE shall be entitled to indemnification to the same extent all directors and executive officers are entitled under the Company's Bylaws. In the event of any dispute or question of interpretation under this agreement, the parties agree to submit the matter to arbitration before the American Arbitration Association in Los Angeles County. Arbitration shall be conducted in accordance with the Commercial Arbitration Rules then in effect. Any determination by the arbitrator may be confirmed by the Los Angeles Superior Court and enforced as a judgment upon confirmation. The arbitrator shall have the discretion to award the prevailing party its costs and attorneys' fees incurred in connection with such arbitration and confirmation proceedings. 3 If the foregoing is consistent with your understanding of the agreement which we have reached, please signify BFE's acceptance on the space provided for below for signature. Very truly yours, NEVADA MANHATTAN MINING By /s/ JEFFREY S. KRAMER --------------------------- Jeffrey S. Kramer Chief Financial Officer Agreed and Accepted BRITISH FAR EAST HOLDING LTD By /s/ ARTHUR LIPPER III ------------------------- Arthur Lipper III EX-23.(I) 7 EXHIBIT 23.(I) 1 EXHIBIT 23.(i) The Board of Directors Nevada Manhattan Mining, Incorporated We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus and the Registration Statement on Form SB-2. /s/ JACKSON & RHODES P.C. Jackson & Rhodes P.C. Dallas, Texas April 28, 1997 EX-23.(II) 8 EXHIBIT 23.(II) 1 EXHIBIT 23. (ii) [GOLD KING MINES CORPORATION LETTERHEAD] A SUBSIDIARY OF SHERIDAN RESERVE CORPORATION May 28, 1997 Nevada Manhattan Mining, Inc. Lloyd S. Pantell APLC 10940 Wilshire Boulevard Suite 1550 Los Angeles, California 90024-3942 Re: Nevada Manhattan Mining, Inc. Registration Amendment #1 Dear Mr. Pantell: This letter confirms the undersigned has reviewed the draft prospectus to be filed in connection with the Company's Form SB-2 registration and hereby consents to the use of this organization's name as disclosed in the April 30, 1997 Prospectus, which we presume is part of the Registration Statement. This letter shall also serve to confirm that the undersigned has received appropriate authorization from his organization to execute this letter, to provide representation herein contained, and to authorize you to provide this letter to the Securities and Exchange Commission as evidence of same. Sincerely, Gold King Mines Corporation /s/ WILLIAM R. WILSON - --------------------------- William R. Wilson President EX-23.(III) 9 EXHIBIT 23.(III) 1 EXHIBIT 23.(iii) BEHRE DOLBEAR & COMPANY, INC. Minerals Industry Consultants ______________________________________________________________________________ 1801 Blake Street Tel: (302) 620-0020 Suite 301 Fax: (302) 620-0024 Denver, Colorado 80202 March 25, 1997 Mr. William R. Wilson Vice President Operations Nevada Manhattan Mining, Inc. 410 17th Street, Suite 1375 Denver, Colorado 80202 Re: Nevada Manhattan Mining, Inc. Registration Statement #333-17423 Amendment #1. Dear Mr. Wilson: This letter confirms that the undersigned has reviewed the draft prospectus to be filed in connection with the Company's Form SB-2 registration statement and hereby consents to the use of this organization's name as disclosed in the facsimile draft of March 25, 1997, which we presume is part of Amendment No. 1 to the registration statement. This letter shall also serve to confirm that the undersigned has received appropriate authorization from his organization to execute this letter, to provide the representation herein contained, and to authorize you to provide this letter to the Securities and Exchange Commission as evidence of same. Sincerely, BEHRE DOLBEAR & COMPANY, INC. /s/ GARY G. VAN RIPER - --------------------------------------- Gary G. Van Riper Vice President, Environmental Services wfc _____________________________________________________________________________ Denver New York Toronto Guadalajara Santiago Sydney EX-27 10 FINANCIAL DATA SCHEDULE
5 YEAR MAY-31-1997 JUN-01-1996 AUG-31-1996 38,428 0 0 0 0 47,248 5,571,694 (60,567) 5,558,375 402,068 117,022 0 135,735 83,539 4,820,011 5,558,375 0 0 0 0 447,602 0 0 (447,602) 0 (447,602) 0 0 0 (447,602) (.05) (.05)
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