United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)
| [_] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended ended: December 31, 2005
2022
| OR |
| [_] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
| OR |
| [_] | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission File Number file number: 001-31819
GOLD RESERVE INC.
(Exact
(Exact name of registrantRegistrant as specified in its charter)
Yukon Territory, Canada
(Jurisdiction
N/A
(Translation of incorporation)
926Registrant’s name into English)
Alberta, Canada
(Jurisdiction of incorporation or organization)
999 West SpragueRiverside Avenue, Suite 200
401, Spokane, Washington99201
(Address
(Address of Brisas Project corporate and principal executive offices)
Rockne J. Timm,
999 West Riverside Avenue, Suite 401, Spokane, Washington99201
Telephone: (509)623-1500 Fax: 509-623-1634
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act: Class A common
shares, no par value per share Preferred Share Purchase Rights
(Title of each class)
The Toronto Stock Exchange ("TSX")
American Stock Exchange ("AMEX")
(Name of each exchange on which registered)
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| None |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The total
Class A common shares, no par value per share
(Title of Class)
Indicate the number of outstanding shares of each of the registrantis shares outstandingissuer’s classes of capital or common stock as of December 31,
2005:
the close of the period covered by the annual report:
Class A common shares, no par value per share: 34,902,200 Equity Units, no
par value per share: 610,745
Indicate by check mark if the registrant is a well-known seasonedwell-seasoned issuer, as defined in Rule 405 of the Securities Act.
[_] Yes __ [X] No X
If this report is an annual or transition report, indicate by check mark if the registrantRegistrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [_] Yes __ [X] No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period asthat the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes X
[_] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes[_] No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of accelerated filer and" large accelerated filer," “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer __ [_] Accelerated filer X [_] Non-accelerated filer __
[X]
Emerging growth company [_]
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [_]
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [_]
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [_]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
| U.S. GAAP[X] | International Financial Reporting Standards as issued by the International Accounting Standards Board [_] | Other [_] |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. X [_] Item 17 __ [_] Item 18
If this is an annual report, indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).[_] Yes __ [X] No X
TABLE OF CONTENTS
- --------------------
GENERAL INFORMATION
Forward-Looking Statements
Mineral
Table of Contents
General Information
Explanatory note
Gold Reserve Estimates
Currency
GlossaryInc. (the "Company") is a Canadian issuer eligible to file its Annual Report pursuant to Section 13 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), on Form 20-F. The Company Organizational Structure
Corporate Reorganization
The Brisas Project
Item 1. Identityis a "foreign private issuer" as defined in Rule 3b-4 under the Exchange Act and in Rule 405 under the U.S. Securities Act of Directors, Senior Management and Advisors Not Applicable
Item 2. Offer Statistics and Expected Timetable Not Applicable
Item 3. Key Information
Selected Financial Data
Dividends
Risk Factors
Item 4. Information on the Company
History and Development1933, as amended (the "Securities Act"). Equity securities of the Company Properties
Venezuelan Mining, Environmentare accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and Other Matters Item 4A. Unresolved Staff
Comments-Not Applicable
Item 5. Operating16 of the Exchange Act pursuant to Rule 3a12-3.
In this Annual Report, unless the context otherwise requires, the terms “common shares,” “shares” and Financial Review and Prospects
Overview
Operations in Venezuela
Critical Accounting Policies and Estimates Results“Class A Shares” refer to the Class A common shares of Operations
Liquidity and Capital Resources
Item 6. Directors, Senior Management and Employees Compensation of Directors
and Officers
Item 7. Major Shareholders and Related Party Transactions Control of
Registrant
Related Party Transactions
Interest of Insiders in Material Transactions
Item 8. Financial Information
Legal Proceedings
Significant Changes
Item 9. The Offer and Listing
Offer and Listing details
Item 10. Additional Information
Memorandum and Articles of Association
Material contracts
Exchange Controls and Other Limitations Affecting Security Holders Taxation
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other Than Equity Securities - Not applicable
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Item 14. Material Modifications to Rights of Security Holders and Use of
Proceeds - None
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
PART III
Item 17. Financial Statements
Index to Consolidated Financial Statements Management's Report
AUDITORS Report
Item 18. Financial Statements Not Applicable
Item 19. Exhibits
Signatures
Exhibit 12.1 Chief Executive Officers Section 302 Certification
Exhibit 12.2 Chief Financial Officer's Section 302 Certification
Exhibit 13.1 Chief Executive Officer's Section 906 Certification
Exhibit 13.2 Chief Financial Officer's Section 906 Certification
Exhibit 99.1 Consent of Independent Accountants
Exhibit 99.2 Consent of Pincock, Allen & Holt
Exhibit 99.3 Consent of SNC-Lavalin Engineers & Constructors, Inc.
PART I
GENERAL INFORMATION
- --------------------Company.
Cautionary Statement Regarding Forward-Looking Statements
The information presented or incorporated by reference in this Annual Report, on Form 20-F including Operating and Financial Review and Prospects in Item
5, contains bothother than statements of historical information and forward-looking statementsfact, are, or could be, “forward-looking statements” (within the meaning of Section 27A of the United States Securities Act, of
1933, as amended (the "Securities Act"), and Section 21E of the United States
Securities Exchange ActAct) or “forward-looking information” (within the meaning of 1934,applicable Canadian provincial and territorial securities laws) (collectively referred to herein as amended (the "Exchange Act"“forward-looking statements”)). These that may state the Company’s and its management’s intentions, hopes, beliefs, expectations or predictions for the future.
Forward-looking statements are necessarily based upon a number of estimates, expectations, and assumptions that, while considered reasonable by the Company and its management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The Company cautions that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause the actual outcomes, financial results, performance or achievements to be materially different from those expressed or implied therein, many of which are outside our control. Forward-looking statements speak only as of the date made, and any such forward-looking statements are not intended to provide any assurances as to future results. The Company believes its estimates, expectations and assumptions are reasonable, but there can be no assurance those reflected herein will be achieved. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements involve risks and uncertainties, as well as assumptions, including those set out herein, that if theymay never materialize, prove incorrect or materialize other than as currently contemplated which could cause theour results of the Company
and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements. Numerous factors could cause
actual results to differ materially from those in the forwardlooking
statements. See - Item 3. Key Information - Risk Factors.
The words "believe," "anticipate," "expect," "intend," "estimate," "plan,"
"assume," "positioned," "may," "could"“believe,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “may,” “could” and other similar expressions that are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements.statements, although not all forward-looking statements contain these words. Any such forward-looking statements are not intended to giveprovide any assurances as to future results.
| 1 |
Numerous factors could cause actual results to differ materially from those described in the forward-looking statements, any of which could adversely affect the Company, including, without limitation: (i) risks associated with the timing and ability to appeal, contest, reverse or otherwise alter the resolution of the Bolivarian Republic of Venezuela (“Venezuela”) Ministry of Mines to revoke the mining rights held by our joint venture entity Empresa Mixta Ecosocialista Siembra Minera, S.A. (“Siembra Minera”) for alleged non-compliance with certain Venezuelan mining regulations (the “Resolution”), with various Venezuelan authorities, including the Venezuelan Supreme Court of Justice; (ii) Venezuela’s failure to honor its commitments under the Company’s settlement agreement with them, with respect to their obligations to the Company in connection with Siembra Minera and/or the inability of the Company and Venezuela to overcome certain obstacles associated with the Siembra Minera project; (iii) risks associated with Venezuela’s ongoing failure to honor its commitments associated with the formation, financing and operation of Siembra Minera; (iv) the breach of one or more of the terms of the underlying agreements governing the formation of Siembra Minera and the future development of the Siembra Minera project by Venezuela; (v) risks associated with exploration, delineation of sufficient reserves, regulatory and permitting obstacles and other risks associated with the development of the Siembra Minera project; (vi) risks associated with sanctions imposed by the U.S. and Canadian governments, including without limitation those targeting Venezuela; (vii) risks associated with whether the Company is able to obtain (or get results from) relief from such sanctions, if any, obtained from the U.S. Office of Foreign Asset Control or other similar regulatory bodies; (viii) risks associated with recovering funds under the Company’s settlement arrangements with the government of Venezuela or its various proceedings against the government of Venezuela, including (a) the potential ability of the Company to obtain funds as a result of the conditional writ of attachment fieri facias granted by the U.S. District Court of Delaware on March 31, 2023 with respect to shares of PDV Holding, Inc. (“PDVH”), whereby the Company may potentially enforce its September 2014 arbitral award and corresponding November 2015 U.S. judgment by participating in the potential sale of PDVH shares, and the potential ability of the Company to obtain the funds that the Lisbon District Court in Portugal granted a motion to allow the Company to attach and seize, and (b) the Company’s ability to repatriate any such funds, in the event grant of the writ of attachment is upheld and funds become available, or any funds owed to the Company under the settlement arrangements that may become available; and (ix) risks associated with Camac Partners LLC’s activist campaign or any other activist from time to time, including potential costs and distraction of management and the directors’ time and attention related thereto that would otherwise be spent on other matters including appealing or contesting the Resolution. This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements.
Investors are cautioned not to put undue reliance on forward-looking statements, and investors should not infer that there has been no change in theour affairs
of the Company since the date of this report that would warrant any modification of any forward-looking statement made in this document, other documents periodically filed periodically with the SEC, the Ontario Securities Commission or other securities regulators or documents presented on our Companythe Company's website. Forward-looking statements speak only as of the date made. Investors are urged to read the Company's filings with U.S. and Canadian securities regulatory agencies, which can be viewed online at www.sec.gov and www.sedar.com, respectively.
These risks and uncertainties, and additional risk factors that could cause results to differ materially from forward-looking statements, are more fully described in this Annual Report, including, but limited to, the section entitled “Risk Factors”, and in the Company’s other filings with the SEC and Canadian securities regulatory agencies, which can be viewed online at www.sec.gov and www.sedar.com, respectively. Consider these factors carefully in evaluating the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company, the Company’s management, or other persons acting on itsthe Company’s behalf are expressly qualified in their entirety by this notice. The Company disclaims any intent or obligation to update publicly theseor otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether, as a result of new information, future events or otherwise.
Investors are urgedotherwise, subject to read the Company's filings with U.S.its disclosure obligations under applicable rules and Canadian
securities regulatory agencies, which can be viewed on-line at www.sec.gov,
www.sedar.com or at the Company's website, www.goldreserveinc.com.
Additionally, you can request a copy of any of these filings directly from
the Company.
Mineral Reserve Estimates
- -------------------------
With the completion of the Brisas Project Bankable Feasibility Study in early
2005 described below, the Brisas Project is an advanced development-stage
project. The mineral reserves contained herein have been calculated in
accordance with CSA National Instrument 43-101, as requiredregulations promulgated by Canadian
Securities Regulatory authorities. We believe that the calculation of such
mineral reserves is substantially the same as those under the U.S. Securities and Exchange Commission Industry Guide 7. However, we advise U.S.and applicable Canadian provincial and territorial securities laws. Any forward-looking information contained herein is presented for the purpose of assisting investors that definitions contained in National Instrument 43-101 differ in certain
respects from those set forthunderstanding the Company’s expected financial and operational performance and results as at and for the periods ended on the dates presented in the Company’s plans and objectives and may not be appropriate for other purposes.
| 2 |
Currency
Unless otherwise indicated, all references to "$", "U.S. $" or "U.S. dollars" in this Annual Report on Form 20-F refer to U.S. Securitiesdollars and Exchange Commission
Industry Guide 7.
Currency
- ---------
All currency isreferences to "Cdn $" or "Canadian dollars" refer to Canadian dollars. The 12-month average rate of exchange for one Canadian dollar, expressed in U.S. Dollars unless otherwise noted.
Glossary
- ---------
Certain technical terms used herein are defined indollars, for each of the glossarylast three calendar years 2022, 2021 and 2020, equaled 0.7682, 0.7977 and 0.7455, respectively, and the exchange rate at the end of this Annual Report.
The Company
- -----------
Gold Reserve Inc. (the "Company") is a mining company incorporated in 1998
under the lawseach such period equaled 0.739, 0.7827 and 0.7841, respectively.
Glossary of the Yukon Territory, Canada. Gold Reserve Inc's. registered
agent is Austring, Fendrick, Fairman & Parkkari, The Drury Building, 3801
Third Avenue, Whitehorse, Yukon, Y1A 4Z7. Telephone and fax numbers for the
Company's registered office are 867.668.4405 and 867.668.3710, respectively.
The Company's Brisas Project corporate administrative office is located at
926 West Sprague Avenue, Suite 200, Spokane, WA 99201, U.S.A. and its
Venezuelan administrative and technical offices are located in Caracas and
Puerto Ordaz, Venezuela. Telephone and fax numbers for the Company's
administrative office are 509.623.1500 and 509.623.1634, respectively. The
Company also maintains technical staff in Toronto, Canada and Denver,
Colorado.
Organizational Structure
- ------------------------
Except as otherwise indicated herein, theSignificant Terms
Certain terms "we," "us," "our," and the
"Company"used throughout this report refer primarilyare defined below.
| ABCA | Business Corporations Act (Alberta). |
| Award | $740.3 million award granted by the World Bank’s International Center for the Settlement of Investment Disputes (“ICSID”) in favor of the Company in September 2014 as a result of the Brisas Arbitration. |
Brisas Arbitration Arbitration claim initiated in October 2009 by the Company under the Additional Facility Rules of ICSID to Gold Reserve Inc., Gold
Reserve Corporation, Gold Reserve de Barbados Ltd. (domiciledobtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project in violation of the terms of the Treaty between the Government of Canada and the U.S.Government of Venezuela for the Promotion and Barbados, respectively), Gold Reserve de Venezuela, C.A. ("GLDRV"),
Compania Aurifera Protection of Investments.
Brisas del Cuyuni, C.A. ("BRISAS") (both domiciled in
Venezuela),Project The Company’s former gold and Great Basin Energies, Inc. ("Great Basin") and MGC Ventures
Inc. ("MGC Ventures") (both domiciledcopper project located in the U.S.), which have no current
business activities. All of the consolidated companies noted above are wholly
owned except for Great Basin and MGC Ventures, which are approximately 47%
owned.
Corporate Reorganization
- ------------------------
In February 1999, the shareholders of Gold Reserve Corporation approved a
plan of reorganization whereby Gold Reserve Corporation became a subsidiary
of Gold Reserve Inc., the successor issuer (the "Reorganization"). Generally,
each shareholder of Gold Reserve Corporation received one Gold Reserve Inc.
Class A common share for each common share owned of Gold Reserve Corporation,
continuingKilometer 88 mining district in Bolivar State in Southeastern Venezuela. From 1992 to own an interest in the business that in aggregate was
essentially the same as before the Reorganization. Certain U.S. Shareholders,
for tax reasons, received equity units in lieu of Gold Reserve Inc. Class A
common shares. An equity unit is comprised of one Gold Reserve Inc. Class B
common share and one Gold Reserve Corporation Class B common share. The
equity units are substantially equivalent to a Class A common share and are
immediately convertible into Gold Reserve Inc. Class A common shares upon
compliance with certain procedures. Equity units are not listed for trading
on any stock exchange, but, subject to compliance with applicable federal,
provincial and state securities laws, may be transferred. Unless otherwise
noted, general references to common shares of2009, the Company include Class A
common sharesexplored, developed and Class B common sharespermitted a 70,000 tonne per day gold-copper project which was expropriated by the Venezuelan government in 2009.
| CVR | Pursuant to a 2012 restructuring of our previously outstanding convertible notes, we issued contingent value rights (“CVRs”) that entitle the holders to an aggregate of 5.466% of certain proceeds with respect to the collection of the Award and/or sale of Mining Data or an enterprise sale, as such terms are defined in the CVRs (the "Proceeds"), less amounts for certain specified obligations (as defined in the CVR). |
Exchange Act The U.S. Securities Exchange Act of 1934, as a combined group.amended.
| ICSID | International Centre for the Settlement of Investment Disputes. |
LMS Gold Project Mining claims located in Alaska, with early stage exploration being conducted by the Company. Also known as LMS Property.
Mining Data The Brisas Project
- ------------------
Our primary mining asset,drilling and technical mine engineering data base including Canadian National Instrument NI 43-101 reports related to the Siembra Minera project area historically known as the Brisas Project, is a gold/and Las Cristinas areas.
Mining Rights Certain gold, copper, depositsilver and other strategic mineral rights granted to Siembra Minera, S.A. within approximately 18,950 hectares in an area located in the Km 88 gold mining district of southeast Bolivar State which includes the Statehistorical Brisas and Cristinas areas.
| Ministry | Venezuelan Ministry of the People’s Power for Ecological Mining Development or the Ministry of Mines of Venezuela. |
| Resolution | The March 2022 resolution of the Venezuelan Ministry of Mines to revoke the mining rights of Siembra Minera, S.A. |
Securities Act The U.S. Securities Act of Bolivar in southeastern
Venezuela. Approximately $1001933, as amended.
| 3 |
Settlement Agreement Settlement Agreement dated July 17, 2016, by and between Gold Reserve and Venezuela, as amended, whereby Venezuela agreed to pay the Company $792 million has been expended (includes costs
capitalizedto satisfy the Award and costs expensed in$240 million for the period incurred) onpurchase of the Company’s technical mining data associated with the Company’s Brisas Project since its acquisition in 1992. In 2005, the Company, with the assistancefor a total of a
number of independent consultants, completed a Bankable Feasibility Study for
the Brisas Project. Based on the positive conclusions contained in the
Bankable Feasibility Study, the Board of Directors approved proceeding with
the financing and construction of the mine.
The Brisas Project consists of the following: a 500-hectare land parcel
consisting of the Brisas alluvial concession and the Brisas hardrock
concession beneath the alluvial concession (the "Brisas concessions").
Together these concessions contain substantially all of the mineralization
identified in the Brisas Bankable Feasibility Study. The Brisas Project also
includes a number of other existing or pending applications for concessions,
alfarjetas,approximately $1.032 billion.
Siembra Minera Empresa Mixta Ecosocialista Siembra Minera, S.A. A Venezuelan entity beneficially owned 55% by Corporacion Venezolana de Guayana ("CVG") work contracts, land
use permitsMineria, S.A., a Venezuelan government corporation, and easements, adjacent45% by Gold Reserve.
Siembra Minera Project The exploration and development mining project relating to or near the Brisas concessions
totaling another 13,000 hectares. These additional land parcels comprise the
bulk of the land required for the mining and milling facility and related
infrastructure contemplated in the Brisas Bankable Feasibility Study and
failurerights granted to obtain one or moreSiembra Minera.
Venezuela The Bolivarian Republic of these properties could have a material
adverse affect on the Company. See "- Item 4. Information on the Company
- -Properties -Brisas Project."
Venezuela.
| 4 |
PART I
Item 1. Identity of Directors, Senior Management and Advisors -
Not Applicable
applicable.
Item 2. Offer Statistics and Expected Timetable -
Not Applicable
applicable.
Item 3. Key Information
Selected Financial Data
- -----------------------
A. [Reserved]
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk factors
Related to the Resolution to Revoke the Rights with Respect to, and Development and Operation of, the Siembra Minera Project
The selected financial data set forth belowMinistry issued a Resolution in March 2022 to revoke the mining rights of the Venezuelan joint venture company, Siembra Minera for alleged non-compliance with certain Venezuelan mining regulations. Siembra Minera filed a reconsideration request in May 2022 which was denied by the Ministry. The Company disagrees with both the substantive and procedural grounds claimed by the Venezuelan government regarding the revocation of mining rights and the reconsideration request. We are derived fromevaluating all legal rights and remedies that are available to us under Venezuelan and other laws, under the Company's
audited financial statementsSettlement Agreement and should be readotherwise and, in conjunctionlate 2022, we filed for an appeal of the Resolution with the Company's consolidated financial statements and notes thereto appearing in
Item 17 and Operating and Financial Review and Prospects in Item 5. The
following selected financial data have been prepared in U.S. Dollars on the
basisVenezuelan Supreme Court of accounting principles generally accepted in Canada.
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------
(in thousandsJustice. We also requested a precautionary measure of U.S. Dollars, except share and per share amounts)
Other income $1,403 $900 $770 $703 $1,200
Net loss (9,027) (5,483) (3,707) (3,008) (851)
Loss per common
share (1) (0.26) (0.19) (0.15) (0.13) (0.04)
Total assets(2) 81,955 86,606 67,030 59,843 62,553
Net Assets -
Shareholders' equity(3) 79,638 84,176 65,138 58,412 61,169
Capital stock 140,512 136,908 112,971 102,498 102,266
Common shares:(4)
Issued 35,196,287 33,715,795 27,750,258 22,996,158 22,655,122
Outstanding 34,902,200 33,421,708 27,456,171 22,702,071 21,361,035
Equity Units: (4)
Issued 1,110,020 1,157,397 1,237,880 1,289,980 1,313,016
Outstanding 610,745 658,122 738,605 790,705 813,741
1. Basic and diluted.
2. Total assets prepared in accordance with accounting principles
generally accepted in the U.S. at December 31, 2005, 2004, 2003, 2002, and
2001 were $45,033, $48,615, $35,379, $25,118, and $27,947, respectively. See
Note 11 to the Company's consolidated financial statements, "Differences
between Canadian and U.S. GAAP."
3. Total shareholders' equity prepared in accordance with accounting principles
generally accepted in the U.S. at December 31, 2005, 2004, 2003, 2002, and 2001
was $42,716, $46,186, $33,487, $23,687, and $26,563, respectively. See Note 11
to the Company's consolidated financial statements, "Differences between
Canadian and U.S. GAAP."
4. Great Basin Energies Inc. and MGC Ventures Inc. are both a
partsuspension of the consolidated financial statementseffects of the Resolution which was denied (See Item 8.A). Even if there is a successful appeal or overturning of such resolution, the following additional risks apply in connection with any development or operation of the Siembra Minera Project.
Venezuela's failure to honor its commitments and/or the inability of the Company and own shares
ofVenezuela to overcome certain obstacles associated with the Company. As a result,Siembra Minera Project could adversely affect the Company has an indirect investment in
itself. The shares and equity units held by these entities represent the
difference between issued and outstanding shares.
Dividends
- ---------
We have not declared cash or share dividends since 1984 and have no present
plans to pay any cash or share dividends. We may declare cash or share
dividends in the future only if earnings and capital of the Company are
sufficient to justify the payment of such dividends.
Risk Factors
- ------------
Our mining assets are concentrated in a foreign country and, as a result,
our operations are subject to inherent local risks.
Our exploration and development activities in foreign countries are
affected by certain factors including those listed below, which are
beyond our control, any one of which could have a material adverse
affect on our financial position and results of operations.
Political and Economic Environment
- ----------------------------------
Our foreign operations, are subject to political and economic risks,
including:
The effects of local political, labor and economic developments, instability
and unrest;
Significant or abrupt changes in the applicable regulatory or legal climate;
Corruption, requests improper for payments or other actions that may violate
Canadian and U.S. foreign corrupt practices acts, uncertain legal enforcement
and physical security;
Invalidation or rescission of governmental orders, permits, agreements or
property rights;
Exchange controls and export or sale restrictions;
Currency fluctuations and repatriation restrictions;
Disadvantages of competing against companies from countries that are not
subject to Canadian and U.S. laws and regulations;
Laws or policies of foreign countries and Canada affecting trade, investment
and taxation.
Certain permits are required prior to obtaining financing and beginning
construction on the Brisas property.
- -----------------------------------------------------------------------------
The Company is dependent on Venezuelan regulatory authorities to issue the
Company certain key permits relating to the Brisas Project prior to obtaining
sufficient financing and beginning construction on, and operating, the Brisas
property. Most importantly, the Company must obtain the Administrative
Authorization to Affect Natural Resources for Construction of Infrastructure
and Exploitation of Alluvial and Vein Deposits of Gold and Copper from the
Ministry of the Environment and Natural Resources (the "MARN"), which is
typically issued subsequent to a company obtaining approval of its operating
plan by the Ministry of Basic Industries and Mines ("MIBAM").
The Company's original operating plan was approved by the Ministry of Energy
and Mines ("MEM") (now MIBAM) in 2003. Since approval of the original
operating plan, the Company has submitted to MIBAMCompany.
There remains a number of modifications
to the plan in order to minimize impact to the environment and optimize
economics of the Brisas Project, including an increase in milling capacity up
to 70,000 tons per day and relocation of certain surface facilities and
infrastructure.
Management can give no assurance that the issuance of items the Company still
requires for proceedingoutstanding commitments by Venezuela associated with the Brisas Project will not be delayed or
withheld, or any existing rights or approvals already issued or granted to
the Company for its operations in Venezuela will not be rescinded, or
otherwise challenged. The reasons for any such action could relate toformation and operation of Siembra Minera including a number of factors noted herein, which are mostly outsidelegal or regulatory obstacles related to the development of the Company's
control or in response to the Company's lawful actions. As a result,
management is unable to provide any assurance as to if and when the remaining
required Venezuelan permits will be issued to the Company. Failure to obtain
any of these required permits will result in the Company not being able to
construct and operate the BrisasSiembra Minera Project, which will result in a material
adverse affect on the Company's operations and investments in Venezuela and
continued operating losses. See "-Item 4. Information on the Company
- -Properties -Brisas Project."
Government Review of Contracts and Concessions for Compliance
- -----------------------------------------------------------------------------
In early 2005, Venezuela's Minister of MIBAM, Victor Alvarez, announced that
Venezuela would review all foreign investments in non-oil basic industries,
including gold projects. In September 2005, Venezuelan President Hugo Chavez
announced that the Venezuelan government planned to revoke gold and diamond
concessions and/or contracts and also that he planned to create a new state
mining company as part of an effort to increase government control over the
sector. President Chavez did not specify which concessions and/or contracts
would be revoked, but later Minister Alvarez said inactive and out of
compliance mines would be handed over to small mining cooperatives supported
by the government through a new government-mining corporation. The date for
the completion of additional definitive documentation, remaining governmental approvals and obtaining financing to fund the reviewcapital costs of the Siembra Minera Project.
The breach of one or more of the terms of the underlying agreements governing the formation of Siembra Minera and the announcementfuture development of the results of this
review has been deferred several times and it is unclear when such
announcement will take place or whether the final policy when announced will
be consistent with prior public statements. We believe all of our properties
are in compliance with applicable regulations, including our required and
voluntary commitments to various social, cultural and environmental programs
in the immediate and surrounding areas near Brisas. However, due to the
uncertainty regarding the creation of the new state mining company and
expected changes in the mining law, the we cannot provide any assurance that
the creation of a state mining company will not adversely affect its ability
to develop and operate its Venezuelan properties.
Currency and Exchange Controls
- -----------------------------------------------------------------------------
In 2003, the Central Bank ofSiembra Minera Project by Venezuela enacted exchange control regulations
as a measure to protect international reserves. The exchange rate was fixed
at approximately 1,600 Bolivars per one U.S. Dollar until February 2004 when
it was adjusted to 1,920 Bolivars per one U.S. Dollar. In March 2005, the
exchange rate was increased to approximately 2,150 Bolivars per one U.S.
Dollar, which is unchanged as of the date of this report. In February 2005,
the Venezuelan government announced new regulations concerning exports from
Venezuela, which required, effective April 1, 2005, all goods and services to
be invoiced in the currency of the country of destination or in U.S. Dollars.
To date these regulations have not adversely affected our operations as the
Company primarily transfers funds into Venezuela for its operations. However,
this will change in the future to the extent that the Company begins
production and exports gold from Venezuela and we are unable to predict the
future impact, if any, at this time. Future fluctuations of the Venezuelan
Bolivar against the U.S. Dollar and exchange controls could negatively impact
the Company's financial condition.
Small Miners
- -----------------------------------------------------------------------------
A significant number of unauthorized small miners have occupied various
properties near the Brisas Project. However, there are no unauthorized small
miners currently located on the Brisas Project. The methods used by the small
miners to extract gold from surface material are typically environmentally
unsound and in general their presence can be disruptive to the rational
development of a mining project such as Brisas. The Company maintains
security guards and has implemented other procedures to mitigate the risk
that the small miners might try to occupy the Brisas Project, although
management can give no assurances that such activities will not occur in the
future.
Imataca Forest Reserve
- -----------------------------------------------------------------------------
The Brisas Project is located within the boundaries of the Imataca Forest
Reserve (the "Imataca") in an area presently approved by Presidential Decree
for mining activities. On September 22, 2004, after public consultation,
Presidential Decree 3110 was published in the Official Gazette identifying
approximately 13% of the Imataca in the State of Bolivar to be used for
various activities, including mining. Decree 3110 was issued in response to:
1) legal challenges to prior Presidential Decree 1850 published in the
Official Gazette on May 28, 1997 which opened an even larger part of the
Imataca to mining and other activities, and 2) to a Venezuelan Supreme Court
prohibition issued on November 11, 1997 that prohibited MEM (now MIBAM) from
granting concessions, authorizations and any other acts relating to mining
activities, exploration, exploitation and infrastructure in the Imataca
pertaining to Decree 1850 until the Court rules on the merits of the nullity
action.
We have been advised by Venezuelan counsel that the legal proceeding before the
Venezuelan Supreme Court became moot upon the issuance of Decree 3110. Since
the issuance of Decree 3110, MIBAM and its predecessor MEM have, on a
selective basis, issued concessions, authorizations and other acts relating
to mining activities, exploration, exploitation and infrastructure in the
Imataca. However, the pending legal proceeding has not been formally
concluded in the Court and therefore management can give no assurances that
MIBAM and MARN's willingness to issue the required permits to construct and
operate the Brisas Project will not be adversely affected in the future by
this pending legal proceeding.
Venezuelan environmental laws and regulations
- -----------------------------------------------------------------------------
Venezuela maintains environmental laws and regulations for the mining
industry that impose specific obligations on companies doing business in the
country. The MARN, which administers Venezuelan environmental laws and
regulations, proscribes certain mining recovery methods deemed harmful to the
environment and monitors mining activities to ensure compliance. Venezuela's
environmental legislation provides for the submission and approval of
environmental impact statements for certain operations and provides for
restrictions and prohibitions on spills, releases, or emissions of various
substances produced in association with certain mining industry operations,
such as seepage from tailings disposal areas which could result in
environmental pollution. Insurance covering losses or obligations related to
environmental liabilities is not maintained and will only be maintained in
the future if available on a cost-effective basis. Although we have adopted a
high standard of environmental compliance, failure to comply with or
unanticipated changes in such laws and regulations in the future could have a
material adverse impact on the Company.
Challenges to mineral property titles or contract rights
- -----------------------------------------------------------------------------
Acquisition of title or contract rights to mineral properties is a very
detailed and time-consuming process under Venezuelan law. Mining properties
sometimes contain claims or transfer histories that examiners cannot verify,
and transfers can often be complex. The Company believes it has necessary
title and/or rights to all of the properties for which it holds concessions
or other contracts and leases. However, the Company does not know whether
someone will challenge or impugn title or contract rights to such properties
in the future or whether such challenges will be by third parties or a
government agency.
In addition to the Brisas alluvial and hardrock concessions, management has
also applied to the appropriate government agencies for various concessions,
alfarjetas, land use permits and easements allowing the use of certain land
parcels contiguous to and nearby the Brisas Project for infrastructure needs.
Although these applications for infrastructure needs were contained in an
operating plan that has already been approved by the appropriate regulatory
agencies, management can give no assurances when such applications will be
issued, if ever. From 1992 to late 1994 the Company was involved in a lawsuit
relating to ownership of the Brisas Project. The Company successfully defended
its ownership rights in the Venezuelan courts and subsequently settled the
lawsuit for a substantial sum. A claim that the Company does not have title
or contract rights to a property could have an adverse impact on the Company's businessCompany.
In the event Venezuela breaches one or more of the terms of the underlying agreements governing the formation of Siembra Minera (including as a result of the resolution to revoke the mining rights) and the future development of the Siembra Minera Project, the Company could be exposed to substantial enforcement costs of prosecuting such a claim over a number of years and there is no assurance that we would be successful in our claim or, if successful, could collect any compensation from the Venezuelan government. If we are unable to prevail, in the short-termevent we filed a claim against the Venezuelan government related to our stake in the Siembra Minera Project or were unable to collect compensation in respect of our claim, the Company would be adversely affected.
| 5 |
Any development activities on the Siembra Minera Project will require additional exploration work and financing and there is no assurance that the project will be determined feasible.
In March 2018, the Company published the results of the Preliminary Economic Assessment (the “PEA”). The conclusions of management and its qualified consultants referred to in the PEA may not be realized in the future. Even if the required financing is obtained, substantial effort and financing would be required to commence work on any Siembra Minera Project. We can provide no assurances that the Siembra Minera Project or its development would be determined feasible.
Related to Collection of the Amounts Due Under the Settlement Agreement
Failure to collect amounts payable pursuant to the Settlement Agreement would materially adversely affect the Company.
In July 2016, we signed the Settlement Agreement whereby Venezuela agreed to pay us an Arbitral Award (the “Award”) (including interest) and purchase our technical mining data (the “Mining Data”) associated with our previous mining project in Venezuela (the “Brisas Project”). Under the terms of the Settlement Agreement (as amended), Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of our Mining Data for a total of approximately $1.032 billion to be paid in monthly installments ending on or before June 15, 2019. The remaining unpaid and delinquent amount due from Venezuela pursuant to the Settlement Agreement, as of the date of this report, totals approximately $994 million (including interest of approximately $216 million). Also, the Settlement Agreement contemplates the calculation of interest on unpaid amounts based on the LIBOR benchmark. With the phase out of LIBOR, we will be required to either agree with Venezuela on a new interest benchmark, if and when engagement with the Venezuelan government is possible, or, alternatively, petition the court responsible for the enforcement of our Award judgement to rule on a new benchmark. The Company also has various proceedings against the government of Venezuela, including with respect to the conditional writ of attachment fieri facias granted by the U.S. District Court of Delaware on March 31, 2023 relating to shares of PDVH, whereby the Company may potentially enforce the Award by participating in the potential sale of PDVH shares, and the motion granted by the Lisbon District Court in Portugal on January 13, 2023 to allow the Company to attach and seize certain funds as recovery under the Settlement Agreement. Failure to collect these amounts could materially adversely affect the Company.
Termination of the Settlement Agreement as a result of Venezuela's failure to make the contemplated payments thereunder could materially adversely affect the Company.
In conjunction with entry into the Settlement Agreement, the Company agreed to suspend the legal enforcement of the Award, subject to Venezuela making the payments on the schedule set forth in the Settlement Agreement, and Venezuela agreed to irrevocably waive its right to appeal the February 2017 judgment issued by the Cour d'appel de Paris dismissing the annulment applications filed by Venezuela in respect of the Award and agreed to terminate all other proceedings seeking annulment of the Award.
Notwithstanding Venezuela having waived its right to appeal, future enforcement and collection of the Award is expected to be a lengthy process and will be ongoing for the foreseeable future if we are not able to collect the amounts due to us as contemplated in the Settlement Agreement and/or the Award. In addition, the cost of pursuing collection of the Award could be substantial and there is no assurance that we will be successful. Failure to otherwise collect the Award would materially adversely affect our ability to maintain sufficient liquidity to operate as a going concern.
We have no commercial operations and may be unable to continue as a going concern.
We have no revenue producing operations at this time. Our future working capital position is dependent upon the receipt of amounts due to us pursuant to the Settlement Agreement or collection of the Award in the relevant legal jurisdictions. Although we believe that we have sufficient working capital to carry on our activities for the next 12 to 24 months, our actual cash burn-rate may require us to seek additional sources of funding to ensure our ability to continue our activities in the normal course.
Our reliance on the receipt of the payments contemplated by the Settlement Agreement or the collection of the Award for our operating needs is expected to continue into the foreseeable future. If the Settlement Agreement were to be abandoned due to lack of payment by Venezuela, our longer-term funding requirements may be adversely impacted.
| 6 |
Unforeseen financial market conditions, industry conditions or other unknown or unpredictable conditions may exist in the future and, as a result, there can be no assurance that alternative funding would be available or, if available, offered on acceptable terms.
In addition, even if there is a successful claimappeal or overturning of the Resolution to revoke the mining rights of Siembra Minera, the Sanctions could adversely impact our ability to finance, develop and operate the Siembra Minera Project.
Related to Sanctions Imposed On Venezuela By the U.S. and Canadian Governments
Sanctions currently imposed on Venezuela and related governmental officials by the U.S. and Canada, and any further sanctions that may be imposed in the future, could materially adversely affect the Company.
The U.S. and Canadian governments have imposed sanctions targeting the Venezuelan government and certain Venezuelan individuals (the “Sanctions”) that apply to Siembra Minera as a result of the Venezuelan government's 55% ownership and the collection of the Award contemplated by the Settlement Agreement (See "Item 4 - Information on the Company ¾ Business Overview ¾ U.S. and Canadian Sanctions" for more details).
Failure to comply with these Sanctions could result in civil or, in some cases, criminal consequences for the Company and/or our officers and directors. Compliance with the current Sanctions, as well as any future Sanctions that may be imposed by the U.S. or Canada, may further restrict our ability to consummate the transactions contemplated by the Settlement Agreement or, even if there is a successful appeal or overturning of the purported revocation of the mining rights of Siembra Minera, arrangements related to the Siembra Minera Project, including:
| · | an inability to receive, process or use the payments (in whatever form received by us) contemplated by the Settlement Agreement, or to transfer such payments to our bank outside of Venezuela; |
| · | an inability to obtain all or part of financing sufficient to cover the anticipated capital or operating costs of the Siembra Minera Project on favorable terms, or at all; and |
| · | an inability to obtain operating permits, enter into transactions or otherwise meet our obligations with respect to the operation of the Siembra Minera Project pursuant to the mixed company agreement. |
The occurrence of any of the foregoing or other events could result in the failure of the Venezuelan governmentSettlement Agreement and/or mixed company arrangements to approve the required permits could have a
material adverse impact on the future results of the Company.
Compliance with other laws and regulations
- -----------------------------------------------------------------------------
In addition to protection of the environment, the Company's activities are
subject to extensive laws and regulations governing health and worker safety,
employment standards, waste disposal, protection of historic and
archaeological sites, mine development and protection of endangered and
protected species and other matters. Obtaining the necessary permits is
critical to our business. Obtaining and maintaining permits can be a complex,
time consuming process and as a result the Company cannot assess whether
necessary permits will be obtained or maintained on acceptable terms,performed in a
timely manner or at all. Any failure to comply with applicable laws and
regulations or failure to obtain or maintain permits, even if inadvertent,
could result in the interruption of our operations or material fines,
penalties or other liabilities.
Obtaining funding for project planning, construction and development and
related operating activities is essential to the Company's future plans.
- -----------------------------------------------------------------------------
The Board of Directors approved a plan to proceed with financing and, if
successful, construction of the Brisas Project based on the results of the
bankable feasibility study completed in early 2005. The feasibility study
contemplates an initial capital investment to place the Brisas Project into
production of approximately $552 million excluding value added taxes and
import dutiestheir current form which could total as much as $50 million. Although management
is in the process of preparing applications for tax exonerations or payment
holidays for certain taxes including value added tax and import duty tax on
the initial capital costs, which are provided by law, there can be no
assurances that such exonerations will be obtained, the primary result of
which would be to increase initial capital. The timing and extent of funding
such investment depends on a number of important factors, including the
receipt of required permits, actual timetable of our development plan, the
price of gold and copper, results of our efforts to obtain financing, the
political and economic conditions in Venezuela, the ultimate capital costs of
the project including our ability to obtain tax exonerations or payment
holidays and our share price. See "-Our mining assets are concentrated in a
foreign country and, as a result, our operations are subject to inherent
local risks."
As of March 28 2006, the Company had approximately $22 million in cash and
investments. We currently do not generate revenue from operations and have
historically financed operating activities primarily from the sale of common
shares or other equity securities. In the near-term, management believes that
cash and investment balances are sufficient to enable the Company to fund its
pre-construction activities through 2007 (excluding any substantial Brisas
Project construction activities). These pre-construction activities are
expected to consist of detailed project engineering, development and
implementation of project related contracts such as engineering, procurement
and construction management, port facilities, concentrate sales contracts,
electricity and fuel supply contracts, and a number of other agreements
related to the construction and operation of the Brisas Project, obtaining
the required permits and identifying suitable funding sources.
Management provides no assurances that it will be able to obtain the
substantial additional financing that will be needed to construct the Brisas
Project. Failure to raise the required funds will mean the Company is unable
to construct and operate the Brisas Project, which would have a material adverse effect on the Company.
Risks arising from the bankable feasibility study and construction of the
Brisas Project.
- -----------------------------------------------------------------------------
The Brisas Bankable Feasibility Study was completed to determine the economic
viability of the Brisas mineralized deposit. Many factors are involved in the
determination of the economic viability of mining a mineralized deposit,Company, including the delineation of satisfactory mineral reserve estimates, the
level of estimated metallurgical recoveries, capital and operating cost
estimates, construction, operation, permit and environmental requirements,
and the estimate of future gold prices. Capital and operating cost estimates
are based upon many factors, including anticipated tonnage and grades of ore
to be mined and processed, the configuration of the ore body, ground and
mining conditions and anticipated environmental and regulatory compliance
costs.
While the Company is satisfied with the bankable feasibility study, each of
these factors involves uncertainties and the making of assumptions and, as a
result, the Company cannot give any assurance that the overall feasibility
study will prove accurate in preparation, construction and development of the
Brisas Project or that any key finding or underlying assumption will not prove
to be inaccurate, including changes in costs as a result of the passage of
time between the completion of the bankable feasibility study and the date
construction commences. It is not unusual in new mining operations to
experience unexpected problems during development. As a result, the actual
cost and time of placing the Brisas Project into production could differ
significantly from estimates contained in the bankable feasibility study.
Likewise, if and after the Brisas Project is developed, actual operating
results may differ from those anticipated in the feasibility study.
Future results depend on the Brisas Project.
- -----------------------------------------------------------------------------
The Company is dependent on the Brisas Project, which is a development stage
project and which may never be developed into a commercially viable ore body.
Any adverse event affecting this property, or our ability to finance and/own our interest in Siembra Minera or constructoperate it or maintain sufficient liquidity to operate it as a going concern.
Risks Related to the Class A Shares
The price and operate this property, would have a material adverse impact on
the future resultsliquidity of the Company.
Our mineral resource and reserve estimatesClass A Shares may vary from estimates inbe volatile.
The market price of the future.
- -----------------------------------------------------------------------------
The mineral resource and reserve estimates have been calculated in accordance
with CSA National Instrument 43-101, as required by Canadian Securities
regulatory authorities.
This report uses the terms "measured," "indicated" and "inferred" resources.
We advise U.S. investors that while those terms are recognized and required by
Canadian regulations, the U.S. Securities and Exchange Commission does not
recognize them. We believe that the calculation of mineral reservesClass A Shares may fluctuate based on Canadian regulations is substantially the same as it is under the U.S.
Securities and Exchange Commission Industry Guide 7. However, we advise U.S.
investors that definitions contained in National Instrument 43-101differ in
certain respects from those set forth in the U.S. Securities and Exchange
Commission Industry Guide 7. U.S. investors are cautioned not to assume that
mineralization ("mineral resource") not already categorized as mineral
reserves will ever be converted into reserves in the future.
As parta number of the completionfactors, some of the bankable feasibility study, the Company's
methods and procedures for gathering geological, geotechnical, and assaying
information were evaluated by independent consultants who concluded, along
with management, that the Company's methods and procedures met generally
accepted industry standards for a bankable feasibility level of study.
Notwithstanding the conclusions of management and its qualified consultants,
mineral reserve estimation is an interpretive process based on drilling
results and experience as well as estimates of mineralization characteristics
and mining dilution, metal prices, costs of mining and processing, capital
expenditures and many other factors. Grades of mineralization processed at
any time may also vary from mineral reserve estimates due to geologic
variations within areas mined. Actual quality and characteristics of deposits
cannot be fully assessed until mineralization is actually mined and, as a
result, mineral reserves change over time to reflect actual experience.
Risks inherent in the mining industry could have a significant impact on the
Company's future operations.
- -----------------------------------------------------------------------------
Gold and copper projects are subject to all of the risks inherent in the
mining industry, including environmental hazards, industrial accidents,
fires, labor disputes, legal regulations or restrictions, unusual or
unexpected geologic formations, cave-ins, flooding, and periodic
interruptions due to inclement weather. These risks could result in damage
to, or destruction of, mineral properties and production facilities, personal
injury, environmental damage, delays, monetary losses and legal liability.
Insurance covering such catastrophic liabilities is not maintained and will
only be maintained in the future if available on a cost-effective basis.
Operating losses are expected to continue until we construct or acquire an
operating mine.
- -----------------------------------------------------------------------------
We have experienced losses from operations for each of the last five years
and expect this trend to continue until the Brisas Project is operational as
the result of, among other factors, expenditures associated with the
corporate activities on the Brisas Project, as well as other unrelated
non-property expenses, which are recorded in the consolidated statementbeyond our control, including:
| · | we do not have an active market for the Class A Shares and large sell or buy transactions may affect the market price; |
| · | economic and political developments in Venezuela; |
| · | the impact of Sanctions on our ability to consummate the transactions contemplated by the Settlement Agreement or, even if there is a successful appeal or overturning of the resolution to revoke the mining rights of Siembra Minera, the terms of the mixed company arrangement related to the development of the Siembra Minera Project; |
| · | our operating performance and financial condition; |
| · | our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general purposes; |
| · | the public's reaction to announcements or filings by us or other companies; |
| · | the public's reaction to negative news regarding Venezuela and/or international responses to Venezuelan domestic and international policies; |
| · | the price of gold, copper and silver; |
| 7 |
| · | the addition to or changes to existing personnel; and |
| · | general global economic conditions, including, without limitation, interest rates, general levels of economic activity, fluctuations in market prices of securities, participation by other investors in the financial markets, economic uncertainty, national and international political circumstances, natural disasters, public health crisis (such as the global outbreak of COVID-19). |
The effect of operations. Such losses may increase in the short-term if we obtain
additional financingthese and subsequently begin construction of the Brisas
Project. This trend is expected to reverse if and when gold and copper are
produced at the Brisas Project in commercial quantities at a prices equal to
or in excess of the prices assumed in the feasibility study. However,
management can give no assurances that this trend will be reversed in the
future, as a result of the operation of the Brisas Project or if we acquire a
profitable operating mine.
The Company may incur costs in connection with future reclamation activities
that may have a material adverse effect on the Company's earnings and
financial condition.
- -----------------------------------------------------------------------------
The Company is required to obtain government approval of its plan to reclaim
the Brisas Project after the minerals have been mined from the site. The
Brisas Project reclamation plan has already been incorporated into the
environmental studies submitted to MARN. Reclaiming the Brisas Project will
take place during and after the active life of the mine. In accordance with
applicable laws, bonds or other forms of financial assurances have been and
will be provided by the Company for the reclamation of the mine. The Company
may incur costs in connection with these reclamation activities in excess of
such bonds or other financial assurances, which costs may have a material
adverse effect on the Company's earnings and financial condition. The Company
expects to established a reserve for future site closure and mine reclamation
costs based on the estimated costs to comply with existing reclamation
standards. There can be no assurance that the Company's reclamation and
closure accruals will be sufficient or that the Company will have sufficient
financial resources to fund such reclamation and closure costs in the future.
The volatility of the price of gold and copper could have a negative impact
upon our current and future operations.
- -----------------------------------------------------------------------------
The price of gold and copper has a significant influencefactors on the market price of the Class A Shares has historically made our common sharesshare price volatile and suggests that our business activities. Fluctuationshare price will continue to be volatile in gold and
copper prices directly affects, among other things, the overall economic
viability of the project, our ability to obtain sufficient financing required
to construct the Brisas Project, including the terms of any such financing,
and the calculation of reserve estimates. The price of gold is affected by
numerous factors beyond our control, such as the level of inflation,
fluctuation of the United States Dollar and foreign currencies, global and
regional demand, sale of gold by central banks and the political and economic
conditions of major gold producing countries throughout the world. Copper
prices also fluctuate and are generally affected by global and regional
demand and existing inventories. As of March 28, 2006, the closing price for
gold and copper was: Gold: $568 per ounce, copper: $2.40 per pound. The
following table sets forth the average of the daily closing price for gold
and copper for the periods indicated as reported by the London Metal
Exchange:
YEAR ENDED DECEMBER 31,
5 Yr. Avg. 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------
Gold ($
per ounce) $360 $445 $410 $363 $310 $271
Copper
($ per pound) $1.04 $1.67 $1.37 $0.81 $0.71 $0.72
Possible Dilution to Present and Prospective Shareholders
- -----------------------------------------------------------------------------
In order to finance the future construction of the Brisas Project, the
Company will be required to raise funds through the issuance of common
shares, the issuance offuture.
We may issue additional Class A Shares, debt instruments convertible into common sharesClass A Shares or other equity-based instruments such as warrants.to fund future operations.
We cannot predict the size of any future issuances of securities, or the effect, if any, that future issuances and sales of our securities will have on the market price of the Class A Shares. Any transaction involving the issuance of previously authorized but unissued shares, or securities convertible into shares, wouldmay result in dilution possibly of a substantial nature, to present and prospective holders of shares.
The marketCompany's current or future plans to declare cash dividends or make distributions to Shareholders are subject to inherent risks.
We may declare cash dividends or make distributions in the future only if our earnings (including payment of the Award) and capital are sufficient to justify the payment of such dividends or distributions. However, we may have to rely on additional capital raises in the future. At this time, we do not anticipate any.
Risks Related to our Operations
Business activities concentrated in Venezuela are subject to inherent local risks.
Even if there is a successful appeal or overturning of the Resolution, our potential development and/or future operation of the Siembra Minera project (the "Siembra Minera Project"), as well as our activities related to the enforcement of the Settlement Agreement and/or collection of the remaining amounts due pursuant to the Settlement Agreement will be influenced by the sanctions imposed by the U.S. and Canadian governments and conditions in Venezuela and, as a result, we will be subject to operational, regulatory, political and economic risks, including:
| · | the effects of local political, labor and economic developments, instability and unrest; |
| · | changes in the government of Venezuela and among its officeholders; |
| · | significant or abrupt changes in the applicable regulatory or legal climate, including changes to laws or the enforcement (or lack thereof) or unpredictability of the Venezuelan judiciary; |
| · | currency instability, hyper-inflation and the environment surrounding the financial markets and exchange rate in Venezuela; |
| · | international response to Venezuelan domestic and international politics and policies, including the threat of military intervention and armed conflict; |
| · | limitations on mineral exports; |
| · | invalidation, confiscation, expropriation or rescission of governmental orders, permits, agreements or property rights; |
| · | exchange controls and export or sale restrictions; |
| · | currency fluctuations, repatriation restrictions and operation in a highly inflationary economy; |
| · | competition with companies from countries that are not subject to Canadian and U.S. laws and regulations; |
| · | laws or policies of foreign countries and Canada affecting trade, investment and taxation; |
| · | civil unrest, military actions and crime; |
| · | corruption, requests for improper payments, or other actions that may violate Canadian and U.S. foreign corrupt practices acts, uncertain legal enforcement and physical security; |
| · | new or changes in regulations related to mining, environmental and social issues; and |
| 8 |
| · | the willingness of future governments in Venezuela to uphold and abide by agreements and commitments made by previous governments. |
Risks inherent in the mining industry could adversely impact future operations.
Exploration for gold and other metals is speculative in nature, involves many risks and frequently is unsuccessful. As is customary in the industry, not all prospects will be positive or progress to later stages (e.g., the feasibility, permitting, development and operating stages), therefore, we can provide no assurances as to the future success of our efforts related to the Siembra Minera Project, even if there is a successful appeal or overturning of the Resolution to revoke the mining rights of Siembra Minera, and the wholly-owned mining claims known as the LMS Gold Project (the “LMS Property”). Exploration programs entail risks relating to location, metallurgical processes, governmental permits and regulatory approvals and the construction of mining and processing facilities. Development can take a number of years, requiring substantial expenditures and there is no assurance that we will have, or be able to raise, the required funds to engage in these activities or to meet our obligations with respect to the Siembra Minera Project, even if there is a successful appeal or overturning of the resolution to revoke the mining rights of Siembra Minera, and the LMS Property. Any one or more of these factors or occurrences of other risks could cause us not to realize the anticipated benefits of an acquisition of properties or companies.
Failure to attract new and/or retain existing personnel could adversely affect us.
We are dependent upon the abilities and continued participation of existing personnel to manage activities impacted by Sanctions related to the Settlement Agreement, operation of Siembra Minera, potential development of the Siembra Minera Project and to identify, acquire and develop new opportunities. Substantially all of our existing management personnel have been employed by us for over 20 years. The loss of existing employees or an inability to obtain new personnel necessary to execute future efforts to acquire and develop a new project, such as the Siembra Minera Project, could have a material adverse effect on our future operations.
We may have exposure to greater than previously anticipated tax liabilities, which could harm our business.
We have tax filings that are currently (or may in the future be) under audit by U.S. and Canadian tax authorities. Any adverse outcome from these tax audits could seriously harm our business, including as a result of any adverse tax, accounting or financial impacts. We have incurred significant legal and other costs in response to these audits and may incur significant additional costs prior to resolving these matters. Determining our tax liabilities requires the interpretation of complex tax regulations and significant judgment by management that may be challenged by the applicable tax authorities. We cannot guarantee that any tax audit to which we are currently subject or that which we may be subject to in the future will result in a favorable outcome. Our results of operations and cash flows could be adversely affected by additional taxes imposed on us. These factors could materially adversely affect our Company and the trading price of our common shares may experience volatility.
- -----------------------------------------------------------------------------
Our Class A common shares and the November 4, 2004 Class A common share
purchase warrants are listed on the Toronto Stock Exchange (TSX). Our Class A
common shares are listed on the American Stock Exchange (AMEX). Our securities
and securities of similar companies have experienced substantial volatility in
the past, often based on factors unrelated to the financial performance or
prospects of the companies involved. These factors include economic and
political developments in North America, Venezuela and generally worldwide
and overall market perceptions of the attractiveness of particular
industries. Our share price is also likely to be affected by short-term
changes in gold and copper prices, our financial condition or results of
operations as reflected in our publicly filed reports, and the dilutive
effect of the sale of significantly more common shares in order to finance
the Company's activities.
Other factors unrelated to our performance that may have an effect on the
price of our Class A common shares and warrants include the extent, if any,
of analytical coverage of our business by investment banks' research
departments, lower trading volume relative to our peers as a result of a
lesser number of shares outstanding and general market interest or limited
public float in our securities, as well as new regulatory rules. As a result
of any of these factors, we believe the market price of our Class A common
shares and warrants at any given point in time may not accurately reflect our
long-term value.
Future hedging activities could negatively impact future operating results.
- -----------------------------------------------------------------------------
The Company has not entered into forward contracts or other derivative
instruments to sell gold or copper that it might produce in the future.
Although the Company has no near term plans to enter such transactions, it
may do so in the future if required for project financing. Forward contracts
obligate the holder to sell hedged production at a price set when the holder
enters into the contract, regardless of what the price is when the product is
actually mined. Accordingly, there is a risk that the price of the product is
higher at the time it is mined than when the Company entered into the
contracts, so that the product must be sold at a price lower than could have
been received if the contract was not entered. The Company may enter into
option contracts for gold and copper to mitigate the effects of such hedging.
Changes in critical accounting estimates could adversely affect the financial
results of the Company.
- -----------------------------------------------------------------------------
The Company's most significant accounting estimate relates to the carrying
value of its Brisas Project, which is more fully discussed in our annual
financial statements and related footnotes. Management regularly reviews the
net carrying value of its mineral properties. Estimates of mineral prices,
recoverable proven and probable reserves, and operating, capital and
reclamation costs are subject to certain risks and uncertainties which may
effect the recoverability of mineral property costs. Where estimates of
future net cash flows are not available and where other conditions suggest
impairment, management assesses if carrying value can be recovered. Although
management has made its best estimate of these factors as it relates its
mineral properties, it is possible that changes could occur in the near-term,
which could adversely affect the future net cash flows to be generated from
the properties.
Material weaknesses relating to our internal controls over financial
reporting could adversely affect our financial results or condition and share
price.
- -----------------------------------------------------------------------------
The Company must, for its fiscal year ending December 31, 2006, begin to
comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley"), which among other things requires the Company's external
auditors to issue an opinion on the adequacy of management's assessment and
their own assessment of the effectiveness of internal controls over financial
reporting. Management believes that there are no reportable material
weaknesses in the Company's internal controls as defined by Section 404 of
Sarbanes-Oxley as of the date of this report. However, there can be no
assurance that material weaknesses regarding our internal controls will not
be discovered in the future, which could result in costs to remediate such
controls or inaccuracies in our financial statements. A material weakness in
controls over financial reporting may result in increased difficulty or
expense in transactions such as financings, or a risk of adverse reaction by
the market generally that would result in a decrease of our stock price.
stock.
U.S. Internal Revenue Service designation as a "passive foreign investment company" may result in adverse U.S. tax consequences to U.S. shareholders.
- -----------------------------------------------------------------------------
Because the Company isHolders.
U.S. Holders should be aware that we have determined that we were a Canadian corporation and more than 75% of its
consolidated gross income is classified as passive income, the U.S. Internal
Revenue Service considers it a passive“passive foreign investment companycompany” (a “PFIC”) under Section 1297(a) of the U.S. Internal Revenue Code ("PFIC"(the “Code”) for the taxable year ended December 31, 2005. Classification2022. We have not made, and do not expect to make, a determination as to whether any of our subsidiaries were PFICs as to any of our Shareholders for the taxable year ended December 31, 2022. U.S. Holders should also be aware that unless a timely and effective "QEF election" was made with respect to Class A shares held during any period during which we were a PFIC, with respect to those shares, we are deemed to continue to be a PFIC with respect to such U.S. Holder for each taxable period.
The determination of whether we and any of our subsidiaries will be a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether we and any of our subsidiaries will be a PFIC with respect to a U.S. Holder for any taxable year generally depends on our assets and income and those of our subsidiaries over the course of each such taxable year and, as a result, cannot be predicted with certainty for the current or any future year.
| 9 |
For taxable years in which we are a PFIC, subject to the discussion below, any gain recognized on the sale of our Class A shares and any “excess distributions” (as specifically defined by the Code) paid on our Class A shares must be ratably allocated to each day in a U.S. Holder’s holding period for the Class A shares. The amount of any such gain or excess distribution allocated to prior years of such U.S. Holder’s holding period for the Class A shares during which we were a PFIC generally will be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such prior year, and the U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.
Alternatively, a U.S. Holder that makes a timely and effective “QEF election” generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of our “net capital gain” and “ordinary earnings” (calculated under U.S. federal income tax rules), regardless of whether such amounts are actually distributed by us. For a U.S. Holder to make a QEF election, we must agree to supply annually to the U.S. Holder the “PFIC Annual Information Statement” and permit the U.S. Holder access to certain information in the event of an audit by the IRS. We will prepare and make the annual statement available to U.S. Holders, and will permit access to the required information in the event of an audit by the IRS. As a possible second alternative, a U.S. Holder may resultmake a “mark-to-market election” with respect to a taxable year in adversewhich we are a PFIC and the Class A shares are “marketable stock” (as specifically defined). A U.S. Holder that makes a mark-to-market election generally will include in gross income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Class A shares as of the close of such taxable year over (b) such U.S. Holder’s adjusted tax basis in such Class A shares.
Due to the complexity of the PFIC rules, a U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the status of the Company and its subsidiaries as PFICs and the eligibility, manner and advisability of making a QEF election or a mark-to-market election and how the PFIC rules may affect the U.S. federal income tax consequences of a U.S. Holder’s ownership and disposition of Class A shares.
There are material tax risks associated with holding and selling or otherwise disposing of Class A Shares.
There are material tax risks associated with holding and selling or otherwise disposing the Class A Shares. Each prospective investor is urged to consult its own tax advisor regarding the tax consequences to U.S. shareholders. See "- Item 10. Additional Information
- -U.S. Federal Income Tax Consequences."
Acquiringhim or her with respect to the ownership and retaining key personneldisposition of the Class A Shares.
It may be difficult to bring certain actions or enforce judgments against the Company and/or its directors and executive officers.
Investors in the future couldU.S. or in other jurisdictions outside of Canada may have a significant
impactdifficulty bringing actions and enforcing judgments against us, our directors or executive officers based on future operating results.
- -----------------------------------------------------------------------------civil liability provisions of federal securities laws or other laws of the U.S. or any state thereof or the equivalent laws of other jurisdictions of residence. We are organized under the laws of Alberta, Canada. Some of our directors and willofficers, and some of the experts named from time to time in our filings, are residents of Canada or otherwise reside outside of the U.S. and all or a substantial portion of their and our assets, may be dependentlocated outside of the U.S. As a result, it may be difficult for investors in the U.S. or outside of Canada to bring an action in the U.S. against our directors, officers or experts who are not residents in the U.S. It may also be difficult for an investor to enforce a judgment obtained in a U.S. court or a court of another jurisdiction of residence predicated upon the abilities and continued participationcivil liability provisions of key management personnel, as well as the significant number of new
personnel that will be necessary to manage any construction and operationsCanadian securities laws or U.S. federal securities laws or other laws of the Brisas Project. If the services of our key employees were lostU.S. or we are
unable to obtain the new personnel necessary to construct, manage and operate
the Brisas Project, it could have a material adverse effect on future
operations.
Management of Growth
- -----------------------------------------------------------------------------
Management anticipates that if and when it constructs the Brisas Project and
puts it into production, the Company will experience significant growth in
its operations resulting in increased demands on its management, internal
controls and operating and financial systems. There can be no assurance that
management will successfully meet these demands and effectively attract and
retain additional qualified personnel to manage its anticipated growth. The
failure to manage growth effectively could have a material adverse impact on
the Company's business, financial condition and results of operations.
any state thereof against us or those persons.
Item 4. Information on the Company
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A. History and Developmentdevelopment of the company
Gold Reserve, an exploration stage company, is engaged in the business of acquiring, exploring and developing mining projects. We were incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014. We are the successor issuer to Gold Reserve Corporation, which was incorporated in the United States in 1956. We have only one operating segment, the exploration and development of mineral properties. We employed five individuals as of December 31, 2022. Our Class A common shares (the "Class A Shares") are listed for trading on the TSX Venture Exchange (the "TSXV") and quoted on the OTCQX under the symbol GRZ and GDRZF, respectively.
| 10 |
Our registered office is located at the office of Norton Rose Fulbright Canada LLP, 400 3rd Avenue SW, Suite 3700, Calgary, Alberta T2P 4H2, Canada. Telephone and fax numbers for our registered agent are 403.267.8222 and 403.264.5973, respectively. Our administrative office is located at 999 West Riverside Avenue, Suite 401, Spokane, WA 99201, U.S.A. and our telephone and fax numbers are 509.623.1500 and 509.623.1634, respectively. The Company - -----------------------------------------------------------------------------
is subject to the informational requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information as a foreign private issuer with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information relating to the Company. The site is located at www.sec.gov. Similar information can also be found on our website at www.goldreserveinc.com. Copies of documents that have been filed with the Canadian securities authorities can be obtained at www.sedar.com. The information found on, or accessible through, our website does not form part of this 20-F.
We have no commercial operations or production at this time. Historically we have financed our operations through the issuance of common shares, other equity securities and debt and from payments made by Venezuela pursuant to the Settlement Agreement. Funds necessary for ongoing corporate activities, or other future investments and/or transactions if any, cannot be determined at this time and are subject to available cash, any future payments under the Settlement Agreement and/or collection of the unpaid Award (as defined herein) in the courts or future financings.
B. Business overview
The Company is engaged in the business of explorationevaluating, acquiring, exploring and developmentdeveloping mining projects.
Exploration Prospects
Siembra Minera
In August 2016, we executed the Contract for the Incorporation and Administration of the Mixed Company with the government of Venezuela and in October 2016, together with an affiliate of the government of Venezuela, we incorporated Siembra Minera by subscribing for shares in Siembra Minera for a nominal amount. The primary purpose of this entity is to develop the Siembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve. Siembra Minera was granted by the government of Venezuela certain gold, copper, silver and other strategic mineral rights (primarily comprised of the historical Brisas and Cristinas areas) contained within Bolivar State comprising the Siembra Minera Project.
In March 2022, the Ministry issued a Resolution to revoke the mining rights of Siembra Minera for alleged non-compliance by Siembra Minera with certain Venezuelan mining regulations. Siembra Minera filed a reconsideration request in May 2022 which was denied by the Ministry. The Company disagrees with both the substantive and procedural grounds claimed by the Venezuelan government regarding the revocation of mining projectsrights and the reconsideration request. We are evaluating all legal rights and remedies that are available to us under Venezuelan and other laws, under the Settlement Agreement and otherwise and, in late 2022, we filed for an appeal of the Resolution with the Venezuelan Supreme Court of Justice. We also requested a precautionary measure of suspension of the effects of the Resolution which was denied (See Item 8.A). Even if there is presently focused primarilya successful appeal or overturning of such resolution, the Sanctions, along with other constraints, could adversely impact our ability to finance, develop and operate the Siembra Minera Project or collect or repatriate sums under the Settlement Agreement (See Item 3.D, Risk Factors - Related to the Resolution to Revoke the Rights with Respect to, and Development and Operation of, the Siembra Minera Project and Related to Collection of the Amounts Due Under the Settlement Agreement).
Further details regarding the Siembra Minera Project can be found in our Annual Information Form dated April 29, 2022 and our Management Discussion and Analysis dated April 29, 2022, each filed as exhibits to our Annual Report on its most significant
asset,Form 40-F for the fiscal year ended December 31, 2021 with the SEC on April 29, 2022 and on www.sedar.com.
.
| 11 |
LMS Gold Project
On March 1, 2016, we completed the acquisition of certain wholly-owned mining claims known as the LMS Gold Project (the “LMS Property”), together with certain personal property for $350,000, pursuant to a Purchase and Sale Agreement with Raven Gold Alaska Inc. (“Raven”), a wholly-owned subsidiary of Corvus Gold Inc. Raven retains Net Smelter Returns (“NSRs”) with respect to (i) “Precious Metals” produced and recovered from the LMS Property equal to 3% of NSRs on such metals (the “Precious Metals Royalty”) and (ii) “Base Metals” produced and recovered from the LMS Property equal to 1% of NSRs on such metals, however we have the option, for a period of 20 years from the date of closing of the acquisition, to buy back a one-third interest (i.e. 1 %) in the Precious Metals Royalty at a price of $4 million. In 2019 Raven assigned the NSRs to Bronco Creek Exploration, Inc. The LMS Property, located in Alaska, remains at an early stage of exploration with limited annual on-site activities being conducted by the Company.
Management’s Recent Activities
Management’s focus has been on the collection of the remaining amounts owed to us by Venezuela and working toward all remedies that are available to us with respect to the Siembra Minera Project.
Settlement Agreement and Formation of Siembra Minera
In October 2009, we initiated a claim (the “Brisas Arbitration”) under the Additional Facility Rules of the International Centre for the Settlement of Investment Disputes (“ICSID”) to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project (as herein defined) in violation of the terms of the Treaty between the Government of Canada and the Government of Venezuela for the Promotion and Protection of Investments. In September 2014, the ICSID Tribunal granted us an Award totaling $740.3 million. The Award (less legal costs and expenses) currently accrues post-award interest at a rate of LIBOR plus 2%, compounded annually.
Under the terms of the July 2016 Settlement Agreement (as amended) Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of our technical mining data (the “Mining Data”) associated with our previous mining project in Venezuela (the “Brisas Project”) for a lesser extenttotal of approximately $1.032 billion in a series of monthly payments ending on or before June 15, 2019. As agreed, the explorationfirst $240 million received by Gold Reserve from Venezuela has been recognized as proceeds from the sale of its
Choco 5 property, boththe Mining Data.
In August 2016, we executed the Contract for the Incorporation and Administration of the Mixed Company with the government of Venezuela and in October 2016, together with an affiliate of the government of Venezuela, we incorporated Siembra Minera as a Venezuelan company, by subscribing for shares in Siembra Minera for a nominal amount. The primary purpose of this entity is to develop the Siembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve. Siembra Minera was granted by the government of Venezuela certain gold, copper, silver and other strategic mineral rights (“the Mining Rights”) primarily related to the historical Brisas and Cristinas areas located in Bolivar State Venezuela.comprising the Siembra Minera Project.
As of the date of this Annual Report, the Company had received payments of approximately $254 million pursuant to the Settlement Agreement. The remaining unpaid amount due from Venezuela pursuant to the Settlement Agreement, which is delinquent, totals an estimated $994 million (including interest of approximately $216 million). In relation to the unpaid amount due from Venezuela, the Company has no commercial production at this time.
Primary Mining Asset
- -----------------------------------------------------------------------------
Brisas Project
Our primary mining asset,not recognized an Award receivable or associated liabilities on its financial statements which would include taxes, bonus plan and contingent value right payments, as management has not yet determined that payment from Venezuela is probable.
The interest rate provided for on any unpaid amounts pursuant to the Brisas Project,Award is specified as LIBOR plus 2%, compounded annually. With the phase out of LIBOR, if and when it is possible to engage with the Venezuelan government, we expect that, if necessary, we will either come to an agreement with Venezuela as to an appropriate replacement or, alternatively, petition the court responsible for the enforcement of our Award judgement to rule on a gold/copper deposit
located in the Km 88 mining districtnew interest rate benchmark.
The terms of the StateSettlement Agreement also included Venezuela’s obligation to make available to an escrow agent, negotiable financial instruments, with a face value of Bolivar in southeastern
Venezuela. Approximately $100at least $350 million, has been expended (includes costs
capitalized and costs expensed inpartially guaranteeing the period incurred) on the Brisas Project
since its acquisition in 1992. In 2005,payment obligations to the Company as well as the obligation to advance approximately $110 million to Siembra Minera to facilitate the early startup of the pre-operation and construction activities. As of the date of this Annual Report, Venezuela has not yet taken steps to provide such collateral or the early funding and it is unclear if and when Venezuela will comply with the assistance of a
number of independent consultants, completed a bankable feasibility study for
the Brisas Project. Based on the positive conclusionsthese particular obligations contained in the bankable feasibility study,Settlement Agreement.
| 12 |
In March 2022, the Ministry of Mines of Venezuela (“Ministry”) issued a resolution to revoke the mining rights of Siembra Minera for alleged non-compliance by Siembra Minera with certain Venezuelan mining regulations (the “Resolution”). Siembra Minera filed a reconsideration request in May 2022 which was denied by the Ministry. The Company disagrees with both the substantive and procedural grounds claimed by the Venezuelan government regarding the revocation of mining rights and the reconsideration request. We are evaluating all legal rights and remedies that are available to us under Venezuelan and other laws, under the Settlement Agreement and otherwise and, in late 2022, we filed for an appeal of the Resolution with the Venezuelan Supreme Court of Justice. We also requested a precautionary measure of suspension of the effects of the Resolution which was denied (See Item 8.A). Even if the Resolution is successfully annulled, the Sanctions, along with other constraints, could adversely impact our ability to finance, develop and operate the Siembra Minera Project or collect or repatriate sums under the Settlement Agreement.
Obligations Due Upon Collection of the Award and Sale of Mining Data
Pursuant to a 2012 restructuring of convertible notes, we issued CVRs that entitle the holders to an aggregate of 5.466% of certain proceeds from Venezuela associated with the collection of the Award and/or sale of Mining Data or an enterprise sale, as such terms are defined in the CVRs (the "Proceeds"), less amounts for certain specified obligations (as defined in the CVR), as well as a bonus plan as described below. As of December 31, 2022, the total cumulative obligation payable pursuant to the terms of the CVR from the sale of the Mining Data and collection of the Award (not taking into account the claim and settlement with the CVR holders, as described below) was approximately $10 million, all of which has been paid to the CVR holders other than approximately $60,000 which has not yet been distributed.
A dispute existed between us and the holder of the majority of the CVRs, Steelhead Navigator Master, L.P., a related party that owns approximately 10.1% of our shares and which is affiliated with our director James Michael Johnston. Steelhead had previously alleged that as a general matter it believed that the Company's 45% interest in Siembra Minera represented "Proceeds" for purposes of the CVRs and as such the CVR holders were entitled to the value of 5.466% of that interest on the date of its acquisition. For a variety of reasons, the Company did not and does not agree with such holder’s position and believes it is inconsistent with the CVRs generally and such holder’s CVR specifically, including the terms and manner upon which we acquired our interest in Siembra Minera. In December 2022, the Company and such holder agreed to settle their differences and entered into an agreement whereby the Company paid $350,000 in exchange for the release of claims made by the holder. The Company also decided to offer a pro-rata settlement with the other CVR holders of approximately $112,000, in the aggregate, of which approximately $85,000 was payable to other related parties, Greywolf Overseas Intermediate Fund, Greywolf Event Driven Master Fund, and Greywolf Strategic Master Fund SPC, Ltd. - MSP5, which collectively own approximately 14.8% of our shares. The Company’s decision to enter into these settlements, including with Steelhead Navigator Master, L.P., was determined based upon a recommendation of a special committee of independent directors of the Company. The Company recorded CVR expense in relation to this matter of approximately $462,000 during 2022, approximately $112,000 of which remained payable as of December 31, 2022. As of the date of this report, settlement payments have been made to Greywolf and final agreements with and payments to the other holders of CVRs are pending.
The Board approved a bonus plan (the "Bonus Plan") in May 2012, which was intended to compensate the participants, including executive officers, employees, directors and consultants for their contributions related to: the development of the Brisas Project; the manner in which the development effort was carried out allowing the Company to present a strong defense of its arbitration claim; the support of the Company's execution of the Brisas Arbitration; and the ongoing efforts to assist with positioning the Company in the collection of the Award, sale of the Mining Data or enterprise sale. The bonus pool under the Bonus Plan is comprised of the gross proceeds collected or the fair value of any consideration realized less applicable taxes multiplied by 1.28% of the first $200 million and 6.4% thereafter. The bonus pool is determined substantially in the same manner as Net Proceeds for the CVR. Certain participants of the Bonus Plan have notified the Company that in the event the Board of Directors approved proceedinginterprets the CVR agreement in such a way as to include the value of Siembra Minera as proceeds, the Bonus Plan participants expect to be accorded the same interpretation of the terms under the Bonus Plan. For a variety of reasons, the Company does not agree with such participants’ position and believes it is inconsistent with the financing and constructionBonus Plan generally. The Board has determined, upon recommendation of a special committee of independent directors of the mine. See-"PROPERTIES-Brisas Project"
for a detailed discussionCompany, that no payments should be made or offered to Bonus Plan participants in parallel with the settlement with the CVR holders referred to above. The Bonus Plan is administered by independent members of the Brisas Project.
Choco 5 Property
The Choco 5 property, is a grass-roots gold exploration property locatedBoard of Directors. Participation in the El Callao mining districtBonus Plan by existing participants is fixed, subject to voluntary termination of employment or termination for cause. Participants who reach age 65 and retire are fully vested and continue to participate in future distributions under the State of Bolivar, southeastern
Venezuela. Since acquiring the property in 2000, the Company has invested
approximately $600,000 on acquisition and exploration costs and expects to
expend up to $750,000 on further exploration in 2006. See "PROPERTIES-Choco 5
Property" for a detailed discussion of the Choco 5 project.
Financial Position
- -----------------------------------------------------------------------------Bonus Plan. As of March 30, 2006,December 31, 2022, the Company held approximately $22 million in cash and
investments. The Company requires substantial additional funding in order to
finance the construction of the Brisas Project. To assist with financing
management engaged Endeavour Financial Corporation ("Endeavour") to provide
general corporate financial advice with respect to its corporate development
and obtain the required financing for the Brisas Project. With Endeavor's
assistance, we have evaluated a number of financing options during 2005 and
are continuing our efforts during the first half of 2006 in anticipation of
receiving the required permits to allow us to proceed with the construction
of the Brisas Project. At this time, although we have received indications of
interest and several initial debt funding proposals, we have no firm
commitments to proceed with financing the Brisas Project.
Properties
- -----------------------------------------------------------------------------
Brisas Project
Location
The Brisas Project is located in the Km 88 mining district in the State of
Bolivar in southeastern Venezuela approximately 373 kilometers (229 miles),
by paved highway, southeast of Puerto Ordaz. The project, accessible by an
all-weather road, is 5 kilometers west of the Km 88 marker on Highway 10,
occupies an area of approximately 11,000 hectares.
Existing or Pending Concessions and Contracts and Applications for additional
Mining Rights and/or Land Use
- -----------------------------------------------------------------------------
The Brisas Project consists of the following: a 500-hectare land parcel
consisting of the Brisas alluvial concession and the Brisas hardrock
concession beneath the alluvial concession (the "Brisas concessions").
Together these concessions contain substantially all of the mineralization
identified in the Brisas Bankable Feasibility Study. The Brisas Project also
includes a number of other existing or pending applications for concessions,
alfarjetas, CVG work contracts, land use permits and easements adjacent to or
near the Brisas concessions totaling another 13,000 hectares.
Generally a concession represents a privilege, license or mining title
granted by MIBAM or its predecessor MEM, pursuant to Venezuelan mining law,
to explore and, if warranted, produce minerals from a specified property. An
alfarjeta is a right similar to a concession except that the area of the land
parcel is insufficient in size to be designated a concession. A CVG work
contract is similar to rights granted pursuant to a concession, however,
contract law governs such rights. In 2003 CVG's authority to grant new mining
contracts was eliminated. Land use permits and easements are generally the
right to temporarily occupy or expropriate land required for mining
activities.
The Brisas alluvial concession is for the exploitation of alluvial gold
granted by MEM, the predecessor to the MIBAM, through a title published in
the Official Gazette of the Republic of Venezuela No. 33,728 on April 4,
1988. In September 2000, the Company also made application to MEM for the
copper and silver mineralization contained within the area of this
concession. The Brisas hardrock concession (which is beneath the Brisas
alluvial concession) is for the exploitation of vein gold, copper and
molybdenum and was granted by MEM through a title published in the Official
Gazette of the Republic of Venezuela No. 36,405 on March 3, 1998. The Brisas
hardrock concession is the main ore-body, comprising substantially all of the
gold and copper mineralization contained within the properties.
The Company's original Brisas Project operating plan was approved by MIBAM in
2003 and, since that approval, the Company has submitted to MIBAM a number of
modifications in order to minimize impact to the environment and optimize
economics of the Brisas Project, including an increase in milling capacity up
to 70,000 tons per day and relocation of certain surface facilities and
infrastructure. Contained within the approved operating plan are a number of
existing or pending applications for concessions, alfarjetas, CVG work
contracts, land use permits and easements, adjacent to or near the Brisas
concessions. These additional land parcels comprise the bulk of the land
required for the mining and milling facility and related infrastructure
contemplated in the Brisas Bankable Feasibility Study. A number of these
parcels are integral to our current operating plan and others may be
necessary for future needs. Failure to obtain rights to one or more of these
land parcels could have a material adverse affect on the Company.
The 1999 Mining Law contemplated the conversion of the CVG Work Contracts
into mining concessions and based on those provisions, the Company applied to
MIBAM in a timely manner for conversion of the CVG contracts noted above.
MIBAM previously indicated that it would act on these conversion
applications, however the government has recently announced its intention to
organize a state-owned mining company and no longer issue any concessions. If
this occurs it will likely impact the conversion process embodied in the
current law as well as the issuance of the Company's existing applications
for concessions nearby the Brisas concessions. As a possible alternative, the
Company has recommended to MIBAM that instead of converting the CVG work
contracts into concessions some form of land use permits or easements would
be more appropriate as our objective is to use these properties that are
contiguous and adjacent to the Brisas concessions primarily for
infrastructure needs and not for mineral exploitation.
In addition to pending land use issues related to project infrastructure
needs, the Company has number of permits relating to the Brisas Project
pending before MIBAM, MARN and other regulatory or government agencies which
are required to be issued prior to the Company obtaining sufficient financing
and beginning construction on, and operating, the Brisas property. Most
importantly, the Company must obtain the Administrative Authorization to
Affect Natural Resources for Construction of Infrastructure and Exploitation
of Alluvial and Vein Deposits of Gold and Copper from MARN, which is issued
in part based on MIBAM's approval of the project operating plan as well as
the Company's Venezuelan Environmental and Social Impact Assessment (V-ESIA)
which was submitted in August 2005.
Tenure
- -----------------------------------------------------------------------------
The Brisas alluvial concession was acquired through the acquisition of
BRISAS. The Brisas hardrock concession was granted to BRISAS in March 1998.
Both concessions were granted by MEM (now MIBAM)total cumulative obligation payable pursuant to the 1945 mining
law.
The Brisas alluvial concession is an exploitation concession with a term of
20 years, two renewal periods of 10 years each at the discretion of MIBAM,
and a 3% tax on gold sales. In prior years the Brisas alluvial mineralization
was substantially mined out. The remaining mineralization is low-grade and
uneconomic on a stand-alone basis. When this mineralization is combined with
the Brisas hardrock mineralization it represents approximately 3%terms of the total Brisas Project mineralizationBonus Plan from the sale of the Mining Data and becomes economic due to economiescollection of scale. The Brisas alluvial concession provides MIBAM or its designee the right (referred to as a "special advantage"Award was approximately $4.4 million, all of which has been paid to the Republic of Venezuela) to
acquire 20% of the company organized by the alluvial concession holder to
perform extraction activities within the concession. Venezuelan counsel has
advised us that to the best of their knowledge MIBAM has never enforced such
provisions contained in similar concessions. For this reason, it is unclear
how the value of the twenty percent (20%) of the alluvial concession would be
determined, in the event MIBAM chose to exercise such right pursuant to the
concession.
The Brisas hardrock concession is an exploitation concession with a term of
20 years and two renewal periods of 10 years each, at the discretion of
MIBAM. The hardrock concession provides for up to a 3% tax on gold sales and
up to a 7% mine mouth tax on copper production. See "Venezuelan Mining
Environment and Other Matters."
Regional Infrastructure
- -----------------------------------------------------------------------------
The Brisas Project site is located in the State of Bolivar, in southeastern
Venezuela. The nearest major city is Puerto Ordaz, withBonus Plan participants other than approximately 1,400,000 inhabitants. Puerto Ordaz is the center of major industrial
developments in the area, including iron and steel mills, aluminum smelters,
iron and bauxite mining and forestry. Major hydroelectric generating plants
on the Caroni River, providing more than 20,000 MW of electricity, support
these industries. Puerto Ordaz has major port facilities and is accessible to
ocean-going vessels from the Atlantic Ocean, via the Orinoco river. There are
also port facilities 428 km northwest of Puerto Ordaz on the Caribbean coast
near Barcelona,$70,000 which would likely be the port of entry for most
construction, mining and milling equipment.
Puerto Ordaz is a modern urban center with good road and air connections to
the rest of Venezuela. There are regularly scheduled flights to Caracas and
other major cities several times daily. The highway system within Venezuela
is generally good, with paved roads in good condition providing access to
within 5 km of the Brisas Project. A four-lane highway runs from Puerto
Ordaz, northwest to both Barcelona and Guanta, and for 55 km south to Upata
where it becomes a two-lane highway to Km 88 and on into Brazil. A 400 kV
power line runs through the community of Las Claritas, nearby the Brisas
Project, with a transformer station located 3 km from the property.
Geology
- -----------------------------------------------------------------------------
The Brisas Project is within the Proterozoic granite-greenstone terrain of
the Guyana shield. The shield covers eastern Colombia, southeastern
Venezuela, Guyana, Suriname, French Guiana and northeastern Brazil. The
terrain is a thick section of andesite to dacite volcanics intruded by
numerous granite stocks and batholiths. Several periods of deformation,
metamorphism, and mineralization can be documented within this terrain.
The rock units on the Brisas property are divided into weathered and
unweathered. Weathered rock or saprolite is further defined by the degree of
oxidation into oxide saprolite and sulfide saprolite. Both contain clays and
quartz with the oxide saprolite having iron oxides such as hematite and
goethite while in the sulfide saprolite the iron is present as pyrite. The
unweathered rocks consist of andesite or dacite tuffs that are further
subdivided based on the presence or absence of mineral crystals and lithic or
lapilli fragments. Unweathered intrusive rocks include a tonalite stock and
basalt dikes and sills. The tuffs strike northerly and dip 30 to 35 degrees
to the west. No faulting can be recognized within the deposit.
The mineralization is stratabound and strataform within a 200-meter thick
series of tuffs marked by rapid horizontal and vertical facies changes. The
gold/copper mineralization is over 1,900 meters long and 500 to 900 meters
wide. Mineralization continues for an unknown distance down-dip to the west,
north and south, as well as, below the current deposit. Three styles of
mineralization are seen: 1) massive sulfide-quartz-tourmaline breccia with
pyrite, chalcopyrite and gold in an outcrop referred to as the Blue Whale, 2)
stratabound, disseminated pyrite-gold/copper mineralization and 3)
quartz-calcite high angle veins marked by erratic but high gold values. The
disseminated mineralization is characterized by a
calcite-quartz-epidote-sulfide alteration and constitutes the bulk of the
economic mineralization. There appears to be no relationship between the
disseminated mineralization and the high angle veins. The mineralization to
the north is generally pyrite-chalcopyrite-gold with the copper content
decreasing to the south until in the southern portion of the deposit the
copper is a minor constituent of the mineralization. Mineralization is open
down dip to the west and to the north.
Bankable Feasibility Study
- -----------------------------------------------------------------------------
The Company and a number of independent consultants completed a Bankable
Feasibility Study in respect to the construction and operation of the Brisas
Project in January 2005. Based on the results of the study, the Company plans
to produce gold dorE on-site and ship gold/copper concentrate to an off-site
smelter. Note that the Company announced an increase in the proven and
probable reserves at the Brisas Project in May 2005, which is further
discussed later in this document. The 2005 Bankable Feasibility Study
described below has not yet been updateddistributed.
| 13 |
Intention to Distribute Funds Received in Connection with this new data.
Based on the results set forthAward in the study,Future
In June 2019, the operating plan assumesCompany completed a large open pit mine containing proven and probable reservesdistribution of approximately 9.2$76 million ouncesor $0.76 per share to holders of goldClass A Shares as a return of capital (the "Return of Capital"). The Return of Capital was completed pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "ABCA") which required approval by the Alberta Court of Queen's Bench (the "Court") and 1.2 billion poundsat least two-thirds of copperthe votes cast by shareholders of the Company ("Shareholders") in 414 million
tonnesrespect of ore grading 0.69 gramsa special resolution.
Following the receipt, if any, of gold per tonneadditional funds associated with the Settlement Agreement and/or Award and 0.13% copper,after applicable payments of obligations related to the CVR and Bonus Plan, we expect to distribute to our Shareholders a substantial majority of any remaining proceeds, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the future collection of the remaining amounts owed by Venezuela.
Venezuela's Political, Economic and Social Conditions
Venezuela continues to experience political, economic and social turmoil. The country’s foreign currency earnings continue to fall due to reduced oil exports caused by declining production at PDVSA, the state-owned oil company, along with low oil prices and the impact of U.S. Sanctions. The country's overall infrastructure, social services network, and economy continue to deteriorate.
In early January 2023, the opposition National Assembly agreed not to extend the dual or interim government of Juan Guaidó any further, and the interim government was dissolved as a revenue cutoff grade of $2.76 per tonne. result. Additionally, the Assembly established a commission to oversee the country’s assets abroad in an effort to prevent the Maduro Administration from accessing those assets. All embassies in other countries opened by the interim government have been closed.
The final pit was based on a shape
produced by an industry standard pit optimization software using a gold price
of $350 per ounceU.S., Canada, and a copper price of $0.90 per pound. Utilizing
conventional truckfew other countries that recognized the Juan Guaidó government still don’t recognize the Maduro Administration. The U.S., Canada, and shovel mining methodsothers have called upon the Maduro Administration to hold free and fair presidential elections in the near term with the processingexpectation of ore at
full productionsome Sanctions relief, if that were to occur. Countries including Colombia, Brazil, Mexico, and certain other Latin American and European countries are normalizing relations with the Maduro Administration.
The existing conditions in Venezuela and the Sanctions are expected to continue in the foreseeable future, adversely impacting our ability to collect the remaining amount owed to us by Venezuela under the Settlement Agreement and/or Award or to have the Resolution annulled.
U.S. and Canadian Sanctions
The U.S. and Canadian governments have imposed various Sanctions targeting Venezuela. The Sanctions, in aggregate, essentially prevent any dealings with Venezuelan government or state-owned or controlled entities and prohibit directors, management and employees of 70,000 tonnes per day, the study anticipatesCompany who are U.S. Persons, persons in Canada or Canadians outside Canada from dealing with certain Venezuelan individuals or entering into certain transactions.
The Sanctions imposed by the U.S. government generally block all property of the government of Venezuela and prohibit directors, management and employees of the Company who are U.S. Persons (as defined by U.S. Sanction statutes) from dealing with the Venezuelan government and/or state-owned/controlled entities, entering into certain transactions or dealing with Specially Designated Nationals ("SDNs") and target corruption in, among other identified sectors, the gold sector of the Venezuelan economy.
The Sanctions imposed by the Canadian government include asset freezes and prohibitions on dealings with certain named Venezuelan officials under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Regulations of the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law).
The Sanctions have adversely impacted our ability to collect the remaining funds owed by Venezuela or to contest the Resolution, which is expected to continue for an indeterminate period of time.
| 14 |
On June 4, 2020, the Board created a special committee of non-U.S. Persons (the “Special Committee”), for the purposes of making all decisions and taking all actions for and on behalf of the Board and the Company, and so binding the Company with respect to all matters related to or arising from the business of the Company, that are not permitted to be done by “U.S. Persons” (as defined in 31 C.F.R. § 591.312) pursuant primarily to U.S. Sanctions. This is part of the Company’s efforts to ensure compliance with applicable laws, including, without limitation, U.S. Sanctions, the Special Economic Measures (Venezuela) Regulations enacted pursuant to the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Regulations of the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). The Special Committee is tasked with ensuring that the Brisas Project at full production levels will yield an average annual
productionCompany’s actions that it directs are in compliance with applicable laws. The Special Committee is currently comprised of 486,000 ouncesthree individuals: two of goldwhom are directors, Mr. Coleman and 63 million pounds of copper over an
estimated mine life of approximately 16 years.
The Bankable Feasibility Study assumed an economic model base case utilizing
$400 per ounce goldMr. Gagnon, along with a former director, Mr. J.C. Potvin. As previously disclosed, the Company did consider and $1.00 per pound copper. At such prices, cash
operating costs (net of copper credits) are estimated at $154 per ounce of
gold and total costs per ounce, including operating costs and initial and
sustaining capital, would be $263 per ounce of gold. Initial capital costs to
construct and place the Brisas Project into production are currently estimated
to be approximately $552 million excluding value added taxes and import duties
which could total as much as $50 million. Tax exonerations or tax payment
holidays are available for various taxes including value added taxes ("VAT")
and import duty tax on the initial capital costs. Management is in the
process of preparingdid make OFAC license applications for all available exonerations and expects
to obtain such exonerations prior to the construction of the project. As a
result, the cost of such taxes and import duties are not included in the
initial costs of the project. However,purposes then noted. The Company has received one limited OFAC license but there can be no assurances that such
exonerationsother licenses will be obtained the result of which wouldand/or that any licenses will be to increase
capital and operating costs.
We are dependent on the Venezuelan regulatory authorities issuing the Company
certain required operational and land use permits relating to the Brisas
property before we may begin construction on, and operate, the Brisas
property. Obtaining these required permits is also necessary in ordersufficient for the Company to adequately identifyprocure any funds or obtain any specific results as a result of such receipt of any license.
The cumulative impact of the Sanctions continues to restrict the Company from working with those Venezuelan government officials responsible for the payment and obtain suitable financingtransfer of funds associated with the Settlement Agreement which adversely impacts our ability to collect the remaining balance of the Award plus interest and/or amounts due pursuant to the Settlement Agreement from Venezuela. It also impacts our ability to contest the Resolution. Even if we are successful in appealing the Resolution by the Ministry to revoke the mining rights in connection with the Siembra Minera Project, the Sanctions continue to restrict the Company from working with those Venezuelan government officials responsible for the operation of Siembra Minera and the development of the Siembra Minera Project and, until Sanctions are lifted, would obstruct any ability for us to develop the Siembra Minera Project as originally planned.
C. Organizational structure
Gold Reserve Inc. was incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014. The Company is the successor issuer to Gold Reserve Corporation which was incorporated in the United States in 1956. The Company’s significant subsidiaries include Gold Reserve Corporation and three Barbadian subsidiaries (GR Mining (Barbados) Inc., GR Procurement (Barbados) Inc. and GR Mining Group (Barbados) Inc.). GR Mining (Barbados) Inc., holds our equity interest in Siembra Minera which is beneficially owned 55% by a Venezuelan state-owned entity and 45% by Gold Reserve. Our investment in Siembra Minera is accounted for as an equity investment. All subsidiaries are wholly owned.
D. Property, plant and equipment
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2022 | ||||||
| Machinery and equipment | $ | 968,750 | $ | – | $ | 968,750 |
| Furniture and office equipment | 423,813 | (357,690) | 66,123 | |||
| Transportation equipment | 326,788 | (296,053) | 30,735 | |||
| Leasehold improvements | 29,390 | (28,846) | 544 | |||
| Mineral property | 350,000 | – | 350,000 | |||
| $ | 2,098,741 | $ | (682,589) | $ | 1,416,152 | |
Machinery and equipment consists of a semi-autogenous grinding (SAG) mill shell and minor infrastructure equipment originally intended for use on the Brisas Project. ConstructionWe evaluate our equipment and mineral property to determine whether events or changes in circumstances have occurred that may indicate that the carrying amount may not be recoverable. We regularly obtain comparable market data for similar equipment as evidence that our equipment’s fair value less cost to sell is in excess of the Brisas Project is expected to take 24-30 months,
with commissioning and achievement of commercial production shortly
thereafter. Operating supplies are expected to be purchased primarily in
Venezuela and from other South American countries. Power is available from a
transmission line that passes within a few kilometerscarrying amount. In 2022, we wrote down the value of the project site.
The power company has constructed a substation at the Km 88 location for
connection to the project. Abundant water is available in the area, with the
Brisas Project's fresh water requirements being met by water pumped from the
pit dewatering system, and by rainfall recovered in the tailings pond.
On-site accommodations will be provided for employees, who will be drawn both
from the local area, and from the industrialized area around Puerto Ordaz.
Over 2,000 personnel will be needed for the construction of the project and
employment will peak at over 900 operating personnel. The mining and
processing methods are all based on conventional technology and, at present,
no new or unproven technology is expected to be employed.
The following are the key assumptions contained in the 2005 Bankable
Feasibility Study:
Proven and probable reserves using $350 per ounce of gold and $0.90 per
pound of copper:
- -----------------------------------------------------------------------------
Proven Reserves 193.2 million tonnes;
0.71 g/t gold and 0.12% copper
Probable Reserves 221.3 million tonnes;
0.68 g/t gold and 0.13% copper
Strip Ratio (waste: ore) 1.81:1
Mine Life 16 years
Mill throughput (full production) 70,000 tonnes per day "Hardrock" ore
6,000 tonnes per day "Sulfide" saprolite
6,000 tonnes per day "Oxide" saprolite
Plant Metal recoveries gold 83.1%
copper 87.0%
Net Payable Metals gold 82.4%
copper 83.0%
Life of Mine Production (payable metals)
gold 7.59 million ounces
copper 979 million pounds
Average Annual Gold Production 486,000 ounces
Average Annual Copper Production 63 million pounds
Average Annual Copper
Concentrate Production 124,000 metric tonnes
Economic Model Results using $400 per ounce of gold and $1.00 per
pound of copper:
- -----------------------------------------------------------------------------
Total Cash Operating Cost
(on site and off site) $5.26 per tonne ore
Initial Capital Cost $552.4 million
Working Capital $39.3 million
Ongoing Capital $132.3 million
Cash Operating Cost * $154 per ounce of gold
Production Taxes $13 per ounce of gold
Total Cash costs * $167 per ounce of gold
Capital Cost Amortization $96 per ounce of gold
Total Cost $263 per ounce of gold
IRR, NPV and Payback using:
per ounce of gold and: $400 $350
per pound of copper $1.00 $0.90
Internal Rate of Return
(After-Tax) 9.1% 5.2%
Project Net Present Value
(After-Tax) @ 0% $711 million $384 million
@ 5% $207 million $12 million
Project Payback 8 years 10.8 years
* Net of copper by product credit
Mineral Resource and Reserve Estimates Contained in Brisas Feasibility Study
- -----------------------------------------------------------------------------
Pincock Allen & Holt ("PAH") calculated the mineral resource and reserve
estimates contained herein, most recently reported upon in February 2005 in
accordance with CSA National Instrument 43-101, as required by Canadian
Securities regulatory authorities. We believe that the calculation of such
mineral reserves based on Canadian regulations is substantially the same as
it is under the U.S. Securities and Exchange Commission Industry Guide 7.
However, we advise U.S. investors that definitions contained in National
Instrument 43-101 differ in certain respects from those set forth in the U.S.
Securities and Exchange Commission Industry Guide 7.
Brisas Feasibility Study Mineral Resource Estimate
- -----------------------------------------------------------------------------
Based on work completed by PAH for the Brisas Bankable Feasibility Study,
using an off-site smelter process for treating copper concentrates, the
Brisas Project is estimated to contain a measured and indicated mineral
resource of 10.97 million ounces of gold and approximately 1.4 billion pounds
of copper (based on 0.4 gram per tonne gold equivalent cut-off). A glossary of
terms used herein is contained in the appendix.
Cautionary Note to U.S. Investors concerning estimates of Measured and
Indicated Resources. This section uses the terms "measured" and "indicated
resource." We advise U.S. investors that while the terms "measured" and
"indicated resource" are recognized and required by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize them. U.S.
investors are cautioned not to assume that the mineralization not already
categorized as mineral reserves, will ever be converted into reserves.
The February 2005 estimated measured and indicated mineral resource utilizing
an off-site smelter process is summarized in the following table and includes
the mineral reserve estimate shown in the following section:
| 15 |
Item 4A. Unresolved Staff Comments-Not Applicable
Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
Overview
- -----------------------------------------------------------------------------
We prepare
The following discussion of Gold Reserve Inc. and its subsidiaries (collectively "Gold Reserve", the "Company", "we", "us", or "our") is intended to assist in understanding and assessing our results of operations and financial condition and should be read in conjunction with the audited consolidated balance sheets of Gold Reserve as of December 31, 2022 and December 31, 2021, and the related consolidated statements of operations and comprehensive loss, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements in U.S. Dollarsstatements”) prepared in accordance with accounting principles generally accepted in Canada. A
reconciliationthe United States of the principal measurement differences between accounting
principles generally accepted in Canada and the U.S. is presented in Note 11
of the consolidated financial statements. The information contained below is
as of March 30, 2006, unless otherwise noted, and should be read in
conjunction with the Company's consolidated financial statements, included
herein. The Company entered into one material contract (identified in
Exhibit 3.3) outside the ordinary course of business.
America.
The Company is engaged in the business of evaluating, acquiring, exploring and developing mining projects. The majority of its management and financial resources are focused on the collection of the remaining amounts owed to us by Venezuela and working toward all remedies that are available to us with respect to the Siembra Minera Project.
In March 2022, the Ministry issued the Resolution, as described in more detail above. We are evaluating all legal rights and remedies that are available to us under Venezuelan and other laws, under the Settlement Agreement and otherwise and, in late 2022, we filed for an appeal of the Resolution with the Venezuelan Supreme Court of Justice. We also requested a precautionary measure of suspension of the effects of the Resolution which was denied (See Item 8.A). Even if the Resolution is successfully annulled, the Sanctions, along with other constraints, could adversely impact our ability to finance, develop and operate the Siembra Minera Project or collect or repatriate sums under the Settlement Agreement.
Even if the Resolution is annulled by the Supreme Court of Justice of Venezuela, there are significant provisions related to the formation of Siembra Minera and the development and operation of the Siembra Minera Project under our agreements with the government of Venezuela that are still pending, including authorizations and/or still to be completed obligations on the part of the Venezuelan government that are critical to the financing and future operation of the Siembra Minera Project.
In October 2009, we initiated the Brisas Arbitration, as described in more detail above, to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project. In September 2014, the ICSID Tribunal granted the Award totaling $740.3 million. The Award (less legal costs and expenses) currently accrues post-award interest at a rate of LIBOR plus 2%, compounded annually.
Under the terms of the July 2016 Settlement Agreement (as amended) Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data associated with the Brisas Project for a total of approximately $1.032 billion in a series of monthly payments ending on or before June 15, 2019. As agreed, the first $240 million received by Gold Reserve from Venezuela has been recognized as proceeds from the sale of the Mining Data.
As of the date of this Annual Report, the Company had received payments of approximately $254 million pursuant to the Settlement Agreement. The remaining unpaid amount due from Venezuela pursuant to the Settlement Agreement, which is delinquent, totals an estimated $994 million (including interest of approximately $216 million).
Our overall financial position is influenced by the proceeds previously received pursuant to the Settlement Agreement, related payment obligations, the 2019 Return of Capital to Shareholders and results of operations. Recent operating results and our overall financial position and liquidity are primarily impacted by expenses associated with activities related to the Siembra Minera Project, Sanctions and costs associated with maintaining our legal and regulatory obligations in good standing and by Venezuela's failure to honor its monetary and non-monetary obligations under the Settlement Agreement in a timely manner.
As discussed elsewhere in this Annual Report, the Sanctions have and will continue to adversely impact our ability to collect the remaining amounts due associated with the Settlement Agreement and/or Award. Even if there is a successful annulment of the Resolution to revoke the mining rights of Siembra Minera, the Sanctions could adversely impact our ability to finance, develop and operate the Siembra Minera Project.
| 16 |
A. Operating results
During the year ended December 31, 2022, cash and cash equivalents decreased approximately $33.7 million compared to a decrease of approximately $8.3 million for the same period in 2021. The net decrease in cash and cash equivalents was primarily due to a $27.4 million investment in U.S. treasury bills and cash used in operations as more fully described in the "Liquidity and capital resources - Operating Activities" section below. Net loss for the year ended December 31, 2022 was $8.6 million compared to net loss of $10.6 million for the year ended December 31, 2021. The decrease in loss was primarily due to decreases in corporate general and administrative expense, Siembra Minera project related costs and a loss on impairment of cash in bank in 2021, partially offset by increases in legal and accounting expense, write-down of property, plant and equipment, contingent value rights expense and Settlement Agreement enforcement expense.
During the year ended December 31, 2021, cash and cash equivalents decreased approximately $8.3 million compared to a decrease of approximately $4.4 million for the same period in 2020. The net decrease in cash and cash equivalents was primarily due to cash used in operations as more fully described in the "Operating Activities" section below. Net loss for the year ended December 31, 2021 was $10.6 million compared to net loss of $11.5 million for the year ended December 31, 2020. The decrease in loss was primarily due to decreases in write-downs of property, plant and equipment and arbitration and settlement costs, partially offset by a 2021 impairment loss on a bank account and an increase in legal and accounting expense which was a result of regulatory filings related to share issuances, tax audits, revised compensation agreements and other corporate matters
One of the Company’s Barbadian subsidiaries has a U.S. dollar account in an Antiguan bank which is part of a banking group based in Venezuela. The account was intended to be used to fund the Company’s activities related to the Siembra Minera project. The Company has been unable to transfer the funds out of the account and believes the banking group is experiencing severe financial difficulties. As a result, the Company does not have access to the funds and accordingly fully provided for the balance, resulting in an impairment loss of approximately $1.17 million in 2021. The Company is continuing to pursue a recovery of the account balance but there is considerable doubt as to whether recovery of the funds will occur.
Historically we have financed our operations through the issuance of common stock, other equity securities and debt and proceeds from payments under the Settlement Agreement. The timing of any future investments or transactions if any, and the amounts that may be required cannot be determined at this time and are subject to available cash, the continued collection, if any, of the proceeds associated with the collection of the Award and/or future financings, if any. We may need to rely on additional capital raises in the future. We have only one operating segment, the exploration and development of mining projectsmineral properties.
Our longer-term funding requirements may be adversely impacted by the timing of the collection of the amounts due pursuant to the Settlement Agreement and/or Award, financial market conditions, industry conditions, regulatory approvals or other unknown or unpredictable conditions and, is presently focused primarilyas a result, there can be no assurance that additional funding will be available or, if available, offered on its most significant
asset,acceptable terms.
Consolidated income, expenses, net loss before tax and net loss for the Brisas Project,years ended December 31, 2022, 2021 and to a lesser extent2020 were as follows:
| 2022 | Change | 2021 | Change | 2020 | ||||
| Income | $ | 466,673 | $ | 375,775 | $ | 90,898 | $ (202,759) | $ 293,657 |
| Expenses | (9,063,189) | 1,624,501 | (10,687,690) | 2,212,612 | (12,900,302) | |||
| Net loss before tax | $ | (8,596,516) | $ | 2,000,276 | $ | (10,596,792) | 2,009,853 | (12,606,645) |
| Net loss and comprehensive loss | $ | (8,596,516) | $ | 2,000,276 | $ | (10,596,792) | $ 920,493 | $ (11,517,285) |
Income (Loss)
| 2022 | Change | 2021 | Change | 2020 | ||||
| Interest income | $ | 582,523 | $ | 551,428 | $ | 31,095 | $ (263,182) | $ 294,277 |
| Gain (loss) on disposition of | ||||||||
| property, plant and equip | (8,410) | (66,972) | 58,562 | 89,038 | (30,476) | |||
| Gain (loss) on marketable equity securities | (7,165) | (28,808) | 21,643 | 15,887 | 5,756 | |||
| Foreign currency gain (loss) | (100,275) | (79,873) | (20,402) | (44,502) | 24,100 | |||
| $ | 466,673 | $ | 375,775 | $ | 90,898 | $ (202,759) | $ 293,657 |
| 17 |
As the exploration of its
Choco 5 property, both located in Bolivar State, Venezuela. The Company has no commercial production or source of operating cash flow at this time, income is often variable from period to period. For the year ended December 31, 2022, income increased over the prior year primarily as a result of an increase in interest income due to an increase in interest rates partially offset by an increase in foreign exchange loss. For 2021, the decrease in income from the prior year was primarily a result of a reduction in interest income due to a decrease in interest rates and a reduction in foreign currency gain, partially offset by increases in gains on disposition of property, plant and equipment and marketable equity securities.
Expenses
| 2022 | Change | 2021 | Change | 2020 | ||||
| Corporate general and administrative | $ | 5,149,650 | $ | (869,074) | $ | 6,018,724 | $ 871,391 | $ 5,147,333 |
| Contingent value rights | 461,835 | 461,835 | - | (59,549) | 59,549 | |||
| Siembra Minera Project and related costs | 223,237 | (1,452,232) | 1,675,469 | 106,728 | 1,568,741 | |||
| Write-down of property, plant and equipment | 622,969 | 622,969 | - | (3,749,531) | 3,749,531 | |||
| Loss on impairment of cash in bank account | - | (1,166,529) | 1,166,529 | 1,166,529 | - | |||
| Exploration costs | 62,096 | (56,163) | 118,259 | 44,576 | 73,683 | |||
| Legal and accounting | 1,924,808 | 679,087 | 1,245,721 | 546,911 | 698,810 | |||
| Settlement Agreement enforcement | 450,477 | 305,330 | 145,147 | (987,144) | 1,132,291 | |||
| Equipment holding costs | 168,117 | (149,724) | 317,841 | (152,523) | 470,364 | |||
| Total expenses for the period | $ | 9,063,189 | $ | (1,624,501) | $ | 10,687,690 | $ (2,212,612) | $ 12,900,302 |
Corporate general and administrative expense for the year ended December 31, 2022 decreased from the comparable period in 2021 primarily due to a decrease in non-cash stock option compensation and a reduction in executive compensation and Director fees. The decrease in corporate general and administrative expense was partially offset by severance expense related to the retirement of the Company’s President, the allocation of costs previously classified as Siembra Minera Project costs and an increase in Director and Officer insurance. In the second through fourth quarters of 2022, the Company incurred approximately $0.7 million of consultant and other costs which, prior to the Resolution to revoke the mining rights of Siembra Minera, were classified as Siembra Minera Project costs. Beginning in the second quarter of 2022, these costs are classified as general and administrative expense. Certain of these costs are expected to continue as they may be relevant to the Company’s future activities with respect to the Resolution, other legal support activities and/or the Settlement Agreement. Contingent value rights expense increased due to costs related to the settlement with CVR holders (See Note 2 to the audited consolidated financial statements). Siembra Minera Project costs decreased from the prior year as a result of the March 2022 Venezuelan Ministry of Mine’s issuance of the Resolution to revoke the mining rights of Siembra Minera and the reallocation, in the second through fourth quarters of 2022, of certain costs previously associated with the Siembra Minera project to corporate general and administrative expense. The Company recorded a write-down of property, plant and equipment in 2022 due to an assessment that the market value of certain equipment had decreased. A loss on impairment of cash in a bank account was recorded in 2021 when it was determined that the Company does not have access to funds in a bank account held in a financial institution which is believed to be experiencing financial difficulties. The Company is continuing to pursue a recovery of the account balance but there is considerable doubt as to whether recovery of the funds will occur. Legal and accounting expenses increased primarily as a result of an increase in professional fees associated with the Resolution to revoke the Siembra Minera mining rights, efforts to reinstate those rights, tax compliance and other corporate matters. Settlement Agreement enforcement expense increased due to legal and other costs associated with enforcement and collection of the Award. Equipment holding costs decreased due to the disposal of some of the equipment in 2021. Overall, total expenses for the year ended December 31, 2022 decreased by approximately $1.6 million from the comparable period in 2021.
| 18 |
Corporate general and administrative expense for the year ended December 31, 2021 increased from the comparable period in 2020 primarily due to an increase in non-cash stock option compensation. CVR-related expenses decreased due to a decrease in the tax benefits associated with prior years’ receipts of payments under the Settlement Agreement. Expenses associated with the Siembra Minera Project during the year ended December 31, 2021 increased from the prior comparable period due to an increase in non-cash stock option compensation of project technical consultants. Impairment write-downs of property, plant and equipment decreased as the Company did not record any write-downs of property, plant and equipment in 2021. Loss on impairment of cash in a bank account was recorded in 2021 but not in the prior year. It was determined that the Company does not have access to funds in a bank account held in a financial institution which is believed to be experiencing financial difficulties. The Company is continuing to pursue a recovery of the account balance but there is considerable doubt as to whether recovery of the funds will occur. Legal and accounting expenses increased from the prior comparable period primarily as a result of an increase in professional fees associated with regulatory filings related to share issuances, tax audits, revised compensation agreements and other corporate matters. Settlement Agreement enforcement expense decreased as a result of a decrease in the need for counsels' assistance in the evaluation of various issues associated with the status of the Settlement Agreement and the Siembra Minera Project. Equipment holding costs decreased due to the disposal of some of the equipment in 2021. Overall, total expenses for the year ended December 31, 2021 decreased by approximately $2.2 million from the comparable period in 2020.
Summary of Quarterly Results (1)
| Quarter ended | 12/31/22 | 9/30/22 | 6/30/22 | 3/31/22 | 12/31/21 | 9/30/21 | 6/30/21 | 3/31/21 |
| Income (loss) | $322,504 | $60,039 | $40,754 | $43,376 | $(76,489) | $12,563 | $95,416 | $59,408 |
| Net loss | ||||||||
| before tax | (3,103,914) | (1,703,356) | (2,243,859) | (1,545,387) | (4,933,399) | (2,044,043) | (1,745,073) | (1,874,277) |
| Per share | (0.03) | (0.02) | (0.02) | (0.02) | (0.05) | (0.02) | (0.02) | (0.02) |
| Fully diluted | (0.03) | (0.02) | (0.02) | (0.02) | (0.05) | (0.02) | (0.02) | (0.02) |
| Net loss | (3,103,914) | (1,703,356) | (2,243,859) | (1,545,387) | (4,933,399) | (2,044,043) | (1,745,073) | (1,874,277) |
| Per share | (0.03) | (0.02) | (0.02) | (0.02) | (0.05) | (0.02) | (0.02) | (0.02) |
| Fully diluted | (0.03) | (0.02) | (0.02) | (0.02) | (0.05) | (0.02) | (0.02) | (0.02) |
| (1) | The information shown above is derived from our unaudited consolidated financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. |
In the fourth quarter of 2022, income increased primarily due to increased interest income as a result of an increase in interest rates. In the third quarter of 2022, income increased primarily due to increased interest income as a result of an increase in interest rates, partially offset by a decrease in gain on marketable equity securities. In the second quarter of 2022, income decreased as a result of fluctuations in currency exchange rates resulting in foreign currency losses in the second quarter of 2022 compared to foreign currency gains in the first quarter of 2022. The decrease in income was partially offset by an increase in interest as a result of higher interest rates. In the first quarter of 2022, income increased primarily as a result of unrealized gains on marketable equity securities. In the fourth quarter of 2021, income decreased as a result of unrealized losses on marketable equity securities, foreign currency loss and losses on disposition of property, plant and equipment. In the third quarter of 2021, income decreased due to a decrease in the gain on sale of equipment and an increase in foreign currency loss. In the second quarter of 2021, income increased due to a gain on sale of equipment. In the first quarter of 2021, income increased due to an increase in gain on marketable equity securities, partially offset by a decrease in foreign currency gain.
In the fourth quarter of 2022, net loss increased primarily due to an increase in contingent value rights expense, write-down of property, plant and equipment and Settlement Agreement enforcement expense. In the third quarter of 2022, net loss decreased primarily due to a decrease in severance expense. In the second quarter of 2022, net loss increased primarily as a result of severance expense and legal and other costs related to the revocation, reinstatement efforts and potential damages claims associated with the Siembra Minera mining rights. In the first quarter of 2022, net loss decreased as a result of a reduction in compensation expense including non-cash stock option expense. In the fourth quarter of 2021, net loss increased primarily as a result of an increase in non-cash stock option compensation expense and a loss on impairment of cash in a bank account. In the third quarter of 2021, net loss increased due primarily to an increase in legal and accounting expense and a decrease in income. In the second quarter of 2021, net loss decreased as a result of decreases in legal, accounting and arbitration costs and a gain on sale of equipment. In the first quarter of 2021, net loss decreased as the Company did not have further write-downs of property, plant and equipment.
| 19 |
Selected Annual Information (1)
| 2022 |
| 2021 |
| 2020 | |
| Income (loss) | $ | 466,673 | $ | 90,898 | $ | 293,657 |
| Expenses | $ | (9,063,189) | $ | (10,687,690) | $ | (12,900,302) |
| Income tax benefit | $ | - | $ | - | $ | 1,089,360 |
| Net loss | $ | (8,596,516) | $ | (10,596,792) | $ | (11,517,285) |
| Net loss per share, basic and diluted | $ | (0.09) | $ | (0.11) | $ | (0.12) |
| Total assets | $ | 52,943,925 | $ | 60,640,443 | $ | 69,435,303 |
| Total liabilities | $ | 1,351,341 | $ | 610,561 | $ | 1,011,079 |
| Total shareholders’ equity | $ | 51,592,584 | $ | 60,029,882 | $ | 68,424,224 |
| Common shares outstanding | 99,547,710 | 99,547,710 | 99,395,048 |
| (1) | The selected annual information shown above is derived from our audited consolidated financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. |
B. Liquidity and capital resources
At December 31, 2022, we had cash and cash equivalents of approximately $15.4 million which represents a decrease from December 31, 2021 of approximately $33.7 million. The net decrease was primarily due to a $27.4 million investment in U.S. Treasury Bills with original maturities of between 3 and 12 months. Additionally, cash decreased as a result of cash used in operations as more fully described in the “Operating Activities” section below. At December 31, 2021, we had cash and cash equivalents of approximately $49.1 million which represents a decrease from December 31, 2020 of approximately $8.3 million. The net decrease was primarily due to cash used in operations as more fully described in the “Operating Activities” section below.
| 2022 | Change | 2021 | Change | 2020 | ||||
| Cash and cash equivalents | $ | 15,380,489 | $ | (33,737,141) | $ | 49,117,630 | $ (8,297,720) | $ 57,415,350 |
As of December 31, 2022, we had financial resources including cash, cash equivalents, term deposits and marketable securities totaling approximately $43.0 million (predominantly held in U.S. and Canadian banks and financial institutions), machinery and equipment intended to be sold with a carrying value of approximately $1.0 million (See Note 6 to the audited consolidated financial statements), an income tax receivable of approximately $8.1 million (See Note 10 to the audited consolidated financial statements), and short-term financial obligations consisting of accounts payable, accrued expenses, severance liability and contingent value rights of approximately $1.4 million.
We have no revenue producing operations at this time. Our future working capital position is dependent upon the collection of amounts due pursuant to the Settlement Agreement and/or Award. We believe that we have sufficient working capital to carry on our activities for the next 12 to 24 months. However, the annulment of the Resolution, a change of administration in Venezuela and/or removal of Sanctions, an increase in legal expenses related to enforcement and collection of our Award, among other things, could result in increased activities and a higher cash burn-rate requiring us to seek additional sources of funding to ensure our ability to continue our business in the normal course. We may need to rely on additional capital raises in the future.
Operating Activities
Cash flow used in operating activities for the years ended December 31, 2022, 2021 and 2020 was approximately $6.4 million, $8.6 million and $4.6 million, respectively. Cash flow used in operating activities consists of net loss adjusted for gains and losses on marketable securities, non-cash expense items primarily related to stock option compensation and depreciation and certain non-cash changes in working capital.
| 20 |
As more fully described in the change in expenses analysis in the Operating Results section above, cash flow used in operating activities during the year ended December 31, 2022 decreased from the prior comparable period primarily due to an income tax refund and decreases in corporate general and administrative expense, Siembra Minera project and related costs, and equipment holding costs, partially offset by an increase in legal and accounting expense related to the Resolution to revoke the Siembra Minera mining rights, tax compliance and other corporate matters. Cash flow used in operating activities during the year ended December 31, 2021 increased from the prior comparable period primarily due to an increase in legal and accounting expenses, a result,loss on impairment of cash in bank account and a receipt of a cash refund of income tax in the first quarter of 2020, partially offset by a decrease in Settlement Agreement enforcement expense.
Investing Activities
| 2022 | Change | 2021 | Change | 2020 | ||||
| Purchase of term deposits | $ | (27,376,561) | $ | (27,376,561) | $ | - | $ - | $ - |
| Proceeds from disposition | ||||||||
| of marketable securities | - | - | - | (100,126) | 100,126 | |||
| Proceeds from disposition | ||||||||
| of property, plant and equipment | 2,004 | (313,385) | 315,389 | 216,740 | 98,649 | |||
| Purchase of property, plant and equipment | - | 2,381 | (2,381) | 44,372 | (46,753) | |||
| $ | (27,374,557) | $ | (27,687,565) | $ | 313,008 | $ 160,986 | $ 152,022 |
Cash flow from investing activities decreased during the year ended December 31, 2022 due to the purchase of term deposits and a decrease in proceeds from sale of mining equipment. As of December 31, 2022, the Company held approximately $1.0 million of Brisas Project related equipment intended for future sale (See Note 6 to the audited consolidated financial statements). Cash flow from investing activities increased during the year ended December 31, 2021 due to an increase in sales of mining equipment and a decrease in purchases of property, plant and equipment partially offset by a decrease in proceeds from disposition of marketable securities.
Financing Activities
The Company did not have cash flows from financing activities during the years ended December 31, 2022, 2021 and 2020.
Contractual Obligations
Our contractual obligation payments as of December 31, 2022 consist of amounts due pursuant to the Bonus Plan and CVR agreements of approximately $0.1 million. As described above and in Note 2 to the audited consolidated financial statements, the Company is obligated to make payments under the Bonus Plan and CVR agreements based on the after-tax amounts received from Venezuela under the Settlement Agreement and/or Award.
The Company maintains change of control agreements with certain officers and employees as described in Note 9 to the audited consolidated financial statements. As of December 31, 2022, the amount payable to participants under the change of control agreements, in the event of a Change of Control, was approximately $4.9 million.
During the fourth quarter of 2021, the Company implemented a three-year cost reduction program which included a reduction in senior management compensation coupled with an incentive bonus plan. The plan provides for the payment of a bonus upon the achievement of specific objectives related to the development of the Company’s business and prospects in Venezuela within certain time frames. As of December 31, 2022, the estimated maximum amount payable under the plan in the event of the achievement of the specific objectives was approximately $2.8 million. This amount has not been recognized herein and will only be recognized when, in management’s judgment, it is probable the specific objectives will be achieved. The plan also provides for severance payments, upon the occurrence of certain events, related to termination of employment. As of December 31, 2022, the Company had an accrued liability for severance payments of approximately $0.5 million related to the announced retirement of the Company’s President. This amount was recorded revenue or cash flowin general and administrative expense for the year ended December 31, 2022.
A. Douglas Belanger, former President and director, retired from all positions with the Company and its mining operationssubsidiaries, effective as of December 31, 2022. Mr. Belanger will continue to participate in the Bonus Plan in accordance with its terms for retired employees and has experienced
losses fromentered a 3-year consulting arrangement with the Company effective January 1, 2023. Mr. Belanger’s consulting fees, in accordance with the arrangement, are $150,000 in 2023, $112,500 in 2024 and $90,000 in 2025.
| 21 |
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, for eachliquidity, capital expenditures or capital resources.
Transactions with Related Parties
Please see “Item 7. Major Shareholders and Related Party Transactions ¾ Related Party Transactions.”
Disclosure Controls and Procedures (DC&P)
An evaluation was performed under the supervision and with the participation of the last five years, a trend we expect to
continue until the Brisas Project is fully developed and put into production.
The Company has historically financed its operations through the sale of
common stock and other equity securities. Management expects the Brisas
Project to be similarly financed along with project debt financing.
Disclosure controls and procedures are designed to provide reasonable
assurance that material information is gathered and reported to seniorour management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our DC&P (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as appropriateof the end of the period covered by this Annual Report. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that our DC&P were effective as of December 31, 2022 to permit timely decisionsprovide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC rules and forms.
Internal Control over Financial Reporting (ICFR)
Management is responsible for establishing and maintaining ICFR. ICFR is designed to provide reasonable assurance regarding public
disclosure.the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Management, including the Chief Executive Officer and Chief Financial Officer, has evaluatedassessed the effectiveness of the design and
operation of the company's disclosure controls and proceduresour ICFR as of December 31, 2005.2022 based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer haveassessment, management concluded that the company's disclosure controls and
procedures,our ICFR was effective as of December 31, 2022.
There were no changes in our internal control over financial reporting (as defined in Multilateral Instrument 52-109 - Certification of
Disclosure in Issuers' Annual and Interim Filings, are effective to ensure
that information required to be disclosed in reports filed or submitted byRule 13a-15(f) under the company under Canadian securities legislation is recorded, processed,
summarized and reported within the time periods specified in those rules.
Subsequent to year-end, the board of directors adopted a formal corporate
disclosure policy. See "-Item 15. Controls and Procedures."
Operations in Venezuela
- -----------------------------------------------------------------------------
AtExchange Act), during our fiscal quarter ended December 31, 2005 and as of the date of this report, nearly all of our
non-cash assets, including our primary mining asset, the Brisas Project, were
located in Venezuela. The concentration of the Company's operations and assets
in a foreign country exposes the Company to inherent local risks. See "- Item
3. Key Information -Risk Factors - Our mining assets are concentrated in a
foreign country and, as a result, our operations are subject to inherent
local risks."
We are dependent on the Venezuelan regulatory authorities issuing the Company
certain required operational and land use permits relating to the Brisas
property before we may begin construction on, and operate, the Brisas
property. Obtaining these required permits is also necessary in order for the
Company to adequately identify and obtain suitable financing for the Brisas
Project. A number of these pending items have been outstanding for a number
of months. The resolution of these pending issues may be further delayed or
withheld for any number of reasons outside of the Company's control or in
response to the Company's lawful actions, including policy decisions of the
Venezuelan government or its regulators or agents2022 that have no legal basis,
unexpected changesmaterially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
C. Research and development, patents and licenses, etc.
We do not have research and development policies in laws or regulations, arbitrary decisions by relevant
officials, requests for improper payments, favoritism towards other companies
or persons or any other actions that may result fromplace and over the changing and
uncertain regulatory environment with respect to mining rights.
The Company's original Brisas Project operating plan was approved by MEM (now
MIBAM) in 2003 and, since that approval, the Company has submitted to MIBAM a
number of modifications in order to minimize impact to the environment and
optimize economics of the Brisas Project, including an increase in milling
capacity up to 70,000 tons per day and relocation of certain surface
facilities and infrastructure. Contained within the approved operating plan
are a number of existing or pending applications for concessions, alfarjetas,
CVG work contracts, land use permits and easements, adjacent to or near the
Brisas concessions. These additional land parcels comprise the bulk of the
land required for the mining and milling facility and related infrastructure
contemplated in the Brisas Bankable Feasibility Study.
In addition to pending land use issues related to project infrastructure
needs, the Company has a number of permits relating to the Brisas Project
pending before MIBAM, MARN and other regulatory or government agencies which
are required to be issued prior to the Company obtaining sufficient financing
and beginning construction on, and operating, the Brisas property. Most
importantly, the Company must obtain the Administrative Authorization to
Affect Natural Resources for Construction of Infrastructure and Exploitation
of Alluvial and Vein Deposits of Gold and Copper from MARN, which is issued
in part based on MIBAM's approval of the project operating plan as well as
the Company's Venezuelan Environmental and Social Impact Assessment (V-ESIA)
which was submitted in August 2005.
Resolving the pending land issues and obtaining the required permits for the
construction and operation of the Brisas Project have been and will continue
to be the primary focus of management in the foreseeable future. Management
believes that the previous restrictions imposed by the Imataca issue and the
continued lack of formal resolution of the pending legal proceeding before
the Courts has affected MIBAM and MARN's willingness to proceed with the
resolution of the matters noted above, thus allowing the Brisas Project to
proceed. See "- Item 3. Key Information -Risk Factors -Our mining assets are
concentrated in a foreign country and as a result our operations are subject
to inherent local risks." More recently, the government's announcement that
it intends to organize a state-owned mining company and no longer issue any
concessions, could cause additional delays beyond our control.
As a result of the regulatory uncertainty, management can give no assurance
that the issuance of items the Company still requires for proceeding with the
Brisas Project will not be further delayed, or any existing rights or
approvals already issued or granted to the Company for its operations in
Venezuela will not be rescinded, or otherwise challenged for reasons that are
outside of the Company's control or in response to the Company's lawful
actions. Failure to obtain any of these required permits could result in a
material adverse affect on the Company's operations and investments in
Venezuela.
In 2003, the Central Bank of Venezuela enacted exchange control regulations
as a measure to protect international reserves. The exchange rate was fixed
at approximately 1,600 Bolivars per one U.S. Dollar until February 2004 when
it was adjusted to 1,920 Bolivars per one U.S. Dollar. In March 2005, the
exchange rate was increased to approximately 2,150 Bolivars per one U.S.
Dollar, which is unchanged as of the date of this report. In February 2005,
the Venezuelan government announced new regulations concerning exports from
Venezuela, which required, effective April 1, 2005, all goods and
services to be invoiced in the currency of the country of destination or in
U.S. Dollars. To date these regulationspast three fiscal years, we have not adversely affected our
operations asexpended any material amounts on research or development.
D. Trend information
As the Company primarily transfers funds into Venezuela for its
operations. However, this will change in the future to the extent that the
Company begins production and sales from Venezuela and we are unable to
predict future the impact, if any, at this time.
Critical Accounting Policies and Estimates
Critical Accounting Estimates
- -----------------------------------------------------------------------------
Critical accounting estimates represent estimates that are highly uncertain
and for which changes in those estimates could materially impact our
financial statements. The significant accounting estimates contained in the
financial statements include: carrying value of the Brisas Project; mineral
reserve and resource estimates and contingencies. Management has discussed
the development and selection of our critical accounting estimates with the
Audit Committee.
Significant Accounting Policies
- -----------------------------------------------------------------------------
The Company's accounting policies are described in Note 1 of the consolidated
financial statements. The more significant accounting policies are as follows:
Marketable Securities. Equity securities are carried at the lower of cost and
net realizable value. Corporate debt securities and U.S. treasuries and agency
obligations are carried at amortized cost.
Exploration and Development Costs. Exploration costs incurred in locating
areas of potential mineralization are expensed as incurred. Exploration costs
of properties or working interests with specific areas of potential
mineralization are capitalized at cost pending the determination of a
property's economic viability. Development costs of proven mining properties
not yet producing are capitalized at cost and classified as property, plant
and equipment. Property holding costs are charged to operations during the
period if no significant exploration or development activities are being
conducted on the related properties. Upon commencement of production,
capitalized exploration and development costs will be amortized based on the
estimated proven and probable reserves benefited. Properties determined to be
impaired or that are abandoned are written-down to the estimated fair value.
Carrying values do not necessarily reflect present or future values.
Shares Issued
- -----------------------------------------------------------------------------
As of March 30, 2006, the Company had the following Class A common shares,
equity units and share purchase options issued:
Class A common shares 35,313,727
Equity Units* 1,085,099
- ---------------------------------------------------------
Total Issued 36,398,826
Class A common share purchase warrants 2,680,500
Class A common share purchase options 3,072,825
- ---------------------------------------------------------
Fully diluted 42,152,151
* An equity unit consists of one Class B common share of Gold Reserve Inc.
and one Class B common share of Gold Reserve Corporation. Equity units are
convertible into Class A common shares of Gold Reserve Inc. on a one-to-one
basis and confer no special voting rights.
Results of Operations
- -----------------------------------------------------------------------------
The Company has no commercial production or source of operating cash flow at this time, and, as a result, the
Company's results of operations are a product of operating expenses,
primarily relatedincome is often variable from period to period. Our interest income increased significantly in 2022 due to the development of the Brisas Project, net of investment
income.
In early 2005, the Company completed a Bankable Feasibility Study with
respectincrease in interest rates and is expected to the construction and operation of the Brisas Project, our primary
mining asset. The feasibility study contains proven and probable reserves of
approximately 9.2 million ounces of gold and 1.2 billion pounds of copper in
414 million tonnes of ore grading 0.69 grams of gold per tonne and 0.13%
copper, at a revenue cutoff grade of $2.76 per tonne using a gold price of
$350 per ounce and a copper price of $0.90 per pound. The operating plan
contained therein contemplates a large open pit mine utilizing conventional
truck and shovel mining methods, processing 70,000 tonnes of ore per day,
yielding an average annual production of 486,000 ounces of gold and 63
million pounds of copper over an estimated mine life of approximately 16
years.
Construction of the planned facility, the start of whichremain above recent historical levels during 2023. Our future working capital position is dependent upon receiving the required permits and obtaining sufficient financing, is
expected to take 24-30 months, with commissioning and achievementcollection of commercial production shortly thereafter. Over 2,000 personnel will be needed
for the construction of the project and operating employment will peak at
over 900 personnel.
The Company and its Venezuelan affiliate selected SNC-Lavalin Engineers &
Constructors, Inc. (SLE&C) of Toronto and its international affiliate to
undertake Engineering and Procurement (EP) and Construction Management
(CM) services for the Brisas gold/copper project. SLE&C initiated a limited
scope of work on the Brisas Project in July 2005 and continues to work under
a Letter of intent and Limited Authorization to proceed. The parties have
completed negotiations on the definitive EP and CM contracts. Management
expects the parties will execute the EP and CM contracts and notices to
proceed will be issuedamounts due pursuant to the contracts upon receivingSettlement Agreement and/or Award. We believe that we have sufficient working capital to carry on our activities for the necessary permitsnext 12 to proceed with24 months. However, the constructionannulment of the Brisas Project
fromResolution, the Venezuelan government. The costremoval of SLE&C's EPSanctions and/or an increase in legal expenses related to enforcement and CM services is
expectedcollection of our Award, among other things, could result in increased activities and a higher cash burn-rate requiring us to total between $40 and $50 million over the construction period.
SLE&C commenced the first phaseseek additional sources of the EPCM scope of work in 2005, with the
key objective beingfunding to generate project scope and definition information.
This information focuses on project scope, definition phase engineering
documents and drawing, project schedule and execution plans, procurement and
contracting plan, project budget and cash flows, environmental, health,
safety and human resource plans, quality assurance/quality control programs
and project control systems. SLE&C is also focusing on revising the capital
cost estimates containedensure our ability to continue our business in the January 2005 Bankable Feasibility Study which
was previously completed by another independent engineering firm, detailed
designnormal course.
E. Critical accounting estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and engineering, procurementassumptions that affect the reported amounts of assets and contract managementliabilities, disclosure of contingent assets and construction
management and execution. Procurement and construction activities are
expected to commence following receipt of final permits, formal signing of
the EP and CM contracts and the Company obtaining sufficient financing.
References in this report to total cash costs per ounce (a non-GAAP measure
of performance) we believe enables certain investors to better understand the
Brisas Project's potential profitability and ability to generate operating
cash flow. Non-GAAP measures do not have any standardized meaning prescribed
by U.S. GAAP, and therefore they may not be comparable to similar measures
prescribed by other companies. The data are intended to provide additional
information and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP, such as the nearest
comparable GAAP measure-total cost per ounce. Such measures are not
necessarily indicative of operating profit or cash flow from operations as
determined under GAAP.
2005 Compared To 2004. The consolidated net loss for the year ended December
31, 2005 was $9,027,282 or $0.26 per share, an increase of approximately
$3,545,000 from the prior year. Other income for 2005 amounted to $1,402,868,
which is an increase of approximately $503,000 from the previous year. Other
income increased as a result of increased gains on sales of marketable
securities and interest on invested cash. Operating expenses for the year
amounted to $10,428,679, which is an increase from the prior year of
approximately $4,046,000.
The increase in operating expenses is directly related to the addition of
technical staff, engagement of consultants and overall increases in costs
related to corporate management activities, investor relations and financing
efforts associated with the development and construction of the Brisas
Project. The non-cash impact of accounting for stock-based compensation also
contributed to the increase.
2004 Compared To 2003. The consolidated net loss for the year ended December
31, 2004 was $5,482,629 or $0.19 per share, an increase of approximately
$1,775,000 from the prior year. Other income for 2004 amounted to $899,881,
which is an increase of approximately $130,000 from the previous year. Other
income increased as a result of increased gains on sales of marketable
securities. Operating expenses for the year amounted to $6,382,510, which is
an increase from the prior year of approximately $1,910,000. This change is
due to the non-cash impact of implementing new rules related to accounting
for stock-based compensation, overall increases in expenditures as a result
of the increased corporate management activity associated with the
development of the Brisas Project and financing activities, coupled with
compensation adjustments for existing officers, directors and employees,
costs associated with new hires and increased costs associated with investor
relations.
Selected Quarterly Financial Data
Critical accounting estimates used in sales of approximately $3.1
million. Investing activities in 2004 primarily consisted of Brisas Project
capitalized costs of approximately $6.5 million and the purchase and sale of
marketable securities, which on a net basis, resulted in sales of
approximately $3.2 million.
Financing.
- -----------------------------------------------------------------------------
In October 2004, the company engaged Endeavour Financial to act as the
financial advisor to the Company. Significant work has been completed by
Endeavour and the Company in the evaluation and design of the project
financing. During 2005, Endeavour and the Company developed a financial plan
for the Brisas Project. This plan included a mix of project debt and equity
financing. Endeavour and the Company have met with several international
financial institutions throughout 2005 and 2006, regarding the funding of the
development and construction costs for the Brisas Project. Activities have
included technical and legal due diligence, site visits, and input into areas
such as the sale, marketing and smelting of the planned gold and gold-copper
concentrate, structure of the EPCM arrangements with SLE&C, preparation and
review of a data room to support the due diligence process of the banks, and
the independent due diligence by lenders' representatives, environmental
requirements to international standards and the preparation of the International Environmental Impact Statement. Financial models and
information memorandaaudited consolidated financial statements include the:
| · | assessments of the recoverability of the Brisas Project related equipment and the estimated fair value determined in connection with impairment testing; |
| 22 |
| · | use of the fair value method of accounting for stock options which is computed using the Black-Scholes method which utilizes estimates that affect the amounts ultimately recorded as stock-based compensation; and |
| · | preparation of tax filings in a number of jurisdictions requires considerable judgment and the use of assumptions. | |
| · | recognition of the receivable and associated obligations with the Venezuelan arbitration (See Note 2 to the audited consolidated financial statements). |
The amounts reported based on accounting estimates could vary in the future.
Any current or future operations we may have also been prepared which form the basis of the
financial assessment of the project. Endeavour has assisted the company in
identifying and evaluating several sources of finance for the project. From
these sources the Company expects to appoint a senior group of lenders to
provide the project financing. The company has received indicative term
sheets reflecting current funding requirements and market conditions, and
structures involving a mix of commercial finance, off-take finance, equipment
finance and multilateral agency finance and support. The company has also
received initial expressions of interest from investment banks for the equity
portion of the project finance requirements, which would be contingent upon
the project debt being arranged.
As of March 30, 2006, the Company held approximately $22 million in cash and
investments. We are seeking to raise significant additional funding in order
to fund the construction of the Brisas Project. In the near-term, management
believes that cash and investment balances are sufficient to enable the
Company to fund its pre-construction activities through 2007 (excluding
substantial Brisas Project construction activities). These activities are
expected to consist of detailed project engineering, development and
implementation of project related contracts such as engineering, procurement
and construction management, port facilities, concentrate sales contracts,
electricity and fuel supply contracts, and a number of other agreements
relatedsubject to the constructioneffects of changes in legal, tax and operation of the Brisas Project, completion
of the I-ESIA, obtaining the required permits and identifying suitable
funding sources. The timing and extent of additional funding or project
financing, if any, depends on a number of important factors, including, but
not limited to the actual timetable of our 2006-2007 work plan, our
assessment of the financial markets, theregulatory regimes, political, labor and economic conditionsdevelopments, social and political unrest, currency and exchange controls, import/export restrictions and government bureaucracy in Venezuela, our share price and the price of gold and copper. Management
provides no assurances thatcountries in which it will be able to obtain the substantial
additional financing that will be needed to construct the Brisas Project, and
the Company currently has no definitive proposals or firm commitments to
proceed with such financing. Failure to raise the required funds will mean
the Company is unable to construct and operate the Brisas Project, which
would have a material adverse effect on the Company.
In November 2004 the Company completed an offering of 5,361,000 Units of the
Company representing aggregate gross proceeds to the Company of Cdn
$30,021,600 or approximately $25,000,000. The Units were sold at a price of
Cdn $5.60 or approximately $4.65 per Unit. Each Unit is comprised of one
Class A common share and one-half of a Class A common share purchase warrant
of Gold Reserve. Each whole Class A common share purchase warrant entitles
the holder thereof to acquire one Class A common share of Gold Reserve at a
price of Cdn $6.50 per Class A common share for a period of 24 months
following the closing date of the Offering. The net proceeds from the offering
are being used for the development of the Brisas property.
As of March 28, 2006 the Company had the following unexercised warrants
outstanding:
Date Number of Number of Exercise Estimated Expiration
Issued Warrants shares issuable Price(Cdn$) Proceeds(Cdn$) Date
- ------------------------------------------------------------------------------
11/04/04 2,680,500 2,680,500 $6.50 $17,423,250 11/05/06
Operations. Cash flow used by operations for 2005 was approximately $7.7
million, which was an increase over 2004 of approximately $3.8 million. The
increase from 2004 was primarily due to overall increases in expenditures as
a result of the increased activity associated with the development of the
Brisas Project and financing activities.
operates.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following sets forth certain information regarding the Company's Board of
DirectorsCompany’s directors and the individual who served as the Chief Executive Officer of the
Company during 2005 and four other individuals who served as the most highly
compensated executive officers of the Company during 2005 (collectively, the
"Named Executive Officers"). The time periods referred to below reflect the
cumulative period of time the individual has been a Director or officer of
the Company or Gold Reserve Corporation, the predecessor issuer. Directors
serve until the next annual meeting.
Rockne J. Timm
Age: 60
Chief Executive Officer, Director Chief Executive Officer of the Company.
Director and President of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
Director Since March 1984
A. Douglas Belanger
Age: 52
President, Director President of the Company.
Director and Executive Vice President of MGC Ventures, Inc. and
Great Basin Energies, Inc.
Resides: Spokane, Washington.
Director Since August 1988
James P. Geyer
Age: 53
Director Senior Vice President of the Company.
Resides: Spokane, Washington.
Director Since June 1997
James H. Coleman
Age: 55
Non-Executive Chairman, Director Senior Partner of Macleod Dixon LLP
of Calgary, Alberta and Director of various
public companies.
Resides: Calgary, Alberta.
Director Since February 1994
Patrick D. McChesney
Age 56
Director Controller of Foothils Auto Group
He is also a Director of MGC Ventures, Inc.
and Great Basin Energies, Inc.
Resides: Spokane, Washington.
Director Since August 1988
Chris D. Mikkelsen
Age: 54
Director Principal in McDirmid, Mikkelsen & Secrest, P.S.
(a certified public accounting firm).
Director of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
Director Since June 1997
Jean Charles Potvin
Age: 52
Director President and Chief Executive Officer
of Tiomin Resources Inc.
Resides: Toronto, Ontario
Director Since November 1993
Douglas E. Stewart-Vice President
Age: 54
Vice President-Project Development of the Company
Resides: Lone Tree, Colorado
Officer Since April 1997
Robert A. McGuinness
Age: 50
Vice President-Finance and Chief Financial Officer of the Company.
Vice President-Finance and Chief Financial Officer of MGC Ventures, Inc.
and Great Basin Energies, Inc.
Resides: Spokane, Washington.
Officer Since March 1993
There are no family relationships or arrangements or understandings pursuant
to which any person was appointed as a Director or member of senior management.
| Name | Position and Business Experience |
James H. Coleman, Q.C. | Mr. Coleman has been the Executive Chairman of the Company since 2016 and prior thereto was the non-Executive Chairman since 2004. He has also been a director of the Company and its subsidiary, Gold Reserve Corporation since 1994. Mr. Coleman was also previously a senior partner with the law firm of Norton Rose Fulbright Canada LLP. He has extensive international industry and public company experience as a result of his membership on the Board for over 25 years and has served on the board of directors of other mining issuers such as Amex Exploration Inc., Avion Gold Corporation and Endeavour Mining Corporation. He has also been a director of Siembra Minera since 2016, Great Basin Energies Inc. since 1996, and MGC Ventures, Inc. since 1997. |
Rockne J. Timm | Mr. Timm has been a director of the Company for over 30 years and the Chief Executive Officer of the Company and its subsidiary Gold Reserve Corporation for 30 years. Prior to his involvement with the Company, he was the Chief Financial Officer and Vice President of Finance of a mining company with six producing gold mines. Mr. Timm is also the President and director of Gold Reserve Corporation, and Chief Executive Officer of GR Mining (Barbados) Inc. and GR Procurement (Barbados) Inc. (both subsidiaries of the Company) since 2016. Mr. Timm has also been a director of Siembra Minera since 2016. In addition, Mr. Timm has been a president and director of Great Basin Energies, Inc. since 1981, and MGC Ventures, Inc. since 1989. |
James P. Geyer | Mr. Geyer, who has a Bachelor of Science in Mining Engineering, has been a director of the Company since 1997 and has significant operating and mine project experience in gold and copper operations around the world, as well as public company experience resulting from his roles with the Company, Wheaton River Minerals Ltd., USMX Inc., Thompson Creek Metals Company Inc. ("Thompson Creek") (during which time Thompson Creek constructed and commissioned the Mount Milligan Mine) and Stonegate Agricom Ltd. Prior to the expropriation of the Brisas Project by Venezuela, Mr. Geyer was the Senior Vice President of the Company responsible for the development of the Brisas Project. Mr. Geyer also led the analysis on behalf of the Company of the Brisas Cristinas Project (now known as the Siembra Minera Project). Mr. Geyer has considerable knowledge of and experience with mining regulations in Venezuela. |
Robert A. Cohen | Mr. Cohen has been a director of the Company since 2017. Prior to joining the Board, Mr. Cohen was a partner in the New York office of the international law firm Dechert LLP for more than 40 years. He practiced international litigation and arbitration, with a focus in later years on matters involving foreign sovereign debt and he served at various times as the chair of the firm’s international dispute resolution practice. |
James Michael Johnston | Mr. Johnston has been a director of the Company since 2017. He co-founded Steelhead in late 1996 to form and manage the Steelhead Navigator Fund. Prior, as senior vice president and senior portfolio manager at Loews Corporation, Mr. Johnston co-managed over $5 billion in corporate bonds and also managed an equity portfolio. He began his investment career at Prudential Insurance as a high-yield and investment-grade credit analyst. Mr. Johnston was promoted to co-portfolio manager of an $11 billion fixed income portfolio in 1991. He graduated with honors from Texas Christian University with a degree in finance and completed his MBA at the Johnson Graduate School of Business at Cornell University. |
| 23 |
Yves M. Gagnon | Former Ambassador Gagnon joined Global Affairs Canada in 1971. He retired from the public service in 2016 after 45 years of service. He has held positions of increasing importance including as Canada’s Ambassador to six countries including Venezuela and Cuba, with a special emphasis on Latin America. He has also been a Senior Policy Advisor to Canada’s Ministers of Foreign Affairs and International Trade for the Americas. Ambassador Gagnon has a BA in Arts (1968) and a B.Sc. in Political Science (1971) from Laval University and is a graduate of the National School of Administration (ENA) France (1977). He has been a director of the Company since 2020. |
James P. Tunkey | Mr. Tunkey has 28 years of experience in global risk advisory, including asset tracing and recovery, and political and operational risk management. He is the Chief Operating Officer of a global investigations and security consulting company named I-OnAsia. Mr. Tunkey was a director of Kroll Associates and Pinkerton Business Intelligence & Investigations prior to joining I-OnAsia in 2004. Mr. Tunkey holds a TRIUM Master of Business (MBA), jointly conferred by the London School of Economics, HEC Paris, and NYU Stern School of Business. He is a Qualified Risk Director and a Certified Fraud Examiner. Mr. Tunkey holds other professional certificates, including in Corruption Control and Organizational Integrity from Harvard’s JFK School of Government. Mr. Tunkey was appointed as a director of the Company in November 2022 pursuant to the terms of an agreement with a shareholder of the Company, Camac Partners, LLC. |
| A. Douglas Belanger | Mr. Belanger retired from the Company effective December 31, 2022 and entered a 3-year consulting arrangement with the Company effective January 1, 2023. Mr. Belanger had been a director of the Company for over 30 years and the president of the Company for 15 years. Since 1988 he had also been a director and executive vice president of Gold Reserve Corporation, a director of Siembra Minera, director and president of GR Mining (Barbados) Inc. and GR Procurement (Barbados) Inc. since 2016, and GR Mining Group (Barbados) Inc. since 2018. |
| David P. Onzay | Mr. Onzay became the Company’s Chief Financial Officer in January 2022. He has been with the Company for 30 years and previously served as the Company Controller. He is also the Chief Financial Officer of Gold Reserve Corporation, GR Mining (Barbados) Inc., GR Procurement (Barbados) Inc. and GR Mining Group (Barbados) Inc. |
B. Compensation of Directors and Officers
Executive Compensation
The following table sets forthdiscloses the cash compensation paid and the stock options granted by the Company to the
Named Executive Officers who served duringdirectors and management for the year ended December 31, 2005.
(1)Securities
Under
U.S. Dollars Options/ (2) All
SARs Other
Name and Granted Compensation
Principal Position Year Salary $ Bonus (#) ($)
- -----------------------------------------------------------------------------
Rockne J. Timm
Chief Executive Officer 2005 $250,000 $80,000 531,867 $42,000
2004 217,917 95,000 649,950 39,000
2003 195,000 696,700 42,000
A. Douglas Belanger
President 2005 225,000 62,500 431,303 42,000
2004 201,250 65,000 568,955 41,000
2003 175,000 573,955 39,040
James P. Geyer
Senior Vice President 2005 200,000 55,000 224,473 42,000
2004 185,417 57,500 289,209 41,000
2003 175,000 284,209 39,040
Robert A. McGuinness
Vice President-Finance and
Chief Financial Officer 2005 140.000 47,500 228,915 37,500
2004 128,333 50,000 271,122 35,667
2003 120,000 301,122 26,770
Douglas E. Stewart
Vice President -
Project Development 2005 126,000 40,000 123,000 33,200
2004 114,333 40,000 83,000 30,867
2003 101,000 83,000 22,531
Officers as a group (7)
2005 1,086,500 338,414 1,715,769 218,900
2004 919,750 335,500 1,977,236 207,634
2003 831,000 2,053,986 183,654
Consists of the number of Class A common shares issuable to Named Executive
Officers pursuant to options held at the end of each reported period.
Consists of the dollar value of Class A Shares purchased under the Company's
KSOP Plan and allocated to the account of each Named Executive Officer during
2005, 2004, and 2003 respectively as follows: Mr. Timm: 14,483 shares, 18,785
shares, and 39,463 shares; Mr. McGuinness: 12,931 shares, 17,180 shares, and
25,153 shares; Mr. Belanger: 14,483 shares, 19,749 shares, and 36,681 shares;
Mr. Geyer: 14,483 shares, 19,749 shares, and 36,681 shares; and Mr. Stewart:
11,448 shares, 14,868 shares, and 21,170 shares. See- "KSOP Plan" below.
Options granted for shares of the Company during the year ended December 31,
2005
The following stock options to purchase Class A common shares were granted
during 2005 to Named Executive Officers.
Number
Date of
Name of options Exercise Expiration
grant granted Price Date
- -------------------------------------------------------------
Douglas E. Stewart 03/31/05 40,000 $ 3.69 03/31/10
Aggregated option exercises during the year ended and option values as of
December 31, 2005
The following table sets forth option exercises and the financial year-end
values for options outstanding to the Named Executive Officers and Directors
of the Company.
Number of Dollar
Number of unexercised value of unexercised
securities options at in-the-money options
acquired Aggregate fiscal year-end at fiscal year-end
on Value exercisable/ exercisable/
Name exercise realized(1) unexercisable unexercisable (2)
- --------------------------------------------------------------------------------
Rockne J. Timm 118,083 318,269 531,867/- $ 1,075,976/-
A. Douglas Belanger 137,652 361,600 431,303/- 886,880/-
James P. Geyer 64,736 174,483 224,473/- 440,385/-
Robert A. McGuinness 42,407 113,761 228,915/- 436,287/-
Douglas E. Stewart - - 109,666/13,334 102,628/-
James H. Coleman 67,222 181,184 144,444/ 153,471/-
Patrick D. McChesney 36,711 99,511 90,674/- 200,389/-
Chris D. Mikkelsen 20,759 71,826 91,519/- 160,257/-
Jean Charles Potvin 51,871 139,809 48,741/- 107,718/-
The "Aggregate Value Realized," if applicable, would have been calculated by
determining the difference between the market value of the securities
acquired on the date of exercise based on the U.S. Dollar equivalent of the
closing price on the TSX on the date of exercise, less the exercise price of
the options exercised.
The "Value of Unexercised In-The-Money Options at FY-End" was calculated by
determining the difference between the market value of the securities
underlying the option at the end of the financial year and the exercise price
of such options. At December 31, 2005, the closing price of the shares of
common stock on the American Stock Exchange was $2.93. Options range in price
of between $0.72 and $4.14 and generally expire between 2005 and 2010.
Director Compensation
Consistent with the Board's intent to have both Directors and management hold
shares of the Company, non-employee Directors, Messrs. Coleman, McChesney,
Mikkelsen and Potvin, were each granted 10,000 Class A Shares in February
2005 for services during the fiscal year ended December 31, 2004; each were
also granted 10,000 Class A Shares in October 2005 for services during the
fiscal year ended December 31, 2005. The value of each share was US $3.92524
and US $2.14823, respectively. Mr. Coleman received cash compensation of
$89,970 related to his position as Chairman and director of the Company,
during the fiscal year ended December 31, 2005. Directors of the Company
received no additional compensation for serving on Board committees or for
attendance at the Board or committee meetings.
Equity Incentive Plan
The Company presently has one active stock option plan, the Equity Incentive
Plan (the "Plan"). The Plan provides for the issuance of up to 10% of the
outstanding shares of the Company a rolling basis, through the grant of
"incentive stock options" and "non-statutory options" to purchase Class A
common shares, stock appreciation rights ("SARs"), and restricted stock. As
of March 28, 2006, options for the purchase of 3,072,825 Class A common
shares remained outstanding and 567,057 Class A common shares remained
available for grant under the Plan. To date, 645,350 shares of restricted
stock have been granted from the Plan. No SARs have been granted to date.
Employees and consultants of the Company and its subsidiaries are eligible to
receive grants under the Plan. The Board or a committee of the Board is
responsible for the administration of the Plan.
Options, stock appreciation rights ("SARs") and restricted stock granted
under the Plan are generally granted at the Fair Market Value of the Class A
common shares defined as follows: "-subject to any applicable Exchange
rules, the volume weighted average trading price or the United States Dollar
equivalent of the Stock calculated by dividing the total value by the total
volume of Stock on the Exchange where the majority of the trading volume and
value of the Stock occurs, for the five trading days immediately preceding
the relevant date; -"
A SAR entitles the holder of the related option, upon exercise of the SAR, to
surrender such option or any portion thereof to the extent unexercised, and to
receive payment of an amount determined by multiplying (i) the excess of the
Fair Market Value of the Class A common shares immediately preceding the date
of exercise of such SAR over the option price under the related option, by
(ii) the number of shares as to which such SAR has been exercised.
Notwithstanding the foregoing, the agreement evidencing the SAR may limit in
any manner the amount payable with respect to any SAR.
The maximum number of shares of Class A common shares issuable to insiders:
a) at any time, under all security based compensation arrangements, cannot
exceed 10% of the outstanding shares of Stock of the Company on the date of
grant; and b) within any one year period, under all security based
compensation arrangements, cannot exceed 10% of the outstanding common shares
on the date of grant.
Each option grant is limited to a maximum duration of 10 years from the time
it is granted, except that an incentive stock option granted to a ten percent
shareholder shall have a maximum duration of five years from the time it is
granted and the vesting period is discretionary.
All Options shall be exercisable, during the Optionee's lifetime, only by the
Optionee or by the guardian or legal representative of the Optionee or its
alternative payee pursuant to such qualified domestic relations order, it
being understood that the terms "holder" and "optionee" include the guardian
and legal representative of the Optionee named in the Option Agreement and
any person to whom an Option is transferred by will or the laws of descent
and distribution, or pursuant to a qualified domestic relations order or a
gift permitted by the Plan. Notwithstanding the above, incentive stock
options shall only be transferable by will or by the laws of descent and
distribution.
The Plan provides the following for termination of employment with regard to
the options outstanding at the date of termination: Retirement -Any then
outstanding options under the Plan may be exercised at any time prior to the
earlier of the expiration date of the outstanding options or 12 months after
the date of retirement; For Cause -Any then outstanding options become null
and void; Involuntary Termination of Employment -Any then outstanding options
that are vested at the time of termination may be exercised at any time prior
to the earlier of the expiration date of the vested outstanding options or 30
days after the date of termination; Voluntary Termination of Employment -Any
then outstanding options that are vested at the time of termination may be
exercised at any time prior to the earlier of the expiration date of the
vested outstanding options or 90 days after the date of termination.
The Board may, at any time and from time to time, modify, amend, suspend or
terminate the Plan in any respect. Amendments to the Plan shall be subject to
stockholder approval to the extent required to comply with any exemption to
the short swing-profit provisions of Section 16 (b) of the U.S. Exchange Act
of 1934, as amended pursuant to rules and regulations promulgated there
under, with the exclusion for performance-based compensation under Code
Section 162 (m), or with the rules and regulations of any securities exchange
on which the Shares are listed.
Options to Purchase Securities From the Registrant or Subsidiaries
Gold Reserve Inc.
The following table sets forth the number of Class A common shares of Gold
Reserve Inc. subject to options, which were held by the Named Executives
Officers and Directors of the Company at December 31, 2005. As a group,
officers and Directors of the Company (10 persons) held 2,091,147 options to
purchase Class A common shares of the Company.
No. of Class A
common shares Exercise Expiry
Name subject to option Price Date
- ------------------------------------------------------------
Rockne J. Timm 486,867 $ 0.72 December 2006
45,000 3.39 July 2009
A. Douglas Belanger 401,303 $ 0.72 December 2006
30,000 3.39 July 2009
James P. Geyer 199,473 $ 0.72 December 2006
25,000 3.39 July 2009
James H. Coleman 69,444 $ 0.72 December 2006
75,000 4.00 January 2009
Patrick D. McChesney 90,674 $ 0.72 December 2006
Chris D. Mikkelsen 41,519 $ 0.72 December 2006
50,000 1.56 May 2008
Jean Charles Potvin 48,741 $ 0.72 December 2006
Robert A. McGuinness 197,415 $ 0.72 December 2006
11,500 4.14 October 2008
20,000 3.39 July 2009
Douglas E. Stewart 37,367 $ 0.72 December 2006
14,633 1.56 May 2008
11,000 4.14 October 2008
20,000 3.39 July 2009
40,000 3.69 March 2010
1 Mr. McChesney also held 90,000 options to purchase common shares of Great
Basin Energies, Inc. a subsidiaries of the Company. These options are
exercisable at $0.04 per share and expire 2008.
Previous Re-pricing of Certain Options Granted to Directors and Officers of
the Company
The following table sets forth certain re-pricing information with respect to
options held by Named Executive Officers and Directors of the Company. During
the last ten years the shareholders approved two re-pricings of certain
options held by the Named Executive Officers. In June 2000, options with
exercise prices of $3.75 were re-priced at $1.00, a 25% premium to the market
price of the Company's shares at the date of approval. In June 2001, options
with exercise prices in excess of $0.72 were re-priced at $0.72, a 50%
premium to the market price of the Company's shares at the date of approval
and fifty-percent of all vested options, or immediately exercisable options,
were unvested for the following twelve month time period. All repriced
options have five-year lives from the date of approval by shareholders. The
following table details the re-pricing information:
Length of
Exercise Original
Securities Price Option
Under at Time of Term
Date Options/SARs Re-pricing Remaining
Approved Repriced Or at Date of
by or Amendement Re-pricing or
Name shareholders Amended ($/Security) Amendment
- -------------------------------------------------------------------------------
Rockne J. Timm June 2000 209,833 $3.75 2.8 years
June 2001 27,200 1.13 1.7 years
June 2001 40,000 1.50 3.1 years
June 2001 50,000 2.59 2.2 years
June 2001 125,000 3.25 2.3 years
June 2001 244,667 3.75 2.2 years
A. Douglas Belanger June 2000 172,652 3.75 2.8 years
June 2001 26,000 1.13 1.7 years
June 2001 30,000 1.50 3.1 years
June 2001 65,000 2.59 2.2 years
June 2001 50,000 3.25 2.3 years
June 2001 230,303 3.75 2.2 years
James P. Geyer June 2000 84,736 3.75 2.8 years
June 2001 30,000 1.50 3.1 years
June 2001 64,209 2.59 2.2 years
June 2001 5,000 2.88 7.0 years
June 2001 100,264 3.75 2.2 years
Robert A. McGuinness June 2000 92,207 3.75 2.8 years
June 2001 30,000 1.50 3.1 years
June 2001 68,417 2.59 2.2 years
June 2001 115,998 3.75 2.2 years
James H. Coleman June 2000 67,222 3.75 2.8 years
June 2001 15,000 1.28 3.1 years
June 2001 134,444 3.75 2.2 years
Patrick D. McChesney June 2000 33,411 3.75 2.8 years
June 2001 27,152 1.13 1.7 years
June 2001 15,000 1.28 3.1 years
June 2001 17,278 2.59 2.2 years
June 2001 49,544 3.75 2.2 years
Chris D. Mikkelsen June 2000 30,579 3.75 2.8 years
June 2001 15,000 1.28 3.1 years
June 2001 17,278 2.59 2.2 years
June 2001 44,241 3.75 2.2 years
Jean Charles Potvin June 2000 51,871 3.75 2.8 years
June 2001 15,000 1.28 3.1 years
June 2001 17,278 2.59 2.2 years
June 2001 89,463 3.75 2.2 years
Douglas E. Stewart June 2001 79,367 1.50 3.1 years
KSOP Plan
The Company also maintains a retirement plan, the KSOP Plan for the benefit
of eligible employees of the Company. The KSOP Plan consists of two
components- a salary reduction component (401(k)) and stock ownership
component (ESOP) and is available to all eligible employees of the Company.
Eligible employees are those who have been employed for a period in excess of
one year and who have worked at least 1,000 hours during the year in which any
allocation is to be made. Employee contributions to the 401(k) component of
the KSOP Plan are limited in each year to the total amount of salary
reduction the employee elects to defer during the year, which is limited in
2006 to $15,000 ($20,000 limit for participants who are 50 or more years of
age, or who turn 50 during 2006).
Employer contributions, stated as a percentage of eligible compensation, are
determined each year by the Board of Directors and allocations are made in
the form of Class A Shares. The number of Class A Shares released for
allocation is determined by multiplying the total eligible compensation by
the contribution percentage approved by the Board of Directors and dividing
that number by the average price of the Class A Shares remaining in the KSOP
Plan for distribution. For KSOP Plan year 2006 the Company has adopted a
"Safe Harbor" contribution of 3% of eligible compensation. As of December 31,
2005, 28,742 Class A Shares remained in the KSOP Plan to be allocated to KSOP
Plan participants, representing approximately 0.08% of the issued and
outstanding Common Shares of the Company at that time.
Total employer and employee annual contributions to an employee participating
in both the 401(k) and ESOP components of the KSOP Plan are limited (in 2006)
to a maximum of $44,000 ($49,000 limit for participants who are 50 or more
years of age or who turn 50 during 2006). The annual dollar limit is an
aggregate limit, which applies to all contributions made under this plan or
any other cash or deferral arrangements. Distributions from the KSOP Plan are
not permitted before the participating employee reaches the age of 59, except
in the case of death, disability, and termination of employment by the
Company or financial hardship. The employee stock ownership component of the
KSOP Plan is qualified under Sections 421 and 423 of the U.S. Internal
Revenue Code of 1986, as amended.
The Company allocated contributions to eligible KSOP Plan participants for
plan years 2005, 2004, and 2003 of $280,074 (96,578 Class A Shares),
$254,779 (122,722 Class A Shares), and $216,432 (203,357 Class A Shares),
respectively. The aggregate number of Class A Shares for the three-year
period is 422,657, which represents 1.6% of the current issued and
outstanding Common Shares of the Company. See footnote 2 of "-Executive
Compensation."
2022.
| Name | Salary or fees ($) | 401(k) & other ($) | Total Compensation ($) |
Number of Options Granted to Purchase Class A Shares |
Exercise Price of Options Granted |
Expiration Date of Options Granted |
| James H. Coleman | 250,000 | 35,000 | 285,000 | |||
| Rockne J. Timm | 375,000 | 42,700 | 417,700 | |||
| James P. Geyer | 20,667 | n/a | 20,667 | |||
| Robert A. Cohen | 49,600 | n/a | 49,600 | |||
| James M. Johnston | 11,162 | n/a | 11,162 | |||
| Yves M. Gagnon | 56,000 | n/a | 56,000 | |||
| James P. Tunkey | 11,236 | n/a | 11,236 | 145,000 | $1.08 | November 17, 2032 |
| A Douglas Belanger | 337,500 | 42,700 | 380,200 | |||
| David P. Onzay | 217,875 | 30,503 | 248,378 | 100,000 | $0.99 | October 4, 2032 |
Termination of Employment, Change in Responsibilities and Employment Contracts
At this time, there are no written contracts of employment between the
Company and the Named Executive Officers. The Company has
On October 4, 2021 letter agreements were entered into with Messrs. Timm, Coleman and Belanger setting out certain terms of their employment and compensation arrangements.
These letter agreements with eachprovide that, as of the date of such Named Executive Officers (“NEO’s”) termination of employment, he would be eligible for payments equal to 24 months of base salary, including payment of accrued
| 24 |
vacation and his proportionate 401(k) plan contribution in orderaddition to 6 months of medical insurance coverage if he is terminated without cause. If he retires in 2022 with 6 months’ notice or with 90 days’ notice in 2023 or thereafter, he is entitled to 12 months of base salary, including payment of accrued vacation and his proportionate 401(k) plan contribution in addition to 6 months of medical insurance coverage.
Base salary severance for these purposes is determined based on the base salary in effect during calendar year 2020. The salary severance is payable in one lump sum within 30 days of the severance event.
Upon the termination of employment by the Company for any reason other than cause of any such NEO, at the election of the NEO, they may agree to continue to provide consulting services to the Company for a period not exceeding three years, for an annual consulting fee which reduces over the term of the consulting agreement.
If the NEO’s employment had been terminated at December 31, 2022 for the above reasons, the payments to these NEOs would have been approximately the following:
| Termination of Employment | Change of Control | Retirement | Consulting Fee | |
| James H. Coleman | $1,000,000 plus equivalent amount to 401(k) contribution and medical insurance | $1,500,000 plus equivalent amount to 401(k) contribution and medical insurance | $500,000 plus equivalent amount to 401(k) contribution and medical insurance | Year 1: $166,667 Year 2: $125,000 Year 3: $100,000 |
| Rockne J. Timm | $1,250,000 plus accrued vacation, 401(k) contribution and medical insurance | $1,950,000 plus accrued vacation, 401(k) contribution and medical insurance | $625,000 plus accrued vacation, 401(k) contribution and medical insurance | Year 1: $208,333 Year 2: $156,250 Year 3: $125,000 |
Mr. Belanger retired from the Company effective December 31, 2022 and entered a 3-year consulting arrangement with the Company effective January 1, 2023. Under the terms of the letter agreement signed with Mr. Belanger, as of December 31, 2022 the Company had a severance accrual of $531,981 which was paid in 2023. Mr. Belanger’s consulting fees, in accordance with the letter agreement, are $150,000 in 2023, $112,500 in 2024 and $90,000 in 2025.
Existing Change of Control Arrangements with Executive Officers
The Company maintains Change of Control Agreements with certain executive officers, which were implemented by the Board to induce themthe executive officers to remain employed bywith the Company in the event of a changeChange of control (as
defined in the agreements).Control. The Board decidedbelieves these individuals are important assets to implement suchthe Company and their continued employment is important to oversee the enforcement and resolution of the Settlement Agreement with Venezuela and other legal actions related to the revocation of the mining rights of the Siembra Minera Project.
For these reasons, beginning in 2003, the Company entered into Change of Control Agreements given, amongwith certain executive officers (other than Mr. Coleman) and three other things,employees. On May 26, 2017, the Named Executive Officers'
familiarity and long-standing involvementBoard approved a Change of Control Agreement with Mr. Coleman. Other than as disclosed herein, no other executive officers, directors or affiliates of the Company have Change of Control Agreements with the Brisas Project and the
importanceCompany.
A “Change of each of their continued involvement in the on-going developmentControl” means one or more of the Brisas Project.
Infollowing:
| (a) | the acquisition by any individual, entity or group, of beneficial ownership of equity securities of the Company representing more than 25 percent of the voting power of the outstanding equity securities with certain limited exceptions; |
| (b) | a change in the composition of the Board (the “Incumbent Board”) that causes less than a majority of the current directors of the Board to be members of the incoming board; however, that any individual becoming a director subsequent to March 28, 2008, whose election, or nomination for election by the Shareholders, was approved by a vote of at least the majority of the directors then comprising the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; |
| (c) | the consummation of a reorganization, merger, amalgamation, arrangement, business combination or consolidation or sale or other disposition of all or substantially all of the assets of the Company with certain limited exceptions; |
| 25 |
| (d) | the approval by Shareholders of the liquidation or dissolution of the Company; or |
| (e) | any other event or series of events which the Board reasonably determines constitutes a Change of Control. |
Pursuant to the Change of Control Agreements, in the event of a change in control, the Company has agreed withChange of Control each of such
Named Executive Officersparticipant is entitled to, among other things, continue their employment with the Company and, if theirthe participant’s employment is terminated within seven12 months following the change in control (otherChange of Control either voluntarily by the participant or by the Company for any reason other than termination for cause, disability, retirement or death) or
if the Named Executive Officer terminates his employment for good reason (as
defined in the agreements) at any time within seven months following the
change of control, such individualparticipant will be entitled to receive, (lump-sum),
among other things,things:
| (a) | an amount equal to 24 times his monthly salary (36 times for Mr. Timm and Mr. Coleman; the Change of Control time period of 24 months compared to 36 months is based primarily on seniority of position and responsibility and length of service with the Company), determined as of the date immediately prior to termination or the Change of Control, whichever is greater, except for Messrs. Timm and Coleman for which, it is 36 times the greatest of his monthly salary for the calendar year 2020; the 12 months immediately prior to the date of termination of his employment; or the 12 months immediately prior to the Change of Control; |
| (b) | an amount equal to two years of the Company’s 401(k) Plan contributions or equivalent amount for Mr. Coleman (based upon the maximum allowable allocation pursuant to applicable law and the participant’s annual salary immediately prior to his termination date or the Change of Control, whichever is greater except for Messrs. Timm and Coleman for which the annual salary would be the greatest of that for calendar year 2020, the 12 months immediately prior to the date of termination of his employment, or the 12 months immediately prior to the Change of Control); |
| (c) | an amount equal to the aggregate of all bonuses received during the 12 months prior to his termination date, or, in the case of Messrs. Timm and Coleman, during calendar year 2020, the 12 months immediately prior to the date of termination of his employment, or in the 12 months immediately prior to the Change of Control, whichever is the greatest, plus any amounts required to be paid in connection with unpaid vacation time; |
| (d) | a payment equal to two times the monthly premium for maintenance of health, life, accidental death and dismemberment, and long-term disability insurance benefits for a period of 36 months; |
| (e) | cause all equity awards or equity-based awards (including stock options and restricted shares) granted to the participant to become fully vested and unrestricted; |
| (f) | at the election of the participant, the buy-out of the cash value of any unexercised stock options based upon the amount by which the weighted average trading price of the Class A Shares for the last five days preceding the date the participant makes such election exceeds the exercise price of the stock options; |
| (g) | the value of his or her vested retention units, if any, in accordance with the Gold Reserve Inc. Director and Employee Retention Plan; and |
| (h) | all amounts owing under the terms of the Bonus Plan, in addition to any subsequent payments to be made under the terms of the Bonus Plan. |
As further discussed in the following two paragraphs, the participants (other than Mr. Coleman) are entitled to receive certain “gross-up payments” (that is, an excess parachute gross-up payment and a deferred compensation gross-up payment) if payments that he receives are subject to the excise tax under Code Section 4999 on excess parachute payments or three times his annual salarythe additional tax and KSOP
contributions,interest factor tax under Code Section 409A on deferred compensation. The intent of these gross-up payments is to put the participant in the same position, after tax, that he would have been in if the payments that the participant received had not been subject to the excise and additional taxes.
The Change of Control Agreements also provide for a gross-up payment if any payment made to or for the benefit of a participant (“Excess Parachute Payment”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalties are incurred by the participant with respect to such excise tax. The Company will pay to the participant an additional payment (“Excess Parachute Gross-Up Payment”) in an amount such that after payment by the participant of all taxes on the Excess Parachute Gross-Up Payment, the participant retains an amount of the Excess Parachute Gross-Up Payment equal to all bonuses received during the twelve
months priorexcise tax (and any interest or penalties) imposed upon the participants Excess Parachute Payment.
The Change of Control Agreements further provide for a gross-up payment if any payment made to or for the benefit of a participant (“Deferred Compensation Payment”) would be subject to the changeadditional tax or additional interest on any underpayment of control, maintenancetax imposed by Code Section 409A, or any interest or penalties are incurred by the participant with respect to such additional tax or underpayment of healthtax. The Company will pay to the participant an additional payment (“Deferred Compensation Gross-Up Payment”) in an amount such that after payment by the participant of all taxes on the Deferred Compensation Gross-Up Payment, the participant retains an amount of the Deferred
| 26 |
Compensation Gross-Up Payment equal to the additional tax and insurance
benefits foradditional interest on any underpayment of tax (and any interest or penalties) imposed upon the participant’s Deferred Compensation Payment.
Payments may be delayed six months under Code Section 409A. In the event of such a delay, the delayed payments will be made to a rabbi trust. Upon the completion of the six-month delay period, the payments held in the rabbi trust will be paid to the participant plus interest at the prime rate. The Company will pay all costs associated with the rabbi trust.
Participants would have been entitled to collectively receive an aggregate of 36 months andapproximately $4.9 million if a Change of Control had occurred on December 31, 2022. Persons with Change of Control Agreements can elect the buy-out of the cash valuetheir stock options as described above. The aggregate amount due was determined exclusive of any unexercised stock options (if so elected by the employee).
Board Practices
Based upon the recommendations of a report dated December 1994 (the "Report")
by the TSX Committee on Corporate Governance in Canada, the TSX adopted a
by-law requiring corporations listedgross-up payments, which could be substantial depending on the TSX to disclose their approach to
corporate governance. tax position of each individual.
The Board believes thatfollowing table represents the Company's general approach,
as summarized below, is substantially consistent with objectives reflected in
the Report.
Mandate and Dutiesestimated payout for employees holding Change of the Board. The Board has ultimate responsibility for
supervising the conductControl Agreements at December 31, 2022. These amounts were determined exclusive of the Company's affairs and the management of its
business. The principal objective of the Board is to protect and enhance
shareholder value over the long term. Although the Board has delegated to
management responsibility for the day-to-day operations of the Company, the
Board has ultimate responsibility for the stewardship of the Company.
The Board's duties include overseeing strategic planning, reviewing and
assessing principal risks to the Company's business and approving risk
management strategies, supervising and evaluating management, authorizing
significant expenditures, ensuring timely and effective communication with
shareholders, and overseeing the Company's internal controls and information
systems.
The Board's duties also include planning and monitoring activities of senior
management. In considering and making appointments of senior management, the
Board considers it appropriate, where relevant, to address succession and
planning issues. In appointing senior management, the Board considers as a
necessary requirement of such appointments that such personnel be qualified
to carry out the duties and responsibilities relating to the appointed
positions and thus, apart from monitoring, assessing and providing feedback
to senior management, the Board does not consider it necessary to engage in
specifically training senior management.
The Board met thirteen times during 2005 at which attendance, in person or by
telephone, averaged 98%. Various matters were considered and approved by
written resolution during the year.
Board Composition. The Report's Guidelines recommend that a majority of the
Directors of the Company be "unrelated" Directors. An "unrelated" Director is
a Director who is independent of management and is free from any interest and
any business or other relationship,gross-up payments, which could or could reasonably be perceived, to materially interfere with a Director's ability to act with a
view tosubstantial depending on the best intereststax position of the corporation, other than the interests and
relationships arising from shareholding. each individual.
| Name | Compensation (1) $ | Payout of Stock Options (2) $ | Total $ |
| James H. Coleman | 1,617,200 | - | 1,617,200 |
| Rockne J. Timm | 2,074,073 | - | 2,074,073 |
| David P. Onzay | 795,426 | 28,000 | 823,426 |
| Total | 4,486,699 | 28,000 | 4,514,699 |
| Other participant | 400,000 | - | 400,000 |
| Total | 4,886,699 | 28,000 | 4,914,699 |
| (1) | Represents the estimated payout as of December 31, 2022 of the associated salary, vacation, 401(k) contribution or its equivalent for Mr. Coleman, bonus and insurance. |
| (2) | Represents the payout of in-the-money stock options. |
C. Board practices
The Company's Board presently
consists of seven members. The Board considers that four members are
"unrelated" Directors as defined in the Report's Guidelines. The remaining
three members are currently executive officers of the Company. For the
purposes of this discussion, a "related" Director is a Director who is not an
unrelated Director. All Directors presently serveCompany’s directors hold such positions until the next annual meeting of the Company's shareholdersShareholders or until their successors are elected and have qualified. There are no service contracts between us and any of our directors providing for benefits upon termination of their employment.
Audit Committee
Audit Committee Charter
The Board currently believes that seven Directors and the current compositionAudit Committee of the Board represent an appropriate board size foroperates within a written mandate, as approved by the Company, having
regard toBoard, which describes the sizeAudit Committee’s objectives and activitiesresponsibilities.
Membership and Role of the Company. Audit Committee
The current compositionAudit Committee consists of the Board provides, in the Board's view, an appropriate representation of
senior managementJames P. Tunkey (Chairman), James P. Geyer and outside Directors.
Board Compensation. The Board reviews from time to time the compensation paid
to the Directors in order to ensure that Directors are being adequately
compensated for the duties performed and the obligations assumed by the
Directors.
Board Committees.Yves M. Gagnon. The Board has delegated some of its authority to three
committeesdetermined each member of the Board. TheseAudit Committee to be “independent” and “financially literate” as such terms are defined under Canadian securities laws. In addition, each member of the ExecutiveAudit Committee the Compensation
Committeeis financially literate and the Audit Committee.Board has determined that Mr. Tunkey qualifies as an audit committee “financial expert” as defined by SEC rules. The Board does not maintainhas made these determinations based on the education and experience of each member of the Audit Committee.
Mr. Tunkey has 28 years of experience in global risk advisory, including asset tracing and recovery, and political and operational risk management. He is the Chief Operating Officer of a nominating
committee or an orientationglobal investigations and education program for new Directors as
suggestedsecurity consulting company named I-OnAsia. Mr. Tunkey was a director of Kroll Associates and Pinkerton Business Intelligence & Investigations prior to joining I-OnAsia in 2004. Mr. Tunkey holds a TRIUM Master of Business (MBA), jointly conferred by the Report orLondon School of Economics, HEC Paris, and NYU Stern School of Business. He is a committee to deal with corporate governance
matters generally. Decisions regarding recruitmentQualified Risk Director and a Certified Fraud Examiner. Mr. Tunkey holds other professional certificates, including in Corruption Control and Organizational Integrity from Harvard’s JFK School of new Directors,
assessment of current Directors, succession planning and other corporate
governance matters are made by the full Board. The Board is of the view that,
given the sizeGovernment. Mr Tunkey was appointed as a director of the Company in November 2022 pursuant to the terms of an agreement with a shareholder of the Company, Camac
| 27 |
Partners, LLC. Mr. Tunkey has been a member of the Audit Committee since November 2022 and Chairman of the Audit Committee since December 2022.
Mr. Geyer has a Bachelor of Science in Mining Engineering from the Colorado School of Mines, has 48 years of experience in underground and open pit mining and has held engineering and operations positions with a number of companies including Amax Inc. and ASARCO LLC. Mr. Geyer is a former Director of Thompson Creek Metals Inc., where he was previously a member of the audit committee. Mr. Geyer has been a member of the Audit Committee since 2015.
Former Ambassador Gagnon is a graduate of France’s National Administration School (ENA), Mr. Gagnon also holds a BA in Arts and Bsc in Political Sciences (Laval). During his more than 40 years in the Canadian federal administration, he held positions of increasing responsibility including as financial Controller at the Department of Foreign Affairs and International Trade, and as VP (Corporate) of Petro-Canada International Assistance Corporation as well as ambassador of Canada in six countries. Mr. Gagnon also served as chair of four bi-national chambers of Commerce as well as director on the boards of the Association of Canadian Exporters of Books, the International Exhibition Bureau and the fact that a majorityCanada-USA Fulbright Foundation.
The Audit Committee met four times during the financial year ended, December 31, 2022, and all members of the Board
members are independent of management, these matters can be appropriately
dealt with by the full Board. During 2005, all of the Directorscommittee attended each meeting, in person or by phone 98%with the exception of James Michael Johnston (who was a member of the meetingsAudit Committee until December 2022) and Mr. Geyer who each attended three meetings. The Audit Committee’s principal functions are to assist the Board in fulfilling its oversight responsibilities, and to specifically review: (i) the integrity of the Company’s financial statements; (ii) the independent auditor’s qualifications and independence; (iii) the performance of the Company’s system of internal audit function and the independent auditor; and (iv) compliance with laws and regulations, including disclosure controls and procedures.
The Audit Committee reviews the Company’s financial reporting process on behalf of the Board. Management of the Company has the primary responsibility for the financial statements, the reporting process and maintaining an effective system of internal control over financial reporting. The Company’s independent auditors are engaged to audit and express opinions on the conformity of the Company’s financial statements to accounting principles generally accepted in the United States, and the effectiveness of its internal control over financial reporting.
Compensation Committee
The Company’s compensation program was administered during 2022 by the compensation committee of the Board and Committees on which
they served.
The Executive Committee, which is comprised of Rockne J. Timm (Chair), A.
Douglas Belanger and James H. Coleman, meets in person or by phone on a
regular basis. The Executive Committee supervises the business affairs of the
Company between Board meetings, except for those matters assigned to the
Compensation and Audit Committees. The Executive Committee is composed of one
unrelated Director (Mr. Coleman) and two related Directors (Messrs. Timm and
Belanger)(the “Compensation Committee”). The Compensation Committee which met twelve times during 2005, in person and
by phone, consists of Chris D. Mikkelsen (Chair)James P. Geyer (Chairman), James Michael Johnston and Jean Charles Potvin, both
of who are unrelated Directors. Robert A. Cohen.
The Compensation Committee met 10 times during 2022 via conference calls, excluding email exchanges. While serving on the Compensation Committee, all of the members participated actively in all discussions. All of the members of the Compensation Committee have had experience in matters of executive compensation that is relevant to their responsibilities as members of such committee by virtue of their respective professions and long-standing involvement with public companies or other large for-profit organizations.
The Board has responsibility
with respectdetermined that each member of the Compensation Committee satisfied the definition of “independent” director as established under National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) of the Canadian Securities Administrators. The Compensation Committee currently has no written charter.
The function of the Compensation Committee is to approvingevaluate the Company’s performance and advisingthe performance of the executive officers. The Compensation Committee develops proposals for the cash and equity-based compensation of the executive officers and submits such proposals to the full Board on compensation matters
involving officers of the Companyfor consideration and approval as well as approving allocations to the KSOP
Plan.appropriate. The Audit Committee, which met five times during 2005, in person and by
phone, consists of Chris D. Mikkelsen (Chair), Patrick D. McChesney and JC
Potvin, all of who are unrelated Directors. The Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of our
independent public accountants and monitors the independence and performance
of our auditors. The Audit Committee monitors the integrity of our financial
reporting process and systems of internal controls regarding finance,
accounting and legal compliance. It reviews and reports to the Board the
scope and results of audits by our outside auditor and reviews the audit and
other professional services rendered by the outside auditor. The AuditCompensation Committee also reviews transactions between the CompanyCompany’s compensation plans, policies and our directorsprograms and officers, our policies regarding those transactionsother specific compensation arrangements to assess whether they meet the Company’s risk profile and compliance with our
business ethics and conflictto ensure they do not encourage excessive risk taking on the part of interest policies.the recipient of such compensation. The Board has delegated
reviewcomplete discretion over the amount and composition of the quarterly financial statementseach executive officer’s compensation. Compensation matters relating to the Audit Committee prior to
filing with regulatory agencies. The Audit Committee reports to the Board on
its activities and findings.
Independence From Management. It is the Board's view that the Board operates
and functions independently of management as required. Mr. Coleman, an
independent and un-related director serves as non-executive Chairman of the
Board. In addition, the fact that four out of the seven Board members are
unrelated and not employees of the Company further reinforces the Board's
independence from management.
Shareholder Communication. The Company communicates regularly with its
shareholders through annual and quarterly reports, as well as news releases,
regulatory filings and the Company's website. In addition, the executive
officers of the Company are responsible for addressing day-to-day shareholder
inquiries and other shareholder communication issues.
Expectations of Management. The Board has delegated to the Chief Executive
Officer responsibility for day-to-day management of the business and affairs
of the Company, subject to compliance with directives and objectives
establisheddirectors were administered by the Board from timefull Board. Compensation matters relating to time. The Board relies on management to
provide the Board oneach executive officer who is a timely basis with information required by the Board to
perform its duties.
Outside Advisors. The Company's Audit Committee hires, fires, compensates,
oversees and monitors the independence and performance of our independent
auditors. Eachmember of the Board were administered by the Compensation Committee.
D. Employees
| 28 |
As of December 31, 2022, 2021 and 2020 the Audit Committee are empowered to hire
outside advisors independentCompany employed five, six and eight full-time personnel, respectively. All employees with the exception of management, as it determines necessary to
carry out its duties.the Company’s executive chairman work from the Company’s office in Spokane, Washington.
E. Share Ownership by Directors and Management
ownership
The following table sets forth the share ownership in the Company by Directorsdirectors and Named Executive Officersmanagement as of March 30, 2006April 24, 2023 at which time the number of Class A common shares outstanding was 99,547,710.
Name | Number of Common Shares Beneficially Owned |
Percent |
| James H. Coleman | 812,138 | 0.8 |
| Rockne J. Timm | 1,559,040 | 1.6 |
| James P. Geyer | 407,473 | 0.4 |
| Robert A. Cohen | - | - |
| James Michael Johnston(1) | 10,099,924 | 10.1 |
| Yves M. Gagnon | - | - |
| James P. Tunkey | - | - |
| David P. Onzay | 189,843 | 0.2 |
(1) Mr. Johnston is the managing member of Steelhead, which acts as investment manager of Steelhead Navigator Master, L.P. and Equity Units outstanding were 34,599,819
and 1,157,397, respectively.
Number of
Common Shares
Beneficially Percent
Name Owned (1) Ownership
- --------------------------------------------------------
Rockne J. Timm(2)(3)(4) 1,390,652 3.8
A. Douglas Belanger(2)(3) 1,447,675 3.9
James P. Geyer 459,267 1.3
Robert A. McGuinness(2)(3) 435,925 1.2
Douglas E. Stewart 247,813 0.7
James H. Coleman(2)(3) 253,250 0.7
Patrick D. McChesney(2)(3) 93,174 0.3
Chris D. Mikkelsen(2)(3)(4) 284,500 0.8
Jean Charles Potvin 83,604 0.2
(1) Includes for each individual shares issuable pursuant to
presently exercisable options for common shares as of March 30, 2006 or
options exercisable within 60 days of March 30, 2006 as follows:another client account that together hold 10,099,924 Class A Shares. As such, Mr. Timm,
531,867; Mr. Belanger, 431,303; Mr. Geyer, 224,473; Mr. McGuinness 228,915;
Mr. Stewart 123,000; Mr. Coleman, 144,444; Mr. McChesney, 90,674; Mr.
Mikkelsen, 50,000; Mr. Potvin, 48,741.
(2) Messrs. Timm, Belanger, McGuinness, Coleman, McChesney, and
Mikkelsen are Officers or Directors of Great Basin Energies, Inc., which owns
491,192 common shares, or 1.3% of the outstanding common shares. The foregoing
individuals beneficially own 8.6%, 5.4%, 0.4%, 2.2%, 1.6%, and 1.1%,
respectively, of the outstanding common shares of Great Basin Energies, Inc.
andJohnston may be deemed indirectlyto beneficially own the shares owned by these client accounts, as he may be deemed to have the power to direct the voting or disposition of these shares. Otherwise, Mr. Johnston disclaims beneficial ownership of these securities.
The Company has an interestequity incentive plan, the Gold Reserve Inc. 2012 Equity Incentive Plan, as amended, that provides for the grant of stock options to purchase Class A Shares. During the second quarter of 2021, the number of shares available under the plan was increased to a maximum of 9,939,500 shares. As of December 31, 2022, there were 2,361,107 options available for grant. Grants are made for terms of up to ten years with vesting periods as required by the TSXV and as may be determined by the Board or a committee of the Board established pursuant to the equity incentive plan.
The following table sets forth information concerning all outstanding stock options to acquire Class A shares in the Company through their
respectiveby directors and management positions and/or ownership interests in Great Basin
Energies, Inc. Eachas of the foregoing individuals disclaims any beneficial
ownershipApril 24, 2023.
| Option-based Awards | |||||
| Name | Grant Date | Number of securities underlying unexercised options # | (1) Option exercise price ($) | Option expiration date | (2) Value of unexercised in-the-money options ($) |
| James H. Coleman | 7/25/2014 | 25,000 | 3.26 | 7/25/2024 | - |
| 6/29/2015 | 75,000 | 3.15 | 6/29/2025 | - | |
| 2/16/2017 | 400,000 | 2.39 | 2/16/2027 | - | |
| 10/4/2021 | 1,000,000 | 1.60 | 10/4/2031 | - | |
| Total | 1,500,000 |
| Rockne J. Timm | 2/16/2017 | 425,000 | 2.39 | 2/16/2027 | - |
| 10/4/2021 | 750,000 | 1.60 | 10/4/2031 | - | |
| Total | 1,175,000 |
| James P. Geyer | 7/25/2014 | 25,000 | 3.26 | 7/25/2024 | - |
| 6/29/2015 | 35,000 | 3.15 | 6/29/2025 | - | |
| 2/16/2017 | 125,000 | 2.39 | 2/16/2027 | - | |
| 10/4/2021 | 120,000 | 1.60 | 10/4/2031 | - | |
| Total | 305,000 | ||||
Robert A. Cohen
| 5/1/2017 | 125,000 | 1.93 | 5/1/2027 | - |
| 10/4/2021 | 60,000 | 1.60 | 10/4/2031 | - | |
| Total | 185,000 |
| 29 |
James M. Johnston | 10/4/2021 | 195,000 | 1.60 | 10/4/2031 | - |
Yves M. Gagnon
| 9/9/2020 | 125,000 | 1.75 | 9/9/2030 | - |
| 10/4/2021 | 30,000 | 1.60 | 10/4/2031 | - | |
| Total | 155,000 |
James P. Tunkey | 11/17/2022 | 145,000 | 1.08 | 11/17/2032 | 21,750 |
| David P. Onzay | 7/25/2014 | 50,000 | 3.26 | 7/25/2024 | - |
| 2/16/2017 | 92,500 | 2.39 | 2/16/2027 | - | |
| 9/25/2020 | 75,000 | 1.70 | 9/25/2030 | - | |
| 10/4/2022 | 100,000 | 0.99 | 10/4/2032 | 24,000 | |
| Total | 317,500 | 24,000 |
F. Disclosure of the common shares owned by Great Basin Energies, Inc.
(3) Messrs. Timm, Belanger, McGuinness, Coleman, McChesney, and Mr.
Mikkelsen are Officers or Directors of MGC Ventures, Inc., which owns 258,083
common shares, or 0.7% of the outstanding common shares of the Company. The
foregoing individuals beneficially own 9.5%, 9.7%, .9%, 4.1%, 3.0%, and 2.0%
respectively, of the outstanding common shares of MGC Ventures, Inc. and may
be deemed indirectlya registrant’s action to have an interest in the Company through their
respective management positions and/or ownership interests in MGC Ventures,
Inc. Each of the foregoing individuals disclaims any beneficial ownership of
the common shares owned by MGC Ventures, Inc.
Number of Employees
As of March 28, 2006, the Company employed ten full time personnel from its
Spokane, Washington, office and approximately 55 people in Venezuela, of
which approximately 33 are located at the Brisas Project. In addition, the
Company employs a number of independent consultants and contractors that are
not included as employees. The Company maintains a corporate office in
Caracas and manages day-to-day activities of Venezuelan operations from its
Puerto Ordaz office.
recover erroneously awarded compensation
Not applicable
Item 7. Major Shareholders and Related Party Transactions
Control
A. Major shareholders
To the knowledge of Registrant
We are notthe Company, as of April 24, 2023, the only persons, firms or corporations that beneficially owned, or exercised control or direction, directly or indirectly, owned or controlled by another corporation
or by any foreign government. To the best of our knowledge no company or
government beneficially owns, directly or indirectly, or exercises control or
direction over shares carrying more than 5% of the voting rights attached to the Company's issued Class A commonShares were:
Shareholder Name | Number of Class A Shares Held | Percentage of Class A Shares Issued (1) |
| Greywolf Capital Management LP (2) | 26,454,256 | 26.6% |
| Greywolf Event Driven Master Fund. | 6,380,948 | 6.4% |
| Greywolf Overseas Intermediate Fund | 5,434,228 | 5.5% |
| Greywolf Strategic Master Fund SPC, Ltd. – MSP9 | 11,771,916 | 11.8% |
| Greywolf Strategic Master Fund SPC, Ltd. – MSP5 | 2,867,164 | 2.9% |
| Camac Capital, LLC (3) | 15,406,499 | 15.5% |
| Camac Fund, LP | 8,020,319 | 8.1% |
| Camac Fund II, LP | 7,386,180 | 7.4% |
| Steelhead Partners, LLC (4) | 10,099,924 | 10.1% |
| (1) | Based on 99,547,710 Class A Shares outstanding. |
| (2) | The number of Class A Shares held is based on publicly available information filed with the U.S. Securities and Exchange Commission last filed on August 24, 2017. |
| (3) | The number of Class A Shares held is based on publicly available information filed with the U.S. Securities and Exchange Commission last filed on November 8, 2022. |
| (4) | The number of Class A Shares held is based on publicly available information filed with the U.S. Securities and Exchange Commission last filed on May 24, 2022. |
| 30 |
During the past three years, Camac Capital, LLC has increased its percentage ownership of the Company’s Class A Shares from 6% to 15.5% and Steelhead Partners, LLC has decreased its percentage ownership of the Company’s Class A Shares from 10.5% to 10.1%.
Our major shareholders have the same voting rights as our other shareholders.
B. Related party transactions
A dispute existed between us and the holder of the majority of the CVRs, Steelhead Navigator Master, L.P., a related party that owns approximately 10.1% of our shares and which is affiliated with our director James Michael Johnston. Steelhead had previously alleged that as a general matter it believed that the Company's 45% interest in Siembra Minera represented "Proceeds" for purposes of the CVRs and as such the CVR holders were entitled to the value of 5.466% of that interest on the date of its acquisition. For a variety of reasons, the Company did not and does not agree with such holder’s position and believes it is inconsistent with the CVRs generally and such holder’s CVR specifically, including the terms and manner upon which we acquired our interest in Siembra Minera. In December 2022, the Company and such holder agreed to settle their differences and entered into an agreement whereby the Company paid $350,000 in exchange for the release of claims made by the holder. The Company also decided to offer a pro-rata settlement with the other CVR holders of approximately $112,000, in the aggregate, of which approximately $85,000 was payable to other related parties, Greywolf Overseas Intermediate Fund, Greywolf Event Driven Master Fund, and Greywolf Strategic Master Fund SPC, Ltd. - MSP5, which collectively own approximately 14.8% of our shares. The Company’s decision to enter into these settlements, including with Steelhead Navigator Master, L.P., was determined based upon a recommendation of a special committee of independent directors of the Company. The Company recorded CVR expense in relation to this matter of approximately $462,000 during 2022, approximately $112,000 of which remained payable as of December 31, 2022. As of the date of this report, exceptsettlement payments have been made to Greywolf and final agreements with and payments to the other holders of CVRs are pending.
The Company’s former President, A. Douglas Belanger, retired from the Company effective December 31, 2022 and entered a 3-year consulting arrangement with the Company effective January 1, 2023. Mr. Belanger’s consulting fees, in accordance with the arrangement, are $150,000 in 2023, $112,500 in 2024 and $90,000 in 2025.
C. Interests of experts and counsel
Not applicable.
Item 8. Financial Information
A. Consolidated statements and other financial information
See Item 18 for Strongbow capitalthe Company’s financial statements.
Legal Proceedings
Recognition and its affiliates, which owns approximately
5.7%Enforcement of Arbitral Award in the United States
The Company obtained an order dated November 20, 2015, confirming and entering judgment on the Brisas ICSID Award in the U.S. District Court for the District of Columbia (DDC). Venezuela's appeal of this order was dismissed pursuant to the terms of the Company's2016 Settlement Agreement with Gold Reserve and Venezuela. The Company registered its DDC Judgment in the U.S. District Court for the District of Delaware and, by order dated March 31, 2023, the Company obtained a conditional writ of attachment fieri facias regarding the shares of PDV Holding, Inc. (PDVH), the indirect parent company of CITGO Petroleum Corp. Petroleos de Venezuela, S.A. (PDVSA), the holding company of PDVH, appealed this order on April 10, 2023.
Portugal Attachment
By order dated January 13, 2023, the Lisbon District Court granted the motion filed by Gold Reserve Inc. and Gold Reserve Corporation (USA) to attach and seize funds deposited at a Portugal state owned bank up to the amount of EUR 21,368,805.12. On February 20, 2023, the Lisbon District Court’s attachment order was effective. The Company is now in the process of instituting a "main action" required to execute against the attached funds.
| 31 |
Venezuela Political-Administrative Chamber of the Supreme Court of Justice (“APC”)
On November 24, 2022, the Company filed a nullity appeal and requested a precautionary measure of suspension of effects before the APC to declare the absolute nullity of the administrative act contained in Resolution No. 100-DM-00073 (“Resolution No. 73”) issued by the Ministry of People’s Power for Ecological Mining Development on May 27, 2022, and notified to the Empresa Mixta Ecosocialista Siembra Minera, S.A. (EMESM) on May 30, 2022, which ratified in every one of its parts Resolution No. 005 issued on March 7, 2022, and notified to EMESM on March 9, 2022, which terminated the mining rights granted to EMESM through the Transfer Decree No. 2.788 of March 20, 2017, and against which EMESM exercised the corresponding Administrative Request for Reconsideration. On February 9, 2023, the APC denied the Company’s precautionary request to suspend the effects of Resolution No. 73. The trial hearing of the nullity appeal is expected to take place in the late second quarter or third quarter of 2023.
Dividend Distributions
Other than requirements imposed under applicable corporate law, there are no other restrictions on the Company’s ability to pay dividends under the Company’s charter documents. The Company has no present intention of paying dividends on the Class A common shares. Shares. Following the future receipt, if any, of additional funds associated with the Settlement Agreement and/or Award and after applicable payments of Net Proceeds to holders of our CVRs and participants under our Bonus Plan, we expect to distribute to our shareholders a substantial majority of any remaining proceeds.
The Board will determine if and when dividends should be declared and paid in the future and any such determination will be based in part on applicable regulatory requirements, retention of sufficient reserves for future operations and capital requirements, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the future collection of the remaining amounts owed by Venezuela , if any, and any other factors the Board may consider and deem relevant at the time.
B. Significant changes
Not applicable.
Item 9. The Offer and Listing
A. Offer and listing details
The Company’s Class A Common shares are listed on the TSX Venture exchange under the trading symbol GRZ.V and are quoted on the OTCQX market under the symbol GDRZF.
B. Plan of Distribution
Not applicable.
C. Markets
See “Offer and listing details” above.
D. Selling Shareholders
Not applicable.
| 32 |
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share capital
Not applicable.
B. Memorandum and articles of association
Gold Reserve Inc. was incorporated on October 5, 1998 under the laws of the Yukon Territory, Canada. The Company was continued under the ABCA on September 9, 2014 pursuant to a certificate of continuance (the “Certificate of Continuance”), as amended by a certificate of amendment and registration of restated articles dated June 14, 2019 (together with the Certificate of Continuance, the “Articles”), issued by the Alberta Registrar of Corporations. The Company is governed by our Articles and by our bylaws (the “By-Laws”) effective on September 9, 2014. The Company’s Alberta Corporate Access Number is 2018462024. The Articles do not include a stated purpose and do not place any restrictions on the business that the Company may carry on.
Directors
Under the ABCA, directors may not vote on resolutions to approve a material contract or material transaction if the director is a party to, or is a director or an officer of or has a material interest in any person who is a party to, such contract or transaction, unless the contract or transaction is (a) a contract or transaction in which, but only to the extent that, the director undertakes an obligation or obligations for the benefit of the corporation, (b) a contract or transaction relating primarily to the director’s remuneration as a director, officer, employee or agent of the corporation or an affiliate (as defined under the ABCA), (c) a contract or transaction for indemnity or insurance, or (d) a contract or transaction with an affiliate (as defined under the ABCA).
The directors are entitled to remuneration for their services as the board of directors may from time to time determine. The directors are allowed to vote on and approve their own remuneration in the absence of an independent quorum of directors.
Under the ABCA, the directors have the ability to borrow money on the credit of the Company unless the articles or by-laws of the corporation otherwise provide, but no such restrictions are in place for the Company. The banking business of the Company including, without limitation, the borrowing of money and the Named
Executives Officersgiving of security therefor, shall be transacted with such banks, trust companies or other bodies corporate or organizations as may from time to time be authorized by the board of directors.
There is no provision in the Articles or By-Laws concerning the retirement or non-retirement of directors under an age-limit requirement. There is also no requirement in the Articles or By-Laws for a group own 4,928,255director to hold any number of shares (including 1,999,628
shares subject to options exercisable within 60 days), or 13.5% of the totalCompany.
Class A Shares
The holders of Class А common shares issued. See "-Directors, Senior Management and Employees- Share
ownership by Directors and Management." We have no knowledge(“Class A Shares”) shall be entitled to vote at any meeting of any
arrangements that may, at a subsequent date, result in a change in our
control.
Related Party Transactions
The Directors, officers and principalthe shareholders of the Company, and associates, affiliatesshall have one vote in respect of each Class А Share held by them. Subject to the prior rights and close family memberspreferences, if any, applicable to the Preferred Shares, or any series thereof, the holders of Class А Shares shall be entitled to receive such dividends (payable in cash, stock or otherwise) as may be declared thereon by the board of directors at any time and from time to time out of any funds of the foregoing have had no
material interest, directCompany legally available therefor; provided, however, that any dividend upon the Class А Shares that is payable in common shares shall be paid only in Class А Shares to the holders of Class А Shares. In the event of any voluntary or indirect, in any transaction in whichinvoluntary liquidation, dissolution or winding up of the Company, has participated duringafter distribution in full of the preferential amounts, if any, to be distributed to the holders of Preferred Shares, or any series thereof, the holders of Class А Shares shall be entitled to receive out of the assets of the Company available for distribution to shareholders, liquidation proceeds in an amount per Class А Share equal to the amount of the Company’s liquidation proceeds remaining after distribution of the preferential amounts, if any, to holders of Preferred Shares divided by the total number of Class А Shares outstanding at the time of the voluntary or involuntary liquidation, dissolution or winding up of the Company. Class A Shares do not carry any redemption provisions, sinking fund provisions, liability to further capital calls by the Company, or provisions discriminating against
| 33 |
any existing or prospective holder of Class A Shares as a result of such shareholder owning a substantial number of Class A Shares.
Preferred Shares
The board of directors is authorized to issue Class C preferred shares (“Preferred Shares”), issuable in series, from time to time and to determine the designations, rights, privileges, restrictions, and conditions attaching to the shares of each such series. No Preferred Shares have been issued to date.
Action Necessary to Change Rights of Shareholders
In order to change the rights of shareholders, the Company would need to amend its Articles. Under the ABCA, such amendment would require the approval of two-thirds of the votes cast by holders of shares of that class at a duly called special meeting.
Annual General and Special Meetings of Shareholders
The ABCA provides that the directors of the Company shall call an annual meeting of shareholders not later than 15 months after holding the last three fiscal years otherpreceding annual meeting and may call a special meeting of shareholders at any time. Further, under the ABCA, the registered holders of beneficial owners of not less than 5% of the issued shares of the Company that carry the right to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition. Except in limited circumstances, our directors, on receipt of such requisition, must call a meeting of shareholders. If the directors fail to call a meeting of shareholders within 21 days after receiving the requisition, any shareholder who signed the requisition may call the meeting of shareholders.
Under the ABCA, the Company is required to send notice of the time and place of the meeting not less than 21 days and not more than 50 days prior to the date of the meeting to each shareholder entitled to vote at the meeting, each director and the Company’s auditor.
In accordance with the By-Laws, a quorum for the transaction of business at any meeting of shareholders shall be at least two persons present in person, each being shareholders entitled to vote or a duly appointed proxy or representative for an absent shareholder so entitled, and representing not less than 5% of the outstanding shares of the Company carrying voting rights at the meeting, provided that, if there should be only one shareholder of the Company entitled to vote at any meeting of shareholders, the quorum for such meeting shall consist of the one shareholder.
Meetings of the shareholders shall be held at such place as noted below. No Directorthe board of directors shall determine and Named Executive Officermay be held outside of hadAlberta. The only persons entitled to be present at a meeting of shareholders shall be: (a) those entitled to vote at such meeting; (b) the directors and auditors of the Company; (c) others who, although not entitled to vote, are entitled or required under any indebtednessprovision of the ABCA, the Articles or the By-Laws to be present at the meeting; (d) legal counsel to the Company duringwhen invited by the last fiscal year.
Interest of Insiders in Material Transactions
NoneCompany to attend the meeting; and (e) any other person on the invitation of the Directors, officerschair or with the consent of the meeting.
Limitations on Rights to Own Securities
There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by Canadian federal and provincial law (other than those imposed under the Investment Canada Act) or the Company’s Articles or By-Laws.
Change of Control
There are no provisions in the Company’s Articles or By-Laws that would have an effect of delaying, deferring or preventing a change of control of the Company norand that would only operate with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder Ownership Disclosure
There are no provisions in the Company’s Articles or By-Laws that govern the ownership threshold above which shareholder ownership must be disclosed.
Securities legislation in Canada requires that shareholder ownership (as well as ownership of an interest in, or right or obligation associated with, a related financial instrument of a security of the Company) must be disclosed once a person beneficially owns or corporation
owninghas control or direction over, directly or indirectly, securities of a reporting issuer carrying more than 10% of the voting rights attached to all the reporting issuer’s outstanding voting securities. This threshold is higher than the 5% threshold under U.S. securities legislation at which stockholders must report their share ownership.
| 34 |
Changes to Capital
There are no conditions imposed by the Company’s Articles or By-Laws governing changes in the capital where such conditions are more stringent than is required by law.
C. Material contracts
The Company did not enter into any classcontract during the two years immediately preceding publication of voting securities ofthis document, that may be considered material to the Company, nor any
associates or affiliate of any of them, had or has any material interest in
any transaction since the commencement of the Company's last financial year
or in any proposed transaction which has materially affected or would
materially affect the Company or any of its subsidiaries.
Item 8. Financial Information
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. For a discussion of the
principal differences between accounting principles generally accepted in
Canada and the United States, please refer to note 11 to the consolidated
financial statements, included elsewhere in this annual report. A
consolidated balance sheet is presented for fiscal years 2005 and 2004 along
with consolidated statements of operations, cash flow and changes in
shareholders' equity, which are presented for fiscal 2005, 2004 and 2003.
Reference is made to Item 3 for the Company's policy on dividends and Item 17
for detailed financial information.
Legal Proceedings
We are unaware of any legal proceedings, either threatened or pending, to
which the Company is or is likely to be a party, or of which any of its
properties or assets is or is likely to be the subject, that may have a
significant effect on the Company's financial position or profitability.
Significant Changes
No significant changes have occurred since the date of the annual financial
statements.
Item 9. The Offer and Listing
Offer and Listing details
The Class A common shares of Gold Reserve Inc. are traded on The Toronto
Stock Exchange ("TSX") and on the American Stock Exchange ("AMEX") under the
symbol "GRZ." The Company's November 4, 2004 warrants are traded on the TSX
under the symbol "GRZ.T." Neither the Company's equity units and the related
underlying securities nor the other outstanding stock purchase warrants are
listed for trading on any exchange.
Previous to October 3, 2003, the Company's common stock was traded in the
United States on the Over-the-Counter Market ("OTC") under the symbol "GLDR"
and was traded on the TSX under the symbol "GLR.A."
Last Six Months TSX AMEX (1)
High Low High Low
Canadian Dollars U.S. Dollars
- ------------------------------------------------------------------------
March
(through 03/28/06) $ 6.32 $ 5.40 $ 5.40 $ 4.69
February 6.67 5.27 5.83 4.56
January 7.07 3.54 6.58 3.04
December 3.51 2.81 3.02 2.42
November 2.63 2.11 2.23 1.76
October 2.86 2.35 2.43 2.03
Last Nine Quarters
TSX AMEX(1)
2006 2006
High Low High Low
- ------------------------------------------------------------------------------
First Quarter $ 7.07 $ 3.54 $ 6.58 $ 3.04
2005 2004 2005 2004
High Low High Low High Low High Low
Canadian Dollars U.S. Dollars
- ------------------------------------------------------------------------------
Fourth Quarter $3.51 $ 2.11 $6.70 $5.32 $3.02 $1.76 $5.66 $4.30
Third Quarter 4.38 2.40 5.87 4.07 3.60 2.02 4.67 3.15
Second Quarter 4.82 3.60 5.70 3.70 3.96 2.82 4.31 2.74
First Quarter 5.74 4.18 6.89 4.39 4.72 3.54 5.33 3.35
Last Five Years TSX AMEX(1)
High Low High Low
Canadian Dollars U.S. Dollars
- ------------------------------------------------------------------------------
2005 $5.74 $2.11 $4.72 $1.76
2004 6.89 3.70 5.66 2.74
2003 7.58 1.77 5.86 1.16
2002 3.31 1.06 2.24 0.71
2001 1.85 0.68 1.22 0.44
(1) Previous to October 3, 2003, quotes are from the OTC market.
On March 28, 2006, the closing price for a Class A common share of the
Company was Cdn $6.03 per share on the TSX and U.S. $5.19 per share on the
AMEX. As of March 28, 2006, there were a total of 35,313,727 Class A common
shares issued and 1,085,099 Class B common shares issued.
The number of holders of Class A and Class B common shares of record on March
28, 2006 was approximately 870. Based on recent mailings to shareholders, the
Company believes its common shares are owned beneficially by approximately
8,420 shareholders. An estimated 46% of the Company's shareholders are
Canadian residents who own approximately 68% of the Company's outstanding
shares, with the remaining outstanding shares owned primarily by U.S.
residents.
Item 10. Additional Information
Memorandum and Articles of Association
Information under this heading is included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061) filed with
the U.S. Securities and Exchange Commission on November 27, 1998 and
incorporated by reference herein. All referenced documents concerning the
Company referenced in this annual report may be examined at the Company's
executive offices located at 926 West Sprague Avenue, Suite 200, Spokane, WA
99201, USA or through the U.S. Securities and Exchange Commission's website
at http://www.sec.gov
Material contracts
During the past two years, the Company hasthan those entered into one material contract
(identified in Exhibit 3.3), other than through the ordinary course of business.business.
D. Exchange Controls and Other Limitations Affecting Security Holders
controls
There are no Canadian laws that restrict the export or import of capital, including foreign exchange controls, or that affect the payment of dividends to non-resident holders, except as described below under the heading "Taxation".
“E. Taxation.”
Presently, the Company does not carry on any mining business in Canada. If, however, in the future the Company carries on a Canadian business, as defined in the Investment Canada Act, a direct or indirect acquisition of control of such a Canadian business by non-Canadians may be subject to either notification or review under the Investment Canada Act. Under the Investment Canada Act, subject to certain specified exceptions, acquisitions of control by non-Canadians of Canadian businesses, which exceed specified financial thresholds, are reviewable (i.e., require the prior approval of the federal Minister of Industry and/or the federal Minister of Canadian Heritage based on a "net“net benefit to Canada"Canada” test). Any acquisition of control of a Canadian business by a non-Canadian that does not exceed the applicable review threshold is merely subject to notification to Investment Canada, a government agency within Industry Canada and in certain limited circumstances to the Cultural Sector Investment Review office of the Department of Canadian Heritage. Additionally, under the Investment Canada Act, certain investments by non-Canadians can be subject to review on the grounds that the investment could be injurious to national security. Where an investment is determined to be injurious to national security, it can be subject to conditions or prohibited.
The term "non-Canadian"“non-Canadian” is defined in the Investment Canada Act to include: (1) an individual who is neither a citizen nor a permanent resident of Canada,Canada; (2) a foreign governmentgovernment; or (3) any other entity, including a corporation, that is not Canadian-controlled.
Under the Investment Canada Act, an acquisition of control of a Canadian business may occur through the acquisition of the voting interests of an entity, including a corporation, which directly or indirectly carries on the Canadian business. Generally, the Investment Canada Act deems that the acquisition of a majority of the voting shares of a corporation by a non-Canadian constitutes acquisition of control of such corporation. The acquisition of one-third or more (but less than a majority) of the voting shares of a corporation by a non-Canadian is presumed to be an acquisition of control of the corporation unless it can be established that the acquirer does not in fact control the corporation through the ownership of voting shares. The acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control of the corporation.
In addition, an acquisition of control is also considered to occur for purposes of the Investment Canada Act when all or substantially all of the assets used in carrying on a Canadian business are acquired.
If an acquisition of control of a Canadian business is made in contravention of the Investment Canada Act, a court of competent jurisdiction may make any order it deems fit, including requiring the acquirer to divest such Canadian business.
Except as described above, statutes in Canada and the Yukon TerritoryAlberta and the charter documents of the Company do not restrict the right of non-resident or foreign owners to hold or vote common shares (including Class A Shares) of the Company.
The Company maintains a Shareholder Rights Plan, which is intended to give
adequate time for shareholders of the Company to properly assess the merits
of a take-over bid without pressure and to allow competing bids to emerge.
The Plan is designed to give the board of directors time to consider
alternatives to allow shareholders to receive full and fair value for their
common shares. One right is issued in respect of each outstanding share. The
rights become exercisable only when a person, including any party related to
it or acting jointly with it, acquires or announces its intention to acquire
20% or more of the Company's outstanding shares without complying with the
"permitted bid" provisions of the Shareholder Rights Plan. Each right would,
on exercise, entitle the holder, other than the acquiring person and related
persons, to purchase common shares of the Company at a 50% discount to the
market price at the time. In 2006, the shareholders approved an amendment to
continue the Shareholder Rights Plan until June 30, 2009.
| 35 |
E. Taxation
Canadian Federal Income Tax Considerations
The following is a general summary of the principal Canadian federal income tax considerationsconsequences generally applicable under the Income Tax Act (Canada) (the eeCanadian Act''“Tax Act”)
generally applicable to the acquisition, holding and disposition of Class A and Class B
common shares (together, the "common shares")Shares by a beneficial holder who, at all relevant times and for purposes of the Canadian Act,Tax Act: (a) is not, resident orand is not deemed to be, resident in Canada (b) deals at arm'sarm’s length with the Company, (c) holds the
common sharesClass A Shares as capital property and (d) does not use or hold, and is not deemed to use or hold, the common shares in the course of carrying on, or otherwiseClass A Shares in connection with a business carried on, or deemed to be carried on, in Canada (a “Non-Resident Holder”). This summary does not apply to Non-Resident Holders that carry on an insurance business in Canada and who,elsewhere. Any such Non-Resident Holders should consult their own tax advisors.
This summary is of a general nature only and is not, and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder, and no representation concerning the tax consequences to any particular holder or prospective holder are made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, prospective holders should consult their own tax advisors with respect to an investment in the Class A Shares having regard to their particular circumstances.
Generally, for purposes of the Canada-United States Income Tax Convention (the eeTreaty''), is a resident of
the United States. Generally, common shares will be considered to be capital
property to a holder thereof provided that the holder does not use the common
shares in the course of carrying on a business and such holder has not
acquired them in one or more transactions considered to be an adventure or
concern in the nature of trade. This summary does not deal with special
situations, such as particular circumstances of traders or dealers in
securities, limited liability companies, tax-exempt entities, insurers, and
financial institutions. For purposes of the Canadian Act, all amounts relevant in computing a holder's liability underrelating to the Canadian Actacquisition, holding or disposition or deemed disposition of Class A Shares must be computedexpressed in Canadian Dollars.currency. Amounts denominated in U.S. Dollars including
adjusted cost base and proceeds of dispositionanother currency must be converted into Canadian Dollars basedcurrency using the applicable rate of exchange (pursuant to the Tax Act) quoted by the Bank of Canada on the prevailingdate such amounts arose, or such other rate of exchange rate atas is acceptable to the relevant time.
Minister of National Revenue (Canada).
Dividends
Dividends on common shares
Any dividends paid or credited, or deemed to be paid or credited, on the Class A Shares to a U.S.Non-Resident Holder (as defined
below) by the Company arewill be subject to Canadian withholding tax. Under the
Treaty,tax at the rate of withholding tax on dividends paid or credited to a U.S.
Holder is generally limited to 15%25% of the gross amount of the dividend (oror deemed dividend unless the rate is reduced under the provisions of an applicable income tax convention. For a Non-Resident Holder that (i) is a resident of the United States for purposes of the Canada-U.S. Income Tax Convention (1980) (the “Treaty”), (ii) is entitled to full benefits thereof (a “U.S. Resident Holder”), and (iii) is the beneficial owner of the dividends, the rate of Canadian withholding tax applicable to dividends is generally reduced to 15%. The rate of withholding tax is further reduced to 5% inif the casebeneficial owner of such dividend is a U.S.U.S Resident Holder that is a corporationcompany that beneficially owningowns, directly or indirectly, at least 10% of the Company's voting shares). Understock of the Treaty, dividends paid
by the Company to certain religious, scientific, charitable, certain other
tax-exempt organizations and certain pension organizations that are resident
in, and exempt from tax in, the United States are exempt from Canadian
withholding tax.
Company.
Dispositions
A U.S.Non-Resident Holder will generally not be subject to tax under the CanadianTax Act in respect of aany capital gain realized by such Non-Resident Holder on thea disposition or deemed disposition of a common share,the Class A Shares, unless the common share constitutes eetaxableshares constitute “taxable Canadian property'' asproperty” (as defined in the Canadian Act atTax Act) of the time of disposition. The Class B common shares are
currently not listed on any stock exchange and are taxable Canadian property.
A Class A common share will generally not be taxable Canadian property to a
U.S.Non-Resident Holder at the time of disposition providedand the Non-Resident Holder is not entitled to relief under an applicable income tax convention.
Provided the Class A common sharesShares are listed on a prescribeddesignated stock exchange (which currently includes the Toronto StockTSX-Venture Exchange (Tiers 1 and American Stock Exchange) at that time and, during the 60 month
period ending2)) at the time of disposition or deemed disposition of a share, the Class A common share,Shares will generally not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the U.S.60-month period immediately preceding the disposition or deemed disposition of such Class A Shares: (a) one or any combination of (i) the Non-Resident Holder, (ii) persons with whom the U.S.Non-Resident Holder diddoes not deal at arm'sarm’s length, or (iii) partnerships in which the U.S.Non-Resident Holder together with such persons, did not ownor a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, has owned or owns 25% or more of the
Company's issued shares of any class or series of capital stock. Athe Company, and (b) more than 50% of the fair market value of the shares was derived directly or indirectly from one or any combination of: (i) real or immovable property situated in Canada; (ii) “Canadian resource properties” (within the meaning of the Tax Act); (iii) “timber resource properties” (within the meaning of the Tax Act); and (iv) options in respect of, or interests in or for civil law rights in, any of the foregoing property whether or not such property exists. In addition, in certain circumstances set out in the Tax Act (including where a Class A common share thatShare was receivedacquired on athe conversion of a Class B common shareshare), the Class A Shares may be deemed to be taxable Canadian property of a Non-Resident Holder. Non-Resident Holders for whom Class A Shares may constitute taxable“taxable Canadian property.
property” should consult their own tax advisors.
| 36 |
Even if a common shareClass A Share constitutes taxable Canadian property to a U.S. Resident Holder, by reason of the Treaty no tax will generally be payable under the CanadianTax Act on a capital gain realized by the U.S. Resident Holder on the disposition of such sharesClass A Share provided the value of such sharesshare at the time of disposition is not derived principally from real property situated in Canada. The Company believes that, at the date of this filing, the value of each class of common
sharesthe Class A Shares is not derived principally from real property situated in Canada within the meaning of the Treaty.
Provided that the Class A common shares are not taxable Canadian property to
a U.S. Holder, there are no clearance certificate requirements imposed by the
Canadian Act on that U.S. Holder in respect of a disposition of Class A common
shares. As long as the Class B common shares are taxable Canadian property, a
U.S. Holder will be required to apply to the federal Canadian tax authorities
for a clearance certificate upon a disposition of a Class B common share,
including in the case of a conversion of a Class B common share into a Class
A common share.
Certain Material U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax consequences ofarising from and relating to the ownership and disposition generally applicable to U.S.
Holders (as defined below) of the Company's commonCompany’s Class A shares. The discussion
This summary is for general information purposes only and does not purport to be a comprehensive analysis or listing of all potential U.S. federal income tax consequences that may apply to a holder as a result of the ownership and disposition of Class A shares. In addition, this summary does not take into account the individual facts and circumstances of any particular holder that may affect the U.S. federal income tax consequences of the ownership and disposition of Class A shares. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any holder. Each holder should consult their own tax advisor, legal counsel, or accountant regarding the U.S. federal income tax consequences of the ownership and disposition of Class A shares.
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"“Code”), final and temporary Treasury regulations,Regulations promulgated thereunder, published rulings of the Internal Revenue Service (the “IRS”), published administrative positions of the IRS, the Convention Between Canada and judicialthe United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended, and U.S. court decisions nowthat are applicable and, in each case, as in effect alland available, as of the date hereof. All of the authorities on which this summary is based are subject to change or differing interpretations possibly withand could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive effect.basis. In such event, the U.S. federal income tax consequences applicable to a U.S. Holderholder of the Company's
commonClass A shares could differ from those described in this discussion.
summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.
Holders subject to special U.S. federal income tax rules not addressed
This summary only applies to holders of Class A shares who hold their Class A shares as a capital asset within the meaning of Section 1221 of the Code. This summary also does not address the U.S. federal income tax consequences of the ownership and disposition of Class A shares to holders that are subject to special provisions under the Code, including the following holders:
| · | holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; |
| · | holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; |
| · | holders that are dealers in securities, commodities or currencies, or holders that are traders in securities or commodities that elect to apply a mark-to-market accounting method; |
| · | holders that have a “functional currency” other than the U.S. dollar; |
| · | regulated investment companies; |
| · | real estate investment trusts |
| · | holders that own Class A shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; |
| · | holders that acquired Class A shares in connection with the exercise of employee stock options or otherwise as compensation for services; |
| · | holders that acquired Class A shares in connection with a trade or business conducted outside the United States; or |
| · | holders that own (directly, indirectly, or constructively) 10% or more, by voting power or value, of the outstanding shares of the Company. |
Holders that are subject to special provisions under the Code, including holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the ownership and disposition of Class A shares.
| 37 |
If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Class A shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the ownership and disposition of Class A shares.
U.S. Holders
For purposes of this summary, a “U.S. Holder” is a beneficial owner of Class A shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes that is created or organized in or under the laws of the U.S. or any political subdivision thereof, including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected, under applicable Treasury Regulations, to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons, as defined in Section 7701(a)(30) of the Code, have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Class A shares other than a U.S. Holder. A non-U.S. Holder should consult their own financial advisor, legal counsel, or accountant regarding the U.S. federal income tax consequences (including the potential application of and operation of any income tax treaties) of the ownership and disposition of Class A shares.
Tax consequences other than U.S. federal income tax consequences not addressed
This summary does not address the effect of theconsequences to holders arising under alternative minimum tax laws, Medicare contribution tax laws, U.S. federal estate, gift or excise tax laws or the tax laws of any applicable foreign, state, local or other jurisdiction. This summary does not address tax consequences applicable
to a U.S. Holder's particular circumstances, including U.S. Holders who may be
subject to special tax rules, including, without limitation: (1) banks or
other financial institutions, U.S. Holders subject to alternative minimum
tax, partnerships or other legal entities classified as a partnership for
U.S. federal income tax purposes and persons holding through such entities,
regulated investment companies, insurance companies, dealers in securities,
traders in securities that elect to use the mark-to-market method of
accounting, certain retirement plans, dealers in commodities or currencies,
tax exempt organizations or holdersjurisdiction of the Company's common shares as partownership and disposition of a "straddle," "hedge"Class A shares. Each holder should consult its own financial advisor, legal counsel, or "conversion transaction" with other investmentsaccountant regarding the consequences of any of these laws on the ownership and taxpayers whose functional currency is not the United States Dollar or (2)
shareholders owning directly, indirectly or by attribution, 10% or moredisposition of the Company's commonClass A shares.
For purposes of this discussion regarding
U.S. federal income tax consequences a "U.S. Holder" is any beneficial ownerto U.S. Holders of the Company's commonownership and disposition of Class A shares
Passive Foreign Investment Company
U.S. Holders should be aware that is,we have determined that we were a “passive foreign investment company” (a “PFIC”) under Section 1297(a) of the U.S. Internal Revenue Code (the “Code”) for the taxable year ended December 31, 2022. We have not made, and do not expect to make, a determination as to whether any of our subsidiaries were PFICs as to any of our Shareholders for the taxable year ended December 31, 2022. U.S. Holders should also be aware that unless a timely and effective "QEF election" was made with respect to Class A shares held during any period during which we were a PFIC, with respect to those shares, we are deemed to continue to be a PFIC with respect to such U.S. Holder for each taxable period.
The determination of whether we and any of our subsidiaries will be a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax purposes,rules, which are subject to differing interpretations. In addition, whether we and any of our subsidiaries will be a citizen or residentPFIC with respect to a U.S. Holder for any taxable year generally depends on our assets and income and those of our subsidiaries over the United States (including certain former citizenscourse of each such taxable year and, former long-term
residents), a corporation (or other entity taxable as a corporationresult, cannot be predicted with certainty for U.S.
federal income tax purposes) created or organized in or under the laws of the
United Statescurrent or any political subdivision thereof, an estatefuture year.
For taxable years in which we are a PFIC, subject to the incomediscussion below, any gain recognized on the sale of our Class A shares and any “excess distributions” (as specifically defined by the Code) paid on our Class A shares must be ratably allocated to each day in a U.S. Holder’s holding period for the Class A shares. The amount of any such gain or excess distribution allocated to prior years of such U.S. Holder’s holding period for the Class A shares during which iswe were a PFIC generally will be subject to U.S. federal income taxationtax at the highest tax rate applicable to ordinary income in each such prior year, and the U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.
| 38 |
Alternatively, a U.S. Holder that makes a timely and effective “QEF election” generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of our “net capital gain” and “ordinary earnings” (calculated under U.S. federal income tax rules), regardless of whether such amounts are actually distributed by us. For a U.S. Holder to make a QEF election, we must agree to supply annually to the U.S. Holder the “PFIC Annual Information Statement” and permit the U.S. Holder access to certain information in the event of an audit by the IRS. We will prepare and make the annual statement available to U.S. Holders, and will permit access to the required information in the event of an audit by the IRS. As a possible second alternative, a U.S. Holder may make a “mark-to-market election” with respect to a taxable year in which we are a PFIC and the Class A shares are “marketable stock” (as specifically defined). A U.S. Holder that makes a mark-to-market election generally will include in gross income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Class A shares as of the close of such taxable year over (b) such U.S. Holder’s adjusted tax basis in such Class A shares.
Due to the complexity of the PFIC rules, a U.S. Holder should consult its source,own financial advisor, legal counsel, or accountant regarding the status of the Company and its subsidiaries as PFICs and the eligibility, manner and advisability of making a QEF election or a trust if (a)mark-to-market election and how the administration ofPFIC rules may affect the trust is subject to the primary
supervisionU.S. federal income tax consequences of a U.S. courtHolder’s ownership and disposition of Class A shares.
Distributions
Subject to the trust has one or more U.S. persons with
authority to control all substantial decisions or (b) the trust has a valid
election in effect under applicable Treasury regulations to be treated as
U.S. person. A "Non-U.S. Holder" is any shareholder other than a U.S. Holder.
ThePFIC discussion below assumes that the Company's common shares are held as a
capital asset within the meaning of Section 1221 of the Code.
Distributions
Forabove, for U.S. federal income tax purposes, the amount of distributionsa distribution made on the Company's commonClass A shares generally will equal the amount of cash and the fair market value of any property distributed and also will include the amount of any Canadian taxes withheld from the distribution as described above.above under “Canadian Federal Income Tax Considerations.” An amount of the distribution will be treated as a dividend, taxable to a U.S. Holder as ordinary dividend income, to the extent of the Company'sCompany’s current or accumulated earnings and profits allocable to such U.S. Holder. To the extent that an amount received by a U.S. Holder exceeds the allocable share of the Company'sCompany’s current and accumulated earnings and profits, such excess will be treated as a return of capital to the extent of the U.S. Holder'sHolder’s adjusted tax basis in its commonClass A shares and then, to the extent in excess of such U.S. Holder'sHolder’s adjusted tax basis, as gain from the sale or exchange of such Class A shares generally taxable as capital gain. (See discussion below under “Dispositions.”) The amount treated as a dividend will be treated as foreign source income and will not be eligible for the dividends received deduction generally allowed to U.S. corporate shareholders on dividends received from U.S. domestic corporations.
In the case of non-corporate U.S. Holders, the federal income tax rate
applicable to dividends received in years beginning prior to 2009 may be lower
than the rate applicable to other categories of ordinary income if certain
conditions are met. Dividends will not qualify for the reduced rate, however,
if the corporation is treated, for the tax year in which the dividends are paid
or the preceding tax year, as a "passive foreign investment company" for U.S.
federal income tax purposes. As discussed below, for the year ended December
31, 2005, the Company was considered a "passive foreign investment company."
The amount of any distribution paid in foreign currency will be included in a U.S. Holder'sHolder’s gross income in an amount equal to the U.S. Dollardollar value of the foreign currency calculated by reference to the spot rate in effect on the date of actual or constructive receipt by the U.S. Holder (in accordance with the U.S. Holder’s regular method of tax accounting), regardless of whether the foreign currency is converted into U.S. Dollars.dollars on that date. If the foreign currency is converted into U.S. Dollarsdollars on the date of actual or constructive receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the distribution. If the foreign currency received in the distribution is not converted into U.S. Dollarsdollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. Dollardollar value on the date of receipt. Any gain or loss recognized upon a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss.
A Non-U.S. Holder generally will not be subject to U.S. federal income tax or
withholding tax on distributions with respect to the Company's common shares
that are treated as a dividend for U.S. federal income tax purposes unless
such dividends are effectively connected with the conduct of a trade or
business within the U.S. by the Non-U.S. Holder (and are attributable to a
permanent establishment maintained in the U.S. by such Non-U.S. Holder if an
applicable income tax treaty so requires as a condition for such Non-U.S.
Holder to be subject to U.S. taxation on a net income basis in respect of
income from the Company's common shares), in which case the Non-U.S. Holder
generally will be subject to tax in respect of such dividends in the same
manner as a U.S. Holder. Any such effectively connected dividends received by
a corporate Non-U.S. Holder also may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty. A Non-U.S. Holder generally
will not be subject to U.S. federal income tax or withholding tax on
distributions that are treated as capital gain for U.S. federal income tax
purposes unless such Non-U.S. Holder would be subject to U.S. federal income
tax on gain realized on the sale or other disposition of the Company's common
shares, as discussed below.
Subject to certain limitations, a U.S. Holder may elect to claim a credit against its U.S. federal income tax liability for theany Canadian tax paid with respect to, or withheld from, any dividends paid on the Company's commonClass A shares. A U.S. Holder who does not make such an election instead may deduct the Canadian tax paid or withheld, but only for a year in which such U.S. Holder elects to do so with respect to all creditable foreign taxes paid by such U.S. Holder. For U.S.The availability of the foreign tax credit purposes, for taxable years beginning before January 1, 2007,
dividends on the shares will generally constitute foreign source "passive
income" or, in the case of certain U.S. Holders, "financial services
income." However, for taxable years beginning after December 31, 2006,
dividends paid on the common shares generally will be treated as "passive
income" (or "general income for certain U.S. Holders"). If, and for so long
as, the Company is a United States-owned foreign corporation, dividends paid
by the Company on the common shares may, subject to certain exceptions and
elections, instead be treated for United States foreign tax credit purposes
as partly foreign source "passive income" (or "financial services income for
certain U.S. Holders") for taxable years beginning before January 1, 2007 or
"passive income" (or "general income for certain U.S. Holders") for taxable
years beginning after December 31, 2006, and partly United States-source income,
in proportion to the earnings and profits of the Company in the year of such
distribution allocable to foreign and United States sources, respectively.
The Company will be treated as a United States-owned foreign corporation if
stock representing 50% or more of the voting power or value of the stock of
the Company is held, directly or indirectly, by U.S. holders. No assurance can
be given as to whether the Company is or will become a United-States-owned
foreign corporation.
complex limitations.
The rules relating to the U.S. foreign tax credit are complex, and each U.S. HoldersHolder should consult theirits own tax advisorsfinancial advisor, legal counsel or accountant to determine whether and to what extent theyit would be entitled to a foreign tax credit.
Dispositions
Subject to the PFIC discussion below pertaining to passive foreign investment
companies,above, a U.S. Holder'sHolder’s sale, exchange or other taxable disposition of the Company's commonClass A shares generally will result in the recognition by the U.S. Holder of U.S. source taxable capital gain or loss in an amount equal to the difference between (a) the U.S. Dollardollar value of the amount of cash and fair market value of any property received upon the sale, exchange or other taxable disposition and (b) such U.S. Holder'sHolder’s adjusted tax basis in the Company's commonClass A shares. Such capital gain or loss will be long-term if the U.S. Holder'sHolder’s holding period in the commonClass A shares is more than one year at the time of the sale, exchange or other taxable disposition. Long-term capital gain recognized by certain non-corporate U.S. Holders generally will be subject to U.S. federal income tax rates lower than the rates
| 39 |
applicable to ordinary income. The deductibility of capital losses is subject to limitations. Each U.S. HoldersHolder should consult their
tax advisorsits own financial advisor, legal counsel or accountant regarding the treatment of capital gains and losses.
U.S. federal income tax consequences to non-U.S. Holders of the ownership and disposition of Class A Non-U.S.shares
Distributions
A non-U.S. Holder generally will not be subject to U.S. federal income tax or withholding tax on distributions with respect to the Class A shares that are treated as a dividend for U.S. federal income tax purposes unless (i) such non-U.S. Holder is an individual that becomes treated as a U.S. tax resident by being present (or treated as present) in the U.S. for 183 days or more in the taxable year of a distribution and certain other conditions are met or (ii) such dividends are effectively connected with the conduct of a trade or business within the U.S. by the non-U.S. Holder (and are attributable to a permanent establishment maintained in the U.S. by such non-U.S. Holder if an applicable income tax treaty so requires as a condition for such non-U.S. Holder to be subject to U.S. federal taxation on a net income basis in respect of income from the Class A shares), in which case the non-U.S. Holder generally will be subject to U.S. federal income tax in respect of such dividends in the same manner as a U.S. Holder. Any such effectively connected dividends received by a corporate non-U.S. Holder also may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. Holder generally will not be subject to U.S. federal income tax or U.S. withholding tax on distributions that are treated as capital gain for U.S. federal income tax purposes unless such non-U.S. Holder would be subject to U.S. federal income tax on gain realized on the sale or other disposition of the Class A shares. See discussion below under “Dispositions.”
Dispositions
A non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax on gain realized on the sale or other disposition of the Company's commonClass A shares unless (i) the gain is effectively connected with the conduct of a trade or business by the Non-U.S.non-U.S. Holder in the U.S. (and is attributable to a permanent establishment maintained in the U.S. by such Non-U.S.non-U.S. Holder if an applicable income tax treaty so requires as a condition for such Non-U.S.non-U.S. Holder to be subject to U.S. federal income taxation on a net income basis in respect of income from the Company's commonClass A shares), or (ii) such Non-U.S.non-U.S. Holder is an individual who is present (or treated as present) in the U.S. for 183 days or more in the taxable year of the sale, and certain other conditions are met. Effectively connected gains realized by a corporate Non-U.S.non-U.S. Holder may also, under certain circumstances, be subject to an additional "branch“branch profits tax"tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Controlled Foreign Corporation Status
Under Section 951(a) of the Code, each "United States shareholder" of a
"controlled foreign corporation" ("CFC") must include in its gross income for
U.S. federal income
Information reporting; backup withholding tax purposes its pro rata share of the CFC's "subpart F
income," even if the subpart F income is not actually distributed to the
"United States shareholder". In addition, gain on the sale of stock in a CFC
realized by a "United States shareholder" is treated as ordinary income,
eligible for the reduced tax rate applicable to certain dividends, to the
extent of such shareholder's proportionate share of the CFC's undistributed
earnings and profits accumulated during such shareholder's holding period for
the stock. Section 951(b) of the Code defines a United States shareholder
as any U.S. corporation, citizen, resident or other U.S. person who owns
(directly or through certain deemed ownership rules) 10% or more of the total
combined voting power of all classes of stock of a foreign corporation. In
general, a foreign corporation is treated as a CFC only if such United States
shareholders collectively own more than 50% of the total combined
voting power or total value of the foreign corporation's stock. Under these
rules the Company does not expect to be a CFC. If the Company is treated as a
CFC, the Company's status as a CFC should have no adverse effect on any
shareholder of the Company that is not a "United States shareholder."
Passive Foreign Investment Company Status
Sections 1291 through 1298 of the Code contain special rules applicable with
respect to foreign corporations that are "passive foreign investment
companies" ("PFICs"). A company will be considered a PFIC if 75% or more of
its gross income (including a pro rata share of the gross income of any
company (United States or foreign) in which the company is considered to own
25% or more of the shares by value) in a taxable year is passive income (the
"Income Test"). Alternatively, a company will be considered to be a PFIC if
at least 50% of the assets (averaged over the four quarter ends for the year)
of the company (including a pro rata share of the assets of any company of
which the company is considered to own 25% or more of the shares by value) in
a taxable year are held for the production of, or produce, passive income (the
"Asset Test").
For the year ended December 31, 2005, the Company was a PFIC because it met
the Income Test. As a consequence, each shareholder who is a U.S. Holder, in
the absence of an election by such holder to treat the Company as a
"qualified electing fund" (a "QEF" election), as discussed below, will, upon
certain distributions by the Company or upon disposition of the Company's
common shares at a gain, be liable to pay tax at the highest tax rate on
ordinary income in effect for each period to which the income is allocated
plus interest on the tax, as if the distribution or gain had been recognized
ratably over the U.S. Holder's holding period for the Company's common shares
while the Company was a PFIC. Additionally, a U.S. Holder who acquires the
Company's common shares from a decedent who failed to make a QEF election
will generally be denied the normally available step-up of the income tax
basis for such shares to fair market value at the date of death and, instead,
would have a tax basis equal to the decedent's tax basis, if lower, in the
shares.
A U.S. Holder who owns the Company's common shares during a period when the
Company is a PFIC will be subject to the foregoing PFIC rules, even if the
Company ceases to be a PFIC, unless such U.S. Holder makes a QEF election in
the first year in which the U.S. Holder owned the Company's common shares and
the Company was considered a PFIC. A U.S. Holder who makes such a QEF election
will be entitled to treat any future gain on the sale of the Company's common
shares as capital gain and will not be denied the tax basis step-up at death
described above. Additionally, a U.S. Holder who makes a QEF election will,
for each taxable year the Company is a PFIC, include in income a pro rata
share of the ordinary earnings of the Company as ordinary income and a pro
rata share of any net capital gain of the Company as long-term capital gain,
subject to a separate election to defer payment of taxes (such deferral is
subject to an interest charge.) The Company, at the request of a U.S. Holder
electing to have the Company treated as a QEF, will comply with the
applicable information reporting requirements.
A U.S. Holder who makes a QEF election for the year in which the Company
first becomes a PFIC (and complies with certain U.S. federal income tax
reporting requirements) should not have any material adverse U.S. federal
income tax consequences because the Company had no ordinary earnings or net
capital gains during the year ended December 31, 2005. In addition, the
Company believes that it will not have any ordinary earnings or net capital
gains in future years in which it may be a PFIC. However, no assurance can be
given as to this expectation. U.S. Holders are urged to consult their tax
advisors concerning the application of the U.S. federal income tax rules
governing PFICs in their particular circumstances.
As an alternative to the QEF election, a U.S. Holder of certain publicly
traded PFIC stock can elect to mark the stock to market, recognizing as
ordinary income or loss each year an amount equal to the difference as of the
close of the taxable year between the U.S. Holder's fair market value of the
PFIC stock and the adjusted basis in the PFIC stock. Losses would be allowed
only to the extent of net mark-to-market gain previously included in income
by the U.S. Holder under the election for prior taxable years. If a
mark-to-market election is in effect on the date of a U.S. Holder's death,
the otherwise available step-up in tax basis to fair market value will not be
available. Instead, the tax basis of the Company's common shares in the hands
of a U.S. Holder who acquires such shares from the decedent will be the
lesser of the decedent's tax basis or the fair market value of the shares.
As a PFIC, each U.S. Holder choosing to make a QEF election would be required
annually to file an IRS Form 8621 (Return by a shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund) with such U.S.
Holder's timely filed income tax return (or directly with the IRS if the U.S.
Holder is not required to file an income tax return). A U.S. Holder choosing
to make a QEF election also must include with its income tax return a
shareholder election statement and the PFIC annual information statement that
the Company will provide. If the Company determines that it was a PFIC during
the year, within two months after the end of each such year the Company
intends to supply the PFIC annual information statement necessary to make the
QEF election for such year.
Due to the complexity of the PFIC rules, a U.S. Holder should consult his or
her own tax advisor regarding the Company's status as a PFIC for tax year
ending December 31, 2005 or a subsequent year, and the eligibility, manner
and advisability of making a QEF election or a mark-to-market election.
Backup Withholding and Information Reporting
In general, dividend payments or other taxable distributions on the Company's
commonCompany’s Class A shares or proceeds from the disposition thereofof Class A shares paid by a U.S. paying agent or other U.S. intermediary to a non-corporate U.S. Holderholder may be subject to information reporting to the IRS and possible U.S. backup withholding (currently imposed at a current rate of 28%24%). Backup withholding generally would not apply to a U.S. Holder that timely furnishes a correct taxpayer identification number and makes any other required certifications or if the U.S. Holder is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Certain Non-U.S.non-U.S. Holders receiving payments in the U.SU.S., or through certain U.S. financial intermediaries should establish their exemption from information reporting or backup withholding by providing certification of non-U.S. status on the appropriate IRS Form W-8 BEN, as applicable.
W-8.
Amounts withheld as backup withholding may be credited against the holder’s U.S.
Holder's federal income tax liability. Additionally, a U.S. Holder or
Non-U.S. Holderholder may obtain a refund of any excess amounts withheld under the backup withholding regime by timely filing the appropriate claim for refund with the IRS and furnishing any required information. Copies of any information returns filed with the IRS may be made available by the IRS, under the provisions of a specific treaty or agreement, to the taxing authorities of the country in which the Non-U.S.non-U.S. Holder resides or is organized.
Each holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.
| 40 |
F. Dividend and paying agents
Not applicable.
G. Statements by experts
Not applicable.
H. Documents on display
We are subject to the informational requirements of the Exchange Act and, as such, we file reports and other information with the SEC. These materials, including this Annual Report and the accompanying exhibits are available on the SEC’s web site at www.sec.gov. Copies of these materials may also be obtained, without charge, upon written request to the Company.
I. Subsidiary information
Not applicable.
J. Annual report to security holders
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The Company currently does not enter into any hedging transactions or hold
any derivative instruments.
The carrying amounts for cash and cash equivalents, term deposits, marketable equity securities, deposits, advances and other accrued
interestcurrent assets and accounts payable and accrued expenses on the balance sheet approximate fair value because of the immediate or short-term maturity of these instruments. Fair value estimates are made at the balance sheet date based on relevant market information but involve uncertainties and therefore cannot be determined with precision. In orderThe Company is exposed to various risks including credit risk, liquidity risk, currency risk and interest rate risk as described below:
| a) | Credit risk is the risk that a counterparty will fail to meet its obligations to the Company. The Company’s primary exposure to credit risk is through its cash and cash equivalents. The Company diversifies its cash holdings into major Canadian and U.S. financial institutions and corporations. |
| b) | Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with its financial liabilities. The Company manages this risk by maintaining adequate cash balances. At December 31, 2022 the Company had current liabilities of $1.4 million and cash and cash equivalents of $15.4 million. |
| c) | The majority of our assets and liabilities are denominated in U.S. dollars. The Company is subject to currency risk mainly due to its Canadian dollar cash, prepaid expenses and accounts payables. Transactions denominated in foreign currency are exposed to exchange rate fluctuations which have an impact on the statement of operations. The Company’s cash, prepaid expense, other monetary assets and liabilities that are held in Canadian currency are subject to fluctuations against the US dollar. A 10% weakening of the Canadian dollar against the US dollar would have increased the Company’s net loss from the translation of foreign currency denominated financial instruments by the amounts shown below. |
2022 2021
$ 38,367 $ 72,120
The Company limits the amount of currency held in non-U.S. dollar accounts, but does not actively use derivative instruments to limit its market risk, the
Company diversifies its cash and investment holdings into U.S. treasury and
agency obligations and major financial institutions and corporations. The
fair value of investmentsexposure to fluctuations in marketable securities is disclosed in Note 2 to
the Consolidated Financial Statements. See "-Item 3. Key Information -Risk
Factors -Future hedging activities could negatively impact future operating
results."
foreign currency rates.
| d) | The Company is subject to the risk that changes in market interest rates will cause fluctuations in the fair values of its financial instruments. Cash and cash equivalents earn floating market rates of interest. Term deposits have maturities of between three and twelve months and the Company has the intent and ability to hold them to maturity. Other current financial assets and liabilities are generally not exposed to this risk because of their immediate or short-term maturity. |
| 41 |
Item 12. Description of Securities Other Than Equity Securities -
Not applicable
applicable.
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Not applicable.
Item 14. Material Modifications to Rights of Security Holders and Use of Proceeds - None
Not applicable.
Item 15. Controls and Procedures
a)
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company'sour management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the
Company'sour disclosure controls and procedures (as defined in Rule 13a-15Rules 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended)Act) as of the end of the period covered by this Annual Report on Form 20-F.Report. Based on that evaluation,
the Company's management, including the chief executive officer and chief financial officer, concluded that the Company'sour disclosure controls and procedures were effective as of the end of the period covered by this Annual
Report on 20-FDecember 31, 2022 to provide reasonable assurance that information required to be disclosed in reports filed or submitted by the Company in the reports that it files or submits under the U.S. Securities Exchange Act of 1934, as amended, iswas (i) recorded, processed, summarized and reported within the time period specified in the U.S.
Securities and Exchange CommissionSEC rules and forms.
b) Not applicable for annual reports for fiscal years ending priorforms, and (ii) gathered and reported to July
15, 2006.
c) Not applicable for annual reports for fiscal years ending prior to July 15,
2006.
d) In connection with the evaluation described above, the Company'ssenior management, including theits chief executive officer and chief financial officer, identified
no change in the Company'sas appropriate to allow timely decisions regarding public disclosure.
Managements annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes:
| · | maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with U.S. generally accepted accounting principles; |
| · | providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of our executive officers; and |
| · | providing reasonable assurance that unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. |
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that occurreda misstatement of our financial statements would be prevented or detected.
Management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022.
| 42 |
| /s/ Rockne J. Timm | /s/ David P. Onzay |
| Chief Executive Officer | Chief Financial Officer |
| April 27, 2023 | April 27, 2023 |
Attestation report of the registered public accounting firm
Not applicable.
Changes in internal control over financial reporting
In connection with the preparation of the Company’s consolidated financial statements for the year ended December 31, 2021, management determined that it did not design effective internal controls to ensure there was timely identification of indicators that the custody and recoverability of cash held in a foreign bank account existed, due to a potential decline in the financial position and liquidity at one of its financial institutions where approximately $1.17 million in cash is held. This ultimately led to management’s conclusion that the cash held with this financial institution should be written off due to the Company’s inability to access the funds. As a result of this matter, the Company’s management determined it had a material weakness in the Company’s ICFR and as such, its internal control over financial reporting and DC&P as of December 31, 2021 were not effective. Management remediated this control deficiency by the implementation of a new quarterly control to monitor and assess the liquidity and credit risk of the financial institutions in which cash, cash equivalents and marketable securities are held.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), other than the remediation of the material weakness described above, during the Company'sour fiscal year ended December 31, 2005, and2022 that hashave materially affected, or isare reasonably likely to materially affect, the
Company'sour internal control over financial reporting.
Item 16. Reserved
[Reserved]
Item 16A. Audit Committee Financial Expert
Our
Each member of the Audit Committee is comprised of three members: Mr. Chris Mikkelsen, Mr.
Patrick McChesney and Mr. Jean Charles Potvin.considered to be financially literate. The Board has madedetermined that Mr. Tunkey is an "audit committee financial expert" as such term is defined under paragraph (b) of the affirmative determinationinstruction to paragraph (a) of Item 16A of Form 20-F and is “independent” under applicable listing standards. The SEC has indicated that allthe designation of Mr. Tunkey as an audit committee financial expert does not make Mr. Tunkey an "expert" for any purpose, impose any duties, obligations or liabilities on Mr. Tunkey that are greater than those imposed on other members of the Audit Committee are
"independent" pursuant toand Board who do not carry this designation or affect the criteria outlined by AMEX, Canadian Securities
Act NI 52-110 and Rule 10A-3duties, obligations or liability of the U.S. Securities and Exchange Act of 1934,
as amended. Mr. Mikkelsen is a Certified Public Accountant ("CPA") and
shareholder in McDirmid, Mikkelsen, Secrest PS, a large local CPA practice.
Mr. McChesney is a CPA and a past and present financial executive for a
number of companies. Mr. Potvin is President and CEO of Tiomin Resources,
Inc. a resources company based in Toronto, Canada, has an MBA-Finance and was
an investment analyst at Burns Fry Ltd for 13 years. Mr. Mikkelsen serves as
the "audit committee financial expert" (as defined in Item 16A to Form 20-F),
although the Board believes that all membersany other member of the Audit Committee have
sufficient knowledge and experience to satisfy the "financial sophistication"
requirement of the AMEX and to serve as the Committee's "audit committee
financial expert." Our Audit Committee's Charter can be found on our website
at goldreserveinc.com in the Investor Relations section under corporate
governance.
Board.
Item 16B. Code of Ethics
The company has
We adopted a Code of Conduct and Ethics and Conduct(the "Code") that is applicable to all itsour directors, officers and employees. The Code of Ethics contains general guidelines for conducting the business of the company.our business. The Code was amended andoriginally approved by the Board in March 2006. No waivers to the provisions of Directors effective March 24, 2006.
Therethe Code have been no waivers to this Codegranted since its inception. We intend to disclose future amendments to, or waivers from, certain provisions of the Code on our website within five business days following the date of such amendment or waiver. A copy of the Code of Ethics and Conduct is postedcan be found on our website at www.goldreserveinc.com in the Company's website ( HYPERLINK "http://www.goldreserveinc.com"
www.goldreserveinc.com). Investor Relations section under "Governance."
We believe that our Code of Ethics and Conduct
constitutes a "code of ethics" as defined by the U.S. Securities and Exchange
Commission and a "code of ethics and conduct" pursuantintend to disclose any amendments to the criteria
outlined by AMEX.
Code and any waiver of the Code on our website within five business days following the date of the amendment or waiver. We expect to maintain any such disclosure on our website for a period of at least twelve months from the date of posting.
Item 16C. Principal Accountant Fees and Services
PricewaterhouseCoopers LLP, located in Vancouver, Canada (PCAOB ID: 271) served as our independent registered public accounting firm for the years ended December 31, 2022, 2021 and 2020. Fees paid or payable to our independent registered public accounting firm, PricewaterhouseCoopers LLP, are detailed in the following table:
| Fee category | (U.S.$) Year Ended 2022 | (U.S.$) Year Ended 2021 |
| Audit Fee | $ 248,522 | $ 220,679 |
| Tax Fees | 54,608 | 11,836 |
| All Other Fees | Nil | Nil |
| Total | $ 303,130 | $ 232,515 |
The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.
Audit Fees
The aggregate
Audit Fees billedfees were for professional services rendered by PricewaterhouseCoopers LLP ("PwC") for the audit of our annual financial statements, orthe reviews of our quarterly financial statements and services that are normally provided by PwC in connection
therewith for 2005respect of other regulatory-required auditor attest functions associated with government audit reports, periodic reports and 2004other documents filed with securities regulatory authorities.
Tax Fees
Tax fees were 75,000 and $42,100, respectively,
Audit-Related Fees
The aggregate Audit-Related Fees for professional services rendered by PwC for services connected with our quarterly reportsoutside of the audit scope and securities filing
documents for 2005 and 2004 were $22,000 and $15,700, respectively.
Tax Fees
The aggregate Tax Fees for professional services rendered by PwCrepresented tax return preparation, consultations for tax planning, compliance and return preparationadvisory services for 2005relating to common forms of domestic and 2004 were
79,750 and $3,668, respectively.
international taxation.
All Other Fees
None.
Audit Committee Services Approval Policy
There were no other fees paid or payable to PricewaterhouseCoopers LLP other than those disclosed above.
Pre-Approval Policies and Procedures
Our Audit Committee is responsiblehas adopted policies and procedures for the oversightpre-approval of services performed by our independent
auditor's work and pre-approves all services provided by PwC. Theexternal auditors, with the objective of maintaining the independence of the external auditors. Our policy requires that the Audit Committee sets forth its pre-approval inpre-approve all audit, audit-related, tax and other permissible non-audit services to be performed by the minutesexternal auditors, including all engagements of its meetings.
Audit-Related and Taxthe external auditors with respect to our subsidiaries. Prior approval of engagements for services providedother than the annual audit may, as required, be approved by PwC are typically approved
individually during the Committee's periodic meetings or, on an as-needed
basis,Chair of the Audit Committee's Chair is authorized to approve such services in
advance on behalf of the Committee with the provision that such approval reported toapprovals be brought before the full Audit Committee at its next regular meeting. Our policy sets out the details of the permissible non-audit services consistent with the independence requirements of the U. S. Sarbanes-Oxley Act of 2002 and the Canadian independence standards for auditors. The Chief Financial Officer presents the details of any proposed assignments of the external auditor for consideration by the Audit Committee. The procedures do not include delegation of the Audit Committee's responsibilities to our management.
| 44 |
Item 16D. Exemptions Fromfrom the Listing Standards for Audit Committees
Not Applicable
applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable
applicable.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Not applicable.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 17. Financial Statements
Index to Consolidated
Not applicable
Item 18. Financial Statements
Management's
Report Auditors Report
Consolidated Balance Sheets
December 31, 2005 and 2004
Consolidated Statements of Operations
for the years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows
for the years ended December 31, 2005, 2004 and 2003
Notes to Consolidated Financial Statements
Management's Report
Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Gold Reserve Inc.
The accompanying consolidated financial statements of the Company were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the
summary of significant accounting policies in these consolidated financial
statements. Management is responsible for all information in the annual
report. All financial and operating data in the annual report is consistent,
where appropriate, with that contained in the consolidated financial
statements.
Management is responsible for establishing and maintaining an adequate
internal control structure and procedures for financial reporting. Management
has established and maintains a system of internal accounting control designed
to provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, financial information is reliable and accurate and
transactions are properly recorded and executed in accordance with
management's authorization. This system includes established policies and
procedures, the selection and training of qualified personnel and an
organization providing for appropriate delegation of authority and
segregation of responsibilities.
The Board of Directors fulfills its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee,
which is composed of three directors, none of whom are members of management.
This Committee monitors the independence and performance of our independent
auditors and meets with the auditors to discuss the results of their audit
and their audit report prior to submitting the consolidated financial
statements to the Board of Directors for approval. This Committee reviews and
discusses with management the consolidated financial statements, related
accounting principles and practices and (when required of management under
securities commissions or the applicable listing standards) management's
assessment of internal control over financial reporting. This Committee also
monitors the integrity of our financial reporting process and systems of
internal controls regarding finance, accounting and legal compliance.
The consolidated financial statements have been audited on behalf of the
shareholders by the Company's independent auditors, PricewaterhouseCoopers
LLP. The auditors' report outlines the scope of their examination and their
opinion
Opinion on the consolidated financial statements. The auditors have full and
free access to the Audit Committee.
s/ Rockne J. Timm s/ Robert A. McGuinness
Chief Executive Officer Vice President-Finance and CFO
March 30, 2006 March 30, 2006
AUDITORS Report
To the Shareholders of Gold Reserve Inc.
Financial Statements
We have audited the accompanying consolidated balance sheets of Gold Reserve Inc. and its subsidiaries (together, the Company) as atof December 31, 20052022 and 20042021, and the related consolidated statements of operations cash flows and comprehensive loss, changes in shareholders'shareholders’ equity and cash flows for each of the three years in the
three-year period ended December 31, 2005. These2022, including the related notes (collectively referred to as the consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada and the standards of the Public Company Accounting
Oversight Board (United States)statements). Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. In our opinion, thesethe consolidated financial statements present fairly, in all material respects, the financial position of the companyCompany as atof December 31, 20052022 and 20042021, and the results of its operations and its cash flows for each of the three years in the three year period ended December 31, 20052022 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with Canadian generally acceptedthe U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles.
s/PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, British Columbia, Canada
February 17, 2006
Commentsprinciples used and significant estimates made by Auditors
| 45 |
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for United States Readersour opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on Canada-United States
Reporting Differences
Inthe consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recognition of the receivable associated with the Venezuelan arbitration
As described in Notes 1 and 2 to the consolidated financial statements, in July 2016, the Company signed the July 2016 settlement agreement, (as amended, the "Settlement Agreement") with the Bolivarian Republic of Venezuela ("Venezuela"), whereby Venezuela agreed to pay the Company a total of approximately $1.032 billion which is comprised of $792 million to satisfy the arbitral award (the “Award”) (including interest) and $240 million for the purchase of the Company’s mining data related to the Brisas project (the "Mining Data") to be settled in a series of payments ending on or before June 15, 2019. The Company has received approximately $254 million pursuant to the Settlement Agreement with the remainder unpaid. As specified in the Settlement Agreement, the first $240 million received by the Company from Venezuela has been recognized as proceeds from the sale of the Mining Data. Any future payments received by Venezuela are made in relation to the Award. As of December 31, 2022, the amount owing to the Company in relation to the Award is approximately $778 million, excluding interest. The Company has not recognized an Award receivable or associated liabilities which include taxes, bonus plan and contingent value right payments in accordance with the Settlement Agreement, as management has not yet determined that payment from Venezuela is probable. The Award receivable and any associated liabilities will be recognized when, in management’s judgment, it is probable that payment from Venezuela will occur.
The principal considerations for our determination that performing procedures relating to the recognition of the receivable associated with the Venezuelan arbitration is a critical audit matter is that there was significant judgment made by management when determining if recognition was required, which in turn led to a higher degree of subjectivity in performing audit procedures to evaluate management’s assessment of the probability of future payments from Venezuela.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, evaluating how management formulated their judgement as to the likelihood of future payments being made by Venezuela. This included considering publicly available information such as sanctions imposed against Venezuela by both the United States reporting standards for auditors requireand Canadian governments, the additioncurrent economic and political instability in Venezuela and the history of an explanatory paragraph (followingnon-payment by Venezuela under the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparabilityterms of the company's financial statements, suchSettlement Agreement.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
April 27, 2023
We have served as the changes in
accounting for stock based compensation and asset retirement obligations as
described in note 1 to the financial statements. Our report to the
shareholders dated February 17, 2006 is expressed in accordance with Canadian
reporting standards, which do not require a reference to such a change in
accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.
s/PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, British Columbia, Canada
February 17, 2006
Company's auditor since 2001.
| 46 |
GOLD RESERVE INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(Expressed
(Expressed in U.S. Dollars)
2005 2004
ASSETS -----------------------------
Cash and cash equivalents $19,370,252 $27,178,705
Marketable securities 2,985,234 5,528,776
Deposits, advances and other 442,130 336,128
Accrued interest 13,444
-----------------------------
Total current assets 22,797,616 33,057,053
Property, plant and
equipment, net 58,016,102 52,535,018
Other 1,141,154 1,013,460
-----------------------------
Total assets $81,954,872 $86,605,531
=============================
LIABILITIES
Accounts payable and
accrued expenses $ 1,187,565 $ 1,307,635
Minority interest in
consolidated subsidiaries 1,129,541 1,121,838
-----------------------------
Total liabilities 2,317,106 2,429,473
Commitments
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: Unlimited
Issued: None
Common shares
and Equity Units: 140,512,063 136,907,516
Class A common shares, without par value
Authorized: Unlimited
Issued: 2005 35,196,287 2004 33,715,795
Outstanding: 2005 34,902,200 2004 33,421,708
Equity Units
Issued: 2005 1,110,020 2004 1,157,397
Outstanding: 2005 610,745 2004 658,122
Less, common shares and
equity units held by affiliates (674,598) (674,598)
Stock options 1,867,537 1,004,197
Accumulated deficit (61,983,016) (52,955,734)
KSOP debt (84,220) (105,323)
-----------------------------
Total shareholders' equity 79,637,766 84,176,058
-----------------------------
Total liabilities and
shareholders' equity $81,954,872 $86,605,531
=============================
dollars)
December 31, 2022 | December 31, 2021 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents (Note 3) | $ | 15,380,489 | $ | 49,117,630 | |||
| Term deposits (Note 4) | 27,499,188 | – | |||||
| Marketable equity securities (Note 5) | 98,053 | 105,218 | |||||
| Income tax receivable (Note 10) | 8,091,104 | 8,682,839 | |||||
| Prepaid expense and other | 458,939 | 506,663 | |||||
| Total current assets | 51,527,773 | 58,412,350 | |||||
| Property, plant and equipment, net (Note 6) | 1,416,152 | 2,153,678 | |||||
| Right of use asset | – | 74,415 | |||||
| Total assets | $ | 52,943,925 | $ | 60,640,443 | |||
| LIABILITIES | |||||||
| Current Liabilities: | |||||||
| Accounts payable and accrued expenses (Note 2) | $ | 647,283 | $ | 473,226 | |||
| Severance accrual (Note 9) | 531,981 | – | |||||
| Lease liability | – | 77,093 | |||||
| Contingent value rights (Note 2) | 172,077 | 60,242 | |||||
| Total current liabilities | 1,351,341 | 610,561 | |||||
| Total liabilities | 1,351,341 | 610,561 | |||||
| SHAREHOLDERS' EQUITY | |||||||
| Serial preferred stock, without par value | |||||||
| Authorized: | Unlimited | ||||||
| Issued: | None | ||||||
| Common shares | 302,679,682 | 302,679,682 | |||||
| Class A common shares, without par value | |||||||
| Authorized: | Unlimited | ||||||
| Issued and outstanding: | 2022… | 2021… | |||||
| Contributed surplus | 20,625,372 | 20,625,372 | |||||
| Stock options (Note 9) | 23,561,301 | 23,402,083 | |||||
| Accumulated deficit | (295,273,771) | (286,677,255) | |||||
| Total shareholders' equity | 51,592,584 | 60,029,882 | |||||
| Total liabilities and shareholders' equity | $ | 52,943,925 | $ | 60,640,443 | |||
Contingencies (Note 2)
The accompanying notes are an integral part of the audited consolidated financial statements.
Expressed in U.S. Dollars
Approved by the Board of Directors:
/s/ Chris D. Mikkelsen s/ Patrick D. McChesney
James Tunkey /s/ Yves M. Gagnon
| 47 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2005, 2004 and 2003
2005 2004 2003
--------------------------------------
Other Income:
Interest income $ 859,945 $ 529,838 $ 594,006
Gain on sale of
marketable securities 542,923 370,043 176,375
----------------------------------------
1,402,868 899,881 770,381
----------------------------------------
Expenses:
General and administrative 5,054,420 3,079,597 1,860,312
Technical services 3,876,928 2,391,194 2,027,391
Corporate communications 662,350 674,786 419,394
Legal and accounting 749,208 236,924 276,291
Foreign currency (gain) loss 78,070 4,322 (156,314)
Minority interestAND COMPREHENSIVE LOSS
(Expressed in net income
(loss) of consolidated subsidiaries 7,703 (4,313) 45,910
-----------------------------------------
10,428,679 6,382,510 4,472,984
Net loss before tax (9,025,811) (5,482,629) (3,702,603)
Income tax 1,471 4,733
-----------------------------------------
Net loss $ (9,027,282) $ (5,482,629) $ (3,707,336)
=========================================
Net loss per share
basic and diluted $ (0.26) $ (0.19) $ (0.15)
=========================================
Weighted average common
shares outstanding 35,048,800 29,215,727 24,636,083
=========================================
U.S. dollars)
| For the Years Ended December 31, | |||||||||||
| 2022 | 2021 | 2020 | |||||||||
| INCOME (LOSS) | |||||||||||
| Interest income | $ | 582,523 | $ | 31,095 | $ | 294,277 | |||||
Gain (loss) on disposition of property, plant and equipment (Note 6) | (8,410) | 58,562 | (30,476) | ||||||||
| Gain (loss) on marketable equity securities (Note 5) | (7,165) | 21,643 | 5,756 | ||||||||
| Foreign currency gain (loss) | (100,275) | (20,402) | 24,100 | ||||||||
| Total Other Income | 466,673 | 90,898 | 293,657 | ||||||||
| EXPENSES | |||||||||||
| Corporate general and administrative (Notes 2 and 9) | 5,149,650 | 6,018,724 | 5,147,333 | ||||||||
| Contingent value rights (Note 2) | 461,835 | – | 59,549 | ||||||||
| Siembra Minera Project and related costs (Note 7) | 223,237 | 1,675,469 | 1,568,741 | ||||||||
| Write-down of property, plant and equipment (Note 6) | 622,969 | – | 3,749,531 | ||||||||
| Loss on impairment of cash in bank account (Note 3) | – | 1,166,529 | – | ||||||||
| Exploration costs | 62,096 | 118,259 | 73,683 | ||||||||
| Legal and accounting | 1,924,808 | 1,245,721 | 698,810 | ||||||||
| Settlement Agreement enforcement (Note 2) | 450,477 | 145,147 | 1,132,291 | ||||||||
| Equipment holding costs | 168,117 | 317,841 | 470,364 | ||||||||
| Total Expense | 9,063,189 | 10,687,690 | 12,900,302 | ||||||||
| Net loss before income tax benefit | (8,596,516) | (10,596,792) | (12,606,645) | ||||||||
| Income tax benefit (Note 10) | – | – | 1,089,360 | ||||||||
| Net loss and comprehensive loss for the year | $ | (8,596,516) | $ | (10,596,792) | $ | (11,517,285) | |||||
| Net loss per share, basic and diluted | $ | (0.09) | $ | (0.11) | $ | (0.12) | |||||
| Weighted average common shares outstanding, basic and diluted | | 99,547,710 | | 99,481,626 | | 99,395,048 | |||||
The accompanying notes are an integral part of the audited consolidated financial statements.
Expressed in U.S. Dollars
| 48 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2005, 20042022, 2021 and 2003
(Expressed in U.S. dollars)
| Contributed Surplus | Stock Options | Accumulated Deficit | ||||
| Common Shares | ||||||
| Number | Amount | |||||
| Balance, December 31, 2019 | 99,395,048 | $ 302,469,647 | $ 20,625,372 | $ 20,752,893 | $(264,563,178) | |
| Net loss for the year | – | – | – | – | (11,517,285) | |
| Stock option compensation (Note 9) | – | – | – | 656,775 | – | |
| Balance December 31, 2020 | 99,395,048 | 302,469,647 | 20,625,372 | 21,409,668 | (276,080,463) | |
| Net loss for the year | – | – | – | – | (10,596,792) | |
| Share issuance | 152,662 | 210,035 | – | – | – | |
| Stock option compensation (Note 9) | – | – | – | 1,992,415 | – | |
| Balance, December 31, 2021 | 99,547,710 | 302,679,682 | 20,625,372 | 23,402,083 | (286,677,255) | |
| Net loss for the year | – | – | – | – | (8,596,516) | |
| Stock option compensation (Note 9) | – | – | – | 159,218 | – | |
| Balance, December 31, 2022 | 99,547,710 | $ 302,679,682 | $ 20,625,372 | $ 23,561,301 | $(295,273,771) | |
The accompanying notes are an integral part of the audited consolidated financial statements.
Expressed in U.S. Dollars
| 49 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004 and 2003
2005 2004 2003
Cash Flow from Operating Activities:
Net loss $(9,027,282) $(5,482,629) $(3,707,336)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Stock option compensation 863,340 599,423
Depreciation 93,157 58,179 44,630
Amortization of premium (discount)
on corporate debt securities (2,251) 102,481 106,583
Foreign currency (gain) loss 78,070 4,322 (156,314)
Minority interest
(Expressed in net
income (loss) of
consolidated subsidiaries 7,703 (4,313) 45,910
Net gain on disposition of
marketable securities (542,923) (370,043) (176,375)
Shares issued for
compensation and KSOP 1,013,306 453,698 520,032
Changes in non-cash working capital:
(Increase) decrease in dep osits,
advances and accrued interest (92,558) 138,999 9,120
Increase (decrease) in accounts
payable and accrued expenses (120,070) 541,775 415,599
- ------------------------------------------------------------------------------
Net cash used by
operating activities (7,729,508) (3,958,108) (2,898,151)
==============================================================================
Cash Flow from Investing Activities:
Purchase of marketable
securities (3,903,158) (3,796,779) (7,375,099)
Purchase of property,
plant and equipment (5,574,241) (6,466,880) (26,551)
Proceeds from the sale
and maturity of marketable
securities 6,991,874 6,986,043 9,940,182
Other (205,764) (384,169) 192,735
- ------------------------------------------------------------------------------
Net cash provided (used)
by investing activities (2,691,289) (3,661,785) 2,731,267
==============================================================================
Cash Flow from Financing Activities:
Proceeds from issuance
of common shares 2,612,344 23,467,095 9,913,755
- ------------------------------------------------------------------------------
Net cash provided by
financing activities 2,612,344 23,467,095 9,913,755
==============================================================================
Change in Cash and Cash Equivalents:
Net increase (decrease)
in cash and
cash equivalents (7,808,453) 15,847,202 9,746,871
Cash and cash equivalents
- beginning of year 27,178,705 11,331,503 1,584,632
- ------------------------------------------------------------------------------
Cash and cash equivalents
- end of year $19,370,252 $27,178,705 $11,331,503
==============================================================================
Supplemental Cash Flow Information
Non-cash investing and financing activities:
Issuance of common
shares as compensation $733,232 $198,919 $303,599
Issuance of common
shares to KSOP Plan $258,971 $255,750 $256,000
U.S. dollars)
| For the Years Ended December 31, | |||||||||||
| 2022 | 2021 | 2020 | |||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net loss for the year | $ | (8,596,516) | $ | (10,596,792) | $ | (11,517,285) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock option compensation | 159,218 | 1,992,415 | 656,775 | ||||||||
| Depreciation | 104,143 | 106,428 | 124,267 | ||||||||
| Write-down of property, plant and equipment | 622,969 | – | 3,749,531 | ||||||||
| Loss (gain) on disposition of property, plant and equipment | 8,410 | (58,562) | 30,476 | ||||||||
| Loss (gain) on marketable equity securities | 7,165 | (21,643) | (5,756) | ||||||||
| Income tax recovery | – | – | (1,089,360) | ||||||||
| Amortization of discount on term deposits | (122,627) | – | – | ||||||||
| Changes in non-cash working capital: | |||||||||||
| Decrease in income tax receivable | 591,735 | – | 3,204,812 | ||||||||
| Increase in severance accrual | 531,981 | – | – | ||||||||
| Increase in contingent value rights accrual | 111,835 | – | – | ||||||||
| Net decrease in prepaid expense and other | 47,724 | 66,748 | 174,461 | ||||||||
| Net increase (decrease) in accounts payable and accrued expenses | 171,379 | (99,322) | 113,270 | ||||||||
| Net cash used in operating activities | (6,362,584) | (8,610,728) | (4,558,809) | ||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchase of term deposits | (27,376,561) | – | – | ||||||||
| Proceeds from disposition of marketable equity securities | – | – | 100,126 | ||||||||
| Proceeds from disposition of property, plant and equipment | 2,004 | 315,389 | 98,649 | ||||||||
| Purchase of property, plant and equipment | - | (2,381) | (46,753) | ||||||||
| Net cash provided by (used in) investing activities | (27,374,557) | 313,008 | 152,022 | ||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Net cash used in financing activities | – | – | – | ||||||||
| Change in Cash and Cash Equivalents: | |||||||||||
| Net decrease in cash and cash equivalents | (33,737,141) | (8,297,720) | (4,406,787) | ||||||||
| Cash and cash equivalents - beginning of year | 49,117,630 | 57,415,350 | 61,822,137 | ||||||||
| Cash and cash equivalents - end of year | $ | 15,380,489 | $ | 49,117,630 | $ | 57,415,350 | |||||
The accompanying notes are an integral part of the audited consolidated financial statements.
Expressed in U.S. Dollars
1.The
| 50 |
Note 1. The Company and Significant Accounting Policies:
The Company.
Gold Reserve Inc. (the "Company"("Gold Reserve," the "Company," "we," "us," or "our") is aengaged in the business of evaluating, acquiring, exploring and developing mining companyprojects and was incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014.
Gold Reserve Inc. is the successor issuer to Gold Reserve Corporation. The Company'sCorporation which was incorporated in 1956. Management's primary activities have included: the advancement of the Siembra Minera project (the "Siembra Minera Project") (including the related social and humanitarian efforts) and corporate and legal activities associated with the collection of the unpaid balance of the Award and the Resolution (as defined herein) of the Bolivarian Republic of Venezuela (“Venezuela”) Ministry of Mines to revoke the mining asset,rights in connection with the BrisasSiembra Minera Project, along with planned activities if there is a gold/copper deposit located in the Km
88 mining districtsuccessful appeal or other outcome of the State of Bolivar in southeastern Venezuela. such Resolution.
The Company has no revenue producing mining operations at this time. All amounts
shown herein are expressed in U.S. Dollars unless otherwise noted.
In February 1999, the shareholders of Gold Reserve Corporation approved a
plan of reorganization whereby Gold Reserve Corporation became a subsidiary
of Gold Reserve Inc., the successor issuerand Canadian governments have imposed various sanctions targeting Venezuela (the "Reorganization""Sanctions"). Generally,
each shareholder of Gold Reserve Corporation received one Gold Reserve Inc.
Class A common share for each common share owned of Gold Reserve Corporation.
After the Reorganization, a shareholder of Gold Reserve Inc. continued to own
an interest in the business, through subsidiary companies, thatThe Sanctions, in aggregate, was essentially the same as before the Reorganization.
Certain U.S. holders of Gold Reserve Corporation elected, for tax reasons, to
receive equity units in lieu of Gold Reserve Inc. Class A common shares. An
equity unit is comprised of one Gold Reserve Inc. Class B common shareprevent any dealings with Venezuelan government or state-owned or controlled entities and one Gold Reserve Corporation Class B common share. The equity units are
substantially equivalent to a Class A common shareprohibit directors, management and are immediately
convertible into Gold Reserve Inc. Class A common shares upon compliance with
certain procedures. Equity units are not listed for trading on any stock
exchange, but, subject to compliance with applicable federal, provincial and
state securities laws, may be transferred. Unless otherwise noted, general
references to common sharesemployees of the Company who are U.S. Persons from dealing with certain Venezuelan individuals or entering into certain transactions.
The Sanctions imposed by the U.S. government generally block all property of the government of Venezuela and prohibit directors, management and employees of the Company who are U.S. Persons (as defined by U.S. Sanction statutes) from dealing with the Venezuelan government and/or state-owned/controlled entities, entering into certain transactions or dealing with Specially Designated Nationals ("SDNs") and target corruption in, among other identified sectors, the gold sector of the Venezuelan economy.
The Sanctions imposed by the Canadian government include Class A common sharesasset freezes and Class B common sharesprohibitions on dealings with certain named Venezuelan officials under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Regulations of the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law).
The cumulative impact of the Sanctions continues to restrict the Company from working with those Venezuelan government officials responsible for the payment and transfer of funds associated with the Settlement Agreement (defined below) as a combined group.well as the Resolution which adversely impacts our ability to collect the remaining balance of the Award plus interest and/or amounts due pursuant to the Settlement Agreement from Venezuela and/or pursuing remedies with respect to the Resolution. Even if we are successful in appealing the Resolution by the Venezuelan Ministry of Mines to revoke the mining rights in connection with the Siembra Minera Project, the Sanctions continue to restrict the Company from working with those Venezuelan government officials responsible for the operation of Siembra Minera (as defined herein) and the development of the Siembra Minera Project and, until Sanctions are lifted, would obstruct any ability for us to develop the Siembra Minera Project as originally planned.
Basis of Presentation and Principles of Financial Statements and Consolidation. TheConsolidation. These consolidated financial statements contained herein have been prepared in accordance with U.S. generally accepted accounting principles generally accepted in Canada, which as described in
Note 11, differ in certain respects from accounting principles generally
accepted in the United States of America.
These consolidated financial(“U.S. GAAP”). The statements include the accounts of the Company, Gold Reserve Corporation two domesticand three Barbadian subsidiaries Great Basin Energies,
Inc. ("Great Basin") and MGC Ventures Inc. ("MGC Ventures"), four Venezuelan
subsidiaries, two Barbados subsidiaries and five Aruba subsidiariesone of which werewas formed to hold the Company'sour equity interest in its foreignEmpresa Mixta Ecosocialista Siembra Minera, S.A. (“Siembra Minera”) which is beneficially owned 55% by a Venezuelan state-owned entity and 45% by Gold Reserve. Our investment in Siembra Minera is accounted for as an equity investment. All subsidiaries or for
future transactions.are wholly owned. All significant intercompany accounts and transactions have been eliminated inon consolidation. The Company'sOur policy is to consolidate those subsidiaries where majority control exists. The Company believes it
exercises majority controlWe have only one operating segment, the exploration and development of Great Basin and MGC Ventures.
mineral properties.
Cash and Cash Equivalents. The Company considersEquivalents. We consider short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. At
December 31, 2005 and 2004,The cost of these investments approximates fair value. We manage the Company had approximately $702,000 and
$130,000, respectively, in Venezuela and banks outside Canada and the United
States.
Marketable Securities. Equity securities are carried at the lowerexposure of cost and
net realizable value. Corporate debt securities and U.S. treasuries and agency
obligations are carried at amortized cost.
Financial Instruments. The carrying amounts forour cash and cash equivalents advances and accounts payable and accrued expenses on the balance sheet
approximate fair value because of the immediate or short-term maturity of
these instruments. Fair value estimates are made at the balance sheet date
based on relevant market information but involve uncertainties and therefore
cannot be determined with precision. In order to limit its exposure, the
Company diversifies itscredit risk by diversifying our cash and investment holdings into Canadian and U.S.
treasury and agency obligations, major financial institutions and
corporations. The fair values of investments in marketable securities are
disclosed in(See Note 2.
3).
| 51 |
Exploration and Development Costs.Costs. Exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Exploration costs
ofor evaluating properties or working interests with specific areas of potential mineralization are capitalized at cost pending the determination of a
property's economic viability.expensed as incurred. Development costs of proven mining properties not yet producing are capitalized at cost and classified as capitalized explorationdevelopment costs under property, plant and equipment. PropertyMineral property acquisition costs are capitalized and holding costs of such properties are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs willwould be amortized based on the estimated proven and probable reserves benefited. PropertiesMineral properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values.
Property, Plant and Equipment. Equipment. Property, plant and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, except for equipment not yet placed into use. Included in property, plant and equipment is certain equipment, originally acquired for the lowerBrisas Project, that is not being depreciated as it is not in use. The ultimate recoverable value of this equipment may be different than management's current estimate. We have additional property, plant and equipment which are recorded at cost less accumulated depreciation. ReplacementsReplacement costs and major improvements are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Depreciation is providedFurniture, office equipment and leasehold improvements are depreciated using the straight-line method over five to ten years. The remaining property, plant and accelerated
methods over the lesserequipment are fully depreciated.
Impairment of the useful life or lease term of the related
asset. During the exploration and development phase, depreciation of mining
assets is capitalized. Interest costs incurred during the construction and
development of qualifying assets are capitalized.
Impairment Test. The Company reviewsLong-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future net cash flows to be generated from the use or eventual disposition of a long-lived asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized andbased on a determination of the asset is written down
toasset's fair value. Fair value is generally determined by discounting estimated cash flows.
flows based on market participant expectations of those future cash flows, or applying a market approach that uses market prices and other relevant information generated by market transactions involving comparable assets.
Foreign Currency. Currency. The U.S. Dollardollar is the Company'sour (and our foreign subsidiaries') functional currency. ForeignMonetary assets and liabilities denominated in a foreign currency amounts are translated into U.S. Dollars usingdollars at the temporal
method. Accordingly, non-monetaryrates of exchange in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates, monetary assets and liabilities are translated at current rates and revenue and expense items are translated at average exchange rates forduring the month in which they occur,reporting period, except for depreciation which is translated at historical rates. Translation gains and losses are included in operating expenses.
the statement of operations.
Income Taxes. The Company usesTaxes. We use the liability method of accounting for income taxes. FutureDeferred tax assets and liabilities are determined based on the differences between the tax basis of assets and liabilities and those amounts reported in the financial statements. The futuredeferred tax assets or liabilities are calculated using the substantively enacted tax rates expected to apply in the periods in which the differences are expected to be settled. FutureDeferred tax assets are recognized to the extent that they are considered more likely than not to be realized.
Measurement Uncertainty.
Uncertain Tax Positions. We record uncertain tax positions based on a two-step process that separates recognition from measurement. The first step is determining whether a tax position has met the recognition threshold which requires that the Company determine if it is more likely than not that it will sustain the tax benefit taken or expected to be taken in the event of a dispute with taxing authorities. The second step, for those positions meeting the “more likely than not” threshold, is to recognize the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement with taxing authorities. Management periodically evaluates positions taken in tax returns in situations in which applicable tax regulation is subject to interpretation. The Company establishes provisions where appropriate on the basis of amounts expected to be received from or paid to tax authorities.
| 52 |
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
At December 31, 2005 and as of the date of this report, nearly all of our
non-cash assets, including our primary mining asset, the Brisas Project, were
located in Venezuela. Our operations in Venezuela are subject to the effects
of changes in legal, tax and regulatory regimes, national and local
political, labor and economic developments or unrest, currency and exchange
controls and import/export restrictions, government bureaucracy and
corruption and uncertain legal enforcement. We have not experienced any
significant adverse impact to date on our operations in Venezuela nor have we
curtailed our investment activities in the country. However, one or more of
the issues described herein or other factors beyond our control could
adversely affect our operations and investment in Venezuela in the future.
Management's capitalization of exploration and development costs and
assumptions regarding the future recoverability of such costs are based on,
among other things, the Company's estimate of current mineral reserves which
are based on engineering and geological estimates, estimated gold and copper
prices, estimated plant construction and operating costs and the procurement
of all necessary regulatory permits and approvals. These estimates could
change in the future and this could affect the carrying value and the
ultimate recoverability of the amounts recorded as property and mineral
rights and capitalized exploration and development costs. The Company
operates and files tax returns in a number of jurisdictions. The preparation
of such tax filings requires considerable judgment and the use of
assumptions. Accordingly, the amounts reported could vary in the future.
Marketable Equity Securities. The Company's marketable equity securities are reported at fair value with changes in fair value included in the statement of operations.
Equity accounted investments. Investments in incorporated entities in which the Company adoptedhas the new Accounting Guidelineability to exercise significant influence over the investee are accounted for by the equity method.
Financial Instruments. Marketable equity securities are measured at fair value at each reporting date, with the change in value recognized in the statement of operations as a gain or loss. Cash and cash equivalents, term deposits, deposits, advances and receivables are accounted for at amortized cost which approximates fair value (See Notes 3 and 4). Accounts payable and contingent value rights are recorded at amortized cost which approximates fair value.
Note 2.Arbitral Award, Settlement Agreement and Mining Data Sale:
In October 2009 we initiated a claim (the "Brisas Arbitration") under the Additional Facility Rules of the International Centre for the Settlement of Investment Disputes ("ICSID") to obtain compensation for the losses caused by the actions of Venezuela that terminated our previous mining project known as the "Brisas Project." On September 22, 2014, we were granted an Arbitral Award (the "Award") totaling $740.3 million.
In July 2016, we signed the Settlement Agreement, subsequently amended, whereby Venezuela agreed among other things to pay us a total of approximately $1.032 billion which is comprised of $792 million to satisfy the Award (including interest) and $240 million for the purchase of our mining data related to the Brisas Project (the "Mining Data") in a series of payments ending on or before June 15, (AcG-15) "Consolidation2019 (the "Settlement Agreement"). As agreed, the first $240 million received by Gold Reserve from Venezuela has been recognized as proceeds from the sale of Variable Interest
Entities."the Mining Data.
To date, the Company has received payments of approximately $254 million pursuant to the Settlement Agreement. The new standard establishes when a company should consolidate a
variableremaining unpaid amount due from Venezuela pursuant to the Settlement Agreement, which is delinquent, totals an estimated $972 million (including interest entity inof approximately $194 million) as of December 31, 2022. In relation to the unpaid amount due from Venezuela, the Company has not recognized an Award receivable or associated liabilities on its financial statements. AcG-15 providesstatements which would include taxes, bonus plan and contingent value right payments, described below, as management has not yet determined that payment from Venezuela is probable. This judgement was based on various factors including the definitionSanctions imposed on Venezuela, the current economic and political instability in Venezuela, the history of non-payment by Venezuela under the terms of the Settlement Agreement and the Resolution (See Note 7). The Award receivable and any associated liabilities will be recognized when, in management’s judgment, it is probable that payment from Venezuela will occur.
The interest rate provided for on any unpaid amounts pursuant to the Award is specified as LIBOR plus two percent. With the phase out of LIBOR, if and when it is possible to engage with the Venezuelan government, we expect that, if necessary, we will either come to an agreement with Venezuela as to an appropriate replacement or, alternatively, petition the court responsible for the enforcement of our Award judgement to rule on a variablenew interest entityrate benchmark.
In addition to other constraints, the Sanctions restrict the Company from working with those Venezuelan government officials responsible for the payment and requirestransfer of funds associated with the Settlement Agreement which adversely impacts our ability to collect the remaining balance of the Award plus interest and/or amounts due pursuant to the Settlement Agreement from Venezuela. The Company, with counsels’ assistance, continues to evaluate and pursue various options in regard to the Award and the Settlement Agreement.
| 53 |
We have Contingent Value Rights ("CVRs") outstanding that entitle the holders to an aggregate of 5.466% of certain proceeds from Venezuela associated with the collection of the Award and/or sale of Mining Data or an enterprise sale, as such terms are defined in the CVRs (the "Proceeds"), less amounts for certain specified obligations (as defined in the CVR), as well as a variable interest
entitybonus plan as described below. As of December 31, 2022, the total cumulative obligation payable pursuant to be consolidated ifthe terms of the CVR from the sale of the Mining Data and collection of the Award (not taking into account the claim and settlement with the CVR holders, as described below) was approximately $10 million, all of which has been paid to the CVR holders other than approximately $60,000 which has not yet been distributed.
As previously disclosed, a company is at riskdispute existed between us and the holder of absorbing the variable
interest entity's expected losses, or is entitled to receive a majority of the variableCVRs, Steelhead Navigator Master, L.P., a related party that owns approximately % of our shares and which is affiliated with our director James Michael Johnston. Steelhead had previously alleged that as a general matter it believed that the Company's 45% interest entity's residual returns, or both.in Siembra Minera represented "Proceeds" for purposes of the CVRs and as such the CVR holders were entitled to the value of 5.466% of that interest on the date of its acquisition. In December 2022, the Company and such holder agreed to settle their differences and entered into an agreement whereby the Company paid $350,000 in exchange for the release of claims made by the holder. The Company hasalso decided to offer a pro-rata settlement with the other CVR holders of approximately $112,000, in the aggregate, of which approximately $85,000 was payable to other related parties, Greywolf Overseas Intermediate Fund, Greywolf Event Driven Master Fund, and Greywolf Strategic Master Fund SPC, Ltd. - MSP5, which collectively own approximately % of our shares. The Company’s decision to enter into these settlements, including with Steelhead Navigator Master, L.P., was determined that it has no variable interest entities.
Asset Retirement Obligations. On January 1, 2004,based upon a recommendation of a special committee of independent directors of the Company. The Company adoptedrecorded CVR expense in relation to this matter of approximately $462,000 during 2022, approximately $112,000 of which remained payable as of December 31, 2022.
We maintain a bonus plan (the "Bonus Plan") which is intended to compensate the new
accounting standardparticipants, including executive officers, employees, directors and consultants for asset retirement obligations, Canadian Institutetheir past and present contributions to the Company. The bonus pool under the Bonus Plan is comprised of Chartered Accountants ("CICA") 3110. The standard requires thatthe gross proceeds collected or the fair value of a liabilityany consideration realized less applicable taxes multiplied by 1.28% of the first $200 million and 6.4% thereafter. The bonus pool is determined substantially the same as Net Proceeds for an asset retirement obligation be recognizedthe CVR. Certain participants of the Bonus Plan have notified the Company that in the periodevent the Board of Directors interprets the CVR agreement in such a way as to include the value of Siembra Minera as proceeds, the Bonus Plan participants expect to be accorded the same interpretation of the terms under the Bonus Plan. The Board has determined, upon recommendation of a special committee of independent directors of the Company, that no payments should be made or offered to Bonus Plan participants in parallel with the settlement with the CVR holders referred to above. As of December 31, 2022, the total cumulative obligation payable pursuant to the terms of the Bonus Plan from the sale of the Mining Data and collection of the Award was approximately $4.4 million, all of which ithas been paid to the Bonus Plan participants other than approximately $70,000 which has not yet been distributed.
Due to U.S. and Canadian Sanctions and the uncertainty of transferring the remaining amounts due from Venezuela to bank accounts outside of Venezuela, management only considers those funds received by the Company into its North American bank accounts as funds available for purposes of the CVR and Bonus Plan cash distributions.
Following receipt, if any, of additional funds pursuant to the Settlement Agreement and after applicable payments to CVR holders and Bonus Plan participants, we expect to distribute to our shareholders a substantial majority of any remaining amounts, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the collection of the remaining amount owed by Venezuela.
Note 3. Cash and Cash Equivalents:
Cash and Cash Equivalents
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Bank deposits | $ | 1,123,095 | $ | 1,846,842 | ||||
| Short term investments | 14,257,394 | 47,270,788 | ||||||
| Total | $ | 15,380,489 | $ | 49,117,630 |
| 54 |
The Company’s cash and cash equivalents are predominantly held in U.S. banks and Canadian chartered banks. Short term investments include money market funds and U.S. treasury bills which mature in three months or less.
One of the Company’s Barbadian subsidiaries has a U.S. dollar account in an Antiguan bank which is incurred ifpart of a reasonable estimatebanking group based in Venezuela. The account was intended to be used to fund the Company’s activities related to the Siembra Minera project. The Company has been unable to access these funds or transfer the funds out of the account. As a result, in the fourth quarter of 2021 the Company fully impaired the financial asset and recorded an impairment loss of $1,166,529.
Note 4. Term Deposits:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| U.S. Treasury Bills | $ | 27,499,188 | $ | – |
The Company has term deposits which are classified as held to maturity, carried at amortized cost and have original maturities of between 3 and 12 months. Term deposits consist of U.S. treasury bills purchased at a discount and amortized to face value over their respective terms. In 2022, the Company recorded non-cash interest income of $122,627 related to the amortization of discount on term deposits.
Note 5. Marketable Securities:
| December 31, | December 31, | |||||||
| Schedule of Marketable Securities Value | 2022 | 2021 | ||||||
| Equity securities | ||||||||
| Fair value and carrying value at beginning of year | $ | 105,218 | $ | 83,575 | ||||
| Increase (decrease) in fair value | (7,165) | 21,643 | ||||||
| Fair value and carrying value at balance sheet date | $ | 98,053 | $ | 105,218 |
Marketable equity securities are classified as trading securities and accounted for at fair value, canbased on quoted market prices with unrealized gains or losses recorded in the Consolidated Statements of Operations.
Accounting Standards Codification ("ASC") 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability and Level 3 inputs are unobservable inputs for the asset or liability that reflect the entity's own assumptions. The fair values of the Company's marketable equity securities as at the balance sheet date are based on Level 1 inputs.
Note 6. Property, Plant and Equipment:
Property, Plant and Equipment
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2022 | ||||||
| Machinery and equipment | $ | 968,750 | $ | – | $ | 968,750 |
| Furniture and office equipment | 423,813 | (357,690) | 66,123 | |||
| Transportation equipment | 326,788 | (296,053) | 30,735 | |||
| Leasehold improvements | 29,390 | (28,846) | 544 | |||
| Mineral property | 350,000 | – | 350,000 | |||
| $ | 2,098,741 | $ | (682,589) | $ | 1,416,152 | |
| 55 |
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2021 | ||||||
| Machinery and equipment | $ | 1,602,133 | $ | – | $ | 1,602,133 |
| Furniture and office equipment | 423,813 | (322,389) | 101,424 | |||
| Transportation equipment | 326,788 | (230,695) | 96,093 | |||
| Leasehold improvements | 29,390 | (25,362) | 4,028 | |||
| Mineral property | 350,000 | – | 350,000 | |||
| $ | 2,732,124 | $ | (578,446) | $ | 2,153,678 |
Machinery and equipment consists of a semi-autogenous grinding (SAG) mill shell and minor infrastructure equipment originally intended for use on the Brisas Project. We evaluate our equipment and mineral property to determine whether events or changes in circumstances have occurred that may indicate that the carrying amount may not be made. The associated asset retirement costs are capitalizedrecoverable. We regularly obtain comparable market data for similar equipment as partevidence that our equipment’s fair value less cost to sell is in excess of the carrying amountamount. In 2022, we wrote down the value of the long-lived asset.SAG mill shell based on an updated assessment of its market value. During the fourth quarter of 2020, the Company determined that the value of the motor for the SAG mill had declined to the extent that it should be disposed of in order to reduce equipment holding cost and accordingly it was written down to scrap value. The adoptionCompany recorded impairment write-downs of property, plant and equipment of $0.6 million, NIL and $3.7 million during the years ended December 31, 2022, 2021 and 2020, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company disposed of certain property, plant and equipment and recorded a (loss) gain of $(8,410), $58,562 and $(30,476), respectively.
In March 2022, the Ministry of Mines of Venezuela (“Ministry”) issued a resolution to revoke the mining rights of Siembra Minera for alleged non-compliance by Siembra Minera with certain Venezuelan mining regulations (the “Resolution”). Siembra Minera filed a reconsideration request in May 2022 which was denied by the Ministry. The Company disagrees with both the substantive and procedural grounds claimed by the Venezuelan government regarding the revocation of mining rights and the reconsideration request. We are evaluating all legal rights and remedies that are available to us under Venezuelan and other laws, under the Settlement Agreement and otherwise and, in late 2022, we filed for an appeal of the Resolution with the Venezuelan Supreme Court of Justice. We also requested a precautionary measure of suspension of the effects of the Resolution which was denied. Even if the Resolution is successfully annulled, the Sanctions, along with other constraints, could adversely impact our ability to finance, develop and operate the Siembra Minera Project or collect or repatriate sums under the Settlement Agreement.
In August 2016, we executed the Contract for the Incorporation and Administration of the Mixed Company with the government of Venezuela and in October 2016, together with an affiliate of the government of Venezuela, we incorporated Siembra Minera by subscribing for shares in Siembra Minera for a nominal amount. The primary purpose of this standard did
not have any impact onentity is to develop the Company's financial position or resultsSiembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve. Siembra Minera was granted by the government of operationsVenezuela certain gold, copper, silver and other strategic mineral rights (primarily comprised of the historical Brisas and Cristinas areas) contained within Bolivar State comprising the Siembra Minera Project.
Project expenditures incurred in 2022, 2021 and 2020 primarily related to costs associated with the retention of technical consultants and, to a lesser degree, work related to compliance and reporting obligations, maintenance of the technical data-base, and costs of social work programs. The Company directly incurred the costs associated with the Siembra Minera Project which, beginning in 2016 through March 31, 2022, amounted to a total of approximately $22.9 million. In the second through fourth quarters of 2022, the Company incurred approximately $0.7 million of certain Venezuelan related consultant and other costs which, in previous quarters, were recorded as Siembra Minera Project and related costs. Beginning in the second quarter of 2022, as a result of the Resolution, these costs were recorded in general and administrative expense.
| 56 |
Note 8. 401(k) Plan:
The 401(k) Plan, formerly entitled the KSOP Plan, was originally adopted in 1990 and was most recently restated effective January 1, 2021. The purpose of the 401(k) Plan is to offer retirement benefits to eligible employees of the Company. 2. Marketable Securities:
Amortized Cost/ Quoted
Carrying Value Market Value
2005
Temporary:
Corporate debt securities $ 323,581 $ 324,000
Equity securities 2,661,653 6,774,557
-------------------------------
Total $ 2,985,234 $ 7,098,557
===============================
2004
Temporary:
Corporate debt securities $ 503,226 $ 502,425
Equity securities 5,025,550 8,069,528
-------------------------------
Total $ 5,528,776 $ 8,571,953
===============================
Debt securities at December 31, 2005 and 2004 yield between 2% and 4%.
3. Property, Plant and Equipment:
Accumulated
Cost Depreciation Net
2005
United States
Furniture and office equipment $ 339,889 $ (260,120) $ 79,769
Leasehold improvements 35,633 (35,633) -
----------------------------------------
$ 375,522 $ (295,753) $ 79,769
----------------------------------------
Foreign
Property and mineral rights $11,252,335 $11,252,335
Capitalized exploration costs 46,381,380 46,381,380
Buildings 292,967 $ (265,517) 27,450
Furniture and office equipment 472,196 (421,916) 50,280
Transportation equipment 504,147 (283,300) 220,847
Machinery and equipment 316,552 (312,511) 4,041
----------------------------------------
59,219,577 (1,283,244) 57,936,333
----------------------------------------
Total $59,595,099 $(1,578,997) $58,016,102
========================================
2004
United States
Furniture and office equipment $ 303,530 $ (236,887) $ 66,643
Leasehold improvements 35,633 (35,403) 230
----------------------------------------
$ 339,163 $ (272,290) $ 66,873
----------------------------------------
Foreign
Property and mineral rights $11,252,335 $11,252,335
Capitalized exploration costs 41,034,321 41,034,321
Buildings 288,222 $ (253,121) 35,101
Furniture and office equipment 448,355 (408,127) 40,228
Transportation equipment 378,784 (277,942) 100,842
Machinery and equipment 316,552 (311,234) 5,318
----------------------------------------
53,718,569 (1,250,424) 52,468,145
----------------------------------------
Total $54,057,732 $(1,522,714) $52,535,018
========================================
4. KSOP Plan:
The KSOP401(k) Plan adopted in 1990provides for the benefit of employees, is comprised of
two parts, (1) a salary reduction component, or 401(k),deferral, a non-elective contribution of 3% of each eligible Participant’s annual compensation and (2) an employee
share ownership component, or ESOP. Unallocated shares are recorded as a
reduction to shareholders' equity.discretionary contributions. Allocation of Class A common shares or cash to participants' accounts, subject to certain limitations, is at the discretion of the Company's board of
directors, subject to certain limitations. TheBoard. Cash contributions for the plan years 2022 and 2021 were approximately $140,000 and $163,000, respectively. For the 2020 plan year, 123,662 Class A common shares with a fair value of the shares allocated
is recordedapproximately were contributed to participants in the statement of operations with a reduction of the KSOP debt
account. 401(k) Plan.
Equity Incentive Plan
The Company allocated contributions to eligible participantsCompany's equity incentive plan provides for the Plan years 2005, 2004 and 2003grant of $280,074, $254,779 and $216,432,
respectively.stock options to purchase the Company’s Class A common shares. During the second quarter of 2021, the number of shares available under the plan was increased to a maximum of 9,939,500 shares. As of December 31, 2005, 28,742 common shares remain
unallocated to plan participants.
5. Share Option Plan:
The Company's Equity Incentive Plan (the "Plan") as amended in 2005, allows2022, there were 2,361,107 options available for the issuance of up to 3,650,000 Class A common share purchase options, in
addition to any options issued pursuant to predecessor plans, to officers,
directors and key individualsgrant. Grants are made for terms of up to ten years. Theyears with vesting periodperiods as required by the TSXV and as may be determined by the Board or a committee of options ranges from immediatelythe Board established pursuant to up to three years. Sharethe equity incentive plan.
Stock option transactions for the last three years ended December 31, 2022, 2021 and 2020 are as follows:
| 2022 | 2021 | 2020 | |||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||
| Options outstanding - beginning of period | 7,218,393 | $ 2.08 | 4,629,565 | $ 2.36 | 4,369,565 | $ 3.09 | |
| Options granted | 360,000 | 1.07 | 3,033,750 | 1.60 | 260,000 | 1.72 | |
| Options expired | - | - | (444,922) | 1.85 | - | - | |
| Options outstanding - end of period | 7,578,393 | $ 2.03 | 7,218,393 | $ 2.08 | 4,629,565 | $ 2.36 | |
The following table relates to stock options at December 31, 2005
| Outstanding Options | Exercisable Options | ||||||||
| Exercise Price | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | |
| - | 360,000 | $ 73,250 | 9.84 | 360,000 | $1.07 | $ 73,250 | 9.84 | ||
| - | 2,983,750 | 0 | 8.76 | 2,983,750 | $1.60 | 0 | 8.76 | ||
| - | 435,000 | 0 | 6.78 | 435,000 | $1.77 | 0 | 6.78 | ||
| - | 3,369,643 | 0 | 4.13 | 3,369,643 | $2.39 | 0 | 4.13 | ||
| - | 430,000 | 0 | 1.95 | 430,000 | $3.21 | 0 | 1.95 | ||
| - | 7,578,393 | $ 73,250 | 6.25 | 7,578,393 | $2.03 | $ 73,250 | 6.25 | ||
In 2022, the Company adoptedgranted options and recorded non-cash stock option expense of $159,218 in general and administrative expense upon the new requirementsvesting of stock options granted in current and prior periods.
In October 2021, in conjunction with the Canadian Instituteimplementation of Chartered Accountants standard 3870a three-year cost reduction program which included the reduction of cash compensation, the Company granted approximately million options to purchase the Company’s Class A common shares and recorded non-cash stock option expense of approximately $1.9 million. Including the options issued under which the fair value methodcost reduction program, the Company granted a total of accounting and options during the years ended December 31, 2021 and 2020, respectively. The Company recorded non-cash compensation during the years ended December 31, 2021 and 2020 of $1,992,415 and $656,775, respectively for stock options granted to employeesin the current and directors is followed. Accordingly,prior periods. Approximately $1.6 million of 2021 stock option compensation expense was recorded on a
retroactive basis, without restatement of prior years, to retained earnings
to show the effect of compensationin Corporate General and Administrative expense associated with stock option
grants to employees and directors from January 1, 2002 to December 31, 2003,
which amounted to $419,101.
The Company$0.4 million was recorded additional compensation expense of $863,340in Siembra Minera Project and $599,423
for stock options granted during 2005 and 2004. related costs.
| 57 |
The fair value of the options
granted was calculated using the Black-Scholes model. In 2005, the model
assumed a weighted average risk free interest rate of 3.94%, expected life of
three years, expected volatility of 65% and a dividend yield of nil. In 2004,
the model assumed a risk free interest rate of 3.25%, expected life of five
years, expected volatility of 65% and a dividend yield of nil.
Had the fair value method of accounting been followed in prior years, the
Company would have recorded additional compensation expense of $406,108 in
2003. The fair value of the options granted in 20032022, 2021 and 2020 was calculated as , and , respectively. The fair value of options granted was determined using the Black-Scholes model and assumed abased on the following weighted average assumptions:
2022 2021 2020
| Risk free interest rate | % | % | % |
| Expected term | years | years | years |
| Expected volatility | % | % | % |
| Dividend yield |
The risk free interest rate is based on the US Treasury rate on the date of 3.7%,grant for a period equal to the expected lifeterm of five years, weighted averagethe option. The expected term is based on historical exercise experience and projected post-vesting behavior. The expected volatility is based on historical volatility of 84%
andour common stock over a dividend yield of nil. This adjustment would have resulted in proforma
basic and diluted net loss per share of $0.17 in 2003.
6. Related Party Transactions:
MGC Ventures. The Chief Executive Officer, President, Vice President-Finance
and Vice President-Administrationperiod equal to the expected term of the option.
Change of Control Agreements
The Company are alsomaintains change of control agreements with certain officers and/and employees. A Change of Control is generally defined as one or directors and shareholders of MGC Ventures. At December 31, 2005 and 2004,
the Company owned 12,062,953 common shares of MGC Ventures, which represented
47% of its outstanding shares. MGC Ventures owned 276,642 common sharesmore of the Company at December 31, 2005 and 2004. In addition, MGC Ventures owned 280,000
common sharesfollowing: the acquisition by any individual, entity or group, of Great Basin at December 31, 2005 and 2004. During the last
three years, the Company sublet a portionbeneficial ownership of its office space to MGC Ventures
for $6,000 per year.
Great Basin. The Chief Executive Officer, President, Vice President-Finance
and Vice President-Administration25 percent of the Company are also officers and/or
directors and shareholders of Great Basin. At December 31, 2005 and 2004, the
Company owned 15,661,595 common shares of Great Basin, which represented 47%
of its outstanding shares. Great Basin owned 516,720 common sharesvoting power of the Company at December 31, 2005 and 2004. Great Basin also owned 170,800 common
sharesCompany’s outstanding Common Shares; a change in the composition of MGC Ventures at December 31, 2005 and 2004. During the last three
years,Board that causes less than a majority of the Company subletcurrent directors of the Board to be members of the incoming board; reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company; liquidation or dissolution of the Company; or any other event the Board reasonably determines constitutes a portionChange of its office space to Great Basin for
$6,000 per year.
Notes Receivable from Officers.Control. As of December 31, 2003,2022, the amount payable to participants under the change of control agreements, in the event of a Change of Control, was approximately $4.9 million, which has not been recognized herein as no event of a change of control has been triggered as of the date of this report.
Milestone bonuses
The Company implemented an incentive bonus plan in the fourth quarter of 2021 which involves senior management whose cash compensation was reduced as part of a three-year cost reduction program. The plan provides for the payment of a bonus upon the achievement of specific objectives related to the development of the Company’s business and prospects in Venezuela within certain time frames. As of December 31, 2022, the estimated maximum amount payable under the plan in the event of the achievement of the specific objectives was approximately $2.8 million. This amount has not been recognized herein and will only be recognized when, in management’s judgment, it is probable the specific objectives will be achieved. The plan also provides for severance payments upon the occurrence of certain events resulting in termination of employment. As of December 31, 2022, the Company had
$109,100has an accrued liability for probable severance payments of approximately $0.5 million. This amount is included in notes receivable from officers bearing interest of between 4.6%general and 5.2% and payable on or beforeadministrative expense for the year ended December 31, 2005. The notes were paid in
full in 2004.
7. 2022.
Note 10. Income Tax:
No income
Income tax benefit has been recorded for the three years ended December 31, 2005. 2022, 2021 and 2020 differs from the amount that would result from applying Canadian tax rates to net loss before taxes. These differences result from the items noted below:
| 2022 | 2021 | 2020 | ||||
| Amount | % | Amount | % | Amount | % | |
| Income tax benefit based on Canadian tax rates | $ 2,149,129 | 25 | $ 2,649,198 | 25 | $ 3,151,661 | 25 |
| Decrease due to: | ||||||
| Different tax rates on foreign subsidiaries | (285,668) | (3) | (658,471) | (6) | (382,207) | (3) |
| Non-deductible expenses | (91,510) | (1) | (419,589) | (4) | (155,633) | (1) |
| Change in valuation allowance and other | (1,771,951) | (21) | (1,571,138) | (15) | (1,524,461) | (12) |
| $ 0 | 0 | $ 0 | 0 | $ 1,089,360 | 9 | |
| 58 |
The Company's Venezuelan subsidiaries are subject to VenezuelanCompany recorded an income tax but have not paid or accrued any income tax duringbenefit of $0 for the three years ended December 31, 2005. Income tax accrued by2022 and 2021, and $1.1 million for the Company's domestic
subsidiaries during 2005, 2004 and 2003 amounted to $1,471, $0 and $4,733,
respectively.year ended December 31, 2020. The Company has recorded a valuation allowance to reflect the estimated amount of the futuredeferred tax assetassets which may not be realized, principally due to the uncertainty of utilization of net operating losses and other carry forwards prior to expiration. The valuation allowance for futuredeferred tax assets may be reduced in the near term if the Company'sour estimate of future taxable income changes. As part of the US government response to the COVID-19 pandemic, the U.S. Congress passed the CARES act in late March 2020 which, among other things, allowed companies to carryback losses incurred in 2018, 2019 and 2020. The Company recorded an income tax benefit in prior years to reflect the carryback of U.S. taxable losses incurred in 2020 and 2019 to offset taxable income in 2018.
The Company has an income tax receivable of $8.1 million related to the carryback of losses as noted above and prior year overpayments resulting from revisions to management's estimates of the timing and amount of deductions available to the Company's U.S. subsidiary associated with the 2017 write-off of certain subsidiaries primarily related to the Company's previous investment in the Brisas Project. During the second quarter of 2022, the Company received a tax refund of $0.6 million related to the carryback of losses incurred in 2020 as noted above. The 2017 tax filing of the Company’s U.S. subsidiary is under examination by the Internal Revenue Service. Additionally, Canada Revenue Agency is examining the Company’s 2018 and 2019 international transactions. Determining our tax liabilities requires the interpretation of complex tax regulations and significant judgment by management. There is no assurance that the tax examinations to which we are currently subject will result in favorable outcomes.
The components of the futureCanadian and U.S. deferred income tax assets and liabilities (excluding Venezuela) as of December 31, 20052022 and 20042021 were as follows:
Future Tax Asset (Liability)
2005 2004
Accounts payable and accrued expenses $130,976 $140,028
Investment income (4,080) (4,570)
Property, plant and equipment 8,509,642 8,509,277
---------------------------
Total temporary differences 8,636,538 8,644,735
Net operating loss carry forward 9,400,040 7,067,835
Alternative minimum tax credit 19,871 19,871
---------------------------
Total temporary differences,
operating losses and tax credit
carry forwards 18,056,449 15,732,441
Valuation allowance (18,056,449) (15,732,441)
----------------------------
Net deferred tax asset $ - $ -
============================
7. Income Tax, continued:
| December 31, | ||||
| 2022 | 2021 | |||
| Deferred income tax assets | ||||
| Net operating loss carry forwards | $ | 39,298,070 | $ | 40,045,479 |
| Property, Plant and Equipment | 2,129,038 | 2,023,434 | ||
| Other | 1,672,940 | 1,537,637 | ||
| Total deferred income tax asset | 43,100,048 | 43,606,550 | ||
| Valuation allowance | (43,090,943) | (43,557,562) | ||
| Deferred income tax assets net of valuation allowance | $ | 9,105 | $ | 48,988 |
| Deferred income tax liabilities | ||||
| Other | (9,105) | (48,988) | ||
| Net deferred income tax asset | $ | - | $ | - |
At December 31, 2005, the Company2022, we had the following U.S. and Canadian tax basis loss carry forwards and tax credits:stated in U.S. Canadian Expires
Regular tax net operating loss:
$ 272,248 $ 335,982 2006
1,650,395 224,852 2007
1,244,312 329,243 2008
688,808 433,376 2009
341,750 1,009,268 2010
645,622 2011
1,424,144 2012
- 1,742,794 2014
- 2,608,269 2015
1,386,674 2018
1,621,230 2019
665,664 2020
896,833 2021
1,435,774 2022
1,806,275 2023
2,760,522 2024
4,123,142 2025
------------------------------------
$20,963,393 $6,683,784
====================================
Alternative minimum tax net operating loss:
$ 289,523 2006
1,624,454 2007
1,218,023 2008
660,271 2009
304,472 2010
618,845 2011
1,399,529 2012
-------------------------------------
$ 6,115,117
=====================================
Alternative
minimum
tax credit $19,871
============
8. Geographic Segments:
North America South America Consolidated
- -----------------------------------------------------------------------------
2005
Other income $ 1,402,868 $ 1,402,868
Depreciation 23,462 $ 69,695 93,157
Net loss 5,802,593 3,224,689 9,027,282
Identifiable assets
Property, plant and
equipment, net $ 79,769 $57,936,333 $58,016,102
General corporate assets 22,164,983 1,773,787 23,938,770
- ----------------------------------------------------------------------------
Total identifiable assets $22,244,752 $59,710,120 $81,954,872
============================================================================
2004
Other income $ 899,881 $ 899,881
Depreciation 20,723 37,456 58,179
Net loss 3,620,963 $ 1,861,666 5,482,629
Identifiable assets
Property, plant and
equipment, net $ 66,873 $52,468,145 $52,535,018
General corporate assets 32,962,146 1,108,367 34,070,513
- ----------------------------------------------------------------------------
Total identifiable assets $33,029,019 $53,576,512 $86,605,531
============================================================================
2003
Other income $ 770,381 $ 770,381
Depreciation 25,645 18,985 44,630
Net loss 2,146,525 $ 1,560,811 3,707,336
Identifiable assets
Property, plant and
equipment, net $ 55,510 $46,070,807 $46,126,317
General corporate assets 20,095,630 808,535 20,904,165
- ----------------------------------------------------------------------------
Total identifiable assets $20,151,140 $46,879,342 $67,030,482
============================================================================
Revenues and identifiable assets of each segment are those that are directly
identified with those operations.
9. Commitments:
The Company leases office space under a non-cancelable operating lease. In
January 2004, the lease was renewed for an additional five years commencing
March 1, 2004. Rent expense under the lease during 2005, 2004 and 2003 was
$115,180, 112,352 and 110,442, respectively. Future minimum annual rent
payable under the lease is $118,813 in 2006, $119,440 for 2007 and 2008 and
$19,907 in 2009.
10. Shareholder Rights Plan:
The Company instituted a shareholder rights plan (the "Rights Plan") in 1999.
Since the original approval by the Shareholders, the Rights Plan and the
Rights Plan Agreement have been amended and continued from time to time, the
most recent amendment being on March 14, 2003. In March 2006, the
shareholders approved certain amendments to the Plan including continuing the
Shareholder Rights Plan until June 30, 2009. The Rights Plan is intended to
give adequate time for shareholders of the Company to properly assess the
merits of a take-over bid without pressure and to allow competing bids to
emerge. The Rights Plan is designed to give the board of director's time to
consider alternatives to allow shareholders to receive full and fair value
for their common shares. One right is issued in respect of each outstanding
share. The rights become exercisable only when a person, including any party
related to it or acting jointly with it, acquires or announces its intention
to acquire 20% or more of the Company's outstanding shares without complying
with the "permitted bid" provisions of the Rights Plan. Each right would, on
exercise, entitle the holder, other than the acquiring person and related
persons, to purchase common shares of the Company at a 50% discount to the
market price at the time.
11. Differences Between Canadian and U.S. GAAP:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) in Canada. The effect of the
principal measurement differences between U.S. and Canadian GAAP are
summarized below.
Canadian GAAP Change U.S. GAAP
2005
Total assets $81,954,872 $(36,921,417)A,C $45,033,455
Total shareholders' equity 79,637,766 (36,921,417)A,C 42,716,349
Net loss (9,027,282) 3,149,038 B (5,878,244)
Loss per common share(1) (0.26) 0.09 (0.17)
Cash flow used by operations (7,729,508) (7,729,508)
Cash flow (used) provided
by investing activities (2,691,289) (2,691,289)
=============================================================================
2004
Total assets $86,605,531 $(37,990,343)A,C $48,615,188
Total shareholders' equity 84,176,058 (37,990,343)A,C 46,185,715
Net loss (5,482,629) (4,877,262)B,C (10,359,891)
Loss per common share(1) (0.19) (0.16) (0.35)
Cash flow used by operations (3,958,108) (6,268,328) C (10,226,436)
Cash flow (used) provided
by investing activities (3,661,785) 6,268,328C 2,606,543
=============================================================================
2003
Total assets $67,030,482 $(31,651,868)A,C $35,378,614
Total shareholders' equity 65,138,471 (31,651,868)A,C 33,486,603
Net loss (3,707,336) (7,704,726)B (11,412,062)
Loss per common share(1) (0.15) (0.31) (0.46)
Cash flow used by operations (2,898,151) (2,898,151)
Cash flow provided
by investing activities 2,731,267 2,731,267
=============================================================================
1. Basic and diluted
A Under U.S. GAAP, marketable securities would be divided between
held-to-maturity securities and available-for-sale securities. Those
securities classified as available-for-sale would be recorded at market value
and the unrealized gain or loss would be recorded as a separate component of
shareholders' equity. The increase in total assets and total shareholders'
equity between Canadian and U.S. GAAP for the years ended December 31, 2005,
2004, and 2003 was $4,112,904, $3,043,978, and $3,114,125, respectively.
B For U.S. GAAP purposes, the Company accounts for stock-based employee
compensation arrangements using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No.25, "Accounting for Stock Issued
to Employees". Under U.S. GAAP, when the exercise price of certain stock
options is amended (the "Repricing "), these options are accounted for as
variable compensation from the date of the effective Repricing. Under this
method, following the repricing date, compensation expense is recognized when
the quoted market value of the Company's common shares exceeds the amended
exercise price. Should the quoted market value subsequently decrease, a
recovery of a portion, or all of the previously recognized compensation
expense will be recognized. For U.S. GAAP purposes, the Company will adopt
SFAS 123, "Accounting for Stock Based Compensation" effective January 1,
2006. SFAS 123 requires the use of the fair value method of accounting for
stock based compensation. This standard is substantially consistent with the
revised provisions of CICA 3870, which was adopted by the Company for
Canadian GAAP effective January 1, 2004. For U.S.GAAP, the Company will apply
the modified retrospective method of adoption included in SFAS 148 and will
adjust shareholders' equity in 2006 as if the fair value based accounting
method in this statement had been used to account for all employees awards
granted, modified or settled in fiscal years beginning after December
14,1994. This standard is consistent with the revised provisions of CICA
3870, adopted for Canadian GAAP effective January 1, 2004. The change in net
loss between Canadian and U.S. GAAP for the years ended December 31, 2005,
2004, and 2003 was $3,149,038, $1,391,066 and ($7,704,726), respectively.
C Under Canadian GAAP we capitalize mine development costs after proven
and probable reserves have been established. We also capitalize costs on
properties where we have found non-reserve material that does not meet all
the criteria required for classification as proven or probable reserves.
Under U.S. GAAP, exploration and development expenditures incurred on
properties where mineralization has not been classified as a proven and
probable reserves under SEC rules are expensed as incurred. Accordingly,
certain expenditures are capitalized for Canadian GAAP purposes but expensed
under U.S. GAAP. The increase in net loss between Canadian and U.S. GAAP for
the years ended December 31, 2005, 2004, and 2003 was $0, $6,268,328 and $0,
respectively.
12. Common Shares
During 2005, 573,030 shares were issued upon exercise of stock options,
533,735 shares were issued upon exercise of warrants, 251,350 shares were
issued for compensation and 75,000 shares were issued to the KSOP plan
In 2004, the Company completed an offering of 5,361,000 Units at Canadian
$5.60 per Unit. Each Unit consists of one Class A common share and one half
Class A common share purchase warrant. Each whole Class A common share
purchase warrant entitles its holder to acquire one Class A common share at a
price of Canadian $6.50 for a period of 24 months following the closing date
of the Offering. The net proceeds of the offering amounted to approximately
Canadian $30 million (U.S.$ 25 million). In addition to the 5,361,000 shares
from the financing, 373,954 shares were issued upon exercise of stock
options, 75,000 shares were issued to the KSOP plan, 54,000 shares were
issued as compensation and 21,100 shares were issued upon exercise of
warrants.
In 2003, the company completed an offering 4,042,000 Units at Canadian $3.50
per Unit. Each Unit consists of one Class common share and one half Class A
common share purchase warrant. Each whole Class A common share purchase
warrant entitles its holder to acquire one Class A common share at a price of
Canadian $5.25 for a period of 18 months following the closing of the
offering. The net proceeds of the offering amounted to approximately Canadian
$13 million (U.S.$ 9.6 million). In addition to the 4,042,000 shares from the
financing, 400,000 shares were issued upon exercise of employee stock
options, 200,000 shares were issued to the KSOP plan and 60,000 shares were
issued primarily for independent director compensation.
As of December 31, 2005, the Company had the following warrants outstanding:
Date Number of Number of Exercise Estimated Expiration
Issued Warrants shares issuable Price (CAD$) Proceeds (CAD$) Date
11/04/04 2,680,500 2,680,500 $6.50 $17,423,250 11/05/06
13. New standards
Deferred Stripping Costs. In October 2005, the CICA Emerging Issues Committee
(EIC) issued for comment a draft abstract, EIC D56 "Accounting for Deferred
Stripping Costs in the Mining Industry". If adopted, this EIC would require
stripping costs to be accounted for as variable production costs to be
included in inventory unless the stripping activity can be shown to be a
betterment of the mineral property, in which case the stripping costs would
be capitalized. A betterment occurs when stripping activity increases future
output of the mine by providing access to additional sources of reserves.
Capitalized stripping costs would be amortized on a units-of-production basis
over the proven and probable reserves to which they relate. As at December 31,
2005 the company had no deferred stripping costs.
Non-monetary Transactions. CICA Handbook Section 3831 "Non-Monetary
Transactions" will be applicable to the company commencing with the 2006
financial year.
Derivative Instruments. In January 2005, the Canadian Institute of Chartered
Accountants (CICA) issued three new standards relating to financial
instruments. These standards are applicable for fiscal years beginning on or
after October 1, 2006. The company is currently reviewing the impact of these
new standards. These standards are as follows:
Financial Instruments - Recognition and Measurement, Section 3855. This
standard prescribes when a financial asset, financial liability, or
non-financial derivative is to be recognized on the balance sheet and whether
fair value or cost-based measures are used. It also specifies how financial
instrument gains and losses are to be presented.
Hedges, Section 3865. This standard is applicable when a company chooses to
designate a hedging relationship for accounting purposes. It builds on the
existing Accounting Guideline AcG-13 "Hedging Relationships", and Section
1650 "Foreign Currency Translation", by specifying how hedge accounting is
applied and what disclosures are necessary when it is applied.
Comprehensive Income, Section 1530. This standard introduces new rules for
the reporting and display of comprehensive income. Comprehensive income,
which is currently reported under US GAAP, is the change in shareholders'
equity (net assets) of an enterprise during a reporting period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. These items include
holding gains and losses on certain investments, gains and losses on certain
derivative instruments and foreign currency gains and losses related to
self-sustaining foreign operations (cumulative translation adjustment).
Recent U.S. Accounting Pronouncements
During June 2005, the FASB issued SFAS No. 154, Accounting for Changes and
Error Corrections. The new standard requires that entities which make a
voluntary change in accounting principle apply that change retroactively to
prior period financial statements, unless this would be impracticable. For
changes in methods of depreciation, amortization or depletion for long-lived
assets, the change must be accounted for prospectively, as a change in
estimate. SFAS No. 154 is effective for the company's 2006 financial
statements.
In June 2005, the Emerging Issues Task Force issued EITF 04-06 - Accounting
for Post-Production Stripping Costs in the Mining Industry. The EITF requires
that stripping costs incurred during the production phase of a mine are
variable production costs that should be included in the costs of the
inventory produced during the period that the stripping costs are incurred.
EITF 04-06 is effective for the company's 2006 financial statements and may
result in a GAAP difference based on the proposed Canadian EIC D56
"Accounting for Deferred Stripping Costs in the Mining Industry". If adopted,
this EIC would require stripping costs to be accounted for as variable
production costs to be included in inventory unless the stripping activity
can be shown to be a betterment of the mineral property, in which case the
stripping costs would be capitalized. As at December 31, 2005 the company had
no deferred stripping costs.
Item 18. Financial Statements - Not Applicable
dollars.
| U.S. | Canadian | Expires | ||
| $ | $ 1,931,223 | 2026 | ||
| 3,584,098 | 2027 | |||
| 13,660,950 | 2028 | |||
| 12,946,583 | 2029 | |||
| 15,994,783 | 2030 | |||
| 17,910,454 | 2031 | |||
| 5,196,582 | 2032 | |||
| 7,554,761 | 2033 | |||
| 8,753,336 | 2034 | |||
| 12,494,741 | 2035 | |||
| 14,854,933 | 2036 | |||
| 11,202,657 | 2037 | |||
| 1,072,063 | 2038 | |||
| 2,794,104 | 2039 | |||
| 4,153,315 | 2040 | |||
| 15,034,518 | 2041 | |||
| 3,958,003 | 2042 | |||
| 4,875,207 | - | |||
| $ | 4,875,207 | $ 153,097,104 |
| 60 |
Item 19. Exhibits
Exhibits. The following exhibits are filed as part of this report.
Exhibit
Number Exhibit
3.1 Shareholder Rights Plan Agreement (as Amended) of the Company
(including form of Rights Certificate) Date
3.2 Gold Reserve Inc. Equity Incentive Plan
3.3 Letter Agreement with SNC Lavalin Engineers &
Constructors, Inc.
12.1 Certificate of Gold Reserve Inc. Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2 Certificate of Gold Reserve Inc. Vice President-Finance pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
13.1 Certificate of Gold Reserve Inc. Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 Certificate of Gold Reserve Inc.Vice President-Finance pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Consent of PricewaterhouseCoopers LLP
99.2 Consent of Pincock Allen & Holt
99.3 Consent of SNC-Lavalin Engineers & Constructors, Inc.
The following exhibits previously filed are incorporated by reference herein.
Exhibit
Number Exhibit
1.0 Restated Articles of Incorporation of the Company. Filed as Exhibit
3.1 to the Proxy Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration No. 333-68061)
filed with the Commission on November 27, 1998 and incorporated by reference
herein.
1.1 Bylaws of the Company. Filed as Exhibit 3.2 to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
2.0 Agreement and Plan of Merger, dated as of October 5, 1998, by and
among Gold Reserve Corporation (predecessor issuer), Gold Reserve Inc.
(successor issuer) and GR-Merger Corp. Filed as Annex I to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
2.1 Exchange Agreement by and among Gold Reserve Corporation, the
Company, TranSecurities International, Inc. and Holders of Unit Shares, dated
November 17, 1998. Filed as Exhibit 4.1 to the Proxy Statement/Joint
Prospectus included as a part of the Company's Registration Statement on
Form S-4 (Registration No. 333-68061) filed with the Commission on November
27, 1998 and incorporated by reference herein.
2.2 Form of Certificate for the Company's Class A common shares. Filed
as Exhibit 4.4 to the Proxy Statement/Joint Prospectus included as a part of
the Company's Registration Statement on Form S-4 (Registration No.
333-68061) filed with the Commission on November 27, 1998 and incorporated by
reference herein.
2.3 Form of Certificate for the Unit Share. Filed as Exhibit 4.5 to the
Proxy Statement/Joint Prospectus included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061) filed with
the Commission on November 27, 1998 and incorporated by reference herein.
4.0 Form of Change in Control Agreement. Filed as Exhibit 4.0 to the
Company's Annual Report on Form 20-F (File No. 000-30102) filed with the
Commission on May 9, 2003 and incorporated by reference herein.
8.0 Subsidiaries of Registrant. Filed as Exhibit 21 to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
9.0 Executive Summary-Brisas Project Feasibility Study, dated January
2005. Filed on Form 6-K (File No. 001-31819) with the Commission on February
14, 2005 and incorporated by reference herein.
Signatures
*Furnished Herewith
| 61 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
GOLD RESERVE INC.
By: /s/Rockne J. Timm By: /s/ Robert A. McGuinnessDavid P. Onzay
Rockne J. Timm, Robert A. McGuinness, its Chief Executive Officer David P. Onzay, its Vice President of Finance,
March 30, 2006 Chief Financial Officer
Date: April 27, 2023 and its Principal Financial and Accounting Officer
March 30, 2006
Exhibit 3.1 - Shareholder Rights Plan Agreement (as Amended) of the
Company (including form of Rights Certificate) Date
SHAREHOLDER RIGHTS PLAN AGREEMENT
MEMORANDUM OF AGREEMENT, dated as of October 5, 1998, amended as of
March 20, 2000 and June 2, 2000, and amended and restated as of March 14, 2003,
and amended and restated as of January 29, 2006 between Gold Reserve Inc.
(the "Corporation"), a corporation incorporated under the laws of the Yukon
Territory, and Computershare Investor Services Inc., a trust company
incorporated under the laws of Canada (the "Rights Agent");
WHEREAS in order to maximize shareholder value the Board of Directors of the
Corporation has determined that it is advisable for the Corporation to adopt a
shareholder rights plan (the "Rights Plan");
WHEREAS in order to implement the adoption of a shareholder rights plan as
established by this Agreement, the board of directors of the Corporation has:
(a) authorized the issuance, effective immediately following the
Effective Time (as hereinafter defined), of one Right (as hereinafter defined)
in respect of each Common Share (as hereinafter defined) outstanding
immediately following the Effective Time (the "Record Time"); and
(b) authorized the issuance of one Right in respect of each Common
Share of the Corporation issued after the Record Time and prior to the earlier
of the Separation Time (as hereinafter defined) and the Expiration Time (as
hereinafter defined).
AND WHEREAS each Right, when issued, will entitle the holder thereof, after the
Separation Time, to purchase securities of the Corporation pursuant to the
terms and subject to the conditions set forth herein;
AND WHEREAS the Corporation desires to appoint the Rights Agent to act on
behalf of the Corporation and the holders of Rights, and the Rights Agent is
willing to so act, in connection with the issuance, transfer, exchange and
replacement of Rights Certificates (as hereinafter defined), the exercise of
Rights and other matters referred to herein;
NOW THEREFORE, in consideration of the premises and the respective covenants
and agreements set forth herein, and subject to such covenants and agreements,
the parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Certain Definitions
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "ACQUIRING PERSON" shall mean any Person who is the Beneficial Owner of 20
per cent or more of the outstanding Voting Shares; provided, however, that the
term "Acquiring Person" shall not include:
(i) the Corporation or any Subsidiary of the Corporation;
(ii) any Person who becomes the Beneficial Owner of 20 per cent or more of
the Outstanding Voting Shares as a result of one or any combination of (A) a
Voting Share Reduction, (B) Permitted Bid Acquisitions, (C) an Exempt
Acquisition or (D) Pro Rata Acquisitions; provided, however, that if a Person
becomes the Beneficial Owner of 20 per cent or more of the outstanding Voting
Shares by reason of one or any combination of the operation of Paragraphs (A),
(B), (C) or (D) above and such Person's Beneficial Ownership of Voting Shares
thereafter increases by more than 1 per cent of the number of Voting Shares
outstanding (other than pursuant to one or any combination of a Voting Share
Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata
Acquisition), then as of the date such Person becomes the Beneficial Owner of
such additional Voting Shares, such Person shall become an "Acquiring Person";
(iii) for a period of ten days after the Disqualification Date (as defined
below), any Person who becomes the Beneficial Owner of 20 per cent or more of
the outstanding Voting Shares as a result of such Person becoming disqualified
from relying on Clause 1.1(g)(B) because such Person makes or announces a
current intention to make a Take-over Bid, either alone or by acting jointly
or in concert with any other Person. For the purposes of this definition,
"Disqualification Date" means the first date of public announcement that any
Person is making or intends to make a Take-over Bid;
(iv) an underwriter or member of a banking or selling group that
becomes the Beneficial Owner of 20 per cent or more of the Voting Shares in
connection with a distribution to the public of securities of the
Corporation; or
(v) a Person (a "Grandfathered Person") who is the Beneficial Owner of
20 per cent or more of the outstanding Voting Shares of the Corporation
determined as of 12:01 am (Toronto time) on the Agreement Date, provided,
however, that this exception shall not be, and shall cease to be, applicable
to a Grandfathered Person in the event that such Grandfathered Person shall,
after 12:01 am (Toronto time) on the Agreement Date, become the Beneficial
Owner of any additional Voting Shares of the Corporation that increases its
Beneficial Ownership of Voting Shares by more than 1 per cent of the number
of Voting Shares outstanding, other than through one or any combination of
a Permitted Bid Acquisition, an Exempt Acquisition, a Voting Share Reduction,
or a Pro Rata Acquisition;
(b) "AFFILIATE": when used to indicate a relationship with a specified
Person, shall mean a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such specified Person;
(c) "AGREEMENT" shall mean this shareholder rights plan agreement dated
as of October 5, 1998 between the Corporation and the Rights Agent, as amended
or supplemented from time to time; "hereof", "herein", "hereto" and similar
expressions mean and refer to this Agreement as a whole and not to any
particular part of this Agreement;
(d) "AGREEMENT DATE" means October 5, 1998;
(e) "ANNUAL CASH DIVIDEND" shall mean cash dividends paid in any fiscal
year of the Corporation to the extent that such cash dividends do not exceed,
in the aggregate, the greatest of:
(i) 200 per cent of the aggregate amount of cash dividends declared
payable by the Corporation on its Common Shares in its immediately preceding
fiscal year;
(ii) 300 per cent of the arithmetic mean of the aggregate amounts of
the annual cash dividends declared payable by the Corporation on its Common
Shares in its three immediately preceding fiscal years; and
(iii) 100 per cent of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its immediately preceding fiscal
year;
(f) "ASSOCIATE" means, when used to indicate a relationship with a
specified Person, a spouse of that Person, any Person of the same or opposite
sex with whom that Person is living in a conjugal relationship outside marriage,
a child of that Person or a relative of that Person if that relative has the
same residence as that Person;
(g) A Person shall be deemed the "BENEFICIAL OWNER" of, and to have
"BENEFICIAL OWNERSHIP" of, and to "BENEFICIALLY OWN",
(i) any securities as to which such Person or any of such Person's
Affiliates or Associates is the owner at law or in equity;
(ii) any securities as to which such Person or any of such Person's
Affiliates or Associates has the right to acquire (whether such right is
exercisable immediately or within a period of 60 days thereafter and whether
or not on condition or the happening of any contingency) pursuant to any
agreement, arrangement, pledge or understanding, whether or not in writing
(other than (x) customary agreements with and between underwriters and/or
banking group members and/or selling group members with respect to a
distribution of securities by the Corporation, and (y) pledges of securities
in the ordinary course of business), or upon the exercise of any conversion
right, exchange right, share purchase right (other than the Rights),
warrant or option;
(iii) any securities owned through a trustee, legal representative,
agent or other intermediary;
(iv) any securities which are Beneficially Owned within the
meaning of Clauses 1.1(g)(i), (ii) or (iii) by any other Person with which
such Person is acting jointly or in concert;
provided, however, that a Person shall not be deemed the "BENEFICIAL OWNER" of,
or to have "BENEFICIAL OWNERSHIP" of, or to "BENEFICIALLY OWN", any security:
(A) where such security has been deposited or tendered
pursuant to any Take-over Bid or where the holder of such security has agreed
pursuant to a Permitted Lock-Up Agreement to deposit or tender such security
pursuant to a Take-over Bid, in each case made by such Person, made by any of
such Person's Affiliates or Associates or made by any other Person acting
jointly or in concert with such Person, until such deposited or tendered
security has been taken up or paid for, whichever shall first occur;
(B) where such Person, any of such Person's Affiliates or
Associates or any other Person referred to in Clause 1.1(g)(iv), holds such
security provided that (1) the ordinary business of any such Person (the
"Investment Manager") includes the management of investment funds for others
(which others, for greater certainty, may include or be limited to one or more
employee benefit plans or pension plans) and such security is held by the
Investment Manager in the ordinary course of such business in the performance
of such Investment Manager's duties for the account of any other Person or
Persons (a "Client"); or (2) such Person (the "Trust Company") is licensed to
carry on the business of a trust company under applicable laws and, as such,
acts as trustee or administrator or in a similar capacity in relation to the
estates of deceased or incompetent Persons (each an "Estate Account") or in
relation to other accounts (each an "Other Account") and holds such security in
the ordinary course of such duties for the estate of any such deceased or
incompetent Person or for such Other Accounts, (3)such Person is a pension plan
or fund (a "Plan") or is a Person established by statute for purposes that
include, and the ordinary business or activity of such Person (the "Statutory
Body") includes, the management of investment funds for employee benefit plans,
pension plans, insurance plans of various public bodies; or (4) such Person
(the "Administrator") is the administrator or trustee of one or more Plans;
provided, in any of the above cases, that the Investment Manager, the Trust
Company, the Statutory Body, the Administrator or the Plan, as the case may be,
is not then making or has not then announced an intention to make a Take-over
Bid, (other than an Offer to Acquire Voting Shares or other securities by means
of a distribution by the Corporation or by means of ordinary market transactions
(includingprearranged trades) executed through the facilities of a stock
exchange or organized over-the-counter market) alone or by acting jointly or
in concert with any other Person;
(C) where such Person or any of such Person's Affiliates or
Associates is (1) a Client of the same Investment Manager as another Person
on whose account the Investment Manager holds such security, (2) an Estate
Account or an Other Account of the same Trust Company as another Person on
whose account the Trust Company holds or exercises voting or dispositive
power over such security, or (3) a Plan with the same Administrators as
another Plan on whose account the Administrator holds such security;
(D) where such Person is (1) a Client of an Investment
Manager and such security is owned at law or in equity by the Investment
Manager, (2) an Estate Account or an Other Account of a Trust Company and
such security is owned at law or in equity by the Trust Company or (3) a
Plan and such security is owned at law or in equity by the Administrator of
the Plan; or
(E) where such person is the registered holder of
securities as a result of carrying on the business of or acting as a nominee
of a securities depository.
(h) "BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation or any duly constituted and empowered committee thereof;
(i) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Toronto, Ontario are authorized or
obligated by law to close;
(j) "CANADIAN DOLLAR EQUIVALENT" of any amount which is expressed in
United States Dollars means, on any date, the Canadian dollar equivalent of
such amount determined by multiplying such amount by the U.S. - Canadian
Exchange Rate in effect on such date;
(k) "CANADIAN - U.S. EXCHANGE RATE" means, on any date, the inverse of
the U.S. - Canadian Exchange Rate in effect on such date;
(l) "CLASS A SHARES" means the class A common shares in the capital of
the Corporation;
(m) "CLASS B SHARES" means the class B common shares in the capital of
the Corporation;
(n) "CLOSE OF BUSINESS" on any given date shall mean the time on such
date (or, if such date is not a Business Day, the time on the next
succeeding Business Day) at which the transfer office of the transfer agent
(or co-transfer agent) for the Common Shares in the City of Toronto (or,
after the Separation Time, the office of the Rights Agent in the City of
Toronto) is closed to the public;
(o) "COMMON SHARES" shall mean the Class A Shares and the Class B Shares
in the capital of the Corporation and, for the purposes of this Agreement,
except as specifically otherwise provided herein, the Class A Shares and the
Class B Shares shall be treated as a single class of common shares;
(p) "COMPETING PERMITTED BID" means a Take-over Bid that (i) is made
after a Permitted Bid has been made and prior to the expiry of the Permitted
Bid; (ii) satisfies all of the provisions of a Permitted Bid other than
the condition set forth in Clause (ii) of the definition of a Permitted Bid;
and (iii) contains, and the take-up and payment for securities tendered or
deposited is subject to, an irrevocable and unqualified provision that no
Voting Shares will be taken up or paid for pursuant to the Take-over Bid
prior to the close of business on the date that is no earlier than the later
of (A) 21 days after the date of the Take-over Bid constituting the
Competing Permitted Bid; and (B) 60 days following the date on which the
earliest Permitted Bid which preceded the Competing Permitting Bid was made;
and only if at the date that the Voting Shares are to be taken up more than
50% of the Voting Shares held by Independent Shareholders shall have been
deposited or tendered pursuant to the Competing Permitted Bid and not
withdrawn;
(q) "CONTROLLED": a corporation shall be deemed to be "controlled" by
another Person if: (i) securities entitled to vote in the election of
directors carrying more than 50 per cent of the votes for the election of
directors are held, directly or indirectly, by or for the benefit of the
other Person; and (ii) the votes carried by such securities are entitled, if
exercised, to elect a majority of the board of directors of such
corporation; and "controls", "controlling" and "under common control with"
shall be interpreted accordingly;
(r) "CO-RIGHTS AGENTS" shall have the meaning ascribed thereto in
Subsection 4.1(a);
(s) "DIVIDEND REINVESTMENT ACQUISITION" shall mean an acquisition of
Voting Shares of any class pursuant to a Dividend Reinvestment Plan;
(t) "DIVIDEND REINVESTMENT PLAN" means a regular dividend reinvestment or
other plan of the Corporation made available by the Corporation to holders of
its securities where such plan permits the holder to direct that some or all
of: (i) dividends paid in respect of shares of any class of the Corporation;
(ii) proceeds of redemption of shares of the Corporation; (iii) interest
paid on evidences of indebtedness of the Corporation; or (iv) optional cash
payments; be applied to the purchase from the Corporation of Common Shares;
(u) "EFFECTIVE TIME" means February 4, 1999
(v) "ELECTION TO EXERCISE" shall have the meaning ascribed thereto in
Clause 2.2(d)(ii);
(w) "EXEMPT ACQUISITION" means a share acquisition in respect of which
the Board of Directors has waived the application of Section 3.1 pursuant to
the provisions of Subsection 5.1(b), (c) or (d);
(x) "EXERCISE PRICE" shall mean, as of any date, the price at which a
holder may purchase the securities issuable upon exercise of one whole Right
which, until adjustment thereof in accordance with the terms hereof, shall be
$70.00;
(y) "EXPANSION FACTOR" shall have the meaning ascribed thereto in
Clause 2.3(a)(x);
(z) "EXPIRATION TIME" shall mean 5:00 p.m. Toronto time on June 30, 2006
unless such time is extended for an additional three-year period puruant to
Section 5.16;
(aa) "FLIP-IN EVENT" shall mean a transaction in or pursuant to which any
Person becomes an Acquiring Person;
(bb) "HOLDER" shall have the meaning ascribed thereto in Section 2.8;
(cc) "INDEPENDENT SHAREHOLDERS" shall mean holders of Voting Shares,
other than:
(i) any Acquiring Person;
(ii) any Offeror, other than a Person referred to in Clause
1.1(g)(B);
(iii) any Affiliate or Associate of any Acquiring Person or
Offeror;
(iv) any Person acting jointly or in concert with any Acquiring
Person or Offeror; and
(v) any employee benefit plan, deferred profit sharing plan,
stock participation plan and any other similar plan or trust for the benefit
of employees of the Corporation or a Subsidiary of the Corporation, unless
the beneficiaries of the plan or trust direct the manner in which the
Voting Shares are to be voted or direct whether the Voting Shares are to be
tendered to a Take-over Bid;
(dd) "MARKET PRICE" per share of any securities on any date of
determination shall mean the average of the daily closing prices per share
of such securities (determined as described below) on each of the 20
consecutive Trading Days through and including the Trading Day immediately
preceding such date; provided, however, that if an event of a type analogous
to any of the events described in Section 2.3 hereof shall have caused the
closing prices used to determine the Market Price on any Trading Days not to
be fully comparable with the closing price on such date of determination or,
if the date of determination is not a Trading Day, on the immediately
preceding Trading Day, each such closing price so used shall be
appropriately adjusted in a manner analogous to the applicable adjustment
provided for in Section 2.3 hereof in order to make it fully comparable with
the closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding Trading
Day. The closing price per share of any securities on any date shall be:
(i) the closing board lot sale price or, in case no such sale
takes place on such date, the average of the closing bid and asked prices
for each of such securities as reported by the principal Canadian stock
exchange on which such securities are listed or admitted to trading;
(ii) if for any reason none of such prices is available on such day
or the securities are not listed or posted for trading on a Canadian stock
exchange, the last sale price or, in case no such sale takes place on such
date, the average of the closing bid and asked prices for each of such
securities as reported by the principal national United States securities
exchange or market on which such securities are listed or admitted to
trading;
(iii) if for any reason none of such prices is available on such day
or the securities are not listed or admitted to trading on a Canadian stock
exchange or a national United States securities exchange or market, the last
sale price or, in case no sale takes place on such date, the average of the
high bid and low asked prices for each of such securities in the
over-the-counter market, as quoted by any reporting system then in use; or
(iv) if for any reason none of such prices is available on such day
or the securities are not listed or admitted to trading on a Canadian stock
exchange or a national United States securities exchange or market or quoted
by any such reporting system, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the securities;
provided, however, that if for any reason none of such prices is available on
such day, the closing price per share of such securities on such date means
the fair value per share of such securities on such date as determined by a
nationally or internationally recognized investment dealer or investment
banker with respect to the fair value per share of such securities. The
Market Price shall be expressed in Canadian dollars and, if initially
determined in respect of any day forming part of the 20 consecutive Trading
Day period in question in United States dollars, such amount shall be
translated into Canadian dollars on such date at the Canadian Dollar
Equivalent thereof.
(ee) "1933 SECURITIES ACT" means the Securities Act of 1933 of the United
States, as amended, and the rules and regulations thereunder as now in effect
or as the same may from time to time be amended, re-enacted or replaced;
(ff) "1934 EXCHANGE ACT" means the Securities Exchange Act of 1934 of the
United States, as amended, and the rules and regulations thereunder as now in
effect or as the same may from time to time be amended, re-enacted or
replaced;
(gg) "NOMINEE" shall have the meaning ascribed thereto in Subsection
2.2(c);
(hh) "OFFER TO ACQUIRE" shall include:
(i) an offer to purchase or a solicitation of an offer to sell; and
(ii) an acceptance of an offer to sell, whether or not such offer to
sell has been solicited;
or any combination thereof, and the Person accepting an offer to sell shall
be deemed to be making an Offer to Acquire to the Person that made the offer
to sell;
(ii) "OFFEROR" shall mean a Person who has announced an intention to make
or who is making a Take-over Bid;
(jj) "PERMITTED BID" means a Take-over Bid made by an Offeror by way of
take-over bid circular which also complies with the following additional
provisions:
(i) the Take-over Bid is made to all holders of Voting Shares as
registered on the books of the Corporation, other than the Offeror;
(ii) the Take-over Bid contains, and the take-up and payment for
securities tendered or deposited is subject to, an irrevocable and
unqualified provision that no Voting Shares will be taken up or paid for
pursuant to the Take-over Bid prior to the close of business on the date
which is not less than 60 days following the date of the Take-over Bid and
only if at such date more than 50 per cent of the Voting Shares held by
Independent Shareholders shall have been deposited or tendered pursuant to
the Take-over Bid and not withdrawn;
(iii) the Take-over Bid contains an irrevocable and unqualified
provision that unless the Take-over Bid is withdrawn, Voting Shares may be
deposited pursuant to such Take-over Bid at any time during the period of
time between the date of the Take-over Bid and the date on which Voting
Shares may be taken up and paid for and that any Voting Shares deposited
pursuant to the Take-over Bid may be withdrawn until taken up and paid for;
and
(iv) the Take-over Bid contains an irrevocable and unqualified
provision that if, on the date on which Voting Shares may be taken up and
paid for, more than 50% of the Voting Shares held by Independent
Shareholders shall have been deposited pursuant to the Take-over Bid and not
withdrawn, the Offeror will make a public announcement of that fact and the
Take- over Bid will remain open for deposits and tenders of Voting Shares for
not less than ten Business Days from the date of such public announcement;
(kk) "PERMITTED BID ACQUISITION" shall mean an acquisition of Voting Shares
made pursuant to a Permitted Bid or a Competing Permitted Bid;
(ll) "PERMITTED LOCK-UP AGREEMENT" shall mean an agreement between a
Person and one or more holders of Voting Shares pursuant to which such holders
(each a "Locked-Up Person") agree to deposit or tender Voting Shares to a
Take-over Bid (the "Lock-Up Bid") made or to be made by such Person or any
of such Persons Affiliates or Associates or any other Person with which
such Person is acting jointly or in concert, provided that:
(i) the terms of such agreement are reduced to writing and publicly
disclosed and a copy of such agreement is made available to the public
(including the Corporation) not later than the date of the Lock-Up Bid or,
if the Lock-Up Bid has been made prior to the date on which such agreement
is entered into, not later than the date of such agreement;
(ii) the agreement permits a Locked-Up Person to terminate its
obligation to deposit or tender Voting Shares to or not to withdraw such
Voting Shares from the Lock-Up Bid, and to terminate any obligation with
respect to the voting of such Voting Shares, in order to tender or deposit
the Voting Shares to another Take-over Bid or to support another transaction
where the price or value of the consideration per Voting Share offered under
such other Take-over Bid or transaction is:
(A) greater than the price or value of the consideration per
Voting Share at which the Locked-Up Person has agreed to deposit or tender
Voting Shares to the Lock-Up Bid; or
(B) equal to or greater than a minimum price or value specified in
the agreement, which specified minimum is not more than 7% higher than the
price or value of the consideration per Voting Share at which the Locked-Up
Person has agreed to deposit or tender Voting Shares to the Lock-Up Bid; and
(iii) no "break-up" fees, "top-up" fees, penalties, expenses or other
amounts that exceed in aggregate the greater of:
(A) 2.5% of the price or value of the consideration payable under
the Lock-Up Bid to a Locked-Up Person; and
(B) 50% of the amount by which the price or value of the
consideration received by a Locked-Up Person under another Take-over Bid or
transaction exceeds the price or value of the consideration that the
Locked-Up Person would have received under the Lock- Up Bid,
shall be payable by such Locked-Up Person if the Locked-Up Person fails to
deposit or tender Voting Shares to the Lock-Up Bid, withdraws Voting Shares
previously tendered thereto or supports another transaction;
(mm) "PERSON" shall include an individual, body corporate, firm,
partnership, limited partnership, limited liability company, syndicate or
other form of unincorporated association, trust, trustee, executor,
administrator, legal personal representative, group, unincorporated
organization, a government and its agencies or instrumentalities, any
entity or group whether or not having legal personality;
(nn) "PRO RATA ACQUISITION" shall mean an acquisition by a Person of
Voting Shares pursuant to:
(i) a Dividend Reinvestment Acquisition;
(ii) a stock dividend, stock split or other event in respect of
securities of the Corporation of one or more particular classes or series
pursuant to which such Person becomes the Beneficial Owner of Voting Shares
on the same pro rata basis as all other holders of securities of the
particular class, classes or series;
(iii) the acquisition or the exercise by the Person of rights to
purchase Voting Shares issued by the Corporation to all holders of
securities of the Corporation of one or more particular classes or series
pursuant to a rights offering or pursuant to a prospectus, provided that
such rights are acquired directly from the Corporation and not from any other
Person; or
(iv) a distribution of Voting Shares, or securities convertible into
or exchangeable for Voting Shares (and the conversion or exchange of such
convertible or exchangeable securities), made pursuant to a prospectus or by
way of a private placement by the Corporation provided that the Person does
not thereby acquire beneficial ownership of a greater percentage of such
Voting Shares or securities convertible into or exchangeable for Voting
Shares so offered than the Person's percentage of Voting Shares beneficially
owned immediately prior to such acquisition ;
(oo) "RECORD TIME" has the meaning set forth in the recitals hereto;
(qq) "RIGHT" means a right to purchase a Class A Share of the
Corporation, upon the terms and subject to the conditions set forth in this
Agreement;
(rr) "RIGHTS CERTIFICATE" means the certificates representing the Rights
after the Separation Time, which shall be substantially in the form attached
hereto as Attachment 1;
(ss) "RIGHTS REGISTER" shall have the meaning ascribed thereto in
Subsection 2.6(a);
(tt) "SECURITIES ACT (ONTARIO)" shall mean the Securities Act, R.S.O.
1990, c.S.5, as amended, and the regulations thereunder, and any comparable
or successor laws or regulations thereto;
(uu) "SEPARATION TIME" shall mean, subject to Sub-section 5.1(d), the
later of
(i) the close of business on the tenth Trading Day after the
earlier of:
(A) the Stock Acquisition Date; and
(B) the date of the commencement of or first public announcement
of the intent of any Person (other than the Corporation or any Subsidiary of
the Corporation) to commence a Take-over Bid (other than a Permitted Bid or
a Competing Permitted Bid), or such later time as may be determined by the
Board of Directors, provided that, if any Take-over Bid referred to in
clause (B) above expires, is not made, is canceled, terminated or otherwise
withdrawn prior to the Separation Time, such Take-over Bid shall be deemed,
for the purposes of this definition, never to have been commenced, made or
announced; and
(ii) the Record Time;
(vv) "SHARE CAPITAL INCREASE APPROVAL" shall have the meaning ascribed
thereto in Section 5.15;
(ww) "STOCK ACQUISITION DATE" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 101 of the Securities Act
(Ontario) or Section 13(d) of the 1934 Exchange Act) by the Corporation or
an Acquiring Person of facts indicating that a Person has become an
Acquiring Person;
(xx) "SUBSIDIARY": a corporation shall be deemed to be a Subsidiary of
another corporation if:
(i) it is controlled by:
(ii) that other; or
(iii) that other and one or more corporations each of which is
controlled by that other; or (iv) two or more corporations each of which is
controlled by that other; or (v) it is a Subsidiary of a corporation that is
that other's Subsidiary;
(yy) "TAKE-OVER BID" shall mean an Offer to Acquire Voting Shares or
other securities of the Corporation, if, assuming that the Voting Shares or
other securities subject to the Offer to Acquire are acquired at the date of
such Offer to Acquire by the Person making such Offer to Acquire, the Voting
Shares Beneficially Owned by the Person making the Offer to Acquire would
constitute in the aggregate 20 per cent or more of the outstanding Voting
Shares at the date of the Offer to Acquire;
(zz) "TRADING DAY", when used with respect to any securities, shall mean
a day on which the principal Canadian stock exchange on which such
securities are listed or admitted to trading is open for the transaction of
business or, if the securities are not listed or admitted to trading on any
Canadian stock exchange, a Business Day;
(aaa) "U.S.-CANADIAN EXCHANGE RATE" means, on any date: (i) if on such
date the Bank of Canada sets an average noon spot rate of exchange for the
conversion of one United States dollar into Canadian dollars, such rate; and
(ii) in any other case, the rate for such date for the conversion of one
United States dollar into Canadian dollars calculated in such manner as may
be determined by the Board of Directors from time to time acting in good
faith;
(bbb) "U.S. DOLLAR EQUIVALENT" of any amount which is expressed in Canadian
dollars means, on any date, the United States dollar equivalent of such
amount determined by multiplying such amount by the Canadian-U.S. Exchange
Rate in effect on such date;
(ccc) "VOTING SHARE REDUCTION" shall mean an acquisition or redemption
by the Corporation of Voting Shares which, by reducing the number of Voting
Shares outstanding, increases the percentage of outstanding Voting Shares
Beneficially Owned by any person to 20 per cent or more of the Voting
Shares then outstanding; and
(ddd) "VOTING SHARES" shall mean the Common Shares of the Corporation and
any other shares in the capital of the Corporation entitled to vote
generally in the election of all directors.
(eee) "YUKON BUSINESS CORPORATIONS ACT" means the Yukon Business
Corporations Act (Yukon), as amended, and the regulations made thereunder
and any comparable or successor laws or regulations thereto.
1.2 Currency
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.
1.3 Headings
The division of this Agreement into Articles, Sections, Subsections,
Clauses, Paragraphs, Subparagraphs or other portions hereof and the
insertion of headings, subheadings and a table of contents are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.4 Calculation of Number and Percentage of Beneficial Ownership of
Outstanding Voting Shares
(a) For purposes of this Agreement, in determining the percentage of
outstanding Voting Shares of the Corporation with respect to which a Person
is or is deemed to be the Beneficial Owner, all unissued Voting Shares of
the Corporation of which such person is deemed to be the Beneficial Owner
shall be deemed to be outstanding.
(b) For purposes of this Agreement, the percentage of Voting Shares
Beneficially Owned by any Person shall be and be deemed to be the product
(expressed as a percentage) determined by the formula:
100 x A/B
where:
A= the number of votes for the election of all directors
generally attaching to the Voting Shares Beneficially Owned by such Person;
and
B= the number of votes for the election of all directors
generally attaching to all outstanding Voting Shares.
The percentage of outstanding Voting Shares represented by any particular
group of Voting Shares acquired or held by any Person shall be determined in
like manner mutatis mutandis.
1.5 Acting Jointly or in Concert
For purposes of this Agreement a Person is acting jointly or in concert
with another Person, if such Person has any agreement, commitment,
arrangement or understanding, whether formal or informal and whether or not
in writing, with such other Person for the purpose of acquiring or Offering
to Acquire any Voting Shares (other than (x) customary agreements with and
between underwriters and/or banking group members and/or selling group
members with respect to a distribution of securities by the Corporation,
(y) pledges of securities in the ordinary course of business, and (z)
Permitted Lock-Up Agreements).
1.6 Generally Accepted Accounting Principles
Wherever in this Agreement reference is made to generally accepted
accounting principles, such reference shall be deemed to be generally
accepted accounting principles followed in Canada applicable on a
consolidated basis (unless otherwise specifically provided herein to be
applicable on an unconsolidated basis) as at the date on which a calculation
is made or required to be made in accordance with generally accepted
accounting principles. Where the character or amount of any asset or
liability or item of revenue or expense is required to be determined, or any
consolidation or other accounting computation is required to be made for the
purpose of this Agreement or any document, such determination or
calculation shall, to the extent applicable and except as otherwise
specified herein or as otherwise agreed in writing by the parties, be made
in accordance with generally accepted accounting principles applied on a
consistent basis.
1.7 Successor Rights Agent and Restatement
Effective March 16, 2001, Computershare was appointed as the successor to
Montreal Trust Company of Canada as Rights Agent under this Agreement. All
references to the "Rights Agent" in this Agreement for any time prior to the
effective time of such appointment shall be taken to be references to
Montreal Trust and all such references for any time after the effective
time of such appointment shall be taken to be references to Computershare.
This Agreement has been amended and restated effective January 29, 2006.
Notwithstanding such amendment and restatement, this Agreement shall be
dated as of October 5, 1998 and shall be considered to speak as of October
5, 1998 except where otherwise specifically provided or where the context
otherwise requires.
ARTICLE 2
THE RIGHTS
2.1 Legend on Share Certificates
Certificates representing Common Shares which are issued after the Record
Time but prior to the earlier of the Separation Time and the Expiration
Time, shall also evidence one Right for each Common Share represented
thereby until the earlier of the Separation Time or the Expiration Time and
the Corporation shall cause such certificates to have impressed thereon,
printed thereon, written thereon or otherwise affixed to them the following
legend:
Until the close of business on the earlier of the Separation Time or the
Expiration Time (as both terms are defined in the Shareholder Rights
Agreement referred to below), this certificate also evidences rights of the
holder described in a Shareholder Rights Plan Agreement dated as of October
5, 1998 (the "Shareholder Rights Agreement") between Gold Reserve Inc. (the
"Corporation") and Computershare Investor services Inc., as supplemented
and amended, the terms of which are incorporated herein by reference and a
copy of which is on file at the principal executive offices of the
Corporation. Under certain circumstances set out in the Shareholder Rights
Agreement, the rights may be terminated, may expire, may become null and void
(if, in certain cases they are "Beneficially Owned" by an "Acquiring Person"
as such terms are defined in the Shareholder Rights Agreement, whether
currently held by or on behalf of such Person or a subsequent holder) or may
be evidenced by separate certificates and no longer evidenced by this
certificate. The Corporation will mail or arrange for the mailing of a copy
of the Shareholder Rights Agreement to the holder of this certificate without
charge as soon as practicable after the receipt of a written request
therefor.
Provided that the Record Time occurs prior to the Separation Time,
certificates representing Common Shares that are issued and outstanding at
the Record Time shall also evidence one Right for each Common Share
represented thereby notwithstanding the absence of the foregoing legend,
until the close of business on the earlier of the Separation Time and the
Expiration Time.
2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights
(a) Subject to adjustment as herein set forth, each Right will entitle
the holder thereof, from and after the Separation Time and prior to the
Expiration Time, to purchase one Class A Share for the Exercise Price or the
U.S. Dollar Equivalent as at the Business Day immediately preceding the day
of exercise of the Right (and the Exercise Price and number of Class A
Shares are subject to adjustment as set forth below).
(b) Until the Separation Time,
(i) the Rights shall not be exercisable and no Right may be
exercised; and
(ii) each Right, when issued, will be evidenced by the certificate
for the associated Common Share of the Corporation registered in the name of
the holder thereof (which certificate shall also be deemed to represent a
Rights Certificate) and will be transferable only together with, and will be
transferred by a transfer of, such associated Common Share of the
Corporation.
(c) From and after the Separation Time and prior to the Expiration Time:
(i) the Rights shall be exercisable; and
(ii) the registration and transfer of Rights shall be separate from
and independent of Common Shares. Promptly following the Separation Time,
the Corporation will prepare and the Rights Agent will mail to each holder
of record of Common Shares as of the Separation Time (other than an Acquiring
Person and, in respect of any Rights Beneficially Owned by such Acquiring
Person which are not held of record by such Acquiring Person, the holder of
record of such Rights (a "Nominee")), at such holder's address as shown by
the records of the Corporation (the Corporation hereby agreeing to furnish
copies of such records to the Rights Agent for this purpose):
(x) a Rights Certificate appropriately completed,
representing the number of Rights held by such holder at the Separation Time
and having such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law, rule or regulation
or with any rule or regulation of any self-regulatory organization, stock
exchange or quotation system on which the Rights may from time to time be
listed or traded, or to conform to usage; and
(y) a disclosure statement describing the Rights, provided
that a Nominee shall be sent the materials provided for in (x) and (y) only
in respect of all Common Shares held of record by it which are not
Beneficially Owned by an Acquiring Person.
(d) Rights may be exercised, in whole or in part, on any Business Day
after the Separation Time and prior to the Expiration Time by submitting to
the Rights Agent at its office in Toronto, Ontario or any other office of
the Rights Agent (or any Co-Rights Agent) in cities designated from time to
time for that purpose by the Corporation:
(i) the Rights Certificate evidencing such Rights;
(ii) an election to exercise such Rights (an "Election to
Exercise") substantially in the form attached to the Rights Certificate
appropriately completed and executed by the holder or his executors or
administrators or other personal representatives or his or their legal
attorney duly appointed by an instrument in writing in form and executed in
a manner satisfactory to the Rights Agent; and
(iii) payment by certified cheque, banker's draft or money order
payable to the order of the Corporation, of a sum equal to the Exercise
Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge which may be payable in
respect of any transfer involved in the transfer or delivery of Rights
Certificates or the issuance or delivery of certificates for Class A Shares
in a name other than that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, together with a completed
Election to Exercise executed in accordance with Clause 2.2(d)(ii), which
does not indicate that such Right is null and void as provided by Subsection
3.1(b), and payment as set forth in Clause 2.2(d)(iii), the Rights Agent
(unless otherwise instructed by the Corporation in the event that the
Corporation is of the opinion that the Rights cannot be exercised in
accordance with this Agreement) will thereupon promptly:
(i) requisition from the transfer agent certificates representing
the number of such Class A Shares to be purchased (the Corporation hereby
irrevocably authorizing its transfer agent to comply with all such
requisitions);
(ii) when appropriate, requisition from the Corporation the amount
of cash to be paid in lieu of issuing fractional Class A Shares;
(iii) after receipt of the certificates referred to in Clause
2.2(e)(i), deliver the same to or upon the order of the registered holder of
such Rights Certificates, registered in such name or names as may be
designated by such holder;
(iv) when appropriate, after receipt, deliver the cash referred to in
Clause 2.2(e)(ii) to or to the order of the registered holder of such Rights
Certificate; and
(v) remit to the Corporation all payments received on the exercise
of Rights.
(f) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised (subject to the
provisions of Subsection 5.5(a)) will be issued by the Rights Agent to such
holder or to such holder's duly authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within its power
to ensure that all Class A Shares delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such Class A Shares (subject
to payment of the Exercise Price), be duly and validly authorized, executed,
issued and delivered as fully paid and non-assessable;
(ii) take all such action as may be necessary and within its power
to comply with the requirements of the YUKON BUSINESS CORPORATIONS ACT,
the SECURITIES ACT (ONTARIO) and the securities laws or comparable
legislation of each of the provinces and territories of Canada, the 1993
SECURITIES ACT and the 1934 EXCHANGE ACT and any other applicable law, rule
or regulation, in connection with the issuance and delivery of the Rights
Certificates and the issuance of any Class A Shares upon exercise of Rights;
(iii) use reasonable efforts to cause all Class A Shares issued upon
exercise of Rights to be listed on the stock exchanges and markets on which
such Class A Shares were traded immediately prior to the Stock Acquisition
Date;
(iv) pay when due and payable, if applicable, any and all federal,
provincial, territorial and municipal transfer taxes and charges (not
including any income or capital taxes of the holder or exercising holder or
any liability of the Corporation to withhold tax) which may be payable in
respect of the original issuance or delivery of the Rights Certificates, or
certificates for Class A Shares to be issued upon exercise of any Rights,
provided that the Corporation shall not be required to pay any transfer tax
or charge which may be payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the issuance or delivery of
certificates for Class A Shares in a name other than that of the holder of
the Rights being transferred or exercised; and
(v) after the Separation Time, except as permitted by Sections 5.1
and 5.4, not take (or permit any Subsidiary to take) any action if at the
time such action is taken it is reasonably foreseeable that such action will
diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.
2.3 Adjustments to Exercise Price; Number of Rights
The Exercise Price, the number and kind of securities subject to purchase
upon exercise of each Right and the number of Rights outstanding are subject
to adjustment from time to time as provided in this Section 2.3.
(a) In the event the Corporation shall at any time after the Agreement
Date: (i) declare or pay a dividend on Common Shares payable in Common
Shares (or other securities exchangeable for or convertible into or giving a
right to acquire Common Shares or other securities of the Corporation) other
than pursuant to any Dividend Reinvestment Plan;
(ii) subdivide or change the then outstanding Common Shares into a
greater number of Common Shares;
(iii) consolidate or change the then outstanding Common Shares into a
smaller number of Common Shares; or
(iv) issue any Common Shares (or other securities exchangeable
for or convertible into or giving a right to acquire Common Shares or other
securities of the Corporation) in respect of, in lieu of or in exchange for
existing Common Shares except as otherwise provided in this Section 2.3, the
Exercise Price and the number of Rights outstanding, or, if the payment or
effective date therefor shall occur after the Separation Time, the securities
purchasable upon exercise of Rights shall be adjusted as of the payment or
effective date in the manner set forth below. If the Exercise Price and
number of Rights outstanding are to be adjusted:
(x) the Exercise Price in effect after such adjustment will be equal
to the Exercise Price in effect immediately prior to such adjustment divided
by the number of Common Shares (or other capital stock) (the "Expansion
Factor") that a holder of one Common Share immediately prior to such
dividend, subdivision, change, consolidation or issuance would hold
thereafter as a result thereof; and
(y) each Right held prior to such adjustment will become that number
of Rights equal to the Expansion Factor,
and the adjusted number of Rights will be deemed to be distributed among
the Common Shares with respect to which the original Rights were associated
(if they remain outstanding) and the shares issued in respect of such
dividend, subdivision, change, consolidation or issuance, so that each such
Common Share (or other capital stock) will have exactly one Right associated
with it.
For greater certainty, if the securities purchasable upon exercise of Rights
are to be adjusted, the securities purchasable upon exercise of each Right
after such adjustment will be the securities that a holder of the securities
purchasable upon exercise of one Right immediately prior to such dividend,
subdivision, change, consolidation or issuance would hold thereafter as a
result of such dividend, subdivision, change, consolidation or issuance.
If, after the Record Time and prior to the Expiration Time, the Corporation
shall issue any shares of capital stock other than Common Shares in a
transaction of a type described in Clause 2.3(a)(i) or (iv), shares of such
capital stock shall be treated herein as nearly equivalent to Common Shares
as may be practicable and appropriate under the circumstances and the
Corporation and the Rights Agent agree to amend this Agreement in order to
effect such treatment. In the event the Corporation shall at any time after
the Record Time and prior to the Separation Time issue any Common Shares
otherwise than in a transaction referred to in this Subsection 2.3(a), each
such Common Share so issued shall automatically have one new Right
associated with it, which Right shall be evidenced by the certificate
representing such associated Common Share.
(b) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time fix a record date for the issuance of
rights, options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Shares (or securities convertible into or
exchangeable for or carrying a right to purchase Common Shares) at a price
per Common Share (or, if a security convertible into or exchangeable for or
carrying a right to purchase or subscribe for Common Shares, having a
conversion, exchange or exercise price, including the price required to be
paid to purchase such convertible or exchangeable security or right per
share) less than the Market Price per Common Share on such record date, the
Exercise Price to be in effect after such record date shall be determined
by multiplying the Exercise Price in effect immediately prior to such record
date by a fraction:
(i) the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares that the
aggregate offering price of the total number of Common Shares so to be
offered (and/or the aggregate initial conversion, exchange or exercise
price of the convertible or exchangeable securities or rights so to be
offered, including the price required to be paid to purchase such
convertible or exchangeable securities or rights) would purchase at such
Market Price per Common Share; and
(ii) the denominator of which shall be the number of Common Shares
outstanding on such record date plus the number of additional Common Shares
to be offered for subscription or purchase (or into which the convertible or
exchangeable securities or rights so to be offered are initially
convertible, exchangeable or exercisable).
In case such subscription price may be paid by delivery of consideration,
part or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent and the holders
of Rights. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights, options or warrants
are not so issued, or if issued, are not exercised prior to the expiration
thereof, the Exercise Price shall be readjusted to the Exercise Price which
would then be in effect if such record date had not been fixed, or to the
Exercise Price which would be in effect based upon the number of Common
Shares (or securities convertible into, or exchangeable or exercisable for
Common Shares) actually issued upon the exercise of such rights, options or
warrants, as the case may be.
For purposes of this Agreement, the granting of the right to purchase
Common Shares from treasury pursuant to the Dividend Reinvestment Plan or
any employee benefit, stock option or similar plans shall be deemed not to
constitute an issue of rights, options or warrants by the Corporation;
provided, however, that, in all such cases, the right to purchase Common
Shares is at a price per share of not less than 90 per cent of the current
market price per share (determined as provided in such plans) of the Common
Shares.
(c) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time fix a record date for the making of a
distribution to all holders of Common Shares (including any such
distribution made in connection with a merger or amalgamation) of evidences
of indebtedness, cash (other than an annual cash dividend or a dividend
paid in Common Shares, but including any dividend payable in securities
other than Common Shares), assets or rights, options or warrants (excluding
those referred to in Subsection 2.3(b)) to purchase Common Shares at a price
per Common Share that is less than the Market Price per Common Share on such
record date, the Exercise Price to be in effect after such record date
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction:
(i) the numerator of which shall be the Market Price per Common
Share on such record date, less the fair market value (the determination of
which shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of Rights), on a per
share basis, of the portion of the cash, assets, evidences of indebtedness,
rights, options or warrants so to be distributed; and
(ii) the denominator of which shall be such Market Price per Common
Share. Such adjustments shall be made successively whenever such a record
date is fixed, and in the event that such a distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price which would
have been in effect if such record date had not been fixed.
(d) Notwithstanding anything herein to the contrary, no adjustment in
the Exercise Price shall be required unless such adjustment would require
an increase or decrease of at least one per cent in the Exercise Price;
provided, however, that any adjustments which by reason of this Subsection
2.3(d) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under Section 2.3
shall be made to the nearest cent or to the nearest ten-thousandth of a
share. Notwithstanding the first sentence of this Subsection 2.3(d), any
adjustment required by Section 2.3 shall be made no later than the earlier
of:
(i) three years from the date of the transaction which gives rise
to such adjustment; or
(ii) the Expiration Time.
(e) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time issue any shares of capital stock (other
than Common Shares), or rights, options or warrants to subscribe for or
purchase any such capital stock, or securities convertible into or
exchangeable for any such capital stock, in a transaction referred to in
Clause 2.3(a)(i) or (iv), if the Board of Directors acting in good faith
determines that the adjustments contemplated by Subsections 2.3(a), (b) and
(c) in connection with such transaction will not appropriately protect the
interests of the holders of Rights, the Board of Directors may determine
what other adjustments to the Exercise Price, number of Rights and/or
securities purchasable upon exercise of Rights would be appropriate and,
notwithstanding Subsections 2.3(a), (b) and (c), such adjustments, rather
than the adjustments contemplated by Subsections 2.3(a), (b) and (c), shall
be made. Subject to Subsection 5.4(b) and (c), the Corporation and the
Rights Agent shall have authority without the approval of the holders of
the Common Shares or the holders of Rights to amend this Agreement as
appropriate to provide for such adjustments.
(f) Each Right originally issued by the Corporation subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of Class A Shares
purchasable from time to time hereunder upon exercise of a Right immediately
prior to such issue, all subject to further adjustment as provided herein.
(g) Irrespective of any adjustment or change in the Exercise Price or the
number of Class A Shares issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to
express the Exercise Price per Class A Share and the number of Class A
Shares which were expressed in the initial Rights Certificates issued
hereunder.
(h) In any case in which this Section 2.3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for
a specified event, the Corporation may elect to defer until the occurrence
of such event the issuance to the holder of any Right exercised after such
record date the number of Class A Shares and other securities of the
Corporation, if any, issuable upon such exercise over and above the number
of Class A Shares and other securities of the Corporation, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that the Corporation shall deliver to
such holder an appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or other securities
upon the occurrence of the event requiring such adjustment.
(i) Notwithstanding anything contained in this Section 2.3 to the
contrary, the Corporation shall be entitled to make such reductions in the
Exercise Price, in addition to those adjustments expressly required by
this Section 2.3, as and to the extent that in their good faith judgment the
Board of Directors shall determine to be advisable, in order that any:
(i) consolidation or subdivision of Common Shares;
(ii) issuance (wholly or in part for cash) of Common Shares
or securities that by their terms are convertible into or exchangeable for
Common Shares;
(iii) stock dividends; or
(iv) issuance of rights, options or warrants referred to in
this Section 2.3, hereafter made by the Corporation to holders of its Common
Shares, subject to applicable taxation laws, shall not be taxable to such
shareholders or shall subject such shareholders to a lesser amount of tax.
(j) The Rights Agent shall be entitled to rely on any certificate
received from the Corporation stating that any of the events giving rise to
an adjustment required by this section 2.3 has occurred.
(k) The Corporation may elect on or after the date of any adjustment of an
Exercise Price to adjust the number of Rights, in lieu of any adjustment in the
number of Class A Shares purchasable upon the exercise of a Right. Each of the
Rights outstanding after the adjustment in the number of Rights shall be
exercisable for the number of Class A Shares for which a Right was exercisable
immediately prior to such adjustment. Each Right held or record prior to such
adjustment of the number of Rights shall become the number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the
relevant Exercise Price by the relevant Exercise Price in effect immediately
after adjustment of the relevant Exercise Price. The Corporation shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
relevant Exercise Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least 10 days later than the date
of the public announcement. If Rights Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Subsection 2.3(k), the
Corporation shall, as promptly as practicable, cause to be distributed to such
holders of record in substitution and replacement for the Rights Certificated
held by such holders prior to the date of adjustment, and upon surrender
thereof if required by the Corporation, new Rights Certificates evidencing all
the Rights to which such holders shall be entitled after such adjustment.
Rights Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and may bear, at the option
of the Corporation, the relevant adjusted Exercise Price and shall be
registered in the names of holders or record of Rights Certificates on the
record date specified in the public announcement.
(l) Irrespective of any adjustment or change in the securities purchasable
upon exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the securities so purchasable which were
expressed in the initial Rights Certificates issued hereunder.
(m) In any case in which this Section 2.3 shall require that an adjustment
in the Exercise Price be made effective as of the record date for a specified
event, the Corporation may elect to defer until the occurrence of such event
the issuance to holder of any Rights exercised after such record date of the
number of Class A Shares and other securities of the Corporation, if any,
issuable upon such exercise over and above the number of Class A Shares and
other securities of the Corporation shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional Class A Shares (fractional or otherwise) or other securities upon
the occurrence of the event requiring such adjustment.
(n) Notwithstanding anything in this Section 2.3 to the contrary, the
Corporation shall be entitled to make such reductions in the Exercise Price,
in addition to those adjustments expressly required by this Section 2.3, as
and to the extent that in its good faith judgment the Board of Directors shall
determine to be advisable in order that any (i) subdivision or consolidation
of the Common Shares, (ii) issuance (wholly or in part for cash) of Common
Shares at less than the applicable Market Price, (ii) issuance (wholly for
cash) of any Common Shares or securities that by their terms are exchangeable
for or convertible into or give a right to acquire Common Shares, subject to
applicable taxation laws, shall not be taxable to such shareholders.
(o) After the Separation Time, the Corporation will not, except as
permitted by the provisions hereof, take (or permit any Subsidiary of the
Corporation to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Whenever an adjustment to the Exercise Price or a change in the
securities purchasable upon the exercise of Rights is made pursuant to this
Section 2.3, the Corporation shall promptly:
(i) prepare a certificate setting forth such adjustment and a brief
statement of the facts accounting for such adjustment;
(ii) file with the Rights Agents and with each transfer agent for the
Common Shares, a copy of such certificate; and
(iii) cause notice of the particulars of such adjustment or change to
be given to the holders of the Rights.
Failure to file such certificate or to cause such notice to be given
as aforesaid, or any defect therein, shall not affect the validity of
any such adjustment or change.
2.4 Date on Which Exercise Is Effective
Each Person in whose name any certificate for Class A Shares or other
securities, if applicable, is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Class A
Shares or other securities, if applicable, represented thereon, and such
certificate shall be dated the date upon which the Rights Certificate
evidencing such Rights was duly surrendered in accordance with Subsection
2.2(d) (together with a duly completed Election to Exercise) and payment of
the Exercise Price for such Rights (and any applicable transfer taxes and
other governmental charges payable by the exercising holder hereunder) was
made; provided, however, that if the date of such surrender and payment is
a date upon which the Class A Share transfer books of the Corporation are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business
Day on which the Class A Share transfer books of the Corporation are open.
2.5 Execution, Authentication, Delivery and Dating of Rights
Certificates
(a) The Rights Certificates shall be executed on behalf of the
Corporation by its Chairman of the Board, President or any Vice-President
and by its Corporate Secretary or any Assistant Secretary under the
corporate seal of the Corporation reproduced thereon. The signature of any
of these officers on the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Corporation shall
bind the Corporation, notwithstanding that such individuals or any of them
have ceased to hold such offices either before or after the
countersignature and delivery of such Rights Certificates.
(b) Promptly after the Corporation learns of the Separation Time, the
Corporation will notify the Rights Agent of such Separation Time and will
deliver Rights Certificates executed by the Corporation to the Rights Agent
for countersignature, and the Rights Agent shall manually countersign (in a
manner satisfactory to the Corporation) and send such Rights Certificates to
the holders of the Rights pursuant to Subsection 2.2(c) hereof. No Rights
Certificate shall be valid for any purpose until countersigned by the Rights
Agent as aforesaid.
(c) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.6 Registration, Transfer and Exchange
(a) The Corporation will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may
prescribe, the Corporation will provide for the registration and transfer
of Rights. The Rights Agent is hereby appointed, effective from and after
the Separation Time, registrar for the Rights (the "Rights Registrar") for
the purpose of maintaining the Rights Register for the Corporation and
registering Rights and transfers of Rights as herein provided and the
Rights Agent hereby accepts such appointment. In the event that the Rights
Agent shall cease to be the Rights Registrar, the Rights Agent will have
the right to examine the Rights Register at all reasonable times. After the
Separation Time and prior to the Expiration Time, upon surrender for
registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of Subsection 2.6(c), the Corporation will execute, and
the Rights Agent will manually countersign and deliver, in the name of the
holder or the designated transferee or transferees, as required pursuant to
the holder's instructions, one or more new Rights Certificates evidencing
the same aggregate number of Rights as did the Rights Certificates so
surrendered.
(b) All Rights issued upon any registration of transfer or exchange of
Rights Certificates shall be the valid obligations of the Corporation, and
such Rights shall be entitled to the same benefits under this Agreement as
the Rights surrendered upon such registration of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Corporation or the Rights Agent, as
the case may be, duly executed by the holder thereof or such holder's
attorney duly authorized in writing. As a condition to the issuance of any
new Rights Certificate under this Section 2.6, the Corporation may require
the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the reasonable fees and expenses of the Rights Agent) connected
therewith.
(d) The Corporation shall not be required to register the transfer or
exchange of any Rights after the Rights have been terminated pursuant to the
provisions of this Agreement.
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
(a) If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to the Expiration Time, the Corporation shall execute and the
Rights Agent shall countersign and deliver in exchange therefor a new
Rights Certificate evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights Agent
prior to the Expiration Time:
(i) evidence to their reasonable satisfaction of the destruction,
loss or theft of any Rights Certificate; and
(ii) such security or indemnity as may be reasonably required by
them to save each of them and any of their agents harmless, then, in the
absence of notice to the Corporation or the Rights Agent that such Rights
Certificate has been acquired by a bona fide purchaser, the Corporation
shall execute and upon the Corporation's request the Rights Agent shall
countersign and deliver, in lieu of any such destroyed, lost or stolen
Rights Certificate, a new Rights Certificate evidencing the same number of
Rights as did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under
this Section 2.7, the Corporation may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the reasonable
fees and expenses of the Rights Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.7 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence the
contractual obligation of the Corporation, whether or not the destroyed,
lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement equally
and proportionately with any and all other Rights duly issued hereunder.
2.8 Persons Deemed Owners of Rights
The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name a Rights
Certificate (or, prior to the Separation Time, the associated Common Share
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever. As used in this Agreement,
unless the context otherwise requires, the term "holder" of any Right shall
mean the registered holder of such Right (or, from and after the Record Time
and prior to the Separation Time, the registered holder of the associated
Common Share).
2.9 Delivery and Cancellation of Certificates All Rights Certificates
surrendered upon exercise or for redemption, registration of transfer or
exchange shall, if surrendered to any Person other than the Rights Agent, be
delivered to the Rights Agent and, in any case, shall be promptly canceled
by the Rights Agent. The Corporation may at any time deliver to the Rights
Agent for cancellation any Rights Certificates previously countersigned and
delivered hereunder which the Corporation may have acquired in any manner
whatsoever, and all Rights Certificates so delivered shall be promptly
canceled by the Rights Agent. No Rights Certificate shall be countersigned
in lieu of or in exchange for any Rights Certificates canceled as provided
in this Section 2.9, except as expressly permitted by this Agreement. The
Rights Agent shall, subject to applicable laws, destroy all canceled
Rights Certificates and deliver a certificate of destruction to the
Corporation.
2.10 Agreement of Rights Holders
Every holder of Rights, by accepting the same, consents and agrees with the
Corporation and the Rights Agent and with every other holder of Rights:
(a) to be bound by and subject to the provisions of this Agreement, as
amended from time to time in accordance with the terms hereof, in respect
of all Rights held;
(b) that, provided the Separation Time follows the Record Time, from and
after the Record Time and prior to the Separation Time, each Right will be
transferable only together with, and will be transferred by a transfer of,
the associated Common Share certificate representing such Right;
(c) that after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(d) that prior to due presentment of a Rights Certificate (or, from and
after the Record Time and prior to the Separation Time, the associated
Common Share certificate) for registration of transfer, the Corporation,
the Rights Agent and any agent of the Corporation or the Rights Agent may
deem and treat the Person in whose name the Rights Certificate (or, prior
to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on such Rights
Certificate or the associated Common Share certificate made by anyone other
than the Corporation or the Rights Agent) for all purposes whatsoever, and
neither the Corporation nor the Rights Agent shall be affected by any
notice to the contrary;
(e) that such holder of Rights has waived his right to receive any
fractional Rights or any fractional shares or other securities upon
exercise of a Right (except as provided herein);
(f) that, without the approval of any holder of Rights or Voting Shares
and upon the sole authority of the Board of Directors, acting in good
faith, this Agreement may be supplemented or amended from time to time
pursuant to and as provided herein, and
(g) notwithstanding anything in this Agreement to the Contrary, neither
the Corporation nor the Rights Agent shall have any liability to any holder
of a Right or to any other Person as a result of its inability to perform any
of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a government, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation.
2.11 Rights Certificate Holder Not Deemed a Shareholder
No holder, as such, of any Rights or Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose whatsoever the holder
of any Class A Share or any other share or security of the Corporation which
may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate
be construed or deemed or confer upon the holder of any Right or Rights
Certificate, as such, any right, title, benefit or privilege of a holder of
Class A Shares or any other shares or securities of the Corporation or any
right to vote at any meeting of shareholders of the Corporation whether for
the election of directors or otherwise or upon any matter submitted to
holders of Class A Shares or any other shares of the Corporation at any
meeting thereof, or to give or withhold consent to any action of the
Corporation, or to receive notice of any meeting or other action affecting
any holder of Class A Shares or any other shares of the Corporation except
as expressly provided herein, or to receive dividends, distributions or
subscription rights, or otherwise, until the Right or Rights evidenced by
Rights Certificates shall have been duly exercised in accordance with the
terms and provisions hereof.
ARTICLE 3
ADJUSTMENTS TO THE RIGHTS
3.1 Flip-in Event
(a) Subject to Subsection 3.1(b) and Section 5.1, in the event that prior
to the Expiration Time a Flip-in Event shall occur, each Right shall
constitute, effective at the close of business on the later of the
Effective Time or the tenth Trading Day after the Stock Acquisition Date,
the right to purchase from the Corporation, upon exercise thereof in
accordance with the terms hereof, that number of Class A Shares having an
aggregate Market Price on the date of consummation or occurrence of such
Flip-in Event equal to twice the Exercise Price for an amount in cash equal
to the Exercise Price (such right to be appropriately adjusted in a manner
analogous to the applicable adjustment provided for in Section 2.3 in the
event that after such consummation or occurrence, an event of a type
analogous to any of the events described in Section 2.3 shall have
occurred).
(b) Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of any Flip-in Event, any Rights that are or were
Beneficially Owned on or after the earlier of the Separation Time or the
Stock Acquisition Date by:
(i) an Acquiring Person (or any Affiliate or Associate of an
Acquiring Person or any Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of an Acquiring Person); or
(ii) a transferee or other successor in title, directly or
indirectly, (a "Transferee") of Rights or Common Shares held by an
Acquiring Person (or any Affiliate or Associate of an Acquiring Person or
any Person acting jointly or in concert with an Acquiring Person or any
Affiliate or Associate of an Acquiring Person), where such Transferee
becomes a transferee concurrently with or subsequent to the Acquiring
Person becoming such in a transfer that the Board of Directors has
determined is part of a plan, arrangement or scheme of an Acquiring Person
(or any Affiliate or Associate of an Acquiring Person or any Person acting
jointly or in concert with an Acquiring Person or any Affiliate or
Associate of an Acquiring Person), that has the purpose or effect of
avoiding Clause 3.1(b)(i),
shall become null and void without any further action, and any holder of
such Rights (including any Transferee) shall thereafter have no right to
exercise such Rights under any provision of this Agreement and further
shall thereafter not have any other rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise.
(c) From and after the Separation Time, the Corporation shall do all such
acts and things as shall be necessary and within its power to ensure
compliance with the provisions of this Section 3.1, including without
limitation, all such acts and things as may be required to satisfy the
requirements of the Yukon Business Corporations Act, the Securities Act
(Ontario) and the securities laws or comparable legislation of each of the
provinces of Canada and of the United States and each of the applicable
states thereof in respect of the issue of Class A Shares upon the exercise
of Rights in accordance with this Agreement.
(d) Any Rights Certificate that represents Rights Beneficially Owned by a
Person described in either Clause 3.1(b)(i) or (ii) or transferred to any
nominee of any such Person, and any Rights Certificate issued upon
transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain the following
legend:
The Rights represented by this Rights Certificate were issued to a
Person who was an Acquiring Person or an Affiliate or an Associate of an
Acquiring Person (as such terms are defined in the Shareholder Rights
Agreement) or a Person who was acting jointly or in concert with an
Acquiring Person or an Affiliate or Associate of an Acquiring Person. This
Rights Certificate and the Rights represented hereby are void or shall
become void in the circumstances specified in Subsection 3.1(b) of the
Shareholder Rights Agreement.
provided, however, that the Rights Agent shall not be under any
responsibility to ascertain the existence of facts that would require the
imposition of such legend but shall impose such legend only if instructed
to do so by the Corporation in writing or if a holder fails to certify upon
transfer or exchange in the space provided on the Rights Certificate that
such holder is not a Person described in such legend and provided further
that the fact that such legend does not appear on a certificate is not
determinative of whether any Rights represented thereby are void under
this Section.
ARTICLE 4
THE RIGHTS AGENT
4.1 General
(a) The Corporation hereby appoints the Rights Agent to act as agent for
the Corporation and the holders of the Rights in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such Co-Rights
Agents ("Co-Rights Agents") as it may deem necessary or desirable. In the
event the Corporation appoints one or more Co- Rights Agents, the respective
duties of the Rights Agent and Co-Rights Agents shall be as the Corporation
may determine. The Corporation agrees to pay all reasonable fees and expenses
of the Rights Agent in respect of the performance of its duties under this
Agreement. The Corporation also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with
the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability, which right to
indemnification will survive the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any certificate
for Common Shares, Rights Certificate, certificate for other securities of
the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
(c) The Rights Agent shall not be responsible for any inaccuracies in
the shareholder information provided by the Corporation to the Rights Agent
pursuant to subsection 2.2(c).
4.2 Merger, Amalgamation or Consolidation or Change of Name of Rights
Agent
(a) Any corporation into which the Rights Agent may be merged or
amalgamated or with which it may be consolidated, or any corporation
resulting from any merger, amalgamation, statutory arrangement or
consolidation to which the Rights Agent is a party, or any corporation
succeeding to the shareholder or stockholder services business of the
Rights Agent, will be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions
of Section 4.4 hereof. In case at the time such successor Rights Agent
succeeds to the agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent
and deliver such Rights Certificates so countersigned; and in case at that
time any of the Rights have not been countersigned, any successor Rights
Agent may countersign such Rights Certificates in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either in its
prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates
and in this Agreement.
4.3 Duties of Rights Agent
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, all of which the
Corporation and the holders of certificates for Common Shares and the
holders of Rights Certificates, by their acceptance thereof, shall be
bound:
(a) the Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), at the Corporation's expense, and the opinion
of such counsel will be full and complete authorization and protection to
the Rights Agent as to any action taken or omitted by it in good faith and
in accordance with such opinion;
(b) whenever in the performance of its duties under this Agreement, the
Rights Agent deems it necessary or desirable that any fact or matter be
proved or established by the Corporation prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by a Person believed by the
Rights Agent to be the Chairman of the Board, President, any Vice- President,
Treasurer, Corporate Secretary or any Assistant Secretary of the Corporation
and delivered to the Rights Agent; and such certificate will be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate;
(c) the Rights Agent will be liable hereunder for its own negligence, bad
faith or willful misconduct;
(d) the Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for Common Shares, or the Rights Certificates (except its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and will be deemed to have been made by the
Corporation only;
(e) the Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except
the due authorization, execution and delivery hereof by the Rights Agent) or
in respect of the validity or execution of any certificate for a Common Share
or Rights Certificate (except its countersignature thereof); nor will it be
responsible for any breach by the Corporation of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor will it be
responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to Subsection 3.1(b) hereof) or any
adjustment required under the provisions of Section 2.3 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights after receipt of
the certificate contemplated by Section 2.3 describing any such
adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization of any Class A Shares to
be issued pursuant to this Agreement or any Rights or as to whether any Class
A Shares will, when issued, be duly and validly authorized, executed,
issued and delivered and fully paid and non-assessable;
(f) the Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement;
(g) the Rights Agent is hereby authorized and directed to accept
instructions in writing with respect to the performance of its duties
hereunder from any individual believed by the Rights Agent to be the
Chairman of the Board, President, any Vice-President, Treasurer, Corporate
Secretary or any Assistant Secretary of the Corporation, and to apply to
such individuals for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in good
faith in accordance with instructions of any such individual;
(h) the Rights Agent and any shareholder or stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in Common
Shares, Rights or other securities of the Corporation or become pecuniarily
interested in any transaction in which the Corporation may be interested, or
contract with or lend money to the Corporation or otherwise act as fully and
freely as though it were not Rights Agent under this Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other capacity
for the Corporation or for any other legal entity; and
(i) the Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Corporation resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
4.4 Change of Rights Agent
The Rights Agent may resign and be discharged from its duties under this
Agreement upon 90 days' notice (or such lesser notice as is acceptable to
the Corporation) in writing mailed to the Corporation and to each transfer
agent of Common Shares by registered or certified mail. The Corporation may
remove the Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent and to each transfer agent of the Common Shares by registered
or certified mail. If the Rights Agent should resign or be removed or
otherwise become incapable of acting, the Corporation will appoint a
successor to the Rights Agent. If the Corporation fails to make such
appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning
or incapacitated Rights Agent, then by prior written notice to the
Corporation the resigning Rights Agent or the holder of any Rights (which
holder shall, with such notice, submit such holder's Rights Certificate, if
any, for inspection by the Corporation), may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Corporation or by such a
court, shall be a corporation incorporated under the laws of Canada or a
province thereof authorized to carry on the business of a trust company in
the Province of Ontario. After appointment, the successor Rights Agent
will be vested with the same powers, rights, duties and responsibilities as
if it had been originally named as Rights Agent without further act or
deed; but the predecessor Rights Agent shall, subject to its right to first
require payment of all outstanding fees and other amounts owed to it
hereunder, deliver and transfer to the successor Rights Agent any property
at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Corporation will file
notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Shares, and mail a notice thereof in writing to
the holders of the Rights in accordance with Section 5.9. Failure to give any
notice provided for in this Section 4.4, however, or any defect therein,
shall not affect the legality or validly of the resignation or removal of
the Rights Agent or the appointment of any successor Rights Agent, as the
case may be.
ARTICLE 5
MISCELLANEOUS
5.1 Redemption and Waiver
(a) The Board of Directors may, with the prior consent of the holders of
Voting Shares or of the holders of Rights given in accordance with Section
5.1(i) or (j), as the case may be, at any time prior to the occurrence of a
Flip-in Event as to which the application of Section 3.1 has not been waived
pursuant to the provisions of this Section 5.1, elect to redeem all but not
less than all of the then outstanding Rights at a redemption price of
$0.00001 per Right appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 in the event that an event
of the type analogous to any of the events described in Section 2.3 shall
have occurred (such redemption price being herein referred to as the
"Redemption Price"). The Board of Directors may, prior to the date of the
shareholders' meeting referred to in Section 5.15, elect to terminate this
Agreement. If the Board of Directors elects to terminate this Agreement
pursuant to this Section 5.1(a), this Agreement will thereupon terminate and
be void and of no further force or effect.
(b) The Board of Directors may, with the prior consent of the holders of
Voting Shares given in accordance with Section 5.1(i), determine, at any
time prior to the occurrence of a Flip-in Event as to which the application
of Section 3.1 has not been waived pursuant to this Section 5.1, if such
Flip-in Event would occur by reason of an acquisition of Voting Shares
otherwise than pursuant to a Take-over Bid made by means of a take-over bid
circular to all holders of record of Voting Shares and otherwise than in
the circumstances set forth in Section 5.1(d), to waive the application of
Section 3.1 to such Flip-in Event. In the event that the Board of Directors
proposes such a waiver, the Board of Directors shall extend the Separation
Time to a date subsequent to and not more than ten Business Days following
the meeting of shareholders called to approve such waiver.
(c) The Board of Directors may, until the occurrence of a Flip-in Event
upon prior written notice delivered to the Rights Agent, determine to waive
the application of Section 3.1 to such particular Flip-in Event provided
that the Flip-in Event would occur by reason of a Take-over Bid made by way
of take-over bid circular sent to all holders of Voting Shares (which for
greater certainty shall not include the circumstances described in
Subsection 5.1(d)); provided that if the Board of Directors waives the
application of Section 3.1 to a particular Flip-in Event pursuant to this
Subsection 5.1(c), the Board of Directors shall be deemed to have waived
the application of Section 3.1 to any other Flip-in Event occurring by
reason of any Take- over Bid which is made by means of a take-over bid
circular to all holders of Voting Shares (i) prior to the granting of such
waiver, (ii) thereafter and prior to the expiry of any Take-over Bid (as the
same may be extended from time to time) outstanding at the time of the
granting of such waiver or (iii) thereafter and prior to the expiry of any
Take-over Bid in respect of which a waiver is, or is deemed to have been,
granted under this Subsection 5.1(c).
(d) Notwithstanding the provisions of Subsections 5.1(b) and (c) hereof,
the Board of Directors may waive the application of Section 3.1 in respect
of the occurrence of any Flip-in Event, provided that both of the following
conditions are satisfied:
(i) the Board of Directors has determined within ten Trading Days
following a Stock Acquisition Date that a Person became an Acquiring Person
by inadvertence and without any intention to become, or knowledge that it
would become, an Acquiring Person under this Agreement, and
(ii) such Person has reduced its Beneficial Ownership of Voting
Shares such that at the time of granting the waiver pursuant to this
Subsection 5.1(d), such Person is no longer an Acquiring Person and in the
event that such a waiver is granted by the Board of Directors, such Stock
Acquisition Date and Flip- in Event shall be deemed not to have occurred and
the Separation Time shall be deemed not to have occurred as a result of
such Person having inadvertently become an Acquiring Person.
(e) The Board of Directors, shall, without further formality, be deemed
to have elected to redeem the Rights at the Redemption Price on the date
that a Person which has made a Permitted Bid, a Competing Permitted Bid, a
Take-Over Bid in respect of which the Board of Directors has waived, or is
deemed to have waived, pursuant to Section 5.1(c) the application of Section
3.1, takes up and pays for Voting Shares pursuant to the terms and
conditions of such Permitted Bid, Competing Permitted Bid or Take- over bid,
as the case may be.
(f) Where a Take-over Bid that is not a Permitted Bid Acquisition is
withdrawn or otherwise terminated after the Separation Time has occurred
and prior to the occurrence of a Flip-in Event, the Board of Directors may
elect to redeem all the outstanding Rights at the Redemption Price. Upon
the Rights being redeemed pursuant to this Subsection 5.1(f), all the
provisions of this Agreement shall continue to apply as if the Separation
Time had not occurred and Rights Certificates representing the number of
Rights held by each holder of record of Common Shares as of the Separation
Time had not been mailed to each such holder and for all purposes of this
Agreement the Separation Time shall be deemed not to have occurred.
(g) If the Board of Directors elects or is deemed to have elected to
redeem the Rights, and, in circumstances in which Subsection 5.1(a) is
applicable, such redemption is approved by the holders of Voting Shares or
the holders of Rights in accordance with Subsection 5.1(i) or (j), as the
case may be, the right to exercise the Rights, will thereupon, without
further action and without notice, terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price.
(h) Within 10 Business Days after the Board of Directors elects or is
deemed to elect, to redeem the Rights or if Subsection 5.1(a) is applicable
within 10 Business Days after the holders of Common Shares of the holders of
Rights have approved a redemption of Rights in accordance with Section 5.1(i)
or (j), as the case may be, the Corporation shall give notice of redemption
to the holders of the then outstanding Rights by mailing such notice to
each such holder at his last address as it appears upon the registry books
of the Rights Agent or, prior to the Separation Time, on the registry books
of the transfer agent for the Voting Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. The Corporation may
not redeem, acquire or purchase for value any Rights at any time in any
manner other than specifically set forth in this Section 5.1 or in
connection with the purchase of Common Shares prior to the Separation Time.
(i) If a redemption of Rights pursuant to Section 5.1(a) or a waiver of a
Flip-in Event pursuant to Section 5.1(b) is proposed at any time prior to
the Separation Time, such redemption or waiver shall be submitted for
approval to the holders of Voting Shares. Such approval shall be deemed to
have been given if the redemption or waiver is approved by the affirmative
vote of a majority of the votes cast by Independent Shareholders
represented in person or by proxy at a meeting of such holders duly held in
accordance with applicable laws and the Corporation's by-laws.
(j) If a redemption of Rights pursuant to Section 5.1(a) is proposed at
any time after the Separation Time, such redemption shall be submitted for
approval to the holders of Rights. Such approval shall be deemed to have
been given if the redemption is approved by holders of Rights by a majority
of the votes cast by the holders of Rights represented in person or by proxy
at and entitled to vote at a meeting of such holders. For the purposes
hereof, each outstanding Right (other than Rights which are Beneficially
Owned by any Person referred to in clauses (i) to (v) inclusive of the
definition of Independent Shareholders) shall be entitled to one vote, and
the procedures for the calling, holding and conduct of the meeting shall be
those, as nearly as may be, which are provided in the Corporation's by-laws
and the Yukon Business Corporations Act with respect to meetings of
shareholders of the Corporation.
5.2 Expiration
No Person shall have any rights whatsoever pursuant to this Agreement or in
respect of any Right after the Expiration Time, except the Rights Agent as
specified in Subsection 4.1 of this Agreement.
5.3 Issuance of New Rights Certificates
Notwithstanding any of the provisions of this Agreement or the Rights to
the contrary, the Corporation may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by the Board
of Directors to reflect any adjustment or change in the number or kind or
class of securities purchasable upon exercise of Rights made in accordance
with the provisions of this Agreement.
5.4 Supplements and Amendments
(a) The Corporation may make amendments to this Agreement to correct any
clerical or typographical error or which are required to maintain the
validity of this Agreement as a result of any change in any applicable
legislation or regulations thereunder. The Corporation may, prior to the date
of the shareholders' meeting referred to in Section 5.15, supplement, amend,
vary, rescind or delete any of the provisions of this Agreement and the
Rights (whether or not such action would materially adversely affect the
interests of the holders of the Rights generally) without the approval of
any holders of Rights or Voting Shares in order to make any changes which
the Board of Directors acting in good faith may deem necessary or
desirable. Notwithstanding anything in this Section 5.4 to the contrary, no
such supplement or amendment shall be made to the provisions of Article 4
or to the rights, duties, obligations or indemnities of the Rights Agent,
except with the written concurrence of the Rights Agent to such supplement
or amendment.
(b) Subject to Subsection 5.4(a), the Corporation may, with the prior
consent of the holders of Voting Shares obtained as set forth below, at any
time before the Separation Time, supplement, amend, vary, rescind or delete
any of the provisions of this Agreement and the Rights (whether or not such
action would materially adversely affect the interests of the holders of
Rights generally). Such consent shall be deemed to have been given if the
action requiring such approval is authorized by the affirmative vote of a
majority of the votes cast by Independent Shareholders present or
represented at and entitled to be voted at a meeting of the holders of
Voting Shares duly called and held in compliance with applicable laws and
the articles and by- laws of the Corporation.
(c) Subject to subsection 5.4(a), the Corporation may, with the prior
consent of the holders of Rights, at any time on or after the Separation
Time, supplement, amend, vary, rescind or delete any of the provisions of
this Agreement and the Rights (whether or not such action would materially
adversely affect the interests of the holders of Rights generally), provided
that no such amendment, variation or deletion shall be made to the
provisions of Article 4 or to the rights, duties, obligations or
indemnities of the Rights Agent, except with the written concurrence of the
Rights Agent thereto.
(d) Any approval of the holders of Rights shall be deemed to have been
given if the action requiring such approval is authorized by the
affirmative votes of the holders of Rights present or represented at and
entitled to be voted at a meeting of the holders of Rights and representing
a majority of the votes cast in respect thereof. For the purposes hereof,
each outstanding Right (other than Rights which are void pursuant to the
provisions hereof) shall be entitled to one vote, and the procedures for the
calling, holding and conduct of the meeting shall be those, as nearly as may
be, which are provided in the Corporation's by- laws and the Yukon Business
Corporations Act with respect to meetings of shareholders of the
Corporation.
(e) Any amendments made by the Corporation to this Agreement pursuant
to Subsection 5.4(a) which are required to maintain the validity of this
Agreement as a result of any change in any applicable legislation or
regulation thereunder shall:
(i) if made before the Separation Time, be submitted to the
shareholders of the Corporation at the next meeting of shareholders and the
shareholders may, by the majority referred to in Subsection 5.4(b), confirm
or reject such amendment;
(ii) if made after the Separation Time, be submitted to the holders
of Rights at a meeting to be called for on a date not later than
immediately following the next meeting of shareholders of the Corporation
and the holders of Rights may, by resolution passed by the majority referred
to in Subsection 5.4(d), confirm or reject such amendment.
Any such amendment shall be effective from the date of the resolution of the
Board of Directors adopting such amendment, until it is confirmed or
rejected or until it ceases to be effective (as described in the next
sentence) and, where such amendment is confirmed, it continues in effect in
the form so confirmed. If such amendment is rejected by the shareholders or
the holders of Rights or is not submitted to the shareholders or holders of
Rights as required, then such amendment shall cease to be effective from and
after the termination of the meeting (or any adjournment of such meeting) at
which it was rejected or to which it should have been but was not submitted
or from and after the date of the meeting of holders of Rights that should
have been but was not held, and no subsequent resolution of the Board of
Directors to amend this Agreement to substantially the same effect shall be
effective until confirmed by the shareholders or holders of Rights as the
case may be.
5.5 Fractional Rights and Fractional Shares
(a) The Corporation shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. After
the Separation Time, in lieu of issuing fractional Rights, the Corporation
shall pay to the holders of record of the Rights Certificates (provided the
Rights represented by such Rights Certificates are not void pursuant to the
provisions of Subsection 3.1(b), at the time such fractional Rights would
otherwise be issuable), an amount in cash equal to the fraction of the
Market Price of one whole Right that the fraction of a Right that would
otherwise be issuable is of one whole Right.
(b) The Corporation shall not be required to issue fractions of Class A
Shares upon exercise of Rights or to distribute certificates which evidence
fractional Class A Shares. In lieu of issuing fractional Class A Shares, the
Corporation shall pay to the registered holders of Rights Certificates, at
the time such Rights are exercised as herein provided, an amount in cash
equal to the fraction of the Market Price of one Class A Share that the
fraction of a Class A Share that would otherwise be issuable upon the
exercise of such Right is of one whole Class A Share at the date of such
exercise.
5.6 Rights of Action
Subject to the terms of this Agreement, all rights of action in respect of
this Agreement, other than rights of action vested solely in the Rights
Agent, are vested in the respective holders of the Rights. Any holder of
Rights, without the consent of the Rights Agent or of the holder of any
other Rights, may, on such holder's own behalf and for such holder's own
benefit and the benefit of other holders of Rights, as the case may be,
enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce such holder's right to exercise such
holder's Rights, or Rights to which he is entitled, in the manner provided
in such holder's Rights Certificate and in this Agreement. Without limiting
the foregoing or any remedies available to the holders of Rights, as the
case may be, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations
of any Person subject to, this Agreement.
5.7 Regulatory Approvals
Any obligation of the Corporation or action or event contemplated by this
Agreement shall be subject to the receipt of any requisite approval or
consent from any governmental or regulatory authority, including without
limiting the generality of the foregoing, any necessary approvals of The
Toronto Stock Exchange and the American Stock Exchange or any other
applicable stock exchange or market.
5.8 Notice of Proposed Actions
In case the Corporation shall propose after the Separation Time and prior to
the Expiration Time:
(a) to effect or permit (in cases where the Corporation's permission is
required) any Flip-in Event; or
(b) to effect the liquidation, dissolution or winding up of the
Corporation or the sale of all or substantially all of the Corporation's
assets, then, in each such case, the Corporation shall give to each holder
of a Right, in accordance with Section 5.9 hereof, a notice of such proposed
action, which shall specify the date on which such Flip-in Event,
liquidation, dissolution, winding up or sale is to take place, and such
notice shall be so given at least 10 Business Days prior to the date of
taking of such proposed action by the Corporation.
5.9 Notices
(a) Notices or demands authorized or required by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights to or on
the Corporation shall be sufficiently given or made if delivered, sent by
registered or certified mail, postage prepaid (until another address is
filed in writing with the Rights Agent), or sent by facsimile or other form
of recorded electronic communication, charges prepaid and confirmed in
writing, as follows:
Gold Reserve Inc.
926 W. Sprague Avenue, Suite 200
Spokane, Washington 99201
Attention: President
Telecopy No.: (509) 623-1634
(b) Notices or demands authorized or required by this Agreement to be
given or made by the Corporation or by the holder of any Rights to or on
the Rights Agent shall be sufficiently given or made if delivered, sent by
registered or certified mail, postage prepaid (until another address is filed
in writing with the Corporation), or sent by facsimile or other form of
recorded electronic communication, charges prepaid and confirmed in
writing, as follows:
Computershare Investor Services Inc.
100 University Avenue
8th Floor
Toronto, Ontario M5J 2Y1
Attention: Manager, Client Services
Telecopy No.: (416) 981-9800
(c) Notices or demands authorized or required by this Agreement to be
given or made by the Corporation or the Rights Agent to or on the holder of
any Rights shall be sufficiently given or made if delivered or sent by first
class mail, postage prepaid, addressed to such holder at the address of such
holder as it appears upon the register of the Rights Agent or, prior to the
Separation Time, on the register of the Corporation for its Common Shares.
Any notice which is mailed or sent in the manner herein provided shall be
deemed given, whether or not the holder receives the notice.
(d) Any notice given or made in accordance with this Section 5.9 shall be
deemed to have been given and to have been received on the day of delivery,
if so delivered, on the third Business Day (excluding each day during which
there exists any general interruption of postal service due to strike,
lockout or other cause) following the mailing thereof, if so mailed, and on
the day of telegraphing, telecopying or sending of the same by other means
of recorded electronic communication (provided such sending is during the
normal business hours of the addressee on a Business Day and if not, on the
first Business Day thereafter). Each of the Corporation and the Rights
Agent may from time to time change its address for notice by notice to the
other given in the manner aforesaid.
5.10 Costs of Enforcement
The Corporation agrees that if the Corporation fails to fulfil any of its
obligations pursuant to this Agreement, then the Corporation will reimburse
the holder of any Rights for the costs and expenses (including legal fees)
incurred by such holder to enforce his rights pursuant to any Rights or this
Agreement.
5.11 Successors
All the covenants and provisions of this Agreement by or for the benefit of
the Corporation or the Rights Agent shall bind and enure to the benefit of
their respective successors and assigns hereunder.
5.12 Benefits of this Agreement
Nothing in this Agreement shall be construed to give to any Person other than
the Corporation, the Rights Agent and the holders of the Rights any legal or
equitable right, remedy or claim under this Agreement; further, this
Agreement shall be for the sole and exclusive benefit of the Corporation,
the Rights Agent and the holders of the Rights.
5.13 Governing Law
This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of Ontario and for all
purposes shall be governed by and construed in accordance with the laws of
such Province applicable to contracts to be made and performed entirely
within such Province.
5.14 Severability
If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective only as to such
jurisdiction and to the extent of such invalidity or unenforceability in
such jurisdiction without invalidating or rendering unenforceable or
ineffective the remaining terms and provisions hereof in such jurisdiction
or the application of such term or provision in any other jurisdiction or
to circumstances other than those as to which it is specifically held
invalid or unenforceable.
5.15 Date Agreement Becomes Effective
This Agreement is effective and in full force and effect in accordance with
its terms from and after the Effective Time.
5.16 Reconfirmation
This Agreement must be reconfirmed by a resolution passed by a
majority of greater than 50 per cent of the votes cast by holders of Voting
Shares held by Independent Shareholders who vote in respect of such
reconfirmation at a meeting of holders of Voting Shares to be held not
later than the date on which the 2006 annual meeting of holders of Voting
Shares terminates. If the Agreement is not so reconfirmed, the Agreement and
all outstanding Rights shall terminate and be void and of no further force
and effect on and from the close of business on that date which is the
earlier of the date of termination of the meeting called to consider the
reconfirmation of this Agreement and the date of termination of the 2006 annual
meeting of holders of Voting Shares; provided, that termination shall not occur
if a Flip-in Event has occurred (other than a Flip-in Event which has been
waived pursuant to Subsection 5.1(c) or (d) hereof), prior to the date upon
which this Agreement would otherwise terminate pursuant to this Section 5.16.
In the event that Agreement is so reconfirmed, the Expiration Time shall be
extended for an additional three-year period. This Agreement shall be
reconfirmed by the independent Shareholders every three years thereafter in
accordance with the foregoing provisions, mutatis, mutandis
5.17 Determinations and Actions by the Board of Directors
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors or the Corporation, or as may
be necessary or advisable in the administration of this Agreement. All such
actions, calculations and determinations (including all omissions with
respect to the foregoing) which are done or made by the Board of Directors,
in good faith, shall not subject the Board of Directors or any director of
the Corporation to any liability to the holders of the Rights.
5.18 Declaration as to Non-Canadian Holders
If in the opinion of the Board of Directors (who may rely upon the advice
of counsel) any action or event contemplated by this Agreement would
require compliance by the Corporation with the securities laws or
comparable legislation of a jurisdiction outside Canada, the Board of
Directors acting in good faith shall take such actions as it may deem
appropriate to ensure such compliance. In no event shall the Corporation or
the Rights Agent be required to issue or deliver Rights or securities
issuable on exercise of Rights to persons who are citizens, residents or
nationals of any jurisdiction other than Canada or the United States, in
which such issue or delivery would be unlawful without registration of the
relevant Persons or securities for such purposes.
5.19 Time of the Essence
Time shall be of the essence in this Agreement.
5.20 Execution in Counterparts
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GOLD RESERVE INC.
By: /s/ Robert A. McGuinness
COMPUTERSHARE INVESTOR SERVICES INC.
By: /s/ Christine Lawton
By: /s/ Irene Zelman
ATTACHMENT 1
GOLD RESERVE INC.
SHAREHOLDER RIGHTS PLAN AGREEMENT
[Form of Rights Certificate]
Certificate No.
______________________________________________________________
Rights ____________________________________________________________
THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN
THE SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES
(SPECIFIED IN SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN
AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
CERTAIN RELATED PARTIES, OR TRANSFEREES OF AN ACQUIRING PERSON OR
CERTAIN RELATED PARTIES, MAY BECOME VOID.
Rights Certificate
This certifies that_____________________________________________________
_______or registered assigns, is the registered holder of the number of
Rights set forth above, each of which entitles the registered holder
thereof, subject to the terms, provisions and conditions of the Shareholder
Rights Plan Agreement, dated as of October 5, 1998, as the same may be
amended or supplemented from time to time (the "Shareholder Rights
Agreement"), between Gold Reserve Inc., a corporation duly incorporated
under the laws of the Yukon Territory (the "Corporation") and Computershare
Investor Services, a trust company incorporated under the laws of
Canada (the "Rights Agent") (which term shall include any successor Rights
Agent under the Shareholder Rights Agreement), to purchase from the
Corporation at any time after the Separation Time (as such term is defined
in the Shareholder Rights Agreement) and prior to the Expiration Time (as
such term is defined in the Shareholder Rights Agreement), one fully paid
Class A Share of the Corporation (a "Class A Share") at the Exercise Price
referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise (in the form provided
hereinafter) duly executed and submitted to the Rights Agent at its
principal office in the City of Toronto [insert other cities, if
applicable]. The Exercise Price shall initially be $70.00 (Cdn.) or the U.S.
Dollar Equivalent per Right and shall be subject to adjustment in certain
events as provided in the Shareholder Rights Agreement.
This Rights Certificate is subject to all of the terms and provisions of the
Shareholder Rights Agreement, which terms and provisions are incorporated
herein by reference and made a part hereof and to which Shareholder Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates.
Copies of the Shareholder Rights Agreement are on file at the registered
office of the Corporation.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such
purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing an aggregate number of Rights
equal to the aggregate number of Rights evidenced by the Rights Certificate
or Rights Certificates surrendered. If this Rights Certificate shall be
exercised in part, the registered holder shall be entitled to receive, upon
surrender hereof, another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Shareholder Rights Agreement, the Rights
evidenced by this Rights Certificate may be, and under certain circumstances
are required to be, redeemed by the Corporation at a redemption price of
$0.00001 per Right.
No fractional Class A Shares will be issued upon the exercise of any Right
or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Shareholder Rights Agreement. No holder of this
Rights Certificate, as such, shall be entitled to vote or receive dividends
or be deemed for any purpose the holder of Class A Shares or of any other
securities which may at any time be issuable upon the exercise hereof, nor
shall anything contained in the Shareholder Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except
as provided in the Shareholder Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Shareholder Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation and
its corporate seal.
Date: ________________________
GOLD RESERVE INC.
By: ___________________________ By: ___________________________
[President] [Corporate Secretary]
Countersigned:
COMPUTERSHARE INVESTOR SERVICES INC.
By: ___________________________
Authorized Signature
By: ___________________________
Authorized Signature
=======================================
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the Rights Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
- ---------------------
(Please print name and address of transferee.)
the Rights represented by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and
appoint _______________________, as attorney, to transfer the within Rights
on the books of the Corporation, with full power of substitution. Dated:
Signature
Signature Guaranteed:
(Signature must correspond to name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.) Signature must be guaranteed by a member firm of a
recognized stock exchange in Canada, a registered national securities
exchange in the United States, a member of the Investment Dealers
Association of Canada or National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in
Canada or the United States or a member of the Securities Transfer Agent
Medallion Program (STAMP).
- -----------------------------------------------------------------------------
CERTIFICATE
(To be completed if true.)
The undersigned party transferring Rights hereunder, hereby represents, for
the benefit of all holders of Rights and Class A Shares, that the Rights
evidenced by this Rights Certificate are not, and, to the knowledge of the
undersigned, have never been, Beneficially Owned by an Acquiring Person or
an Affiliate or Associate thereof or a Person acting jointly or in concert
with any of the foregoing. Capitalized terms shall have the meaning
ascribed thereto in the Shareholder Rights Agreement.
Signature
- -----------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
=======================================
FORM OF ELECTION TO EXERCISE
(To be executed by the registered holder if such holder desires to exercise
the Rights Certificate.)
TO:
The undersigned hereby irrevocably elects to exercise _____________ whole
Rights represented by the attached Rights Certificate to purchase the Class
A Shares or other securities, if applicable, issuable upon the exercise of
such Rights and requests that certificates for such securities be issued in
the name of:
(Name)
(Address)
(City and Province)
Social Insurance Number or other taxpayer identification number. If such
number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall
be registered in the name of and delivered to:
(Name)
(Address)
(City and Province)
Social Insurance Number or other taxpayer identification number. Dated:
Signature
Signature Guaranteed: (Signature must correspond to name as written upon
the face of this Rights Certificate in every particular, without alteration
or enlargement or any change whatsoever.) Signature must be guaranteed by a
member firm of a recognized stock exchange in Canada, a registered
national securities exchange in the United States, a member of the
Investment Dealers Association of Canada or National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in Canada or the United States or a member of the
Securities Transfer Agent Medallion Program (STAMP).
Signature
- -----------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
=======================================
CERTIFICATE
(To be completed if true.)
The undersigned party exercising Rights hereunder, hereby represents, for
the benefit of all holders of Rights and Class A Shares, that the Rights
evidenced by this Rights Certificate are not, and, to the knowledge of the
undersigned, have never been, Beneficially Owned by an Acquiring Person or
an Affiliate or Associate thereof or a Person acting jointly or in concert
with any of the foregoing. Capitalized terms shall have the meaning
ascribed thereto in the Shareholder Rights Agreement.
Signature
- -----------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
=======================================
NOTICE
In the event the certification set forth above in the Forms of Assignment
and Election is not completed, the Corporation will deem the Beneficial
Owner of the Rights evidenced by this Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof. No Rights
Certificates shall be issued in exchange for a Rights Certificate owned or
deemed to have been owned by an Acquiring Person or an Affiliate or
Associate thereof, or by a Person acting jointly or in concert with an
Acquiring Person or an Affiliate or Associate thereof.
Exhibit 3.2 - Gold Reserve Inc. Equity Incentive Plan
Gold Reserve Inc. Equity Incentive Plan
SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN
- --------------------------------------------------------------------------
Establishment. Gold Reserve Inc., a Yukon corporation (the "Company"), the
parent company of Gold Reserve Corporation, a Montana corporation, has
previously adopted and assumed the "1997 EQUITY INCENTIVE PLAN" originally
established by Gold Reserve Corporation, as amended in this Fifth Amendment
and Restatement (the "Plan"), for the employees, directors and consultants of
the Company and its Subsidiaries. The Plan permits the grant of Stock Options,
Stock Appreciation Rights and Restricted Stock.
Purpose. The Purpose of the Plan is to advance the interests of the Company
and its Subsidiaries and promote continuity of management by encouraging and
providing employees, directors and consultants with the opportunity to
acquire an equity interest in the Company and to participate in the increase
in shareholder value as reflected in the growth in the price of the shares of
the Company's Stock and by enabling the Company and its Subsidiaries to
attract and retain the services of employees, directors, and consultants upon
whose judgment, interest, skills, and special effort the successful conduct of
its operations is largely dependent.
Effective Date. The Plan, as amended hereby, shall become effective on the
date it is adopted by the Board of the Company, subject to the approval by
the affirmative vote of at least a majority of the votes cast by shareholders
of the Company eligible to vote under applicable Exchange rules at a duly held
meeting of shareholders or, if permitted by Exchange rules, by written
consent given by holders of Class A and Class B Common Shares of the Company
eligible to give their consent under Exchange rules who together hold at least
a majority of the votes attaching to shares eligible to be voted. The original
plan was effective January 30, 1997. This Plan was approved by the Board
effective as of January 29, 2006, subject to shareholder and Exchange
approvals.
SECTION 2. DEFINITIONS, CONSTRUCTION
- -------------------------------------------------------------------------
Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
"Act" means the Securities Act (Ontario), as amended.
"Award" means, individually or collectively, a grant under the Plan of an
Option, Restricted Stock or Stock Appreciation Right.
"Board" means the Board of Directors of the Company.
"Business Combination" shall have the meaning provided in Section 12.
"Change in Capitalization" means any increase or reduction in the number of
shares of Stock, or any change (including, but not limited to, a change in
value) in the shares of Stock or exchange of shares of Stock for a different
number or kind of shares or other securities of the Company or any other
corporation or other entity, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants, rights or debentures, change in the exercise price or
conversion price under any warrants, rights or debenture as a result of any
event, stock dividend, stock split or reverse stock split, extraordinary
dividend, property dividend, combination or exchange of shares or otherwise.
"Change in Control" shall have the meaning provided in Section 12.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Committee" means a committee of the Board designated by the Board to
administer the Plan in accordance with the requirements of each Exchange, as
applicable. If no Committee is designated or is administering the Plan, all
references to the Committee herein shall refer to the Board. While the
Committee shall administer the Plan generally as provided in Section 12, the
Board shall determine matters concerning Awards to directors and references
herein to the Committee shall refer to the Board for matters relating to
Awards to directors.
"Company" means Gold Reserve Inc., a Yukon corporation, and any successors
thereto.
"Disability" means the inability to engage in any substantial activity by
reason of any medically determinable, physical or mental impairment that can
be expected to result in death or that has lasted or can be expected to last
for a continuous period of not less than 12 months.
"Employment" means the working relationship between the employee (creating a
legally valid employer-employee relationship), directors or the consultants
and the Company or Subsidiary, as applicable.
"Exchange" means the Toronto Stock Exchange and the American Stock Exchange,
as applicable.
"Exchange Act" means the U.S. Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Fair Market Value" means, subject to any applicable Exchange rules, the
volume weighted average trading price or the United States Dollar equivalent
of the Stock calculated by dividing the total value by the total volume of
Stock on the Principal Market, for the five trading days immediately
preceding the relevant date; and if there is no trading during such period,
the Fair Market Value means the closing trading price or the United States
Dollar equivalent of the closing trading price on the most recent date
previous to such grant date as reported on the Principal Market for the
Stock. If no Fair Market Value has been established in accordance with the
foregoing, Fair Market Value shall be the value established by the Committee
in good faith and, in the case of an incentive stock option, in accordance
with Section 422 of the Code.
"Incumbent Board" shall have the meaning provided in Section 12.
"Option" means the right to purchase Stock at a stated price for a specified
period of time. For purposes of the Plan an Option may be either (i) an
"incentive stock option" within the meaning of Section 422 of the Code or
(ii) a "nonstatutory stock option."
"Option Agreement" means the agreement evidencing the grant of an Option as
described in Section 6.
"Option Price" means the price at which Stock may be purchased pursuant to an
Option.
"Optionee" means a person to whom an Option has been granted under the Plan.
"Outstanding Voting Securities" has the meaning provided in Section 12.
"Participant" means an employee, director or a consultant who has been
granted and, at the time of reference, holds an Option, Restricted Stock or
Stock Appreciation Right.
"Period of Restriction" means the period during which shares of Restricted
Stock are subject to restrictions pursuant to Section 9 of the Plan.
"Principal Market for the Stock" means the exchange, automated quotation
system or trading market on which the majority of the Stock was traded over
the last twelve-month period prior to the date of determination. This
includes the Toronto Stock Exchange, the American Stock Exchange or such
other securities exchange on which the Stock is listed from time to time.
"Restricted Stock" means shares of Stock granted pursuant to Section 9 of the
Plan.
"Stock" means the Class A Common Shares of the Company, no par value per
share.
"Stock Appreciation Right" means the right to receive the increase in the
value of Stock subject to an Option in lieu of purchasing such Stock.
"Subsidiary" means any present or future subsidiary of the Company, as
defined in Section 424(f) of the Code.
For all numbers, except when otherwise indicated by the context, the singular
shall include the plural, and the plural shall include the singular.
SECTION 3. PARTICIPATION
- ---------------------------------------------------------------------------
Participation. Participants in the Plan shall be selected by the Committee
from among those officers, directors, employees, and consultants of the
Company and its Subsidiaries who, in the opinion of the Committee, are in a
position to contribute materially to the Company's continued growth and
development and to its long-term financial success.
The number of shares of Stock issuable to insiders: a) at any time, under all
security based compensation arrangements, cannot exceed 10% of the outstanding
shares of Stock of the Company on the date of grant; and b) within any one
year period, under all security based compensation arrangements, cannot
exceed 10% of the outstanding common shares on the date of grant.
SECTION 4. STOCK SUBJECT TO PLAN
- ----------------------------------------------------------------------------
Number. The total number of shares of Stock subject to issuance under the
Plan, whether in the form of Restricted Stock, Options, or Stock Appreciation
Rights, or any combination thereof, shall be 10% of the Corporation's
outstanding shares of Stock, from time to time. No more than 3,637,883 shares
of Stock may be issued as incentive stock options (as defined in the Code)
without further approval by the Shareholders.
The Committee shall have the full authority to determine the number of shares
of Stock available for Awards. In its discretion the Committee may include
(without limitation), as available for distribution: (a) Stock subject to any
Award that has been previously forfeited; (b) Stock under an Award that
otherwise terminates, expires, or lapses without the issuance of Stock being
made to a Participant; (c) Stock subject to any Award that settles in cash,
or (d) Stock that is received or retained by the Company in connection with
the exercise of an Award, including the satisfaction of any tax liability or
tax withholding obligation. This paragraph shall apply equally for purposes
of determining the number of shares of Stock available for incentive stock
options, except that shares of Stock subject to incentive stock options that
settle in cash shall not be available for distribution as incentive stock
options.
Adjustment in Capitalization.
In the event of a Change in Capitalization, the Committee shall conclusively
determine, in its sole discretion, the appropriate adjustments, if any, to
(i) the maximum number and class of shares of Stock or other securities with
respect to which Options or Restricted Stock may be granted under the Plan;
(ii) the number and class of shares of Stock or other securities which are
subject to outstanding Options or Restricted Stock granted under the Plan,
and the purchase price therefore, if applicable, and (iii) the maximum number
of shares of Stock or other securities with respect to which Options or Stock
Appreciation Rights may be granted during the term of the Plan.
Any such adjustment in the shares of Stock or other securities subject to
outstanding incentive stock options (including any adjustments in the
purchase price) shall be made in such a manner as not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the
extent otherwise permitted by Sections 422 and 424 of the Code.
If, by reason of a Change in Capitalization, a grantee of Restricted Stock
shall be entitled to, or an Optionee shall be entitled to exercise an Option
with respect to new, additional or different shares of Stock or securities,
such new, additional or different shares shall thereupon be subject to all of
the conditions, restrictions and performance criteria which were applicable to
the Restricted Stock or Stock subject to the Option, as the case may be,
prior to such Change in Capitalization.
SECTION 5. DURATION OF PLAN
- --------------------------------------------------------------------------
Duration of Plan. The Plan shall remain in effect, subject to the Board's
right to earlier terminate the Plan pursuant to Section 12 hereof, until all
Stock subject to the Plan shall have been purchased or acquired pursuant to
the provisions hereof. Notwithstanding the foregoing, no Option, Stock
Appreciation Right or Restricted Stock may be granted under the Plan on or
after the tenth anniversary of the Effective Date.
SECTION 6. OPTION GRANTS
- --------------------------------------------------------------------------
Grant of Options. Subject to Sections 4 and 5, Options may be granted to
Participants at any time and from time to time as determined by the
Committee. The Committee shall have complete discretion consistent with the
terms of the Plan in determining whether to grant Options, the number of
Options to be granted, and whether an Option is to be an incentive stock
option within the meaning of Section 422 of the Code or a nonstatutory stock
option. Only an employee of the Company, or its Subsidiaries (as such terms
are defined in Section 424 of the Code) on the date of grant shall be
eligible to be granted an incentive stock option. Nothing in this Section 6
of the Plan shall be deemed to prevent the grant of nonstatutory stock
options in excess of the maximum established by Section 422 of the Code.
Option Agreement. Each Option shall be evidenced by an Option Agreement that
shall specify the type of Option granted, the Option Price, the duration of
the Option, the number of shares of Stock to which the Option pertains and
such other provisions as the Committee shall determine. Each Option shall be
designated in the Option Agreement as either an incentive stock option or a
nonstatutory stock option. However, notwithstanding such designations, to the
extent that the aggregate Fair Market Value of Shares subject to a
Participant's incentive stock options granted by the Company, any parent or
Subsidiary, which becomes exercisable for the first time during any calendar
year (under all plans of the Company or any parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as nonstatutory stock options.
For purposes of this Section, incentive stock options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Stock shall be determined as of the time of grant.
Option Price. The Option Price for each Option shall be determined by, or in
the manner specified by, the Committee provided that no Option shall have an
Option Price that is less than the Fair Market Value of the Stock on the date
the Option is granted (110% of Fair Market Value in the case of an incentive
stock option granted to any person who owns Stock possessing more than 10% of
the total combined voting power of all classes of Stock of the Company, known
as a "Ten Percent Stockholder").
Duration of Options. Each Option shall have a maximum duration of ten years
from the time it is granted, except that an incentive stock option granted to
a Ten Percent Stockholder shall have a maximum duration of five years from the
time it is granted.
Exercise of Options. Each Option granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve. Such restrictions and conditions
need not be the same for each Participant.
SECTION 7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
- ------------------------------------------------------------------------------
Payment. The Committee shall determine the acceptable form of consideration
for exercising an Option, including the method of payment. In the case of an
incentive stock option, the Committee shall determine the acceptable form of
consideration at the time of grant. Subject to applicable laws, such
consideration may consist entirely of: (i) cash; (ii) check; (iii) other
Stock which (A) in the case of Stock acquired upon exercise of an Option,
have been owned by the Optionee for more than six months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Stock as to which said Option shall be
exercised; (iv) delivery of a properly executed exercise notice together with
such other documentation as the Committee and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale proceeds required to pay the exercise price; (v) a reduction in the
amount of any Company liability to the Optionee, including any liability
attributable to the Optionee's participation in any Company-sponsored
deferred compensation program or arrangement; (vi) any combination of the
foregoing methods of payment; or (vii) such other consideration and method of
payment for the issuance of Stock to the extent permitted by applicable law;
provided, however, that in no case will loans be permitted as consideration
for exercising an Option hereunder to executive officers and directors of the
Company unless otherwise permitted by law. Any such loan advances will be
evidenced in writing, will provide for the payment of interest on terms then
prevailing and will be secured by pledges of the Stock issuable upon the
exercise of the Options and if such Stock is to be resold, the proceeds of
such sale. It is presently anticipated that no such loan advance will remain
outstanding for more than a period of thirty days.
Restrictions on Stock Transferability. The Committee may impose such
restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable, including, without
limitation, restrictions under applicable provincial securities law, under
applicable U.S. federal and state securities law, under requirements of any
Exchange and under any U.S. blue sky or state securities laws applicable to
such shares.
Termination Due to Retirement. If the employment of the Optionee is
terminated due to the Retirement (as hereinafter defined) of the Optionee, or
if the directorship of the Optionee expires, any then outstanding options
under the Plan may be exercised at any time prior to the earlier of the
expiration date of the Options or twelve (12) months after the date of
retirement. For purposes of the Plan, Retirement shall mean any termination
of employment with the Company or a Subsidiary occurring after the completion
of 10 years of service with the Company and the attainment of age 60 by the
Optionee.
Termination Due to Death or Disability. The rights of an Optionee under any
then outstanding Option granted to the Optionee pursuant to the Plan if the
employment or directorship of the Optionee is terminated by reason of death
or Disability shall survive for up to the earlier of the expiration date of
the Options or one year after such death or Disability.
Termination of Employment for Cause. Anything contained herein or an Award
agreement to the contrary notwithstanding, if the termination of an
Optionee's employment with the Company or a Subsidiary is as a result of or
caused by the Optionee's theft or embezzlement from the Company or a
Subsidiary, the violation of a material term or condition of his or her
employment, the disclosure by the Optionee of confidential information of the
Company or a Subsidiary, conviction of the Optionee of a crime of moral
turpitude, the Optionee's stealing trade secrets or intellectual property
owned by the Company or a Subsidiary, any act by the Optionee in competition
with the Company or a Subsidiary, or any other act, activity or conduct of
the Optionee which in the opinion of the Committee is adverse to the best
interests of the Company or a Subsidiary, then any Options and any and all
rights granted to such Optionee thereunder, to the extent not yet effectively
exercised, shall become null and void effective as of the date of the
occurrence the event which results in the Optionee ceasing to be an employee
or director of the Company or a Subsidiary, and any purported exercise of an
Option by or on behalf of said Optionee shall following such date shall be of
no effect.
Involuntary Termination of Employment. Options granted under the Plan after
the Effective Date may be exercised at any time prior to the earlier of the
expiration date of the Options or within thirty (30) days after the
involuntary termination of employment (as hereinafter defined) of the
Optionee with the Company, or applicable Subsidiary, but the Options may not
be exercised for more than the number of shares, if any, as to which the
Options were exercisable by the Optionee immediately prior to such
termination of employment, as determined by reference to the terms and
conditions specified at the time such Options were granted. For purposes of
the Plan, "involuntary termination of employment" shall mean any termination
of an Optionee's employment with the Company or applicable Subsidiary, by
reason of the discharge, firing or other involuntary termination of an
Optionee's employment by action of the Company or applicable Subsidiary other
than an involuntary termination for cause as described in the paragraph above,
or if the employee otherwise continued in the employment of another Subsidiary
of the Company.
Voluntary Termination of Employment. Options granted under the Plan after the
Effective Date may be exercised at any time prior to the earlier of the
expiration date of the Options or within ninety (90) days after the voluntary
termination of employment (as hereinafter defined) of the Optionee with the
Company, or applicable Subsidiary, but the options may not be exercised for
more than the number of shares, if any, as to which the options were
exercisable by the Optionee immediately prior to such termination of
employment, as determined by reference to the terms and conditions specified
at the time such options were granted. For purposes of the Plan "voluntary
termination of employment" shall mean any voluntary termination of employment
by reason of the Optionee's quitting or otherwise voluntarily leaving the
Company's, or Subsidiary's, employ other than a (a) voluntary termination of
employment by reason of Retirement, (b) voluntary termination of employment
for cause or (c) termination of employment as described above.
Transferability and Exercisability of Options.
No Option shall be transferable by the Optionee other than (i) by will or by
the laws of descent and distribution; (ii) a qualified domestic relations
order (as defined in the Code or Title 1 of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder); or (iii) gift to
such Optionee's child(ren) or grandchild(ren), whether directly or indirectly
or by means of a trust, partnership or otherwise. All Options shall be
exercisable, during the Optionee's lifetime, only by the Optionee or by the
guardian or legal representative of the Optionee or its alternative payee
pursuant to such qualified domestic relations order, it being understood that
the terms "holder" and "optionee" include the guardian and legal
representative of the Optionee named in the Option Agreement and any person
to whom an Option is transferred by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order or a gift
permitted by the Plan. Notwithstanding the above, incentive stock options
shall only be transferable by will or by the laws of descent and distribution.
SECTION 8. STOCK APPRECIATION RIGHTS
- ---------------------------------------------------------------------------
Stock Appreciation Rights. The Committee may, in its discretion, in
connection with the grant of an Option, grant to the Optionee Stock
Appreciation Rights, the terms and conditions of which shall be set forth in
a written Award agreement. A Stock Appreciation Right shall cover the same
shares of Stock covered by the Option (or such lesser number of shares of
Stock as the Committee may determine) and shall, except as provided in this
Section 8, be subject to the same terms and conditions as the related Option.
Stock Appreciation Rights shall be subject to the following terms and
provisions:
A Stock Appreciation Right may be granted either at the time of grant, or at
any time thereafter during the term of the Option if related to a
nonstatutory stock option; or only at the time of grant if related to an
incentive stock option.
A Stock Appreciation Right will entitle the holder of the related Option upon
exercise of the Stock Appreciation Right, to surrender such Option or any
portion thereof to the extent unexercised, and to receive payment of an
amount determined by multiplying (i) the excess of the Fair Market Value of
the Stock over the Option Price under the related Option, by (ii) the number
of shares as to which such Stock Appreciation Right has been exercised.
Notwithstanding the foregoing, the agreement evidencing the Stock
Appreciation Right may limit in any manner the amount payable with respect to
any Stock Appreciation Right.
A Stock Appreciation Right will be exercisable at such time or times and only
to the extent that a related Option is exercisable, and will not be
transferable except to the extent that such related Option may be
transferable. A Stock Appreciation Right granted in connection with an
incentive stock option shall be exercisable only if the Fair Market Value of
the Stock on the date of exercise exceeds the Option Price in the related
Option.
Upon the exercise of a Stock Appreciation Right, the related Option shall be
cancelled to the extent of the number of shares of Stock as to which the
Stock Appreciation Right is exercised, and upon the exercise of an Option
granted in connection with a Stock Appreciation Right, the Stock Appreciation
Right shall be canceled to the extent of the number of shares of Stock as to
which the Option is exercised or surrendered.
A Stock Appreciation Right may be exercised by an Optionee only by a written
notice delivered in person or by mail to the Secretary of the Company at the
Company's principal executive office, specifying the number of shares of
Stock with respect to which the Stock Appreciation Right is being exercised.
The Optionee shall deliver the agreement evidencing the Stock Appreciation
Right being exercised and the agreement evidencing any related Option to the
Secretary of the Company who shall endorse thereon a notation of such
exercise and return such agreement to the Optionee.
Payment of the amount determined under Subsection (b) may be made by the
Company in the discretion of the Committee solely in whole shares of Stock in
a number determined at their Fair Market Value on the date preceding the date
of exercise of the Stock Appreciation Right or solely in cash, or in a
combination of cash and Stock. If payment is made in Stock and the amount
payable results in a fractional share, payment for the fractional share will
be made in cash.
No Stock Appreciation Right may be exercised within three months after it is
granted.
Subject to the terms of the Plan, the Committee may modify outstanding Awards
of Stock Appreciation Rights or accept the surrender of outstanding Awards of
Stock Appreciation Rights (to the extent not exercised) and grant new awards
in substitution for them. Notwithstanding the foregoing, no modification of
an Award of Stock Appreciation Rights shall adversely alter or impair any
rights or obligations under the agreement granting such Stock Appreciation
Rights without the Optionee's consent.
SECTION 9. RESTRICTED STOCK
- ---------------------------------------------------------------------------
Grant of Restricted Stock. Subject to Sections 4 and 5, the Committee at any
time and from time to time, may grant Restricted Stock under the Plan to such
Participants and in such amounts as it determines in its sole discretion. Each
grant of Restricted Stock shall be made pursuant to a written Award agreement
which shall contain such restrictions, terms and conditions as the Committee
may determine in its discretion. Restrictions upon Restricted Stock shall be
for such period or periods (herein called "Period(s) of Restriction") and on
such terms and conditions as the Committee may, in its discretion, determine.
Transferability. Except as provided in this Section 9, the shares of
Restricted Stock granted hereunder may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated for such period of time as
shall be determined by the Committee and shall be specified in the Restricted
Stock grant, or upon earlier satisfaction of other conditions set forth in the
Restricted Stock grant.
Other Restrictions. The Committee may impose such other restrictions on any
shares of Restricted Stock granted to any Participant pursuant to the Plan as
it may deem advisable including, without limitation, restrictions under
applicable provincial, U.S. federal or state securities laws, and shall
legend the certificates representing Restricted Stock to give appropriate
notice of such restrictions.
Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 9 hereof, each certificate representing shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of Stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer set forth in Gold Reserve Inc.'s
Equity Incentive Plan and Restricted Stock agreement dated ___________
[TO BE COMPLETED WITH THE DATE OF GRANT]. A copy of the Plan and such
Restricted Stock agreement may be obtained from the Secretary of
Gold Reserve Inc."
Removal of Restrictions. Except as otherwise provided in this Section 9,
shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable, subject to compliance with
applicable securities laws, by the Participant after the last day of the
Period of Restriction. Once the shares are released from the restrictions,
the Participant shall be entitled to have the legend required by Section 9
removed from his or her Stock certificate.
Voting Rights. During the Period of Restriction, Participants holding shares
of Restricted Stock granted hereunder may exercise full voting rights with
respect to such shares.
Dividends and Other Distributions. During the Period of Restriction,
Participants holding shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect
to such shares while they are so held. If any such dividends or distributions
are paid in shares of Stock, such shares shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they
were paid.
SECTION 10. BENEFICIARY DESIGNATION
- ---------------------------------------------------------------------------
Beneficiary Designation. Subject to Sections 7 and 9, each Participant may,
from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be
paid in case of the Participant's death before he or she receives any or all
of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Committee and will be
effective only when filed by the Participant in writing with the Committee
during the life time of the Participant. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be
paid to the estate of the Participant.
SECTION 11. RIGHTS OF PARTICIPANTS
- ----------------------------------------------------------------------------
Employment. Nothing in the Plan shall interfere with or limit in any way the
right of the Company or any Subsidiary to terminate any Participant's
employment, directorship or service at any time nor confer upon any
Participant any right to continue in the employ or service or as a director
of the Company or any Subsidiary. No person shall have a right to be selected
as a Participant or, having been so selected, to be selected again as an
Optionee or recipient of Restricted Stock. The preceding sentence shall not
be construed or applied so as to deny a person any participation in the Plan
solely because he or she was a Participant in connection with a prior grant
of benefits under the Plan.
SECTION 12. ADMINISTRATION; POWERS AND DUTIES OF THE COMMITTEE AND THE BOARD
- ----------------------------------------------------------------------------
Administration.
The Committee shall be responsible for the administration of the Plan as it
applies to Participants other than directors, and the Board shall be
responsible for the administration of the Plan as it applies to directors,
subject to Section 2. The Committee, by majority action thereof, is
authorized to interpret and construe the Plan, to prescribe, amend, and
rescind rules and regulations relating to the Plan (including related
agreements), to provide for conditions and assurances deemed necessary or
advisable to protect the interests of the Company and its Subsidiaries, and
to make all other determinations necessary or advisable for the
administration, interpretation and construction of the Plan (including
related agreements), but only to the extent not contrary to the express
provision of the Plan. Determinations, interpretations, or other actions made
or taken by the Committee pursuant to the provisions of the Plan shall be
final and binding and conclusive for all purposes and upon all persons
whomsoever. No member of the Committee shall be personally liable for any
action, determination or interpretation made or taken in good faith with
respect to the Plan, and all members of the Committee shall be fully
indemnified by the Company with respect to any such action, determination or
interpretation.
To the extent that the Board determines it to be desirable to qualify Awards
granted hereunder as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the Plan shall be administered by the Committee
of two or more "outside directors" within the meaning of Section 162(m) of
the Code.
Subject to the provisions of the Plan, and in the case of the Committee,
subject to the specific duties delegated by the Board to such Committee, the
Committee shall have the authority, in its discretion: (i) to determine the
Fair Market Value of the Stock, in accordance with the Plan; (ii) to select
the Participants to whom Awards may be granted hereunder; (iii) to determine
whether and to what extent Awards or any combination thereof, are granted
hereunder; (iv) to determine the number of shares of Stock to be covered by
each Award granted hereunder; (v) to approve forms of agreement for use under
the Plan; (vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Appreciation Rights may be exercised or other
Awards vest (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Award or the shares of Stock relating thereto, based
in each case on such factors as the Committee, in its sole discretion, shall
determine;(vii) to construe and interpret the terms of the Plan and Awards;
(viii) to prescribe, amend and rescind rules and regulations relating to the
Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
(ix) to modify or amend each Award (subject to this Section), including the
discretionary authority to extend the post-termination exercisability period
of Options and Stock Appreciation Rights longer than is otherwise provided
for in the Plan; (x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Award previously
granted under the Plan; (xi) to allow Participants to satisfy withholding tax
obligations by electing to have the Company withhold from the Stock or cash to
be issued upon exercise or vesting of an Award that number of shares of Stock
or cash having a Fair Market Value equal to the minimum amount required to be
withheld (but no more). The Fair Market Value of any Stock to be withheld
shall be determined on the date that the amount of tax to be withheld is to
be determined. All elections by a Participant to have Stock or cash withheld
for this purpose shall be made in such form and under such conditions as the
Committee may deem necessary or advisable; (xii) to determine the terms and
restrictions applicable to Awards; (xiii) to determine whether Awards will be
adjusted for changes in capitalization (including dividends); (xiv) to impose
such restrictions, conditions or limitations as it determines appropriate as
to the timing and manner of any resales by a Participant or other subsequent
transfers by a Participant of any Stock issued as a result of or under an
Award, including without limitation, (A) restrictions under an insider
trading policy, and (B) restrictions as to the use of a specified brokerage
firm for such resales or other transfers; and (xv) to make all other
determinations deemed necessary or advisable for administering the Plan.
Change in Control. (a) Without limiting the authority of the Committee as
provided herein, the Committee, either at the time Options or shares of
Restricted Stock are granted, or at any time thereafter, shall have the
authority to take such actions as it deems advisable, including the right to
accelerate in whole or in part the exercisability of Options and/or to reduce
the Period of Restriction upon a Change in Control. Nothing herein shall
obligate the Committee to take any action upon a Change in Control.
Change in Control" means the occurrence of any of the following events:
The acquisition by any individual entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
equity securities of the Company representing more than 25 percent of the
voting power of the then outstanding equity securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"), provided, however, that for purposes of this
subsection (i) the following acquisitions shall not constitute a Change of
Control: (A) any acquisition by the Company, (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, and (C) an acquisition
pursuant to a transaction which complies with clauses (A), (B), and (C) of
subsection (iii); or
A change in the composition of the Board as of the Effective Date (the
"Incumbent Board") that causes less than a majority of the directors of the
Company then in office to be members of the Incumbent Board provided,
however, that any individual becoming a director subsequent to the Effective
Date, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board; or
Consummation of a reorganization, merger, or consolidation or sale or other
disposition of all or substantially all of the assets of the Company or the
purchase of assets or stock of another entity (a "Business Combination"), in
each case, unless immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such
Business Combination will beneficially own, directly or indirectly, more than
50 percent of the then outstanding combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors (or equivalent governing body, if applicable) of the entity
resulting from such Business Combination (including, without limitation, an
entity which as a result of such transaction owns the Company or all of
substantially all of the Company's assets directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Voting Securities, (B) no person (excluding any employee benefit plan (or
related trust) of the Company or such entity resulting from such Business
Combination) will beneficially own, directly or indirectly, more than a
majority of the combined voting power of the then outstanding voting
securities of such entity except to the extent that such ownership of the
Company existed prior to the Business Combination, and (C) at least a
majority of the members of the board of directors (or equivalent governing
body, if applicable) of the entity resulting from such Business Combination
will have been members of the Incumbent Board at the time of the initial
agreement, or action of the Board, providing for such Business Combination; or
Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company; or
any other event or series of events which the Board reasonably determines
should constitute a Change in Control.
Nothing in this Section 12 prevents the Committee from providing for an
alternative definition of "Change in Control" in any Award agreement or
related employment, change of control or other agreement that sets forth the
rights with respect to any Award. In the event of any conflict between this
definition and the definition in any such agreement, the more permissive
"Change in Control" language shall prevail.
Amendment, Modification and Termination of Plan. The Board may, at any time
and from time to time, modify, amend, suspend or terminate the Plan in any
respect. Amendments to the Plan shall be subject to approval to the extent
required to comply with any exemption to the short swing-profit provisions of
Section 16(b) of the Exchange Act pursuant to rules and regulations
promulgated thereunder, with the exclusion for performance-based compensation
under Code Section 162(m), or with the rules and regulations of any Exchange.
The Board may also modify or amend the terms and conditions of any
outstanding Option, Restricted Stock, or Stock Appreciation Right, subject to
the consent of the holder and consistent with the provisions of the Plan. No
amendment, modification or termination of the Plan shall in any manner
adversely affect any Option, Stock Appreciation Right or Restricted Stock
theretofore granted to any Participant under the Plan, without the consent of
that Participant. Subject to the foregoing, and avoidance of doubt as it
relates to the TSX guidelines, stockholder approval for the following types
of amendments will not be required:
(a) amendments of a "housekeeping" nature;
(b) a change to the vesting provisions of a security issued pursuant to the
Plan;
(c) a change to the termination provisions of a security issued pursuant to the
Plan, which does not entail an extension beyond the original expiry date;
and
(d) the addition of a cashless exercise feature, payable in cash or securities,
which provides for a net deduction of the number of underlying securities
from the Plan reserve.
Interpretation. Unless otherwise expressly stated in the relevant Agreement,
any grant of Options, Stock Appreciation Rights or performance-vesting
Restricted Stock is intended to be performance-based compensation and
therefore not subject to the deduction limitation set forth in Section
162(m)(4)(C) of the Code.
Date of Grant. The date of grant of an Award shall be, for all purposes, the
date on which the Committee makes the determination granting such Award, or
such other later date as is determined by the Committee; provided, however,
the date of grant of an Option shall be the date when the Option is granted
and its exercise price is set, consistent with applicable law and applicable
financial accounting rules. Notice of the determination shall be provided to
each Participant within a reasonable time after the date of such grant.
SECTION 13. TAX WITHHOLDING
- ----------------------------------------------------------------------------
Tax Withholding. At such times as a Participant recognizes taxable income in
connection with the receipt of shares, securities, cash or property hereunder
(a "Taxable Event"), the Participant shall pay to the Company or, if
instructed by the Committee or its delegate, the Subsidiary that employs the
Participant an amount equal to the applicable taxes and other amounts as may
be required by law to be withheld by the Company or, if instructed by the
Committee or its delegate, the Subsidiary that employs the Participant in
connection with the Taxable Event.
SECTION 14. REQUIREMENTS OF LAW
- -----------------------------------------------------------------------------
Requirements of Law. The granting of Options or Restricted Stock, and the
issuance of shares of Stock upon the exercise of an Option or Stock
Appreciation Right shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Governing Law. The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the Province of Ontario without
giving effect to the choice of law principles thereof.
Listing, etc. Each Option or share of Restricted Stock is subject to the
requirement that, if at any time the Committee determines, in its discretion,
that the listing, registration or qualification of Stock issuable pursuant to
the Plan is required by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
an Option or the issuance of Stock, no Options or Restricted Stock shall be
granted or payment made or shares of Stock issued, in whole or in part,
unless such listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions which are unacceptable to
the Committee or the Board, acting in good faith.
Section 409A Savings Clause. It is the intention of the Company that no Award
shall be "deferred compensation" subject to Section 409A of the Code, unless
and to the extent that the Committee specifically determines otherwise as
provided below, and the Plan and the terms and conditions of all Awards
(current or future) shall be interpreted accordingly. The terms and
conditions governing any Awards that the Committee determines will be subject
to Section 409A of the Code, including any rules for elective or mandatory
deferral of the delivery of cash or Stock pursuant thereto and any rules
regarding treatment of such Awards in the event of a Change in Control, shall
be set forth in the applicable agreement, and shall comply in all respects
with Section 409A of the Code. Following a Change in Control, no action shall
be taken under the Plan that will cause any Award that the Committee has
previously determined is subject to Section 409A of the Code to fail to
comply in any respect with Section 409A of the Code without the written
consent of the Participant.
Restriction on Transfer. Notwithstanding anything contained in the Plan or
any Agreement to the contrary, if the disposition of Stock acquired pursuant
to the Plan is not covered by a then current registration statement under the
U.S. Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Stock shall be restricted against transfer to the extent
required by said Act, and Rule 144 or other regulations thereunder. The
Committee may require anyone receiving Stock pursuant to an Option or
Restricted Stock granted under the Plan, as a condition precedent to
receiving such Stock, to represent and warrant to the Company in writing that
such Stock is being acquired without a view to any distribution thereof and
will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable
under said Act, or the rules and regulations promulgated thereunder. The
certificates evidencing any shares of such Stock shall be appropriately
legended to reflect their status as restricted securities.
Notwithstanding anything contained in the Plan or any agreement to the
contrary, Stock issued pursuant to the Plan in reliance on an exemption from
the prospectus requirements of the securities legislation of a province of
Canada may be subject to restrictions on transfer.
Exhibit 3.3 - Letter Agreement with SNC Lavalin Engineers & Constructors, Inc.
Gold Reserve Inc.
August 17, 2005
SNC-Lavalin Engineers & Constructors Inc. 2200 Lake Shore Blvd. West
Toronto, Ont.
Canada M8V 1A4
Attention: Ian Pritchard Dear Sirs:
Re: Las Brisas Gold Mine Project, Venezuela (the Project") Letter of
Intent and Limited Authorization to Proceed
This letter is further to the proposal dated March 31, 2005 ("Proposal")
submitted by SNC Lavalin Engineers & Constructors Inc. ("SNC") to Gold
Reserve Inc. ("GRI") in response to GRI's request for proposals ("RFP") for
engineering, procurement and construction management services ("EPCM
Services") for the Project, and to our subsequent meetings, negotiations and
discussions regarding the Project, the Proposal and a proposed contract for
the EPCM Services (the "EPCM Contract").
Negotiations to Finalize EPCM Contract
This letter is to confirm that GRI and SNC will continue negotiations in good
faith towards finalizing the proposed EPCM Contract. If all matters negotiated
with SNC and if final wording of the EPCM Contract are both resolved to the
complete satisfaction of GRI acting in its own best interests, and within
such time period as GRI at its discretion may require, then it is the
intention of GRI to award the EPCM Contract to SNC. The EPCM Contract will be
comprised of two and perhaps three separate contracts: one for parts of the
EPCM Services performed in Venezuela, one for the EPCM Services performed
outside Venezuela, and if necessary a third, umbrella, contract that
over-rides the other two contracts. The parties ("parties") to each of these
separate contracts will be such affiliates of GRI and SNC as they may
mutually agree.
However, it is agreed that either party may at any time terminate further
negotiations with the other party if an impasse is reached in negotiations
that a party does not believe can be overcome through further discussions
between the parties.
It is also a condition to ongoing negotiations and to the provision of the
Initial Services (as hereinafter defined), that SNC execute and deliver to
GRI the form of confidentiality agreement attached as Schedule 1 -
Confidentiality Agreement.
Authorization to Proceed with Initial Services
In the expectation that the negotiations will be successfully concluded and
that the parties will finalize, execute and deliver the EPCM Contract, GRI
hereby authorizes SNC to provide certain initial work and services
(collectively the "Initial Services") as may be expressly authorized in
writing from time to time by Mr. Doug Stewart on behalf of GRI and in each
case agreed to by Mr. Dale Clarke on behalf of SNC, but subject at all times
to a maximum total aggregate compensation to SNC for all Initial Services of
US$ 1,000,000, plus G.S.T. (the "Maximum Authorization").
The following terms and conditions apply to the performance of the Initial
Services:
SNC will perform each of the Initial Services in accordance with such
schedule as may be mutually agreed by Mr. Stewart and Mr. Clarke.
In performing the Initial Services, SNC will:
exercise no less standard of care than that exercised for services of a
similar nature in respect of comparable mining projects in North America by
recognized North American engineering firms who provide comparable services
for such projects;
observe sound management, technical, engineering and consulting practices to
complete the Initial Services with all due diligence, efficiency and economy;
and
will be subject to all of the confidentiality obligations set out in the
attached Schedule I - Confidentiality Agreement, to the same extent and in
the same manner as if the terms thereof were expressly repeated herein .
3. GRI will pay, and SNC will receive as full compensation, the following
amounts (collectively the "Advance Compensation") for the Initial Services:
For those personnel expressly authorized by Mr. Stewart to be used by SNC in
the performance of the Initial Services, SNC will be paid:
the applicable hourly rate for such personnel, as calculated in accordance
with Section 9.3 of the Proposal, for only the time spent by them in the
performance of the Initial Services, as verified by daily timesheets that
provide full details of the actual work and time spent each day by such
personnel; and
for all overhead and administration, including all home office expenses and
field office expenses as described in Section 9.4.1 and 9.4.2 of the
Proposal, US$ 8.00 per approved manhour for such personnel.
For all travel-related expenses, at direct cost to SNC without markup,
subject to and in accordance with SNC's standard travel policy as previously
provided by SNC to GRI.
No fee as contemplated in the Proposal or otherwise (and whether for profit
or otherwise) will be paid for or in relation to the Initial Services
(subject, of course, to any fee to which the parties agree SNC is entitled
under the EPCM Contract if and when such EPCM Contract is executed, and in
this regard, the provisions of the EPCM Contract, including in respect of
payment of the fee, shall have retroactive effect except as may otherwise be
agreed).
Invoices for the Initial Services will be rendered monthly, supported by such
documentation and in such format as GRI may require to demonstrate and verify
the correctness of the amount claimed. SNC's GST registration number will be
on each invoice. GRI will pay the undisputed amounts of each invoice within
ten (10) calendar days after receipt of the invoice. If any parts of an
invoice are disputed by GRI, then GRI will promptly notify SNC and the
parties will thereafter use reasonable efforts to resolve such disputes as
expeditiously as possible.
Upon payment of the Advance Compensation to SNC, GRI shall be entitled to
keep and use for the Project any and all work product, concepts and ideas
produced for the Project by or through SNC as part of the Initial Services.
SNC will not perform any of the Initial Services in Venezuela, except as may
be subsequently agreed.
GRI may at any time upon not less than ten (10) calendar days' written notice
terminate the Initial Services, in which case SNC will stop performing the
Initial Services as of the effective date of termination specified in such
notice (the "Termination Date"). SNC will not be entitled to any payment for
any part of the Initial Services performed after the Termination Date. Upon
such termination, other than making payment as aforesaid, GRI will be
relieved of any and all obligations and liabilities towards SNC.
Subject only to the express provisions of the EPCM Contract if the EPCM
Contract is finalized and executed by the parties:
other than the Advance Compensation, SNC shall not be entitled to receive any
payment or compensation whatsoever for the Initial Services;
in no event shall GRI be liable to SNC for any amount in excess of the
Maximum Authorization, whether in relation to the Initial Services, the
Project, the RFP, the Proposal, the proposed EPCM Contract or any
negotiations relating thereto;
except for its obligation to pay the Advance Compensation for the Initial
Services, GRI shall have no obligation or liability towards SNC; and
In consideration for agreeing to forego a fee on the Initial Services except
as may be provided for under the EPCM Contract, as set out in paragraph 3(c),
and subject to paragraph 9, SNC's maximum liability to GRI in respect of this
agreement (including without limitation any claims in respect of any defect
or deficiency in the Initial Services), shall, except as is agreed in the
EPCM Contract, be limited to re-performance by SNC at its own cost, of any
defective or deficient Initial Services (and of any Initial Services which
must be re-performed as a result thereof), whether such liability is framed
in contract, tort (including negligence), by statute, or otherwise.
SNC will indemnify and hold GRI harmless from and against claims by third
parties for personal or bodily injury caused by a party, its officers,
directors, employees, consultants and agents in the performance of the
Initial Services.
This agreement will be governed by the laws in force in Ontario, Canada.
If the EPCM Contract is not finalized and awarded to SNC on such terms and
conditions as may be acceptable to GRI at its sole discretion and within such
time period as GRI at its discretion may require, and if the Initial Services
have not been completed and are terminated as provided herein, then GRI (and
its directors, officers, employees, consultants and agents) will be relieved
of any and all obligations and liabilities towards SNC with regard to or in
relation to the Project, the request for proposals, the Proposal, and any and
all negotiations and agreements in relation to the foregoing, except in
respect of payment for the Initial Services rendered as provided herein,, and
GRI will thereafter be at liberty to negotiate with others for the EPCM
Contract and award it to anyone other than SNC that GRI, in its sole and
absolute discretion, considers appropriate and in the best interest of GRI.
EPCM Contract to have Retroactive Effect
The EPCM Contract, as finalized, will include a provision that has
retroactive affect to include the Initial Services, and all of the Initial
Services shall be merged into and included within the EPCM Contract.
Acknowledgement and Confirmation
Please acknowledge your agreement to the above by signing in the space
indicated below and returning one copy to the undersigned at your earliest
opportunity. This letter shall then constitute the entire agreement between
the parties concerning the subject matter hereof, and shall supersede all
prior agreements, representations, discussions, communications and any and
all other understandings between the parties with respect thereto.
It is agreed that either party may transmit by fax to the other party a copy
of this letter agreement executed by the party transmitting the copy by fax,
the receipt of which faxed copy by the receiving party shall have the same
force and effect as if the original thereof had been delivered to the
receiving party at the same time, and which faxed copy shall be admissible
against the sending party in any legal or arbitral proceeding as evidence of
the due and proper execution of this letter agreement by the sending party.
Yours very truly,
GOLD RESERVE INC.
Per:
/s/ Douglas E. Stewart
ACKNOWLEDGEMENT AND AGREEMENT
SNC-LAVALIN ENGINEERS & CONSTRUCTORS INC. hereby acknowledges and agrees to
the content of this letter, to negotiate and finalize the proposed EPCM
Contract for the Project in good faith, and to perform the Initial Services
as authorized in this letter, all on, in accordance with and subject to this
letter of intent.
Dated at Toronto, Ont., Canada, this 12th day of August, 2005.
Per:
/s/ Feroz Ashraf
Sr. Vice President
Commercial & Strategic Development
Global Mining and Metallurgy
Gold Reserve
August 24, 2005
SNC-Lavalin Engineers & Constructors Inc. 2200 Lake Shore Blvd. West
Toronto, Ont.
Canada M8V 1A4
Attention: Ian Pritchard
Dear Sirs:
Re: Las Brisas Gold Mine Project, Venezuela (the "Project") Amendment to
Letter of Intent and Limited Authorization to Proceed
This letter is further to the Letter of Intent and Limited Authorization to
proceed dated August 17, 2005 ("LOI") between SNC to GRI in respect of the
Project, and to our subsequent meetings, negotiations and discussions in
respect thereof. This letter comprises an amendment to the LOI.
All capitalized terms herein bear the same meaning as in the LOI.
Fee Payable in Respect of Initial Services Notwithstanding section 3(c) of
the LOI, GRI and SNC hereby agree that GRI shall, in addition to amounts
payable under the LOI in accordance with its terms, pay SNC a fee in the
amount of US$7.92 for each the manhour of the Initial Services. For greater
certainty, SNC may retroactively bill GRI this Fee in respect of Initial
Services performed prior to the date of this letter. LOI in Full Force and
Effect
Except as expressly amended hereby, the LOI remains in full force and effect
in accordance with this terms.
Acknowledgement and Confirmation
Please acknowledge your agreement to the above by signing in the space
indicated below and returning one copy to the undersigned at your earliest
opportunity. This letter, together with the LOI, shall then constitute the
entire agreement between the parties concerning the subject matter hereof,
and shall supersede all prior agreements, representations, discussions,
communications and any and all other understandings between the parties with
respect thereto.
It is agreed that either party may transmit by fax to the other party a copy
of this letter agreement executed by the party transmitting the copy by fax,
the receipt of which faxed copy by the receiving party shall have the same
force and effect as if the original thereof had been delivered to the
receiving party at the same time, and which faxed copy shall be admissible
against the sending party in any legal or arbitral proceeding as evidence of
the due and proper execution of this letter agreement by the sending party.
Yours very truly,
GOLD RESERVE INC.
Per: James Geyer
/s/ James p. Geyer
10/24/2005
ACKNOWLEDGEMENT AND AGREEMENT
SNC-LAVALIN ENGINEERS & CONSTRUCTORS INC. hereby acknowledges
and agrees to the content of this letter.
Dated at Toronto, Ontario, this 25th day of October, 2005.
Per:
/s/ Ian Pritchard________________
(Signature)
Name: Ian Pritchard
Title: VP & GM, M & M
Exhibit 12.1 - Chief Executive Officer's Section 302 Certification
I, Rockne J. Timm, certify that:
1. I have reviewed this Annual Report on Form 20-F of Gold
Reserve Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the company's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The company's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.
Date: March 30, 2006
s/ Rockne J Timm
Rockne J. Timm,
Chief Executive Officer
Exhibit 12.2 - Chief Financial Officer's Section 302 Certification
I, Robert A. McGuinness, certify that:
1. I have reviewed this Annual Report on Form 20-F of Gold Reserve Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company
as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.
Date: March 30, 2006
s/ Robert A. McGuinness
Robert A. McGuinness,
Vice President-Finance & CFO
Exhibit 13.1 - Chief Executive Officer's Section 906 Certification
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Gold Reserve Inc. on Form 20-F for
the year ending December 31, 2005 as filed with the Securities and Exchange
Commission on the date hereof, I, Rockne J. Timm, Chief Executive Officer of
Gold Reserve Inc., certify to my knowledge, pursuant to 18 U.S.C. 1350, as
adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Annual Report on 20-F fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report on Form 20-F fairly
presents, in all material respects, the financial condition and result of
operations of Gold Reserve Inc.
s/ Rockne J. Timm
Rockne J. Timm
Chief Executive Officer
March 30, 2006
Exhibit 13.2 - Chief Financial Officer's Section 906 Certification
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Gold Reserve Inc. on Form 20-F for
the year ending December 31, 2005 as filed with the Securities and Exchange
Commission on the date hereof, I, Robert A. McGuinness, Vice
President-Finance & CFO of Gold Reserve Inc., certify to my knowledge,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Annual Report on 20-F fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report on Form 20-F fairly
presents, in all material respects, the financial condition and result of
operations of Gold Reserve Inc.
s/ Robert A. McGuinness
Robert A. McGuinness
Vice President-Finance & CFO
March 30, 2006
Exhibit 99.1 - Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No 333-127336 and No 333-127337) Gold Reserve
Inc. of our report dated February 17, 2006, which appears in Gold Reserve
Inc.'s Annual Report on Form 20-F for the year ended December 31, 2005.
s/ PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Vancouver, BC, Canada
March 30, 2006
Exhibit 99.2 - Consent of Pincock, Allen & Holt
Pincock, Allen & Holt does hereby consent to the reference to this firm in
the Annual Report on Form 20-F of Gold Reserve, Inc. filed with the
Securities and Exchange Commission on or about March 31, 2006. We also
consent to the incorporation by reference in the Registration Statements on
Forms S-8 (File No. 333-127336 and File No. 333-127337) of Gold Reserve Inc.,
the reference to this firm, which appears in this Form 20-F. In giving this
consent, we do not thereby admit that we are an "expert" within the meaning
of the Securities Act of 1933, as amended.
s/ Pincock, Allen & Holt
March 30, 2006
Exhibit 99.3 - Consent of SNC-Lavalin Engineers & Constructors, Inc.
SNC-Lavalin Engineers & Constructors, Inc. does hereby consent to the
reference to this firm in the Annual Report on Form 20-F of Gold Reserve,
Inc. filed with the Securities and Exchange Commission on or about March 31,
2006. We also consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File No. 333-127336 and File No. 333-127337) of Gold
Reserve Inc., the reference to this firm, which appears in this Form 20-F. In
giving this consent, we do not thereby admit that we are an "expert" within
the meaning of the Securities Act of 1933, as amended.
s/ SNC-Lavalin Engineers & Constructors, Inc.
March 30, 2006
Glossary of Significant Terms
Certain terms used throughout this report are defined below.
alluvial... 1) Used to identify unconsolidated or clay-like materials
deposited over time by moving water. 2) Used to describe a strata of material
that constitutes a concession, i.e. relating to the Brisas alluvial concession.
andesite... A volcanic rock of intermediate composition. It is fine-grained
and contains 55% to 60% silica.
assay... An analysis performed on a rock sample to determine its metal
content.
ball mill... A steel cylinder partially filled with steel balls into which
crushed ore is fed. The ball mill is rotated, causing the balls to cascade
and grind the ore.
Bankable Feasibility Study... An analysis to determine the economic
viability of the Brisas project mineralization done in accordance with
industry standards in sufficient detail for a financial institution to
provide financing for the Brisas project.
batholith... A mass of igneous rock with a surface area greater than 100
square kilometers.
Bolivar... The basic monetary unit of the Republic of Venezuela. As of
March 2006, 2,150 Bolivars equaled one U.S. Dollar.
breccia... A clastic rock in which angular fragments are surrounded by a
fine-grained matrix or minerals cement.
BRISAS... Compania Aurifera Brisas del Cuyuni, C.A., a Venezuelan
corporation and the subsidiary of the Company that owns the Brisas property.
Brisas alluvial concession... The mining title granted to BRISAS by the
Ministry of Energy and Mines (predecessor to the Ministry of Basic Industries
and Mines) to explore and commercially develop and exploit gold contained in
alluvial material on the Brisas property.
Brisas hardrock concession... The mining title granted to BRISAS by the
Ministry of Energy and Mines (predecessor to the Ministry of Basic Industries
and Mines) to commercially develop and mine gold, copper and molybdenum
contained in the veta or vein material on the Brisas property.
Brisas Property or Project... The Brisas property or project consists of
the Brisas alluvial concession, the Brisas hardrock concession beneath the
alluvial concession, applications for other mineralization (primarily nominal
values of copper and silver) contained in these concessions, and contracts and
concessions for mineralization (primarily gold, copper and molybdenum) and
infrastructure use on land parcels contiguous to the existing concessions.
Choco 5 Property... Grass-roots exploration target leased from Minerven, a
subsidiary of CVG.
concentrate... A finely ground product of the milling process, containing a
high percentage of valuable metal, which is typically sent to a smelter for
further processing.
concession... A privilege, license or mining title granted by MIBAM to
explore and, if warranted, produce minerals from a specified property.
Corporacion Venezolana de
Guayana (CVG)... A Venezuelan government-owned entity formed to foster
industrial development and to explore and develop mineral resources in the
Guayana region of Venezuela, including the State of Bolivar.
cyanidation... A method of extracting gold or silver from a crushed or
ground ore by dissolving it in a weak cyanide solution.
dilution... Waste rock that is, by necessity, removed along with the ore in
the mining process, subsequently lowering the average grade of the ore
processed.
dip... The angle at which a vein, structure or rock bed is inclined from
the horizontal as measured at right angles to the strike.
environmental impact
statement (EIS)... A report, compiled prior to a production decision that
examines the effects of proposed mining activities on the natural
surroundings.
feasibility study... A comprehensive study of a deposit in which all
geological, engineering, operating, economic and other relevant factors are
considered in sufficient detail that it could reasonably serve as the basis
for a final decision by a financial institution to finance the development of
the deposit for mineral production.
flotation... A process for concentrating minerals based on the selective
adhesion of certain minerals to air bubbles in a mixture of water and ground
up ore. When the right chemicals are added to a frothy water bath of ore that
has been ground to the consistency of talcum powder, the minerals will float
to the surface. The metal rich flotation concentrate is then skimmed off the
surface.
gold equivalent... Gross value of copper at a stated value per pound
divided by the gross price of gold at a stated value per ounce.
Gold Reserve de Venezuela
C.A. (GLDRV)... A Venezuelan corporation and a foreign subsidiary of the
Company. GLDRV was organized in September 1992 to manage the exploration and
future development activities on the Brisas property.
grade... The relative quantity or the percentage of ore-mineral content in
a mineralized body, i.e. grams of gold per tonne or percent of copper per
tonne.
gravity separation... Recovery of gold from crushed rock or gravel using
gold's high specific gravity to separate it from the lighter material.
hardrock... Solid rock underlying an alluvial deposit. Also referred to as
bedrock.
hectare... A metric measurement of area equivalent to 10,000 square meters
or 2.47 acres.
igneous... Rocks formed by the cooling and solidifying of magma.
Imataca Forest Reserve... A 3.6 million hectare area of tropical forest
located in the State of Bolivar in southeastern Venezuela that was set aside
as a region for forest exploitation by the Venezuelan government in the
1960s. The Company's Brisas Project is located in an area within the reserve,
which was previously designated for mining activities.
indicated mineral resource... That part of a mineral resource for which
quantity, grade or quality, densities, shape and physical characteristics,
can be estimated with a level of confidence sufficient to allow the
appropriate application of technical and economic parameters, to support mine
planning and evaluation of the economic viability of the deposit. The estimate
is based on detailed and reliable exploration and testing information gathered
through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely enough for geological
and grade continuity to be reasonably assumed.
inferred mineral resource... That part of a mineral resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information
and sampling gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes.
intrusive... Rock which while molten penetrated into or between other rocks,
but solidified before reaching the surface.
Kilometer 88 mining district
(Km 88)... An area in the State of Bolivar in southeastern Venezuela
containing significant alluvial and hardrock deposits. The Company's Brisas
Project is located in this district.
measured mineral resource... That part of a mineral resource for which
quantity, grade or quality, densities, shape, physical characteristics are so
well established that they can be estimated with confidence sufficient to
allow the appropriate application of technical and economic parameters, to
support production planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and grade continuity.
metamorphism... Rock of sedimentary or igneous origin that has been altered
by high temperature and/or pressure.
mill... A processing plant where ore is crushed and ground, usually to fine
powder, and the metals are extracted by physical and/or chemical means. Output
from a mill usually requires further processing in a smelter or refinery to
produce pure metal.
mineral... A naturally occurring homogeneous substance having fixed
physical properties and chemical composition.
mineral resource... A concentration or occurrence of natural, solid,
inorganic or fossilized organic material in or on the Earth's crust in such
form and quantity and of such grade or quality that it has reasonable
prospects for economic extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource are known, estimated or
interpreted from specific geologic evidence and knowledge.
mineral reserve... The economically mineable part of a Measured or Indicated
Mineral Resource demonstrated by at least a preliminary feasibility study.
This study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate, at the
time of reporting, that economic extraction can be justified. A Mineral
Reserve includes diluting materials and allowances for losses that may occur
when material is mined.
mineralization... The presence of minerals in a specific area or geological
formation.
Ministry of
the Environment
and Natural Resources
(MARN)... Venezuelan governmental entity, which exercises supervisory
jurisdiction over the environment.
Ministry of Basic Industries
and Mines (MIBAM)... Venezuelan governmental entity, which until early 2005
was previously referred to as the Ministry of Energy and Mines (MEM), which
exercises supervisory jurisdiction over the Brisas Project and the Company's
activities thereon.
Minerven A mining company wholly-owned by CVG.
molybdenum... An element (Mo), usually in the form of molybdenite,
primarily used in alloys and lubricants.
open pit... A mine that is entirely on surface. Also referred to as an
open-cut or open-cast mine.
Precambrian... All geologic time before 570 million years ago.
preliminary feasibility study... A comprehensive study of the viability of
a mineral project that has advanced to a stage where the mining method, in
the case of underground mining, or the pit configuration, in the case of an
open pit, has been established, and which, if an effective method of mineral
processing has been determined, includes a financial analysis based on
reasonable assumptions of technical, engineering, operating, economic factors
and the evaluation of other relevant factors which are sufficient for a
qualified person, acting reasonably, to determine if all or part of the
mineral resource may be classified as a mineral reserve.
probable mineral reserve...
Probable (Indicated) Reserves... Consolidated Ontario Securities Act
("CSA") N.I. 43-101
The economically mineable part of an indicated mineral resource, and in some
circumstances, a measured mineral resource demonstrated by at least a
preliminary feasibility study. This study must include adequate information
on mining, processing, metallurgical, economic, and other relevant factors
that demonstrate, at the time of reporting, that economic extraction can be
justified.
SEC Industry Guide 7
Reserves for which quantity and grade and/or quality are computed from
information similar to that used for proven (measured) reserves, but the
sites for inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower
than that for proven (measured) reserves, is high enough to assume continuity
between points of observation.
Proterozoic... That part of the Precambrian time represented by rocks in
which traces of life appear or the younger part of Precambrian time.
Proven (Measured) Reserves... CSA N.I. 43-101
The economically mineable part of a measured mineral resource demonstrated by
at least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic, and other
relevant factors that demonstrate, at the time of reporting, that economic
extraction is justified.
SEC Industry Guide 7
Reserves for which: (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.
reclamation... The restoration of a site after mining or exploration
activity is completed.
recovery... The percentage of valuable metal in the ore that is recovered
by metallurgical treatment.
stock... An igneous body smaller than a batholith with a subcircular
section.
stratabound... Used to describe mineral deposits that are restricted to a
single stratagraphic unit.
strataform... Mineral deposits whose geometry is similar to that of its
host rock.
strike... The direction, or bearing from true north, of a vein or rock
formation measured along a horizontal line on the surface of the vein or rock.
strip ratio... The tonnage of non-mineralized waste material removed to
allow the mining of one tonne of ore in an open pit. Also referred to as
waste-to-ore ratio.
tailings... The material removed from the milling circuit after separation
of the valuable metals.
troy ounce... Unit of weight measurement used for all precious metals. The
familiar 16 ounce avoirdupois pound equals 14.583 troy ounces.
vein... A sheet-like or tabular discordant mineralized body formed by
complete or partial infilling of a fracture or fault within a rock.
veta... 1) Used to describe veins of mineralization and/or deeper, hardrock
mineralization, 2) used to describe a strata of material that constitutes a
concession, i.e. relating to the Brisas hardrock concession.
CONVERSION FACTORS:
1 Troy ounce = 31.1034
Grams1 Tonne = 1.1023
Short tons or 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
SYMBOLS: Au = Gold
Cu = Copper
gpt = Grams per tonne
kt = Thousand tonnes
Au Eq = Gold equivalent
April 27, 2023