-----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, RN1dWU+ZByShfk3a1mSHds9VCueqdqIPlxk7GKJPA4+zDMqRAHAfAWEg233vgOO6 BoKCIH4NUA7+tj/dPKWmag== 0001025894-97-000164.txt : 19970701 0001025894-97-000164.hdr.sgml : 19970701 ACCESSION NUMBER: 0001025894-97-000164 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970630 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWGOLD INC CENTRAL INDEX KEY: 0000878808 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 161400479 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20722 FILM NUMBER: 97633032 BUSINESS ADDRESS: STREET 1: 5190 NEIL ROAD STREET 2: SUITE 320 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7028234000 MAIL ADDRESS: STREET 1: 5190 NEIL RD STREET 2: SUITE 320 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: WAREHOUSE AUTO CENTERS INC /DE DATE OF NAME CHANGE: 19950510 10KSB 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirteen months ended January 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-20722 NEWGOLD, INC. (Name of small business issuer in its charter) Delaware 16-1400479 - ------------------------ -------------------- (State of other juris- (I.R.S. Employer diction of incorporation Identification No.) or organization) 5190 Neil Road, Suite 320, Reno, Nevada 89502 --------------------------------------------- (Address of principal (Zip Code) executive offices) Issuer's telephone number: (702) 823-4000 ---------------- Securities registered under Section 12(b) of the Exchange Act: None ------- Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 per share ---------------------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No X Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ ]. Issuer's revenues for its most recent fiscal year: $0 Aggregate market value of the voting stock held by non-affiliates as of June 23, 1997: Unknown Number of shares of Common Stock outstanding as of June 20, 1997: 18,761,839 Documents Incorporated by Reference: None. Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No X Transitional Small Business Disclosure Format (check one): Yes No X PART I ITEMS 1 AND 2: BUSINESS AND PROPERTIES Newgold, Inc. (the "Company") is engaged in the mining and processing of gold and silver ore and the exploration, acquisition and development of gold-bearing properties in the continental United States. The Company is currently developing or exploring its three properties: (1) the Relief Canyon Mine, located in Pershing County, Nevada; (2) the Mission Mine, located in Riverside County, California; and (3) the Bruner Property, located in Nye County, Nevada. The Company has not begun commercial mining on any of its properties. The Relief Canyon Mine and the Mission Mine are in the process of being permitted to allow production to commence, which is anticipated to begin during the second half of 1997. The Bruner Property is an exploration property. The Company's mines consist of open-pit and underground operations utilizing a combination of heap leaching and conventional milling facilities to extract gold. On June 29, 1995, the Company, then operating as Warehouse Auto Centers, Inc., a Delaware corporation ("WAC"), a discount auto parts retail outlet, was involuntarily placed into Chapter 11 Bankruptcy by certain of its unsecured creditors pursuant to the U.S. Bankruptcy Code (the "Code"). Pursuant to a plan of reorganization (the "Plan") approved by the U.S. Bankruptcy Court for the Western District of New York, on November 21, 1996, the Company was merged with Newgold, Inc., a Nevada corporation ("NGNV"). Under the terms of the Plan, the Company: (i) effected a 1-for-65 reverse stock split of the Company's outstanding securities; (ii) acquired all of the shares of NGNV in exchange for 12,000,000 shares of the Company's Common Stock (post-reverse split); (iii) filed an amendment to its Articles of Incorporation changing its name to Newgold, Inc., and increasing the Company's authorized shares of Common Stock to 50,000,000 shares with a par value of $.001 per share; (iv) obtained a new CUSIP number (651362-10-5) and trading symbol, "NGLD," from the National Association of Securities Dealers ("NASD"); (v) paid off its creditors in cash or with shares of Common Stock pursuant to Section 1145 of the Code; (vi) appointed a new Board of Directors and management; (vii) canceled all pre- petition options, warrants and other rights of commitments by the Company to issue any securities or pay any benefits to any person or business entity other than those approved in the Plan; and (viii) appointed Oxford Transfer & Registrar as the Company's transfer agent. Prior to completion of the Plan, the Common Stock of WAC was traded on the NASDAQ Electronic Bulletin Board under the symbol "WHACQ". There have been no trades of the Company's Common Stock since January 1997. The Company has arranged for 1 a new market maker to file an information statement pursuant to Rule 15c2-11 promulgated under the Securities Exchange Act of 1934. As of the date of this Report, trading has not yet commenced. NGNV was incorporated under the laws of Nevada on September 1, 1993 and the Company commenced operations as Newgold, Inc., a Delaware corporation, on November 21, 1996, the effective date of the Merger. The Company's headquarters is located at 5190 Neil Road, Suite 320, Reno, Nevada 89502; and its telephone number is (702) 823-4000. All references to the "Company" refer to NGNV or the merged entity operating as Newgold, Inc. The Company operates in one industry segment solely within the United States. For financial information regarding the Company, see "Item 7: Financial Statements And Supplementary Data." The Company's capital requirements have been and will continue to be significant. The Company has, to date, received no revenues from mining operations. The Company has been dependent primarily on the private placements of its securities. The Company anticipates, based on its current proposed plans and assumptions relating to its mining operations, that proceeds from its prior private placements, borrowings and planned revenues will not be sufficient to satisfy the Company's contemplated cash requirements and the Company will be required to raise additional funds immediately. If the Company is unable to obtain additional financing, it will be required to curtail the development of its mining operations and may cease its operations. Any additional equity financing may involve substantial dilution to the Company's then-existing shareholders. The Company's independent accountants have included an explanatory paragraph in their report dated June 18, 1997, on the Company's financial statements for the thirteen months ended January 31, 1997, indicating substantial doubt about the Company's ability to continue as a going concern. GLOSSARY OF MINING TERMS See "Glossary of Mining Terms" contained on page 23 for definitions of terms used in the following discussion. MINING AND PROCESSING METHODS TO BE USED BY THE COMPANY Mining and processing methods to be used by the Company include milling open-pit mining, underground mining and heap leaching. The following is a general description of the mining and processing methods to be used at the Company's mines. Open-Pit Mining Operations The Company plans to conduct open-pit mining utilizing industry-employed methods and proven equipment. Open pit mining is the process of mining ore directly from the 2 surface of a mining claim. Mine plans are designed to remove overburden (non-ore bearing rock) to expose sufficient ore to meet processing requirements. Material is generally drilled and blasted in 15-foot benches of ore. The blasted material is then loaded onto off-road haul trucks using front-end loaders. Overburden is transported outside the pits and placed on piles, or used to backfill pits where operationally feasible. Ore is transported by haul trucks to one of several destinations. Depending on the ore grade, ore is either taken from the pit and stacked from the trucks directly onto heap leach pads or crushed before being stacked onto heap leach pads. Underground Mining Operations The objective of underground mining is to extract the ore below the surface of the earth safely and economically. Entry is through a tunnel or shaft, and the ore is mined in stopes, or rooms. The Company will utilize an underground mining method called "cut-and- fill stoping." Cut-and-fill stoping is a method used in steeply dipping veins or beds. In this method, material is built up as the stoping progresses and the ore is taken out of the mine and processed. Heap Leaching In conventional heap leaching, the ore is hauled from the pit and crushed to an optimum size, depending the nature of the ore. The crushed ore is then mixed with lime and/or cement and hauled or conveyed to the leach pad where it is stacked. The stacked ore is then cross-ripped to increase solution percolation, and a weak cyanide solution is applied to the top of the heaps using drip and sprinkler irrigation techniques. This solution percolates down through the ore, where the cyanide leaches the gold from the rock. The cyanide solution containing the gold collects on a lined pad. All leaching occurs in a closed system on lined pads designed to meet applicable environmental protection standards. The system is designed to recover all cyanide and prevent its escape or infiltration into the ground. The gold-bearing pregnant solutions are collected from each heap and pumped from the heap leach pads to the plant facilities for recovery. The gold is recovered through carbon absorption followed by conventional pressure stripping of the carbon using a high- temperature caustic solution, which is then pumped to electro-winning cells or to a zinc- precipitation circuit. Gold is electroplated onto cathodes. The resultant electroplated material is removed from the cathodes, fluxed, smelted and poured into dore' bars for shipment to a third-party refinery. 3 Run-of-mine heap leaching is identical to conventional heap leaching, except that the ore and lime are placed directly on heap leach pads, without being crushed as a preliminary step. Run-of-mine heap leaching cycles are typically longer and recoveries are typically lower than conventional heap leaching. RELIEF CANYON MINE The Relief Canyon Mine is an open-pit, heap leaching operation located approximately 110 miles northeast of Reno, Nevada. The Company currently holds 441 unpatented mining claims and leased property covering approximately 8,800 acres. The mine is readily accessible by improved roads. Water for mining and processing of operations is provided by two wells located on the property in close proximity to the mine. Power is provided by a local rural electric association and phone lines are present at the mine site. Background and History The Relief Canyon gold deposit was discovered by Duval Corporation, ("Duval") in 1981. Lacana Mining, ("Lacana") purchased the property from Duval, drilled additional holes to establish reserves, and commenced mining in 1984 as an open-pit cyanide heap leach operation. In 1986, Pegasus Gold, Inc. ("Pegasus"), purchased the mine from Lacana, drilled additional holes for a total of approximately 400 and approximately 120,000 linear feet to confirm reserves, and mined a cumulative total of approximately 6.3 million tons of gold ore containing an average of 0.035 ounces per ton from 1986-1989. Pegasus ceased mining activities in 1989 and reclaimed the mine site from 1990-1992. In 1993, Pegasus sold the Relief Canyon Mine to its reclamation contractor, J.D. Welsh & Associates ("Welsh"). Welsh continued to rinse the heaps to detoxify them of their cyanide content and recovered minor amounts of gold in the process. On January 10, 1995, NGNV purchased the mine from Welsh for $500,000, which at that time consisted of 39 unpatented lode mining claims, buildings, fixtures, leach pads, water rights, various permits and a lease (the "Santa Fe Lease") to fee simple real property entered into between Welsh and Santa Fe Gold Company, recently merged with Newmont Gold Company ("Santa Fe"). Welsh assigned the Santa Fe Lease to the Company at an annual lease payment of $12,500. The Santa Fe Lease requires that Santa Fe consent to any assignment. To date, Santa Fe has not formally consented to the assignment, but has accepted payment of the Company's lease payments and it is the Company's position that such acceptance constitutes consent. Subsequent to the signing of the contract for sale, the parties reduced the amount due Welsh to $450,000 because of Welsh's inability to secure Santa Fe's acceptance of assignment of the Santa Fe Lease. See "Risk Factors -- Uncertainty of Title." 4 Pursuant to the Santa Fe Lease, the Company is obligated to pay Santa Fe a 2.5% net smelter royalty ("NSR") on production from the Relief Canyon Mine (the "Santa Fe Royalty"), with a minimum annual royalty advance of $13,125 per year. The Santa Fe Royalty relates only to land acquired from Welsh. Repadre Capital Corporation ("Repadre") purchased a 3% NSR from the Company for $500,000 in the fall of 1996 (the "Repadre NSR"). These funds were applied to the Company's ongoing reserve confirmation and expansion program at the Relief Canyon Mine. Under the terms of Repadre NSR, Repadre has a 3% NSR which may be allocated to either the Relief Canyon Mine or the Mission Mine at Repadre's option. Repadre currently has assigned 1.5% on the Relief Canyon Mine and 1.5% on the Mission Mine. See "Mission Mine Project". Repadre can, at any time, choose to place all of its royalty amount (3%) on one of either of the two aforementioned projects. In addition to the 39 unpatented mining claims acquired by Welsh, the Company has staked an additional 402 claims with the Bureau of Land Management ("BLM") and is seeking to stake additional claims. Annual Federal and state holding payments for the unpatented claims are $44,100. See "Risk Factors--Uncertainty of Title." On June 12, 1997, two mechanic's and materialsmen's liens, in approximately the aggregate amount of $135,000 were filed against the property relating to the Relief Canyon Mine for outstanding account payables. Geology Gold mineralization at the Relief Canyon Mine is hosted in an interformational tectonic breccia between younger, thin-bedded sandy shales of the Triassic Grass Valley Formation and older thin-to-medium bedded Triassic Cane Springs limestone, as well as along high-angle faults and bedding plane faults in the Cane Springs limestone. Tertiary sills of quartz monzonite and dacite have intruded the breccia along high angle northwesterly faults and acted as traps for later gold-bearing hydrothermal solutions. The ore body is hosted in an anticline, with a steeper dip on the eastern limb, and plunges south-southwest. Most mine development has been on the more accessible western limb of the fold. Large, low-angle northwesterly striking faults, originally interpreted as thrust faults, appear to have occurred along stratigraphic beds, and may be detachment faults rather than thrusts. Multiple high-angle faults, representing several regionally significant tectonic fabrics, also cross-cut the Relief-Packard Flats area. The Company is in the process of determining the proven and probable reserves of gold of the Relief Canyon Mine. There are currently no proven or probable reserves of gold at the Relief Canyon Mine. See "Risk Factors--Risks of Gold Mining" Drill Program Most prior drilling on the Relief Canyon site was limited to 350 to 400-foot depths. No prior drilling tested deeper than 755 feet. An ongoing 80,000 linear-foot drilling program, designed to upgrade the pre-drill program reserve status to the proven category, has been implemented by the Company along with a deep drill program which to date has produced two holes, one 1,500 feet deep and the other, 1,050 feet deep. 5 Development and Planned Mining and Processing The Relief Canyon Mine is an open-pit, heap leaching operation. Material is mined by conventional open-pit, truck loader methods as described above. The Company has developed the infrastructure of the mine which consists of four existing heap leach pads, pregnant and barren solution ponds, processing building with carbon recovery columns, carbon stripping circuit, retort and furnace, three open mine pits, access roads, active power lines and two active water wells. The Relief Canyon Mine will be operational upon approval of its Plan of Operations and issuance of a zero discharge permit and an environmental assessment by the Nevada Department of Environmental Protection and final approval by the BLM. Final approval and production for Relief Canyon Mine is expected in the third quarter of 1997. A condition to regulatory approval is the posting of a $880,000 bond with the BLM, which the Company does not expect to be able to post until such time as it can raise additional funding. The Company estimates reclamation costs to be approximately $880,000. There can be no assurance that the Company will receive such permits or regulatory approval in a reasonable time, or ever. The failure of the Company to receive the necessary approval would have a materially adverse effect on the Company. See "Risk Factors--Government Permits; Environmental Controls"; and "Item 6: Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company plans to begin to mine approximately 3.3 million tons of oxide gold ore. Ore will be stacked on leach pads, sprinkled with dilute cyanide solutions and the pregnant solutions piped to the plant for recovery of gold. A portion of the ore will be crushed and agglomerated prior to being stacked on the leach pads. Mining will be performed by a third-party contractor. Metallurgical testing has indicated that a gold recovery of up to 65% of contained gold from the heap leach operation is attainable. However, there can be no assurance that the Company will recover sufficient quantities of gold nor attain commercially feasible operating costs. Further, while the operation is anticipated to be profitable at current gold prices, there are no guarantees that gold prices will remain at this level, nor are there guarantees that the operation will be profitable. See "Gold Market"; "Risk Factors--Risks of Gold Mining." Exploration The Company continues exploration activity on the Relief Canyon Mine through drilling and geological surveys. 6 MISSION MINE PROJECT The Mission Mine is an underground mining operation located approximately 19 miles south-southeast of Twenty-Nine Palms, California, and is made up of 22 unpatented mining claims consisting of approximately 440 acres. The project is readily accessible via maintained roads. The infrastructure consists of underground workings and a small gravity mill. Water is available from area wells which the Company has contracted to use and power is available at the mine site through the use of diesel on-site generators. Background and History Gold-bearing veins were discovered on the property in 1887. Underground mining commenced on the property in 1929, and continued sporadically until the mid-1970's by individual miners and small companies. The Mission Mine consists of two 600-foot vertical shafts with four levels, containing 1,365 feet of underground workings on the Water Well Vein structure; a 350-foot shaft on the Verde Vein; and a 70-foot shaft on the Lone Star Vein. Past production reported from the property is approximately 1,200 ounces of gold at head grades of 0.8 ounces a ton. The Company acquired a lease-purchase option on the property and mining equipment during 1996 from Joie Jamison, as described below. Property Interests The property consists of 22 unpatented lode-bearing claims which total approximately 440 acres. Within this acreage exists three additional historic mines, the Duplex Mine, the Golden Egg Mine and the Sunset Mine, none of which the Company has yet explored or exploited. The Company has entered into a seven-year lease-purchase option ("Jamison Lease") on the property with Joie Jamison ("Jamison"), for an aggregate purchase price, if such option is exercised, of $3,500,000. Under the terms of the Jamison Lease, the Company has agreed to pay Jamison a 2.5% NSR and the Company has agreed to a minimum royalty payment. The minimum royalty payment is currently $10,000 per month and increases each year by $10,000 per month up to a maximum of $70,000 per month commencing March 1, 2003, until the purchase price is paid. All royalty payments will be applied to the purchase price. The Company is obligated to pay all taxes applicable to the property. The Company has the right to terminate the agreement should it become economically unsound to continue with mining operations at no additional cost to the Company. In addition, under the terms of the Repadre NSR, Repadre currently has a 1.5% NSR on the proceeds of production from the Mission Mine which, at Repadre's option, may be increased to a maximum of 3%. 7 Geology Economic gold mineralization at the Mission Mine consists of free milling gold hosted in iron/manganese-stained clay (fault gouge) and quartz veins. The veins are approximately 3 feet in width, with slightly increasing width upon increasing depth; gold/silver ratios go as high as 10:1, with minor amounts of base metals at the 600- and 1,200-foot levels in the Mission and Duplex Mines, respectively. This suggests that the veins are in the upper level of an epithermal vein system with considerable mining depths. Surface mapping and sampling has confirmed a 6,000 foot strike-length of multiple gold-bearing veins within a northwest trending fault zone, in which the Mission Mine is located. Underground mapping has identified gold mineralization with an average grade of 0.8 ounce per ton, previously thought to be confined to the Water Well Vein. The Water Well Vein occurs as multiple parallel veins within one of four northwest trending fault zones, which cuts a Mesozoic Quartz Monzonite country rock on the property. The three other parallel fault zones on the property contain similar multiple gold-bearing veins. Reserves The Company is in the progress of delineating the minable reserves of the property and as of the date of this Report the property is without known reserves. The mine has been developed to a 600-foot depth and only 400 feet along the strike of a 6,000-foot vein system. Additional reserves are anticipated to be developed at the depths, as well as in the other three parallel vein systems on the property, mentioned above. There can be no assurance that sufficient reserves exist or that such reserves may be mined at a commercially viable cost. See "Risk Factors--Risk of Gold Mining." Development and Planned Mining and Processing The Company has mapped and sampled the underground workings at the Mission Mine, as well as the surface of the claim block. Gold mineralization has been identified throughout the 6,000 feet of the exposed multiple vein system on which the Mission Mine is developed. Historical commercial gold recovery methods used at the Mission Mine have been by gravitational concentration, a non-cyanide method. The Company is in the process of refurbishing the underground mining systems and upgrading the equipment to meet state and federal standards. In addition, prior to opening the mine, the Company must obtain the applicable permits described below. The property is currently permitted to operate as a small underground mining and milling operation. The Company plans to seek modification of the permit to increase the underground mining rate to 250 tons per day. The Company expects to have its permitting completed during the third quarter of 1997. However, 8 there can be no certainty that the Company will be able to obtain such a permit within a reasonable time, if ever. Failure of the Company to obtain the permit modification would have a material adverse effect on the Company. See "Risk Factors--Government Permits." BRUNER PROPERTY The Bruner property, which consists of 29 patented mining claims and 453 unpatented lode mining claims covering approximately 9,600 acres, is in the exploration stage and is located approximately 60 miles southeast of Fallon, Nevada, approximately 130 miles east of Reno, Nevada and 25 miles north-northeast of Gabbs, Nevada. It is accessible by paved and unpaved public roads. Because the property is in the exploration stage, the Company has not yet established sources for water and power. There can be no certainty that the Company will be able to acquire water at commercially reasonable terms or at all. Failure to acquire water could have a materially adverse effect on the Company's ability to commercially mine the Bruner property. Telephone service would have to be via remote methods. The Company is unaware of any prior commercial mining operations on the Bruner property. See "Risk Factors--Risks of Gold Mining." Property Interests On October 11, 1996, the Company entered into a letter of intent to enter into a four-year lease/option to purchase the Bruner property with Miramar Mining Corporation ("Miramar"). Pursuant to the terms of the letter of intent, which is currently being formalized into a written agreement, the Company will make annual rental payments of approximately $80,000 per year until the year 2000 or until the Company chooses to exercise its option and pay $870,000 plus 100,000 shares of the Company's Common Stock. Miramar will also receive a 2.5% royalty on all gold production over 200,000 ounces. Miramar also has an option to enter into a joint venture with the Company for 25% of the operation if gold reserves exceed 1,000,000 ounces. In addition, the Company is obligated to conduct a minimum work program of 10,000 feet of drilling per year on the Bruner Property. There can be no certainty that the Company and Miramar will enter into a final agreement. As of the date of this Report, the Company has made a non-refundable deposit of $10,000 and a rental payment of $80,000. If Miramar and the Company do not execute a final agreement, the Company would loose any rights to mine at the Bruner property and the Company would forfeit its payment of $80,000. See "Risk Factors--Uncertainty of Title." Geology Historically, the Bruner district was developed on high-grade, gold-quartz-adularia veins hosted in brecciated Tertiary alkali volcanics. Production records are poor. Past production, as estimated from mill tailings and dumps, was approximately 100,000 tons gold- silver ore with production grades at approximately one ounce per ton. Lack of surface water 9 limited the amount of development of the district. Past mining was done using underground methods; however, the Company would plan on using the open-pit method of mining should the Company determine such activity to be commercially feasible. Bonanza-style gold-silver mineralization is hosted in quartz-adularia veins hosted in shear zones with strong northwesterly and/or north-northeasterly trends. Gold grades in these shear zones appear to increase at the flanks of rhyolitic domes and plugs which have intruded the porous volcaniclastic package. Similar geologic settings are found at the Round Mountain and Rawhide gold deposits, which contain more than 7 million troy ounces and 1 million ounces of gold, respectively, approximately 100 miles to the southeast of the property. Alteration of volcanics significant to gold mineralization can be found on more than 70% of the property, and consists of quartz flooding and veining, clays and potassic micas. Reserves While no minable reserves have been defined on the property by the Company, a significant amount of both surface and subsurface exploration work has been performed. Surface work has consisted of geologic mapping, sampling, thematic mapping, and airborne and ground geophysics. Subsurface exploration work has consisted of both sampling underground workings and approximately 15,000 feet of reverse circulation percussion drilling indicating the presence of mineralization. See "Risk Factors--Risks of Gold Mining." Development and Planned Mining and Processing Metallurgical work performed by Miramar consisted of cyanide column tests by a third-party laboratory of bulk samples taken of oxidized gold-bearing rocks within underground small mine workings on a portion of the property. Average gold recovery from two-inch material with head grades of 0.032 ounces per ton was 68% at the end of 30 days. The Company will attempt to confirm these results in the process of its work on the property. However, there can be no assurance that the Company's actual gold production will reach such estimates. See "Risk Factors--Risks of Gold Mining." At the time of this Report, the Company has not made any production commitments for this property and no reserves have been delineated. There are no guarantees that the Company will elect to go into production at the Bruner property. See "Risk Factors--Risks of Gold Mining." WASHINGTON GULCH PROPERTY The Company acquired the Washington Gulch Mine located in Montana from Edward Mackay, a former officer and director and currently a principal shareholder of the Company, in exchange for 3.8 million shares (post stock-split) of Common Stock. Mr. Mackay was not an officer or director of the Company at the time of the transaction. See "Item 12: Certain Relationships 10 and Related Transactions." The Company has determined that the Washington Gulch Mine does not fit its property profile; therefore, the Company is not going to pursue commercial mining activity. The Company is currently in the process of selling the plant and equipment of the Washington Gulch Mine and the ground will have to be reclaimed. Management estimates reclamation costs to be approximately $25,000. After reclamation, the Company will request the return of its $206,000 reclamation bond currently being held by the State of Montana. EXPLORATION, DEVELOPMENT OF MINE PROPERTIES AND EVALUATION The Company conducts a grassroots exploration program in the continental United States. The Company focuses on pure gold properties and polymetallic deposits with a majority gold component. In addition, the Company pursues aggressive exploration programs at its properties. The Company spent approximately $2.3 million on exploration, development of mine properties and evaluation activities for the thirteen months ended January 31, 1997 and approximately $.7 million for fiscal year ended December 31, 1995. The Company estimates that it will spend approximately $2 million during the fiscal year ending January 31, 1998. Actual expenditures will vary depending on the results of exploration activities at the Company's properties, the acquisition of new properties and the Company's financial resources. MARKETING The Company plans to sell its production from its mines to metals firms pursuant to fixed price forward contracts and at spot prices prevailing at the time of sale. As of the date of this Report, the Company does not have any sales contracts. PERMITTING The Company is required to obtain numerous permits at the federal, state and county levels. Permitting is a continuing process, and as the Company expands its operations at existing mining sites or acquires new properties, the Company will be required to amend its existing permits and obtain new permits. The Company is in the process of obtaining the necessary permits for the Relief Canyon Mine and is amending its current permit at the Mission Mine. While the Company believes it will obtain such required permits and amendments, the failure to receive such permits would have an material adverse effect on the Company. See "Risk Factors--Government Permits" and "--Environmental Controls" INSURANCE The business of gold mining is subject to certain types of risks, including environmental hazards, industrial accidents, and theft. The Company carries insurance against certain property damage loss (including business interruption) and comprehensive general liability insurance. While the Company maintains insurance consistent with industry practice, it is not possible to insure against all risks associated with the mining business, or prudent to assume that insurance will continue to be available at a reasonable cost. The 11 Company has not obtained environmental liability insurance because such coverage is not considered by management to be cost effective. GOVERNMENT CONTROLS AND REGULATIONS The Company's business is subject to extensive governmental controls and regulations which are subject to amendment from time to time. The Company is unable to predict what additional legislation or amendments may be proposed that might affect its business or the time at which any such proposals, if enacted, might become effective. Such legislation or amendments, however, could require increased capital and operating expenditures and could prevent or delay certain operations of the Company. Outlined below are some of the more significant aspects of governmental controls and regulations which materially affect the Company's principal area of business. Regulation of Mining Activity All of the Company's operations, including its exploration, development and production activities, are subject to environmental laws, policies and regulations. These laws, policies and regulations regulate, among other matters, emissions to the air, discharges to water, management of waste, management of hazardous substances, protection of natural resources, protection of endangered species, protection of antiquities and reclamation of land. The Company's operations are also subject to numerous other Federal, state and local laws and regulations. At the Federal level, the mining operations of the Company are subject to inspection and regulation by the Division of Mine Safety and Health Administration of the Department of Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration ("OSHA") also has jurisdiction over certain safety and health standards not covered by MSHA. The Company's proposed mining operations and all future exploration and development projects also require or will require a variety of permits. Although the Company believes the permits for these projects can be obtained in a timely fashion, permitting procedures are complex, costly, time consuming and subject to potential regulatory delay. The Company does not believe that existing permitting requirements or other environmental protection laws and regulations would have a material adverse effect on its business, financial condition or results of operations. However, the Company cannot be certain that future changes in laws and regulations would not result in significant additional expenses, capital expenditures, restrictions or delays associated with the development and operation of the Company's properties. The Company cannot predict whether it will be able to renew its existing permits or whether material changes in existing permit conditions will be imposed. Non-renewal of existing permits or the imposition of additional conditions could have a material adverse effect on the Company's financial condition and results of operations. See "Risk Factors--Government Permits." 12 The State of Nevada (where a majority of the Company's properties are located) adopted the Mined Land Reclamation Act (the "Nevada Act") in 1989 which established design, operation, monitoring and closure requirements for all mining facilities. The Nevada Act has increased the cost of designing, operating, monitoring and closing new mining facilities and could affect the cost of operating, monitoring and closing existing mining facilities. The State of Nevada has also adopted reclamation regulations pursuant to which reclamation plans have been prepared and financial assurances established for existing facilities. New facilities are also required to provide a reclamation plan and financial assurance to ensure that the reclamation plan is implemented upon completion of operations. The Nevada Act also requires reclamation plans and permits for exploration projects that will result in more than five acres of surface disturbance. Environmental Regulations Legislation and implementation of regulations adopted or proposed by the United States Environmental Protection Agency ("EPA"), the BLM and by comparable agencies in various states directly and indirectly affect the mining industry in the United States. These laws and regulations address the environmental impact of mining and mineral processing, including potential contamination of soil and water from tailings discharges and other wastes generated by mining companies. In particular, legislation such as the Clean Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act ("RCRA"), the Environmental Response, Compensation and Liability Act and the National Environmental Policy Act require analysis and/or impose effluent standards, new source performance standards, air quality antimycin standards and other design or operational requirements for various components of mining and mineral processing, including gold-ore mining and processing. Such statutes also may impose liability on the Company for remediation of waste it has disposed. The Company's gold mining and processing operations will generate large quantities of solid waste which is subject to regulation under the RCRA and similar state laws. The majority of the waste which will be produced by the Company's operations is "extraction" waste that EPA has determined not to regulate under RCRA's "hazardous waste" program. Instead, the EPA is developing a solid waste regulatory program specific to mining operations under the RCRA. Of particular concern to the mining industry is a proposal by the EPA entitled "Recommendation for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the Resource Conservation and Recovery Act" ("Strawman II") which, if implemented, would create a system of comprehensive Federal regulation of the entire mine site. Many of these requirements would be duplicative of existing state regulations. Strawman II as currently proposed would regulate not only mine and mill wastes but also numerous production facilities and processes which could limit internal flexibility in operating a mine. To implement Strawman II the EPA must seek additional statutory authority, which is expected to be requested in connection with Congress' reauthorization of RCRA. 13 The Company is also subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances and (ii) the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. Revisions to "CERCLA" and "ESA" are being considered by Congress; the impact of these revisions on the Company is not clear at this time. Moreover, the Clean Air Act, as recently amended, mandates the establishment of a Federal air permitting program, identifies a list of hazardous air pollutants, including various metals and cyanide, and establishes new enforcement authority. The EPA has published final regulations establishing the minimum elements of state operating permit programs. The states had until November 15, 1993 to submit their permit programs to the EPA for review and approval. Until the state regulations are promulgated and approved by the EPA, the full impact of the new regulations on the Company cannot accurately be predicted. In addition, the Company is required to mitigate long-term environmental impacts by stabilizing, contouring, resloping, and revegetating various portions of a site. While the Company performs a portion of the required work concurrently with its operations, the majority of the environmental mitigation occurs once such operations are completed. These reclamation efforts are conducted in accordance with detailed plans which have been reviewed and approved by the appropriate regulatory agencies. The Company posts security bonds to cover the estimated costs of such reclamation as required by permit. The Company believes that its operations, as they exist today, are in substantial compliance with Federal and state regulations and that no significant capital expenditures for environmental control facilities will be required in the near future. However, compliance with these standards, laws and regulations with respect to future planned operations may necessitate control measures and expenditures which, if required, cannot be estimated at this time. Compliance may require substantial prophylactic measures regarding operation of new mines and mills or materially affect the proposed schedule for construction of such facilities. Under certain circumstances, construction of mining facilities may be stayed pending regulatory approval. See "Risk Factors--Environmental Controls." GOLD MARKET The profitability of the Company's future operations will be affected by the market price of gold. Market gold prices can fluctuate widely and are affected by numerous factors beyond the Company's control, including industrial and jewelry demand, expectations with respect to the rate of inflation, the strength of the U.S. dollar (the currency in which the price of gold is generally quoted) and of other currencies, interest rates, central bank sales, forward sales by producers, global or regional political or economic events and production 14 costs in major gold-producing regions such as South Africa and Russia. In addition, the price of gold sometimes is subject to rapid short-term changes because of speculative activities. The demand for and supply of gold affects gold prices, but not necessarily in the same manner as supply and demand may affect the prices of other commodities. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. As the amounts produced in any single year constitute a very small portion of the total potential supply of gold, normal variations in current production do not necessarily have a significant impact on the supply of gold or on its price. If the Company's projected revenue from potential gold sales falls for a substantial period below the Company's anticipated costs of production at any or all of its mining projects, the Company may determine that it is not economically feasible to commence production or, if a mine is in production, to continue with commercial production at that particular facility. The gold market generally is characterized by volatile prices and strong competition. The volatility of gold prices is illustrated in the following table of annual high, low and average gold fixing prices per ounce on the London P.M. Fix: Year High Low Average 1985 $341 $294 $317 1986 438 326 368 1987 500 390 446 1988 495 395 437 1989 416 356 381 1990 424 346 383 1991 403 344 362 1992 374 330 344 1993 406 326 360 1994 396 370 334 1995 396 372 384 1996* 415 367 388 Sources of Data: Metals Week *Source of Data: Gold Fields Limited, Gold 1997 On June 6, 1997, the late fixing for gold on the London Exchange was $338.90 per ounce and the closing spot market price of gold as quoted by Handy and Harmon, New York, was $338 per ounce. Gold prices on both the London P.M. Fix and the New York 15 Commodity Exchange are regularly published in most major financial publications and many nationally recognized newspapers. CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this report, including the exhibits, contain forward looking statements and information relating to the Company that is based on the beliefs of management, as well as assumptions made by and information currently available to management. Forward looking statements included statements preceded by the words "anticipate," "believe," "estimate," "expect," "indicate," "intend," "will," and similar expressions. Estimates of future production and future costs per ounce are forward- looking statements. The purpose of this cautionary statement is to identify certain important factors and assumptions on which such forward looking statements may be based or which could cause actual results to differ materially from those expressed in the forward looking statements. The important factors and assumptions set forth below should be read in conjunction with the items contained under the heading "RISK FACTORS." Gold Production Future gold production could be affected by, among other things, the price of gold, risks and hazards associated with mining operations, variances in ore grade and metallurgical and other characteristics from assumptions contained in mining plans, labor disputes and acts of God. Estimates of Operating Costs and Capital Costs; Capital Projects Estimates of cash costs for mining operations are developed based on production estimates, anticipated mining and ground conditions, estimated costs of materials, supplies and utilities, exchange rates and other items. Estimates of amortization of noncash costs are based on total capital costs and reserve estimates and may change at least annually based on actual amounts of unamortized capital and changes in reserve estimates. Estimates for reclamation and environmental remediation costs are developed based on existing and expected legal requirements, cost estimates provided by Company employees and third parties and other factors. Estimates also reflect assumptions with respect to actions of government agencies, including exercise of discretion and the amount of time government agencies may take in completing processes required under applicable laws and regulations. As a result, final costs may vary significantly from estimates. The Company intends to periodically reevaluate its reclamation cost estimates and reclamation reserves to take account of such factors. 16 Estimates of future capital costs are based on a variety of factors and may include estimated levels of future production, estimates by and contract terms with third-party suppliers, expectations as to government and legal requirements, feasibility reports (which may be prepared by Company personnel and/or outside consultants) and other factors. Capital cost estimates for new projects under development generally are subject to greater uncertainties than additional capital costs for existing operations. Estimated periods for completion of capital projects are based on many factors, including estimates provided by contractors, engineers, suppliers and others involved in design and construction of projects. Estimates also reflect assumptions with respect to factors beyond the Company's control, including, but not limited to, the time government agencies may take in processing applications, issuing permits and otherwise completing processes required under applicable laws and regulations. Actual time to completion may vary significantly from estimates. Estimates of exploration costs are based upon many factors such as past exploration costs, estimates of the level and cost of future activities, and assumptions regarding anticipated results on each property. Actual costs may vary during the year as a result of such factors as actual exploration results (which could result in increasing or decreasing expenditures for particular properties), changed conditions, and acquisitions and dispositions of property. COMPETITION The Company competes with other mining companies in connection with the acquisition of mining claims and leases on precious metal properties and in connection with the recruitment and retention of quality employees. There is significant competition for the limited number of precious metals acquisition opportunities in the continental United States. As a result of this competition, much of which is with companies with greater financial resources, the Company may be unable to continue to acquire attractive mining properties on terms it considers acceptable. RISK FACTORS The risk factors identified below should be considered in conjunction with the information contained under the caption "Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995." Limited Relevant Operating History; Significant and Continuing Operating Losses; Accumulated Deficit The Company has been engaged primarily in exploration and development of its mines and has had minimal revenues. Accordingly, the Company has a limited relevant 17 operating history upon which an evaluation of its prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of a new business in the mining industry, which is a continually evolving industry characterized by an increasing number of market entrants and intense competition, as well as the risks, expenses and difficulties encountered in the commercialization of new mines. As of January 31, 1997, the Company had an accumulated deficit of approximately $3,401,816. Since such date, losses have increased and are continuing through the date of this Report. In addition, the Company's operating expenses have increased and can be expected to continue to increase in the future in connection with the Company's efforts to develop and commercially mine its properties. Accordingly, it is anticipated that the Company will continue to incur significant losses at least until it is able to mine gold and silver in sufficient quantities to support operations. There can be no assurance that the Company will be successful in recovering sufficient quantities of gold and silver such that the Company can ever achieve profitable operations. Significant Capital Requirements; Need for Additional Capital The Company's capital requirements have been and will continue to be significant. The Company has been dependent primarily on the private placements of its securities. The Company anticipates, based on its current proposed plans and assumptions relating to its mining operations, that proceeds from its former private placements, borrowings and planned revenues will not be sufficient to satisfy the Company's contemplated cash requirements and the Company will be required to raise additional capital immediately. If the Company is unable to obtain additional financing, it will be required to curtail the development of its mining operations and possibly cease its operations. Any additional equity financing may involve substantial dilution to the Company's then-existing shareholders. The Company's independent accountants have included an explanatory paragraph in their report on the Company's financial statements for the thirteen months ended January 31, 1997, indicating substantial doubt about the Company's ability to continue as a going concern. Late Payments Relating to Debt; Judgment As of the date of this Report, the Company is approximately $115,000 in arrears on interest and principal payments relating to outstanding, unsecured note payables. In addition, the Company currently owes a judgment debtor approximately $220,000. Risks of Gold Mining The Company's business of gold mining is highly speculative, full of risks and uncertainties and is frequently non-productive. Among other things, the business depends on the successful location of mines containing economically recoverable mineralization. Once such sites have been identified, it can take years of preparation and capital expenditure before 18 successful development of the mine. Mining is subject to a variety of risks and hazards, including rock falls and slides, cave-ins, flooding, other weather conditions, and other acts of God. Such events could have a material adverse effect on the Company. Proposed Legislation Affecting the Mining Industry During the past four years, the United States Congress has considered a number of proposed amendments to the General Mining Law of 1872, as amended (the "General Mining Law"), which governs mining claims and related activities on Federal lands. In 1992, a holding fee of $100 per claim was imposed upon unpatented mining claims located on Federal lands. Beginning in October 1994, a moratorium on processing of new patent applications was approved. In addition, a variety of legislation is now pending before the United States Congress to amend further the General Mining Law. The proposed legislation would, among other things, change the current patenting procedures, impose royalties, and enact new reclamation, environmental controls and restoration requirements. The royalty proposals range from a 2% royalty on net profits from mining claims to an 8% royalty on modified gross income/net smelter returns. The extent of any such changes is not presently known and the potential impact on the Company as a result of future congressional action is difficult to predict. If enacted, the proposed legislation could adversely affect the potential for development of operating mines on the Federal unpatented mining claims held by the Company. The Company's financial performance could therefore be materially and adversely affected by the passage of all or pertinent parts of the proposed legislation. Government Permits The Company is seeking governmental permits for production and expansion of allowed production activities at its Relief Canyon and Mission Mines respectively and, to date, has not received the necessary permits to operate any of its mines. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous Federal, state and local agencies. The duration and success of each permitting effort is contingent upon many variables not within the Company's control. In the context of environmental protection permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations which may entail greater costs and delays depending on the nature of the activity to be permitted and the interpretation of the regulations implemented by the permitting authority. The failure to obtain certain permits could have a material adverse effect on the Company's business and operations. Environmental Controls The Company is required to comply with numerous environmental laws and regulations imposed by Federal and state authorities. At the Federal level, legislation such as the Clean Water Act, the Clean Air Act, the PCRA, the Environmental Response, Compensation and Liability Act and the National Environmental Policy Act impose effluent 19 and waste standards, performance standards, air quality and emissions standards and other design or operational requirements for various components of mining and mineral processing, including gold-ore mining and processing. Although the majority of the wastes produced by the Company's operations are "extraction" and "beneficiation" wastes, which the EPA does not regulate under its current "hazardous waste" program, the EPA is currently developing a separate program under the RCRA to regulate such waste. Until the new regulatory program is formally proposed by the EPA, there is not a sufficient basis on which to predict the potential impacts of such regulations on the Company. Many states, including the States of Nevada and California (where a majority of the Company's properties are located), have also adopted regulations that establish design, operation, monitoring, and closing requirements for mining operations. Under these regulations, mining companies are required to provide a reclamation plan and financial assurance to insure that the reclamation plan is implemented upon completion of mining operations. Further, under the Clean Air Act, as amended, states are required to develop permit plans for polluting and potentially polluting industries such as mining and smelting. Although the states have submitted their permit programs to the EPA for review, until final regulations are promulgated and approved by the EPA, the Company cannot predict the full impact of these state permitting regulations. The Company's compliance with Federal and state environmental laws may necessitate significant capital outlays or delays, materially and adversely affect the economics of a given property, or cause material changes or delays in the Company's intended exploration, development and production activities. Further, new or different environmental standards imposed by governmental authorities in the future could adversely affect the Company's business activities. See "Government Controls and Regulations." Uncertainty of Title The Company acquired portions of the Relief Canyon Mine from Welsh pursuant to an assignment of an original lease between Welsh and Santa Fe (the "Santa Fe Lease"). The Santa Fe Lease requires that Santa Fe consent to any assignment. To date, Santa Fe has not consented to an assignment, but has accepted payment of the Company's lease payments and it is the Company's position that such acceptance constitutes consent. However, there can be no certainty that the Company's rights to the lease are secure. The Company's interest in the Bruner property consists of a letter of intent with Miramar. While the Company is in the process of negotiating a final agreement with Miramar, there can be no certainty that the parties will enter into such an agreement. If the Company and Miramar are unable to execute a final agreement, the Company would loose all rights to mine at the Bruner property and would forfeit all amounts paid to Miramar to date, approximately $90,000, and all amounts spent on exploration and development to date, approximately $12,000. 20 A majority of the Company's properties consist of unpatented mining claims or mill site claims which the Company owns or leases. These claims are located on Federal land or involve mineral rights which are subject to the claims procedures established by the General Mining Law of 1872. Under this law, if a claimant complies with the statute and the regulations for the location of a mining claim or mill site claim, the claimant obtains a valid possessory right to the land or the minerals contained therein. To preserve an otherwise valid claim, the claimant must also make certain additional filings with the county in which the land or mineral is situated and the BLM, and pay an annual "rental" fee of $100 per claim. If a claimant fails to make the annual rental payment or make the required filings, the mining claim or mill site claim is void or voidable. Because mining claims and mill site claims are self-initiated and self-maintained rights, they are subject to unique vulnerabilities not associated with other types of property interests. It is difficult to ascertain the validity of unpatented mining claims or mill site claims from public property records and, therefore, it is difficult to confirm that a claimant has followed all of the requisite steps for the initiation and maintenance of a claim. Under Federal law, in order for an unpatented mining claim to be valid, the claimant has the burden of proving that the mineral occurrence on which it is based can be mined at a profit at the time the claim is located and at any time when anyone makes any subsequent challenge to the claim's validity. It is therefore conceivable that, during times of falling metal prices, claims which were valid when they were located could become invalid if challenged. Title to unpatented claims and other mining properties in the western United States typically involves certain other inherent risks due to the frequently ambiguous conveyancing history of those properties, as well as the frequently ambiguous or imprecise language of mining leases, agreements and royalty obligations. No generally applicable title insurance is available for unpatented mining or mill site claims or many other of the Company's mineral interests. As a result, some of the titles to the Company's properties may be subject to challenge. Hedging Activities The Company anticipates that from time to time it will enter into fixed-forward and spot-deferred sales contracts for the sale of its gold with the objective of mitigating the impact of downturns in the gold market and providing adequate cash flow for operations, although it is engaging in no such activities at this time. The Company may also purchase put options for the sale of its gold. Dependence on Key Personnel The Company is dependent on the services of A. Scott Dockter, the Company's Chief Executive Officer, and President. Competition in the mining industry for qualified individuals such as Mr. Dockter is intense, and the loss of Mr. Dockter could have a material adverse effect on the Company's business and operations. The Company currently 21 does not have key-person insurance. The Company is in the process of entering into an employment agreement with Mr. Dockter which will provide for certain payments upon termination or resignation resulting from a change in control of the Company or termination without cause (as those terms will be defined in such agreements). OTHER The Company does not own any patents, trademarks, licenses, franchises or concessions except for mineral interests granted by governmental authorities and private land owners. The Company's business is generally not seasonal in nature except to the extent that weather conditions at certain times of the year may affect the Company's access to its properties. The Company, as of January 31, 1997, had a total of 25 employees, 8 of whom are management and professional staff. None of the Company's employees are subject to any collective bargaining agreements or union affiliations. Relations between management and employees are considered to be good. On November 26, 1996, the Company purchased two aircraft at a total cost of $562,000 to transport management and professional personnel to and from the Company's properties. Such equipment is usual and customary in the mining industry as project sites are in remote areas not serviced by commercial carriers and auto travel between project sites or from the Company's office to project sites is impracticable. 22 GLOSSARY OF MINING TERMS ASSAY - A test performed on a sample to determine mineral content. BACKFILL - waste material used to fill the void created by mining an ore body. BARREN SOLUTION POND - a holding area containing cyanide solution from which most of the gold and silver has been removed. BRECCIATED TERTIARY ALKALI VOLCANICS - shattered volcanic rock composed of above-coverage amounts of potassium and sodium minerals. CONCENTRATE - a product containing valuable metal from which most of the waste material in the ore has been segregated. CONTAINED OUNCES - the estimate of the total number of ounces of gold contained in an ore body. CRUSHING AND GRINDING - the process by which ore is broken into small pieces to prepare it for further processing. CUT-AND-FILL STOPING - a mining method used to extract ore from an underground mine. DORE - unrefined metal bars consisting of gold, silver and impurities which will be further refined. DRIFTS - development cuts in underground mining which will allow access to the ore body. GOLD-QUARTZ ADULARIA - an alteration epithermal per ton mineral assembly. GRADE - the amount of valuable mineral in each ton of ore, expressed as ounces per ton for precious metals. RESERVE GRADE - estimated metal content per ton of an ore body, based on reserve calculations. CUT-OFF GRADE - the minimum contained value at which an ore body can be economically mined in a given process. MILL HEAD GRADE - metal content per ton of mined ore going into a mill for processing. 23 RECOVERED GRADE - the metal content per ton of ore recovered from a given extraction process. GRAVITY CIRCUIT - a process of recovering gold from crushed rock or gravel using water and gold's high density to separate it from the lighter material. HEAD GRADES - amount of gold contained in pre-processed ore (mill, heap, crusher). HEAP LEACHING - a process of extracting gold and silver by placing crushed and uncrushed ore on sloping, impermeable pads and applying a dilute cyanide solution that exchanges a portion of the contained gold for sodium ions, which is then recovered in a carbon column or Merrill-Crowe circuit. HEAP LEACH PAD ("HEAP") - a large, impermeable foundation used as a collection plane for cyanide solution during heap leaching. The leach solution is collected and does not escape from the circuit. INTERFORMATIONAL TECTONIC BRECCIA - interbedded units of rock which have been faulted. MILL - a facility where ore is ground and the metals are extracted by physical and/or chemical processes. MILLING CIRCUIT - the combination of various processes and systems which separate waste materials from the valuable minerals, producing a concentrate, or dore. MINERALIZED MATERIAL - includes mineralized bodies which have been physically delineated by drilling, underground work, surface trenching, etc., and found to contain a sufficient amount of material with an average grade of metal or metals to warrant further exploration expenditures. Mineralized material has established geologic continuity but does not qualify as a proven and probable reserve until final technical, and economic factors have been resolved. MINING CLAIM - public land which a party has staked or marked out in accordance with federal, provincial, or state mining laws to acquire the right to explore for and exploit the minerals above and below the surface. NET PROFITS INTEREST - a royalty based on the profit remaining after recapture of certain operating capital and other costs as determined by agreement. NET SMELTER ROYALTY - a royalty based on gold produced, less the cost of refining and transportation; royalty based on a contract agreement which will be credited to the land owner or parties of interest. 24 ORE - material that can be economically mined and processed for gold or silver. OUNCE - troy ounce, which is equivalent to 34.286 grams. PREGNANT POND - pond containing cyanide solution impregnated with gold and silver which has percolated through the ore on the leach pad. RECOVERY RATE - 1) percentage of the valuable mineral recovered in the processing of ore; 2) the rate at which mineral is extracted from an extraction process. RESERVES: PROVEN RESERVES - reserves for which (a) a quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well established. PROBABLE RESERVES - reserves for which quantity, grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. REVERSE CIRCULATION DRILLING - a type of rotary drilling that uses a double-walled drill pipe. Compressed air, water or other drilling medium is forced down the space between the two pipes to the drill bit and the drilled chips are flushed back up to the surface through the center tube of the drill pipe. RUN-OF-MINE ORE - unprocessed ore which is hauled directly to the heap leach pads without being crushed. SANDY SHALES - a compacted, thin-bedded rock composed mostly of silt and clay particles with lessor sand. STRIP (OR STRIPPING) RATIO - the tonnage of waste material removed to allow the mining of one ton of ore in an open-pit. SULFIDE ORE - mineralization contained in the form of a sulfide. TAILINGS - material removed from a milling circuit after separation of the valuable minerals. 25 ITEM 3: LEGAL PROCEEDINGS a) On December 3, 1996, the case of Christiansen v. Newgold, et al., a purported breach of contract action was filed in the Second Judicial District, Washoe County, Reno, Nevada. Plaintiff alleges that he is owed $250,000 relating to recovery of his investment with a property subsequently acquired by the Company. The Company believes that Plaintiff's claim is meritless and the claim is being vigorously defended by counsel. b) On January 28, 1997, the case of Stewart v. Newgold, a purported breach of contract for the purchase of the Cerro Gordo Mine, in California, was filed in the Second Judicial District, Washoe County, Reno Nevada. Plaintiff was unable to present clear title to the property and the Company was unable to clear title and refused to make additional payments called for under the contract. Plaintiff is seeking $40,000 in damages. This case is in the initial pleadings stage and is being vigorously defended by counsel. c) On April 25, 1997, the Company filed a declaratory relief action in the case of Newgold v. Wirsing, et al. in the Sacramento County Superior Court. Mr. Wirsing and his fellow defendant, Mr. Wong, are each alleging that they are the owners of a 10% share of the net profits interest from Relief Canyon. The Company filed the action to seek declaratory relief that Messrs. Wirsing and Wong's claim is without merit. Mr. Wong has filed a $100,000,000 mechanics lien on the Relief Canyon Mine. The Company believes that the use of a mechanics' lien is improper and that there is no merit in Messrs. Wirsing and Wong's claims. However, to the extent that Messrs. Wirsing and Wong are successful, it could have a material adverse effect on the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 21, 1996, as approved by the Western District of New York Court, pursuant to the Plan and by means of a written ballot, the Stockholders and Creditors of WAC approved the Plan and the Merger by a vote of 315,343 votes cast in favor, 9,827 votes cast against and 2,974,021 votes absent. During a special stockholder meeting held on June 19, 1996, the Company's stockholders approved the Plan and the Merger by a vote of 10,568,358 votes cast in favor, no votes cast against and no votes abstaining. 26 PART II ITEM 5: MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to the Plan the common stock of WAC was traded on the NASDAQ Electronic Bulletin Board under the symbol "WHACQ". There have been no trades of the Company's Common Stock since January 1997. The Company, after approval of the Plan, applied for and received a change of its trading symbol to "NGLD". The Company has arranged for a new market maker to file an information statement pursuant to Rule 15c2-11 promulgated under the Securities Exchange Act of 1934. As of the date of this Report, trading has not yet commenced. On May 23, 1997, the Company had 18,761,839 shares of Common Stock, par value $.001, outstanding held by approximately 760 stockholders of record. The Company has not to date declared or paid any dividends to holders of its securities. The Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain earnings for use in the Company's business operations. The following table sets forth the high and low bid prices for the Common Stock, as reported by the NASD's OTC Bulletin Board for the quarters indicated. The prices set forth represent quotes between dealers and do not include commissions, mark-ups or mark-downs, and may not represent actual transactions. Common Stock ------------ Bid Asked --- ----- High Low High Low ---- --- ---- --- Fiscal Quarter Ended: January 31, 1995 4.50 3.50 4.4375 3 April 30, 1995 2.625 1.00 3.50 2 October 31, 1995 0.25 0.1875 0.3125 0.25 January 31, 1996 0.0935 0.0625 0.15625 0.125 April 30, 1996 0.35 0.03125 0.09375 0.08 July 31, 1996 0.15625 0.0625 0.25 0.25 October 31, 1996 0.0625 0.0625 0.125 0.125 January 31, 1997 0.0625 0.0625 0.0625 0.0625 March 31, 1997 N/A N/A N/A N/A 27 ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is engaged primarily in the exploration and development of mining properties. The Company is the result of a merger between WAC and NGNV pursuant to the Plan, effective as of November 21, 1996. For accounting purposes, under the terms of the Merger, NGNV has been treated as the acquirer. Accordingly, the historical financial statements prior to November 21, 1996 are those of NGNV and do not reflect any financial information of WAC as a separate entity. In addition, under the terms of the Merger, NGNV's fiscal year was changed from December 31 to January 31. Hence, the comparative financial information is for the thirteen months ended January 31, 1997 to the year ended December 31, 1995. The Company is engaged in the business of acquiring dormant, potentially gold producing properties located in the continental United States and developing such properties into commercial gold mining operations. As of the date of this Report, the Company has not had any significant revenue derived from its operations. The Company's capital requirements have been and will continue to be significant. The Company has been dependent primarily on the private placements of its securities. FINANCIAL PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS As of January 31, 1997, the Company had $876,573 in cash and $248,344 in working capital. Based upon current plans and assumptions relating to operations, the Company will require approximately an additional $2 million to complete permitting and to begin operations and gold production at the Relief Canyon Mine. Further, the Company will need approximately $500,000 to begin production at the Mission Mine and approximately $500,000 for exploration at the Bruner Property. The Company is currently pursuing several potential funding opportunities including the sale of a 1.5% NSR relating to the Relief Canyon Mine for approximately $500,000; however, the Company has no current commitments for additional funding. There can be no assurance that any of such opportunities will result in actual funding or that additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. If the Company is unable to obtain additional financing, it will be required to curtail its development plans and cease its operations. Any additional equity financing may involve substantial dilution to the Company's then-existing shareholders. The Company's independent accountants have included an explanatory paragraph in their report on the Company's financial statements for the thirteen months ended January 31, 1997, indicating substantial doubt about the Company's ability to continue as a going concern. At the Relief Canyon Mine, the Company intends to begin operations upon approval of its Plan of Operations and issuance of a zero discharge permit and an 28 environmental assessment by the Nevada Department of Environmental Protection and final approval by the BLM. The Company anticipates issuance of the permits during the beginning of the third quarter of 1997. In addition, the Company must post an $800,000 reclamation bond and anticipates that its contribution to the bond will be $300,000 with the remaining $500,000 balance provided by the State of Nevada Bond Pool, of which there can be no certainty. The recovery facilities are complete with the exception of the development of an additional leach pad will need to be built at an approximate cost of $200,000 and approved by the State of Nevada and the BLM. Mining and loading the new pad with processed ore will be accomplished by third party contractors. The Company has allocated $1 million for contractor mobilization and operation for the initial 90 days with $500,000 held in reserve for possible contingencies. The Company has personnel in place to operate the leach system and recovery facility and does not expect to hire additional employees for the Relief Canyon Mine operations. The Company intends to have analyses completed by an independent engineering firm to establish proven and probable reserves for the Relief Canyon claims based upon the exploration data. At Mission Mine, the Company has allocated $500,000 for mobilization of contractors to begin operation at the Mission Mine. In addition, the Company intends to engage third party contractors to complete approximately $200,0000 in renovations to the production shaft of the existing mine, make approximately $50,000 in improvements to the road to the mine and develop a Plan Of Operation, with an anticipated cost of $150,000. The Company has also allocated $100,000 to possible contingencies. The Company anticipates mining will begin in the next twelve months using contractors and ore will be processed at existing off-site mills. Under terms of the letter of agreement for the Bruner property, the Company will complete 10,000 feet of exploration drilling in the next eighteen months. The Company also expects to spend approximately $400,000 for exploration by drilling contractors and $80,000 for maintenance costs of the property. RESULTS OF OPERATIONS Thirteen Months Ended January 31, 1997 as Compared to Year Ended December 31, 1995 For the thirteen months ended January 31, 1997, operating expenses, which consist of general and administrative expenses and exploration costs, were approximately $1,788,000 as compared to $193,000 for the year ended December 31, 1995. The increase was due to the payment of officer salaries, increased prepayment royalties, professional fees associated with the Merger and the Plan and increased general and administrative expenses. 29 Exploration and evaluation expenses increased to approximately $284,000 for the thirteen months ended January 31, 1997, from $21,000 for the year ended December 31, 1995, due to increased drilling and geological survey activity and pre-payment royalties. Exploration costs for the thirteen months ended January 31, 1997, were $113,319 for Mission Mine, $97,748 for the Bruner property and $72,809 for exploration relating to other properties. Aggressive mine site exploration utilizing new geologic interpretations will be conducted at each of the Company's mines. Non-mine site efforts will focus on reconnaissance efforts to locate potential mine and property acquisition candidates. The Company intends to enter into exploration joint ventures on certain of its properties during 1997. Actual exploration and evaluation expenditures will vary as a result of the acquisition of new properties, the success of exploration activities on existing properties and the success of financing efforts. Spending on advanced projects and acquisitions, which depends on opportunities and discoveries, cannot be projected. General and administrative expenses increased to approximately $1,505,000 for the thirteen months ended January 31, 1997, from $172,000 for the year ended December 31, 1995, principally due to increased officer compensation, professional fees relating to reorganization and increased geologist and engineering expenses. Geologist and engineering expenses were $235,269 for the thirteen months ended January 31, 1997 versus $57,290 for the year ended December 31, 1995. Officer salaries were $237,502 for the thirteen months ended January 31, 1997 versus zero for the year ended December 31, 1995. Legal and professional fees incurred during the thirteen months ended January 31, 1997 were $331,824 versus $4,343 for the year ended December 31, 1995. Legal and professional fees during the thirteen months ended January 31, 1997, included $272,030 related to the Plan of Reorganization and the Merger. A former property was reclaimed during the thirteen months ended January 31, 1997. Costs of reclamation were $30,152 and $69,470 for the periods ending January 31, 1997, and December 31, 1995, respectively. Financing, Liquidity and Capital Resources The Company has financed its operations principally though private placements of the Company's securities. Prior to the Merger, Newgold, Inc., a Nevada corporation, hereinafter "NGNV", was a privately held Nevada corporation. In April 1996, the Company entered a 50:50 joint venture with Casmyn Corporation ("Casmyn") to complete the development of Relief Canyon Mine. Pursuant to the terms of this agreement, Casmyn contributed $775,000 with a commitment to contribute an additional $623,000 at a later date and the Company 30 contributed its interest in the Relief Canyon Mine. Pursuant to a further agreement dated October 18, 1996, the Company and Casmyn agreed to terminate the joint venture. The agreement entered into between the parties called for the Company to pay Casmyn $900,000 plus one million shares of Common Stock in exchange for a return of all rights, title and interest in Relief Canyon Mine and the proceeds therefrom less any other royalties granted on the project. This transaction was completed on December 5, 1996. On June 18, 1996, NGNV amended its Articles of Incorporation to increase its authorized Common Stock to 50,000,000 shares of Common Stock and decreased the par value of its Common Stock from $.01 to $.001. In addition, the Company paid a Common Stock dividend of 67,683.58 shares of Common Stock for each share of Common Stock outstanding (the "Dividend"). After giving effect to the Dividend, NGNV had 10,568,358 shares of Common Stock outstanding. On June 29, 1995, the Company, then operating as Warehouse Auto Centers, Inc., a discount auto parts retail outlet, was involuntarily placed into Chapter 11 Bankruptcy by certain of its unsecured creditors pursuant to the U.S. Bankruptcy Code (the "Code"). Pursuant to a plan of reorganization (the "Plan") approved by the U.S. Bankruptcy Court for the Western District of New York, on November 21, 1996, the Company was merged with NGNV. Under the terms of the Plan, the Company: (i) effected a 1-for-65 reverse stock split of the Company's outstanding securities; (ii) acquired all of the shares of NGNV in exchange for 12,000,000 shares of the Company's Common Stock (post-reverse split); (iii) filed an amendment to its Articles of Incorporation changing its name to Newgold, Inc. and increasing the Company's authorized shares of Common Stock to 50,000,000 shares of Common Stock with a par value of $.001 per share; (iv) obtained a new cusip number, 651362-10-5, and trading symbol, "NGLD," from the NASD; (v) paid off its creditors in cash or with shares of Common Stock pursuant to Section 1145 of the Code; (vi) appointed a new Board of Directors and management; (vii) canceled all pre-petition options, warrants and other rights of commitments by the Company to issue any securities or pay any benefits to any person or business entity other than those approved in the Plan; and (viii) appointed Oxford Transfer & Registrar as the Company's transfer agent. Under the terms of the bankruptcy law the Company was allowed to raise capital by issuing Code Section 364 Certificates of Indebtedness (the "Debtor Certificates") which were, at the holder's option, convertible into (i) either a promissory note bearing 10% interest to be repaid in two years or (ii) shares of Common Stock at the rate of one share per $1.00 of debt. The Company successfully raised $4,706,970. As a result of the conversion of all of the Debtors Certificates for Common Stock, the Company issued an aggregate of 4,707,000 shares of Common Stock. In addition, the Company paid a $10,000 consulting fee and issued an additional 428,130 shares of Common Stock for commissions, and 305,709 shares of Common Stock were issued to shareholders and creditors of WAC as required under the Plan of Reorganization and Merger. From May 1994 through April 1995, the Company raised an aggregate of approximately $890,000 the sale of the rights to property and profits therefrom relating to several of the Company's mines (the "Net Profit Interest Agreements"). An aggregate of $440,000 of the Net Profit Interest Agreements were repurchased and paid in cash. In addition, an aggregate of $442,037 of Net Profit Interest Agreements were exchanged for 1,431,642 shares of Common Stock. As of the date of this Report, no Net Profit Interest Agreements are outstanding. But see "Item 3--Legal Proceedings" -- relating to Newgold v. Wirsing, et al. During January 1996, Repadre purchased, for $100,000, an option to acquire a 3% net smelter royalty relating to the Relief Canyon Mine with an exercise price of $400,000 . During September 1996, Repadre exercised its option to purchase the Repadre Royalty and the Company received $400,000 ("Repadre Royalty"). Under the terms of the Rapadre Royalty, Repadre received a 1.5% royalty on the net proceeds, after smelting, from the production at each of the Relief Canyon and Mission Mines, respectively. Repadre has the option to place its entire royalty amount (3%) on either Relief Canyon or Mission Mine upon notice to the Company. During September 1996, Repadre purchased 100,000 shares of Common Stock for an aggregate consideration of $100,000 in a private placement. On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000 option payment (the "Option Payment") and the contribution of the Washington Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay arranging a $350,000 debt financing for the Company, the Option was amended (the "Amendment") and exercised whereby the $50,000 Option Payment was converted into a promissory note granted to Mackay and Mackay would receive 3.8 million shares of Common Stock of the Company (56.14360233 shares pre-Dividend and approximately 35% of the outstanding shares of Common Stock on January 1, 1996) in exchange for the contribution of the Washington Gulch Mine by Mackay. Mackay was an officer and director of the Company; however, he was not an officer or director at the execution of the Option or the Amendment. The Washington Gulch property, at the time of transfer from Mackay in January 1996, was recorded at its net value of $181,000 and certain elements of the operation, such as the plant and equipment on site, are in the process of being sold, after which the property will be reclaimed and the Company will request the return of its $206,000 bond currently being held by the State of Montana. The equipment on site has not been given any value nor reported on the financial statements. 32 On November 26, 1996, the Company purchased two aircraft at a total cost of $562,000 to transport management and professional personnel to and from the Company's properties. Such equipment is usual and customary in the mining industry as project sites are in remote areas not serviced by commercial carriers and auto travel between project sites or from the Company's office to project sites is impracticable. ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-22. ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Prior to February 24, 1996, Burnett Umphress & Kilgour ("BUK") were the principal accountants for the Company. On such date, BUK's appointment as principal accountants was terminated and the Company engaged KPMG Peat Marwick LLP as the Company's principal accountants. The opinions of BUK on the balance sheet of NGNV as of December 31, 1995 and the Statements of Operations, Stockholders' Equity and Cash Flows for the year then ended did not contain any adverse opinions or disclaimers of opinions or modifications as to uncertainty, audit scope or accounting principles. There were no disagreements between the Company and BUK on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of BUK, would have caused it to make reference to the subject matter of the disagreements in connection with its report. 33 PART III ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Listed below are the names and ages, as of June 24, 1997, of each of the present directors and executive officers of the Company together with the principal positions and offices with the Company held by each. Executive officers are appointed annually by the Board of Directors to serve for the ensuing year or until their successors have been appointed. No officer is related to any other by blood, marriage or adoption. Name and Address Age Position(s) (1) A. Scott Dockter 40 President, Director and CEO Joseph Conway(2) 39 Director Jay C. Kellerman, Esq. 33 Director Michael J. Morrison, Esq. 51 Director Robert W. Morris 56 Chief Financial Officer/Treasurer (1) All Directors will hold their position until the next annual meeting of the Shareholders of the Company, or until their successors have been elected and qualified or until resignation, whichever occurs first. (2) On January 15, 1997 at a special meeting of the Board of Directors, Mr. Joseph Conway, President of Repadre Capital Corporation, a principal stockholder of the Company, was elected to the Company's Board of Directors. Background Information of Officers and Directors A. Scott Dockter has been Chairman of the Board, CEO and President of the Company since November 21, 1996. Mr. Dockter was the founder, Chairman of the Board, CEO and President of NGNV since 1993. Mr. Dockter is a founder, president and CEO of Riverfront Development Corporation. Riverfront, founded in 1994, currently is in the process of refurbishing a 152,000 square foot manufacturing facility on 71 acres near Sacramento, California. From June 1988 to June 1993, Mr. Dockter was the owner and founder of Earthco, a sole proprietorship which was a general engineering contractor 34 specializing in dams, levies and mining projects. In December 1992, Mr. Dockter, as the result of litigation, voluntarily filed a bankruptcy action pursuant to Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of California. The proceeding was dismissed and Mr. Dockter's obligations were not discharged by the court. Mr. Dockter devotes a minimal amount of time to Riverfront Corporation. Robert W. Morris has been Chief Financial Officer and Treasurer of the Company since February 1997. From November 1996 to February 1997 he was the Vice President of Finance. Mr. Morris was the Chief Financial Officer of NGNV from July 1995 to November 1996. From July 1995 to the present, Mr. Morris has been CFO of Riverfront Development Corporation. From December 1993 to December 1995, Mr. Morris was the CFO of Tolson Construction Co. From July 1990 to November 1993, Mr. Morris was CFO of Elk Grove Ready Mix. Mr. Morris has been a Certified Public Accountant for 30 years with 13 years in public accounting, which included 6 years with Arthur Andersen & Co. and 17 years as a treasurer and controller for private corporations. Mr. Morris devotes his full time to the business of the Company. Jay C. Kellerman, Esq., has been a director of the Company since February 1997. Since April 1997, Mr. Kellerman has been a partner of Stikeman, Elliott, a law firm based in Toronto, Canada. From June 1986 until April 1997, Mr. Kellerman was an associate and partner for the law firm of Smith, Lyons. Mr. Kellerman is also a director of Northfield Minerals, Ltd. Joseph Conway has been a director of the Company since January 1997 and has been the President and Chief Executive Officer of Repadre Capital Corporation, a public corporation, since September 1995. Repadre is engaged in the business of creating and acquiring royalty interests in mineral resource properties throughout the world. Repadre currently holds royalties on mineral properties in Canada, the United States, Mexico, Nicaragua, Bolivia, Colombia, Indonesia, Argentina, Peru and South Africa. From March 1989 until July 1995, Mr. Conway was a Vice President and director of Nesbett Burns, Inc., a Canadian brokerage firm. Mr. Conway is also a director of Reserve Royalty Corporation, Rex Diamond Mining Corporation and Triton Mining Corporation. Michael J. Morrison, Esq. has been a director of the Company since November 1996 and has been a practicing attorney in Reno, Nevada for 20 years specializing in the areas of corporate, business and securities law. He is also admitted to practice in the State of California and the District of Columbia. Board of Directors Directors of the Company are elected to serve until the next annual meeting of the stockholders or until their earlier resignation or removal. 35 Director Compensation Each non-employee director is reimbursed for all out-of-pocket expenses incurred by the director in attending Board meetings and performing other duties on behalf of the Company. Directors do not receive compensation. Committees of the Board There are currently no committees of the Board of Directors. However, the Board intends to establish a Compensation Committee, Audit Committee and Nominating Committee during the next quarter. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the Securities and Exchange Commission, by a specified date, reports regarding their ownership of Common Stock. Arthur Scott Dockter, Edward Mackay, Michael J. Morrison and Robert W. Morris each failed to file a Form 3 and a Form 5 to report the failure to file a Form 3. In addition, Mr. Dockter failed to report the disposition of 15,000 shares of Common Stock. ITEM 10: EXECUTIVE COMPENSATION The following table sets forth the compensation paid by the Company for services performed on the Company's behalf during each of the last three completed fiscal years with respect to the Company's Chief Executive Officer and each of the Company's other executive officers whose annual compensation during the last fiscal year exceeded $100,000 (the "Named Executive Officer"):
Summary Compensation Table Other Annual All Other Period Compen- Options Compen- Name and Principal Position Ended Salary($) Bonus($) sation($) (In Shares) sation($) - --------------------------- ----- --------- -------- --------- ----------- --------- Arthur Scott Dockter 01/31/97 45,000 229,651 -- -- -- Chief Executive Officer, 12/31/95 -- -- -- -- -- President 12/31/94 -- -- -- -- --
36 Options None of the officers or directors were granted any stock options, SAR's or other similar rights. Employment Contracts None of the officers or directors have employment contracts; however, the Company is currently in negotiations with Mr. Dockter and Mr. Morris relating to employment contracts. 37 ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth certain information as of June 23, 1997 (the "Reference Date") with respect to the beneficial ownership of (i) each person who beneficially owns more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) the named executive officer and (iv) all officers and directors as a group. Except as otherwise indicated below, the address for each such person is: c/o Newgold, Inc., 5190 Neil Road, Reno, Nevada 89509. Number of Shares of Percent of Common Name of Beneficial Owner Common Stock Stock Outstanding (1) - ------------------------ ------------ --------------------- Arthur Scott Dockter 6,686,358 35.6% Robert W. Morris 5,000 * Michael J. Morrison, Esq. 12,500 * Joseph Conway -- -- Jay C. Kellerman, Esq. -- -- Edward Mackay 2,644,293 14.1% 1010 Racquet Club Drive, Suite 103 Auburn, CA 95603 Casmyn Corporation 1,000,000 5.3% 1335 Greg Street Unit 104 Sparks, NV 89431 All Officers and Directors as a Group (4 persons) 6,703,858 35.7% * Less than 1% (1) Percentage figures based on 18,761,839 shares of Common Stock outstanding on the Reference Date. 38 ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On June 30, 1995, the Company purchased machinery and equipment from Riverfront Development Corporation, of which Mr. Dockter is president and a majority shareholder and Mr. Morris is a director, for the purchase price of $250,000. As of the date of this Report, the Company owes Riverfront Development Corporation approximately $117,627 relating to the purchase. On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000 option payment (the "Option Payment") and the contribution of the Washington Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay arranging a $350,000 debt financing for the Company, the Option was amended (the "Amendment") and exercised whereby the $50,000 option payment was converted into a promissory note granted to Mackay and Mackay received 3.8 million shares of Common Stock of the Company (56.14360233 shares pre- Stock Dividend and approximately 35% of the outstanding shares of Common Stock on January 1, 1996) in exchange for the contribution of the Washington Gulch Mine by Mackay. Mackay was a director and officer of the Company; however, he was not a director or officer at the execution of the Option or the Amendment. The Washington Gulch Mine is currently inactive and the equipment is in the process of being sold and the ground reclaimed after which time the Company will request return of it's $206,000 bond currently being held by the State of Montana. As of January 31, 1997, the Company had made advances totalling $92,486 to A. Scott Dockter, President and Chief Executive Officer of the Company. The advances were draws against future salary, did not bear interest and were repaid in April 1997. On April 2, 1997, Mr. Dockter, loaned $100,000 to the Company at 8% per annum, due and payable on demand. As of the date of this Report, no payments have been made on this loan. On April 17, 1997, Mr. Dockter loaned $50,000 to the Company at 8% per annum, due and payable on demand. As of the date of this Report, no payments have been made on this loan. On April 30, 1997, Mr. Dockter loaned $20,000 to the Company at 8% per annum, due and payable on demand. As of the date of this Report, no payments have been made on this loan. On May 30, 1997, Mr. Dockter loaned $35,000 to the Company at 8% per annum, due and payable on demand. As of the date of this Report, no payments have been made on this loan. Repadre Capital Corporation ("Repadre") purchased a 3% NSR from the Company for 39 $500,000 in the fall of 1996 (the "Repadre NSR"). Under the terms of Repadre NSR, Repadre has a 3% NSR which may be allocated to either the Relief Canyon Mine or the Mission Mine at Repadre's option. Repadre currently has allocated 1.5% NSR on the Relief Canyon Mine and 1.5% NSR on the Mission Mine, (see "Mission Mine Project"). Repadre can, at any time, choose to place all of their royalty amount (3%) on either of the two aforementioned projects. Joseph Conway, a director of the Company, is also the President and Chief Executive Officer of Repadre. Mr. Conway was not a director of the Company at the time of the transaction. 39 ITEM 13: EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE A. Exhibits. The following exhibits are filed herewith: Exhibit No. Description of Exhibit 2.1 Plan of Reorganization.(1) 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Contract of Sale between the Registrant and J.D. Welsh & Associates.(1) 10.2 Agreement for Lease/Purchase and Sale of Property between the Registrant, Joie Jamison and T.K.M. Corporation dated September 2, 1996.(1) 10.3 Office Building Lease between the Registrant and Duffel Financial and Construction Company dated May 20, 1996.(1) 10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and Riverfront Development, Inc., between Edward Mackay and the Company (the "Option Agreement"). 10.5 First Amendment to Option to Purchase Newgold, Inc., between the Registrant and Edward Mackay dated as of January 1, 1996 (the "Option Amendment"). 10.6 Clarification Agreement (clarifying the Option and Option Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company dated effective as of June 18, 1996. 40 10.7 Letter of Intent between the Registrant and Mirimar Mining Corporation dated October 8, 1996. 10.8 Agreement and Plan of Merger by and between the Registrant and Newgold, Inc. dated August 1996. 10.9 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. 10.10 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. 10.11 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. 10.12 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. 27.1 Financial Data Schedule. - ------------------------------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1996 filed with the Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. B. Reports on Form 8-K None. 41 INDEX TO FINANCIAL STATEMENTS Report of KPMG Peat Marwick LLP.......................... F-2 Report of Burnett, Umphress and Kilgour................. F-3 Balance Sheet as of January 31, 1997..................... F-4 Statements of Operations for the year ended December 31, 1995 and the thirteen months ended January 31, 1997................................... F-5 Statements of Stockholders' Equity for the year ended December 31, 1995 and the thirteen months ended January 31, 1997............................ F-6 Statements of Cash Flows for the year ended December 31, 1995 and the thirteen months ended January 31, 1997................................... F-7 Notes to Financial Statements............................ F-8 42 NEWGOLD, INC. Financial Statements January 31, 1997 (With Independent Auditors' Reports Thereon) F-1 Independent Auditors' Report The Board of Directors Newgold, Inc.: We have audited the accompanying balance sheet of Newgold, Inc. as of January 31, 1997, and the related statements of operations, stockholders' equity, and cash flows for the thirteen month period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newgold, Inc. as of January 31, 1997, and the results of its operations and cash flows for the thirteen month period then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has been dependent primarily upon cash proceeds from private placement of its common stock. The Company anticipates that current working capital and anticipated revenues will not be sufficient to satisfy its future cash needs, and accordingly, the Company will need to raise additional capital in the near term. Currently, the Company has no commitments for additional funding. Management's plans in regard to these matters are also described in note 2. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. June 18, 1997 F-2 [BURNETT UMPHRESS & KILGOUR LETTERHEAD] To the Board of Directors NEWGOLD, INC. (A Nevada Corporation) Reno, Nevada INDEPENDENT AUDITORS' REPORT We have audited the statements of operations, stockholders' equity and cash flows of NEWGOLD, INC. (A Nevada Corporation) for the year ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of operations, stockholders' equity and cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of operations, stockholder's equity and cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements of operations, stockholders' equity and cash flows. We believe that our audit of the statements of operations, stockholders' equity and cash flows provides a reasonable basis for our opinion. In our opinion, the statements of operations, stockholders' equity and cash flows referred to above present fairly, in all material respects, the results of operations, stockholders' equity and cash flows of NEWGOLD, INC. (A NEVADA CORPORATION) for the year ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Burnett, Umphress & Kilgour Rancho Cordova, California April 8, 1997 F-3 NEWGOLD, INC. Balance Sheet January 31, 1997 Assets Current assets: Cash and cash equivalents $ 876,573 Refundable payroll taxes 154,357 ------------- Total current assets 1,030,930 Property, plant and equipment including undeveloped mineral properties of $3,210,287, net of $25,561 of accumulated depreciation (notes 3 and 10) 3,873,815 Advance to stockholder (note 9) 92,486 Reclamation bonds (note 12) 256,500 Other assets 12,885 ------------- Total assets $ 5,266,616 ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 169,322 Accrued expenses 145,637 Accrued reclamation costs (notes 8 and 12) 25,000 Due to affiliate (note 9) 117,627 Notes payable to individuals (note 4) 325,000 ------------- Total current liabilities 782,586 Deferred revenue (note 9) 500,000 ------------- Total liabilities 1,282,586 Commitments and contingencies (notes 5 and 8) Stockholders' equity (notes 7, 8, 9, 10 and 12): Common stock - Authorized 50,000,000 shares, par value $0.001; 18,761,839 outstanding 18,762 Additional paid-in capital 6,944,722 Accumulated deficit (2,979,454) ------------- Total stockholders' equity 3,984,030 Total liabilities and stockholders' equity $ 5,266,616 ============= See accompanying notes to financial statements. F-4 NEWGOLD, INC. Statements of Operations For the year ended December 31, 1995 and the thirteen months ended January 31, 1997 Thirteen Year Ended Months Ended December 31, January 31, 1995 1997 ------------ ------------ Sales: Net sales $ - - Cost of sales - - ------------ ------------ Gross margin - - Operating expenses: General and administrative expenses 172,125 1,504,539 Exploration costs 21,378 283,876 ------------ ------------ Total operating expenses 193,503 1,788,415 ------------ ------------ Loss from operations (193,503) (1,788,415) Other income (expense): Interest income - 35,807 Bad debt expense (40,374) - Other income - 16,800 Interest expense - (67,976) ------------ ------------ Total other expense (40,374) (15,369) Income tax provision - - ------------ ------------ Net loss $ (233,877) (1,803,784) ============ ============ Loss per share $ (0.03) (0.14) ====== ====== Weighted average number of shares outstanding 6,768,358 12,779,936 ============ ============ See accompanying notes to financial statements. F-5 NEWGOLD, INC. Statements of Stockholders' Equity For the year ended December 31, 1995 and for the thirteen months ended January 31, 1997
Common Common Additional Total Stock Stock Paid-In Accumulated Shareholders' Shares $ Capital Deficit Equity ---------- -------- ----------- ----------- ----------- Balances at December 31, 1994 6,768,358 $ 6,768 - (636,084) (629,316) Net loss for the year ended December 31, 1995 - - - (233,877) (233,877) ---------- -------- ----------- ----------- ----------- Balances at December 31, 1995 6,768,358 6,768 - (869,961) (863,193) Shares issued to purchase Washington Gulch (note 7) 3,800,000 3,800 177,200 - 181,000 Shares issued in exchange for net profit interests (note 7) 1,431,642 1,432 440,605 - 442,037 Shares issued to creditors and shareholders of Warehouse Auto, Center, Inc. (note 7) 305,709 306 305,403 (305,709) - Shares issued to investors and underwriters (note 7) 5,135,130 5,135 4,701,835 - 4,706,970 Shares issued to others (note 7) 221,000 221 220,779 - 221,000 Shares issued to Repadre (note 7) 100,000 100 99,900 - 100,000 Shares issued to repurchase 50% interest in Relief Canyon, Ltd. (note 7) 1,000,000 1,000 999,000 - 1,000,000 Net loss for the period from January 1, 1996 to January 31, 1997 - - - (1,803,784) (1,803,784) ---------- -------- ----------- ----------- ----------- Balances at January 31, 1997 18,761,839 $ 18,762 6,944,722 (2,979,454) 3,984,030 ========== ======== =========== =========== ===========
See accompanying notes to financial statements. F-6 NEWGOLD, INC. Statements of Cash Flows For the year ended December 31, 1995, the thirteen months ended January 31, 1997 Thirteen Year Ended Months Ended December 31, January 31, 1995 1997 ------------ ------------ Cash flows from operating activities: Net loss $ (233,877) (1,803,784) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,571 23,466 Bad debt 40,374 - Assigned value of common stock exchanged for services - 221,000 Changes in operating assets and liabilities: Refundable payroll taxes - (154,357) Prepaid expenses (150) 150 Other assets - (12,885) Accounts Payable (111,634) - Accrued expenses 85,456 55,526 Accrued reclamation costs 69,470 (69,470) ------------ ------------ Total adjustments to net loss 85,087 63,430 ------------ ------------ Net cash used in operating activities (148,790) (1,740,354) ------------ ------------ Cash flows from investing activities: Repayment of advances to stockholder (18,203) (66,847) Contribution from joint venture partner - 775,000 Purchase of joint venture partner interest - (900,000) Capital expenditures (308,662) (1,684,892) ------------ ------------ Net cash used in investing activities (326,865) (1,876,739) ------------ ------------ Cash flows from financing activities: Repayment of advances from affiliate (15,923) (190,308) Deferred revenue - 500,000 Proceeds from issuance of notes payabl 815,537 115,996 Payments on notes payable (329,735) (739,903) Proceeds from sale of common stock - 4,806,970 ------------ ------------ Net cash provided by financing activities 469,879 4,492,755 ------------ ------------ Net (decrease) increase in cash (5,776) 875,662 ------------ ------------ Cash and cash equivalents, beginning of period 6,687 911 ------------ ------------ Cash and cash equivalents, end of period $ 911 876,573 ============ ============ Supplemental Schedule of Cash Flow Information: Cash paid for interest $ - 37,246 ============ ============ Cash paid for income taxes $ - - ============ ============ See accompanying notes to financial statements. F-7 NEWGOLD, INC. Notes to Financial Statements January 31, 1997 (1) The Company (a) Nature of operations The Company is in the business of acquiring, exploring, developing and producing gold properties. The Company has the rights to mine properties in Nevada, California and Montana. Its primary focus is on the Relief Canyon Mine located near Lovelock, Nevada, where it has performed development and exploratory drilling and is currently in the process of obtaining permits to allow operation of the Relief Canyon Mine. In the period ended January 31, 1997, the Company also entered into a lease with an option to buy the Mission Mine located near Twenty-Nine Palms, California. Mission Mine is an abandoned underground mine complex. (b) Merger In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed an involuntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York. Pursuant to the plan of reorganization and merger (the Plan), (i) WAC which was the surviving corporation for legal purposes, changed its name to Newgold, Inc. (the Company), (ii) the outstanding shares of Old Newgold were converted into the right to receive an aggregate of 12,000,000 shares or approximately 69% of the post merger outstanding common stock of the Company, (iii) each outstanding share of WAC was converted into the right to receive 1/65 share of the common stock of the Company, for an aggregate of 51,034 shares or less than 1% of the post merger outstanding common stock, (iv) unsecured trade debts and other unsecured pre-petition liabilities were paid in full via the issuance of one share of the Company's stock for each $42 of debt, for an aggregate of 63,374 shares or less than 1% of the post merger outstanding common stock, and (v) post petition creditors received 1 share of stock for each $1 of debt, for an aggregate of 191,301 shares or approximately 1% of the post merger outstanding common stock. The Plan also required an amendment to the Company's capital structure to increase the number of shares authorized to 50,000,000 and to reduce the corresponding par value to $.001. F-8 (Continued) NEWGOLD, INC. Notes to Financial Statements In connection with the Plan, the Company raised $4,707,000 of cash through the issuance of convertible debtor certificates. Shortly after confirmation of the Plan, the debtor certificates were exchanged for 5,135,130 shares of common stock (including 428,130 shares issued in lieu of paying cash for underwriter's fees) of the Company representing approximately 29% of the post merger outstanding common stock. For accounting purposes, Old Newgold has been treated as the acquirer (reverse acquisition). Accordingly, the historical financial statements prior to November 21, 1996 are those of Old Newgold. There were no assets or liabilities acquired in this transaction and there is no impact on the statement of operations. In connection with the merger with WAC, the Company changed its fiscal year end from December 31 to January 31. As such, the financial statements for the period ended January 31, 1997, include thirteen months of activity. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Currently, the Company's development and operation plans indicate that it will be unable to continue unless it receives additional funding. Management is currently exploring various means of raising additional capital. Strategic alternatives being considered include: (i) selling an additional $5,000,000 of common stock as a means of interim financing; (ii) entering into a joint venture to develop the Relief Canyon mine, (iii) the sale of Company assets, (iv) a business combination, (v) conversion of certain debt to equity, and (vi) mortgaging certain Company assets. There can be no assurance that the Company will be successful in its attempt to consummate one or more of these strategic alternatives. Failure to do so will necessitate that the Company curtail its development plans and cease its operations. Currency - The Company presents its financial statement information in United States dollars as all of its assets and operations are located in the United States. (b) Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. F-9 (Continued) NEWGOLD, INC. Notes to Financial Statements (c) Property, Plant and Equipment General - Property, plant and equipment are stated at cost plus the assigned value of common stock issued in purchase transactions and include mine development costs, financing costs and costs of renewals and betterments of machinery and equipment. When assets are sold or abandoned, the recorded costs and related accumulated depreciation are removed from the accounts and any gains or losses are included in earnings. Repairs and maintenance are charged to expense as incurred. Mineral exploration - Exploration costs are charged to operations in the period in which they are incurred. When a property is determined to have economically feasible development potential, development expenditures and further development drilling costs are capitalized. Mine development - Mine development costs consist of all costs associated with bringing mines into production, to develop new ore bodies and to develop mine areas substantially in advance of current production. The decision to develop a mine is based on assessment of the commercial viability of the property and the availability of financing. Once the decision to proceed to development is made, development and other expenditures relating to the project will be deferred and carried at cost with the intention that these will be depleted by charges against earnings from future mining operations. No depreciation will be charged against the property until commercial production commences. After a mine has been brought into commercial production, any additional work on that property will be expensed as incurred, except for major drilling and development programs not adjacent to current mining operations, which will be deferred and depleted. Financing costs - Financing costs, including interest, are capitalized when they arise from indebtedness incurred to finance development and construction activities on properties that are not yet subject to depreciation or depletion. Financing costs are charged against earnings from the time that mining operations commence. Capitalization is based upon the actual interest on debt specifically incurred or on the average borrowing rate for all other debt except where shares are issued to fund the cost of the project. As of January 31, 1997, an aggregate of $34,403 of interest has been capitalized. Depreciation, depletion and amortization - Assets other than mining properties and mineral rights are depreciated using the straight-line method over their estimated useful lives which range from three to seven years. Gold production facilities, equipment and leasehold improvements are depreciated over their estimated useful lives. Capitalized development costs are amortized on the units of production method considering proven F-10 (Continued) NEWGOLD, INC. Notes to Financial Statements and probable reserves. Aircraft are depreciated ratably over their estimated total useful hours. Depreciation and depletion rates are subject to periodic review to ensure that asset costs are amortized over their useful lives. Impairment - Mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the mining project or property and its eventual disposition are less than the carrying amount, an impairment is recognized based on the estimated fair value of the mining project or property. Fair value generally is based on the present value of estimated future net cash flows for each mining project or property, calculated using estimates of proven and probable mineable reserves, geologic resources, future prices, operating costs, capital requirements and reclamation costs. (d) Reclamation of Mining Areas Reclamation costs, including the removal of production facilities at the end of their useful lives, are estimated and accrued on an undiscounted basis over the productive lives of properties. Remediation costs are expensed when the liability is probable and estimable. Based on current environmental regulations and known reclamation requirements, management has included its best estimate of these obligations in its reclamation accruals. However, it is reasonably possible that the Company's estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates. The Company performs concurrent reclamation to the extent possible. However, most of the accrued costs are anticipated to be expended at the end of the mine life. (e) Revenue Recognition Revenues will be recognized when deliveries of gold are made. Deferred revenue represents cash received in exchange for royalties on net smelter returns on the Relief Canyon Mine. Deferred revenue will be amortized to earnings based on estimated production in accordance with the royalty agreement (note 9). (f) Income Taxes The Company accounts for income taxes using the liability method which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference F-11 (Continued) NEWGOLD, INC. Notes to Financial Statements between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances against deferred tax assets are recorded to the extent management estimates that the future benefit will not be realized. (g) Loss Per Share Loss per share is calculated based on the weighted average number of common shares outstanding during each period. (h) Estimates, Risks and Uncertainties The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Gold mining requires the use of specialized facilities and technology. The Company will rely heavily on such facilities to maintain production levels. Also, the market price of gold significantly affects the profitability of the Company's operations. Market gold prices can fluctuate widely and are affected by numerous factors beyond the Company's control. Although the Company intends to limit its sales to a small number of customers, the Company does not expect to be economically dependent on a limited number of customers for the sale of its product because gold commodity markets are well established worldwide. (i) Recent Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per Share, which is effective for periods beginning after December 15, 1997. SFAS No. 128 has simplified the existing computational guidelines as well as revised the existing disclosure requirements. The Company will adopt the provisions of SFAS No. 128 for the year ended January 31, 1998. The Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, on January 1, 1996, which permits entities to recognize as expense over the vesting period the fair value of all employee stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions of APB F-12 (Continued) NEWGOLD, INC. Notes to Financial Statements 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value based method defined in SFAS No. 123 had been applied. The Company plans to apply the provisions of APB 25. (3) Property, Plant and Equipment A summary of changes in property, plant and equipment and related accumulated depreciation accounts is as follows:
Machinery Develop- & ment Capitalized Buildings Equipment Costs Interest Total ----------- ----------- ----------- ----------- ----------- Cost: Balances at December 31, 1995 $ 215,510 328,705 614,410 20,314 1,178,939 Additions - 684,816 2,071,532 14,089 2,770,437 Disposals, retirements and reclassifications (note 12) - - (50,000) - (50,000) ----------- ----------- ----------- ----------- ----------- Balances at January 31, 1997 215,510 1,013,521 2,635,942 34,403 3,899,376 ----------- ----------- ----------- ----------- ----------- Accumulated depreciation: Balances at December 31, 1995 - 2,095 - - 2,095 Depreciation and amortization - 23,466 - - 23,466 Disposals, retirements and reclassifications - - - - - ----------- ----------- ----------- ----------- ----------- Balances at January 31, 1997 - 25,561 - - 25,561 ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net, January 31, 1997: Relief Canyon 215,510 324,432 2,635,942 34,403 3,210,287 Aircraft - 552,314 - - 552,314 Other - 111,214 - - 111,214 ----------- ----------- ----------- ----------- ----------- Total Company $ 215,510 987,960 2,635,942 34,403 3,873,815 =========== =========== =========== =========== ===========
F-13 (Continued) (4) Debt (a) Notes Payable to Individuals Unsecured notes payable to individuals consist of the following at January 31, 1997: Loan was extended by individuals in June 1996 in the original amount of $215,000. The note bears interest at 8% per year. Full repayment was due September 30, 1996. The Company is in default with respect to this loan. $105,000 Loan from individual. The note bears interest at 10% per year. The note is currently due. The Company is in default with respect to this loan. 200,000 Other 20,000 -------- Total notes payable to individuals $325,000 ======== (b) Interest Paid The Company recorded $67,976 of interest expense in the current period. Interest of $14,089 and $20,314 was capitalized during the period ended January 31, 1997 and December 31, 1995, respectively. (5) Leases Except for the advance royalty and rent payments noted below, the Company is not obligated under any capital leases or noncancelable operating lease with initial or remaining lease terms in excess of one year as of January 31, 1997. However, annual royalty payments are required to retain the lease rights to the Company's properties. (a) Relief Canyon The Company purchased the Relief Canyon Mine from J.D. Welsh Associates (Welsh) in January 1995. The Company currently holds 441 unpatented mining claims and a lease for access to an additional 800 acres. As part of the original purchase of Relief Canyon, Welsh assigned a lease from Santa Fe Gold Corporation (Santa Fe) to Newgold. The lease, which expires in 2004, covers only 800 acres of the total 8,800 acres of the Relief Canyon Mine. As of January 31, 1997, Santa Fe had not consented to the assignment of the lease from Welsh to Newgold. While, consent has not yet been granted, Santa Fe continues to accept Newgold's annual advance royalty and rent payments. Management of the Company does not believe that the 800 acres under the disputed lease is critical to the Relief Canyon project. Management believes that failure F-14 (Continued) to perfect the lease agreement will not have a material adverse effect on the Company's financial position, results of operations or development of the mine. The terms of the Santa Fe lease require a 2.5% net smelter return (NSR) royalty to be paid to Santa Fe on all minerals taken from the Santa Fe property and 39 claims originally purchased from Welsh. In addition, advance royalty and rental payments totaling $26,400 per year are required. The advance royalty and rent payments increase by 5% annually (or more if inflation exceeds 5% per annum). These payments are noncancelable and continue for the term of the lease (2004). (b) Mission Mine Property The Company has entered into a seven-year lease purchase of the Mission Mine property for an aggregate purchase price, of $3,500,000. The Mission Mine is an inactive underground mining operation in California which includes 22 unpatented mining claims on approximately 440 acres. Under the terms of this lease, the Company has agreed to pay the greater of a minimum royalty payment or a 2.5% NSR royalty. The Company is currently paying the minimum royalty payment. The minimum royalty payment is currently $10,000 per month and increases each year by $10,000 per month up to a maximum of $70,000 per month commencing March 1, 2003, until the purchase price is paid. All royalty payments will be applied to the purchase price. The Company is obligated to pay all taxes applicable to the property. The Company has the right to terminate the agreement should it become economically unsound to continue with mining operations at no cost to the Company. Beginning May 5, 1997: the minimum yearly lease payments are as follows: 1997 $ 418,000 1998 230,000 1999 350,000 2000 470,000 2001 590,000 2002 710,000 2003 696,000 ------------- $ 3,464,000 F-15 (Continued) (6) Income Taxes As of January 31, 1997, the Company had net operating loss carryforwards of approximately $1,500,000 available to reduce future Federal taxable income which, if not used, will expire at various dates through January 31, 2012. Due to changes in the ownership of the Company, the utilization of these loss carryforwards may be subject to substantial annual limitations. Deferred tax assets (liabilities) are comprised of the following at January 31, 1997: Deferred tax assets: Net operating loss carryforward $ 510,000 Deferred revenue 170,000 Valuation allowance for deferred tax assets (340,000) ---------- Net deferred tax assets 340,000 Deferred tax liabilities: Net book value of property, plant and equipment (340,000) ---------- Net deferred tax assets $ - ========== The net change in the total valuation allowance for the thirteen months ended January 31, 1997 was $340,000. The expected Federal income tax benefit, computed based on the Company's pre-tax losses in 1997 and the statutory Federal income tax rate, is reconciled to the actual tax benefit reflected in the accompanying financial statements as follows: Expected tax benefit at statutory rates $ 613,000 Decrease resulting from valuation allowance for benefits from net operating loss carryforwards and other (613,000) ---------- Total $ - ========== Previous to June 21, 1996, the stockholder of the Company elected under Internal Revenue Code Section 1362 to have the Company taxed as an S corporation. As such, all Federal and substantially all State income tax attributes passed through the Company directly to the stockholder until that date. F-16 (Continued) (7) Stockholders' Equity As discussed in note 1, Newgold, Inc. and Warehouse Auto Centers, Inc. merged to form the Company in November, 1996. Additionally, the following common stock transactions occurred during the thirteen month period ended January 31, 1997: Approximately 56 shares were issued in January 1996 for the purchase of rights to the Washington Gulch property. The site was acquired from Edward Mackay, a former officer of the Company. The property consists of a mill site located in Montana. The value of the common stock issued on the property was recorded at the cash value of the net monetary assets received which amounted to $181,000. Stock split - On June 19, 1996, the Company effected a 67,864 to 1 stock split which increased the total shares outstanding from approximately 156 to 10,568,358. The financial statements have been retroactively adjusted to reflect the stock split. Exchange of Net Profits Interests - In June, 1996 (prior to the merger discussed in note 1), the Company exchanged several "net profits interests" for shares of common stock of the Company. A net profit interest is a royalty based on the profit remaining after recapture of certain operating, capital and other costs as defined by agreement. Net profits interests sold for aggregate consideration in 1994 and 1995 of $442,037 were repurchased for 1,431,642 shares of common stock. Repurchase of Relief Canyon - As more fully discussed in note 10, the Company issued 1,000,000 shares, valued at $1 per share, to Casmyn Corp. as partial consideration for the repurchase of their 50% interest in Relief Canyon Mine. Sale of Common Stock - In November 1996, the Company sold 100,000 shares in exchange for $100,000 in cash to Repadre Capital Corporation (see note 9). Other - In November, 1996, an aggregate of 221,000 shares were issued to others in exchange for general and administrative services rendered valued at $221,000. (8) Commitments, Contingencies and Uncertainties The Company has not commenced mining at Relief Canyon pending receipt of an independent evaluation of reserves and obtaining appropriate operating permits. Accordingly, the Company's ability to recover its investment in Relief Canyon is dependent upon obtaining such operating permits and the viability of future operations, both of which are not presently determinable. The financial statements do not include F-17 (Continued) any adjustments relating to the recoverability of the Company's investment that might result from the outcome of these uncertainties. Environmental obligations - The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company strives to conduct its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Company is in the process of obtaining various permits in order to recommence mining activities at Relief Canyon Mine. The Company expects to obtain all necessary permits to commence mining at Relief Canyon Mine during the third quarter of calendar 1997. However, these permitting matters are not entirely within the control of the Company and no assurance can be given that such permits will be issued in a timely manner. Reclamation costs - The ultimate amount of reclamation obligations to be incurred is uncertain. However, as of January 31, 1997, the Company has accrued $0 for Relief Canyon and $25,000 for its Washington Gulch site. The Washington Gulch site is currently bonded for $206,000. There can be no assurances given that the above estimates accurately reflect the actual costs of all reclamation activities that may be required. Legal - The Company is facing threatened litigation with respect to a dispute with two individuals. The individuals claim that they have a 10% net profit interest in the Relief Canyon Mine. The Company maintains that the individuals gave up their rights upon the execution of an exchange of net profits interest for common stock signed by one of the individuals in June, 1996. In April, 1997, one of the individuals filed a lien on the Relief Canyon project in the amount of $100,000,000 as a means of asserting their alleged rights. The Company believes that there are meritorious defenses to this claim if it should be formally asserted through litigation. Management is of the opinion, that the worst outcome if an actual case were filed would be the recision of the exchange agreement and a return of the investors' original aggregate investment of $85,000. The ultimate outcome of this matter is not presently determinable. No adjustments have been made in the financial statements for this contingency. The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate dispositions of F-18 (Continued) these matters will not have a material adverse effect on the Company's financial position, results or operations or liquidity. As of January 31, 1997, Management has accrued $30,000 in recognition of claims asserted against the Company. (9) Related Party Transactions Advance to shareholder - As of January 31, 1997 the Company had made unsecured, non-interest bearing demand advances totaling $92,486 to A. Scott Dockter, President and Chairman of the Company. The advances were repaid in April 1997. Other advances and repayments - During the current period, the Company borrowed and repaid a total of $16,000 from officers of the Company other than Mr. Dockter. Advances from shareholders - A. Scott Dockter loaned the Company an aggregate of $205,000 subsequent to year end. The advances are due on demand, unsecured and bear interest at 8%. Due to affiliate - As of January 31, 1997, the Company owed $117,627 to Riverfront Development, Inc. for equipment purchases. Riverfront Development, Inc. is a related entity owned by A. Scott Dockter. Purchase from related party - The Company purchased the Washington Gulch mill site from Edward Mackay, a former officer of the Company, in exchange for approximately 35% of the Company. During the thirteen months ended January 31, 1997, the Company also repaid $150,000 of loans from Mr. Mackay. The loans were unsecured, due on demand and non-interest bearing. Relief Canyon - During January 1996, Repadre Capital Corporation ("Repadre") purchased, for $100,000, an option to acquire a 3% net smelter royalty relating ("Repadre Royalty") to the Relief Canyon Mine with an exercise price of $400,000. During September 1996, Repadre exercised its option to purchase the Repadre Royalty and the Company received $400,000. Under the terms of the Repadre Royalty, Repadre received a 1.5% royalty on the net proceeds, after smelting, from the production at each of the Relief Canyon and Mission Mines, respectively. Repadre has the option to place its entire royalty amount (3%) on either Relief Canyon or Mission Mine upon notice to the Company. The total price of $500,000 has been recorded as deferred revenue in the accompanying financial statements. F-19 (Continued) (10) Investment by Casmyn Corp. In April, 1996, the Company entered into a 50:50 joint venture with Casmyn Corp. (Casmyn), a public company based in Sparks, Nevada, for the development of the Relief Canyon project located in Pershing County, Nevada. Casmyn committed to contribute $1,398,000 for their 50% interest in the Venture. Newgold contributed their entire interest in Relief Canyon to the Venture. As of September 30, 1996, Casmyn had contributed approximately $775,000 towards its 50% interest in the venture and their remaining $623,000 commitment was recorded as a receivable to the joint venture. On October 18, 1996, the Company repurchased Casmyn's 50% interest for $900,000 cash, 1,000,000 restricted shares of common stock, valued at $1 per share, and they released Casmyn from its remaining $623,000 obligation. The Company capitalized the resulting $1,125,000 to property, plant and equipment. (11) Supplemental Cash Flow Information The effects of the following non cash transactions have been excluded from the statement of cash flows for the period ended January 31, 1997: Reduction in debt -The prior owner (Welsh) of Relief Canyon was unable to successfully transfer the lease on the Santa Fe property to Newgold which was required under the original purchase agreement. Because of this, Welsh and the Company mutually agreed to reduce the original purchase price of Relief Canyon by $50,000 from $500,000 to $450,000. As a result, the Company's debt outstanding to Welsh and its investment in Relief Canyon were reduced by $50,000 during the current period. F-20 (Continued) (12) Cumulative Financial Information (Unaudited) The following tables contain summary unaudited cumulative results of operations and cash flows: Cumulative since inception (unaudited) --------------------- Results of operations: Revenues $ - Operating expenses 2,587,504 ----------- Loss from operations (2,587,504) Net other expense (80,473) Income tax provision - ----------- Net loss since inception (2,667,977) =========== Statement of cash flows: Net loss since inception (2,667,977) Add back noncash expenses 286,935 Net changes in operating assets and liabilities (21,905) ----------- Net cash used in operating activities (2,402,947) Cash flows from investing activities: Advances to stockholders (131,860) Contribution from joint venture partner 775,000 Purchase of joint venture partner interest (900,000) Capital expenditures (2,005,254) ----------- Net cash used in investing activities (2,262,114) Cash flows from financing activities: Repayment of advances from affiliate (132,373) Proceeds from issuance of notes payable 1,237,138 Sale of net smelter return 500,000 Sale of net profit interests 442,037 Payment on notes payable (1,312,138) Proceeds from sales of common stock 4,806,970 ----------- Net cash provided by financing activities 5,541,634 ----------- Net increase in cash 876,573 Cash and cash equivalents, beginning of period - ----------- Cash and cash equivalents, end of period 876,573 =========== F-21 (Continued) SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 24, 1997. NEWGOLD, INC. By: /s/Arthur Scott Dockter ------------------------ Arthur Scott Dockter, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert W. Morris Chief Financial Officer, June 24, 1997 - -------------------------- Robert W. Morris Treasurer (Principal Financial Officer) /s/ Arthur Scott Dockter President, Chief Executive June 24, 1997 - -------------------------- Arthur Scott Dockter Officer, Director (Principal Executive Officer) /s/ Joseph Conway Director June 24, 1997 - -------------------------- Joseph Conway /s/ Jay C. Kellerman Director June 24, 1997 - -------------------------- Jay C. Kellerman INDEX TO EXHIBITS Exhibit No. Description of Exhibit - ------- ---------------------- 2.1 Plan of Reorganization.(1) 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Contract of Sale between the Registrant and J.D. Welsh & Associates.(1) 10.2 Agreement for Lease/Purchase and Sale of Property between the Registrant, Joie Jamison and T.K.M. Corporation dated September 2, 1996.(1) 10.3 Office Building Lease between the Registrant and Duffel Financial and Construction Company dated May 20, 1996.(1) 10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and Riverfront Development, Inc., between Edward Mackay and the Company (the "Option Agreement"). 10.5 First Amendment to the Option to Purchase Newgold, Inc. between the Registrant and Edward Mackay dated as of January 1, 1996 (the "Option Amendment"). 10.6 Clarification Agreement (clarifying the Option and Option Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company dated effective as of June 18, 1996. 10.7 Letter of Intent between the Registrant and Mirimar Mining Corporation dated October 8, 1996. 10.8 Agreement and Plan of Merger by and between the Registrant and Newgold, Inc. dated August 1996. 10.9 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. 10.10 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. 10.11 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. 10.12 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. 27.1 Financial Data Schedule. - ------------------------------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1996 filed with the Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. EX-10 2 EXHIBIT 10.4 OPTION TO PURCHASE FORTY (40%) PERCENT OF NEWGOLD, INC. AND RIVERFRONT DEVELOPMENT, INC. THIS "OPTION TO PURCHASE" is made and entered into as of this 31st day of August, in the year 1995, by and between Edward Mackay and Scott Dockter. UPON PAYMENT OF $50,000.00 to Scott Dockter, NEWGOLD, INC. and RIVERFRONT DEVELOPMENT, INC., et al., Scott dockter, President and sole stockholder shall grant to Edward Mackay an OPTION TO PURCHASE forty (40%) percent of the above described corporations. Said OPTION shall be for a period of one (1) year. PURCHASE PRICE SHALL BE: 100% of Washington gulch, Inc. to be transferred to Newgold, Inc. and the aforementioned $50,000.00 cash. ANY ADDITIONAL CAPITAL that Edward Mackay elects to provide to the above entities shall be secured by a Promissory Note and Deed of Trust on Riverfront buildings and its real estate, and a UCC Statement on the Lime now located at Riverfront. EDWARD MACKAY shall use his best efforts to help promote and develop the above entities, including, but not limited to obtaining permits and refinancing the Riverfront property. IT IS UNDERSTOOD that Scott dockter and Edward Mackay each shall own forth (40%) percent of the above mentioned corporations, and twenty (20%) percent shall be available to distribute to other investors, vendors, or individuals that Edward Mackay and Scott Dockter agree together to giver percentages to. IN WITNESS WHEREOF, the parties hereto have executed this OPTION AGREEMENT as of the dates below written and declare under penalty of perjury that they have examined the foregoing statements and to the best of their knowledge and belief it is true, correct and complete. /s/ Scott Dockter /s/ Edward Mackay ---------------------- --------------------- Name: Scott Dockter Name: Edward Mackay Dated: 8/31/95 Dated: 8/31/95 EX-10 3 EXHIBIT 10.5 FIRST AMENDMENT TO THE "OPTION TO PURCHASE" NEWGOLD, INC. THIS FIRST AMENDMENT TO THE OPTION TO PURCHASE AGREEMENT dated August 31, 1995, for NEWGOLD, INC. hereinafter referred to as "Newgold"; is made and entered into this 1st day of January, 1996, by and between Edward MacKay/Gold bug, a partnership, hereinafter referred to as "Mackay"; and Scott Docktor, hereinafter referred to as "Docktor". W I T N E S S E T H ------------------- WHEREAS, the original OPTION AGREEMENT shall continue in full force and effect in its entirety except as amended to include and to read as follows: "Mackay" shall exercise his option to purchase "Newgold". In consideration for Three Million, Eight Hundred Thousand (3,800,000) shares of "Newgold" stock, "MacKay" shall: - Arrange for financing up to Three Hundred Fifty Thousand Dollars ($350,000.00) for "Newgold". - Transfer all assets and permits of Washington Gulch to "Newgold", and - Provide consulting services for the operation and maintenance of "Newgold", "Newgold" shall obtain written approval from the State of Montana transferring permits from Washington gulch to "Newgold". "Newgold" shall assume all the liabilities of Washington Gulch Transfer of Assets shall be deemed transferred as of January 1, 1996, the date of this Agreement. All loans, including principal and interest, procured by "Mackay" shall be due and payable on or before december 31, 1996. Page 1 of 2 pages = AMENDMENT TO OPTION AGREEMENT/MACKAY-DOCKTOR Formal transfer of Washington gulch stock and "Newgold" stock shall occur as soon as reasonably possible. IN WITNESS WHEREOF, the authorized parties hereto have sworn to this AMENDMENT as of the dates below written and verifies that the statements made herein are true and correct. WITNESSED: EDWARD MACKAY/GOLD BUG, a partnership By: Name: Edward Mackay (Print or Type Name) Title: Partner Dated: January 15, 1995 WITNESSED: NEWGOLD, INC. By: Name: Scott Docktor (Print or Type Name) Title: President Dated: January 15, 1996 Page 2 of 2 pages = AMENDMENT TO OPTION AGREEMENT/MACKAY-DOCKTOR EX-10 4 EXHIBIT 10.6 CLARIFICATION AGREEMENT THIS CLARIFICATION AGREEMENT (the "Agreement") is entered into effective as of June 18, 1996, by and between Newgold, Inc., a Nevada corporation ("Newgold") and A. Scott Dockter ("Dockter"), an individual on the one hand and Edward Mackay ("Mackay"), an individual residing in the State of California, and Gold Bug, a California general partnership ("Gold Bug") on the other hand. RECITALS WHEREAS, as of August 1995, Dockter owned 100 shares of Newgold and was the sole shareholder; WHEREAS, during August 1995, Newgold was at risk of loosing its main asset, the Relief Canyon Mine, located in Lovelock, Nevada ("Relief Canyon Mine") unless it could receive an additional infusion of capital of approximately $50,000; WHEREAS, during August 1995, Mackay and Newgold entered into negotiations for the infusion of such needed capital and the acquisition of all rights and assets of the Washington Gulch Mine located in Montana ("Washington Gulch Mine"); WHEREAS, as of August 1995, the parties agreed that the value of the Washington Gulch Mine was approximately $385,000 and that the value of Newgold was approximately $500,000; WHEREAS, on August 31, 1995, Newgold granted Mackay a one-year option to purchase 40% of Newgold and 40% of Riverfront Development, Inc., a California corporation ("Riverfront"), for the aggregate consideration of a $50,000 down payment and all right, title, and interest to the Washington Gulch Mine, attached hereto as Exhibit "A" (the "Option"); WHEREAS, as of August 31, 1995, a 40% ownership of Newgold by Mackay would equate to 56.143602333 shares of Common Stock of Newgold. If such changes were issued, Newgold would have had approximately 156 shares outstanding; WHEREAS, from August 31, 1995 through December 31, 1995, Mackay did arrange for additional financing and provided a de minimous amount of consulting services to Newgold; WHEREAS, on January 1, 1996, Newgold, Mackay and Gold Bug agreed to amend the Option to reflect the changes that occurred between August 31, 1995 and January 1, 1996, to convert the $50,000 Option payment into a promissory note and to reflect Mackay's exercise of the Option to purchase 40% of Newgold; 1 WHEREAS, on January 1, 1996, Newgold, Mackay and Gold Bug amended the Option pursuant to the terms of the First Amendment to the Option to Purchase Newgold, Inc. (attached as Exhibit "B") (the "Amendment") as follows: a. The Option was exercised, with respect to approximately a 35% interest in Newgold only, in exchange for the contribution of all assets and rights in the Washington Gulch Mine; b. Mackay would arrange for debt financing of up to $350,000; c. Mackay would provide consulting services to Newgold; b. The $50,000 option payment would be converted to debt to be repaid to Mackay upon the closing of future financings; and d. Mackay would receive 3.8 million shares of Common Stock of Newgold (56.143602333 shares prior to the Stock Split referenced below); WHEREAS, the Amendment failed to reference the conversion of the $50,000 Option payment into debt owed to Mackay, and the parties hereto intend to clarify that this was part of the agreement relating to the Amendment; WHEREAS, the parties to the Amendment estimated that after a stock split and future capitalization of Newgold, Newgold would have approximately 10,560,000 shares of Common Stock issued and outstanding and that the issuance of 3,800,000 shares to Mackay would equal approximately 36% of the issued and outstanding shares of Newgold, the amended position of Mackay; WHEREAS, the parties recognize that Mackay performed a diminimous amount of services in accordance with the terms and conditions of the Option and the Amendment. WHEREAS, the Company effected a 67,683.58-for-1 stock split of its issued and outstanding Common Stock (the "Stock Split") as of June 15, 1996; WHEREAS, the parties recognize that the 56.143602333 shares of Common Stock held by Mackay upon exercise of the Option were uncertificated, but Newgold recognizes that they were outstanding as of the date of the Amendment; WHEREAS, after the Stock Split, Dockter owned approximately 6,768,358 shares of Common Stock of Newgold and Mackay owned approximately 3,800,000 shares of Common Stock of Newgold; and 2 WHEREAS, certain issues relating to the background, interpretation and satisfaction of the Option and the Amendment have occurred,and it is the purpose of this Agreement to clarify and resolve any and all such issues. NOW, THEREFORE, for valuable and adequate consideration, the receipt of which is hereby acknowledged, and in consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. Clarification. The parties agree that the above recitals fairly reflect the transactions of the parties, are hereby incorporated by reference and shall be made a part of this Agreement. 2. Standing of Parties. The parties hereby agree that, as of the date of this Agreement, the transfer of all assets and liabilities of the Washington Gulch Mine to Newgold has been completed, all shares of stock have been issued to Mackay and Gold Bug, and all terms and conditions of the Option and the Agreement have been performed in full. 3. Attorneys' Fees. Each party will bear his or its own costs including attorneys' fees in connection with this Agreement. If any party or parties commence any legal proceedings against any other party with respect to any of the terms and conditions of the Option, the Amendment or their Agreement, the non-prevailing party or parties will pay the prevailing party or parties all expenses of those proceedings, including reasonable attorneys' fees and any and all included costs thereto. 4. Binding Effect. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the respective parties. 5. Construction. This Agreement will not be construed against the party preparing it but will be construed as if prepared by all parties. 6. California Law. This Agreement shall be deemed to be made under, and shall be construed in accordance with, the laws of the State of California, without giving effect to principles of conflicts of law. 7. Counterparts. This Agreement may be executed in several counterparts with the same effect as if all parties signed one document. Each counterpart shall be treated as an original and all such counterparts will constitute one agreement. 8. Entire Agreement and Amendment. This Agreement, including the Exhibits hereto, constitutes the entire agreement by and among the parties hereto and supersedes any and all other 3 agreements, written or oral, between the parties. The parties expressly understand that this Agreement may not be altered, amended, modified or otherwise changed in any respect or particular whatsoever except by a writing duly executed by an authorized representative of each of the parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date set forth below. DATED: ___________, 1997 NEWGOLD, INC. By: A. Scott Dockter President A. SCOTT DOCKTER DATED: ___________, 1997 A. Scott Dockter, individually GOLD BUG DATED: ___________, 1997 Edward Mackay, partner EDWARD MACKAY DATED: ___________, 1997 Edward Mackay, individually 4 EX-10 5 EXHIBIT 10.7 [MIRAMAR LETTERHEAD] October 8, 1996 A. Scott Dockter New Gold, Inc. 5190 Neil Road, Suite 320 Reno, NV USA Via Facsimile 702-823-4010 Dear Sir: RE: Letter of Intent - Bruner Property, Nevada I am pleased to inform you that I believe that we can come to a final agreement with respect to the Bruner Property on the following basis: 1. Non-refundable deposit of US$10,000 on signing of this Letter of Intent; 2. 45 day due diligence process & preparation of option agreement subject to signing a confidentiality agreement; 3. Option Agreement to be signed by November 18, 1996 for a FOUR year term; 4. Newgold to have an option to purchase 100% of property at end of four years for: a) US$870,000; b) 100,000 shares of Newgold; c) Miramar to retain 2.5% NSR on all production over 200,000 oz; d) NSR to reduce to 1.5% if trading price of Newgold shares is equal to or greater than US$15 per share when issued to Miramar; e) NSR to terminate if Miramar buys back in as provided in paragraph 8; 5. US$80,000 payment on November 18, 1996 and each August 1 thereafter for as long as the option agreement is in good standing; 6. Miramar will use payments to make November 19th, 1996 US$31,250 payment to and to cover other property holding costs in August & December in subsequent years; 7. Newgold will conduct a minimum work program of 10,000 feet of drilling per year on the Burner property; 8. In the event of a proven & probable reserve of more than 1 million ounces of gold is defined: a) Miramar will have the right to purchase back up to a 25% working interest in a joint venture which will operate the Bruner project; b) The cost to Miramar for the buy-back will be twice 25% of Newgold's cost incurred during the development of the property; c) The joint venture will fund capital requirements and operations on a pro rata basis; d) A third party, acceptable to both Miramar and Newgold, will audit the reserve to confirm the 1 million ounce has been established, with the cost of the audit to be split 50/50 between Miramar and Newgold; e) The 1 million ounce reserve level will be defined on the basis of proven and probable reserves defined at any time prior to an irrevocable production decision being made by Newgold; 9. Miramar to be presented with results of quarterly and a comprehensive annual report detailing all results (factual and interpretive); 10. Newgold will return all information (factual and interpretive) if it withdraws from Bruner; 11. Newgold will assume environmental liabilities during the term of the option agreement, including any future requirements to provide a reclamation bond, and be responsible for reclamation of any disturbances it creates. Should you find these terms and conditions acceptable, please sign where indicated below and deliver the $10,000 deposit check to our Reno office. Please also execute a copy of the Confidentiality Agreement attached and also return to our Reno office. Please fax a copy of both documents to me in Vancouver as well. On receipt of these documents and the deposit, you will be able to begin your due diligence at the Reno Office. Please contact Ann Carpenter in Reno to make the necessary arrangements to view the data. For legal issues related to the option agreement, please deal with David Long, our in house counsel in Vancouver. We look forward to progressing with you in this venture. Yours truly, MIRAMAR MINING CORPORATION /s/ Stephen P. Quin Executive Vice president The above terms and conditions of this Letter of Intent are agreed to by the undersigned on behalf of Newgold Inc. this 11th day of October 1996: Signed: /s/ Name: A. Scott Dockter Position: President/CEO EX-10 6 EXHIBIT 10.8 AGREEMENT AND PLAN OF MERGER by and between WAREHOUSE AUTO CENTERS, INC. and NEWGOLD, INC. AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is entered into as of this _____ day of August, 1996, by and between NEWGOLD, INC., a Nevada corporation WAREHOUSE AUTO CENTERS, INC., a Delaware corporation ("WAC"). ("WAC" and "Newgold" shall be the "Parties".) RECITALS A. WAC is currently in bankruptcy under Chapter 11 of the U.S. bankruptcy Code. The bankruptcy is pending in the U.S. Bankruptcy Court for the Western District of New York, Case No. 92-21279, styled "In re Warehouse Auto Centers, Inc., Debtor" (the "Bankruptcy"). WAC is a publicly-traded company; its Common Stock is listed and traded on the NASDAQ Bulletin Board. B. The Board of Directors of Newgold and WAC have determined that a business combination between them is in the best interests of their respective companies and stockholders and presents an opportunity for their respective companies to achieve long-term strategies and financial benefits, and accordingly, have agreed to effect the transactions contemplated herein, including a merger of Newgold with and into WAC (the "Merger") upon the terms and subject to the conditions set forth herein. C. In connection with the contemplated Merger, Newgold and WAC have each determined to engage in the transactions contemplated hereby, pursuant to which: (i) WAC shall reverse split its total outstanding shares of Common Stock (3,312,026) on the basis of 1 for 65, which will result in total outstanding shares, post-split, of 50,958; (ii) WAC shall, in connection with the Bankruptcy, obtain approval for and make available for sale and purchase Debtor's Certificates to raise up to $5,000,000 U.S., all pursuant to ss. 364 of the U.S.Bankruptcy Code (the "Code"), and to offer holders of such Debtor's Certificates the option to exchange each $1.00 of Debtor's Certificates for one (1) share of the Reorganized WAC's Common Stock, all pursuant to ss. 1145 of the code; (iii) WAC shall take such action as may be necessary to increase its total authorized shares of Common Stock to 100,000,000, par value $.01; (iv) post-Merger, WAC shall change its domicile to Nevada, if deemed appropriate by the WAC Board of Directors; (v) the Board of Directors of WAC shall, upon consummation of the Initial Closing, as defined in Article I hereof, resign and be replaced by nominees of Newgold, which may include certain members of the current Board of Directors of WAC; and (vi) in the Bankruptcy, WAC shall issue to Newgold shareholders a total of 11,710,958 shares of its post-split shares of Common Stock in exchange for 100% of the total outstanding shares of Newgold. D. Subject to the terms and conditions of this Agreement, Newgold shall be merged with and into WAC in accordance with the Delaware General Corporation Act ("Delaware Law") and the Nevada Corporation Act ("Nevada Law"), and WAC shall be the surviving corporation (the "Surviving Corporation"). In connection therewith, all of the assets and liabilities of Newgold shall be transferred and delivered to WAC in exchange for 11,710,958 post-split, newly-issued shares of Common Stock of WAC, all in the manner and upon the terms and subject to the conditions set forth herein. The 11,710,956 shares shall be unregistered and restricted from transfer, all pursuant to applicable state and federal securities laws, rules and regulations, including, Rule 144 promulgated under the Securities Act 1 of 1933, as amended (the "Securities Act") The Parties intend for this transaction to be tax free, pursuant to ss.1032 of the Internal Revenue Code of 1966, as amended (the "Code") E. Newgold and WAC intend for the Merger to qualify as a reorganization in accordance with the provisions of ss. 366Cb)of the Code. F. Newgold and WAC desire to make certain representations, warranties and agreements in connection with the Merger. G. It is fundamental to this Agreement that WAC retain its status as a NASDAQ Bulletin Board listee post-Merger. (See Article X, Section 10.16). NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements set forth herein, the parties agree as follows: ARTICLE I SALE OF DEBTOR'S CERTIFICATES SECTION 1.01 SALE OF DEBTOR'S CERTIFICATES. (a) WAC has filed a motion in the Bankruptcy seeking approval to issue Debtor's Certificates pursuant to 11 U.S.c. ss. 364(b) and to raise up to a maximum of $5,000,000 U.S. to be used in connection with its proposed Merger with Newgold. Under the terms of the Debtor's Certificates, the purchasers thereof shall have the right to exchange their Certificates on the basis of one (1) share of WAC's post~split Common Stock for each $1.00 of indebtedness, all pursuant to ss. 1145 of the U.5 Bankruptcy Code. Upon approval of the motion, WAC shall immediately, through sales agents, attempt to raise up to $5,000,000 U.S. through the sale of the Debtor's Certificates. (b) Initial Closing. The closing of the sale and purchase of the Debtor's Certificates (the "Initial Closing") shall take place as soon as WAC receives authority from the U.S. Bankruptcy Court to sell the same. The Initial Closing shall take place at the__________________ Bank in New York, New York, unless a different date or place is agreed to in writing by the Parties hereto. At the Initial Closing, WAC shall deliver to___________________________ as agent for all purchasers, the Debtor's Certificates purchased. The Parties shall execute any and all documents necessary to comply with applicable federal and state laws, rules and regulations pertaining to the Debtor's Certificates. ARTICLE II THE MERGER SECTION 2.01 MERGER CLOSING. The closing of the Merger (the "Merger Closing") shall take place on the first business day after satisfaction or waiver of the latest to occur of the conditions set forth in Article VIII, at the offices of Michael J. Morrison, Esq., 1025 Ridgeview Drive, Suite 400, Reno, Nevada 69509, unless a different date or place is agreed to in writing by the Parties hereto (the "Merger Date") 2 SECTION 2.02 THE MERGER. If all of the conditions to the Merger set forth in this Agreement shall have been fulfilled or waived in accordance herewith, and this Agreement shall not have been terminated as provided herein, then concurrent with the Merger Closing, Newgold and WAC shall file a Plan of Merger in the Office of the Secretary of State of the State of Delaware in accordance with Delaware Law, and a Plan of Merger in the Office of the secretary of State of the State of Nevada. The Merger shall become effective at such time as the Plan of Merger is duly filed in both the Office of the Secretary of State of the State of Delaware and the Office of the Secretary of State of the State of Nevada (the date of such filings being hereinafter referred to as the "Effective Date" and the time of the latest to occur of such filing being hereinafter referred to as the "Effective Time"), and WAC shall be the Surviving Corporation. It is the intention of the parties that this Agreement shall constitute a Plan of Merger under ss. 6-101 et. seq. of Delaware General Corporation Law and a Plan of Merger under Ch. 92A of Nevada Corporation Law. SECTION 2.03 ISSUANCE OF SHARES AND EXCHANGE OF CERTIFICATES; TRANSFER OF ASSETS. At the Effective Time, all of the outstanding shares of Newgold, together with all of the assets and liabilities of Newgold shall be transferred and delivered, pursuant to appropriate deeds and/or title documents, consistent with all applicable laws, to WAC; WAC shall deliver a certificate for 11,710,958 shares of its post-split, newly-issued shares of Common Stock to newgold; each share of WAC post-split Common Stock outstanding immediately prior to the Effective Time shall remain outstanding and shall represent one share of Common Stock of the Surviving Corporation. SECTION 2.04 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of WAC (the "Existing Certificate") shall be amended and restated at the Effective Time to adopt the amendments to the Existing Certificate and to restate the Existing Certificate in a manner agreed to by the Parties, by separate agreement (the "Restated Certificate"). SECTION 2.05 BYLAWS. The Bylaws of WAC (the "Existing Bylaws") shall be amended and restated to adopt the amendments to the Existing Bylaws and to restate the Existing Bylaws in a manner agreed to by the Parties, by separate agreement (the "New Bylaws"). SECTION 2.06 DIRECTORS. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, the directors of the Surviving Corporation shall be the New Board (as defined in Section 5.02). ARTICLE III REPRESENTATIONS AND WARRANTIES OF WAC Except as set forth in a document referring specifically to the relevant Section or subsection of this Agreement which is delivered by WAC to Newgold prior to the execution of this Agreement (the "WAC Disclosure Schedule"), WAC represents and warrants to Newgold as follows: SECTION 3.01 CORPORATE EXISTENCE AND POWER. WAC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers required to carry on its business as now conducted. WAC is duly qualified to do business as a foreign corporation, and is in good standing, in each jurisdiction where the character of the 3 property owned or leased by it or the nature of its activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on WAC. WAC has delivered to Newgold true and complete copies of WAC's Existing Certificate and Existing Bylaws as currently in effect. For purposes of this Agreement, the term "Material Adverse Effect" means, with respect to any person or entity, a material adverse effect on the condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations of such person or entity and its subsidiaries; and the term "Material Adverse Change" means a change which would have a Material Adverse Effect; provided, however, that the happening or the occurrence of the events set forth on Schedule 3.01 of the WAC Disclosure Schedule shall not constitute a Material Adverse Effect or Material Adverse Change for purposes of this Agreement and shall not cause a breach of any representation or warranty of WAC made herein or cause a failure of a condition to Newgold's obligations hereunder. SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and performance by ~AC of this Agreement and the consummation by WAC of the transactions contemplated hereby and thereby are within WAC's corporate powers and have been and, to the extent not executed as of the date hereof, will be prior to execution, duly authorized by all necessary corporate action, subject to approval of the Merger by WAC's stockholders. This Agreement constitutes, or upon execution will constitute, a valid and binding agreement of WAC, enforceable against WAC in accordance with the terms herein, except as enforcement may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by WAC of this Agreement and the WAC consummation of the transactions contemplated hereby and thereby by WAC requires no action by or in respect of, or filing with, any governmental body, agency, official or authority other than: (a) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (b) compliance with any applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; (c) compliance with any applicable requirements of the Securities Act of 1933, as amended (the "Securities Act") and the rules and regulations promulgated thereunder; (d) compliance with any applicable requirements of NASDAO ("NASDAQ"); (e) compliance with any applicable state securities or "Blue Sky" laws; and (f) such other filings or registrations with, or authorizations, consents, or approvals of, governmental bodies, agencies, officials or authorities, the failure of which to make or obtain would not have a Material Adverse Effect on the ability of the Parties to consummate the transactions contemplated hereby. 4 SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance by WAC of this Agreement and the consummation by WAC of the transactions contemplated hereby and thereby do not and will not: (a) contravene or conflict with the Existing Certificate or Existing Bylaws of WAC; (b) assuming compliance with the matters set forth in Section 3.03 and assuming the requisite approval of the Merger by WAC's stockholders and creditors, to the best of WAC's knowledge, (i) contravene, conflict with or constitute a violation of any provision of any judgment, injunction, order or decree binding upon WAC, as defined in Section 3.OE below), or (ii) contravene, conflict with or constitute a violation of any provision of any law or regulation applicable to WAC to the extent such contravention, conflict or violation would have a Material Adverse Effect on WAC; (c) except as set forth on Schedule 3.04(c) of the WAC Disclosure Schedule, constitute a default under, require the approval of, or give rise to a right of termination, cancellation or acceleration or loss of any material benefit under any agreement, contract or other instrument (including loan documents) binding upon WAC, or under any license, franchise, permit or other similar authorization held by WAC; or (d) result in the creation or imposition of any Lien (as defined below) on any material asset of WAC. For purposes of this Agreement, the term o"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. SECTION 3.05 CAPITALIZATION OF WAC. The authorized capital stock of WAC consists of ___________ shares of Common Stock, par value $______ . As of October 15, 1996, there were outstanding 3,312,026 shares of WAC Common Stock. All outstanding shares of WAC Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of WAC Common Stock are listed, or approved for listing upon official notice of issuance, on the NASDAQ and, to the best of WAC's knowledge, there are no proceedings or other actions being taken to delist any such shares. Except as set forth above in this Section 3.05, there are outstanding (i) no shares of capital stock or other voting securities of WAC; (ii) no securities of WAC convertible into or exchangeable for shares of capital stock or voting securities of WAC; and (iii) no options or other rights to acquire from WAC, and no obligation of WAC to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or other voting securities of WAC (the items in clauses (i) , (ii) and (iii) being referred to collectively as the "WAC Securities") . There are no outstanding obligations of WAC to repurchase, redeem or otherwise acquire any WAC Securities. The shares of WAC Common Stock which are (a) subject to issuance upon conversion of the Debtor's Certificates and (b) issuable in connection with the Merger when issued and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized, validly issued, fully paid and nonassessable. SECTION 3.06 SEG FILINGS. 5 (a) Schedule 3.07(a) of the WAC Disclosure Schedule sets forth a true and complete list of all WAC Reports (as defined below) that WAC has delivered to Newgold, or, to the extent not yet filed, will deliver to Newgold prior to the Merger Closing. (b) As of their respective filing date, no such report or statement filed with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act (collectively the o"WAC Reports") contained any untrue statement of a material tact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Except as set forth on Schedule 3.07(b) of the WAC Disclosure Schedule, WAC has timely filed all reports, statements or forms required by it to be filed pursuant to the Exchange Act and the rules and regulations thereunder. SECTION 3.07 FINANCIAL STATEMENTS. Each of the consolidated balance sheets of WAC included in or incorporated by reference into the WAC Reports (including the related notes and schedules) fairly presents the consolidated financial position of WAC and its subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of WAC included in or incorporated by reference into the WAC Reports (including any related notes and schedules) fairly presents results of operations, retained earnings or cash flows, as the case may be, of WAC and its subsidiaries for the period set forth therein (subject, in the case of unaudited statements to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, as permitted by Form 10-0 of the SEC. For purposes of this Agreement, "WAC Balance Sheet" means the consolidated balance sheet of WAC as of and the notes thereto and "WAC Balance Sheet Date" means ____________________. SECTION 3.08 COMPLIANCE WITH LAW. WAC is in compliance and has conducted its business so as to comply with all laws, rules and regulations, judgments, licenses, permits, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign (a "Governmental Authority") applicable to their respective businesses or properties except to the extent that noncompliance would not have a Material Adverse Effect on WAC, taken as a whole. Except as set forth on Schedule 3.Og of the WAC Disclosure Schedule, there are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration) including any such actions relating to affirmative action claims or claims of discrimination, against WAC or against any of its respective properties or businesses. SECTION 3.09 NO DEFAULTS. Except as set forth on Schedule 3.10 of the WAC Disclosure Schedule, WAC has not received notice that it would be with the passage of time, (i) in violation of any provision of its articles or certificate of incorporation or bylaws or other similar organizational document or ~Ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to WAC or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which WAC is a party or by which WAC or its respective properties or assets may be bound. SECTION 3.10 LITIGATION. Except as set forth on Schedule 3.11 of the WAC Disclosure schedule, there is no action, suit, proceeding, claim or investigation pending or, to the best of WAC's knowledge, threatened, against WAC which could, individually or in the aggregate, have a Material 6 Adverse Effect on WAC, taken as a whole, or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. SECTION 3.11 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or contemplated by this Agreement or, as set forth on Schedule 3.12 to the WAC Disclosure Schedule, since the WAC Balance Sheet Date, there has not occurred: (a) A Material Adverse Change with respect to WAC, taken as a whole; (b) Any amendments or changes in the articles or certificate of incorporation or bylaws or other similar organizational document of WAC, except for the Restated Certificate and New Bylaws as contemplated by this Agreement; (c) Any damage, destruction or loss, not covered by insurance, in excess of $25,000 with respect to any of the former properties or businesses of WAC; (d) Any redemption, repurchase or other acquisition of shares of capital stock, partnership interests or ownership units of WAC by WAC (other than pursuant to arrangements with terminated employees or consultants), or any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the capital stock of WAC; (e) Any increase in the hourly rate of compensation payable or to become payable (by reimbursement or otherwise) by WAC to any of their respective directors, officers, partners, employees or consultants, whether as employees of WAC or otherwise; (f) Except as set forth on Schedule 3.12(f) of the WAC Disclosure Schedule, any increase in or modification of any bonus, pension, insurance or other employee benefit plan, payment or arrangement (including, but not limited to, the granting of stock options, restricted stock awards or stock appreciation rights) made to, for or with any of WAC's directors, officers or employees, whether as employees of WAC or otherwise; (g) Except as contemplated by this Agreement, and a sale of all assets, as approved by the Bankruptcy Court, any acquisition or sale of a material amount of property or assets by or of WAC; (h) Any alteration in any term of any outstanding WAC securities; (i) Except as contemplated by this Agreement, any Ii) incurrence, assumption or guarantee by WAC of any debt for borrowed money; (ii) issuance or sale of any securities convertible into or exchangeable for debt securities of WAC; or (iii) issuance or sale of options or other rights to acquire from WAC, directly or indirectly, debt securities of WAC or any securities convertible into or exchangeable for any such debt securities; (j) Any creation or assumption by WAC of any Lien on any material asset, except as permitted or contemplated by this Agreement; 7 (k) Any loan, advance or capital contribution to or investment in any person other than (i) loans, advances or capital contributions to or investments in any WAC Subsidiary, (ii) travel loans or advances made in the ordinary course of business of WAC, and (iii) other loans and advances in an aggregate amount which do not exceed $10,000 outstanding at any time; (l) Any entry into, amendment of, relinquishment, termination or non-renewal by WAC of any material contract, lease, commitment or other right or obligation other than as permitted or contemplated by this Agreement; or (m) To the best of WAC's knowledge, any agreement or arrangement made by WAC to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Section 3.12 untrue or incorrect as of the date when made. SECTION 3.12 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth on Schedule 3.13 to the WAC Disclosure Schedule, there are no liabilities of WAC of any kind whatsoever that are material to the business of WAC, taken as a whole, other than: (a) liabilities disclosed or provided for in the WAC Balance Sheet; (b) liabilities incurred in the ordinary course of business consistent with past practice since the WAC Balance Sheet Date; and (c) liabilities under this Agreement. SECTION 3.13 CERTAIN AGREEMENTS. Except as set forth on Schedule 3.14 of the WAC Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby or thereby will (i) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any director or employee of WAC under any WAC Employee Plan (as defined in Section 3.15(a) below) or otherwise, (ii) materially increase any benefits otherwise payable under any WAC Employee Plan, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. SECTION 3.14 EMPLOYEE BENEFITS. (a) Schedule 3.15 of the WAC Disclosure Schedule sets forth each "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), and each employment agreement, compensation agreement, bonus, commission or similar arrangement, and fringe benefit arrangement which is maintained, administered or contributed to by WAC or any affiliate thereof (as defined below) and covers any employee or former employee of WAC or any affiliate or under which WAC or any affiliate has any liability. Such plans are referred to collectively herein as the "WAC Employee Plans." For purposes of this section 3.15 only, an "affiliate" of any person or entity means any other person or entity, which, together with such person or entity, would be treated as a single employer under Section 414 of the Code or Title IV of ERISA. The only WAC Employee Plans which individually or collectively would constitute an "employee pension benefit plan" as defined in Section 3(2) of ERISA are identified as such in the list referred to above. 8 (b) No WAC Employee Plan constitutes a "multi-employer plan" as defined in Section 3(37) of ERISA (a "Multi-employer Plan"), no WAC Employee Plan is maintained in connection with any trust described in Section 501(c) (9) of the Code and no WAC Employee Plan is subject to Title IV of ERISA or Section 412 of the Code. If WAC or an affiliate thereof ever maintained or was obligated to contribute to a Multi-employer Plan or a plan subject to Title IV of ERISA, any withdrawal or other liability under Title IV of ERISA with respect to such plan has been fully satisfied. To WAC's knowledge, nothing done or omitted to be done and no transaction or holding of any asset under or in connection with any WAC Employee Plan has or will make WAC or any of its Subsidiaries, or any officer or director thereof, subject to any liability under Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code. (c) To the best knowledge of WAC, there is no WAC Employee Plan which is intended to be qualified under section 401(a) of the Code. (d) There is no contract, agreement, plan or arrangement covering any employee or former employee of WAC or any affiliate that would obligate the Surviving Corporation or any affiliate to pay any additional compensation, including severance pay or additional withholding taxes, as a result of the consummation of the transactions contemplated by this Agreement or that, individually or collectively, could give rise to the payment by the surviving Corporation of any amount that would not be deductible pursuant to the terms of Sections 162 (a) (1) or 280G of the Code (e) Neither WAC nor its affiliates have any projected liability in respect of post-retirement health, life and medical benefits for retired employees of WAC and its affiliates. Other than provisions of applicable law, no condition exists that would prevent WAC or any of its Subsidiaries from amending or terminating any WAC Employee Plan. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by WAC or any of its affiliates relating to, or change in employee participation or coverage under, any WAC Employee Plan which would materially increase the expense of maintaining such WAC Employee Plan above the level of the expense incurred in respect thereof for the most recent fiscal year. SECTION 3.15 MAJOR CONTRACTS. Schedule 3.16 of the WAC Disclosure Schedule sets forth a list of all "material contracts" as defined in Item 601 of Regulation s-K under the Securities Act and to which WAC is a party or has a beneficial interest in (each a "WAC Material Contract"). Each WAC Material Contract is valid and binding on WAC, as applicable, and except as set forth on Schedule 3.16 of the WAC Disclosure Schedule, neither WAC, nor to the best of their knowledge any other party thereto, has breached any provision of, or is in default under the terms of, any WAC Material Contract. SECTION 3.16 TAXES. (a) Except as set forth on schedule 3.17(a) of the WAC Disclosure Schedule, all Tax returns, statements, reports and forms (including estimated Tax returns and reports and information returns and reports) required to be filed with any Taxing Authority with respect to any Taxable period ending on or before the Effective Time by or on behalf of WAC (the "WAC Tax Returns"), the non-filing of which would have a Material Adverse Effect on WAC or would result in criminal penalties against WAC or any officer or employee thereof, have been or will be filed when due (including any extensions of such due date). 9 (b) WAC has timely paid, withheld or made provision on their books for all Taxes shown as due and payable on WAC Tax Returns that have been filed. (c) All WAC Tax Returns relating to income or franchise Taxes filed with respect to Taxable years of WAC ending on or after December 31, 1990, have been filed or extensions have been duly made. (d) WAC has not been granted any extension or waiver of the limitation period applicable to any WAC Tax Returns. (e) To the beat of WAC's knowledge, there is no claim, audit, action, suit, proceeding, or investigation now pending or threatened in writing against or with respect to WAC in respect of any Tax or assessment. (f) There are no requests for rulings in respect of any Tax pending between WAC and any Taxing Authority. (g) None of the property owned or used by WAC is subject to a tax benefit transfer lease executed in accordance with Section 168(f) (8) of the Code. (h) None of the property owned by WAC is o"tax-exempt use property" within the meaning of Section 168(h) of the Code. (i) Neither WAC, nor any other person on behalf of WAC, has entered into nor will it enter into any agreement or consent pursuant to Section 341(f) of the Code. (j) Except as set forth on Schedule 3.17(j) of the WAC Disclosure Schedule, there are no Liens for Taxes upon the assets of WAC, except Liens for Taxes not yet due. (k) WAC will not be required to include any adjustment in Taxable income for any Tax period (or portion thereof) ending after the Effective Time pursuant to Section 481(c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for any Tax period (or portion thereof) ending on or before the Effective Time or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of WAC for any Tax period (or portion thereof) ending on or before the Effective Time. (l) WAC has not been a member of an affiliated group, other than one of which WAC was the common parent, or filed or been included in a combined, consolidated or unitary Tax return other than one filed by WAC, or participated in any other similar arrangement whereby any income, revenues, receipts, gains, losses, deductions, credits or other Tax items of WAC was determined or taken into account for Tax purposes with reference to or in conjunction with any such items of another person other than WAC or predecessor. (m) WAC is not currently under any contractual obligation to pay the income or franchise tax obligations of, or with respect to transactions relating to, any other person or to indemnify any other person with respect to any income or franchise tax. 10 (n) WAC has not signed any letter or entered into any agreement or arrangement consenting to the surrender or sharing of any deductions, credits, or other Tax attributes with any other person or transferred or assigned to any other person for Tax purposes any such item. (o) Notwithstanding any of the foregoing, no representation or warranty is made by WAC with respect to the Tax consequences that may result from the transactions contemplated by this Agreement. (p) For the purposes of this Agreement, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by such entity or any subsidiary thereof, payroll employment, excise, severance, stamp, occupation, property, environmental or windfall profit tax, or other tax, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority (a "Taxing Authority") responsible for the imposition of any such tax (domestic or foreign), (ii) liability of such entity or any subsidiary thereof for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period and (iii) liability of such entity or any subsidiary thereof for the payment of any amounts of the type described in (i) or (ii) as a result of any express or implied obligation to indemnify any other person. SECTION 3.17 INTELLECTUAL PROPERTY. (a) Schedule 3.18(a) of the WAC Disclosure Schedule sets forth all licensing arrangements which WAC has with third parties and which are material to the business of WAC, taken as a whole (the "WAC Intellectual Property Rights") (b) WAC, during the three years preceding the date of this Agreement, has not been sued or charged in writing with or been a defendant or plaintiff in any claim, suit, action or proceeding relating to its business which has not been finally terminated prior to the date hereof and which involves a claim of infringement of any patents or licenses, and to WAC's best knowledge (i) there are no other claims by any other person of patent or license infringement by WAC, and (ii) there are no continuing infringements by any other person or persons of any WAC Intellectual Property Rights. SECTION 3.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on Schedule 3.19 of the WAC Disclosure Schedule, there is no material agreement, judgment, injunction, order or decree binding upon WAC which has or could reasonably be expected to have the effect of prohibiting or materially impairing any acquisition of property by WAC or the conduct of business by WAC as currently conducted or as currently proposed to be conducted by WAC. SECTION 3.19 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES. (a) Schedule 3.20(a) of the WAC Disclosure Schedule sets forth a true and complete description of all real property owned or leased (as lessee) by WAC (the "WAC Properties"), the aggregate annual rental or other fee payable under any such lease, and, with respect to any such WAC Properties currently under contract for sale, the parties to such contract or contracts. SECTION 3.20 ENVIRONMENTAL MATTERS. 11 (a) Neither WAC, nor to the knowledge of WAC (without inquiry) any tenant on the WAC Properties, has received any written notice, demand, citation, summons, complaint or order or any notice of any penalty, Lien or assessment, and to the best of WAC's knowledge (without inquiry with respect to any tenant on the WAC Properties), there is no investigation or review pending by any governmental entity, with respect to any (i) alleged violation by WAC or any tenant on the WAC Properties of any Environmental Law (as defined in subsection (f) below), (ii) alleged failure by WAC or any tenant on the WAC Properties to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the conduct of its business or (iii) Regulated Activity (as defined in subsection (f) below) (b) WAC, with respect to any of the WAC Properties, has no knowledge of any Environmental Liabilities (as defined in subsection (f) below), or of any release of Hazardous Substances (as defined in subsection (f) below) into the environment in violation of any Environmental Law or environmental permit. WAC has disclosed to Newgold in writing the presence, to the best of WAC's knowledge, of any asbestos in any of its premises other than fully encapsulated asbestos-containing construction materials. (c) WAC has not prepared or had prepared for it any environmental audits and other similar reports. (d) Except as set forth on Schedule 3.21(d) of the WAC Disclosure Schedule, to the best of WAC's knowledge, (i) no asbestos-containing materials were installed or exposed in the WAC Properties through demolition, renovation or otherwise, (ii) no electrical transformers or other equipment containing PGB's are or were located on the WAC Properties, (iii) no storage tanks for gasoline, heating oil or diesel fuel or any other substances are or were located on or under the WAC Properties, and (iv) no materials regulated under any federal, state or local law or regulation, as amended from time to time, as a toxic, hazardous, contaminated or similarly harmful or dangerous material or substance (including, without limitation, asbestos and radon) are or were located on, in or under the WAC Properties or have affected the WAC Properties or waters on or under the WAC Properties. (e) For the purposes of this Agreement, the following terms have the following meanings: "Environmental Laws" shall mean any and all federal, state and local laws (including case law), regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and governmental restrictions relating to human health, the environment or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the cleanup or other remediation thereof. "Environmental Liabilities" shall mean all liabilities, whether vested or invested, contingent or fixed, which (i) arise under or relate to a violation of Environmental Laws and (ii) relate to actions occurring or conditions existing on or prior to the Effective Time. "Hazardous Substances" shall mean any toxic, radioactive, caustic or otherwise hazardous substance regulated by any Environmental Law, including petroleum, its derivatives, by-products 12 and other hydrocarbons, or any substance having any material constituent elements displaying any of the foregoing characteristics. "Regulated Activity" shall mean any generation, treatment, storage, recycling, transportation, disposal or release of any Hazardous Substances. SECTION 3.21 INSURANCE. Schedule 3.22 of the WAC Disclosure Schedule sets forth a list of all insurance policies and fidelity bonds insuring the assets, business, equipment, properties, operations, employees, officers and directors of WAC. Copies of all such policies have been delivered to Newgold prior to the date hereof. There is no claim by WAC pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums payable under all such policies and bonds have been paid and WAC is otherwise in full compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). To the best of WAC's knowledge, no termination or material premium increase is pending or threatened with respect to any of such policies. SECTION 3.22 LABOR MATTERS. To the best of WAC's knowledge after inquiry, is in compliance with all currently applicable laws and regulations respecting employment, discrimination in employment, verification of immigration status, terms and conditions of employment and wages and hours and occupational safety and health and employment practices, and is not engaged in any unfair labor practice, except to the extent that non-compliance would not have a Material Adverse Effect on WAC. Neither WAC nor, to the best of WAC'S knowledge after inquiry, any other WAC affiliated person or entity has received any notice from any Governmental Entity, and there has not been asserted before any Governmental Entity, any claim, action or proceeding to which WAC is a party, and to the best of WAC's knowledge, there is neither pending nor threatened any investigation or hearing concerning or involving WAC or any officer or employee of WAC arising out of or based upon any such laws, regulations or practices. SECTION 3.23 EMPLOYEES. Schedule 3.24 of the WAC Disclosure Schedule lists each employee of WAC, his/her current position, salary, bonus and general compensation arrangement. Except for the employment agreements listed on Schedule 3.24 of the WAC Disclosure Schedule, complete and accurate copies of which have been delivered to Newgold, WAC is not a party to any employment agreements. All employees of WAC who are employed in a technical, managerial or executive capacity and who are material to the operations of WAC, taken as a whole, have the right under applicable immigration laws to work in their present locations for at least two years from the Effective Date. SECTION 3.24 FINDERS' FEES. Except as disclosed in the WAC Disclosure Statement and Plan of Reorganization filed with the Bankruptcy Court, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of WAC who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWGOLD 13 Except as set forth in a document referring specifically to the relevant Section or subsection of this Agreement which is delivered by Newgold to WAC prior to execution of this Agreement (the "Newgold Disclosure Schedule"), Newgold represents and warrants to WAC as follows: SECTION 4.01 CORPORATE EXISTENCE AND POWER. Newgold is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada. Newgold has all corporate powers and all material Governmental Authorizations required to carry on its respective business as now conducted. Newgold is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on Newgold. With respect to Newgold and the Newgold Subsidiaries taken as a whole, a Material Adverse Change shall be deemed to have occurred for purposes of this Agreement if the fair market value of the Newgold Properties as reported by _________________________________________ in Newgold's property report dated as of ________________________ shall have declined by ten percent (10%) or more prior to the Merger Date (such a decline to be a "Newgold Decline In Value" for purposes of this Agreement) Newgold has delivered to WAC true and complete copies of Newgold's Articles of Incorporation and Bylaws, each as currently in effect SECTION 4.02 CORPORATE AUTHORIZATION. The execution, delivery and performance by Newgold of this Agreement and the consummation by Newgold of the transactions contemplated hereby and thereby are within such corporation's corporate powers and have been and, to the extent not executed as of the date hereof, will be prior to execution, duly authorized by all necessary corporate action. This Agreement constitutes a valid and binding agreement of Newgold, enforceable against Newgold in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity SECTION 4.03 GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery and performance by Newgold of this Agreement and the consummation of the transactions contemplated hereby and thereby by Newgold requires no action by or in respect of, or filing with, any governmental body, agency, official or authority other than: (a) compliance with any applicable requirements of the HSR Act; (b) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder; (c) compliance with any applicable requirements of the Securities Act and the rules and regulations promulgated thereunder; (d) compliance with any applicable requirements of NASDAQ ("NASDAQ") (e) compliance with any applicable state securities or "Blue Sky" laws; and (f) such other filings or registrations with, or authorizations, consents, or approvals of, governmental bodies, agencies, officials or 14 SECTION 4.04 NON-CONTRAVENTION. The execution, delivery and performance by Newgold of this Agreement and the consummation of the transactions by Newgold contemplated hereby and thereby and do not and will not: (a) contravene or conflict with the Articles of Incorporation or Bylaws of Newgold; (b) assuming compliance with the matters set forth in Section 4.03, to the best of Newgold's knowledge, (i) contravene, conflict with or constitute a violation of any provision of any judgment, injunction, order or decree binding upon Newgold or any Newgold Subsidiary (as defined in Section 4.06), or (ii) contravene, conflict with or constitute a violation of any provision of any law or regulation applicable to Newgold or any Newgold Subsidiary to the extent that such contravention, conflict or violation would have a Material Adverse Effect on Newgold; (c) except as set forth on Schedule 4.04(c) of the Newgold Disclosure Schedule, constitute a default under, require the approval of, or give rise to a right of termination, cancellation, acceleration or loss of any material benefit under any agreement, contract or other instrument (including loan documents) binding upon Newgold or any Newgold Subsidiary or under any license, franchise, permit or other similar authorization held by Newgold or any such Newgold Subsidiary; or (d) result in the creation or imposition of any Lien on any material asset of Newgold or any Newgold Subsidiary SECTION 4.05 CAPITALIZATION OF NEWGOLD (a) The authorized capital stock of Newgold consists of 50,000,000 shares of Common Stock, par value $.00l. As of August 25, 1996, there were 11,710,958 shares of Newgold Common Stock outstanding. All outstanding shares of Newgold Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in the Newgold Disclosure Schedule, there are outstanding (i) no shares of capital stock or other voting securities of Newgold, (ii) no securities of Newgold convertible into or exchangeable for shares of capital stock or voting securities of Newgold and (iii) no options or other rights to acquire from Newgold, and no obligation of Newgold to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or other voting securities of Newgold (the items in clauses (i), (ii) and (iii) being referred to collectively as the "Newgold Securities"). There are no outstanding obligations of Newgold or any Newgold Subsidiary to repurchase, redeem or otherwise acquire any Newgold Securities SECTION 4.06 SUBSIDIARIES. (a) Schedule 4.06(a) of the Newgold Disclosure Schedule sets forth a true and accurate list of each "Subsidiary" of Newgold (each an "Newgold Subsidiary" and together, the "Newgold Subsidiaries") . Each Newgold Subsidiary is either a corporation or other entity duly incorporated or otherwise organized, validly existing and in good standing (or local law equivalent) under the laws of its jurisdiction of organization, and has all corporate or other organizational powers required to carry on its business as now conducted. Each Newgold Subsidiary is duly qualified to do business as a foreign corporation or partnership (as the case may be), is in good standing (or local law equivalent) and has all licenses and permits necessary in each jurisdiction where the character of the property owned or leased by, or the nature of its activities, make such qualification, licenses or permits necessary except for those 15 jurisdictions where the failure to be so qualified or have such licenses or permits would not, individually or in the aggregate, have a Material Adverse Effect on Newgold or on the relevant Newgold Subsidiary. Newgold has delivered to WAC true and complete copies of the Articles or Certificate of Incorporation, Bylaws, Partnership Agreement and other similar organizational documents as currently in effect for each such Newgold Subsidiary. (b) Except as set forth on Schedule 4.06(b) of the Newgold Disclosure Schedule, all of the outstanding capital stock of, or other ownership interests in, each Newgold Subsidiary is owned by Newgold, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests). Except as set forth on Schedule 4.06(b) of the Newgold Disclosure Schedule, there are no outstanding: (i) securities of Newgold or any Newgold Subsidiary convertible into or exchangeable for shares of capital stock or other voting securities of any Newgold Subsidiary; or (ii) options or other rights to acquire from Newgold or any Newgold Subsidiary, and no other obligation of Newgold or any Newgold Subsidiary to issue, any capital stock, voting securities of or other ownership interests in, or any securities convertible into or exchangeable for any capital stock, voting securities or other ownership interests of, any Newgold Subsidiary (the items in clauses (i) and (ii) being referred to collectively as the "Newgold Subsidiary Securities") . There are no outstanding obligations of Newgold or any Newgold Subsidiary to repurchase, redeem or otherwise acquire any outstanding Newgold Subsidiary Securities. (c) Except as set forth on Schedule 4.06(c) of the Newgold Disclosure Schedule, there are no material agreements, contracts and other documentation setting forth any terms or conditions with respect to Newgold's ownership interest in the Newgold Subsidiaries. connection with the last three completed audits (if such audits took place) of the financial statements of Newgold and any of the Newgold Subsidiaries, including the audit conducted in connection with the Newgold Balance Sheet, and any such correspondence since the Newgold Balance Sheet Date. SECTION 4.07 FINANCIAL STATEMENTS. Newgold has delivered to WAC the unaudited consolidated balance sheet of Newgold as of December 31, 1995 and the related unaudited statements of operations, stockholders equity and cash flows for the year ended December 31, 1995. The consolidated financial statements of Newgold present fairly, in conformity with GAAP applied on a consistent basis (except that the unaudited consolidated financial statements do not contain notes), the consolidated financial position of Newgold and the Newgold Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended. For purposes of this Agreement, "Newgold Balance Sheet" means the audited consolidated balance sheet of Newgold as of December 31, 1995, and "Newgold Balance Sheet Date" means December 31, 1995. SECTION 4.08 COMPLIANCE WITH LAW. Newgold and each Newgold Subsidiary is in compliance and has conducted its business so as to comply with all laws, rules and regulations, judgments, licenses, permits decrees or orders of any Governmental Authority applicable to their respective businesses or properties except to the extent that noncompliance would not have a Material Adverse Effect on Newgold or the Newgold Subsidiaries taken as a whole. Except as set forth on 16 Schedule 4.08 to the Newgold Disclosure Schedule, there are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration), including any such actions relating to affirmative action claims or claims of discrimination, against Newgold or any Newgold Subsidiary or against any of their respective properties or businesses. SECTION 4.09 NO DEFAULTS. Neither Newgold nor any Newgold Subsidiary is, or has received notice that it would be with the passage of time, (i) in violation of any provision of its articles or certificate of incorporation or bylaws or other similar organizational document or (ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to Newgold or any Newgold Subsidiary or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which Newgold or any Newgold Subsidiary is a party or by which Newgold or any Newgold Subsidiary or their respective properties or assets may be bound. SECTION 4.10 LITIGATION. Except as set forth on Schedule 4.10 of the Newgold Disclosure Schedule, there is no action, suit, proceeding, claim or investigation pending or, to the best of Newgold's knowledge, threatened, against Newgold or any Newgold Subsidiary which could, individually or in the aggregate, have a Material Adverse Effect on Newgold and the Newgold Subsidiaries, taken on as a whole, or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby. Except as set forth on Schedule 4.10, Newgold has delivered to WAC complete copies of all audit response letters prepared by Newgold's counsel for Newgold's independent public accountants and all management letters prepared in authorities, the failure of which to make or obtain would not have a Material Adverse Effect on the ability of the Parties to consummate the transactions contemplated hereby. SECTION 4.11 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or contemplated by this Agreement or as set forth on Schedule 4.11 of the Newgold Disclosure Schedule, since the Newgold Balance Sheet Date, there has not occurred: (a) Material Adverse Change with respect to Newgold or the Newgold Subsidiaries, taken as a whole: (b) Any amendments or changes in the articles or certificate of incorporation or bylaws or other similar organizational document of Newgold or any Newgold Subsidiary; (c) Any damage, destruction or loss, not covered by insurance in excess of $50,000 with respect to any of the properties or businesses of Newgold or any Newgold Subsidiary; (d) Any redemption, repurchase or other acquisition of shares of capital stock, partnership units or ownership units of Newgold or any Newgold Subsidiary by Newgold or any Newgold Subsidiary (other than pursuant to arrangements with terminated employees or consultants), or any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the capital stock of Newgold or any Newgold Subsidiary; (e) Any increase in or modification of the compensation or benefits payable or to become payable by Newgold or any Newgold Subsidiary to any of their respective directors, officers, partners, employees or consultants; 17 (f) Any increase in or modification of any bonus, pension, insurance or other employee benefit plan, payment or arrangement (including, but not limited to, the granting of stock options, restricted stock awards or stock appreciation rights) made to, for or with any of its directors or employees; (g) Except as contemplated by this Agreement, any acquisition or sale of a material amount of property or assets by or of Newgold or any Newgold Subsidiary; (h) Any alteration in any term of any outstanding securities of Newgold or any Newgold Subsidiaries; (i) Except as contemplated by this Agreement, any (i) incurrence, assumption or guarantee by Newgold or any Newgold Subsidiary of any debt for borrowed money; (ii) issuance or sale of any securities convertible into or exchangeable for debt securities of Newgold or any Newgold Subsidiary; or (iii) issuance or sale of options or other rights to acquire from Newgold or any Newgold Subsidiary, directly or indirectly, debt securities of Newgold or any of Newgold Subsidiary or any securities convertible into or exchangeable for any such debt securities; (j) Any creation or assumption by Newgold or any Newgold Subsidiary of any Lien on any material asset; (k) Any loan, advance or capital contribution to or investment in any person other than (i) loans, advances or capital contributions to or investments in Newgold subsidiaries, (ii) travel loans or advances made in the ordinary course of business of Newgold and (iii) other loans and advances in an aggregate amount which do not exceed $10,000 outstanding at any time; (l) Any entry into, amendment of, relinquishment, termination or non-renewal by Newgold or any Newgold subsidiary of any material contract, lease, commitment or other right or obligation other than in the ordinary course of business; or (m) To the best of Newgold's knowledge, any agreement or arrangement made by Newgold or any Newgold subsidiary to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this section 4.11 untrue or incorrect as of the date when made; or (n) Any labor dispute, other than routine individual grievances, or any actions or proceedings by a labor union or representative thereof to organize any employee of Newgold or any Newgold subsidiary. SECTION 4.12 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth on schedule 4.12 of the Newgold Disclosure Schedule, there are no liabilities of Newgold or any Newgold subsidiary of any kind whatsoever that are material to the business of Newgold and the Newgold subsidiaries, taken as a whole, other than: (a) liabilities disclosed or provided for in the Newgold Balance Sheet; 18 (b) liabilities incurred in the ordinary course of business consistent with past practice since the Newgold Balance Sheet Date; and (c) liabilities under this Agreement. SECTION 4.13 CERTAIN AGREEMENTS. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any director or employee of Newgold or any Newgold Subsidiary from Newgold or any such Newgold Subsidiary, under any Newgold Employee Plan (as defined in Section 4.14(a) below) or otherwise, (ii) materially increase any benefits otherwise payable under any Newgold Employee Plan, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. SECTION 4.14 EMPLOYEE BENEFITS. (a) Schedule 4.14(a) of the Newgold Disclosure Schedule sets forth each "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), and each employment agreement, compensation agreement, bonus, commission or similar arrangement, and fringe benefit arrangement which is maintained, administered or contributed to by Newgold or any affiliate thereof (as defined below) and covers any employee or former employee of Newgold or any affiliate or under which Newgold or any affiliate has any liability. Such plans are referred to collectively herein as the "Newgold Employee Plans." The only Newgold Employee Plans which individually or collectively would constitute an "employee pension benefit plan" as defined in Section 3(2) of ERISA are identified as such in the list referred to above. (b) No Newgold Employee Plan constitutes a "multi-employer plan" as defined in Section 3(37) of ERISA (a "Multi-employer Plan"), no Newgold Employee Plan is maintained in connection with any trust described in Section 501(c) (9) of the Code and no Newgold Employee Plan is subject to Title IV of ERISA or Section 412 of the Code. If Newgold or an affiliate thereof ever maintained or was obligated to contribute to a Multi- employer Plan or a plan subject to Title IV of ERISA, any withdrawal or other liability under Title IV of ERISA with respect to such plan has been fully satisfied. To Newgold's knowledge, nothing done or omitted to be done and no transaction or holding of any asset under or in connection with any Newgold Employee Plan has or will make Newgold or any of its Subsidiaries, or any officer or director thereof, subject to any liability under Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code. (c) To the best knowledge of Newgold, each Newgold Employee Plan which is intended to be qualified under Section 401 (a) of the Code is so qualified and has been so qualified during the period from its adoption to date, and each trust forming a part thereof is exempt from tax pursuant to Section 501(a) of the Code. Newgold has furnished to WAC copies of the most recent Internal Revenue Service determination letters, if any, with respect to each such Newgold Employee Plan. To the best of knowledge of Newgold, each Newgold Employee Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such Newgold Employee Plan. Except as set forth on Schedule 4.14(c) of the Newgold Disclosure Schedule, there are no pending or threatened disputed claims against any Newgold Employee Plan or against Newgold or any affiliate of Newgold arising under any such Plan. No Newgold Employee Plan is currently under examination by 19 the Internal Revenue Service or Department of Labor and Newgold has received no notice from either agency of its intent to examine by Newgold Employee Plan. (d) There is no contract, agreement, plan or arrangement covering any employee or former employee of Newgold or any affiliate that would obligate the Surviving Corporation to pay any additional compensation, including severance pay or additional withholding taxes, as a result of the consummation of the transactions contemplated by this Agreement or that, individually or collectively, could give rise to the payment by the Surviving Corporation of any amount that would not be deductible pursuant to the terms of Sections 162 (a) (1) or 280G of the Code. (e) Neither Newgold nor its affiliates have any projected liability in respect of post-retirement health, life and medical benefits for retired employees of Newgold and its affiliates. Other than provisions of applicable law, no condition exists that would prevent Newgold or any of the Newgold subsidiaries from amending or terminating any Newgold Employee Plan. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by Newgold or any of its affiliates relating to, or change in employee participation or coverage under, any Newgold Employee Plan which would materially increase the expense of maintaining such Newgold Employee Plan above the level of the expense incurred in respect thereof for the most recent fiscal year. SECTION 4.15 MAJOR CONTRACTS. Schedule 4.15 of the Newgold Disclosure Schedule sets forth a list of all "material contracts" as defined in Item 601 of Regulation S-K under the Securities Act and to which Newgold or any Newgold Subsidiary is a party or has a beneficial interest in (each a "Newgold Material Contract"). Each Newgold Material Contract is valid and binding on Newgold or the Newgold Subsidiary, as applicable, and neither Newgold nor any Newgold Subsidiary, nor to the best of their knowledge any other party thereto, has breached any provision of, or is in default under the terms of, any Newgold Material Contract. SECTION 4.16 TAXES. (a) Except as set forth on Schedule 4.16(a) of the Newgold Disclosure Schedule, all Tax returns, statements, reports and forms (including estimated Tax returns and reports and information returns and reports) required to be filed with any Taxing Authority with respect to any Taxable period ending on or before the Effective Time by or on behalf of Newgold or any of the Newgold Subsidiaries (collectively, the "Newgold Tax Returns"), the non-filing of which would have a Material Adverse Effect on Newgold or would result in criminal penalties against Newgold or any officer or employee thereof, have been or will be filed when due (including any extensions of such due date). (b) Newgold and the Newgold Subsidiaries have timely paid, withheld or made provision on their books for all Taxes shown as due and payable on Newgold Tax Returns that have been filed. (c) All Newgold Tax Returns relating to income or Franchise Taxes filed with respect to Taxable Years of Newgold and Newgold Subsidiaries ending on or after December 31, 1993 have been filed or extensions have been duly made. 20 (d) Neither Newgold nor any Newgold Subsidiary has been granted any extension or waiver of the limitation period applicable to any Newgold Tax Returns. (e) To the best of Newgold and each of the Newgold subsidiaries' knowledge, there is no clerked audit, action, suit, proceeding, or investigation now pending or threatened in writing against or with respect to Newgold or any Newgold Subsidiary in respect of any Tax or assessment. (f) There are no requests for rulings in respect of any Tax pending between Newgold or any Newgold Subsidiary and any Taxing Authority. (g) None of the property owned or used by Newgold or any of the Newgold Subsidiaries is subject to a tax benefit transfer lease executed in accordance with ~ 168(f) (8) of the Code. (h) Except as set forth on schedule 4.16(h) of the Newgold Disclosure Schedule, none of the property owned by Newgold or any Newgold Subsidiary is o~tax-exempt use property" within the meaning of ss. 168(h) of the Code. (i) Neither Newgold nor any Newgold Subsidiary, nor any other person on behalf of Newgold or any such Newgold Subsidiary, has entered into nor will it enter into any agreement or consent pursuant to Section 341(f) of the Code. (j) Except as set forth on Schedule 4.16(j) of the Newgold Disclosure Schedule, there are no liens for Taxes upon the assets of Newgold or any Newgold Subsidiary except liens for current Taxes not yet due. (k) Except as set forth on schedule 4.16(k) of the Newgold Disclosure Schedule, neither Newgold nor any Newgold Subsidiary will be required to include any adjustment in Taxable income for any Tax period (or portion thereof) ending after the Effective Time pursuant to Section 481 (c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for any Tax period (or portion thereof) ending on or before the Effective Time or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of Newgold or any such Newgold Subsidiary for any Tax period (or portion thereof) ending on or before the Effective Time. (l) Neither Newgold nor any Newgold Subsidiary is currently under any contractual obligation to pay the income or franchise tax obligations of, or with respect to transactions relating to, any other person or to indemnify any other person with respect to any income or franchise tax. (m) Except as set forth on Schedule 4.16(m) of the Newgold Disclosure Schedule, neither Newgold nor any Newgold Subsidiary has signed any letter or entered into any agreement or arrangement consenting to the surrender or sharing of any deductions, credits, or other Tax attributes with any other person or transferred or assigned to any other person for Tax purposes any such item. (n) Notwithstanding any of the foregoing, no representation or warranty is made by Newgold with respect to the Tax consequences that may result from the transactions contemplated by this Agreement. 21 SECTION 4.17 INTELLECTUAL PROPERTY. (a) Schedule 4.17 of the Newgold Disclosure Schedule sets forth a schedule of all licensing arrangements which Newgold or any Newgold Subsidiary has with third parties and which are material to the business of Newgold and the Newgold Subsidiaries taken as a whole (collectively, the "Newgold Intellectual Property Rights"). (b) Neither Newgold nor any Newgold Subsidiary, during the three years preceding the date of this Agreement, has been sued or charged in writing with or been a defendant or plaintiff in any claim, suit, action or proceeding relating to its business which has not been finally terminated prior to the date hereof and which involves a claim of infringement of any patents or licenses, and to the best of the knowledge of Newgold (i) there are no other claims by any other person of patent or license infringement by Newgold or a Newgold Subsidiary, and (ii) there are no continuing infringements by any other person or persons of any Newgold Intellectual Property Rights with respect to patents. SECTION 4.18 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on Schedule 4.18 of the Newgold Disclosure Schedule, there is no material agreement, judgment, injunction, order or decree binding upon Newgold or any Newgold Subsidiary which has or could reasonably be expected to have the effect of prohibiting or materially impairing any acquisition of property by Newgold or any Newgold Subsidiary or the conduct of business by Newgold or any Newgold Subsidiary as currently conducted or as currently proposed to be conducted by the Surviving Corporation. SECTION 4.19 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES. (a) Schedule 4.19(a) of the Newgold Disclosure Schedule sets forth a true and complete list of all real property owned or leased (as lessee) by Newgold or and Newgold Subsidiary (the "Newgold Properties", the aggregate annual rental or other fee payable under any such lease, and, with respect to any such Newgold Properties currently under contract for sale, the parties to such contract or contracts and the principal terms thereof. (b) Except as set forth on Schedule 4.19(b) of the Newgold Disclosure Schedule, Newgold or an Newgold Subsidiary has marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the Newgold Properties, and, except as set forth on schedule 4.19(b) of the Newgold Disclosure Schedule and to the best of Newgold's knowledge without conducting a title search of the Newgold Properties, such title or leasehold interests are free and clear of any Liens. Except as set forth on Schedule 4.19(b) of the Newgold Disclosure Schedule, Newgold and its Subsidiaries are the sole owners of the Newgold Properties free and clear of any right to or claim of possession by any other party (except tenants under the leases copies of which have been delivered to WAC and the rights of various public or private entities for easement purposes). Schedule 4.19(b) of the Newgold Disclosure Schedule sets forth a list of all material management agreements, development agreements or other agreements of any kind with respect to any of the Newgold Properties to which Newgold or any Newgold Subsidiary is a party and such agreements are valid and binding on Newgold or the Newgold Subsidiary (as the case may be) and, to the best of Newgold's knowledge, without default by any party thereto. All approved or proposed site plans, master development plans or similar development plans with respect to any of the Newgold Properties have been provided to WAC. 22 (c) With respect to any buildings or other structures on the Newgold Properties, to the best of Newgold's knowledge, except as set forth on Schedule 4.19(c) of the Newgold Disclosure Schedule, there are no material, physical or mechanical defects, including, without limitation, the mechanical, ventilation, plumbing, heating, air conditioning, life safety, and electrical systems and all such items are in operating condition and repair and neither Newgold nor any Newgold Subsidiary has received any notification of noncompliance with any applicable governmental requirements. (d) To the best of Newgold's knowledge, the use and operation of each of the Newgold Properties is in material compliance with applicable building codes, and neither Newgold nor any Newgold subsidiary has received any notification of noncompliance with the Americans with Disabilities Act ("ADA"), seismic design, zoning and land use laws, other local, state and federal laws and regulations, and restrictive easements or covenants affecting the Newgold Properties. (e) Schedule 4.19(e) of the Newgold Disclosure Schedule sets forth a rent roll for the Newgold Properties and such rent roll accurately summarizes the status of the existing leases and any defaults thereunder. There are no leasing or other commissions due and unpaid under any of the leases, and all tenant improvements required under existing leases have been completed and are fully paid and no credit is due to any tenant. (f) Except as set forth in Schedule 4.19(f) of the Newgold Disclosure Schedule, to the best of Newgold's knowledge, there are no condemnation proceedings or any land-use or development regulations or proceedings pending or threatened, including but not limited to historical designation or preservation proceedings, that would have a Material Adverse Effect on the development, use and operation of any of the Newgold Properties, nor has Newgold received notice of any special assessment proceedings affecting any of the Newgold Properties. (g) All water, sewer, gas, electric, telephone, drainage facilities and any other utilities required for the normal use of those specific Newgold Properties set forth on Schedule 4.19(g) of the Newgold Disclosure Schedule are installed and connected pursuant to valid permits, and are adequate to service such Newgold Properties, and to the best of Newgold's knowledge comply with all applicable legal requirements. (h) Except as set forth in Schedule 4.19(h) of the Newgold Disclosure Schedule, Newgold has obtained all licenses, permits, certificates, approvals, variances, easements and rights of way required from all governmental authorities having jurisdiction over each of the Newgold Properties or from private parties for the normal use (both existing and proposed) and. operation of the Newgold Properties and to insure vehicular and pedestrian ingress to and egress from each of the Newgold Properties. (i) Except as set forth on Schedule 4.19(i) of the Newgold Disclosure Schedule, none of the Newgold Properties are located in an area identified by the Secretary of Housing and Urban Development or other governmental agency as an area having special flood hazards, and except as indicated on the master development plans or site plans delivered to WAC pursuant to Section 4.19(b), no separate areas within any of the Newgold Properties are required to be set aside for water retention, "green belt," open space or drainage. 23 (j) Except with respect to Newgold Properties for which Newgold is attempting to change existing zoning requests, Newgold has no knowledge of any plan by any person or entity to change the existing zoning applicable to any of the Newgold Properties. (k) Except as set forth on Schedule 4.19(k) of the Newgold Disclosure Schedule, all fees and charges due and payable for thirty (30) days or more for materials and labor (including property management, design, engineering, surveying, and other professional services) delivered or performed in connection with the development of the Newgold Properties as of the date of the Merger Closing will have been paid in full or lien releases for such fees and charges will have been obtained. (l) Except as set forth on Schedule 4.19(b) of the Newgold Disclosure Schedule, to the best of Newgold's knowledge, there is no claim, litigation, or governmental investigation or proceeding, pending or threatened, that may affect the Newgold Properties and no unrecorded easements or claims of encroachment or prescriptive easement affecting the Newgold Properties exist. SECTION 4.20 ENVIRONMENTAL MATTERS (a) Neither Newgold nor any Newgold Subsidiary, nor to the knowledge of Newgold (without inquiry) any tenant on the Newgold Properties, has received any written notice, demand, citation, summons, complaint or order or any notice of any penalty, Lien or assessment, and to the best of Newgold's knowledge (without inquiry with respect to any tenant on the Newgold Properties), there is no investigation or review pending by any governmental entity, with respect to any (i) alleged violation by Newgold, any Newgold Subsidiary, or any tenant on the Newgold Properties of any Environmental Law, (ii) alleged failure by Newgold, any Newgold Subsidiary or any tenant on the Newgold Properties to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the conduct of its business or (iii) Regulated Activity (b) Neither Newgold nor any Newgold Subsidiary, with respect to any of the Newgold Properties, has any knowledge of any Environmental Liabilities, or of any release of Hazardous Substances into the environment in violation of any Environmental Law or environmental permit. Newgold has disclosed to WAC in writing the presence, to the best of Newgold's knowledge, of any asbestos in any of its premises other than fully encapsulated asbestos-containing construction materials (c) Newgold has delivered to WAC copies of all environmental audits and other similar reports which have been prepared by or for Newgold or any Newgold Subsidiary, or by or for any tenant on the Newgold Properties to the extent delivered to Newgold by such tenant, with respect to the Newgold Properties (d) Except as set forth on Schedule 4.20(d) of Newgold Disclosure Schedule, to the best of Newgold's knowledge, (i) no asbestos-containing materials were installed or exposed in the Newgold Properties through demolition, renovation or otherwise, at any time, (ii) no electrical transformers or other equipment containing PCB's are or were located on the Newgold Properties, (iii) no storage tanks for gasoline, heating oil or diesel fuel or any other substances are or were located on or under the Newgold Properties, and (iv) no materials regulated under any federal, state or local law or regulation, as amended from time to time, as a toxic, hazardous, contaminated or similarly harmful or dangerous material or substance (including, without limitation, asbestos and radon) are or were located on, in or 24 under the Newgold Properties or have affected the Newgold Properties or waters on or under the Newgold Properties. (e) Neither Newgold nor any Newgold Subsidiary, nor to the knowledge of Newgold any tenant on the Newgold Properties, has received any written notice under any applicable local, state or federal law regarding Hazardous substances on, under or affecting the Newgold Properties or requiring the removal of any Hazardous Substances from the Newgold Properties. SECTION 4.21 INSURANCE. Schedule 4.21 of the Newgold Disclosure Schedule sets forth a list of all insurance policies and fidelity bonds insuring the assets, business, equipment, properties, operations, employees, officers and directors of Newgold and the Newgold subsidiaries. Copies of all such policies have been delivered to WAC prior to the date hereof. There is no claim by Newgold or any Newgold Subsidiary pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums payable under all such policies and bonds have been paid and Newgold and the Newgold Subsidiaries are otherwise in full compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). To the best of Newgold's knowledge, no termination or material premium increase is pending or threatened with respect to any of such policies. SECTION 4.22 LABOR MATTERS. Newgold and each Newgold Subsidiary is in compliance with all currently applicable laws and regulations respecting employment, discrimination in employment, verification of immigration status, terms and conditions of employment and wages and hours and occupational safety and health and employment practices, and are not engaged in any unfair labor practice, except to the extent that non-compliance would not have a Material Adverse Effect on Newgold. Neither Newgold nor any Newgold Subsidiary has received any notice from any Governmental Entity, and there has not been asserted before any Governmental Entity, any claim, action or proceeding to which Newgold or any Newgold Subsidiary is a party and, to the best of Newgold's knowledge, there is neither pending nor threatened any investigation or hearing concerning Newgold or any Newgold Subsidiary arising out of or based upon any such laws, regulations or practices. SECTION 4.23 EMPLOYEES. Schedule 4.23 of the Newgold Disclosure schedule lists each employee or consultant (if under a current contract) of Newgold and each Newgold subsidiary, his or her current position, salary, bonus and general compensation arrangement. Except for the employment agreements listed on Schedule 4.23 to the Newgold Disclosure schedule, complete and accurate copies of which have been delivered to WAC, neither Newgold nor any Newgold Subsidiary is a party to any employment agreements. All employees of Newgold and the Newgold Subsidiaries who are employed in a technical, managerial or executive capacity and who are material to the operations of Newgold and the Newgold subsidiaries, taken as a whole, have the right under applicable immigration laws to work in their present locations for at least two years from the Effective Date SECTION 4.24 FINDERS' FEES. Except as disclosed in the WAC Disclosure Statement and plan of Reorganization filed with the Bankruptcy Court, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Newgold or any affiliate thereof who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement. 25 SECTION 4.25 CERTAIN SECURITIES REPRESENTATIONS. Newgold understands and hereby acknowledges that the 11,710,958 shares to be issued in the Merger (the "Merger Shares") have been registered under the Securities Act of 1933, as amended, and may not be resold except pursuant to a registration statement which has been declared effective under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act as confirmed in an opinion of counsel, acceptable in form and substance to WAC, and in accordance with the applicable securities laws of any state of the United States or any other applicable jurisdiction. Newgold acknowledges, and will similarly insure that its shareholders severally acknowledge, that the Merger Shares will be acquired for their own account and are not being acquired with a view to, or for offer or sale in connection with any distribution in violation of the Securities Act. Newgold and its shareholders severally have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of acquiring the Merger shares and are able to bear the economic risk of the investment. Newgold and its shareholders acknowledge that they have had access to such financial and other information, and has been afforded the opportunity to ask such questions of representatives of WAC and receive answers thereto, as it deems necessary in connection with Newgold and its shareholders' decision to acquire the Merger Shares. Neither Newgold nor its shareholders were induced to invest by any form of general solicitation or general advertising including, but not limited to, the following: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over the television or radio; or (ii) any seminar or meeting whose attendees had been invited by any general solicitation or general advertising. portion of the assets of, WAC, other than the transactions contemplated by this Agreement; provided. however, that nothing contained in this Section 5.04 shall prohibit the Board of Directors of WAC from: (i) furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide Acquisition proposal, if, and only to the extent that (a) the Board of Directors of WAC, after consultation with and based upon the advice of Leonard Relin, Esq., or such other counsel selected by the WAC Board of Directors, determines in good faith that such action is required for the Board of Directors to comply with its fiduciary duties to stockholders under applicable law and (b) prior to furnishing the information to, or entering into discussions or negotiations with, the person or entity, WAC provides written notice to Newgold to the effect that it is furnishing to, or entering into discussions, or negotiations with, the person or entity; and (ii) to the extent applicable, complying with Rule l4e-2 and Rule 14a-9 promulgated under the Exchange Act with regard to an Acquisition Proposal. SECTION 5.05 COMPLIANCE WITH OBLIGATIONS. Except to the extent that non-compliance would not have a Material Adverse Effect on WAC, taken as a whole, prior to the Effective Date, WAC shall comply with (ii all applicable federal, state, local and foreign laws, rules and regulations, (ii) all material agreements and obligations. including its respective certificate of incorporation and bylaws and other similar organizational documents, by which it, its properties or its assets may be bound, and (iii) all final and unappealable decrees, orders, writs, injunctions, judgments. statutes, rules and regulations applicable to it and its respective properties or assets. SECTION 5.06 NOTICE OF CERTAIN EVENTS. WAC shall promptly notify Newgold of: (a) any notice or other communication from any person or entity alleging that the consent of such person or entity is or may be required in connection with the transactions contemplated by this Agreement; 26 (b) any employment by WAC any new non-hourly employee to work for, and whose compensation shall be reimbursed by WAC, for an annual salary (including benefits) in excess of $25,000; (c) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; (d) any notice or other communication from the SEC or NASD; (e) any notice or other communication from any lender; and (f) any actions, suits, claims, investigations or proceedings commenced or, to the best of WAC's knowledge threatened against, WAC (c) WAC shall have received an opinion, dated the Effective Date, from Michael J. Morrison, Esq., counsel to Newgold, in form and substance to be agreed to by the Parties. (d) All Consents other than Governmental Authorizations and other than those permits and authorizations referred to in sections 9.03(f) and (g), that are required as a result of the Merger shall have been obtained. (e) The board of directors of WAC shall have received from Newgold's independent public accountants letters dated the date of the Merger Closing which shall be in a form customary for accountants "comfort letters" in transactions such as the Merger and acceptable to WAC. SECTION 8.03 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of Newgold and WAC hereunder are subject to the fulfillment, on and as of the Effective Date, of each of the following conditions (any one or more of which may be waived by such parties, but only in a writing signed by such parties). (a) WAC's stockholders and creditors shall have duly approved this Merger and the New Board all in accordance with applicable laws, and the Bankruptcy Court has confirmed the Plan of Reorganization. (b) The Form S-S shall have become effective under the Securities Act and shall not be the subject of any stop order. (c) Newgold and WAC shall have received a written opinion from their respective counsel and tax advisors to the effect that the Merger will constitute a reorganization within the meaning of ss. 368(b)of the Code, which opinions shall be substantially identical in form and substance and which shall not have been withdrawn or modified in any material respect. In preparing the WAC and the Newgold tax opinions, counsel may rely on reasonable representations related thereto. (d) The shares to be issued in the Merger shall have been authorized subject to official notice to the WAC Stock Transfer Agent for issuance thereof. 27 (e) No statute, rule, regulation, executive order, decree, injunction or restraining order shall have been enacted, promulgated or enforced (and not repealed, superseded or otherwise made inapplicable) by any court or governmental authority which prohibits the consummation of the Merger and the transactions contemplated by this Agreement and each Party shall use its commercially reasonable best efforts to have any such order, decree or injunction lifted. (f) There shall have been obtained any and all Governmental Authorizations, permits, approvals and consents of securities or "blue sky" commissions of any jurisdiction and of any other governmental body or agency, that may reasonably be deemed necessary so that the consummation of the Merger will be in compliance with applicable laws. (g) Notwithstanding the representations contained in Articles III and IV relating to delivery of Disclosure Schedules by the Parties, the Parties acknowledge that such Schedules or parts thereof could not be delivered prior to execution of this Agreement and will be delivered as soon as possible, as and when available, and delivery of same is an express condition precedent to the consummation of this Agreement and the Merger. ARTICLE IX TERMINATION OF AGREEMENT SECTION 9.01 TERMINATION PRIOR TO THE INITIAL CLOSING. This Agreement may be terminated at any time prior to the Initial Closing: WAC; or (a) by mutual consent of the Boards of Directors of Newgold and (b) by Newgold if the conditions set forth in Section 1.01(e) are not satisfied, or by WAC if the conditions set forth in Section 1.01(f) are not satisfied. SECTION 9.02 TERMINATION AFTER THE INITIAL CLOSING. This Agreement may be terminated at any time after the Initial Closing and prior to the Effective Time whether before or after the approval and adoption of the Merger by the stockholders of WAC: WAC; (a) by mutual consent of the Boards of Directors of Newgold and (b) by WAC, if the Fairness Opinion has not been received by WAC or has been withdrawn prior to the Stockholders' Meeting; (c) by either Newgold or WAC, if the stockholders of WAC do not approve the Merger and the transaction contemplated hereby upon the holding of a duly convened Stockholders' Meeting; (d) by WAC, if WAC shall have received an Acquisition Proposal that WAC's Board of Directors determines to recommend to the stockholders of WAC for approval and acceptance; 28 (e) by Newgold, if it is not in breach of this Agreement and if the Board of Directors of WAC shall have (i) withdrawn its recommendation of the Merger (except if such withdrawal is caused by any disclosures made or required to be made by Newgold in the Form 5-8 pursuant to Item 404 of Regulation S-K that in the opinion of the disinterested members of the Board of Directors of WAC materially and adversely affects the Merger such that WAC could have terminated this Agreement pursuant to Section 9.02(h) hereto), or (ii) recommended or approved acceptance by WAC's stockholders of any Acquisition Proposal; (f) by Newgold, if (i) there has been a breach by WAC of any of its representations and warranties hereunder such that Section 8.01(a) will not be satisfied, or (ii) there has been the breach on the part of WAC of any of its covenants or agreements contained in this Agreement such that Section 6.01(b) will not be satisfied, and, in both case (i) and case (ii), such breach has not been promptly cured after notice (in reasonable detail) to WAC; (g) by WAC, if (i) there has been a breach by Newgold of any of its respective representations and warranties hereunder such that Section 6.02(a) will not be satisfied, or (ii) there has been a breach on the part of Newgold of any of its respective covenants or agreements contained in this Agreement such that Section 6.02(b) will not be satisfied, and, in both case (i) and case (ii), such breach has not been promptly cured after notice (in reasonable detail) to Newgold; provided, however, that at WAC's option, a breach of Section 6.06 of this Agreement may not be cured by Newgold; and provided further, that if WAC seeks to terminate this Agreement because of a Newgold Decline in Value (as defined in Section 4.01), then at Newgold's option, in lieu of such termination, number of shares to be issued to Newgold hereunder shall be re-computed in accordance with the formula set forth in Schedule 9.02 hereto; (h) by WAC, if there shall be any disclosures made or required to be made by Newgold in the Form s-S pursuant to Item 404 of Regulation S-K that in the opinion of the disinterested members of the Board of Directors of WAC materially and adversely affects the Merger; or (i) by any Party, if the Effective Date has not occurred by December 31, 1996. SECTION 9.03 EFFECT OF TERMINATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES. In the event of termination of this Agreement, as provided above, all further obligation of the Parties under this Agreement shall terminate without further liability of any Party to the other except that the agreements contained or referred to in Article I (provided that termination occurs after the Initial Closing) and Sections 4.25, 5.07, 6.02, 6.06 and 10.03 (provided that termination occurs after the Initial Closing) shall survive the termination hereof. Except for Sections 4.25, 5.07, 6.02 and 6.06, all representations, warranties and covenants made herein, and in any instrument delivered pursuant to Articles III and IV of this Agreement, shall be deemed to be conditions to the Merger Closing and shall not survive the Effective Time. ARTICLE X MISCELLANEOUS 29 SECTION 10.01 DEFINITIONS. The following terms are defined in the section of this Agreement referenced below: Defined Term Reference Acquisition Proposal Section 5.04 Agreement Preamble Certificate of Incorporation Section 3.01 Code Recital D Completion Notice Section 1.01(b) Commitment Section 1.02(a) Consents Section 8.01(f) Debtor's Certificates Article I Effective Date Section 2.02 Effective Time Section 2.02 Environmental Laws Section 3.21(f) Environmental Liabilities Section 3.21(f) ERISA Section 3.15(a) Exchange Act Section 3.03(a) Fairness Opinion Section 8.01(f) Form S-S Section 5.08 GAAP Section 1.03(a) Governmental Authority Section 3.09 Governmental Authorizations Section 3.23 Hazardous Substances Section 3.21(f) HSR Act Section 3.03(a) Initial Closing Section 1.01(c) Initial Shares Section 1.01(a) Knowledge Section 10.13 Lien Section 3.04 Material Adverse Change Section 3.01 Material Adverse Effect Section 3.01 Meeting Section 3.02 Meeting Date Section 5.02 Merger Recital A Merger Closing Section 2.01 Merger Date Section 2.01 Multi-employer Plan Section 5.15(b) NASDAQ Section 3.03(d) Nevada Law Recital C New Bylaws Section 2.05 New Board Section 5.02 Newgold Preamble Newgold Balance Sheet Section 4.07 Newgold Balance Sheet Date Section 4.07 Newgold Common Stock Recital C Newgold Decline in Value Section 4.01 Newgold Disclosure Schedule Article IV Newgold Employee Plans Section 4.14(a) Newgold Intellectual Property Rights Section 4.16 Newgold Material Contract Section 4.15 30 Newgold Subsidiaries Section 4.06(a) Newgold Subsidiaries' Securities Section 4.06(b) Delaware Law Recital C Parties Preamble Registration Statement Section 3.31 Regulated Activity Section 3.21(f) Restated Certificate Section 2.04 SEC Section 3.03(c) Securities Act Section 1.08 Subsidiary Section 3.069a) Surviving Corporation Recital C Tax Section 3.17(p) Taxing Authority Section 3.17(p) Termination Date Section 1.02(a) WAC Preamble WAC Balance Sheet Section 3.02 WAC Balance Sheet Date Section 3.087 WAC Common Stock Recital B WAC Disclosure Schedule Article III WAC Employee Plans Section 3.16(a) WAC Intellectual Property Rights Section 3.18(b) WAC Material Contract Section 3.16 WAC Options Section 1.07(a) WAC Properties Section 3.20 WAC Reports Section 3.07(b) WAC Securities Section 3.05 WAC Stockholders Section 5.02 WAC Tax Returns Section 3.18(a) SECTION 10.02 FURTHER ASSURANCES. Each Party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. SECTION 10.03 FEES AND EXPENSES. (a) Except as set forth below, each party shall bear its own fees and expenses, including counsel fees and fees of brokers and investment bankers contracted by such party, in connection with the transactions contemplated hereby. (b) If this Agreement is terminated pursuant to Section 9.02(c), then WAC shall reimburse Newgold for its expenses (including, without limitation, attorney fees, accountant fees and appraisal fees) 31 (c) If the Merger is not consummated because WAC terminates this Agreement pursuant to Section g.02(g) (and it is not cured by Newgold) or Section 9.02(h), then Newgold shall reimburse WAC for its expenses (including, without limitation, attorney fees, accountant fees, and appraisal fees). SECTION 10.04 NOTICES. Whenever any Party hereto desires or is required to give any notice, demand, or request with respect to this Agreement, each such communication shall be in writing and shall be effective only if it is delivered by personal service or mailed, United States registered or certified mail, postage prepaid, or sent by prepaid overnight courier or confirmed telecopier, addressed as follows: If to Newgold: Newgold Corp. 5190 Neil Road, suite 320 Reno, Nevada 69502 With a copy in each case to: Michael J. Morrison, Esq. 1025 Ridgeview Drive, Suite 400 Reno, Nevada 89509 If to WAC: Warehouse Auto Centers, Inc. c/o Leonard Relin, Esq. 1 E. Main Street Rochester, New York 14614 With a copy in each case to: Leonard Relin, Esq. 1 E. Main Street Rochester, New York 14614 Such communications shall be effective when they are received by the addressee thereof. Any Party may change its address for such communications by giving notice thereof to the other parties in conformity with this section. SECTION 10.05 GOVERNING LAWS. The laws of the state of Delaware (irrespective of its choice of law principles) shall govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties. SECTION 10.06 BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the parties and may not be assigned, in whole or in part, without the written consent of the other party which may be withheld for any reason or for no reason. SECTION 10.07 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall for any reason or to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances shall continue in full 32 force and effect and in no way be affected, impaired or invalidated, except to the extent that the intent of the Parties in entering into the Agreement shall be substantially and materially impaired. SECTION 10.09 ENTIRE AGREEMENT. This Agreement, the Plan of Reorganization and the Confidentiality Agreement constitute the entire understanding and agreement of the Parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto. SECTION 10.09 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy shall not preclude the exercise of any other. SECTION 10.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. This Agreement may not be amended or supplemented by any party hereto except pursuant to a written amendment executed by all parties, and provided further that, following approval by the stockholders of WAC of the Merger, there shall be no amendment or change to the provisions hereof. SECTION 10.11 NO WAIVER. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions. SECTION 10.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. A reference to an Article, Section, Schedule or Exhibit shall mean an Article of, a Section in, or Schedule or Exhibit to, this Agreement unless otherwise explicitly set forth. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words "include," "includes," and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." For purposes of this Agreement, and except as provided in the following sentence, the term "knowledge," when used in reference to a corporation means the actual knowledge of the executive officers of such corporation after such officers shall have made any such inquiry that is customary and appropriate under the circumstances to which reference is made, and when used in reference to an individual means the actual knowledge of such individual after the individual shall have made any such inquiry that is customary and appropriate under the circumstances to which reference is made. SECTION 10.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this Agreement is intended, nor will be interpreted, to provide to create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, stockholder, employee, partner or any party hereto or any other person or entity and all provisions hereof will be personal solely between the parties to this Agreement. 33 SECTION 10.14 MUTUAL DRAFTING. This Agreement is the joint product of the parties hereto, and each provision hereof has been subject to the mutual consultation, negotiation and agreement of such parties, and shall not be construed for or against any party hereto. SECTION 10.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears thereon and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the panes reflected hereon as signatories. SECTION 10.16 AGREEMENT CONDITIONAL ON CONTINUATION OF WAC'S NASDAQ BULLETIN BOARD LISTING. Notwithstanding anything contained herein to the contrary, this Agreement and all transactions contemplated hereby shall be null and void, and this Agreement rescinded, if NASDAQ delists the WAC Shares from the Bulletin Board or does not approve of this Merger. The parties expressly agree that it is of utmost importance to the parties and is a fundamental purpose of this Agreement for WAC to remain as a NASDAQ Bulletin Board listee. 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NEWGOLD, INC. By: _____________________________________ Arthur Scott Dockter, President WAREHOUSE AUTO CENTERS, INC. By: _____________________________________ 35 EX-10 7 EXHIBIT 10.9 April 2, 1997 With this note, I, A. Scott Dockter, hereby authorize the transfer of One Hundred Thousand Dollars ($100,000.00) of my person funds tot he Operations Account of newgold, Inc. with U.S. Bank, Reno, nevada. this transfer is acknowledged by myself and Newgold, Inc. to be a personal loan to Newgold, Inc. and due on demand from the date of transfer. This loan shall bear interest at the rate of eight percent (8%) until paid in full. Further, I request that the Four Hundred Thousand ($400,000.00) balance of Five Hundred Thousand ($500,000.00) paid to me by Repadre International be transferred to my personal account with U.S. Bank, Reno, Nevada. /s/ A. Scott Dockter /s/ Robert W. Morris - ---------------------- --------------------------- A. Scott Dockter Newgold, Inc. Robert W. Morris, Treasurer EX-10 8 EXHIBIT 10.10 April 17, 1997 With this note, I, A. Scott Dockter, hereby loan Fifty Thousand Dollars ($50,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid upon my demand. This loan bears interest at the rate of eight percent (8%) until paid in full. /s/ A. Scott Dockter /s/ Robert W. Morris - --------------------- ----------------------- A. Scott Dockter Newgold, Inc. Robert W. Morris, Treasurer EX-10 9 EXHIBIT 10.11 April 30, 1997 With this note, I, A. Scott Dockter, hereby loan Twenty Thousand Dollars ($20,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid upon my demand. This loan bears interest at the rate of eight percent (8%) until paid in full. /s/ A. Scott Dockter /s/ Robert W. Morris - -------------------- --------------------- A. Scott Dockter Newgold, Inc. Robert W. Morris, Treasurer EX-10 10 EXHIBIT 10.12 May 30, 1997 With this note, I, A. Scott Dockter, hereby loan Thirty-Five Thousand Dollars ($35,000.00) of my personal funds to Newgold Inc., Reno, Nevada, to be repaid upon my demand. This loan bears interest at the rate of eight percent (8%) until paid in full. NEWGOLD INC. /s/ A. Scott Docker By /s/ Robert W. Morris - --------------------- -------------------- A. Scott Dockter Robert W. Morris, Treasurer EX-27 11
5 12-MOS Jan-31-1997 Jan-31-1997 876,573 0 154,357 0 0 1,030,930 3,873,815 25,561 5,266,616 782,586 0 0 0 18,762 3,965,268 5,266,616 0 52,607 0 1,788,415 0 0 67,976 (1,803,784) 0 (1,803,784) 0 0 0 (1,803,784) (0.14) (0.14)
-----END PRIVACY-ENHANCED MESSAGE-----