SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Filed by
the Registrant x
Filed by
a Party other than the Registrant
Check the
appropriate box:
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x
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Preliminary
Proxy Statement
|
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¨
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a–6(e)(2))
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¨
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to ss.240.14a–11(c) or
ss.240.14a–12
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APOLLO
GOLD CORPORATION
(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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¨
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No
fee required.
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x
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Fee
computed on the table below per Exchange Act Rules 14a–6(i)(4) and
0–11.
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(1)
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Title
of each class of securities to which transaction
applies:
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Common
Stock, no par value per share
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(2)
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Aggregate
number of securities to which transaction applies:
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242,083,209
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0–11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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$0.35
(average of high and low prices of Apollo Gold Corporation common stock
reported on the American Stock Exchange for such shares on April 21,
2010)
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(4)
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Proposed
maximum aggregate value of transaction:
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$84,729,123.15
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(5)
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Total
fee paid:
|
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$16,945.82
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¨
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Fee
paid previously with preliminary materials.
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0–11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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NOTICE
AND MANAGEMENT INFORMATION CIRCULAR
FOR THE ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS TO
BE HELD ON ►, 2010
BE HELD ON ►, 2010
CONCERNING, AMONG OTHER THINGS, THE ISSUANCE OF SHARES
PURSUANT
TO THE PROPOSED PLAN OF ARRANGEMENT INVOLVING LINEAR GOLD
CORP., APOLLO GOLD CORPORATION AND 1526735 ALBERTA ULC
TO THE PROPOSED PLAN OF ARRANGEMENT INVOLVING LINEAR GOLD
CORP., APOLLO GOLD CORPORATION AND 1526735 ALBERTA ULC
DATED ►,
2010
These
materials are important and require your immediate attention. They require the
shareholders of Apollo Gold Corporation to make important decisions. If you are
in doubt as to how to make your decisions, contact your financial, legal or
other professional advisors.
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If
you have any questions regarding the information described in this Notice
and Management Information Circular or require assistance in voting your
shares, please contact Laurel Hill Advisory Group toll-free, at
1-888-987-3940 (Banks, Brokers and collect calls:
416-637-4661).
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APOLLO
GOLD CORPORATION
5655
South Yosemite Street, Suite 200
Greenwood
Village, Colorado
80111-3220
NOTICE
OF ANNUAL AND SPECIAL MEETING
OF
SHAREHOLDERS OF APOLLO GOLD CORPORATION
NOTICE IS HEREBY GIVEN that an
annual and special meeting (the “Apollo Meeting”) of the holders (the
“Apollo
Shareholders”) of common shares (“Apollo Shares”) in the capital of Apollo
Gold Corporation (“Apollo”) will be held at ► for
the following purposes:
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·
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to
consider and, if deemed advisable, to approve, with or without variation,
an ordinary resolution, the full text of which is attached to the
accompanying management information circular (the “Circular”) of Apollo as
Schedule A (the “Share
Issuance Resolution”) approving the
issuance of Apollo Shares, (including the Apollo Shares issuable upon
exercise of Apollo warrants (the “Apollo Replacement
Warrants”) and Apollo options (the “Apollo Replacement
Options”)), the Apollo Replacement Warrants and Apollo Replacement
Options, in each case in connection with a court-approved plan of
arrangement (the “Arrangement”) under section 193
of the Alberta Business
Corporations Act (the “ABCA”), pursuant to
which Linear Gold Corp. (“Linear”) will amalgamate
with 1526735 Alberta ULC (“Apollo Sub”), a
wholly-owned subsidiary of Apollo, such amalgamated corporation will
become a wholly owned subsidiary of Apollo and securityholders of Linear
will become securityholders of Apollo in accordance with the arrangement
agreement dated March 31, 2010 entered into by and among Linear, Apollo
and Apollo Sub, all as more particularly set forth in the
Circular;
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·
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conditional
upon approval of the Share Issuance Resolution, to consider and, if deemed
advisable, approve, with or without variation, an ordinary resolution
authorizing certain amendments to the Apollo Stock Option Incentive Plan,
the full text of which is attached to the Circular as Schedule B (the
“Option Plan Amendment
Resolution”);
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·
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conditional
upon approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution, to consider and, if deemed advisable, approve,
with or without variation, a special resolution authorizing the filing of
articles of amendment to change the name of Apollo to ►, the full
text of which is attached to the Circular as Schedule C (the “Name Change
Resolution”);
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·
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conditional
upon approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution, to consider and, if deemed advisable, to
approve, with or without variation, a special resolution authorizing the
filing of articles of amendment to effect a consolidation of Apollo Shares
on the basis of one post-consolidation Apollo Share for every four Apollo
Shares outstanding immediately prior to the share consolidation, such
amendment to be effected as soon as practicable following consummation of
the Arrangement without further approval or authorization of the Apollo
Shareholders (the “Share
Consolidation Resolution”), the full text of which is attached to
the Circular as Schedule D;
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·
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to
elect seven directors
of Apollo;
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·
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to
re-appoint Apollo’s independent auditors and to authorize the
directors to fix their
remuneration;
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·
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to
consider and, if deemed advisable, to approve, with or without variation,
an ordinary resolution ratifying Apollo’s
shareholder rights plan (the “Rights Plan
Resolution”), the full text of which is attached to the Circular as
Schedule E;
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·
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to
receive the audited consolidated financial statements of Apollo for
the fiscal year ended December 31, 2009, together with the report of the
auditors thereon; and
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·
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to
transact such further or other business as may properly come before the
Apollo Meeting and any adjournments or postponements
thereof.
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Only
Apollo Shareholders of record as of 5:00 p.m. (Toronto time) on ►, 2010, the
record date for the Apollo Meeting (the “Record Date”), will be entitled to
receive notice of the Apollo Meeting and to attend and vote at the Apollo
Meeting or any adjournments or postponements thereof. This Notice is accompanied
by the Circular and a form of proxy. This Notice, the Circular and
accompanying form of proxy are first being mailed to Apollo Shareholders on or
about ►, 2010.
The
Circular provides additional information relating to the matters to be dealt
with at the Apollo Meeting and is deemed to form part of this Notice. Any
adjourned or postponed meeting resulting from an adjournment or postponement of
the Apollo Meeting will be held at a time and place to be specified either by
Apollo before the Apollo Meeting or by the chairman at the Apollo
Meeting.
DATED this ► day of ►,
2010.
BY ORDER
OF THE BOARD OF DIRECTORS
R. David
Russell
President
and Chief Executive Officer
Your vote is
important. Accordingly, please complete, sign and return the enclosed
proxy card or submit your proxy by facsimile according to the instructions on
the proxy card. If you have any questions or need assistance, please
call the Laurel Hill
Advisory Group, which is assisting Apollo in its solicitation efforts, toll-free
at (888)
987-3940. For
additional information regarding voting your shares, see the section of the
Circular entitled “General Information Concerning The Apollo Meeting” beginning
on page ► of the
Circular.
IMPORTANT
NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ►, 2010.
AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ►, 2010.
The Notice of Annual and Special
Meeting, Circular, Proxy and Apollo’s Annual Report for the Fiscal Year Ended
December 31, 2009 are available at ►.
TABLE
OF CONTENTS
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Page
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GLOSSARY
OF TERMS
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1
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GLOSSARY
OF GEOLOGIC TERMS
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6
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CONVERSION
FACTORS AND ABBREVIATIONS
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8
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NOTICE
TO UNITED STATES SHAREHOLDERS
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9
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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10
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REPORTING
CURRENCIES AND ACCOUNTING PRINCIPLES
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10
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INFORMATION
CONTAINED IN THIS CIRCULAR
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11
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QUESTIONS
AND ANSWERS ABOUT THE ARRANGEMENT AND THE APOLLO MEETING
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12
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SUMMARY
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18
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SELECTED
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
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26
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RISK
FACTORS
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28
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INFORMATION
ABOUT THE COMPANIES
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34
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GENERAL
INFORMATION CONCERNING THE APOLLO MEETING
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35
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Date,
Time and Place
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35
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Purpose
of the Apollo Meeting
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35
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Record
Date
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36
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Outstanding
Shares
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36
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Shares
Entitled to Vote
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36
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Vote
Required
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36
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Recommendation
of the Apollo Board
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36
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Shares
Beneficially Owned by Apollo Directors and Executive
Officers
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36
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Quorum
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37
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Voting
by Proxy
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37
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Appointment
of Proxies
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37
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Proxies
without Instructions
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37
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Revocation
of Proxies
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37
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Solicitation
of Proxies
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38
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Dissent
Rights
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38
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Shareholder
Proposals For Next Annual Meeting
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38
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Other
Matters
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39
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Transfer
Agent
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39
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THE
ARRANGEMENT
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40
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General
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40
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When
the Arrangement Becomes Effective
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40
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Background
of the Arrangement
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41
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Reasons
and Benefits of the Arrangement
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43
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Opinion
of Apollo’s Financial Advisor-Haywood Securities Inc.
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45
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Recommendation
of the Apollo Special Committee
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50
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Recommendation
of the Apollo Board
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51
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Issuance
and Resale of Apollo Shares
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51
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Regulatory
and Other Approvals Required for the Arrangement
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52
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i
Table
of Contents (continued)
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Page
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Dissenting
Shareholder Rights
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53
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Accounting
Treatment
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53
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Fees,
Costs and Expenses
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53
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Interests
of Apollo Directors and Executive Officers in the
Arranngement
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53
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THE
ARRANGEMENT MECHANICS
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54
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The
Arrangement
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54
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Articles
of Arrangement
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55
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Fractional
Shares
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55
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Apollo
Replacement Warrants
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55
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Apollo
Replacement Options
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56
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Court
Approval of the Arrangement and Completion of the
Arrangement
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56
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Stock
Exchange Listings
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57
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Ongoing
Reporting Obligations
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57
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THE
ARRANGEMENT AGREEMENT
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58
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General;
The Arrangement
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58
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Treatment
of Linear Options
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58
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Treatment
of Linear Warrants
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58
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Treatment
of Apollo Options
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59
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Representations
and Warranties
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59
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Mutual
Covenants
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60
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Mutual
Conditions to Closing
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63
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Conditions
in Favour of Linear
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64
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Conditions
in Favour of Apollo and Apollo Sub
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65
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No
Solicitation Covenant
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66
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Exceptions
to Non-Solicitation Covenant; Ability to Accept Superior
Proposal
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67
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Right
to Match
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68
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Termination
of the Arrangement Agreement
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68
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Break
Fee
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69
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Amendment
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69
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Board
of Directors
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70
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Name
Change
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70
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Management
Changes
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70
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Cancellation
of Apollo Shares
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70
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Indemnification
and Insurance
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70
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THE
COMBINED COMPANY UPON COMPLETION OF THE ARRANGEMENT
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71
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Organizational
Chart
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71
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Directors
and Officers of the Combined Company
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71
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Description
of Share Capital
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72
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Selected
Unaudited Pro Forma Financial Information
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72
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Post-Arrangement
Shareholdings and Principal Shareholders
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72
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SELECTED
INFORMATION CONCERNING APOLLO GOLD CORPORATION
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73
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General
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73
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Apollo’s
Documents Incorporated by Reference
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73
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Description
Of Apollo’s Share Capital
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74
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Dividend
Record And Policy
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74
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Consolidated
Capitalization
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74
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Trading
Price and Volume
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76
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DETAILED
INFORMATION ABOUT LINEAR GOLD CORP.
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78
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General
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78
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Description
of Business
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78
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ii
Table
of Contents (continued)
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Page
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Selected
Financial Data
|
98
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Operating
and Financial Review and Prospects
|
99
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Results
of Operations
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99
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Liquidity
and Capital Resources
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101
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Off-Balance
Sheet Arrangements
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103
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Legal
Proceedings
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103 | |
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Tabular
Disclosure of Contractual Obligations
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103
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Quantitative
and Qualitative Disclosures About Market Risk
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103
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Linear
Operational Risk Factors
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104
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ANNUAL
BUSINESS OF THE APOLLO MEETING
|
110
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Securities
and Principal Holders of Securities
|
110
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Statement
of Corporate Governance Practices
|
112
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Board
Committees
|
112
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Audit
Committee
|
112
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Compensation
Committee
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113
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Technical
Committee
|
114
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Nominating
Committee
|
114
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Director
Nominations
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115
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Directors
Compensation and Related Information
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117
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Directors
Compensation
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117
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Compensation
Discussion and Analysis
|
118
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Business
Environment
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119
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Overview
of Executive Compensation For 2009
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119
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Objectives
of Apollo’s Compensation Program
|
119
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The
Elements of Apollo’s Compensation Program
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120
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Practices
Regarding the Grant of Options
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122
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Peer
Comparisons and Survey Data
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123
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Perquisites
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123
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Executive
Officers
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123
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Employment
Agreements
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124
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Stock
Ownership Guidelines
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126
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Role
of Executive Officers in Compensation Decisions
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126
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Indemnification
Agreements
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127
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Tax
Implications of Executive Compensation
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127
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Summary
Compensation Table For Named Executive Officers
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127
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Grants
Of Plan-Based Awards
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128
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Outstanding
Equity Awards At Fiscal Year-End
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128
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Option
Exercises and Stock Vested
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130
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Potential
Payments Upon Termination Or Change In Control
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130
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Indebtedness
Of Directors And Officers
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132
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Equity
Compensation Plan Information
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133
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Directors’
and Officers’ Insurance
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133
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Shareholder
Proposals For Next Annual Meeting
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133
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INTERESTS
OF INSIDERS AND OTHERS IN MATERIAL TRANSACTIONS
|
134
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Policy
Regarding Related Party Transactions
|
134
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Related
Party Transactions
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134
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Interest
of Certain Persons in Matters to Be Acted Upon
|
137
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Section
16(A) Beneficial Ownership Reporting Compliance
|
137
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PARTICULARS
OF MATTERS TO BE ACTED UPON AT THE APOLLO MEETING
|
138
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The
Share Issuance Proposal
|
138
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The
Stock Option Incentive Plan Amendments Proposal
|
138
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The
Name Change Proposal
|
140
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The
Share Consolidation Proposal
|
141
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Election
of Directors
|
144
|
iii
Table
of Contents (continued)
|
Page
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Re-Appointment
of Auditors Proposal
|
147
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Ratification
of the Shareholder Rights Plan Proposal
|
148
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FINANCIAL
STATEMENTS
|
153
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AUDITORS
|
153
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TRANSFER
AGENT AND REGISTRAR
|
153
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STATUTORY
RIGHTS
|
153
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ADDITIONAL
INFORMATION
|
153
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APOLLO
DIRECTORS’ APPROVAL
|
154
|
iv
Table
of Contents (continued)
|
Page
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|
SCHEDULE
A — SHARE ISSUANCE RESOLUTION
|
A-1
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SCHEDULE
B — OPTION PLAN AMENDMENT RESOLUTION
|
B-1
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SCHEDULE
C — NAME CHANGE RESOLUTION
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C-1
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SCHEDULE
D — SHARE CONSOLIDATION RESOLUTION
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D-1
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SCHEDULE
E — RIGHTS PLAN RESOLUTION
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E-1
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SCHEDULE
F — ARRANGEMENT AGREEMENT
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F-1
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SCHEDULE
G — PLAN OF ARRANGEMENT
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G-1
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SCHEDULE
H — INTERIM ORDER
|
H-1
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SCHEDULE
I — NOTICE OF APPLICATION FOR FINAL ORDER
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I-1
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SCHEDULE
J — APOLLO GOLD CORPORATION STOCK OPTION INCENTIVE PLAN
|
J-1
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SCHEDULE
K — SHAREHOLDER RIGHTS PLAN
|
K-1
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SCHEDULE
L — APOLLO FAIRNESS OPINION
|
L-1
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SCHEDULE
M — HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF LINEAR
|
M-1
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SCHEDULE
N — UNAUDITED PRO FORMA FINANCIAL STATEMENTS
|
N-1
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|
SCHEDULE
O — APOLLO CORPORATE GOVERNANCE PROCEDURES
|
O-1
|
v
GLOSSARY
OF TERMS
“ABCA” means the Business Corporations Act
(Alberta) and the regulations
made thereunder, as promulgated or amended from time to time.
“AMEX” means the NYSE Amex
Equities.
“Apollo Board” means the board of
directors of Apollo, including (unless the context indicates otherwise) the
board of directors of the combined company following consummation of the
Arrangement.
“Apollo Fairness Opinion” means the written
fairness opinion of Haywood Securities dated March 9, 2010, concluding that
the consideration to be paid by Apollo in connection with the Arrangement is
fair, from a financial point of view, to the Apollo Shareholders, a copy of
which is attached hereto as Schedule L.
“Apollo Meeting” or “Meeting” means the annual and
special meeting of Apollo Shareholders to be held on ►, 2010 at 10:00 a.m.
(Denver time), and any adjournments or postponements thereof, for the purposes
set forth in the attached Notice of Meeting.
“Apollo Proxy” means the instrument of
proxy for Apollo accompanying this Circular.
“Apollo Replacement
Options” means the stock options
to be issued to former optionholders of Linear pursuant to the
Arrangement.
“Apollo Replacement Warrants”
means the warrants to be issued to former warrantholders of Linear pursuant to
the Arrangement.
“Apollo Shareholder
Approval” means the approval of
the Share Issuance Resolution and the Option Plan Amendment Resolution by Apollo
Shareholders present in person or represented by proxy at the Apollo
Meeting.
“Apollo Shareholders” means, at the relevant
time(s), the holders of Apollo Shares.
“Apollo Shares” means common shares in
the capital of Apollo, including (unless the context indicates otherwise) shares
of the combined company following consummation of the Arrangement.
“Apollo Special Committee” means the special
committee of independent directors of Apollo, comprised of Messrs. Stott, Peat,
Kaiser and Vaughan, established to consider, among other things, the proposed
Arrangement and the Share Issuance.
“Apollo Stock Option Incentive
Plan” or “Stock Option
Incentive Plan” means the stock option incentive plan of Apollo adopted
in December 2003 and amended and restated as of May 16, 2009.
“Apollo Sub” means 1526735
Alberta ULC, a wholly owned subsidiary of Apollo incorporated as an unlimited
liability corporation under the ABCA for the purpose of effecting the
Arrangement.
“Apollo” means Apollo Gold
Corporation, a corporation continued under the Laws of the Yukon Territory
pursuant to the provisions of the YBCA.
“Arrangement” means the proposed
arrangement under the provisions of section 193 of the ABCA upon the terms and
conditions set forth in the Plan of Arrangement and any amendments thereto made
in accordance with Article 7 of the Arrangement Agreement and
Article 7 of the Plan of Arrangement or the direction of the Court in the
Final Order.
“Arrangement Agreement” means the Arrangement
Agreement dated March 31, 2010 among Linear, Apollo and Apollo Sub, a copy of
which is attached hereto as Schedule F, and any amendments thereto or amendments
and restatements thereof.
“Arrangement Resolution” means the special
resolution of the Linear Shareholders approving the
Arrangement.
1
“Articles of Arrangement” means
articles of amalgamation in respect of the Arrangement required by the ABCA to
be filed with the Registrar after the Final Order is made;
“Binding LOI” means the binding
letter of intent dated March 9, 2010 between Apollo and Linear setting out the
principal terms of the Arrangement, as amended by amendment no. 1 dated March
18, 2010.
“Business Day” means a day, other than
a Saturday or a Sunday or a statutory or civic holiday in Halifax, Nova Scotia
and Denver, Colorado.
“Canadian GAAP” means Canadian generally
accepted accounting principles.
“CBCA” means the Canada Business Corporations Act
and the regulations made thereunder, as promulgated or amended from time
to time.
“CIM Standards” means the Definition
Standards for Mineral Resources and Mineral Reserves adopted by the Canadian
Institute of Mining, Metallurgy and Petroleum Council on December 11,
2005.
“Circular” means this management
information circular, including the Notice of Meeting and all Schedules attached
hereto and all documents incorporated by reference herein, and all amendments
hereof, sent to the Apollo Shareholders in connection with the Apollo
Meeting.
“Completion Deadline” means the
date by which the transactions contemplated by the Arrangement Agreement are to
be completed, which date shall be no later than July 2, 2010.
“Continuance” means the proposed
continuance of Linear from the Canadian federal jurisdiction into the Province
of Alberta in order to facilitate the Arrangement.
“Continuance Resolution” means the special
resolution of the Linear Shareholders approving the Continuance.
“Court” means the Court of
Queen’s Bench of Alberta.
“Dissent Procedures” means the dissent
procedures set out in Section 190 of the CBCA in respect of the Continuance and
Section 191 of the ABCA in respect of the Arrangement, required to be
complied with by Dissenting Shareholders in order to exercise Dissent Rights, as
qualified in their entirety by the text of the Interim Order.
“Dissent Rights” means the rights of
registered shareholders of Linear to dissent in respect of the Continuance or
the Arrangement, as applicable, in compliance with the Dissent
Procedures.
“Dissenting Shareholder” means a registered
shareholder of Linear who dissents in respect of the Continuance or the
Arrangement, as applicable, in strict compliance with the Dissent
Rights.
“EDGAR” means the Electronic
Data Gathering Analysis and Retrieval system, maintained by the
SEC.
“Effective Date” means the date shown on
the Articles of Arrangement issued under the ABCA giving effect to the
Arrangement.
“Effective Time” means 5:00 p.m. (Toronto
time) on the Effective Date.
“Exchange Ratio” means 5.4742 Apollo
Shares for each Linear Share.
“Final Order” means the order
of the Court pursuant to section 193 of the ABCA approving the
Arrangement, as such order may be amended at any time prior to the Effective
Date or, if appealed, then unless such appeal is withdrawn or denied, as
affirmed.
“Former Linear
Shareholder” means a Linear
Shareholder immediately following the Effective Time.
2
“Governmental Authority” means and includes,
without limitation, any national, federal, provincial, state, county or
municipal government, governmental or public department, court, tribunal,
commission, board, bureau or agency or any political subdivision of any of the
foregoing, any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
“Haywood Securities Engagement
Letters” means the letter
agreements dated December 30, 2009 and April 15, 2010 between the Apollo Special
Committee and Haywood Securities pursuant to which Haywood Securities was
retained to act as financial advisor to the Apollo Special Committee and provide
the Apollo Fairness Opinion.
“Haywood Securities” means Haywood Securities
Inc. in its capacity as financial advisor to the Apollo Special
Committee.
“Indicated Mineral
Resource” means 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” means 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.
“Insider” has the meaning ascribed
to such term in the Securities
Act (Ontario).
“Interim Order” means the interim order
of the Court dated ►, 2010, as such order may be amended, with respect to the
Arrangement providing for, among other things, the calling and holding of the
Linear Meeting, a copy of which is attached hereto as Schedule H.
“Laws” means all laws, by-laws,
rules, regulations, orders, ordinances, protocols, codes, guidelines,
directives, instruments, policies, notices, directions and judgments or other
requirements of any Governmental Authority.
“Linear Board” means the board of
directors of Linear.
“Linear Circular” means the
notice and management information circular (and all schedules and exhibits
thereto and documents incorporated by reference therein) sent to the Linear
Shareholders in connection with the Linear Meeting.
“Linear Listed Warrants” means,
collectively, an aggregate of up to 5,203,750 Linear Warrants that were issued
pursuant to the common share purchase warrant indenture dated November 19, 2009
between Linear and Computershare Trust Company of Canada, and are listed for
trading on the TSX.
“Linear Meeting” means the special
meeting of Linear Shareholders to be held on ►, and any adjournments or
postponements thereof, for the purpose of Linear Shareholders considering and,
if deemed advisable, approving the Continuance Resolution and the Arrangement
Resolution.
“Linear Optionholders” means the holders of
Linear Options.
“Linear Options” means the outstanding
options issued pursuant to the Linear Stock Option Plan.
“Linear Shareholder
Approval” means the approval of
the Continuance Resolution and the Arrangement Resolution by the Linear
Shareholders present in person or represented by proxy at the Linear
Meeting.
“Linear Shareholders” means, at the relevant
time(s), the holders of Linear Shares.
3
“Linear Shares” means the outstanding
common shares in the capital of Linear.
“Linear Stock Option Plan” means the stock option
plan of Linear adopted on September 29, 2006.
“Linear Warrantholders” means the
holders of Linear Warrants.
“Linear Warrants” means the
outstanding common share purchase warrants of Linear.
“Linear” means Linear Gold Corp.,
a corporation incorporated under the federal Laws of Canada.
“Material Adverse Change” when
used in connection with an entity means any change (or any condition, event or
development involving a prospective change) in the business, affairs,
operations, results of operations, assets, capitalization, financial condition,
licenses, permits, concessions, rights, liabilities, prospects or privileges,
whether contractual or otherwise, of such entity which has or is reasonably
likely to have a Material Adverse Effect on such entity and its parent (if
applicable) or subsidiaries, taken as a whole.
“Material Adverse Effect” when
used in connection with an entity means any change (including a decision to
implement such a change made by the board of directors or by senior management
who believe that confirmation of the decision by the board of directors is
probable), event, violation, inaccuracy, circumstance or effect that is
materially adverse to the business, assets (including intangible assets),
liabilities, capitalization, ownership, financial condition or results of
operations of such entity and its parent (if applicable) or subsidiaries, taken
as a whole.
“Measured Mineral
Resource” means that part of a
Mineral Resource for which quantity, grade or quality, densities, shape and
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.
“Mineral Reserve” means 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 the material is mined.
“Mineral Resource” means a concentration or
occurrence of natural solid inorganic material or natural solid fossilized
organic material, including base and precious metals, in or on the Earth’s crust
in such form and quantity and of such a 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 geological evidence and knowledge.
“Name Change Resolution” means
the special resolution of the Apollo Shareholders, substantially in
the form attached hereto as Schedule C, approving the Name
Change.
“Name Change” means the proposed
change of the name of Apollo to ► upon completion of the
Arrangement.
“NI 43-101” means National
Instrument 43-101 – Standards
of Disclosure for Mineral Projects.
“Notice of Meeting” means the notice in
respect of the Apollo Meeting, as the context requires, accompanying this
Circular.
“Option Plan Amendment
Resolution” means the ordinary resolution of Apollo Shareholders
approving certain amendments to the Apollo Stock Option Incentive Plan required
in order to facilitate the Arrangement, all as more particularly described in
this Circular.
4
“Party” or “party” means either Linear,
Apollo or Apollo Sub and “Parties” or “parties” means all of Linear,
Apollo and Apollo Sub.
“Plan of Arrangement” means the plan of
arrangement substantially in the form attached hereto as Schedule G and any
amendment or variation thereto made in accordance with its provisions, Article 7
of the Arrangement Agreement or upon the direction of the Court in the Final
Order.
“Private Placement” means the
issuance from treasury of 62,500,000 Apollo Shares to Linear on March 18, 2010
at a price of Cdn.$0.40 per Apollo Share for aggregate gross proceeds of
Cdn.$25,000,000.
“Probable Mineral Reserve” means the economically
mineable part of an Indicated 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.
“Project Facility Agreement”
means the agreement among Apollo, the Project Lenders and RMB Resources Inc.
dated February 20, 2009, as amended, relating to the Apollo credit facility in
respect of the Black Fox project.
“Project Lenders” means,
collectively, Macquarie Bank Limited and RMB Australia Holdings Limited, being
the lenders to Apollo under the Project Facility Agreement.
“Proven Mineral Reserve” means 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.
“Record Date” means 5:00 p.m. (Toronto
time) on ►.
“Registered Shareholder” means a registered
holder of Apollo Shares as recorded in the shareholder register of Apollo as
maintained by its transfer agent.
“Registrar” means the Registrar
of Corporations or Deputy Registrar of Corporations appointed pursuant to
Section 263 of the ABCA.
“Resigning Directors” means R. David Russell,
Robert W. Babensee, G. Michael Hobart, and W.S. (Steve) Vaughan, each a current
director of Apollo who will resign from the Apollo Board upon closing of the
Arrangement.
“Rights Plan Resolution” means
the special resolution of the Apollo Shareholders, substantially in the
form attached hereto as Schedule E, ratifying the Shareholder Rights
Plan.
“SEC” means the United States
Securities and Exchange Commission and includes any successor
thereto.
“SEDAR” means the System for
Electronic Document Analysis and Retrieval, maintained by the Canadian
Securities Administrators.
“Share Consolidation” means
the share consolidation of Apollo Shares on the basis of one
post-consolidation Apollo Share for every four Apollo Shares outstanding
immediately prior to the share consolidation.
“Share Consolidation
Resolution” means the special resolution of the Apollo Shareholders,
substantially in the form attached hereto as Schedule D, approving
the Share Consolidation.
“Shareholder” means a Linear
Shareholder or Apollo Shareholder, as the context requires.
“Share Issuance” means the
issuance of Apollo Shares (including those issuable upon exercise of the Apollo
Replacement Options and Apollo Replacement Warrants), Apollo Replacement Options
and Apollo Replacement Warrants in connection with the
Arrangement.
5
“Share Issuance
Resolution” means the ordinary
resolution of the Apollo Shareholders, substantially in the form attached hereto
as Schedule A, approving the Share Issuance.
“Shareholder Rights Plan” means
the shareholder rights plan of Apollo originally adopted on January 17,
2007.
“subsidiary” means, with
respect to a specified body corporate, any body corporate of which the specified
body corporate is entitled to elect a majority of the directors thereof and
shall include any body corporate, partnership, joint venture or other entity
over which such specified body corporate exercises direction or control or which
is in a like relation to such a body corporate, excluding any body corporate in
respect of which such direction or control is not exercised by the specified
body corporate as a result of any existing contract, agreement or
commitment.
“TSX” means the Toronto Stock
Exchange.
“U.S. Exchange Act” means the United States
Securities Exchange Act of
1934, and the regulations made thereunder, as promulgated or amended from
time to time.
“U.S. GAAP” means United States
generally accepted accounting principles.
“U.S. Securities Act” means the United States
Securities Act of 1933,
and the regulations made thereunder, as promulgated or amended from time
to time.
“United States” or “U.S.” means the United States
of America, its territories and possessions, any state of the United States and
the District of Columbia.
“YBCA” means the Business Corporations Act
(Yukon) and the regulations made thereunder, as promulgated or amended
from time to time.
GLOSSARY
OF GEOLOGIC TERMS
|
adularia
|
a
transparent or translucent variety of orthoclase (a monoclinic
feldspar)
|
|
alloy
|
a
homogeneous mixture or solid solution of two or more
metals
|
|
breccia
|
rock
consisting of angular fragments of other rocks held together by mineral
cement or a fine-grained matrix
|
|
call
|
a
financial instrument that provides the right, but not the obligation, to
buy a specified number of ounces of gold or silver or of pounds of lead or
zinc at a specified price
|
|
doré
|
unrefined
gold bullion bars containing various impurities such as silver, copper and
mercury, which will be further refined to near pure
gold
|
|
electrum
|
an
alloy of silver and gold
|
|
epithermal
|
pertaining
to mineral veins and ore deposits formed from warm waters at shallow
depth
|
|
fault
|
a
rock fracture along which there has been displacement
|
|
feasibility
study
|
a
definitive engineering and economic study addressing the viability of a
mineral deposit taking into consideration all associated technical
factors, costs, revenues, and risks
|
|
fold
|
a
curve or bend of a planar structure such as rock strata, bedding planes,
foliation, or cleavage
|
|
formation
|
a
distinct layer of sedimentary rock of similar
composition
|
|
geotechnical
|
the
study of ground stability
|
|
grade
|
quantity
of metal per unit weight of host rock
|
|
host
rock
|
the
rock containing a mineral or an ore
body
|
6
|
hydrothermal
|
the
products of the actions of heated water, such as a mineral deposit
precipitated from a hot solution
|
|
induced
polarization
|
an
exploration method which uses either the decay of an excitation voltage
(time-domain method) or variations in the Earth's resistivity at two
different but low frequencies (frequency-domain
method).
|
|
mafic
|
pertaining
to or composed dominantly of the ferromagnesian rock-forming silicates;
said of some igneous rocks and their constituent
minerals
|
|
mapping
or geologic mapping
|
the
recording of geologic information such as the distribution and nature of
rock units and the occurrence of structural features, mineral deposits,
and fossil localities
|
|
metamorphism
|
the
process by which rocks are altered in composition, texture, or internal
structure by extreme heat, pressure, and the introduction of new chemical
substances
|
|
metasediment
|
a
sediment or sedimentary rock that shows evidence of having been subjected
to metamorphism
|
|
mineral
|
a
naturally formed chemical element or compound having a definite chemical
composition and, usually, a characteristic crystal form
|
|
mineralization
|
a
natural occurrence in rocks or soil of one or more metal yielding
minerals
|
|
mining
|
the
process of extraction and beneficiation of mineral reserves to produce a
marketable metal or mineral product. Exploration continues
during the mining process and, in many cases, mineral reserves are
expanded during the life of the mine operations as the exploration
potential of the deposit is realized.
|
|
National
Instrument 43-101
|
Canadian
standards of disclosure for mineral projects
|
|
open
pit
|
surface
mining in which the ore is extracted from a pit or quarry, the geometry of
the pit may vary with the characteristics of the ore
body
|
|
ore
|
mineral
bearing rock that can be mined and treated profitably under current or
immediately foreseeable economic conditions
|
|
ore
body
|
a
mostly solid and fairly continuous mass of mineralization estimated to be
economically mineable
|
|
outcrop
|
that
part of a geologic formation or structure that appears at the surface of
the earth
|
|
petrographic
|
the
systematic classification and description of rocks, especially by
microscopic examinations of thin sections
|
|
put
|
a
financial instrument that provides the right, but not the obligation, to
sell a specified number of ounces of gold or of pounds of lead or zinc at
a specified price
|
|
pyrite
|
common
sulfide of iron
|
|
quartz
|
a
mineral composed of silicon dioxide, SiO2 (silica)
|
|
reclamation
|
the
process by which lands disturbed as a result of mining activity are
modified to support beneficial land use. Reclamation
activity may include the removal of buildings, equipment, machinery and
other physical remnants of mining, closure of tailings storage facilities,
leach pads and other mine features, and contouring, covering and
re-vegetation of waste rock and other disturbed areas.
|
|
reclamation
and closure costs
|
the
cost of reclamation plus other costs, including without limitation certain
personnel costs, insurance, property holding costs such as taxes, rental
and claim fees, and community programs associated with closing an
operating mine
|
|
recovery
rate
|
a
term used in process metallurgy to indicate the proportion of valuable
material physically recovered in the processing of ore, generally stated
as a percentage of the material recovered compared to the total material
originally present
|
|
SEC
Industry Guide 7
|
U.S.
reporting guidelines that apply to registrants engaged or to be engaged in
significant mining operations
|
|
sedimentary
rock
|
rock
formed at the earth’s surface from solid particles, whether mineral or
organic, which have been moved from their position of origin and
redeposited
|
|
stockwork
|
a
complex system of structurally controlled or randomly oriented
veins
|
7
|
strike
|
the
direction or trend that a structural surface, e.g. a bedding or
fault plane, takes as it intersects the horizontal
|
|
strip
|
to
remove overburden in order to expose ore
|
|
sulfide
|
a
mineral including sulfur (S) and iron (Fe) as well as other elements;
metallic sulfur-bearing mineral often associated with gold
mineralization
|
|
vein
|
a
thin, sheet-like crosscutting body of hydrothermal mineralization,
principally quartz
|
|
volcanic
rock
|
originally
molten rocks, generally fine grained, that have reached or nearly reached
the earth’s surface before
solidifying
|
CONVERSION
FACTORS AND ABBREVIATIONS
For ease
of reference, the following conversion factors are provided:
|
1
acre
|
=
0.4047 hectare
|
1
mile
|
=
1.6093 kilometers
|
|
1
foot
|
=
0.3048 meter
|
1
troy ounce
|
=
31.1035 grams
|
|
1
gram per metric tonne
|
=
0.0292 troy ounce/short ton
|
1
square mile
|
=
2.59 square kilometers
|
|
1
short ton (2000 pounds)
|
=
0.9072 tonne
|
1
square kilometer
|
=
100 hectares
|
|
1
tonne
|
=
1,000 kg or 2,204.6 lbs
|
1
kilogram
|
=
2.204 pounds or 32.151 troy oz
|
|
1
hectare
|
=
10,000 square meters
|
1
hectare
|
=
2.471 acres
|
The
following abbreviations could be used herein:
|
Ag
|
=
silver
|
m
|
=
meter
|
|
Au
|
=
gold
|
m(2)
|
=
square meter
|
|
Au
g/t
|
=
grams of gold per tonne
|
m(3)
|
=
cubic meter
|
|
g
|
=
gram
|
Ma
|
=
million years
|
|
ha
|
=
hectare
|
Oz
|
=
troy ounce
|
|
km
|
=
kilometer
|
Pb
|
=
lead
|
|
km(2)
|
=
square kilometers
|
t
|
=
tonne
|
|
kg
|
=
kilogram
|
T
|
=
ton
|
|
lb
|
=
pound
|
Zn
|
=
zinc
|
Note: All
units in this Circular are stated in metric measurements unless otherwise
noted.
8
NOTICE
TO UNITED STATES SHAREHOLDERS
The
Apollo securities to be issued in connection with the Arrangement have not been
registered under the U.S. Securities Act or any U.S. state securities Laws and,
to the extent that registration would otherwise be required under Section 5
thereof, are being issued in reliance on the exemption from registration set
forth in Section 3(a)(10) thereof on the basis of the approval of the Court.
Each of Apollo, Linear and Apollo Sub is a corporation existing under the Laws
of Yukon, Canada and Alberta, respectively. The transactions contemplated
in this Circular involve securities of a Canadian issuer and are being effected
in accordance with Canadian corporate Laws. Residents of the United
States should be aware that such requirements differ from such requirements
under the Laws of the United States and the states thereof.
Likewise,
information in this Circular or in the documents incorporated by reference
herein concerning the properties and operations of Apollo and Linear has been
prepared in accordance with Canadian standards under applicable Canadian
securities Laws, which differ from the requirements of U.S. securities Laws. The
terms “Mineral
Resource”,
“Measured Mineral
Resource”,
“Indicated Mineral
Resource” and “Inferred Mineral
Resource” used in this Circular
or in the documents incorporated by reference herein are Canadian mining terms
as defined in accordance with NI 43-101 under guidelines set out in the CIM
Standards.
While the
terms “Mineral
Resource”,
“Measured Mineral
Resource”,
“Indicated Mineral
Resource” and “Inferred Mineral
Resource” are recognized and
required by Canadian securities regulations, they are not recognized by the SEC.
Under United States standards, mineralization may not be classified as a
“reserve” unless the determination has been made that the mineralization could
be economically and legally produced or extracted at the time the reserve
determination is made. “Inferred Mineral
Resource” has a great amount of
uncertainty as to its existence, as to whether they can be mined and as to its
economic and legal feasibility, except in rare cases. It cannot be assumed that
all or any part of an “Inferred Mineral
Resource” will ever be upgraded
to a higher category. Under Canadian securities regulations, estimates of
Inferred Mineral Resources may not form the basis of feasibility or other
economic studies, except in rare cases. Readers are cautioned not to assume
that all or any part of measured or indicated resources will ever be converted
into Mineral Reserves. Readers are also cautioned not to assume that all or any
part of an “Inferred Mineral
Resource” exists, or is economically or legally
mineable. Disclosure of contained ounces is permitted disclosure under
Canadian regulations; however, the SEC generally only permits issuers to report
resources as in place tonnage and grade without reference to unit measures. As
such, certain information contained in this Circular or in the documents
incorporated by reference herein concerning descriptions of mineralization and
resources under Canadian standards may not be comparable to similar information
made public by United States companies subject to reporting and disclosure
requirements of the SEC.
In
addition, the definitions of “Proven Mineral Reserves” and “Probable Mineral
Reserves” under CIM standards
differ in certain respects from the U.S. standards. Apollo’s Proven
and Probable Mineral Reserves are estimated in accordance with definitions set
forth in NI 43-101 and on a basis consistent with the definition of Proven and
Probable Mineral Reserves set forth in SEC Industry Guide 7. Because
Apollo reports its Mineral Reserves to both NI 43-101 and SEC Industry Guide 7
standards, it is possible for its reserve estimates to vary between the two.
Where such a variance occurs it will arise from the differing requirements for
reporting Mineral Reserves set forth by the different reporting authorities to
which Apollo is subject.
The
enforcement by Apollo Shareholders of civil liabilities under the United States
federal securities Laws may be affected adversely by the fact that both Linear
and Apollo are organized under the Laws of Canada, that some or all of their
officers and certain directors and the experts named herein may be resident in
jurisdictions outside the United States, and that all or a substantial portion
of the assets of Linear and Apollo and such persons are located outside the
United States. Accordingly, you may not be able to sue a foreign company or its
officers or directors in a court outside the United States for violations of
U.S. securities Laws. In addition, it may be difficult to compel a foreign
company and its affiliates to subject themselves to judgment by a U.S.
court.
9
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Circular and the documents incorporated by reference herein contain certain
“forward-looking statements” and “forward-looking information” under applicable
securities Laws. Except for statements of historical fact, certain information
contained in this Circular and the documents incorporated by reference herein,
constitutes forward-looking statements. Forward-looking statements are
frequently characterized by words such as “may”, “could”, “will”, “shall”,
“might”, “plan”, “expect”, “project”, “schedule”, “forecast”, “budget”,
“intend”, “believe”, “anticipate”, “estimate”, “hope” and other similar words,
or statements that certain events or conditions “may”, “could”, “would”, “might”
or “will” occur. Forward-looking statements include, without limitation,
statements with respect to future development, future production, advancement
towards feasibility, future cash flows, cash costs, strip ratios, grade, mill
capacities, recovery costs, mine life, the estimation of commodity prices, the
estimation of Mineral Reserves and resources, the realization of Mineral Reserve
and Resource estimates, costs of exploration activities, the success of
exploration activities, permitting time lines, costs of production, currency
exchange rate fluctuations, expected capital expenditures, requirements for
additional capital, government regulation of mining activities, environmental
risks, unanticipated reclamation expenses, title disputes or claims, aboriginal
disputes or claims, limitations on insurance coverage, the sufficiency of
current working capital and anticipated operating cash flow, the sufficiency of
Mineral Reserves and Resources and estimated exploration expenditures to be
incurred on Linear’s and/or Apollo’s properties, compliance with environmental
standards and matters related to the completion of the Arrangement.
Forward-looking statements are based on the opinions and estimates of management
at the date the statements are made, and are based on a number of assumptions
and subject to a variety of risks and uncertainties and other factors that could
cause actual events or results to differ materially from those projected in the
forward-looking statements. Many of these assumptions are based on factors and
events that are not within the control of Linear and Apollo and there is no
assurance they will prove to be correct. These factors include, but are not
limited to, the risks and uncertainties relating to, among other things, changes
in commodity prices, currency fluctuations, financing, unanticipated Mineral
Reserve and Resource grades, infrastructure, results of exploration activities,
cost overruns, availability of materials and equipment, timeliness of government
approvals, taxation, political risk and related economic risk and unanticipated
environmental impact on operations as well as those factors discussed under the
section entitled “Risk Factors” in Apollo’s Form 10-K dated March 17, 2010 which
is incorporated by reference herein.
There are
also certain risks related to the consummation of the Arrangement including, but
not limited to, the risk that the businesses of Linear and Apollo may not be
integrated successfully or that such integration may be more difficult,
time-consuming or costly than expected; the risk that the expected benefits may
not be fully realized or not realized within the expected time frame; and other
risks discussed in this Circular or in the documents incorporated by reference
herein. Although Apollo has attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause
actions, events or results not to be anticipated, estimated or intended. There
can be no assurance that forward-looking statements will prove to be accurate,
as actual results and future events could differ materially from those
anticipated in such statements. The information contained in this Circular,
including the information under the heading “Risk Factors” identifies additional
factors that could affect the operations, results and performance of Apollo.
Readers are urged to carefully consider these factors. Apollo undertakes no
obligations to update forward-looking statements if circumstances or
managements’ respective estimates or opinions change except as required by
applicable securities Laws. The reader is cautioned not to place undue reliance
on forward-looking statements.
REPORTING
CURRENCIES AND ACCOUNTING PRINCIPLES
Unless
otherwise indicated, all references to “$,” “US$” or “U.S. dollars” in this
Circular refer to United States dollars and all references to “Cdn.$” or
“Canadian dollars” in this Circular refer to Canadian dollars. The financial
statements of Linear are reported in Canadian dollars and prepared in accordance
with Canadian GAAP. The financial statements of Apollo that are incorporated by
reference herein are reported in United States dollars and prepared in
accordance with U.S. GAAP.
The
following table sets out the high, low, average and closing exchanges rates for
Canadian dollars in terms of United States dollars for each of the three years
ended December 31, 2009:
10
|
Year Ended December 31
(US$)
|
||||||||||||
|
2007(1)
|
2008(1)
|
2009(1)
|
||||||||||
|
High
|
1.0905 | 1.0289 | 0.9695 | |||||||||
|
Low
|
0.8437 | 0.7711 | 0.7653 | |||||||||
|
Average
|
0.9304 | 0.9381 | 0.8706 | |||||||||
|
Closing
|
1.0120 | 0.8166 | 0.9564 | |||||||||
|
(1)
|
Using
the daily noon rates for each
period.
|
On ►,
2010, the exchange rate for one Canadian dollar expressed in United States
dollars, based upon the noon buying rates provided by the Bank of Canada, was
US$►(US$ 1.00=$►).
INFORMATION
CONTAINED IN THIS CIRCULAR
The
information contained in this Circular is given as at ►, 2010 except where
otherwise noted and except that information in documents incorporated by
reference is given as of the dates noted therein.
No person
has been authorized by Apollo to give any information or to make any
representation in connection with the Arrangement, the Share Issuance and any
other matters described herein other than that contained in this Circular and,
if given or made, any such information or representation should be considered
not to have been authorized by Apollo or Linear.
Certain
information pertaining to Linear included or described herein (including
financial statements of Linear) has been provided by or on behalf of Linear
or is based on publicly available documents and records on file with the
relevant Canadian provincial securities regulators and other public
sources. Although Apollo does not have any knowledge that would
indicate that any such information is inaccurate or incomplete, Apollo assumes
no responsibility for the accuracy or completeness of such information, nor for
the failure by Linear to disclose events which may have occurred or which may
affect the completeness or accuracy of such information but which is unknown to
Apollo.
This
Circular does not constitute the solicitation of an offer to purchase any
securities or the solicitation of a proxy by any person in any jurisdiction in
which such solicitation is not authorized or in which the person making such
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such solicitation.
Information
contained in this Circular should not be construed as legal, tax or financial
advice and Apollo Shareholders are urged to consult their own professional
advisors in connection herewith.
11
QUESTIONS
AND ANSWERS ABOUT THE ARRANGEMENT AND THE APOLLO MEETING
Q:
What is the Arrangement?
A: Apollo
and Linear are proposing to engage in a business combination transaction
pursuant to which Apollo will acquire all of Linear’s outstanding common shares
and Linear will amalgamate with Apollo Sub and the amalgamated corporation will
become a wholly owned subsidiary of Apollo. The transaction will be
carried out pursuant to (i) the Arrangement Agreement dated March 31, 2010 among
Linear, Apollo and Apollo Sub, and (ii) a Court-approved arrangement under
section 193 of the Alberta
Business Corporations Act, which we refer to herein as the Plan of
Arrangement. The Arrangement Agreement and Plan of Arrangement
provide that Apollo will acquire (i) each outstanding Linear Share (other than
those held by Linear Shareholders who properly exercise their Dissent Rights) in
exchange for 5.4742 Apollo Shares, (ii) each outstanding Linear Warrant in
exchange for an Apollo Replacement Warrant and (iii) each outstanding Linear
Option in exchange for an Apollo Replacement Option. In addition,
pursuant to the Arrangement Agreement and the Plan of Arrangement, Apollo Sub
and Linear will be amalgamated and continue as one unlimited liability
corporation under the ABCA.
When the
term “transaction” is
used throughout this Circular, it means the transactions contemplated by the
Arrangement Agreement and the Plan of Arrangement.
Q:
Why is Apollo proposing to combine its business with Linear’s?
A: Apollo
is proposing to combine its business with Linear’s because Apollo believes that
a combination allows Apollo to materially reduce Black Fox project debt levels,
provides immediate capital to fund the new underground development at Black Fox
as well as an aggressive exploration program at Grey Fox and Pike River to
advance towards feasibility in the near term and expands Apollo’s portfolio of
quality exploration assets to include Linear’s Goldfields Project in northern
Saskatchewan, Canada, its properties in the Chiapas area of southern Mexico and
the Ampliacion Pueblo Viejo II property in the Dominican Republic.
Q:
Why am I receiving this Circular and Apollo Proxy card or form of Apollo
Proxy?
A: You
are receiving this Circular and Apollo Proxy or form of Apollo Proxy because you
own Apollo Shares.
Q:
What will happen to Apollo Shares in the Arrangement?
A:
Nothing. Each Apollo Share outstanding will remain outstanding as a share of
Apollo common stock.
Q:
What will happen to Apollo Shares if Apollo Shareholders approve the Share
Issuance Resolution, the Option Plan Amendment Resolution and the Share
Consolidation Resolution?
A: As
soon as practicable following consummation of the Arrangement, the number of
Apollo Shares will be consolidated on the basis of one post-consolidation Apollo
Share for every four Apollo Shares outstanding immediately prior to the Share
Consolidation. The Share Consolidation will affect all Apollo
Shareholders uniformly and will not affect any Apollo Shareholder’s percentage
ownership interests or proportionate voting power, except to the extent that the
Share Consolidation results in any Apollo Shareholders owning a fractional
Apollo Share (in which case each fractional Apollo Share that is less than
one-half of one Apollo Share will be cancelled without any compensation therefor
and each fractional Apollo Share that is at least one-half of one Apollo Share
will be adjusted upward to one whole Apollo Share). Following the
Share Consolidation, the Apollo Shares will have the same voting rights and
rights to dividends and distributions, if any, and will be identical in all
other respects to the Apollo Shares now authorized.
Q:
When does Apollo expect to complete the Arrangement?
A: Apollo
expects to complete the transaction toward the end of the second quarter of
calendar year 2010. Because the transaction is subject to securityholder,
governmental and regulatory approvals and other conditions, some of which are
beyond the control of Apollo and Linear, the exact timing of completion of the
transaction cannot be predicted.
12
Q:
Who will manage the combined company after the Arrangement?
A:
Following consummation of the Arrangement, the Apollo Board will consist of
seven directors, which will be composed of (i) three Apollo designees (currently
expected to be Marvin K. Kaiser, David W. Peat and Charles E. Stott); (ii) three
Linear designees (including Wade Dawe, the current president and chief executive
officer of Linear, who would be appointed as the chairman of the Apollo Board)
and (iii) one nominee who would be a technical person mutually agreed upon by
Apollo and Linear. In addition, upon consummation of the Arrangement,
R. David Russell will resign as president and chief executive officer of Apollo
and Wade Dawe will be appointed president and chief executive officer of
Apollo.
Q:
What is the role of Canadian courts in the Arrangement?
A: Under
the Business Corporations Act
(Alberta) (which we refer to in
this Circular as the ABCA), an Alberta court must approve the Plan of
Arrangement. If Linear Shareholders approve the Continuance Resolution and the
Arrangement Resolution and Apollo Shareholders approve the Share Issuance
Resolution and the Option Plan Amendment Resolution, the Court will hold a
hearing regarding the Final Order. The Court will consider, among other things,
the fairness and reasonableness of the Arrangement. The Court may approve the
Arrangement in any manner the Court may direct, subject to compliance with such
terms and conditions, if any, as the Court deems fit. The Court’s
approval of the fairness of the Plan of Arrangement will serve as the basis for
an exemption from the registration requirements of the U.S. Securities Act for
the issuance of the Apollo Shares, Apollo Replacement Options and Apollo
Replacement Warrants to the Linear Shareholders, Linear Optionholders and Linear
Warrantholders in connection with the Arrangement.
Q:
On what am I being asked to vote?
A: Apollo
Shareholders are being asked to approve the following proposals:
|
|
·
|
Proposal
No. 1 – Apollo Shareholders will be asked to consider and, if deemed
advisable, to approve, with or without variation, an ordinary resolution,
the full text of which is attached to this Circular as Schedule
A, approving
the issuance of Apollo Shares, including the Apollo Shares issuable upon
exercise of the Apollo Replacement Warrants and Apollo Replacement
Options, the Apollo Replacement Warrants and the Apollo Replacement
Options, in each case in connection with the Plan of Arrangement, pursuant
to which Linear would amalgamate with Apollo Sub and the amalgamated
corporation would continue as a wholly owned subsidiary of Apollo and
securityholders of Linear will become securityholders of Apollo in
accordance with the Arrangement Agreement, all as more particularly set
forth in this Circular.
|
|
|
·
|
Proposal
No. 2 – Conditional upon approval of Proposal No. 1, Apollo Shareholders
will be asked to consider and, if deemed advisable, approve, with or
without variation, an ordinary resolution authorizing certain amendments
to the Apollo Stock Option Incentive
Plan.
|
|
|
·
|
Proposal
No. 3 – Conditional upon approval of Proposal Nos. 1 and 2, Apollo
Shareholders will be asked to consider and, if deemed advisable, approve,
with or without variation, a special resolution authorizing the filing of
articles of amendment to change the name of Apollo
to ►.
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|
|
·
|
Proposal
No. 4 – Conditional upon approval of Proposal Nos. 1 and 2, Apollo
Shareholders will be asked to consider and, if deemed advisable, approve,
with or without variation, a special resolution authorizing the filing of
articles of amendment to effect a consolidation of Apollo Shares as soon
as practicable following consummation of the Arrangement on the basis of
one post-consolidation Apollo Share for every four Apollo Shares
outstanding immediately prior to the Share
Consolidation.
|
13
|
|
·
|
Proposal
No. 5 – Apollo Shareholders will be asked to elect seven directors of
Apollo. Each director, if elected, will serve for a one-year
term and until his successor shall be elected and qualified, subject,
however, to such director’s prior death, resignation, retirement,
disqualification or removal from office. However, if the
Arrangement is approved and consummated, as contemplated by and pursuant
to the Arrangement Agreement and the Plan of Arrangement, (i) it is
currently contemplated that Messrs. Russell, Babensee, Hobart and Vaughan
will resign as directors of Apollo and (ii) the remaining Apollo directors
would appoint Wade Dawe, ►, ► and ► to fill the remaining vacancies
created by such resignations. As a result thereof, if the
Arrangement is consummated, the Apollo Board would consist of seven
directors, which would be composed of (i) Messrs. Kaiser, Peat and Stott
(three Apollo designees); (ii) Wade Dawe (who would be Chairman of the
Apollo Board), ► and ► (three Linear designees) and (iii) ► (the technical
person mutually agreed upon by Apollo and
Linear).
|
|
|
·
|
Proposal
No. 6 – Apollo Shareholders will be asked to
re-appoint Apollo’s independent auditors and to authorize the
directors to fix their
remuneration.
|
|
|
·
|
Proposal
No. 7 – Apollo Shareholders will be asked to consider and, if deemed
advisable, to approve, with or without variation, an ordinary resolution
ratifying Apollo’s
shareholder rights plan.
|
Apollo
Shareholder approval of the Share Issuance Resolution is not required under
Canadian corporate law or Apollo’s constating documents or by-laws, but is
required by the rules and regulations of AMEX and TSX. In order for
the Arrangement to be consummated, Apollo Shareholders must approve the Share
Issuance Resolution and the Option Plan Amendment Resolution. Apollo
Shareholder approval of the Share Consolidation Resolution and the Name Change
Resolution is required by the YBCA. Apollo Shareholder ratification
of Apollo’s shareholder rights plan is required by the terms of the
rights plan. Apollo Shareholder approval of the amendments to the
Apollo Stock Option Incentive Plan is required by the rules and regulations of
AMEX and TSX.
Q: Why
am I being asked to elect seven directors of Apollo if some of those directors
are being replaced upon consummation of the Arrangement?
A: Apollo
is nominating seven directors for election to the Apollo Board so that it will
have, if elected, seven directors in the event that the Arrangement is not
consummated for any reason. If the Arrangement is consummated,
it is currently contemplated that Messrs. Russell, Babensee, Hobart and
Vaughan will resign as directors of Apollo and the remaining Apollo directors
would appoint Wade Dawe, ►, ► and ► to fill the vacancies created by such
resignations. If the Arrangement is not consummated, each of the
seven directors nominated for election to the Apollo Board in this Circular
would serve for a one-year term and until his successor is elected and
qualified, subject to such director’s prior death, resignation, retirement,
disqualification or removal from office.
Q:
What vote is required to approve the proposals included in the
Circular?
A:
|
|
·
|
Proposal
No. 1 – The Share Issuance Resolution must be approved by a majority of
the votes cast in respect thereof by Apollo Shareholders present in person
or represented by proxy at the Apollo Meeting. For the purposes of voting
on the Share Issuance Resolution, a total of 62,500,000 Apollo Shares held
by Linear (representing approximately ►% of the currently issued and
outstanding Apollo Shares) will be excluded from
voting.
|
|
|
·
|
Proposal
No. 2 – The amendments to the Apollo Stock Option Incentive Plan must be
approved by a majority of the votes cast in respect thereof by Apollo
Shareholders present in person or represented by proxy at the Apollo
Meeting.
|
|
|
·
|
Proposal
No. 3 – The Name Change Resolution must be approved by at least two-thirds
of the votes cast in respect thereof by Apollo Shareholders present in
person or represented by proxy at the Apollo
Meeting.
|
|
|
·
|
Proposal
No. 4 – The Share Consolidation Resolution must be approved by at least
two-thirds of the votes cast in respect thereof by Apollo Shareholders
present in person or represented by proxy at the Apollo
Meeting.
|
|
|
·
|
Proposal
No. 5 – The election of the directors nominated must be approved by a
majority of the votes cast in respect thereof by Apollo Shareholders
present in person or represented by proxy at the Apollo
Meeting.
|
14
|
|
·
|
Proposal
No. 6 – The re-appointment of Deloitte & Touche LLP and approval of
the resolution authorizing the directors to fix the remuneration of the
auditors must be approved by a majority of the votes cast in respect
thereof by Apollo Shareholders present in person or represented by proxy
at the Apollo Meeting.
|
|
|
·
|
Proposal
No. 7 – Apollo’s shareholder rights plan must be ratified by a
majority of the votes cast in respect thereof by Apollo Shareholders
present in person or represented by proxy at the Apollo
Meeting.
|
Q:
Who can vote?
A: Only
Apollo Shareholders who hold Apollo Shares at the close of business on the
record date, which is ►, 2010, will be entitled to vote at the Apollo Meeting.
Apollo Shares constitute the only class of Apollo capital stock entitled to vote
at the Apollo Meeting.
Q: How does the Apollo Board recommend
that I vote on the proposals?
A: The
Apollo Board unanimously recommends that you vote “FOR” approval of each of the
proposals.
Q:
How do I vote my Apollo Shares?
A: You
should carefully read and consider the information contained in or incorporated
by reference into this Circular, including the schedules. You should also
determine whether you hold your Apollo Shares directly in your name as a
Registered Shareholder or through a broker, investment dealer, bank, trust
company or other nominee, because this will determine the procedure that you
must follow in order to vote. If you are a Registered Shareholder of Apollo
(that is, if you hold your Apollo Shares in certificate form), you may vote in
any of the following ways:
|
|
·
|
in
person at the Apollo Meeting—complete and sign a ballot at the Apollo
Meeting;
|
|
|
·
|
by
mail—complete, sign and date the enclosed Apollo Proxy and return it as
soon as possible to Apollo, c/o CIBC Mellon Trust Company, Attention:
Proxy Dept., P.O. Box 721, Agincourt, Ontario M1S 0A1, in the envelope
provided for that purpose; or
|
|
|
·
|
by
facsimile— complete, sign and date the enclosed Apollo Proxy and fax it to
416-368-2502 or toll free fax
1-866-781-3111.
|
If you
are a non-registered holder of Apollo Shares (which for purposes of this
Circular means that your Apollo Shares are held in “street name”), you should
instruct your broker, investment dealer, bank, trust company or other nominee to
vote your shares by following the instructions provided by them. You may vote in
person if you obtain written authorization in your name from your broker,
investment dealer, bank, trust company or other nominee. Please contact your
broker, investment dealer, bank, trust company or other nominee to determine how
to vote by mail and whether you will be able to vote by facsimile, telephone or
over the Internet.
If you do
not vote, or do not instruct your broker, investment dealer, bank, trust company
or other intermediary how to vote, you will not be considered to be represented
by proxy for the purpose of approving the matters to be voted upon at the Apollo
Meeting (other than in respect of any proposal for which your broker, investment
dealer, bank, trust company or other intermediary has discretionary authority to
vote your Apollo Shares under applicable law, such as the proposal to re-appoint
Deloitte & Touch LLP as Apollo’s independent auditors). The Apollo Shares
represented by a properly executed proxy will be voted on any ballot that may be
conducted at the Apollo Meeting in accordance with your instructions and, if you
specify a choice with respect to any matter to be acted upon, your Apollo Shares
shall be voted accordingly. In the absence of instructions your Apollo Shares
will be voted “FOR” each
of the matters referred to in the Apollo Proxy.
Proxies
must be received not less than 48 hours (excluding Saturdays, Sundays and
statutory holidays) prior to the Apollo Meeting being 10:00 a.m. (Denver time)
on ►, 2010, or any adjournments or postponements thereof, unless the chairman of
the Apollo Meeting elects to exercise his discretion to accept proxies
subsequently received.
15
Q:
If my broker holds my shares in “street name,” will my broker vote my shares for
me?
A: No. If
you hold your shares in “street name,” you will receive instructions from your
broker, investment dealer, bank, trust company or other intermediary describing
how to vote your Apollo Shares. Generally, if you do not instruct your broker,
investment dealer, bank, trust company or other intermediary how to vote your
shares, they may not vote your shares.
Q:
What happens if I return my Apollo Proxy but don’t indicate how to
vote?
A: If you
properly return your Apollo Proxy, but do not include instructions on how to
vote, your Apollo Shares will be voted “FOR” each of the matters
referred to in the Apollo Proxy. Apollo’s management does not currently intend
to bring any proposals to the Apollo Meeting other than those described in this
Circular. If other proposals requiring a vote of shareholders are brought before
the Apollo Meeting in a proper manner, the persons named in the enclosed Apollo
Proxy intend to vote the shares they represent in accordance with their best
judgment.
Q:
What happens if I don’t return my Apollo Proxy or otherwise don’t
vote?
A: Your
failure to return your Apollo Proxy or otherwise vote will mean that your shares
will not be counted toward determining whether a quorum is present at the Apollo
Meeting.
Q:
What does it mean if I receive more than one Apollo Proxy?
A: This
means that you own Apollo Shares that are registered under different names. For
example, you may own some shares directly as a shareholder of record and other
shares through a broker, or you may own shares through more than one broker. In
these situations, you will receive multiple sets of proxy materials. It is
necessary for you to vote, sign and return all of the proxies you receive in
order to vote all of the Apollo Shares you own. If you vote by mail, please make
sure you return each proxy in the return envelope that accompanied that Apollo
Proxy.
Q:
Can I change my vote after I have voted?
A: Yes.
You can change your vote at any time before your Apollo Shares are voted at the
Apollo Meeting.
If you
are a registered Apollo Shareholder, you can do this in any of the following
ways:
|
|
·
|
by
depositing an instrument in writing executed by the Apollo Shareholder or
by the Apollo Shareholder’s attorney duly authorized in writing or, if the
Apollo Shareholder is a body corporate, under its corporate seal or, by a
duly authorized officer or attorney either with CIBC Mellon Trust Company,
Attention: Proxy Dept., P.O. Box 721, Agincourt, Ontario, M1S 0A1
(facsimile: 416-368-2502 or toll free facsimile 1-866-781-3111), or at the
head office of Apollo at 5655 South Yosemite Street, Suite 200, Greenwood
Village, Colorado 80111-3220, Attention: Corporate
Secretary;
|
|
|
·
|
by
completing and submitting an Apollo Proxy bearing a later date and
depositing it at or mailing it to the offices of CIBC Mellon Trust
Company, Attention: Proxy Dept., P.O. Box 721, Agincourt, Ontario, M1S 0A1
(facsimile: 416-368-2502 or toll free fax 1-866-781-
3111);
|
|
|
·
|
by
voting by facsimile after previously voting or submitting your Apollo
Proxy;
|
|
|
·
|
by
attending the Apollo Meeting and voting in person. Your attendance at the
Apollo Meeting alone will not revoke your proxy. You must also vote at the
Apollo Meeting in order to revoke your previously submitted proxy;
or
|
|
|
·
|
in
any other manner permitted by law.
|
If your
shares are held in “street name,” you must contact your broker or other
intermediary and follow the instructions provided to you in order to revoke your
Apollo Proxy.
16
Q:
Am I entitled to dissenters’ appraisal rights?
A: No.
Holders of Apollo Shares are not entitled to dissenters’ appraisal rights in
connection with the actions to be taken at the Apollo Meeting. See the section
of this Circular under the heading “General Information Concerning the Apollo
Meeting—Dissent Rights” beginning on page ►.
Q:
Are there risks I should consider in deciding whether to vote for the Share
Issuance Resolution?
A: Yes. A
number of risk factors that you should consider in connection with the
transaction are described in the section of this Circular entitled “Risk
Factors” beginning on page ►.
Q:
Who can help answer my questions about the transaction and the Apollo
Meeting?
A: You
may call Apollo’s proxy solicitor, Laurel Hill Advisory Group, 200-366 Bay
Street, Toronto, Ontario, M5H 4B2 at (888) 987-3940 with any questions you
may have about the transaction or the Apollo Meeting.
17
SUMMARY
The
following information is a summary of certain information contained in this
Circular. This summary is provided for convenience only and the
information contained in this summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial data
and statements contained elsewhere in this Circular, including the Schedules
hereto and the documents incorporated by reference herein. Capitalized terms in
this Summary have the meanings set out in the Glossary of Terms or as set out in
this Summary.
Date,
Time and Place of Meeting
The
Apollo Meeting will be held on ►.
The
Record Date
The
Record Date for determining the Apollo Shareholders entitled to receive notice
of and to vote at the Apollo Meeting is as of 5:00 p.m. (Toronto time) on ►,
2010.
Purpose
of the Meeting
The
purpose of the Apollo Meeting is (i) to consider and, if deemed advisable, to
approve, with or without variation, the Share Issuance Resolution; (ii)
conditional upon approval of the Share Issuance Resolution, to consider and, if
deemed advisable, approve, with or without variation, the Option Plan Amendment
Resolution; (iii) conditional upon approval of the Share Issuance Resolution and
the Option Plan Amendment Resolution, to consider and, if deemed advisable,
approve, with or without variation, the Name Change Resolution; (iv) conditional
upon approval of the Share Issuance Resolution and the Option Plan Amendment
Resolution, to consider and, if deemed advisable, approve, with or without
variation, the Share Consolidation Resolution; (v) to elect seven directors of
Apollo; (vi) to re-appoint Apollo’s independent auditors and to authorize the
directors to fix their remuneration; (vii) to consider and, if deemed advisable,
to approve, with or without variation, an ordinary resolution ratifying Apollo’s
Shareholder Rights Plan; (viii) to receive the audited consolidated financial
statements of Apollo for the fiscal year ended December 31, 2009, together with
the report of the auditors thereon; and (ix) to transact such further or other
business as may properly come before the Apollo Meeting and any adjournments or
postponements thereof.
Parties
to the Arrangement
Apollo
Gold Corporation
Apollo is
engaged in gold mining including extraction, processing, refining and the
production of by-product metals, as well as related activities including
exploration and development. Apollo was continued pursuant to and is
a corporation existing under the provisions of the YBCA. Apollo’s
registered office is located at 204 Black Street, Suite 300, Whitehorse, Yukon
Territory, Canada Y1A 2M9. Apollo maintains its principal executive
office at 5655 S. Yosemite Street, Suite 200, Greenwood Village, Colorado
80111-3220.
Apollo
owns Black Fox, an open pit and underground mine and mill located near Matheson
in the Province of Ontario, Canada (“Black Fox”). The Black Fox
mine site is situated seven miles east of Matheson and the mill complex is
twelve miles west of Matheson. Mining of ores from the open pit began in March
2009, milling operations commenced in April 2009, and commercial gold production
commenced in late May 2009. Underground mining at Black Fox is expected to
commence in the second half of 2010. Apollo also owns the adjoining Grey Fox and
Pike River properties, which, together with the Black Fox property, give Apollo
a total land package of 17 square kilometers which extends over a 6.5 kilometer
strike of the Destor-Porcupine fault zone. Apollo also owns Mexican subsidiaries
which own concessions at the Huizopa exploration project, located in the Sierra
Madres in Chihuahua, Mexico. The Huizopa project is subject to an 80% Apollo/20%
Minas de Coronado joint venture agreement.
Apollo is
a reporting issuer in the United States and the provinces of British Columbia,
Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince
Edward Island, Newfoundland and Labrador. The Apollo Shares trade on
the TSX under the symbol “APG” and on the AMEX under the symbol
“AGT.”
18
See
“Selected Information Concerning Apollo Gold Corporation” beginning on page ► of
this Circular.
Linear
Gold Corp.
Linear is
a corporation incorporated pursuant to the provisions of the CBCA. Linear’s
registered and head office is located at 2000 Barrington Street, Suite 502,
Halifax, Nova Scotia, B3J 3K1. Linear is a reporting issuer in the provinces of
Ontario, British Columbia, Alberta, Manitoba, Québec and Nova Scotia. The Linear
Shares trade on the TSX under the symbol “LRR.” Certain public disclosure
relating to Linear, including, without limitation, the Linear Circular and other
materials filed in connection with the Linear Meeting, may be accessed at www.sedar.com.
See
“Detailed Information About Linear Gold Corp.” beginning on page ► of this
Circular.
General
Information Concerning the Apollo Meeting
Apollo
will hold an Annual and Special Meeting on ►, 2010 at ►. The Apollo
Board has fixed 5:00 p.m. (Toronto time) on ►, 2010 as the record date for
determining shareholders entitled to notice of and to vote at the Apollo
Meeting.
The
proposals to authorize the filing of articles of amendment to (i) change the
name of Apollo to ► and (ii) effect a consolidation of Apollo Shares as
soon as practicable following consummation of the Arrangement on the basis of
one post-consolidation Apollo Share for every four Apollo Shares outstanding
immediately prior to the Share Consolidation must each be approved by at least
two-thirds of the votes cast in respect thereof by Apollo Shareholders present
in person or represented by proxy at the Apollo Meeting. Each other
proposal must be approved by a majority of the votes cast on such proposal by
Apollo Shareholders present in person or by proxy at the Apollo
Meeting. For the purposes of voting on the Share Issuance Resolution,
a total of 62,500,000 Apollo Shares held by Linear (representing approximately
►% of the currently issued and outstanding Apollo Shares) will be excluded from
voting.
The
persons named in the enclosed Apollo Proxy are officers and/or directors of
Apollo. An Apollo Shareholder has the right to appoint some other person, who
need not be an Apollo Shareholder, to represent him or her at the Apollo Meeting
and may do so by inserting such person’s name in the blank space provided in the
enclosed Apollo Proxy or by completing another proper form of proxy and, in
either case, depositing the completed and executed applicable proxy at the
offices of CIBC Mellon Trust Company, Attention: Proxy Dept., P.O. Box 721,
Agincourt, Ontario, M1S 0A1 (facsimile: (416) 368-2502 or
toll free facsimile (866) 781-3111).
A quorum
of shareholders is necessary to hold a valid Apollo Meeting. Pursuant to
Apollo’s by-laws, the presence in person or representation by proxy of one or
more Apollo Shareholders at any meeting of Apollo Shareholders, holding, in the
aggregate, not less than one-third of the outstanding Apollo Shares entitled to
vote at the meeting will constitute a quorum. If a quorum is not present at the
Apollo Meeting, the meeting may be postponed or adjourned, without notice other
than announcement at the Apollo Meeting, until a quorum is present or
represented, unless the Apollo Meeting is postponed or adjourned for an
aggregate of thirty or more days. At any subsequent reconvening of the Apollo
Meeting, all proxies will be voted in the same manner as the proxies would have
been voted at the original convening of the Apollo Meeting, except for any
proxies that have been effectively revoked or withdrawn prior to the subsequent
meeting.
See
“General Information Concerning the Apollo Meeting” beginning on page ► of this
Circular.
The
Arrangement
General
Apollo
and Linear are proposing to engage in a business combination transaction
pursuant to which Apollo will acquire all of the Linear Shares and Linear will
amalgamate with Apollo Sub and the amalgamated corporation will become a wholly
owned subsidiary of Apollo. The transaction will be carried out
pursuant to (i) the Arrangement Agreement dated March 31, 2010 among Linear,
Apollo and Apollo Sub, and (ii) a Court-approved arrangement under section 193
of the ABCA, which we refer to herein as the Plan of Arrangement. The
Arrangement Agreement and Plan of Arrangement provide that Apollo will acquire
(i) each outstanding Linear Share (other than those held by Linear Shareholders
who properly exercise their Dissent Rights) in exchange for 5.4742 Apollo
Shares, (ii) each outstanding Linear Warrant in exchange for an Apollo
Replacement Warrant and (iii) each outstanding Linear Option in exchange for an
Apollo Replacement Option. In addition, pursuant to the Arrangement
Agreement and the Plan of Arrangement, Apollo Sub and Linear will be amalgamated
and continue as one unlimited liability corporation under the
ABCA.
19
On
completion of the Arrangement, there will be approximately ►Apollo Shares
outstanding and the Former Linear Shareholders will hold approximately ►% of the
total number of Apollo Shares then outstanding. Linear and Apollo Sub will be
amalgamated, the amalgamated corporation will be a wholly owned subsidiary
of Apollo, and Linear will cease to be publicly traded. If the required
securityholder approvals are received, the Final Order is obtained, every other
requirement of the ABCA relating to the Arrangement is complied with and all
other conditions set forth in the Arrangement Agreement are satisfied or waived,
the Arrangement will become effective on the Effective Date. Linear and Apollo
currently expect that the Effective Date will be on or about July 2,
2010.
See “The
Arrangement” and “The Arrangement Mechanics” beginning on pages ► and ►,
respectively.
Reasons
and Benefits of the Arrangement
The key
strategic benefits identified by the Apollo Special Committee and Apollo Board
include:
|
|
·
|
Advancing Black Fox –
The transaction is expected to allow Apollo to reduce Black Fox project
debt levels and provide capital to fund the new underground development at
Black Fox as well as an exploration program at Grey Fox and Pike River to
advance towards feasibility in the near
term.
|
|
|
·
|
Additional Production –
The transaction provides a near term development asset in Linear’s
Goldfields project that is expected to add low-cost production of
approximately 70,000 ounces of gold per year by
2013.
|
|
|
·
|
Improved Portfolio of
Properties – The transaction expands the portfolio of quality
exploration assets to include Linear’s Goldfields Project in northern
Saskatchewan, Canada, Linear’s properties in the Chiapas area of southern
Mexico and Linear’s Ampliacion Pueblo Viejo II property in the Dominican
Republic.
|
|
|
·
|
Participation by Shareholders
in the Assets of Linear – Apollo Shareholders, through the
combination with Linear, will participate in any increase in the value of
the mineral projects and other assets currently owned by
Linear.
|
|
|
·
|
Improved Balance Sheet and
Enhanced Financial Flexibility – The transaction and related
Private Placement of Cdn.$25 million allows Apollo to reduce its
outstanding indebtedness and enhance its working capital position thereby
providing Apollo the flexibility to expand its business and pursue its
exploration and development
efforts.
|
See “The
Arrangement – Reasons and Benefits of the Arrangement” beginning on page
►.
Haywood
Fairness Opinion
Haywood
Securities was retained by the Apollo Special Committee to provide advice and
assistance to the Apollo Special Committee in connection with Apollo’s
consideration of the Share Issuance. Pursuant to the terms of the Haywood
Securities Engagement Letters, Haywood Securities agreed to consider the
fairness, from a financial point of view, to the Apollo Shareholders of the
consideration to be paid by Apollo in connection with the
Arrangement.
As at the
date of the Apollo Fairness Opinion and subject to the analysis, assumptions,
qualifications and limitations contained in the Apollo Fairness Opinion, Haywood
Securities has opined that the offered consideration pursuant to the Arrangement
of 5.4742 Apollo Shares for each Linear Share is fair from a financial point of
view, to the Apollo Shareholders. The Apollo Fairness Opinion is not a recommendation
as to how the Apollo Shareholders should vote at the Apollo Meeting. The opinion
sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations and qualifications of the review undertaken
by Haywood Securities in rendering its opinion. The summary of the Apollo
Fairness Opinion in this Circular is qualified in its entirety by the full text
of the Apollo Fairness Opinion which is attached as Schedule L to this Circular,
and Apollo Shareholders are urged to read the Apollo Fairness Opinion in its
entirety. Haywood Securities’ opinion was provided to the Apollo board of
directors and addresses only the fairness, from a financial point of view, of
the consideration to be paid by Apollo in connection with the Arrangement as of
the date of the opinion. It does not address any other aspect of the transaction
and does not constitute a recommendation to the Apollo Shareholders as to how to
vote with respect to the Share Issuance Resolution or act on any other
matter.
20
See “The
Arrangement – Opinion of Apollo’s Financial Advisor-Haywood Securities Inc.”
beginning on page ►.
Recommendation
of the Apollo Board and Apollo Special Committee
The
Apollo Board established the Apollo Special Committee to, among other things,
review and consider the transaction with Linear. The Apollo Special
Committee retained Haywood Securities as its financial advisor. Haywood
Securities has provided the Apollo Fairness Opinion, which states that, as of
the date of such Apollo Fairness Opinion and subject to the assumptions,
qualifications and limitations set forth therein, the offered consideration of
5.4742 Apollo Shares for each Linear Share is fair, from a financial point of
view, to the Apollo Shareholders. The Apollo Special Committee, having taken
into account the Apollo Fairness Opinion, the results of due diligence
investigations, and such other matters as it considered relevant, including
consulting with its financial and independent legal advisors, unanimously
determined that the Arrangement is in the best interests of
Apollo. Accordingly, the Apollo Special Committee voted unanimously
to recommend to the Apollo Board that it approve, among other things, the
execution and delivery of the Binding LOI, the Arrangement Agreement and the
Arrangement, and that the Apollo Board recommend that Apollo Shareholders vote
for the Share Issuance.
Having
received and considered the recommendation of the Apollo Special Committee, the
directors of Apollo have unanimously determined that the Share Issuance pursuant
to the Arrangement is fair to Apollo Shareholders and in the best interests of
Apollo and have authorized the submission of the Share Issuance Resolution to
the Apollo Shareholders for their approval at the Apollo Meeting. The directors
of Apollo have determined and unanimously recommend that Apollo Shareholders
vote “FOR” the Share
Issuance Resolution, the Option Plan Amendment Resolution, the Name Change
Resolution and the Share Consolidation Resolution.
See “The
Arrangement – Recommendation of the Apollo Special Committee” and “The
Arrangement – Recommendation of the Apollo Board” beginning on pages ► and
►, respectively.
The
Arrangement Agreement
Apollo
and Linear entered into the Arrangement Agreement on March 31,
2010. The terms and conditions of the Arrangement are governed by the
Arrangement Agreement. The Arrangement Agreement is attached to this
Circular as Schedule F and is incorporated by reference
herein. Apollo urges you to read the Arrangement Agreement carefully
as it is the legal document that governs the Arrangement.
See “The
Arrangement Agreement” beginning on page ►.
The
Combined Company Upon Completion of the Arrangement
On
completion of the Arrangement, Apollo will continue to be a corporation existing
under the Laws of the YBCA and the Former Linear Shareholders will be
shareholders of Apollo. After the Effective Date, Linear will amalgamate with
Apollo Sub and the amalgamated corporation will be a wholly owned subsidiary of
Apollo.
The
business and operations of Apollo and Linear will be consolidated and the
principal executive office of the combined company will be ►. Apollo
will continue to maintain its registered office at 204 Black Street, Suite 300,
Whitehorse, Yukon Territory, Canada Y1A 2M9.
21
Upon
closing of the Arrangement, and subject to Apollo Shareholders approving the
Name Change Resolution and the Share Consolidation Resolution, Apollo intends to
file articles of amendment in order to change its name to “►.”
See “The
Combined Company Upon Completion of the Arrangement” beginning on page
►.
Risk
Factors
There are
certain risk factors relating to Apollo, Linear and the Arrangement which should
be carefully considered by Apollo Shareholders, including the fact that the
Arrangement may not be completed if, among other things, Linear Shareholder
Approval and Apollo Shareholder Approval are not obtained at the Linear Meeting
and the Apollo Meeting, respectively, or if any other conditions precedent to
the completion of the Arrangement are not satisfied or waived, as
applicable.
See “Risk
Factors” and “Detailed Information About Linear Gold Corp.” beginning on pages ►
and ►, respectively.
Particulars
of Matters to be Acted Upon at the Apollo Meeting
The
Share Issuance Proposal
The
Apollo Shareholders will be asked at the Apollo Meeting to approve the Share
Issuance in connection with the Arrangement. Pursuant to Section 611 of the TSX
Company Manual, securityholder approval is required in those instances where the
number of securities issued or issuable in payment of the purchase price for an
acquisition exceeds 25% of the number of securities of the listed issuer which
are outstanding, on a non-diluted basis, prior to the date of closing of the
transaction. Similarly, rules of the AMEX require that a listed
issuer obtain the consent of its shareholders prior to completing any
transaction that would result in the issuance of more than 20% of the issuer’s
outstanding common stock.
Upon
completion of the Arrangement, the Former Linear Shareholders will receive
approximately ► Apollo Shares, representing approximately ►% of the Apollo
Shares anticipated to be outstanding immediately prior to the completion of the
Arrangement (excluding the 62,500,000 Apollo Shares held by Linear, which will
be cancelled upon completion of the Arrangement without payment of any
consideration).
The
Arrangement cannot be completed unless the Share Issuance Resolution is duly
approved by Apollo Shareholders at the Apollo Meeting.
The full
text of the Share Issuance Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule A to this
Circular. The Share Issuance Resolution must be approved by a
majority of the votes cast in respect thereof by Apollo Shareholders present in
person or represented by proxy at the Apollo Meeting. For the purposes of voting
on the Share Issuance Resolution, a total of 62,500,000 Apollo Shares held by
Linear (representing approximately ►% of the currently issued and outstanding
Apollo Shares) will be excluded from voting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Share Issuance Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the Share Issuance
Resolution.
See “The
Share Issuance Proposal” on page ►.
The
Stock Option Incentive Plan Amendments Proposal
The
Apollo Shareholders will be asked at the Apollo Meeting to approve a proposal to
amend the Apollo Stock Option Incentive Plan because such amendments are
required in order to issue Apollo Replacement Options to former Linear
optionholders as contemplated by the Arrangement. Specifically, the
Apollo Stock Option Incentive Plan must be amended to:
22
|
|
·
|
increase
the number of Apollo Shares issuable under the Apollo Stock Option
Incentive Plan to a maximum of the lesser of: (a) 10% of the issued and
outstanding Apollo Shares, from time to time; and (b) ► Apollo Shares (an
increase from 12,139,686 Apollo Shares as presently provided in the Apollo
Stock Option Incentive Plan);
|
|
|
·
|
add
holders of Linear Options who will not be Apollo employees following the
consummation of the Arrangement to the definition of “Eligible Person”
under the Apollo Stock Option Incentive
Plan;
|
|
|
·
|
permit
the Apollo Board to fix the exercise price per Apollo Share under any
Apollo Replacement Option issued in the Arrangement at a price less than
the market price per Apollo Share at the time of the exchange of the
Linear Options for Apollo Replacement Options (this amendment is required
because some of the Linear Options may be “in-the-money” and the Apollo
Stock Option Incentive Plan presently prohibits issuance of “in-the-money”
options); and
|
|
|
·
|
make
other conforming changes in order to give effect to the
foregoing.
|
The
Apollo Board has approved an amended Stock Option Incentive Plan (the “Amended Plan”) in order to
incorporate the changes described above, subject to shareholder and regulatory
approval. The principal terms of the Amended Plan are summarized in
this Circular under the heading “The Stock Option Incentive Plan Amendment
Proposal.” The principal terms of the Amended Plan are substantially similar to
the Apollo Stock Option Incentive Plan, except for those provisions specifically
identified above as amendments to the Apollo Stock Option Incentive Plan. The
full text of the Amended Plan appears as Schedule J to this
Circular.
The full
text of the Option Plan Amendment Resolution that Apollo Shareholders will be
asked to approve at the Apollo Meeting is set forth as Schedule B to this
Circular. The Option Plan Amendment Resolution must be approved by a
majority of the votes cast in respect thereof by Apollo Shareholders present in
person or represented by proxy at the Apollo Meeting.
The
Arrangement cannot be completed unless the Option Plan Amendment Resolution is
duly approved by Apollo Shareholders at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Option Plan Amendment Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the approval of the Option Plan
Amendment Resolution.
See “The
Stock Option Incentive Plan Amendments Proposal” beginning on page
►.
The
Name Change Proposal
Apollo
Shareholders are also being asked to approve the Name Change Resolution to
authorize an amendment to the articles of Apollo to change the name of Apollo to
“►”. The purpose of the proposed Name Change is to better reflect the
combined business of Apollo and Linear after giving effect to the
Arrangement. The Apollo Board is of the view that the proposed name
of “►”, when combined with new marketing initiatives, will assist in re-branding
the combined company as an emerging Canadian mid-tier gold
producer.
The full
text of the Name Change Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule C to this
Circular. The Name Change Resolution must be approved by at least
two-thirds of the votes cast in respect thereof by Apollo Shareholders present
in person or represented by proxy at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Name Change Resolution. The Apollo Board unanimously
recommends that you vote “FOR” the Name Change Resolution.
See “The
Name Change Proposal” beginning on page ►.
23
The
Share Consolidation Proposal
The
Apollo Board has unanimously approved and is recommending that Apollo
Shareholders vote to authorize the filing of articles of amendment to effect a
consolidation (or reverse stock split) of outstanding Apollo Shares on the basis
of one post-consolidation Apollo Share for every four Apollo Shares outstanding
immediately prior to the Share Consolidation. Assuming the proposal
is approved, it is anticipated that articles of amendment will be filed so as to
effect the Share Consolidation as soon as practicable following consummation of
the Arrangement. However, pursuant to the Share Consolidation
Resolution, the Apollo Board may, in its discretion, decide not
to proceed with the Share Consolidation at any time prior to the
filing of articles of amendment without further authorization from or
notice to the Apollo Shareholders. This proposal is conditional upon
Apollo Shareholder approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution.
If the
Share Consolidation is implemented by the Apollo Board:
|
|
·
|
all
of the issued and outstanding Apollo Shares (which, following the
consummation of the Arrangement, will include Apollo Shares held by
current holders of Apollo Shares and Former Linear Shareholders) will
automatically be consolidated on the basis of one post-consolidation
Apollo Share for every four Apollo Shares outstanding immediately prior to
the Share Consolidation;
|
|
|
·
|
subject
to the terms and conditions of each optionholder’s option agreement with
Apollo and each warrantholder’s warrant certificate, the number of Apollo
Shares issuable upon the exercise of Apollo’s outstanding options and
warrants (which, following the consummation of the Arrangement, will
include Apollo Shares issuable upon the exercise of Apollo Replacement
Options and Apollo Replacement Warrants), the exercise price thereof and
the number of shares reserved for future issuances under Apollo’s Stock
Option Incentive Plan will be adjusted as appropriate to reflect the Share
Consolidation; and
|
|
|
·
|
the
exercise price with respect to Apollo’s series A junior participating
preferred stock pursuant to our Shareholder Rights Plan (assuming the
Rights Plan Resolution is approved at the Apollo Meeting) and the number
of Apollo Shares issuable upon exercise thereof shall be proportionately
adjusted to reflect the Share
Consolidation.
|
The full
text of the Share Consolidation Resolution that Apollo Shareholders will be
asked to approve at the Apollo Meeting is set forth as Schedule D to this
Circular. The Share Consolidation Resolution must be approved by at
least two-thirds of the votes cast in respect thereof by Apollo Shareholders
present in person or represented by proxy at the Apollo Meeting.
The Apollo Board believes that it is
in the best interests of Apollo and its shareholders to approve the Share
Consolidation Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the Share Consolidation
Resolution.
See “The
Share Consolidation Proposal” beginning on page ►.
Election
of Directors
The
Apollo Shareholders will be asked at the Apollo Meeting to elect seven
directors. Each director, if elected, will serve for a one-year term
and until his successor shall be elected and qualified, subject, however, to
such director’s prior death, resignation, retirement, disqualification or
removal from office. However, if the Arrangement is approved and
consummated, as contemplated by and pursuant to the Arrangement Agreement and
the Plan of Arrangement, (i) it is currently contemplated that Messrs.
Russell, Babensee, Hobart and Vaughan will resign as directors of Apollo and
(ii) the remaining Apollo directors intend to appoint Wade Dawe, ►, ► and ► to
fill the remaining vacancies created by such resignations. As a
result thereof, if the Arrangement is consummated, the Apollo Board would
consist of seven directors, which would be composed of (i) Marvin K. Kaiser,
David W. Peat and Charles E. Stott (three Apollo designees); (ii) three Linear
designees (including Wade Dawe, the current president and chief executive
officer of Linear, who will be appointed as the chairman of the board of
directors of the combined company) and (iii) one nominee who would be a
technical person mutually agreed upon by Apollo and Linear.
24
The
election of the each director nominated must be approved by a majority of the
votes cast in respect thereof by Apollo Shareholders present in person or
represented by proxy at the Apollo Meeting.
The
Apollo Board unanimously recommends that Apollo Shareholders vote “FOR” the
election of Robert W. Babensee, G. Michael Hobart, Marvin K. Kaiser, David W.
Peat, R. David Russell, Charles E. Stott and W.S. (Steve) Vaughan.
See
“Election of Directors” beginning on page ►.
Re-appointment
of Auditors Proposal
The
Apollo Shareholders will be asked at the Apollo Meeting to re-appoint Deloitte
& Touche LLP as Apollo’s independent registered chartered accountants and
authorize the directors to fix their remuneration. The re-appointment
of Deloitte & Touche LLP and approval of the resolution authorizing the
directors to fix the remuneration of the auditors must be approved by a majority
of the votes cast in respect thereof by Apollo Shareholders present in person or
represented by proxy at the Apollo Meeting.
The Apollo Board recommends that you
vote “FOR” the proposal to re-appoint Deloitte & Touche LLP as Apollo’s
independent registered chartered accountants and the resolution authorizing the
directors to fix the remuneration of the auditors.
See
“Re-appointment of Auditors Proposal” beginning on page ►.
Ratification
of the Shareholder Rights Plan Proposal
At the
Apollo Meeting, Apollo Shareholders will be asked, as required by the TSX and as
provided under the terms of the Shareholder Rights Plan, to vote on a resolution
to ratify the Shareholder Rights Plan. Apollo believes that the
Shareholder Rights Plan preserves the fair treatment of Apollo Shareholders, is
consistent with current best Canadian corporate practices and conforms to
institutional investor guidelines. The Arrangement does not trigger
any of the terms of the Shareholders Rights Plan.
The full
text of the Rights Plan Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule E to this
Circular. The Shareholder Rights Plan must be ratified by a majority
of the votes cast in respect thereof by Apollo Shareholders present in person or
represented by proxy at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to ratify the Shareholders Rights Plan. The Apollo Board
unanimously recommends that you vote “FOR” the ratification of the Shareholder
Rights Plan.
See
“Ratification of the Shareholder Rights Plan Proposal” beginning on page
►.
Selected
Unaudited Pro Forma Combined Financial Information
The
following table contains selected unaudited pro forma combined financial
information for Apollo and Linear as a combined company, giving effect to the
acquisition of Linear by Apollo as if it had occurred on the dates indicated and
after giving effect to the pro forma adjustments. The unaudited pro
forma combined balance sheet data is presented as if the transaction had been
completed on January 1, 2009. The unaudited pro forma combined
statement of operations data for the period ended December 31, 2009 is presented
as if the transaction had taken place on January 1, 2009. The
transaction will be accounted for under the acquisition method of
accounting.
You
should read the selected unaudited pro forma combined financial information
together with the “Unaudited Pro Forma Financial Statements” and related notes
thereto are attached as Schedule N to this Circular and the respective
consolidated financial statements and accompanying notes of Apollo and Linear,
which, in the case of Apollo, are incorporated by reference into this document
and, in the case of Linear, are attached to this Circular as Schedule M. The
unaudited pro forma operating data is presented for informational purposes only
and is not necessarily indicative of what the actual combined results of
operations of the combined company would have been for the periods presented,
nor does this data purport to represent the results of future
periods.
25
Linear’s
consolidated financial statements are prepared in accordance with Canadian GAAP,
which differs in some respects from U.S. GAAP. For purposes of
presenting the selected unaudited pro forma combined financial information,
adjustments were made to Linear’s historical financial information to conform to
U.S. GAAP. Please refer to Schedules 1 and 2 to “Unaudited Pro Forma
Financial Statements” and related notes thereto attached as Schedule N to this
Circular for descriptions of the adjustments required to conform Linear’s
financial statements to U.S. GAAP.
SELECTED
UNAUDITED PRO FORMA
COMBINED
FINANCIAL INFORMATION
The
following table contains selected unaudited pro forma combined financial
information for Apollo and Linear as a combined company, giving effect to the
acquisition of Linear by Apollo as if it had occurred on the dates indicated and
after giving effect to the pro forma adjustments. The unaudited pro
forma combined balance sheet data is presented as if the transaction had been
completed on January 1, 2009. The unaudited pro forma combined
statement of operations data for the period ended December 31, 2009 is presented
as if the transaction had taken place on January 1, 2009. The
transaction will be accounted for under the acquisition method of
accounting.
You
should read the selected unaudited pro forma combined financial information
together with the “Unaudited Pro Forma Financial Statements” and related notes
thereto attached as Schedule N to this Circular and the respective consolidated
financial statements and accompanying notes of Apollo and Linear, which, in the
case of Apollo, are incorporated by reference into this document and, in the
case of Linear, are included in this Circular beginning on page ►. The unaudited
pro forma operating data is presented for informational purposes only and is not
necessarily indicative of what the actual combined results of operations of the
combined company would have been for the periods presented, nor does this data
purport to represent the results of future periods.
Linear’s
consolidated financial statements are prepared in accordance with Canadian GAAP,
which differs in some respects from U.S. GAAP. For purposes of
presenting the selected unaudited pro forma combined financial information,
adjustments were made to Linear’s historical financial information to conform to
U.S. GAAP. Please refer to Schedules 1 and 2 to “Unaudited Pro Forma
Financial Statements” and related notes thereto attached as Schedule N to this
Circular for descriptions of the adjustments required to conform Linear’s
financial statements to U.S. GAAP.
|
Year Ended
December 31, 2009
|
||||
|
(in thousands of U.S.
dollars, except per
share data)
|
||||
|
Selected
Pro Forma Statement of Operations Data:
|
||||
|
Revenue
from sale of gold
|
$ | 47,008 | ||
|
Total
operating expenses
|
41,200 | |||
|
Operating
income (loss) from operations
|
5,808 | |||
|
Net
income (loss)
|
(61,678 | ) | ||
|
Per
Common Share Data:
|
||||
|
Basic
and Diluted net loss per share
|
(0.13 | ) | ||
|
As of
December 31, 2009
|
||||
|
(in thousands of U.S.
dollars)
|
||||
|
Selected
Pro Forma Balance Sheet Data:
|
||||
|
Cash
and cash equivalents
|
$ | 22,822 | ||
|
Share
capital
|
294,759 | |||
|
Total
assets
|
267,962 | |||
|
Total
liabilities
|
182,673 | |||
|
Total
shareholders’ equity
|
85,289 | |||
26
Comparative
Per Share Data
The
following table sets forth for the Apollo Shares and Linear Shares certain
historical, pro forma combined and pro forma equivalent per share financial
information. The pro forma combined and pro forma equivalent per
share information gives effect to the transaction as if the transaction had been
effective at January 1, 2009. The pro forma data in the table are
derived from, and should be read in conjunction with, the “Unaudited Pro Forma
Financial Statements” and related notes thereto attached as Schedule N to
this Circular. Apollo’s historical per share information is derived
from the audited consolidated financial statements of Apollo as at December 31,
2009 contained in Apollo’s Annual Report on Form 10-K for the year ended
December 31, 2009, which is incorporated by reference into this
Circular. Linear’s historical per share information is derived from
the unaudited consolidated balance sheet of Linear as at December 31, 2009, the
unaudited interim consolidated statements of operations for the nine month
periods ended December 31, 2009 and 2008 and the audited consolidated financial
statements of Linear for the year ended March 31, 2009, each of which is located
on page ►.
The
unaudited pro forma combined per share information does not purport to represent
what the actual results of operations of the combined company would have been
had the transaction been in effect for the periods described below or to project
the future results of the combined company after the transaction.
|
Per Common Share Data
|
Apollo
Historical (U.S.
GAAP)
|
Linear
Historical
(Canadian
GAAP)(5)
|
Unaudited Pro
Forma
Combined
(U.S. GAAP)(4)
|
Pro Forma
Equivalent Per
Linear
Share(1) (U.S.
GAAP)
|
||||||||||||
|
As
of and for the period ended December 31, 2009:
|
||||||||||||||||
|
Net
loss
|
||||||||||||||||
|
Basic
|
$ | (0.25 | ) | $ | (0.12 | ) | $ | (0.13 | ) | $ | (0.71 | ) | ||||
|
Diluted
|
(0.25 | ) | (0.12 | ) | (0.13 | ) | (0.71 | ) | ||||||||
|
Cash
dividends paid(2)
|
N/A | N/A | N/A | N/A | ||||||||||||
|
Book
value(3)
|
(0.05 | ) | 2.16 | 0.17 | 0.93 | |||||||||||
|
(1)
|
The
equivalent per Linear Share was calculated by multiplying the unaudited
pro forma combined per share data by an exchange ratio of 5.4742 in order
to equate the pro forma combined amounts to the value of one Linear
Share.
|
|
(2)
|
Following
the completion of the transaction, Apollo’s dividend policy will be
determined by its board of
directors.
|
|
(3)
|
The
unaudited pro forma combined book value per share was calculated by
dividing the unaudited pro forma combined shareholders’ equity at December
31, 2009 by the sum of the number of Apollo Shares outstanding at December
31, 2009 and the number of additional Apollo Shares that would have been
delivered to Linear Shareholders had the combination been completed on
January 1, 2009.
|
|
(4)
|
In
conjunction with closing of the acquisition of Linear, the Company intends
to effect a share consolidation of outstanding Apollo Shares on the basis
of one post-consolidation Apollo Share for every four Apollo Shares
outstanding immediately prior to the Share Consolidation. On this basis,
the unaudited pro forma combined basic and diluted net loss per share
would be $(0.51). The unaudited pro forma combined book value
per share would be $0.70.
|
|
(5)
|
The
Linear historical information for the period ended December 31, 2009 has
been constructed using the unaudited interim consolidated statements of
operations for the nine month periods ended December 31, 2009 and
2008 and the audited consolidated financial statements of Linear for the
year ended March 31, 2009.
|
Accompanying
Documents
The
Notice of Meeting of Apollo and the Circular are accompanied by several
Schedules which are incorporated by reference into, form an integral part of,
and should be read in conjunction with this Circular. It is
recommended that Apollo Shareholders read the Notice of Meeting, this Circular
and the attached Schedules in their entirety.
27
RISK
FACTORS
In addition to the other information
contained in or expressly incorporated by reference in this Circular (including
the risk factors applicable to Apollo contained under the heading “Risk Factors” in Apollo’s annual information form
and Annual Report on Form 10-K for the fiscal year ended December 31, 2009
incorporated herein by reference and the risk factors applicable to Linear
contained under the heading “Detailed Information about Linear
Gold Corp.” beginning
on page ► of this
Circular), the
following factors should be considered carefully when considering risks related
to the Arrangement and the combined company. These risks and uncertainties are
not the only ones Apollo, Linear and combined company may face nor do they
include all risks and uncertainties associated with the Arrangement. Additional
risks and uncertainties not presently known to Apollo or that Apollo currently
considers immaterial may also exist. If any of such risks actually occur,
Apollo’s business, prospects, financial condition, cash flows and operating
results could be materially adversely affected.
Risks
Relating to the Arrangement
Failure
to complete the Arrangement with Linear could negatively impact Apollo’s stock
price and future business and financial results.
The
Arrangement Agreement contains a number of important conditions that must be
satisfied before Apollo can complete the Arrangement, including, among other
things, conditions relating to (i) obtaining the Interim and Final Orders from
the Court, (ii) approval of the transaction by the Linear Shareholders and the
Apollo Shareholders, (iii) approval by the TSX and the AMEX of the listing of
the Apollo Shares to be issued in the Arrangement, including the Apollo Shares
issuable upon exercise of the Apollo Replacement Options and Apollo Replacement
Warrants, (iv) absence of certain actions, suits, proceedings or objection or
opposition before any governmental or regulatory authority, (v) receipt of
required regulatory approvals, (vi) the Apollo Shares, Apollo Replacement
Options and Apollo Replacement Warrants issued in the Arrangement being exempt
from the registration requirements of the U.S. Securities Act and (vii) the
effectiveness of a U.S. registration statement registering the issuance of the
Apollo Shares issuable upon exercise of the Apollo Replacement Options and
Apollo Replacement Warrants under the U.S. Securities Act.
If the
transaction is not completed for any reason, Apollo’s ongoing business and
financial results may be adversely affected. For example, the amended repayment
schedule agreed to on March 9, 2010 under the Project Facility Agreement with
the Project Lenders requires Apollo to pay $10,000,000 upon the earlier to occur
of July 2, 2010 and two Business Days following the consummation of the
Arrangement. If the Arrangement with Linear is not consummated, Apollo may not
have sufficient cash-on-hand to meet this and the other repayment obligations
under the Project Facility Agreement or under the $4,290,000 principal amount of
convertible debentures due August 23, 2010 owned by RAB Special Situations
(Master) Fund Limited. In addition, if the transaction is not completed, Apollo
will be subject to a number of additional risks, including the
following:
|
|
·
|
Under
the terms of the Arrangement Agreement, in certain circumstances, if the
Arrangement is not completed, Apollo will be required to pay a
Cdn.$4,000,000 termination fee to Linear;
and
|
|
|
·
|
The
price of Apollo Shares may decline to the extent that the current market
price of Apollo Shares reflect a market assumption that the transaction
will be completed and that the related benefits and synergies will be
realized, or as a result of the market’s perceptions that the transaction
was not consummated due to an adverse change in Apollo’s business or
financial condition.
|
In
addition, whether or not the transaction is completed, the pending transaction
could adversely affect Apollo’s operations because:
|
|
·
|
matters
relating to the Arrangement (including integration planning) require
substantial commitments of time and resources by Apollo’s management and
employees, whether or not the transaction is completed, which could
otherwise have been devoted to other opportunities that may have been
beneficial to Apollo;
|
|
|
·
|
Apollo’s
ability to attract new employees and consultants and retain its existing
employees and consultants may be harmed by uncertainties associated with
the transaction, and Apollo may be required to incur substantial costs to
recruit replacements for lost personnel or consultants;
and
|
28
|
|
·
|
shareholder
lawsuits could be filed against Apollo challenging the transaction. If
this occurs, even if the lawsuits are groundless and Apollo ultimately
prevails, it may incur substantial legal fees and expenses defending these
lawsuits, and the transaction may be prevented or
delayed.
|
Apollo
cannot guarantee when, or whether, the Arrangement will be completed, that there
will not be a delay in the completion of the Arrangement or that all or any of
the anticipated benefits of the Arrangement will be obtained. If the transaction
is not completed or is delayed, Apollo may experience the risks discussed above
which may adversely affect Apollo’s business, financial results and share
price.
Apollo
may be unable to successfully integrate the operations of Apollo and
Linear.
Achieving
the anticipated benefits of the Arrangement will depend in part upon Apollo’s
ability to integrate its business with Linear’s business in an efficient and
effective manner. Apollo’s attempt to integrate two companies that have
previously operated independently may result in significant challenges, and
Apollo may be unable to accomplish the integration smoothly or successfully. In
particular, the necessity of coordinating geographically dispersed organizations
and addressing possible differences in corporate cultures and management
philosophies may increase the difficulties of integration. The integration will
require the dedication of significant management resources, which may
temporarily distract management’s attention from the day-to-day operations of
the businesses of the combined company. The process of integrating operations
after the transaction could cause an interruption of, or loss of momentum in,
the activities of one or more of the combined company’s businesses and the loss
of key personnel. Employee uncertainty, lack of focus or turnover during the
integration process may also disrupt the businesses of the combined company. Any
inability of management to integrate the operations of Apollo and Linear
successfully could have a material adverse effect on the business and financial
condition of the combined company.
The
issuance of Apollo Shares, Apollo Replacement Warrants and Apollo Replacement
Options pursuant to the Arrangement may cause the market price of Apollo Shares
to decline.
As of ►,
2010, ► Apollo Shares were outstanding and an additional ► Apollo Shares were
subject to outstanding options or warrants to purchase or acquire Apollo Shares.
Apollo currently expects that in connection with the Arrangement it will issue
approximately ► million Apollo Shares (assuming that no Linear Shareholder
exercises Dissent Rights) to the Former Linear Shareholders and reserve
approximately ► million Apollo Shares for issue on exercise of the Apollo
Replacement Options and Apollo Replacement Warrants. The issuance of these
Apollo Shares and the sale of such Apollo Shares in the public market from time
to time could depress the market price for Apollo Shares.
If
Apollo is able to complete the transaction, Apollo Shareholders will experience
immediate dilution as a consequence of the issuance of Apollo Shares as
consideration in the transaction. The existence of a large minority share
position may reduce the influence that current Apollo Shareholders have on the
management of the combined company.
If the
Arrangement is completed, the influence of current Apollo Shareholders, in their
capacity as shareholders of the combined company, will be significantly
reduced. Following the Arrangement, if consummated, current Apollo
Shareholders would hold, in the aggregate, approximately ►% of the issued and
outstanding shares of the combined company and current Linear Shareholders would
hold, in the aggregate, approximately ►% of the combined company (based on the
number of Apollo Shares and Linear Shares outstanding as of the date hereof).
Therefore, certain Former Linear Shareholders may have the ability to exercise
influence over the election of directors and other issues submitted to the
shareholders of the combined company.
Apollo
will incur significant transaction, combination-related and restructuring costs
in connection with the transaction, some of which will be incurred even if the
transaction is never completed.
Apollo
expects that it will be obligated to pay transaction fees and other expenses
related to the transaction of approximately $4.7 million, including financial
advisors’ fees, filing fees, legal and accounting fees, soliciting fees,
regulatory fees and mailing costs. This amount is a preliminary
estimate and the actual amount may be higher or lower but a significant portion
of these fees and expenses will be incurred even if Apollo does not complete the
transaction. In addition, in connection with the closing of the
Arrangement, Linear is expected to pay up to Cdn.$1.7 million in payments and
retention bonuses to Linear management and staff. Also, upon the
resignation of R. David Russell as president and chief executive officer, Apollo
expects to pay R. David Russell up to approximately $1.7 million in severance
and other benefits under his employment agreement.
29
Furthermore,
Apollo expects to incur significant costs associated with combining the
operations of the two companies. However, it will be difficult to predict the
specific size of those charges before Apollo begins the integration process. The
combined company may incur additional unanticipated costs as a consequence of
difficulties arising from Apollo’s efforts to integrate the operations of the
two companies. Although we expect that the elimination of duplicative costs, as
well as the realization of other efficiencies related to the integration of the
businesses, may offset incremental transaction, combination-related and
restructuring costs over time, we cannot give any assurance that a net benefit
will be achieved in the near future, or at all.
Charges
to earnings resulting from the application of the acquisition method of
accounting may adversely affect the market value of Apollo Shares following the
transaction.
In
accordance with U.S. GAAP, the transaction will be accounted for using the
acquisition method of accounting, which will result in charges to earnings that
could have an adverse impact on the market value of Apollo Shares following
completion of the transaction. Under the acquisition method of accounting, the
total estimated purchase price will be allocated to Linear’s net tangible assets
and identifiable intangible assets based on their fair values as of the date of
completion of the transaction.
Apollo
may incur additional expenses and find it necessary to record impairment to the
value of acquired mineral resource properties after completion of the
transaction. Changes in earnings per share, including as a result of this
incremental expense, could adversely affect the trading price of Apollo
Shares.
Potential
payments made to the Dissenting Shareholders in respect of their shares could
exceed the amount of consideration otherwise due to them under the terms of the
Arrangement Agreement.
Under
Canadian and Alberta corporate law, Linear Shareholders will have the right to
dissent in respect of the Continuance Resolution and the Arrangement Resolution,
as applicable. If the Linear Shareholders exercise their right to dissent in
compliance with the Dissent Procedures, such Dissenting Shareholders will be
entitled to be paid the judicially determined fair value of their Linear
Shares. While Apollo and Linear believe that the value of the
consideration to be paid to Linear Shareholders pursuant to the transaction is
equal to or exceeds the fair value of the Linear Shares, there can be no
assurance that a court would agree with this assessment and consequently the
amount the Dissenting Shareholders receive could be higher than the
consideration to which such shareholders would have been entitled under the
Arrangement Agreement. As a result, Apollo may be required to pay a portion of
the purchase price in cash where it otherwise would not have do so if all Linear
Shares were exchanged for Apollo Shares in accordance with the Arrangement
Agreement. Such payments to Dissenting Shareholders could have an adverse effect
on the combined company’s financial position.
Linear’s
public filings are subject to Canadian disclosure standards, which differ from
SEC requirements.
Linear is
a Canadian issuer that is required to prepare and file its periodic and other
filings in accordance with Canadian disclosure requirements. As a result,
certain of the information about Linear that is contained in this proxy
statement was prepared with a view to compliance with Canadian GAAP and Canadian
disclosure regulations, rather than the requirements that would apply in the
United States. Because Canadian disclosure requirements are different from SEC
requirements, the information about Linear contained in this proxy statement may
not be comparable to similar information available about Apollo or other U.S.
issuers.
Directors
and executive officers of Apollo may have interests in the Arrangement that are
different from those of Apollo Shareholders generally.
Certain
executive officers and directors of Apollo may have interests in the Arrangement
that may be different from, or in addition to, the interests of Apollo
Shareholders generally. For example, R. David Russell, Apollo’s president and
chief executive officer, will resign following the completion of the transaction
and, in connection therewith, Apollo and Linear have agreed that, although the
Arrangement does not qualify as a “change of control” as defined in Mr.
Russell’s employment agreement, Mr. Russell shall receive all termination and
other amounts owing under his employment agreement as if he had been terminated
without cause, which amounts will not exceed approximately $1.7
million. Furthermore, immediately following the Effective Time of the
transaction, three directors who currently serve on the Apollo Board, currently
expected to be Marvin K. Kaiser, David W. Peat and Charles E. Stott, will
continue to serve as directors of the combined company.
30
Risks
Relating to the Business of Apollo, Linear and the Combined Company
The
business of the combined company will be subject to risks currently affecting
the businesses of Apollo and Linear.
After the
completion of the transaction, the business of the combined company, as well as
the price of Apollo Shares, will be subject to numerous risks currently
affecting the businesses of Apollo and Linear, including:
|
|
·
|
unexpected
changes in business and economic conditions, including the recent
significant deterioration in global financial and capital
markets;
|
|
|
·
|
significant
increases or decreases in gold
prices;
|
|
|
·
|
changes
in interest and currency exchange rates including the LIBOR
rate;
|
|
|
·
|
timing
and amount of production;
|
|
|
·
|
unanticipated
changes in grade of ore;
|
|
|
·
|
unanticipated
recovery or production problems;
|
|
|
·
|
changes
in operating costs;
|
|
|
·
|
operational
problems at the combined company’s mining
properties;
|
|
|
·
|
metallurgy,
processing, access, availability of materials, equipment, supplies and
water;
|
|
|
·
|
determination
of reserves;
|
|
|
·
|
costs
and timing of development of new
reserves;
|
|
|
·
|
results
of current and future exploration and development
activities;
|
|
|
·
|
results
of future feasibility studies;
|
|
|
·
|
joint
venture relationships;
|
|
|
·
|
political
or economic instability, either globally or in the countries in which the
companies operate;
|
|
|
·
|
local
and community impacts and issues;
|
|
|
·
|
banking
relationships;
|
|
|
·
|
timing
of receipt of government approvals;
|
|
|
·
|
accidents
and labor disputes;
|
|
|
·
|
environmental
costs and risks;
|
|
|
·
|
competitive
factors, including competition for property acquisitions;
and
|
|
|
·
|
availability
of external financing at reasonable rates or at
all.
|
For a
discussion of the businesses of Apollo and Linear, together with factors to
consider in connection with those businesses, see the documents incorporated by
reference in this Circular including Apollo’s Annual report on Form 10-K for the
fiscal year ended December 31, 2009, the section of this Circular under the
heading “Where You Can Find More Information” beginning on page ► and the
discussion of Linear’s business and the risks associated therewith under the
heading “Information About Linear Gold Corp.” beginning on page ►.
31
The
combined company’s substantial debt could adversely affect its financial
condition, and its related debt service obligations may adversely affect its
cash flow and ability to invest in and grow its businesses.
As of the
date hereof, Apollo has approximately $51.8 million of indebtedness outstanding
under the Project Facility Agreement. Under the revised repayment
schedule relating to the Project Facility Agreement that was agreed to with the
Project Lenders on March 9, 2010, Apollo will be required to make additional
repayments totaling at least $25 million in 2010, which will be payable as
follows: (i) $10 million on the earlier of July 2, 2010 and the date
that is two Business Days following the consummation of the Arrangement, (ii)
$10 million on the earlier of September 30, 2010 and the date on which the
proceeds from any one or more equity raisings following the consummation of the
Arrangement equals $10 million, and (iii) $5 million on December 31,
2010. The remaining indebtedness outstanding under the Project
Facility Agreement is to be repaid between March 31, 2011 and March 31, 2013 on
dates to be agreed to by the combined company and the Project Lenders. If the
combined company and the Project Lenders are unable to agree on a repayment
schedule with respect to this remaining indebtedness on or before September 30,
2010, such amount will become due and payable on December 31,
2010. In addition, Apollo has approximately $4.29 million principal
amount of convertible debentures that are due on August 23, 2010. If
the combined company is unable to satisfy its indebtedness obligations, it will
be unable to continue its operations, including its planned development and
exploration activities.
Apollo
will require significant additional capital to continue its and Linear’s
exploration and development activities, and, if warranted, to develop mining
operations.
Upon
completion of the transaction, substantial expenditures will be required to
develop Linear’s Goldfields mine development project located in Saskatchewan,
Canada and to continue with exploration at Apollo’s Grey Fox and Pike River
properties and its Huizopa exploration project, as well as Linear’s Ixhuatán
project in Chiapas, Mexico and its exploration properties located in the
Dominican Republic. In order to develop and explore these projects
and properties, the combined company will be required to expend significant
amounts for, among other things, geological and geochemical analysis, assaying,
and, if warranted, feasibility studies with regard to the results of
exploration. Apollo may not benefit from these investments if it is unable to
identify commercially exploitable mineralized material. If Apollo is successful
in identifying reserves, it will require significant additional capital to
construct facilities necessary to extract those reserves. Apollo’s ability to
obtain necessary funding depends upon a number of factors, including the state
of the national and worldwide economy and the price of gold. Apollo may not be
successful in obtaining the required financing for these or other purposes on
terms that are favorable to it or at all, in which case its ability to continue
operating would be adversely affected. Failure to obtain such additional
financing could result in delay or indefinite postponement of further
exploration or potential development.
Even
if the combined company is able to acquire capital to continue its exploration
and development activities, there can be no certainty that its exploration and
development activities will be commercially successful.
Linear
currently has no properties that produce gold in commercial
quantities. Similarly, Apollo’s Grey Fox and Pike River properties,
as well as its Huizopa project, are in the exploration phase. Substantial
efforts and regulatory hurdles are required to establish ore reserves through
drilling and analysis, to develop metallurgical processes to extract metal from
the ore and, in the case of new properties, to develop the mining and processing
facilities and infrastructure at any site chosen for mining. Apollo cannot
assure you that any gold reserves or mineralized material acquired or discovered
will be in sufficient quantities to justify commercial operations or that the
funds required for development can be obtained on a timely basis or at
all.
32
The
Linear properties could be subject to environmental risks, which Apollo will
assume after the transaction and which could expose Apollo to significant
liability and delay, suspension or termination of exploration and development
efforts.
Mining is
subject to federal, state and local environmental regulation. These regulations
mandate, among other things, the maintenance of air and water quality standards
and land reclamation. They also set forth limitations on the generation,
transportation, storage and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner which will require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects, and a heightened degree of
responsibility for companies and their officers, directors and employees. Future
changes in environmental regulation, if any, may adversely affect our
operations, make our operations prohibitively expensive, or prohibit them
altogether. Environmental hazards may exist on the properties in which Apollo
may hold interests in the future, including the Linear properties, that are
unknown to Apollo at the present and that have been caused by Apollo, Linear, or
previous owners or operators, or that may have occurred naturally. Under
applicable environmental Laws, prior property owners may be liable for
remediating any damage that those owners may have caused. Mining properties that
Apollo obtains from Linear in the Arrangement may cause Apollo to be liable for
remediating any damage that Linear may have caused. The liability
could include response costs for removing or remediating the release and damage
to natural resources, including ground water, as well as the payment of fines
and penalties.
33
INFORMATION
ABOUT THE COMPANIES
Apollo
Gold Corporation
5655
South Yosemite Street, Suite 200
Greenwood
Village, Colorado 80111-3220
(720)
886-9656
Internet
address: www.apollogold.com
Apollo
Gold Corporation is a Canadian-based mining company which is principally engaged
in the extraction, processing, and refining of mineral deposits as well as
related activities including the acquisition, exploration and development of
such properties principally located in North America.
Apollo
owns a 100% interest in the Black Fox property, an open pit and underground mine
and mill located in the Province of Ontario. The Black Fox mine site
is situated seven miles east of Matheson, Ontario and the mill complex is twelve
miles west of Matheson, Ontario. Mining of ores from the open pit
began in March 2009 and milling operations commenced in April
2009. Underground mining at Black Fox is expected to commence in
2010. Apollo owns two exploration properties adjacent to the Black
Fox mine site: (a) Grey Fox; and (b) Pike River, which together with the Black
Fox property, give Apollo a total land package of 17 square kilometers which
extends over a 6.5 kilometer strike of the Destor-Porcupine fault
zone.
Apollo
also owns Mexican subsidiaries, which own concessions at the Huizopa exploration
project, located in the Sierra Madres in Chihuahua, Mexico. The
Huizopa project is subject to an 80% Apollo / 20% Minas de Coronado joint
venture agreement.
Additional
information about Apollo’s business is set forth in Apollo’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 and the other documents
that Apollo files with the SEC, which are available on the SEC’s website at
www.sec.gov. See
the heading “Additional Information” beginning on page ►.
Linear
Gold Corp.
2000
Barrington Street, Suite 501
Cogswell
Tower
Halifax,
Nova Scotia
B3J 3K1,
Canada
(902)
422-1421
Internet
address: www.lineargoldcorp.com
Linear is
a Canadian-based mineral exploration and development company with interests in
properties in Canada, Mexico and the Dominican Republic. During
August 2009, Linear, through its wholly owned subsidiary 7153945 Canada Inc.,
acquired the Goldfields Development Project in the Lake Athabasca region of
Saskatchewan, Canada from GLR Resources Inc. Linear is the registered
mining claim holder of the mineral/mining claims and mineral/mining leases
comprising the Goldfields Development Project which includes a 100% interest in
the Box Mine and the Athona Mine properties, subject to certain royalties and
other interests. Linear’s primary objective is advancing the
Goldfields Development Project to production.
Additional
information about Linear’s business is set forth in the Linear Circular and the
other documents that Linear files with securities regulatory authorities in
Canada, which are available under Linear’s SEDAR profile at www.sedar.com.
See the
heading “Detailed Information about Linear Gold Corp.” beginning on page
►.
34
GENERAL
INFORMATION CONCERNING THE APOLLO MEETING
This
Circular is furnished in connection with the solicitation of proxies by the
management and the Apollo Board for use at the Apollo Meeting to be held ►, ►,
2010 at 10:00 a.m. (Denver time) at ► for the purposes set forth in the
accompanying Notice of Meeting.
Date,
Time and Place
The
Apollo Meeting will be held on ►, ►, 2010 at 10:00 a.m. (Denver time) at
►.
Purpose
of the Apollo Meeting
The
purpose of the Apollo Meeting is:
|
|
·
|
to
consider and, if deemed advisable, to approve, with or without variation,
the Share Issuance Resolution;
|
|
|
·
|
conditional
upon approval of the Share Issuance Resolution, to consider and, if deemed
advisable, approve, with or without variation, the Option Plan Amendment
Resolution;
|
|
|
·
|
conditional
upon approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution, to consider and, if deemed advisable, approve, with
or without variation, the Name Change
Resolution;
|
|
|
·
|
conditional
upon approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution, to consider and, if deemed advisable, approve, with
or without variation, the Share Consolidation
Resolution;
|
|
|
·
|
to
elect seven directors of Apollo;
|
|
|
·
|
to
re-appoint Apollo’s independent auditors and to authorize the directors to
fix their remuneration;
|
|
|
·
|
to
consider and, if deemed advisable, to approve, with or without variation,
the Rights Plan Resolution;
|
|
|
·
|
to
receive the audited consolidated financial statements of Apollo for the
fiscal year ended December 31, 2009, together with the report of the
auditors thereon; and
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to
transact such further or other business as may properly come before the
Apollo Meeting and any adjournments or postponements
thereof.
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Copies of
the Arrangement Agreement, Plan of Arrangement, the Apollo Stock Option
Incentive Plan and the Shareholder Rights Plan are attached to this Circular as
Schedules F, G, J and K, respectively. Apollo Shareholders should review the
Arrangement Agreement, Plan of Arrangement, the Apollo Stock Option Incentive
Plan, the Shareholder Rights Plan and this Circular carefully and in their
entirety before deciding how to vote.
The rules
of the TSX require that a listed issuer obtain the consent of its shareholders
prior to completing any acquisition that would result in the issuance of more
than 25% of the issuer’s outstanding common stock. Similarly, rules
of the AMEX require that a listed issuer obtain the consent of its shareholders
prior to completing any transaction that would result in the issuance of more
than 20% of the issuer’s outstanding common stock. If the transaction
is completed, Apollo will issue shares of common stock representing, in the
aggregate, in excess of 25% of its outstanding shares of common
stock.
In
addition, shareholder ratification of Apollo’s Shareholder Rights Plan
is required by the terms of the rights plan and shareholder approval of the
amendments to the Apollo Stock Option Incentive Plan is required by the rules
and regulations of the AMEX and the TSX.
35
Record
Date
The
Apollo Board has fixed 5:00 p.m. (Toronto time) on ►, 2010 as the record date
for determining shareholders entitled to notice of and to vote at the Apollo
Meeting.
Outstanding
Shares
As of
5:00 p.m. (Toronto time) on ►, 2010, the record date for the Apollo Meeting,
there were ► Apollo Shares outstanding and entitled to vote.
Shares
Entitled to Vote
Shares
entitled to vote at the Apollo Meeting are shares of Apollo common stock held as
of the close of business on the record date, ►, 2010. Each Apollo Shareholder is
entitled to one vote at the Apollo Meeting for each Apollo Share held by that
shareholder at the close of business on the record date.
Vote
Required
The
proposal to authorize the filing of articles of amendment to change the name of
Apollo to ► and the proposal to effect the Share Consolidation each must be
approved by at least two-thirds of the votes cast in respect thereof by Apollo
Shareholders present in person or represented by proxy at the Apollo
Meeting. Each other proposal must be approved by a majority of the
votes cast on such proposal by Apollo Shareholders present in person or by proxy
at the Apollo Meeting.
The
Apollo Board urges Apollo Shareholders to complete, date and sign the
accompanying Apollo Proxy and return it promptly in the envelope provided for
that purpose or
to promptly submit their proxies by facsimile.
Recommendation
of the Apollo Board
The
Apollo Board recommends that Apollo Shareholders vote “FOR” each of the proposals
set forth in this Circular and the Apollo Proxy.
Shares
Beneficially Owned by Apollo Directors and Executive Officers
On the
record date, Apollo directors and named executive officers beneficially owned
and had the right to vote approximately ► million Apollo Shares. These shares
represent, in the aggregate, approximately ►% of the total voting power of
Apollo’s outstanding shares of common stock entitled to vote at the Apollo
Meeting. On March 31, 2010, Linear entered into support agreements with each of
the following directors and officers of Apollo: R. David Russell,
Melvyn Williams, Marvin K. Kaiser, David W. Peat, Richard F. Nanna, Robert W.
Babensee, W.S. (Steve) Vaughan, Brent E. Timmons, Timothy G. Smith, Wendy Yang,
G. Michael Hobart and Charles E. Stott.
Pursuant
to these support agreements, each Apollo director and officer party to such
agreement committed to, among other things:
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not
sell, assign, transfer or otherwise convey, dispose of, encumber or
restrict the voting rights of any of their Apollo securities (including
Apollo Shares);
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vote
all of their Apollo Shares in favor of the Arrangement and any resolutions
or matters relating thereto at any meeting of Apollo Shareholders called
to consider the same;
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not
withdraw any proxy (if any) delivered to Apollo or its depositary agent in
connection with any meeting of Apollo Shareholders called to approve the
Arrangement; and
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vote
against any proposal (other than a Superior Proposal as defined in the
Arrangement Agreement) submitted to Apollo Shareholders in respect of any
amalgamation, merger, sale of Apollo’s or its affiliates’ or associates’
assets, take-over bid, plan of arrangement, reorganization,
recapitalization, shareholder rights plan, liquidation or winding-up of,
reverse take-over or other business combination or similar transaction
involving Apollo or any of its subsidiaries; (i) which would reasonably be
regarded as being directed towards or likely to prevent or delay the
successful completion of the Arrangement; or (ii) which would reasonably
be expected to result in a material adverse effect in respect of
Apollo.
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For more
information regarding beneficial ownership of shares of Apollo Shares by each
current Apollo director, certain executive officers of Apollo and all directors
and executive officers of Apollo as a group, see “Security Ownership of Certain
Beneficial Owners and Management” beginning on page ►.
Quorum
A quorum
of shareholders is necessary to hold a valid Apollo Meeting. Pursuant to
Apollo’s by-laws, the presence in person or representation by proxy of one or
more Apollo Shareholders at any meeting of Apollo Shareholders, holding, in the
aggregate, not less than one-third of the outstanding Apollo Shares entitled to
vote at the meeting will constitute a quorum. If a quorum is not present at the
Apollo Meeting, the meeting may be postponed or adjourned, without notice other
than announcement at the Apollo Meeting, until a quorum is present or
represented, unless the Apollo Meeting is postponed or adjourned for an
aggregate of thirty or more days. At any subsequent reconvening of the Apollo
Meeting, all proxies will be voted in the same manner as the proxies would have
been voted at the original convening of the Apollo Meeting, except for any
proxies that have been effectively revoked or withdrawn prior to the subsequent
meeting. Shares held by Apollo in its treasury do not count toward a
quorum.
Voting
by Proxy
Your vote
is very important. Whether or not you plan to attend the Apollo Meeting, please
take the time to vote by completing, signing and mailing the enclosed Apollo
Proxy or by
facsimile according
to the instructions on the Apollo Proxy. A signed and completed Apollo Proxy
received by Apollo or its agent prior to or at the Apollo Meeting will be voted
as instructed. If your broker or other nominee holds your shares in its name,
carefully follow the instructions given to you by your broker or other nominee
to ensure that your shares are properly voted.
Appointment
of Proxies
The
persons named in the enclosed Apollo Proxy are officers and/or directors of
Apollo. An Apollo Shareholder has the right to appoint some other person, who
need not be an Apollo Shareholder, to represent him or her at the Apollo Meeting
and may do so by inserting such person’s name in the blank space provided in the
enclosed Apollo Proxy or by completing another proper form of proxy and, in
either case, depositing the completed and executed applicable proxy at the
offices of CIBC Mellon Trust Company, Attention: Proxy Dept., P.O. Box 721,
Agincourt, Ontario, M1S 0A1, (facsimile: (416) 368-2502 or
toll free facsimile (866) 781-3111).
An Apollo
Shareholder forwarding the applicable proxy may indicate the manner in which the
appointee is to vote with respect to any specific item by checking the
appropriate space. If the Apollo Shareholder giving the proxy wishes to confer a
discretionary authority with respect to any item of business, then the space
opposite the item is to be left blank. The securities represented by the proxy
submitted by an Apollo Shareholder will be voted in accordance with the
directions, if any, given in the proxy.
To be
valid, an Apollo Proxy must be executed by an Apollo Shareholder or by a
Shareholder’s attorney duly authorized in writing or, if the Apollo Shareholder
is a body corporate, under its corporate seal or, by a duly authorized officer
or attorney.
Proxies
without Instructions
If a
proxy card is signed and dated by an Apollo Shareholder but does not include
instructions on how to vote, the Apollo Shares represented by such Apollo Proxy
will follow the respective Apollo Board recommendations and consequently will be
voted “FOR” each of the
proposals included in this Circular and the Apollo Proxy.
Revocation
of Proxies
An Apollo
Shareholder can change such shareholder’s vote at any time before such
shareholder’s proxy is voted at the Apollo Meeting. An Apollo Shareholder may
revoke such shareholder’s proxy in several ways:
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by
depositing an instrument in writing executed by the Apollo Shareholder or
by the Apollo Shareholders’ attorney duly authorized in writing or, if the
Apollo Shareholder is a body corporate, under its corporate seal or, by a
duly authorized officer or attorney either with CIBC Mellon Trust Company,
Attention: Proxy Dept., P.O. Box 721, Agincourt, Ontario, M1S 0A1
(facsimile: (416) 368-2502 or toll free facsimile (866) 781-3111), or at
the head office of Apollo at 5655 South Yosemite Street, Suite 200,
Greenwood Village, Colorado 80111-3220, Attention: Corporate
Secretary;
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by
completing and submitting an Apollo Proxy bearing a later date and
depositing it at or mailing it to the offices of CIBC Mellon Trust
Company, Attention: Proxy Dept., P.O. Box 721, Agincourt, Ontario, M1S 0A1
(facsimile: 416-368-2502 or toll free facsimile 1-866-781-
3111);
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by
voting by facsimile after previously voting or submitting your Apollo
Proxy;
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by
attending the Apollo Meeting and voting in person. Your attendance at the
Apollo Meeting alone will not revoke your proxy. You must also vote at the
Apollo Meeting in order to revoke your previously submitted proxy;
or
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in
any other manner permitted by law.
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Apollo
Shareholders whose shares are held in “street name” must contact their
brokers or other nominee and follow the instructions provided to them in
order to revoke their proxies.
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Solicitation
of Proxies
This
Circular is being furnished in connection with the solicitation of Apollo
Proxies by the management and the Apollo Board for use at the Apollo Meeting on
►, 2010. Following the original mailing of the Circular and
accompanying materials, directors, officers and employees of Apollo may, without
payment of any additional consideration, solicit proxies by mail, telephone,
facsimile, email or personal interviews. Apollo may request brokers, custodians,
nominees and other record holders to forward copies of the Circular and
soliciting materials to persons for whom they hold shares of Apollo and to
request authority for the exercise of proxies. In such cases, Apollo may
reimburse such holders for their reasonable expenses. The cost of
soliciting proxies in connection with the meetings will be borne directly by
Apollo. Apollo has engaged Laurel Hill Advisory
Group, 200-366 Bay Street, Toronto, Ontario, M5H 4B2, to assist in its proxy
solicitation effort at an estimated aggregate cost of approximately $►, plus reimbursement
of expenses. The
extent to which these proxy-soliciting efforts will be necessary depends
entirely upon how promptly proxies are submitted. You should submit your Apollo
Proxy without delay.
Dissent
Rights
Under
applicable Canadian Law, Apollo Shareholders are not entitled to dissenters’
appraisal rights in connection with any matters to be acted upon at the Apollo
Meeting.
Shareholder
Proposals For Next Annual Meeting
Shareholder
Proposals for Inclusion in Proxy Statement for 2011 Annual Meeting of Apollo
Shareholders
To be
considered for inclusion in Apollo’s proxy statement for the 2011 annual meeting
of shareholders, a shareholder proposal must be received by Apollo no later than
the close of business on ►. Shareholder proposals must be sent to the Secretary
of Apollo at the following address: Apollo Gold Corporation, 5655 South Yosemite
Street, Suite 200, Greenwood Village, Colorado, 80111-3220. Apollo will not be
required to include in its proxy statement any shareholder proposal that does
not meet all the requirements for such inclusion established by applicable
law.
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Other
Shareholder Proposals for Presentation at 2011 Annual Meeting of Apollo
Shareholders
For any
proposal that is not submitted for inclusion in Apollo’s proxy statement for the
2011 annual meeting of shareholders, but is instead sought to be presented
directly at the 2011 annual meeting of shareholders, the SEC’s rules permit
management to vote proxies in its discretion if: (1) Apollo receives notice of
the proposal before the close of business on ►, 2011, and advises shareholders
in the proxy statement about the nature of the matter and how management intends
to vote on such matter (and certain other conditions are met); or (2) Apollo
does not receive notice of the proposal prior to the close of business on ►,
2011. Notices of intention to present proposals at the 2011 annual meeting of
shareholders should be sent to Secretary of Apollo at the following address:
Apollo Gold Corporation, 5655 South Yosemite Street, Suite 200, Greenwood
Village, Colorado, 80111-3220.
Other
Matters
Apollo
does not expect that any matters other than the proposals described in this
Circular and set forth on the Apollo Proxy will be raised at the Apollo Meeting.
However, if other matters are properly raised at the Apollo Meeting, the persons
named as proxies will vote in accordance with the recommendations of the Apollo
Board.
Transfer
Agent
Apollo’s
transfer agent is CIBC Mellon Trust Company. All communications concerning
accounts of Apollo shareholders of record, including address changes, name
changes, inquiries as to requirements to transfer common stock and similar
issues may be handled by calling Apollo - Investor Relations at (303) 524-3217,
by calling CIBC Mellon Trust Company at (416) 643-5000 or by writing to CIBC
Mellon Trust Company at 320 Bay Street, P.O. Box 1, Toronto ON M5H 4A6,
Canada. For other information about Apollo, you may visit Apollo’s
web site at www.apollogold.com.
39
THE
ARRANGEMENT
The
following discussion contains material information pertaining to the
transaction, including the Arrangement Agreement and the Plan of Arrangement.
This discussion is subject, and qualified in its entirety by reference, to the
Arrangement Agreement and the form of Plan of Arrangement, which are attached to
this document as Schedules F and G, respectively. We urge you to read and review
the Arrangement Agreement and the form of Plan of Arrangement in their entirety
as well as the discussion in this Circular.
General
This
section provides material information about the combination of the business of
Linear and Apollo and the circumstances surrounding the transaction. The next
sections of this document, entitled “The Arrangement Mechanics” and “The
Arrangement Agreement” beginning on pages ► and ►, respectively, contain
additional and more detailed information regarding the legal documents that
govern the transaction, including information about the conditions to completion
of the transaction and the provisions for terminating the Arrangement
Agreement.
Both the
Apollo Board and the Linear Board have approved the Arrangement Agreement. The
Arrangement Agreement and the Plan of Arrangement provide that Apollo will
acquire all of the outstanding Linear Shares subject to, among other
things:
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approval
of the Option Plan Amendment Resolution and the Share Issuance Resolution
by Apollo Shareholders;
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approval
of the Continuance and the Arrangement by Linear Shareholders;
and
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approval
of the Arrangement by the Court.
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As a
consequence of the transaction, Linear will amalgamate with Apollo Sub and the
amalgamated corporation will become a wholly owned subsidiary of Apollo.
Pursuant to the transaction, Apollo will acquire (i) each outstanding Linear
Share (other than those held by Linear Shareholders who properly exercise their
Dissent Rights) in exchange for 5.4742 Apollo Shares (ii) each outstanding
Linear Warrant in exchange for an Apollo Replacement Warrant and (iii) each
outstanding Linear Option in exchange for an Apollo Replacement
Option. Linear Shareholders who properly exercise their Dissent
Rights will be entitled to be paid the fair value of their Linear Shares.
Non-registered holders of Linear Shares, Linear option holders and Linear
warrant holders are not entitled to Dissent Rights. Dissenters’ appraisal rights
are not available to Apollo Shareholders in connection with the transaction. See
“Dissenting Shareholder Rights” beginning on page ►.
The
purpose of the Arrangement is for Apollo to acquire all of the issued and
outstanding Linear Shares, Linear Options and Linear Warrants upon the
amalgamation of Apollo Sub and Linear and, as consideration therefor, to issue
Apollo Shares to the Former Linear Shareholders, Apollo Replacement Options to
the former Linear Optionholders and Apollo Replacement Warrants to the former
Linear Warrantholders, all on the basis of the Exchange Ratio (subject to
corresponding adjustment to the respective exercise prices of the Apollo
Replacement Options and Apollo Replacement Warrants). If permitted by applicable
Laws, Apollo intends to cause Linear to apply to de-list the Linear Shares and
the Linear Listed Warrants from the TSX as soon as practicable following the
Effective Date and to apply to cease to be a reporting issuer under the
securities Laws of each province of Canada in which it is a reporting
issuer. Apollo has agreed to use its commercially reasonable best
efforts to arrange for the Apollo Replacement Warrants issued in exchange for
the Linear Listed Warrants to be listed on the TSX and to maintain such listing
until 5:00 p.m. (Halifax time) on November 19, 2014.
When
the Arrangement Becomes Effective
Under the
ABCA, the Court must approve the Plan of Arrangement. If Apollo Shareholder
Approval is obtained at the Apollo Meeting and Linear Shareholder Approval is
obtained at the Linear Meeting, the Court will hold a hearing regarding the
Final Order. The Court will consider, among other things, the fairness and
reasonableness of the Arrangement. The Court may approve the Arrangement in any
manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
40
If the
required securityholder approvals are received, the Final Order is obtained,
every other requirement of the ABCA relating to the Arrangement is complied with
and all other conditions set forth in the Arrangement Agreement are satisfied or
waived, the Arrangement will become effective on the Effective Date. Linear and
Apollo currently expect that the Effective Date will be on or about ►,
2010.
Background
of the Arrangement
The
provisions of the Arrangement Agreement are the result of arm’s length
negotiations conducted between representatives of Apollo, Linear, and their
respective legal and financial advisors. The following is a summary of the
background to the execution of the Arrangement Agreement.
In June
2008, Haywood Securities approached the management team of Apollo and raised the
concept of a business combination with Linear. Also in June 2008, but in
separate discussions, Haywood Securities approached the management team of
Linear and presented the idea of a business combination with Apollo. Both Apollo
and Linear were receptive to exploring the opportunity further and certain
preliminary discussions were held between the management of both companies. It
was subsequently determined, however, that Apollo would continue to focus on the
development of its Black Fox mine while Linear pursued alternative transaction
opportunities. Preliminary discussions were again entertained in December of
2008; however, no agreement was able to be achieved.
In August
2009, the Apollo Board established the Apollo Special Committee to review and
supervise any proposed transaction that could arise in respect of Apollo, and
any potential issuance of securities, change of control or similar transaction.
The Apollo Special Committee consisted of Messrs. Stott (Chairman), Kaiser, Peat
and Vaughan. The Apollo Board fixed the compensation for each committee member
at $20,000.
The
Apollo Special Committee met only twice in calendar 2009. The Apollo Special
Committee retained Stikeman Elliott LLP and Haywood Securities as its
independent legal and financial advisors, respectively.
On or
about December 20, 2009, Apollo received a draft indication of interest from a
third party outlining the potential acquisition of Apollo by such third party.
In response to this indication of interest, Haywood Securities contacted Linear
to discuss Linear’s level of interest in pursuing some form of business
combination transaction with Apollo.
As a
result of the positive outcome of these preliminary discussions between Haywood
Securities and Linear, on or about December 18, 2009, a draft form of an
indicative term sheet was prepared which outlined the preliminary terms and
conditions that had been discussed to date of a potential merger between Linear
and Apollo.
In an
engagement letter dated December 30, 2009, the Apollo Special Committee and the
Apollo Board formally engaged Haywood Securities as financial advisor to review
the strategic alternatives available to Apollo, including but not limited to
potential business combinations, an outright sale of Apollo, and potential
financing opportunities.
On
January 6, 2010, Apollo and Linear entered into a mutual confidentiality
agreement in order to formally commence the due diligence analysis required to
better assess a potential business combination. Upon execution of the
confidentiality agreement, both Apollo and Linear provided each other with
access to confidential information regarding their respective
companies.
On
January 18, 2010, representatives from Apollo, accompanied by a representative
from Haywood Securities, and an independent mining consultant engaged by Apollo,
visited Linear’s Goldfields project located near Uranium City, Saskatchewan to
perform on-site due diligence on Linear’s exploration and development
projects.
On
January 27, 2010 and January 28, 2010, representatives from Linear visited
Apollo’s Black Fox project located near Timmins, Ontario to perform on-site due
diligence on Apollo’s exploration projects and mining operations.
41
Concurrently
with the evaluation of a potential business combination with Linear, Apollo and
Haywood Securities continued to explore other strategic alternatives financing
opportunities and an outright sale of Apollo. Between December 30, 2009 and
March 8, 2010, the Apollo Special Committee met ten times to review the progress
of the potential business combination with Linear as well as these other various
alternatives and opportunities.
By the
end of February 2010, Apollo and Linear had substantially completed their mutual
due diligence processes. Between March 1, 2010 and March 8, 2010, significant
negotiations were held between Apollo, Linear and their respective advisors
regarding the Arrangement.
Concurrent
with the discussions with Linear, the Apollo Special Committee also considered a
number of financing transactions and other alternatives available to Apollo.
With the advice of its independent legal and financial advisors, the Apollo
Special Committee examined in an in-depth manner, four potential financing and
other transactions. Based on the outcome of the meetings held between December
30, 2009 and March 8, 2010, the Apollo Special Committee determined that a
transaction with Linear represented the best financing and strategic opportunity
available to Apollo.
On March
8, 2010, both the Apollo Special Committee and the Apollo Board held meetings to
further consider the final terms of the proposed transaction with Linear. After
receiving a detailed review of the transaction and having a thorough discussion
on, among other factors, the timing of the transaction in the context of market
and economic conditions, the consideration being offered and possible
alternatives to the Arrangement, the results of due diligence investigations of
Linear and its assets, the Apollo Fairness Opinion and the assumptions and
limitations outlined therein, the Apollo Special Committee and the directors of
Apollo unanimously determined that the Arrangement is in the best interests of
Apollo. Accordingly, the Apollo Special Committee voted unanimously to recommend
to the Apollo Board that it approve, among other things, the execution and
delivery of the Binding LOI and the Arrangement and that the Apollo Board
recommend that Apollo Shareholders vote for the Share Issuance. The
Apollo Board subsequently voted unanimously to approve the Arrangement and the
Binding LOI.
Linear,
Apollo, and their respective legal advisors completed the negotiation of the
Binding LOI, at which time the Binding LOI was signed by the
parties. A press release announcing the Arrangement was issued on
March 9, 2010. The Binding LOI was amended on March 18, 2010 to
reflect certain agreed changes to the proposed board and management of Apollo
following completion of the Arrangement. The formal, definitive
Arrangement Agreement was executed on March 31, 2010, thereby superseding
the Binding LOI (as amended).
Consent,
Lock-Up and Support of the Project Lenders
Concurrently
with the execution of the Binding LOI, Apollo entered into a consent letter with
the Project Lenders in respect of the Project Facility
Agreement. Pursuant to the consent letter, the Project Lenders
agreed, subject to the terms and conditions contained in the consent letter, (i)
to consent to the Arrangement and the Private Placement, (ii) subject to
completion of the Arrangement and satisfaction of various terms and conditions,
not to accelerate repayment of any amounts owing under the Project Facility
Agreement or to enforce any remedies in each case prior to September 30, 2010,
in the event of certain “events of default” or “review events” (each as defined
in the Project Facility Agreement), and (iii) to make certain amendments to the
Project Facility Agreement. The amendments to the Project Facility Agreement
include amendments to the original debt repayment schedule and an extension to
September 30, 2010 of various covenants contained in the Project Facility
Agreement, including relating to the satisfaction of certain completion tests
related to the Black Fox project and the obligation to fund a debt reserve
account.
On March
18, 2010, the Project Lenders entered into lock-up agreements in favour of
Apollo and Linear pursuant to which the Project Lenders agreed to, subject to
certain exceptions, refrain from offering, selling, contracting to sell,
lending, or entering into any other agreement to transfer the economic
consequences of any of the Apollo Shares or Apollo warrants held by them until
December 31, 2010. The Project Lenders also entered into support
agreements representing 8,716,800 Apollo Shares in the aggregate, pursuant to
which they agreed, subject to customary exceptions in the context of a Superior
Proposal and other terms and conditions set out in such agreements, to vote
their Apollo Shares in favour of the Share Issuance Resolution and all other
matters relating to the Arrangement at the Apollo Meeting.
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Private
Placement
On March
18, 2010, Apollo completed a private placement from treasury of 62,500,000
Apollo Shares to Linear at a price of Cdn.$0.40 per Apollo Share for aggregate
gross proceeds of Cdn.$25,000,000. Linear did not own or exercise
control over any securities of Apollo prior to completion of the Private
Placement. Immediately following completion of the Private Placement, the
62,500,000 Apollo Shares owned by Linear represented approximately 18.6% of the
issued and outstanding Apollo Shares. In the event that the
Arrangement is not completed for any reason, Apollo has agreed to file a
registration statement with the SEC in respect of the Apollo Shares issued
pursuant to the Private Placement and to take all necessary steps in order to
have such registration statement declared effective by the SEC as expeditiously
as possible so as to register the resale of such shares by Linear in the United
States. US$10 million of the gross proceeds from the Private
Placement was applied to repay a portion of the debt owing under the Project
Facility Agreement, and the remaining proceeds are being used to advance the
development of the new Black Fox underground mine and for general working
capital purposes.
Support
Agreements
Prior to
signing the Arrangement Agreement, the management and directors of both Apollo
and Linear entered into customary support agreements, representing, in the
aggregate, approximately 3.7 million Apollo Shares and 3.4 million Linear
Shares.
Pursuant
to the support agreements, each director and executive officer of Apollo party
to such agreement committed to, among other things:
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immediately
cease and terminate existing discussions, if any, with any person with
respect to any potential direct or indirect acquisition of, or any other
business combination involving, Apollo or any material part of its assets
(each, an “Apollo
Acquisition
Proposal”);
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not,
directly or indirectly, make, solicit, assist, initiate, encourage or
otherwise facilitate any inquiries, proposals or offers from any person,
other than Apollo or its affiliates, relating to any Apollo Acquisition
Proposal or participate in, any discussions or negotiations regarding any
information with respect to any Apollo Acquisition Proposal or conduct any
activity otherwise detrimental to the
Arrangement;
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not
sell, assign, transfer or otherwise convey, dispose of, encumber or
restrict the voting rights of any of their Apollo securities (including
Apollo Shares);
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vote
all of their Apollo Shares in favor of the Arrangement and any resolutions
or matters relating thereto at any meeting of Apollo Shareholders called
to consider the same;
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not
withdraw any proxy (if any) delivered to Apollo or its depositary agent in
connection with any meeting of Apollo Shareholders called to approve the
Arrangement; and
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vote
against any proposal (other than a Superior Proposal as defined in the
Arrangement Agreement) submitted to Apollo Shareholders in respect of any
amalgamation, merger, sale of Apollo’s or its affiliates’ or associates’
assets, take-over bid, plan of arrangement, reorganization,
recapitalization, shareholder rights plan, liquidation or winding-up of,
reverse take-over or other business combination or similar transaction
involving Apollo or any of its subsidiaries; (i) which would reasonably be
regarded as being directed towards or likely to prevent or delay the
successful completion of the Arrangement; or (ii) which would reasonably
be expected to result in a material adverse effect in respect of
Apollo.
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Reasons
and Benefits of the Arrangement
In
evaluating and approving the Share Issuance, the directors of Apollo considered
a number of factors including, among others, the following.
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Advancing Black Fox –
The transaction allows Apollo to materially reduce Black Fox project debt
levels and provides immediate capital to fund the new underground
development at Black Fox as well as an aggressive exploration program at
Grey Fox and Pike River to advance towards feasibility in the near
term.
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Improved balance sheet and
enhanced financial flexibility – The transaction and related
Private Placement of Cdn.$25 million allows Apollo to reduce its project
debt facility, enhance its working capital and advance the new underground
mine development at Black Fox, thereby positioning Apollo with improved
financial flexibility.
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Additional Production
– The
transaction provides a near term development asset in Linear’s Goldfields
project that will add low-cost production of approximately 70,000 ounces
of gold per year by 2013.
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Improved Portfolio of
Properties – The transaction
expands the portfolio of quality exploration assets to include Linear’s
Goldfields Project in northern Saskatchewan, Canada, Linear’s properties
in the Chiapas area of southern Mexico and Linear’s Ampliacion Pueblo
Viejo II property in the Dominican
Republic.
|
|
|
·
|
Participation by Shareholders
in the Assets of Linear – Apollo Shareholders, through the
combination with Linear, will participate in any increase in the value of
the mineral projects and other assets currently owned by
Linear.
|
In
reaching their conclusion and making their recommendation, the members of the
Apollo Special Committee and Apollo Board relied on their knowledge of Apollo
and Linear and the industry in which they are involved, on the information
provided by Apollo and its advisors and on the advice of its legal and financial
advisors. The Apollo Special Committee and Apollo Board considered
numerous other factors to be in favour of the transaction, including, among
other things:
|
|
·
|
Fairness Opinion – The
opinion of the Apollo Special Committee’s financial advisor, Haywood
Securities, to the effect that, as of March 9, 2010 and subject to the
analyses, assumptions, qualifications and limitations set forth in the
Apollo Fairness Opinion, the offered consideration of 5.4742 Apollo Shares
for each Linear Share pursuant to the Arrangement is fair, from a
financial point of view, to the Apollo
Shareholders.
|
|
|
·
|
Due Diligence – The
positive results of the due diligence review conducted by Apollo’s
management and Apollo’s financial and legal
advisors.
|
|
|
·
|
Ability to Accept a Superior
Proposal – Under the Arrangement Agreement, the Apollo Board
remains able to respond, in accordance with its fiduciary duties, to
certain unsolicited proposals that are more favourable to Apollo
Shareholders than the Arrangement.
|
|
|
·
|
Apollo Shareholder
Approval – The Share Issuance Resolution and the Option Plan
Amendment Resolution must each be approved by no less than a majority of
the votes cast in respect thereof by Apollo Shareholders present in person
or represented by proxy at the Apollo Meeting. For the purposes of voting
on the Share Issuance Resolution, a total of 62,500,000 Apollo Shares held
by Linear (representing approximately ►% of the currently outstanding
Apollo shares) will be excluded from voting. The Apollo Board believes
that the required approvals protect the rights of Apollo
Shareholders.
|
|
|
·
|
Absence of Competing
Proposal – Since the entering into of the Arrangement Agreement on
March 31, 2010, Apollo has not received any expressions of interest or
competing offers related to a merger or acquisition
transaction.
|
|
|
·
|
Market and Industry Trends
– Current economic, industry and market trends affecting Apollo and
Linear and the current and historical trading prices of their respective
common stock.
|
The
Apollo Special Committee and Apollo Board also considered potential adverse
factors associated with the transaction, including, among other
things:
|
|
·
|
Dilution of Apollo
Shareholders’ Ownership Interest in the Combined Company; Ownership
Interest by Linear Shareholders in the Combined Company – As a
result of the issuance of Apollo Shares in the Arrangement, Apollo’s
existing shareholders will experience a significant degree of dilution in
their ownership of Apollo. Upon completion of the transaction and based on
the number of Apollo Shares and Linear Shares outstanding as of ►, 2010,
Apollo Shareholders and Linear Shareholders will own, respectively,
approximately ►% and ►% of the combined company (on an undiluted
basis).
|
44
|
|
·
|
Termination Fee – The
fact that Apollo may be obligated to pay a termination fee under the
Arrangement Agreement in certain
circumstances.
|
|
|
·
|
Market Disruption if
Transaction Not Completed – The fact that if the transaction is not
completed, Apollo may be adversely affected due to potential disruptions
in its operations and market
perceptions.
|
|
|
·
|
Integration Challenges
– The challenges inherent in the combination of two enterprises of the
size and scope of Apollo and Linear and the possible resulting diversion
of management attention for an extended period of time as well as the risk
that anticipated benefits, long-term as well as short-term, of the
transaction for the Apollo shareholders might not be
realized.
|
|
|
·
|
Dissent Rights – The
availability of Dissent Rights to the Linear Shareholders and that the
Arrangement Agreement contains a condition that Linear Shareholders
representing in excess of 5% of the outstanding Linear Shares will not
have exercised rights of dissent in connection with the
transaction.
|
The
foregoing summary of the information and factors considered by the Apollo Board
is not, and is not intended to be, exhaustive. In view of the variety of factors
and the amount of information considered in connection with its evaluation of
the Arrangement, the directors of Apollo did not find it practicable to, and did
not, quantify or otherwise attempt to assign any relative weight to each
specific factor considered in reaching their conclusions and recommendations.
The recommendations of the directors of Apollo were made after consideration of
all of the above-noted factors and in light of their collective knowledge of the
business, financial condition and prospects of Linear, and were also based upon
the advice of financial advisors and legal advisors to the Apollo Special
Committee and the Apollo Board. In addition, individual directors of Apollo may
have assigned different weights to different factors.
Opinion
of Apollo’s Financial Advisor-Haywood Securities Inc.
Pursuant
to the Haywood Securities Engagement Letters, Haywood Securities was formally
engaged by the Apollo Special Committee to consider the proposed Arrangement and
provide its opinion to the Apollo Special Committee as to the fairness, from a
financial point of view, to the Apollo Shareholders, of the consideration to be
paid by Apollo to the Linear Shareholders. The Haywood Securities Engagement
Letters also provide the terms upon which Haywood Securities agreed to act as a
financial advisor to Apollo in connection with an analysis of various strategic
alternatives, including a potential business combination or an investment by a
strategic investor. Pursuant to the Haywood Securities Engagement Letters,
in consideration for the services provided by Haywood Securities thereunder,
Apollo agreed to pay to Haywood Securities, in addition to reimbursement of its
reasonable expenses, (i) 1.5% of the total value of all consideration paid or
received by Apollo in connection with the transaction with Linear plus any
amounts payable in respect of employment or consulting agreements (the “Success Fee”), and (ii)
Cdn.$260,000 for the Apollo Fairness Opinion. Apollo currently estimates that,
if the transaction is completed, the aggregate amount of fees payable to Haywood
Securities under the Haywood Securities Engagement Letters would be Cdn.$►, of
which Cdn.$► would represent the Success Fee. The Haywood Engagement Letters
also state that in the event the proposed Arrangement is not consummated but
that Apollo receives a break-up fee or any other payment as a result of the
termination of the Arrangement, Apollo will pay to Haywood Securities the lesser
of 20% of any such break-up fee or other payment received by Apollo and
Cdn.$200,000.
On March
8, 2010, Haywood Securities delivered an oral form of the Apollo Fairness
Opinion to the Apollo Special Committee with respect to the Share Issuance.
Subsequent to the delivery of the oral form of Apollo Fairness Opinion, Haywood
Securities delivered the written Apollo Fairness Opinion dated March 9, 2010 to
the Apollo Special Committee. Based upon and subject to the various
considerations set forth in the Apollo Fairness Opinion, Haywood Securities is
of the opinion that the consideration to be paid by Apollo to the Linear
Shareholders is fair, from a financial point of view, to the Apollo
Shareholders. The Apollo Fairness Opinion was provided to, and for the use and
benefit of, the Apollo Special Committee solely for the purpose of its
consideration of the Share Issuance and addresses the fairness, from a financial
point of view, to the Apollo Shareholders, of the consideration to be paid by
Apollo to the Linear Shareholders and does not address any other aspect of the
Share Issuance Resolution or any other transaction.
45
The full
text of the Apollo Fairness Opinion, which sets forth, among other things, the
analysis, assumptions, qualifications and limitations on the scope of review
undertaken by Haywood Securities in rendering the Apollo Fairness Opinion, is
set forth in Schedule L attached to this Circular. Apollo
Shareholders are urged to read the Apollo Fairness Opinion in its entirety. The
Apollo Fairness Opinion does not address the merits of the underlying business
decision to enter into the transaction contemplated by the Share Issuance
Resolution versus any alternative strategy or transaction and does not
constitute advice or a recommendation as to whether Apollo Shareholders should
vote in favour of the Share Issuance Resolution or any other transaction and the
Apollo Fairness Opinion states that it may not be used or relied upon by any
other person other than the Apollo Special Committee and the Apollo Board
without the express prior written consent of Haywood Securities. This summary of
the Apollo Fairness Opinion is qualified in its entirety by reference to the
full text of the Apollo Fairness Opinion as set forth in the attached Schedule
L. Any capitalized terms used in this Summary of the Apollo Fairness
Opinion but not otherwise defined in this Circular have the meanings ascribed to
such terms in Schedule L.
The
Apollo Fairness Opinion was rendered on the basis of securities markets,
economic, financial and general business conditions prevailing as at the date of
the Apollo Fairness Opinion and the condition and prospects, financial and
otherwise of Apollo and its subsidiaries and affiliates, as they were reflected
in the information and documents reviewed by Haywood Securities and as they were
represented to Haywood Securities in discussions with management of Apollo.
Subsequent developments may affect the Apollo Fairness Opinion and Haywood
Securities reserves the right to change, modify or withdraw the Apollo Fairness
Opinion prior to the completion of the Arrangement.
Haywood
Securities is one of Canada’s leading independent investment dealers with
operations in investment banking, equity sales and trading and investment
research. The Apollo Fairness Opinion represents the opinion of Haywood
Securities and the form and content of the Apollo Fairness Opinion have been
approved for release by a committee of its directors, each of whom is
experienced in merger, acquisition, divestiture and fairness opinion matters. As
per the Haywood Securities Engagement Letters, Haywood Securities is paid a fee
upon delivery and publication of the Apollo Fairness Opinion and will be
reimbursed for any out-of-pocket expenses.
Neither
Haywood Securities nor any of its affiliated entities is an associated or
affiliated entity or issuer insider (as those terms are defined in Multilateral
Instrument 61-101 – Protection of Minority Security Holders in Special
Transactions) of Linear or Apollo or any of their respective associates or
affiliates. Haywood Securities may, in the future, in the ordinary course of
business, provide financial advisory services to Linear or Apollo or any of
their respective associates or affiliates.
The
following is a list detailing all fees, commissions, shares, and warrants that
Haywood Securities has received from Apollo in the past two years:
|
|
·
|
On
July 24, 2008, Cdn.$928,347.87 and 1,713,873 broker warrants of Apollo
exercisable at Cdn.$0.60 as sales commission relating to a
financing;
|
|
|
·
|
On
August 21, 2008, 1,020,000 broker warrants of Apollo exercisable at
Cdn.$0.50 as sales commission relating to a
financing;
|
|
|
·
|
On
September 19, 2008, Cdn.$25,000 for financial advisory services relating
to the analysis of potential merger and acquisition
opportunities;
|
|
|
·
|
On
December 31, 2008, Cdn.$36,000 and 255,000 warrants of Apollo exercisable
at Cdn.$0.30 for financial advisory services relating to a private
placement financing;
|
|
|
·
|
On
February 23, 2009, 2,172,840 common shares of Apollo and 2,567,901 broker
warrants of Apollo exercisable at Cdn.$0.256 for financial advisory
services;
|
|
|
·
|
On
March 23, 2009, 1,000,000 common shares of Apollo relating to the
successful completion of financial advisory
services;
|
|
|
·
|
On
July 15, 2009, Cdn.$718,250 and 1,292,796 broker warrants of Apollo
exercisable at Cdn.$0.45 as sales commission relating to a
financing;
|
|
|
·
|
On
August 21, 2009, Cdn.$552,500 as sales commission relating to a
financing;
|
46
|
|
·
|
From
September to November, 2009, Cdn.$50,000 for financial advisory services
relating to the analysis of potential merger and acquisition
opportunities;
|
|
|
·
|
On
January 5, 2010, Cdn.$50,000 for financial advisory services relating to
the analysis of strategic alternatives, including financing options and
merger and acquisition
opportunities;
|
|
|
·
|
On
January 14, 2010, 300,000 common shares of Apollo for financial advisory
services relating to the successful completion of a merger and acquisition
transaction; and
|
|
|
·
|
In
February, 2010, Cdn.$100,000 for financial advisory services relating to
the analysis of strategic alternatives, including financing options and
merger and acquisition
opportunities.
|
In
addition, Haywood Securities has provided services to Linear in connection with
the analysis of potential merger and acquisition opportunities and its financing
efforts. The following is a list detailing all fees, commissions,
shares, and warrants Haywood Securities has received from Linear in the past two
years:
|
|
§
|
From
June to August, 2008, Cdn.$30,000 for financial advisory services relating
to the analysis of potential merger and acquisition
opportunities;
|
|
|
§
|
On
February 2, 2009, Cdn.$75,000 for financial advisory services relating to
the analysis of potential merger and acquisition opportunities;
and
|
|
|
§
|
On
November 29, 2009, Cdn.$317,009.55 and 192,330 broker warrants of Linear
exercisable at Cdn.$2.15 as sales commission relating to a
financing.
|
In
preparing the Apollo Fairness Opinion, Haywood Securities performed a variety of
financial and comparative analyses, including those described below. The summary
of Haywood Securities’ analyses described below is not a complete description of
the analyses underlying the Apollo Fairness Opinion. In arriving at the Apollo
Fairness Opinion, Haywood Securities made qualitative judgments as to the
significance and relevance of each factor that it considered. Accordingly,
Haywood Securities believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying its analyses and the Apollo
Fairness Opinion.
In its
analyses, Haywood Securities considered industry performance, general business,
economic, market, political and financial conditions and other matters, many of
which are beyond the control of Apollo and Linear. No company, transaction or
business used in Haywood Securities’ analyses as a comparison is identical to
Apollo or Linear or the proposed transaction, and an evaluation of the results
of those analyses is not entirely mathematical. Rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the business combination,
public trading or other values of the companies, business segments or
transactions being analyzed. The estimates contained in Haywood Securities’
analyses and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favourable than those suggested
by the analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Haywood
Securities’ analyses and estimates could be subject to substantial
uncertainty.
In
connection with the Apollo Fairness Opinion, Haywood Securities performed a
variety of financial and comparative analyses, including but not necessarily
limited to those described below. In performing its analyses and rendering its
opinion with respect to the Share Issuance Resolution, Haywood, with the Apollo
Board’s consent:
|
|
·
|
relied,
without independent verification, upon all financial and other information
that was obtained by it from public sources or that was provided to it by
Apollo or Linear and their respective affiliates, associates, advisors or
otherwise; and
|
|
|
·
|
assumed
that this information was complete and accurate as of the date thereof and
did not omit to state any material fact or any fact necessary to be stated
to make that information not
misleading.
|
47
In
assessing the fairness of the consideration, from a financial point of view, to
be paid pursuant to the Arrangement by the Apollo Shareholders, Haywood
Securities considered, among other factors, the following items and
methodologies relative to Apollo and Linear and their peer group:
|
|
·
|
Discounted
cash flow analysis;
|
|
|
·
|
Comparable
company analysis;
|
|
|
·
|
Precedent
transaction analysis; and
|
|
|
·
|
Historical
share price trading analysis.
|
Discounted
Cash Flow
The
discounted cash flow (“DCF”) approach considers the
present value of the future cash flows generated, incorporating the timing and
relative certainty of projected cash flows. The DCF analysis requires
that certain assumptions be made regarding, among other things, commodity
prices, exchange rates, capital costs, operational costs and discount rates. In
addition to considering the present value of the future cash flows generated,
Haywood Securities assigns a value to exploration projects which have not
necessarily demonstrated economically viable mineral deposits, but do in the
opinion of Haywood Securities possess the potential for economically viable
mineral deposits. To arrive at the net asset values (“NAV”) for Apollo and Linear,
liabilities were subtracted from the total value of the assets for each
respective company.
A range
of discount rates of between 5% and 15% were selected for the various projects
of Apollo and Linear based on Haywood Securities’ experience valuing mining
companies. The discount rates reflect the risks associated with the projected
free cash flows and incorporates factors including, but not limited to, the
risk-free rate, risks associated with mining, estimated cost of capital, and
development timelines for Apollo and Linear, as well as any non-sector risks
such as country risk.
To
complete the DCF analysis, Haywood Securities did not rely on any single series
of projected cash flows but performed a variety of sensitivity analyses.
Variables used by Haywood Securities in the sensitivity analyses included, but
were not limited to, commodity prices, mining grades, production rates, discount
rates, capital expenditures and operating costs. Based on this sensitivity
analysis, the consideration offered to Linear Shareholders in the Arrangement
represented an average premium of approximately 30.7% over the average implied
exchange ratio calculated on the relative NAV per-share for Apollo and Linear of
approximately 4.2.
Comparable
Company Analysis
Haywood
Securities reviewed selected comparable public company trading ranges in terms
of adjusted market capitalization (“AMC”) to ounces of gold
equivalent resource. Metals were converted into gold equivalent
(“AuEq”) based on
Haywood Securities’ long-term metal price forecasts. Haywood
Securities then evaluated Linear by applying an implied range of capitalization
factors to Linear’s current resource base to evaluate the consideration offered
to Linear Shareholders in the Arrangement versus the trading range of the peer
group. The companies utilized for comparative purposes in Haywood
Securities’ analysis were not identical to Linear. As a result, a complete
valuation analysis cannot be limited to a quantitative review of the selected
publicly traded companies, but also requires complex considerations and
judgments concerning differences in financial and operating characteristics of
such companies, as well as other factors that could affect their value relative
to that of Linear.
The data
for the comparable multiple analysis as at March 8, 2010 is summarized as
follows:
|
Company
|
Market
Capitalization
(US$M)
|
AMC
(US$M)
|
Total Resource
(M oz AuEq)
|
AMC/oz AuEq
(US$)
|
||||||||||||
|
Aurizon
Mines Ltd.
|
$ | 733.8 | $ | 645.4 | 5.6 | $ | 115.3 | |||||||||
|
Minefinders
Corporation Ltd.
|
$ | 580.7 | $ | 599.1 | 7.0 | $ | 85.6 | |||||||||
|
Kirkland
Lake Gold Inc.
|
$ | 483.2 | $ | 417.6 | 3.3 | $ | 126.5 | |||||||||
|
St.
Andrew Goldfields Ltd.
|
$ | 248.7 | $ | 271.1 | 4.0 | $ | 67.8 | |||||||||
|
Wesdome
Gold Mines Ltd.
|
$ | 199.1 | $ | 173.4 | 1.4 | $ | 123.9 | |||||||||
|
Claude
Resources Inc.
|
$ | 122.5 | $ | 117.6 | 0.8 | $ | 147.0 | |||||||||
|
Alexis
Minerals Corp.
|
$ | 50.5 | $ | 46.8 | 0.8 | $ | 58.5 | |||||||||
|
Low
|
$ | 58.5 | ||||||||||||||
|
Mean
|
$ | 103.5 | ||||||||||||||
|
Median
|
$ | 115.3 | ||||||||||||||
|
High
|
$ | 147.0 | ||||||||||||||
48
Based on
the market data as at March 8, 2010, the consideration offered to Linear
Shareholders under the Arrangement implied an AMC/oz AuEq value for Linear of
US$17.8/oz AuEq which was a premium to Linear’s AMC/oz AuEq as at March 8, 2010
of US$13.2/oz AuEq but was significantly below the median AMC/oz AuEq of
US$115.3/oz AuEq for the comparable group evaluated.
Precedent
Transactions
Haywood
Securities reviewed publicly available information on selected merger and
acquisition transactions in the mining sector, and compared these to the
Arrangement. The basis for this analysis was to determine whether the
consideration that other companies had paid in similar transactions was
comparable to the consideration being offered to Linear Shareholders in the
Arrangement. The analysis of these precedent transactions is not purely
mathematical, but involves considerations and judgments concerning, among other
things, differences in the comparable transactions, company-specific risk
factors, share performance preceding each transaction announcement, and
prevailing economic and market conditions, including metal prices.
In each
case, two key metrics were evaluated:
a) Price
/ oz AuEq: Calculated by dividing the total acquisition price by the target
company’s ounces of AuEq; and
b) Premium
to 20-day VWAP: The premium of the acquisition price paid per share to the
volume weighted average price (“VWAP”) of the target company’s
shares for the 20 trading days prior to the announcement of the
transaction.
Using
company filings, company presentations, and information from data providers
including, but not limited to, Minesearch, Bloomberg, Capital IQ, and Thomson
One, Haywood Securities examined the following transactions:
|
Buyer
|
Target
|
Date
|
Price / oz
AuEq
(US$)
|
Premium to
20-day
VWAP
|
||||||||
|
AngloGold
Ashanti Ltd.
|
Golden
Cycle Gold Corp.
|
January
2008
|
$ | 35.1 | 29.7 | % | ||||||
|
Eldorado
Gold Corp.
|
Frontier
Pacific Mining Corp.
|
April
2008
|
$ | 90.1 | 34.8 | % | ||||||
|
Iamgold
Corp.
|
Orezone
Resources Inc.
|
December
2008
|
$ | 37.2 | 162.9 | % | ||||||
|
B2Gold
Corp.
|
Central
Sun Mining Inc.
|
January
2009
|
$ | 19.0 | 71.0 | % | ||||||
|
Avocet
Mining PLC
|
Wega
Mining ASA
|
April
2009
|
$ | 60.9 | 50.9 | % | ||||||
|
Paramount
Gold & Silver Corp.
|
Klondex
Mines Ltd.
|
July
2009
|
$ | 27.1 | 24.1 | % | ||||||
|
Ramelius
Resources Ltd.
|
Dioro
Exploration NL
|
July
2009
|
$ | 30.5 | 40.8 | % | ||||||
|
International
Minerals Corp.
|
Ventura
Gold Corp.
|
September
2009
|
$ | 75.5 | 40.7 | % | ||||||
|
Ontex
Resources Ltd.
|
Roxmark
Mines Ltd.
|
October
2009
|
$ | 77.8 | 31.0 | % | ||||||
|
Argonaut
Gold Inv.
|
Castle
Gold Corp.
|
December
2009
|
$ | 66.1 |
n.a.
|
|||||||
| Low | $ | 19.0 | 24.1 | % | ||||||||
| Mean | $ | 51.9 | 54.0 | % | ||||||||
| Median | $ | 49.1 | 40.7 | % | ||||||||
| High | $ | 90.1 | 162.9 | % | ||||||||
49
Based on
the market data as at March 8, 2010, the consideration offered to Linear
Shareholders under the Arrangement implied a Price/oz AuEq value for Linear of
US$31.3 and represented a 20% premium over Linear’s 20-day VWAP, both of which
are below the median metrics represented in the analysis of the precedent
transactions.
Historical
Share Price Trading Analysis
Haywood
Securities reviewed the historical trading price of Apollo Shares and Linear
Shares. Haywood Securities specifically reviewed the 5-day, 10-day,
15-day, 20-day, 30-day, and 60-day VWAP prior to the announcement of the Binding
LOI on March 9, 2010. The VWAPs were calculated based on the closing price
and daily volume for each of Apollo and Linear’s common shares on the TSX as at
March 8, 2010.
The
following table summarizes the implied share price ratio for each of the VWAP
periods listed as well as the premium of the consideration offered to Linear
Shareholders under the Arrangement to such share price ratio:
|
VWAP
|
Apollo
(Cdn.$)
|
Linear
(Cdn.$)
|
Ratio
(Apollo/Linear)
|
Consideration
Premium
|
||||||||||||
|
5-day
|
$ | 0.4160 | $ | 2.0077 | 4.8260 | 13.4 | % | |||||||||
|
10-day
|
$ | 0.4133 | $ | 1.9662 | 4.7576 | 15.1 | % | |||||||||
|
15-day
|
$ | 0.4238 | $ | 1.9628 | 4.6311 | 18.2 | % | |||||||||
|
20-day
|
$ | 0.4280 | $ | 1.9523 | 4.5614 | 20.0 | % | |||||||||
|
30-day
|
$ | 0.4273 | $ | 1.8997 | 4.4456 | 23.1 | % | |||||||||
|
60-day
|
$ | 0.4754 | $ | 2.0171 | 4.2430 | 29.0 | % | |||||||||
The
consideration offered under the Arrangement Agreement represents a premium of
between 13.4% to 29.0% to the implied exchange ratios for the VWAP periods
listed.
Recommendation
of the Apollo Special Committee
The
Apollo Special Committee held a meeting on March 8, 2010 and unanimously
recommended that the Apollo Board approve, among other things, the execution and
delivery of the Binding LOI. The Apollo Special Committee, having
taken into account such factors and other matters as it considered relevant,
including the Apollo Fairness Opinion, unanimously determined that the
Arrangement is in the best interests of Apollo and unanimously recommended that
the Apollo Board approve the Binding LOI and that the Apollo Board recommend
that the Apollo Shareholders vote “FOR” the Share
Issuance.
50
Recommendation
of the Apollo Board
The
directors of Apollo have considered all factors they have deemed necessary to be
considered based on the information available to them, including the Apollo
Fairness Opinion and the approval and recommendation of the Share Issuance by
the Apollo Special Committee and have unanimously determined that the offered
consideration of 5.4742 Apollo Shares for each Linear Share under the
Arrangement is fair to Apollo Shareholders and that the Share Issuance is in the
best interests of Apollo. Accordingly, the directors of Apollo unanimously
recommend that the Apollo Shareholders vote “FOR” the Share Issuance
Resolution and each of the other proposals set forth in this
Circular.
Issuance
and Resale of Apollo Shares
The
Apollo Shares, Apollo Replacement Options and Apollo Replacement Warrants to be
issued pursuant to the Arrangement have not been, and will not be registered
under the U.S. Securities Act or the securities Laws of any other jurisdiction.
The Apollo Shares, Apollo Replacement Options and Apollo Replacement Warrants to
be issued in the Arrangement will be issued pursuant to an exemption from the
prospectus requirements of Canadian securities law and from the registration
requirements of the U.S. Securities Act under and exemption provided by
Section 3(a)(10) of the U.S. Securities Act based on the approval of the
Plan of Arrangement by the Court.
Section 3(a)(10)
of the U.S. Securities Act exempts securities issued in exchange for one or more
bona fide outstanding securities from the general requirement of registration
where the fairness of the terms and conditions of the issuance and exchange of
the securities have been approved by any court or authorized governmental
entity, after a hearing upon the fairness of the terms and conditions of
exchange at which all persons to whom the securities will be issued have the
right to appear and to whom adequate notice of the hearing has been given. If
the Court approves the Plan of Arrangement, its approval will constitute the
basis for the Apollo Shares, Apollo Replacement Options and Apollo Replacement
Warrants to be issued without registration under the U.S. Securities Act in
reliance on the exemption from the registration requirements of the U.S.
Securities Act by Section 3(a)(10) of the U.S. Securities Act.
On ►,
2010 Linear and Apollo Sub obtained the Interim Order providing for the calling
and holding of the Linear Meeting and for Linear to submit the Arrangement
Resolution to the Linear Meeting and to seek approval thereof from the Linear
Shareholders in the manner set forth in the Interim Order. Subject to
obtaining Linear Shareholder Approval at the Linear Meeting, the hearing in
respect of the Final Order is scheduled to take place on ► (Calgary time) in the
Court at ► or as soon thereafter as is reasonably practicable.
The
Apollo Shares issued in the Arrangement will be freely transferable under
U.S. federal securities Laws, except by persons who are deemed to be
“affiliates” (as that term is defined under the U.S. Securities Act) of Apollo
after the Arrangement. Shares held by Apollo affiliates may be resold only in
transactions permitted by Rule 901 in combination with Rule 903 or
Rule 904 of Regulation S under the U.S. Securities Act, the resale
provisions of Rule 144 under the U.S. Securities Act or as otherwise
permitted under the U.S. Securities Act. Rule 144 generally provides that
“affiliates” of Apollo may not sell securities of Apollo received in the
Arrangement unless the sale is effected by use of an effective registration
statement or in compliance with the volume, current public information, manner
of sale and timing limitations set forth in Rule 144 under the U.S.
Securities Act. These limitations generally permit sales made by an affiliate in
any three-month period that do not exceed the greater of 1% of the outstanding
shares of Apollo common stock or the average weekly reported trading volume in
such securities over the four calendar weeks preceding the placement of the sell
order, provided the sales are made in unsolicited, open market “broker
transactions” and that current public information on Apollo is available.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that directly or indirectly control, are controlled by,
or are under common control with, that issuer and may include officers and
directors of the issuer as well as beneficial owners of 10% or more of any class
of capital stock of the issuer.
Section 3(a)(10)
of the U.S. Securities Act does not exempt the issuance of Apollo Shares upon
exercise of the Apollo Replacement Options or the Apollo Replacement Warrants
from the registration requirements of the U.S. Securities
Act. Accordingly, pursuant to the terms of the Arrangement Agreement,
Apollo has agreed to file with the SEC a registration statement on Form S-8 and
a registration statement on Form S-3 or a supplement to its currently effective
shelf registration statement on Form S-3 to register the Apollo Shares issuable
upon the exercise of Apollo Replacement Options and the Apollo Replacement
Warrants.
51
Regulatory
and Other Approvals Required for the Arrangement
Under the
Arrangement Agreement, Apollo and Linear have both agreed to use commercially
reasonable best efforts to effect all necessary registrations, filings and
submissions requested by any governmental entity required in order to consummate
the transaction and to obtain all consents, approvals and authorizations
required to obtained under applicable Law or from any governmental entity which
would, if not obtained, materially impede the completion of the
transaction.
Shareholder
Approvals. In order for the Arrangement to become effective,
Apollo Shareholders must approve the Share Issuance Resolution and the Option
Plan Amendment Resolution at the Apollo Meeting, and the Linear Shareholders
must approve the Continuance Resolution and the Arrangement Resolution at the
Linear Meeting.
Court Approval. An
arrangement under the ABCA requires Court approval. On ►, 2010 Linear and Apollo
Sub obtained the Interim Order providing for the calling and holding of the
Linear Meeting and for Linear to submit the Arrangement Resolution to the Linear
Meeting and to seek approval thereof from the Linear Shareholders in the manner
set forth in the Interim Order. A copy of the Interim Order is attached to this
Circular as Schedule H.
The
hearing in respect of the Final Order is currently scheduled to be held on ►,
2010, subject to
approval of the Continuance Resolution and the Arrangement Resolution by Linear
Shareholders. A copy of the Notice of Application for the Final Order
is attached to this Circular as Schedule I. In accordance with the
Interim Order, should the Court adjourn the hearing to a later date, notice of
the later date will be given to those who have filed and delivered an appearance
in accordance with the Interim Order. Any Linear Shareholder who
wishes to appear or be represented and to present evidence or arguments must
serve and file an appearance as set out in the Notice of Application for the
Final Order and satisfy any other requirements of the Court. The
Court is expected to consider, among other things, the fairness of the
Arrangement. The Court may approve the Arrangement in any manner the
Court may direct, subject to compliance with such terms and conditions, if any,
as the Court deems fit.
After the
Final Order is obtained and the other conditions in the Arrangement Agreement
are satisfied or waived, the Articles of Arrangement must be filed with the
Registrar to give effect to the Arrangement and the various other documents
necessary to consummate the transactions contemplated under the Arrangement
Agreement must be executed and delivered.
Regulatory Matters. There are
no material filings, consents, waiting periods or approvals required to be made
with, applicable to, or required to be received from any Governmental Authority
in connection with the Arrangement prior to the Effective Time, except for the
approval of the Final Order by the Court, which will be sought on ►, 2010 or as
soon as practicable thereafter and which is a condition to the completion of the
Arrangement.
Stock Exchange Approvals. The
Linear Shares and the Linear Listed Warrants are listed on the TSX. The TSX has
conditionally approved the Arrangement, subject to Linear Shareholder Approval
being obtained at the Linear Meeting and the approval of the Court.
The
Apollo Shares are listed on the TSX and on the AMEX. It is a condition to
closing the transaction that the Apollo Shares to be issued to the holders of
Linear Shares and the Apollo Shares to be issued upon exercise of the Apollo
Replacement Options and Apollo Replacement Warrants be approved for listing by
the AMEX subject only to official notice of issuance and other customary
conditions. It is also a condition to closing the transaction that
the Apollo Shares to be issued to the holders of Linear Shares and the Apollo
Shares to be issued upon exercise of the Apollo Replacement Options and Apollo
Replacement Warrants be conditionally approved for listing by the TSX subject
only to customary conditions. In addition, pursuant to the Arrangement
Agreement, Apollo is required to use commercially reasonable best efforts to
arrange for the Apollo Replacement Warrants issued upon exchange of the Linear
Listed Warrants to be listed on the TSX and to maintain that listing until
November 19, 2014. On ►, 2010, the TSX conditionally approved the
listing of the Apollo Shares to be issued pursuant to the Arrangement and the
Apollo Replacement Warrants to be issued upon exchange of the Linear Listed
Warrants pursuant to the Arrangement, subject to Apollo Shareholder Approval
being obtained and the satisfaction of customary listing requirements and on ►,
2010 the AMEX approved the listing of the Apollo Shares to be issued pursuant to
the Arrangement, subject to Apollo Shareholder Approval being obtained and the
satisfaction of customary listing requirements.
52
Dissenting
Shareholder Rights
Under
applicable Canadian Law, Apollo Shareholders are not entitled to dissenters’
appraisal rights with respect to any matters to be acted upon at the Apollo
Meeting. Any
registered holder of Linear Shares who properly dissents from the Continuance
Resolution in accordance with the CBCA or the Arrangement Resolution in
accordance with the ABCA will be entitled, in the event the transaction becomes
effective, to be paid by Apollo in accordance with the terms of the Plan of
Arrangement the fair value of the Linear Shares held by the Dissenting
Shareholder determined as of the close of business on the day before the such
resolution is approved.
Accounting
Treatment
The
transaction will be accounted for as an acquisition of Linear by Apollo under
U.S. GAAP. As required under U.S. GAAP, we considered all pertinent facts and
circumstances in identifying Apollo as the acquiring entity for accounting
purposes. These facts and circumstances include the relative voting rights in
the combined company of former holders of Linear Shares and holders of Apollo
Shares prior to the combination, the composition of the board of directors of
the combined company and the terms of the exchange of Apollo Shares for Linear
Shares. Under the acquisition method of accounting, the assets and liabilities
of Linear will be recorded, as of the completion of the transaction, at their
respective fair values and added to those of Apollo. The reported financial
condition and results of operations of Apollo issued after completion of the
transaction will reflect Linear’s balances and results after completion of the
transaction but will not be restated retroactively to reflect the historical
financial position or results of operations of Linear. Following the completion
of the transaction, the earnings of the combined company will reflect
acquisition accounting adjustments.
Fees,
Costs and Expenses
Except as
otherwise noted herein, all fees, costs and expenses incurred in connection with
the Arrangement will be paid by the party incurring those expenses.
Interests
of Apollo Directors and Executive Officers in the Arranngement
You
should be aware that certain members of the management of Apollo and the Apollo
Board have interests in the transaction that may be different from, or in
addition to, the interests of Apollo Shareholders generally. These interests
include, but are not limited to, the following:
Compensation Payable to R. David
Russell, President and Chief Executive Officer of Apollo. Upon
the successful completion of the Arrangement, Mr. Russell shall resign from the
position of president and chief executive officer of Apollo. Apollo
and Linear have agreed that Mr. Russell shall receive all termination and other
amounts owing under his employment agreement as if he had been terminated
without cause, which amounts shall not exceed approximately $1.7 million in the
aggregate. See the “Interests of Insiders and Others in Material
Transactions – Related Party Transactions – Arrangement Agreement and
Related Transactions” below beginning on page ►.
Appointments to the Combined
Company’s Board of Directors. Immediately following the
Effective Time, three directors who currently serve on the Apollo Board,
currently expected to be Messrs. Kaiser, Peat, and Stott, will continue to serve
on the board of directors of the combined company. See the “Interests
of Insiders and Others in Material Transactions – Related Party
Transactions – Arrangement Agreement and Related Transactions” below
beginning on page ►.
53
THE
ARRANGEMENT MECHANICS
The
Arrangement
The
purpose of the Arrangement is to effect the acquisition of all of the issued and
outstanding securities of Linear by Apollo. If the Option Plan Amendment
Resolution and the Share Issuance Resolution are approved at the Apollo Meeting
and the Continuance Resolution and the Arrangement Resolution are approved at
the Linear Meeting, and all other conditions to the closing of the Arrangement
are satisfied or waived, the Arrangement will be implemented by way of a
Court-approved plan of arrangement under the ABCA.
Pursuant
to the terms of the Plan of Arrangement, the following events will occur and be
deemed to occur in the following order without further act or
formality:
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immediately
prior to the Effective Time, each Linear Share in respect of which Dissent
Procedures have been exercised shall be deemed to be transferred to
Apollo, following which Apollo shall pay to such Dissenting Shareholder
the fair value of such Dissenting Shareholder’s Linear
Shares;
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at
the Effective Time, Linear and Apollo Sub shall be amalgamated and
continue as one unlimited liability corporation under the ABCA (we refer
to this below as the Amalgamation);
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immediately
upon the Amalgamation, all Linear Shares held by Apollo Sub, if any, shall
be cancelled without any repayment of capital in respect
thereof;
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immediately
upon the Amalgamation, all Linear Shares (other than Linear Shares
acquired by Apollo in accordance with the Dissent Procedures) held by
Former Linear Shareholders (other than Dissenting Shareholders) shall be
exchanged with Apollo for Apollo Shares on the basis of 5.4742 Apollo
Shares for each Linear Share, and shall thereafter be cancelled without
any repayment of capital in respect
thereof;
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immediately
upon the Amalgamation, each Linear Share acquired by Apollo in accordance
with the Dissent Procedures shall be
cancelled;
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immediately
upon the Amalgamation, each Linear Option outstanding immediately prior to
the Effective Time shall be exchanged for an Apollo Replacement
Option;
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immediately
upon the Amalgamation, each Linear Warrant outstanding immediately prior
to the Effective Time shall be exchanged for an Apollo Replacement
Warrant;
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immediately
upon the Amalgamation, each Apollo Share held by Linear (including the
62,500,000 Apollo Shares acquired in the Private Placement) shall be
cancelled without the payment of any
consideration;
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immediately
upon the Amalgamation, each common share of Apollo Sub shall be exchanged
for one share of the resulting unlimited liability corporation following
the Amalgamation; and
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immediately
upon the Amalgamation, the resulting unlimited liability corporation
following the Amalgamation shall be a wholly owned subsidiary of Apollo
and there shall not be any issued or outstanding options, warrants or
other rights or privileges to acquire securities of such
corporation.
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Assuming
all outstanding Linear Shares are exchanged for Apollo Shares, no Linear
Shareholders exercise Dissent Rights and that none of the Linear Options or
Linear Warrants are exercised prior to the completion of the Arrangement, and
based upon the number of Linear Shares and Apollo Shares outstanding as of ►, 2010, immediately following
the completion of the Arrangement, existing Linear Shareholders will hold
approximately ►% of the
outstanding Apollo Shares (on an undiluted basis). Following consummation of the
Arrangement, Linear will amalgamate with Apollo Sub and the amalgamated
corporation will become a wholly owned subsidiary of Apollo in the manner
described above and Linear will cease to be publicly traded.
54
In
addition, if the Share Consolidation Resolution is approved and implemented by
the Board:
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all
of the issued and outstanding Apollo Shares (which, following the
consummation of the Arrangement, will include Apollo Shares held by
current holders of Apollo Shares and Former Linear Shareholders) will
automatically be consolidated on the basis of one post-consolidation
Apollo Share for every four Apollo Shares outstanding immediately prior to
the Share Consolidation.
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subject
to the terms and conditions of each optionholder’s option agreement with
Apollo and each warrantholder’s warrant certificate, the number of Apollo
Shares issuable upon the exercise of Apollo’s outstanding options and
warrants (which, following the consummation of the Arrangement, will
include Apollo Shares issuable upon the exercise of Apollo Replacement
Options and Apollo Replacement Warrants), the exercise price thereof and
the number of shares reserved for future issuances under Apollo’s Stock
Option Incentive Plan will be adjusted as appropriate to reflect the Share
Consolidation; and
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the
exercise price with respect to Apollo’s series A junior participating
preferred stock pursuant to our Shareholder Rights Plan (assuming the
Rights Plan Resolution is approved at the Apollo Meeting) and the number
of Apollo Shares issuable upon exercise thereof shall be proportionately
adjusted to reflect the Share
Consolidation.
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See “The
Share Consolidation Proposal” beginning on page ► for additional information
regarding the Share Consolidation.
Articles
of Arrangement
Upon the
Linear Shareholders approving the Continuance in accordance with the CBCA and
the Arrangement in accordance with the Interim Order, the Apollo Shareholders
approving the resolutions at the Apollo Meeting as required by the Arrangement
Agreement and applicable Laws, including the rules and policies of the TSX and
AMEX and Linear and Apollo Sub obtaining the Final Order, Linear shall proceed
with the Continuance and thereafter Linear and Apollo Sub shall jointly file the
Articles of Arrangement, in duplicate, with the Registrar together with such
other documents as may be required in order to effect the
Arrangement.
Fractional
Shares
No
fractional shares of Apollo common stock will be issued pursuant to the Plan of
Arrangement. In lieu of any fractional shares of Apollo common stock, any
fractional number of Apollo Shares issuable pursuant to the Plan of Arrangement
shall be rounded up or down to the nearest whole number.
Apollo
Replacement Warrants
On ►, 2010, there were
outstanding Linear Warrants exercisable to acquire a total of approximately
8,177,000 Linear Shares at prices between Cdn.$1.50 and Cdn.$3.00, with various
expiration dates to 2014.
Each
Linear Warrant that is outstanding as of the Effective Time will be deemed to be
exchanged for or converted into an Apollo Replacement Warrant exercisable to
acquire that number of Apollo Shares (rounded to the nearest whole number) that
is the product of (A) the number of Linear Shares that would be deliverable upon
exercise of such Linear Warrant immediately prior to the Effective Time
multiplied by (B) 5.4742. The exercise price per Apollo Share represented by any
such Apollo Replacement Warrant shall be an amount (rounded to the nearest cent)
equal to the quotient of: (A) the exercise price per Linear Share subject to
such Linear Warrant immediately prior to the Effective Time divided by (B)
5.4742.
The
Apollo Replacement Warrants will otherwise be subject to same terms and
conditions as were applicable to such Linear Warrant immediately prior to the
Effective Time.
55
In
accordance with the terms of the Arrangement Agreement, Apollo agreed to file
with the SEC a registration statement on Form S-3 or a supplement to its
currently effective shelf registration statement on Form S-3 to register the
Apollo Shares issuable upon exercise of the Apollo Replacement
Warrants. Apollo also agreed to use its commercially reasonable best
efforts to arrange for the Apollo Replacement Warrants issued upon exchange of
5,203,750 of the Linear Listed Warrants (which were listed on the TSX upon
execution of the Arrangement Agreement) to be listed on the TSX and to maintain
such listing until 5:00 p.m. (Halifax time) on November 19, 2014.
Apollo
Replacement Options
As of
►, 2010, there were
outstanding Linear Options which, when vested, would be exercisable to acquire a
total of approximately 2,770,000 Linear Shares at prices between Cdn.$1.05 and
Cdn.$3.00, with various expiration dates to 2014.
Each
Linear Option that has not been exercised prior to the Effective Time will be
exchanged for or converted into an Apollo
Replacement Option issued under the Apollo Stock Option Incentive Plan which
shall be exercisable to purchase a number of Apollo Shares (rounded to the
nearest whole number) equal to the product of (A) the number of Linear Shares
that would be deliverable upon exercise of the Linear Option multiplied by (B)
5.4742. The exercise price per Apollo Share represented by any such
Apollo Replacement Option shall be an amount (rounded to the nearest cent) equal
to the quotient of: (A) the exercise price per Linear Share subject to such
Linear Option immediately prior to the Effective Time divided by (B)
5.4742.
Current
employees of Linear holding Linear Options whose employment is terminated in
connection with the Arrangement shall have their Linear Options exchanged for
Apollo Replacement Options which shall expire on the earlier of: (i) the current
expiry date of the corresponding Linear Options and (ii) the first anniversary
of the date of completion of the Arrangement. Current employees of
Linear holding Linear Options whose employment is not terminated in connection
with the Arrangement shall receive Apollo Replacement Options with the same
expiration dates as those of their Linear Options. The remaining
conditions to and manner of exercising and all other terms and conditions of the
Apollo Replacement Options, including, without limitation, terms in respect of
the vesting periods for such options, will otherwise be materially unchanged
from those of the Linear Options. In order to effect the exchange of
Linear Options for Apollo Replacement Options, Apollo must make certain
amendments to its existing Stock Option Incentive Plan. For this
reason, Apollo is submitting the Option Plan Amendment Resolution for approval
by its shareholders at the Apollo Meeting. For more
information, see “The Stock Option Incentive Plan Amendment Proposal” on page
►.
In
accordance with the terms of the Arrangement Agreement, Apollo has agreed to
file with the SEC a registration statement on Form S-8 and/or a registration
statement on Form S-3 or a supplement to its currently effective shelf
registration statement on Form S-3 to register the Apollo Shares issuable upon
the exercise of the Apollo Replacement Options.
Court
Approval of the Arrangement and Completion of the Arrangement
An
arrangement under the ABCA requires Court approval. Prior to the mailing of this
Circular, Linear and Apollo Sub obtained the Interim Order, providing for the
calling and holding of the Linear Meeting and other procedural matters. A copy
of each of the Interim Order and the Notice of Application for Final Order are
attached to this Circular as Schedules H and I, respectively.
Subject
to the approval of the Continuance Resolution and the Arrangement Resolution by
Linear Shareholders at the Linear Meeting and the approval of the Share Issuance
Resolution and the Option Plan Amendment Resolution by Apollo Shareholders at
the Apollo Meeting, the hearing in respect of the Final Order is expected to
take place on or about, ►, 2010 at ► (Alberta Time) in the Court
at the Courts Centre, 601-5th Street
S.W., Calgary, Alberta.
In making
its determination, the Court will consider, among other things, the fairness and
reasonableness of the Arrangement. The Court may approve the Arrangement in any
manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
56
Stock
Exchange Listings
The
Linear Shares are listed on the TSX, trading under the symbol “LRR” and the
Linear Listed Warrants are listed on the TSX under the symbol “LRR.WT.”
Conditional approval of the TSX in respect of the Arrangement and related
transactions has been obtained by Linear. It is expected that following the
Effective Date the Linear Shares will be delisted from the TSX.
The
Apollo Shares are listed on the TSX under the symbol “APG” and on the AMEX under
the symbol “AGT”. The obligation of Apollo and Linear to complete the
Arrangement is subject to, among other matters, the TSX and AMEX approving the
listing of the Apollo Shares to be issued pursuant to the Arrangement,
including, without limitation, those Apollo Shares to be issued upon exercise of
the Apollo Replacement Options and Apollo Replacement Warrants. In
addition, pursuant to the Arrangement Agreement, Apollo is required to use
commercially reasonable best efforts to arrange for the Apollo Replacement
Warrants issued upon exchange of the Linear Listed Warrants to be listed on the
TSX and to maintain that listing until November 19, 2014. On ►, 2010,
the TSX conditionally approved the listing of the Apollo Shares to be issued
pursuant to the Arrangement and the Apollo Replacement Warrants issued upon
exchange of the Linear Listed Warrants pursuant to the Arrangement, subject to
Apollo Shareholder Approval being obtained and the satisfaction of customary
listing requirements and on ►, 2010, the AMEX approved the listing of the Apollo
Shares to be issued pursuant to the Arrangement, subject to Apollo Shareholder
Approval being obtained and the satisfaction of customary listing
requirements.
Ongoing
Reporting Obligations
Linear is
a reporting issuer in the provinces of Ontario, British Columbia, Manitoba,
Alberta, Québec and Nova Scotia. Upon completion of the Arrangement, Linear will
be a wholly owned subsidiary of Apollo. Accordingly, after the Effective Date,
Apollo will, on Linear’s behalf, apply to the applicable securities regulatory
authorities in Canada to cease to be a reporting issuer, so as to no longer be
subject to statutory financial and reporting requirements under Canadian
securities Laws.
Apollo is
a reporting issuer in the U.S. and the provinces of British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward
Island, Newfoundland and Labrador. Upon completion of the Arrangement, Apollo
will continue to be a reporting issuer in these provinces of Canada and in the
U.S. Apollo will also continue to be subject to the ongoing statutory
financial and other reporting requirements of applicable Canadian and U.S.
securities Laws.
57
THE
ARRANGEMENT AGREEMENT
Apollo
and Linear entered into the Arrangement Agreement on March 31, 2010. The
following is a summary of certain provisions of the Arrangement
Agreement. It does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the provisions of the Arrangement
Agreement, a copy of which is attached as Schedule F to this Circular and is
incorporated herein by reference. We urge you to read the Arrangement
Agreement carefully and in its entirety because it, and not this description or
this Circular, is the legal document that governs the Arrangement.
General;
The Arrangement
At the
Effective Time of the Arrangement, upon the terms and subject to the conditions
of the Arrangement Agreement and in accordance with the Plan of Arrangement,
Apollo will acquire all of the Linear Shares and Linear will amalgamate with
Apollo Sub and the amalgamated corporation will become a wholly owned subsidiary
of Apollo. The Arrangement Agreement and Plan of Arrangement provide
that Apollo will acquire (i) each outstanding Linear Share (other than those
held by Linear Shareholders who properly exercise their Dissent Rights) in
exchange for 5.4742 Apollo Shares, (ii) each outstanding Linear Warrant in
exchange for an Apollo Replacement Warrant and (iii) each outstanding Linear
Option in exchange for an Apollo Replacement Option. Linear
Shareholders who properly exercise their Dissent Rights will be entitled to be
paid the fair value of their Linear Shares.
The Plan
of Arrangement, which is deemed part of the Arrangement Agreement, provides
that, on the Effective Date, a series of events shall occur without any further
act or formality thereby giving effect to the transactions contemplated by the
Arrangement. See the discussion above under the heading “The
Arrangement Mechanics-The Arrangement” on page ► for a summary of these
events. See also the discussion above under the heading “The
Arrangement – When the Arrangement Becomes Effective” on page ►.
Treatment
of Linear Options
In
accordance with the terms of the Plan of Arrangement, each Linear Option
outstanding immediately prior to the Effective Time shall be exchanged for an
Apollo Replacement Option issued under the Apollo Stock Option Incentive Plan,
provided that the rights of the holders under the Apollo Replacement Options
shall not materially adversely differ from the rights of the holders of such
Linear Options outstanding immediately prior to the Effective
Time. Current employees of Linear holding Linear Options whose
employment is terminated in connection with the Arrangement shall have their
Linear Options exchanged for Apollo Replacement Options which shall expire on
the earlier of: (i) the current expiry date of the corresponding Linear Options;
and (ii) the first anniversary of the date of completion of the
Arrangement.
The
number of Apollo Shares (rounded to the nearest whole number) issuable under an
Apollo Replacement Option shall be equal to the product of: (A) the number of
Linear Shares subject to such Linear Option immediately prior to the Effective
Time and (B) 5.4742. The exercise price per Apollo Share subject to any such
Apollo Replacement Option shall be an amount (rounded to the nearest cent) equal
to the quotient of: (A) the exercise price per Linear Share subject to such
Linear Option immediately prior to the Effective Time divided by (B) 5.4742. The
obligations of Linear under the Linear Options as so exchanged shall be assumed
by Apollo.
Treatment
of Linear Warrants
In
accordance with the terms of the Plan of Arrangement, each Linear Warrant
outstanding immediately prior to the Effective Time shall be exchanged for an
Apollo Replacement Warrant which shall be exercisable to acquire, on the same
terms and conditions as were applicable to such Linear Warrant immediately prior
to the Effective Time, the number of Apollo Shares (rounded to the nearest whole
number) equal to the product of: (A) the number of Linear Shares subject to such
Linear Warrant immediately prior to the Effective Time; and (B)
5.4742.
The
exercise price per Apollo Share subject to any such Apollo Replacement Warrants
shall be an amount (rounded to the nearest cent) equal to the quotient of: (A)
the exercise price per Linear Share subject to such Linear Warrant immediately
prior to the Effective Time divided by (B) 5.4742. The obligations of Linear
under the Linear Warrants as so exchanged shall be assumed by Apollo and Apollo
agreed to use commercially reasonable best efforts to arrange for the Apollo
Replacement Warrants issued upon exchange of the Linear Listed Warrants to be
listed on the TSX and to maintain such listing until 5:00 p.m. (Halifax time) on
November 19, 2014.
58
Treatment
of Apollo Options
In
accordance with the terms of the Arrangement Agreement, immediately prior to the
Effective Date (a) the terms of the Apollo Options held by the Resigning
Directors (other than R. David Russell) shall be amended to provide that such
Apollo Options shall expire on the earlier of: (i) the current expiry date of
such Apollo Options; and (ii) the first anniversary of the Effective Date
regardless of whether such Resigning Directors are “Eligible Persons” under the
terms of the Apollo Stock Option Incentive Plan; and (b) an aggregate of
2,231,000 Apollo Options previously granted to R. David Russell and outstanding
on March 31, 2010 will expire on the first anniversary of the Effective
Date.
Representations
and Warranties
Pursuant
to the Arrangement Agreement, Linear made customary representations and
warranties to Apollo and Apollo Sub. The Arrangement Agreement also
contains customary representations and warranties made by Apollo and Apollo Sub
to Linear. These representations and warranties include, among other
things, representations and warranties made by each of Linear on the one hand
and Apollo and Apollo Sub on the other hand as to:
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corporate
organization and valid existence, power to conduct business, qualification
and good standing of the respective entities and their
subsidiaries;
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ownership
of subsidiaries and other
investments;
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encumbrances
on the capital stock of their
subsidiaries;
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licenses,
registrations, qualifications, permits and consents necessary to conduct
their business;
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properties
and mining rights;
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technical
reports in respect of their
properties;
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compliance
with disclosure obligations of the TSX, AMEX, Canadian securities
regulators, the U.S. Securities Act and the U.S. Exchange Act, as the case
may be, and the applicable rules and regulations promulgated
thereunder;
|
|
|
·
|
compliance
with other applicable Laws and
regulations;
|
|
|
·
|
accuracy
and completeness of financial statements and other information provided to
the respective entities;
|
|
|
·
|
tax
matters;
|
|
|
·
|
matters
concerning their auditors;
|
|
|
·
|
matters
affecting the voting or control of the securities of the respective
entities and their subsidiaries;
|
|
|
·
|
interests
of officers, directors and affiliates in the
Arrangement;
|
|
|
·
|
litigation
and government proceedings;
|
|
|
·
|
material
contracts;
|
|
|
·
|
intellectual
property;
|
|
|
·
|
capitalization;
|
|
|
·
|
indebtedness;
|
|
|
·
|
leases;
|
|
|
·
|
insurance;
|
|
|
·
|
employment
matters;
|
59
|
|
·
|
maintenance
of internal accounting and disclosure
controls;
|
|
|
·
|
environmental
matters;
|
|
|
·
|
brokers’
fees; and
|
|
|
·
|
compliance
with covenants contained in the Letter of Intent, dated March 9, 2010,
between Apollo and Linear, as
amended.
|
Many of
the representations and warranties are qualified by the concept of Material
Adverse Effect. The representations and warranties contained in the
Arrangement Agreement do not survive the Effective Time of the Arrangement and
will expire on the Effective Date.
Mutual
Covenants
Under the
terms of the Arrangement Agreement, Linear on the one hand and Apollo and Apollo
Sub on the other hand made a number of commitments in connection with the
Arrangement including, but not limited to, the following
undertakings:
|
|
·
|
file,
proceed with and diligently prosecute an application to the Court for the
Interim Order and carry out the terms of the
same;
|
|
|
·
|
prepare
and file a proxy circular in respect of the
Arrangement;
|
|
|
·
|
take
all commercially reasonable lawful action to solicit shareholders to vote
in favour of the Arrangement including, without limitation, retaining a
proxy solicitation agent;
|
|
|
·
|
recommend
to their respective Shareholders that they vote in favour of the
Arrangement and the other transactions contemplated
thereby;
|
|
|
·
|
use
reasonable efforts to deliver or cause to be delivered all certificates
and legal, tax and other opinions necessary to support the disclosure
contained or to be contained in their respective proxy
circulars;
|
|
|
·
|
not
adjourn, postpone or cancel their respective shareholder meetings at which
the Arrangement is to be considered except under limited
circumstances;
|
|
|
·
|
file,
proceed with and diligently prosecute an application for the Final Order
and carry out the terms of the
same;
|
|
|
·
|
conduct
business only in the usual and ordinary course of business and consistent
with past practice, and use all reasonable commercial efforts to maintain
and preserve their respective assets and advantageous business
relationships;
|
|
|
·
|
refrain
from declaring, setting aside or paying any dividend or making any other
distribution or payment in respect of their respective outstanding
securities;
|
|
|
·
|
refrain
from issuing or agreeing to issue any shares or securities convertible
into or exchangeable or exercisable for, or otherwise evidencing a right
to acquire, shares, other than the issuance of shares pursuant to the
exercise of currently outstanding rights to acquire shares or to employees
hired after March 31, 2010 in a manner consistent with past
practice;
|
|
|
·
|
refrain
from redeeming, purchasing or otherwise acquiring outstanding shares or
other securities (other than redemptions required pursuant to their
respective constating documents) or splitting, combining, or reclassifying
any securities;
|
60
|
|
·
|
refrain
from adopting a plan of liquidation or resolutions providing for
liquidation, dissolution, merger, consolidation or
reorganization;
|
|
|
·
|
refrain
from selling, pledging, disposing of or encumbering any assets other than
in the ordinary course of business for consideration in excess of $500,000
individually or $1,000,000 in the
aggregate;
|
|
|
·
|
refrain
from expending or committing to expend more than $1,000,000 individually
or $2,000,000 in the aggregate;
|
|
|
·
|
refrain
from expending or committing to expend any amounts with respect to any
operating expenses other than in the ordinary course of business or
pursuant to the Arrangement;
|
|
|
·
|
refrain
from acquiring (by merger, amalgamation, consolidation or acquisition of
shares or assets) any corporation, partnership or other business
organization or division thereof, or make any investment therein either by
purchase of shares or securities, contributions of capital or property
transfer with an acquisition cost in excess of $1,000,000 in the
aggregate;
|
|
|
·
|
refrain
from acquiring any assets with an acquisition cost in excess of $1,000,000
in the aggregate;
|
|
|
·
|
refrain
from incurring any indebtedness for borrowed money in excess of existing
credit facilities, or any other material liability or obligation or issue
any debt securities or assume, guarantee, endorse or otherwise become
responsible for, the obligations of any other individual or entity, or
make any loans or advances, other than in respect of fees payable to
legal, financial and other advisors in the ordinary course of business or
in respect of the Arrangement;
|
|
|
·
|
refrain
from authorizing, recommending or proposing any release or relinquishment
of any material contract right;
|
|
|
·
|
refrain
from waiving, abandoning, releasing, granting or transferring any material
assets or rights of value or modify or change in any material respect any
existing material license, lease, contract or other material
document;
|
|
|
·
|
refrain
from entering into or terminating any hedges, swaps or other financial
instruments or like transactions;
|
|
|
·
|
refrain
from making any payment to any employee, officer or director outside of
its ordinary and usual compensation for services provided, except to the
extent that any such entitlement to payment to a former employee or
officer has accrued prior to March 31, 2010 and has been disclosed to, and
approved by, the other party;
|
|
|
·
|
refrain
from granting any officer, director or employee an increase in
compensation in any form;
|
|
|
·
|
refrain
from taking any action with respect to the amendment or grant of any
severance or termination pay policies or arrangement for any directors,
officers or employees;
|
|
|
·
|
refrain
from amending any stock option plan or trust unit incentive plan or the
terms of any outstanding options or rights
thereunder;
|
|
|
·
|
refrain
from advancing any loan to any officer, director or any other party not at
arm’s length, other than as may be agreed to by the
parties;
|
|
|
·
|
refrain
from adopting or amending or making any contribution to any bonus,
employee benefit plan, profit sharing, share or deferred compensation,
insurance, incentive compensation, other compensation or other similar
plan, agreement, share or incentive or purchase plan, fund or arrangement
for the benefit of employees, except as is necessary to comply with the
law or with respect to existing provisions of any such plans, programs,
arrangement or agreements;
|
61
|
|
·
|
refrain
from taking any action, permitting any action to be taken or not taken,
inconsistent with the Arrangement Agreement, which might directly or
indirectly interfere or affect the consummation of the Arrangement or that
could reasonably be expected to render any representation or warranty made
by such party untrue or inaccurate in any material respect at any time
prior to the Effective Time if then made, or which would or could have a
Material Adverse Effect on such
party;
|
|
|
·
|
except
in limited circumstances, refrain from making any changes to the existing
accounting practices or making any material tax election inconsistent with
past practice;
|
|
|
·
|
refrain
from entering into or modifying any employment, consulting, severance,
collective bargaining or similar agreement, policy or arrangement with, or
grant any bonus, salary increase, option to purchase shares, pension or
supplemental pension benefit, profit sharing, retirement allowance,
deferred compensation, incentive compensation, severance, change of
control or termination pay to, or make any loan to, any officer, director,
employee or consultant;
|
|
|
·
|
refrain
from settling or compromising any claim brought by any present, former or
purported holder of securities in connection with the transactions
contemplated by the Arrangement Agreement prior to the Effective Time
without the prior written consent of the other
party;
|
|
|
·
|
refrain
from renewing or modifying in any respect any material contract,
agreement, lease, commitment or arrangement, except insofar as may be
necessary to permit or provide for the completion of the
Arrangement;
|
|
|
·
|
use
all commercially reasonable best efforts to satisfy, or cause to be
satisfied, all conditions precedent to the respective party’s obligations
to the extent that the same is within its control and to take, or cause to
be taken, all other action and to do, or cause to be done, all other
things necessary, proper or advisable under all applicable Laws to
complete the transactions contemplated by the Arrangement Agreement,
including using its commercially reasonable best efforts
to:
|
|
|
·
|
obtain
the approval of shareholders in accordance with the provisions of the
CBCA, the YBCA, the Interim Order, and the requirements of any applicable
regulatory authority, as
applicable;
|
|
|
·
|
obtain
all other consents, approvals and authorizations as are required to be
obtained under any applicable Law or from any Governmental Authority which
would, if not obtained, materially impede the completion of the
transactions contemplated by the Arrangement Agreement or have a Material
Adverse Effect;
|
|
|
·
|
effect
all necessary registrations, filings and submissions of information
requested by Governmental Authorities required to be effected by it in
connection with the transactions contemplated by the Arrangement Agreement
and participate and appear in any proceedings of any party thereto before
any Governmental Authority;
|
|
|
·
|
oppose,
lift or rescind any injunction or restraining order or other order or
action challenging or affecting the Arrangement Agreement;
and
|
|
|
·
|
fulfill
all conditions and satisfy all provisions of the Arrangement Agreement and
the Plan of Arrangement required to be fulfilled or
satisfied;
|
|
|
·
|
make,
or cooperate as necessary in the making of, all necessary filings and
applications under all applicable Laws required in connection with the
transactions contemplated by the Arrangement Agreement and take all
reasonable action necessary to be in compliance with such
Laws;
|
62
|
|
·
|
use
its commercially reasonable best efforts to conduct their affairs and to
cause their subsidiaries to conduct their affairs so that all of the
representations and warranties of such party contained in the Arrangement
Agreement shall be true and correct on and as of the Effective Date as if
made on and as of such date;
|
|
|
·
|
continue
to make available and cause to be made available to the other party, all
documents, agreements, corporate records and minute books as may be
necessary to enable such party to effect a thorough examination of
disclosing party and the business, properties and financial status
thereof;
|
|
|
·
|
deliver
title opinions in respect of their respective material mineral properties;
and
|
|
|
·
|
execute
and deliver, or cause to be executed and delivered, at the closing of the
transactions contemplated by the Arrangement Agreement such customary
agreements, certificates, resolutions, opinions and other closing
documents as may be required by the other
party.
|
Mutual
Conditions to Closing
Each of
Apollo’s and Linear’s obligations to complete the transactions contemplated by
the Arrangement Agreement are subject to fulfillment or waiver of the following
conditions on or before the Effective Time:
|
|
·
|
the
Interim Order and the Final Order shall each have been obtained in form
and substance satisfactory to the parties, acting reasonably, and shall
not have been set aside or modified in a manner unacceptable to the
parties, acting reasonably, on appeal or
otherwise;
|
|
|
·
|
the
Continuance Resolution and the Arrangement Resolution shall have been
approved by the Linear Shareholders at the Linear Meeting in accordance
with the provisions of the CBCA and the ABCA (as applicable), the Interim
Order and the requirements of any applicable regulatory
authority;
|
|
|
·
|
the
Share Issuance Resolution and the Option Plan Amendment Resolution shall
have been approved by the Apollo Shareholders at the Apollo
Meeting;
|
|
|
·
|
the
Articles of Arrangement shall be in form and substance satisfactory to the
parties;
|
|
|
·
|
the
TSX and the AMEX shall have approved the listing of the Apollo Shares to
be issued in connection with the Arrangement, including, without
limitation, those Apollo Shares to be issued upon exercise of the Apollo
Replacement Options and Apollo Replacement Warrants, subject only to
customary conditions;
|
|
|
·
|
there
shall not be in force any Law and no Governmental Authority shall have
issued any order or decree restraining or prohibiting the completion of
the transactions contemplated by the Arrangement
Agreement;
|
|
|
·
|
the
Apollo Shares, Apollo Replacement Options and Apollo Replacement Warrants
to be issued in the United States pursuant to the Arrangement are exempt
from registration requirements under Section 3(a)(10) of the U.S.
Securities Act and the Apollo Shares, Apollo Replacement Options and
Apollo Replacement Warrants to be distributed in the United States
pursuant to the Arrangement are not subject to resale restrictions in the
United States under the U.S. Securities Act (other than as may be
prescribed by Rule 144 and Rule 145 under the U.S. Securities
Act);
|
|
|
·
|
the
registration statement or registration statements of Apollo as filed with
the SEC regarding the issuance of Apollo Shares upon exercise of the
Apollo Replacement Warrants and Apollo Replacement Options shall have been
declared effective by the SEC; and
|
|
|
·
|
the
Arrangement Agreement shall not have been
terminated.
|
63
Conditions
in Favour of Linear
The
obligations of Linear to complete the transactions contemplated by the
Arrangement Agreement are subject to the fulfillment of each of the following
conditions on or before the Effective Date or such other time as specified
below:
|
|
·
|
the
representations and warranties made by Apollo and Apollo Sub in the
Arrangement Agreement shall be true and correct in all material respects
as of the Effective Date as if made on and as of such date (with certain
exceptions), and each of Apollo and Apollo Sub shall have provided to
Linear a certificate of two senior officers certifying such accuracy on
the Effective Date;
|
|
|
·
|
Apollo
and Apollo Sub shall have complied in all material respects with their
covenants and obligations in the Arrangement Agreement and each of Apollo
and Apollo Sub shall have provided to Linear a certificate of two senior
officers certifying compliance with such covenants on the Effective
Date;
|
|
|
·
|
no
Material Adverse Change shall have occurred in respect of Apollo and its
subsidiaries, taken as a whole, from and after March 31, 2010 and prior to
the Effective Date, and no Material Adverse Change in respect of Apollo
and its subsidiaries, taken as a whole, shall have occurred prior to March
31, 2010 or shall occur from and after March 31, 2010 and prior to the
Effective Date from that reflected in the audited consolidated financial
statements of Apollo as at and for the fiscal year ending December 31,
2009 (other than a Material Adverse Change resulting from certain market
conditions);
|
|
|
·
|
no
act, action, suit, proceeding, objection or opposition shall have been
threatened or taken before or by any Governmental Authority by any elected
or appointed public official or private person in Canada or elsewhere,
whether or not having the force of law and no Law shall have been
proposed, enacted, promulgated, amended or applied, in either case has had
or, if the Arrangement was consummated, would result in a Material Adverse
Change in respect of Apollo or would have a Material Adverse Effect on the
ability of the parties to complete the
Arrangement;
|
|
|
·
|
all
consents, waivers, permits, exemptions, orders and approvals of, and any
registrations and filings with, any Governmental Authority, and all
applicable statutory or regulatory waiting periods shall have expired or
been terminated and the expiry of any waiting periods, in connection with,
or required to permit, the completion of the Arrangement, and all third
person and other consents, waivers, permits, exemptions, orders,
approvals, agreements and amendments and modifications to agreements,
indentures or arrangements, the failure of which to obtain or the
non-expiry of which would, or could reasonably be expected to have, a
Material Adverse Effect on Apollo or Apollo Sub or materially impede the
completion of the Arrangement, shall have been obtained or received on
terms that are reasonably satisfactory to
Linear;
|
|
|
·
|
all
directors and officers of Apollo shall have entered into a support
agreement with Linear and none of such persons shall have breached, in any
material respect, any of the representations, warranties and covenants
thereof;
|
|
|
·
|
the
consent to the Arrangement and lock-up and support agreements entered into
by the Project Lenders shall be in full force and effect and, other than
as otherwise may be agreed to by Linear, unamended as of the Effective
Date;
|
|
|
·
|
the
directors of each of Apollo and Apollo Sub shall have adopted all
necessary resolutions and all other necessary corporate action shall have
been taken by each of Apollo and Apollo Sub to permit the consummation of
the Arrangement;
|
|
|
·
|
the
new Apollo Board shall be constituted in accordance with the Arrangement
Agreement;
|
64
|
|
·
|
the
directors of Apollo shall not have withdrawn or modified in a manner
adverse to Linear their approval or recommendation to Apollo Shareholders
of the transaction contemplated by the Arrangement
Agreement;
|
|
|
·
|
R.
David Russell shall have tendered his resignation as president and chief
executive officer of Apollo and all amounts owing to R. David Russell
pursuant to his employment agreement, to a maximum of $1,700,000, shall
have been paid (or arrangements satisfactory to Linear shall have been
made to pay such amounts following the Effective Date) to him, and all
steps, actions and proceedings necessary to appoint Wade Dawe as president
and chief executive officer of Apollo shall have been taken;
and
|
|
|
·
|
Apollo
shall have provided to Linear evidence of the director and liability
insurance required under the Arrangement
Agreement.
|
Conditions
in Favour of Apollo and Apollo Sub
The
obligations of Apollo to complete the transactions contemplated by the
Arrangement Agreement are subject to the fulfillment of each of the following
conditions on or before the Effective Date or such other time as specified
below:
|
|
·
|
the
representations and warranties made by Linear in the Arrangement Agreement
shall be true and correct in all material respects as of the Effective
Date as if made on and as of such date (with certain exceptions), and
Linear shall have provided to Apollo a certificate of two senior officers
certifying such accuracy on the Effective
Date;
|
|
|
·
|
Linear
shall have complied in all material respects with its covenants and other
obligations in the Arrangement Agreement and Linear shall have provided to
Apollo a certificate of two senior officers certifying compliance with
such covenants on the Effective
Date;
|
|
|
·
|
no
Material Adverse Change shall have occurred in respect of Linear and its
subsidiaries, taken as a whole, from and after March 31, 2010 and prior to
the Effective Date, and no Material Adverse Change in respect of Linear
and its subsidiaries, taken as a whole, shall have occurred prior to March
31, 2010 or shall occur from and after March 31, 2010 and prior to the
Effective Date from that reflected in the audited consolidated financial
statements of Linear as at and for the fiscal year ending March 31, 2009
or in the unaudited financial statements of Linear as at and for the nine
months ending December 31, 2009 (subject to certain exceptions more
particularly described in the Arrangement
Agreement);
|
|
|
·
|
no
act, action, suit, proceeding, objection or opposition shall have been
threatened or taken before or by any Governmental Authority by any elected
or appointed public official or private person in Canada or elsewhere,
whether or not having the force of law and no Law shall have been
proposed, enacted, promulgated, amended or applied, in either case has had
or, if the Arrangement was consummated, would result in a Material Adverse
Change in respect of Linear or would have a Material Adverse Effect on the
ability of the parties to complete the
Arrangement;
|
|
|
·
|
all
consents, waivers, permits, exemptions, orders and approvals of, and any
registrations and filings with, any Governmental Authority, and all
applicable statutory or regulatory waiting periods shall have expired or
been terminated and the expiry of any waiting periods, in connection with,
or required to permit, the completion of the Arrangement, and all third
person and other consents, waivers, permits, exemptions, orders,
approvals, agreements and amendments and modifications to agreements,
indentures or arrangements, the failure of which to obtain or the
non-expiry of which would, or could reasonably be expected to have, a
Material Adverse Effect on Linear or materially impede the completion of
the Arrangement, shall have been obtained or received on terms that are
reasonably satisfactory to Apollo and Apollo
Sub;
|
65
|
|
·
|
if
Dissent Rights are granted to Linear Shareholders by the Court in
connection with the Arrangement, holders of not more than 5% of the issued
and outstanding Linear Shares shall have exercised rights of dissent in
relation to the Arrangement;
|
|
|
·
|
the
consent to the Arrangement and lock-up and support agreements entered into
by the Project Lenders shall be in full force and effect and, other than
as otherwise may be agreed to by Linear, unamended as of the Effective
Date;
|
|
|
·
|
all
directors and officers of Linear shall have entered into a support
agreement and none of such persons shall have breached, in any material
respect, any of the representations, warranties and covenants thereof;
and
|
|
|
·
|
the
directors of Linear shall have adopted all necessary resolutions and all
other necessary corporate action shall have been taken by Linear and its
subsidiaries to permit the consummation of the Arrangement and the
directors of Linear shall not have withdrawn or modified in a manner
adverse to Apollo their approval or recommendation to Linear Shareholders
of the transaction contemplated by the Arrangement
Agreement.
|
No
Solicitation Covenant
Each of
Linear and Apollo has agreed that, except as otherwise permitted by the
Arrangement Agreement, it will not, directly or indirectly, through any
Representative:
|
|
·
|
solicit,
facilitate, initiate or encourage any Acquisition
Proposal;
|
|
|
·
|
enter
into or participate in any discussions or negotiations regarding an
Acquisition Proposal, or furnish to any other person any information with
respect to its businesses, properties, operations, prospects or conditions
(financial or otherwise) in connection with an Acquisition Proposal or
otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage any effort or attempt of any other person to do or
seek to do any of the foregoing;
|
|
|
·
|
waive,
or otherwise forbear in the enforcement of, or enter into or participate
in any discussions, negotiations or agreements to waive or otherwise
forbear in respect of, any rights or other benefits under confidential
information agreements, including, without limitation, any “ standstill
provisions” thereunder;
or
|
|
|
·
|
accept,
recommend, approve or enter into an agreement to implement an Acquisition
Proposal.
|
The
Arrangement Agreement defines an “Acquisition Proposal” to mean with respect to
any party, any inquiry or the making of any proposal to such party or its
shareholders, from any person which constitutes, or may reasonably be expected
to lead to (in either case whether in one transaction or a series of
transactions): (i) an acquisition from such party or its shareholders, of any
securities of such party or its subsidiaries; (ii) any acquisition of a
substantial amount of assets of such party or its subsidiaries; (iii) an
amalgamation, arrangement, merger, or consolidation involving such party or its
subsidiaries; or (iv) any take-over bid, issuer bid, exchange offer,
recapitalization, liquidation, dissolution, reorganization into a royalty trust
or income fund or similar transaction involving such party or its subsidiaries
or any other transaction, the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or delay the transactions
contemplated by the Arrangement Agreement or the Arrangement or which would or
could reasonably be expected to materially reduce the benefits to the other
party under the Arrangement Agreement or the Arrangement.
66
Pursuant
to the Arrangement Agreement, Linear and Apollo reaffirmed their respective
non-solicitation obligations under the Binding LOI, dated March 9, 2010, between
Apollo and Linear, as amended. Specifically, pursuant to the terms of
the Binding LOI, the parties mutually agreed to: (a) immediately cease, and
instruct its representatives to immediately cease, and cause to be terminated
any existing discussions and negotiations with respect to any Acquisition
Proposal and immediately request the return or destruction of all information
provided to any third parties who have entered into a confidentiality agreement
with such party relating to an Acquisition Proposal; and (b) refrain from
authorizing or permitting, directly or indirectly, any of its representatives
to: (i) solicit, facilitate, initiate or encourage any Acquisition Proposal;
(ii) enter into or participate in any discussions or negotiations regarding an
Acquisition Proposal, or furnish to any other person any information with
respect to its businesses, properties, operations, prospects or conditions
(financial or otherwise) in connection with an Acquisition Proposal or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage
any effort or attempt of any other person to do or seek to do any of the
foregoing; (iii) waive, or otherwise forbear in the enforcement of, or enter
into or participate in any discussions, negotiations or agreements to waive or
otherwise forbear in respect of, any rights or other benefits under confidential
information agreements, including, without limitation, any “standstill
provisions” thereunder; or (iv) accept, recommend, approve or enter into an
agreement to implement an Acquisition Proposal.
Exceptions
to Non-Solicitation Covenant; Ability to Accept Superior Proposal
Each of
Linear and Apollo agreed that, notwithstanding the non-solicitation obligations
of the parties described above, each of Apollo and Linear and its officers,
directors and advisers may:
|
|
·
|
enter
into or participate in any discussions or negotiations with a third party
who seeks, on an unsolicited basis, to initiate such discussions or
negotiations and, subject to execution of a confidentiality and standstill
agreement, may furnish to such third party information concerning such
party and its business, properties and assets, in each case if, and only
to the extent that such discussion and negotiations involve a Superior
Proposal (as defined below);
|
|
|
·
|
accept,
recommend, approve or enter into an agreement to implement a Superior
Proposal from a third party, but only if, prior to such acceptance,
recommendation, approval or implementation, the board of directors shall
have concluded in good faith, after considering all proposals to adjust
the terms and conditions of the Arrangement Agreement and after receiving
the advice of outside counsel, that the taking of such action is necessary
for the board of directors in discharge of its fiduciary duties under
applicable Laws;
|
|
|
·
|
Linear
or Apollo, as the case may be, has delivered written notice to the other
party of the determination of the Linear Board or the Apollo Board, as the
case may be, that the Acquisition Proposal is a Superior Proposal and of
the intention of the Linear Board or the Apollo Board, as the case may be,
to approve or recommend such Superior Proposal and/or of Linear or Apollo
to enter into an agreement with respect to such Superior
Proposal;
|
|
|
·
|
at
least 72 hours have elapsed since the date Apollo or Linear, as the case
may be, received the notice referred to in the immediately preceding
bullet point and, if the other party has offered to amend the provisions
of the Arrangement and the Arrangement Agreement, the Linear Board or the
Apollo Board, as the case may be, shall have determined that such
Acquisition Proposal continues to be a Superior Proposal compared to the
proposed amended provisions of the Arrangement and the Arrangement
Agreement by Apollo or Linear, as the case may be;
and
|
|
|
·
|
Linear
or Apollo terminates the Arrangement Agreement in accordance with its
terms.
|
The
Arrangement Agreement defines a “Superior Proposal” as a written Acquisition
Proposal made after March 31, 2010 in respect of which the board of directors of
the party receiving the proposal (the “Receiving Party”) determines
in good faith:
|
|
·
|
that
funds or other consideration necessary for the Acquisition Proposal are
available;
|
|
|
·
|
(after
consultation with its financial advisor) would, if consummated in
accordance with its terms, result in a transaction financially superior
for securityholders of the Receiving Party than the transaction
contemplated by the Arrangement
Agreement;
|
67
|
|
·
|
after
receiving the advice of outside counsel as reflected in minutes of the
board of directors of the Receiving Party, that the taking of such action
is necessary for the board of directors in discharge of its fiduciary
duties under applicable Laws;
|
|
|
·
|
that
is reasonably capable of being completed without undue delay, taking into
account all legal, financial, regulatory and other aspects of such
proposal and the party making such
proposal;
|
|
|
·
|
which
is not subject to a due diligence and/or access condition which would
allow access to the books, records, personnel or properties of the
Receiving Party or its respective officers and employees beyond 5:00 p.m.
(Toronto time) on the fifth Business Day after which access is afforded to
the third party making the Acquisition
Proposal;
|
|
|
·
|
that
the board of directors of the Receiving Party has determined to recommend
to the shareholders of such party;
and
|
|
|
·
|
that
was not solicited in contravention of the Arrangement
Agreement.
|
Right
to Match
Each of
Linear and Apollo has agreed that, during the 72 hour period referred to above
in the preceding section, Apollo or Linear, as the case may be, will have the
opportunity to offer to amend the provisions of the Arrangement and the
Arrangement Agreement. Linear or Apollo, as the case may be, has agreed that it
will negotiate in good faith with the other party to enable the other party to
make such adjustments to the provisions of the Arrangement and the Arrangement
Agreement as the other party deems appropriate and as would enable it to proceed
with the Arrangement on such adjusted provisions. The Linear Board or the Apollo
Board, as the case may be, will review any such offers to amend the terms of the
Arrangement and the Arrangement Agreement in order to determine, in good faith
and in the exercise of its fiduciary duties, whether such offer would result in
the relevant Acquisition Proposal ceasing to be a Superior Proposal compared to
the amendment to the provisions of the Arrangement and the Arrangement Agreement
offered by Apollo or Linear, as the case may be.
Termination
of the Arrangement Agreement
The
Arrangement Agreement may be terminated at any time prior to the Effective Date
by either of Apollo or Linear if:
|
|
·
|
the
parties so designate by mutual written
consent;
|
|
|
·
|
if
either party is in breach of its obligations or covenants regarding
non-solicitation; or
|
|
|
·
|
if
the Arrangement is not completed by the Completion
Deadline.
|
The
Arrangement Agreement may be terminated at any time prior to the Effective Date
by Apollo if:
|
|
·
|
if
any the conditions to Apollo’s obligation to close the transaction are not
satisfied, and such condition is incapable of being satisfied, by the
Completion Deadline;
|
|
|
·
|
if
there is an Acquisition Proposal in respect of Linear and (A) the
directors of Linear shall have withdrawn or modified in a manner adverse
to Apollo and Apollo Sub their approval or recommendation of the
Arrangement or shall have failed, after being requested by Apollo in
writing, to reaffirm their approval or recommendation of the Arrangement
and the transactions contemplated in the Arrangement Agreement as promptly
as possible after receipt of such written request from Apollo; or (B) such
Acquisition Proposal constitutes a Superior Proposal and Linear shall have
accepted, recommended, approved or entered into an agreement to implement
such Superior Proposal; or
|
68
|
|
·
|
in
the event that, prior to the Apollo Meeting, the Apollo Board authorizes
Apollo, subject to complying with the terms of the Arrangement Agreement,
to enter into a legally binding agreement, undertaking or arrangement with
respect to a Superior Proposal received at any time after March 31, 2010
and prior to the Apollo Meeting, provided that Apollo pays the required
break fee (described below).
|
The
Arrangement Agreement may be terminated at any time prior to the Effective Date
by Linear if:
|
|
·
|
if
any the conditions to Linear’s obligation to close the transaction are not
satisfied, and such condition is incapable of being satisfied, by the
Completion Deadline;
|
|
|
·
|
if
there is an Acquisition Proposal in respect of Apollo and (A) the
directors of Apollo shall have withdrawn or modified in a manner adverse
to Linear their approval or recommendation of the Arrangement or shall
have failed, after being requested by Linear in writing, to reaffirm their
approval or recommendation of the Arrangement and the transactions
contemplated in the Arrangement Agreement as promptly as possible after
receipt of such written request from Linear; or (B) such Acquisition
Proposal constitutes a Superior Proposal and Apollo shall have accepted,
recommended, approved or entered into an agreement to implement such
Superior Proposal; or
|
|
|
·
|
in
the event that, prior to the Linear Meeting, the Linear Board authorizes
Linear, subject to complying with the terms of the Arrangement Agreement,
to enter into a legally binding agreement, undertaking or arrangement with
respect to a Superior Proposal received at any time after March 31, 2010
and prior to the Linear Meeting, provided that Linear pays the required
break fee (described below).
|
Break
Fee
In the
event that the Arrangement Agreement is terminated for any of the following
reasons, Apollo will pay to Linear a break fee in the amount of
Cdn.$4,000,000:
|
|
·
|
as
a result of the Apollo Shareholders failing to approve the Arrangement at
the Apollo Meeting;
|
|
|
·
|
if
an Acquisition Proposal or Superior Proposal (as applicable) in respect of
Apollo is consummated; or
|
|
|
·
|
in
the event that, prior to the Apollo Meeting, the Apollo Board authorizes
Apollo, subject to complying with the terms of the Arrangement Agreement,
to enter into a legally binding agreement, undertaking or arrangement with
respect to a Superior Proposal received at any time after March 31, 2010
and prior to the Apollo Meeting.
|
In the
event that the Arrangement Agreement is terminated for any of the following
reasons, Linear will pay to Apollo a break fee in the amount of
Cdn.$4,000,000:
|
|
·
|
as
a result of the Linear Shareholders failing to approve the Continuance or
the Arrangement at the Linear
Meeting;
|
|
|
·
|
if
an Acquisition Proposal or Superior Proposal (as applicable) in respect of
Linear is consummated; or
|
|
|
·
|
in
the event that, prior to the Linear Meeting, the Linear Board authorizes
Linear, subject to complying with the terms of the Arrangement Agreement,
to enter into a legally binding agreement, undertaking or arrangement with
respect to a Superior Proposal received at any time after March 31, 2010
and prior to the Linear Meeting.
|
Amendment
The
Arrangement Agreement may, at any time and from time to time before or after the
holding of the Linear Meeting or the Apollo Meeting, be amended by mutual
written agreement of Linear and Apollo without, subject to applicable Law,
further notice to or authorization on the part of the Linear Shareholders or the
Apollo Shareholders, provided that the Exchange Ratio cannot be amended without
the prior approval of the Linear Shareholders given in the same manner as
required for the approval of the Arrangement or as may be ordered by the
Court.
69
Board
of Directors
As of the
Effective Time, the Apollo Board will consist of seven (7) directors appointed
as follows: three (3) current Apollo Board members or Apollo nominees; three (3)
Linear nominees (including Wade Dawe who shall be appointed chairman of the
board of directors of the combined company); and one (1) nominee who shall be a
technical person mutually agreed upon by Apollo and Linear. Each of
the Resigning Directors will resign as a director of Apollo effective as of the
Effective Time.
Name
Change
Immediately
following the Effective Time and subject to Apollo Shareholders duly approving
the Name Change Resolution, Apollo will file articles of amendment with the
Registrar under the YBCA to change the name of Apollo to ►.
Management
Changes
In
accordance with the terms of the Arrangement Agreement, immediately prior to the
completion of the Arrangement and subject to the approval of the Linear Board,
Linear will effect and pay (as applicable) certain terminations, buyouts,
severance payments and retention bonuses in respect of certain Linear management
and staff in accordance with management contracts and applicable law in amounts
not to exceed an aggregate of Cdn.$1,700,000. Apollo will enter into
employment agreements with any Linear management and staff whose employment
shall continue with Apollo following completion of the Arrangement in form and
substance satisfactory to each of Linear and Apollo, each acting
reasonably.
Upon
completion of the Arrangement, R. David Russell will resign as president and
chief executive officer of Apollo and, subject to delivery of customary
releases, will be paid all termination and other amounts owing pursuant to his
employment agreement (not to exceed approximately $1,700,000 in the aggregate)
and an aggregate of 2,231,000 Apollo Options previously granted to R. David
Russell and outstanding on the date hereof will remain in effect for a period of
one year following the Effective Date. Upon completion of the Arrangement, R.
David Russell will enter into a consulting agreement with Apollo in form and
substance satisfactory to Linear and Apollo, each acting
reasonably.
Cancellation
of Apollo Shares
Effective
as of the Effective Time, an aggregate of 62,500,000 Apollo Shares acquired by
Linear pursuant to the Private Placement will be cancelled without any
payment.
Indemnification
and Insurance
Apollo has
agreed to purchase and maintain director and officer liability “run-off”
insurance for the benefit of the former directors and officers of Linear and
Apollo for a period of not less than six years following the Effective Date with
coverage of not less than $10,000,000 with respect to claims arising from facts
or events that occurred on or before the Effective Date, including with respect
to the Arrangement.
Additionally, Apollo
agreed that all rights to indemnification or exculpation in favour of the
current and former directors and officers of Linear and its subsidiaries
provided in the articles or by-laws of Linear or its subsidiaries, or in any
indemnity agreements entered into between Linear and such directors and officers
shall survive the completion of the Arrangement and shall be binding upon Apollo
and continue in full force and effect.
70
THE
COMBINED COMPANY UPON COMPLETION OF THE ARRANGEMENT
On
completion of the Arrangement, Apollo will continue to be a corporation existing
under the Laws of the YBCA and the Former Linear Shareholders will be
shareholders of Apollo. After the Effective Date, Linear will, pursuant to its
amalgamation with Apollo Sub, be a wholly owned subsidiary of
Apollo.
The
business and operations of Apollo and Linear will be consolidated and the
principal executive office of the combined company will be ►. Apollo
will continue to maintain its registered office at 204 Black Street, Suite 300,
Whitehorse, Yukon Territory, Canada Y1A 2M9.
Upon
closing of the Arrangement, and subject to Apollo Shareholders approving the
Name Change Resolution, Apollo intends to file articles of amendment in order to
change its name to “►.”
See “The
Arrangement – Name Change”.
Organizational
Chart
The
following chart shows the corporate relationship between Apollo, Linear and
their respective subsidiaries following completion of the
Arrangement:
Directors
and Officers of the Combined Company
Following
the Effective Date, it is anticipated that the Apollo Board will be comprised of
seven directors, who will consist of Wade Dawe, who will be nominated as
chairman of the Apollo Board, two other Linear nominees (who are currently
contemplated to be ► and ►), three existing Apollo Board members or individuals
nominated by Apollo (who are currently contemplated to be Messrs. Kaiser, Peat
and Stott), and one technical person mutually agreed upon by Apollo and
Linear.
In
addition, upon consummation of the Arrangement, R. David Russell will resign as
president and chief executive officer of Apollo and Wade Dawe will be appointed
president and chief executive officer of the combined company.
71
Description
of Share Capital
The share
capital of Apollo will remain unchanged as a result of the completion of the
Arrangement, other than for the issuance of the Apollo Shares contemplated in
the Arrangement.
Apollo’s
authorized share capital will consist of an unlimited number of common shares
without par value. Immediately following completion of the Arrangement, Apollo
is expected to have approximately ► Apollo Shares issued and outstanding and the
Former Linear Shareholders will, in the aggregate, hold approximately ►% of the
issued and outstanding Apollo Shares.
Holders
of shares of the combined company will be entitled to receive on a pro rata
basis dividends if, as and when declared by the board of directors of the
combined company, subject to the prior rights of the holders of any shares
ranking senior to such shares in the payment of dividends. The
Project Facility Agreement imposes significant restrictions on Apollo’s ability
to pay dividends while such agreement is in effect and therefore the combined
company will similarly be subject to such restrictions. In the event
of the dissolution, liquidation or winding-up of the combined company, the
holders of the shares of the combined company, subject to the prior rights of
the holders of any shares ranking senior to such shares with respect to priority
in the distribution of the property and assets of the combined company upon
dissolution, liquidation or winding-up, will be entitled to receive on a pro
rata basis the remaining property and assets of the combined company. Holders of
shares of the combined company will be entitled to receive notice of, attend and
vote at any meeting of the shareholders of the combined company, except meetings
where only the holders of another class or series of shares are entitled to vote
separately as a class or series. The shares of the combined company will carry
one vote per share.
Selected
Unaudited Pro Forma Financial Information
The
Apollo unaudited pro forma consolidated financial statements as at and for the
year ended December 31, 2009 are attached as Schedule N to this
Circular. The unaudited pro forma consolidated financial statements
are based on certain assumptions and adjustments and are not necessarily
indicative of Apollo’s consolidated financial position and results from
operations if the events reflected therein were in effect for the periods
presented, nor do they purport to project Apollo’s consolidated financial
position or results from operations for any future period.
Post-Arrangement
Shareholdings and Principal Shareholders
Upon
completion of the Arrangement, Linear will amalgamate with Apollo Sub to become
a wholly owned subsidiary of Apollo. Assuming that no Linear Shareholder
exercises Dissent Rights and based upon the number of Linear Shares and Apollo
Shares outstanding as of ►, 2010, the existing Linear Shareholders will own
approximately ►% of the outstanding Apollo Shares immediately following the
consummation of the Arrangement.
Immediately
following the completion of the Arrangement, to the knowledge of Apollo, there
will be no person who beneficially own or controls or directs, directly or
indirectly, more than 10% of the voting securities of Apollo, other than as set
out below:
|
Name
|
Number of Apollo Shares(1)
|
Percentage (%) of the
Outstanding Apollo Shares(2)
|
|||
|
RMB
Australia Holdings Limited
|
38,661,702(3)
|
►
|
|||
|
Macquarie
Bank Limited
|
50,505,463(4)
|
►
|
|||
|
(1)
|
Without
giving effect to the Share
Consolidation.
|
|
(2)
|
Based
on an estimated ► Apollo Shares outstanding following completion of the
Arrangement (which amount reflects the cancellation of 62,500,000 shares
currently held by Linear and assumes no Apollo Replacement Options or
Apollo Replacement Warrants are
exercised).
|
|
(3)
|
Based
on information reported by RMB Australia Holdings Limited in its Schedule
13D/A filed with the SEC on March 12, 2009. Apollo Shares beneficially
owned includes: (i) 4,716,800 Apollo Shares and (ii) an aggregate of
33,944,902 Apollo Shares issuable upon exercise of Apollo Share purchase
warrants beneficially owned by RMB Australia Holdings Limited, of which
(a) 1,000,000 warrants are exercisable to purchase 1,000,000 Apollo Shares
at a price of Cdn.$0.65 per share, (b) 21,307,127 warrants are exercisable
to purchase 21,307,127 Apollo Shares at a price of Cdn.$0.221 per share
and (c) 11,637,775 warrants are exercisable to purchase 11,637,775 Apollo
Shares at a price of Cdn.$0.252 per
share.
|
|
(4)
|
Based
on information reported by Macquarie Bank Limited in its Schedule 13D/A
filed with the SEC on March 4, 2009. Apollo Shares beneficially owned
includes: (i) 4,000,000 Apollo Shares and (ii) an aggregate of 46,505,463
Apollo Shares issuable upon exercise of Apollo Share purchase warrants
beneficially owned by Macquarie Bank Limited, of which (a) 2,000,000
warrants are exercisable to purchase 2,000,000 Apollo Shares at Cdn.$0.65
per share, (b) 21,307,127 warrants are exercisable to purchase 21,307,127
Apollo Shares at a price of Cdn.$0.221 per share and (c) 23,198,336
warrants are exercisable to purchase 23,198,336 Apollo Shares at a price
of Cdn.$0.252 per share.
|
72
SELECTED
INFORMATION CONCERNING APOLLO GOLD CORPORATION
General
Apollo
was first incorporated under the Laws of the Province of Ontario on June 30,
1936 under the name “Brownlee Mines (1936) Limited.” Apollo
subsequently changed its name from Brownlee Mines (1936) Limited to
“Joliet-Quebec Mines, Limited” on January 7, 1939. Pursuant to
articles of amendment dated August 14, 1978, Apollo changed its name from
Joliet-Quebec Mines, Limited to “J-Q Resources Inc.” and pursuant to articles of
amendment dated August 6, 1987, further changed its name from J-Q Resources Inc.
to “International Pursuit Corporation.” Pursuant to a court order
dated June 20, 2002, International Pursuit Corporation and Nevoro Gold
Corporation entered into a plan of arrangement, and effectively changed the name
of the resulting company to “Apollo Gold Corporation.” Pursuant to
articles of continuance dated May 28, 2003, Apollo Gold Corporation was
continued under the Laws of the Yukon Territory.
Apollo
maintains its registered office at 204 Black Street, Suite 300, Whitehorse,
Yukon Territory, Canada Y1A 2M9, and the telephone number at that office is
(867) 668-5252. Apollo maintains its principal executive office at
5655 S. Yosemite Street, Suite 200, Greenwood Village, Colorado 80111-3220, and
the telephone number at that office is (720) 886-9656.
Apollo is
a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Nova
Scotia. Apollo’s shares trade on the TSX under the symbol “APG” and
on the AMEX under the symbol “AGT.”
Apollo’s
Documents Incorporated by Reference
The SEC
and Canadian securities regulatory authorities allow Apollo to incorporate by
reference information into this Circular. This means that Apollo may disclose
important information to you by referring you to another document filed
separately with the SEC or Canadian securities regulatory authorities. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document or incorporated by reference subsequent to
the date of this document as described below.
Copies of
the Apollo documents incorporated by reference herein and of Apollo’s permanent
information record may be obtained on request without charge from Apollo at 5655
South Yosemite Street, Suite 200, Greenwood Village, Colorado 80111-3220,
Attention: Wendy Yang, Vice President, Investor Relations, telephone: (303)
524-3217 and are also available to the public free of charge on SEDAR at www.sedar.com and on
EDGAR at www.sec.gov.
We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the U.S. Exchange
Act, other than information in a report on Form 8-K furnished pursuant to Item
2.02 or Item 7.01 of Form 8-K and exhibits filed in connection with such
information, from the date of this Circular to the date of the Apollo
Meeting:
|
Apollo SEC Filings
|
Period or Date Filed
|
|
|
Annual
Report on Form 10-K
|
Year
Ended December 31, 2009
|
|
|
Current
Reports on Form 8-K
|
Filed
on January 6, 2010, January 11, 2010, February 3, 2010, March 1, 2010,
March 9, 2010, March 23, 2010, April 1, 2010, April 13, 2010 and April 26,
2010
|
|
|
Apollo SEDAR Filings
|
||
|
Annual
Report on Form 10-K
|
Year
Ended December 31, 2009
|
|
|
Material
Change Reports
|
Filed
on January 6, 2010, January 11, 2010, February 3, 2010, March 2, 2010,
March 12, 2010, March 24, 2010, April 14, 2010 and April 15,
2010
|
73
|
Management
Information Circular
|
Management
information circular dated as at April 3, 2009 relating to Apollo’s annual
meeting of shareholders held on May 7,
2009
|
Any
documents of the type required by National Instrument 44-101 – Short Form Prospectus Distributions
to be incorporated by reference in a short form prospectus (excluding
confidential reports), filed by Apollo with the securities commissions or
similar authorities in the provinces of Canada subsequent to the date of this
Circular and prior to the Apollo Meeting shall also be deemed to be incorporated
by reference in this Circular from the date of this Circular to the date of the
Apollo Meeting.
Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Circular to the extent that a statement contained in this Circular or in
any subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not constitute a part of this Circular, except as
so modified or superseded. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes. Making
such a modifying or superseding statement shall not be deemed to be an admission
for any purpose that the modified or superseded statement, when made,
constituted a misrepresentation, untrue statement of a material fact, nor an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
The
reports of the Compensation and Audit Committees shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Circular into any filing under the U.S. Securities Act or the U.S. Exchange
Act, except to the extent that Apollo specifically incorporates this information
by reference, and shall not otherwise be deemed filed under the U.S. Securities
Act or the U.S. Exchange Act.
Description
Of Apollo’s Share Capital
Apollo’s
authorized share capital is composed of an unlimited number of common shares,
without par value. As at the date hereof, there were ► Apollo Shares issued and
outstanding.
Holders
of Apollo Shares are entitled to receive on a pro rata basis dividends if, as
and when declared by the Apollo Board, subject to the prior rights of the
holders of any shares ranking senior to the Apollo Shares in the payment of
dividends. In the event of the dissolution, liquidation or winding-up
of Apollo, the holders of the Apollo Shares, subject to the prior rights of the
holders of any shares ranking senior to the Apollo Shares with respect to
priority in the distribution of the property and assets of Apollo upon
dissolution, liquidation or winding-up, will be entitled to receive on a pro
rata basis the remaining property and assets of Apollo. Holders of Apollo Shares
are entitled to receive notice of, attend and vote at any meeting of the Apollo
Shareholders, except meetings where only the holders of another class or series
of shares are entitled to vote separately as a class or series. The Apollo
Shares carry one vote per share.
Dividend
Record And Policy
Apollo
has not paid dividends to date on the Apollo Shares and has no plans to pay
dividends in the near future. Any decision to pay dividends in the future will
be based on Apollo’s earning and financial requirements and other factors that
the Apollo Board may consider appropriate in the circumstances. The
Project Facility Agreement imposes significant restrictions on Apollo’s ability
to pay dividends while such agreement is in effect.
Consolidated
Capitalization
The
following table sets forth the consolidated capitalization of Apollo as of
December 31, 2009 before the Arrangement. This table should be read in
conjunction with the annual audited financial statements of Apollo for the year
ended December 31, 2009, including the notes thereto, and Apollo’s management’s
discussion and analysis for the year ended December 31, 2009, each of which is
incorporated by reference in this Circular.
74
|
As
of December 31, 2009
|
||||
|
(In
thousands of U.S. Dollars)
|
||||
|
Long
term debt
|
$ | 83,769 | ||
|
Shareholders’
Equity
|
$ | (12,429 | ) | |
|
Share
Capital
|
$ | 202,769 | ||
|
Shares
Outstanding
|
264,200,927 | |||
|
Options
Outstanding
|
$ | 11,594,371 | ||
|
Contributed
Surplus
|
$ | 45,555 | ||
|
Deficit
|
$ | (260,753 | ) | |
Prior
Sales
The
following table sets forth the Apollo Shares and securities convertible into
Apollo Shares issued by Apollo within the 12 months prior to the date of this
Circular:
|
Date
|
Number/Type of Securities
|
Type of Issuance
|
Issue Price Per
Security
|
Aggregate Issue
Price
|
||||
|
March 22, 2010
|
800,000 Apollo Shares
|
Private placement (1)
|
(1)
|
(1)
|
||||
|
March
18, 2010
|
1,592,733
Apollo Shares
|
Private
placement (2)
|
(2)
|
(2)
|
||||
|
March
18, 2010
|
62,500,000
Apollo Shares
|
Private
placement to Linear
|
Cdn.$0.40
|
Cdn.$25,000,000
|
||||
|
March
3, 2010
|
8,580,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.25
|
Cdn.$2,145,000
|
||||
|
February
26, 2010
|
2,145,000
common share purchase warrants
|
Private
placement (1)
|
(1)
|
(1)
|
||||
|
January
14, 2010
|
300,000
Apollo Shares
|
Private
placement (3)
|
(3)
|
(3)
|
||||
|
December
11, 2009
|
250,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$44,000
|
||||
|
November
9, 2009
|
133,100
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn$23,425.60
|
||||
|
November
4, 2009
|
50,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$8,800
|
||||
|
November
4, 2009
|
2,166,667
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$381,333.39
|
||||
|
October
23, 2009
|
166,666
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$29,333.22
|
||||
|
October
21, 2009
|
12,270
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$2,159.52
|
||||
|
July
15, 2009
|
12,221,640
Apollo Shares
|
Private
placement (4)
|
Cdn.$0.45
|
Cdn.$5,499,738
|
||||
|
July
15, 2009
|
13,889,390
flow through Apollo Shares
|
Private
placement (4)
|
Cdn.$0.54
|
Cdn.$7,500,270.60
|
||||
|
July
15, 2009
|
1,566,662
compensation common share purchase options
|
Private
placement (4)
|
(4)
|
(4)
|
||||
|
May
28, 2009
|
250,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$44,000
|
||||
|
May
27, 2009
|
316,666
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$55,733.22
|
||||
|
May
22, 2009
|
250,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$44,000
|
||||
|
May
19, 2009
|
100,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$17,600
|
||||
|
May
14, 2009
|
250,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$44,000
|
||||
|
May
8, 2009
|
333,333
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$58,666.67
|
||||
|
May
1, 2009
|
250,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$44,000
|
||||
|
April
3, 2009
|
12,500
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$2,200
|
||||
|
April
3, 2009
|
25,000
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$4,400
|
||||
|
April
3, 2009
|
212,500
Apollo Shares
|
Warrant
exercise
|
Cdn.$0.176
|
Cdn.$37,400
|
75
|
(1)
|
On
February 23, 2007, Apollo concluded a private placement pursuant to which
it sold US$8,580,000 aggregate principal amount of convertible debentures
due February 23, 2009 (the “Convertible
Debentures”). As originally issued, each US$1,000
principal amount of the Convertible Debentures was convertible at the
option of the holder into 2,000 Apollo Shares, at any time until February
23, 2009. Additionally, each US$1,000 principal amount of the
Convertible Debentures included 2,000 common share purchase warrants
entitling the holder thereof to purchase one of the Company’s common
shares at an exercise price of US$0.50 per share, which such warrants
originally expired on February 23, 2009 (the “Warrants”).
On February 26, 2010, the Company and RAB Special Situations (Master) Fund
Limited (”RAB”),
which owns US$4,290,000 aggregate principal amount of Convertible
Debentures and 8,580,000 Warrants, entered into an agreement that pursuant
to which RAB agreed to extend the maturity date of the Convertible
Debentures held by RAB to August 23, 2010 and in consideration therefor,
Apollo agreed to repay the US$772,200 of accrued interest through February
23, 2010 on the Convertible Debentures held by RAB in cash and agreed to
issue to RAB (i) 800,000 Apollo Shares and (ii) 2,145,000 common share
purchase warrants, which warrants entitle RAB to purchase one Apollo
Common Share at an exercise price of US$0.50 per share at any time before
5:00 p.m. (Toronto time) on February 23,
2011.
|
|
(2)
|
On
March 12, 2010, Apollo entered into a purchase agreement with Calais
Resources, Inc., Calais Resources Colorado, Inc. (together, “Calais”), Duane A.
Duffy, Glenn E. Duffy, Luke Garvey and James Ober (the “Duffy Group”) pursuant
to which Apollo issued 1,592,733 common shares to the Duffy Group in
exchange for the assignment of its rights, title and interest in and to,
among other things, a promissory note from Calais with an outstanding
balance, including accrued interest thereon, of
$653,020.
|
|
(3)
|
On
January 14, 2010, Apollo granted 300,000 Apollo Shares to Haywood
Securities as compensation for financial advisory services rendered in
connection with Apollo’s sale of all the outstanding capital stock of
Montana Tunnels Mining, Inc. to Elkhorn Goldfields
LLC.
|
|
(4)
|
On
July 15, 2009, Apollo completed a private placement of 12,221,640 common
shares issued to purchasers within and outside the United States at
Cdn.$0.45 per share and 13,889,390 common shares issued to Canadian
purchasers at Cdn$0.54 per share on a “flow through” basis pursuant to the
Income Tax Act
(Canada). In consideration for placement agent services
provided in connection therewith, among other things, Apollo issued to
Haywood Securities and Blackmont Capital Inc. compensation options to
purchase 1,566,662 Apollo Shares.
|
Trading
Price and Volume
The
Apollo Shares are listed and posted for trading on the TSX under the symbol
“APG” and on the AMEX under the symbol “AGT.” On March 8, 2010, the last trading
day prior to the announcement of the Arrangement, the closing price of the
Apollo Shares on the AMEX was $0.42 and on the TSX was Cdn.$0.42.
The
following table sets forth, for the periods indicated, the reported high and low
market closing prices of Apollo Shares on the AMEX and the TSX:
|
AMEX
(AGT)
|
Toronto
Stock Exchange
(APG)
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
($)
|
(Cdn.$)
|
|||||||||||||||
|
2010
|
||||||||||||||||
|
First
Quarter
|
$ | 0.50 | $ | 0.33 | $ | 0.53 | $ | 0.33 | ||||||||
|
Second
Quarter (through ►, 2010)
|
►
|
►
|
►
|
|
►
|
|
||||||||||
|
2009
|
||||||||||||||||
|
First
Quarter
|
$ | 0.38 | $ | 0.19 | $ | 0.47 | $ | 0.24 | ||||||||
|
Second
Quarter
|
0.49 | 0.30 | 0.55 | 0.38 | ||||||||||||
|
Third
Quarter
|
0.52 | 0.37 | 0.56 | 0.41 | ||||||||||||
|
Fourth
Quarter
|
0.59 | 0.44 | 0.61 | 0.47 | ||||||||||||
76
The
following table sets forth, for the periods indicated, the reported high and low
market closing prices of Apollo Shares on the TSX and the aggregate trading
volume of Apollo Shares on the TSX:
|
Month
|
High
(Cdn.$)
|
Low
(Cdn.$)
|
Aggregate
Volume
|
||||||
|
April
2010
|
►
|
►
|
►
|
||||||
|
March
2010
|
►
|
►
|
►
|
||||||
|
February
2010
|
0.47 | 0.40 |
4,010,801
|
||||||
|
January
2010
|
0.53 | 0.39 |
11,264,692
|
||||||
|
December
2009
|
0.59 | 0.47 |
4,952,355
|
||||||
|
November
2009
|
0.60 | 0.48 |
19,019,451
|
||||||
|
October
2009
|
0.62 | 0.46 |
13,863,854
|
|
|||||
|
September
2009
|
0.62 | 0.41 |
13,177,387
|
||||||
|
August
2009
|
0.52 | 0.40 |
5,697,340
|
||||||
|
July
2009
|
0.495 | 0.40 |
5,416,097
|
||||||
|
June
2009
|
0.56 | 0.45 |
7,624,455
|
||||||
|
May
2009
|
0.59 | 0.46 |
4,302,192
|
||||||
|
April
2009
|
0.53 | 0.35 |
5,440,260
|
||||||
|
March
2009
|
0.43 | 0.31 |
6,639,941
|
77
DETAILED
INFORMATION ABOUT LINEAR GOLD CORP.
General
The
information contained under this heading “Detailed Information About Linear Gold
Corp.” has been provided by or on behalf of Linear and has not been
independently verified by Apollo.
Linear is
a mineral exploration and development company and was formed on January 31, 1989
as H.L. International Inc. by Certificate of Amalgamation pursuant to the
provisions of the Business
Corporations Act (Alberta) by the amalgamation of H.L. International Inc.
and Nik Capital Corporation. By articles of amendment dated May 3,
1989, Linear’s issued and outstanding common shares were consolidated on the
basis of three old shares for one new share. By articles of amendment
dated February 13, 1996, Linear changed its name to Maple Mark International
Inc. Linear consolidated the outstanding common shares on the basis
of ten old shares for one new share and changed its name to Linear Resources
Inc. pursuant to articles of amendment dated October 6, 1999. Linear
changed its name to Linear Gold Corp. pursuant to articles of amendment dated
November 24, 2003 and Linear was continued under the Canada Business Corporations
Act on November 10, 2004.
Linear’s
head, principal and registered office is located at 2000 Barrington Street,
Suite 502, Halifax, Nova Scotia B3J 3K1 and the telephone number at the office
is (902) 422-1421.
Linear is
a reporting issuer in the provinces of Ontario, British Columbia, Alberta,
Manitoba, Québec and Nova Scotia. The Linear common shares trade on
the TSX under the symbol “LRR”.
As at ►,
2010, Linear and all of its subsidiaries are as depicted in the chart
below.
Description
of Business
Linear is
a mineral exploration and development company listed on the
TSX. Linear is in the process of exploring and developing its
properties in Canada, Mexico and the Dominican Republic. Linear’s
primary focus is the development of its Goldfields Project located in
Saskatchewan, Canada.
78
Goldfields
Project, Canada
On August
20, 2009, Linear completed the acquisition, from GLR Resources Inc. (“GLR”), of a 100% interest in
the Goldfields Project located near Uranium City, Saskatchewan, Canada (the
“Goldfields Project”),
substantially in accordance with the definitive Purchase and Sale Agreement
dated May 25, 2009. Prior to announcement of the Arrangement, Linear
had intended to develop the Goldfields Project and expected that it would become
its flagship operating property going forward. Linear, through its
subsidiary 7153945 Canada Inc., paid GLR US$5.0 million in cash and issued
727,272 Linear Shares, valued at $1.95 per share, as consideration for a 100%
interest in the Goldfields Project assets. In addition to the cash
payment and shares issued, Linear assumed equipment construction contracts
previously entered into by GLR with aggregate remaining payments of
approximately Cdn.$18.6 million as of December 31, 2009.
As of
this date, the Goldfields Project is Linear’s primary and most advanced project
in its portfolio of properties. Unless otherwise noted, the following
description of the Goldfields Project is derived from the Box Mine – Goldfields
Project Technical Report, dated June 29, 2007, as revised May 12, 2008, and
further revised September 24, 2009 (the “Box Mine
Report”). and the Athona Pit Pre-Feasibility Box Mine –
Goldfields Project Technical Report dated September 25, 2009 (the “Athona Deposit Report”) by
Bikerman Engineering and Technology Associates, Inc. (“BETA”). Both the
Box Mine Report and the Athona Deposit Report may be found under Linear’s
profile on SEDAR at www.sedar.com.
Location
The
Goldfields Property is located on the north shore of Lake Athabasca in the
northwestern portion of Saskatchewan. The property area is situated
approximately 55 km (34.16 miles) south of the Saskatchewan and Northwest
Territory boundary and approximately 75 km (46.58 miles) east of the
Saskatchewan and Alberta boundary. The property forms a rough triangle
approximately 23.3 km (14.5 miles) southwest, 17.6 km (10.9 miles) northeast and
23.3 km (14.5 miles) southeast of Uranium City. The Goldfields Property derived
its name from the former mining town of Goldfields located between the site of
the Box Mine property to the west and the site of the Athona Mine property to
the southeast.
79
The
Goldfields Property consists of 31 contiguous mineral claims plus five mineral
leases, covering 25,685 ha (approximately 63,000 acres) in the Beaverlodge Lake
area, Northern Mining District, Saskatchewan, Canada and is located within NTS
map sheets 74N-06, 74N-07, 74N-08, 74N-09 and 74N-10.
The
coordinates of the triangular shaped property with Uranium City on the western
boundary are approximately 649, 240 mE and 6,617,650 mN in the northeast,
625,980 mE and 6,584,900 mN in the southeast, and 650,990 mE and 6,588,150 mN in
the east (UTM Zone 12, NAD 83).
80
Accessibility
The
Goldfields Property location does impact the logistics for both freight and
personnel transport. The property is, however, the beneficiary of the
infrastructure developed to support previous mining ventures, in this historical
mining area.
Access to
the Goldfields Property site is via a network of gravel and dirt roads from
Uranium City with one branch leading to the former Box Mine site. Uranium City
is serviced by commercial flights originating in Saskatoon and Regina. Charter
air service is also available from those centres and northern communities of
Prince Albert, La Ronge and Stony Rapids.
Heavy
equipment and supplies are transported by barge service operating from Stony
Rapids, Saskatchewan to the communities along the shore of Lake Athabasca from
mid-May to early October.
Climate
and Meteorology
Average
total precipitation for the Goldfields Property area ranges from 16.89 mm in
February to 50 mm in each of July and August. Maximum precipitation occurring in
the period between 1956 and 1983 was 118 mm, falling as rain, in August
1962. Average wind speed measured from 1956 to 1983 is 11 km/hr,
blowing from the east to the northeast, 8% to 15% of the time.
Average
daily temperature ranges between -26°C in January and 16°C in
July. Average minimum temperatures recorded from 1953-1986 range from
11°C in July to -31.7°C in January. The extreme low temperature recorded from
1956-1983 was -48.9°C, occurring in January of 1974. Average extreme low
temperature is -43.9°C. Average maximum temperature recorded from
1953-1986 ranges from 21°C in July to -21°C in January. The extreme high
temperature recorded from 1956-1983 was 34.7°C, occurring in July of 1984. The
average extreme high temperature between 1956 and 1983 is 28.7°C.
Local
Resources and Infrastructure
The
economy of northern Saskatchewan is based on mining, tourism and traditional
hunting and gathering activities.
81
Basic
community infrastructure includes water treatment plants, sewage lagoons and
electrical power supply. Surface water from Black Lake provides water for the
community of Black Lake, Fond du Lac River provides water for the community of
Stony Rapids and the Fredette River provides water for the community of Uranium
City. The community of Fond du Lac use wells for drinking water. Oil or wood
burning stoves are the primary methods for heating homes and other
buildings.
Power for
the Goldfields site is expected to be supplied by SaskPower via an existing
power line and right of way. The existing feed from Wellington to the existing
line is at 115kV and will be transformed to 72kV for transmission along the
existing line to the Goldfields Property. The maximum forecasted load will be 5
MVA with an annual load factor of 90 percent.
Physiography
The
elevation of Lake Athabasca is 211.5 metres (694 feet) above sea level
(ASL). The topographic relief of the area near the Beaverlodge-Goldfields
area consists of moderately high hills with the highest being Beaverlodge
Mountain at 419.7 metres (1,377 feet). North of the property, near
Virgin Lake, the mean elevation of the area is about 450 metres (1,476
feet).
In the
northern portion of the Goldfields Property, Contact Lake is approximately 427
metres (1,401 feet) ASL and the surrounding hills of conglomerate of the Martin
Group, to the north of Contact Lake, are up to 445 metres (1,460 feet) ASL and
hills of basement rocks of the Tazin Group to the south are approximately 455
metres (1,493 feet) ASL. The relief decreases sharply to the north from
approximately 445 metres (1,460 feet) to 350 metres (1,148 feet) in the
sandstone and arkose units of the Martin Group located between Contact Lake and
Cutler Lake.
Box
Mine Project Description
As
described in the Box Mine Report, the Box Mine is planned as an open pit mine
operation with a 5,000 tonne per day (1.8 million tonne per year) mill. The
average mine grade is 1.43 grams per tonne minable at a strip ratio of 3.4:1
utilizing shovel-truck fleets. The mill circuit will consist of conventional
crushing and grinding with gravity separation, flotation and agitation leach.
Gold will be recovered by carbon adsorption and electrowinning.
History
The Box
Mine originally went into production at a low tonnage on June 27, 1939 after a
reported expenditure of Cdn.$4,000,000. The milling rate stepped up to over 1200
tons per day in December 1939. The first gold brick was poured August 15, 1939.
A total of 8,000 ounces of gold was produced in 1939 at an operating cost of
$1.81 per ton. During 1940 the milling rate averaged 1400 tons per day. Despite
increased milling rates and reduction of operating costs the mine was only
marginally profitable. Operations were suspended in May 1942 and the mine closed
August 15, 1942. The mine produced a total of 64,066 ounces of gold from
1,418,320 tons of ore at an average grade of 0.0452 ounce per ton.
GLR and
its former companies actively conducted exploration programs in the Greater
Beaverlodge area since 1987. Mary Ellen Resources Ltd. amalgamated with Lenora
Explorations Ltd. and AXR Resources Ltd., effective December 31, 1988 to form
Greater Lenora Resources Corporation (“Greater Lenora”). On July 24, 2001,
Greater Lenora completed a plan of arrangement pursuant to which GLR Resources
Inc. acquired all of the assets of Greater Lenora.
The
exploration activities pertaining to the Box Mine project are summarized
below.
In 1987,
the Kasner Group of Companies optioned both the Box Mine property from Cominco
Limited and the Athona Mine property from New Athona Mines Ltd.
During
1988, the Kasner Group of Companies completed 3 diamond drill holes from
September 2 to 23. These holes, LB-88-1 to LB-88-3, totaled 1,132.1
metres. Drill holes LB-88-1 and LB-88-2 are located approximately 700 metres
northeast of Shaft No.2 and had an azimuth of N310°E, dipping 45°. LB-88-2 is
approximately 50 metres at N130°E from LB-88-1 and these holes did not contain
significant gold values. Hole LB-88-3 was drilled to test the down dip extension
of the Box Mine deposit under Neiman Bay and contained a number of anomalous
gold values with the best intersection being 4.663 g/t (0.136 opt) over 3.0
metres (AF 74N07-0328). A 9,000 ton bulk sample from the Box Mine
trenches and a 4,000 ton bulk sample from the Athona Mine trenches returned a
reported grade of 1.88 g/t (0.055 opt) gold.
82
Also, a
single drill hole (VI-88-1) was completed to test potential of the Vic Lake
Fault zone. This drill hole was located at the boundary of the Box Mine and
Lodge Bay project boundaries. No significant gold assays were
obtained.
During
1988, 52 drill holes were completed totaling 6,381 metres. In the summer of
1988, nine diamond drill holes were surveyed with a Mount Sopris down-hole
radiometric logging instrument. The survey results indicated none of the holes
contained uranium mineralization. A slight increase in radioactivity was
detected in the Box Mine granite, foliated granite and hanging wall gneisses,
which may be caused from the decay of potassium in the feldspars and sericite.
In 1988, Greater Lenora completed a pre-feasibility ore reserves estimation,
using 1934 to 1988 data (AF 74N-0005).
The 1989
drilling program completed 47 reverse circulation drill holes (RCD) with a total
footage of 3,169 metres over a small area, 150 metres of strike length. Western
Caissons, using a Reverse Circulation hammer drill, conducted the drilling.
During the drilling the bit size was reduced every 25 metres from 5.5”, to
5.25”, 5.125” and so on. Individual samples were taken at one-metre intervals.
Samples weighed approximately 36kg and were assayed by total cyanide leaching by
Casmyn Research.
Samples
were assayed by fire assay technique by early participants as well as several
drill holes in the 1988 Greater Lenora program. The remainder of the 1988 drill
holes and those of the 1989 RCD drill program were assayed by the cyanide leach
technique. From 1994 onwards, the complete BQ drill core was assayed by the
total metallic technique.
In 1989,
Greater Lenora completed on-site metallurgical testing, bulk sampling and 3,199
metres of reverse circulation drilling on the Box property and 1,037 metres
reverse circulation drilling on the Athona property (AF 74N-0005). Greater
Lenora completed 52 drill holes totaling 6,704 metres in 1994. In
1994, they released the results of drill holes B94-109 to -150. These infill
drill holes were designed to test the deposit below the level of the existing
mine workings.
Between
1994 and 1995 delineation holes B95-151 to 250 and an environmental impact study
were completed on the deposit (AF 74N-0006). The Box Mine mineral resources were
re-estimated at this time. In 1995, 17 drill holes and an
environmental impact study were completed on the Box-Athona mines (AF
7408-0150). In October 1995, the combined reserves for Box-Athona were
published. A total of 18,560 metres of BQ diamond drilling in 97 holes were
completed during the 1995 summer program. The program was designed to fill in
voids from previous drilling programs, define the strike limits and define the
down dip extension of the mineralized zone below the level of the proposed open
pit. F. Hurdy completed geological mapping of the trenches at the Box Mine.
During 1995, the diamond drill holes and several of the original survey monument
and mine workings (vent raises, shaft collars, etc.,) were located and surveyed.
This information was incorporated into the various databases used for the
resource estimations. The surface trenches surveyed at both the Box Mine and the
Athona Mine were incorporated into the up-dated database.
In 1996,
Greater Lenora announced a new, lower combined resource estimation for Box and
Athona deposits. This was published in The Northern Miner on May 13, 1996,
p1-2.
In 1997,
Behre Dolbear completed an audit of the published resources for the combined
Box-Athona deposits. In 1997, Pearson, Hoffman & Associates completed a
resource evaluation of the Box Mine. In the same year, GLR flew an airborne EM,
resistivity, magnetic, and spectrometer survey over the property (AF
74N-0007).
In 1999,
Greater Lenora announced intentions to proceed with a small-scale development
and production plan which will focus on open pit mining a part of the Box Mine
deposit.
In 2001,
Greater Lenora stated that an environmental impact study had been completed and
Gekko of Australia tried simple gravity separation of Box Mine ore and received
excellent recoveries. Greater Lenora also concluded that the Fishhook and
Nickolson deposits were unconformity type Au-PGE deposits similar to the
Coronation Hill deposit in Australia.
83
In August
2009, Linear, through its wholly owned subsidiary, 7153945 Canada Inc.,
purchased from GLR Resources Inc., as vendor, all of the interests of GLR in the
Goldfields Property for a purchase price of U.S.$5,000,000 in cash, the
assumption of certain liabilities relating to the Goldfields project and the
issuance of 727,272 common shares of Linear. Linear and GLR are
unrelated companies and the transaction was made at arm’s length.
Geology
and Mineralization
The Box
Mine deposits is a complex of auriferous quartz vein sets infilling fractures
caused by several shearing and faulting events. The host rock is composed of a
suite of metasedimentary lithological units, which has been subjected to various
alteration processes common to hydrothermal fluid migration.
The Box
Mine orebody is contained in a predominantly red granitic sill-like body 760
metres long and averaging 55 metres wide. This body and enclosing rocks strike
northeast and dip 42° to the southeast and is located on the northwestern limb
of the Goldfields syncline. The granitic body is bounded to the northwest by
quartzite and granitized quartzite; to the southeast it passes gradationally
into granitized quartzite. The boundary is best marked by a decrease in volume
of quartz veins. The granite comprises almost equal amounts of quartz and
pink-red feldspar. It contains no ferromagnesian minerals except chlorite which
occurs along small fractures. In thin section, the feldspar comprises
microcline, microcline-perthite and albite.
Royalties
and Encumbrances
The
mineral rights for the Box Mine and the Athona Mine properties are now owned
100% by Linear, through its wholly owned subsidiary, 7153945 Canada Inc., with
Franco-Nevada Corporation owning a 2% net smelter royalty (NSR) on an area of
interest of 10 miles from the external property boundaries of the Box Mine
property, Athona Mine property, Fish Hook Bay property and the Nicholson Bay
property.
The Box
Mine is also subject to a 1.5% NSR on all production from the area beneath 50
metres below mean sea level that is on the original Cominco Limited mining
claims. This royalty does not apply to the current Box Mine planned production
since that production will be from an area above the minus 50 metres below sea
level elevation.
Mineral
Dispositions
The
Saskatchewan Provincial government is empowered by the Crown Minerals Act to grant
mineral dispositions in the form of permits, claims and leases, within its
jurisdiction, to qualified entities. The regulations covering these dispositions
are contained in “The Mineral Disposition Regulations, 1986” otherwise known as
Saskatchewan Regulation 30/86 and the pertinent subsequent
amendments.
As
defined by the Crown Minerals Act, those dispositions designated as
mineral/mining “claims” do not require a legal survey, prior to registration.
Mineral/mining “leases” require a legal survey. The mineral claims indicated
above have not been the subject of a legal survey. The leases have
been legally surveyed
Under the
terms and conditions in the Crown Minerals Act, all of
the claims and leases pertaining to the Goldfields Property are designated as
“Active”. Linear has had the claims and leases transferred to the
name of its wholly owned subsidiary, 7153945 Canada Inc., following the
acquisition of the claims and leases from GLR.
In order
to preserve the validity and good standing of the claims and leases, the holder
of these dispositions must comply with the assessment work requirements as
stipulated by the Crown
Minerals Act. The Goldfields Property has been the subject of
extensive work which fulfills the assessment work requirements to date. Linear
has confirmed the status of the assessment work requirement for each mineral
disposition comprising the Goldfields Property and will ensure compliance with
these requirements in order to preserve the validity and good standing of the
claims and leases on an ongoing basis.
84
Existing
Environmental Liabilities
The
Goldfields Property has been the object of previous mining
operations. Linear is not aware of any environmental liabilities to
which the project is subject.
UMA
Engineering Ltd. Report entitled “Greater Lenora Resources Inc., Environmental
Impact Statement; Box Starter Pit Mine, Goldfields Project, Northern
Saskatchewan” as submitted in January 2007, has addressed environmental issues
and, to Linear’s knowledge, provided the appropriate remediation and mitigation
measures.
Permitting
Requirements
The
permitting process for mine construction and development is expected to involve
the following.
|
ENVIRONMENTAL
PERMIT (Environmental Impact Statement Approval)
|
Ministry
of Environment (Saskatchewan) as the leading Regulatory
Agency
|
-Environmental
Assessment Act (Saskatchewan) -Canadian Environmental Assessment Act
(CEAA) -Canada-Saskatchewan Agreement on Environmental Assessment
Cooperation
|
The
required Environmental Impact Statement has been submitted to the Ministry
of Environment (Saskatchewan). The Federal Regulatory Agencies have
indicated that their involvement is currently not
required.
|
|||
|
Surface
Land Lease Approval
|
Ministry
of Industry and Resources (Saskatchewan), Ministry of Environment
(Saskatchewan), Department of Northern Affairs, Provincial Cabinet
(Signatory)
|
Mineral
Dispositions Regulations, 1986
|
Preliminary
Discussion Phase. An approved Environmental Impact Statement is a
prerequisite. This is a negotiated agreement and due to the project’s
location, Northern Affairs is an integral participant.
|
|||
|
Barge
Landing
|
Department
of Fisheries and Oceans Canada, Transport Canada, Ministry of Environment
(Saskatchewan)
|
Fisheries
Act, Harmful Alteration, Disruption or Destruction (HADD)
|
Preliminary
Discussion Phase
|
|||
|
Water
Usage Permit
|
SaskWater
Corp., Ministry of Environment (Saskatchewan), Department of Fisheries and
Oceans Canada
|
Fisheries
Act
|
Preliminary
Discussion Phase
|
|||
|
Tailing
Management Facility - Effluent Discharge
|
Ministry
of Environment (Saskatchewan), Department of Fisheries and Oceans
Canada
|
Metal
Mining Effluent Regulations (MMER), Fisheries Act
|
Preliminary
Discussion Phase
|
|||
|
Logging
Permit
|
Ministry
of Environment (Saskatchewan),
|
Forest
Resources Management Act
|
||||
|
Winter
Roadway Construction
|
Ministry
of Environment (Saskatchewan), Saskatchewan Department of Highways and
Transportation
|
Preliminary
Discussion Phase. Permitting will be required should the Fort Chipewyan to
Uranium City ice road route be required.
|
||||
|
Construction
Permit
|
Ministry
of Industry and Resources (Saskatchewan), Department of Northern
Affairs
|
Environmental
Permitting
The Box
Mine, due to its location, is under the jurisdiction of both Canadian federal
and provincial regulatory agencies. The Environmental Assessment Branch of the
Saskatchewan Environment & Resource Management (SERM) ministry is empowered
to regulate the operation of this project under the terms of the Environmental Assessment Act.
Additionally, due to the project’s possible impact on aquatic habitat, the
Canadian federal Department of Fisheries and Oceans (DFO), under the terms of
the Aquatic Habitat Protection Permit, maintains jurisdiction, as a regulatory
agency. Linear anticipates that water quality parameters, as defined by the
“Metal Mining Effluent Regulations” (MMER), of the Canadian federal Fisheries
Act, will define the discharge parameters for effluents generated by the future
operations of the project.
In order
to simplify and facilitate the environmental review process, under the terms of
Canada-Saskatchewan Agreement on Environmental Assessment Cooperation, the
Ministry of Environment (Saskatchewan) is designated as the Coordinating
Regulatory Agency. In this role as Coordinator, the Ministry of Environment
(Saskatchewan) assesses the project’s potential impacts on the environment and
subsequently solicits the participation of the appropriate regulatory agencies,
in the review process.
The Environmental Assessment Act
states that a person shall not proceed with a development (as defined in the
Act) until ministerial approval has been received. It further sets requirements
for a process of environmental impact assessment intended to inform the Minister
of the potential impacts of a development prior to making a decision regarding
the development.
Preliminary
approval of the development of the Box Mine was received from the Minister of
Environment on May 29, 2008, stating that the Ministry is “satisfied that the
requirements of the Act regarding the environmental assessment process have been
met, including those required of the proponent.” This approval is of
particular importance, as it is a prerequisite for obtaining the additional
approvals and permits required for this project.
85
Documents
submitted to both the Canadian federal and Saskatchewan environmental regulatory
agencies in reference to the development of the Box Mine include: Clifton
Associates Ltd., “Feasibility Study, Box and Athona Mines, Goldfields Project,
Lake Athabasca,” in 1995, and UMA Engineering Ltd., “Greater Lenora Resources
Inc., Environmental Impact Statement, Box Starter Pit Mine, Goldfields Project,
Northern Saskatchewan”, in January 2007. That report describes the
differences in the environmental assessment findings (impacts and mitigation)
previously presented to both Canadian federal and Saskatchewan provincial
regulatory agencies and the anticipated environmental impacts and mitigation
requirements for the Box Mine as proposed by the study.
Exploration
and Drilling
Initial
surface and underground diamond drilling was conducted on the Box Mine property
during 1935 to 1939.
Diamond
drilling by GLR commenced in 1987-1988 on both properties. This was followed by
reverse circulation drilling in 1989 and two additional programs of diamond
drilling in 1994 and 1995. In total (1935 to 2005), 402 holes totaling 48,561
metres containing 17,226 assays have been completed on the Box Mine property.
The underground sampling of the drifts and crosscuts were compiled into 32
pseudo-drill holes totaling 6,548 metres containing 4,385 assays.
The
following table summarizes the diamond drill and underground sampling at the Box
Mine.
Box Mine
Drill Hole and Sample Summary
|
Year(s)
|
Company
|
Type
|
Location
|
Number
of Holes
|
Drill
Core
Size
|
Length
(metres)
|
Length
(feet)
|
Number
of
Samples
|
|||||||||||||||
|
1935-39
|
Cominco
|
channel
|
underground
|
32 | 6,548.65 | 21,485.07 | 4,385 | ||||||||||||||||
|
1935-39
|
Cominco
|
DDH
|
surface
|
42 |
EX
|
4,576.12 | 15,013.52 | 1,708 | |||||||||||||||
|
1939
|
Cominco
|
DDH
|
underground
|
72 |
EX
|
4,594.98 | 15,075.39 | 2,959 | |||||||||||||||
|
1987-88
|
GLR
|
DDH
|
surface
|
52 |
BQ
|
6,383.73 | 20,944.00 | 2,628 | |||||||||||||||
|
1989
|
GLR
|
RCD
|
surface
|
47 | 3,168.60 | 10,395.67 | 2,715 | ||||||||||||||||
|
1994
|
GLR
|
DDH
|
surface
|
52 |
BQ
|
6,705.77 | 22,000.56 | 2,443 | |||||||||||||||
|
1995
|
GLR
|
DDH
|
surface
|
100 |
BQ
|
18,825.00 | 61,761.81 | 3,469 | |||||||||||||||
|
2004
|
GLR
|
DDH
|
surface
|
15 |
NQ
|
1,007.67 | 3,306.00 | 577 | |||||||||||||||
|
2005
|
GLR
|
DDH
|
surface
|
22 |
NQ
|
3,299.15 | 10,823,98 | 782 | |||||||||||||||
|
Totals:
|
434 | 55,109.67 | 180,806.00 | 21,611 | |||||||||||||||||||
Since
Linear’s acquisition of the Goldfields Project, Linear carried out an
exploration program on the property between January 2010 and March
2010. The program consisted of diamond drill testing the down-dip potential of
the Box Gold Deposit, below the bottom level of proposed open pit, and a
geophysical program to define new drill targets using the Titan 24 deep IP
geophysical system. The IP survey area was designed to define chargeability
and/or resistivity anomalies with the potential to host mineralized systems near
the Box and Athona Gold Deposits including the two kilometre area between the
deposits. Sixteen drill holes were completed for a total of 4168
metres.
Metallurgy
Test work
has indicated that the recoverable values are finely disseminated with some
nugget gold. There are no metallurgical or environmental hindrances associated
with the mineralization in terms of recovery, even though some of the gold is
associated with pyrite. Extensive test work dating back to 1936 has determined
that the gold can be recovered by a variety of gravity and leaching methods. The
feasibility flow sheet calls for gravity, flotation, and concentrate leaching
methods. The amount of test data conducted is sufficient to design the
processing facilities.
86
Work
began on the current flow sheet in late 1998 and continued through to 2005 at
Gekko Systems in Australia and Lakefield in Canada, using the Gekko test
protocol. Primary and cleaner gravity recovery in Gekko inline pressure jigs
with scavenging in a Falcon concentrator gave recoveries in the mid 1980’s for
ore ground to a P80 of 500 microns, followed by regrind and cyanidation of
concentrates. Concentrates produced were tested for leaching in the Gekko inline
leach reactor with the gold extracted by direct electrowinning. Cyanide
destruction, using peroxide, was tested by Gekko.
Test work
for the Box Mine ore was originally conducted by Cominco Limited, when the plant
was operated from 1939 to 1942 with underground ore. Whole ore cyanidation with
24-hours retention and Merrill-Crowe precipitation on zinc was employed from ore
ground to 55% - 200 mesh. Recovery is reported as between 94 and
98%.
In 1981,
to compare heap leaching with flotation, Dawson Laboratories conducted leach
tests on ore crushed to ¾ inch and flotation tests on ore ground to 50% -200
mesh. Recoveries were about 20% for the heap leach samples and 92 to 97% for the
flotation test.
In 1988
Casmyn Engineering conducted test work at ORTECH that showed that gravity
concentration was effective in recovering gold. In 1988, a simulated vat leach
scoping test conducted by INNOVAT Limited showed that ore crushed to ¼ inch
yielded 69% recovery.
In
1994-5, Richard C. Swider Consulting Engineers Limited designed and supervised a
test program at Lakefield Research on behalf of Greater Lenora Resources
Corporation. Work was done on both the Box and Athona ores, including bulk
samples at depth and at-grade samples. Work indices were determined, as well as
the suitability and design parameters for semi-autogenous grinding.
Flotation
of spiral tailings demonstrated effective concentration of gold values.
Cyanidation of gravity concentrates was also demonstrated in the Swider program.
Some liquid-solid separation work was done for environmental purposes as well as
pore water determination.
Under the
supervision of INNOVAT Limited in 1997, leaching of spiral classifier tailings
and whole ore was conducted at ORTECH and Lakefield. Both programs indicated
economical recoveries on ore crushed to 10 mesh.
A program
in 1995-6 was conducted at Lakefield Research Limited with input from Pocock
Industrial Inc. to determine settling and filtration characteristics of the ore
and tailings. Ore characterization studies were made on whole rock, gravity
tailings, flotation tailings, and cyanidation tailings, including EPA acid-base
accounting, EPA leachate extraction, and size distribution of
residues.
Acid-Base
accounting and cyanide destruction tests are continuing to back up the
Environmental Impact Statement as well as further assurance that targets will be
met. Current test work involves using the INCO SO2/Air process for cyanide
destruction to confirm results and reagent requirements.
Preliminary
Mine Plan
General
BETA was
commissioned to prepare a technical report on the Box Mine, the details of which
were set out in the Box Mine Report. As described in the Box Mine
Report, mining of the Box Mine was expected to be by open-pit methods utilizing
mid-size earth moving equipment. Feasible pit shapes complete with haul-road
designs have been modeled based on: the disposition of grade values in the
resource model; economic parameters such as gold price and mining and operating
costs; and technical parameters such as pit slopes and gold recovery. Silver
values were not taken into consideration in the mine model.
As
reported in the Box Mine Report, minable reserves for the Box Mine were based
upon the measured and indicated resources in the computerized 3-D block model.
Minable pit shapes optimize the extraction of the mineral inventory given the
economic and technical parameters determined for this feasibility. The pit
optimization procedures utilized in definition of the final pit design took the
following factors and assumptions into consideration:
87
|
|
·
|
gold
price of US$750 per ounce
|
|
|
·
|
gold
price is US$735 net of royalty of 2%
NSR;
|
|
|
·
|
process
recovery of 93% of the contained gold
values;
|
|
|
·
|
mining
cost of US$2.60 per tonne of ore
moved;
|
|
|
·
|
mining
cost of US$1.66 per tonne of waste
moved;
|
|
|
·
|
crushing
cost of US$1.07 per tonne of ore;
|
|
|
·
|
processing
and laboratory cost of US$ 4.98 per tonne of
ore;
|
|
|
·
|
general
and administrative and social cost of US$1.32 per tonne of
ore;
|
|
|
·
|
environmental
cost of US$ 0.36 per tonne of ore;
|
|
|
·
|
overall
pit slope of 45 degrees on footwall and 55 degrees on hanging
wall;
|
|
|
·
|
minimum
pit bottom of 18 metres;
|
|
|
·
|
six-metre
bench mining heights;
|
|
|
·
|
bench
face slope of 65 degrees;
|
|
|
·
|
ultimate
haul road grade of no greater than 10%;
and
|
|
|
·
|
total
haul road width of 24 metres with
berms.
|
A
Lerchs-Grossman algorithm was utilized to optimize the pit. This algorithm
provided a basic pit shape outline that served as the basis for final pit
design.
Pre-production
activities are expected to be carried out in the months prior to production.
This includes development of waste the dump and stockpile areas, including
clearing and grubbing and top-soil removal as necessary; and haul road
development. A topsoil stockpile is expected to be situated near the
pit.
The open
pit design for the Box Mine deposit is predicated on the assumption that the
existence of the previous underground stopes (areas of prior underground ore
extraction) will not significantly disrupt the proposed mining schedule. These
stopes remain open and can measure 50m x 50m and may extend vertically from the
232m to 136m elevations. The smaller underground working such as the ventilation
and access infrastructure (drifts, raises and winzes) is not expected to impact
open pit planning as the volume of material required to fill these structures is
insignificant; however, knowledge of the location of this infrastructure is
required to avoid accidents.
To
minimize the disruptive impact of these pre-existing stopes on mine design and
scheduling, these large voids will be filled prior to their interception by the
open pit mining. The blasthole drills are expected to be used to intercept and
confirm the dimensions of these underground stoping voids. Linear expects that
these drills would then be required to complete a pattern of drill holes that
are expected to be used to develop a drop raise connecting these voids to the
surface (drop raises use vertical crater retreat blasting methods to develop
near vertical openings connecting two points where top access is available).
Linear expects that these voids would then be backfilled by trucks dumping low
grade ore material hauled from within the open pit; the use of this low grade
material is expected to minimize dilution during the subsequent extraction of
ore within these areas.
|
Operating Schedules
|
Ready
|
Shifts
|
Daily
|
Hourly
|
||||||||||
|
days/year
|
mtpd
|
mtph
|
||||||||||||
|
Overall
|
360
|
24
x 7
|
5000 | 208 | ||||||||||
|
Primary
Crushing
|
360
|
12
x 5
|
14000 | 1200 | ||||||||||
|
Fine
Ore Crushing
|
360
|
12
x 7
|
10000 | 416 | ||||||||||
|
Milling
|
360
|
24
x 7
|
5000 | 208 | ||||||||||
|
Gravity
Processing
|
360
|
24
x 7
|
5000 | 208 | ||||||||||
|
Concentrate
Leaching
|
360
|
24
x 7
|
187.2 | 7.8 | ||||||||||
|
Elution
|
360
|
24
x 7
|
187.2 | 7.8 | ||||||||||
|
Gold
pour
|
360
|
Weekly
|
||||||||||||
The Box
Mine Report projected that the mine would operate three shifts per day, seven
days per week. The following feasible mining schedule was utilized in
this analysis.
88
|
Year
|
Ore Mined
(tonnes)
|
Ore Grade
(g/tonne)
|
Waste Mined
(tonnes)
|
Strip Ratio
|
Total Mines
(tonnes)
|
|||||||||||||||
|
1
|
1,500,000 | 1.495 | 5,189,000 | 3.46 | 6,689,000 | |||||||||||||||
|
2
|
1,800,000 | 1.349 | 6,128,000 | 3.40 | 7,928,000 | |||||||||||||||
|
3
|
1,800,000 | 1.428 | 6,150,000 | 3.42 | 7,950,000 | |||||||||||||||
|
4
|
1,800,000 | 1.353 | 6,080,000 | 3.38 | 7,880,000 | |||||||||||||||
|
5
|
1,800,000 | 1.277 | 6,001,000 | 3.33 | 7,801,000 | |||||||||||||||
|
6
|
1,800,000 | 1.533 | 7,446,000 | 4.14 | 9,246,000 | |||||||||||||||
|
7
|
1,800,000 | 1.495 | 6,585,000 | 3.66 | 8,385,000 | |||||||||||||||
|
8
|
1,800,000 | 1.685 | 6,751,000 | 3.75 | 8,551,000 | |||||||||||||||
|
9
|
808,000 | 1.081 | 713,000 | 0.88 | 1,521,000 | |||||||||||||||
|
TOTAL
|
14,908,000 | 1.431 | 51,043,000 | 3.42 | 65,951,000 | |||||||||||||||
Projected
Mine Operating Cost
The Box
Mine Report estimated operating and maintenance costs for a 1.8 million tonne
per year operation. Operating cost was presented for each of the following
categories:
|
mu
(T/Year)
|
General
Admin
($/T)
|
Mining Ore
($/T ore)
|
Mining
Waste
($/T waste)
|
Crushing
($/T)
|
Processing
($/T)
|
Environmental
($/T)
|
||||||||||||||||||||
| 1,800,000 | 1.32 | 2.60 | 1.66 | 1.07 | 4.98 | 0.36 | ||||||||||||||||||||
The
operating cost was itemized into cost components for labor (supervisory,
operating & maintenance); operating consumable supplies; maintenance
supplies; and power generation.
A fuel
cost of $1.54 per liter was utilized throughout the Box Mine
Report.
The
estimated operating cost was expressed in 2nd quarter 2009 U.S. dollars without
escalation. Canadian dollars were assumed to be equivalent to U.S. dollars,
which was a conservative assumption as the Canadian dollar was trading at about
a 10% discount to the U.S. dollar at the time of completion of the Box Mine
Report. Changes in the currency exchange rate between the Canadian
dollar and the U.S. dollar is expected to affect these estimates.
Labor
costs and social burdens are expected costs of skilled laborers in Uranium
City.
Power
costs were based on detailed estimates and bids for all electrical installations
and assume 100% grid-supplied power at the Goldfields site.
The Box
Mine operation was expected to employ a total of 129 persons. The following
tables give summary details of the operating costs.
|
G&A
Summary*
|
||||||||
|
Unit
Cost
|
Annual Cost
|
|||||||
|
Corporate
office
|
$ | 0.172 | 310,000 | |||||
|
Mine
Site
|
$ | 1.128 | 2,029,950 | |||||
|
Social
Program
|
$ | 0.015 | 27,300 | |||||
|
Total
|
$ | 1.315 | 2,367,250 | |||||
*in
US$
89
|
Ore
Mining Operating Cost Summary*
|
||||||||
|
ORE
|
Unit
Cost
|
Annual Cost
|
||||||
|
Mine
Labor
|
$ | 0.943 | 1,698,125 | |||||
|
Maintenance
Labor
|
$ | 0.323 | 581,250 | |||||
|
Equipment
Expense
|
$ | 0.971 | 1,748,262 | |||||
|
Mine
Consumables
|
$ | 0.006 | 9,900 | |||||
|
Maintenance
Consumables
|
$ | 0.017 | 30,000 | |||||
|
Explosives
|
$ | 0.287 | 516,424 | |||||
|
Major
Repairs
|
$ | 0.100 | 90,000 | |||||
|
Totals
|
$ | 2.597 | 4,673,961 | |||||
|
Waste
Mining Operating Cost Summary*
|
||||||||
|
WASTE
|
Unit
Cost
|
Annual Cost
|
||||||
|
Mine
Labor
|
$ | 0.486 | 2,998,125 | |||||
|
Maintenance
Labor
|
$ | 0.121 | 743,750 | |||||
|
Equipment
Expense
|
$ | 0.788 | 4,857,992 | |||||
|
Mine
Consumables
|
$ | 0.002 | 9,900 | |||||
|
Maintenance
Consumables
|
$ | 0.005 | 30,000 | |||||
|
Explosives
|
$ | 0.247 | 1,521,649 | |||||
|
Major
Repairs
|
$ | 0.015 | 90,000 | |||||
|
Totals
|
$ | 1.663 | 10,251,416 | |||||
|
Crushing
Cost Summary*
|
||||||||
|
Unit
Cost
|
Annual Cost
|
|||||||
|
Labor
|
$ | 0.611 | 1,100,000 | |||||
|
Crushing
Consumables
|
$ | 0.397 | 714,600 | |||||
|
Power
|
$ | 0.042 | 103,009 | |||||
|
Totals
|
$ | 1.065 | 1,917,609 | |||||
|
Processing
Cost Summary*
|
||||||||
|
Unit
Cost
|
Annual Cost
|
|||||||
|
Process
Labour
|
$ | 0.569 | 1,025,000 | |||||
|
Assay
Lab Labour
|
$ | 0.322 | 580,000 | |||||
|
Maintenance
Labour
|
$ | 0.386 | 695,500 | |||||
|
Consumables
|
$ | 3.053 | 5,496,255 | |||||
|
Power
|
$ | 0.620 | 1,116,136 | |||||
|
Equipment
|
$ | 0.027 | 49,439 | |||||
|
Totals
|
$ | 4.979 | 8,962,330 | |||||
* in
US$
90
|
Environmental
Cost Summary*
|
||||||||
|
Unit
Cost
|
Annual Cost
|
|||||||
|
Labor
|
$ | 0.090 | 162,500 | |||||
|
Consumables
|
$ | 0.110 | 198,000 | |||||
|
Power
|
$ | 0.157 | 281,849 | |||||
|
Totals
|
$ | 0.357 | 642,349 | |||||
* in
US$
Mine
Capital Costs
The
capital cost estimate was based on quotations received by BETA from GLR, Linear
and Dan Mackie Associates from manufacturers, as well as from trade
publications, Machinery Trader, and historical data from current operations. The
cost estimate was considered accurate to within +/- 15% at the summary level and
is expressed in U.S. dollars. These cost estimates were being reviewed and will
likely be adjusted to account for increased costs and changes to currency
exchange rates.
Total
capital cost was estimated at US$65.7 million, as detailed below.
|
Goldfields
Box Mine Project Capital Costs Summary
|
||||
|
Mining
and Mine Support Equipment
|
$ | 14,336,000 | ||
|
Crushing
& Conveying
|
$ | 4,009,147 | ||
|
Process
Plant & Refinery
|
$ | 16,903,036 | ||
|
Electrical
Generation and Distribution
|
$ | 1,280,000 | ||
|
Electrical
Hardware, Software and Installation
|
$ | 5,633,800 | ||
|
Tailings
Facility
|
$ | 250,000 | ||
|
Buildings
and Support Systems
|
$ | 4,620,600 | ||
|
E.P.C.M.
|
$ | 3,617,945 | ||
|
Civil
Construction
|
$ | 4,095,000 | ||
|
Environmental
Bond
|
$ | 3,000,000 | ||
|
Fuel
Tank Farm
|
$ | 2,000,000 | ||
|
Contingency
|
$ | 6,000,000 | ||
|
TOTAL
|
$ | 65,745,528 | ||
In
addition to the above, working capital is estimated at $3,000,000, to be repaid
at the end of mine life.
Linear is
currently reviewing the capital cost estimates completed by BETA. The
results of the initial review, while not conclusive, indicate that capital costs
may exceed the estimates provided by BETA and accordingly could impact the value
of the project. As of this date, management estimates that capital
costs of developing the Goldfields Box Mine Project could be in the range of
US$80-100 million.
Athona
Mine Project Description
BETA was
commissioned to prepare a technical report on the Athona Mine - the Anthona Mine
Report. The Athona Mine property is approximately 3/8 of a mile (0.6 km)
southeast of Neiman Bay, and about 3/4 mile south of the former town site of
Goldfields. The mine is situated on the Lucky-Willy Group of 14 claims which
were staked in 1934 by Great Bear Lake Mines Ltd., following the discovery of
gold on the adjoining Box Mine property of Cominico of Canada Ltd. The Willy
claims 1 and 2 and Lucky claims 1-12 were staked in the fall of 1934 and spring
of 1935 for Great Bear Lake Mines Limited. In 1935 the name of the company was
changed to Athona Mines Limited. Work between 1935 and 1938 consisted of
extensive trenching and diamond drilling (7344 metres or 24,097 ft.) which
located several zones of mineralization. Work began on two shafts in 1935. Both
shafts were sunk on the Main zone. In 1937 the company was reorganized,
following the acquisition of Greenlee Mines Limited properties, and renamed
Athona Mines (1937) Limited. Operations were discontinued in June 1939.
Approximately $600,000 had been spent on development of the property up to this
time. The Athona mine reportedly closed not from the lack of ore or grade, as
sufficient development work had been done to bring the mine into production, but
no arrangements had been made with Cominco for treatment of ore on a custom
basis, and no satisfactory source of power was available for operation of a
mill. No further work was reported on the property until 1980.
91
Geology
and Mineralization
The gold
bearing zones at the Athona Deposit are from west to east: the eastern portion
of the West Mine Granite, the Athona Deposit Granite, the Pond Zone and in a
prominent en echelon and bouginage quartz vein system of the East Zone. The
underground mine development was concentrated in the western portion of the
Athona Deposit Granite and the eastern quartz vein systems (H, I, J, K veins) on
the 125 and 250 foot levels. The Athona West Granite (AWG) is a medium to coarse
grained, reddish hematitic altered granite, dipping moderately westwards,
containing fracture filling quartz veining within the footwall sheared contact
or mylonite zone. The unit is underlain by the central gabbroic to amphibolitic
intrusive which separates the AWG from the Athona Mine Granite
(AMG).
The
Athona Mine Granite (AMG) is porphyroblastic with similar amounts of potassium
feldspars and plagioclase. This unit may represent a complex multi-intrusive
with variable composition or a metamorphosed sequence of sedimentary
lithologies. The northern portion of the original mining claim has exposures of
quartzite. The auriferous sulphides are contained within the AMG and in the
fracture/shear zone filled with quartz veins trending N20E and dipping 80° west.
The sulphides are less than 1% fine grained pyrite, trace amounts of galena and
sphalerite with minor amounts of pyrrhotite. This zone appears to be shallow
dipping to the west and is underlain by a thin gabbroic sill which separates a
deeper, coarse grained granite locally termed “ombstone granite”. The Pond Zone
appears very similar to that of the Athona Deposit Granite.
The major
quartz vein systems containing the H, I, J and K veins are located at or near
the eastern extent of the AMG. The veining has been traced from surface to below
the second level and for a strike length of approximately 100 metres. The vein
set is a combination of en echelon and boudinage veins trending approximately
N10E and dipping 72° east. Further to the southeast, a parallel to sub-parallel
vein sets, L and M veins, appear to be contained within a north-northeast
shear/fault zone which may extent towards the vicinity of Shaft 2.
The
mineralization occurs within a grey to pink-red megacrystic leucogranite, the
“Athona granite”. The granite body is apparently conformable with surrounding
rocks that strike N to NW and dip westerly. The granite is in two parts,
separated by an amphibolite (the “Upper gabbro”). The structurally lower part
overlies a further amphibolite body (the “Lower gabbro”). Underlying the `Lower
gabbro’ is porphyritic fine-grained granite. NW-SE trending diabase dykes cut
the granite and amphibolite. On the east side of the peninsula is a
NNE-trending, easterly dipping reverse fault.
The Main
zone is approximately 24 metres wide and appears in plan as a zone parallel to
the granite- ‘Upper gabbro’ contact. It is characterized by numerous parallel
quartz veins oblique to the strike of the contact. The veins are rarely more
than 8 centimeters wide. They trend NNE and dip 80° west. The veins are very
persistent and can be traced up to 120 metres. Narrow quartz stringers commonly
branch from the main veins in various directions. The veins occur almost
exclusively in the granite. Where they intersect the granite- ‘Upper gabbro’
contact they pass into the overlying amphibolite, but pinch out within a few
centimeters.
The total
percentage of metallic minerals is low, possibly not more than one percent.
Sphalerite, galena, pyrite, gold and rare chalcopyrite occur in the quartz veins
and the granite. In the granite pyrite is the only common sulphide. Gold in the
granite is commonly associated with ‘clots’ of chlorite; more rarely it fills
fractures in feldspar. In the quartz veins sphalerite and galena predominate
over pyrite and chalcopyrite. They commonly occur as ‘lumpy’
aggregates.
Sphalerite
and galena generally indicate high grade of local extent. Most of the gold is
fairly coarse and occurs alone or with the sulphides in the quartz veins. There
is a marked enrichment in gold along the amphibolite contact. The East zone
comprises veins similar in attitude and mineralogy to those of the Main zone. In
contrast to the Main zone, the East zone exhibits locally two additional sets of
quartz stringers. They apparently do not contain gold. Pyrite, galena,
sphalerite and gold occur in the main quartz veins. These minerals, but
particularly galena and gold, are frequently present as replacements in the wall
rock along fractures adjacent to the main veins. The latter fractures are not
quartz-filled. The East zone makes ore in two shoots separated by a low grade
section.
92
Drilling
Initial
surface and underground diamond drilling was conducted on the Box Mine and the
Athona Mine properties during 1935 to 1939.
Diamond
drilling by GLR commenced in 1987-1988 on both properties. This was followed by
reverse circulation drilling in 1989 and two additional programs of diamond
drilling in 1994 and 1995. In total (1935 to 2005), 402 holes totaling 48,561
metres containing 17,226 assays has been completed on the Box Mine property. The
underground sampling of the drifts and crosscuts were compiled into 32
pseudo-drill holes totaling 6,548 metres containing 4,385 assays.
Athona
Deposit Drilling
In total
(1935 to 2005), 263 holes totaling 23,899 metres (12,650 samples) has been
completed on the Athona Mine property. The table below summarizes the diamond
drilling completed at the Athona Mine property by type and
location.
|
Year(s)
|
Type
|
Location
|
Number
of
Holes
|
Length
(metres)
|
Length
(feet)
|
Number of
Samples
|
||||||||||||||
|
1935
to 1939
|
DDH
|
surface
|
44 | 5,065.60 | 16,619.42 | 831 | ||||||||||||||
|
1939
|
DDH
|
underground
|
23 | 1,587.25 | 5,207.51 | 765 | ||||||||||||||
|
1987
to 1988
|
DDH
|
surface
|
55 | 5,656.20 | 18,557.09 | 4,105 | ||||||||||||||
|
1989
|
RCD
|
surface
|
11 | 1,176.00 | 3,858.27 | 560 | ||||||||||||||
|
1994
|
DDH
|
surface
|
52 | 4,000.60 | 13,125.33 | 1,871 | ||||||||||||||
|
1995
|
DDH
|
surface
|
78 | 6,413.00 | 21,040.03 | 4,518 | ||||||||||||||
|
Totals
-
|
263 | 23,898.65 | 78,407.64 | 12,650 | ||||||||||||||||
In 2006,
GLR conducted a diamond drilling campaign at Athona, totaling 1592 metres, on
the Mining Lease ML 5523. The diamond drilling program consisted of 16 NQ core
size drill holes. The stated purpose of the 2006 summer drilling program was to
bring the Athona Deposit up to NI 43-101 standards.
Ixhuatán
Project, Mexico
Prior to
its acquisition of the Goldfields Project, Linear’s primary area of focus has
been Mexico, where Linear owns a 100% interest, through its subsidiary Linear
Gold Mexico, S.A. de C.V. (“Linear Gold Mexico”), in the Ixhuatán Project
located in Chiapas, Mexico. Pursuant to an option agreement signed on
October 22, 2007, Kinross Gold Corporation (“Kinross”) became the operator of
the Ixhuatán Project. Pursuant to the Option Agreement with Kinross,
Kinross could have earned up to a 70% interest in Ixhuatán by incurring
exploration expenditures of US$15 million over a 24-month period and making cash
payments of up to US$115 million to Linear. In December 2009, Kinross
notified Linear that the option would not be exercised. Pursuant to the terms of
the Option Agreement, Kinross will pay Linear US$3.4 million, representing the
difference between the minimum required expenditures and the actual expenditures
incurred by Kinross during the option period. Accordingly, Linear continues to
hold a 100% interest in the Ixhuatán Project.
A
technical report on the Ixhuatán Project, as defined in National Instrument
43-101, was filed on SEDAR on January 13, 2006. On June 14, 2006, the
results of an independent resource calculation on Ixhuatán’s Campamento Deposit,
compliant with National Instrument 43-101, were announced by the Company and a
Technical Report was filed on SEDAR on July 7, 2006.
Property
Description and Location
Linear
owns 100% of the mineral rights on four contiguous exploration concessions
covering 98,044 hectares representing the Ixhuatán Project in northern Chiapas
State, Mexico. The majority of the surface rights to the Ixhuatán concessions
are controlled by various ejidos (government created local farm communities) and
private owners. An agreement was signed with the local community
holding surface rights to the Campamento Deposit as well as significant other
surface lands within the Company’s concession. The agreement grants access
rights to drilling for a period of three years covering all areas within the
terrain of the community. In addition, agreements have been reached with 19
additional surrounding communities granting access for exploration
activities.
93
The
Ixhuatán Project is located immediately southwest of the Santa Fe mine owned by
Minera Frisco. The project is accessible by unimproved roads running five
kilometres east of the town of Rayon, Chiapas. Rayon is situated two
hours south of Villahermosa, Tabasco, on an all season federal highway
195. Access within the property is difficult and attained primarily through
trails and small dirt roads. The area is one of dense tropical vegetation,
covered by thick soils, rugged topography with incised rivers making travel
difficult. Maximum elevation in the general area is 2,470 metres above sea
level.
All
required environmental permits for the project have been acquired and to date,
all the conditions of grant have been adhered to. Under terms of the
environmental drilling permit, any significant disruption to the land surface
caused by drilling activities must be reclaimed.
History
The
Ixhuatán property was acquired by Linear Gold Mexico in 2000, following
completion of a stream sediment geochemical orientation study carried out in the
northern part of Chiapas State by Mount Isa Mines (MIM). The study
covered an area in the general proximity of the Santa Fe poly-metallic deposits,
a former gold, silver and copper producer.
The Santa
Fe/La Victoria gold deposits are located to the immediate east-northeast of the
Ixhuatán property. Property boundaries are common. Physiographically the area is
underlain by the Chiapas Northern Range and Chiapas Highlands geological
sub-provinces. The original discovery was made during the later stages of the
nineteenth century and over the years Mexican, British and French mining
companies have carried out limited mining activity in the area. The Santa Fe
deposits have been mined since the beginning of the 20th century
by a number of companies, both foreign and domestic, and although no historical
production records exist, it is assumed that the richest surface ore shoots were
exploited. The La Victoria deposits were discovered more recently and records
suggests exploitation from 1966 to 1970 by Minera Corzo, S.A. who commenced
operation in 1966 but soon ceased as a result of the company’s poor economic
situation.
Geological
Setting
As
defined by Consejo de Recursos Minerales of Mexico (“CRM”), the Ixhuatán - Santa
Fe region is underlain by folded sedimentary units intruded by Tertiary
intrusives of possible economic interest included within the Chiapas Fold and
Fault Belt. A volcanic/plutonic igneous complex crosscuts the
deformed underlying sedimentary basement.
94
Geological
mapping by Linear personnel in the south-central portion of the property has
outlined a volcanic/plutonic complex of andesitic to syenitic porphyritic
intrusive rocks, lahars, tuffs and volcaniclastic breccias of Pliocene age
developed in and on a sequence of Eocene-Pliocene aged carbonates, siltstones
and sandstones. The volcanic sequence is intruded by Tertiary age syenites,
diorites and granodiorites. Mineralization appears to be related to
hydrothermal alteration associated with multiple phases of the younger intrusive
activity.
Exploration
Linear
Gold and Kinross have completed extensive stream sediment, soil, and rock
sampling programs over the Ixhuatán property. Approximately 1,950
stream sediment samples, 7,895 soil samples and 7,258 rock samples have been
collected through to March 2009. The detailed surface sampling has
outlined gold and copper anomalies over an area of 4 by 5 kilometres, associated
with the volcanic/plutonic complex that trends northeast-southwest through the
area. Detailed soil sampling has identified numerous gold and copper
soil anomalous areas in excess of 400 x 400 metres in area. All of
the anomalies, including the Campamento, Cerro la Mina, San Isidro, Caracol
(formerly Northern), Laguna Grande, Western, Laguna Chica, Central, and Cacate
areas display the alteration and mineralization characteristics typical of
porphyry intrusive related districts.
Soil
Samples > 100 ppb Gold at Ixhuatán. Grid lines every 500
metres.
Follow-up
surface exploration by Kinross from October 2007 to date has included geological
mapping and rock sampling focusing mainly on the known anomalies. An
in-fill 482 sample, soil geochemical survey (Caracol Road), covering the area
between the Cerro la Mina and Caracol anomalies has defined an elongate cluster
of anomalous gold values centered on the Central Zone and extending 200 metres
to the south as well as a gold anomaly to the north. In addition,
soil geochemical surveys were conducted in an area to the south and the east of
San Isidro.
95
Caracol
Road Soil Survey Results. Grid lines every 500 metres.
Drilling
Linear
initiated a drilling program in early 2004, and this drilling program has
continued without interruption, with approximately 71,500 metres of drilling in
288 drill holes being completed through the date of this report.
Early-stage
drilling by Linear focused on the San Isidro (drill holes IX-01-04, 06), Buenos
Aires (drill hole IX-05), Cerro la Mina (drill hole IX-07) and Central (drill
hole IX-08) anomalies before making the first significant gold discovery at the
Campamento Zone with drill hole IX-09. Drilling subsequently focused
on the Campamento Zone and has extended to the Cerro la Mina, Caracol, Laguna
Grande and Laguna Chica areas. A summary of these individual areas
and drill result highlights is included in this AIF under Section 4.2 Ixhuatán
Project – Individual Zones.
Since
Kinross became the operator of the Ixhuatán project in October 2007, Kinross has
reported on approximately 18,700 metres of drilling completed in 60 drill holes
to March 31, 2009.
Kinross
has focused on defining the Cerro la Mina anomaly and the north-northwest
structure, as well as, testing the Laguna Chica, San Isidro, Central and Caracol
anomalies.
Sampling
and Analysis
All core
samples have been split in half using a saw, hydraulic splitter or manually with
samples taken at continuous two metre intervals. Samples and embedded
internal and commercial standards are shipped by air freight to the ALS Chemex
labs in Guadalajara, Mexico where gold is analyzed by 30 or 50 gram digestion
with a fire assay-AA finish, with samples greater than 10 grams per tone of gold
by gravimetric finish. Silver and base metals are analyzed by
Induction Coupled Plasma spectrometry (ICP). Check analyses are
performed on both pulps and bulk reject material at ALS Chemex and BSI
Inspectorate Labs of Reno, Nevada. Review of assays from internal
standards and check assays has verified the quality of the analytical
results.
96
Current
Exploration Program
Following
receipt of Kinross’ December 2009 notice that it will not exercise their option
to acquire an interest in the Ixhuatán Project, Linear is reviewing data and
considering future exploration programs for the project. No
exploration work is in progress at this time.
Future
Exploration and Development
Future
drilling is expected to continue on the known anomalous zones at Ixhuatán in
order to add more gold, copper and silver resources to the project.
Other
Properties
Linear’s
other mineral properties are less advanced and Linear has no immediate plans to
carry out significant exploration programs on these
properties. Linear does not plan to complete technical reports on
these properties until they are considered, by Linear, to be
material.
Dominican
Republic
In the
Dominican Republic, Linear owns a 100% interest in two properties and a 50%
interest in a third property, through its subsidiary Linear Gold Caribe,
S.A. Linear has granted options to Everton Resources Inc. (“Everton”)
to earn up to a 65% interest in each of the Dominican Republic properties, with
Everton becoming operator of the properties during the term of the
options. The agreements require cash payments by Everton to Linear,
the completion of work commitments by Everton over a three-year period and the
issuance of Everton common shares to Linear.
Brazil
In fiscal
2008, Linear entered into four separate option agreements to acquire up to a
100% interest in four gold-focused exploration properties in Mato Grosso, Brazil
by making cash payments and incurring exploration expenditures over a three-year
period. During the year ended March 31, 2009, Linear terminated all four of its
option agreements in Brazil, resulting in a write-down of resource properties in
Brazil of Cdn.$2.1 million for the year.
Linear
Stock Price History
The
outstanding common shares of Linear are traded on the TSX under the trading
symbol “LRR”. The following table sets forth, for the periods
indicated, the high and low market closing prices per share of our common shares
as reported by the Toronto Stock Exchange:
|
Toronto
Stock Exchange
(LRR)
|
||||||||
|
High
|
Low
|
|||||||
|
(Cdn.$)
|
||||||||
|
Annual
Information
|
||||||||
|
2005(1)
|
$ | 4.14 | $ | 3.15 | ||||
|
2006
|
$ | 7.20 | $ | 3.26 | ||||
|
2007
|
$ | 6.65 | $ | 2.00 | ||||
|
2008
|
$ | 3.10 | $ | 0.65 | ||||
|
2009
|
$ | 2.77 | $ | 0.78 | ||||
|
Quarterly
Information
|
||||||||
|
2010
|
||||||||
|
First
Quarter
|
$ | 2.30 | $ | 1.54 | ||||
|
2009
|
||||||||
|
First
Quarter
|
$ | 1.28 | $ | 0.78 | ||||
|
Second
Quarter
|
$ | 1.59 | $ | 1.01 | ||||
|
Third
Quarter
|
$ | 2.40 | $ | 1.21 | ||||
|
Fourth
Quarter
|
$ | 2.77 | $ | 1.85 | ||||
|
2008
|
||||||||
|
First
Quarter
|
$ | 3.10 | $ | 2.15 | ||||
|
Second
Quarter
|
$ | 2.47 | $ | 1.77 | ||||
|
Third
Quarter
|
$ | 2.18 | $ | 0.90 | ||||
|
Fourth
Quarter
|
$ | 1.10 | $ | 0.65 | ||||
|
Monthly
Information
|
||||||||
|
October
2009
|
$ | 2.77 | $ | 1.89 | ||||
|
November
2009
|
$ | 2.38 | $ | 1.85 | ||||
|
December
2009
|
$ | 2.25 | $ | 1.91 | ||||
|
January
2010
|
$ | 3.10 | $ | 2.15 | ||||
|
February
2010
|
$ | 2.90 | $ | 2.22 | ||||
|
March
2010
|
$ | 2.84 | $ | 2.26 | ||||
|
April
2010(2)
|
$ ►
|
$ ►
|
||||||
97
(1) From
November 3, 2005
(2)
Through ►, 2010
Selected
Financial Data
This data
is derived from Linear’s audited consolidated financial statements for the five
fiscal years ended March 31, 2009, and Linear’s unaudited consolidated financial
statements for the nine month periods ended December 31, 2009 and 2008, which
were prepared in accordance with Canadian GAAP and reconciled to U.S.
GAAP. The following selected financial data has been extracted from
the more detailed consolidated financial statements and is qualified in its
entirety by such consolidated financial statements. The following
selected financial data should be read in conjunction with the consolidated
financial statements of Linear as at March 31, 2009 and 2008 and for the fiscal
years ended March 31, 2009, 2008 and 2007 and the notes thereto attached to
this Circular as Schedule M. The
consolidated financial statements of Linear as at March 31, 2007, 2006 and 2005
and for the years ended March 31, 2006 and 2005 do not accompany this Circular
and are not incorporated herein by reference, but may be found under Linear’s
profile on SEDAR at www.sedar.com.
There are several material differences between Canadian GAAP and
U.S. GAAP that are applicable to the financial information disclosed or
summarized herein. Reference is made to the attached consolidated
financial statements of Linear for an explanation of material differences
between Canadian GAAP and U.S. GAAP as at
March 31, 2009 and 2008 and for the fiscal years ended March 31, 2009 and
2008 and as at December 31, 2009 and for the nine month periods ended December
31, 2009 and 2008. The following information should be read in
conjunction with the “Operating and Financial Review and Prospects” section
below. The information contained below and on Schedule M has been
provided by or on behalf of Linear and has not been independently verified by
Apollo.
The data
presented is expressed in thousands of Canadian dollars, except share
amounts:
|
For the nine months
ended December 31, |
For the years ended March 31,
|
|||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Canadian
GAAP Data
|
||||||||||||||||||||||||||||
|
Operating
revenue:
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Income
(loss) from operations
|
(3,471 | ) | (4,341 | ) | (6,486 | ) | (5,027 | ) | (2,629 | ) | (2,259 | ) | (2,498 | ) | ||||||||||||||
|
Net
income (loss)
|
(3,317 | ) | (3,588 | ) | (4,900 | ) | (3,679 | ) | (1,853 | ) | (1,701 | ) | (2,234 | ) | ||||||||||||||
|
Net
income (loss) from operations per share
|
(0.10 | ) | (0.16 | ) | (0.23 | ) | (0.18 | ) | (0.12 | ) | (0.11 | ) | (0.16 | ) | ||||||||||||||
|
Net
loss per share – basic and diluted
|
(0.10 | ) | (0.13 | ) | (0.17 | ) | (0.13 | ) | (0.08 | ) | (0.08 | ) | (0.14 | ) | ||||||||||||||
|
Total
assets
|
79,375 | 54,754 | 58,557 | 57,797 | 59,539 | 37,817 | 36,592 | |||||||||||||||||||||
|
Net
assets
|
78,355 | 54,362 | 58,159 | 57,295 | 58,730 | 36,745 | 36,043 | |||||||||||||||||||||
|
Cash
dividends per common share
|
- | - | - | - | - | - | - | |||||||||||||||||||||
|
Common
shares outstanding
|
44,218,208 | 27,917,980 | 32,563,435 | 27,917,980 | 27,207,980 | 21,380,980 | 20,476,506 | |||||||||||||||||||||
98
|
For the nine months ended
December 31,
|
For the years ended
March 31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
US
GAAP Data
|
||||||||||||||||
|
Net
income (loss)
|
168
|
(2,955
|
)
|
(3,155
|
)
|
(6,577
|
)
|
|||||||||
|
Net
income (loss) per share – basic and diluted
|
0.00
|
(0.11
|
)
|
(0.11
|
)
|
(0.24
|
)
|
|||||||||
|
Total
assets
|
56,484
|
27,265
|
32,180
|
29,675
|
||||||||||||
|
Net
assets
|
55,224
|
26,873
|
31,782
|
29,173
|
||||||||||||
|
Cash
dividends per common share
|
-
|
-
|
-
|
-
|
||||||||||||
|
Common
shares outstanding
|
44,218,208
|
27,917,980
|
32,563,435
|
27,917,980
|
||||||||||||
Annual
Dividends
Linear
has not paid cash dividends on its common shares and it does not anticipate
paying any cash dividends until its financial position and earnings so
permit. For the foreseeable future, Linear’s cash resources will be
used to evaluate existing properties, acquire new properties and fund ongoing
activities.
Although
Linear has not paid cash dividends on its common shares, Linear completed a
reorganization and distribution of its wholly owned subsidiary, Linear Metals,
as a dividend-in-kind to shareholders of record on June 26, 2006. The
dividend-in-kind distribution to Linear’s shareholders was on the basis of eight
units of Linear Metals for every ten shares of Linear. Each unit
consisted of one common share of Linear Metals and one-tenth warrant, with each
full warrant entitling the holder to purchase one share of Linear
Metals.
Operating
and Financial Review and Prospects
Results
of Operations
Three-month
period ended December 31, 2009
During
the quarter ended December 31, 2009, Linear incurred a net loss of Cdn.$1.0
million, which is Cdn.$1.1 million less than the net loss incurred in the third
quarter of fiscal 2009. During this quarter, Linear incurred salaries
and benefits expenses of Cdn.$0.5 million, an increase of 83% compared to the
third quarter of fiscal 2009 as Linear increased staffing levels to advance the
Goldfields Project and to increase investor relations
activities. Following the acquisition of the Goldfields Project,
Linear increased marketing activities, resulting in expenditures during the
current quarter of Cdn.$0.1 million. Linear also incurred non-cash
stock-based compensation expense of Cdn.$0.2 million attributable to the
estimated value of stock options earned during the period. Travel
costs for the quarter increased by Cdn.$0.1 million compared to the same quarter
of the prior fiscal year, consistent with increased staffing
levels. During the third quarter of the prior fiscal year, Linear
incurred a write-down of resource properties of Cdn.$1.7 million as a result of
its decision to terminate certain resource property interests in
Brazil. Linear did not incur any such write-downs during the quarter
ended December 31, 2009. Linear will continue to review its portfolio
of exploration properties and write-down the carrying cost of any properties
considered to be impaired in value.
99
Interest
income decreased by 81% compared to the third quarter of fiscal 2009, primarily
as a result of significantly lower short-term interest rates in Canada on a
year-over-year basis.
During
the three-month period ended December 31, 2009, Linear earned management fees
and other income of approximately Cdn.$37,000 arising from the provision of
management services to Linear Metals Corporation and Ucore Uranium Inc., the
sub-leasing of office space by Linear and the rental of certain equipment to
Kinross in Mexico. Linear also recognized a loss on disposal of
equipment of Cdn.$4,133 and a loss on sale of marketable securities of
Cdn.$9,514 during the quarter.
Linear
recognized a foreign exchange loss of approximately Cdn.$0.1 million during the
current quarter, similar to the loss of Cdn.$0.1 million during the third
quarter of fiscal 2009. Linear may continue to incur foreign exchange
gains and losses arising from changes in the value of the Mexican, United
States, Dominican Republic, and Brazilian currencies used in the conduct of its
business, relative to the Canadian dollar.
Nine-month
period ended December 31, 2009
During
the nine-month period ended December 31, 2009, Linear incurred a net loss of
Cdn.$3.3 million, which is Cdn.$0.3 million less than the net loss in the same
period of the prior fiscal year. Operating expenses for the period
were Cdn.$3.5 million, a decrease of Cdn.$0.9 million, or 20%, over the prior
fiscal year. During the prior fiscal year, Linear incurred a Cdn.$2.4
million write-down of resource properties following its decision to terminate
its interests in certain resource properties in Mexico and
Brazil. Linear did not incur any such write-downs of its resource
properties during the current year. The absence of a property
write-down in the current period was offset by a 59% increase in salaries and
benefits expense compared to the first three quarters of fiscal 2009, as Linear
increased staff levels to complete the acquisition, exploration and development
of the Goldfields Project and to evaluate a number of other strategic
opportunities. Investor relations and marketing expenses increased
Cdn.$0.7 million as Linear completed a significant investor relations and
marketing campaign following the acquisition of the Goldfields
Project. Linear also incurred non-cash stock-based compensation
expense of Cdn.$0.9 million attributable to the estimated value of stock options
earned during the period and impacted by the cancellation of 660,000 stock
options during the current year. Linear capitalized Cdn.$34,518 of
non-cash stock-based compensation to its exploration expenditures costs during
the current year, representing the estimated value of stock options earned by
certain exploration personnel.
Interest
income decreased by 69% compared to fiscal 2009, primarily as a result of
significantly lower short-term interest rates in Canada on a year-over-year
basis.
During
the nine-month period ended December 31, 2009, Linear earned management fees and
other income of Cdn.$0.2 million arising from the provision of management
services to Linear Metals Corporation and Ucore Uranium Inc., the sub-leasing of
office space by Linear and the rental of certain equipment to Kinross in
Mexico.
Linear
recognized a foreign exchange loss of approximately Cdn.$0.2 million during the
current period, compared to a loss of Cdn.$0.1 million during the same period of
the prior fiscal year. Linear may continue to incur foreign exchange
gains and losses arising from changes in the value of the Mexican, United
States, Dominican Republic, and Brazilian currencies used in the conduct of its
business, relative to the Canadian dollar.
100
Year
Ended March 31, 2009
During
the year ended March 31, 2009, Linear experienced a net loss of Cdn.$4.9
million, which is Cdn.$1.2 million greater than the net loss in the previous
fiscal year. Operating expenses for the year were Cdn.$6.5 million,
an increase of Cdn.$1.5 million, or 29%, over the prior fiscal year. The
increase in operating expenditures was primarily a result of Linear’s write-down
of resource properties during the year. In Brazil, Linear terminated
its interest in all four of its property option agreements, resulting in a
write-down of resource properties of Cdn.$2.1 million. In Mexico,
Linear was retaining a 20% interest in the Cobre Grande property purchase option
with the Community of San Baltzar Guelavila which was not exercised, resulting
in a write-down of resource properties of Cdn.$1.2 million. Finally,
Linear’s decision to terminate its interests in the Motozintla property in
Mexico resulted in a write-down of resource properties of Cdn.$0.3
million. The write-down of these resource properties totaled Cdn.$3.6
million, an increase of Cdn.$1.6 million over the prior year. Linear
will continue to review its portfolio of exploration properties and write-down
the carrying cost of any properties considered to be impaired in
value. Other significant operating expenses during the period
included salaries and benefits expenses of Cdn.$1.1 million, a decrease of 17%
compared to the prior fiscal year, primarily a result of lower levels of
exploration, administrative and investor relations staffing during the
year. Linear also incurred non-cash stock-based compensation expense
of Cdn.$1.0 million attributable to the value of stock options earned during the
year, representing an increase of 28% compared to the value recognized in the
previous fiscal year. Linear capitalized Cdn.$18,569 of non-cash
stock-based compensation to its exploration expenditures costs during the year,
representing the value of stock options earned by exploration personnel, net of
amounts related to the cancellation of unvested options previously granted to
exploration staff. Professional services increased by Cdn.$0.2
million when compared to the prior year as Linear incurred increased legal,
engineering and other consulting fees associated with the evaluation of
potential strategic acquisitions during the year. Linear’s investor
relations expense was 87% lower and travel expense was 48% lower than in fiscal
2008, a result of significantly lower investor relations activities and lower
travel during the year, in light of current market conditions.
Linear
received a termination break fee of Cdn.$1.0 million from Central Sun Mining
Inc. (“CSM”) which has been recorded, net of related costs of Cdn.$0.5 million,
in other income. The direct costs related to the proposed transaction with CSM
included professional fees of approximately Cdn.$248,000, management bonuses as
a result of the CSM transaction of approximately Cdn.$165,000, independent
directors committee fees of approximately Cdn.$55,000, and travel costs of
approximately Cdn.$16,000.
While the
Cdn.$5.0 million private placement financing, completed in March 2009,
contributed to a higher cash balance at March 31, 2009 when compared to March
31, 2008, interest income decreased by 22% during the year as a result of the
decline in Canadian interest rates during the fiscal year.
During
the year ended March 31, 2009, Linear earned management and other fees of
Cdn.$0.3 million arising from the provision of management services to Linear
Metals Corporation and Ucore Uranium Inc., the sub-leasing of office space by
Linear and the rental of certain equipment in Mexico.
Linear
recognized a foreign exchange loss of Cdn.$0.1 million during fiscal 2009, a
decrease of 39% from the previous year. Linear may continue to incur
foreign exchange gains and losses arising from changes in the value of the
Mexican, Brazilian, United States and Dominican Republic currencies used in the
conduct of its business, relative to the Canadian dollar.
During
the year, Linear realized a Cdn.$0.1 million loss on disposal of equipment
relating to the sale of certain fixed assets, primarily in Brazil, during fiscal
2009.
Liquidity
and Capital Resources
Linear’s
only significant source of recurring income is interest earned on its cash
balance; accordingly, the Linear expects to continue to incur operating losses
for the foreseeable future. Linear will continue to fund operating
losses, exploration expenditures and the development of the Goldfields Project
out of existing working capital, which was Cdn.$30.4 million at March 31, 2009
and Cdn.$44.6 million at December 31, 2009. A payment in the amount
of U.S. $1.0 million, scheduled for October 2009 pursuant to a construction
contract assumed as part of the Goldfields Project acquisition, has not been
recorded in accounts payable or in the working capital calculation as a result
of contract deficiencies currently being discussed with the
supplier.
Three-months
ended December 31, 2009
At
December 31, 2009, Linear had working capital of Cdn.$44.6 million, as compared
to working capital of Cdn.$22.3 million at the end of the previous quarter, an
increase of Cdn.$22.3 million, primarily due to the completion of a financing on
November 19, 2009 that raised net proceeds of Cdn.$21.1 million.
During
the quarter ended December 31, 2009, Linear realized an increase in cash of
Cdn.$0.5 million from operating activities, as a result of the collection of
accounts receivable from previous quarters, offset by ongoing general and
administrative expenses, including salaries and benefits
expenses. Linear purchased capital assets of Cdn.$1.3 million during
the quarter, primarily consisting of payments made pursuant to the equipment
construction contracts assumed as part of the acquisition of the Goldfields
Project. Linear also sold certain equipment in Mexico and Brazil for
proceeds of approximately Cdn.$18,000 and sold marketable securities for
proceeds of approximately Cdn.$24,000. Linear incurred net resource
property acquisitions and expenditures, including the net impact of recoverable
sales taxes, of approximately Cdn.$0.2 million during the period.
101
Nine-months
ended December 31, 2009
During
the nine-month period ended December 31, 2009, Linear realized a decrease in
cash of Cdn.$1.1 million from operating activities, consisting primarily of
general and administrative expenses, including salaries and benefits expenses
and investor relations and marketing expenses, offset by the collection of
accounts receivable. Linear purchased capital assets of Cdn.$2.3
million during the period, including the land, buildings and equipment acquired
as part of the acquisition of the Goldfields Project and total payments of
Cdn.$1.8 million made pursuant to the equipment construction contracts assumed
pursuant to the acquisition of the Goldfields Project. Linear also
disposed of certain equipment in Mexico and Brazil for total proceeds of
approximately Cdn.$37,000 and received proceeds of approximately Cdn.$24,000 on
the sale of marketable securities. In addition to the resource
properties acquired as part of the Goldfields Project acquisition, Linear
received cash of Cdn.$0.4 million during the first quarter of the year from
Everton Resources Inc., pursuant to the option agreement between the parties,
resulting in net resource property acquisitions and expenditures of Cdn.$6.0
million during the nine-months ended December 31, 2009. Linear
recovered approximately Cdn.$16,000 during the nine-month period ended December
31, 2009 in net sales taxes related to resource property
acquisitions.
In
September 2009, Bikerman Engineering & Technology Associates, Inc. (BETA)
completed an updated National Instrument 43-101 compliant Technical Report,
initially dated June 2007 and revised on May 12, 2008 on the Box Mine Deposit
and a Pre-Feasibility study on the Athona Deposit, which indicates an estimated
pre-production capital cost of US$65.7 million. Linear is currently
undertaking a detailed review of the mine plan, the equipment, the processing
plant, and the infrastructure requirements for the development of the Goldfields
Project, following which a specific development timeline will be
completed. In the future, Linear expects to rely on additional equity
financings, debt financings and/or entering into joint venture arrangements in
order to fund these capital costs and to continue exploration on its
properties. There can be no assurance that Linear will be able to
obtain the required financing, and the failure to do so could result in
development delays or cancellations.
On
November 19, 2009, Linear completed a public offering of 10,407,500 units at a
price of Cdn.$2.10 per unit and 520,000 flow-through common shares at a price of
Cdn.$2.40 per flow-through share, for aggregate gross proceeds of
Cdn.$23,103,750. Each unit consisted of one common share and one-half
of one common share purchase warrant, with each whole warrant entitling the
holder to acquire one Linear common share at an exercise price of Cdn.$3.00 for
a period of five years, expiring on November 19, 2014. The value
allocated to the common shares issued was Cdn.$18,316,300, and the value
allocated to the warrants was Cdn.$4,787,450. Total costs associated with the
offering were Cdn.$2,545,678, including cash costs for commissions, professional
fees and regulatory costs of Cdn.$2,021,157 and 655,651 broker warrants issued
as a commission with a calculated value of Cdn.$524,521. Each broker
warrant entitles the holder to acquire one Linear common share at an exercise
price of Cdn.$2.15 for a period of two years, expiring on November 19,
2011. Linear has allocated Cdn.$2,015,086 of the issue costs to the
common shares and Cdn.$530,592 of the issue costs to the warrants.
Year
Ended March 31, 2009
At March
31, 2009, Linear had working capital of Cdn.$30.4 million, as compared to
working capital of Cdn.$27.4 million at the end of fiscal 2008, an increase of
Cdn.$3.0 million.
During
the year ended March 31, 2009, Linear recognized an increase in cash of Cdn.$0.3
million from operating activities, primarily a result of the recovery of an
amount on deposit during the year. During fiscal 2007, Linear was
advised that the income tax authority in Mexico had reviewed the funding of
Linear Gold Mexico, S.A. de C.V. by its previous owners and determined that this
funding was taxable as revenue. As such, the tax authorities in
Mexico issued an assessment of approximately MXN$9,175,000 for income tax and
value-added tax on this assessed revenue, including interest and
penalties. During the prior year, Linear placed approximately
MXN$9,175,000 on deposit with the income tax authority in
Mexico. During the current fiscal year, Linear received a favorable
ruling from the income tax authority in Mexico and the entire amount of the
deposit, plus interest, was recovered during the fourth quarter of the
year.
102
On March
19, 2009, Linear completed a private placement financing of 4,545,455 units at a
price of Cdn.$1.10 per unit, for aggregate gross proceeds of Cdn.$5,000,001.
Each unit consisted of one common share and one-half of one common share
purchase warrant. Each whole warrant entitles the holder to acquire one common
share at a price of Cdn.$1.50 until March 19, 2011. The value allocated to the
common shares issued was Cdn.$4,409,092, and the value allocated to the warrants
was Cdn.$590,909. Total costs associated with the private placement were
Cdn.$276,097, including cash paid for commissions of Cdn.$140,000, legal and
regulatory fees of Cdn.$26,097 and 100,000 units issued to the agent valued at
Cdn.$110,000. Linear allocated Cdn.$243,468 to the costs of issuing
the common shares and Cdn.$32,629 to the costs of issuing the
warrants.
During
the year ended March 31, 2009, Linear used cash of Cdn.$1.6 million to fund
resource property expenditures, the majority of which were incurred in
Brazil. Linear recovered cash of Cdn.$0.5 million from sales taxes
related to resource property expenditures, primarily in
Mexico. Linear also used cash of Cdn.$0.1 million to purchase
equipment during the year.
Off-Balance
Sheet Arrangements
At
December 31, 2009, Linear had no material off-balance sheet arrangements such as
guarantee contracts, contingent interest in assets transferred to an entity,
derivative instruments obligations or any obligations that trigger financing,
liquidity, market or credit risk for Linear.
Legal
Proceedings
Linear is
not aware of any material pending or threatened litigation or of any proceedings
known to be contemplated by governmental authorities which are, or would be,
likely to have a material adverse effect upon its operations, taken as
a whole. There are no material proceedings pursuant to which any of
Linear’s directors, officers or affiliates or any owner of record or beneficial
owner of more than 5% of its securities or any associate of any such director,
officer or security holder is a party adverse to Linear or has a material
interest adverse to Linear.
Tabular
Disclosure of Contractual Obligations
Linear
has contractual obligations to make future payments under non-cancelable
operating lease agreements, equipment construction contracts and an office
copier lease agreement. The following tables set forth these
contractual obligations as of March 31, 2009:
|
Contractual Obligations as of March 31, 2009
(in Canadian Dollars)
|
||||||||||||||||||||
|
Payments Due by Period
|
||||||||||||||||||||
|
Total ($)
|
Less Than 1
Year
|
1-3 Years
|
3-5 Year
|
Over 5 years
|
||||||||||||||||
|
Rent
or operating lease
|
$ | 155,554 | $ | 109,212 | $ | 44,197 | $ | 2,145 | $ | - | ||||||||||
|
Equipment
construction contracts
|
$ | 20,900,000 | $ | 3,000,000 | $ | 17,900,000 | $ | - | $ | - | ||||||||||
Quantitative
and Qualitative Disclosures About Market Risk
Linear
does not believe that it has material market risk exposure. Linear
does have financial instruments consisting of cash and cash equivalents,
marketable securities, receivables, sales taxes recoverable, and accounts
payable. Management does not believe these financial instruments
expose Linear to any significant credit risks, with the exception of the fact
that a significant portion of the its cash and cash equivalents are on deposit
with a major Canadian chartered bank and at December 31, 2009, approximately 99%
of Linear’s accounts receivable are receivable from Kinross Gold
Corporation. All of the sales taxes recoverable are with either the
governments of Canada or Mexico. A significant portion of Linear’s
transactions occur in United States, Mexican, Brazilian, and Dominican Republic
currencies and accordingly, the related financial assets and liabilities are
subject to fluctuations in the respective exchange rates. Linear has
cash and cash equivalents and no interest-bearing debt; accordingly, Linear’s
interest income is susceptible to fluctuations in interest rates. The
fair market values of these financial instruments approximate their carrying
values, unless otherwise noted.
103
The
prices of metals fluctuate widely and are affected by many factors outside of
Linear’s control. The relative prices of metals and future
expectations for such prices have a significant impact on the market sentiment
for investment in mining and mineral exploration and development
companies. Linear relies on equity financing for its long-term
working capital requirements and to fund its exploration and development
programs. Linear does not have sufficient funds to put any of its
resources interests into production from its own financial
resources. There is no assurance that such financing will be
available to Linear, or that it will be available on acceptable
terms.
Linear
Operational Risk Factors
You
should carefully consider the risk factors set forth below and all of the other
information contained in this proxy statement (including, without limitation,
risk factors and information in the documents incorporated by reference). If any
event arising from these risks occurs, Linear’s properties, projects, prospects,
financial condition, results of operations or cash flows could be adversely
affected. The risks described herein are not the only risks facing Linear.
Additional risks and uncertainties not currently known to Linear, or that Linear
currently deems immaterial, may also materially and adversely affect its
business.
Linear
may not meet production and cost estimates, and this may impact Linear’s cash
flow and profitability.
Linear
may provide forecasts of its future production and future total cash costs.
Linear cannot guarantee that actual future production or actual future cash
costs will not differ materially from forecasts, for any number of reasons,
including operational difficulties, unexpected changes in the cost of key
inputs, labour disruption, permitting issues, opposition to mining activities
and the other risks described in this proxy statement.
A
decrease in the amount of, or a change in the timing of the production, or in
the prices realized for, gold produced by Linear, or an increase in actual cash
or operating costs in relation to the production of gold will directly affect
the amount and timing of Linear’s cash flow from operations, its revenue and its
profitability. The actual effect of such a decrease on Linear’s cash flow from
operations or profitability would depend on the timing of any changes in
production and on actual prices and costs. Any change in the timing of receipt
of revenue and cash would result in delays in using such cash to fund capital
expenditures, including capital for Linear’s development projects in the future.
Any such financing requirements could adversely affect Linear’s ability to
access capital markets in the future to meet any external financing requirements
or increase its debt financing costs.
Linear
will require significant capital in the future which may not be available or not
available on terms acceptable to Linear.
Linear
will be subject to significant capital requirements associated with expanding
its operations, including additional funding requirements for the development of
the Goldfields Development Project, and to expand its portfolio of development
projects. Linear will have to generate sufficient internal cash flow or be able
to utilize available financing sources to finance its expansion and growth and
sustain capital requirements. Linear may have to raise significant additional
capital through equity financings in the capital markets or to incur significant
borrowings through debt financings to meet these capital requirements. If these
financings are required, they may not be available to Linear on attractive terms
or Linear’s cost of raising capital in the future may be adversely affected
and/or further dilution to its shareholders may occur. In addition, if Linear is
required to make significant interest and principal payments resulting from a
debt financing, Linear’s financial condition and ability to raise additional
funds may be adversely impacted. Any significant delay in completing its
development projects or in achieving commercial production from them on a
consistent basis or the incurring of capital costs that are significantly higher
than estimated, could have a significant adverse effect on Linear’s results of
operations, cash flow from operations and financial condition.
104
Linear’s
exploration and development properties are highly speculative in nature and may
not be successful.
Linear’s
activities are primarily directed towards the development of mineral deposits
and the exploration for and the future development of mineral deposits. The
exploration for, and development of, precious metal deposits involves
significant risks which even a combination of careful evaluation, experience and
knowledge cannot eliminate. While the discovery of a precious metal deposit may
result in substantial rewards, few properties which are explored are ultimately
developed into producing mines. Major expenses may be required to locate and
establish mineral reserves, to develop metallurgical processes and to construct
mining and processing facilities at a particular site. Whether a precious metal
deposit will be commercially viable depends on a number of factors, some of
which are: the particular attributes of the deposit, such as size, grade and
proximity to infrastructure; metal prices which are highly cyclical and
unpredictable; and government regulations, including regulations relating to
prices, taxes, royalties, land tenure, land use, importing and exporting of
precious metals and environmental protection. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result
in Linear not receiving an adequate return on invested capital or abandoning or
delaying the development of a mineral project. There is no certainty that the
expenditures made by Linear towards the search and evaluation of precious metal
deposits will result in discoveries of commercial quantities of such
metals.
The
development of the Goldfields Development Project is subject to a number of
risks and its development into a commercially viable mine cannot be
assured.
The
Goldfields Development Project is currently at the pre-development stage.
Construction and development of the project is subject to numerous risks,
including, but not limited to, delays in obtaining equipment, material and
services essential to completing construction of the project in a timely manner;
changes in environmental or other government regulations; currency exchange
rates; financing risks; labour shortages; and fluctuation in metal prices, as
well as the continued support of the local community. Further, the
development of the Goldfields Development Project will be subject to the
assessment of the combined company at the completion of the Arrangement, which
may determine that delaying development in favour of focusing on other
properties of the combined company may be in the best interests of the combined
company and its shareholders. There can be no assurance that the
construction will commence or continue in accordance with current expectations
or at all.
In
addition, the Goldfields Development Project has no recent operating history
upon which to base estimates of future commercial viability. Estimates of
mineral resources and mineral reserves are, to a large extent, based on the
interpretation of geological data obtained from drillholes and other sampling
techniques and feasibility studies. This information is used to calculate
estimates of the capital cost and operating costs based upon anticipated tonnage
and grades of gold to be mined and processed, the configuration of the mineral
resource, expected recovery rates, comparable facility and equipment operating
costs, anticipated climatic conditions and other factors. As a result, it is
possible that difference in such estimates could have a material adverse effect
on Linear’s business, financial condition, results of operations and prospects.
There can be no assurance that Linear will be able to complete development of
its mineral projects, or any of them, at all or on schedule or within budget due
to, among other things, and in addition to those factors described above,
changes in the economics of the mineral projects, the delivery and installation
of plant and equipment and cost overruns, or that the current personnel,
systems, procedures and controls will be adequate to support Linear’s
operations. Should any of these events occur, it would have a material adverse
effect on Linear’s business, financial condition, results of operations and
prospects.
Linear’s
exploration project in the Dominican Republic is subject to a joint
venture.
Linear’s
exploration projects in the Dominican Republic are subject to a joint venture
with Everton Resources Inc. The termination of this joint venture
could potentially have an impact on Linear and/or the share price of
Linear. Linear is currently relying on Everton to advance these
projects and there is no assurance that Everton’s funding of these exploration
projects will continue.
Forecasted
production, capital and operating cost estimates for development projects may be
inaccurate.
The level
of production and capital and operating cost estimates relating to development
projects, which are used in establishing mineral reserve estimates for
determining and obtaining financing and other purposes, are based on certain
assumptions and are inherently subject to significant uncertainty. It is very
likely that actual results, including actual capital and operating costs for
Linear’s development projects, will differ from estimates and assumptions, and
these differences may be material. For example, Linear has determined
that cost estimates contained in the Box Mine Report will require updating and
these revised estimates are expected to increase. In addition,
experience from actual mining or processing operations may identify new or
unexpected conditions which could reduce production below, or increase capital
or operating costs above, estimates. If actual results are less favourable than
currently estimated, Linear’s business, results of operations, financial
condition and liquidity could be materially adversely affected and it is
possible that development of a project could be delayed, impaired or halted
altogether.
105
Mining
operations involve a high degree of operational risk.
Mining
operations involve a high degree of operational risk. Linear’s mining operations
will be subject to all the hazards and risks normally encountered in the
production of gold, including, unusual and unexpected geologic formations,
seismic activity, rock bursts, cave-ins, flooding, and other conditions involved
in the drilling and removal of material, as well as the failure of equipment,
labour disputes, and local opposition to mining activities, any of which could
result in damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage (including spills, leaks and
tailings dam failures), delays or stoppage of mining and production activities,
increased capital and operating costs and possible legal liability.
No
assurance can be given that Linear’s estimation of mineralization, including
mineral reserves, if any, will prove accurate.
The
figures for mineralized material estimates, including mineral reserves and
mineral resources, that have been publicly filed in Canada are estimates only
and no assurance can be given that the anticipated tonnages and grades will be
achieved, that the indicated level of recovery will be realized or that mineral
reserves could be mined or processed profitably. There are numerous
uncertainties inherent in estimating mineralized material, including many
factors beyond Linear’s control. Such estimation is a subjective
process, and the accuracy of any mineralized material estimate is a function of
the quantity and quality of available data and of the assumptions made and
judgments used in engineering and geological
interpretation. Short-term operating factors relating to the mineral
reserves, such as the need for orderly development of the ore bodies or the
processing of new or different ore grades, may cause the mining operation to be
unprofitable in any particular accounting period. In addition, there can be no
assurance that gold recoveries in small scale laboratory tests will be
duplicated in larger scale tests under on-site conditions or during
production. Fluctuation in gold prices, results of drilling,
metallurgical testing and production and the evaluation of mine plans subsequent
to the date of any estimate may require revision of such
estimate. The volume and grade of reserves mined and processed and
recovery rates may not be the same as currently anticipated. Any material
reductions in estimates of mineralized material, or of Linear’s ability to
extract these mineral reserves, could have a material adverse effect on Linear’s
results of operations and financial condition.
Exploration
and development activities may not identify mineral reserves that will be
commercially mineable or viable.
The
exploration and development of natural resources involve a high degree of risk
and few properties which are explored are ultimately developed into producing
properties. Although the mineralized material estimates included in Linear’s
Canadian filings have been carefully prepared and reviewed or verified by
independent mining experts, these amounts are estimates only and no assurance
can be given that an identified mineralized material will ever qualify as a
commercially mineable (or viable) ore body which can be legally and economically
exploited. In addition, the grade of mineralization ultimately mined
may differ from that indicated by drilling results and such differences could be
material. Production can be affected by such factors as permitting regulations
and requirements, weather, environmental factors, unforeseen technical
difficulties, unusual or unexpected geological formations and work
interruptions.
Short-term
factors, such as the need for orderly development of deposits or the processing
of new or different grades, may have an adverse effect on mining operations and
on the results of operations. There can be no assurance that minerals recovered
in small scale laboratory tests will be duplicated in large scale tests under
on-site conditions or in production scale operations. Material changes in
reserves or resources, grades, dilution estimates or recovery rates may affect
the economic viability of a project. The estimated reserves and resources
contained in Linear’s Canadian filings should not be interpreted as assurances
of mine life or of the profitability of future operations. The long term
profitability of Linear’s operations will be in part directly related to the
cost and success of its exploration programs, which may be affected by a number
of factors.
Substantial
expenditures are required to establish mineral resources through drilling, to
develop processes to extract the resources and, in the case of new properties,
to develop the extraction and processing facilities and infrastructure at any
site chosen for extraction. Although substantial benefits may be derived from
the discovery of a major deposit, no assurance can be given that resources will
be discovered in sufficient quantities to justify commercial operations or that
the funds required for development can be obtained on a timely
basis.
106
Linear
discloses technical information in Canada related to its properties under
Canadian standards, which differs significantly from standards in the United
States
Linear
files reports in Canada that are prepared in accordance with the requirements of
securities laws in effect in Canada, which differ from the requirements of
United States securities laws.
Technical
disclosure regarding Linear’s properties included or incorporated by reference
in Linear’s Canadian filings on SEDAR (the “Technical Disclosure”) has been
prepared in accordance with the requirements of securities laws in effect in
Canada, which differ from the requirements of the United States securities laws.
Without limiting the foregoing, the Technical Disclosure uses terms that comply
with reporting standards in Canada and certain estimates are made in accordance
with National Instrument 43-101 of the Canadian Securities administrators (“NI
43-101”). NI 43-101 is a rule developed by the Canadian Securities
Administrators that establishes standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral projects.
Unless otherwise indicated, all mineral reserve and mineral resource estimates
contained in the Technical Disclosure have been prepared in accordance with NI
43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum
Classification System. These standards differ significantly from the
requirements of the United States Securities and Exchange Commission, and
resource information contained in the Technical Disclosure may not be comparable
to similar information disclosed by U.S. companies. For example, use of the
terms “probable mineral reserves,” “measured mineral resources,” “indicated
mineral resources” and “inferred mineral resources” comply with the reporting
standards in Canada but are not recognized by the United States Securities and
Exchange Commission.
Under
United States standards, mineralization may not be classified as a “reserve”
unless the determination has been made that the mineralization could be
economically and legally produced or extracted at the time the reserve
determination is made. You should not assume that all or any part of
measured or indicated mineral resources will ever be converted into mineral
reserves. These terms have a great amount of uncertainty as to their existence,
and great uncertainty as to their economic and legal feasibility. In accordance
with Canadian rules, estimates of inferred mineral resources cannot form the
basis of feasibility or other economic studies. It cannot be assumed that all or
any part of measured mineral resources, indicated mineral resources, or inferred
mineral resources will ever be upgraded to a higher category or that such
resources are economically or legally mineable. The United States
Securities and Exchange Commission normally only permits issuers to report
mineralization that does not constitute “reserves” as in place tonnage and grade
without reference to unit measures. In addition, the definitions of proven and
probable mineral reserves used in NI 43-101 differ from the definitions in the
United States Securities and Exchange Commission Industry Guide
7. Accordingly, information contained in the Technical Disclosure may
not be comparable to similar information made public by U.S. companies subject
to the reporting and disclosure requirements under the United States federal
securities laws and the rules and regulations thereunder.
Currency
fluctuations may adversely affect Linear’s financial position.
Exchange
rate fluctuations may affect the costs that Linear incurs in its operations.
Gold is sold in U.S. dollars and Linear’s costs are incurred principally in
Canadian dollars, United States dollars, and Mexican pesos. The appreciation of
non-US dollar currencies against the U.S. dollar can increase the cost of gold
production and capital expenditure in U.S. dollar terms and the depreciation of
non-U.S. dollar currencies against the U.S. dollar can decrease the cost of gold
production and capital expenditure in U.S. dollar terms.
Linear
does not hedge any currency exposure, and as such, Linear’s financial position
may be adversely affected by adverse changes in the value of Canadian dollars,
Mexican pesos and U.S. dollars.
Government
regulations may have an adverse effect on Linear.
The
mining, processing, development and exploration activities of Linear are subject
to various laws governing prospecting, development, production, taxes, labour
standards and occupational health, mine safety, toxic substances, land use,
water use, land claims of local people and other matters. No assurance can be
given that new rules and regulations will not be enacted or that existing rules
and regulations will not be applied in a manner which could have an adverse
effect on Linear’s financial position and results of operations.
107
Linear’s
foreign operations are subject to numerous risks associated with operating in
foreign jurisdictions.
Linear’s
operations and development and mineral exploration activities are currently
conducted in Mexico, Canada, and the Dominican Republic and are reported in
Canadian dollars, and as such Linear’s operations are exposed to various levels
of political and economic risks, as well as various other uncertainties. These
risks and uncertainties vary for each country and include, but are not limited
to, high rates of inflation; labor unrest; fluctuations in currency and exchange
rates; renegotiation or nullification of existing concessions, licenses, permits
and contracts; illegal mining; changes in taxation policies; restrictions on
foreign exchange and repatriation; corruption and high crime rates and changing
political conditions, currency controls and governmental regulations that favor
or require the awarding of contracts to local contractors or require foreign
contractors to employ citizens of or purchase supplies from a particular
jurisdiction.
Changes,
if any, in mining or investment policies or shifts in political attitude in
these countries could adversely affect Linear’s operations or profitability.
Operations may be affected in varying degrees by government regulations with
respect to, but not limited to, restrictions on production, price controls,
export controls, currency remittance, income taxes, expropriation of property,
foreign investment, maintenance of claims, environmental legislation, land use,
land claims of local people, water use and mine safety.
Failure
to comply strictly with applicable laws, regulations and local practices
relating to mineral right applications and tenure, could result in loss,
reduction or expropriation of entitlements.
The
occurrence of these various factors and uncertainties cannot be accurately
predicted and could have an adverse effect on Linear’s operations or
profitability.
Environmental
and other regulatory risks may adversely affect Linear.
All
phases of Linear’s operations are subject to environmental regulation in the
various jurisdictions in which it operates. These regulations mandate, among
other things, the maintenance of air and water quality standards and land
reclamation. They also set forth limitations on the generation, transportation,
storage and disposal of solid and hazardous waste. Environmental legislation is
evolving in a manner which will likely require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and employees. There
is no assurance that future changes in environmental regulation, if any, will
not adversely affect Linear’s operations. Environmental hazards may exist on the
properties on which Linear holds interests which are unknown to Linear at
present and which have been caused by previous or existing owners or operators
of the properties.
Government
approvals and permits are currently, and may in the future be, required in
connection with Linear’s operations. To the extent that such approvals are
required and not obtained, Linear may be curtailed or prohibited from continuing
its mining operations or from proceeding with planned exploration or development
of mineral properties.
Failure
to comply with applicable laws, regulations and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations
or in the exploration or development of mineral properties may be required to
compensate those suffering loss or damage by reason of the mining activities and
may have civil or criminal fines or penalties imposed for violations of
applicable laws or regulations.
Amendments
to current laws, regulations and permits governing operations and activities of
mining and exploration companies, or more stringent implementation thereof,
could have a material adverse impact on Linear and cause increases in
exploration expenses, capital expenditures or production costs or reduction in
levels of production at producing properties or require abandonment or delays in
development of new mining properties.
While
appropriate steps will be taken to prevent discharges of pollutants into the
ground water and the environment, Linear may become subject to liability for
hazards that it may not be insured against.
108
There
can be no assurance that Linear will continue to hold all permits necessary to
develop or continue operating at any particular property.
Linear’s
operations in Canada, Mexico, and the Dominican Republic are subject to
receiving and maintaining permits from appropriate governmental authorities.
Although Linear’s operations currently have all required permits for their
operations as currently conducted, there is no assurance that delays will not
occur in connection with obtaining all necessary renewals of such permits for
the existing operations, additional permits for any possible future changes to
operations, or additional permits associated with new legislation. There can be
no assurance that Linear will continue to hold all permits necessary to develop
or continue operating at any particular property.
Title
to some of Linear’s mineral properties may be challenged or
defective.
The
acquisition of title to mineral properties is a very detailed and time-consuming
process. Title to mineral concessions may be disputed. Although Linear believes
it has taken reasonable measures to ensure proper title to its properties, there
is no guarantee that title to any of such properties will not be challenged or
impaired. Third parties may have valid claims underlying portions of our
interest, including prior unregistered liens, agreements, transfers or claims,
including aboriginal land claims, and title may be affected by, among other
things, undetected defects. As a result, we may be constrained in our ability to
operate our properties or unable to enforce our rights with respect to our
properties. An impairment to or defect in our title to our properties could have
a material adverse effect on our business, financial condition or results of
operations.
109
ANNUAL
BUSINESS OF THE APOLLO MEETING
Securities
and Principal Holders of Securities
The
authorized share capital of Apollo consists of an unlimited number of common
shares. Each Apollo Share entitles the holder thereof to one vote on all matters
to be acted upon at the Apollo Meeting. As at the date hereof, there are ►
Apollo Shares issued and outstanding.
The
following table sets forth certain information known to Apollo with respect to
the beneficial ownership of Apollo Shares as of ►, 2010 by (i) all persons who
are known to Apollo to be beneficial owners of five percent (5%) or more of the
Apollo Shares, (ii) each of the director nominees, (iii) the chief executive
officer, the chief financial officer, three other most highly compensated
executive officers (collectively, the “Named Executive Officers”) and
(iv) all directors nominees and Named Executive Officers as a
group.
Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities. Apollo Shares subject
to options or warrants that are currently exercisable or exercisable within 60
days of ►, 2010 are deemed to be outstanding and to be beneficially owned by the
person or group holding such options or warrants for the purpose of computing
the percentage ownership of such person or group but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person or group. Unless otherwise indicated, the address for each of the
individuals listed in the table is c/o Apollo Gold Corporation, 5655 South
Yosemite Street, Suite 200, Greenwood Village, Colorado, 80111-3220. Unless
otherwise indicated by footnote, the persons named in the table have sole voting
and sole investment power with respect to all Apollo Shares shown as
beneficially owned by them, subject to applicable community property
Laws.
|
Name and Address of Beneficial Owner
|
Shares
Beneficially
Owned(1)
|
Percent of Class(2)
|
||||||
|
Linear
Gold Corp.(3)
|
62,500,000 | 18.49 | % | |||||
|
RAB
Special Situations (Master) Fund Limited(4)
|
26,158,465 | (5) | 7.49 | %(6) | ||||
|
Baker
Steel Capital Managers LLP(7)
|
25,054,500 | (8) | 7.41 | % | ||||
|
RMB
Australia Holdings Limited(9)
|
38,661,702 | (10) | 10.40 | %(11) | ||||
|
Macquarie
Bank Limited(12)
|
50,505,463 | (13) | 13.14 | %(14) | ||||
|
W.S.
(Steve) Vaughan (Director)
|
270,000 | (15) | * | |||||
|
G.
Michael Hobart (Director)
|
325,545 | (15)(16) | * | |||||
|
Charles
E. Stott (Director)
|
523,300 | (15) (16) | * | |||||
|
Robert
W. Babensee (Director)
|
320,000 | (15) (16) | * | |||||
|
Marvin
K. Kaiser (Director)
|
255,000 | (15) | * | |||||
|
David
W. Peat (Director)
|
267,500 | (15) (16) | * | |||||
|
R.
David Russell (CEO and President, Director)
|
3,692,100 | (15)(16) (17) | 1.09 | %(18) | ||||
|
Melvyn
Williams (Sr. Vice President and CFO)
|
1,930,846 | (15) (16) | * | |||||
|
Richard
F. Nanna (Sr. Vice President)
|
2,332,138 | (15) | * | |||||
|
Timothy
G. Smith (Vice President and General Manager)
|
641,220 | (15) | * | |||||
|
Brent
E. Timmons (Vice President & Controller)
|
388,525 | (15) (16) | * | |||||
|
All
Named Executive Officers and directors as a group (11
persons)
|
10,945,901 | (15)(16) | 3.17 | %(19) | ||||
*
Represents less than 1% of the outstanding Apollo Shares.
|
(1)
|
Unless
otherwise noted, all shares are Apollo
Shares.
|
|
(2)
|
Unless
otherwise noted, based on 337,973,660 Apollo Shares outstanding as of ►,
2010.
|
|
(3)
|
The
address for Linear Gold Corp. is 2000 Barrington Street, Suite 502,
Halifax, Nova Scotia, B3J 3K1.
|
|
(4)
|
The
address for RAB Special Situations (Master) Fund Limited is P.O. Box 908
GT, Walker House Mary Street, George Town, Cayman
Islands.
|
110
|
(5)
|
Based
on information provided on behalf of RAB Special Situations (Master) Fund
Limited on or about April 8, 2010. RAB Special Situations (Master)
Fund Limited reported having sole voting and dispositive power over (i)
14,661,265 Apollo Shares (ii) $4,290,000 principal amount of convertible
debentures convertible, along with interest payable in the form of Apollo
Shares, into Apollo Shares to acquire up to a maximum additional 9,352,200
Apollo Shares, which convertible debenture was acquired in Apollo’s Series
2007-A convertible debenture placement which was completed in February
2007 (the “2007
Convertible Debenture Offering”) and (iii) 2,145,000 warrants to
purchase Apollo Shares with an exercise price of $0.50 per share, expiring
February 23, 2011.
William Philip Seymour Richards, the fund manager of RAB Special
Situations (Master) Fund Limited, reported having sole voting and
dispositive power over 350,000 Apollo Shares and having shared voting and
dispositive power over the securities described in (i), (ii) and (iii)
above. The convertible debentures acquired in the 2007 Convertible
Debenture Offering by RAB Special Situations (Master) Limited were amended
on February 26, 2010 to extend the term of the convertible debentures to
August 23, 2010, the consideration for which was the issue of the
2,145,000 warrants described in (iii) above and the issue of an additional
800,000 Apollo Shares to RAB Special Situations (Master) Fund Limited.
Concurrent with execution of the amendment, RAB Special Situations
(Master) Fund Limited exercised 8,580,000 warrants at $0.25 per
share.
|
|
(6)
|
Calculated
based on 349,470,860 Apollo Shares outstanding (337,973,660 Apollo Shares
outstanding as of ►, 2010 plus (i) 9,352,200 Apollo Shares issuable upon
conversion of $4,290,000 principal amount of convertible debentures, plus
interest payable thereon in the form of Apollo Shares and (ii) 2,145,000
warrants to purchase Apollo Shares with an exercise price of $0.50 per
share, expiring February 23, 2011, in each case owned by RAB Special
Situations (Master) Fund Limited). Under the terms of the
warrants and convertible debenture acquired in the 2007 Convertible
Debenture Offering, and as amended on February 26, 2010, in no event shall
such securities be converted into or exercised for Apollo Shares, if after
giving effect to such conversion or exercise, the holder would, in
aggregate, beneficially own Apollo Shares in excess of 9.99% of the then
issued and outstanding Apollo Shares, within the meaning of Rule 13d-1 of
the U.S. Exchange Act.
|
|
(7)
|
The
address for Baker Steel Capital Managers LLP is 86 Jermyn Street, London,
SW1Y 6JD.
|
|
(8)
|
Based
on information provided by Baker Steel Capital Managers LLP on or about
April 7, 2010. Apollo Shares beneficially owned by Baker Steel
Capital Managers LLP are held through various affiliated entities
including, but not limited to, Genus Dynamic Gold Fund, CF Ruffer Baker
Steel Gold Fund, RIT Capital Partners PLC, Select Gold Fund, Genus
National Resources Fund and Rothschild Investment Trust. Each
of the foregoing funds is managed by Baker Steel Capital Managers LLP and,
consequently, the funds share voting and dispositive power with Baker
Steel Capital Managers LLP in respect of the 25,054,500 total Apollo
Shares.
|
|
(9)
|
The
address for RMB Australia Holdings Limited is Level 13, 60 Castlereagh
Street, Sydney, NSW 2000 Australia.
|
|
(10)
|
Based
on information reported by RMB Australia Holdings Limited in its Schedule
13D/A filed with the SEC on March 12, 2009. Apollo Shares beneficially
owned includes: (i) 4,716,800 Apollo Shares and (ii) an aggregate of
33,944,902 Apollo Shares issuable upon exercise of Common Share purchase
warrants beneficially owned by RMB Australia Holdings Limited, of which
(a) 1,000,000 warrants are exercisable to purchase 1,000,000 Apollo Shares
at a price of Cdn.$0.50 per share, (b) 21,307,127 warrants are exercisable
to purchase 21,307,127 Apollo Shares at a price of Cdn.$0.221 per share
and (c) 11,637,775 warrants are exercisable to purchase 11,637,775 Apollo
Shares at a price of Cdn.$0.252 per
share.
|
|
(11)
|
Calculated
based on 371,918,562 Apollo Shares outstanding (337,973,660 Apollo Shares
outstanding as of ►, 2010 plus the 33,944,902 Apollo Shares issuable upon
exercise of the 33,944,902 Common Share purchase warrants owned by RMB
Australia Holdings Limited described in footnote (10)
above).
|
|
(12)
|
The
address for Macquarie Bank Limited is 1 Martin Place, Sydney, NSW 2000,
Australia.
|
|
(13)
|
Based
on information reported by Macquarie Bank Limited in its Schedule 13D/A
filed with the SEC on March 4, 2009. Apollo Shares beneficially
owned includes: (i) 4,000,000 Apollo Shares and (ii) an
aggregate of 46,505,463 Apollo Shares issuable upon exercise of Common
Share purchase warrants beneficially owned by Macquarie Bank Limited, of
which (a) 2,000,000 warrants are exercisable to purchase 2,000,000 Apollo
Shares at Cdn.$0.65 per share, (b) 21,307,127 warrants are exercisable to
purchase 21,307,127 Apollo Shares at a price of Cdn.$0.221 per share and
(c) 23,198,336 warrants are exercisable to purchase 23,198,336 Apollo
Shares at a price of Cdn.$0.252 per
share.
|
|
(14)
|
Calculated
based on 384,479,123 Apollo Shares outstanding (337,973,660 Apollo Shares
outstanding as of ►, 2010 plus the 46,505,463 Apollo Shares issuable upon
exercise of the 46,505,463 Common Share purchase warrants owned by
Macquarie Bank Limited as described in footnote (13)
above).
|
|
(15)
|
Amounts
shown include Apollo Shares subject to options exercisable within 60 days
of ►, 2010 as follows: 270,000 Apollo Shares for Mr. Vaughan; 270,000
Apollo Shares for Mr. Hobart; 352,500 Apollo Shares for Mr. Stott; 230,000
Apollo Shares for Mr. Babensee; 230,000 Apollo Shares for Mr. Kaiser;
230,000 Apollo Shares for Mr. Peat; 1,906,000 Apollo Shares for Mr.
Russell; 1,331,013 Apollo Shares for Mr. Williams; 1,304,013 Apollo Shares
for Mr. Nanna; 616,250 Apollo Shares for Mr. Smith and 312,625 Apollo
Shares for Mr. Timmons.
|
111
|
(16)
|
Amounts
shown include Apollo Shares subject to warrants exercisable within 60 days
of ►, 2010 as follows: 54,545 Apollo Shares for Mr. Hobart;
5,000 Apollo Shares for Mr. Stott; 20,000 Apollo Shares for Mr. Babensee;
12,500 Apollo Shares for Mr. Peat; 50,000 Apollo Shares for Mr. Russell;
50,000 Apollo Shares for Mr. Williams and 20,000 Apollo Shares for Mr.
Timmons.
|
|
(17)
|
Includes
100 Apollo Shares owned by a member of Mr. Russell’s immediate
family.
|
|
(18)
|
Calculated
based on 339,929,660 Apollo Shares outstanding (337,973,660 Apollo Shares
outstanding as of ►, 2010 plus (i) 1,906,000 Apollo Shares issuable upon
exercise of stock options held by Mr. Russell and described in footnote
(16) above and (ii) 50,000 Apollo Shares issuable upon exercise of
warrants held by Mr. Russell and described in footnote (17)
above).
|
|
(19)
|
Calculated
based on 345,238,106 Apollo Shares outstanding (337,973,660
Apollo Shares outstanding as of ►, 2010 plus (i) 7,052,401 Apollo Shares
issuable upon exercise of stock options described in footnote (16) above
and (ii) 212,045 Apollo Shares issuable upon exercise of warrants
described in footnote (17) above).
|
Statement
of Corporate Governance Practices
The
Canadian securities regulatory authorities have adopted National Instrument
58-101 Disclosure of Corporate Governance Practices (“NI 58-101”), which requires
disclosure of Apollo’s approach to corporate governance, and National Policy
58-201 Corporate Governance Guidelines (“NP 58-201”), which provides
guidance on corporate governance practices. In the U.S., we are
subject to disclosure requirements pursuant to (i) Regulation 14A promulgated
under the Exchange Act, (ii) the United States Sarbanes-Oxley Act of 2002
(“SOX”) and (iii) the
AMEX listing standards and corporate governance requirements (“AMEX Standards”), which
require similar disclosure.
A
detailed description of Apollo’s governance practices is provided in Schedule O
to this Circular. The following are reports of committees of the Apollo Board,
which summarize the mandates and activities of each committee.
Board
Committees
During
2009, in addition to the Apollo Special Committee described elsewhere in this
Circular, the Apollo Board had four standing committees, namely, the Audit
Committee, Compensation Committee, Technical Committee, and Nominating
Committee.
Audit
Committee
The Audit
Committee held ten meetings during the year ended December 31, 2009, and is
satisfied that it appropriately fulfilled its mandate to the best of its ability
during the year. The Audit Committee is composed of the following three
independent non-employee directors: Messrs. Babensee, Kaiser and Peat. Mr. Peat
is chairperson of the Audit Committee. The Apollo Board has determined that each
of Messrs. Babensee, Kaiser and Peat meet the independence and the financial
literacy requirements of National Instrument 52-110 “Audit Committees,” the TSX
and AMEX and the applicable rules and regulations promulgated by the SEC. The
Apollo Board has determined that Mr. Peat is an “audit committee financial
expert” as defined in Item 407(d)(5) of Regulation S-K.
The
Apollo Board has adopted a Charter of the Audit Committee, which, among other
responsibilities, requires the Audit Committee to oversee Apollo’s financial
reporting process and the quality of its financial reporting. In discharging its
responsibilities, the Audit Committee meets regularly with Apollo’s auditors and
chief financial officer. The Audit Committee Charter is posted on Apollo’s
website at www.apollogold.com.
Report
of the Audit Committee
In the
performance of its oversight function, the Audit Committee reviewed and
discussed Apollo’s audited consolidated financial statements as of and for the
year ended December 31, 2009, with management and Deloitte & Touche LLP.
Management and Deloitte & Touche LLP represented to the Audit Committee that
Apollo’s audited consolidated financial statements as of and for the year ended
December 31, 2009, were prepared in accordance with accounting principles
generally accepted in the U.S. (except for Note 23, Differences Between U.S. and
Canadian GAAP). The Audit Committee also discussed with Deloitte & Touche
LLP the matters required to be discussed by Statement on Auditing Standards
No. 114, The Auditor’s
Communication With Those Charged With Governance, as
amended.
112
The Audit
Committee received the written disclosures and the letter from Deloitte &
Touche LLP required by Public Company Accounting Oversight Board (“PCAOB”) Ethics and
Independence Rule 3526, Communication with Audit Committees
Concerning Independence, as amended. PCAOB Rule 3526 requires the
independent auditor to disclose in writing to the Audit Committee all
relationships between the auditor and Apollo that, in the auditor’s judgment,
reasonably may be thought to bear on independence and to discuss the auditor’s
independence with the Audit Committee. The Audit Committee discussed with
Deloitte & Touche LLP its independence and considered in advance whether the
provision of any non-audit services by Deloitte & Touche LLP is compatible
with maintaining its independence.
Based on
the reviews and discussions of the Audit Committee described above, in reliance
on the unqualified opinion of Deloitte & Touche LLP dated March 16, 2010
regarding Apollo’s audited consolidated financial statements as of and for the
year ended December 31, 2009, the Audit Committee recommended to the Apollo
Board, and the Apollo Board approved, that such financial statements be included
in Apollo’s annual report on Form 10-K for the year ended December 31, 2009, to
be filed with the SEC.
Submitted
by: Audit Committee
David W.
Peat, Chairperson
Robert W.
Babensee
Marvin K.
Kaiser
Compensation
Committee
The
Compensation Committee held five meetings during the year ended December 31,
2009, and is satisfied that it appropriately fulfilled its mandate to the best
of its ability during the year. The Compensation Committee is composed of the
following three independent non-employee directors: Messrs. Babensee, Peat and
Stott. Mr. Stott serves as chairperson of the Compensation
Committee.
The
Apollo Board has adopted a Compensation Committee Charter, which, among other
responsibilities, requires the Compensation Committee to establish, administer,
and evaluate the compensation philosophy, policies and plans for non-employee
directors and executive officers; make recommendations to the board regarding
director and executive compensation; and review the performance and determine
the compensation of the president and chief executive officer, based on criteria
including Apollo’s performance and accomplishment of long-term strategic
objectives. The Compensation Committee Charter is posted on Apollo’s website at
www.apollogold.com.
Compensation
Committee Interlocks and Insider Participation
During
2009, each of Messrs. Babensee, Peat and Stott served on Apollo’s
Compensation Committee. None of these directors was a current or
former officer or employee of Apollo, and none had any related person
transaction involving Apollo. During 2009, none of our executive officers served
on the board of directors of any entity that had one or more executive officers
serving on the Apollo Board.
Compensation
Committee Risk Assessment
In 2010,
the Compensation Committee reviewed Apollo’s compensation policies and practices
for all employees, including executive officers. As part of the review, the
Compensation Committee assessed the compensation programs for design features
that have the potential to encourage excessive risk-taking such as compensation
policies emphasizing unreasonable goals or thresholds. The Compensation
Committee determined that, for all employees, our compensation programs do not
encourage excessive risk and instead encourage behaviors that support long-term
value creation. The Compensation Committee intends to continue, on an
on-going basis, reviewing Apollo’s compensation policies and programs to
determine if such programs encourage excessive risk taking.
113
Report
of the Compensation Committee on Executive Compensation
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis (“CDA”)
with management and, based on that review and discussion, has recommended to the
Apollo Board that the CDA be included with this Circular.
Submitted
by: Compensation Committee
Charles
E. Stott, Chairperson
Robert W.
Babensee
David W.
Peat
Technical
Committee
The
Technical Committee held six meetings during the year ended December 31, 2009,
and is satisfied that it appropriately fulfilled its mandate to the best of its
ability during 2009. The Technical Committee is composed of Messrs. Russell,
Stott, and Kaiser. Mr. Stott served as chairperson during 2009.
The
Apollo Board has adopted a Charter of the Technical Committee, which, among
other responsibilities, requires the Technical Committee to review and to
approve the methodology and procedure for calculating the resource and ore
reserve estimates of Apollo and its subsidiaries; to review and to report on
Apollo’s environmental compliance program and its effectiveness; and to review
and to report on Apollo’s safety program and its effectiveness. The Charter of
the Technical Committee is posted on Apollo’s website at
www.apollogold.com.
During
2009, the Technical Committee reported to the Apollo Board on its findings and
recommendations with respect to ore reserves, exploration initiatives, land
acquisitions and environmental and safety affairs of Apollo.
Submitted
by: Technical Committee
Charles
E. Stott, Chairperson
Marvin K.
Kaiser
R. David
Russell
Nominating
Committee
The
Nominating Committee held two meetings during the year ended December 31, 2009,
and is satisfied that it appropriately fulfilled its mandate to the best of its
ability during 2009.
The
Nominating Committee is composed of the following non-employee directors:
Messrs. Vaughan, Hobart, and Babensee. Mr. Babensee served as chairperson during
2009.
The
Apollo Board has adopted a Nominating Committee Charter, which, among other
responsibilities, requires the Nominating Committee to identify individuals
qualified to become board members and recommend to the Apollo Board proposed
nominees for membership on the Apollo Board; to recommend to the Apollo Board
which directors should serve on each committee; and to ensure that the Audit
Committee, Compensation Committee, Technical Committee and Nominating Committee
of the Apollo Board have the benefit of qualified and experienced “independent
directors.” The Nominating Committee Charter is posted on Apollo’s website at
www.apollogold.com.
Submitted
by: Nominating Committee
Robert W.
Babensee, Chairperson
G.
Michael Hobart
W.S.
(Steve) Vaughan
114
Director
Nominations
The
Apollo Board will consider all potential candidates for nomination by the Apollo
Board for election as directors who are recommended by Apollo’s shareholders,
directors, officers, and employees. The Nominating Committee has adopted written
procedures to be followed by shareholders in submitting such recommendations.
Candidates proposed by shareholders will be evaluated by the Nominating
Committee in the same manner as candidates who are not proposed by shareholders.
While shareholders may propose director nominees at any time, Apollo must
receive the required notice (described below) on or before the date set forth in
the prior year’s annual proxy statement under the heading “Shareholder
Proposals” in order to be considered by the Nominating Committee in connection
with Apollo’s next annual meeting of shareholders.
Apollo
Shareholders wishing to recommend a director candidate to serve on the Apollo
Board may do so by providing advance written notice to the Chairman of the
Nominating Committee, which identifies the candidate and includes the
information described below. The notice should be sent to the following address
by the dates set forth under “Shareholder Proposals:” Apollo Gold Corporation,
5655 South Yosemite Street, Suite 200, Greenwood Village, Colorado,
80111-3220.
The
notice shall contain the following information:
|
|
·
|
The
name of the nominating shareholders and the address, phone number and
e-mail address at which the nominating shareholders can be
contacted.
|
|
|
·
|
Evidence
of the number of Apollo Shares held by the nominating shareholders, a
statement of how long the nominating shareholders have held those Apollo
Shares, and a statement that the nominating shareholders will continue to
hold those Apollo Shares at least through Apollo’s next annual meeting of
shareholders.
|
|
|
·
|
The
candidate’s full name, together with the address, phone number and e-mail
address at which the candidate can be
contacted.
|
|
|
·
|
A
statement of the candidate’s qualifications and experiences, and any other
qualities that the nominating shareholders believe that the candidate
would bring to the Apollo Board.
|
|
|
·
|
A
description of all arrangements or understandings, if any, between the
shareholders and the candidate and any other person or persons with
respect to the candidate’s proposed service on the Apollo
Board.
|
|
|
·
|
The
candidate’s resume, which must include at a minimum a detailed description
of the candidate’s business, professional or other appropriate experience
for at least the last ten (10) years, a list of other boards of directors
of public companies on which the candidate currently serves or on which he
or she served in the last ten (10) years, and undergraduate and
post-graduate educational
information.
|
|
|
·
|
A
written statement, signed by the candidate, agreeing that if he or she is
selected by the Nominating Committee and the Apollo Board, he or she will
(i) be a nominee for election to the Apollo Board, (ii) provide all
information necessary for Apollo to include in Apollo’s proxy statement
under applicable SEC or AMEX rules, and (iii) serve as a director if he or
she is elected by shareholders.
|
|
|
·
|
Any
additional information that the nominating shareholders believe is
relevant to the Nominating Committee’s consideration of the
candidate.
|
The
Nominating Committee may employ any of the following procedures in identifying
nominees to serve as directors of Apollo: (a) evaluating persons suggested by
shareholders or others, (b) conducting inquiries into background and
qualifications, (c) retaining a search firm, (d) obtaining advice and assistance
from internal or external legal, accounting, or other advisors, and (e) other
procedures appropriate to the character of the expertise or other director
characteristic needed on the Apollo Board in any specific
situation.
115
The
Apollo Board has adopted the following series of minimum qualifications and
specific qualities and skills for Apollo’s directors, which will serve as the
basis upon which potential director candidates are evaluated by the Nominating
Committee:
|
|
·
|
integrity;
|
|
|
·
|
commitment
to devoting necessary time and attention to his or her duties to
Apollo;
|
|
|
·
|
independence;
|
|
|
·
|
business
experience;
|
|
|
·
|
specialized
skills or experience;
|
|
|
·
|
diversity
of background and experience (including race, ethnicity, nationality,
gender and age);
|
|
|
·
|
freedom
from conflicts of interest; and
|
|
|
·
|
other
criteria appropriate to the character of the expertise or other director
characteristic needed on the Apollo Board in any specific
situation.
|
With
respect to the nomination of continuing directors for re-election, the
individual’s contributions to the Apollo Board are also considered. The Apollo
Board believes that the backgrounds and qualifications of our directors,
considered as a group, should provide a composite mix of skills, experience, and
knowledge that will assure that the Apollo Board can continue to fulfill its
responsibilities. The Apollo Board takes into account the benefits
of, but does ascribe any specific weight to, diversity of background and
experience including matters of race, ethnicity, nationality, gender and age.
Because the assessment of the diversity of the Apollo Board as well as the
effectiveness of achieving diversity from a variety of perspectives is based on
the individual subjective evaluation of each of the Apollo Board members, the
Apollo Board does not engage in any formal benchmarking procedure in respect
thereof.
The
Nominating Committee did not receive any recommendations from shareholders
regarding candidates to serve on the Apollo Board for this Meeting.
116
Director
Compensation and Related Information
Summary
of Board of Directors and Committee Meetings Held
|
For the 12-month period ended December 31, 2009
|
Number of Meetings
Held
|
|
|
Board
of Directors
|
12
|
|
|
Audit
Committee
|
10
|
|
|
Compensation
Committee
|
5
|
|
|
Technical
Committee
|
6
|
|
|
Nominating
Committee
|
2
|
|
|
Total
number of meetings held
|
35
|
Summary
of Attendance of Directors
|
Director
|
Board
Meetings
Attended
|
Committee
Meetings
Attended
|
||
|
G.
Michael Hobart
|
11
|
2
|
||
|
R.
David Russell
|
12
|
6
|
||
|
Charles
E. Stott
|
12
|
11
|
||
|
W.S.
(Steve) Vaughan
|
9
|
2
|
||
|
Robert
W. Babensee
|
11
|
17
|
||
|
Marvin
K. Kaiser
|
12
|
16
|
||
|
David
W. Peat
|
11
|
15
|
Directors’
Compensation
The
director compensation program is designed to enable Apollo to attract and retain
highly qualified individuals to serve as directors. In 2009, directors’
compensation, which is paid only to non-employee directors, consisted
of:
|
|
·
|
an
annual retainer of $12,500;
|
|
|
·
|
additional
annual retainer of chairman of the Apollo Board of
$15,000;
|
|
|
·
|
a
board meeting fee of $1,000 per meeting if attended in person or $500 if
attended telephonically;
|
|
|
·
|
an
additional annual retainer for audit committee chairperson of $10,000 and
additional annual retainer for other committee chairpersons of
$5,000;
|
|
|
·
|
a
committee meeting fee of $750 per meeting if attended in person or $500 if
attended telephonically;
|
|
|
·
|
a
travel fee of $500 per travel day, other than a day on which a meeting
occurs; and
|
|
|
·
|
reimbursement
of related travel and out-of-pocket
expenses.
|
The
compensation entitlements referred to above were adopted by the Apollo Board
effective January 1, 2009. Directors of Apollo are also eligible to receive
options to acquire shares of Apollo. The number of options is determined by the
Apollo Board after reviewing the recommendations of the Compensation
Committee.
The
following table summarizes the compensation paid by Apollo to non-employee
directors for the fiscal year ended December 31, 2009:
117
|
Name
|
Fees
Earned
($)
|
Stock
Awards
($)
|
Option
Awards
(1)(2)
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change in
Pension
Value and
Non
Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
G.
Michael Hobart
|
24,000 | 0 | 10,822 | 0 | 0 | 0 | 34,822 | |||||||||||||||||||||
|
Marvin
K. Kaiser
|
34,500 | 0 | 10,822 | 0 | 0 | 0 | 45,322 | |||||||||||||||||||||
|
David
W. Peat
|
43,000 | 0 | 10,822 | 0 | 0 | 0 | 53,822 | |||||||||||||||||||||
|
Robert
Babensee
|
38,000 | 0 | 10,822 | 0 | 0 | 0 | 48,822 | |||||||||||||||||||||
|
Charles
E. Stott, Jr.
|
55,500 | 0 | 14,068 | 0 | 0 | 0 | 69,568 | |||||||||||||||||||||
|
W.S.
(Steve) Vaughan
|
21,500 | 0 | 10,822 | 0 | 0 | 0 | 32,322 | |||||||||||||||||||||
|
(1)
|
As
of December 31, 2009, the aggregate number of option awards outstanding
for each director was as follows: G. Michael Hobart — 295,000 (of which
227,500 were vested), Marvin K. Kaiser — 255,000 (of which 187,500 were
vested), David W. Peat — 255,000 (of which 187,500 were vested), Robert
Babensee — 255,000 (of which 187,500 were vested), Charles E. Stott, Jr. —
385,000 (of which 295,000 were vested) and W.S. Steve Vaughan — 295,000
(of which 227,500 were vested).
|
|
(2)
|
The
fair value of each option granted is estimated at the time of grant using
the Black-Scholes option-pricing model with weighted average assumptions
for grants as follows:
|
|
2009
|
2008
|
2007
|
||||||||||
|
Risk-free
interest rate
|
1.9 | % | 2.9 | % | 4.0 | % | ||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Volatility
|
78 | % | 73 | % | 71 | % | ||||||
|
Expected
life in years
|
6 | 6 | 6 | |||||||||
|
Weighted
average grant-date fair value of stock options
|
$ | 0.22 | $ | 0.44 | $ | 0.37 | ||||||
As at
December 31, 2009, the aggregate number of options granted to non-employee
directors was 1,740,000, of which 1,312,500 had vested.
On March
31, 2009, Mr. Stott was granted 65,000 options and each of Messrs. Hobart,
Babensee, Kaiser, Peat and Vaughan were granted 50,000 options at a strike price
of $0.32 with a term of 10 years. The options vest 50% on the first anniversary
of the grant and 50% on the second anniversary. The grant date fair value was
$68,175 (which amount includes amounts that are not allocable to
2009).
Compensation
Discussion and Analysis
Apollo
experienced dramatic changes during the past year. To properly
understand Apollo and its compensation philosophies, it is important to
understand its business environment and the recent hardships that it has
faced. Among other things, during 2009 Apollo transitioned its
operational focus from its Montana Tunnels mine, which ceased milling operations
on April 30, 2009 to its Black Fox mine, a new mining operation, which began
commercial gold production in late May 2009. Apollo believes that
fully understanding the steps it has taken over the past year to forge ahead
into the next decade will provide insight into its past compensation practices
and the steps it intends to take in the future to align the interests of its
executives with the interests of the Apollo’s shareholders.
118
Business
Environment
In 2009,
Apollo encountered a number of significant challenges. During the
first quarter of 2009, Apollo expended substantial effort to obtain the
necessary financing to satisfy certain debt obligations and fund the start up of
its Black Fox mine. During the second quarter of 2009, Apollo faced
the operational challenge of transitioning the Montana Tunnels property from an
operational mine and milling facility to a care and maintenance property while
concurrently bringing its Black Fox mine into production to ensure continuity in
Apollo’s revenue stream. Finally, although the Black Fox mill was
processing ore at the rate planned and recoveries were satisfactory, the grade
of ore delivered to the mill was lower than expected. As a result,
for the three-month period ended July 31, 2009, gold production was less than
80% of the amount that we agreed to produce with the Project
Lenders. This shortfall triggered a “review event” as defined in the
Project Facility Agreement. A “review event” enables the Project
Lenders to review the Project Facility Agreement and determine if they wish to
continue with the financing. Despite these and other challenges, our
management team was able to:
|
|
·
|
negotiate
and enter into the Black Fox project finance facility and completion of a
private placement in July 2009 which enabled Apollo to move forward with
the development of its Black Fox
mine;
|
|
|
·
|
commence
commercial gold production at the Black Fox mine and increase throughput
of the Black Fox mill;
|
|
|
·
|
complete
the acquisition of certain mineral properties referred to as the Pike
River Property located near Apollo’s Black Fox mine and Grey Fox
property;
|
|
|
·
|
commence
an exploratory drilling program on the Grey Fox and Pike River
properties;
|
|
|
·
|
place
the Montana Tunnels mine on care and maintenance and adopt a plan to sell
Apollo’s interest in the mine, which sale was completed in
2010;
|
|
|
·
|
negotiate
a series of deferments in connection with the Black Fox project finance
facility thereby allowing Apollo to work with the Project Lenders to
develop a new resource model and life of mine plan;
and
|
|
|
·
|
continue
standardization of processes and procedures at Black Fox to eliminate
redundancies and reduce costs.
|
Overview
of Executive Compensation For 2009
Historically,
Apollo has awarded incentive compensation to its executive officers based, in
part, on individual performance as generally discussed in the sections that
follow. This individual component of incentive compensation is paid
in the form of cash bonuses and equity compensation and is generally distributed
in during the first quarter each year.
In light
of the pending transaction with Linear, the Apollo Board has not made any
decisions or assessments regarding incentive compensation for the fiscal year
ended December 31, 2009. The Apollo Board, upon the recommendation of
the Compensation Committee, has determined that this deviation from historical
compensation practices is appropriate because of the pendency of the Arrangement
and the restrictions on payments of incentive compensation and grants of equity
compensation contained in the Arrangement Agreement.
Objectives
of Apollo’s Compensation Program
The
Compensation Committee of the Apollo Board (for the purposes of this discussion,
the “Committee”) has
responsibility for approving the compensation program for Apollo’s Named
Executive Officers. The Committee acts pursuant to the Compensation Committee
Charter that has been approved by the Apollo Board.
The
compensation program for Apollo’s Named Executive Officers is designed to
attract, retain and reward talented executives who can contribute to Apollo’s
long-term success and thereby build value for Apollo’s shareholders. The program
is organized around four fundamental principles:
119
A Substantial Portion of
Apollo’s Named Executive Officer Compensation Program Should Be
Performance-Based. Apollo’s compensation program is designed to reward
superior performance. It accomplishes this in a number of ways. In terms of cash
compensation, target award opportunities provided to each Named Executive
Officer under Apollo’s bonus plan (which pays bonuses on the basis of
performance over a one-year period) are set at a percentage of each Named
Executive Officer’s base salary, which is generally in the range of 50% for vice
presidents, 75% for senior vice presidents and up to 100% for the chief
executive officer. Whether and to what extent bonuses under the bonus plan are
paid depends entirely on the extent to which the company-wide, mine and project
and individual goals set by the Committee pursuant to the bonus plan are
attained.
A Substantial Portion of
Named Executive Officer Compensation Should Be Delivered in the Form of Equity
Awards. The Committee believes that a substantial portion of total
compensation should be delivered in the form of equity in order to align the
interests of Apollo’s Named Executive Officers with the interests of Apollo’s
shareholders. In terms of equity awards, the target award opportunities provided
to each Named Executive Officer are set as a percentage of each Named Executive
Officer’s base salary, which is generally in the range of 50% for vice
presidents, 75% for senior vice presidents and 100% for the chief executive
officer. Whether and to what extent equity awards are made depends entirely on
the extent to which the company-wide, mine and project and individual goals set
by the Committee are attained. The stock option awards are valued at the grant
date fair value.
Apollo’s Compensation
Program for Named Executive Officers Should Enable Apollo to Compete for
First-Rate Executive Talent. Apollo Shareholders are best served when
Apollo can attract and retain talented executives with compensation packages
that are competitive but fair. The Committee has historically striven to create
a compensation package for Named Executive Officers that delivers total
compensation that is competitive in comparison to the average of the total
compensation delivered by certain peer companies with which Apollo competes for
executive talent (the “Peer
Group”). To assist in making this comparison, the Committee subscribes to
the annual Mining Industry Salary Survey published by Coopers Consulting Ltd. In
2009, the Peer Group selected by the Committee consisted of the following
companies:
|
Lake
Shore Gold Corp.
|
Alamos
Gold Inc.
|
|
Aurizon
Mines Ltd.
|
Eldorado
Gold Corp.
|
|
Golden
Star Resources Ltd.
|
Minefinders
Ltd.
|
Apollo’s Compensation
Program for Named Executive Officers Should Be Fair, and Perceived as Such, Both
Internally and Externally. The Committee strives to create a compensation
program that will be perceived as fair, both internally and externally. It
accomplishes this by comparing the compensation that is provided to Apollo’s
Named Executive Officers:
(i) to
the compensation, as described above, provided to officers of the companies
included in the Peer Group, as a means to measure external fairness;
and
(ii) to
other senior employees of Apollo, as a means to measure internal
fairness.
The
Elements of Apollo’s Compensation Program
This
section describes the various elements of Apollo’s compensation program for
Named Executive Officers, together with a discussion of various matters relating
to those items, including why the Committee chooses to include the items in the
compensation program.
Cash
Compensation
Apollo’s
compensation program for Named Executive Officers is designed so that a
percentage of each Named Executive Officer’s total compensation is paid in
cash. Cash compensation paid is comprised of salary and, if earned, a
cash bonus pursuant to Apollo’s bonus plan. The percentage of cash compensation
paid relative to a Named Executive Officer’s total compensation is generally set
at up to 75% of total compensation in the case of vice presidents, up to 70% for
senior vice presidents and up to 67% for the president. Salary is included in
Apollo’s Named Executive Officer compensation package because the Committee
believes it is appropriate that some portion of the compensation that is
provided to Named Executive Officers be in a form that is fixed and liquid.
Performance-based bonuses are included to incentivize Apollo’s Named Executive
Officers to attain particular objectives that the Committee believes are
consistent with the overall goals set for Apollo by its board of directors. The
components comprising the cash portion of total compensation are described
below.
120
Salary. Base salary for Named
Executive Officers for any given year is generally fixed by the Committee at its
meeting in March of each year. Increases or decreases in base salary on a
year-over-year basis are dependent on the Committee’s assessment of the
performance of Apollo overall, Apollo’s mining projects and the particular
individual. Other than the fact that executive officers have employment
agreements with a minimum level of salary specified within the agreement, the
Committee is free to set Named Executive Officer salary at any level it deems
appropriate. In fixing salaries, the Committee is generally mindful of its
overall goal to keep cash compensation for its executive officers within the
range of cash compensation paid by companies in Apollo’s Peer Group. The amount
of cash compensation that is provided in the form of salary is generally less,
assuming threshold performance levels are met, than the amount that is provided
in the form of bonuses and equity awards under Apollo’s short and long-term
bonus plans, each of which is described below. This weighting reflects the
Committee’s objective of ensuring that a substantial amount of each Named
Executive Officers total compensation is tied to company-wide, mine and project
results and individual performance goals.
Bonus Plans. Apollo has a
cash bonus plan in which Named Executive Officers participate. This plan, which
is described below, provides cash compensation to Named Executive Officers only
if, and to the extent that, performance conditions set by the Committee are met.
Bonus targets are set annually based on Apollo’s plan and budget for such fiscal
year and are set at levels that Apollo believes will be reasonably difficult to
achieve.
In
determining the amount of target bonuses under the bonus plan, the Committee
considers several factors, including:
(i) the
target bonuses set, and actual bonuses paid, in recent years;
(ii) the
desire to ensure, as described above, that a substantial portion of total
compensation is performance-based;
(iii) the
relative importance, in any given year, of the long and short-term performance
goals established pursuant to the bonus plan; and
(iv) the
compensation practices of the Peer Group, as determined in published
compensation surveys.
Performance
objectives for the bonus plan are developed through an iterative process. Based
on a review of business plans, management, which includes the Named Executive
Officers, develops preliminary recommendations for Committee review. The
Committee reviews management’s preliminary recommendations and establishes final
goals. In establishing final goals, the Committee strives to ensure that the
incentives provided pursuant to the bonus plan are consistent with the strategic
goals set by the Apollo Board, that the goals set are sufficiently ambitious so
as to provide a meaningful incentive and that bonus payments, assuming target
levels of performance are attained, will be consistent with the overall Named
Executive Officer compensation program established by the Committee. The
Committee reserves the discretion to reduce or not pay bonuses under the bonus
plan even if the relevant performance targets are met.
If the
Arrangement is not consummated, the Compensation Committee intends to reevaluate
the payment of incentive compensation relative to each executive officer’s
individual performance in accordance with its customary practices as outlined
below and make recommendations to the Apollo Board in respect thereof at the
first meeting of the Apollo Board immediately following termination of the
Arrangement. If the Arrangement is consummated, the Compensation
Committee will reevaluate the payment of incentive compensation relative to each
executive officer’s individual performance and make recommendations to the
Apollo Board in respect thereof at the first meeting of the Apollo Board
following consummation of the Arrangement.
For the
fiscal year ended December 31, 2009, the bonus targets upon which cash bonuses
were to be based included the following objectives:
|
|
·
|
completion
of the project financing of the Black Fox project by February
2009;
|
|
|
·
|
commencement
of gold production at Black Fox during May 2009 and the achievement of
planned production;
|
121
|
|
·
|
completion
of the stripping of the glacial till for Phase I of the Black Fox open pit
by June 2009;
|
|
|
·
|
completion
of all mine site infrastructure at Black Fox by October
2009;
|
|
|
·
|
ensuring
that the Black Fox project passes all of the completion tests, as set out
in the Project Facility Agreement, by October 31,
2009;
|
|
|
·
|
commencement
of permitting Phase II and III of the Black Fox open pit during the second
quarter 2009, to be substantially completed by December 31,
2009;
|
|
|
·
|
completion
of the initial exploration work program at Grey Fox by November 2009 with
the goal of publishing an inferred resource in the first quarter
2010;
|
|
|
·
|
production
at the Montana Tunnels mine to average a mill throughput rate of 13,000
tpd ore for the period January through April 2009 at planned metal
production;
|
|
|
·
|
placement
of the Montana Tunnels mine on care and maintenance in May 2009;
and
|
|
|
·
|
conversion
of Apollo’s financial reporting from Canadian GAAP to U.S. GAAP for the
fiscal year ended December 31,
2009.
|
Some of
the bonus targets above were not achieved; in particular the targeted Black Fox
mine gold production and the completion of the tests required by the Project
Lenders as part of the Project Facility Agreement. Production of gold
did commence on schedule in May 2009 and the mill was successful in achieving
the targeted throughput rate of 2,000 tonnes per day of ore during the last
quarter 2009. However, as noted in Apollo’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2009, Apollo triggered a
review event as defined in the Project Facility Agreement as a result of failing
to achieve 80% of its targeted production during that quarter.
In light
of the pending transaction with Linear and the limitations contained in the
Arrangement Agreement on awarding incentive compensation prior to the closing of
the Arrangement, the Apollo Board has not made any decisions or individual
assessments regarding incentive compensation for the fiscal year ended December
31, 2009.
Equity
Compensation
As
described above, the Committee believes that a portion of each Named Executive
Officer’s compensation should be in the form of equity awards because the
Committee believes that such awards serve to align the interests of Named
Executive Officers and Apollo’s shareholders. Equity awards to Apollo’s Named
Executive Officers are made pursuant to the Apollo Stock Option Incentive Plan.
The Apollo Stock Option Incentive Plan provides for awards in the form of stock
options. The principal terms of the Apollo Stock Option Incentive
Plan are summarized below under the heading “Stock Option Plan Amendments
Proposal.”
The
amount of equity compensation that is provided to each Named Executive Officer
in a given year is generally determined by reference to the Named Executive
Officer’s base salary for that year. That is, the Committee each year approves
an equity award or awards for each Named Executive Officer with a cash value
that is determined by multiplying the Named Executive Officer’s base salary by a
percentage that is chosen by the Committee. The percentage that the Committee
selects for these purposes in a given year is dependent on the Committee’s
assessment, for that year, of the appropriate balance between cash and equity
compensation. In making that assessment, the Committee considers factors such as
the relative merits of cash and equity as a device for retaining and
incentivizing Named Executive Officers and the practices, as reported in
published compensation surveys, of other companies in the Peer
Group.
In light
of the pending transaction with Linear and the limitations contained in the
Arrangement Agreement on awarding equity compensation prior to the closing of
the Arrangement, the Apollo Board has not made any decisions or individual
assessments regarding equity awards for the fiscal year ended December 31,
2009.
Practices
Regarding the Grant of Options
The
Committee has generally followed a practice of making all option grants to its
executive officers during the first quarter of each year based on the previous
year’s performance. For the last five years, the Committee has granted these
annual awards at its regularly scheduled meeting in March. Apollo does not
otherwise have any program, plan or practice to time annual option grants to its
executives in coordination with the release of material non-public
information.
122
While the
bulk of Apollo’s option awards to Named Executive Officers have historically
been made pursuant to Apollo’s annual grant program, the Committee retains the
discretion to make additional awards to Named Executive Officers at other times,
in connection with the initial hiring of a new officer, for retention purposes
or otherwise. Apollo refers to such grants as “ad hoc” awards. The Committee has
generally followed the practice of making such ad hoc awards only during a time
when Apollo’s Named Executive Officers would be permitted, pursuant to Apollo’s
insider trading policy, to trade in Apollo’s securities. Other than in this
respect, Apollo does not have any program, plan or practice to time ad hoc
awards in coordination with the release of material non-public
information.
Peer
Comparisons and Survey Data
In its
annual evaluation of the compensation of Apollo’s executive officers, the
Committee uses peer comparisons and survey sources to obtain a general
understanding of current compensation practices for the market in which Apollo
competes. Specifically, the Committee reviews the annual Mining
Industry Salary Survey published by Coopers Consulting Ltd., a national,
broad-based industry survey, and relevant data from the peer group identified
above. The Committee does not benchmark executive compensation at a
certain level or percentile based on the survey or peer comparison
data. Rather, this data is only one of the components considered when
setting executive compensation. Other factors include, but are not
necessarily limited to, level of responsibility, individual performance, and
budget constraints.
In
evaluating the appropriateness and adequacy of Apollo’s compensation structure
for its executive officers, the Committee considered a peer group of companies
with similar principal corporate offices, levels of mineral production and
amount of Mineral Reserves. The Committee believes these factors are
appropriate as reference points to determine the composition of the peer group
because they provide a reasonable basis for comparing like positions and scopes
of responsibilities.
Perquisites
Apollo’s
Named Executive Officers receive various perquisites provided by or paid for by
us. These perquisites can include memberships in social and sports clubs, car
allowances and gross up payments equal to the taxes payable on certain
perquisites.
Apollo
provides these perquisites because:
(i) in
many cases, such as membership in social and sports clubs, the perquisite makes
Apollo’s executives more efficient and effective and thereby is a benefit to us,
and
(ii) these
perquisites are provided by a number of companies in the Peer Group to their
named executive officers and it is therefore important for retention and
recruitment purposes that Apollo does the same.
The
Committee reviews the perquisites provided to its Named Executive Officers on a
regular basis, in an attempt to ensure that they continue to be appropriate in
light of the Committee’s overall goal of designing a compensation program for
Named Executive Officers that maximizes the interests of Apollo’s
shareholders.
Executive
Officers
Set forth
below is certain information concerning the executive officers of
Apollo.
|
Name
|
Age
|
Title(s)
|
||
|
R.
David Russell
|
53
|
President
and Chief Executive Officer
|
||
|
Melvyn
Williams
|
61
|
Senior
Vice President — Finance and Corporate Development and Chief Financial
Officer
|
||
|
Richard
F. Nanna
|
61
|
Senior
Vice President — Exploration
|
123
|
Name
|
Age
|
Title(s)
|
||
|
Timothy
G. Smith
|
53
|
Vice
President — U.S. and Canadian Operations
|
||
|
Brent
E. Timmons
|
39
|
Vice
President & Controller
|
R. David
Russell. Mr. Russell is a director of Apollo and has served as
Apollo’s president and chief executive officer since June 2002. Mr. Russell was
a founder of Nevoro Gold Corporation in January 2002, the predecessor of Apollo
Gold Corporation, and served as its president from February 2002 through June
2002. Mr. Russell was an independent mining consultant from 1999 to 2002. Mr.
Russell also serves as a director of General Moly, Inc. and Pure Nickel,
Inc. Mr. Russell received his mining engineering degree from Montana
Tech at the University of Montana.
Melvyn
Williams. Mr. Williams has served as chief financial officer
since January 2005 and as the senior vice president — finance and corporate
development since March 2004. From November 2003 through January 2004, Mr.
Williams served as chief financial officer of Atlantico Gold, a private
Brazilian mining company which held the Amapari gold project. From 2000 to
November 2003, he served as Chief Financial Officer of TVX Gold Inc., a gold
mining company with five operating mines. Mr. Williams also serves as a director
of Andina Minerals, Inc. Mr. Williams is a chartered certified
accountant and received an Master’s of Business Administration from Cranfield
(UK) in 1988.
Richard F.
Nanna. Mr.
Nanna has served as Apollo’s senior vice president — exploration since June
2002. Mr. Nanna was a founder of Nevoro Gold Corporation in January 2002, the
predecessor of Apollo Gold Corporation, and served as its vice president —
exploration from February 2002 through June 2002. From 1999 to 2002, Mr. Nanna
worked as an independent consultant. Mr. Nanna also serves as a director of
General Moly, Inc. and Azteca Gold Corp. Mr. Nanna received a
Master’s Degree in Geology from Akron University in Ohio.
Timothy G. Smith. Mr.
Smith has served as vice president – U.S. and Canadian operations since November
2008 and was previously vice president and general manager of Montana Tunnels
Mining, Inc., formerly a wholly owned subsidiary of Apollo, from February
2004. Prior to joining Apollo, Mr. Smith worked for Cominco Ltd.
(before its merger with Teck Corp.) as operating manager at the Red Dog Mine
from 1996 through 2003. Mr. Smith holds a Bachelor of Engineering —
Metallurgical, from McGill University and is a Professional Engineer registered
in British Columbia.
Brent E.
Timmons. Mr. Timmons joined
Apollo in April 2005 in the position of senior accountant and has been vice
president and controller since March 2007. Prior to joining Apollo, Mr. Timmons
worked for Enterprise Rent-A-Car for six years and prior to that worked as a
Certified Public Accountant performing audit services in the private and
governmental sectors. Mr. Timmons holds a Master of Accountancy from
Brigham Young University and is a certified public accountant.
Employment
Agreements
Apollo
has employment agreements with the following Named Executive Officers: R. David
Russell, its president and chief executive officer, Melvyn Williams, its senior
vice president — finance and corporate development and chief financial officer,
Richard F. Nanna, its senior vice president — exploration, Timothy G. Smith, its
vice president — U.S. and Canadian operations, and Brent E. Timmons, its vice
president and controller. The Committee believes that the employment
agreements and the severance provided for therein are an important part of
overall compensation for Apollo’s Named Executive Officers. The Committee
believes that these agreements will help to secure the continued employment and
dedication of Apollo’s Named Executive Officers, notwithstanding any concern
that they might have at such time regarding their own continued employment,
prior to or following a change in control. The Committee also believes that
these agreements are important as a recruitment and retention device, as
all or
nearly all of the companies with which Apollo competes for executive talent have
similar agreements in place for their senior employees. To determine the terms
of the change in control provisions, the Committee analyzed the terms of the
similar arrangements. These factors lead to the amounts and the triggering
events provided for under the agreements.
R. David Russell.
Apollo assumed the terms and conditions of an employment agreement dated as of
April 1, 2002 between Mr. Russell and Nevoro Gold Corporation, Apollo’s
predecessor. Mr. Russell’s employment agreement was amended on
January 23, 2006 and March 18, 2009 and provides that:
124
|
|
·
|
Mr.
Russell receives a minimum annual base salary of $380,000 and a
discretionary annual cash bonus based on Apollo’s performance. As at ►, 2010 Mr.
Russell’s annual salary was
$380,000;
|
|
|
·
|
Mr.
Russell is entitled to receive an automobile allowance of $15,000 per
annum and an allowance for social/sports club membership of $5,000 per
annum; and
|
|
|
·
|
In
the event of the termination of his employment without cause or upon a
change of control of Apollo (defined as the occurrence, within a single
transaction or series of related transactions occurring within the same
12-month period, of a change in the identity of persons who individually
or collectively hold rights to elect, or to approve the election of, a
majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other
transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), (i) Mr.
Russell will be entitled to receive severance equal to 36 months of his
base salary, 50% of the bonus entitlement for the 36 month period (such
bonus entitlement is based on a percentage of annual base salary of up to
100%), and any other compensation to which he would otherwise have been
entitled during such 36 month period and (ii) any options granted to Mr.
Russell shall immediately vest.
|
Mr.
Russell will resign from the position of president and chief executive officer
of Apollo upon the successful completion of the Arrangement. Subject
to delivery of customary releases, Mr. Russell shall receive all termination and
other amounts owing under his employment agreement as if a termination without
cause had occurred thereunder. See the discussion under the heading
“Potential Payments Upon Termination Or Change In Control” on page ►
below.
Melvyn Williams. Mr. Williams’ employment
agreement of February 16, 2004 was amended on January 23, 2006 and March 18,
2009 and provides that:
|
|
·
|
Mr.
Williams receives a minimum annual base salary of $265,000 and a
discretionary annual cash bonus based on Apollo’s
performance. As at ►, 2010 Mr. Williams’ annual salary was
$265,000;
|
|
|
·
|
Mr.
Williams is entitled to receive an automobile allowance of $10,000 per
annum; and
|
|
|
·
|
in
the event of the termination of his employment without cause or upon a
change of control of Apollo (defined as the occurrence, within a single
transaction or series of related transactions occurring within the same
12-month period, of a change in the identity of persons who individually
or collectively hold rights to elect, or to approve the election of, a
majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other
transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), (i) Mr.
Williams will be entitled to receive severance equal to 24 months of his
base salary, 50% of the bonus entitlement for the 24 month period (such
bonus entitlement is based on a percentage of annual base salary of
approximately 75%), and any other compensation to which he would otherwise
have been entitled during such 24 month period and (ii) any options
granted to Mr. Williams shall immediately
vest.
|
Richard F. Nanna.
Apollo assumed the terms and conditions of an employment agreement dated as of
April 1, 2002, between Mr. Nanna and Nevoro Gold Corporation, Apollo’s
predecessor. Mr. Nanna’s employment agreement was amended on January
23, 2006 and March 18, 2009 and provides that:
|
|
·
|
Mr.
Nanna receives a minimum annual base salary of $230,000 and a
discretionary annual cash bonus based on Apollo’s
performance. As at ►, 2010 Mr. Nanna’s annual salary was
$230,000;
|
|
|
·
|
Mr.
Nanna is entitled to receive an automobile allowance of $15,000 per annum
and an allowance for social/sports club membership of $5,000 per annum;
and
|
125
|
|
·
|
In
the event of the termination of his employment without cause or upon a
change of control of Apollo (defined as the occurrence, within a single
transaction or series of related transactions occurring within the same
12-month period, of a change in the identity of persons who individually
or collectively hold rights to elect, or to approve the election of, a
majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other
transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), (i) Mr.
Nanna will be entitled to receive severance equal to 36 months of his base
salary, 50% of the bonus entitlement for the 36 month period (such bonus
entitlement is based on a percentage of annual base salary of
approximately 75%), and any other compensation to which he would
otherwise have been entitled during such 36 month period and (ii) any
options granted to Mr. Nanna shall immediately
vest.
|
Timothy G.
Smith. Mr.
Smith’s employment agreement provides that:
|
|
·
|
Mr.
Smith receives a minimum annual base salary of $200,000 and a
discretionary annual cash bonus based on the performance of the Black Fox
and Montana Tunnels mines. As at ►, 2010 Mr. Smith’s annual salary was
$200,000;
|
|
|
·
|
Mr.
Smith is entitled to an automobile for personal use;
and
|
|
|
·
|
In
the event of the termination of his employment without cause or upon a
change of control of Apollo (defined as the occurrence, within a single
transaction or series of related transactions occurring within the same
12-month period, of a change in the identity of persons who individually
or collectively hold rights to elect, or to approve the election of, a
majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other
transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), Mr. Smith
will be entitled to receive severance equal to 15 months of his base
salary and benefits to which he would otherwise have been entitled for a
period of 12 months.
|
Brent E.
Timmons. Mr.
Timmons’ employment agreement provides that:
|
|
·
|
Mr.
Timmons receives a minimum annual base salary of $140,000 and a
discretionary annual cash bonus based on the performance of
Apollo. As at ►, 2010 Mr. Timmons’ annual salary was
$140,000;
|
|
|
·
|
Mr.
Timmons is entitled to an automobile allowance of $10,000 per annum;
and
|
|
|
·
|
In
the event of the termination of his employment without cause or upon a
change of control of Apollo (defined as the occurrence, within a single
transaction or series of related transactions occurring within the same
12-month period, of a change in the identity of persons who individually
or collectively hold rights to elect, or to approve the election of, a
majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other
transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), Mr. Timmons
will be entitled to receive severance equal to 12 months of his base
salary and benefits to which he would otherwise have been entitled for a
period of 12 months.
|
Stock
Ownership Guidelines
Apollo
has not established stock ownership guidelines for the Named Executive Officers.
Apollo’s Insider Trading and Confidentiality Policy prohibits Apollo’s executive
officers from engaging in selling short Apollo’s common stock or engaging in
hedging or offsetting transactions regarding Apollo’s common stock.
Role
of Executive Officers in Compensation Decisions
The Chief
Executive Officer annually reviews the performance of each Named Executive
Officer (other than the Chief Executive Officer whose performance is reviewed by
the Committee). The conclusions and recommendations reached, which cover salary
adjustments and annual award amounts, are presented to the Committee. The
Committee can exercise discretion in modifying any of the recommended salary
adjustments or annual awards. Executive officers of Apollo have no
role in the compensation of directors.
126
Indemnification
Agreements
Apollo
has entered into indemnification agreements with its directors and senior
executives. These agreements indemnify such persons against certain liabilities
that may arise by reason of their status as a director or officer, to advance
their expenses incurred as a result of a proceeding as to which they may be
indemnified and to cover such person under the directors and officers liability
insurance policy. Apollo believes these indemnification agreements enhance
Apollo’s ability to attract and retain knowledgeable and experienced executives
and independent, non-management directors.
Tax
Implications of Executive Compensation
Apollo’s
program was structured to comply with Section 162(m) of the Internal Revenue
Code of 1986, as amended, which places a limit of $1,000,000 on the amount of
compensation that may be deducted by Apollo in any year with respect to the
Named Executive Officers unless the compensation is performance based
compensation as described in such Section 162(m).
Summary
Compensation Table For Named Executive Officers
The
following table sets forth the compensation earned by the Principal Executive
Officer (“PEO”),
Principal Financial Officer (“PFO”) and other Named
Executive Officers for services rendered to Apollo and its subsidiaries for the
fiscal years ended December 31, 2009, 2008 and 2007.
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards ($)(1)
|
Non-Equity
Incentive
Plan
Compen-
sation
($)
|
Non-
qualified
Deferred Compen- sation
Earnings ($)
|
All Other
Compen-
sation
($)
|
Total
($)
|
|||||||||||||||||||||||||
|
R.
David Russell,
|
2009
|
366,638 | 0 | 0 | 140,680 | 0 | 0 | 18,091 | (2) | 525,409 | ||||||||||||||||||||||||
|
President
and Chief
|
2008
|
299,423 | 272,800 | 0 | 218,642 | 0 | 0 | 15,903 | (2) | 806,768 | ||||||||||||||||||||||||
|
Executive
Officer
|
2007
|
255,000 | 136,000 | 0 | 187,738 | 0 | 0 | 13,306 | (2) | 592,044 | ||||||||||||||||||||||||
|
2009
|
248,654 | 0 | 0 | 99,130 | 0 | 0 | 20,397 | (2) | 360,181 | |||||||||||||||||||||||||
|
Melvyn
Williams,
|
2008
|
174,231 | 130,950 | 0 | 98,389 | 0 | 0 | 20,170 | (2) | 423,740 | ||||||||||||||||||||||||
|
Chief
Financial Officer
|
2007
|
150,000 | 100,000 | 0 | 150,190 | 0 | 0 | 19,380 | (2) | 420,570 | ||||||||||||||||||||||||
|
and
Senior VP — Finance
|
||||||||||||||||||||||||||||||||||
|
and
Corporate Development
|
||||||||||||||||||||||||||||||||||
|
Richard
F. Nanna,
|
2009
|
220,385 | 0 | 0 | 99,130 | 0 | 0 | 8,900 | (2) | 328,415 | ||||||||||||||||||||||||
|
Senior
Vice President —
|
2008
|
174,231 | 130,950 | 0 | 98,389 | 0 | 0 | 6,925 | (2) | 410,495 | ||||||||||||||||||||||||
|
Exploration
|
2007
|
150,000 | 100,000 | 0 | 150,190 | 0 | 0 | 5,535 | (2) | 405,725 | ||||||||||||||||||||||||
|
Timothy
G. Smith,
|
2009
|
188,462 | 0 | 0 | 43,827 | 0 | 0 | 13,668 | (3) | 245,957 | ||||||||||||||||||||||||
|
Vice
President — U.S.
|
2008
|
147,582 | 67,500 | 0 | 59,033 | 0 | 0 | 3,653 | (3) | 278,768 | ||||||||||||||||||||||||
|
and
Canadian Operations
|
2007
|
135,000 | 50,000 | 0 | 50,689 | 0 | 0 | 5,542 | (3) | 241,231 | ||||||||||||||||||||||||
|
Brent
E. Timmons,
|
2009
|
135,192 | 0 | 0 | 33,601 | 0 | 0 | 15,733 | (4) | 184,526 | ||||||||||||||||||||||||
|
Vice
President &
|
2008
|
112,115 | 51,750 | 0 | 50,288 | 0 | 0 | 14,895 | (4) | 229,048 | ||||||||||||||||||||||||
|
Controller
|
2007
|
94,615 | 50,000 | 0 | 30,038 | 0 | 0 | 12,001 | (4) | 186,654 | ||||||||||||||||||||||||
|
(1)
|
Apollo
calculates the fair value of each option award granted at the time of
grant using the Black-Scholes option-pricing model. For the
assumptions made in calculating the fair value of options, see footnote
(2) to the table in “Grants of Plan-Based Awards” on page ► of this
Circular and “Note 14—Share Capital” to the financial statements
included in its Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
|
|
(2)
|
In
2007, 2008 and 2009 Apollo paid a vehicle allowance, plus a sports club
allowance, life insurance, and a contribution towards his tax liability
related to the preceding items.
|
|
(3)
|
In
2007, 2008 and 2009 Apollo paid a vehicle allowance and life
insurance.
|
|
(4)
|
In
2007, 2008 and 2009 Apollo paid a vehicle allowance, a sports club
allowance and life insurance.
|
127
Grants
Of Plan-Based Awards
The
following table provides information related to non-equity and equity-based
awards made to the Named Executive Officers for the 2009 fiscal
year:
|
Estimated
Future Payouts Under Non-
Equity
Incentive Plan Awards
|
Estimated
Future Payouts Under
Equity
Incentive Plan Awards
|
All Other
Stock
Awards: Number
of Shares
|
All Other
Option
Awards:
Number
of
Securities
Underlying
|
Exercise
or Base
Price
of
Option
|
||||||||||||||||||||||||||||||||||
|
Name
and Principal Position
|
Grant Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
#
|
Target
#
|
Maximum
#
|
of Stock
or Units
|
Options
(1)(2)
|
Awards
($/Sh)
|
||||||||||||||||||||||||||||
|
R.
David Russell,
President and Chief Executive Officer |
March
31,
2009 |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | 650,000 | 0.32 | ||||||||||||||||||||||||||||
|
Melvyn
Williams,
Chief Financial Officer and Senior Vice President — Finance and Corporate development |
March
31,
2009 |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | 458,025 | 0.32 | ||||||||||||||||||||||||||||
|
Richard
F. Nanna,
Senior Vice President — Exploration |
March
31,
2009 |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | 458,025 | 0.32 | ||||||||||||||||||||||||||||
|
Timothy
G. Smith,
Vice President — U.S. and Canadian Operations |
March
31,
2009 |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | 202,500 | 0.32 | ||||||||||||||||||||||||||||
|
Brent
E. Timmons,
Vice President and Controller |
March
31,
2009 |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | 155,250 | 0.32 | ||||||||||||||||||||||||||||
|
(1)
|
All
options were granted under Apollo’s Stock Option Incentive
Plan.
|
|
(2)
|
The
fair value of each option granted is estimated at the time of grant using
the Black-Scholes option-pricing model with weighted average assumptions
for grants as follows:
|
|
2009
|
2008
|
2007
|
||||||||||
|
Risk-free
interest rate
|
1.9 | % | 2.9 | % | 4.0 | % | ||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Volatility
|
78 | % | 73 | % | 71 | % | ||||||
|
Expected
life in years
|
6 | 6 | 6 | |||||||||
|
Weighted
average grant-date fair value of stock options
|
$ | 0.22 | $ | 0.44 | $ | 0.37 | ||||||
Outstanding
Equity Awards At Fiscal Year-End
The
following table provides information related to any equity-based awards
outstanding as of December 31, 2009 for the Named Executive
Officers:
128
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||||
|
Name
and Principal
Position
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value of
Shares
or Units
of Stock
That Have
Not Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of Unearned
Shares,
Units or Other Rights
That Have Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have Not
Vested
($)
|
|||||||||||||||||||||
|
R.
David Russell,
|
250,000 | 2.24 |
2/18/2013
|
|||||||||||||||||||||||||||
|
President
and Chief
|
250,000 | 0.65 |
3/10/2015
|
|||||||||||||||||||||||||||
|
Executive
Officer(1)
|
81,000 | 0.48 |
8/10/2016
|
|||||||||||||||||||||||||||
| 500,000 | 0.57 |
2/6/2017
|
||||||||||||||||||||||||||||
| 250,000 | 250,000 | 0.66 |
3/27/2018
|
|||||||||||||||||||||||||||
| 650,000 | 0.32 |
3/31/2019
|
||||||||||||||||||||||||||||
|
Melvyn
Williams,
|
200,000 | 2.05 |
3/10/2014
|
|||||||||||||||||||||||||||
|
Chief
Financial
|
125,000 | 0.65 |
3/10/2015
|
|||||||||||||||||||||||||||
|
Officer
and Senior
|
125,000 | 0.65 |
3/28/2016
|
|||||||||||||||||||||||||||
|
Vice
President —
|
27,000 | 0.48 |
8/10/2016
|
|||||||||||||||||||||||||||
|
Finance
and Corporate
|
400,000 | 0.57 |
2/6/2017
|
|||||||||||||||||||||||||||
|
Development(2)
|
112,500 | 112,500 | 0.66 |
3/27/2018
|
||||||||||||||||||||||||||
| 458,025 | 0.32 |
3/31/2019
|
||||||||||||||||||||||||||||
|
Richard
F. Nanna,
|
200,000 | 2.24 |
2/18/2013
|
|||||||||||||||||||||||||||
|
Senior
Vice President
|
250,000 | 0.65 |
3/10/2015
|
|||||||||||||||||||||||||||
|
—
Exploration(3)
|
400,000 | 0.57 |
2/6/2017
|
|||||||||||||||||||||||||||
| 112,500 | 112,500 | 0.66 |
3/27/2018
|
|||||||||||||||||||||||||||
| 458,025 | 0.32 |
3/31/2019
|
||||||||||||||||||||||||||||
|
Timothy
G. Smith,
|
60,000 | 2.05 |
3/10/2014
|
|||||||||||||||||||||||||||
|
Vice
President —
|
125,000 | 0.65 |
3/10/2015
|
|||||||||||||||||||||||||||
|
US
and Canadian
|
60,000 | 0.20 |
12/12/2015
|
|||||||||||||||||||||||||||
|
Operations
(4)
|
135,000 | 0.57 |
2/6/2017
|
|||||||||||||||||||||||||||
| 67,500 | 67,500 | 0.66 |
3/27/2018
|
|||||||||||||||||||||||||||
| 202,500 | 0.32 |
3/31/2019
|
||||||||||||||||||||||||||||
|
Brent
E. Timmons,
|
40,000 | 0.20 |
12/12/2015
|
|||||||||||||||||||||||||||
|
Vice
President and
|
80,000 | 0.57 |
2/6/2017
|
|||||||||||||||||||||||||||
|
Controller(5)
|
57,500 | 57,500 | 0.66 |
3/27/2018
|
||||||||||||||||||||||||||
| 155,250 | 0.32 |
3/31/2019
|
||||||||||||||||||||||||||||
|
(1)
|
R.
David Russell – 250,000 unexercised options with a strike price of $0.66
vested on March 27, 2010. Of the 650,000 unexercised options
with a strike price of $0.32, 50% vested on March 31, 2010 and 50% will
vest on March 31, 2011.
|
|
(2)
|
Melvyn
Williams – 112,500 unexercised options with a strike price of $0.66 vested
on March 27, 2010. Of the 458,025 unexercised options with a
strike price of $0.32, 50% vested on March 31, 2010 and 50% will vest on
March 31, 2011.
|
|
(3)
|
Richard
F. Nanna – 112,500 unexercised options with a strike price of
$0.66 vested on March 27, 2010. Of the 458,025 unexercised
options with a strike price of $0.32, 50% vested on March 31, 2010 and 50%
will vest on March 31, 2011.
|
|
(4)
|
Timothy
G. Smith – 67,500 unexercised options with a strike price of $0.66 vested
on March 27, 2010. Of the 202,500 unexercised options with a
strike price of $0.32, 50% vested on March 31, 2010 and 50% will vest on
March 31, 2011.
|
|
(5)
|
Brent
E. Timmons – 57,500 unexercised options with a strike price of
$0.66 vested on March 27, 2010. Of the 155,250 unexercised
options with a strike price of $0.32, 50% vested on March 31, 2010 and 50%
will vest on March 31, 2011.
|
129
Option
Exercises and Stock Vested
The
following table provides information related to stock options exercised by the
Named Executive Officers and restricted stock that became vested during the 2009
fiscal year for the Named Executive Officers:
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||
|
Number of
Shares
Acquired on
Exercise
|
Value
Realized on
Exercise
|
Number of
Shares
Acquired on
Vesting
|
Value
Realized on
Vesting
|
|||||||||||||
|
Name
and Principal Position
|
(#)
|
($)
|
(#)
|
($)
|
||||||||||||
|
R.
David Russell,
|
0 | 0 | 0 | 0 | ||||||||||||
|
President
and Chief Executive Officer
|
0 | 0 | 0 | 0 | ||||||||||||
|
Melvyn
Williams,
|
0 | 0 | 0 | 0 | ||||||||||||
|
Chief
Financial Officer and Senior Vice
|
0 | 0 | 0 | 0 | ||||||||||||
|
President
— Finance and Corporate Development
|
0 | 0 | 0 | 0 | ||||||||||||
|
Richard
F. Nanna,
|
0 | 0 | 0 | 0 | ||||||||||||
|
Senior
Vice President — Exploration
|
0 | 0 | 0 | 0 | ||||||||||||
| 0 | 0 | 0 | 0 | |||||||||||||
|
Timothy
G. Smith,
|
0 | 0 | 0 | 0 | ||||||||||||
|
Vice
President — U.S. and Canadian
|
0 | 0 | 0 | 0 | ||||||||||||
|
Operations
|
0 | 0 | 0 | 0 | ||||||||||||
|
Brent
E. Timmons,
|
0 | 0 | 0 | 0 | ||||||||||||
|
Vice
President and Controller Administration
|
0 | 0 | 0 | 0 | ||||||||||||
| 0 | 0 | 0 | 0 | |||||||||||||
Potential
Payments Upon Termination Or Change In Control
As noted
under “Compensation Discussion and Analysis — Employment Agreements” on page ►
of this Circular, Apollo has entered into employment agreements with the
following Named Executive Officers: R. David Russell, Melvyn Williams, Richard
F. Nanna, Timothy G. Smith and Brent E. Timmons. These employment agreements
provide for payments and other benefits if the Named Executive Officer is
terminated under the circumstances specified in the employment agreements
following a “change of control” as defined in such employment agreements.
Described below are the terms of such payments and estimates regarding the
amounts for each of the Named Executive Officers.
Upon the
successful completion of the Arrangement, Mr. Russell shall resign from the
position of president and chief executive officer of Apollo. Apollo
and Linear have agreed that Mr. Russell shall receive all termination and other
amounts owing under his employment agreement as if he had been terminated
without cause, which amounts shall not exceed approximately $1.7
million.
R. David Russell. In
the event of the termination of his employment without cause or upon a change of
control of Apollo (defined, according to the March 20, 2009 amendment to Mr.
Russell’s employment agreement with Apollo, as the occurrence, within a single
transaction or series of related transactions occurring within the same 12-month
period, of a change in the identity of persons who individually or collectively
hold rights to elect, or to approve the election of, a majority of the members
of the Apollo Board, including, without limitation, transactions consisting of
one or more sales or other transfers of assets or equity securities, mergers,
consolidations, amalgamations, reorganizations, or any similar transactions),
(i) Mr. Russell will be entitled to receive severance equal to 36 months of his
base salary, 50% of the bonus entitlement for the 36 month period, and any other
compensation/benefits to which he would otherwise have been entitled during such
36 month period (such bonus entitlement is based on a percentage of annual base
salary of up to 100%) and (ii) any options granted to Mr. Russell shall
immediately vest.
130
If Mr.
Russell had been terminated on December 31, 2009 without cause or as the result
of a change of control, he would have been entitled to the
following:
|
Salary
|
$ | 1,140,000 |
Lump
sum
|
||
|
Bonus
|
570,000 |
Lump
sum
|
|||
|
Health
care benefits
|
45,000 |
3
years duration
|
|||
|
Vehicle
|
45,000 |
3
years duration
|
|||
|
Sports
Club
|
15,000 |
3
years duration
|
|||
|
Total
|
$ | 1,715,000 |
Melvyn Williams. Mr.
Williams’ employment agreement provides that, in the event of the termination of
his employment without cause or upon a change of control of Apollo (defined,
according to the March 20, 2009 amendment to Mr. Williams’ employment agreement
with Apollo, as the occurrence, within a single transaction or series of related
transactions occurring within the same 12-month period, of a change in the
identity of persons who individually or collectively hold rights to elect, or to
approve the election of, a majority of the members of the Apollo Board,
including, without limitation, transactions consisting of one or more sales or
other transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), (i) Mr. Williams
will be entitled to receive severance equal to 24 months of his base salary, 50%
of the bonus entitlement for the 24 month period (such bonus entitlement is
based on a percentage of annual base salary of approximately 75%), and any
other compensation/benefits to which he would otherwise have been entitled
during such 24 month period, (ii) all of such severance shall be calculated on a
grossed-up basis for all taxes and (iii) any options granted to Mr. Williams
shall immediately vest.
If Mr.
Williams had been terminated on December 31, 2009 without cause or as the result
of a change of control, he would have been entitled to the
following:
|
Salary
|
$ | 530,000 |
Lump
sum
|
||
|
Bonus
|
265,000 |
Lump
sum
|
|||
|
Health
care benefits
|
30,000 |
2
years duration
|
|||
|
Vehicle
|
20,000 |
2
years duration
|
|||
|
Total
|
$ | 845,000 |
Richard F. Nanna. Mr.
Nanna’s employment agreement provides that, in the event of the termination of
his employment without cause or upon a change of control of Apollo (defined,
according to the March 20, 2009 amendment to Mr. Nanna’s employment agreement
with Apollo, as the occurrence, within a single transaction or series of related
transactions occurring within the same 12-month period, of a change in the
identity of persons who individually or collectively hold rights to elect, or to
approve the election of, a majority of the members of the Apollo Board,
including, without limitation, transactions consisting of one or more sales or
other transfers of assets or equity securities, mergers, consolidations,
amalgamations, reorganizations, or any similar transactions), (i) Mr. Nanna will
be entitled to receive severance equal to 36 months of his base salary, 50% of
the bonus entitlement for the 36 month period (such bonus entitlement is based
on a percentage of annual base salary of approximately 75%), and any other
compensation/benefits to which he would otherwise have been entitled during such
36 month period and (ii) any options granted to Mr. Nanna shall immediately
vest.
131
If Mr.
Nanna had been terminated on December 31, 2009 without cause or as the result of
a change of control, he would have been entitled to the following:
|
Salary
|
$ | 690,000 |
Lump
sum
|
||
|
Bonus
|
345,000 |
Lump
sum
|
|||
|
Health
care benefits
|
45,000 |
3
years duration
|
|||
|
Vehicle
|
45,000 |
3
years duration
|
|||
|
Sports
Club
|
15,000 |
3
years duration
|
|||
|
Total
|
$ | 1,140,000 |
Timothy G. Smith. Mr.
Smith’s employment agreement provides that, in the event of the termination of
his employment without cause or upon a change of control of Apollo (defined as
the occurrence, within a single transaction or series of related transactions
occurring within the same 12-month period, of a change in the identity of
persons who individually or collectively hold rights to elect, or to approve the
election of, a majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other transfers of
assets or equity securities, mergers, consolidations, amalgamations,
reorganizations, or any similar transactions), Mr. Smith will be entitled to
receive severance equal to 15 months of his base salary and benefits to which he
would otherwise have been entitled for a period of 12 months.
If Mr.
Smith had been terminated on December 31, 2009 without cause or as the result of
a change of control, he would have been entitled to the following:
|
Salary
|
$ | 250,000 |
Lump
sum
|
||
|
Health
care benefits
|
18,750 |
1
year duration
|
|||
|
Vehicle
|
10,000 |
1
year duration
|
|||
|
Total
|
$ | 278,750 |
Brent E. Timmons. Mr.
Timmons’ employment agreement provides that, in the event of the termination of
his employment without cause or upon a change of control of Apollo (defined as
the occurrence, within a single transaction or series of related transactions
occurring within the same 12-month period, of a change in the identity of
persons who individually or collectively hold rights to elect, or to approve the
election of, a majority of the members of the Apollo Board, including, without
limitation, transactions consisting of one or more sales or other transfers of
assets or equity securities, mergers, consolidations, amalgamations,
reorganizations, or any similar transactions), Mr. Timmons will be entitled to
receive severance equal to 12 months of his base salary and benefits to which he
would otherwise have been entitled for a period of 12 months.
If Mr.
Timmons had been terminated on December 31, 2009 without cause or as the result
of a change of control, he would have been entitled to the
following:
|
Salary
|
$ | 140,000 |
Lump
sum
|
||
|
Health
care benefits
|
15,000 |
1
year duration
|
|||
|
Vehicle
|
10,000 |
1
year duration
|
|||
|
Total
|
$ | 165,000 |
Indebtedness
Of Directors And Officers
No
director or officer of Apollo, and no associate of any director or officer of
Apollo, was indebted to Apollo at any time during the year ended December 31,
2009.
132
Equity
Compensation Plan Information
The
following table provides information about Apollo Shares that may be issued upon
the exercise of options or warrants under Apollo’s existing equity compensation
plan as of December 31, 2009.
|
Plan Category
|
(a)
Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options
(#)
|
(b)
Weighted-
Average
Exercise Price of
Outstanding
Options
($)
|
(c)
Number of Securities
Remaining
Available for Future
Issuance
Under Equity
Compensation
Plans (Excluding Securities
Reflected in Column (a))
(#)
|
||||||||||
|
Equity
compensation plans approved by security holders:
|
|||||||||||||
|
Stock
Option Incentive Plan
|
11,594,371 | $ | 0.64 | 11,666,758 | |||||||||
|
Equity
compensation plans not approved by security holders
|
0 | N/A | 0 | ||||||||||
|
Total
|
11,594,371 | $ | 0.64 | 11,666,758 | |||||||||
Directors’
and Officers’ Insurance
Apollo
has directors’ liability insurance for the directors and officers of Apollo and
its subsidiaries. The aggregate annual premium is $136,600. The annual insurance
coverage under the applicable policy is limited to $10,000,000 per policy year
with an additional $10,000,000 excess coverage per year.
There is
a $150,000 deductible provision for securities claims and $100,000 deductible
provision for all other claims made by Apollo. The limit does not apply to
claims by any director or officer.
Shareholder
Proposals For Next Annual Meeting
Shareholder
Proposals for Inclusion in Proxy Statement for 2011 Annual Meeting of Apollo
Shareholders
To be
considered for inclusion in Apollo’s proxy statement for the 2011 annual meeting
of shareholders, a shareholder proposal must be received by Apollo no later than
the close of business on ►. Shareholder proposals must be sent to the Secretary
of Apollo at the following address: Apollo Gold Corporation, 5655 South Yosemite
Street, Suite 200, Greenwood Village, Colorado, 80111-3220. Apollo will not be
required to include in its proxy statement any shareholder proposal that does
not meet all the requirements for such inclusion established by applicable
law.
Other
Shareholder Proposals for Presentation at 2011 Annual Meeting of Apollo
Shareholders
For any
proposal that is not submitted for inclusion in Apollo’s proxy statement for the
2011 annual meeting of shareholders, but is instead sought to be presented
directly at the 2011 annual meeting of shareholders, the SEC’s rules permit
management to vote proxies in its discretion if: (1) Apollo receives notice of
the proposal before the close of business on ►, 2011, and advises shareholders
in the proxy statement about the nature of the matter and how management intends
to vote on such matter (and certain other conditions are met); or (2) Apollo
does not receive notice of the proposal prior to the close of business on ►,
2011. Notices of intention to present proposals at the 2011 annual meeting of
shareholders should be sent to Secretary of Apollo at the following address:
Apollo Gold Corporation, 5655 South Yosemite Street, Suite 200, Greenwood
Village, Colorado, 80111-3220.
133
INTERESTS
OF INSIDERS AND OTHERS IN MATERIAL TRANSACTIONS
Policy
Regarding Related Party Transactions
Apollo or
one of its subsidiaries may occasionally enter into transactions with certain
“related persons.” Related persons include Apollo’s executive officers,
directors, 5% or more beneficial owners of Apollo Shares, immediate family
members of these persons and entities in which one of these persons has a direct
or indirect material interest. Apollo refers to transactions with these related
persons as “related party transactions.” All related party transactions may be
consummated or continue only if:
|
|
·
|
the
audit committee shall have approved or ratified such transaction and if
the transaction is on terms comparable to those that could be obtained in
arm’s length dealings with unrelated third
parties;
|
|
|
·
|
the
transaction is approved by the disinterested members of the Apollo Board;
or
|
|
|
·
|
the
transaction involves compensation approved by Apollo’s Compensation
Committee.
|
Apollo’s
policy regarding related party transactions is evidenced by a written policy
which was adopted by the Apollo Board. All of the related party transactions
described below under the heading “Interests of Insiders and Others in Material
Transactions — Related Party Transactions” have been approved pursuant to these
policies and procedures.
Related
Party Transactions
Except as
described below and elsewhere in this Circular, no director or senior officer or
associate of a director or senior officer nor, to the best knowledge of the
directors or senior officers of Apollo after having made reasonable inquiry, any
person or company who beneficially owns, directly or indirectly, voting
securities of Apollo carrying more than five (5%) percent of the voting rights
attached to any class of voting securities of Apollo outstanding at the date
hereof, or any associate or affiliate thereof, has any interest in any material
transaction involving Apollo currently proposed or to which Apollo was or became
a party during the fiscal year ended December 31, 2009.
Arrangement
Agreement and Related Transactions
On March
31, 2010, Apollo and Linear entered into the Arrangement Agreement which
provides that Mr. Russell shall receive all termination and other amounts owing
under his employment agreement as if he had been terminated without cause, which
amounts shall not exceed approximately $1.7 million. In addition,
immediately following the Effective Time, it is contemplated that three
directors who currently serve on the Apollo Board, currently expected to be
Messrs. Kaiser, Peat, and Stott, will continue to serve on the board of
directors of the combined company.
On March
31, 2010, in connection with the Arrangement Agreement, the management and
directors of both Apollo and Linear entered into customary support agreements,
representing, in the aggregate, approximately 3.7 million Apollo Shares and 3.4
million Linear Shares. Pursuant to the support agreements, each
director and executive officer of Apollo party to such agreement committed to,
among other things:
|
|
·
|
immediately
cease and terminate existing discussions, if any, with any person with
respect to any potential direct or indirect acquisition of, or any other
business combination involving, Apollo or any material part of its assets,
which we collectively refer to in this Circular as an Apollo Acquisition
Proposal;
|
|
|
·
|
not,
directly or indirectly, make, solicit, assist, initiate, encourage or
otherwise facilitate any inquiries, proposals or offers from any person,
other than Apollo or its affiliates, relating to any Apollo Acquisition
Proposal or participate in, any discussions or negotiations regarding any
information with respect to any Apollo Acquisition Proposal or conduct any
activity otherwise detrimental to the
Arrangement;
|
134
|
|
·
|
not
sell, assign, transfer or otherwise convey, dispose of, encumber or
restrict the voting rights of any of their Apollo securities (including
Apollo Shares);
|
|
|
·
|
vote
all of their Apollo Shares in favor of the Arrangement and any resolutions
or matters relating thereto at any meeting of Apollo Shareholders called
to consider the same;
|
|
|
·
|
not
withdraw any proxy (if any) delivered to Apollo or its depositary agent in
connection with any meeting of Apollo Shareholders called to approve the
Arrangement; and
|
|
|
·
|
vote
against any proposal (other than a Superior Proposal as defined in the
Arrangement Agreement) submitted to Apollo Shareholders in respect of any
amalgamation, merger, sale of Apollo’s or its affiliates’ or associates’
assets, take-over bid, plan of arrangement, reorganization,
recapitalization, shareholder rights plan, liquidation or winding-up of,
reverse take-over or other business combination or similar transaction
involving Apollo or any of its subsidiaries; (i) which would reasonably be
regarded as being directed towards or likely to prevent or delay the
successful completion of the Arrangement; or (ii) which would reasonably
be expected to result in a material adverse effect in respect of
Apollo.
|
Transactions
with the Project Lenders
On
February 20, 2009, Apollo entered into the Project Facility Agreement with the
Project Lenders pursuant to which Apollo borrowed $70,000,000 in order to the
fund the development, construction and operation of its Black Fox project. The
Project Facility Agreement replaced the $15,000,000 bridge facility agreement
that Apollo had previously entered into on December 10, 2008.
In
connection with the Project Facility Agreement, Apollo issued 34,836,111
warrants to the Project Lenders (11,637,775 to RMB Australia Holdings Limited
and 23,198,336 to Macquarie Bank Limited) as partial consideration for financing
services provided in connection with the Project Facility Agreement. Each
warrant entitles the holder thereof to purchase one Apollo Share pursuant to the
terms and conditions of the warrant. The warrants expire 48 months from their
date of issuance and have an exercise price of Cdn.$0.252 per warrant share,
subject to customary anti-dilution adjustments. Such warrants are in addition to
the 42,614,254 warrants (21,307,127 to each Project Lender) issued to the
Project Lenders in connection with the bridge facility agreement. Assuming
exercise by the Project Lenders of all warrants held by them, following
completion of the Arrangement, RMB Australia Holdings Limited and Macquarie Bank
Limited would beneficially own approximately ►% and ►%, respectively, of
Apollo’s issued and outstanding capital stock (on an otherwise undiluted
basis).
On
September 28, 2009, Apollo entered into an agreement with the Project Lenders
and RMB Resources Inc., pursuant to which the Project Lenders agreed, subject to
the condition that Apollo provide a new resource model and life of mine plan in
respect of the Black Fox project to the Project Lenders prior to November 15,
2009, to defer (i) the first scheduled repayment of $9,300,000 due on September
30, 2009 (the “Deferred
Payment”) under the Project Facility and (ii) the requirement to fund the
debt service reserve account also due on September 30, 2009 (the “Deferred Funding Obligation”),
which, in accordance with the terms of the Project Facility Agreement, requires
a reserve amount equal to, at all times after initial funding, the greater of
$5,000,000 or the aggregate repayment amount due on the next repayment date
(collectively, the “First
Deferral”).
In
addition, as part of the First Deferral, the Project Lenders agreed to conduct a
technical review of the Black Fox project and extend the date by which the
project completion test under the Project Facility must be satisfied to March
31, 2010. The project completion test was originally required to be successfully
completed by October 31, 2009 and requires Apollo to demonstrate to RMB
Resources Inc., acting on behalf of the Project Lenders, that the Black Fox mine
satisfies certain general and operational criteria during a predetermined test
period. As a result of the First Deferral, the Deferred Payment and
the Deferred Funding Obligation was made payable on the earlier to occur of (i)
the completion of the Project Lenders’ technical review process of the Black Fox
mine and (ii) December 31, 2009.
On
December 30, 2009, Apollo entered into a second agreement with the Project
Lenders pursuant to which the Project Lenders agreed to further defer the
Deferred Payment and the Deferred Funding Obligation, and to defer the second
scheduled repayment under the Project Facility Agreement of $6,000,000
originally due on December 31, 2009 (the “Second Repayment”), in each
case, until the earlier to occur of (i) the completion of the Project Lenders’
technical review process of the Black Fox mine and (ii) February 28, 2010
(collectively, the “Second
Deferral”).
135
On
February 25, 2010, Apollo entered into a third agreement with the Project
Lenders pursuant to which the Project Lenders agreed to further defer the
Deferred Payment, the Deferred Funding Obligation, and the Second Repayment, in
each case, until the earlier to occur of (i) the completion of the Project
Lenders’ technical review process of the Black Fox mine and (ii) March 31,
2010.
On March
9, 2010, the Project Lenders executed and delivered a consent letter (the “Consent Letter”), which was
agreed to and accepted by each of Apollo and Linear, pursuant to which the
Project Lenders agreed, subject to the terms and conditions contained in the
Consent Letter:
|
|
·
|
to
consent to the Arrangement (the “Consent”);
|
|
|
·
|
prior
to the earliest to occur of (i) the date on which RMB Resources Inc., as
agent, determines, acting reasonably, that the Arrangement has been
terminated or will not be completed, (ii) March 31, 2010, if the
definitive agreements in respect of the Arrangement had not been executed
by such date, or (iii) September 30, 2010, not to make demand, accelerate
payment or enforce any security or any other remedies upon an “event of
default” or a “review event” under the Project Facility Agreement unless
and until the occurrence of certain “override events” set forth in
Schedule B to the Consent Letter (which “override events” are primarily
related to breaches of certain covenants and provisions of the Consent
Letter and the Project Facility Agreement) (the “Standstill Provisions”);
and
|
|
|
·
|
to
amend certain provisions of the Project Facility Agreement, including
without limitation to incorporate the following revised repayment
schedule:
|
|
Repayment Date
|
Repayment Amount
|
|||
|
The
earlier of two Business Days following completion of the Private Placement
and March 19, 2010
|
$ | 10,000,000 | ||
|
The
earlier of July 2, 2010 and the date that is two Business Days following
the consummation of the Arrangement
|
$ | 10,000,000 | ||
|
The
earlier of September 30, 2010 and the date on which the proceeds from any
one or more equity raisings following the consummation of the Arrangement
equals $10,000,000
|
$ | 10,000,000 | ||
|
December
31, 2010
|
$ | 5,000,000 | ||
|
The
remaining repayment dates between March 31, 2011 and March 31, 2013 to be
agreed between Apollo and RMB Resources Inc. by no later than September
30, 2010 to reflect the “Cashflow Model” (as defined under the Project
Facility Agreement). In the absence of agreement between Apollo
and RMB Resources Inc. by September 30, 2010, “Secured Moneys” (as defined
under the Project Facility Agreement) shall be due and payable on December
31, 2010.
|
$ | 35,000,000 | ||
136
The
Project Lenders’ agreement to the Consent and the Standstill Provisions is
subject to a number of conditions, including without limitation (i) the support
agreements delivered by officers and directors of Linear and Apollo being
satisfactory to the Project Lenders in form and substance, (ii) prior approval
by the Project Lenders of press releases and other public statements regarding
the Arrangement that refer to the Project Lenders, (iii) RMB Resources Inc.,
acting reasonably, being satisfied that the completion of the Arrangement will
not cause a breach or default under any Project Documents (as defined in the
Project Facility Agreement), (iv) RMB Resources Inc., acting reasonably, being
satisfied that the Arrangement will not have any material negative tax
implications for Apollo, Linear and each of their direct or indirect
subsidiaries, (v) RMB Resources Inc. being satisfied, acting reasonably, that,
immediately following completion of the Arrangement and after making the payment
of $10,000,000 contemplated by the second row in the repayment schedule set
forth above, Apollo having cash on hand of not less than Cdn.$10,000,000, (vi)
no amendment to the definitive agreements related to the Arrangement, no
representation in such definitive agreements being untrue, no breach of any
material covenant and no waiver of any material condition precedent in such
definitive agreements, and (vii) at completion of the Arrangement, RMB Resources
Inc., acting reasonably, being satisfied regarding indebtedness and encumbrances
of Linear and its direct and indirect subsidiaries.
On March
18, 2010, the Project Lenders entered into lock-up agreements in favour of
Apollo pursuant to which the Project Lenders agreed to, subject to certain
exceptions, refrain from offering, selling, contracting to sell, lending, or
entering into any other agreement to transfer the economic consequences of any
of the Apollo Shares or Apollo warrants held by them until December 31,
2010. The Project Lenders also entered into support agreements
pursuant to which they agreed, subject to customary exceptions in the context of
a Superior Proposal and other terms and conditions set out in such agreements,
to vote their Apollo Shares in favour of the Share Issuance Resolution and all
other matters relating to the Arrangement at the Apollo Meeting. See
the heading “The Arrangement – Background of Arrangement – Consent, Lock-Up and
Support of the Project Lenders” below.
Other
Transactions
In 2009,
Apollo paid $12,000 for consulting services to Surradial Inc., an entity owned
by the brother of R. David Russell, the president and chief executive officer of
Apollo. In 2009, Apollo paid Fogler, Rubinoff LLP $428,000, in respect of legal
services provided to Apollo. Mr. Hobart, a director and assistant secretary of
Apollo, is a partner at Fogler, Rubinoff LLP.
Interest
of Certain Persons in Matters to Be Acted Upon
Except as
described elsewhere in this Circular, no person who was a director or executive
officer of Apollo at any time since the beginning of Apollo’s last completed
fiscal year, no person who is a proposed nominee for election as a director of
Apollo and no associate of any such director, executive officer or proposed
nominee has any substantial interest, direct or indirect, by security holdings
or otherwise, in any matter to be acted upon at the 2010 Apollo Meeting other
than the interest of the director nominee in his own election.
Section
16(A) Beneficial Ownership Reporting Compliance
Section
16(a) of the U.S. Exchange Act requires Apollo’s officers and directors, and
persons who own more than ten percent (10%) of any class of equity securities of
Apollo, to file reports of ownership and changes of ownership of such securities
with the SEC. Based solely upon a review of Forms 3, 4 and 5 and
amendments thereto furnished to Apollo pursuant to Section 16a-3 of the
U.S. Exchange Act, no person who at any time during 2009 was a director,
officer, or beneficial owner of more than ten percent (10%) of any class of
equity securities of Apollo failed to file on a timely basis, as disclosed in
the above forms, reports required by Section 16(a) of the U.S. Exchange Act
during the most recent fiscal year.
137
PARTICULARS
OF MATTERS TO BE ACTED UPON AT THE APOLLO MEETING
The
following discussion contains material information pertaining to the Apollo
Meeting, including the Share Issuance Resolution, the Option Plan Amendment
Resolution, the Name Change Resolution and the Share Consolidation Resolution
and the Share Consolidation Resolution. This discussion is subject,
and qualified in its entirety by reference, to the full text of these documents
and resolutions, which are attached as Schedules to this Circular. We urge you
to read and review these Schedules in their entirety as well as the discussion
in this Circular.
The
Share Issuance Proposal
The
Apollo Shareholders will be asked at the Apollo Meeting to approve the Share
Issuance in connection with the Arrangement. Pursuant to Section 611 of the TSX
Company Manual, securityholder approval is required in those instances where the
number of securities issued or issuable in payment of the purchase price for an
acquisition exceeds 25% of the number of securities of the listed issuer which
are outstanding, on a non-diluted basis, prior to the date of closing of the
transaction. Similarly, rules of the AMEX require that a listed
issuer obtain the consent of its shareholders prior to completing any
transaction that would result in the issuance of more than 20% of the issuer’s
outstanding common stock. Upon completion of the Arrangement, the
Former Linear Shareholders will receive approximately ► Apollo Shares,
representing approximately ►of the Apollo Shares anticipated to be outstanding
immediately prior to the completion of the Arrangement.
The
Arrangement cannot be completed unless the Share Issuance Resolution is duly
approved by Apollo Shareholders at the Apollo Meeting.
Required
Vote; Recommendation of the Apollo Board
The full
text of the Share Issuance Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule A to this
Circular. The Share Issuance Resolution must be approved by a
majority of the votes cast in respect thereof by Apollo Shareholders present in
person or represented by proxy at the Apollo Meeting. For the purposes of voting
on the Share Issuance Resolution, a total of 62,500,000 Apollo Shares held by
Linear (representing approximately ►% of the currently issued and outstanding
Apollo Shares) will be excluded from voting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Share Issuance Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the Share Issuance
Resolution.
The
Stock Option Incentive Plan Amendments Proposal
The
Apollo Board is submitting this proposal to amend the Apollo Stock Option
Incentive Plan because such amendments are required in order to issue Apollo
Replacement Options to former Linear optionholders as contemplated by the
Arrangement. Specifically, the Apollo Stock Option Incentive Plan
must be amended to:
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·
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increase
the number of Apollo Shares issuable under the Apollo Stock Option
Incentive Plan to a maximum of the lesser of: (a) 10% of the issued and
outstanding Apollo Shares, from time to time; and (b) ► Apollo Shares (an
increase from 12,139,686 Apollo Shares as presently provided in the Apollo
Stock Option Incentive Plan);
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·
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add
holders of Linear Options who will not be Apollo employees following the
consummation of the Arrangement to the definition of “Eligible Person”
under the Apollo Stock Option Incentive
Plan;
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·
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permit
the Apollo Board to fix the exercise price per Apollo Share under any
Apollo Replacement Option issued in the Arrangement at a price less than
the market price per Apollo Share at the time of the exchange of the
Linear Options for Apollo Replacement Options (this amendment is required
because some of the Linear Options may be “in-the-money” and the Apollo
Stock Option Incentive Plan presently prohibits issuance of “in-the-money”
options); and
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·
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make
other conforming changes in order to give effect to the
foregoing.
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138
The Board
has approved an amended Stock Option Incentive Plan (the “Amended Plan”) in order to
incorporate the changes described above, subject to shareholder and regulatory
approval. The principal terms of the Amended Plan are summarized
below. The principal terms of the Amended Plan are substantially similar to the
Apollo Stock Option Incentive Plan, except for those provisions specifically
identified above as amendments to the Apollo Stock Option Incentive Plan. The
following summary is qualified in its entirety by the full text of the Amended
Plan, which appears as Schedule J to this Circular.
Purpose. The purpose of the
Amended Plan is to attract and motivate directors, officers, employees of and
service providers to Apollo and its subsidiaries and thereby advance Apollo’s
interests by affording such persons an opportunity to acquire an equity interest
in Apollo through the stock options.
Administration. The
Compensation Committee, which administers the Apollo Stock Option Incentive
Plan, will have authority under the Amended Plan to fix the terms and conditions
of individual agreements with participants, including the duration of the award
and any vesting requirements, subject to requirements of applicable regulatory
authorities. The Amended Plan permits the Apollo Board to grant options for the
purchase of Apollo Shares for a term of up to 10 years.
Authorized Shares; Limits on
Awards. The number of Apollo Shares granted pursuant to each option is
determined in the discretion of the Apollo Board, provided that in the case of
any one person, the aggregate number of Apollo Shares reserved for issuance may
not exceed 5% of the Apollo Shares outstanding at the time of the grant. The
aggregate number of Apollo Shares reserved for issuance to Insiders of Apollo,
at any time, or in any one-year period, under all security based compensation
arrangements, cannot exceed 10% of the outstanding Apollo Shares.
Eligibility. Persons eligible
to receive awards under the Amended Plan include directors, executive officers,
employees and consultants of Apollo and its affiliates. Vesting provisions with
respect to the options shall be determined and imposed by the Apollo Board, at
their discretion.
Pricing of Awards. In
accordance with the provisions of the Amended Plan, the option price and the
terms and conditions on which the options may be exercised are set out in
written stock option agreements, in the form approved by the Apollo Board,
entered into by Apollo and each option holder. Under the Apollo Stock Option
Incentive Plan, the option price is determined by the Apollo Board and may
either be in Canadian dollars or United States dollars. If the exercise price is
in Canadian dollars, the exercise price shall not be lower than the closing
price on the TSX on the trading day prior to the date of the grant. If the
exercise price is in United States dollars, the exercise price shall not be
lower than the greater of: (a) the closing price on the AMEX on the trading day
prior to the date of the grant, or (b) the closing price on the TSX (such
closing price converted into United States dollars using the Bank of Canada noon
nominal rate of exchange on the same date as such closing price) on the trading
day prior to the date of the grant.
Transfer Restrictions; Termination
of Awards. The options are not transferable and terminate on the earlier
of the expiry date and the date that the optionee ceases to be eligible for any
reason whatsoever, other than death. In the event of death, the option is fully
exercisable by the optionee’s legal representative on the earlier of the expiry
date and one year from the date of death. Option agreements approved by the
Apollo Board may provide that all or any part of the options that are
outstanding upon the occurrence of a change of control may continue to be
exercised by the holder for such extended period up to and including the normal
expiry date of such options.
Loans. Subject to compliance
with applicable corporate and securities Laws, the Apollo Board may at any time
authorize Apollo to loan money to a Participant in order to assist him or her to
exercise options granted under the Amended Plan. Such loan shall be provided on
a non-recourse basis, shall be non-interest bearing and shall be on such other
terms and conditions to be determined from time to time by the Apollo Board. The
Apollo Board has not loaned any money to option holders and has no intention to
do so in the future.
Changes to the Amended Plan.
The Amended Plan may be amended by the Apollo Board, subject to approval
of the shareholders as well as the TSX and the AMEX.
139
Required
Vote; Recommendation of the Apollo Board
The full
text of the Option Plan Amendment Resolution that Apollo Shareholders will be
asked to approve at the Apollo Meeting is set forth as Schedule B to this
Circular. The Option Plan Amendment Resolution must be approved by a
majority of the votes cast in respect thereof by Apollo Shareholders present in
person or represented by proxy at the Apollo Meeting.
The
Arrangement cannot be completed unless the Option Plan Amendment Resolution is
duly approved by Apollo Shareholders at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Option Plan Amendment Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the approval of the Option Plan
Amendment Resolution.
The
Name Change Proposal
General
Apollo
Shareholders are also being asked to consider and, if deemed advisable, approve,
with or without variation, the Name Change Resolution to authorize an amendment
to the articles of Apollo to change the name of Apollo to “►”. The
purpose of the proposed Name Change is to better reflect the combined business
of Apollo and Linear after giving effect to the Arrangement. The
Apollo Board is of the view that the proposed name of “►”, when combined with
new marketing initiatives, will assist in re-branding the combined company as an
emerging Canadian mid-tier gold producer.
The
Apollo Board has unanimously authorized the submission of the Name Change
Resolution to the Apollo Shareholders. Notwithstanding approval of the proposed
Name Change by the Apollo Shareholders, at any time prior to the Name Change
becoming effective, the Apollo Board, in its sole discretion, may revoke the
Name Change Resolution, and abandon the Name Change, without further approval or
action by or prior notice to the Apollo Shareholders.
Pursuant
to section 175 of the YBCA, an amendment to Apollo’s articles of a corporation
to change the corporation’s name requires shareholder approval by special
resolution.
Effect
of the Name Change
The
change of our name to “►” will not by itself affect in any way the validity of
currently outstanding Apollo share certificates or the trading of our
securities. Our shareholders will not be required to surrender or exchange any
Apollo share certificates that they currently hold.
If the
Name Change Resolution is approved by the Apollo Shareholders at the Apollo
Meeting and the Apollo Board decides to implement the Name Change, Apollo will
file articles of amendment with the director under the YBCA on the Effective
Date or as soon as is reasonably practicable thereafter.
Required
Vote; Recommendation of the Apollo Board
The full
text of the Name Change Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule C to this
Circular. The Name Change Resolution must be approved by at least
two-thirds of the votes cast in respect thereof by Apollo Shareholders present
in person or represented by proxy at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to approve the Name Change Resolution. The Apollo Board unanimously
recommends that you vote “FOR” the Name Change Resolution.
140
The
Share Consolidation Proposal
Introduction
The
Apollo Board has unanimously approved and is recommending that Apollo
Shareholders authorize the filing of articles of amendment to effect a
consolidation (or reverse stock split) of outstanding Apollo Shares on the basis
of one post-consolidation Apollo Share for every four Apollo Shares outstanding
immediately prior to the Share Consolidation. Assuming the proposal
is approved, it is anticipated that articles of amendment will be filed so as to
effect the Share Consolidation as soon as practicable following consummation of
the Arrangement. However, pursuant to the Share Consolidation
Resolution, the Apollo Board may, in its discretion, decide not
to proceed with the Share Consolidation at any time prior to the
filing of articles of amendment without further authorization from or
notice to the Apollo Shareholders. This proposal is conditional upon
Apollo Shareholder approval of the Share Issuance Resolution and the Option Plan
Amendment Resolution.
If this
proposal is approved and the Apollo Board implements the Share Consolidation, it
will become effective immediately after articles of amendment to amend Apollo’s
articles of continuance are filed with the registrar under the
YBCA.
If the
Share Consolidation is implemented by the Apollo Board:
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·
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each
of the issued and outstanding Apollo Shares (which, following the
consummation of the Arrangement, will include Apollo Shares held by
current holders of Apollo Shares and Former Linear Shareholders) will
automatically be consolidated on the basis of one post-consolidation
Apollo Share for every four Apollo Shares outstanding immediately prior to
the Consolidation;
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·
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subject
to the terms and conditions of each optionholder’s option agreement with
Apollo and each warrantholder’s warrant certificate, the number of Apollo
Shares issuable upon the exercise of Apollo’s outstanding options and
warrants (which, following the consummation of the Arrangement, will
include Apollo Shares issuable upon the exercise of Apollo Replacement
Options and Apollo Replacement Warrants), the exercise price thereof and
the number of shares reserved for future issuances under Apollo’s Stock
Option Incentive Plan will be adjusted as appropriate to reflect the Share
Consolidation; and
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·
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the
exercise price with respect to Apollo’s series A junior participating
preferred stock pursuant to our Shareholder Rights Plan (assuming the
Rights Plan Resolution is approved at the Apollo Meeting) and the number
of Apollo Shares issuable upon exercise thereof shall be proportionately
adjusted to reflect the Share
Consolidation.
|
Purpose
of the Proposed Share Consolidation
The
principal purpose of the Share Consolidation is to increase the per share market
price of Apollo Shares and to reduce the number of Apollo Shares outstanding,
which we believe will have several benefits to Apollo and Apollo
Shareholders. The Apollo Board believes that increasing the market
price of Apollo Shares will generate greater investor interest in the combined
company, facilitate trading and liquidity in the shares of the combined company,
enhance the prestige of the shares of the combined company in the marketplace
and better enable the combined company to raise funds to finance its planned
operations.
Investors
may be less interested in purchasing low-priced securities, because the
brokerage commissions, as a percentage of the total transaction value, tend to
be higher for such securities. Also, institutional investors (other
than those which focus on small-capitalization companies or low-priced
securities) are less likely to invest in low-priced securities. In
light of the foregoing, the Apollo Board believes that it is in the best
interests of Apollo Shareholders to approve the Share
Consolidation.
While
Apollo expects that the Share Consolidation will increase the combined company’s
share price, the long-term consequences are less predictable. The
price of the combined company’s shares is likely to be affected by the combined
company’s performance and by general market and economic conditions that cannot
be predicted or evaluated by the Apollo Board at this
time. Accordingly, even if the Share Consolidation is successful in
achieving a higher share price in the short-term, there is no assurance that the
market value of the combined company’s shares will be greater after the Share
Consolidation than it would be without ever effecting the Share
Consolidation.
141
If the
Share Consolidation proposal is approved, the Apollo Board may nevertheless
decide not to proceed with the Share Consolidation. Under this
proposal, the Apollo Board is retaining this discretion because the closing
price of the combined company’s shares could substantially increase before or
after the Apollo Meeting therefore weakening the reasons for any share
consolidation.
Material
Effects of the Proposed Share Consolidation
If the
Share Consolidation Resolution is approved at the Apollo Meeting and the Apollo
Board elects to effect the proposed Share Consolidation, each Apollo Share
outstanding immediately prior to the Share Consolidation would automatically be
changed, as of the effective time of the Share Consolidation, into one-fourth of
one Apollo Share. In addition, subject to the terms and conditions of
each optionholder’s option agreement with Apollo and each warrantholder’s
warrant certificate, the number of Apollo Shares issuable upon the exercise of
Apollo’s outstanding options and warrants (which, following the consummation of
the Arrangement, will include Apollo Shares issuable upon the exercise of Apollo
Replacement Options and Apollo Replacement Warrants), the exercise price thereof
and the number of shares reserved for future issuances under Apollo’s Stock
Option Incentive Plan will be adjusted as appropriate to reflect the Share
Consolidation.
The Share
Consolidation will affect all Apollo Shareholders uniformly and will not affect
any Apollo Shareholder’s percentage ownership interests or proportionate voting
power, except to the extent that the Share Consolidation results in any Apollo
Shareholders owning a fractional Apollo Share in which case each fractional
Apollo Share that is less than one-half of one Apollo Share will be cancelled
without any compensation therefor and each fractional Apollo Share that is at
least one-half of one Apollo Share will be adjusted upward to one whole Apollo
Share. After the Share Consolidation, the Apollo Shares will have the
same voting rights and rights to dividends and distributions, if any, and will
be identical in all other respects to the Apollo Shares now
authorized. The Apollo Shares issued pursuant to the Share
Consolidation will remain fully paid and non-assessable. The Share
Consolidation is not intended as, and will not have the effect of, a “going
private transaction” covered by Rule 13e-3 under the U.S. Exchange
Act. Following the Share Consolidation, the combined company will
continue to file Forms 10-K, 10-Q and 8-K and will remain subject to the
reporting requirements of the U.S. Exchange Act.
Apollo
Shareholders should recognize that if the Share Consolidation is effected, they
would own fewer Apollo Shares than they presently own. In addition,
the Share Consolidation may increase the number of Apollo Shareholders who own
odd-lots (less than 100 shares). Apollo Shareholders who hold
odd-lots may experience an increase in the cost of selling their Apollo Shares,
as well as greater difficulty in effecting such sales.
The Share
Consolidation is not being proposed in response to any effort of which Apollo is
aware to accumulate outstanding Apollo Shares or obtain control of
Apollo. Other than the proposal to ratify the Apollo Shareholder
Rights Plan described in this Circular, the Apollo Board does not currently
contemplate recommending the adoption of any other proposals that could be
construed to limit the ability of third parties to take over or change the
control of Apollo.
Procedure
for Effecting Share Consolidation and Exchange of Stock
Certificates
If Apollo
Shareholders authorize this proposal, Apollo intends to file articles of
amendment with the registrar under the YBCA as soon as practicable following
consummation of the Arrangement, at which time the Share Consolidation will take
effect.
Effect
on Beneficial Holders of Apollo Shares (i.e., stockholders who hold in “street
name”)
Upon the
Share Consolidation, Apollo intends to treat Apollo Shares held by stockholders
in “street name,” through a broker, investment dealer, bank, trust company or
other nominee, in the same manner as registered shareholders whose Apollo Shares
are registered in their names. Brokers, investment dealers, banks,
trust companies or other nominees will be instructed to effect the Share
Consolidation for their beneficial holders holding the Apollo Shares in “street
name.” However, these brokers, investment dealers, banks, trust companies or
other nominees may have different procedures than registered shareholders for
processing the Share Consolidation. If a shareholder holds Apollo
Shares with a broker, investment dealer, bank, trust company or other nominee
and has any questions in this regard, such shareholder is encouraged to contact
his or her broker, investment dealer, bank, trust company or other
nominee.
142
Effect
on Certificated Shares
Upon the
Share Consolidation, Apollo’s transfer agent will act as our exchange agent and
will act for holders of Apollo Shares in implementing the exchange of their
certificates. Shortly following the effective date of the Share
Consolidation, Apollo Shareholders holding Apollo Shares in certificated form
will be sent a transmittal letter from Apollo’s transfer agent. The
letter of transmittal will contain instructions on how each Apollo Shareholder
should surrender his or her certificate(s) representing pre-consolidation Apollo
Shares (“Old
Certificates”) to the transfer agent in exchange for certificates
representing the applicable number of whole post-consolidation Apollo Shares
(“New Certificates”). No
New Certificates will be issued to any Apollo Shareholder until that shareholder
has surrendered all Old Certificates, together with a properly completed and
executed letter of transmittal, to the transfer agent. Apollo
Shareholders will not have to pay transfer and other fees to exchange the Old
Certificates. Apollo Shareholders will then receive a New
Certificate(s) representing the number of whole Apollo Shares to which they are
entitled as a result of the Share Consolidation. Until surrendered,
Apollo will deem outstanding Old Certificates held by Apollo Shareholders to be
cancelled and only to represent the number of whole post-consolidation Apollo
Shares to which these Apollo Shareholders are entitled.
Any Old
Certificates submitted for exchange, whether because of a sale, transfer or
other disposition of Apollo Shares, will automatically be exchanged for New
Certificates. If an Old Certificate bears a restrictive legend, the New
Certificate(s) will be issued with the same restrictive legend that is on the
back of the Old Certificate(s) unless that legend is no longer effective because
of the passage of time or the exchange agent receives a legal opinion in form
and substance satisfactory to the exchange agent to the effect that the legend
may be removed in accordance with applicable law.
APOLLO
SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND
SHOULD
NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
No Fractional
Shares
No
fractional Apollo Shares will be issued if, as a result of the proposed Share
Consolidation, an Apollo Shareholder would otherwise become entitled to a
fractional Apollo Share. Instead, each fractional Apollo Share that
is less than one-half of one Apollo Share will be cancelled without any
compensation therefor, and each fractional Apollo Share that is at least
one-half of one Apollo Share will be adjusted upward to one whole Apollo
Share.
Dissenter’s
Rights
Under the
YBCA, Apollo Shareholders do not have any dissent and appraisal rights with
respect to the proposed Share Consolidation.
Possible
Disadvantages of the Proposed Share Consolidation
Even
though the Apollo Board believes that the potential advantages of a share
consolidation (or reverse stock split) outweigh any disadvantages that might
result, the following are some of the possible disadvantages:
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The
reduced number of Apollo Shares resulting from a share consolidation could
adversely affect the liquidity of Apollo
Shares.
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There
can be no assurance that the market price per Apollo Share after the
proposed Share Consolidation will remain unchanged or increase in
proportion to the reduction in the number of Apollo Shares outstanding
before the Share Consolidation. For example, based on a closing
price of the Apollo Shares of $0.40 per share and the ratio of one
post-consolidation Apollo Share for every four Apollo Shares outstanding
immediately prior to the Share Consolidation, there can be no assurance
that the post-Share Consolidation market price of the Apollo Shares would
be $1.60 per share or greater. Accordingly, the total market
capitalization of the Apollo Shares (the aggregate value of all the issued
and outstanding Apollo Shares at the prevailing market price) after the
proposed Share Consolidation may be lower than the total market
capitalization before the proposed Share
Consolidation. Moreover, in the future, the market price of the
Apollo Shares following the Share Consolidation may not exceed the market
price prior to the Share
Consolidation.
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143
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A
share consolidation may leave certain stockholders with one or more “odd
lots,” which are holdings in amounts of less than 100 Apollo Shares. These
odd lots may be more difficult to sell than Apollo Shares in even
multiples of 100.
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While
the Apollo Board believes that a higher share price may help generate
investor interest, there can be no assurance that the proposed Share
Consolidation will result in a per-share price that will attract
institutional investors or investment funds or that such share price will
satisfy the investing guidelines of institutional investors or investment
funds. As a result, the trading liquidity of the shares of the combined
company may not necessarily
improve.
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Required
Vote; Recommendation of the Board
The full
text of the Share Consolidation Resolution that Apollo Shareholders will be
asked to approve at the Apollo Meeting is set forth as Schedule D to this
Circular. The Share Consolidation Resolution must be approved by at
least two-thirds of the votes cast in respect thereof by Apollo Shareholders
present in person or represented by proxy at the Apollo Meeting.
The Apollo Board believes that it is
in the best interests of Apollo and its shareholders to approve the Share
Consolidation Resolution. The Apollo Board
unanimously recommends that you vote “FOR” the Share Consolidation
Resolution.
Election
of Directors
The
constating documents of Apollo authorize between three (3) and fifteen (15)
directors. The Nominating Committee of Apollo has nominated seven
persons for election to the Apollo Board, each of which has served as a member
of the Apollo Board as of the dates indicated below. Proxies cannot
be voted for a greater number of persons than the number of nominees named in
this Circular. Management does not contemplate that any of the
nominees will be unable to serve as a director. However, if a nominee should be
unable to so serve for any reason prior to the Meeting, the persons named in the
enclosed Apollo Proxy reserve the right to vote for another nominee in their
discretion.
Each
director, if elected, will serve for a one-year term and until his successor
shall be elected and qualified, subject, however, to such director’s prior
death, resignation, retirement, disqualification or removal from
office. However, if the Arrangement is approved and consummated, as
contemplated by and pursuant to the Arrangement Agreement and the Plan of
Arrangement, (i) it is currently contemplated that Messrs. Russell,
Babensee, Hobart and Vaughan will resign as directors of Apollo and (ii) the
remaining Apollo directors intend to appoint Wade Dawe, ►, ► and ► to fill the
remaining vacancies created by such resignations. As a result
thereof, if the Arrangement is consummated, the Apollo Board would consist of
seven directors, which would be composed of (i) Messrs. Kaiser, Peat and Stott
(three Apollo designees); (ii) three Linear designees (including Wade Dawe who
would be appointed as the chairman of the board of directors of the combined
company) and (iii) one nominee who would be a technical person mutually agreed
upon by Apollo and Linear.
The
persons named in the enclosed Apollo Proxy intend to vote “FOR” the election of all of
the nominees whose names are set forth below.
The
following table and the notes thereto state the names of all persons proposed to
be nominated for election as directors, all other positions or offices with
Apollo and its subsidiaries now held by them, their principal occupations or
employment, the year in which they became directors of Apollo, the approximate
number of Apollo Shares beneficially owned, or controlled or directed, directly
or indirectly, by each of them, as of ►, 2010.
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Name and Municipality of
Residence
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Present Principal Occupation
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Year First
Became
Director
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Apollo Shares Beneficially
Owned, or Controlled or
Directed Directly or
Indirectly(1)
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Age
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||||||||
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Robert
W. Babensee(2)(3)(5)
Etobicoke,
Ontario
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Retired
Partner of BDO Dunwoody LLP
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2005
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70,000 | 69 | ||||||||
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G.
Michael Hobart(5)
Toronto,
Ontario
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Partner,
Fogler, Rubinoff LLP, a law firm
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2002
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55,545 | 51 | ||||||||
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Marvin
K. Kaiser(2)(4)
Mayfield,
Kentucky
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Retired
Business Executive
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2006
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25,000 | 68 | ||||||||
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David
W. Peat(2)(3)
Fernandina
Beach, Florida
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Financial
Consultant
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2006
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25,000 | 57 | ||||||||
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R.
David Russell(4)
Aurora,
Colorado
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President
and Chief Executive Officer of Apollo
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2002
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1,736,100 | (6) | 53 | |||||||
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Charles
E. Stott(3)(4)
Evergreen,
Colorado
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Independent
Mining Consultant
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2002
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165,800 | (7) | 76 | |||||||
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W.S.
(Steve) Vaughan(5)
Toronto,
Ontario
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Partner,
Heenan Blaikie LLP, a law firm
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2002
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Nil
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72 | ||||||||
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(1)
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Information
regarding Apollo Shares held does not include Apollo Shares issuable upon
the exercise of options, warrants or other convertible securities of
Apollo.
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(2)
|
A
current member of the Audit
Committee.
|
|
(3)
|
A
current member of the Compensation
Committee.
|
|
(4)
|
A
current member of the Technical
Committee.
|
|
(5)
|
A
current member of the Nominating
Committee.
|
|
(6)
|
Includes
100 Apollo Shares that are held indirectly by Mr. Russell for the benefit
of his minor child.
|
|
(7)
|
Juanita
Stott, Mr. Stott’s wife, is the registered holder of an additional 153,800
Apollo Shares.
|
Nominees
The
principal occupation for the past five years for each of the nominees is set
forth below.
Robert W.
Babensee. Mr.
Babensee was as a partner of the Canadian accounting firm BDO Dunwoody LLP from
1984 to 2004, where he practiced as an assurance specialist. From February 2005
until July 2006, Mr. Babensee was the chief financial officer of Golden China
Resources Corporation, a former publicly listed natural resources company with
operations in Asia. Mr. Babensee has been a member of the Institute of Chartered
Accountants of Ontario since 1968. Mr. Babensee also serves as a director of
Caledonia Mining Corporation, a publicly listed natural resources
company. In determining Mr. Babensee’s qualifications to serve on the
Apollo Board, the Nominating Committee has considered, among other things, his
experience and expertise in finance, accounting and management, particularly in
the mining industry.
G. Michael
Hobart. Mr.
Hobart is a partner at the Toronto, Ontario office of Fogler, Rubinoff LLP, a
law firm, where he has practiced corporate and securities law since September
2002. Prior thereto he was a partner of Aylesworth Thompson Phelan O’Brien LLP,
a law firm, from 1998 to 2002. He earned a B.A. at McGill University
(1982) and a LL.B. at the University of New Brunswick (1985). He has
held directorships and senior officer positions with several junior mineral
exploration companies in Canada. Mr. Hobart was called to the Ontario Bar in
1987 and is a member of the Canadian Bar Association. Mr. Hobart also
serves as assistant secretary of Apollo. Mr. Hobart also recently served as
secretary of Aquiline Resources Inc. (a former TSX-listed company recently
acquired by Pan American Silver Corp.) and Polaris Geothermal Inc. (a former
TSX-listed company which recently merged with Ram Power, Corp.). In
determining Mr. Hobart’s qualifications to serve on the Apollo Board, the
Nominating Committee has considered, among other things, his experience and
expertise in corporate legal matters, particularly in the mining
industry.
145
Marvin K. Kaiser. Mr. Kaiser was the
executive vice president and chief administrative officer of The Doe Run
Company, an international natural resource company focused on the mining,
smelting, recycling and fabrication of metals, from December 1993 to February
2006. Prior thereto, he was the chief financial officer of Amax Gold Inc., a
publicly listed gold mining company, from 1989 to 1993. Mr. Kaiser served as a
director of NewWest Gold Corporation from 2006 to 2007, Constellation Copper
Corporation during 2008 and El Capitan Precious Metals Inc. from 2008 to
2009. Mr. Kaiser currently serves as a director of Gryphon Gold
Corporation and Uranium Resources Corporation which are publicly listed natural
resources companies. He has served on the School of Accountancy Advisory Board
at Southern Illinois University since 1988 and serves as a director of the
Southern Illinois University Foundation. Mr. Kaiser earned a
bachelor’s degree in accounting from Southern Illinois University. In
determining Mr. Kaiser’s qualifications to serve on the Apollo Board, the
Nominating Committee has considered, among other things, his experience and
expertise in finance, accounting and management, commercial metals transactions
and in the mining industry.
David W. Peat. Mr. Peat was the vice
president and chief financial officer of Frontera Copper Corporation, a publicly
listed mining company with a mine in Mexico, from June 2006 through February
2009. From 2002 through 2004, Mr. Peat served as vice president and global
controller for Newmont Mining Corporation, a publicly listed gold mining
company. From 1999 through 2002, Mr. Peat served as vice president, finance, and
chief financial officer for Homestake Mining Company, a former gold mining
company. Mr. Peat has been a member of the Institute of Chartered Accountants of
Ontario since 1978. Mr. Peat earned a Bachelor of Commerce, honors business
administration degree and a B.A. in economics in 1975. In determining
Mr. Peat’s qualifications to serve on the Apollo Board, the Nominating Committee
has considered, among other things, his experience and expertise in finance,
accounting and management and in the mining industry.
R. David Russell. Mr. Russell has been
Apollo’s president and chief executive officer since June 2002. Mr. Russell was
a founder of Nevoro Gold Corporation in January 2002, the predecessor of Apollo,
and served as its president from February 2002 through June 2002. Mr. Russell
was an independent mining consultant from 1999 to 2002. Mr. Russell also serves
as a director of General Moly, Inc. and Pure Nickel Inc., both publicly listed
natural resources companies. Mr. Russell served as a director of
Calais Resources, Inc. from 2005 to 2009. Mr. Russell received his bachelor’s
degree in mining engineering degree from Montana Tech. In determining
Mr. Russell’s qualifications to serve on the Apollo Board, the Nominating
Committee has considered, among other things, his experience and expertise in
mineral exploration, development, production and management, corporate
transactions and financings, and his role as president and chief executive
officer of Apollo.
Charles E. Stott. Mr. Stott has been an
independent mining consultant since 1995 with T.P. McNulty and Associates, which
provides consulting services to the mineral, metal and chemical industries. He
has also served as a member of the board of directors of Hazen Research, Inc., a
privately held industrial research firm, since 2002 and of Western Troy Capital
Resources Inc., a publicly listed mineral resources company, since 2008. Mr.
Stott was a director of the former Getchell Gold Corporation from 1996 to 1999.
He was president and chief executive officer of the former Gold Capital
Corporation from 1994 to 1995, of the former Horizon Resources Corporation from
1990 to 1993, and of the former Amax Gold Inc. from 1986 to 1989. All were
publicly listed natural resource companies. Mr. Stott holds a mining engineering
degree from the Colorado School of Mines and a J.D. degree from the Hastings
College of Law, University of California. In determining Mr. Stott’s
qualifications to serve on the Apollo Board, the Nominating Committee has
considered, among other things, his experience and expertise in the mining
industry, including exploration, development, production and
management.
W.S. (Steve)
Vaughan. Steve
Vaughan is a partner in the business law group with Heenan Blaikie LLP, a law
firm based in Toronto, focusing on the natural resources industry, particularly
mining. From 2002 until February 2007, Mr. Vaughan was a partner of McMillan
Binch Mendelsohn. Prior thereto he was a partner of Aird & Berlis LLP, a law
firm, from 1974 until February 2002. He has worked in or been closely associated
with all facets of the mineral exploration, mine finance and securities
industries since 1955. Mr. Vaughan is a director and member of the Securities
Committee of the Prospectors and Developers Association of Canada. Mr. Vaughan
also serves as a director of Algoma Central Corporation, Copper Mesa Mining
Corporation, Consolidated Tanager Limited, Ginguro Exploration, Inc., Platte
River Gold Inc., Pure Nickel, Inc., Solomon Resources Limited and Western Troy
Capital Resources Inc. Mr. Vaughan was called to the Ontario Bar in ►
and is a member of the Canadian Bar Association. In determining Mr.
Vaughan’s qualifications to serve on the Apollo Board, the Nominating Committee
has considered, among other things, his experience and expertise in finance,
banking, corporate governance and legal matters, particularly in the mining
industry.
146
Required
Vote; Recommendation of the Board
The
election of the director nominees must be approved by a majority of the votes
cast in respect thereof by Apollo Shareholders present in person or represented
by proxy at the Apollo Meeting.
The
Apollo Board unanimously recommends that Apollo Shareholders vote “FOR” the
election of Robert W. Babensee, G. Michael Hobart, Marvin K. Kaiser, David W.
Peat, R. David Russell, Charles E. Stott and W.S. (Steve) Vaughan.
Re-Appointment
of Auditors Proposal
The
Apollo Board recommends the re-appointment of Deloitte & Touche LLP,
Chartered Accountants, of Vancouver, British Columbia, Apollo’s present
independent registered chartered accountants, as the auditors of Apollo to hold
office until the close of the next annual meeting of the shareholders. Deloitte
& Touche LLP has served as Apollo’s independent auditors continuously since
2002. Deloitte & Touche LLP may not attend this Meeting and therefore may
not make a statement or be available for questions at the Apollo
Meeting.
The
re-appointment of Deloitte & Touche LLP must be approved by a majority of
the votes cast at the Meeting.
The
following table shows the aggregate fees, all of which were pre-approved by the
Audit Committee, billed to Apollo for professional services by Deloitte &
Touche LLP for fiscal years 2009 and 2008 (in Cdn.$):
|
Fiscal 2009
|
Fiscal 2008
|
|||||||
|
Audit
Fees
|
$ | 405,000 | $ | 315,000 | ||||
|
Audit-Related
Fees
|
$ | 148,000 | $ | 110,000 | ||||
|
Tax
Fees
|
$ | 0 | $ | 0 | ||||
|
All
Other Fees
|
$ | 35,000 | $ | 159,000 | ||||
|
Total
|
$ | 588,000 | $ | 584,000 | ||||
Audit Fees. This category
includes the aggregate fees billed for professional services rendered for the
audits of Apollo’s consolidated financial statements for fiscal years 2009 and
2008, for the reviews of the financial statements included in Apollo’s quarterly
reports on Form 10-Q during fiscal 2009 and 2008, and for other services that
are normally provided by the independent auditors in connection with statutory
and regulatory filings or engagements for the relevant fiscal
years.
Audit-Related Fees. This
category includes the aggregate fees billed in each of the last two fiscal years
for assurance and related services by the independent auditors that are
reasonably related to the performance of the audits or reviews of the financial
statements and are not reported above under “Audit Fees,” and generally consist
of fees for other engagements under professional auditing standards, accounting
and reporting consultations, internal control-related matters, and audits of
employee benefit plans.
Tax Fees. This category
includes the aggregate fees billed in each of the last two fiscal years for
professional services rendered by the independent auditors for tax compliance,
tax planning and tax advice. Of these amounts, $0 was related to tax compliance
services for review of federal and state tax returns for both 2009 and
2008.
All Other Fees. This category
includes the aggregate fees billed in each of the last two fiscal years for
products and services provided by the independent auditors, other than those
reported above under “Audit Fees,” “Audit-Related Fees” and “Tax
Fees.”
In the
past, the Apollo Board has reviewed and approved the fees to be paid to the
auditors. Such fees have been based upon the complexity of the matters in
question and the time incurred by the auditors. Management believes that the
fees negotiated in the past with the auditors of Apollo were reasonable in the
circumstances and would be comparable to fees charged by other auditors
providing similar services.
147
As
discussed in the “Report of the Audit Committee” in this Circular, the Audit
Committee has reviewed and considered whether the provision of services other
than audit services is compatible with maintaining the auditors’ independence.
Commencing in 2003, the Audit Committee considered and pre-approved expenditure
limits for Apollo’s auditors and reviewed and pre-approved the provision of
non-audit services by Apollo’s auditors to ensure they are consistent with
maintaining the auditor’s independence.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services and
Independent Auditors
The Audit
Committee has established a policy requiring pre-approval of all audit
engagement letters and fees for all auditing services (including providing
comfort letters in connection with securities underwritings) and all permissible
non-audit services performed by the independent auditors. Such services may be
approved at a meeting of the Audit Committee or by the Chairman of the Audit
Committee, provided that the Chairman presents any such pre-approvals to the
Audit Committee at each of its scheduled meetings.
Required
Vote; Recommendation of the Board
The
re-appointment of Deloitte & Touche LLP and approval of the resolution
authorizing the directors to fix the remuneration of the auditors must be
approved by a majority of the votes cast in respect thereof by Apollo
Shareholders present in person or represented by proxy at the Apollo
Meeting.
The Apollo Board recommends that you
vote “FOR” the proposal to re-appoint Deloitte & Touche LLP as Apollo’s
independent registered chartered accountants and the resolution authorizing the
directors to fix the remuneration of the auditors.
Ratification
of the Shareholder Rights Plan Proposal
At the
Apollo Meeting, Apollo Shareholders will be asked as provided under the terms of
the Shareholder Rights Plan, to vote on a resolution, the text of which is
attached as Schedule E to this Circular (the “Rights Plan Resolution”), to
ratify the Shareholder Rights Plan. Apollo believes that the
Shareholder Rights Plan preserves the fair treatment of Apollo Shareholders, is
consistent with current best Canadian corporate practices and conforms to
institutional investor guidelines. The Arrangement does not trigger
any of the terms of the Shareholders Rights Plan.
Background
and Purpose of the Shareholder Rights Plan
The
Shareholder Rights Plan was entered into by Apollo on January 17, 2007 and was
subsequently approved by the Apollo Shareholder on May 16, 2007.
The
Shareholder Rights Plan is designed to protect Apollo Shareholders from unfair,
abusive or coercive take-over strategies, including the acquisition of control
of Apollo by a bidder in a transaction or series of transactions that does not
treat all shareholders equally or fairly or provide all shareholders an equal
opportunity to share in the premium paid on an acquisition of control. The
Shareholder Rights Plan is not intended to prevent a take-over or deter fair
offers for Apollo Shares. To the contrary, it is designed to encourage anyone
seeking to acquire control of Apollo to make an offer that represents fair value
to all holders of Apollo Shares and to provide the Apollo Board with more time
to fully consider an unsolicited take-over bid, and, if appropriate, to explore
other alternatives that maximize shareholder value.
The
ratification of the Shareholder Rights Plan is not being recommended by the
Apollo Board in response to or in anticipation of any specific take-over bid or
proposed bid or other transaction. Rather, ratification of the
Shareholder Rights Plan is intended to address the Apollo Board’s continuing
concern that, in the current business environment in which Apollo operates, a
potential exists that, in the near future, Apollo could be the subject of one or
more unsolicited takeover attempts. In response to this concern, the Apollo
Board considered various strategies to deter unfair or abusive take-over
practices and, in particular, whether allowing the Shareholder Rights Plan to
remain in place would be in the best interests of Apollo and its
shareholders.
148
In
recommending that shareholders ratify the Shareholder Rights Plan, the Apollo
Board also considered the legislative framework in Canada governing takeover
bids. Under provincial securities legislation, a takeover bid generally means an
offer to acquire voting or equity shares of a person or persons, where the
shares subject to the offer to acquire, together with shares already owned by
the bidder and certain related parties thereto, aggregate 20% or more of the
outstanding shares of a corporation.
The
existing legislative framework for takeover bids in Canada would raise the
following concerns for Apollo’s shareholders:
Time
Current
legislation permits a takeover bid to expire 35 days after it is initiated. The
Apollo Board does not believe that this is sufficient time to permit
shareholders to consider a takeover bid and make a reasoned and unhurried
decision or for other more favorable alternatives to be explored and
developed.
Pressure
to Tender
A
shareholder may feel compelled to tender to a takeover bid which the shareholder
considers to be inadequate out of a concern that in failing to do so, the
shareholder may be left with illiquid or minority discounted Apollo Shares. This
is particularly so in the case of a partial takeover bid for less than all of
the Apollo Shares, where the bidder wishes to obtain a control position but does
not wish to acquire all of the Apollo Shares. The Shareholder Rights Plan
provides Shareholders with a tender approval mechanism, which is intended to
ensure that shareholders can separate the decision to tender from the approval
or disapproval of a particular takeover bid.
Unequal
Treatment
While
existing Canadian provincial securities legislation substantially addresses many
concerns in this regard, there remains the possibility that control of Apollo
may be acquired pursuant to a private agreement in which one or a small group of
shareholders dispose of Apollo Shares at a premium to market price which premium
is not shared with the other shareholders. In addition, a person may slowly
accumulate Apollo Shares through stock exchange acquisitions, which may result,
over time, in an acquisition of control without payment of fair value for
control or a fair sharing of a control premium among all
shareholders.
Terms
of Shareholder Rights Plan
The
material terms of the Shareholder Rights Plan are summarized
below. The following summary is qualified in its entirety by the full
text of the Shareholder Rights Plan, which appears as Schedule K to this
Circular. We encourage you to read and review the Shareholder Rights
Plan as well as the summary that follows.
Issue
of Rights
Each
share purchase right (a “Right”) entitles the
registered holder to purchase from Apollo, upon the occurrence of a Flip-in
Event (as defined below), that number of Apollo Shares having an aggregate
market price on the day of the Flip-in Event equal to twice the exercise price
for an amount equal to the exercise price. The Rights are not
exercisable until the Separation Time (as defined below).
Rights
Certificates and Transferability
Before
the Separation Time (as defined below), the Rights will be evidenced by
certificates for the Apollo Shares which are not transferable separate from the
Apollo Shares. From and after the Separation Time, the Rights will be evidenced
by separate Rights certificates which will be transferable separate from and
independent of the Apollo Shares.
149
Flip-in
Event
A “Flip-in Event” means a
transaction as a result of which a person becomes an Acquiring Person (as
defined below), provided the Flip-in Event is deemed to occur at the close of
business on the tenth day (or such earlier date as determined by the Apollo
Board) after the Share Acquisition Date (as defined in the Shareholder Rights
Plan). On the occurrence of a Flip-in Event, any Rights beneficially owned by an
Acquiring Person (including an affiliate or associate thereof or any person
acting jointly or in concert with the Acquiring Person) will become void and any
such holder will not have any right to exercise the Rights under the Shareholder
Rights Plan.
Acquiring
Person
An “Acquiring Person” is,
generally, a person who, including others acting jointly or in concert, acquires
20% or more of the Apollo Shares. Under the Shareholder Rights Plan
there are various exceptions to this rule, including: where a person acquires
20% or more of the Apollo Shares by way of a Permitted Bid (as defined below) or
a Competing Permitted Bid (as defined below).
Permitted
Bid Requirements
A Flip-in
Event will not occur if a take-over bid is structured as a Permitted
Bid. The conditions of a Permitted Bid include the
following:
(i) the
bid must be made by way of a take-over bid circular to all holders of Apollo
Shares;
(ii) the
bid must be subject to irrevocable and unqualified conditions that no Apollo
Shares shall be taken up or paid for prior to a date which is not less than 60
days after the date of the bid and only if more than 50% of the outstanding
Apollo Shares held by shareholders (“independent shareholders”)
other than the offeror and its related parties have been tendered to the bid and
not withdrawn;
(iii) the
bid must provide that Apollo Shares may be deposited at any time during the bid
period and that any shares so deposited may be withdrawn at any time during such
period; and
(iv) if
more than 50% of the Apollo Shares held by independent shareholders are tendered
to the bid, the offeror must extend the bid for 10 days to allow holders of
Apollo Shares who did not tender initially to take advantage of the bid if they
so choose.
Competing
Permitted Bid
A
Competing Permitted Bid is a take-over bid that:
(i) is
made while another Permitted Bid is in existence; and
(ii) satisfies
all the requirements of a Permitted Bid except that the Apollo Shares under a
Competing Permitted Bid may be taken up on the later of 35 days after the date
of the take-over bid was made and 60 days after the earliest date on which any
other Permitted Bid that was then in existence was made.
Exercise
of Rights
Rights
are not exercisable before the Separation Time (defined below). After the
Separation Time and before the Expiration Time (defined below), each Right
entitles the holder to acquire one Apollo Share for the Exercise Price of $100
(subject to certain anti-dilution adjustments). This Exercise Price is expected
to be in excess of the estimated maximum value of the Apollo Shares during the
term of the Shareholder Rights Plan. Upon the occurrence of a Flip-In Event
prior to the Expiration Time, each Right (other than any Right held by an
Acquiring Person, which will become null and void as a result of such Flip-in
Event) may be exercised to purchase that number of Apollo Shares which have an
aggregate Market Price (as defined in the Shareholder Rights Plan) equal to
twice the Exercise Price of the Rights for a price equal to the Exercise Price.
Effectively, this means a shareholder of Apollo (other than the Acquiring
Person) can acquire additional Apollo Shares from treasury at half their Market
Price.
150
Separation
Time
Separation
Time occurs on the eighth trading day after the earlier of:
(i) the
first date of public announcement that a person has become an Acquiring Person;
and
(ii) the
date of the commencement or announcement of the intent of a person to commence a
take-over bid (other than a Permitted Bid or a Competing Permitted Bid) or such
later date as determined by the Apollo Board.
Expiration
Time
Expiration
Time occurs on the date being the earlier of:
(i) the
time at which the right to exercise Rights is terminated under the terms of the
Shareholder Rights Plan; and
(ii) the
fifth anniversary of the date of the Shareholder Rights Plan.
Redemption
of Rights
The
Rights may be redeemed by the Apollo Board at its option with the prior approval
of the shareholders at any time before a Flip-in Event occurs at a redemption
price of $0.0001 per Right (subject to certain antidilution adjustments). In
addition, the Rights will be redeemed automatically in the event of a successful
Permitted Bid, Competing Bid or a bid for which the Apollo Board has waived the
operation of the Shareholder Rights Plan.
Lock-Up
Agreements
A bidder
may enter into lock-up agreements with shareholders whereby such shareholders
agree to tender their Apollo Shares to the take-over bid (the “Locked-up Bid”), provided
that:
(i) the
agreement:
(A) permits
the shareholder to withdraw the Apollo Shares from the lock-up to tender to
another bid or to support another transaction that contains an offering price
for each Apollo Share that is higher than the offering price contained in or
proposed to be contained in the Locked-up Bid;
(B) permits
the locked-up person to withdraw from the agreement in order to tender or
deposit the Apollo Shares to another bid or to support another transaction that
contains an offering price that exceeds the value of the Subject Bid by as much
as or more than a specified amount as long as the agreement does not provide for
a specified amount that exceeds 7% of the value of the subject
bid. For purposes of clarity, an agreement may contain a right of
first refusal or require a period of delay (or other similar limitation) to give
an offeror an opportunity to match a higher price in another transaction as long
as the shareholder can accept another bid or tender to another transaction;
and
(ii) no
“break-up” fees, “top-up” fees, penalties or other amounts that exceed in the
aggregate one half of the cash equivalent of any amount in excess of the amount
offered under the Locked-up Bid and that the locked-up shareholder receives
pursuant to another take-over bid or transaction shall be payable pursuant to
the agreement in the event that the locked-up shareholder fails to tender Apollo
Shares pursuant thereto in order to accept the take-over Bid or support another
transaction.
Waiver
Before a
Flip-in Event occurs, the Apollo Board may waive the application of the flip-in
provisions of the Shareholder Rights Plan to any prospective Flip-in Event that
would occur by reason of a take-over bid made by a take-over bid circular to all
registered holders of Apollo Shares. However, if the Apollo Board waives the
Shareholder Rights Plan with respect to a particular bid, it will be deemed to
have waived the Shareholder Rights Plan with respect to any other takeover bid
made by take-over bid circular to all registered holders of Apollo Shares before
the expiry of that first bid. Other waivers of the flip-in provisions of the
Shareholder Rights Plan will require prior approval of the shareholders of
Apollo. The Apollo Board may also waive the flip-in provisions of the
Shareholder Rights Plan in respect of any Flip-in Event provided that the Apollo
Board has determined that the Acquiring Person became an Acquiring Person
through inadvertence and has reduced its ownership to such a level that it is no
longer an Acquiring Person.
151
Term
of the Shareholder Rights Plan
Unless
otherwise terminated, the Shareholder Rights Plan will expire on January 17,
2012.
Amendment
Except
for minor amendments to correct typographical errors and amendments to maintain
the validity of the Shareholder Rights Plan as a result of a change of law,
shareholder or rightsholder approval is required for amendments to the
Shareholder Rights Plan.
Required
Vote; Recommendation of the Apollo Board
The full
text of the Rights Plan Resolution that Apollo Shareholders will be asked to
approve at the Apollo Meeting is set forth as Schedule E to this
Circular. The Shareholder Rights Plan must be ratified by a majority
of the votes cast in respect thereof by Apollo Shareholders present in person or
represented by proxy at the Apollo Meeting.
The
Apollo Board believes that it is in the best interests of Apollo and its
shareholders to ratify the Shareholders Rights Plan. The Apollo Board
unanimously recommends that you vote “FOR” the ratification of the Shareholder
Rights Plan.
152
FINANCIAL
STATEMENTS
At the
Apollo Meeting, the Apollo Shareholders will receive the audited consolidated
financial statements of Apollo for the fiscal year ended December 31, 2009,
together with the auditor’s report thereon.
AUDITORS
The
current auditors of Apollo are, and are expected after the Arrangement to
remain, Deloitte & Touche LLP located at their offices in Vancouver, British
Columbia.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for the Apollo Shares after the Arrangement is
expected to be CIBC Mellon Trust Company located at its offices in Toronto,
Ontario.
STATUTORY
RIGHTS
Securities
legislation in the provinces and territories of Canada provides securityholders
with, in addition to any other rights they may have at law, one or more rights
of rescission, price revision or to damages, if there is a misrepresentation in
a circular or notice that is required to be delivered to securityholders.
However, such rights must be exercised within prescribed time limits.
Securityholders should refer to the applicable provisions of the securities
legislation of their province or territory for particulars of those rights or
consult a lawyer.
ADDITIONAL
INFORMATION
Apollo
has supplied all information contained in this Circular relating to Apollo, and
Linear has supplied all information contained in this Circular relating to
Linear.
Apollo
files reports, information circulars and other information with the SEC under
the U.S. Exchange Act and with Canadian securities regulatory authorities under
applicable Canadian securities Laws. You may read and copy the information
Apollo files with the SEC at the following location of the SEC: Public Reference
Room, 100 F Street, M.E., Washington, D.C. 20549.
You may
also obtain copies of this information by mail from the Public Reference Section
of the SEC, 100 F Street, M.E., Washington, D.C. 20549, at prescribed rates. You
may obtain information on the operation of the SEC’s Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy statements and other information about issuers, like
Apollo, that file electronically with the SEC. The address of the site is http://www.sec.gov.
The
reports, management information circulars and other information Apollo files
with Canadian securities regulatory authorities are available on the SEDAR
website maintained by the Canadian Securities Administrators at
http://www.sedar.com. Apollo also maintains and Internet site that contains
information about it at http://www.apollogold.com. Information contained on the
Apollo website is not a part of this Circular.
Inquiries
including requests for copies of Apollo’s unaudited financial statements and
related management’s discussion and analysis for the year ended December 31,
2009, this Circular or the Apollo Proxy may be directed to Apollo at 5655 South
Yosemite Street, Suite 200, Greenwood Village, Colorado, 80111-3220 Attention:
Corporate Secretary. Apollo will provide the foregoing documents to any Apollo
Shareholder (without charge) upon request.
153
APOLLO
HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
ABOUT THE TRANSACTION, APOLLO OR THE COMBINED COMPANY THAT IS DIFFERENT FROM, OR
IN ADDITION TO, THAT CONTAINED IN THIS CIRCULAR OR IN ANY OF THE DOCUMENTS THAT
HAVE BEEN INCORPORATED INTO THIS CIRCULAR. THEREFORE, IF ANYONE DOES GIVE YOU
INFORMATION OF THIS SORT, YOU SHOULD NOT RELY ON IT. IF YOU ARE IN A
JURISDICTION WHERE OFFERS TO EXCHANGE OR SELL, OR SOLICITATIONS OF OFFERS TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS DOCUMENT OR THE
SOLICITATION OF PROXIES IS UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS
UNLAWFUL TO DIRECT THESE TYPES OF ACTIVITIES, THEN THE OFFER PRESENTED IN THIS
DOCUMENT DOES NOT EXTEND TO YOU. THE INFORMATION CONTAINED IN THIS DOCUMENT
SPEAKS ONLY AS OF THE DATE OF THIS CIRCULAR UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
APOLLO
DIRECTORS’ APPROVAL
The
contents of this Circular have been approved and the sending of this Circular to
the Apollo Shareholders has been authorized by the Apollo Board.
DATED
THIS ► day of ►, 2010
BY
ORDER OF THE BOARD
“R.
David Russell”
R. David
Russell, President and Chief Executive Officer
154
SCHEDULE
A
SHARE
ISSUANCE RESOLUTION
BE IT
RESOLVED THAT:
|
1.
|
The
issue of up to approximately ► common shares of Apollo Gold Corporation
(“Apollo”) in
connection with the acquisition of all of the common shares, common share
purchase warrants (“Linear Warrants”) and
options to acquire common shares (“Linear Options”) of
Linear Gold Corp. (“Linear”) pursuant to an
arrangement under section 193 of the Business Corporations
Act (Alberta) among Linear, Apollo and 1526735 Alberta ULC, a
wholly-owned subsidiary of Apollo, including approximately ► common shares
of Apollo issuable on the exercise of replacement options of Apollo (the
“Apollo Replacement
Options”), to be issued in exchange for all of the outstanding
Linear Options, and approximately ► common shares of Apollo issuable on
the exercise of replacement warrants of Apollo (the “Apollo Replacement
Warrants”), to be issued in exchange for all of the outstanding
Linear Warrants, be and it is hereby authorized and
approved.
|
|
2.
|
The
issuance of the Apollo Replacement Options and the Apollo Replacement
Warrants be and it is hereby authorized and
approved.
|
|
3.
|
Any
officer or director of Apollo is hereby authorized and directed for and on
behalf of and in the name of Apollo to execute, under the seal of Apollo
or otherwise, and to deliver, all such documents, agreements and
instruments and to do all such acts and things as such officer or
director, in his absolute discretion, determines to be necessary or
desirable to give full effect to the foregoing resolutions and the matters
authorized hereby, such determination to be conclusively evidenced by the
execution and delivery of any such documents, agreements or instruments or
the doing of any such act or
thing.
|
A-1
SCHEDULE
B
OPTION
PLAN AMENDMENT RESOLUTION
BE IS
RESOLVED THAT:
|
1.
|
The
amended incentive stock option incentive plan of Apollo Gold Corporation
(“Apollo”) be and
is hereby approved substantially in the form attached as Schedule J to the
management information circular of Apollo dated ►,
2010.
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|
2.
|
Any
officer or director of Apollo is hereby authorized and directed for and on
behalf of and in the name of Apollo to execute, under the seal of Apollo
or otherwise, and to deliver, all such documents, agreements and
instruments and to do all such acts and things as such officer or
director, in his absolute discretion, determines to be necessary or
desirable to give full effect to the foregoing resolution and the matter
authorized hereby, such determination to be conclusively evidenced by the
execution and delivery of any such documents, agreements or instruments or
the doing of any such act or
thing.
|
B-1
SCHEDULE
C
NAME
CHANGE RESOLUTION
BE IT
RESOLVED THAT:
|
1.
|
Apollo
Gold Corporation (“Apollo”) be and is
hereby authorized to amend the articles of continuance (the “Amendment”) to change
its corporate name to “►” or such other name as may be approved by the
board of directors of Apollo and the applicable regulatory
authorities.
|
|
2.
|
Any
one director or officer of Apollo be and is hereby authorized on behalf of
Apollo to take all such further actions and to execute and deliver all
such further agreements, instruments and documents relating to,
contemplated by, necessary or desirable in connection with this special
resolution, the Amendment and the changing of the name of Apollo
(including, without limitation, the delivery and/or filing of articles of
amendment in the prescribed form under the Business Corporations Act
(Yukon)), all such agreements, instruments and documents being
collectively referred to herein as the “Documents”), in the name
and on behalf of Apollo and under its corporate seal or otherwise, on such
terms and conditions and in such form, with such alterations, additions,
modifications and changes thereto, as in such individual’s opinion may be
necessary or desirable to give effect to this special resolution, which
opinion and the approval thereof shall be conclusively evidenced by the
taking of such further actions and the execution and delivery of the
Documents, and the execution and delivery of the Documents and the taking
of such further actions by such individual shall be conclusive evidence
that same is authorized by this special
resolution.
|
|
3.
|
Notwithstanding
any of the foregoing, at any time prior to the Amendment becoming
effective, the board of directors of Apollo is hereby authorized, without
further approval or action by or prior notice to the shareholders of
Apollo, to revoke this special resolution and discontinue the Amendment if
deemed appropriate by the board of directors in the
circumstances.
|
C-1
SCHEDULE
D
SHARE
CONSOLIDATION RESOLUTION
BE IT
RESOLVED THAT:
|
1.
|
Apollo
Gold Corporation (“Apollo”) be and is
hereby authorized to amend its issued capital by consolidating all of its
issued and outstanding common shares as soon as practicable following
completion of the arrangement among Apollo, 1526735 Alberta ULC and Linear
Gold Corp., on the basis of one post-consolidation common share for every
four pre-consolidation common shares, and any fractional common shares
arising on the consolidation of the common shares of Apollo shall be
adjusted such that each fractional share that is less than one-half of one
common share will be cancelled without any compensation therefor and each
fractional share that is at least one-half of one common share will be
adjusted upward to one whole common
share.
|
|
2.
|
Any
one director or officer of Apollo be and is hereby authorized on behalf of
Apollo to take all such actions and to execute and deliver all such
agreements, instruments and documents relating to, contemplated by,
necessary or desirable in connection with this special resolution and the
consolidation of the issued capital of Apollo (including, without
limitation, the delivery and/or filing of articles of amendment in the
prescribed form under the Business Corporations
Act (Yukon)), all such agreements, instruments and documents being
collectively referred to herein as the “Documents”), in the name
and on behalf of Apollo and under its corporate seal or otherwise, on such
terms and conditions and in such form, with such alterations, additions,
modifications and changes thereto, as in such individual’s opinion may be
necessary or desirable to give effect to this special resolution, which
opinion and the approval thereof shall be conclusively evidenced by the
taking of such further actions and the execution and delivery of the
Documents, and the execution and delivery of the Documents and the taking
of such further actions by such individual shall be conclusive evidence
that same is authorized by this special
resolution.
|
|
3.
|
Notwithstanding
any of the foregoing, at any time prior to the consolidation becoming
effective, the board of directors of Apollo is hereby authorized, without
further approval or action by or prior notice to the shareholders of
Apollo, to revoke this special resolution and discontinue the
consolidation if deemed appropriate by the board of directors in the
circumstances.
|
D-1
SCHEDULE
E
RIGHTS
PLAN RESOLUTION
BE IT
RESOLVED THAT:
|
|
1.
|
The
shareholder rights plan of Apollo Gold Corporation (the “Shareholder Rights
Plan”) be and is hereby reconfirmed, ratified and approved and
shall continue in full force and effect pursuant to the terms set out in
the Shareholder Rights Plan; and
|
|
|
2.
|
Any
director or officer of Apollo Gold Corporation is authorized to take such
actions as such director or officer may determine to be necessary or
advisable to implement this resolution, such determination to be
conclusively evidenced by the taking of any such
actions.
|
E-1
ARRANGEMENT
AGREEMENT
APOLLO
GOLD CORPORATION
and
1526735
ALBERTA ULC
and
LINEAR
GOLD CORP.
ARRANGEMENT
AGREEMENT
Dated
as of March 31, 2010
F-1
TABLE
OF CONTENTS
|
ARTICLE
1
|
|||
|
DEFINITIONS,
INTERPRETATION AND SCHEDULES
|
|||
|
Section
1.1
|
Definitions
|
F-5
|
|
|
Section
1.2
|
Interpretation
Not Affected by Headings
|
F-12
|
|
|
Section
1.3
|
Number,
Gender and Persons
|
F-12
|
|
|
Section
1.4
|
Date
for any Action.
|
F-12
|
|
|
Section
1.5
|
Statutory
References
|
F-12
|
|
|
Section
1.6
|
Currency
|
F-12
|
|
|
Section
1.7
|
Invalidity
of Provisions
|
F-12
|
|
|
Section
1.8
|
Accounting
Matters
|
F-13
|
|
|
Section
1.9
|
Knowledge
|
F-13
|
|
|
Section
1.10
|
Meaning
of Certain Phrase
|
F-13
|
|
|
Section
1.11
|
Schedules
|
F-13
|
|
|
ARTICLE
2
|
|||
|
THE
ARRANGEMENT
|
|||
|
Section
2.1
|
Arrangement
|
F-14
|
|
|
Section
2.2
|
Effective
Date
|
F-14
|
|
|
Section
2.3
|
Board
of Directors
|
F-14
|
|
|
Section
2.4
|
Name
Change
|
F-14
|
|
|
Section
2.5
|
Management
Changes
|
F-14
|
|
|
Section
2.6
|
Consultation
|
F-15
|
|
|
Section
2.7
|
Court
Proceedings
|
F-15
|
|
|
Section
2.8
|
U.S.
Securities Law Matters
|
F-16
|
|
|
Section
2.9
|
Articles
of Arrangement
|
F-17
|
|
|
Section
2.10
|
Cancellation
of Apollo Shares
|
F-17
|
|
|
Section
2.11
|
Closing
|
F-17
|
|
|
Section
2.12
|
U.S.
Tax Matters
|
F-17
|
|
|
ARTICLE
3
|
|||
|
REPRESENTATIONS
AND WARRANTIES
|
|||
|
Section
3.1
|
Representations
and Warranties of Linear
|
F-18
|
|
|
Section
3.2
|
Representations
and Warranties of Apollo and Apollo Subco
|
F-29
|
|
|
Section
3.3
|
Survival
of Representations and Warranties
|
F-41
|
|
|
ARTICLE
4
|
|||
|
COVENANTS
|
|||
|
Section
4.1
|
Covenants
of Linear
|
F-41
|
|
|
Section
4.2
|
Covenants
of Apollo and Apollo Subco
|
F-49
|
|
|
Section
4.3
|
Linear
Options
|
F-57
|
|
|
Section
4.4
|
Linear
Warrants
|
F-57
|
|
F-2
|
Section
4.5
|
Apollo
Options
|
F-58
|
|
|
Section
4.6
|
Indemnification
and Insurance
|
F-58
|
|
|
ARTICLE
5
|
|||
|
CONDITIONS
|
|||
|
Section
5.1
|
Mutual
Conditions
|
F-59
|
|
|
Section
5.2
|
Linear
Conditions
|
F-60
|
|
|
Section
5.3
|
Apollo
and Apollo Subco Conditions
|
F-62
|
|
|
Section
5.4
|
Notice
and Cure Provisions
|
F-64
|
|
|
Section
5.5
|
Merger
of Conditions
|
F-65
|
|
|
ARTICLE
6
|
|||
|
NON-SOLICITATION
AND BREAK FEE
|
|||
|
Section
6.1
|
Mutual
Covenants Regarding Non-Solicitation
|
F-65
|
|
|
Section
6.2
|
Break
Fee Event
|
F-69
|
|
|
ARTICLE
7
|
|||
|
AMENDMENT
AND TERMINATION
|
|||
|
Section
7.1
|
Amendment
|
F-70
|
|
|
Section
7.2
|
Mutual
Understanding Regarding Amendments
|
F-70
|
|
|
Section
7.3
|
Termination
|
F-71
|
|
|
ARTICLE
8
|
|||
|
GENERAL
|
|||
|
Section
8.1
|
Notice
|
F-73
|
|
|
Section
8.2
|
Remedies
|
F-74
|
|
|
Section
8.3
|
Indemnification
|
F-74
|
|
|
Section
8.4
|
Privacy
Matters
|
F-75
|
|
|
Section
8.5
|
Expenses
|
F-75
|
|
|
Section
8.6
|
Time
of the Essence
|
F-75
|
|
|
Section
8.7
|
Entire
Agreement
|
F-75
|
|
|
Section
8.8
|
Further
Assurances
|
F-75
|
|
|
Section
8.9
|
Governing
Law
|
F-75
|
|
|
Section
8.10
|
Execution
in Counterparts
|
F-76
|
|
|
Section
8.11
|
Waiver
|
F-76
|
|
|
Section
8.12
|
No
Personal Liability
|
F-76
|
|
|
Section
8.13
|
Enurement
and Assignment
|
F-76
|
|
SCHEDULES
SCHEDULE
“A” PLAN OF ARRANGEMENT UNDER SECTION 193 OF THE
BUSINESS CORPORATIONS ACT
(ALBERTA)
SCHEDULE
“B” LINEAR COVERTIBLE SECURITIES
F-3
ARRANGEMENT
AGREEMENT
THIS AGREEMENT made as the
31st
day of March, 2010
AMONG
:
|
APOLLO
GOLD CORPORATION,
|
|
|
a
corporation existing under the
|
|
|
Business Corporations Act
(Yukon),
|
|
|
(hereinafter
referred to as “Apollo”)
|
|
|
OF
THE FIRST PART
|
|
|
-
and -
|
|
|
1526735
ALBERTA ULC,
|
|
|
an
unlimited liability company existing under the
|
|
|
the
Business Corporations
Act (Alberta),
|
|
|
(hereinafter
referred to as “Apollo
Subco”)
|
|
|
OF
THE SECOND PART
|
|
|
-
and -
|
|
|
LINEAR
GOLD CORP.,
|
|
|
a
corporation existing under the
|
|
|
Canada Business Corporations
Act,
|
|
|
(hereinafter
referred to as “Linear”)
|
|
|
OF
THE THIRD PART
|
WITNESSES
THAT:
WHEREAS Apollo Subco is
wholly-owned by Apollo;
AND WHEREAS Apollo, Apollo
Subco and Linear propose to effect a business combination to combine the
business and assets of Linear with those of Apollo;
AND WHEREAS the parties hereto
intend to carry out the proposed business combination by way of a plan of
arrangement under the provisions of the Business Corporations Act
(Alberta);
F-4
NOW THEREFORE in consideration
of the mutual covenants and agreements herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, the parties hereto hereby covenant
and agree as follows:
ARTICLE 1
DEFINITIONS,
INTERPRETATION AND SCHEDULES
|
Section 1.1
|
Definitions
|
In this
Agreement, unless the context otherwise requires, the following words and terms
with the initial letter or letters thereof capitalized shall have the meanings
ascribed to them below:
“ABCA” means the Business Corporations Act
(Alberta), including the regulations promulgated thereunder, as now enacted or
as the same may from time to time be amended, re-enacted or
replaced;
“Acquisition Proposal” means,
with respect to Apollo or Linear, any inquiry or the making of any proposal to
such party or its shareholders, from any person which constitutes, or may
reasonably be expected to lead to (in either case whether in one transaction or
a series of transactions): (i) an acquisition from such party or its
shareholders, of any securities of such party or its subsidiaries; (ii) any
acquisition of a substantial amount of assets of such party or its subsidiaries;
(iii) an amalgamation, arrangement, merger, or consolidation involving such
party or its subsidiaries; or (iv) any take-over bid, issuer bid, exchange
offer, recapitalization, liquidation, dissolution, reorganization into a royalty
trust or income fund or similar transaction involving such party or its
subsidiaries or any other transaction, the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or delay the
transactions contemplated by this Agreement or the Arrangement or which would or
could reasonably be expected to materially reduce the benefits to the other
party under this Agreement or the Arrangement;
“Agreement” means this
arrangement agreement, together with the schedules attached hereto, as amended
or supplemented from time to time;
“Amalgamation” means the
amalgamation of the Amalgamating Corporations as contemplated by the Plan of
Arrangement;
“Amalgamating Corporations”
means, collectively, Apollo Subco and Linear;
“AMEX” means the NYSE Amex
Equities Exchange;
“Apollo” means Apollo Gold
Corporation, a corporation existing under the YBCA;
“Apollo Disclosure Documents”
means all publicly available press releases, material change reports, annual
information forms, information circulars, financial statements and other
documents that have been disclosed by Apollo to the public and filed pursuant to
applicable Securities Laws or otherwise posted on SEDAR or EDGAR after January
1, 2009;
F-5
“Apollo Employee Plans” has the
meaning ascribed thereto in subsection 3.2(ii);
“Apollo Leased Premises” has
the meaning ascribed thereto in subsection 3.2(dd);
“Apollo Meeting” means the
annual and special meeting, including any adjournments or postponements thereof,
of the Apollo Shareholders to be held, among other things, to consider and, if
deemed advisable, to approve the Arrangement;
“Apollo Options” means the
outstanding options to purchase an aggregate of 11,561,871 Apollo Shares issued
pursuant to the Apollo Stock Option Plan;
“Apollo Material Properties”
means, collectively, those properties commonly referred to as Black Fox, Grey
Fox and Pike River, in which
Apollo has an interest as described in the Apollo Disclosure
Documents;
“Apollo Proxy Circular” means
the management information circular, including all schedules and exhibits
thereto, to be prepared by Apollo with the assistance of Linear in respect of
the Apollo Meeting;
“Apollo Replacement Options”
means the stock options of Apollo to be granted to the holders of Linear Options
on the terms and conditions set out in the Plan of Arrangement;
“Apollo Replacement Warrants”
means the common share purchase warrants of Apollo to be issued to the holders
of Linear Warrants on the terms and conditions set out in the Plan of
Arrangement;
“Apollo Shareholders” means, at
any time, the holders of Apollo Shares;
“Apollo Shares” means the
common shares in the capital of Apollo;
“Apollo Stock Option Plan”
means the stock option plan of Apollo adopted in December 2003 and amended and
restated as of May 7, 2009;
“Apollo Subco” means 1526735
Alberta ULC, a wholly-owned subsidiary of Apollo existing under the
ABCA;
“Apollo Subsidiaries” has the
meaning ascribed thereto in subsection 4.1(b);
“Apollo Support Agreements”
means, collectively, the support agreements between Linear and each of the
Apollo Support Parties;
“Apollo Support Parties” means
the persons who shall execute and deliver to Linear an Apollo Support Agreement
being R. David Russell, Melvyn Williams, Marvin Kaiser, David Peat, Richard
Nanna, Robert Babensee, W.S. Vaughan, Brent Timmons, Timothy Smith, Wendy Yang,
Michael Hobart and Charles Stott;
F-6
“Arrangement” means the
arrangement under the provisions of Section 193 of the ABCA on the terms and
conditions set forth in the Plan of Arrangement, subject to any amendment or
supplement thereto made in accordance therewith or made at the direction of the
Court in the Final Order;
“Articles of Arrangement” means
articles of arrangement in respect of the Arrangement required by the ABCA to be
filed with the Registrar after the Final Order is made;
“Business Day” means any day,
other than a Saturday, a Sunday or a statutory holiday in Toronto, Ontario or
Calgary, Alberta;
“Canadian GAAP” means
accounting principles generally accepted in Canada;
“CBCA” means the Canada Business Corporations
Act, including the regulations promulgated thereunder, as now enacted or
as the same may from time to time be amended, re-enacted or
replaced;
“Certificate” means the
certificate giving effect to the Amalgamation issued by the Registrar on the
Articles of Amalgamation pursuant to subsection 193(11) of the
ABCA;
“Completion Deadline” means the
date by which the transactions contemplated by this Agreement are to be
completed, which date shall be no later than July 2, 2010;
“Confidentiality Agreement”
means the confidentiality agreement dated January 6, 2010 between Apollo and
Linear;
“Continuance” means the
continuance of Linear to be completed under the ABCA pursuant to the Plan of
Arrangement;
“Court” means the Court of Queen’s
Bench of Alberta;
“Dissent Rights” means the
rights of dissent in respect of the Arrangement described in the Plan of
Arrangement;
“EDGAR” means the SEC’s
Electronic Data Gathering Analysis and Retrieval System;
“Effective Date” means the date
set out in the Certificate as being the effective date in respect of the
Arrangement;
“Effective Time” means 5:00
p.m. (Toronto time) on the Effective Date;
“Environmental Laws” has the
meaning ascribed thereto in subsection 3.1(kk);
“Final Order” means the order
of the Court pursuant to subsection 193(9) of the ABCA approving the
Arrangement, as such order may be amended at any time prior to the Effective
Date or, if appealed, then unless such appeal is withdrawn or denied, as
affirmed;
F-7
“Governmental Authority” means
and includes, without limitation, any national, federal, provincial, state,
county or municipal government, governmental or public department, court,
tribunal, commission, board, bureau or agency or any political subdivision of
any of the foregoing, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing;
“Interim Order” means the
interim order of the Court, as such order may be amended, pursuant to subsection
193(4) of the ABCA made in connection with the Arrangement;
“Laws” means all laws, by-laws,
rules, regulations, orders, ordinances, protocols, codes, guidelines,
directives, instruments, policies, notices, directions and judgments or other
requirements of any Governmental Authority;
“Lender Consent Letter” means
the consent letter, dated as of March 9, 2010, among the Lenders, Linear and
Apollo, pursuant to which, among other things, the Lenders consented to the
Arrangement upon the terms and conditions set out therein;
“Lender Lock-Up Agreements”
means, collectively, the lock-up agreements entered into by each of the Lenders
dated March 18, 2010 pursuant to which each Lender agrees, among other things,
not to, directly or indirectly, exercise or offer, sell, contract to sell, lend,
swap, or enter into any other agreement to transfer the economic consequences of
any of the Apollo Shares or common share purchase warrants of Apollo held by
them until December 31, 2010, or such earlier date specified
therein;
“Lenders” means, collectively,
Macquarie Bank Limited and RMB Australia Holdings Limited, being the lenders to
Apollo under the Project Facility Agreement;
“Lender Support Agreements”
means, collectively, the support agreements entered into by each of the Lenders
dated March 18, 2010 pursuant to which each Lender agrees, among other things,
to support and vote in favour of the Arrangement;
“Letter of Intent” means the
binding letter of intent dated March 9, 2010 between Apollo and Linear, as
amended March 18, 2010, setting out, among other things, the terms and
conditions of the Arrangement;
“Linear” means Linear Gold
Corp., a corporation existing under the CBCA;
“Linear Audited Financial
Statements” has the meaning ascribed thereto in subsection
3.1(n);
“Linear Convertible Securities”
means, collectively, the Linear Options and the Linear Warrants as set out in
Schedule B;
“Linear Disclosure Documents”
means all publicly available press releases, material change reports, annual
information forms, information circulars, financial statements and other
documents that have been disclosed by Linear to the public and filed pursuant to
applicable Securities Laws or otherwise posted on SEDAR after January 1,
2009;
F-8
“Linear Employee Plans” has the
meaning ascribed thereto in subsection 3.1(gg);
“Linear Leased Premises” has
the meaning ascribed thereto in subsection 3.1(bb);
“Linear Listed Warrants” means,
collectively, an aggregate of up to 5,203,750 Linear Warrants outstanding on the
date hereof which were issued pursuant to the Linear Warrant
Indenture;
“Linear Meeting” means the
special meeting, including any adjournments or postponements thereof, of the
Linear Shareholders to be held, among other things, to consider and, if deemed
advisable, to approve the Continuance and the Arrangement;
“Linear Options” means,
collectively, an aggregate of up to 2,770,000 options as set out in Schedule
B;
“Linear Material Properties”
means, collectively, those properties commonly referred to as the Box mine and
the Athona deposit, in which Linear has an interest as described in the Linear
Disclosure Documents;
“Linear Proxy Circular” means the
management information circular, including all schedules and exhibits thereto,
to be prepared by Linear with the assistance of Apollo in respect of the Linear
Meeting;
“Linear Securityholders” means,
collectively, the Linear Shareholders, the holders of Linear Options and the
holders of Linear Warrants;
“Linear Shareholders” means, at
any time, the holders of Linear Shares;
“Linear Stock Option Plan”
means the stock option plan of Linear adopted on September 29,
2006;
“Linear Shares” means the
common shares in the capital of Linear;
“Linear Subsidiaries” has the
meaning ascribed thereto in subsection 3.1(b);
“Linear Support Agreements”
means, collectively, the support agreements between Apollo and each of the
Linear Support Parties;
“Linear Support Parties” means
the persons who shall execute and deliver to Apollo a Linear Support Agreement
being Wade Dawe, Brian MacEachen, Keith Abriel, Howard Bird, Michael Sylvestre,
Emin Eyi, Peter Dimmell, Derrick Gill, Danny Gallivan and Michael
Gross;
“Linear Warrant Indenture”
means the common share purchase warrant indenture between Linear and
Computershare Trust Company of Canada dated November 19, 2009 providing for,
among other things, the issue of up to 5,203,750 Linear Listed
Warrants;
F-9
“Linear Warrants” means,
collectively, an aggregate of up to 8,177,764 warrants as set out in Schedule
B;
“Material Adverse Change” when used in connection
with an entity means any change (or any condition, event or development
involving a prospective change) in the business, affairs, operations, results of
operations, assets, capitalization, financial condition, licenses, permits,
concessions, rights, liabilities, prospects or privileges, whether contractual
or otherwise, of such entity which has or is reasonably likely to have a
Material Adverse Effect on such entity and its parent (if applicable) or
subsidiaries, taken as a whole;
“Material Adverse Effect” when
used in connection with an entity means any change (including a decision to
implement such a change made by the board of directors or by senior management
who believe that confirmation of the decision by the board of directors is
probable), event, violation, inaccuracy, circumstance or effect that is
materially adverse to the business, assets (including intangible assets),
liabilities, capitalization, ownership, financial condition or results of
operations of such entity and its parent (if applicable) or subsidiaries, taken
as a whole;
“Mining Rights” has the meaning
ascribed thereto in subsection 3.1(f);
“Plan of Arrangement” means a
plan of arrangement substantially in the form and content of Schedule A attached
hereto and any amendment or variation thereto made in accordance with Section
7.01 of the Plan of Arrangement or Section 7.1 hereof;
“Project Facility Agreement”
means the agreement among Apollo, the Lenders and RMB Resources Inc. dated
February 20, 2009, as amended, relating to Apollo’s credit facility in respect
of Apollo’s Black Fox project;
“Receiving Party” has the
meaning ascribed thereto in subsection 6.1(b)(v)(A);
“Registrar” means the Registrar
of Corporations of Deputy Registrar of Corporations appointed pursuant to
Section 263 of the ABCA;
“Reporting Provinces” means,
collectively, the provinces of British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and
Newfoundland and Labrador;
“Resigning Directors” means,
collectively, those directors of Apollo who shall resign as directors effective
as of the Effective Date and who shall cease to be directors of Apollo upon
completion of the Arrangement;
“Responding Party” has the
meaning ascribed thereto in subsection 6.1(c);
“SEC” means the Securities and
Exchange Commission of the United States of America;
F-10
“Section 3(a)(10) Exemption”
means the exemption from the registration requirements of the 1933 Act provided
under Section 3(a)(10) thereof;
“Securities Authorities” means,
collectively, the securities regulatory authorities in the provinces and
territories of Canada and the United States and the states thereof, including
the SEC;
“Securities Laws” means, unless
the context otherwise requires, all applicable securities laws in the provinces
and territories of Canada and the federal laws and
regulations of United States of America and the laws
and regulations of the states thereof and the respective regulations made
thereunder, together with applicable published fee schedules, prescribed forms,
policy statements, national or multilateral instruments, orders, blanket rulings
and other regulatory instruments of the Securities Authorities in such
jurisdictions;
“SEDAR” means the System for
Electronic Document Analysis and Retrieval;
“subsidiary” means, with
respect to a specified body corporate, any body corporate of which the specified
body corporate is entitled to elect a majority of the directors thereof and
shall include any body corporate, partnership, joint venture or other entity
over which such specified body corporate exercises direction or control or which
is in a like relation to such a body corporate, excluding any body corporate in
respect of which such direction or control is not exercised by the specified
body corporate as a result of any existing contract, agreement or
commitment;
“Superior Proposal” has the
meaning ascribed thereto in subsection 6.1(b)(v)(A);
“Tax” and “Taxes” have the meanings
ascribed thereto in subsection 3.1(o);
“Tax Act” means the Income Tax Act
(Canada);
“TSX” means the Toronto Stock
Exchange;
“U.S. GAAP” means accounting
principles generally accepted in the United States of America;
“YBCA” means the Business Corporations Act
(Yukon), including the regulations promulgated thereunder, as now enacted or as
the same may from time to time be amended, re-enacted or replaced;
“1933 Act” means the Securities
Act of 1933, as amended, of the United States of America;
“1934 Act” means the Securities
Exchange Act of 1934, as amended, of the United States of America;
and
“1940 Act” means the Investment
Company Act of 1940, as amended, of the United States of America.
F-11
In addition, words and phrases used
herein and defined in the ABCA shall have the same meaning herein as in the
ABCA unless the
context otherwise requires.
|
Section 1.2
|
Interpretation
Not Affected by Headings
|
The
division of this Agreement into articles, sections, subsections, paragraphs and
subparagraphs and the insertion of headings herein are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement. The terms “this Agreement”, “hereof”, “herein”, “hereto”,
“hereunder” and similar expressions refer to this Agreement and the schedules
attached hereto and not to any particular article, section or other portion
hereof and include any agreement, schedule or instrument supplementary or
ancillary hereto or thereto.
|
Section 1.3
|
Number,
Gender and Persons
|
In this
Agreement, unless the context otherwise requires, words importing the singular
only shall include the plural and vice versa, words importing the use of either
gender shall include both genders and neuter, and the word person and all words
importing persons shall include a natural person, firm, trust, partnership,
association, corporation, joint venture or government (including any
Governmental Authority, political subdivision or instrumentality thereof) and
any other entity of any kind or nature whatsoever.
|
Section 1.4
|
Date
for any Action.
|
If the
date on which any action is required to be taken hereunder by any party hereto
is not a Business Day, such action shall be required to be taken on the next
succeeding day which is a Business Day.
|
Section 1.5
|
Statutory
References
|
Any
reference in this Agreement to a statute includes all regulations and rules made
thereunder, all amendments to such statute or regulation in force from time to
time and any statute or regulation that supplements or supersedes such statute
or regulation.
|
Section 1.6
|
Currency
|
Unless
otherwise stated, all references in this Agreement to amounts of money are
expressed in lawful money of Canada.
|
Section 1.7
|
Invalidity
of Provisions
|
Each of
the provisions contained in this Agreement is distinct and severable and a
declaration of invalidity or unenforceability of any such provision or part
thereof by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof. To the extent permitted by
applicable Law, the parties hereto waive any provision of Law which renders any
provision of this Agreement or any part thereof invalid or unenforceable in any
respect. The parties hereto will engage in good faith negotiations to replace
any provision hereof or any part thereof which is declared invalid or
unenforceable with a valid and enforceable provision or part thereof, the
economic effect of which approximates as much as possible the invalid or
unenforceable provision or part thereof which it replaces.
F-12
|
Section 1.8
|
Accounting
Matters
|
Unless
otherwise stated, all accounting terms used in this Agreement shall have the
meanings attributable thereto under Canadian GAAP in regard to Linear and under
U.S. GAAP in regard to Apollo and all determinations of an accounting nature
required to be made hereunder shall be made in a manner consistent with Canadian
GAAP in regard to Linear and in a manner consistent with U.S. GAAP in regard to
Apollo.
|
Section 1.9
|
Knowledge
|
Where the
phrases “to the knowledge of Apollo” is used in respect of Apollo or the Apollo
Subsidiaries or “to the knowledge of Linear” is used in respect of Linear or the
Linear Subsidiaries, such phrase shall mean, in respect of each representation
and warranty or other statement which is qualified by such phrase, that such
representation and warranty or other statement is being made based upon: (i) in
the case of Apollo and the Apollo Subsidiaries, the collective actual knowledge
of David Russell and Mel Williams after due enquiry and (ii) in the case of
Linear and the Linear Subsidiaries, the collective actual knowledge of Wade
Dawe, Keith Abriel and Brian MacEachen after due enquiry.
|
Section 1.10
|
Meaning
of Certain Phrase
|
In this
Agreement the phrase “in the ordinary course of business” shall mean and refer
to those activities that are normally conducted by corporations engaged in the
exploration for and development of precious and base metals and in the
construction and operation of precious and base metal mines, and “including”
means “including, without limitation”.
|
Section 1.11
|
Schedules
|
The
following schedules are attached to, and are deemed to be incorporated into and
form part of, this Agreement:
|
Schedule
|
Matter
|
|
|
A
|
Plan
of Arrangement
|
|
|
B
|
Linear
Convertible Securities
|
F-13
ARTICLE 2
THE
ARRANGEMENT
|
Section 2.1
|
Arrangement
|
The
Amalgamating Corporations shall amalgamate by way of arrangement pursuant to
Section 193 of the ABCA on the terms and subject to the conditions contained in
this Agreement and the Plan of Arrangement, and the Arrangement shall be
comprised of substantially the events or transactions, taken in the sequence
indicated, in Schedule A to this Agreement.
|
Section 2.2
|
Effective
Date
|
The
Arrangement shall become effective at the Effective Time and at such time the
Amalgamating Corporations shall amalgamate and continue as one unlimited
liability corporation (the “Surviving Corporation”) on the
terms and subject to the conditions contained in this Agreement and the Plan of
Arrangement.
|
Section 2.3
|
Board
of Directors
|
As of the
Effective Time, the board of directors of Apollo (the “New Board”) shall consist of
seven (7) directors appointed as follows: three (3) current Apollo
board members or Apollo nominees; three (3) Linear nominees (including Wade Dawe
who shall be appointed Chairman of the Board of Directors); and one (1) nominee
who shall be a technical person mutually agreed upon by Apollo and
Linear. For greater certainty, subject to delivery of customary
mutual releases (in a form acceptable to Linear, acting reasonably), each of the
Resigning Directors shall resign as a director of Apollo effective as of the
Effective Time.
|
Section 2.4
|
Name
Change
|
Immediately
following the Effective Time, Apollo shall file articles of amendment with the
Registrar under the YBCA to change the name of Apollo to a name to be agreed to
by Apollo and Linear.
|
Section 2.5
|
Management
Changes
|
Apollo
hereby agrees that immediately prior to the completion of the Arrangement Linear
shall effect all management terminations, buyouts, severance payments and
retention bonuses in respect of Linear management and staff in accordance with
management contracts and common law and, subject to the approval of the board of
directors of Linear, in amounts not to exceed an aggregate of
$1,700,000. Apollo agrees that upon completion of the Arrangement,
Apollo will enter into employment agreements with any Linear management and
staff whose employment shall continue with the Surviving Corporation following
completion of the Arrangement in form and substance satisfactory to each of
Linear and Apollo, each acting reasonably. Upon completion of the
Arrangement, R. David Russell shall resign as President and Chief Executive
Officer of Apollo and, subject to delivery of customary releases, shall be paid
all termination and other amounts owing pursuant to his employment agreement
(which the parties hereby agree shall not exceed approximately US$1,700,000 in
the aggregate) and an aggregate of 2,231,000 Apollo Options previously granted
to R. David Russell and outstanding on the date hereof will remain in effect for
a period of one year following the Effective Date. Upon completion of
the Arrangement, R. David Russell shall enter into a consulting agreement with
the Surviving Corporation in form and substance satisfactory to Linear and
Apollo, each acting reasonably.
F-14
|
Section 2.6
|
Consultation
|
Apollo
and Linear will consult with the other in issuing any press release or otherwise
making any public statement with respect to this Agreement, the Arrangement or
their respective businesses and in making any filing with any Governmental
Authority, Securities Authority or stock exchange with respect thereto. Each of
Apollo and Linear shall use its commercially reasonable best efforts to enable
the other to review and comment on all such press releases and filings prior to
the release or filing, respectively, thereof.
|
Section 2.7
|
Court
Proceedings
|
As soon
as is reasonably practicable after the date of execution of this Agreement,
Linear and Apollo Subco shall apply to the Court pursuant to Section 193 of the
ABCA for an order approving the Arrangement and, in connection with such
application, Linear and Apollo Subco shall:
|
(a)
|
file,
proceed with and diligently prosecute an application to the Court for the
Interim Order providing for, among other things, the calling and holding
of the Linear Meeting; and
|
|
(b)
|
subject
to obtaining the approvals as contemplated by the Interim Order and as may
be directed by the Court in the Interim Order, take all steps necessary or
desirable to submit the Arrangement to the Court and to apply for the
Final Order.
|
The
notices of motion and related materials for the applications referred to in this
section shall be in a form satisfactory to Linear and Apollo Subco, each acting
reasonably, and, in the case of the application to the Court for the Interim
Order, shall request that the Interim Order provide, among other
things:
|
(i)
|
for
the persons to whom notice is to be provided in respect of the Arrangement
for the Linear Meeting and for the manner in which such notice is to be
provided;
|
|
(ii)
|
that
the requisite approval of the Linear Shareholders for the Arrangement
shall be two-thirds of the votes cast thereon by Linear Shareholders
present in person or represented by proxy at the Linear
Meeting;
|
|
(iii)
|
that
in all other respects, the terms, conditions and restrictions of the
Linear constating documents, including quorum requirements and other
matters, shall apply in respect of the Linear
Meeting;
|
F-15
|
(iv)
|
for
the grant of the Dissent Rights;
|
|
(v)
|
for
notice requirements with respect to the presentation of the application to
the Court for the Final Order;
|
|
(vi)
|
that
the Linear Meeting may be adjourned from time to time by management of
Linear without the need for additional approval of the Court;
and
|
|
(vii)
|
that
the record date for Linear Shareholders entitled to notice of and to vote
at the Linear Meeting will not change in respect of any adjournment(s) of
the Linear Meeting.
|
|
Section 2.8
|
U.S.
Securities Law Matters
|
The parties agree that the Arrangement
will be carried out with the intention that all Apollo Shares and other
securities of Apollo issued on completion of the Arrangement to the Linear
Securityholders will be issued by Apollo in reliance on the exemption from the
registration requirements of the 1933 Act, provided by the Section 3(a)(10)
Exemption. In order to ensure the availability of the
Section 3(a)(10) Exemption, the parties agree that the Arrangement will be
carried out on the following basis:
|
(a)
|
the
Arrangement will be subject to the approval of the
Court;
|
|
(b)
|
the
Court will be advised as to the intention of the parties to rely on the
Section 3(a)(10) Exemption prior to the hearing required to approve the
Arrangement;
|
|
(c)
|
the
Court will be required to satisfy itself as to the fairness of the
Arrangement to the Linear Securityholders subject to the
Arrangement;
|
|
(d)
|
the
Final Order approving the Arrangement that is obtained from the Court will
expressly state that the Arrangement is approved by the Court as being
fair to the Linear Securityholders;
|
|
(e)
|
Linear
will ensure that each Linear Securityholder entitled to receive securities
of Apollo on completion of the Arrangement will be given adequate notice
advising them of their right to attend the hearing of the Court to give
approval of the Arrangement and providing them with sufficient information
necessary for them to exercise that
right;
|
|
(f)
|
the
Linear Securityholders will be advised
that the securities of Apollo issued in the Arrangement have not been
registered under the 1933 Act and will be issued by Apollo in
reliance on the exemption from the registration requirements of the U.S.
Securities Act provided by the Section 3(a)(10) Exemption and may be
subject to restrictions on resale under the securities laws of the United
States, including, as applicable, Rule 144 under the 1933 Act with respect
to affiliates of Apollo;
|
F-16
|
(g)
|
the
Interim Order will specify that each Linear Securityholder will have the
right to appear before the Court at the hearing of the Court to give
approval of the Arrangement so long as they enter an appearance within a
reasonable time; and
|
|
(h)
|
the
Final Order shall include a statement to the following
effect:
|
“This
Order will serve as a basis of a claim to an exemption, pursuant to section
3(a)(10) of the United States
Securities Act of 1933, as amended, from the registration requirements
otherwise imposed by that act, regarding the distribution of securities of
Apollo, pursuant to the Plan of Arrangement.”
|
Section 2.9
|
Articles
of Arrangement
|
Subject
to the rights of termination contained in Section 7.3 hereof, upon the Linear
Shareholders approving the Continuance in accordance with the CBCA and the
Arrangement in accordance with the Interim Order, the Amalgamating Corporations
obtaining the Final Order, the Apollo Shareholders approving the Arrangement at
the Apollo Meeting as required by this Agreement and applicable Laws, including
the rules and policies of the TSX and AMEX, and the other conditions contained
in Article 5 hereof being complied with or waived, Linear shall proceed with the
Continuance and thereafter the Amalgamating Corporations shall jointly file
Articles of Arrangement, in duplicate, with the Registrar together with such
other documents as may be required in order to effect the
Arrangement.
|
Section 2.10
|
Cancellation
of Apollo Shares
|
Effective
as of the Effective Time, an aggregate of 62,500,000 Apollo Shares owned by
Linear shall be cancelled without any payment.
|
Section 2.11
|
Closing
|
The
closing of the Arrangement will take place at the offices of Fogler, Rubinoff
LLP, 95 Wellington Street West, Suite 1200, Toronto-Dominion Centre, Toronto,
Ontario at 9:00 a.m. on the Effective Date.
|
Section 2.12
|
U.S.
Tax Matters
|
The Arrangement is intended to qualify
as a reorganization within the meaning of Section 368(a) of the U.S. Internal
Revenue Code and this Agreement is intended to be a “plan of reorganization”
within the meaning of the Treasury Regulations promulgated under Section 368 of
the U.S. Internal Revenue Code. Each party, to the extent it is
required to make any filings in the United States, agrees to treat the
Arrangement as a reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue Code for all U.S. federal income tax purposes, and agrees to
treat this Agreement as a “plan of reorganization” within the meaning of the
Treasury Regulations promulgated under Section 368 of the U.S. Internal Revenue
Code, and to not take any position on any Tax return or otherwise take any Tax
reporting position inconsistent with such treatment, unless otherwise required
by a "determination" within the meaning of Section 1313 of the U.S. Internal
Revenue Code that such treatment is not correct or in connection with the
settlement of a tax controversy. Each party hereto agrees to act in a
manner that is consistent with the parties’ intention that the Arrangement be
treated as a reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue Code for all U.S. federal income tax
purposes. However, neither Apollo nor Apollo Subco makes any
representation or warranty to Linear, any Linear Shareholder, any holder of
Linear Options or any holder of Linear Warrants regarding (a) the qualification
of the amalgamation of Amalgamating Corporations as a “reorganization” within
the meaning of section 368(a)(1) of the U.S. Internal Revenue Code or (b) the
U.S. federal income tax consequences of the amalgamation of the Amalgamating
Corporations.
F-17
ARTICLE 3
REPRESENTATIONS
AND WARRANTIES
|
Section 3.1
|
Representations
and Warranties of Linear
|
Linear
hereby represents and warrants to and in favour of Apollo and Apollo Subco and
acknowledges that each of Apollo and Apollo Subco is relying upon such
representations and warranties in connection with entering into this Agreement
and agreeing to complete the Arrangement, as follows:
|
|
(a)
|
each
of Linear and each of the Linear Subsidiaries is a corporation duly
incorporated, continued or amalgamated and validly existing under the laws
of the jurisdiction in which it was incorporated, continued or
amalgamated, as the case may be, has all requisite corporate power and
authority and is duly qualified and holds all necessary material permits,
licences and authorizations necessary or required to carry on its business
as now conducted and to own, lease or operate its properties and assets
and no steps or proceedings have been taken by any person, voluntary or
otherwise, requiring or authorizing its dissolution or winding up, and
Linear has all requisite power and authority to enter into this Agreement
and to carry out its obligations
hereunder;
|
|
|
(b)
|
Linear
has no subsidiaries other than the following (the “Linear Subsidiaries” and
each an “Linear
Subsidiary”) and, other than the acquisition by Linear of an
aggregate of 62,500,000 Apollo Shares effective March 19, 2010, no
investment in any person which, for the financial year ended March 31,
2009 accounted for or which, for the financial year ending March 31, 2010
is expected to account for, more than five percent of the consolidated
assets or consolidated revenues of Linear or would otherwise be material
to the business and affairs of Linear on a consolidated
basis:
|
|
Linear Subsidiaries
|
Corporate
Jurisdiction
|
Percentage
Ownership
|
||||
|
Linear
Gold Caribe, S.A.
|
Panama
|
100 | % | |||
|
Linear
Gold Holdings Corp.
|
Canada
|
100 | % | |||
|
Linear
Gold Mexico, S.A. de C.V.
|
Mexico
|
100 | % | |||
|
Linear
Gold Mineracao Ltda.
|
Brazil
|
100 | % | |||
|
Servicios
Ixhuatán, S.A. de C.V.
|
Mexico
|
100 | % | |||
|
7153945
Canada Inc.
|
Canada
|
100 | % | |||
F-18
|
|
(c)
|
Linear
owns, directly or indirectly, the percentage of issued and outstanding
shares of each of the Linear Subsidiaries set out above, all of the issued
and outstanding shares of the Linear Subsidiaries are issued as fully paid
and non-assessable shares, in each case, other than as disclosed in the
Linear Disclosure Documents, free and clear of all mortgages, liens,
charges, pledges, security interests, encumbrances,
claims or demands whatsoever
and no person, firm or corporation has any agreement, option, right or
privilege (whether pre-emptive or contractual) capable of becoming an
agreement, for the purchase from Linear or any of the Linear Subsidiaries
of any interest in any of the shares in the capital of any of the Linear
Subsidiaries;
|
|
|
(d)
|
other
than as disclosed in the Linear Disclosure Documents, Linear and each of
the Linear Subsidiaries holds all requisite licences, registrations,
qualifications, permits and consents necessary or appropriate for carrying
on its business as currently carried on and all such licences,
registrations, qualifications, permits and consents are valid and
subsisting and in good standing in all material respects except where the
failure to hold such licences, registrations, qualifications, permits and
consents would not have a Material Adverse Effect on Linear or any Linear
Subsidiary. In particular, without limiting the generality of
the foregoing, neither Linear nor any of the Linear Subsidiaries has
received any notice of proceedings relating to the revocation or adverse
modification of any material mining or exploration permit or licence, nor
have any of them received notice of the revocation or cancellation of, or
any intention to revoke or cancel, any mining claims, groups of claims,
exploration rights, concessions or leases with respect to any of the
resource properties described in the Linear Disclosure Documents where
such revocation or cancellation would have a Material Adverse Effect on
Linear or any Linear Subsidiary;
|
|
|
(e)
|
except
as disclosed in the Linear Disclosure Documents, (A) Linear and the Linear
Subsidiaries are the absolute legal and beneficial owners of, and have
good and marketable title to, all of their respective material property or
assets as described in the Linear Disclosure Documents, and no other
Mining Rights are necessary for the conduct of the business of Linear or
any Linear Subsidiary as currently conducted, (B) none of Linear or any
Linear Subsidiary knows of any claim or the basis for any claim that might
or could materially and adversely affect the right thereof to use,
transfer or otherwise exploit such Mining Rights and (C) none of Linear or
any Linear Subsidiary has any responsibility or obligation to pay any
material commission, royalty, licence fee or similar payment to any person
with respect to such Mining Rights;
|
F-19
|
|
(f)
|
except
as disclosed in the Linear Disclosure Documents, Linear and the Linear
Subsidiaries hold either freehold title, mining leases, mining
concessions, mining claims or participating interests or other
conventional property or proprietary interests or rights, recognized in
the jurisdiction in which a particular property is located (collectively,
“Mining Rights”),
in respect of the ore bodies and minerals located in properties in which
Linear and the Linear Subsidiaries have an interest as described in the
Linear Disclosure Documents under valid, subsisting and enforceable title
documents or other recognized and enforceable agreements or instruments,
sufficient to permit Linear or the applicable Linear Subsidiary to explore
the minerals relating thereto; all property, leases or claims in which
Linear or any Linear Subsidiary has an interest or right have been validly
located and recorded in accordance in all material respects with all
applicable laws and are valid and subsisting except where the failure to
be so would not have a Material Adverse Effect on Linear or any Linear
Subsidiary; Linear and the Linear Subsidiaries have all necessary surface
rights, access rights and other necessary rights and interests relating to
the properties in which Linear and the Linear Subsidiaries have an
interest as described in the Linear Disclosure Documents granting Linear
or the applicable Linear Subsidiary the right and ability to explore for
minerals, ore and metals for development purposes as are appropriate in
view of the rights and interest therein of Linear or the applicable Linear
Subsidiary, with only such exceptions as do not interfere with the use
made by Linear or the applicable Linear Subsidiary of the rights or
interest so held; and each of the proprietary interests or rights and each
of the documents, agreements and instruments and obligations relating
thereto referred to above is currently in good standing in the name of
Linear or a Linear Subsidiary except where the failure to be so would not
have a Material Adverse Effect on Linear or any Linear Subsidiary. The
Mining Rights in respect of Linear’s properties, as disclosed in the
Linear Disclosure Documents, constitute a description of all material
Mining Rights held by Linear and the Linear
Subsidiaries;
|
|
|
(g)
|
Linear
has made available to the respective authors thereof, prior to the
issuance of the technical reports in respect of each of the Linear
Material Properties or the purpose of preparing such technical reports,
all information requested, and to the knowledge and belief of Linear, no
such information contains any material misrepresentation. Except as
disclosed in the Linear Disclosure Documents, Linear does not have any
knowledge of a Material Adverse Change in any production, cost, price,
reserves or other relevant information provided since the dates that such
information was so provided;
|
|
|
(h)
|
to
the best of the knowledge of Linear, except as disclosed in the Linear
Disclosure Documents, the technical reports in respect of each of the
Linear Material Properties, as supplemented by the disclosure in respect
of such properties in the Linear Disclosure Documents, accurately and
completely set forth all material facts relating to the properties that
are subject thereto. Since the date of preparation of each of the
technical reports in respect of each of the Linear Material Properties,
respectively, except as disclosed in the Linear Disclosure Documents,
there has been no change of which Linear is aware that would disaffirm any
aspect of such reports in any material respect, other than a contemplated
increase in capital expenditures;
|
F-20
|
|
(i)
|
Linear
is a reporting issuer under the Securities Laws of each of the
provinces of British Columbia, Alberta, Manitoba, Ontario, Quebec, Nova
Scotia, is not in
default of any requirement of such Securities Laws and Linear is not
included on a list of defaulting reporting issuers maintained by the
Securities Authorities of such
provinces;
|
|
|
(j)
|
Linear
is not subject to any cease trade order or other order of any applicable
stock exchange or Securities Authority and, to the knowledge of Linear, no
investigation or other proceedings involving Linear which may operate to
prevent or restrict trading of any securities of Linear are currently in
progress or pending before any applicable stock exchange or Securities
Authority;
|
|
|
(k)
|
the
execution and delivery of this Agreement, the performance by Linear of its
obligations hereunder and the consummation of the transactions
contemplated in this Agreement, do not and will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, (whether after notice or lapse of time or
both), (A) any statute, rule or regulation applicable to Linear including,
without limitation, applicable Securities Laws and the policies, rules and
regulations of the TSX; (B) the constating documents, by-laws or
resolutions of Linear which are in effect at the date hereof; (C) any
mortgage, note, indenture, contract, agreement, joint venture,
partnership, instrument, lease or other document to which Linear is a
party or by which it is bound; or (D) any judgment, decree or order
binding Linear, any Linear Subsidiary or the property or assets
thereof;
|
|
|
(l)
|
Linear
is in compliance in all material respects with its timely and continuous
disclosure obligations under the Securities Laws and the rules and
regulations of the TSX and, without limiting the generality of the
foregoing, there has not occurred any Material Adverse Change in respect
of Linear and the Linear Subsidiaries (taken as a whole) since December
31, 2009, which has not been publicly disclosed on a non-confidential
basis and all the statements set forth in the Linear Disclosure Documents
were true, correct and complete in all material respects and did not
contain any misrepresentation as of the date of such statements and Linear
has not filed any confidential material change reports since the date of
such statements which remain confidential as at the date
hereof;
|
F-21
|
|
(m)
|
except
as disclosed in the Linear Disclosure Documents, neither Linear nor any
Linear Subsidiary has approved, or has entered into any agreement in
respect of, or has any knowledge
of:
|
|
|
(A)
|
the
purchase of any material property or assets or any interest therein, other
than the purchase of the residual 16.875% participating interest in the
Crackingstone Joint Venture for $50,000, or the sale, transfer or other
disposition of any material property or assets or any interest therein
currently owned, directly or indirectly, by Linear or any Linear
Subsidiary whether by asset sale, transfer of shares or
otherwise;
|
|
|
(B)
|
the
change in control (by sale, transfer or other disposition of shares or
sale, transfer, lease or other disposition of all or substantially all of
the property and assets of Linear) of Linear or any Linear Subsidiary;
or
|
|
|
(C)
|
a
proposed or planned disposition of shares by any Linear Shareholder who
owns, directly or indirectly, 10% or more of the outstanding shares of
Linear or any Linear Subsidiary;
|
|
|
(n)
|
the
audited consolidated financial statements of Linear as at and for the year
ended March 31, 2009 (the “Linear Audited Financial
Statements”) and consolidated comparative financial statements for
the nine months ended December 31, 2009 have been prepared in accordance
with Canadian GAAP and present fully, fairly and correctly in all material
respects, the consolidated financial condition of Linear as at the date
thereof and the results of the operations and the changes in the financial
position of Linear for the periods then ended and contain and reflect
adequate provisions or allowance for all reasonably anticipated
liabilities, expenses and losses of Linear and except as disclosed in the
Linear Disclosure Documents, there has been no change in accounting
policies or practices of Linear since December 31,
2009;
|
|
|
(o)
|
all
taxes (including income tax, capital tax, payroll taxes, employer health
tax, workers’ compensation payments, property taxes, custom and land
transfer taxes), duties, royalties, levies, imposts, assessments,
deductions, charges or withholdings and all liabilities with respect
thereto including any penalty and interest payable with respect thereto
(individually, a “Tax” and, collectively,
“Taxes”) due and
payable by Linear and the Linear Subsidiaries have been paid, except where
the failure to pay such Taxes would not constitute an adverse material
fact in respect of Linear or any Linear Subsidiary or have a Material
Adverse Effect on Linear or any Linear Subsidiary. All Tax
returns, declarations, remittances and filings required to be filed by
Linear and the Linear Subsidiaries have been filed with all appropriate
governmental authorities and all such returns, declarations, remittances
and filings are complete and accurate and no material fact or facts have
been omitted therefrom which would make any of them misleading, except
where the failure to file such documents would not constitute an adverse
material fact in respect of Linear or have a Material Adverse Effect on
Linear or any Linear Subsidiary. To the best of the knowledge
of Linear, no examination of any Tax return of Linear or any Linear
Subsidiary is currently in progress and there are no issues or disputes
outstanding with any governmental authority respecting any taxes that have
been paid, or may be payable, by Linear or any Linear Subsidiary, in any
case, except where such examinations, issues or disputes would not
constitute an adverse material fact in respect of Linear or have a
Material Adverse Effect on Linear or any Linear
Subsidiary;
|
F-22
|
|
(p)
|
Linear’s
auditors who audited the Linear Audited Financial Statements and who
provided their audit report thereon are independent public accountants as
required under applicable Securities Laws and there has never been a
reportable event (within the meaning of National Instrument 51-102 Continuous Disclosure
Obligations) between Linear and Linear’s auditors or, to the
knowledge of Linear, any former auditors of
Linear;
|
|
|
(q)
|
other
than: (i) 2,770,000 Linear Shares issuable pursuant to outstanding stock
options of Linear; and (ii) 8,177,764 Linear Shares issuable pursuant to
the Linear Warrants, no person, firm or corporation has or will have at
the Effective Date any agreement or option, or right or privilege (whether
pre-emptive or contractual) capable of becoming an agreement or option,
for the purchase of any unissued shares or securities of Linear or of any
of the Linear Subsidiaries;
|
|
|
(r)
|
to
Linear’s knowledge, other than the Linear Support Agreements, there is no
agreement in force or effect which in any manner affects or will affect
the voting or control of any of the securities of Linear or of the Linear
Subsidiaries;
|
|
|
(s)
|
except
as disclosed in the Linear Disclosure Documents, none of the officers or
employees of Linear or of any Linear Subsidiary, any person who owns,
directly or indirectly, more than 10% of any class of securities of Linear
or securities of any person exchangeable for more than 10% of any class of
securities of Linear, or any associate or affiliate of any of the
foregoing, had or has any material interest, direct or indirect, in any
transaction or any proposed transaction (including, without limitation,
any loan made to or by any such person) with Linear or any of the Linear
Subsidiaries which, as the case may be, materially affects, is material to
or will materially affect Linear on a consolidated
basis;
|
|
|
(t)
|
except
as disclosed in the Linear Disclosure Documents, no legal or governmental
proceedings or inquiries are pending to which Linear or any Linear
Subsidiary is a party or to which its property is subject that would
result in the revocation or modification of any material certificate,
authority, permit or license necessary to conduct the business now owned
or operated by Linear and the Linear Subsidiaries which, if the subject of
an unfavourable decision, ruling or finding would have a Material Adverse
Effect on Linear or any Linear Subsidiary and, to the knowledge of Linear,
no such legal or governmental proceedings or inquiries have been
threatened against or are contemplated with respect to Linear or with
respect to its properties;
|
F-23
|
|
(u)
|
except
as disclosed in the Linear Disclosure Documents, there are no actions,
suits, judgments, investigations or proceedings of any kind whatsoever
outstanding, pending or, to the best of Linear’s knowledge, threatened
against or affecting Linear, the Linear Subsidiaries, or their respective
directors, officers or employees, at law or in equity or before or by any
commission, board, bureau or agency of any kind whatsoever and, to the
best of Linear’s knowledge, there is no basis therefor and neither Linear
nor any Linear Subsidiary is subject to any judgment, order, writ,
injunction, decree, award, rule, policy or regulation of any governmental
authority, which, either separately or in the aggregate, may have a
Material Adverse Effect on Linear or any Linear Subsidiary or that would
adversely affect the ability of Linear to perform its obligations under
this Agreement;
|
|
|
(v)
|
none
of Linear nor any of the Linear Subsidiaries is in violation of its
constating documents or, except as disclosed in the Linear Disclosure
Documents, in default of the performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, trust deed, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it or its
property may be bound;
|
|
|
(w)
|
Linear
and each of the Linear Subsidiaries owns or has the right to use under
licence, sub-licence or otherwise all material intellectual property used
by Linear and the Linear Subsidiaries in its business, including
copyrights, industrial designs, trade marks, trade secrets, know how and
proprietary rights, free and clear of any and all
encumbrances;
|
|
|
(x)
|
except
as disclosed in the Linear Disclosure Documents, any and all of the
agreements and other documents and instruments pursuant to which Linear
and the Linear Subsidiaries hold the property and assets thereof
(including any interest in, or right to earn an interest in, any property)
are valid and subsisting agreements, documents or instruments in full
force and effect, enforceable in accordance with the terms thereof,
neither Linear nor any Linear Subsidiary is in default of any of the
material provisions of any such agreements, documents or instruments nor
has any such default been alleged and such properties and assets are in
good standing under the applicable statutes and regulations of the
jurisdictions in which they are situated. All material leases,
licences and other agreements pursuant to which Linear or any Linear
Subsidiary derives the interests thereof in such property and assets are
in good standing and there has been no material default under any such
lease, licence or agreement. None of the properties (or any
interest in, or right to earn an interest in, any property) of Linear or
any Linear Subsidiary is subject to any right of first refusal or purchase
or acquisition right which is not disclosed in the Linear Disclosure
Documents;
|
F-24
|
|
(y)
|
this
Agreement has been duly authorized and executed and delivered by Linear
and constitutes a valid and binding obligation of Linear and is
enforceable against Linear in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting the
rights of creditors generally and except as limited by the application of
equitable principles when equitable remedies are sought, and by the fact
that rights to indemnity, contribution and waiver, and the ability to
sever unenforceable terms, may be limited by applicable
law;
|
|
|
(z)
|
the
authorized capital of Linear consists of an unlimited number of Linear
Shares, of which, as at the close of business on March 29, 2010,
44,222,573 Linear Shares were issued and outstanding as fully paid and
non-assessable shares of Linear;
|
|
|
(aa)
|
other
than as set out in the Linear Disclosure Documents, neither Linear nor any
of the Linear Subsidiaries has made any loans to or guaranteed the
obligations of any person;
|
|
|
(bb)
|
with
respect to those leased premises of Linear or the Linear Subsidiaries
which are material to Linear and the Linear Subsidiaries on a consolidated
basis and which Linear or any of the Linear Subsidiaries occupies as
tenant (the “Linear
Leased Premises”), Linear or such Linear Subsidiary occupies the
Linear Leased Premises and has the exclusive right to occupy and use the
Linear Leased Premises and each of the leases pursuant to which Linear
and/or the Linear Subsidiaries occupies the Linear Leased Premises is in
good standing and in full force and
effect;
|
|
|
(cc)
|
the
assets of Linear and the Linear Subsidiaries and their business and
operations are insured against loss or damage with responsible insurers on
a basis consistent with insurance obtained by reasonably prudent
participants in comparable businesses, and such coverage is in full force
and effect, and Linear has not failed to promptly give any notice of any
material claim thereunder;
|
|
|
(dd)
|
each
of Linear and each of the Linear Subsidiaries is in compliance with all
Laws respecting employment and employment practices, terms and conditions
of employment, pay equity and wages, except where non-compliance with such
Laws could not reasonably be expected to have a Material Adverse Effect on
Linear or any Linear Subsidiary, and has not and is not engaged in any
unfair labour practice;
|
F-25
|
|
(ee)
|
there
has not been in the last two years and there is not currently any labour
disruption, grievance, arbitration proceeding or other conflict which
could reasonably be expected to have a Material Adverse Effect on Linear’s
or any of the Linear Subsidiaries’ business, taken as a whole, and each of
Linear and each of the Linear Subsidiaries is in compliance with all
provisions of all federal, provincial, local and foreign Laws and
regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where non-compliance
with any such provisions would not have a Material Adverse Effect on
Linear or any of the Linear
Subsidiaries;
|
|
|
(ff)
|
no
union has been accredited or otherwise designated to represent any
employees of Linear or any of the Linear Subsidiaries and, to the
knowledge of Linear, no accreditation request or other representation
question is pending with respect to the employees of Linear or any of the
Linear Subsidiaries and no collective agreement or collective bargaining
agreement or modification thereof has expired or is in effect in any of
Linear’s facilities and none is currently being negotiated by Linear or
any Linear Subsidiary;
|
|
|
(gg)
|
the
Linear Disclosure Documents disclose, to the extent required by applicable
Securities Laws, each material plan for retirement, bonus, stock purchase,
profit sharing, stock option, deferred compensation, severance or
termination pay, insurance, medical, hospital, dental, vision care, drug,
sick leave, disability, salary continuation, legal benefits, unemployment
benefits, vacation, incentive or otherwise contributed to, or required to
be contributed to, by Linear for the benefit of any current or former
director, officer, employee or consultant of Linear (the “Linear Employee Plans”),
each of which has been maintained in all material respects with its terms
and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Linear Employee
Plans;
|
|
|
(hh)
|
Linear
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management’s general or specific authorization, and (B) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with Canadian GAAP and to maintain accountability for
assets. Linear has disclosed, based on the most recent
evaluation of its chief executive officer and its chief financial officer
prior to the date hereof, to Linear’s auditors and the audit committee of
Linear’s board of directors (i) any significant deficiencies in the design
or operation of its internal controls over financial reporting that are
reasonably likely to adversely affect Linear’s ability to record, process,
summarize and report financial information and has identified for Linear’s
auditors and Linear’s board of directors any material weaknesses in
internal control over financial reporting and (ii) any fraud, whether or
not material, that involves management or other employees who have a
significant role in Linear’s internal control over financial
reporting;
|
F-26
|
|
(ii)
|
management
of Linear has established and maintained a system of disclosure controls
and procedures designed to provide reasonable assurance that information
required to be disclosed by Linear in its annual filings, interim filings
or other reports filed, furnished or submitted by it under applicable
Securities Law is recorded, processed, summarized and reported within the
time periods specified in such legislation, laws and rules. Such
disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed by Linear in its annual filings, interim filings or other
reports filed, furnished or submitted under applicable Securities Law is
accumulated and communicated to Linear’s management, including its chief
executive officer and chief financial officer (or persons performing
similar functions), as appropriate to allow timely decisions regarding
required disclosure;
|
|
|
(jj)
|
except
as disclosed in the Linear Disclosure Documents, none of the directors,
officers or employees of Linear or any associate or affiliate of any of
the foregoing had or has any material interest, direct or indirect, in any
material transaction or any proposed material transaction with Linear or
its Linear Subsidiaries which materially affects, is material to or will
materially affect Linear or any Linear
Subsidiary;
|
|
|
(kk)
|
the
minute books and records of Linear and the Linear Subsidiaries made
available to Apollo and its counsel in
connection with their due diligence investigation of Linear for the
periods from January 1, 2007 to the date hereof are all of the minute
books and records of Linear and the Linear Subsidiaries and contain copies
of all material proceedings (or certified copies thereof or drafts thereof
pending approval) of the shareholders, the directors and all committees of
directors of Linear and the Linear Subsidiaries to the date of review of
such corporate records and minute books and there have been no other
meetings, resolutions or proceedings of the shareholders, directors or any
committees of the directors of Linear or any of its Linear Subsidiaries to
the date hereof not reflected in such minute books and other
records;
|
|
|
(ll)
|
neither
Linear nor any of its Linear Subsidiaries has been in violation
of, in connection with the ownership, use, maintenance or operation of its
property and assets, including the Linear Leased Premises, any applicable
federal, provincial, state, municipal or local laws, by-laws, regulations,
orders, policies, permits, licences, certificates or approvals having the
force of law, domestic or foreign, relating to environmental, health or
safety matters (collectively the “Environmental Laws”)
which would have a Material Adverse Effect on Linear or any of its Linear
Subsidiaries;
|
F-27
|
(mm)
|
without
limiting the generality of the immediately preceding paragraph, neither
Linear nor any of the Linear Subsidiaries have any knowledge of, and have
not received any notice of, any currently outstanding material claim,
judicial or administrative proceeding, pending or threatened against, or
which may affect, either Linear or any Linear Subsidiary or any of the
property, assets or operations thereof, relating to, or alleging any
violation of any Environmental Laws, Linear is not aware of any facts
which could give rise to any such claim or judicial or administrative
proceeding and to the knowledge of Linear neither Linear, nor any Linear
Subsidiary nor any of the property, assets or operations thereof is the
subject of any investigation, evaluation, audit or review by any
governmental authority to determine whether any violation of any
Environmental Laws has occurred or is occurring or whether any remedial
action is needed in connection with a release of any contaminant into the
environment, except for compliance investigations conducted in the normal
course by any governmental authority, in each case which could reasonably
be expected to have a Material Adverse Effect on Linear or any of its
Linear Subsidiaries;
|
|
|
(nn)
|
there
are no orders, rulings or directives issued, pending or, to the best of
Linear’s knowledge reasonably held, being based on due direction and
enquiry of its personnel and advisors, threatened against Linear or any of
the Linear Subsidiaries under or pursuant to any Environmental Laws
requiring any work, repairs, construction or capital expenditures with
respect to the property or assets of Linear or any of the Linear
Subsidiaries (including the Linear Leased Premises) which would have a
Material Adverse Effect on Linear or any of its Linear
Subsidiaries;
|
|
|
(oo)
|
Linear
and the Linear Subsidiaries are not subject to any contingent or other
liability relating to the restoration or rehabilitation of land, water or
any other part of the environment (except for those derived from normal
exploration activities and those arising under permits, licenses or
approvals from applicable Governmental Authorities) or non-compliance with
Environmental Laws which could reasonably be expected to have a Material
Adverse Effect on Linear or any of the Linear
Subsidiaries;
|
|
|
(pp)
|
all
information which has been prepared by Linear and the Linear Subsidiaries
relating to Linear and the Linear Subsidiaries and the business, property
and liabilities thereof and either publicly disclosed, provided or made
available to Apollo, including all financial, marketing, sales and
operational information provided to Apollo is, as of the date of such
information, true and correct in all material respects, taken as a whole,
and no fact or facts have been omitted therefrom which would make such
information materially misleading;
|
F-28
|
|
(qq)
|
Linear
is not aware of any circumstances presently existing under which liability
is or could reasonably be expected to be incurred under Part XXIII – Civil
Liability for Secondary Market Disclosure of the Securities Act
(Ontario);
|
|
|
(rr)
|
Linear
has not entered into any arrangement whereby Linear will have any
liability for financial advisor’s, broker’s or finder’s fees (including,
without limitation, any disbursements, expenses or fairness opinion) in
respect of the Arrangement, except for Linear’s fees and disbursements to
its financial advisors. Linear has provided to Apollo true and
correct copies of its agreements with each of its financial
advisors;
|
|
|
(ss)
|
Linear
is not in material breach of, and has complied in all material respects
with all of its covenants and other obligations set out in, the Letter of
Intent as of the date of this Agreement;
and
|
|
|
(tt)
|
other
than any Tax payable by Linear resulting from the anticipated deemed
disposition of the outstanding shares of Linear Gold Mexico, S.A. de C.V.
occurring as a result of the completion of the Arrangement, which, to the
knowledge of Linear and based on currently available information, Linear
believes will not result in a material Tax liability or material
withholding Tax obligation in respect of Linear or any Linear Subsidiary,
the transactions contemplated by this Agreement will not cause Apollo
Subco, Linear, any Linear Subsidiary or the Surviving Corporation to incur
any Tax liability or be subject to any withholding Tax obligation with
respect to any Linear Subsidiary in any jurisdiction in which such Linear
Subsidiary is organized, conducts business or owns real
property.
|
|
Section 3.2
|
Representations
and Warranties of Apollo and Apollo
Subco
|
Apollo
and Apollo Subco hereby jointly and severally represent and warrant to and in
favour of Linear and acknowledge that Linear is relying upon such
representations and warranties in connection with entering into this Agreement
and agreeing to complete the Arrangement, as follows:
|
|
(a)
|
each
of Apollo and each of the Apollo Subsidiaries is a corporation duly
incorporated, continued or amalgamated and validly existing under the Laws
of the jurisdiction in which it was incorporated, continued or
amalgamated, as the case may be, has all requisite corporate power and
authority and is duly qualified and holds all necessary material permits,
licences and authorizations necessary or required to carry on its business
as now conducted and to own, lease or operate its properties and assets
and no steps or proceedings have been taken by any person, voluntary or
otherwise, requiring or authorizing its dissolution or winding up, and
each of Apollo and Apollo Subco has all requisite power and authority to
enter into this Agreement and to carry out their respective obligations
hereunder;
|
F-29
|
|
(b)
|
Apollo
has no subsidiaries other than the following (the “Apollo Subsidiaries” and
each an “Apollo
Subsidiary”) and, other than the transactions contemplated by this
Agreement, no investment in any person which, for the financial year ended
December 31, 2009 accounted for or which, for the financial year ending
December 31, 2010 is expected to account for, more than five percent of
the consolidated assets or consolidated revenues of Apollo or would
otherwise be material to the business and affairs of Apollo on a
consolidated basis:
|
|
Apollo Subsidiaries
|
Corporate
Jurisdiction
|
Percentage
Ownership
|
||||
|
Apollo
Gold, Inc.
|
Delaware
|
100 | % | |||
|
Mine
Development Finance, Inc.
|
Delaware
|
100 | % | |||
|
Minera
Sol de ORO S.A. de C.V.
|
Mexico
|
100 | % | |||
|
Minas
de Argonautas S de R.L. de C.V.
|
Mexico
|
100 | % | |||
|
1526735
Alberta ULC
|
Alberta
|
100 | % | |||
|
|
(c)
|
Apollo
owns, directly or indirectly, the percentage of issued and outstanding
shares of each of the Apollo Subsidiaries set out above, all of the issued
and outstanding shares of the Apollo Subsidiaries are issued as fully paid
and non-assessable shares, in each case, other than as disclosed in the
Apollo Disclosure Documents, free and clear of all mortgages, liens,
charges, pledges, security interests, encumbrances,
claims or demands whatsoever
and no person, firm or corporation has any agreement, option, right or
privilege (whether pre-emptive or contractual) capable of becoming an
agreement, for the purchase from Apollo or any of the Apollo Subsidiaries
of any interest in any of the shares in the capital of any of the Apollo
Subsidiaries.
|
|
|
(d)
|
other
than as disclosed in the Apollo Disclosure Documents, each of Apollo and
each of the Apollo Subsidiaries holds all requisite licences,
registrations, qualifications, permits and consents necessary or
appropriate for carrying on its business as currently carried on and all
such licences, registrations, qualifications, permits and consents are
valid and subsisting and in good standing in all material respects except
where the failure to hold such licences, registrations, qualifications,
permits and consents would not have a Material Adverse Effect on Apollo or
any Apollo Subsidiary. In particular, without limiting the
generality of the foregoing, neither Apollo nor any of the Apollo
Subsidiaries has received any notice of proceedings relating to the
revocation or adverse modification of any material mining or exploration
permit or licence, nor have any of them received notice of the revocation
or cancellation of, or any intention to revoke or cancel, any mining
claims, groups of claims, exploration rights, concessions or leases with
respect to any of the resource properties described in the Apollo
Disclosure Documents where such revocation or cancellation would have a
Material Adverse Effect on Apollo or any Apollo
Subsidiary;
|
F-30
|
|
(e)
|
except
as disclosed in the Apollo Disclosure Documents, (A) Apollo and the Apollo
Subsidiaries are the absolute legal and beneficial owners of, and have
good and marketable title to, all of their respective material property or
assets as described in the Apollo Disclosure Documents, and no other
Mining Rights are necessary for the conduct of the business of Apollo or
any Apollo Subsidiary as currently conducted, (B) none of Apollo or any
Apollo Subsidiary knows of any claim or the basis for any claim that might
or could materially and adversely affect the right thereof to use,
transfer or otherwise exploit such Mining Rights, and (C) none of Apollo
or any Apollo Subsidiary has any responsibility or obligation to pay any
material commission, royalty, licence fee or similar payment to any person
with respect to such Mining Rights;
|
|
|
(f)
|
except
as disclosed in the Apollo Disclosure Documents, Apollo and the Apollo
Subsidiaries hold Mining Rights in respect of the ore bodies and minerals
located in properties in which Apollo and the Apollo Subsidiaries have an
interest as described in the Apollo Disclosure Documents under valid,
subsisting and enforceable title documents or other recognized and
enforceable agreements or instruments, sufficient to permit Apollo or the
applicable Apollo Subsidiary to explore the minerals relating thereto; all
property, leases or claims in which Apollo or any Apollo Subsidiary has an
interest or right have been validly located and recorded in accordance in
all material respects with all applicable Laws and are valid and
subsisting except where the failure to be so would not have a Material
Adverse Effect on Apollo or any Apollo Subsidiary; Apollo and the Apollo
Subsidiaries have all necessary surface rights, access rights and other
necessary rights and interests relating to the properties in which Apollo
and the Apollo Subsidiaries have an interest as described in the Apollo
Disclosure Documents granting Apollo or the applicable Apollo Subsidiary
the right and ability to explore for minerals, ore and metals for
development purposes as are appropriate in view of the rights and interest
therein of Apollo or the applicable Apollo Subsidiary, with only such
exceptions as do not interfere with the use made by Apollo or the
applicable Apollo Subsidiary of the rights or interest so held; and each
of the proprietary interests or rights and each of the documents,
agreements and instruments and obligations relating thereto referred to
above is currently in good standing in the name of Apollo or an Apollo
Subsidiary except where the failure to be so would not have a Material
Adverse Effect on Apollo or any Apollo Subsidiary. The Mining Rights in
respect of Apollo’s properties, as disclosed in the Apollo Disclosure
Documents, constitute a description of all material Mining Rights held by
Apollo and the Apollo Subsidiaries;
|
F-31
|
|
(g)
|
Apollo
has made available to the respective authors thereof, prior to the
issuance of the technical reports in respect of each of the Apollo
Material Properties for the purpose of preparing such technical reports,
all information requested, and to the knowledge and belief of Apollo, no
such information contains any material misrepresentation. Except as
disclosed in the Apollo Disclosure Documents, Apollo does not have any
knowledge of a Material Adverse Change in any production, cost, price,
reserves or other relevant information provided since the dates that such
information was so provided;
|
|
|
(h)
|
to
the best of the knowledge of Apollo, except as disclosed in the Apollo
Disclosure Documents, the technical reports in respect of each of the
Apollo Material Properties, as supplemented by the disclosure in respect
of such properties in the Apollo Disclosure Documents, accurately and
completely set forth all material facts relating to the properties that
are subject thereto. Since the date of preparation of each of the
technical reports in respect of each of the Apollo Material Properties,
respectively, except as disclosed in the Apollo Disclosure Documents,
there has been no change of which Apollo is aware that would disaffirm any
aspect of such reports in any material
respect;
|
|
|
(i)
|
Apollo
is a reporting issuer under the Securities Laws of each of the
Reporting Provinces, is not in default of any requirement of such
Securities Laws and Apollo is not
included on a list of defaulting reporting issuers maintained by the
Securities Authorities of such
provinces;
|
|
|
(j)
|
Apollo
is not subject to any cease trade order or other order of any applicable
stock exchange or Securities Authority and, to the knowledge of Apollo, no
investigation or other proceedings involving Apollo which may operate to
prevent or restrict trading of any securities of Apollo are currently in
progress or pending before any applicable stock exchange or Securities
Authority;
|
|
|
(k)
|
the
execution and delivery of this Agreement, the performance by each of
Apollo and Apollo Subco of their respective obligations hereunder and the
consummation of the transactions contemplated in this Agreement, do not
and will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, (whether after
notice or lapse of time or both), (A) any statute, rule or regulation
applicable to Apollo or Apollo Subco including, without limitation,
applicable Securities Laws and the policies, rules and regulations of the
TSX and the AMEX; (B) the constating documents, by-laws or resolutions of
Apollo or Apollo Subco which are in effect at the date hereof; (C) any
mortgage, note, indenture, contract, agreement, joint venture,
partnership, instrument, lease or other document to which either Apollo or
Apollo Subco is a party or by which they are bound; or (D) any judgment,
decree or order binding Apollo, any Apollo Subsidiary, or the property or
assets thereof;
|
F-32
|
|
(l)
|
Apollo
is in compliance in all material respects with its timely and continuous
disclosure obligations under the Securities Laws and the rules and
regulations of the TSX and AMEX and, without limiting the generality of
the foregoing, there has not occurred any Material Adverse Change in
respect of Apollo and the Apollo Subsidiaries (taken as a whole) since
December 31, 2009, which has not been publicly disclosed on a
non-confidential basis and all the statements set forth in the Apollo
Disclosure Documents were true, correct and complete in all material
respects and did not contain any misrepresentation as of the date of such
statements and Apollo has not filed any confidential material change
reports since the date of such statements which remain confidential as at
the date hereof;
|
|
|
(m)
|
except
as disclosed in the Apollo Disclosure Documents, neither Apollo nor any
Apollo Subsidiary has approved, or has entered into any agreement in
respect of, or has any knowledge
of:
|
|
|
(A)
|
the
purchase of any material property or assets or any interest therein or the
sale, transfer or other disposition of any material property or assets or
any interest therein currently owned, directly or indirectly, by Apollo or
any Apollo Subsidiary whether by asset sale, transfer of shares or
otherwise;
|
|
|
(B)
|
the
change in control (by sale, transfer or other disposition of shares or
sale, transfer, lease or other disposition of all or substantially all of
the property and assets of Apollo) of Apollo or any Apollo Subsidiary;
or
|
|
|
(C)
|
a
proposed or planned disposition of shares by any Apollo Shareholder who
owns, directly or indirectly, 10% or more of the outstanding shares of
Apollo or any Apollo Subsidiary;
|
|
|
(n)
|
the
audited consolidated financial statements of Apollo as at and for the year
ended December 31, 2009 (the “Apollo Audited Financial
Statements”) have been prepared in accordance with U.S. GAAP and
present fully, fairly and correctly in all material respects, the
consolidated financial condition of Apollo as at the date thereof and the
results of the operations and the changes in the financial position of
Apollo for the periods then ended and contain and reflect adequate
provisions or allowance for all reasonably anticipated liabilities,
expenses and losses of Apollo and, except as disclosed in the Apollo
Disclosure Documents, there has been no change in accounting policies or
practices of Apollo since December 31,
2009;
|
F-33
|
|
(o)
|
all
Taxes due and payable by Apollo and the Apollo Subsidiaries have been
paid, except where the failure to pay such Taxes would not constitute an
adverse material fact in respect of Apollo or any Apollo Subsidiary or
have a Material Adverse Effect on Apollo or any Apollo
Subsidiary. All Tax returns, declarations, remittances and
filings required to be filed by Apollo and the Apollo Subsidiaries have
been filed with all appropriate governmental authorities and all such
returns, declarations, remittances and filings are complete and accurate
and no material fact or facts have been omitted therefrom which would make
any of them misleading, except where the failure to file such documents
would not constitute an adverse material fact in respect of Apollo or have
a Material Adverse Effect on Apollo or any Apollo
Subsidiary. To the best of the knowledge of Apollo, no
examination of any Tax return of Apollo or any Apollo Subsidiary is
currently in progress and there are no issues or disputes outstanding with
any governmental authority respecting any taxes that have been paid, or
may be payable, by Apollo or any Apollo Subsidiary, in any case, except
where such examinations, issues or disputes would not constitute an
adverse material fact in respect of Apollo or have a Material Adverse
Effect on Apollo or any Apollo
Subsidiary;
|
|
|
(p)
|
Apollo’s
auditors who audited the Apollo Audited Financial Statements and who
provided their audit report thereon are independent public accountants as
required under applicable Securities Laws and there has never been a
reportable event (within the meaning of National Instrument 51-102 Continuous Disclosure
Obligations) between Apollo and Apollo’s auditors or, to the
knowledge of Apollo, any former auditors of
Apollo;
|
|
|
(q)
|
other
than: (i) 11,594,371 Apollo Shares issuable pursuant to outstanding stock
options of Apollo and an additional 85,000 Apollo Shares issuable pursuant
to stock options of Apollo to be granted after public announcement of the
Arrangement; (ii) 104,138,178 Apollo Shares issuable pursuant to
outstanding common share purchase warrants of Apollo; (iii) 1,592,733
Apollo Shares issuable to Duane Duffy, Glenn Duffy, Luke Garvey and James
Ober pursuant to a letter of intent dated February 22, 2010 among Apollo,
Calais Resources, Inc.; (iv) 8,580,000 Apollo Shares issuable pursuant to
convertible debentures; and (v) 2,448,390 Apollo Shares issuable pursuant
to agents’ compensation units, and the foregoing persons, no person, firm
or corporation has or will have at the Effective Date any agreement or
option, or right or privilege (whether pre-emptive or contractual) capable
of becoming an agreement or option, for the purchase of any unissued
shares or securities of Apollo or of any of the Apollo
Subsidiaries;
|
|
|
(r)
|
to
Apollo's knowledge, other than the Apollo Support Agreements, the Lender
Support Agreements and the Lender Lock-Up Agreements, there is no
agreement in force or effect which in any manner affects or will affect
the voting or control of any of the securities of Apollo or of the Apollo
Subsidiaries;
|
F-34
|
|
(s)
|
except
than as set forth in the Apollo Disclosure Documents, none of the officers
or employees of Apollo or of any Apollo Subsidiary, any person who owns,
directly or indirectly, more than 10% of any class of securities of Apollo
or securities of any person exchangeable for more than 10% of any class of
securities of Apollo, or any associate or affiliate of any of the
foregoing, had or has any material interest, direct or indirect, in any
transaction or any proposed transaction (including, without limitation,
any loan made to or by any such person) with Apollo or any of the Apollo
Subsidiaries which, as the case may be, materially affects, is material to
or will materially affect Apollo on a consolidated
basis;
|
|
|
(t)
|
except
as disclosed in the Apollo Disclosure Documents, no legal or governmental
proceedings or inquiries are pending to which Apollo or any Apollo
Subsidiary is a party or to which its property is subject that would
result in the revocation or modification of any material certificate,
authority, permit or license necessary to conduct the business now owned
or operated by Apollo and the Apollo Subsidiaries which, if the subject of
an unfavourable decision, ruling or finding would have a Material Adverse
Effect on Apollo or any Apollo Subsidiary and, to the knowledge of Apollo,
no such legal or governmental proceedings or inquiries have been
threatened against or are contemplated with respect to Apollo or with
respect to its properties;
|
|
|
(u)
|
except
as disclosed in the Apollo Disclosure Documents, there are no actions,
suits, judgments, investigations or proceedings of any kind whatsoever
outstanding, pending or, to the best of Apollo’s knowledge, threatened
against or affecting Apollo, the Apollo Subsidiaries, or their respective
directors, officers or employees, at law or in equity or before or by any
commission, board, bureau or agency of any kind whatsoever and, to the
best of Apollo’s knowledge, there is no basis therefor and neither Apollo
nor any Apollo Subsidiary is subject to any judgment, order, writ,
injunction, decree, award, rule, policy or regulation of any governmental
authority, which, either separately or in the aggregate, may have a
Material Adverse Effect on Apollo or any Apollo Subsidiary or that would
adversely affect the ability of Apollo or Apollo Subco to perform their
respective obligations under this
Agreement;
|
|
|
(v)
|
none
of Apollo nor any of the Apollo Subsidiaries is in violation of its
constating documents or, except as disclosed in the Apollo Disclosure
Documents, in default of the performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, trust deed, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it or its
property may be bound;
|
F-35
|
|
(w)
|
Apollo
or one of the Apollo Subsidiaries owns or has the right to use under
licence, sub-licence or otherwise all material intellectual property used
by Apollo and the Apollo Subsidiaries in its business, including
copyrights, industrial designs, trade marks, trade secrets, know how and
proprietary rights, free and clear of any and all
encumbrances;
|
|
|
(x)
|
except
as disclosed in the Apollo Disclosure Documents, any and all of the
agreements and other documents and instruments pursuant to which Apollo
and the Apollo Subsidiaries hold the property and assets thereof
(including any interest in, or right to earn an interest in, any property)
are valid and subsisting agreements, documents or instruments in full
force and effect, enforceable in accordance with the terms thereof,
neither Apollo nor any Apollo Subsidiary is in default of any of the
material provisions of any such agreements, documents or instruments nor
has any such default been alleged and such properties and assets are in
good standing under the applicable statutes and regulations of the
jurisdictions in which they are situated. All material leases,
licences and other agreements pursuant to which Apollo or any Apollo
Subsidiary derives the interests thereof in such property and assets are
in good standing and there has been no material default under any such
lease, licence or agreement. None of the properties (or any
interest in, or right to earn an interest in, any property) of Apollo or
any Apollo Subsidiary is subject to any right of first refusal or purchase
or acquisition right which is not disclosed in the Apollo Disclosure
Documents;
|
|
|
(y)
|
this
Agreement has been duly authorized and executed and delivered by each of
Apollo and Apollo Subco and constitutes a valid and binding obligation of
each of Apollo and Apollo Subco and is enforceable against each of Apollo
and Apollo Subco in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium and other Laws relating to or affecting the rights of creditors
generally and except as limited by the application of equitable principles
when equitable remedies are sought, and by the fact that rights to
indemnity, contribution and waiver, and the ability to sever unenforceable
terms, may be limited by applicable
Law;
|
|
|
(z)
|
the
authorized capital of Apollo consists of an unlimited number of Apollo
Shares, of which, as at the close of business on March 29, 2010,
337,973,660 Apollo Shares were issued and outstanding as fully paid and
non-assessable shares of Apollo;
|
|
|
(aa)
|
the
authorized capital of Apollo Subco consists of an unlimited number of
common shares (“Subco
Common Shares”) and an unlimited number of preferred shares
issuable in series, of which, as at the close of business on March 29,
2010, one Subco Common Share
and no preferred shares were issued and outstanding as fully paid and
non-assessable shares of Apollo
Subco;
|
F-36
|
|
(bb)
|
the
Apollo Shares to be issued in exchange for Linear Shares pursuant to the
Arrangement will, upon issue, be issued as fully paid and non-assessable
shares in the capital of Apollo and the Apollo Shares issuable upon
exercise of the Apollo Replacement Options and the Apollo Replacement
Warrants will be issued as fully paid and non-assessable shares in the
capital of Apollo on payment of the purchase price
therefor;
|
|
|
(cc)
|
other
than as set out in the Apollo Disclosure Documents, neither Apollo nor any
of the Apollo Subsidiaries has made any loans to or guaranteed the
obligations of any person;
|
|
|
(dd)
|
with
respect to those leased premises of Apollo or the Apollo Subsidiaries
which are material to Apollo and the Apollo Subsidiaries on a consolidated
basis and which Apollo or any of the Apollo Subsidiaries occupies as
tenant (the “Apollo
Leased Premises”), Apollo or such Apollo Subsidiary occupies the
Apollo Leased Premises and has the exclusive right to occupy and use the
Apollo Leased Premises and each of the leases pursuant to which Apollo
and/or the Apollo Subsidiaries occupies the Apollo Leased Premises is in
good standing and in full force and
effect;
|
|
|
(ee)
|
the
assets of Apollo and the Apollo Subsidiaries and their business and
operations are insured against loss or damage with responsible insurers on
a basis consistent with insurance obtained by reasonably prudent
participants in comparable businesses, and such coverage is in full force
and effect, and Apollo has not failed to promptly give any notice of any
material claim thereunder;
|
|
|
(ff)
|
each
of Apollo and each of the Apollo Subsidiaries is in compliance with all
Laws respecting employment and employment practices, terms and conditions
of employment, pay equity and wages, except where non-compliance with such
Laws could not reasonably be expected to have a Material Adverse Effect on
Apollo or any Apollo Subsidiary, and has not and is not engaged in any
unfair labour practice;
|
|
|
(gg)
|
there
has not been in the last two years and there is not currently any labour
disruption, grievance, arbitration proceeding or other conflict which
could reasonably be expected to have a Material Adverse Effect on Apollo’s
or any of the Apollo Subsidiaries’ business, taken as a whole, and Apollo
and each of the Apollo Subsidiaries is in compliance with all provisions
of all federal, provincial, local and foreign Laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except where non-compliance with any such
provisions would not have a Material Adverse Effect on Apollo or any of
the Apollo Subsidiaries;
|
F-37
|
|
(hh)
|
no
union has been accredited or otherwise designated to represent any
employees of Apollo or any of the Apollo Subsidiaries and, to the
knowledge of Apollo, no accreditation request or other representation
question is pending with respect to the employees of Apollo or any of the
Apollo Subsidiaries and no collective agreement or collective bargaining
agreement or modification thereof has expired or is in effect in any of
Apollo’s facilities and none is currently being negotiated by Apollo or
any Apollo Subsidiary;
|
|
|
(ii)
|
the
Apollo Disclosure Documents disclose, to the extent required by applicable
Securities Laws, each material plan for retirement, bonus, stock purchase,
profit sharing, stock option, deferred compensation, severance or
termination pay, insurance, medical, hospital, dental, vision care, drug,
sick leave, disability, salary continuation, legal benefits, unemployment
benefits, vacation, incentive or otherwise contributed to, or required to
be contributed to, by Apollo for the benefit of any current or former
director, officer, employee or consultant of Apollo (the “Apollo Employee Plans”),
each of which has been maintained in all material respects with its terms
and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Apollo Employee
Plans;
|
|
|
(jj)
|
Apollo
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management’s general or specific authorization, and (B) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with U.S. GAAP and to maintain accountability for
assets. Apollo has disclosed, based on the most recent
evaluation of its chief executive officer and its chief financial officer
prior to the date hereof, to Apollo’s auditors and the audit committee of
Apollo’s board of directors (i) any significant deficiencies in the design
or operation of its internal controls over financial reporting that are
reasonably likely to adversely affect Apollo’s ability to record, process,
summarize and report financial information and has identified for Apollo’s
auditors and Apollo’s board of directors any material weaknesses in
internal control over financial reporting and (ii) any fraud, whether or
not material, that involves management or other employees who have a
significant role in Apollo’s internal control over financial
reporting;
|
|
|
(kk)
|
management
of Apollo has established and maintained a system of disclosure controls
and procedures designed to provide reasonable assurance that information
required to be disclosed by Apollo in its annual filings, interim filings
or other reports filed, furnished or submitted by it under applicable
Securities Law is recorded, processed, summarized and reported within the
time periods specified in such legislation, laws and rules. Such
disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed by Apollo in its annual filings, interim filings or other
reports filed, furnished or submitted under applicable Securities Law is
accumulated and communicated to Apollo’s management, including its chief
executive officer and chief financial officer (or persons performing
similar functions), as appropriate to allow timely decisions regarding
required disclosure;
|
F-38
|
|
(ll)
|
following
completion of the Arrangement pursuant to the terms and conditions of this
Agreement and the Plan of Arrangement, Apollo will not be required to
register as an “investment company” pursuant to the 1940
Act;
|
|
(mm)
|
except
as disclosed in the Apollo Disclosure Documents, none of the directors,
officers or employees of Apollo or any associate or affiliate of any of
the foregoing had or has any material interest, direct or indirect, in any
material transaction or any proposed material transaction with Apollo or
its Apollo Subsidiaries which materially affects, is material to or will
materially affect Apollo or any Apollo
Subsidiary;
|
|
|
(nn)
|
the
minute books and records of Apollo and the Apollo Subsidiaries made
available to Linear and its counsel in connection with their due diligence
investigation of Apollo for the periods from January 1, 2007 to the date
hereof are all of the minute books and records of Apollo and the Apollo
Subsidiaries and contain copies of all material proceedings (or certified
copies thereof or drafts thereof pending approval) of the shareholders,
the directors and all committees of directors of Apollo and the Apollo
Subsidiaries to the date of review of such corporate records and minute
books and there have been no other meetings, resolutions or proceedings of
the shareholders, directors or any committees of the directors of Apollo
or any of its Apollo Subsidiaries to the date hereof not reflected in such
minute books and other records;
|
|
|
(oo)
|
neither
Apollo nor any of its Apollo Subsidiaries has been in violation
of, in connection with the ownership, use, maintenance or operation of its
property and assets, including the Apollo Leased Premises, any
Environmental Laws which would have a Material Adverse Effect on Apollo or
any of its Apollo Subsidiaries;
|
|
|
(pp)
|
without
limiting the generality of the immediately preceding paragraph, Apollo and
each of the Apollo Subsidiaries do not have any knowledge of, and have not
received any notice of, any currently outstanding material claim, judicial
or administrative proceeding, pending or threatened against, or which may
affect, either Apollo or any Apollo Subsidiary or any of the property,
assets or operations thereof, relating to, or alleging any violation of
any Environmental Laws, Apollo is not aware of any facts which could give
rise to any such claim or judicial or administrative proceeding and to the
knowledge of Apollo neither Apollo, nor any Apollo Subsidiary nor any of
the property, assets or operations thereof is the subject of any
investigation, evaluation, audit or review by any governmental authority
to determine whether any violation of any Environmental Laws has occurred
or is occurring or whether any remedial action is needed in connection
with a release of any contaminant into the environment, except for
compliance investigations conducted in the normal course by any
governmental authority, in each case which could reasonably be expected to
have a Material Adverse Effect on Apollo or any of its Apollo
Subsidiaries;
|
F-39
|
|
(qq)
|
there
are no orders, rulings or directives issued, pending or, to the best of
Apollo’s knowledge reasonably held, being based on due direction and
enquiry of its personnel and advisors, threatened against Apollo or any of
the Apollo Subsidiaries under or pursuant to any Environmental Laws
requiring any work, repairs, construction or capital expenditures with
respect to the property or assets of Apollo or any of the Apollo
Subsidiaries (including the Apollo Leased Premises) which would have a
Material Adverse Effect on Apollo or any of the Apollo
Subsidiaries;
|
|
|
(rr)
|
Apollo
and the Apollo Subsidiaries are not subject to any contingent or other
liability relating to the restoration or rehabilitation of land, water or
any other part of the environment (except for those derived from normal
exploration, development and mining activities and those arising under
permits, licenses or approvals from applicable Governmental Authorities)
or non-compliance with Environmental Laws which could reasonably be
expected to have a Material Adverse Effect on Apollo or any of the Apollo
Subsidiaries;
|
|
|
(ss)
|
all
information which has been prepared by Apollo and the Apollo Subsidiaries
relating to Apollo and the Apollo Subsidiaries and the business, property
and liabilities thereof and either publicly disclosed, provided or made
available to Linear, including all financial, marketing, sales and
operational information provided to Linear is, as of the date of such
information, true and correct in all material respects, taken as a whole,
and no fact or facts have been omitted therefrom which would make such
information materially misleading;
|
|
|
(tt)
|
Apollo
is not aware of any circumstances presently existing under which liability
is or could reasonably be expected to be incurred under Part XXIII – Civil
Liability for Secondary Market Disclosure of the Securities Act
(Ontario);
|
|
|
(uu)
|
Apollo
has not entered into any arrangement whereby Apollo will have any
liability for financial advisor’s, broker’s or finder’s fees (including,
without limitation, any disbursements, expenses or fairness opinion) in
respect of the Arrangement, except for Apollo’s fees and disbursements to
its financial advisors. Apollo has provided to Linear true and
correct copies of its agreements with each of its financial
advisors;
|
F-40
|
|
(vv)
|
Apollo
is not in material breach of, and has complied in all material respects
with all its covenants and other obligations set out in, the Letter of
Intent as of the date of this Agreement;
and
|
|
(ww)
|
the
transactions contemplated by this Agreement will not cause Apollo, any
Apollo Subsidiary or the Surviving Corporation to incur any Tax liability
or be subject to any withholding Tax obligation with respect to Apollo or
any Apollo Subsidiary in any jurisdiction in which Apollo or such Apollo
Subsidiary is organized, conducts business or owns real
property.
|
|
Section 3.3
|
Survival
of Representations and
Warranties
|
The representations and warranties
contained in this Agreement shall survive the execution and delivery of this
Agreement and shall expire and be terminated and extinguished on the Effective
Date. Any investigation by Apollo or Linear and their respective advisors shall
not mitigate, diminish or affect the representations and warranties contained in
this Agreement.
ARTICLE 4
COVENANTS
|
Section 4.1
|
Covenants
of Linear
|
Subject to Section 6.1 and Section 6.2, Linear hereby covenants and agrees with
Apollo and Apollo Subco as follows:
|
|
(a)
|
as
soon as practicable following the execution of this Agreement, Linear
shall, jointly with Apollo Subco, file, proceed with and diligently
prosecute an application to the Court for the Interim Order on terms and
conditions acceptable to Apollo and Apollo Subco, acting
reasonably;
|
|
|
(b)
|
in
a timely and expeditious manner, Linear
shall:
|
|
|
(i)
|
forthwith
carry out such terms of the Interim Order as are required under the terms
thereof to be carried out by
Linear;
|
|
|
(ii)
|
prepare
with the assistance of Apollo, and file as promptly as reasonably
practicable, the Linear Proxy Circular (which shall be in a form
satisfactory to Apollo, acting reasonably), together with any other
documents required by applicable Laws, in all jurisdictions where the
Linear Proxy Circular is required to be filed and mail the Linear Proxy
Circular, as ordered by the Interim Order and in accordance with all
applicable Laws, including the rules and policies of the TSX, in and to
all jurisdictions where the Linear Proxy Circular is required to be
mailed, complying in all material respects with all applicable Laws,
including the rules and policies of the TSX, on the date of the mailing
thereof and in the form and containing the information required by all
applicable Laws, including all applicable corporate and securities
legislation and requirements and the rules and policies of the TSX, and
not containing any misrepresentation (as defined under applicable
Securities Laws) with respect thereto, other than with respect to any
information relating to and provided by Apollo for which neither Linear
nor its directors or officers assume any responsibility for the accuracy
or completeness of;
|
F-41
|
|
(iii)
|
subject
to the terms of this Agreement: (a) take all commercially reasonable
lawful action to solicit Linear Shareholders to vote in favour of the
Continuance and the Arrangement including, without
limitation, if deemed advisable, retaining a proxy solicitation agent to
solicit Linear Shareholders to vote in favour of the Arrangement (on
condition such agent can be engaged at reasonable expense); (b) recommend
to all holders of Linear Shares that they vote in favour of the
Continuance and the Arrangement and the other transactions contemplated
hereby or thereby; and (c) not withdraw, modify or qualify, or publicly
propose to or publicly state that it intends to withdraw, modify or
qualify in any manner adverse to Apollo such recommendation except as
expressly permitted by Sections 6.1 and 6.2
hereof;
|
|
|
(iv)
|
use
reasonable efforts to deliver or cause to be delivered to Apollo or its
legal counsel all certificates and legal, tax and other opinions necessary
to support the disclosure contained or to be contained in the Linear Proxy
Circular;
|
|
|
(v)
|
convene
the Linear Meeting on such date as provided in the Interim Order or such
later date that may be mutually agreed upon with
Apollo;
|
|
|
(vi)
|
provide
notice to Apollo of the Linear Meeting and allow representatives of Apollo
to attend the Linear Meeting;
|
|
|
(vii)
|
conduct
the Linear Meeting in accordance with the Interim Order, the CBCA, the
by-laws of Linear and as otherwise required by applicable Laws;
and
|
|
|
(viii)
|
take
all such actions as may be required under the CBCA and the ABCA in
connection with the transactions contemplated by this Agreement and the
Plan of Arrangement;
|
|
|
(c)
|
Linear
shall not adjourn, postpone or cancel the Linear Meeting (or propose to do
so), except: (i) if a quorum is not present at the Linear Meeting; (ii) if
required by applicable Laws; or (iii) if required by the Linear
Shareholders;
|
F-42
|
|
(d)
|
in
a timely and expeditious manner, Linear shall prepare (in consultation
with Apollo), and file any mutually agreed (or as otherwise required by
applicable Laws) amendments or supplements to the Linear Proxy Circular
(which amendments or supplements shall be in a form satisfactory to
Apollo, acting reasonably) with respect to the Linear Meeting and mail
such amendments or supplements, as required by the Interim Order and in
accordance with all applicable Laws, in and to all jurisdictions where
such amendments or supplements are required to be mailed, complying in all
material respects with all applicable Laws on the date of the mailing
thereof;
|
|
|
(e)
|
subject
to the approval at the Linear Meeting of the Continuance in accordance
with the CBCA and the Arrangement in accordance with the provisions of the
Interim Order and the approval of the Arrangement at the Apollo Meeting in
accordance with applicable Laws, including the rules and policies of the
TSX and AMEX, Linear shall complete the Continuance and shall, jointly
with Apollo Subco, forthwith file, proceed with and diligently prosecute
an application for the Final Order, which application shall be in a form
and substance satisfactory to the parties hereto, acting
reasonably;
|
|
|
(f)
|
Linear
shall forthwith carry out the terms of the Final Order and, following the
issue of the Final Order and the satisfaction, fulfillment or waiver of
the conditions in favour of Linear, Apollo and Apollo Subco set forth
herein, at a time and on a date to be agreed by Apollo and Linear, file
the Articles of Arrangement with the Registrar in order for the
Arrangement to become effective;
|
|
|
(g)
|
except
for proxies and other non-substantive communications, Linear shall furnish
promptly to Apollo a copy of each notice, report, schedule or other
document or communication delivered, filed or received by Linear in
connection with this Agreement, the Arrangement, the Interim Order or the
Linear Meeting or any other meeting at which all Linear Shareholders are
entitled to attend relating to special business, any filings made under
any applicable Law and any dealings or communications with any
Governmental Authority, Securities Authority or stock exchange in
connection with, or in any way affecting, the transactions contemplated by
this Agreement;
|
|
|
(h)
|
other
than in contemplation of or as required to give effect to the transactions
contemplated by this Agreement, Linear shall, and shall cause the Linear
Subsidiaries to, conduct business only in the usual and ordinary course of
business and consistent with past practice, and Linear shall use all
reasonable commercial efforts to maintain and preserve Linear’s and the
Linear Subsidiaries’ business, assets and advantageous business
relationships, provided that it shall be entitled and authorized to comply
with all pre-emptive rights, first purchase rights or rights of first
refusal that are applicable to its assets and become operative by virtue
of this Agreement or any of the transactions contemplated by this
Agreement;
|
|
|
(i)
|
other
than in contemplation of or as required to give effect to the transactions
contemplated by this Agreement, Linear shall
not:
|
F-43
|
|
(i)
|
except
in connection with an internal reorganization implemented in conjunction
with the Arrangement: (A) amend Linear’s or any Linear Subsidiary’s
constating documents; (B) declare, set aside or pay any dividend or make
any other distribution or payment (whether in cash, shares, or property)
in respect of its outstanding securities; (C) issue or agree to issue any
shares or securities convertible into or exchangeable or exercisable for,
or otherwise evidencing a right to acquire, shares, other than the
issuance of shares pursuant to the exercise of currently outstanding
rights to acquire shares or to employees hired after the date hereof in a
manner consistent with past practice; (D) redeem, purchase or otherwise
acquire any of its outstanding shares or other securities (other than
redemptions required pursuant to its constating documents); (E) split,
combine or reclassify any of its securities; (F) adopt a plan of
liquidation or resolutions providing for its liquidation, dissolution,
merger, consolidation or reorganization; or (G) enter into or modify any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
|
|
|
(ii)
|
except
as previously disclosed in writing to Apollo or expressly publicly
disclosed by Linear in documents filed on SEDAR prior to the date hereof,
without prior consultation with and the consent of Apollo, such consent
not to be unreasonably withheld, directly or indirectly: (A) sell, pledge,
dispose of or encumber any assets other than in the ordinary course of
business for consideration in excess of US$500,000 individually or
US$1,000,000 in the aggregate; (B) expend or commit to expend more than
US$1,000,000 individually or US$2,000,000 in the aggregate with respect to
any capital expenditures prior to the date hereof; (C) expend or commit to
expend any amounts with respect to any operating expenses other than in
the ordinary course of business or pursuant to the Arrangement; (D)
acquire (by merger, amalgamation, consolidation or acquisition of shares
or assets) any corporation, partnership or other business organization or
division thereof which is not a subsidiary or affiliate of such party, or
make any investment therein either by purchase of shares or securities,
contributions of capital or property transfer with an acquisition cost in
excess of US$1,000,000 in the aggregate; (E) acquire any assets with an
acquisition cost in excess of US$1,000,000 in the aggregate; (F) incur any
indebtedness for borrowed money in excess of existing credit facilities,
or any other material liability or obligation or issue any debt securities
or assume, guarantee, endorse or otherwise become responsible for, the
obligations of any other individual or entity, or make any loans or
advances, other than in respect of fees payable to legal, financial and
other advisors in the ordinary course of business or in respect of the
Arrangement; (G) authorize, recommend or propose any release or
relinquishment of any material contract right; (H) waive, abandon,
release, grant or transfer any material assets or rights of value or
modify or change in any material respect any existing material license,
lease, contract or other material document; (I) enter into or terminate
any hedges, swaps or other financial instruments or like transactions; or
(J) authorize or propose any of the foregoing, or enter into or modify any
contract, agreement, commitment or arrangement to do any of the
foregoing;
|
F-44
|
|
(iii)
|
other
than the payments contemplated by Section 2.5, make any payment to any
employee, officer or director outside of its ordinary and usual
compensation for services provided, except to the extent that any such
entitlement to payment to a former employee or officer has accrued prior
to the date hereof and has been disclosed to, and consented to by,
Apollo;
|
|
|
(iv)
|
(A)
grant any officer, director or employee an increase in compensation in any
form; (B) grant any general salary increase; (C) take any action with
respect to the amendment or grant of any severance or termination pay
policies or arrangement for any directors, officers or employees; (D)
amend any stock option plan or trust unit incentive plan or the terms of
any outstanding options or rights thereunder; nor (E) advance any loan to
any officer, director or any other party not at arm's length, other than
as may be agreed to by Linear and
Apollo;
|
|
|
(v)
|
adopt
or amend or make any contribution to any bonus, employee benefit plan,
profit sharing, share or deferred compensation, insurance, incentive
compensation, other compensation or other similar plan, agreement, share
or incentive or purchase plan, fund or arrangement for the benefit of
employees, except as is necessary to comply with the law or with respect
to existing provisions of any such plans, programs, arrangement or
agreements;
|
|
|
(vi)
|
take
any action, refrain from taking any action, permit any action to be taken
or not taken, inconsistent with this Agreement, which might directly or
indirectly interfere or affect the consummation of the Arrangement or that
could reasonably be expected to render, any representation or warranty
made by Linear in this Agreement untrue or inaccurate in any material
respect at any time prior to the Effective Time if then made, or which
would or could have a Material Adverse Effect on
Linear;
|
|
|
(vii)
|
other
than pursuant to obligations or rights under existing contracts,
agreements and commitments (to the extent such rights have been exercised
or initiated by other persons), sell, lease or otherwise dispose of any
property or assets or enter into any agreement or commitment in respect of
any of the foregoing;
|
F-45
|
|
(viii)
|
except
as required by Canadian GAAP, any other generally accepted accounting
principle to which any Linear Subsidiary may be subject or any applicable
Law, make any changes to the existing accounting practices of Linear or
make any material tax election inconsistent with past practice;
or
|
|
|
(ix)
|
permit
or cause any of the Linear Subsidiaries to effect any of the
foregoing;
|
|
|
(j)
|
other
than the payments set out in Section 2.5, without the prior written
consent of Apollo, Linear shall not, and shall cause the Linear
Subsidiaries not to, enter into or modify any employment, consulting,
severance, collective bargaining or similar agreement, policy or
arrangement with, or grant any bonus, salary increase, option to purchase
shares, pension or supplemental pension benefit, profit sharing,
retirement allowance, deferred compensation, incentive compensation,
severance, change of control or termination pay to, or make any loan to,
any officer, director, employee or consultant of Linear or any of the
Linear Subsidiaries;
|
|
|
(k)
|
Linear
shall use its commercially reasonable best efforts, and shall cause the
Linear Subsidiaries to use their commercially reasonable best efforts, to
cause their respective current insurance (or reinsurance) policies not to
be cancelled or terminated or any of the coverage thereunder to lapse,
unless simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and re-insurance companies
of internationally recognized standing providing coverage equal to or
greater than the coverage under the cancelled, terminated or lapsed
policies for substantially similar premiums are in full force and
effect;
|
|
|
(l)
|
Linear
shall promptly notify Apollo in writing of (i) any significant development
or material change relating to Linear’s business, operations, assets or
prospects promptly after becoming aware of any such development or change;
or (ii) any event or state of facts of which the occurrence or failure
would, or would reasonably be likely to: (A) cause any of the
representations or warranties of Linear contained in this Agreement to be
untrue or inaccurate in any material respect on the date of this Agreement
or at the Effective Date (provided that this subsection 4.1(l) shall not
apply in the case of an event or state of facts resulting from actions or
omissions of Linear which are permitted or required by this Agreement); or
(B) result in the failure to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by Linear prior to
the Effective Date. Linear shall use commercially reasonable
best efforts to confer with and obtain Apollo’s approval (not to be
unreasonably withheld or delayed), prior to taking action (other than in
emergency situations) with respect to any operational matters involved in
Linear’s business which may constitute a material change for
Linear;
|
F-46
|
|
(m)
|
Linear
shall not, and shall cause the Linear Subsidiaries not to, settle or
compromise any claim brought by any present, former or purported holder of
any securities of Linear in connection with the transactions contemplated
by this Agreement prior to the Effective Time without the prior written
consent of Apollo;
|
|
|
(n)
|
Linear
shall not, and shall cause the Linear Subsidiaries not to, enter into,
renew or modify in any respect any material contract, agreement, lease,
commitment or arrangement to which Linear or any of the Linear
Subsidiaries is a party or by which any of them is bound, except insofar
as may be necessary to permit or provide for the completion of the
Arrangement;
|
|
|
(o)
|
Linear
shall use all commercially reasonable best efforts to satisfy, or cause to
be satisfied, all conditions precedent to its obligations to the extent
that the same is within its control and to take, or cause to be taken, all
other action and to do, or cause to be done, all other things necessary,
proper or advisable under all applicable Laws to complete the transactions
contemplated by this Agreement, including using its commercially
reasonable best efforts to:
|
|
|
(i)
|
obtain
the approval of Linear Shareholders for the Continuance and the
Arrangement in accordance with the provisions of the CBCA, the Interim
Order, and the requirements of any applicable regulatory
authority;
|
|
|
(ii)
|
obtain
all other consents, approvals and authorizations as are required to be
obtained by Linear or any of the Linear Subsidiaries under any applicable
Law or from any Governmental Authority which would, if not obtained,
materially impede the completion of the transactions contemplated by this
Agreement or have a Material Adverse Effect on
Linear;
|
|
|
(iii)
|
effect
all necessary registrations, filings and submissions of information
requested by Governmental Authorities required to be effected by it in
connection with the transactions contemplated by this Agreement and
participate and appear in any proceedings of any party hereto before any
Governmental Authority;
|
|
|
(iv)
|
oppose,
lift or rescind any injunction or restraining order or other order or
action challenging or affecting this Agreement, the transactions
contemplated hereby or seeking to stop, or otherwise adversely affecting
the ability of the parties hereto to consummate, the transactions
contemplated hereby;
|
|
|
(v)
|
fulfill
all conditions and satisfy all provisions of this Agreement and the Plan
of Arrangement required to be fulfilled or satisfied by Linear;
and
|
F-47
|
|
(vi)
|
cooperate
with Apollo and Apollo Subco in connection with the performance by each of
them of their respective obligations hereunder, provided however that the
foregoing shall not be construed to obligate Linear to pay or cause to be
paid any monies to cause such performance to
occur;
|
|
|
(p)
|
Linear
shall make, or cooperate as necessary in the making of, all necessary
filings and applications under all applicable Laws required in connection
with the transactions contemplated hereby and take all reasonable action
necessary to be in compliance with such
Laws;
|
|
|
(q)
|
Linear
shall use its commercially reasonable best efforts to conduct its affairs
and to cause the Linear Subsidiaries to conduct their affairs so that all
of the representations and warranties of Linear contained herein shall be
true and correct on and as of the Effective Date as if made on and as of
such date;
|
|
|
(r)
|
Linear
shall continue to make available and cause to be made available to Apollo,
the Lenders and the agents and advisors thereto all documents, agreements,
corporate records and minute books as may be necessary to enable Apollo to
effect a thorough examination of Linear and the Linear Subsidiaries and
the business, properties and financial status thereof and shall cooperate
with Apollo in securing access for Apollo to any documents, agreements,
corporate records or minute books not in the possession or under the
control of Linear. Subject to applicable Laws, upon reasonable notice,
Linear shall, and shall cause the Linear Subsidiaries to, afford officers,
employees, counsel, accountants and other authorized representatives and
advisors of Apollo and the Lenders reasonable access, during normal
business hours from the date hereof until the earlier of the Effective
Time or the termination of this Agreement, to the properties, books,
contracts and records as well as to the management personnel of Linear and
the Linear Subsidiaries, and, during such period, Linear shall, and shall
cause the Linear Subsidiaries to, furnish promptly to Apollo all
information concerning the business, properties and personnel of Linear
and the Linear Subsidiaries as Apollo may reasonably
request;
|
|
|
(s)
|
Linear
shall deliver title opinions with respect to each of the Linear Material
Properties; and
|
|
|
(t)
|
Linear
shall execute and deliver, or cause to be executed and delivered, at the
closing of the transactions contemplated hereby such customary agreements,
certificates, resolutions, opinions and other closing documents as may be
required by the other parties hereto, all in form satisfactory to the
other parties hereto, acting
reasonably.
|
F-48
|
Section 4.2
|
Covenants
of Apollo and Apollo Subco
|
Subject to Section 6.1 and Section 6.2, each of Apollo and Apollo Subco hereby
covenants and agrees with Linear as follows:
|
|
(a)
|
as
soon as practicable following the execution of this Agreement, Apollo
Subco shall, jointly with Linear, file, proceed with and diligently
prosecute an application to the Court for the Interim Order on terms and
conditions acceptable to Linear, acting
reasonably;
|
|
|
(b)
|
in
a timely and expeditious manner, Apollo and Apollo Subco shall take all
such actions and do all such acts and things as are specified in the
Interim Order, the Plan of Arrangement (including issuing the Apollo
Shares, the Apollo Replacement Options and the Apollo Replacement Warrants
as contemplated in the Plan of Arrangement) and the Final Order to be
taken or done by Apollo and Apollo Subco, as
applicable;
|
|
|
(c)
|
in
a timely and expeditious manner, Apollo and Apollo Subco
shall:
|
|
|
(i)
|
forthwith
carry out such terms of the Interim Order as are required under the terms
thereof to be carried out by Apollo and Apollo
Subco;
|
|
|
(ii)
|
subject
to the terms of this Agreement: (a) take all commercially reasonable
lawful action to solicit Apollo Shareholders to vote in favour of the
Arrangement including, without
limitation, if deemed advisable, retaining a proxy solicitation agent to
solicit Apollo Shareholders to vote in favour of the Arrangement (on
condition such agent can be engaged at reasonable expense); (b) recommend
to all holders of Apollo Shares that they vote in favour of the
Arrangement and the other transactions contemplated hereby or thereby; and
(c) not withdraw, modify or qualify, or publicly propose to or publicly
state that it intends to withdraw, modify or qualify in any manner adverse
to Linear such recommendation except as expressly permitted by Sections
6.1 and 6.2 hereof;
|
|
|
(iii)
|
use
reasonable efforts to deliver or cause to be delivered to Linear or its
legal counsel all certificates and legal, tax and other opinions necessary
to support the disclosure contained or to be contained in the Apollo Proxy
Circular;
|
F-49
|
|
(iv)
|
prepare
with the assistance of Linear, and file, as promptly as reasonably
practicable (after resolution of any SEC comments thereon), the Apollo
Proxy Circular (which shall be in a form satisfactory to Linear, acting
reasonably), together with any other documents required by applicable
Laws, in all jurisdictions where the Apollo Proxy Circular is required to
be filed and mail the Apollo Proxy Circular, in accordance with all
applicable Laws, including the rules and policies of the TSX and AMEX, in
and to all jurisdictions where the Apollo Proxy Circular is required to be
mailed, complying in all material respects with all applicable Laws,
including the rules and policies of the TSX and AMEX, on the date of the
mailing thereof and in the form and containing the information required by
all applicable Laws, including all applicable corporate and securities
legislation and requirements and the rules and policies of the TSX and
AMEX, and not containing any misrepresentation (as defined under
applicable Securities Laws) with respect thereto, other than with respect
to any information relating to and provided by Linear for which none of
Apollo, Apollo Subco nor their respective directors or officers assume any
responsibility for the accuracy or completeness
of;
|
|
|
(v)
|
use
reasonable efforts to file a registration statement with the United States
Securities and Exchange Commission prior to the Linear Meeting,
registering under the 1933 Act the Apollo Shares issuable upon exercise of
the Apollo Replacement Warrants and Apollo Replacement Options (but only
with respect to those Apollo Replacement Options that are not eligible for
registration on Apollo’s registration statement on Form S-8 filed with the
SEC on October 16, 2009) to be issued pursuant to this Agreement and the
Arrangement and to use reasonable efforts to bring such registration
statement effective prior to the Effective Date of the Arrangement (it
being understood that Apollo may satisfy this requirement by maintaining
the effectiveness of its currently effective shelf registration statement
on Form S-3 filed with the SEC on April 24, 2008 (the “Shelf Registration
Statement”) and using reasonable efforts to file a supplement
thereto pursuant to Rule 424 of the 1933 Act registering the issuance of
common shares of Apollo upon exercise of the Apollo Replacement Warrants
and Apollo Replacement Options (but only with respect to those Apollo
Replacement Options that are not eligible for registration on Apollo’s
registration statement on Form S-8 filed with the SEC on October 16, 2009)
prior to the Effective Date of the Arrangement (the “Shelf Registration Statement
Supplement”);
|
|
|
(vi)
|
convene
the Apollo Meeting on the date specified for the Linear Meeting as
provided in the Interim Order or such later date that may be mutually
agreed upon with Linear;
|
|
|
(vii)
|
provide
notice to Linear of the Apollo Meeting and allow representatives of Linear
to attend the Apollo Meeting;
|
|
|
(viii)
|
conduct
the Apollo Meeting in accordance with the YBCA, the by-laws of Apollo and
as otherwise required by applicable Laws, including the rules and policies
of the TSX and AMEX; and
|
F-50
|
|
(ix)
|
take
all such actions as may be required under the YBCA and pursuant to the
rules and policies of the TSX and AMEX in connection with the transactions
contemplated by this Agreement and the Plan of
Arrangement;
|
|
|
(d)
|
in
its capacity as sole shareholder of Apollo Subco, Apollo shall take all
necessary action to approve the amalgamation of Apollo Subco and Linear
and to otherwise approve the
Arrangement.
|
|
|
(e)
|
Apollo
shall not adjourn, postpone or cancel the Apollo Meeting (or propose to do
so), except: (i) if a quorum is not present at the Apollo Meeting; (ii) if
required by applicable Laws; or (iii) if required by the Apollo
Shareholders;
|
|
|
(f)
|
in
a timely and expeditious manner, Apollo and Apollo Subco shall prepare (in
consultation with Linear), and file any mutually agreed (or as otherwise
required by applicable Laws) amendments or supplements to the Apollo Proxy
Circular (which amendments or supplements shall be in a form satisfactory
to Linear, acting reasonably) with respect to the Apollo Meeting and mail
such amendments or supplements, and in accordance with all applicable
Laws, including the rules and policies of the TSX and AMEX, in and to all
jurisdictions where such amendments or supplements are required to be
mailed, complying in all material respects with all applicable Laws on the
date of the mailing thereof;
|
|
|
(g)
|
subject
to the approval of the Continuance and, in accordance with the provisions
of the Interim Order, the Arrangement at the Linear Meeting and the
approval of the Arrangement at the Apollo Meeting in accordance with
applicable Laws, including the rules and policies of the TSX and AMEX,
Apollo Subco shall, jointly with Linear, forthwith file, proceed with and
diligently prosecute an application for the Final Order, which application
shall be in a form and substance satisfactory to the parties hereto,
acting reasonably;
|
|
|
(h)
|
except
for proxies and other non-substantive communications, Apollo and Apollo
Subco shall furnish promptly to Linear a copy of each notice, report,
schedule or other document or communication delivered, filed or received
by Apollo or Apollo Subco in connection with the Arrangement or the
Interim Order, any filing under any applicable Law and any dealings or
communications with any Governmental Authority, Securities Authority or
stock exchange in connection with, or in any way affecting, the
transactions contemplated by this
Agreement;
|
|
|
(i)
|
other
than in contemplation of or as required to give effect to the transactions
contemplated by this Agreement, Apollo shall, and shall cause the Apollo
Subsidiaries to, conduct business only in the usual and ordinary course of
business and consistent with past practice, and Apollo shall use all
reasonable commercial efforts to maintain and preserve Apollo’s and the
Apollo Subsidiaries’ business, assets and advantageous business
relationships, provided that it shall be entitled and authorized to comply
with all pre-emptive rights, first purchase rights or rights of first
refusal that are applicable to its assets and become operative by virtue
of this Agreement or any of the transactions contemplated by this
Agreement;
|
F-51
|
|
(j)
|
other
than in contemplation of or as required to give effect to the transactions
contemplated by this Agreement, Apollo shall
not:
|
|
|
(i)
|
except
in connection with an internal reorganization implemented in conjunction
with the Arrangement: (A) amend Apollo’s or any Apollo Subsidiary’s
constating documents; (B) declare, set aside or pay any dividend or make
any other distribution or payment (whether in cash, shares, or property)
in respect of its outstanding securities; (C) issue or agree to issue any
shares or securities convertible into or exchangeable or exercisable for,
or otherwise evidencing a right to acquire, shares, other than the
issuance of shares pursuant to the exercise of currently outstanding
rights to acquire shares or to employees hired after the date hereof in a
manner consistent with past practice and other than in connection with the
Duffy Issuance; (D) redeem, purchase or otherwise acquire any of its
outstanding shares or other securities (other than redemptions required
pursuant to its constating documents); (E) split, combine or reclassify
any of its securities; (F) adopt a plan of liquidation or resolutions
providing for its liquidation, dissolution, merger, consolidation or
reorganization; or (G) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the
foregoing;
|
|
|
(ii)
|
except
as previously disclosed in writing to Linear or expressly publicly
disclosed by Apollo in documents filed on SEDAR or EDGAR prior to the date
hereof, without prior consultation with and the consent of Linear, such
consent not to be unreasonably withheld, directly or indirectly: (A) sell,
pledge, dispose of or encumber any assets other than in the ordinary
course of business for consideration in excess of US$500,000 individually
or US$1,000,000 in the aggregate; (B) expend or commit to expend more than
US$1,000,000 individually or US$2,000,000 in the aggregate with respect to
any capital expenditures prior to the date hereof; (C) expend or commit to
expend any amounts with respect to any operating expenses other than in
the ordinary course of business or pursuant to the Arrangement; (D)
acquire (by merger, amalgamation, consolidation or acquisition of shares
or assets) any corporation, partnership or other business organization or
division thereof which is not a subsidiary or affiliate of such party, or
make any investment therein either by purchase of shares or securities,
contributions of capital or property transfer with an acquisition cost in
excess of US$1,000,000 in the aggregate; (E) acquire any assets with an
acquisition cost in excess of US$1,000,000 in the aggregate; (F) incur any
indebtedness for borrowed money in excess of existing credit facilities,
or any other material liability or obligation or issue any debt securities
or assume, guarantee, endorse or otherwise become responsible for, the
obligations of any other individual or entity, or make any loans or
advances, other than in respect of fees payable to legal, financial and
other advisors in the ordinary course of business or in respect of the
Arrangement; (G) authorize, recommend or propose any release or
relinquishment of any material contract right; (H) waive, abandon,
release, grant or transfer any material assets or rights of value or
modify or change in any material respect any existing material license,
lease, contract or other material document; (I) enter into or terminate
any hedges, swaps or other financial instruments or like transactions,
other than the termination of certain existing hedges as contemplated in
the Lender Consent Letter or a restructuring of such hedges with the
consent of Linear; or (J) authorize or propose any of the foregoing, or
enter into or modify any contract, agreement, commitment or arrangement to
do any of the foregoing;
|
F-52
|
|
(iii)
|
make
any payment to any employee, officer or director outside of its ordinary
and usual compensation for services provided, except to the extent that
any such entitlement to payment to a former employee or officer has
accrued prior to the date hereof and has been disclosed in writing to, and
consented to by, Linear;
|
|
|
(iv)
|
(A)
grant any officer, director or employee an increase in compensation in any
form; (B) grant any general salary increase; (C) take any action with
respect to the amendment or grant of any severance or termination pay
policies or arrangement for any directors, officers or employees; (D)
amend any stock option plan or trust unit incentive plan or the terms of
any outstanding options or rights thereunder; nor (E) advance any loan to
any officer, director or any other party not at arm's length, other than
as may be agreed to by Linear and
Apollo;
|
|
|
(v)
|
adopt
or amend or make any contribution to any bonus, employee benefit plan,
profit sharing, share or deferred compensation, insurance, incentive
compensation, other compensation or other similar plan, agreement, share
or incentive or purchase plan, fund or arrangement for the benefit of
employees, except as is necessary to comply with the law or with respect
to existing provisions of any such plans, programs, arrangement or
agreements;
|
|
|
(vi)
|
take
any action, refrain from taking any action, permit any action to be taken
or not taken, inconsistent with this Agreement, which might directly or
indirectly interfere or affect the consummation of the Arrangement or that
could reasonably be expected to render, any representation or warranty
made by Apollo in this Agreement untrue or inaccurate in any material
respect at any time prior to the Effective Time if then made, or which
would or could have a Material Adverse Effect on
Apollo;
|
F-53
|
|
(vii)
|
other
than pursuant to obligations or rights under existing contracts,
agreements and commitments (to the extent such rights have been exercised
or initiated by other persons), sell, lease or otherwise dispose of any
property or assets or enter into any agreement or commitment in respect of
any of the foregoing;
|
|
|
(viii)
|
except
as required by U.S. GAAP, any other generally accepted accounting
principle to which any Apollo Subsidiary may be subject or any applicable
Law, make any changes to the existing accounting practices of Apollo or
make any material tax election inconsistent with past practice;
and
|
|
|
(ix)
|
permit
or cause any of the Apollo Subsidiaries to effect any of the
foregoing;
|
|
|
(k)
|
without
the prior written consent of Linear and other than as contemplated in
Section 2.5, Apollo shall not, and shall cause the Apollo Subsidiaries not
to, enter into or modify any employment, consulting, severance, collective
bargaining or similar agreement, policy or arrangement with, or grant any
bonus, salary increase, option to purchase shares, pension or supplemental
pension benefit, profit sharing, retirement allowance, deferred
compensation, incentive compensation, severance, change of control or
termination pay to, or make any loan to, any officer, director, employee
or consultant of Apollo or any of the Apollo
Subsidiaries;
|
|
|
(l)
|
Apollo
shall promptly notify Linear in writing of (A) any significant development
or material change relating to Apollo’s business, operations, assets or
prospects promptly after becoming aware of any such development or change;
or (B) any event or state of facts of which the occurrence or failure
would, or would reasonably be likely to: (i) cause any of the
representations or warranties of Apollo or Apollo Subco contained in this
Agreement to be untrue or inaccurate in any material respect on the date
of this Agreement or at the Effective Date (provided that this subsection
4.2(k) shall not apply in the case of an event or state of facts resulting
from actions or omissions of Apollo or Apollo Subco which are permitted or
required by this Agreement); or (ii) result in the failure to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by Apollo or Apollo Subco prior to the Effective
Date. Each of Apollo and Apollo Subco shall use commercially
reasonable best efforts to confer with and obtain Linear’s approval (not
to be unreasonably withheld or delayed), prior to taking action (other
than in emergency situations) with respect to any operational matters
involved in Apollo’s or Apollo Subco’s business which may constitute a
material change for Apollo;
|
F-54
|
|
(m)
|
Apollo
shall not, and shall cause the Apollo Subsidiaries not to, settle or
compromise any claim brought by any present, former or purported holder of
any securities of Apollo in connection with the transactions contemplated
by this Agreement prior to the Effective Time without the prior written
consent of Linear;
|
|
|
(n)
|
Apollo
shall not, and shall cause the Apollo Subsidiaries not to, enter into,
renew or modify in any respect any material contract, agreement, lease,
commitment or arrangement to which Apollo or any of the Apollo
Subsidiaries is a party or by which any of them is bound, except insofar
as may be necessary to permit or provide for the completion of the
Arrangement;
|
|
|
(o)
|
Apollo
and Apollo Subco shall use all commercially reasonable best efforts to
satisfy, or cause to be satisfied, all of the conditions precedent to
their obligations to the extent the same is within their control and to
take, or cause to be taken, all other actions and to do, or cause to be
done, all other things necessary, proper or advisable under all applicable
Laws to complete the transactions contemplated by this Agreement,
including using their commercially reasonable best efforts
to:
|
|
|
(i)
|
obtain
the approval of the Apollo Shareholders for the Arrangement in accordance
with the provisions of the YBCA, the rules and policies of the TSX and
AMEX and any other applicable regulatory
authority;
|
|
|
(ii)
|
obtain
all consents, approvals and authorizations as are required to be obtained
by Apollo or any of the Apollo Subsidiaries under any applicable Law or
from any Governmental Authority which would, if not obtained, materially
impede the completion of the transactions contemplated hereby or have a
Material Adverse Effect on Apollo;
|
|
|
(iii)
|
effect
all necessary registrations, filings and submissions of information
requested by Governmental Authorities required to be effected by them in
connection with the transactions contemplated by this Agreement and
participate, and appear in any proceedings of, any party hereto before any
Governmental Authority;
|
|
|
(iv)
|
oppose,
lift or rescind any injunction or restraining order or other order or
action challenging or affecting this Agreement, the transactions
contemplated hereby or seeking to stop, or otherwise adversely affecting
the ability of the parties hereto to consummate, the transactions
contemplated hereby;
|
|
|
(v)
|
fulfill
all conditions and satisfy all provisions of this Agreement and the Plan
of Arrangement required to be fulfilled or satisfied by them;
and
|
|
|
(vi)
|
cooperate
with Linear in connection with the performance by Linear of its
obligations hereunder, provided however that the foregoing shall not be
construed to obligate Apollo to pay or cause to be paid any monies to
cause such performance to occur;
|
F-55
|
|
(p)
|
Apollo
and Apollo Subco shall make, or cooperate as necessary in the making of,
all necessary filings and applications under all applicable Laws required
in connection with the transactions contemplated hereby and take all
reasonable action necessary to be in compliance with such
Laws;
|
|
|
(q)
|
Apollo
and Apollo Subco shall use commercially reasonable best efforts to conduct
their affairs and to cause the Apollo Subsidiaries to conduct their
affairs so that all of the representations and warranties of Apollo and
Apollo Subco contained herein shall be true and correct on and as of the
Effective Date as if made on and as of such
date;
|
|
|
(r)
|
Apollo
shall continue to make available and cause to be made available to Linear
and the agents and advisors thereto all documents, agreements, corporate
records and minute books as may be necessary to enable Linear to effect a
thorough examination of Apollo and the Apollo Subsidiaries and the
business, properties and financial status thereof and shall cooperate with
Linear in securing access for Linear to any documents, agreements,
corporate records or minute books not in the possession or under the
control of Apollo. Subject to applicable Laws, upon reasonable notice,
Apollo shall, and shall cause the Apollo Subsidiaries to, afford officers,
employees, counsel, accountants and other authorized representatives and
advisors of Linear reasonable access, during normal business hours from
the date hereof until the earlier of the Effective Time or the termination
of this Agreement, to the properties, books, contracts and records as well
as to the management personnel of Apollo and the Apollo Subsidiaries, and,
during such period, Apollo shall, and shall cause the Apollo Subsidiaries
to, furnish promptly to Linear all information concerning the business,
properties and personnel of Apollo and the Apollo Subsidiaries as Linear
may reasonably request;
|
|
|
(s)
|
Apollo
shall deliver title opinions with respect to each of the Apollo Material
Properties;
|
|
|
(t)
|
immediately
following the Effective Time, Apollo shall file articles of amendment with
the Registrar under the YBCA to change the name of Apollo to a name to be
mutually agreed to by Apollo and Linear;
and
|
|
|
(u)
|
Apollo
and Apollo Subco shall execute and deliver, or cause to be executed and
delivered at the closing of the transactions contemplated hereby such
customary agreements, certificates, opinions, resolutions and other
closing documents as may be required by Linear, all in form satisfactory
to Linear, acting reasonably.
|
F-56
|
Section 4.3
|
Linear
Options
|
|
(a)
|
In
accordance with the terms of the Plan of Arrangement, each Linear Option
outstanding immediately prior to the Effective Time shall be exchanged for
an Apollo Replacement Option issued under the Apollo Stock Option Plan
which shall be exercisable to acquire, on the terms and conditions set
forth in the Apollo Stock Option Plan, provided that the rights of the
holders under the Apollo Replacement Options shall not (as mutually agreed
to by Apollo and Linear, each acting reasonably) materially adversely
differ from the rights of the holders of such Linear Options outstanding
immediately prior to the Effective Time (and provided further that the
current employees of Linear holding Linear Options whose employment is
terminated in connection with the Arrangement shall have their Linear
Options exchanged for Apollo Replacement Options which shall expire on the
earlier of: (i) the current expiry date of the corresponding Linear
Options; and (ii) the first anniversary of the date of completion of the
Arrangement), the number of Apollo Shares (rounded to the nearest whole
number) equal to the product of: (A) the number of Linear Shares subject
to such Linear Option immediately prior to the Effective Time and (B)
5.4742. The exercise price per Apollo Share subject to any such Apollo
Replacement Option shall be an amount (rounded to the nearest cent) equal
to the quotient of: (A) the exercise price per Linear Share subject to
such Linear Option immediately prior to the Effective Time divided by (B)
5.4742. The obligations of Linear under the Linear Options as
so exchanged shall be assumed by
Apollo.
|
|
(b)
|
Apollo
shall take all corporate action necessary to reserve for issuance a
sufficient number of Apollo Shares for delivery upon the exercise of the
Apollo Replacement Options including, without limitation, seeking and
obtaining the approval of the Apollo Shareholders at the Apollo Meeting in
respect of any amendments to the Apollo Stock Option Plan necessary in
order for Apollo to comply with its obligations under the Apollo
Replacement Options.
|
|
Section 4.4
|
Linear
Warrants
|
In accordance with the terms of the
Plan of Arrangement, each Linear Warrant outstanding immediately prior to the
Effective Time shall be exchanged for an Apollo Replacement Warrant which shall
be exercisable to acquire, on the same terms and conditions as were applicable
to such Linear Warrant immediately prior to the Effective Time, the number of
Apollo Shares (rounded to the nearest whole number) equal to the product of: (A)
the number of Linear Shares subject to such Linear Warrant immediately prior to
the Effective Time; and (B) 5.4742. The exercise price per Apollo
Share subject to any such Apollo Replacement Warrants shall be an amount
(rounded to the nearest cent) equal to the quotient of: (A) the exercise price
per Linear Share subject to the such Linear Warrant immediately prior to the
Effective Time divided by (B) 5.4742. The obligations of Linear under
the Linear Warrants as so exchanged shall be assumed by Apollo and Apollo agrees
to use commercially reasonable best efforts to arrange for the Apollo
Replacement Warrants issued upon exchange of the Linear Listed Warrants to be
listed on the TSX and to maintain such listing until 5:00 p.m. (Halifax time) on
November 19, 2014.
F-57
|
Section 4.5
|
Apollo
Options
|
Subject
to the approval of the TSX and, if applicable, AMEX, immediately prior to the
Effective Date:
|
(a)
|
the
terms of the Apollo Options held by the Resigning Directors shall be
amended to provide that such Apollo Options shall expire on the earlier
of: (i) the current expiry date of such Apollo Options; and (ii) the first
anniversary of the Effective Date regardless of whether such Resigning
Directors are “eligible persons” under the terms of the Apollo Stock
Option Plan or applicable TSX rules;
and
|
|
(b)
|
an
aggregate of 2,231,000 Apollo Options previously granted to R. David
Russell and outstanding on the date hereof will remain in effect for a
period of one year following the Effective
Date.
|
|
Section 4.6
|
Indemnification
and Insurance
|
|
|
(a)
|
Apollo
hereby covenants and agrees that all rights to indemnification or
exculpation in favour of the current and former directors and officers of
Linear and the Linear Subsidiaries provided in the articles or by-laws of
Linear or any Linear Subsidiary, or in any indemnity agreements entered
into between Linear and such directors and officers shall survive the
completion of the Arrangement and shall be binding upon Apollo and
continue in full force and effect and Apollo undertakes to ensure that
this covenant shall remain binding upon its successors and
assigns.
|
|
|
(b)
|
Apollo
hereby covenants that prior to the Effective Date, Apollo shall purchase
and maintain director and officer liability “run-off” insurance for the
benefit of the former directors and officers of Linear and Apollo for a
period of not less than six (6) years following the Effective Date with
coverage of not less than $10,000,000 with respect to claims arising from
facts or events that occurred on or before the Effective Date, including
with respect to the Arrangement. Such insurance shall be at all
times no less favourable than any insurance coverage Apollo purchases and
maintains for the benefit of its then current directors and officers from
time to time and Apollo covenants and agrees to maintain such insurance in
full force and effect and not to take any action to diminish the scope and
extent of such insurance coverage for and throughout such
period. Apollo undertakes to ensure that this covenant shall
remain binding upon its successors and
assigns.
|
|
|
(c)
|
Linear
shall act as agent and trustee of the benefits of the foregoing
subsections 4.6(a) and 4.6(b) for its directors and officers and those of
the Linear Subsidiaries for the purpose of this Section
4.6.
|
|
|
(d)
|
This
Section 4.6 shall survive the execution and delivery of this Agreement and
the completion of the Arrangement and shall be enforceable against Apollo
by the persons described in subsections 4.6(a) and 4.6(b)
hereof.
|
F-58
ARTICLE 5
CONDITIONS
|
Section 5.1
|
Mutual
Conditions
|
The respective obligations of Linear, Apollo and Apollo Subco to complete the
transactions contemplated herein are subject to the fulfillment of the following
conditions at or before the Effective Time or such other time as is specified
below:
|
|
(a)
|
the
Interim Order shall have been granted in form and substance satisfactory
to each of the parties hereto, acting reasonably, and shall not have been
set aside or modified in a manner unacceptable to the parties hereto,
acting reasonably, on appeal or
otherwise;
|
|
|
(b)
|
the
Arrangement and, if required, all other material transactions contemplated
herein or necessary to complete the Arrangement, including the
Continuance, with or without amendment, shall have been approved at the
Linear Meeting by the Linear Shareholders in accordance with the
provisions of the CBCA, the Interim Order and the requirements of any
applicable regulatory authority;
|
|
|
(c)
|
the
Arrangement and, if required, all other material transactions contemplated
herein or necessary to complete the Arrangement, with or without
amendment, shall have been approved at the Apollo Meeting by the Apollo
Shareholders in accordance with the provisions of the YBCA and the
requirements of any applicable regulatory authority, including the rules
and policies of the TSX and AMEX;
|
|
|
(d)
|
the
Final Order shall have been granted in form and substance satisfactory to
the parties hereto, acting reasonably, and shall not have been set aside
or modified in a manner unacceptable to such parties, acting reasonably,
on appeal or otherwise;
|
|
|
(e)
|
the
Articles of Arrangement shall be in form and substance satisfactory to the
parties hereto, acting reasonably;
|
|
|
(f)
|
there
shall not be in force any Law, ruling, order or decree, and there shall
not have been any action taken under any Law or by any Governmental
Authority or other regulatory authority, that makes it illegal or
otherwise directly or indirectly restrains, enjoins or prohibits the
consummation of the Arrangement in accordance with the terms hereof or
results or could reasonably be expected to result in a judgment, order,
decree or assessment of damages, directly or indirectly, relating to the
Arrangement which has, or could reasonably be expected to have, a Material
Adverse Effect on Linear or Apollo;
|
|
|
(g)
|
(i)
the TSX shall have conditionally approved the listing thereon, and the
AMEX shall have authorized for listing, subject to official notice of
issuance, of the Apollo Shares to be issued in exchange for Linear Shares
pursuant to the Arrangement and the Apollo Shares which, as a result of
the Arrangement, are issuable upon the exercise of the Apollo Replacement
Options and the Apollo Replacement Warrants, as of the Effective Date, or
as soon as possible thereafter, and (ii) the TSX shall have, if required,
accepted notice for filing of all transactions of Linear contemplated
herein or necessary to complete the Arrangement, subject only to
compliance with the usual requirements of the TSX and AMEX as
applicable;
|
F-59
|
|
(h)
|
the
Apollo Shares, Apollo Replacement Options and Apollo Replacement Warrants
to be issued in the United States pursuant to the Arrangement are exempt
from registration requirements under Section 3(a)(10) of the 1933 Act and
the Apollo Shares, Apollo Replacement Options and Apollo Replacement
Warrants to be distributed in the United States pursuant to the
Arrangement are not subject to resale restrictions in the United States
under the 1933 Act, (other than as may be prescribed by Rule 144 and Rule
145 under the 1933 Act);
|
|
|
(i)
|
the
registration statement of Apollo as filed with the United States
Securities and Exchange Commission regarding the issuance of Apollo Shares
upon exercise of the Apollo Replacement Warrants and Apollo Replacement
Options shall have been declared effective by the SEC or the Shelf
Registration Statement shall be effective and the Shelf Registration
Statement Supplement shall have been filed with the SEC pursuant to Rule
424 of the 1933 Act; and
|
|
|
(j)
|
this
Agreement shall not have been terminated pursuant to Section 7.3
hereof.
|
The
foregoing conditions are for the mutual benefit of the parties hereto and may be
waived by mutual consent of Apollo and Linear in writing at any time. If any of
such conditions shall not be complied with or waived as aforesaid on or before
the Completion Deadline or, if earlier, the date required for the performance
thereof, then, subject to Section 5.4 hereof, any party hereto may terminate
this Agreement in accordance with Section 7.3 in circumstances where the failure
to satisfy any such condition is not the result, directly or indirectly, of a
breach of this Agreement by such rescinding party hereto.
Section 5.2
Linear
Conditions
The obligation of Linear to complete the transactions contemplated herein is
subject to the fulfillment of the following additional conditions at or before
the Effective Date or such other time as is specified below:
|
|
(a)
|
the
representations and warranties made by Apollo and Apollo Subco in this
Agreement shall be true and correct in all material respects as of the
Effective Date as if made on and as of such date (except (i) to the extent
such representations and warranties speak as of an earlier date; (ii)
except as affected by transactions contemplated or permitted by this
Agreement; or (iii) as affected by the occurrence of one or more Apollo
Exclusions (as hereinafter defined)), and each of Apollo and Apollo Subco
shall have provided to Linear a certificate of two senior officers
certifying such accuracy on the Effective
Date;
|
|
|
(b)
|
Apollo
and Apollo Subco shall have complied in all material respects with its
covenants and other obligations herein and each of Apollo and Apollo Subco
shall have provided to Linear a certificate of two senior officers
certifying compliance with such covenants on the Effective
Date;
|
F-60
|
|
(c)
|
no
Material Adverse Change shall have occurred in respect of Apollo and the
Apollo Subsidiaries, taken as a whole, from and after the date hereof and
prior to the Effective Date, and no Material Adverse Change in respect of
Apollo and the Apollo Subsidiaries, taken as a whole, shall have occurred
prior to the date hereof or shall occur from and after the date hereof and
prior to the Effective Date from that reflected in the audited
consolidated financial statements of Apollo as at and for the fiscal year
ending December 31, 2009 (other than a Material Adverse Change resulting
from: (i) conditions affecting the gold industry generally in
jurisdictions in which they carry on business, including changes in prices
or taxes; (ii) general or economic, financial, currency, exchange,
securities or commodities market conditions; or (iii) any matter permitted
by this Agreement, or consented to by Linear including, without
limitation, the public announcement of the Arrangement (collectively, the
“Apollo
Exclusions”));
|
|
|
(d)
|
no
act, action, suit, proceeding, objection or opposition shall have been
threatened or taken before or by any Governmental Authority by any elected
or appointed public official or private person in Canada or elsewhere,
whether or not having the force of law and no Law shall have been
proposed, enacted, promulgated, amended or applied, in either case has had
or, if the Arrangement was consummated, would result in a Material Adverse
Change in respect of Apollo or would have a material adverse effect on the
ability of the parties to complete the
Arrangement;
|
|
|
(e)
|
(i)
all consents, waivers, permits, exemptions, orders and approvals of, and
any registrations and filings with, any Governmental Authority (including,
without limitation, under the Competition Act
(Canada) and those of the TSX, the AMEX or other Securities Authorities),
and all applicable statutory or regulatory waiting periods shall have
expired or been terminated and the expiry of any waiting periods, in
connection with, or required to permit, the completion of the Arrangement,
and (ii) all third person and other consents, waivers, permits,
exemptions, orders, approvals, agreements and amendments and modifications
to agreements, indentures or arrangements, the failure of which to obtain
or the non-expiry of which would, or could reasonably be expected to have,
a Material Adverse Effect on Apollo or Apollo Subco or materially impede
the completion of the Arrangement, shall have been obtained or received on
terms that are reasonably satisfactory to
Linear;
|
|
|
(f)
|
all
directors and officers of Apollo shall have entered into an Apollo Support
Agreement (in form and substance satisfactory to Linear) with Linear and
none of such persons shall have breached, in any material respect, any of
the representations, warranties and covenants
thereof;
|
|
|
(g)
|
the
Lender Consent Letter, the Lender Support Agreements and the Lender
Lock-Up Agreements shall be in full force and effect and, other than as
otherwise may be agreed to by Linear, unamended as of the Effective
Date;
|
F-61
|
|
(h)
|
the
directors of each of Apollo and Apollo Subco shall have adopted all
necessary resolutions and all other necessary corporate action shall have
been taken by each of Apollo and Apollo Subco to permit the consummation
of the Arrangement;
|
|
|
(i)
|
the
New Board shall be constituted as set out in Section
2.3;
|
|
|
(j)
|
the
directors of Apollo shall not have withdrawn or modified in a manner
adverse to Linear their approval or recommendation to Apollo Shareholders
of the transaction contemplated
hereby;
|
|
|
(k)
|
R.
David Russell shall have tendered his resignation as President and Chief
Executive Officer of Apollo (or, alternatively, R. David Russell
shall have been terminated as President and Chief Executive
Officer of Apollo) and all amounts owing to R. David Russell pursuant to
his employment agreement, to a maximum of US$1,700,000, shall have been
paid (or arrangements satisfactory to Linear shall have been made to pay
such amounts following the Effective Date) to him, and all steps, actions
and proceedings necessary to appoint Wade Dawe as President and Chief
Executive Officer of Apollo shall have been taken;
and
|
|
|
(l)
|
Apollo
shall have provided to Linear evidence of the director and liability
insurance required pursuant to subsection
4.6(b).
|
The
foregoing conditions are for the benefit of Linear and may be waived, in whole
or in part, by Linear in writing at any time. If any of such conditions shall
not be complied with or waived by Linear on or before the Completion Deadline
or, if earlier, the date required for the performance thereof, then, subject to
section 5.4 hereof, Linear may terminate this Agreement in accordance with
Section 7.3 in circumstances where the failure to satisfy any such condition is
not the result, directly or indirectly, of a breach of this Agreement by
Linear.
Section 5.3
Apollo
and Apollo Subco Conditions
The obligation of Apollo and Apollo Subco to complete the transactions
contemplated herein is subject to the fulfillment of the following additional
conditions at or before the Effective Date or such other time as is specified
below:
|
|
(a)
|
the
representations and warranties made by Linear in this Agreement shall be
true and correct in all material respects as of the Effective Date as if
made on and as of such date (except (i) to the extent such representations
and warranties speak as of an earlier date; (ii) except as affected by
transactions contemplated or permitted by this Agreement; or (iii) as
affected by the occurrence of one or more Linear Exclusions (as
hereinafter defined)), and Linear shall have provided to Apollo a
certificate of two senior officers certifying such accuracy on the
Effective Date;
|
|
|
(b)
|
Linear
shall have complied in all material respects with its covenants and other
obligations herein and Linear shall have provided to Apollo a certificate
of two senior officers certifying compliance with such covenants on the
Effective Date;
|
F-62
|
|
(c)
|
no
Material Adverse Change shall have occurred in respect of Linear and the
Linear Subsidiaries, taken as a whole, from and after the date hereof and
prior to the Effective Date, and no Material Adverse Change in respect of
Linear and the Linear Subsidiaries, taken as a whole, shall have occurred
prior to the date hereof or shall occur from and after the date hereof and
prior to the Effective Date from that reflected in the audited
consolidated financial statements of Linear as at and for the fiscal year
ending March 31, 2009 or in the unaudited financial statements of Linear
as at and for the nine months ending December 31, 2009 (other than a
Material Adverse Change resulting from: (i) conditions affecting the gold
industry generally in jurisdictions in which they carry on business,
including changes in prices or taxes; (ii) general or economic, financial,
currency, exchange, securities or commodities market conditions; (iii) any
matter permitted by this Agreement, or consented to by Apollo including,
without limitation, the public announcement of the Arrangement; or (iv)
Linear’s obligations under an agreement between Linear and Yantai Jinyan
Mining Machinery Co. Ltd. (collectively, the “Linear
Exclusions”);
|
|
|
(d)
|
no
act, action, suit, proceeding, objection or opposition shall have been
threatened or taken before or by any Governmental Authority by any elected
or appointed public official or private person in Canada or elsewhere,
whether or not having the force of law and no Law shall have been
proposed, enacted, promulgated, amended or applied, in either case has had
or, if the Arrangement was consummated, would result in a Material Adverse
Change in respect of Linear or would have a material adverse effect on the
ability of the parties to complete the
Arrangement;
|
|
|
(e)
|
(i)
all consents, waivers, permits, exemptions, orders and approvals of, and
any registrations and filings with, any Governmental Authority (including,
without limitation, under the Competition Act
(Canada) and those of the TSX, the AMEX or other Securities Authorities),
and all applicable statutory or regulatory waiting periods shall have
expired or been terminated and the expiry of any waiting periods, in
connection with, or required to permit, the completion of the Arrangement,
and (ii) all third person and other consents, waivers, permits,
exemptions, orders, approvals, agreements and amendments and modifications
to agreements, indentures or arrangements, the failure of which to obtain
or the non-expiry of which would, or could reasonably be expected to have,
a Material Adverse Effect on Linear or materially impede the completion of
the Arrangement, shall have been obtained or received on terms that are
reasonably satisfactory to Apollo and Apollo
Subco;
|
|
|
(f)
|
if
Dissent Rights are granted to Linear Shareholders by the Court in
connection with the Arrangement, holders of not more than 5% of the issued
and outstanding Linear Shares shall have exercised rights of dissent in
relation to the Arrangement;
|
|
|
(g)
|
the
Lender Consent Letter, the Lender Support Agreements and the Lender
Lock-Up Agreements shall be in full force and effect and, other than as
otherwise may be agreed to by Apollo, unamended as of the Effective
Date;
|
F-63
|
|
(h)
|
all
directors and officers of Linear shall have entered into a Linear Support
Agreement (in form and substance satisfactory to Apollo) with Apollo and
none of such persons shall have breached, in any material respect, any of
the representations, warranties and covenants
thereof;
|
|
|
(i)
|
the
directors of Linear shall have adopted all necessary resolutions and all
other necessary corporate action shall have been taken by Linear and the
Linear Subsidiaries to permit the consummation of the Arrangement;
and
|
|
|
(j)
|
the
directors of Linear shall not have withdrawn or modified in a manner
adverse to Apollo their approval or recommendation to Linear Shareholders
of the transaction contemplated
hereby.
|
The
foregoing conditions are for the benefit of Apollo and Apollo Subco and may be
waived, in whole or in part, by Apollo and Apollo Subco in writing at any time.
If any of such conditions shall not be complied with or waived by Apollo and
Apollo Subco on or before the Completion Deadline or, if earlier, the date
required for the performance thereof, then, subject to Section 5.4 hereof,
Apollo and Apollo Subco may terminate this Agreement in accordance with Section
7.3 in circumstances where the failure to satisfy any such condition is not the
result, directly or indirectly, of a breach of this Agreement by Apollo or
Apollo Subco.
Section 5.4
Notice
and Cure Provisions
Each party hereto shall give prompt notice to the others of them of the
occurrence, or failure to occur, at any time from the date hereof until the
Effective Date, of any event or state of facts which occurrence or failure
would, would be likely to or could:
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(a)
|
cause
any of the representations or warranties of such party hereto contained
herein to be untrue or inaccurate in any respect on the date hereof or on
the Effective Date;
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(b)
|
result
in the failure to comply with or satisfy any covenant or agreement to be
complied with or satisfied by such party hereto prior to the Effective
Date; or
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(c)
|
result
in the failure to satisfy any of the conditions precedent in favour of the
other parties hereto contained in Sections 5.1, 5.2 or 5.3 hereof, as the
case may be.
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Subject
as herein provided, a party hereto may (a) elect not to complete the
transactions contemplated hereby by virtue of the conditions contained in
Sections 5.1, 5.2 or 5.3 hereof not being satisfied or waived or (b) exercise
any termination right arising therefrom; provided, however, that (i) promptly
and in any event prior to the filing of the Articles of Arrangement with the
Registrar, the party hereto intending to rely thereon has delivered a written
notice to the other parties hereto specifying in reasonable detail the breaches
of covenants or untruthfulness or inaccuracy of representations and warranties
or other matters which the party hereto delivering such notice is asserting as
the basis for the exercise of the termination right, as the case may be, and
(ii) if any such notice is delivered, and a party hereto is proceeding
diligently, at its own expense, to cure such matter, if such matter is
susceptible to being cured, the party hereto which has delivered such notice may
not terminate this Agreement until the earlier of the Completion Deadline and
the expiration of a period of 15 days from date of delivery of such
notice. If such notice has been delivered prior to the date of the
Linear Meeting or the Apollo Meeting, the Linear Meeting or Apollo Meeting, as
applicable, shall be adjourned or postponed until the expiry of such
period.
F-64
Section 5.5
Merger
of Conditions
The
conditions set out in sections 5.1, 5.2 or 5.3 hereof shall be conclusively
deemed to have been satisfied, fulfilled or waived upon the issue of the
Certificate. Linear and Apollo each acknowledge and agree that it shall have no
right to file the Articles of Arrangement with the Registrar unless such
conditions have been satisfied, fulfilled or waived.
ARTICLE 6
NON-SOLICITATION
AND BREAK FEE
Section 6.1
Mutual
Covenants Regarding Non-Solicitation
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(a)
|
Each
of Apollo and Linear shall continue to comply with the terms and
conditions set out in the Letter of Intent with respect to
non-solicitation and shall continue to refrain from entering into
discussions and negotiations (including, without limitation, through any
advisors or other parties on its behalf) with any parties conducted before
the date of the Letter of Intent with respect to any Acquisition Proposal
and shall continue to use all reasonable commercial efforts to ensure that
their respective requests for the return or destruction of all information
provided to any third parties who have entered into a confidentiality
agreement with such party relating to an Acquisition Proposal are
honoured.
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(b)
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Neither
Apollo nor Linear shall, directly or indirectly, do or authorize or permit
any of its officers, directors or employees or any financial advisor,
expert or other representative retained by it to do, any of the
following:
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(i)
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solicit,
facilitate, initiate or encourage any Acquisition
Proposal;
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(ii)
|
enter
into or participate in any discussions or negotiations regarding an
Acquisition Proposal, or furnish to any other person any information with
respect to its businesses, properties, operations, prospects or conditions
(financial or otherwise) in connection with an Acquisition Proposal or
otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage any effort or attempt of any other person to do or
seek to do any of the foregoing;
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(iii)
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waive,
or otherwise forbear in the enforcement of, or enter into or participate
in any discussions, negotiations or agreements to waive or otherwise
forbear in respect of, any rights or other benefits under confidential
information agreements, including, without limitation, any “standstill
provisions” thereunder; or
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F-65
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(iv)
|
accept,
recommend, approve or enter into an agreement to implement an Acquisition
Proposal;
|
provided,
however, that notwithstanding any other provision hereof, each of Apollo and
Linear and its officers, directors and advisers may:
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(v)
|
enter
into or participate in any discussions or negotiations with a third party
who (without any solicitation, initiation or encouragement, directly or
indirectly, after the date of this Agreement, by such party or any of its
officers, directors or employees or any financial advisor, expert or other
representative retained by it) seeks to initiate such discussions or
negotiations and, subject to execution of a confidentiality and standstill
(provided that such confidentiality agreement shall provide for disclosure
thereof (along with all information provided thereunder) to the other
parties hereto as set out below) may furnish to such third party
information concerning such party and its business, properties and assets,
in each case if, and only to the extent
that:
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(A)
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the
third party has first made a written bona fide Acquisition Proposal which
the board of directors of the party to which such Acquisition Proposal is
made (the “Receiving
Party”) determines in good faith: (1) that funds or other
consideration necessary for the Acquisition Proposal are available; (2)
(after consultation with its financial advisor) would, if consummated in
accordance with its terms, result in a transaction financially superior
for securityholders of the Receiving Party than the transaction
contemplated by this Agreement; (3) after receiving the advice of outside
counsel as reflected in minutes of the board of directors of the Receiving
Party, that the taking of such action is necessary for the board of
directors in discharge of its fiduciary duties under applicable Laws; (4)
that is reasonably capable of being completed without undue delay, taking
into account all legal, financial, regulatory and other aspects of such
proposal and the party making such proposal; (5) which is not subject to a
due diligence and/or access condition which would allow access to the
books, records, personnel or properties of the Receiving Party or
its respective officers and employees beyond 5:00 p.m. (Toronto
time) on the fifth Business Day after which access is afforded to the
third party making the Acquisition Proposal (provided, however, that the
foregoing shall not restrict the ability of such person to continue to
review information provided to it by such party during such five Business
Day period); (6) that the board of directors of the Receiving Party has
determined to recommend to the shareholders of such party, and (7) that was not solicited in contravention
of the Letter of Intent or this
Agreement (a “Superior Proposal”);
and
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F-66
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(B)
|
prior
to furnishing such information to or entering into or participating in any
such discussions or negotiations with such third party, the Receiving
Party provides prompt notice to the other party to the effect that it is
furnishing information to or entering into or participating in discussions
or negotiations with such person or entity together with a copy of the
confidentiality agreement referenced above and if not previously provided
to the other party, copies of all information provided to such third party
concurrently with the provision of such information to such third party,
and provided further that the Receiving Party shall notify the other
parties orally and in writing of any inquiries, offers or proposals with
respect to a Superior Proposal from such third party (which written notice
shall include, without limitation, a copy of any such proposal (and any
amendments or supplements thereto), the identity of the person making it,
if not previously provided to the other parties, copies of all information
provided to such party and all other information reasonably requested by
the other parties), within 24 hours of the receipt thereof, shall keep the
other party informed of the status and details of any such inquiry, offer
or proposal and answer the other party's questions with respect thereto;
or
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(vi)
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comply
with Canadian Securities Administrators' Multilateral Instrument 62-104
and OSC Rule 62-504 (as applicable) relating to the provision of
directors' circulars and make appropriate disclosure with respect thereto
to its securityholders; and
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(vii)
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accept,
recommend, approve or enter into an agreement to implement a Superior
Proposal from a third party, but only if: (1) prior to such acceptance,
recommendation, approval or implementation, the board of directors shall
have concluded in good faith, after considering all proposals to adjust
the terms and conditions of this Agreement in accordance with subsection
6.1(c) and after receiving the advice of outside counsel as reflected in
minutes of the board of directors of such party, that the taking of such
action is necessary for the board of directors in discharge of its
fiduciary duties under applicable Laws; (2) such party has complied with
its obligations set forth in paragraph Section 6.1(c); and (3) such
party terminates this Agreement in accordance with Section
7.3.
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F-67
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(c)
|
the
Receiving Party shall give the other party (the “Responding Party”),
orally and in writing, at least 72 hours advance notice of any decision by
its board of directors to accept, recommend, approve or enter into an
agreement to implement such Superior Proposal, which notice shall confirm
that the board of directors of the Receiving Party has determined that
such Acquisition Proposal constitutes a Superior Proposal, shall identify
the third party making the Superior Proposal and shall provide a true and
complete copy thereof and any amendments thereto. During such 72 hour
period, the Receiving Party agrees not to accept, recommend, approve or
enter into any agreement to implement such Superior Proposal and not to
release the party making the Superior Proposal from any confidentiality or
standstill provisions and shall not withdraw, redefine, modify or change
its recommendation in respect of the Arrangement. In addition, during such
72 hour period the Receiving Party shall, and shall cause its financial
and legal advisors to, negotiate in good faith with the Responding Party
and their financial and legal advisors to make such adjustments in the
terms and conditions of this Agreement and the Arrangement as would cause
such Acquisition Proposal to no longer constitute a Superior Proposal
hereunder. In the event the Responding Party offers in writing to amend
this Agreement and the Arrangement prior to the expiry of such 72 hour
period, the board of directors of the Receiving Party shall review such
offer and determine in good faith if the Acquisition Proposal would no
longer constitute a Superior Proposal, in which event (i) the parties
hereto will enter into an amendment to this Agreement to reflect such
offer, and (ii) the board of directors of the Receiving Party shall not
accept, recommend, approve or enter into any agreement to implement such
Superior Proposal and shall not release the party making the Superior
Proposal from any confidentiality or standstill provisions and shall not
withdraw, redefine, modify or change its recommendation in respect of the
Arrangement;
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(d)
|
each
party agrees that all information that may be provided to it by the other
party with respect to any Superior Proposal pursuant to this Section 6.1
shall be treated as if it were “Confidential Information” as that term is
defined in the Confidentiality
Agreement;
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(e)
|
each
party hereby represents and warrants to the other party that, as of the
date hereof, it is not in active discussions or negotiations with any
person (other than the other party to this Agreement) with respect to any
actual or potential Acquisition Proposal. Except to the extent
otherwise permitted pursuant to subsection 6.1(b), each party shall deny
access to non-public information under any confidentiality agreement, and
shall not consent in favour of, or release from or fail to enforce
against, any person under any confidentiality agreement or standstill
agreement or similar obligation in favour of such party;
and
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|
(f)
|
each
party shall ensure that its officers, directors and employees and any
investment bankers or other advisers or representatives retained by it are
aware of the provisions of this Section 6.1. Each party shall be
responsible for any breach of this Section 6.1 by its officers, directors,
employees, investment bankers, advisers or
representatives.
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F-68
Section 6.2
Break
Fee Event
|
|
(a)
|
In
the event that:
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(i)
|
this
Agreement is terminated pursuant to subsection 7.3(a)(ii) as a result of
the Apollo Shareholders failing to approve the Arrangement at the Apollo
Meeting as contemplated in Section
5.1(c);
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(ii)
|
this
Agreement is terminated by Linear pursuant to subsection 7.3(a)(v) and
such Acquisition Proposal or Superior Proposal (as applicable) is
consummated; or
|
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|
(iii)
|
this
Agreement is terminated by Apollo pursuant to subsection
7.3(a)(vi),
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|
then
Apollo shall pay to Linear an amount equal to $4,000,000 (the “Apollo Break Fee”) in
immediately available funds (A) in the circumstances set forth in
subsection 6.2(a)(i), within five (5) Business Days following the date of
the Apollo Meeting; (B) in the circumstances set forth in subsection
6.2(a)(ii), within five (5) Business Days following the completion of such
Acquisition Proposal or Superior Proposal (as applicable); and (C) in the
circumstances set forth in subsection 6.2(a)(iii), concurrently with the
delivery of Apollo’s notice of termination of this Agreement contemplated
by subsection 7.3(b).
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||
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|
(b)
|
In
the event that:
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|
|
(i)
|
this
Agreement is terminated pursuant to subsection 7.3(a)(ii) as a result of
the Linear Shareholders failing to approve the Continuance or the
Arrangement at the Linear Meeting as contemplated in Section
5.1(b);
|
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(ii)
|
this
Agreement is terminated by Apollo pursuant to subsection 7.3(a)(iii) and
such Acquisition Proposal or Superior Proposal (as applicable) is
consummated; or
|
|
|
(iii)
|
this
Agreement is terminated by Linear pursuant to subsection
7.3(a)(iv),
|
then
Linear shall pay to Apollo an amount equal to $4,000,000 (the “Linear Break Fee”) in
immediately available funds (A) in the circumstances set forth in subsection
6.2(b)(i), within five (5) Business Days following the date of the Apollo
Meeting; (B) in the circumstances set forth in subsection 6.2(b)(ii), within
five (5) Business Days following the completion of such Acquisition Proposal or
Superior Proposal (as applicable); and (C) in the circumstances set forth in
subsection 6.2(b)(iii), concurrently with the delivery of Linear’s notice of
termination of this Agreement contemplated by subsection 7.3(b).
F-69
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|
(c)
|
Each
of Linear and Apollo hereby acknowledges that the amount of the Linear
Break Fee and Apollo Break Fee set out in this Section 6.2 shall be a
payment of liquidated damages which are a genuine pre-estimate of the
damages which Linear or Apollo, as applicable, will suffer or incur as a
result of the event giving rise to such damages and the resultant
non-completion of the Arrangement and are not penalties. Each of Linear
and Apollo hereby irrevocably waives any right it may have to raise as a
defence that any such liquidated damages are excessive or punitive. Upon
receipt of payment of the amount set out in this subsection, the receiving
party shall have no further claim against the payor party in respect of
the failure to complete the Arrangement and the payor party shall have no
further liabilities arising hereunder other than for a breach of any
section of this Agreement.
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ARTICLE 7
AMENDMENT
AND TERMINATION
Section 7.1
Amendment
This Agreement may, at any time and from time to time before or after the
holding of the Linear Meeting or the Apollo Meeting be amended by mutual written
agreement of the parties hereto without, subject to applicable Law, further
notice to or authorization on the part of the Linear Shareholders or the Apollo
Shareholders and any such amendment may, without limitation:
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|
(a)
|
change
the time for the performance of any of the obligations or acts of any of
the parties hereto;
|
|
|
(b)
|
waive
any inaccuracies in or modify any representation or warranty contained
herein or in any document delivered pursuant
hereto;
|
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|
(c)
|
waive
compliance with or modify any of the covenants herein contained and waive
or modify the performance of any of the obligations of any of the parties
hereto; and
|
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|
(d)
|
waive
compliance with or modify any condition herein
contained,
|
provided,
however, that notwithstanding the foregoing, the terms of subsection 3.01(d) of
the Plan of Arrangement shall not be amended without the approval of the Linear
Shareholders given in the same manner as required for the approval of the
Arrangement or as may be ordered by the Court. This Agreement and the Plan of
Arrangement may be amended in accordance with the Final Order, but in the event
that the terms of the Final Order require any such amendment, the rights of the
parties hereto under Sections 5.1, 5.2, 5.3, 6.2 and Article Seven hereof shall
remain unaffected.
Section 7.2
Mutual
Understanding Regarding Amendments
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(a)
|
In
addition to the transactions contemplated hereby or at the request of a
party hereto, the parties hereto will continue from and after the date
hereof and through and including the Effective Date to use their
respective commercially reasonable best efforts to maximize present and
future planning opportunities for Linear, the Linear Shareholders, the
Linear Subsidiaries, Apollo, the Apollo Shareholders and the Apollo
Subsidiaries as and to the extent that the same shall not prejudice any
party hereto or the shareholders thereof. The parties hereto will ensure
that such planning activities do not impede the progress of the
Arrangement in any material way.
|
F-70
|
|
(b)
|
The
parties hereto mutually agree that if a party hereto proposes any other
amendment or amendments to this Agreement or to the Plan of Arrangement,
Linear on the one hand, and Apollo and Apollo Subco on the other hand,
will act reasonably in considering such amendment and if the other of them
and the shareholders thereof are not prejudiced by reason of any such
amendment they will co-operate in a reasonable fashion with the party
hereto proposing the amendment so that such amendment can be effected
subject to applicable Laws and the rights of the Linear Shareholders and
the Apollo Shareholders.
|
Section 7.3
Termination
|
|
(a)
|
This
Agreement may be terminated at any time prior to the Effective
Date:
|
|
|
(i)
|
by
the mutual written consent of the parties
hereto;
|
|
|
(ii)
|
(A)
by Apollo if any of the conditions set forth in Sections 5.1 and 5.3 are
not satisfied, and such condition is incapable of being satisfied, by the
Completion Deadline; or (B) by Linear if any of the conditions set forth
in Sections 5.1 or 5.2 are not satisfied, and such condition is incapable
of being satisfied, by the Completion
Deadline;
|
|
|
(iii)
|
by
Apollo and Apollo Subco if there is an Acquisition Proposal in respect of
Linear and (A) the directors of Linear shall have withdrawn or modified in
a manner adverse to Apollo and Apollo Subco their approval or
recommendation of the Arrangement or shall have failed, after being
requested by Apollo in writing, to reaffirm their approval or
recommendation of the Arrangement and the transactions contemplated herein
as promptly as possible (but in any event within two (2) Business Days)
after receipt of such written request from Apollo; or (B) such Acquisition
Proposal constitutes a Superior Proposal and Linear shall have accepted,
recommended, approved or entered into an agreement to implement such
Superior Proposal in accordance with Section
6.1;
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|
|
(iv)
|
by
Linear in the event that, prior to the Linear Meeting, Linear’s board of
directors authorizes Linear, subject to complying with the terms of this
Agreement, to enter into a legally binding agreement, undertaking or
arrangement with respect to a Superior Proposal received at any time
following the date of this Agreement and prior to the Linear Meeting;
provided that prior to such termination, Linear pays the Linear Break Fee
payable pursuant to subsection
6.2(b);
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F-71
|
|
(v)
|
by
Linear if there is an Acquisition Proposal in respect of Apollo and (A)
the directors of Apollo shall have withdrawn or modified in a manner
adverse to Linear their approval or recommendation of the Arrangement or
shall have failed, after being requested by Linear in writing, to reaffirm
their approval or recommendation of the Arrangement and the transactions
contemplated herein as promptly as possible (but in any event within two
(2) Business Days) after receipt of such written request from Linear; or
(B) such Acquisition Proposal constitutes a Superior Proposal and Apollo
shall have accepted, recommended, approved or entered into an agreement to
implement such Superior Proposal in accordance with Section
6.1;
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|
|
(vi)
|
by
Apollo in the event that, prior to the Apollo Meeting, Apollo’s board of
directors authorizes Apollo, subject to complying with the terms of this
Agreement, to enter into a legally binding agreement, undertaking or
arrangement with respect to a Superior Proposal received at any time
following the date of this Agreement and prior to the Apollo Meeting;
provided that Apollo pays the Apollo Break Fee payable pursuant to
subsection 6.2(a);
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|
|
(vii)
|
if
any of the parties is in breach or default of any of its obligations or
covenants set forth in Section 6.1;
or
|
|
|
(viii)
|
by
either Apollo or Linear if the Arrangement shall not have been completed
by the Completion Deadline.
|
|
|
(b)
|
Any
termination by a party hereto shall be made by such party delivering
written notice thereof to the other party or parties hereto prior to the
Effective Date and specifying therein in reasonable detail the matter or
matters giving rise to such termination
right.
|
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|
(c)
|
In
the event of any termination in accordance with this Section 7.3, subject
to the obligations of Apollo and Linear contained in Article 6 hereof,
including the payment of the Apollo Break Fee or the Linear Break Fee
required by Section 6.2 hereof, as applicable, each party hereto shall be
deemed to have released, remised and forever discharged the other parties
hereto in respect of any and all claims arising in respect of this
Agreement, except as otherwise provided
herein.
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F-72
ARTICLE 8
GENERAL
Section 8.1
Notice
Any
notice, consent, waiver, direction or other communication required or permitted
to be given under this Agreement by a party hereto shall be in writing and shall
be delivered by hand to the party hereto to which the notice is to be given at
the following address or sent by facsimile to the following numbers or to such
other address or facsimile number as shall be specified by a party hereto by
like notice. Any notice, consent, waiver, direction or other communication
aforesaid shall, if delivered, be deemed to have been given and received on the
date on which it was delivered to the address provided herein (if a Business Day
or, if not, then the next succeeding Business Day) and if sent by facsimile be
deemed to have been given and received at the time of receipt (if a Business Day
or, if not, then the next succeeding Business Day) unless actually received
after 4:00 p.m. (Toronto time) at the point of delivery in which case it shall
be deemed to have been given and received on the next Business Day.
The
address for service of each of the parties hereto shall be as
follows:
(a) if
to Linear:
Linear Gold Corp.
Suite 502, 2000 Barrington
Street
Halifax, Nova Scotia
B3J 3K1
Attention: Wade K. Dawe
Facsimile: (902) 491-4281
with a
copy (which shall not constitute notice) to:
Wildeboer
Dellelce LLP
Suite
800, 365 Bay Street
Toronto,
Ontario
M5H
2V1
Attention:
Troy Pocaluyko
Facsimile:
(416) 361-1790
F-73
(b) if
to Apollo or Apollo Subco:
Apollo Gold Corporation
5655 S. Yosemite Street, Suite
200
Greenwood Village,
Colorado
801111
Attention: David Russell
Facsimile: (720) 482-0957
with a
copy (which shall not constitute notice) to:
Fogler,
Rubinoff, LLP
95
Wellington Street West, Suite 1200
Toronto-Dominion
Centre
Toronto,
Ontario
M5J
2Z9
Attention:
Michael Hobart
Facsimile:
(416) 941-8852
Section 8.2
Remedies
The
parties hereto acknowledge and agree that an award of money damages may be
inadequate for any breach of this Agreement by any party hereto or its
representatives and advisors and that such breach may cause the non-breaching
party hereto irreparable harm. Accordingly, the parties hereto agree that, in
the event of any such breach or threatened breach of this Agreement by one of
the parties hereto, Linear (if either Apollo or Apollo Subco is the breaching
party) or Apollo and Apollo Subco (if Linear is the breaching party) will be
entitled, without the requirement of posting a bond or other security, to seek
equitable relief, including injunctive relief and specific performance. Subject
to any other provision hereof including, without limitation, Section 6.3 hereof,
such remedies will not be the exclusive remedies for any breach of this
Agreement but will be in addition to all other remedies available hereunder or
at law or in equity to each of the parties hereto.
Section 8.3
Indemnification
Each of
Apollo and Linear hereby agree to indemnify and hold harmless the other (and its
respective directors, officers and advisers) (collectively, the “Indemnified Persons”) from and
against all claims, damages, liabilities, actions or demands to which the
Indemnified Persons may be subject insofar as such claims, damages, liabilities,
actions or demands arise out of or are based upon the information supplied by
Apollo or Linear, as applicable, and contained in the Linear Proxy Circular or
the Apollo Proxy Circular, as applicable, having contained a
misrepresentation.
F-74
Section 8.4
Privacy
Matters
The
parties acknowledge that they are responsible for compliance at all times with
applicable privacy laws which govern the collection, use and disclosure of
personal information acquired by or disclosed to the parties pursuant to or in
connection with this Agreement (the “Disclosed Personal
Information”). None of the parties shall use the Disclosed Personal
Information for any purposes other than those relating to the performance of
this Agreement and the completion of the Arrangement.
Section 8.5
Expenses
The
parties hereto agree that all out-of-pocket expenses incurred in connection with
this Agreement and the transactions contemplated hereby, the Linear Meeting, the
Apollo Meeting and the preparation and mailing of the Linear Proxy Circular and
the Apollo Proxy Circular, including legal and
accounting fees, printing costs, financial advisor fees and all disbursements by
advisors, shall be paid by the party hereto incurring such expense and that
nothing in this Agreement shall be construed so as to prevent the payment of
such expenses. The provisions of this section 8.5 shall survive the termination
of this Agreement.
Section 8.6
Time
of the Essence
Time
shall be of the essence in this Agreement.
Section 8.7
Entire
Agreement
This
Agreement, together with the agreements and other documents herein or therein
referred to, constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, between
the parties hereto with respect to the subject matter hereof. There are no
representations, warranties, covenants or conditions with respect to the subject
matter hereof except as contained herein.
Section 8.8
Further
Assurances
Each
party hereto shall, from time to time, and at all times hereafter, at the
request of the other of them, but without further consideration, do, or cause to
be done, all such other acts and execute and deliver, or cause to be executed
and delivered, all such further agreements, transfers, assurances, instruments
or documents as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof including, without limitation, the Plan of
Arrangement.
Section 8.9
Governing
Law
This
Agreement shall be governed by, and be construed in accordance with, the Laws of
the Province of Ontario and the Laws of Canada applicable therein but the
reference to such Laws shall not, by conflict of laws rules or otherwise,
require the application of the Law of any jurisdiction other than the Province
of Ontario.
F-75
Section 8.10 Execution
in Counterparts
This
Agreement may be executed in one or more counterparts, each of which shall
conclusively be deemed to be an original and all such counterparts collectively
shall be conclusively deemed to be one and the same. Delivery of an executed
counterpart of the signature page to this Agreement by a facsimile or electronic
(PDF) copy shall be effective as delivery of a manually executed counterpart of
this Agreement, and any party delivering an executed counterpart of the
signature page to this Agreement by facsimile or electronically to any other
party shall thereafter also promptly deliver a manually executed original
counterpart of this Agreement to such other party, but the failure to deliver
such manually executed original counterpart shall not affect the validity,
enforceability or binding effect of this Agreement.
Section 8.11 Waiver
No waiver
or release by any party hereto shall be effective unless in writing and executed
by the party granting such waiver or release and any waiver or release shall
affect only the matter, and the occurrence thereof, specifically identified and
shall not extend to any other matter or occurrence. Waivers may only be granted
upon compliance with the provisions governing amendments set forth in Section
7.1 hereof.
Section 8.12 No
Personal Liability
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(a)
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No
director or officer of Linear shall have any personal liability whatsoever
(other than in the case of fraud, negligence or willful misconduct) to
Apollo or Apollo Subco under this Agreement or any other document
delivered in connection with this Agreement or the Arrangement by or on
behalf of Linear.
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(b)
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No
director or officer of Apollo or Apollo Subco shall have any personal
liability whatsoever (other than in the case of fraud, negligence or
willful misconduct) to Linear under this Agreement or any other document
delivered in connection with this Agreement or the Arrangement by or on
behalf of Apollo or Apollo Subco.
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Section 8.13 Enurement
and Assignment
This
Agreement shall enure to the benefit of the parties hereto and their respective
successors and permitted assigns and shall be binding upon the parties hereto
and their respective successors. This Agreement may not be assigned by any party
hereto without the prior written consent of each of the other parties
hereto.
F-76
SCHEDULE
G
PLAN
OF ARRANGEMENT
PLAN
OF ARRANGEMENT UNDER SECTION 193 OF THE
BUSINESS CORPORATIONS ACT
(ALBERTA)
ARTICLE
1
DEFINITIONS
AND INTERPRETATION
Section
1.01 Definitions
In this
Plan of Arrangement, unless the context otherwise requires, the following words
and terms with the initial letter or letters thereof capitalized shall have the
meanings ascribed to them below:
“ABCA” means the Business Corporations Act
(Alberta), including the regulations promulgated thereunder, as now enacted or
as the same may from time to time be amended, re-enacted or
replaced;
“Amalgamating Corporations”
means, collectively, Apollo Subco and Linear and “Amalgamating Corporation”
means either one of them;
“Amalgamation” has the meaning
ascribed thereto in section 3.01(b) hereof;
“Apollo” means Apollo Gold
Corporation, a corporation existing under the YBCA;
“Apollo Replacement Option” has
the meaning ascribed thereto in section 3.01(f) hereof;
“Apollo Replacement Warrant”
has the meaning ascribed thereto in section 3.01(g) hereof;
“Apollo Shares” means the
common shares in the capital of Apollo;
“Apollo Stock Option Plan”
means the stock option plan of Apollo adopted in December 2003 and amended and
restated as of May 7, 2009;
“Apollo Subco” means 1526735
Alberta ULC, a wholly-owned subsidiary of Apollo existing under the
ABCA;
“Arrangement” means the
arrangement under the provisions of Section 193 of the ABCA on the terms and
subject to the conditions set forth in this Plan of Arrangement, subject to any
amendment or supplement hereto made in accordance with the provisions hereof or
at the direction of the Court in the Final Order;
“Arrangement Agreement” means
the arrangement agreement dated as of March 31, 2010 among Apollo, Apollo Subco
and Linear, as amended or supplemented prior to the Effective Date, entered into
in connection with the Arrangement;
G-1
“Articles of Amalgamation”
means articles of amalgamation in respect of the Amalgamation by way of
Arrangement required by the ABCA to be filed with the Registrar after the Final
Order is made in order for the Amalgamation to become effective;
“Business Day” means any day,
other than a Saturday, a Sunday or a statutory holiday in Toronto, Ontario or
Calgary, Alberta;
“CBCA” means the Canada Business Corporations
Act;
“Certificate” means the
certificate giving effect to the Amalgamation issued by the Registrar on the
Articles of Amalgamation pursuant to subsection 193(11) of the
ABCA;
“Common Shares” means the
common shares which the Corporation is authorized to issue and having the
rights, privileges, restrictions and conditions set forth in Section 4.04
hereof;
“Corporation” means the
corporation continuing from the Amalgamation;
“Court” means the Court of
Queen’s Bench of Alberta;
“Depositary” means CIBC Mellon
Trust Company, being the depositary appointed by Apollo for the purpose of,
among other things, exchanging certificates representing Linear Shares for
Apollo Shares in connection with the Arrangement;
“Dissent Procedures” means the
procedures set forth in Section 191 of the ABCA required to be taken by a
registered holder of Linear Shares to exercise the right of dissent in respect
of such Linear Shares in connection with the Arrangement;
“Dissenting Shareholders” means
the registered holders of Linear Shares who dissent in respect of the
Arrangement in strict compliance with the Dissent Procedures;
“Effective Date” means the date
set out in the Certificate as being the effective date in respect of the
Arrangement;
“Effective Time” means 5:00
p.m. (Toronto time) on the Effective Date;
“Final Order” means the order
of the Court pursuant to subsection 193(9) of the ABCA approving the
Arrangement, as such order may be amended at any time prior to the Effective
Date or, if appealed, then unless such appeal is withdrawn or denied, as
affirmed;
“Former Linear Shareholders”
means the holders of Linear Shares immediately prior to the Effective
Time;
“Interim Order” means the
interim order of the Court, as such order may be amended, pursuant to subsection
193(4) of the ABCA made in connection with the Arrangement;
“Letter of Transmittal” means
the letter of transmittal to be sent by Linear to the Former Linear Shareholders
to be used by the Former Linear Shareholders to surrender the certificates
representing their Linear Shares to receive certificates for the Apollo Shares
issued to them pursuant to the Arrangement;
G-2
“Linear” means Linear Gold
Corp., a corporation existing under the CBCA;
“Linear Meeting” means the
special meeting, including any adjournments or postponements thereof, of the
holders of Linear Shares held, among other things, to consider and, if deemed
advisable, approve the Arrangement;
“Linear Options” means the
outstanding options to purchase an aggregate of 2,770,000 Linear Shares issued
pursuant to the Linear Stock Option Plan;
“Linear Shares” means the
common shares in the capital of Linear;
“Linear Stock Option Plan”
means the amended share option plan of Linear adopted on September 29,
2006;
“Linear Warrants” means the
outstanding warrants to purchase an aggregate of 8,177,764 Linear
Shares;
“Plan of Arrangement” means
this plan of arrangement, as amended, modified or supplemented from time to time
in accordance herewith and with any order of the Court;
“Proxy Circular” means the
management information circular, including all schedules and exhibits thereto,
prepared by Linear with the assistance of Apollo in respect of the Linear
Meeting;
“Registrar” means the Registrar
of Corporations or Deputy Registrar of Corporations appointed pursuant to
Section 263 of the ABCA; and
“YBCA” means the Business Corporations Act
(Yukon).
In
addition, words and phrases used herein and defined in the ABCA shall have the
same meaning herein as in the ABCA unless the context otherwise
requires.
Section
1.02 Interpretation Not Affected by Headings
The division of this Plan of
Arrangement into articles, sections, paragraphs and subparagraphs and the
insertion of headings herein are for convenience of reference only and shall not
affect the construction or interpretation of this Plan of Arrangement. The terms
“this Plan of Arrangement”, “hereof”, “herein”, “hereto”, “hereunder” and
similar expressions refer to this Plan of Arrangement and not to any particular
article, section or other portion hereof and include any instrument
supplementary or ancillary hereto.
G-3
Section
1.03 Number, Gender and Persons
In this Plan of Arrangement, unless the
context otherwise requires, words importing the singular shall include the
plural and vice versa, words importing the use of either gender shall include
both genders and neuter and the word person and words importing persons shall
include a natural person, firm, trust, partnership, association, corporation,
joint venture or government (including any governmental agency, political
subdivision or instrumentality thereof) and any other entity of any kind or
nature whatsoever.
Section
1.04 Date for any Action
If the date on which any action is
required to be taken hereunder is not a Business Day, such action shall be
required to be taken on the next succeeding day which is a Business
Day.
Section
1.05 Statutory References
Any reference in this Plan of
Arrangement to a statute includes all regulations made thereunder, all
amendments to such statute or regulation in force from time to time and any
statute or regulation that supplements or supersedes such statute or
regulation.
Section
1.06 Time
Time shall be of the essence in every
matter or action contemplated hereunder.
Section
1.07 Currency
Unless otherwise stated, all references
herein to amounts of money are expressed in lawful money of Canada.
ARTICLE
2
ARRANGEMENT
AGREEMENT
Section
2.01 Arrangement Agreement
This Plan of Arrangement is made
pursuant to, and is subject to the provisions of, the Arrangement
Agreement.
Section
2.02 Effect of Arrangement
This Plan of Arrangement will become
effective at, and be binding at and after the Effective Time on the Former
Linear Shareholders, the holders of Linear Options and the holders of Linear
Warrants.
G-4
ARTICLE
3
ARRANGEMENT
Section
3.01 Arrangement
On the Effective Date, the following
shall occur and shall be deemed to occur in the following order without any
further act or formality:
(a) immediately
prior to the Effective Time, each Linear Share in respect of which Dissent
Procedures have been exercised shall be deemed to be transferred by the holder
thereof, without any further act or formality on its part, free and clear of all
liens, claims and encumbrances, to Apollo, with Apollo being obliged to pay
therefor the amount determined and payable in accordance with Article 5 hereof,
and the name of such holder will be removed from the register of holders of
Linear Shares and Apollo will be recorded as the registered holder of the Linear
Shares so transferred and will be deemed to be the legal and beneficial owner of
such Linear Shares;
(b) at
the Effective Time, the Amalgamating Corporations shall be amalgamated and
continue as one unlimited liability corporation under the ABCA on the terms
prescribed in this Plan of Arrangement (the “Amalgamation”)
and:
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(i)
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the
property of each Amalgamating Corporation continues to be the property of
the Corporation;
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(ii)
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the
Corporation continues to be liable for the obligations of each
Amalgamating Corporation;
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(iii)
|
an
existing cause of action, claim or liability to prosecution is
unaffected;
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(iv)
|
a
civil, criminal or administrative action or proceeding pending by or
against an Amalgamating Corporation may be continued to be prosecuted by
or against the Corporation;
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(v)
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a
conviction against, or ruling, order or judgment in favour of or against,
an Amalgamating Corporation may be enforced by or against the Corporation;
and
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(vi)
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the
Articles of Amalgamation are deemed to be the articles of incorporation of
the Corporation and the Certificate is deemed to be the certificate of
incorporation of the Corporation.
|
(c) immediately
upon the Amalgamation as set forth in subsection (b), all Linear Shares held by
Apollo Subco (if any) shall be cancelled without any repayment of capital in
respect thereof;
(d) immediately
upon the Amalgamation as set forth in subsection (b), all Linear Shares (other
than Linear Shares acquired by Apollo in accordance with subsection (a)) held by
Former Linear Shareholders (other than Dissenting Shareholders) shall be
exchanged with Apollo for Apollo Shares on the basis of 5.4742 Apollo Shares for
each Linear Share, subject to sections 3.03 and 5.01 hereof, and shall
thereafter be cancelled without any repayment of capital in respect
thereof. Each Former Linear Shareholder shall cease to be a holder of
Linear Shares and the name of such holder shall be removed from the securities
register of holders of Linear Shares and each Former Linear Shareholder shall be
added to the securities register of holders of Apollo Shares showing such holder
as the registered holder of the Apollo Shares so issued;
G-5
(e) immediately
upon the Amalgamation as set forth in subsection (b), each Linear Share acquired
by Apollo in accordance with subsection (a) shall be cancelled;
(f)
immediately
upon the Amalgamation as set forth in subsection (b), each Linear Option
outstanding immediately prior to the Effective Time shall be exchanged for an
option (an “Apollo Replacement
Option”) to acquire, on the terms and conditions set forth in the Apollo
Stock Option Plan, provided that the rights
of the holders under the Apollo Replacement Options shall not (as mutually
agreed to by Apollo and Linear, each acting reasonably) materially adversely
differ from the rights of the holders of such Linear Options outstanding
immediately prior to the Effective Time (and provided further that the
current employees of Linear holding Linear Options whose employment is
terminated in connection with the Arrangement shall have their Linear Options
exchanged for Apollo Replacement Options which shall expire on the earlier of:
(i) the current expiry date of the corresponding Linear Options; and (ii) the
first anniversary of the date of completion of the Arrangement), the number of
Apollo Shares (rounded to the nearest whole number) equal to the product of: (A)
the number of Linear Shares subject to such Linear Option immediately prior to
the Effective Time and (B) 5.4742. The exercise price per Apollo
Share subject to any such Apollo Replacement Option shall be an amount (rounded
to the nearest cent) equal to the quotient of: (A) the exercise price per Linear
Share subject to such Linear Option immediately prior to the Effective Time
divided by (B) 5.4742. The obligations of Linear under the Linear
Options as so exchanged shall be assumed by Apollo;
(g) immediately
upon the Amalgamation as set forth in subsection (b), each Linear Warrant
outstanding immediately prior to the Effective Time shall be exchanged for a
common share purchase warrant of Apollo (an “Apollo Replacement Warrant”)
exercisable to acquire, on the same terms and conditions as were applicable to
such Linear Warrant immediately prior to the Effective Time, the number of
Apollo Shares (rounded down to the nearest whole number) equal to the product
of: (A) the number of Linear Shares subject to such Linear Warrant immediately
prior to the Effective Time; and (B) 5.4742. The exercise price per
Apollo Share subject to any such Apollo Replacement Warrants shall be an amount
(rounded up to the nearest cent) equal to the quotient of: (A) the exercise
price per Linear Share subject to the such Linear Warrant immediately prior to
the Effective Time divided by (B) 5.4742. The obligations of Linear
under the Linear Warrants as so exchanged shall be assumed by Apollo and Apollo
agrees to use commercially reasonable best efforts to arrange for the Apollo
Replacement Warrants issued upon exchange of the Linear Listed Warrants to be
listed on the Toronto Stock Exchange and to maintain such listing until 5:00
p.m. (Halifax time) on November 19, 2014;
(h) immediately
upon the Amalgamation as set forth in subsection (b), each Apollo Share held by
Linear shall be cancelled without the payment of any consideration;
(i)
immediately upon the Amalgamation as set forth in subsection (b),
each common share of Apollo Subco shall be exchanged for one Common Share;
and
(j)
immediately upon the Amalgamation as set forth in subsection (b), the
Corporation shall be a wholly-owned subsidiary of Apollo and there shall not be
any issued or outstanding options, warrants or other rights or privileges to
acquire securities of the Corporation.
G-6
Section
3.02 Post-Effective Time Procedures
(a) On
or promptly after the Effective Date, Apollo shall issue from treasury and
deliver or arrange to be delivered to the Depositary certificates representing
the Apollo Shares required to be issued to Former Linear Shareholders in
accordance with the provisions of section 3.01 hereof, which certificates shall
be held by the Depositary as agent and nominee for such Former Linear
Shareholders for distribution to such Former Linear Shareholders in accordance
with the provisions of Article 6 hereof.
(b) Subject
to the provisions of Article 6 hereof, Former Linear Shareholders shall be
entitled to receive delivery of the certificates representing the Apollo Shares
to which they are entitled pursuant to subsection 3.01(d)
hereof. Certificates representing former Linear Shares, other than
those to which Article 5 applies, shall represent only the right to receive the
Apollo Shares to which the Former Linear Shareholder is entitled to receive
pursuant to the Arrangement.
(c) Apollo
shall, as soon as practicable following the later of the Effective Date and date
of deposit by a Former Linear Shareholder of a duly completed Letter of
Transmittal and the certificates representing such Linear shares,
either:
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(i)
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forward
or cause to be forwarded by first class mail (postage prepaid) to such
Former Linear Shareholder at the address specified in the Letter of
Transmittal; or
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(ii)
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if
requested by such Former Linear Shareholder in the Letter of Transmittal,
make available or cause to be made available at the Depository for pick-up
by such Former Linear Shareholder,
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certificates
representing the number of Apollo Shares issued to such Former Linear
Shareholder under the Arrangement.
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(d)
|
After
the Effective Time, the certificates representing the former Linear Shares
to which Article 5 herein applies shall represent only the right to
receive payment which the Dissenting Shareholders are entitled to receive
pursuant to Article 5.
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Section
3.03 No Fractional Apollo Shares
No fractional Apollo Shares shall be
issued to Former Linear Shareholders. Any fractional number of Apollo Shares
shall be rounded up or down to the nearest whole number.
ARTICLE
4
THE
CORPORATION
Section
4.01 Name
The name of the Corporation shall be
Linear Gold ULC or such number company name as may be assigned to the
Corporation.
G-7
Section
4.02 Registered Office
The registered office of the
Corporation shall be located in the City of Calgary in the Province of Alberta
and the address of the registered office of the Corporation shall be 1600,
333-7th Avenue
S.W., Calgary Alberta, T2P 2Z1.
Section
4.03 Authorized Capital
The Corporation shall be authorized to
issue an unlimited number of common shares (being the Common
Shares).
Section
4.04 Share Provisions
The rights, privileges, restrictions
and conditions attaching to the Common Shares shall be as follows:
(a) Voting. The holders of Common
Shares shall be entitled to receive notice of, and to vote at every meeting of
the shareholders of the Corporation and shall have one (1) vote thereat for each
such Common Share so held.
(b) Dividends. The holders of
Common Shares shall be entitled to receive such dividend as the directors may
from time to time, by resolution, declare.
(c) Liquidation. In the event of
liquidation, dissolution or winding up of the Corporation or upon any
distribution of the assets of the Corporation among shareholders being made
(other than by way of dividend out of monies properly applicable to the payment
of dividends) the holders of Common Shares shall be entitled to share pro
rata.
Section
4.05 Restrictions on Transfer
No transfer of shares of the
Corporation shall occur or be registered unless and until the directors have, by
a resolution, approved the transfer and the directors shall be under no
obligation to give such approval or to give any reason for withholding the
same.
Section
4.06 Stated Capital
At the Effective Time, the Corporation
shall add to the stated capital account maintained by the Corporation for the
Common Shares an amount equal to the aggregate of the amount of the stated
capital account maintained by Apollo Subco in respect of the common shares of
Apollo Subco immediately prior to the Effective Time and the amount of the
stated capital account maintained by Linear in respect of the Linear Shares
immediately prior to the Effective Time.
Section
4.07 Directors
(a) The
directors of the Corporation shall, until otherwise changed in accordance with
the ABCA, consist of a minimum number of one and a maximum number of fifteen
directors.
G-8
(b) The
number of directors on the board of directors shall initially be set at
one. The initial director of the Corporation immediately following
the Amalgamation shall be the person whose name and residential address appears
below:
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Name
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Municipality of
Residence
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Wade
K. Dawe
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Halifax,
Nova Scotia
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The
initial director shall hold office until the next annual meeting of the
shareholders of the Corporation or until his successors are elected or
appointed.
Section
4.08 Business and Powers
There shall be no restriction on the
business which the Corporation is authorized to carry on or on the powers which
the Corporation may exercise.
Section
4.09 By-Laws
The by-laws of the Corporation, until
repealed, amended or altered, shall be the by-laws of Apollo Subco.
ARTICLE
5
DISSENT
PROCEDURES
Section
5.01 Dissent Procedures
Holders of Linear Shares may exercise
Dissent Procedures with respect to Linear Shares in connection with the
Arrangement, provided that, notwithstanding the Dissent Procedures, the written
objection to the special resolution to approve the Arrangement contemplated by
Section 191 of the ABCA must be received by Linear no later than 5:00 p.m.
(Toronto time) on the Business Day immediately prior to the date of the Linear
Meeting or any date to which the Linear Meeting may be postponed or adjourned
and provided further that holders who exercise such rights of dissent and
who:
(a) are
ultimately entitled to be paid fair value for their Linear Shares, which fair
value shall be determined as of the close of business on the day before the
Final Order becomes effective, shall be paid an amount equal to such fair value
by Apollo; and
(b) are
ultimately not entitled, for any reason, to be paid fair value for their Linear
Shares shall be deemed to have participated in the Arrangement, as of the
Effective Time, on the same basis as a non-dissenting holder of Linear Shares
and shall be entitled to receive only the consideration contemplated in
subsection 3.01(d) hereof which such holder would have received pursuant to the
Arrangement if such holder had not exercised Dissent Procedures,
but
further provided that in no case shall Apollo, Apollo Subco, Linear or any other
person be required to recognize Dissenting Shareholders as holders of Linear
Shares after the Effective Time, and the names of such Dissenting Shareholders
shall be deleted from the register of holders of Linear Shares at the Effective
Time.
G-9
ARTICLE
6
DELIVERY
OF APOLLO SHARES
Section
6.01 Delivery of Apollo Shares
(a) Upon
surrender to the Depositary, as specified in the Letter of Transmittal, for
cancellation of a certificate which immediately prior to the Effective Time
represented one or more outstanding Linear Shares which were exchanged for
Apollo Shares in accordance with section 3.01 hereof, together with a completed
Letter of Transmittal and such other documents and instruments as would have
been required to effect the transfer of the Linear Shares formerly represented
by such certificate and such additional documents and instruments as the
Depositary may reasonably require, the holder of such surrendered certificate
shall be entitled to receive in exchange therefor, and the Depositary shall
deliver to such holder following the Effective Time, a certificate representing
the Apollo Shares which such holder is entitled to receive in accordance with
section 3.02 hereof.
(b) After
the Effective Time and until surrendered for cancellation as contemplated by
subsection 6.01(a) hereof, each certificate which immediately prior to the
Effective Time represented one or more Linear Shares shall be deemed at all
times to represent only the right to receive in exchange therefor a certificate
representing the Apollo Shares which the holder of such certificate is entitled
to receive in accordance with section 6.01(a) hereof.
Section
6.02 Lost Certificates
In the event that any certificate which
immediately prior to the Effective Time represented one or more outstanding
Linear Shares which were exchanged for Apollo Shares in accordance with section
3.01 hereof shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the holder claiming such certificate to be lost,
stolen or destroyed, the Depositary shall deliver in exchange for such lost,
stolen or destroyed certificate, a certificate representing the Apollo Shares
which such holder is entitled to receive in accordance with section 3.02 hereof.
When authorizing such delivery of a certificate representing the Apollo Shares
which such holder is entitled to receive in exchange for such lost, stolen or
destroyed certificate, the holder to whom a certificate representing such Apollo
Shares is to be delivered shall, as a condition precedent to the delivery of
such Apollo Shares, give a bond satisfactory to Apollo and the Depositary in
such amount as Apollo and the Depositary may direct, or otherwise indemnify
Apollo, Apollo Subco and the Depositary in a manner satisfactory to Apollo and
the Depositary, against any claim that may be made against Apollo, Apollo Subco
or the Depositary with respect to the certificate alleged to have been lost,
stolen or destroyed and shall otherwise take such actions as may be required by
the by-laws of the Corporation.
Section
6.03 Distributions with Respect to Unsurrendered
Certificates
No dividend or other distribution
declared or made after the Effective Time with respect to Apollo Shares with a
record date after the Effective Time shall be delivered to the holder of any
unsurrendered certificate which, immediately prior to the Effective Time,
represented outstanding Linear Shares unless and until the holder of such
certificate shall have complied with the provisions of section 6.01 or section
6.02 hereof. Subject to applicable law and to section 6.04 hereof, at the time
of such compliance, there shall, in addition to the delivery of a certificate
representing the Apollo Shares to which such holder is thereby entitled, be
delivered to such holder, without interest, the amount of the dividend or other
distribution with a record date after the Effective Time theretofore paid with
respect such Apollo Shares.
G-10
Section
6.04 Withholding Rights
Apollo and the Depositary shall be
entitled to deduct and withhold from all dividends or other distributions
otherwise payable to any Former Linear Shareholder such amounts as Apollo,
Apollo Subco or the Depositary is required or permitted to deduct and withhold
with respect to such payment under the Income Tax Act (Canada), the
United States Internal Revenue
Code of 1986, as amended, or any provision of any applicable federal,
provincial, state, local or foreign tax law, in each case, as amended. To the
extent that amounts are so withheld, such withheld amounts shall be treated for
all purposes hereof as having been paid to the Former Linear Shareholder in
respect of which such deduction and withholding was made, provided that such
withheld amounts are actually remitted to the appropriate taxing
authority.
Section
6.05 Limitation and Proscription.
To the extent that a Former Linear
Shareholder shall not have complied with the provisions of section 6.01 or
section 6.02 hereof on or before the date which is six years after the Effective
Date (the “final proscription date”), then the Apollo Shares which such Former
Linear Shareholder was entitled to receive shall be automatically cancelled
without any repayment of capital in respect thereof and the certificates
representing such Apollo Shares shall be delivered to Apollo by the Depositary
for cancellation and shall be cancelled by Apollo, and the interest of the
Former Linear Shareholder in such Apollo Shares shall be terminated as of such
final proscription date.
ARTICLE
7
AMENDMENTS
Section
7.01 Amendments to Plan of Arrangement
(a) Apollo
and Linear reserve the right to amend, modify or supplement this Plan of
Arrangement at any time and from time to time, provided that each such
amendment, modification or supplement must be (i) set out in writing, (ii)
agreed to in writing by Apollo and Linear, (iii) filed with the Court and, if
made following the Linear Meeting, approved by the Court, and (iv) communicated
to Former Linear Shareholders if and as required by the Court.
(b) Any
amendment, modification or supplement to this Plan of Arrangement may be
proposed by Linear at any time prior to the Linear Meeting provided that Apollo
shall have consented thereto in writing, with or without any other prior notice
or communication, and, if so proposed and accepted by the persons voting at the
Linear Meeting (other than as may be required under the Interim Order), shall
become part of this Plan of Arrangement for all purposes.
G-11
(c) Any
amendment, modification or supplement to this Plan of Arrangement that is
approved by the Court following the Linear Meeting shall be effective only if
(i) it is consented to in writing by each of Apollo and Linear, and (ii) if
required by the Court, it is consented to by holders of the Linear Shares voting
in the manner directed by the Court.
G-12
SCHEDULE
H
INTERIM
ORDER
[TO
BE INSERTED]
H-1
SCHEDULE
I
NOTICE
OF APPLICATION FOR FINAL ORDER
[TO
BE INSERTED]
I-1
SCHEDULE
J
APOLLO
GOLD CORPORATION
STOCK
OPTION INCENTIVE PLAN
(As
Amended and Restated ►, 2010)
WHEREAS, the Company adopted a
stock option incentive plan in December 2003;
WHEREAS the stock option
incentive plan was amended and restated on April 12, 2005, May 24, 2006, May 16,
2007 and May 7, 2009;
WHEREAS, the Company is
proposing to complete a business combination transaction with Linear Gold Corp.
(“Linear”) pursuant to
which Linear will amalgamate with a subsidiary of the Company, such amalgamated
corporation will become a wholly owned subsidiary of the Company and
securityholders of Linear will become securityholders of the Company in
accordance with the Arrangement Agreement (the “Transaction”);
WHEREAS, in connection with
the Transaction, the Company will, if all conditions and approvals required to
consummate the Transaction are satisfied, exchange options of the Company under
this stock option incentive plan for each outstanding option to purchase a
Linear common share (“Linear
Option”) granted under Linear’s stock option plan (the “Exchange”); and
WHEREAS, in order to effect
the Exchange, the Company must make certain amendments to the stock option
incentive plan.
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1.
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Definitions
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As used
herein, the following terms shall have the following meanings:
(a) “Affiliates”, each individually
an “Affiliate”, means
the affiliates of the Company, and for the purposes of the Plan “affiliate” shall have the
meaning ascribed to that term in the Securities Act
(Ontario);
(b) “Arrangement Agreement” means
that certain Arrangement Agreement, dated March 31, 2010, by and among the
Company, 1526735 Alberta ULC and Linear pursuant to which it is expected that
the businesses of the Company and Linear would be combined by way of a
court-approved plan of arrangement under the provisions of the Business Corporations Act
(Alberta);
(c) “Associate” shall have the
meaning ascribed to that term in the Securities Act
(Ontario);
(d) “Code” means the United States
Internal Revenue Code, as amended;
(e) “Common Shares” means the
common shares in the capital of the Company as such shares are subdivided,
consolidated, reclassified or changed from time to time;
(f) “Consultant” means a person or
company, other than an employee, senior officer, or director of the Company or
its Affiliates, that:
(i) is
engaged to provide services to the Company or its Affiliates, other than
services provided in relation to a distribution,
(ii)
provides the services under a written contract with the Company or its
Affiliates, and
(iii) spends
or will spend a significant amount of time and attention on the affairs and
business of the Company or its Affiliates,
and
includes, for an individual consultant, a company of which the individual
consultant is an employee or shareholder, and a partnership of which the
individual consultant is an employee or partner;
(g) “Eligible Person” means,
subject to all applicable laws:
J-1
(i) any
employee, officer, or director of the Company or its Affiliates;
(ii) any
trust of which an employee, officer, director of the Company or its Affiliates
is the sole beneficiary;
(iii) any
corporation that provides services to the Company or its Affiliates on an
on-going basis and which is wholly-owned by an employee, officer or director of
the Company or its Affiliates;
(iv) any
subsidiary of the Company;
(v) a
Consultant; or
(vi) any
holder of Linear Options immediately prior to the consummation of the
Transaction (“Linear
Recipient”).
(h) “Insider” means:
(i) an
insider as defined in the Securities Act (Ontario)
other than a person who falls within that definition solely by virtue of being a
director or senior officer of a subsidiary of the Company; and
(ii) an
associate of any person who is an insider by virtue of (i);
(i) “Option” means an option to
purchase Common Shares granted to an Eligible Person pursuant to the terms of
the Plan;
(j) “Outstanding Issue” means the
number of Common Shares that are outstanding on a non- diluted
basis;
(k) “Plan” means this amended and
restated stock option plan of the Company dated ►, 2010;
(l) “Share Compensation
Arrangements” means a stock option, stock option plan, employee stock
purchase plan or any other compensation or incentive mechanism involving the
issuance or potential issuance of Common Shares to one or more Eligible Persons,
including a share purchase from treasury which is financially assisted by the
Company by way of a loan, guarantee or otherwise; and
(m) “Subsidiary” shall have the
meaning ascribed to that term in the Securities Act
(Ontario).
|
2.
|
Purpose
of the Plan
|
The
purpose of the Plan is to (i) develop the interest of certain Eligible Persons
in the growth and development of the Company, and (ii) encourage selected
individuals to accept or continue employment with the Company or its Affiliates
by providing them with the opportunity, through the granting of stock options,
to acquire an increased proprietary interest in the Company.
|
3.
|
Implementation
|
The Plan
will be implemented in accordance with the terms hereof and will be structured
to comply with the rules of The Toronto Stock Exchange (the “TSX”), as amended from time to
time (the “TSX Rules”)
and the Code. The Plan is intended to qualify as an Incentive Stock
Option Plan pursuant to Section 422 of the Code.
J-2
4. Administration
The Plan
will be administered by the board of directors of the Company (the “Board”) or, in the Board’s
discretion, by a committee (the “Committee”) appointed by the
Board and consisting of not less than three members of the Board. Subject to the
provisions of the Plan, the Board or the Committee is authorized, in its sole
discretion, to make such determinations under and such interpretations of and
take such steps and actions in connection with the proper administration of the
Plan and such rules and regulations concerning the granting of the Options
pursuant to the Plan as it may deem necessary or advisable. All questions of
interpretation, implementation, and application of this Plan shall be determined
by the Board. Such determinations shall be final and binding on all persons. No
member of the Board or of the Committee will be liable for any action or
determination taken or made in good faith with respect to the Plan or any
Options granted under it. Any determination approved by a majority of the Board
or of the Committee will be deemed to be a determination of that matter by the
Board or the Committee, as the case may be. Members of the Board or the
Committee may be granted Options under the Plan. From and after such time as the
Company registers a class of equity securities under Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Plan
shall also be administered in accordance with the disinterested administrative
requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission
(“Rule 16b-3”), or any
successor rule thereto. In addition, to the extent necessary to cause Options
issued under the Plan to qualify as performance-based compensation under Code
Section 162(m), each member of the Committee shall an “outside director” within
the meaning of Code Section 162(m).
5. Number
of Shares Dedicated to the Plan
The
number of Common Shares reserved for issuance, set aside and made available to
the Board or Committee for the granting of Options to eligible grantees (the
“Reserved Common
Shares”) shall not exceed the lesser of: (a) 10% of the issued and
outstanding Common Shares, from time to time; and (b) ► Common Shares. All Options
granted under the Plan will conform to all applicable provisions prescribed by
the Plan and to such specific terms and conditions as may be determined by the
Board or the Committee at the time of making each grant, provided that such
terms and conditions are not inconsistent with the provisions hereof. Reserved
Common Shares for which an Option is granted under the Plan but not exercised
prior to the termination of such Option, whether through surrender, termination,
lapse or otherwise, shall be available for Options thereafter granted by the
Board or the Committee under the Plan. All Common Shares issued pursuant to the
exercise of the Options granted under the Plan shall be issued as fully-paid and
non-assessable shares.
6. Eligibility
The
persons who will be eligible to be granted Options pursuant to the Plan (“Participants”) will be such
Eligible Persons as the Board or the Committee shall determine. In determining
Options to be granted to Participants under the Plan, the Board or Committee
will give due consideration to the value of each such Eligible Person’s present
and potential contribution to the success of the Company or its
Affiliates.
7. Granting
of Options
(a) Subject
to the provisions herein set forth and after review of recommendations from time
to time by management for the granting of Options, the Board or Committee shall,
in its sole discretion, select those Participants to whom share Options under
the Plan shall be granted (an “Optionee”), fix the number of
Common Shares to be optioned to each, the date or dates on which such Options
shall be granted and the terms and conditions, within the limits prescribed in
paragraph 8, attaching to each Option.
(b) Subject
to the provisions contained herein, the following additional provisions shall be
applicable to Options granted under the Plan:
(i) the
number of Options issued to any one Optionee under the Plan in any one year
period shall not exceed ten percent (10%) of the number of Reserved Common
Shares;
(ii) the
number of “listed shares” issuable pursuant to the exercise of Options hereunder
to “insiders” (as such terms are defined in the TSX Company Manual) at any time
shall not exceed ten percent (10%) of the Company’s outstanding Common
Shares.
(iii) a
majority of the Reserved Common Shares will or may be issuable to Insiders of
the Company;
J-3
(iv) the
Reserved Common Shares, together with all of the Company’s other previously
established or proposed Share Compensation Arrangements, could result, at any
time in the number of Common Shares reserved for issuance under the Plan and
such other Share Compensation Arrangements exceeding the Reserved Common
Shares;
(v) each
Option shall be evidenced by a written stock option agreement (an “Option Agreement”), in form
satisfactory to the Company, executed by the Company and the Optionee; provided
however, that the failure by the Company, the Optionee, or both to execute an
Option Agreement shall not invalidate the granting of any Option;
(vi) the
Option Agreement executed by any Eligible Person who is a U.S. taxpayer shall
specify whether each Option it evidences is a non-qualified option (“NQO”) or an incentive stock
option (“ISO”).
Notwithstanding designation of any Option as an ISO or a NQO, if the aggregate
fair market value of the shares under Options designated as ISOs which would
become exercisable for the first time by any Optionee at a rate in excess of one
hundred thousand dollars ($100,000) in any calendar year (under all plans of the
Company), then unless otherwise provided in the Option Agreement or by the
Compensation Committee, such Options shall be NQOs to the extent of the excess
above one hundred thousand dollars ($100,000). For purposes of this paragraph,
Options shall be taken into account in the order in which they were granted, and
the fair market value of the shares shall be determined as of the time the
Option, with respect to such shares, is granted;
(vii) no
ISO granted to any person who owns, directly or by attribution, stock possessing
more than ten (10%) percent of the total combined voting power of all classes of
stock of the Company or any Affiliate ( a “Ten Percent Stockholder”)
shall be exercisable more than five (5) years after the date of
grant;
(viii) the
exercise price per Common Share under any Option granted to any Ten Percent
Stockholder shall in no event be less than one hundred and ten percent (110%) of
the fair market value of the stock covered by the Option at the time the Option
is granted; and
(ix) if
stock acquired upon exercise of an ISO is disposed of in a “disqualifying
disposition” within the meaning of Section 422 of the Code, the holder of the
stock immediately before the disposition shall notify the Company in writing of
the date and terms of the disposition and comply with any other requirements
imposed by the Company in order to enable the Company to secure any related
income tax deduction to which it is entitled.
8. Terms
and Conditions of the Options
The terms
and conditions of each Option granted under the Plan shall be set forth in an
Option Agreement. An Option Agreement shall include the following terms and
conditions (it being understood that the Board or the Committee may alter any of
the following terms and conditions, or impose additional terms and conditions,
to the extent required to comply with the terms of the Arrangement
Agreement):
(a) Number of Common Shares — The
Board or the Committee shall, in its sole discretion, but subject to the TSX
Rules, fix the aggregate number of Common Shares which are the subject of the
Option.
(b) Option Price — The Board or
the Committee shall fix the exercise price per Common Share under any Option
which shall not be less than the market price per Common Share at the time of
the grant, except in the case of any Option granted to a Linear Recipient in
which case the exercise price per Common Share for such Option shall be
determined in accordance with the formula set forth in the Arrangement
Agreement.
For the
purposes of this subparagraph 8(b), “market price per Common Share” at the time
of grant means:
(i) if
the exercise price per Common Share under the Option is in Canadian dollars, the
mean between the reported high and low sales prices in Canadian dollars on the
Toronto Stock Exchange (or if not then traded on such exchange, the closing
market price on the over-the-counter market in Toronto) of a Common Share on the
date the Option is granted by the Board or the Committee and if there be no sale
on such trading day, then the average of the closing bid and ask prices on such
trading day; or
J-4
(ii) if
the exercise price per Common Share under the Option is in United States
dollars, the greater of:
(A) the
mean between the reported high and low sales prices in Canadian dollars (such
prices converted into United States dollars using the Bank of Canada noon
nominal rate of exchange on the same date as such prices) on the Toronto Stock
Exchange of a Common Share on the date the Option is granted by the Board or the
Committee and if there be no sale on such trading day, then the average of the
closing bid and ask prices on such trading day; and
(B) the
mean between the reported high and low sales prices in United States dollars on
the AMEX of a Common Share on the date the Option is granted by the Board or the
Committee and if there be no sale on such trading day, then the average of the
closing bid and ask prices on such trading day,
provided
that if the Common Shares are not then traded on any public market, the Board in
its sole discretion (but subject to compliance with the TSX Rules) shall
determine “market price per Common Share” at the time of grant by application of
a method of valuation that the Board or the Committee determines in good faith
be a reasonable valuation method. Reference is made to paragraph 11 hereof as to
the limit to grants to one person.
(c) Payment — The full purchase
price for the Common Shares purchased under the Option shall unless otherwise
provided in the separate Option Agreement, be paid for in cash upon the exercise
thereof. An Optionee who is not already a shareholder shall have none of the
rights of a shareholder of the Company until Common Shares issuable pursuant to
this Option are issued to him.
(d) Term of Option/Vesting — No
Options shall be granted under this Plan after ten (10) years from the adoption
of the Plan by the Board of Directors. The Board or the Committee shall fix the
term of the Option which term shall not be for more than ten (10) years from the
date the Option is granted, subject to subparagraphs (e), (f) and (g) of this
paragraph 7. The Board or the Committee shall have discretion to determine any
vesting schedule to which an Option is subject.
(e) Death or Disability of Optionee
— In the event of the death of the Optionee prior to the end of the term
of the Option, where immediately prior to death such Optionee was an Eligible
Person, the Optionee or Optionee’s legal representative may:
(i) exercise
the Option to the extent that the Optionee was entitled to do so at the date of
his death at any time up to and including, but not after, a date one (1) year
following the date of death of the Optionee, or prior to the close of business
on the day of the expiry of the term of the Option, whichever is earlier; and at
any time up to and including, but not after, a date twelve (12) months following
the date of disability of the Optionee, or prior to the close of business on the
day of the expiry of the term of the Option, whichever is earlier;
and
(ii) with
the prior written consent of the Board or the Committee, exercise the Option to
purchase all or any of the optioned shares as the Board or the Committee may
designate but not exceeding the number of optioned shares that the Optionee
would have been entitled to otherwise had he survived or not been disabled. The
Option may be exercised at any time up to and including, but not after, the
respective dates set forth in paragraph (i) above.
J-5
(f) Resignation or Discharge for Cause of
Optionee — In the event of the resignation of the Optionee as an employee
of the Company or an Affiliate, or the discharge for “cause” of the Optionee as
an employee of the Company or an Affiliate, or in the case of any other Eligible
Person, in the event of the voluntary termination by the Optionee of the
contract with the Company or an Affiliate, or in the event of the termination of
the contract with an Eligible Person by the Company or an Affiliate for “cause”,
the Option shall in all respects, except as otherwise exercised as set forth
below in paragraph (g)(ii) hereof, cease and terminate. For the purposes of the
Plan, the determination by the Company that the Optionee was discharged, or that
a contract was otherwise terminated for “cause”, shall be binding on the
Optionee.
(g) Other Termination of Optionee
— In the event of the termination of employment of the Optionee, or in
the case of any other Eligible Person, the contract with the Company or an
Affiliate, other than as referred to in paragraphs (e) or (f) above, the
Optionee may:
(i) exercise
the Option to the extent that he was entitled to do so at the time of such
termination of employment or contract, at any time up to and including, but not
after, the date that is 30 days after the effective date of such termination of
employment or contract, or prior to the close of business on the day of the
expiry of the term of the Option, whichever is earlier; and
(ii) with
the prior written consent of the Board or the Committee, which consent may be
withheld in the Company’s sole discretion, exercise the Option to purchase all
or any of the optioned shares as the Board or the Committee may designate but
not exceeding the number of optioned shares that he would have been entitled to
otherwise had his employment or other contractual relationship with the Company
or an Affiliate been maintained for the term of the Option. The Option may be
exercised at any time up to and including, but not after, a date three (3)
months following the date of the said termination, or prior to the close of
business on the expiry of the term of the Option, whichever is
earlier.
(h) Non-Transferability of Option
— The Options granted under the Plan may not be transferred, assigned,
(except by will, by laws of descent or, in the case of a NQO, pursuant to a
qualified domestic relations order) encumbered or otherwise disposed of by the
Optionee, provided that nothing herein shall operate to restrict the transfer of
any Common Shares issued pursuant to the exercise of a particular Option granted
under the Plan. During the life of the Optionee, an Option shall be exercisable
only by Optionee.
(i) Exercise of Option — Subject
to the provisions of the Plan, an Option granted under the Plan shall be
exercised from time to time by the Optionee, or in the event of death, by his
legal representatives, by giving notice in writing on the notice of exercise
form addressed to the Company at its registered office, to the attention of the
Secretary of the Company, or to such other person as the Secretary may
designate, specifying the number of optioned shares in respect of which such
notice is being given, and unless otherwise specified, together with payment by
cash or certified cheque in full of the purchase price for the shares being
purchased.
(j) Change of Control — Anything
to the contrary in this Plan notwithstanding, Option Agreements approved by
resolution of the Board or Committee in the Board’s or Committee’s discretion
may provide that all or any part of the Options that are outstanding upon the
occurrence of an Effective Change in Control may continue to be exercised by the
Optionee holding such Options for such extended period up to and including the
normal expiry date of such Options notwithstanding any termination of such
Optionee’s status as an employee, officer, director or Consultant to the Company
or an Affiliate that may occur on or after the date of such Effective Change in
Control. As used in this paragraph 8(j), the term “Effective Change in Control”
means the occurrence, within a single transaction or series of transactions
occurring within the same 12-month period, of a change in the identity of
persons who individually or collectively hold rights to elect, or to approve the
election of, a majority of the members of the Board, including, without
limitation, transactions consisting of one or more sales or other transfers of
assets or equity securities, mergers, consolidations, amalgamations,
reorganizations, or any similar transactions.
J-6
9. Change
in Structure of Capital/Change of Control
(a) Changes in Capital Structure —
Appropriate adjustments in the number of Common Shares optioned and in the
option price per Common Share, relating to Options granted or to be granted,
shall be made by the Board or the Committee, in its sole discretion, to give
effect to adjustments in the number of Common Shares of the Company resulting,
subsequent to the approval of the Plan by the shareholders of the Company from
any subdivisions, consolidations or reclassification of the Common Shares of the
Company, or other relevant changes in the capital structure of the Company, or
the payment of stock dividends other than in the ordinary course of business by
the Company; provided that the Board or the Committee has obtained advice of its
tax advisors that such adjustment will not likely result in the imposition of
additional tax and interest under Code Section 409A.
(b) Corporate Transactions — In
connection with (i) any merger, consolidation, acquisition, separation, or
reorganization in which more than fifty percent (50%) of the shares of the
Company outstanding immediately before such event are converted into cash or
into another security, (ii) any dissolution or liquidation of the Company or any
partial liquidation involving fifty percent (50%) or more of the assets of the
Company, (iii) any sale of more than fifty percent (50%) of the Company’s
assets, or (iv) any like occurrence in which the Company is involved, the Board
or the Compensation Committee may, in its absolute discretion, do one or more of
the following upon ten (10) days’ prior written notice to all Optionees: (a)
accelerate any vesting schedule to which an Option is subject; (b) cancel
Options upon payment to each Optionee in cash, with respect to each Option to
the extent then exercisable, of any amount which, in the absolute discretion of
the Board or the Compensation Committee, is determined to be equivalent to any
excess of the market value (at the effective time of such event) of the
consideration that such Optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new Option rights be
substituted for the Option rights granted under this Plan, or that the Company’s
obligations as to Options outstanding under this Plan be assumed, by an employer
corporation other than the Company or by a parent or subsidiary of such employer
corporation; provided that the Board or the Committee has obtained advice of its
tax advisors that such substitution will not likely result in the imposition of
additional tax and interest under Code Section 409A. The actions described in
this paragraph may be taken without regard to any resulting tax consequence to
the Optionee.
10. Amendment
or Discontinuance of Plan
The Board
may amend the Plan at any time subject to prior approval of the TSX and
compliance with the applicable TSX Rules.
11. Limit
to Grants
(a) The
number of securities issuable to Insiders, at any time, under all security based
compensation arrangements, cannot exceed 10% of the Outstanding
Issue;
(b) the
number of securities issued to Insiders, within any one year period, under all
security based compensation arrangements, cannot exceed 10% of the Outstanding
Issue; and
(c) the
number of Common Shares reserved for issuance to any one person pursuant to the
grant of Options under the Plan or otherwise may not exceed 5% of the
Outstanding Issue. In addition, the issuance of Common Shares to any Insider and
his or her associates under the Plan, within a one-year period, shall not exceed
5% of the Outstanding Issue.
12. Miscellaneous
(a) No
Rights as a Shareholder
Nothing
contained in the Plan nor in any Option granted hereunder shall be deemed to
give any Optionee any interest or title in or to any Common Shares of the
Company or any rights as a shareholder of the Company or any other legal or
equitable right against the Company whatsoever other than as set forth in the
Plan and pursuant to the exercise of any Option.
J-7
(b) Approval
by Shareholders
Should
any regulatory authority require, the Plan shall be subject to the approval of
the shareholders of the Company to be given by resolution approved by a simple
majority of votes cast at the next Annual and Special Meeting of Shareholders
and the approval of all regulatory authorities having jurisdiction.
Notwithstanding the foregoing, certain shareholders may not be permitted to
participate in a vote on the Plan as required by regulatory authorities having
jurisdiction. Any Options granted prior to such approvals shall be conditional
upon and suspended until such approvals have been given.
(c) Renewal
of Plan
Subject
to paragraph 11(b), the approval of the Plan, as then amended and in effect, by
shareholders of the Company shall be renewed at the Annual and Special Meeting
of Shareholders every three years.
(d) Employment
Nothing
contained in the Plan shall confer upon any Participant any right with respect
to employment or continuance of employment or other relationship with the
Company or any Affiliate, or interfere in any way with the right of the Company
or any Affiliate to terminate such employment or other relationship at any time.
Participation in the Plan by a Participant is voluntary.
(e) Record
Keeping
The
Company shall maintain a register in which shall be recorded:
(i) the
name and address of each Participant; and
(ii) the
number of Options granted to a Participant and the number of Options
outstanding.
(f) Administration
of the Plan
The Board
or the Committee is authorized to interpret the Plan from time to time and to
adopt, amend and rescind rules and regulations for carrying out such Plan
provided, however, that no amendment shall be made to the Plan without the prior
approval of the TSX. The interpretation and construction of any provision of the
Plan by the Board or the Committee shall be final and conclusive. Administration
of the Plan shall be the responsibility of the appropriate officers of the
Company and all costs in respect thereof shall be paid by the
Company.
(g) Income
Taxes
As a
condition of and prior to participation in the Plan a Participant shall
authorize the Company in written form to withhold from any remuneration
otherwise payable to such Participant any amounts required by any taxing
authority to be withheld for taxes of any kind as a consequence of such
participation in the Plan.
(h) No
Representation or Warranty
The
Company makes no representation or warranty as to the future market value of any
Common Shares issued in accordance with the provisions of the Plan.
J-8
(i)
Interpretation
The Plan
will be governed by and construed in accordance with the laws of the Province of
Ontario.
(j)
Financial Assistance
Subject
to compliance with applicable corporate and securities laws, the Board may at
any time authorize the Company to loan money to a Participant in order to assist
him or her to exercise Options granted under the Plan. Such loan shall be
provided on a non-recourse basis, shall be non-interest bearing and shall be on
such other terms and conditions to be determined from time to time by the
Board.
(k) Compliance
with Applicable Law, etc.
If any
provision of the Plan or any agreement entered into pursuant to the Plan
contravenes any law or any order, policy, by-law or regulation of any regulatory
body or stock exchange having authority over the Company or the Plan then such
provision shall be deemed to be amended to the extent required to bring such
provision into compliance therewith. Subject to compliance with applicable
securities legislation, grants of Options pursuant to the Plan may be made prior
to the receipt of the necessary approvals required by the TSX Rules provided
that the Option agreements evidencing such grants shall specify that they shall
not be exercisable, in whole or in part, unless such approvals are
received.
(l)
Option Pricing and Undisclosed Material
Information
Option
exercise prices shall not be determined hereunder based upon market prices which
are not reflective of material information of which management is aware but
which has not been publicly disclosed in accordance with applicable securities
legislation unless the grantee is neither an employee nor an Insider of the
Company or its Affiliates at the time that the exercise price is
determined.
(m) Compliance
with Code Section 409A
Although
the Company intends that Options will be exempt from, or will comply with, the
requirements of Code Section 409A, the Company does not warrant that any Option
under the Plan will qualify for favorable tax treatment under Code Section 409A
or any other provision of federal, state, local or foreign law. The Company
shall not be liable to any participant in the Plan for any tax, interest or
penalties such participant might owe as a result of the grant, holding, vesting
or exercise of any Option under the Plan. If, at any time, tax advisors to the
Company determine that the terms of any outstanding Option result in additional
tax or interest to the holder under Code Section 409A, the Board or the
Committee shall have the authority to enter into an amendment of such Option,
consistent with the purposes of this Plan, that is designed to avoid such
additional tax or interest.
J-9
SCHEDULE
K
SHAREHOLDER
RIGHTS PLAN
APOLLO
GOLD CORPORATION
-
and -
CIBC
MELLON TRUST COMPANY
SHAREHOLDER
RIGHTS PLAN AGREEMENT
K-1
Table
of Contents
|
Page
|
|||
|
Article
1
|
INTERPRETATION
|
K-4
|
|
|
1.1
|
Certain
Definitions
|
K-4
|
|
|
1.2
|
Currency
|
K-11
|
|
|
1.3
|
Descriptive
Headings
|
K-11
|
|
|
1.4
|
References
to Agreement
|
K-11
|
|
|
1.5
|
Grandfather
Provision
|
K-11
|
|
|
1.6
|
Calculation
of Number and Percentage of Beneficial Ownership of Outstanding Voting
Shares
|
K-12
|
|
|
1.7
|
Acting
Jointly or in Concert
|
K-12
|
|
|
Article
2
|
THE
RIGHTS
|
K-12
|
|
|
2.1
|
Legend
on Certificates
|
K-12
|
|
|
2.2
|
Execution,
Authentication, Delivery and Dating of Rights Certificates
|
K-13
|
|
|
2.3
|
Registration,
Registration of Transfer and Exchange
|
K-13
|
|
|
2.4
|
Mutilated,
Destroyed, Lost and Stolen Rights Certificates
|
K-14
|
|
|
2.5
|
Persons
Deemed Owners of Rights
|
K-14
|
|
|
2.6
|
Delivery
and Cancellation of Certificates
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K-14
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2.7
|
Agreement
of Rights Holders
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K-14
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2.8
|
Rights
Certificate Holder Not Deemed a Shareholder
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K-15
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Article
3
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EXERCISE
OF THE RIGHTS
|
K-15
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3.1
|
Initial
Exercise Price; Exercise of Rights; Detachment of Rights
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K-15
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3.2
|
Adjustments
to Exercise Prices; Number of Rights
|
K-18
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Article
4
|
ADJUSTMENTS
TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS
|
K-22
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|
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4.1
|
Flip-in
Event
|
K-22
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Article
5
|
THE
RIGHTS AGENT
|
K-23
|
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5.1
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General
|
K-23
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5.2
|
Merger
or Amalgamation or Change of Name of Rights Agent
|
K-23
|
|
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5.3
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Duties
of Rights Agent
|
K-24
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5.4
|
Change
of Rights Agent
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K-25
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Article
6
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MISCELLANEOUS
|
K-26
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|
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6.1
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Redemption
and Waiver
|
K-26
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6.2
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Expiration
|
K-27
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|
|
6.3
|
Shareholder
Review
|
K-27
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|
|
6.4
|
Issuance
of New Rights Certificate
|
K-27
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|
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6.5
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Fractional
Rights and Fractional Shares
|
K-28
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|
|
6.6
|
Supplements
and Amendments
|
K-28
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|
|
6.7
|
Rights
of Action
|
K-29
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|
|
6.8
|
Notice
of Proposed Actions
|
K-29
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|
6.9
|
Notices
|
K-30
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|
|
6.10
|
Costs
of Enforcement
|
K-30
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|
|
6.11
|
Successors
|
K-30
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|
|
6.12
|
Benefits
of this Agreement
|
K-31
|
|
|
6.13
|
Governing
Law
|
K-31
|
|
|
6.14
|
Language
|
K-31
|
|
|
6.15
|
Approvals
|
K-31
|
|
|
6.16
|
Declaration
as to Non-Canadian Holders
|
K-31
|
|
|
6.17
|
Counterparts
|
K-31
|
|
|
6.18
|
Severability
|
K-31
|
|
|
6.19
|
Effective
Date
|
K-32
|
|
|
6.20
|
Successors
|
K-32
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|
|
6.21
|
Time
of the Essence
|
K-32
|
K-2
SHAREHOLDER
RIGHTS PLAN AGREEMENT
MEMORANDUM OF AGREEMENT made
as of the 17th day of
January, 2007.
BETWEEN:
APOLLO GOLD CORPORATION, a
corporation existing under the laws of the Yukon Territory,
(hereinafter
called the “Corporation”)
OF THE
FIRST PART
- and
-
CIBC MELLON TRUST COMPANY, a
trust company existing under the laws of Canada, as Rights Agent
(hereinafter
called the “Rights Agent”)
OF THE
SECOND PART
WHEREAS in order to maximize
shareholder value and ensure equal treatment of shareholders in transactions
affecting control of the Corporation, 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”);
AND WHEREAS in order to
implement the Rights Plan the Board of Directors of the Corporation
has:
1.
Authorized the issuance of one right (a “Right”) in respect of each
Common Share (as hereinafter defined) of the Corporation outstanding at the
Close of Business on January 17, 2007 (the “Record Time”), such
distribution to be made to Shareholders of record at the Record Time;
and
2.
Authorized the issuance of one Right in respect of each
Common Share 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
entitles the holder thereof, after the Separation Time, to purchase securities
of the Corporation (or, in certain cases, of certain other entities) 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
holders of Rights, and the Rights Agent is willing so to 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,
the parties hereby agree as follows:
K-3
ARTICLE
1
INTERPRETATION
1.1 Certain
Definitions
For the
purposes of this Agreement, the following terms have the meanings
indicated:
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|
(a)
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“Acquiring Person”
means, subject to section 1.5, any Person who is the Beneficial Owner of
20% or more of the outstanding Voting Shares of the Corporation; provided,
however, that the term “Acquiring Person” shall
not include:
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|
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(i)
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the
Corporation or any Subsidiary of the
Corporation;
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(ii)
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any
Person who becomes the Beneficial Owner of 20% or more of the outstanding
Voting Shares of the Corporation as a result of one or any combination
of:
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(A)
|
an
acquisition or redemption by the Corporation or a Subsidiary of the
Corporation of Voting Shares of the Corporation that, by reducing the
number of Voting Shares of the Corporation outstanding, increases the
percentage of outstanding Voting Shares of the Corporation Beneficially
Owned by such Person to 20% or
more;
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(B)
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share
acquisitions made pursuant to a Permitted Bid or a Competing Permitted Bid
(“Permitted Bid
Acquisitions”);
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(C)
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share
acquisitions in respect of which the Board of Directors has waived the
application of section 4.1 pursuant to the provisions of subsection
6.1(f), 6.1(g) or 6.1(h) or that were made on or prior to the date of this
Agreement (“Exempt
Acquisitions”); or
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(D)
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share
acquisitions pursuant to Pro-Rata
Acquisitions;
|
provided,
however, that if a Person shall become the Beneficial Owner of 20% or more of
the Voting Shares of the Corporation then outstanding by reason of share
acquisitions or redemptions by the Corporation or a Subsidiary of the
Corporation, Permitted Bid Acquisitions, Exempt Acquisitions, Pro-Rata
Acquisitions or Convertible Security Acquisition and, after such share
acquisitions or redemptions by the Corporation or a Subsidiary of the
Corporation or Permitted Bid Acquisitions, Exempt Acquisitions or Pro-Rata
Acquisitions, such Person, while such Person is the Beneficial Owner of 20% of
more of the Voting Shares of the Corporation then outstanding, becomes the
Beneficial Owner of an additional 1% of outstanding Voting Shares of the
Corporation other than pursuant to such share acquisitions or redemptions or
pursuant to Permitted Bid Acquisitions or through Exempt Acquisitions or as a
result of a Pro-Rata Acquisition, then as of the date such Person becomes the
Beneficial Owner of such additional outstanding Voting Shares, such Person shall
be an “Acquiring
Person”;
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(iii)
|
for
the period of 10 days after the Disqualification Date (as hereinafter
defined), any Person who becomes the Beneficial Owner of 20% or more of
the outstanding Voting Shares of the Corporation as a result of such
Person becoming disqualified from relying on clause 1.1(d)(iv) hereof
where such disqualification results solely because such Person has made or
proposes to make a Take-over Bid in respect of securities of the
Corporation alone or by acting jointly or in concert with any other Person
the first date of public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed pursuant to
the Securities Act) by such Person or the Corporation of the intent of
such Person to commence such a Take-over Bid being herein referred to as
the “Disqualification
Date”; and
|
K-4
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|
(iv)
|
an
underwriter or member of a banking or selling group that acquires Shares
from the Corporation in connection with the distribution of
securities.
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(b)
|
“Affiliate” when used to
indicate a relationship with a specified Person, shall mean a Person that
controls, or is controlled by, or is under common control with, such
specified Person.
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(c)
|
“Associate” means any
spouse of such specified Person or any person of the same or opposite sex
to whom such specified Person is married or with whom such specified
Person is living in a conjugal relationship outside marriage, or any
relative of such specified Person, such spouse or other person who has the
same home as such specified Person;
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(d)
|
Subject
to section 1.5, a Person shall be deemed the “Beneficial Owner” of,
and to have “Beneficial
Ownership” of, and to “Beneficially
Own”:
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|
|
(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;
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|
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(ii)
|
any
securities as to which such Person or any of such Person’s Affiliates or
Associates has, directly or indirectly the right to acquire (whether such
right is exercisable immediately or upon the occurrence of a contingency)
within 60 days pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and banking
group or selling group members with respect to a distribution of
securities and other than pledges of securities in the ordinary course of
business) or upon the exercise of any conversion right, exchange right,
share purchase right (other than a Right), warrant or option ;
and
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(iii)
|
any
securities that are Beneficially Owned, directly or indirectly, within the
meaning of the foregoing provisions of this subsection 1.1(d) 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:
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(iv)
|
because
(A) the holder of such security has agreed to deposit or tender such
security to a Take-Over Bid made by such Person or any of such Person’s
Affiliates or Associates or to any other Person referred to in clause
(iii) of this definition pursuant to a Permitted Lock-Up Agreement or (B)
such security has been deposited or tendered pursuant to any Take-over Bid
made by such Person or made by any of such Person’s Affiliates or
Associates or any other Person referred to in clause (iii) of this
definition until such deposited security has been taken up or paid for,
whichever shall occur first;
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|
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(v)
|
because
such Person holds such security; provided
that:
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|
|
(A)
|
the
ordinary business of such Person (the “Investment Manager”) is
the management of investment funds for others 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 managed account of
any other Person; or
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|
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(B)
|
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 or in relation to other accounts and holds such security in the
ordinary course of such duties for the estate of any such deceased or
incompetent Person (each an “Estate Account”) or
such other accounts (each an “Other Account”);
or
|
K-5
|
|
(C)
|
such
Person is 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 or various public bodies;
or
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|
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(D)
|
such
Person (the “Administrator”) is the
administrator or trustee of one or more pension funds or plans (a “Plan”), or is a Plan,
registered under the laws of Canada or any Province thereof or the laws of
the United States of America or any State thereof;
or
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(E)
|
such
person is a Crown Agent or agency;
|
provided,
in any of the above cases mentioned in clauses A, B, C, D or E above, that the
Investment Manager, the Trust Company, the Statutory Body, the Administrator or
the Plan, or Crown Agency, as the case may be, is not then making a Take-over
Bid or has not then announced a current intention to make a Take-over Bid, other
than an Offer to Acquire Voting Shares or other securities (x) by means of a
distribution by the Corporation or by means of ordinary market transactions
(including prearranged 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, (y) pursuant to a distribution by the Corporation
or (z) by means of a Permitted Bid;
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|
(vi)
|
because
such Person is a Client of the same Investment Manager as another Person
on whose account the Investment Manager holds such security, or because
such Person is an Estate Account or an Other Account of the same Trust
Company as another Person on whose account the Trust Company holds such
security, or because such Person is a Plan with the same Administrator as
another Plan on whose account the Administrator holds such securities;
or
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|
|
(vii)
|
because
such Person is a Client of an Investment Manager and such security is
owned at law or in equity by the Investment Manager or because such Person
is 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 such Person
is a Plan and such security is owned at law or in equity by the
Administrator; or
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|
|
(viii)
|
because
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.
|
For
purposes of this Agreement in determining the percentage of the outstanding
Voting Shares with respect to which a Person is or is deemed to be the
Beneficial Owner, any unissued Voting Shares as to which such Person is deemed
the Beneficial Owner pursuant to this subsection 1.1(d) shall be deemed
outstanding.
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|
(e)
|
“Board of Directors”
means the board of directors of the Corporation, or if duly constituted
and whenever duly empowered, the executive committee of the board of
directors of the Corporation;
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|
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(f)
|
“Business Day” means any
day other than a Saturday, a Sunday or a day on which banking institutions
in Toronto, Ontario are authorized or obligated by law to
close;
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|
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(g)
|
“Close of Business” on
any given date means the time of such date (or, if such date is not a
Business Day, the time on the next succeeding Business Day) at which the
offices of the transfer agent for the Common Shares in Toronto (or, after
the Separation Time, the offices of the Rights Agent in Toronto) are
closed to the public;
|
K-6
|
|
(h)
|
“Common Shares”, when
used with reference to the Corporation, shall mean the Common Shares in
the capital of the Corporation;
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(i)
|
“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;
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|
|
(ii)
|
satisfies
all components of the definition of a Permitted Bid other than the
requirement in clause (ii) thereof;
and
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|
|
(iii)
|
contains,
and the take-up and payment for securities tendered or deposited is
subject to, irrevocable and unqualified provisions that no Voting Shares
shall be taken up or paid for pursuant to the Take-over Bid prior to the
Close of Business on a date that is no earlier than the later of (i) 35
days after the date of the Take-over Bid, and (ii) the 60th day after the
earliest date on which any other Permitted Bid that is then in existence
was made.
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(j)
|
“controlled”: a body
corporate is “controlled” by another Person if, and only
if:
|
|
|
(i)
|
securities
entitled to vote in the election of directors carrying more than 50% 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 body
corporate;
|
and
“controls”, “controlling”, “under common control with”
shall be interpreted accordingly.
|
|
(k)
|
“Convertible Security”
means, with respect to any security, a security convertible into or
exchangeable for the first-mentioned
security.
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|
|
(l)
|
“Convertible Security
Acquisition” means the acquisition of Voting Shares upon the
exercise of a Convertible Security received by a Person pursuant to a
Permitted Bid Acquisition, an Exempt Acquisition or a Pro-Rata
Acquisition.
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|
|
(m)
|
“Exempt Acquisition”
shall have the meaning ascribed thereto in subclause
1.1(a)(ii)(C);
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|
|
(n)
|
“Exercise Price” shall
mean, as of any date, the price at which a holder of a Right may purchase
the securities issuable upon exercise of such Right. Until adjustment
thereof in accordance with the terms hereof, the Exercise price for each
Right shall be $100;
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(o)
|
“Expiration Time” shall
mean the earlier of
|
|
|
(i)
|
the
Termination Time; and
|
|
|
(ii)
|
subject
to section 6.19, the Close of Business on the 5th anniversary of the date
hereof;
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|
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(p)
|
“Flip-in Event” shall
mean a transaction occurring subsequent to the date of this Agreement as a
result of or pursuant to which any Person shall become an Acquiring
Person, provided that a Flip-in Event shall be deemed to occur at the
Close of Business on the 10th day (or such earlier day as the Board of
Directors may determine) after the Share Acquisition
Date;
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|
|
(q)
|
“Independent
Shareholders” means holders of Voting Shares of the Corporation
other than Voting Shares of the Corporation Beneficially Owned
by:
|
|
|
(i)
|
any
Acquiring Person;
|
K-7
|
|
(ii)
|
any
Offeror, other than a person described in subclause 1.1(d)(v)
hereof;
|
|
|
(iii)
|
any
Associate or Affiliate of any such Acquiring Person or and
Offeror;
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|
|
(iv)
|
any
Person acting jointly or in concert with such Acquiring Person or Offeror;
and
|
|
|
(v)
|
any
employee benefit plan, deferred profit sharing plan and any similar plan
or trust for the benefit of employees of the Corporation unless the
beneficiaries of the plan or trust direct the manner in which the Voting
Shares are to be voted or withheld from voting or direct whether the
Voting Shares are to be tendered to a Take-over
Bid.
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|
|
(r)
|
“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 3.2 shall have caused the closing price in respect of
any Trading Day used to determine the Market Price 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 3.2 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:
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|
|
(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 share of
such securities as reported by the principal stock exchange in Canada on
which such securities are listed and posted for
trading;
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|
|
(ii)
|
if
the securities are not listed and posted for trading on any stock exchange
in Canada, the last sale price, regular way, or, in case no such sale
takes place on such date, the average of the closing bid and asked prices,
regular way, for each share of such securities as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the principal national
securities exchange in the United States on which such securities are
listed or admitted to trading;
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|
|
(iii)
|
if
for any reason none of such prices is available on such day or the
securities are not listed and posted for trading on a stock exchange in
Canada or a national securities exchange in the United States, the last
quoted price, or if not so quoted, the average of the reported high bid
and low asked prices for each share of such securities in an
over-the-counter market then in use;
or
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|
|
(iv)
|
if
on any such date the securities are not quoted by any such organization,
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 on any such date the securities are not traded on any exchange
or in the over-the-counter market, the closing price per share of such
securities on such date shall mean the fair value per share of such securities
on such date determined by a recognized investment dealer or investment banker
with respect to the fair value per share of such securities.
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|
(s)
|
“Permitted Bid” means a
Take-over Bid that complies with the following
provisions:
|
|
|
(i)
|
the
Take-over Bid is made by way of a Take-over Bid circular delivered to all
holders of Voting Shares of the Corporation or registered on the books of
the Corporation;
|
K-8
|
|
(ii)
|
the
Take-over Bid shall contain, and the take up and payment for securities
tendered or deposited thereunder shall be subject to, an irrevocable and
unqualified condition that no Shares shall be taken up or paid for
pursuant to the Take-over Bid prior to the Close of Business or a date
which is not less than 60 days following the date of the Take-over
Bid;
|
|
|
(iii)
|
the
Take-over Bid shall contain irrevocable and unqualified provisions that
all Shares may be deposited pursuant to the Take-over Bid at any time
prior to the Close of Business on the date referred to in clause (ii)
hereof and that all Shares deposited pursuant to the Take-over Bid may be
withdrawn at any time prior to the Close of Business on such
date;
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|
|
(iv)
|
the
Take-over Bid shall contain an irrevocable and unqualified condition that
not less than 50 percent of the then outstanding Voting Shares owned by
Independent Shareholders must be deposited to the Take-over Bid and not
withdrawn at the Close of Business on the date referred to in clause (iii)
hereof;
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|
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(v)
|
the
Take-over Bid shall contain an irrevocable and unqualified provision that,
should the condition referred to in clause (iv) hereof be met, the Offeror
will make a public announcement of that fact, the Take-over Bid will be
extended on the same terms for a period of not less than 10 Business Days
from the date of such public
announcement;
|
The term
“Permitted Bid” shall
include a Competing Permitted Bid.
|
|
(t)
|
“Permitted Bid
Acquisitions” shall have the meaning ascribed thereto in subclause
1.1(a)(ii)(B);
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(u)
|
“Permitted Lock-Up
Agreement” means an agreement between an Offeror, any of its
Affiliates or Associates or any other Person acting jointly or in concert
with the Offeror and a Person (the “Locked-up Person”) who
is not an Affiliate or Associate of the Offeror or a Person acting jointly
or in concert with the Offeror whereby the Locked-up Person agrees to
deposit or tender Voting Shares held by the Locked-up Person to the
Offeror’s Take-over Bid or to any Take-over Bid made by any of the
Offeror’s Affiliates or Associates or made by any other Person acting
jointly or in concert with the Offeror (the “Lock-up Bid”), provided
that:
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|
(i)
|
the
agreement:
|
|
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(A)
|
permits
the Locked-up Person to withdraw the Voting Shares from the agreement in
order to tender or deposit the Voting Shares to another Take-over Bid or
to support another transaction that contains an offering price for each
Voting Share that is higher than the offering price contained in or
proposed to be contained in the Lock-up
Bid;
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|
|
(B)
|
(a)
permits the Locked-up Person to withdraw the Voting Shares from the
agreement in order to tender or deposit the Voting Shares to another
Take-over Bid or to support another transaction that contains an offering
price for each Voting Share that exceeds by as much as or more than a
specified amount (the “Specified Amount”) the
offering price for each Voting Share contained in or proposed to be
contained in the Lock-up Bid; and (b) does not by its terms provide for a
Specified Amount that is greater than 7% of the offering price contained
in or proposed to be contained in the Lock-up Bid;
and
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|
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(ii)
|
no
“break-up” fees,
“top-up” fees,
penalties or other amounts that exceed in the aggregate one half of the
cash equivalent of any amount in excess of the amount offered under the
Lock-up Bid and that the Locked-up Person receives pursuant to another
Take-over Bid or transaction shall be payable pursuant to the agreement in
the event that the Locked-up Person fails to tender Voting Shares pursuant
thereto in order to accept the Take-over Bid or support another
transaction.
|
K-9
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(v)
|
“Person” shall include
any individual, firm, partnership, association, trust, trustee, executor,
administrator, legal personal representative, group, body corporate,
corporation, unincorporated organization, syndicate or other
entity;
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(w)
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“Pro Rata Acquisition”
shall mean an acquisition of Voting Shares of the Corporation (i) as a
result of a stock dividend, a stock split, or other event pursuant to
which such Person receives or acquires Voting Shares of the Corporation or
Convertible Securities on the same pro rata basis as all other holders of
Voting Shares of the same class or series of the Corporation, or (ii)
pursuant to a regular dividend reinvestment or other plan of the
Corporation made available by the Corporation to the holders of Voting
Shares of the Corporation to subscribe for or purchase Voting Shares of
the Corporation or Convertible Securities, provided that such rights are
acquired directly from the Corporation and not from any other Person, or
(iv) pursuant to a distribution by the Corporation of Voting Shares, or
securities convertible into or exchangeable for Voting Shares or
Convertible Securities, pursuant to a prospectus or a securities exchange
take-over, bid circular, or to an amalgamation, merger or other statutory
procedure requiring shareholders’ approval, or (v) pursuant to a
distribution by the Corporation of Voting Shares or Convertible Securities
by way of a private placement by the Corporation or upon the exercise by
an individual employee of stock options granted under a stock option plan
of the Corporation or rights to purchase securities granted under a share
purchase plan of the Corporation, provided that (1) all necessary stock
exchange approvals for such private placement, stock option plan or share
purchase plan have been obtained and such private placement, stock option
plan or share purchase plan complies with the terms and conditions of such
approvals and (2) such Person does not become the Beneficial Owner of more
than 25% of the Voting Shares outstanding immediately prior to the
distribution, and in making this determination the Voting Shares to be
issued to such Person in the distribution shall be deemed to be held by
such Person but shall not be included in the aggregate number of
outstanding Voting Shares immediately prior to the
distribution.
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(x)
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“Record Time” shall mean
5:00 p.m. (Toronto time) on January 17,
2007;
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(y)
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“Right” shall have the
meaning ascribed thereto in the recitals
hereto;
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(z)
|
“Rights Agent” means
CIBC Mellon Trust Company, and includes any successor Rights Agent
hereunder;
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(aa)
|
“Rights Certificates”
shall mean the certificates representing the Rights after the Separation
Time, which shall be in the form attached hereto as Exhibit
A;
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(bb)
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“Securities Act” means
the Securities Act, R.S.O. 1990, c. S5, as amended, and the regulations
and rules thereunder, and any comparable or successor laws or regulations
thereto;
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(cc)
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“Separation Time” shall
mean, subject to section 6.1, the Close of Business on the eighth Trading
Day after the earlier of:
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(i)
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the
Share Acquisition Date; and
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(ii)
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the
date of the commencement of, or first public announcement (provided such
announcement is made after the Record Time) 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 such later time
as may be determined by the Board of
Directors;
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provided
that, if the foregoing results in the Separation Time being prior to the Record
Time, the Separation Time shall be the Record Time and provided further that, if
any Take-over Bid referred to in clause (ii) of this subsection 1.1(cc) expires,
or is cancelled, terminated or otherwise withdrawn prior to the Separation Time,
such Take-over Bid shall be deemed, for the purposes of this subsection 1.1(cc),
never to have been made;
K-10
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(dd)
|
“Shares” means shares in
the capital of the Corporation;
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(ee)
|
“Share Acquisition Date”
means the first date of public announcement (including a report filed
pursuant to the Securities Act by the Corporation or an Acquiring Person)
of facts indicating that a Person has become an Acquiring
Person;
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(ff)
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“Subsidiary” of a Person
shall have the meaning ascribed thereto in the Securities
Act;
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(gg)
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“Take-over Bid” means an
Offer to Acquire Voting Shares of the Corporation or other securities of
the Corporation if, assuming that the Voting Shares of the Corporation
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 % or more of the Voting Shares of the
Corporation then outstanding;
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(hh)
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“Termination Time” means
the time at which the right to exercise Rights shall terminate pursuant to
sections 6.1, 6.3, 6.6 or 6.19;
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(ii)
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“Trading Day”, when used
with respect to any securities, means a day on which the principal
Canadian securities 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
securities exchange, a Business Day;
and
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(jj)
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“Voting Share”, when
used with reference to the Corporation, means any share in the capital of
the Corporation to which is attached a right to vote for the election of
all directors, generally, and when used with reference to any Person other
than the Corporation, shall mean a Common Share of such Person and any
other share of capital stock or voting interests of such Person entitled
to vote generally in the election of all
directors.
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1.2 Currency
All sums
of money that are referred to in this Agreement are expressed in lawful money of
Canada, unless otherwise specified.
1.3 Descriptive
Headings
Descriptive
headings appear herein for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
1.4 References to
Agreement
References
to “this Agreement”,
“hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar
expressions refer to this Agreement and not to any particular Article, section,
subsection, clause, subclause, subdivision or other portion hereof and include
any and every instrument supplemental or ancillary hereto.
1.5 Grandfather
Provision
For the
purposes of determining whether a Person is an Acquiring Person and interpreting
the definition of Acquiring Person, a Person shall not be and shall not be
deemed to be an Acquiring Person if such Person (a “Grandfathered Person”) is the
Beneficial Owner of 20% or more of the outstanding Voting Shares of the
Corporation determined as at the Record Time; provided, however, that this
exception shall not be, and shall cease to be, applicable to a Grandfathered
Person in the event that a Grandfathered Person shall, after the Record Time,
become the Beneficial Owner of an additional 1% of the outstanding Voting Shares
of the Corporation other than pursuant to share acquisitions or redemptions by
the Corporation or a Subsidiary of the Corporation, Permitted Bid Acquisitions,
Exempt Acquisitions, Pro-Rata Acquisitions or Convertible Security Acquisition;
provided further that, in the event that this exception shall cease to be
applicable to a Grandfathered Person as aforesaid, such a Grandfathered Person
shall be and shall be deemed to be an Acquiring Person as at and from the time
that this exception shall not be so applicable.
K-11
1.6 Calculation of Number and Percentage
of Beneficial Ownership of Outstanding Voting Shares
For the
purposes of this Agreement, in determining the percentage of the outstanding
Voting Shares of the Corporation with respect to which a Person is or is deemed
to be the Beneficial owner, all Voting Shares of the Corporation as to which
such Person is deemed the Beneficial Owner shall be deemed to be
outstanding.
The
percentage of outstanding Voting Shares Beneficially Owned by any Person shall,
for the purposes of this Agreement, be and be deemed to be the product
determined by the formula:
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100
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X
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A
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||
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B
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where:
A = the
number of votes for the election of all directors generally attaching to the
outstanding 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
Shares acquired or held by any Person shall be determined in like manner mutatis
mutandis.
1.7 Acting Jointly or in
Concert
For
purposes of this Agreement, a Person is acting jointly or in concert with every
other Person who is a party to any agreement, commitment or understanding,
whether formal or informal, with the first mentioned Person, for the purpose of
acquiring or offering to acquire Voting Shares (other than customary agreements
with and between underwriters and banking group or selling group members with
respect to a distribution of securities by way of prospectus or private
placement or pursuant to a pledge of securities in the ordinary course of
business).
ARTICLE
2
THE
RIGHTS
2.1 Legend on
Certificates
Certificates
for Common Shares issued after the Record Time but prior to the Close of
Business on the earlier of the Separation Time and the Expiration Time shall
evidence, in addition to the Common Shares, one Right for each Common Share
evidenced thereby and shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
Until the
Separation Time (as defined in the Rights Agreement referred to below), this
certificate also evidences and entitles the holder hereof to certain Rights as
set forth in a Shareholder Rights Plan Agreement, dated as of the 17th day of
January, 2007 (the “Rights
Agreement”), between the Corporation and CIBC Mellon Trust Company, as
rights agent, the terms of which are hereby incorporated herein by reference and
a copy of which may be inspected during normal business hours at the principal
executive offices of the Corporation. Under certain circumstances, as set forth
in the Rights Agreement, such Rights may be terminated, may expire, may become
void (if, in certain cases, they are “Beneficially Owned” by an
“Acquiring Person”, as
such terms are defined in the Rights Agreement, whether currently held by or on
behalf of such Person or any subsequent holder) or may be evidenced by separate
certificates and may no longer be evidenced by this certificate. The Corporation
will mail or arrange for the mailing of a copy of the Rights Agreement to the
holder of this certificate without charge as soon as is practicable after the
receipt of a written request therefor.
K-12
Certificates
representing Common Shares that are issued and outstanding at the Record Time
shall evidence one Right for each Common Share evidenced thereby,
notwithstanding the absence of the foregoing legend until the earlier of the
Separation Time and the Expiration Time.
2.2 Execution, Authentication, Delivery
and Dating of Rights Certificates
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(a)
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The
Rights Certificates shall be executed on behalf of the Corporation by any
of the Chairman of the Board, the President or any Vice-President
(including any Senior Vice-President), together with any other of such
persons or together with any one of the Secretary, the Treasurer, any
Assistant Secretary or any Assistant Treasurer, under the corporate seal
of the Corporation, which shall be reproduced thereon. The signature of
any of the officers of the Corporation 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 prior to the
countersignature and delivery of such Rights
Certificates.
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(b)
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Promptly
after the Corporation learns of the Separation Time, the Corporation will
notify the Rights Agent in writing of such Separation Time and will
deliver Rights Certificates executed by the Corporation to the Rights
Agent for countersignature and disclosure statements describing the
Rights, and the Rights Agent shall manually in a manner satisfactory to
the Corporation countersign and mail such Rights Certificates and
disclosure statements to the holders of the Rights pursuant to subsection
3.1(c). No Rights Certificate shall be valid for any purpose until
countersigned by the Rights Agent as
aforesaid.
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(c)
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Each
Rights Certificate shall be dated the date of the countersignature
thereof.
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2.3 Registration, Registration of
Transfer and Exchange
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(a)
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After
the Separation Time, 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 the “Rights Registrar” for
the purpose of maintaining the Rights Register for the Corporation and
registering Rights and transfers of Rights as herein provided. 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 (c) of
this section 2.3, 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.
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(b)
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All
Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be 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.
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(c)
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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 2.3, 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 fees and expenses of the Rights Agent) in connection
therewith or in relation
thereto.
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K-13
2.4 Mutilated, Destroyed, Lost and Stolen
Rights Certificates
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(a)
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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 manually countersign and deliver in exchange therefor a new Rights
Certificate evidencing the same number of Rights as the Rights Certificate
so surrendered.
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(b)
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If
there shall be delivered to the Corporation and the Rights Agent prior to
the Expiration Time:
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(i)
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evidence
to their satisfaction of the destruction, loss or theft of any Rights
Certificate; and
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(ii)
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such
security or indemnity as may be required by each of them in their sole
discretion 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 its 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.
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(c)
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As
a condition to the issuance of any new Rights Certificate under this
section 2.4, 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 fees and expenses
of the Rights Agent) in connection
therewith.
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(d)
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Every
new Rights Certificate issued pursuant to this section 2.4 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 by
the Corporation hereunder.
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2.5 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 such Rights Certificate (or,
prior to the Separation Time, the associated 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
Rights shall mean the registered holder of, such Rights (or, prior to the
Separation Time, the associated Shares).
2.6 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
cancelled 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 that the Corporation may have acquired in any manner
whatsoever, and all Rights Certificates so delivered shall be promptly cancelled
by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or
in exchange for any Rights Certificates cancelled as provided in this section
2.6, except as expressly permitted by this Agreement. The Rights Agent shall
destroy all cancelled Rights Certificates and upon written request by the
Corporation, deliver a certificate of destruction to the
Corporation.
2.7 Agreement of Rights
Holders
Every
holder of Rights, by accepting the same, consents and agrees with Corporation
and the Rights Agent and with every other holder of Rights:
K-14
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(a)
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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 the
Rights held;
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(b)
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that
prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the Share
representing such Right;
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(c)
|
that
after the Separation Time, the Rights Certificates will be transferable
only upon registration of the transfer on the Rights Register as provided
herein;
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(d)
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that
prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated 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 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 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;
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(e)
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that
such holder of Rights has waived his right to receive any fractional
Rights or any fractional Shares upon exercise of a Right (except as
provided herein);
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(f)
|
that
subject to the provisions of Section 6.6, without the approval of any
holder of Rights 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
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(g)
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that
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 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 governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by a governmental authority, prohibiting or
otherwise restraining performance of such
obligations.
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2.8 Rights Certificate Holder Not Deemed
a Shareholder
No
holder, as such, of any Right or Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose whatsoever the holder of any
Share that may at any time be issuable on the exercise of such Rights, nor shall
anything contained herein or in any Rights Certificate be construed or deemed to
confer upon the holder of any Right or Rights Certificate, as such, any of the
rights, titles, benefits or privileges of a shareholder 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 any Shares 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 shareholder 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 any Rights Certificate shall
have been duly exercised in accordance with the terms and provisions
hereof.
ARTICLE
3
EXERCISE
OF THE RIGHTS
3.1 Initial Exercise Price; Exercise of
Rights; Detachment of Rights
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(a)
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Subject
to adjustment as herein set forth, from and after the Separation Time and
prior to the Expiration Time, each Right will entitle the holder thereof
to purchase one Common Share for the Exercise Price (which Exercise Price
and number of Shares are subject to adjustment as set forth below).
Notwithstanding any other provision of this Agreement, any Rights held by
the Corporation or any of its subsidiaries shall be
void.
|
K-15
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(b)
|
Until
the Separation Time:
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(i)
|
the
Rights shall not be exercisable and no Right may be exercised;
and
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(ii)
|
for
administrative purposes, each Right will be evidenced by the certificate
for the associated Share registered in the name of the holder thereof
(which certificates shall also be deemed to be Rights Certificates) and
will be transferable only together with, and will be transferred by a
transfer of, such associated Share.
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(c)
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From
and after the Separation Time and prior to the Expiration
Time:
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(i)
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the
Rights shall be exercisable; and
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(ii)
|
the
registration and transfer of the Rights shall be separate from and
independent of Shares.
|
Promptly
following the Separation Time, the Corporation shall 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 other than, in respect of any Rights
Beneficially Owned by such Acquiring Person that 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 (and the Corporation hereby
agrees to furnish copies of such records to the Rights Agent for this
purpose):
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(A)
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Rights
Certificates representing the number of Rights held by such holder at the
Separation Time in substantially the form of Exhibit A hereto,
appropriately completed 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, regulation or judicial or administrative order or with any rule
or regulation made pursuant thereto or with any rule or regulation of any
stock exchange or quotation system on which the Rights may from time to
time be listed or traded, or to conform to usage;
and
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(B)
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a
disclosure statement describing the
Rights;
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provided
that a Nominee shall be sent the materials provided for in subclauses (A) and
(B) only in respect of all Common Shares held of record by it that are not
Beneficially Owned by an Acquiring Person.
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(d)
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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 or at any other office of the
Rights Agent in the cities designated from time to time for such purpose
by the Corporation) the Rights Certificate evidencing such Rights together
with:
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(i)
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an
election to exercise such Rights (an “Election to Exercise”)
substantially in the form attached to the Rights Certificate duly
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;
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(ii)
|
payment
by certified cheque, banker’s draft or money order payable to the order of
the Rights Agent, of a sum equal to the applicable Exercise Price
multiplied by the number of Rights being exercised and a sum sufficient to
cover any transfer tax or charge that 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 the relevant Shares in a name
other than that of the holder of the Rights being
exercised.
|
K-16
|
|
(e)
|
Upon
receipt of the Rights Certificate that is accompanied
by:
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|
(i)
|
a
completed Election to Exercise that does not indicate that such Right is
null and void as provided by subsection 4.1(b);
and
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|
(ii)
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payment
as set forth in subsection 3.1(d),
|
the
Rights Agent will thereupon promptly:
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|
(iii)
|
requisition
from a transfer agent for the relevant Shares, certificates representing
the number of such Shares to be purchased (the Corporation hereby
irrevocably authorizing its transfer agents to comply with all such
requisitions);
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(iv)
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when
appropriate, requisition from the Corporation the amount of cash to be
paid in lieu of issuing fractional
Shares;
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(v)
|
after
receipt of such certificate, deliver the same to or to the order of the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such
holder;
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(vi)
|
when
appropriate, after receipt, deliver such cash to or to the order of the
registered holder of the Rights Certificate;
and
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(vii)
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tender
to the Corporation all payments received on exercise of the
Rights.
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(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 will be issued by the Rights
Agent to such holder or to such holder’s duly authorized
assigns.
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(g)
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The
Corporation covenants and agrees that it
will:
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(i)
|
take
all such action as may be necessary and within its power to ensure that
all Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates representing such Shares (subject to payment
of the Exercise Price), be duly and validly authorized, issued and
delivered as fully paid and
non-assessable;
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(ii)
|
take
all such action as may be necessary and within its power to comply with
any applicable requirements of the Securities 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 Shares upon exercise of
Rights;
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|
(iii)
|
use
reasonable efforts to cause all Shares issued upon exercise of Rights to
be listed on the principal exchanges on which the Shares of such class or
series were traded prior to the Share Acquisition
Date;
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|
(iv)
|
cause
to be reserved and kept available out of its authorized and unissued
Shares, the number of Shares that, as provided in this Agreement, will
from time to time be sufficient to permit the exercise in full of all
outstanding Rights; and
|
K-17
|
|
(v)
|
pay
when due and payable, any and all federal and provincial transfer taxes
(for greater certainty, not including any income taxes of the holder or
exercising holder or any liability of the Corporation to withhold tax) and
charges that may be payable in respect of the original issuance or
delivery of the Rights Certificates, provided that the Corporation shall
not be required to pay any transfer tax or charge that 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 Shares in a
name other than that of the holder of the Rights being transferred or
exercised.
|
3.2 Adjustments to Exercise Prices;
Number of Rights
The
Exercise Price, the number and kind of Shares subject to purchase upon the
exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this section 3.2.
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(a)
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In
the event the Corporation shall at any time after the Record Time and
prior to the Expiration Time:
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(i)
|
declare
or pay a dividend on the Common Shares payable in Common Shares (or other
securities exchangeable for or convertible into or giving a right to
acquire Common Shares) other than pursuant to any optional stock dividend
program;
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(ii)
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subdivide
or change the outstanding Common Shares into a greater number of
Shares;
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(iii)
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combine
or change the outstanding Common Shares into a smaller number of Shares;
or
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(iv)
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issue
any Common Shares (or other securities exchangeable for or convertible
into or giving a right to acquire Common Shares in respect of, in lieu of
or in exchange for existing Common Shares in a reclassification,
amalgamation, merger, arrangement or consolidation, except as otherwise
provided in this section 3.2,
|
the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or other change, and the
number and kind of Shares or other securities, as the case may be, issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
applicable Exercise Price then in effect, the aggregate number and kind of
Shares or other securities, as the case may be, that, if such Right had been
exercised immediately prior to such date and at a time when the Share transfer
books of the Corporation were open, he would have been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification,
amalgamation, merger, arrangement or consolidation. If an event occurs that
would require an adjustment under both this section 3.2 and section 4.1, the
adjustment provided for in this section 3.2 shall be in addition to, and shall
be made prior to, any adjustment required pursuant to section 4.1.
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(b)
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In
case the Corporation shall at any time after the Record Time and prior to
the Expiration Time fix a record date for the issuance of rights, options
or warrants to all holders of Common Shares entitling them to subscribe
for or purchase (for a period expiring within 45 calendar days after such
record date) Common Shares (or shares having the same rights, privileges
and preferences as Common Shares (“equivalent common
shares”)) or securities convertible into Common Shares or
equivalent common shares at a price per Common Share or per equivalent
common share (or having a conversion price per share, if a security
convertible into Common Shares or equivalent common shares) less than the
Market Price per Common Share on such record date, the Exercise Price in
respect of the Rights to be in effect after such record date shall be
determined by multiplying the Exercise Price in respect of the Rights in
effect immediately prior to such record date by a
fraction:
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(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 and/or equivalent
common shares so to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at
such Market Price per Common Share;
and
|
K-18
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(ii)
|
the
denominator of which shall be the number of Common Shares outstanding on
such record date, plus the number of additional Common Shares and/or
equivalent common shares to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible).
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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 the Rights. Such adjustment shall be made
successively whenever such a record date is fixed and, in the event that such
rights or warrants are not so issued, the Exercise Price in respect of the
Rights shall be adjusted to be the Exercise Price that would then be in effect
if such record date had not been fixed. The granting of the right to purchase
Common Shares or equivalent Common Shares (whether from treasury or otherwise)
pursuant to any distribution or interest reinvestment plan and/or any share
purchase plan providing for the reinvestment of dividends payable on securities
of the Corporation and/or the investment of periodic optional payments and/or
employee benefit or similar plans (so long as such right to purchase is in no
case evidenced by the delivery of rights or warrants) shall not be deemed to
constitute an issue of rights or warrants by the Corporation; provided, however,
that in the case of any dividend reinvestment plan, the right to purchase Common
Shares is at a price per share of not less than 90% of the current market price
per Share (determined as provided in such plans) of the Common
Shares.
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(c)
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In
case the Corporation shall at any time after the Record Time and prior to
the Expiration Time fix a record date for a distribution to all holders of
Common Shares (including any such distribution made in connection with a
merger in which the Corporation is the continuing corporation) of
evidences of indebtedness, cash (other than a dividend paid in the
ordinary course or dividends paid in Common Shares, but including any
dividend payable in securities other than Common Shares), assets or
subscription rights or warrants (excluding those referred to in subsection
3.2(b)), the Exercise Price in respect of the Rights to be in effect after
such record date shall be determined by multiplying the Exercise Price in
respect of the Rights in effect immediately prior to such record date by a
fraction:
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(i)
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the
numerator of which shall be the Market Price per Common Share on such
record date, less the fair market value (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 the Rights) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a Common Share;
and
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(ii)
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the
denominator of which shall be such Market Price per Common
Share.
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Such
adjustments shall be made successively whenever such a record date is fixed and,
in the event that such distribution is not so made, the Exercise Price in
respect of the Rights shall be adjusted to be the Exercise Price in respect of
the Rights that would have been in effect if such record date had not been
fixed.
For the
purposes hereof, “dividends paid in the ordinary course” means cash dividends
paid at regular intervals in any fiscal year of the Corporation to the extent
that such cash dividends do not exceed, in the aggregate, the greatest
of,
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(iii)
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200%
of the aggregate amount of cash dividends declared payable by the
Corporation on its Common Shares in its immediately preceding fiscal
year;
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(iv)
|
300%
of the arithmetic average of the aggregate amounts of cash dividends
declared payable by the Corporation on its Common Shares in its three
immediately preceding fiscal years;
and
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(v)
|
100%
of the aggregate consolidated net income of the corporation, before
extraordinary items, for its immediately preceding fiscal
year.
|
K-19
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(d)
|
Notwithstanding
anything herein to the contrary, no adjustment in an Exercise Price shall
be required unless such adjustment would require an increase or decrease
of at least 1% in such Exercise Price; provided, however, that any
adjustments that by reason of this subsection 3.2(d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this section 3.2 shall be made to the
nearest cent or to the nearest ten-thousandth of a Common Share, or other
Share, as the case may be. Notwithstanding the first sentence of this
subsection 3.2(d), any adjustment required by this section 3.2 shall be
made no later than the earlier of:
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|
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(i)
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three
years from the date of the transaction that mandates such adjustment;
and
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(ii)
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the
Termination Date.
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(e)
|
If,
as a result of an adjustment made pursuant to section 4.1, the holder of
any Right thereafter exercised shall become entitled to receive any shares
other than Common Shares, thereafter the number of such other shares so
receivable upon exercise of any Right and the applicable Exercise Price
thereof shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as is practicable to the provisions with
respect to the Common Shares contained in subsections 3.2(a), (b), (c),
(d), (f), (g), (h), (i), (j) and (k) and the provisions of this Agreement
with respect to the Common Shares shall apply on like terms to any such
other shares.
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(f)
|
All
Rights originally issued by the Corporation subsequent to any adjustment
made to an Exercise Price hereunder shall evidence the right to purchase,
at the adjusted Exercise Price, the respective number of Common Shares,
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided
herein.
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(g)
|
Unless
the Corporation shall have exercised its election as provided in
subsection 3.2(h), upon each adjustment of an Exercise Price as a result
of the calculations made in subsections 3.2(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of Common Shares, (calculated to the nearest one
ten-thousandth), obtained by:
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(i)
|
multiplying:
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(A)
|
the
number of such Shares covered by a Right immediately prior to this
adjustment; by
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(B)
|
the
relevant Exercise Price in effect immediately prior to such adjustment of
the relevant Exercise Price; and
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(ii)
|
dividing
the product so obtained by the relevant Exercise Price in effect
immediately after such adjustment of the relevant Exercise
Price.
|
K-20
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(h)
|
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 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 and kind of Shares for which such a Right
was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that
number of Rights (calculated to the nearest one ten-thousandth) obtained
by dividing the relevant Exercise Price in effect immediately prior to
adjustment of 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 3.2(h), the Corporation
shall, as promptly as is practicable, cause to be distributed to holders
of record of Rights Certificates on such record date, Rights Certificates
evidencing, subject to section 6.4, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the
option of the Corporation, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates 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 to be so 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 of record of Rights
Certificates on the record date specified in the public
announcement.
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(i)
|
Irrespective
of any adjustment or change in an Exercise Price or the number of Shares
issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the relevant
Exercise Price per Share and the number of Shares that were expressed in
the initial Rights Certificates issued
hereunder.
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(j)
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In
any case in which this section 3.2 shall require that an adjustment in an
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 of the number of Shares and other securities of the Corporation, if
any, issuable upon such exercise over and above the number of Shares and
other securities of the Corporation, if any, issuable upon such exercise
on the basis of the relevant Exercise Price in effect prior to such
adjustment; provided, however, that the Corporation shall deliver to such
holder a due bill or other 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.
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(k)
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Notwithstanding
anything in this section 3.2 to the contrary, the Corporation shall be
entitled to make such reductions in each Exercise Price, in addition to
those adjustments expressly required by this section 3.2, as and to the
extent that in their good faith judgment the Board of Directors shall
determine to be advisable in order that
any:
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(i)
|
consolidation
or subdivision of Shares;
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(ii)
|
issuance
wholly for cash of any Shares at less than the applicable Market
Price;
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|
(iii)
|
issuance
wholly for cash of any Common Shares or securities that by their terms are
convertible into or exchangeable for
Shares;
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(iv)
|
stock
dividends; or
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(v)
|
issuance
of rights, options or warrants referred to in this section 3.2. hereafter
made by the Corporation to holders of its
Shares,
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shall not
be taxable to such shareholders.
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|
(l)
|
Whenever
an adjustment to the Exercise Price or a change in the securities
purchasable upon exercise of the Rights is made at any time after the
Separation Time pursuant to this section 3.2, the Corporation shall
promptly:
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(i)
|
file
with the Rights Agent and with the transfer agent for the Common Shares a
certificate specifying the particulars of such adjustment or change;
and
|
K-21
|
|
(ii)
|
cause
notice of the particulars of such adjustment or change to be given to the
holders of the Rights.
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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 of
change.
ARTICLE
4
ADJUSTMENTS
TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS
4.1 Flip-in Event
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(a)
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Subject
to subsection 4.1(b) and section 6.1, in the event that prior to the
Expiration Time a Flip-in Event shall occur, each Right shall constitute,
effective on and after the Share Acquisition Date, the right to purchase
from the Corporation, upon payment of the relevant Exercise Price and
otherwise exercising such Right in accordance with the terms hereof, that
number of Common Shares having an aggregate Market Price on the date of
consummation or occurrence of such Flip-in Event equal to twice the
relevant Exercise Price for an amount in cash equal to the relevant
Exercise Price (such right to be appropriately adjusted in a manner
analogous to the applicable adjustments provided for in section 3.2 upon
each occurrence after the Share Acquisition Date of any event analogous to
any of the events described in section
3.2).
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(b)
|
Notwithstanding
anything in this Agreement to the contrary, upon the occurrence of any
Flip-in Event, any Rights that are Beneficially Owned
by:
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(i)
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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
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(ii)
|
a
transferee or other successor in title directly or indirectly (a
“Transferee”) of Rights 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) who becomes a Transferee concurrently with or subsequent
to the Acquiring Person becoming an Acquiring
Person
|
shall
become null and void without any further action, and any holder of such Rights
(including any Transferee) shall not have any right whatsoever to exercise such
Rights under any provision of this Agreement and shall not have thereafter any
other rights whatsoever with respect to such Rights, whether under any provision
of this Agreement or otherwise.
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(c)
|
Any
Rights Certificate that represents Rights Beneficially Owned by a Person
described in either clauses (i) or (ii) of subsection 4.1(b) 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:
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“The
Rights represented by this Rights Certificate were Beneficially Owned by a
Person who was an Acquiring Person or who was an Affiliate or an Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement) or was
acting jointly or in concert with any of them. This Rights Certificate and the
Rights represented hereby shall become void in the circumstances specified in
subsection 4.1(b) of the Rights Agreement.”
provided
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 be
required to impose such legend only if instructed in writing to do so by the
Corporation 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 either clauses (i) or (ii) of subsection 4.1(b).
K-22
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(d)
|
In
the event that there shall not be sufficient Shares authorized for
issuance to permit the exercise in full of the Rights in accordance with
this section 4.1, the Corporation shall take all such action as may be
necessary to authorize additional Shares for issuance upon the exercise of
the Rights.
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ARTICLE
5
THE
RIGHTS AGENT
5.1 General
|
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(a)
|
The
Corporation hereby appoints the Rights Agent to act as agent for the
Corporation and the holders of 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 one or more co-Rights Agents
as it may deem necessary or desirable subject to the approval of the
Rights Agent. In the event the Corporation appoints one or more co-Rights
Agents, the respective duties of the Rights Agents and co-Rights Agents
shall be as the Corporation may determine with the approval of the Rights
Agent. The Corporation agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and other disbursements incurred in the execution and administration
of this Agreement and the exercise and performance of its duties hereunder
(including the reasonable fees and other disbursements of any expert
retained by the Rights Agent with the approval of the Corporation, such
approval not to be unreasonably withheld). The Corporation also agrees to
indemnify the Rights Agent, its officers, directors, employees and agents,
for, and to hold them harmless against, any loss, liability, cost, claim,
action, damage, charges, counsel fees, payments or expense, incurred
without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done, suffered or omitted by the Rights Agent
in connection with the acceptance, execution 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 or the resignation or removal of the Rights Agent. Any
liability of the Rights Agent will be limited in the aggregate to an
amount equal to the annual fee paid by the Company pursuant to this
Agreement. The Corporation shall inform the Rights Agent in a reasonably
timely manner of events which may materially affect the administration of
this Agreement by the Rights Agent and at any time, upon request, shall
provide to the Rights Agent an incumbency certificate with respect to the
then current directors of the
Corporation.
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(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
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.
|
5.2 Merger or Amalgamation or Change of
Name of Rights Agent
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(a)
|
Any
corporation into which the Rights Agent or any successor Rights Agent may
be merged or amalgamated or with which it may be consolidated, or any
corporation resulting from any merger, amalgamation or consolidation to
which the Rights Agent or any successor Rights Agent is a party, or any
corporation succeeding to the shareholder or stockholder services business
of the Rights Agent or any successor 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 5.4 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 such 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
Certificates have not been countersigned, any successor Rights Agent may
countersign such Rights Certificates either 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.
|
K-23
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|
(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.
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5.3 Duties of Rights
Agent
The
Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the Corporation and the
holders of Rights Certificates, by their acceptance thereof, shall be
bound:
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(a)
|
the
Rights Agent may retain and consult with legal counsel (who may be legal
counsel for the Corporation) 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. The Rights Agent may also, with the approval of the Corporation
(such approval not to be unreasonably withheld), consult with such other
experts as the Rights Agent shall consider necessary or appropriate to
properly carry out the duties and obligations imposed under this Agreement
(at the Corporation’s expense) and the Rights Agent shall be entitled to
act and rely in good faith on the advice of any such
expert;
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(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, the President or any Vice-President
and by the Treasurer or any Assistant Treasurer or the 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;
|
|
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(c)
|
the
Rights Agent will be liable hereunder only 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
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;
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|
(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 Share certificate 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 4.14.1(b)) or any
adjustment required under the provisions of section 3.2 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 3.2 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 Shares to be issued pursuant to this Agreement
or any Rights or as to whether any Shares will, when issued, be duly and
validly authorized, executed, issued and delivered as fully paid and
nonassessable;
|
K-24
|
|
(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;
|
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(g)
|
the
Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any Person
believed by the Rights Agent to be the Chairman of the Board, the
President, any Vice-President or the Secretary or any Assistant-Secretary
or the Treasurer or any Assistant-Treasurer of the Corporation, and to
apply to such Persons 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 Person; it being
understood that instructions to the Rights Agent shall, except where
circumstances make it impracticable or the Rights Agent otherwise agrees,
be given in writing and, where not in writing, such instructions shall be
confirmed in writing as soon as reasonably possible after the giving of
such instructions;
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(h)
|
the
Rights Agent and any shareholder or stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in 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 the 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
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|
(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.
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5.4 Change of Rights
Agent
The
Rights Agent may resign and be discharged from its duties under this Agreement
upon 60 days’ notice in writing (or such lesser notice as is acceptable to the
Corporation (mailed to the Corporation and to each transfer agent of Shares by
registered or certified mail, and to the holders of Rights in accordance with
section 6.9, all of which shall be at the Corporation’s expense. 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 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 or by the holder of
any Rights (which holder shall, with such notice, submit such holder’s Rights
Certificate for inspection by the Corporation), then, by prior written notice to
the Corporation the resigning Rights Agent, at the Corporation’s expense, 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 deliver and transfer to the successor Rights
Agent upon receipt of all outstanding fees and expenses owing by the Corporation
to the predecessor Rights Agent under this Agreement, any property at the time
held by it hereunder and execute and deliver any further assurance, conveyance,
act or deed necessary for such 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 Shares, and mail a
notice thereof in writing to the holders of the Rights. Failure to give any
notice provided for in this section 5.4, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may
be.
K-25
ARTICLE
6
MISCELLANEOUS
6.1 Redemption and
Waiver
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(a)
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Subject
to the prior consent of the holders of Voting Shares obtained in
accordance with section 6.6, the Board of Directors may, at its option, at
any time prior to the occurrence of a Flip-in Event as to which the
application of section 4.1 has not been waived pursuant to this section
6.1, elect to redeem all but not less than all of the then outstanding
Rights at a redemption price of $.0001 per Right appropriately adjusted in
a manner analogous to the applicable adjustment provided for in section
3.2 in the event that an event of the type analogous to any of the events
described in section 3.2 shall have occurred (such redemption price being
herein referred to as the “Redemption
Price”).
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(b)
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If
before the occurrence of a Flip-in Event a Person acquires, pursuant to a
Permitted Bid or a Competing Permitted Bid, outstanding Voting Shares
other than Voting Shares Beneficially Owned by such Person at the date of
the Permitted Bid or the Competing Permitted Bid, the Board of Directors
of the Corporation shall, immediately upon such acquisition and without
further formality be deemed to have elected to redeem the Rights at the
Redemption Price.
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(c)
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Where
a Take-over Bid that is not a Permitted Bid or a Competing Permitted Bid
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 section 6.1(c), 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 Voting 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.
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(d)
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Within
ten Business Days after the Board of Directors electing or being deemed to
have elected to redeem the Rights or, if section 6.1(a) is applicable,
within 10 Business Days after the holders of Voting Shares or the holders
of Rights have approved a redemption of Rights in accordance with section
6.1, the Corporation shall give notice of such redemption to the holders
of the then outstanding Rights by mailing such notice to each such holder
at his last address as it appears on the Rights Register (as defined in
section 2.3(a)) or, prior to the Separation Time, on the register of
Shares maintained by the Corporation’s transfer agent. Each such notice of
redemption shall state the method by which the payment of the Redemption
Price shall be made. The Corporation may not redeem, acquire or purchase
for any value any Rights at any time in any manner other than that
specifically set forth in this section 6.1 or in connection with the
purchase of Voting Shares prior to the Separation
Time.
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(e)
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If
the Board of Directors elects to or is deemed to have elected to redeem
the Rights and, in circumstances where section 6.1(a) is applicable, such
redemption is approved by the holders of Voting Shares or the holders of
Rights in accordance with section 6.6, (A) the right to exercise the
Rights will thereupon without further action and without notice terminate
and the only right thereafter of the holder of a Right shall be to receive
the Redemption Price and (B) no further Rights shall thereafter be
issued.
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K-26
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(f)
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The
Board of Directors may, in respect of any Flip-in Event, waive the
application of section 4.1 to that Flip-in Event provided that both of the
following conditions are satisfied: (i) the Board of Directors has
determined that the Acquiring Person became an Acquiring Person by
inadvertence and without any intent or knowledge that it would become an
Acquiring Person; and (ii) such Acquiring Person has reduced its
Beneficial Ownership of Voting Shares such that at the time of waiver
pursuant to this section 6.1(f) it is no longer an Acquiring
Person.
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(g)
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The
Board of Directors may, until a Flip-in Event shall have occurred, upon
written notice delivered to the Rights Agent determine to waive the
application of section 4.1 to a Flip-in Event but only if such Flip-in
Event occurs by reason of a Take-over Bid made by way of a take-over bid
circular to all holders of record of Voting Shares which are subject to
the Take-over Bid (which, for greater certainty, does not include the
circumstances described in section 6.1(f)); provided however, that if the
Board of Directors waives the application of section 4.1 to a particular
Flip-in Event pursuant to this section 6.1(g), the Board of Directors
shall be deemed to have waived the application of section 4.1 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 record of the class or
classes of Voting Shares which are subject to the Take-over Bid 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 section
6.1(g).
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(h)
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The
Board of Directors may, with the prior consent of the holders of Voting
Shares given in accordance with section 6.6, determine, at any time prior
to the occurrence of a Flip-in Event as to which the application of
section 4.1 has not been waived pursuant to this section 6.1, 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 Subsection 6.1(f), to waive the
application of section 4.1 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 10
Business Days following the meeting of shareholders called to approve such
waiver.
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(i)
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The
Corporation shall give prompt written notice to the Rights Agent of any
waiver of the application of section 4.1 made by the Board of Directors
under this section 6.1.
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6.2 Expiration
No Person
shall have any rights pursuant to this Agreement or in respect of any Right
after the Expiration Time, except the Rights Agent as specified in section
5.1.
6.3 Shareholder
Review
At the
first annual meeting of shareholders of the Corporation following the third
anniversary of the date of this Agreement, provided that a Flip-in Event has not
occurred prior to such time, the Board of Directors shall submit a resolution to
the holders of Voting Shares of the Corporation for their consideration and, if
thought advisable, approval, ratifying the continued existence of the Rights.
Unless a majority of the votes cast by Independent Shareholders who vote in
respect of such resolution are voted in favour of the continued existence of
this Agreement, the Board of Directors shall, immediately upon the confirmation
by the Chairman of such shareholders meeting of the result of the vote on such
resolution and without further formality, be deemed to have elected to redeem
the Rights at the Redemption Price.
6.4 Issuance of New Rights
Certificate
Notwithstanding
any of the provisions of this Agreement or of 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 shares purchasable upon
exercise of Rights made in accordance with the provisions of this
Agreement.
K-27
6.5 Fractional Rights and Fractional
Shares
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(a)
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The
Corporation shall not be required to issue fractions of Rights or to
distribute Rights Certificates that evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Right would
otherwise be issuable, an amount in cash equal to the same fraction of the
Market Price of a whole Right. The Rights Agent shall have no obligation
to make any payments in lieu of fractional Rights unless the Corporation
shall have provided the Rights Agent with the necessary funds to pay in
full all amounts payable in accordance with section
3.1(e).
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(b)
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The
Corporation shall not be required to issue fractions of Shares upon
exercise of the Rights or to distribute certificates that evidence
fractional Shares. In lieu of issuing fractional 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 same fraction of the Market Price of a whole
Share.
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6.6 Supplements and
Amendments
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(a)
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The
Corporation may make, without the approval of the holders of Rights or
Voting Shares, any amendments to this Agreement (i) to correct any
clerical or typographical error or (ii) which are required to maintain the
validity and effectiveness of the Agreement as a result of any change in
any applicable laws, rules or regulatory requirements. The Corporation
may, prior to the date of the shareholders’ meeting referred to in section
6.19, supplement, amend, vary, rescind or delete any of the provisions of
this Agreement without the approval of any holders of Rights or Voting
Shares (whether or not such action would materially adversely affect the
interest of the holders of Rights generally) where the Board of Directors
acting in good faith deemed such action necessary or desirable.
Notwithstanding anything in this section 6.6 to the contrary, no amendment
shall be made to the provisions of Article 5 except with the written
concurrence of the Rights Agent to such supplement or
amendment.
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(b)
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Subject
to Subsection 6.6(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, amend, vary or rescind 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 in provided by the holders of
Voting Shares at a special meeting called and held in compliance with
applicable laws, rules and regulatory requirements and the requirements in
the articles and by-laws of the Corporation. Subject to compliance with
any requirements imposed by the foregoing, consent shall be given if the
proposed amendment, variation or rescission is approved by the affirmative
vote of a majority of the votes cast by Independent Shareholders
represented in person or by proxy at the special
meeting.
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(c)
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The
Corporation may, with the prior consent of the holders of Rights obtained
as set forth below, at any time after the Separation Time and before the
Expiration Time, amend, vary or rescind 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 provided by the holders of
Rights at a special meeting of holders of Rights called and held in
compliance with applicable laws and regulatory requirements and, to the
extent possible, with the requirements in the articles and by-laws of the
Corporation applicable to meetings of holders of Voting Shares, applied
mutatis mutandis.
Subject to compliance with any requirements imposed by the foregoing,
consent shall be given if the proposed amendment, variation or rescission
is approved by the affirmative vote of a majority of the votes cast by
holders of Rights (other than holders of Rights whose Rights have become
null and void pursuant to section 4.1(b)), represented in person or by
proxy at the special meeting.
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K-28
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(d)
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Any
amendments made by the Corporation to this Agreement pursuant to
Subsection 6.6(a) which are required to maintain the validity and
effectiveness of this Agreement as a result of any change in any
applicable laws, rules or regulatory requirements
shall:
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(i)
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if
made before the Separation Time, be submitted to the holders of Voting
Shares of the Corporation at the next meeting of shareholders and the
shareholders may, by the majority referred to in section 6.6(b) confirm or
reject such amendment; and
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(ii)
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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 section
6.6(c), confirm or reject such
amendment.
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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 or is not submitted to the shareholders of the Corporation or
holders of Rights as required, then such amendment shall cease to be effective
from and after the termination of the 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 of the Corporation or holders of Rights as the case may
be.
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(e)
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The
Corporation shall be required to provide the Rights Agent with notice in
writing of any such amendment, rescission or variation to this Agreement
as referred to in this section 6.6 within five days of effecting such
amendment, rescission or variation.
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6.7 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; and any holder of any 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, enforce, and may institute and maintain any
suit, action or proceeding against the Corporation to enforce, or otherwise act
in respect of, such holder’s right to exercise such holder’s Rights 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, 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.
6.8 Notice of Proposed
Actions
In case
the Corporation shall propose after the Separation Time and prior to the
Expiration Time:
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(a)
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to
effect or permit (in cases where the Corporation’s permission is required)
any Flip-in Event; or
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(b)
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to
effect the liquidation, dissolution or winding-up of the Corporation or
the sale of all or substantially all of the Corporation’s
assets,
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then, in
each such case, the Corporation shall give to each holder of a Right, in
accordance with section 6.9, a notice of such proposed action, which shall
specify the date on which such Flip-in Event, liquidation, dissolution or
winding-up is to take place, and such notice shall be so given at least 20
Business Days prior to the date of taking such proposed action.
K-29
6.9 Notices
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 or sent by first class mail, postage
prepaid, or by fax (with, in the case of fax, an original copy of the notice or
demand sent by first class mail, postage prepaid, to the Corporation following
the giving of the notice or demand by fax) addressed (until another address is
filed in writing with the Rights Agent) as follows:
Apollo
Gold Corporation
5655 S.
Yosemite Street, Suite 200
Greenwood
Village, CO
80111-3220
Attention: President
Fax: (720)
482-0957
Any
notice or demand 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 or sent by first-class mail, postage
prepaid, or by fax (with, in the case of fax, an original copy of the notice or
demand sent by first class mail, postage prepaid, to the Corporation following
the giving of the notice or demand by fax) addressed (until another address is
filed in writing with the Corporation) as follows:
CIBC
Mellon Trust Company
320 Bay
Street, P.O. Box 1
Toronto,
Ontario
M5H
4A6
Attention: Vice
President, Client Services
Fax: (416)
643-5570
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, or by fax (with, in the case of fax, an original copy of the notice or
demand sent by first class mail, postage prepaid, to the Corporation following
the giving of the notice or demand by fax) addressed to such holder at the
address of such holder as it appears upon the registry books of the Rights Agent
or, prior to the Separation Time, on the registry books of the Corporation for
the Common Shares. If mail service is or is threatened to be interrupted at a
time when the Corporation or the Rights Agent wishes to give a notice or demand
hereunder to or on the holders of the Rights, the corporation or the Rights
Agent may, notwithstanding the foregoing provisions of this section 6.9, give
such notice by means of publication once in each of two successive weeks in the
business section of the Financial Post or in such other publication or
publications as may be designated by the Corporation and notice so published
shall be deemed to have been given on the date on which the first publication of
such notice in any such publication has taken place. Any notice that is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice.
6.10 Costs of
Enforcement
The
Corporation agrees that if the Corporation or any other Person the securities of
which are purchasable upon exercise of Rights fails to fulfill any of its
obligations pursuant to this Agreement, then the Corporation or such Person will
reimburse the holder of any Rights for the costs and expenses (including legal
fees) incurred by such holder in actions to enforce his rights pursuant to any
Rights or this Agreement.
6.11 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.
K-30
6.12 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; but this Agreement shall
be for the sole and exclusive benefit of the Corporation, the Rights Agent and
the holders of the Rights.
6.13 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.
6.14 Language
Les
parties aux presents ont exigees que la presente convention ainsi que tous les
documents et avis qui s’y rattachent et/ou qui en decouleront soient rediges en
langue anglaise. The parties hereto have required that this Agreement and all
documents and notices related thereto and/or resulting therefrom be drawn up in
the English language.
6.15 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, and shall be subject to approval by
ordinary resolution of the shareholders of the Corporation.
6.16 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 with the
securities laws or comparable legislation of a jurisdiction outside Canada, the
Board of Directors acting in good faith may take such actions as it may deem
appropriate to ensure that such compliance is not required, including without
limitation establishing procedures for the issuance to an appropriate Canadian
resident acting as a fiduciary (a “Fiduciary”) of Rights or
securities issuable on exercise of Rights, the holding thereof in trust for the
Person entitled thereto (but reserving to the Fiduciary or to the Fiduciary and
the Corporation as the Corporation may determine, absolute instrument discretion
with respect thereto) and the sale thereof and remittance of the proceeds of
such sale, if any, to the persons entitled thereto. 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 and any province or territory
thereof in which such issue or delivery would be unlawful without registration
of the relevant Persons or securities for such purposes.
6.17 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 but one and the same
instrument.
6.18 Severability
If any
section, subsection, clause, subclause, term or provision hereof or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent be invalid or unenforceable, such section, subsection, clause, subclause,
term or provision shall be ineffective as to such jurisdiction to the extent of
such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining sections, subsections, clauses, subclauses, terms
and provisions hereto or the application of such section, subsection, clause,
subclause, term or provision to circumstances other than those as to which it is
held invalid or unenforceable.
K-31
6.19 Effective Date
This
Agreement is in full force and effect in accordance with its terms from the date
hereof. If this Agreement is not confirmed by the requisite number of votes cast
by the holders of Common Shares of the Corporation represented in person or by
proxy at the 2006 annual meeting of shareholders of the Corporation who vote in
respect of confirmation of this Agreement at such meeting, then this Agreement
and any then outstanding Rights shall be of no further force and effect from the
date of the 2006 annual meeting of shareholders of the Corporation.
6.20 Successors
All the
covenants and provisions of this Agreement by or for the benefit of the
Corporation or the Rights Agent shall bind and insure to the benefit of their
respective successors and assigns hereunder.
6.21 Time of the
Essence
Time
shall be of the essence in this Agreement.
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed as of the date
first above written.
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APOLLO
GOLD CORPORATION.
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Per:
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/s/ R. David Russell
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Per:
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/s/ Melvyn Williams
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CIBC MELLON TRUST COMPANY
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Per:
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/s/ Charito Sunga
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Per:
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/s/ Bruce Cornish
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K-32
SCHEDULE
L
APOLLO
FAIRNESS OPINION
March 9,
2010
The
Special Committee of Directors
Apollo
Gold Corporation
5655 S.
Yosemite Street, Suite 200
Greenwood
Village, CO 80111
To
the Special Committee of the Board of Directors of Apollo Gold
Corporation:
Haywood
Securities Inc. (“Haywood
Securities”) understands that Apollo Gold Corporation (“Apollo” or the “Company”) proposes to enter
into a Binding Letter of Intent dated March 9, 2010 (the “Binding LOI”) with Linear Gold
Corp. (“Linear”) which
contemplates a transaction (the “Proposed Transaction”)
whereby, among other things, pursuant to a court approved plan of arrangement
under the Business
Corporations Act (Alberta) (the “Arrangement”) the shareholders
of Linear will receive, in exchange for each common share of Linear (each a
“Linear Share”) held,
5.4742 common shares of Apollo (the “Consideration”).
The above
description is summary in nature. The specific terms and conditions of the
Arrangement will be agreed to by Apollo and Linear in a definitive arrangement
agreement to be entered into prior to March 31, 2010, and will be summarized in
an information circular to be mailed by Apollo to the shareholders of Apollo
(the “Shareholders”) in
connection with a special meeting of Shareholders to be held to consider and, if
deemed advisable, approve the Arrangement. The implementation of the Arrangement
will be conditional upon, among other things: (i) the approval of the
Arrangement at such special meeting; and (ii) the approval of the Arrangement by
the Court of Queen’s Bench of Alberta, Judicial District of
Calgary.
The
Special Committee of the Board of Directors of Apollo (the “Special Committee”) has
retained Haywood Securities to prepare and deliver this opinion (the “Opinion”) to the Special
Committee and, at the request of the Special Committee, to the Board of
Directors as to the fairness of the Consideration, from a financial point of
view, to be paid pursuant to the Arrangement by the Company. We understand that
the Proposed Transaction is not subject to the formal valuation requirements
under Ontario Securities Rule 61-501 and applicable policies of certain other
securities regulatory authorities. Accordingly, we have not been engaged to
provide a formal valuation of Apollo, Linear, or any of their respective
securities or assets and the Opinion should not be construed as such.
Furthermore, the Opinion is not, and should not be construed as, advice as to
the price at which securities of either Apollo or Linear (before or after
completion of the Proposed Transaction) may trade at any future
date.
Haywood
Securities Engagement and Background
Haywood
Securities was formally engaged by the Special Committee through an agreement
between the Company and Haywood Securities (the “Engagement Agreement”) dated
December 30, 2009. The Engagement Agreement provides the terms upon which
Haywood Securities has agreed to act as a financial advisor to the Company in
connection with an analysis of various strategic alternatives, including a
potential business combination or an investment by a strategic
investor.
L-1
On March
9, 2010, Apollo submitted the Binding LOI to Linear with a view to Apollo
executing a definitive agreement to acquire all of the issued and outstanding
shares of Linear. Pursuant to the Engagement Agreement, the Special Committee
has requested that Haywood Securities prepare and deliver an Opinion. The terms
of the Engagement Agreement provide that Haywood Securities is to be paid (i) an
Engagement Fee payable upon the signing of the Engagement Agreement, (ii) a
Monthly Work Fee payable on the monthly anniversary of the signing of the
Engagement Agreement, (iii) a fee for its services as financial advisor if a
transaction is completed or in certain circumstances upon the failure to
complete an announced transaction, and (iv) a fee on delivery of the Opinion, no
portion of which is conditional upon the Opinion being favourable or contingent
upon the closing or completion of the Proposed Transaction. The Monthly Work
Fees are to be credited against any fee received upon the successful completion
of a transaction. In addition, Haywood Securities is to be reimbursed for its
reasonable out-of-pocket expenses and to be indemnified by the Company in
certain circumstances.
Haywood
Securities consents to the inclusion of this Opinion in its entirety, together
with a summary thereof in a form acceptable to Haywood Securities, acting
reasonably, in documents to be sent to shareholders in connection with the
Arrangement or to be filed with the securities commissions or similar regulatory
authorities in each relevant province and territory of Canada and in the United
States and each state thereof, or with applicable stock exchanges, and with the
United States Securities and Exchange Commission.
Credentials
of Haywood Securities
Haywood
Securities is one of Canada's leading independent investment banking firms with
business services in corporate finance, equity sales and trading, and investment
research. Haywood Securities is owned by its employees and its head
office is located in Vancouver, Canada with additional Canadian offices in
Toronto and Calgary, as well as a London office in the United Kingdom. Haywood
Securities provides various capital market and advisory services to companies in
the mining and exploration industry. Haywood Securities has
participated in a significant number of transactions involving mining and
exploration companies and its investment banking professionals have extensive
experience in preparing valuations.
The
Opinion expressed herein represents the opinion of Haywood Securities and the
form and content of this Opinion have been reviewed and approved by a committee
of officers of Haywood Securities. The committee personnel are
professionals experienced in providing valuations and fairness opinions for
mergers and acquisitions as well as providing capital markets
advice.
Relationship
of Haywood with Apollo and Linear
None of
Haywood Securities, its associates, or affiliates, is an insider, associate, or
affiliate of Apollo (as those terms are defined in the Securities Act (Ontario)).
None of Haywood Securities, its associates, or affiliates, is an insider,
associate, or affiliate of Linear, or any of their respective associates, or
affiliates. Haywood Securities is not an advisor to any person or company other
than to the Company with respect to the Proposed Transaction.
The
following is a list detailing all fees, commissions, shares, and warrants
Haywood Securities has received from Apollo in the past 2 years:
|
|
§
|
On
July 24, 2008, C$928,347.87 and 1,713,873 broker warrants of Apollo
exercisable at C$0.60 as sales commission relating to a
financing;
|
|
|
§
|
On
August 21, 2008, 1,020,000 broker warrants of Apollo exercisable at C$0.50
as sales commission relating to a
financing;
|
|
|
§
|
On
September 19, 2008, C$25,000 for financial advisory services relating to
the analysis of potential merger and acquisition
opportunities;
|
|
|
§
|
On
December 31, 2008, C$36,000 and 255,000 warrants of Apollo exercisable at
C$0.30 for financial advisory services relating to a private placement
financing;
|
|
|
§
|
On
February 23, 2009, 2,172,840 common shares of Apollo and 2,567,901 broker
warrants of Apollo exercisable at C$0.256 for financial advisory
services;
|
L-2
|
|
§
|
On
March 23, 2009, 1,000,000 common shares of Apollo relating to the
successful completion of financial advisory
services;
|
|
|
§
|
On
July 15, 2009, C$718,250 and 1,292,796 broker warrants of Apollo
exercisable at C$0.45 as sales commission relating to a
financing;
|
|
|
§
|
On
August 21, 2009, C$552,500 as sales commission relating to a
financing;
|
|
|
§
|
From
September to November, 2009 C$50,000 for financial advisory services
relating to the analysis of potential merger and acquisition
opportunities;
|
|
|
§
|
On
January 5, 2010, C$50,000 for financial advisory services relating to the
analysis of strategic alternatives, including financing options and merger
and acquisition opportunities; and
|
|
|
§
|
On
January 14, 2010, 300,000 common shares of Apollo for financial advisory
services relating to the successful completion of a merger and acquisition
transaction.
|
The
following is a list detailing all fees, commissions, shares, and warrants
Haywood Securities has received from Linear in the past 2 years:
|
|
§
|
From
June to August, 2009 C$30,000 for financial advisory services relating to
the analysis of potential merger and acquisition
opportunities;
|
|
|
§
|
On
February 2, 2009, C$75,000 for financial advisory services relating to the
analysis of potential merger and acquisition opportunities;
and
|
|
|
§
|
On
November 29, 2009, C$317,009.55 and 192,330 broker warrants of Linear
exercisable at C$2.15 as sales commission relating to a
financing.
|
Haywood
Securities may also, in the ordinary course of its business, provide financial
advisory or investment banking services to Apollo and Linear from time to time.
In addition, in the ordinary course of its business, Haywood Securities may
actively trade common shares and other securities of Apollo and Linear for its
own account and for its client accounts and, accordingly, may at any time hold a
long or short position in such securities. As an investment dealer, Haywood
Securities conducts research on securities and may, in the ordinary course of
its business, provide research reports and investment advice to its clients on
investment matters, including with respect to any of Apollo, Linear, or the
Proposed Transaction, when disclosed.
Scope
of the Review
In
connection with rendering this Opinion, Haywood Securities has reviewed and
relied upon and in some cases carried out, among other things, the
following:
|
|
(a)
|
A
definitive draft of the Binding LOI between Apollo and
Linear;
|
|
|
(b)
|
The
Form 10-K’s filed by Apollo for the periods ending December 31, 2006 to
2008;
|
|
|
(c)
|
The
Form 10-Q’s filed by Apollo for the periods ending March 31, June 30, and
September 30, 2006 to 2009;
|
|
|
(d)
|
The
annual financial statements and the associated management discussion and
analysis reports for Linear for the years ended March 31, 2006 to
2009;
|
|
|
(e)
|
The
quarterly reports and the associated management discussion and analysis
reports for Linear for the periods ending June 30, September 30, and
December 31, 2006 to 2009;
|
|
|
(f)
|
The
Annual Information Form for Linear for the years ended March 31, 2006 to
2009;
|
L-3
|
|
(g)
|
The
National Instrument 43-101 compliant technical report prepared for
Apollo’s Black Fox Project dated April 14,
2008;
|
|
|
(h)
|
The
National Instrument 43-101 compliant technical report prepared for
Apollo’s Huizopa Gold-Silver Property dated May 20,
2009;
|
|
|
(i)
|
The
National Instrument 43-101 compliant technical report prepared for
Linear’s Box Mine – Goldfields Project dated June 29, 2007 and revised
September 24, 2009;
|
|
|
(j)
|
The
National Instrument 43-101 compliant technical report prepared for
Linear’s Athona Pit Pre-Feasibility dated September 25,
2009;
|
|
|
(k)
|
The
Campamento Resource Estimate for Linear’s Ixhuatán Project dated June
2006;
|
|
|
(l)
|
The
prospectus for Apollo dated July 9, 2008 relating to a
financing;
|
|
|
(m)
|
The
prospectus for Linear dated November 12, 2009 relating to a
financing;
|
|
|
(n)
|
An
analysis of Linear’s Goldfields prepared by Young Mining Consultants,
dated February 22, 2010;
|
|
|
(o)
|
An
Environmental and First Nation Due Diligence Review of the Box Mine
Project prepared by AMEC Earth and Environmental Ltd, dated February 11,
2010;
|
|
|
(p)
|
Certain
internal information prepared and provided to Haywood Securities by the
management of Apollo and Linear, concerning the business, operations,
assets, liabilities of Apollo and Linear
respectively;
|
|
|
(q)
|
Discussions
with the management of Apollo and Linear concerning the current business
plan of Apollo and Linear respectively, its financial condition, and its
future business prospects;
|
|
|
(r)
|
Certain
other public information relating to the business, mineral properties,
financial condition and trading history of Apollo and Linear and other
selected public companies we considered relevant for the preceding two
year period;
|
|
|
(s)
|
Information
with respect to selected comparable companies we considered
relevant;
|
|
|
(t)
|
Information
with respect to selected precedent transactions we considered
relevant;
|
|
|
(u)
|
Historic
data on the trading of the shares of Apollo and Linear;
and
|
|
|
(v)
|
Such
other corporate, industry and financial market information, investigations
and analyses as Haywood Securities considered necessary or appropriate in
the circumstances.
|
Haywood
Securities has not, to the best of its knowledge, been denied access by Apollo
or Linear to any information requested. Haywood Securities did not
meet with the auditors of Apollo or Linear and has assumed the accuracy and fair
presentation of and relied upon the audited financial statements of Apollo and
Linear and the reports of the auditors thereon.
This
Opinion has been prepared in accordance with the Disclosure Standards for Formal
Valuations and Fairness Opinions of the Investment Industry Regulatory
Organization of Canada (the “IIROC”) but the IIROC has not
been involved in the preparation or review of this Opinion.
L-4
Assumptions
and Limitations
With the
approval of the Special Committee and the Board of Directors, and as provided in
the Engagement Agreement, Haywood Securities has relied, without independent
verification, upon all financial and other information that was obtained by us
from public sources or that was provided to us by Apollo or Linear and their
respective affiliates, associates, advisors or otherwise. We have
assumed that this information was complete and accurate as of the date thereof
and did not omit to state any material fact or any fact necessary to be stated
to make that information not misleading. This Opinion is conditional
upon such completeness and accuracy. In accordance with the terms of
our engagement, but subject to the exercise of our professional judgment, we
have not conducted any independent investigation to verify the completeness or
accuracy of such information. With respect to the financial forecasts and
budgets provided to us and used in our analysis, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of Apollo and Linear as to the matters
covered thereby. Senior representatives of Apollo and Linear have
represented to us, orally as of the date hereof, among other things, that the
information, opinions and other materials (the “Information”) provided to us
by or on behalf of Apollo and Linear are complete and correct as of the date of
the Information and that, since the date of the Information, except as publicly
disclosed, there has been no material change, financial or otherwise, in the
financial position of Apollo and Linear, or in their assets, liabilities
(contingent or otherwise), business or operations and there has been no change
in any material fact which is of a nature as to render the Information untrue or
misleading in any material respect except to the extent disclosed in subsequent
Information.
This
Opinion is based on the securities markets, economic, general business and
financial conditions prevailing as of the date of this Opinion and the
conditions and prospects, financial and otherwise, of Apollo and Linear as they
were reflected in the Information reviewed by us. In its analysis and in
preparing this Opinion, Haywood Securities has made a number of assumptions with
respect to industry performance, general business and economic conditions, and
other matters, any of which are beyond control of Haywood Securities, Apollo,
Linear and any other party involved in connection with the Proposed
Transaction.
In
preparing the Opinion, Haywood Securities has assumed that (i) the final form of
the Binding LOI does not differ in any material respect from the draft that
Haywood Securities has examined; (ii) the Company and Linear will comply with
all the material terms of the Binding LOI, and (iii) the Proposed Transaction
will be consummated in accordance with the terms of the Binding LOI without any
adverse waiver or amendment of any material term or condition thereof. Finally,
Haywood Securities has (i) assumed that all material governmental, regulatory or
other required consents and approvals necessary for the consummation of the
Proposed Transaction will be obtained without any meaningful adverse effect on
Apollo or Linear or the contemplated benefits of the Proposed Transaction, and
(ii) relied upon the fact that the Board of Directors and the Company have been
advised by counsel as to all legal matters with respect to the Proposed
Transaction, including whether all procedures required by law to be taken in
connection with the Proposed Transaction have been duly, validly, and timely
taken.
The basis
and methodology for this Opinion have been designed specifically for the express
purposes of the Board of Directors of Apollo and may not translate to any other
purposes. This Opinion (i) does not address the merits of the
underlying business decision to enter into the Proposed Transaction versus any
alternative strategy or transaction; (ii) is not a recommendation as to how the
Board of Directors of Apollo or any stockholder should vote or act with respect
to any matters relating to the Proposed Transaction, or whether to proceed with
the Proposed Transaction or any related transaction, and (iii) does not indicate
that the consideration received is the best possibly attainable under any
circumstances. The decision as to whether to proceed with the
Proposed Transaction or any related transaction may depend on an assessment of
factors unrelated to the financial analysis on which this Opinion is
based. This letter should not be construed as creating any fiduciary
duty on the part of Haywood Securities to any party.
This
Opinion has been provided for the use of the Special Committee and, at the
request of the Special Committee, for the use of the Board of Directors, if
required, for inclusion in other related documents (or a summary thereof in a
form acceptable to Haywood Securities) and may not be used by any other person
or relied upon by any other person without the express consent of Haywood
Securities, except as explicitly required by law. This Opinion is
given as of the date hereof and Haywood Securities disclaims any undertaking or
obligation to advise any person of any change in any fact or matter affecting
this Opinion which may come or be brought to Haywood Securities’ attention after
the date hereof. This Opinion is limited to Haywood Securities’
understanding of the Proposed Transaction as of the date hereof and Haywood
Securities assumes no obligation to update this Opinion to take into account any
changes regarding the Proposed Transaction after the date
hereof.
L-5
Conclusion
This
Opinion is provided to members of the Board of Directors of Apollo in connection
with their consideration of the Proposed Transaction. Based upon and subject to
the foregoing, Haywood Securities is of the opinion that, as of the date hereof,
the Consideration to be paid pursuant to the Arrangement by the Company is fair
from a financial point of view to the Shareholders.
Yours
very truly,
HAYWOOD
SECURITIES INC.
L-6
SCHEDULE
M
HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS OF LINEAR
LINEAR
GOLD CORP.
(A
Development Stage Enterprise)
Consolidated
Financial Statements
(Unaudited)
December
31, 2009
M-1
Linear
Gold Corp.
Consolidated
Balance Sheets
(Unaudited)
(expressed
in Canadian dollars)
|
|
December 31
2009
|
March 31
2009
|
||||||
|
$
|
$
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
41,675,923 | 29,902,386 | ||||||
|
Marketable
securities
|
164,000 | 24,000 | ||||||
|
Accounts
receivable
|
3,635,511 | 759,195 | ||||||
|
Sales
taxes recoverable
|
87,779 | 75,145 | ||||||
|
Prepaid
expenses
|
48,721 | 22,720 | ||||||
| 45,611,934 | 30,783,446 | |||||||
|
Property
and equipment
|
2,385,490 | 204,793 | ||||||
|
Reclamation
deposit
|
36,196 | 36,061 | ||||||
|
Resource
properties (notes 8 and 9)
|
31,341,429 | 27,532,385 | ||||||
| 79,375,049 | 58,556,685 | |||||||
|
LIABILITIES
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
1,020,285 | 398,182 | ||||||
|
SHAREHOLDERS’
EQUITY
|
||||||||
|
Share
capital (notes 5 and 9)
|
86,269,623 | 68,553,460 | ||||||
|
Warrants
(note 6)
|
5,352,659 | 571,280 | ||||||
|
Contributed
surplus
|
9,083,802 | 8,188,135 | ||||||
|
Accumulated
other comprehensive loss
|
(108,889 | ) | (229,000 | ) | ||||
|
Deficit
|
(22,242,431 | ) | (18,925,372 | ) | ||||
| 78,354,764 | 58,158,503 | |||||||
| 79,375,049 | 58,556,685 | |||||||
Commitments (note
9)
Subsequent events (note
11)
The
accompanying notes form an integral part of these consolidated financial
statements.
Approved
on behalf of the Board of Directors
|
(s)
Wade K. Dawe
|
(s)
Derrick Gill
|
|
Wade
K. Dawe
|
Derrick
Gill
|
M-2
Linear
Gold Corp.
Consolidated
Statements of Operations and Deficit
(Unaudited)
(expressed
in Canadian dollars)
|
For the Three Months
Ended December 31
|
For the Nine Months
Ended December 31
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
$
|
$
|
$
|
$
|
|||||||||||||
|
OPERATING
COSTS AND EXPENSES
|
||||||||||||||||
|
Depreciation
and amortization
|
15,665 | 17,578 | 57,800 | 51,520 | ||||||||||||
|
Investor
relations and marketing
|
94,093 | 8,469 | 771,578 | 40,679 | ||||||||||||
|
Office
and premises
|
77,403 | 50,596 | 184,552 | 116,779 | ||||||||||||
|
Professional
services
|
28,728 | 57,275 | 162,369 | 139,586 | ||||||||||||
|
Regulator
and securities
|
30,281 | 6,786 | 59,642 | 50,374 | ||||||||||||
|
Salaries
and benefits
|
483,743 | 264,688 | 1,213,478 | 760,805 | ||||||||||||
|
Stock-based
compensation
|
223,276 | 153,528 | 861,149 | 763,566 | ||||||||||||
|
Travel
|
82,859 | 15,567 | 159,995 | 55,155 | ||||||||||||
|
Write-down
of resource properties
|
- | 1,658,317 | - | 2,362,148 | ||||||||||||
| 1,036,048 | 2,232,804 | 3,470,563 | 4,340,612 | |||||||||||||
|
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
|
Foreign
exchange loss
|
(52,434 | ) | (81,067 | ) | (217,482 | ) | (70,102 | ) | ||||||||
|
Interest
income
|
37,530 | 198,355 | 187,414 | 595,434 | ||||||||||||
|
Management
fees and other
|
36,814 | 64,617 | 193,946 | 240,965 | ||||||||||||
|
Loss
on disposal of equipment
|
(4,133 | ) | - | (638 | ) | (13,629 | ) | |||||||||
|
Loss
on sale of marketable securities
|
(9,514 | ) | - | (9,736 | ) | - | ||||||||||
| 8,263 | 181,905 | 153,504 | 752,668 | |||||||||||||
|
NET
LOSS FOR THE PERIODS
|
(1,027,785 | ) | (2,050,899 | ) | (3,317,059 | ) | (3,587,944 | ) | ||||||||
|
DEFICIT,
beginning of periods
|
(21,214,646 | ) | (15,562,283 | ) | (18,925,372 | ) | (14,025,238 | ) | ||||||||
|
DEFICIT,
end of periods
|
(22,242,431 | ) | (17,613,182 | ) | (22,242,431 | ) | (17,613,182 | ) | ||||||||
|
LOSS
PER SHARE - BASIC and FULLY DILUTED
|
(0.03 | ) | (0.07 | ) | (0.10 | ) | (0.13 | ) | ||||||||
|
Weighted
Average Number of Common Shares Outstanding
|
38,279,349 | 27,917,981 | 34,584,098 | 27,917,981 | ||||||||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
M-3
Linear
Gold Corp.
Consolidated
Statements of Cash Flows
(Unaudited)
(expressed
in Canadian dollars)
|
For the Three Months
Ended December 31
|
For the Nine Months
Ended December 31
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
$
|
$
|
$
|
$
|
|||||||||||||
|
CASH
AND CASH EQUIVALENTS PROVIDED BY (USED IN)
|
||||||||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||||||
|
Net
loss for the periods
|
(1,027,785 | ) | (2,050,899 | ) | (3,317,059 | ) | (3,587,944 | ) | ||||||||
|
Charges
to income not involving cash
|
||||||||||||||||
|
Depreciation
and amortization
|
15,665 | 17,578 | 57,800 | 51,520 | ||||||||||||
|
Loss
on disposal of equipment
|
4,133 | - | 638 | 13,629 | ||||||||||||
|
Loss
on sale of marketable securities
|
9,514 | - | 9,736 | - | ||||||||||||
|
Stock-based
compensation
|
223,276 | 153,528 | 861,149 | 763,566 | ||||||||||||
|
Write-down
of resource properties
|
- | 1,658,317 | - | 2,362,148 | ||||||||||||
| (775,197 | ) | (221,476 | ) | (2,387,736 | ) | (397,081 | ) | |||||||||
|
Net
change in non-cash working capital items related to
operations
|
||||||||||||||||
|
Decrease
(increase) in accounts receivable and
sales taxes recoverable
|
678,660 | 150,236 | 683,955 | (475,289 | ) | |||||||||||
|
Decrease
(increase) in prepaid expenses
|
(24,527 | ) | 15,036 | (26,001 | ) | 19,747 | ||||||||||
|
Decrease
(increase) in deposits
|
(135 | ) | - | (135 | ) | - | ||||||||||
|
Increase
(decrease) in accounts payable and accruals
|
580,642 | 48,172 | 593,282 | (90,873 | ) | |||||||||||
| 459,443 | (8,032 | ) | (1,136,635 | ) | (943,496 | ) | ||||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||||||
|
Purchases
of equipment
|
(1,291,450 | ) | (540 | ) | (2,280,122 | ) | (127,916 | ) | ||||||||
|
Proceeds
on disposal of equipment
|
18,172 | - | 36,733 | 3,838 | ||||||||||||
|
Proceeds
on sale of marketable securities
|
23,915 | - | 24,375 | - | ||||||||||||
|
Resource
property interests and options, net
|
(240,456 | ) | (365,222 | ) | (5,966,103 | ) | (1,460,462 | ) | ||||||||
|
Sales
tax recoverable related to resource property interests
|
(6,936 | ) | 219,207 | 15,928 | 455,427 | |||||||||||
| (1,496,755 | ) | (146,555 | ) | (8,169,189 | ) | (1,129,113 | ) | |||||||||
|
FINANCING
ACTIVITIES
|
||||||||||||||||
|
Issuance
of common stock and warrants for cash
|
23,103,750 | - | 23,103,750 | - | ||||||||||||
|
Share
and warrant issuance costs
|
(2,021,157 | ) | - | (2,024,389 | ) | - | ||||||||||
|
Repayment
of loans to officers and directors to exercise options
|
- | - | - | 338,000 | ||||||||||||
| 21,082,593 | - | 21,079,361 | 338,000 | |||||||||||||
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS DURING THE PERIODS
|
20,045,281 | (154,587 | ) | 11,773,537 | (1,734,609 | ) | ||||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of periods
|
21,630,642 | 23,997,612 | 29,902,386 | 25,577,634 | ||||||||||||
|
CASH
AND CASH EQUIVALENTS, end of periods
|
41,675,923 | 23,843,025 | 41,675,923 | 23,843,025 | ||||||||||||
|
CASH
AND CASH EQUIVALENTS IS COMPRISED OF Cash
|
1,459,683 | 3,464,632 | 1,459,683 | 3,464,632 | ||||||||||||
|
Short-term
investments
|
40,216,240 | 20,378,393 | 40,216,240 | 20,378,393 | ||||||||||||
| 41,675,923 | 23,843,025 | 41,675,923 | 23,843,025 | |||||||||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
M-4
Linear
Gold Corp.
Consolidated
Statements of Comprehensive Loss
(Unaudited)
(expressed
in Canadian dollars)
|
For the Three Months
Ended December 31
|
For the Nine Months
Ended December 31
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
$
|
$
|
$
|
$
|
|||||||||||||
|
NET
LOSS FOR THE PERIODS
|
(1,027,785 | ) | (2,050,899 | ) | (3,317,059 | ) | (3,587,944 | ) | ||||||||
|
Other
comprehensive gain (loss)
|
||||||||||||||||
|
Unrealized
gain (loss) on available-for-sale investments
|
35,255 | (18,750 | ) | 110,375 | (123,750 | ) | ||||||||||
|
Realized
loss on sale of available-for-sale investments
|
9,514 | - | 9,736 | - | ||||||||||||
|
COMPREHENSIVE
LOSS FOR THE PERIODS
|
(983,016 | ) | (2,069,649 | ) | (3,196,948 | ) | (3,711,694 | ) | ||||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
M-5
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
|
1.
|
Accounting
Policies
|
These
unaudited interim consolidated financial statements have been prepared by Linear
Gold Corp. (the “Company”) in accordance with Canadian generally accepted
accounting principles (“GAAP”) for interim financial
statements. Accordingly, certain information and note disclosures
normally included in annual consolidated financial statements have been
condensed or omitted. These consolidated financial statements are
based on accounting principles and practices consistent with those used in the
preparation of the Company’s annual consolidated financial statements, except as
indicated in note 2. These interim consolidated financial statements
should be read together with the Company’s March 31, 2009, audited consolidated
financial statements and accompanying notes.
|
2.
|
Changes
in Accounting Policies and Future Accounting
Changes
|
In
February 2008, the Canadian Accounting Standards Board announced that accounting
standards in Canada are to converge with International Financial Reporting
Standards (“IFRS”), and companies will begin reporting, with comparative data,
under IFRS for fiscal years beginning on or after January 1,
2011. While IFRS is based on a conceptual framework similar to
Canadian GAAP, there are significant differences with respect to recognition,
measurement and disclosure which the Company is beginning to
assess. The Company will commence reporting under the new standards
on April 1, 2011. The Company has begun to assess the impact of IFRS
on the Company, its information systems and its financial
statements.
In
January 2009, the CICA issued the new handbook Section 1582, Business Combinations,
effective for fiscal years beginning on or after January 1,
2011. Earlier adoption of Section 1582 is permitted. This
pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the
accounting for business combinations in a number of areas. It
establishes principles and requirements governing how an acquiring company
recognizes and measures in its financial statements identifiable assets
acquired, liabilities assumed, any non-controlling interest in the acquiree, and
goodwill acquired. The section also establishes disclosure
requirements that will enable users of the acquiring company’s financial
statements to evaluate the nature and financial effects of its business
combinations. The Company is considering the impact of adopting this
pronouncement on the consolidated financial statements.
In
January 2009, the CICA issued the new handbook Section 1601, Consolidated Financial
Statements, and Section 1602, Non-controlling Interests,
effective for fiscal years beginning on or after January 1,
2011. Earlier adoption of these recommendations is
permitted. These pronouncements further align Canadian GAAP with US
GAAP and IFRS. Sections 1601 and 1602 change the accounting and
reporting for ownership interest in subsidiaries held by parties other than the
parent. Non-controlling interests are to be presented in the
consolidated statement of financial position within the entity but separate from
the parent’s equity. The amount of consolidated net income
attributable to the parent and to the non-controlling interest is to be clearly
identified and presented on the face of the consolidated statement of
income. In addition, these pronouncements establish standards for a
change in a parent’s ownership interest in a subsidiary and the valuation of
retained non-controlling equity investments when a subsidiary is
deconsolidated. They also establish reporting requirements for
providing sufficient disclosures that clearly identify and distinguish between
the interest of the parent and the interests of the non-controlling
owners. The Company is currently considering the impact of adopting
these pronouncements on its consolidated financial statements in fiscal 2012 in
connection with the conversion to IFRS.
|
3.
|
Financial
Instruments
|
The
Company recognizes financial instruments based on their
classification. Depending on the financial instruments’
classification, changes in subsequent measurements are recognized in net income
(loss) or comprehensive income (loss).
M-6
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
If a
financial instrument is measured at fair value, changes in its fair value shall
usually be recognized in the Statement of Operations and Deficit in the period
in which the change occurs, with some exceptions, such as for cash flow hedges
and available-for-sale investments. For investments designated as
being available-for-sale, changes in the fair value shall be recorded directly
in Shareholders’ Equity in a separate account called “Accumulated Other
Comprehensive Income (Loss)” until the asset is disposed of or becomes
impaired. At that time, the gains and losses are transferred to the
Statement of Operations and Deficit.
The
Company has implemented the following classifications:
|
|
·
|
Cash
equivalents are classified as “Financial Assets
Held-for-Trading”. These financial assets are marked-to-market
through net income at each period
end.
|
|
|
·
|
Marketable
securities are classified as “Available-for-Sale” financial assets and are
marked-to-market, with changes in fair value recognized in other
comprehensive income (loss) each period or in the Statement of Operations
and Deficit to the extent the decline in value is considered to be other
than temporary.
|
|
|
·
|
Accounts
receivable are classified as “Loans and Receivables”. After
their initial fair value measurement, they are measured at amortized cost
using the effective interest
method.
|
|
|
·
|
Accounts
payable are classified as “Other Financial Liabilities”. After
their initial fair value measurement, they are measured at amortized cost
using the effective interest
method.
|
|
a)
|
Fair
market value
|
Fair
value estimates of financial estimates are made at a specific point in time,
based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect
estimated fair values.
M-7
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
The
carrying values of accounts receivable and accounts payable and accrued
liabilities approximate their fair value because of the short-term nature of
these instruments.
|
b)
|
Liquidity
risk
|
The
Company’s approach to managing liquidity risk is to ensure that it will have
sufficient liquidity to meet liabilities when due. Cash and cash
equivalents are held in bank accounts or interest-bearing instruments that can
be converted to cash without penalty at any time and are recorded at fair
value.
|
c)
|
Foreign
currency rate risk
|
A
significant portion of the Company’s transactions occur in United States,
Mexican, Brazilian, and Dominican Republic currencies; accordingly, the related
financial assets and financial liabilities are subject to fluctuations in the
respective exchange rates.
|
d)
|
Concentration
of credit risk
|
Management
does not believe it is exposed to any significant concentration of credit risk
except that a significant portion of its cash and cash equivalents are on
deposit with a major Canadian chartered bank and at December 31, 2009,
approximately 99% of the Company’s accounts receivable are receivable from
Kinross Gold Corporation. All of the sales taxes recoverable are with
either the government of Canada or the government of Mexico.
|
d)
|
Interest
rate risk
|
The
Company has cash and cash equivalents and no interest-bearing debt; accordingly,
the Company’s interest income is susceptible to fluctuations in interest
rates.
|
4.
|
Capital
Management
|
The
Company’s capital structure consists of share capital, contributed surplus and
warrants. The Company’s objective when managing capital is to
maintain adequate levels of funding to support the acquisition, exploration and
development of its resource properties and maintain the necessary corporate and
administrative functions to facilitate these activities. This is done
primarily through equity financings. Future financings are dependent
on market conditions and there can be no assurance the Company will be able to
raise funds in the future.
The
Company invests capital that is surplus to its immediate operational needs in
short-term, highly-liquid, financial instruments.
There
were no changes to the Company’s approach to capital management during the
period. The Company is not subject to externally imposed capital
requirements.
M-8
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
|
5.
|
Share
Capital
|
a) Common
Shares
|
|
·
|
The
Company has authorized an unlimited number of common shares without par
value.
|
|
|
·
|
The
Company has authorized an unlimited number of first preferred and second
preferred shares without par value, of which none have been
issued.
|
The
following is a summary of changes in the Company’s issued common share capital
during the three and nine-month periods ended December 31, 2009:
|
Three-months ended December 31, 2009
|
Nine-months ended December 31, 2009
|
|||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
|||||||||||||
|
Opening
balance
|
33,290,708 | $ | 69,968,409 | 32,563,436 | $ | 68,553,460 | ||||||||||
|
Shares
issued pursuant to Goldfields
acquisition (note 9)
|
- | - | 727,272 | 1,418,181 | ||||||||||||
|
Shares
issued pursuant to financing
|
10,927,500 | 18,316,300 | 10,927,500 | 18,316,300 | ||||||||||||
|
Share
issuance costs
|
- | (2,015,086 | ) | - | (2,018,318 | ) | ||||||||||
|
Closing
balance
|
44,218,208 | $ | 86,269,623 | 44,218,208 | $ | 862,691,323 | ||||||||||
On
November 19, 2009, the Company completed a public offering of 10,407,500 units
at a price of $2.10 per unit and 520,000 flow-through common shares at a price
of $2.40 per flow-through share, for aggregate gross proceeds of
$23,103,750. Each unit consisted of one common share and one-half of
one common share purchase warrant, with each whole warrant entitling the holder
to acquire one common share of the Company at an exercise price of $3.00 for a
period of five years, expiring on November 19, 2014. The value
allocated to the common shares issued was $18,316,300, and the value allocated
to the warrants was $4,787,450. Total costs associated with the
offering were $2,545,678, including cash costs for commissions, professional
fees and regulatory costs of $2,021,157 and 655,651 broker warrants issued as a
commission, valued at $524,521. Each broker warrant entitles the
holder to acquire one common share of the Company at an exercise price of $2.15
for a period of two years, expiring on November 19, 2011. The Company
has allocated $2,015,086 of the issue costs to the common shares and $530,592 of
the issue costs to the warrants.
Pursuant
to the issuance of the flow-through shares, the Company is required to spend the
gross proceeds of $1,248,000 on qualified Canadian mineral exploration
expenditures, as defined by Canadian income tax legislation, prior to December
31, 2010.
M-9
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
b) Options
The
following is a summary of stock option activity during the three and nine-month
periods ended December 31, 2009:
|
Three-months ended December 31, 2009
|
Nine-months ended December 31, 2009
|
|||||||||||||||
|
Number
|
Weighted
average exercise
price
|
Number
|
Weighted
average exercise
price
|
|||||||||||||
|
Opening
balance
|
2,746,500 | $ | 1.90 | 2,737,500 | $ | 3.00 | ||||||||||
|
Granted
|
80,000 | 2.40 | 1,110,000 | 1.69 | ||||||||||||
|
Expired
|
(41,500 | ) | 5.48 | (402,500 | ) | 4.03 | ||||||||||
|
Cancelled
|
- | - | (660,000 | ) | 5.00 | |||||||||||
|
Ending
Balance
|
2,785,000 | $ | 1.86 | 2,785,000 | $ | 1.86 | ||||||||||
During
the nine-month period ended December 31, 2009, the Company recognized $895,667
as the value of stock options earned during the period, including $861,149
recorded as stock-based compensation expense and $34,518 capitalized as Resource
Properties, related to the value of options earned by the Company’s exploration
staff.
c) The
following is a summary of options outstanding as of December 31,
2009:
|
Expiry Date
|
Number of Options
|
Exercisable
|
Exercise Price
|
|||||||||
|
15-Jan-10
|
15,000 | 15,000 | $ | 5.00 | ||||||||
|
09-Jan-13
|
705,000 | 211,500 | $ | 3.00 | ||||||||
|
28-Feb-13
|
10,000 | 3,000 | $ | 3.00 | ||||||||
|
30-Jun-13
|
50,000 | 15,000 | $ | 3.00 | ||||||||
|
06-Feb-14
|
885,000 | — | $ | 1.05 | ||||||||
|
19-Feb-14
|
25,000 | — | $ | 1.05 | ||||||||
|
04-Mar-14
|
5,000 | — | $ | 1.05 | ||||||||
|
29-Jul-14
|
405,000 | — | $ | 1.37 | ||||||||
|
04-Aug-14
|
250,000 | — | $ | 1.50 | ||||||||
|
24-Aug-14
|
75,000 | — | $ | 2.18 | ||||||||
|
26-Aug-14
|
250,000 | — | $ | 2.00 | ||||||||
|
09-Sep-14
|
30,000 | — | $ | 2.10 | ||||||||
|
05-Oct-14
|
80,000 | — | $ | 2.40 | ||||||||
| 2,785,000 | 244,500 | $ | 1.86 | |||||||||
M-10
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
|
6.
|
Warrants
|
The
following is a summary of warrant activity during the three and nine-month
periods ended December 31, 2009:
|
Three-months ended December 31, 2009
|
Nine-months ended December 31, 2009
|
|||||||||||||||
|
Number
|
Amount*
|
Number
|
Amount*
|
|||||||||||||
|
Opening
balance
|
2,322,728 | $ | 571,280 | 2,322,728 | $ | 571,280 | ||||||||||
|
Issued
|
5,859,401 | 5,311,971 | 5,859,401 | 5,311,971 | ||||||||||||
|
Issuance
costs
|
— | (530,592 | ) | — | (530,592 | ) | ||||||||||
|
Ending
Balance
|
8,182,129 | $ | 5,352,659 | 8,182,129 | $ | 5,352,659 | ||||||||||
*Black-Scholes
valuation
As at
December 31, 2009, the Company had the following warrants issued and
outstanding:
|
Expiry Date
|
Number of Warrants
|
Exercise Price
|
||||||
|
19-Mar-11
|
2,322,728 | $ | 1.50 | |||||
|
19-Nov-11
|
655,651 | $ | 2.15 | |||||
|
19-Nov-14
|
5,203,750 | $ | 3.00 | |||||
| 8,182,129 | $ | 2.51 | ||||||
|
7.
|
Related
Party Transactions
|
During
the nine-month period ended December 31, 2009, the Company entered into
transactions with related parties, as follows:
|
Legal
fees to a firm of which an officer is a partner
|
$ | 421,357 | ||
|
Geological
consulting fees paid to a Director
|
750 | |||
| $ | 422,107 |
All
related party transactions were conducted in the normal course of operations and
were valued at the exchange amount.
M-11
Linear
Gold Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
December
31, 2009
|
8.
|
Resource
Properties
|
|
December 31, 2009
|
March 31, 2009
|
|||||||
|
Goldfields
- Canada (note 9)
|
$ | 7,685,473 | $ | — | ||||
|
Ixhuatan
- Mexico
|
22,958,936 | 26,426,058 | ||||||
|
Dominican
Republic
|
697,020 | 1,106,327 | ||||||
| $ | 31,341,429 | $ | 27,532,385 | |||||
Effective
October 26, 2007, the Company completed an Option Agreement (the “Agreement”)
with Kinross Gold Corporation (“Kinross”) with respect to the exploration and
potential future development of the Company’s Ixhuatan Project (“Ixhuatan”) in
Mexico. Pursuant to the terms of the Agreement, Kinross’ subsidiary
was the operator of Ixhuatan and was required to incur a minimum of US $15.0
million of expenditures on Ixhuatan and/or make payments to the Company
aggregating to US $15.0 million within the 24-month period commencing on October
26, 2007, following which Kinross had 90 days to exercise their option to
acquire an initial 60% interest in Ixhuatan by paying the Company US $45.0
million. Kinross would then have had a further option to increase its
interest in Ixhuatan to 70% by paying the Company an additional US $55.0 million
within 90 days of Kinross’ board of directors approving the construction and
development of a mine based on a positive NI 43-101 compliant feasibility study
and would have been required to make a payment of up to US $15.0 million based
on the size of the proven and probably gold equivalent reserve.
In
December 2009, the Company received notice from Kinross that the option to
acquire an initial 60% interest in Ixhuatan would not be exercised; accordingly,
the Company continues to hold a 100% interest in the Ixhuatan
Project. Pursuant to the terms of the Agreement, Kinross will pay the
Company US $3.4 million, representing the difference between the minimum
required expenditures of US $15.0 million and the actual expenditures incurred
by Kinross during the option period. The amount of US $3.4 million
has been applied as a recovery of Resource Properties for the period ended
December 31, 2009.
9. Acquisition
of the Goldfields Project
On August
20, 2009, the Company acquired a 100% interest in the Goldfields Project located
near Uranium City, Saskatchewan, Canada from GLR Resources Inc. (“GLR”), by
paying GLR US $5.0 million in cash and issuing 727,272 common shares of the
Company, valued at $1.95 per share, as consideration for the
purchase. In addition to the cash payment and shares issued, the
Company assumed equipment construction contracts previously entered into by GLR
with aggregate remaining payments of approximately CDN $18.6 million at December
31, 2009.
The
acquisition has been accounted for as an asset purchase. The
following table sets the preliminary allocation of the purchase cost to the
assets acquired:
|
$
|
||||
|
Purchase
price
|
||||
|
Cash
consideration - US $5.0 million
|
5,517,946 | |||
|
Shares
issued - 727,272 at a value of $1.95 per share
|
1,418,181 | |||
|
Transaction
costs
|
471,059 | |||
| 7,407,186 | ||||
|
Assets
acquired
|
||||
|
Resource
properties
|
7,244,000 | |||
|
Property
and equipment
|
163,186 | |||
| 7,407,186 | ||||
M-12
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
A payment
in the amount of US $1.0 million, scheduled for October 2009 pursuant to one of
the construction contracts assumed, has not been recorded in accounts payable as
a result of contract deficiencies currently being discussed with the
supplier.
10. Comparative
Figures
Certain
of the prior period figures have been reclassified to conform to the financial
presentation adopted for the current period.
11. Subsequent
Events
Proposed
Business Combination with Apollo Gold Corporation
On March
9, 2010, the Company and Apollo Gold Corporation (“Apollo”) entered into a
binding letter of intent (the “Letter of Intent”), pursuant to which the
businesses of the Company and Apollo would be combined by way of a
court-approved plan of arrangement (the “Arrangement”) and pursuant to the
Letter of Intent, the Company and Apollo entered into a subscription agreement
(the “Subscription Agreement”) providing for a private placement (the “Private
Placement”) whereby the Company would purchase 62,500,000 common shares of
Apollo at a price of $0.40 per common share for gross proceeds of CDN $25.0
million.
The
Private Placement closed on March 19, 2010. The Apollo common shares
issued to the Company as part of this Private Placement are subject to a
four-month hold period in Canada and are restricted securities under United
States federal and state securities law. In the event the Arrangement
is not completed for any reason, Apollo has agreed to file a registration
statement with the United States Securities and Exchange Commission (the “SEC”)
in respect of the common shares of Apollo issued in the Private Placement as
expeditiously as possible so as to register the resale of such shares by the
Company in the United States. Pursuant to the completion of the
Arrangement, the common shares issued pursuant to the Private Placement are
expected to be cancelled without any payment upon completion of the
Arrangement.
On March
31, 2010, the Company and Apollo signed a Definitive Arrangement Agreement (the
“Definitive Agreement”). Pursuant to the Definitive
Agreement:
|
|
·
|
each
outstanding common share of the Company will be exchange for 5.4742 common
shares of Apollo (the “Exchange
Ratio”);
|
|
|
·
|
each
outstanding common share purchase warrant of the Company (the “Linear
Warrants”) will be exchanged for common share purchase warrants of Apollo
on the basis of the Exchange Ratio, and the exercise price of each Linear
Warrant will be adjusted as provided for in the applicable Warrant
Certificates; and
|
|
|
·
|
each
outstanding common share option of the Company (the “Linear Options”)
granted under the Company’s Stock Option Plan will be
exchanged for common share options of Apollo granted under
Apollo’s Stock Option Plan on the basis of the Exchange Ratio, and the
exercise price of each Linear Option will be adjusted on the same basis as
the Linear Warrants.
|
Upon
consummation of the Arrangement and based on the terms, the transaction will be
accounted for as an acquisition of a business with Apollo being the
acquirer. Based on the terms of the Arrangement, the shareholders of
the Company immediately prior to the Arrangement are expected to own
approximately 47.8% of the outstanding common stock of Apollo on a non-diluted
basis and approximately 42.9% on a fully-diluted basis.
M-13
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
The
Arrangement will be subject to the approval of not less than 66 2/3% of the
Company’s common shares and a majority of the Apollo common shares held by
disinterested shareholders to be voted at special meetings of shareholders to be
called to approve the Arrangement.
If either
the Company or Apollo terminates the Definitive Agreement and abandons the
Arrangement prior to closing for any reason (other than as a result of the
failure of a condition to such party’s obligation to close contained in the
Letter of Intent or the Definitive Agreement not being satisfied), such
terminating party shall pay to the other party an amount equal to CDN $4.0
million.
The
Definitive Agreement may be terminated (i) by mutual written consent of the
Company and Apollo; (ii) by a party which accepts, recommends, approves or
enters into an agreement to implement a “superior proposal” (as defined in the
Definitive Agreement); (iii) by either party if certain mutual conditions,
conditions of the other party or the Arrangement itself are not or are incapable
of being satisfied and/or completed prior to July 2, 2010.
12. Reconciliation
of Canadian and United States Generally Accepted Accounting
Principles
The
consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP. These principles differ in certain
material respects from United States generally accepted accounting principles
(“US GAAP”). The effect of these differences on the Company’s
consolidated financial statements for the three and nine-month periods ending
December 31, 2009 and 2008 is quantified below and described in the accompanying
notes:
|
For
the Three Months Ended
December
31
|
For
the Nine Months
Ended
December 31
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
$
|
$
|
$
|
$
|
|||||||||||||
|
Net
loss for the periods reported under Canadian GAAP
|
(1,027,785 | ) | (2,050,899 | ) | (3,317,059 | ) | (3,587,944 | ) | ||||||||
|
Add
(deduct)
|
||||||||||||||||
|
Deferred
exploration costs (a)
|
(274,033 | ) | (252,064 | ) | (536,608 | ) | (1,486,059 | ) | ||||||||
|
Recoveries
of exploration costs (a)
|
3,604,522 | — | 4,021,564 | — | ||||||||||||
|
Write
off of mineral properties and related deferred costs (a)
|
— | 1,565,557 | — | 2,119,035 | ||||||||||||
|
Net
income (loss) for the periods under US GAAP
|
2,302,704 | (737,406 | ) | 167,897 | (2,954,968 | ) | ||||||||||
|
Other
comprehensive income (loss) for the periods under US GAAP
|
44,769 | (18,750 | ) | 120,111 | (123,750 | ) | ||||||||||
|
Comprehensive
Income (loss) for the periods under US GAAP
|
2,347,473 | (756,156 | ) | 288,008 | (3,078,718 | ) | ||||||||||
|
Net
Income (loss) per share under US GAAP
|
||||||||||||||||
|
Basic
|
0.06 | (0.03 | ) | 0.00 | (0.11 | ) | ||||||||||
|
Diluted
|
0.06 | (0.03 | ) | 0.00 | (0.11 | ) | ||||||||||
M-14
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
|
As at the Period
Ended December 31
2009
$
|
As at the Year
Ended March 31
2009
$
|
|||||||
|
Cash
and cash equivalents under Canadian GAAP
|
41,675,923 | 29,902,386 | ||||||
|
Add
(deduct)
|
||||||||
|
Restricted
cash related to flow-through common share funds unexpended
(b)
|
(1,189,149 | ) | — | |||||
|
Cash
and cash equivalents under US GAAP
|
40,486,774 | 29,902,386 | ||||||
|
Resource
properties under Canadian GAAP
|
31,341,429 | 27,532,385 | ||||||
|
Add
(deduct)
|
||||||||
|
Deferred
exploration costs (a)
|
(22,891,454 | ) | (26,376,410 | ) | ||||
|
Resource
properties under US GAAP
|
8,449,975 | 1,155,975 | ||||||
|
Liability
related to flow-through shares under Canadian GAAP
|
— | — | ||||||
|
Add
(deduct)
|
||||||||
|
Flow-through
common shares issued (b)
|
239,200 | — | ||||||
|
Liability
related to flow-through shares under US GAAP
|
239,200 | — | ||||||
|
Shareholders'
equity reported under Canadian GAAP
|
78,354,764 | 58,158,503 | ||||||
|
Cumulative
adjustments to shareholders' equity
|
||||||||
|
Add
(deduct)
|
||||||||
|
Deferred
exploration costs (a)
|
(22,891,454 | ) | (26,376,410 | ) | ||||
|
Flow-through
common shares issued (b)
|
(239,200 | ) | — | |||||
|
Shareholders'
equity reported under US GAAP
|
55,224,110 | 31,782,093 | ||||||
M-15
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
|
For the Three Months Ended
December 31
|
For the Nine Months Ended
December 31
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
$
|
$
|
$
|
$
|
|||||||||||||
|
Cash
flows provided from (used in) operating activities under Canadian
GAAP
|
459,443 | (8,032 | ) | (1,136,635 | ) | (943,496 | ) | |||||||||
|
Deferred
exploration costs (a)
|
(116,456 | ) | (365,226 | ) | (90,284 | ) | (1,324,778 | ) | ||||||||
|
Cash
flows provided from (used in) operating activities under US
GAAP
|
342,987 | (373,258 | ) | (1,226,919 | ) | (2,268,274 | ) | |||||||||
|
Cash
flows provided from financing activities under Canadian
GAAP
|
21,082,593 | — | 21,079,361 | 338,000 | ||||||||||||
|
Restricted
cash related to flow-through common share funds unexpended
(b)
|
(1,189,149 | ) | — | (1,189,149 | ) | — | ||||||||||
|
Cash
flows provided from financing activities under US GAAP
|
19,893,444 | — | 19,890,212 | 338,000 | ||||||||||||
|
Cash
flows used in investing activities under Canadian GAAP
|
(1,496,755 | ) | (146,555 | ) | (8,169,189 | ) | (1,129,113 | ) | ||||||||
|
Deferred
exploration costs (a)
|
116,456 | 365,226 | 90,284 | 1,324,778 | ||||||||||||
|
Cash
flows provided from (used in) investing activities under US
GAAP
|
(1,380,299 | ) | 218,671 | (8,078,905 | ) | 195,665 | ||||||||||
a) Deferred
exploration costs
Under
Canadian GAAP, exploration expenditures may be capitalized during the search for
a commercially mineable body of ore and amortized later during commercial
production. Under US GAAP, exploration expenditures can only be deferred
subsequent to the determination that proven or probable mineral reserves exist,
at which time costs incurred to bring the mine into production are capitalized
as development costs. Capitalized costs are then amortized on a unit of
production basis based on proven and probable reserves. During the
nine-month period ended December 31, 2008, the Company wrote-off deferred
exploration costs under Canadian GAAP of $2,362,148 (three-month period ended
December 31, 2008 - $1,658,317), which included acquisition costs of $243,114
(three-month period ended December 31, 2008 - $92,760) and deferred exploration
expenditures of $2,119,035 (three-month period ended December 31, 2008 -
$1,565,557), for properties that were not considered economically feasible and
were therefore abandoned. Under US GAAP, the exploration costs of
$2,119,035 and $1,565,557 would have been expensed in the period
incurred.
Under
Canadian GAAP, recoveries of exploration costs are applied against Resource
Properties. Under US GAAP, these recoveries are recorded on the
income statement.
For the
purposes of the consolidated statements of cash flows, exploration costs are
classified as cash used in investing activities under Canadian GAAP and cash
used in operating activities under US GAAP.
b) Flow-through
common shares
Under
Canadian GAAP, the Company accounts for the issuance of flow-through common
shares using the deferral method. Under US GAAP, the flow-through
funds which are unexpended at the balance sheet date are considered to be
restricted cash and are not considered to be cash or cash equivalents. As at
December 31, 2009, the Company had restricted cash relating to flow-through
funds of $1,189,149.
M-16
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
Under
Canadian GAAP, flow-through common shares are recorded at face value, being the
net cash received for the flow-through shares. The related future tax
liability is established for the tax effect of the difference between the tax
basis and the book basis of the assets when the expenditures are renounced and
is recorded as a reduction of share capital. Under US GAAP, the
proceeds from the offering must be allocated between the sale of the shares and
the sale of the tax benefit. The allocation for proceeds is made based on the
difference between the quoted market price of the flow-through shares and the
amount an investor pays for the flow-through shares. A liability is established
for this difference that is reversed upon renunciation of the tax
benefit.
c) Stock-based
compensation
Effective
April 1, 2004, the Company adopted the fair value based method of accounting for
stock-based companies. Consequently, there were no differences between Canadian
and US GAAP with respect to options granted since inception. Canadian GAAP
permits a choice which allows companies to estimate forfeitures at the grant
date or recognize forfeitures as they occur. US GAAP requires forfeitures to be
estimated at the grant date. Management has evaluated the impact of estimating
forfeitures at the grant date for the purposes of this reconciliation and
determined that the impact is not material.
d) Income
taxes
Under
Canadian GAAP, future income taxes are calculated based on enacted or
substantively enacted tax rates applicable to future years. Under US GAAP, only
enacted rates are used in the calculation of future income taxes. This
difference in GAAP did not result in a difference in the financial position,
results of operations or cash flows of the Company for the periods ended
December 31, 2009 and 2008.
e) Uncertainty
in income taxes
In July
2006, the ASC issued guidance for Accounting for Uncertainty in Income Taxes.
The guidance prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements, uncertain
tax positions that the Company has taken or expects to take on a tax return
(including a decision whether to file or not file a return in a particular
jurisdiction). Under the guidance, the financial statements will reflect
expected future tax consequences of such positions presuming the taxing
authorities’ full knowledge of the position and all relevant facts, but without
considering time value. The guidance also revises disclosure requirements and
introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax
benefits. It is effective for fiscal years beginning after December 15, 2006.
Management has evaluated the adoption of the guidance for purposes of this
reconciliation and has determined there is no impact.
f) Recently
issued accounting pronouncements
The
Accounting Standards Codification
In June
2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification (“ASC”) as the single source of authoritative
GAAP to be applied by nongovernmental entities. The ASC is a new
structure which took existing accounting pronouncements and organized them by
accounting topic. Relevant authoritative literature issued by the
Securities and Exchange Commission (“SEC”) and select SEC staff interpretations
and administrative literature was also included in the ASC. All other
accounting guidance not included in the ASC is non-authoritative. The
ASC is effective for annual or interim periods ending after September 15,
2009. The adoption of the ASC did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.
M-17
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
Fair
Value Accounting
In
September 2006, the ASC guidance for fair value measurements and disclosure was
updated to define fair value, establish a framework for measuring fair value,
and expand disclosures about fair value measurements. This guidance
does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements. The provisions of the updated guidance were adopted
April 1, 2008. In February 2008, the FASB staff issued an update to
the guidance which delayed the effective date for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The adoption of the
guidance did not have a significant impact on the Company.
In
October 2008, the guidance was further updated to provide guidance on how the
fair value of a financial asset is to be determined when the market for that
financial asset is inactive. The guidance states that determining
fair value in an inactive market depends on the facts and circumstances,
requires the use of significant judgment and, in some cases, observable inputs
may require significant adjustment based on unobservable
data. Regardless of the valuation technique used, an entity must
include appropriate risk adjustments that market participants would make for
non-performance and liquidity risks when determining fair value of an asset in
an inactive market. The guidance was effective upon
issuance. The adoption of the guidance did not have a significant
impact on the Company.
Fair
Value Option
In
February 2007, the ASC issued guidance that permits entities to choose to
measure many financial instruments and certain other items at fair value, with
the objective of improving financial reporting by mitigating volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The
guidance was adopted April 1, 2008. The Company did not elect the
Fair Value Option for any of its financial assets or liabilities, and therefore,
the adoption of the guidance had no impact on the Company’s consolidated
financial position, results of operations or cash flows.
Accounting
for the Useful Life of Intangibles
In April
2008, the ASC updated guidance on the determination of the useful life of
intangible assets which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The guidance was adopted April 1, 2009
and will be applied prospectively to intangible assets acquired after that
date. The adoption of the guidance did not have a material impact on
the Company’s consolidated financial position, results of operations or cash
flows.
Business
Combinations
In
December 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any non-controlling interest in the
acquiree. The updated guidance also provides disclosure requirements
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The provisions of the updated
guidance is effective for assets or liabilities arising from contingencies in
business combinations for which the acquisition date is on or after April 1,
2009. The Company will apply the guidance to all future business
combinations.
Equity
Method Investment
In
November 2008, the ASC updated guidance which clarifies the accounting for
certain transactions and impairment considerations involving equity method
investments. The intent of the changes is to provide guidance on (i)
determining the initial measurement of an equity method investment, (ii)
recognizing other-than-temporary impairments of an equity method investment and
(iii) accounting for an equity method investee’s issuance of
shares. The updated guidance was adopted April 1, 2009 and did not
have an impact on the Company’s consolidated financial position or results of
options.
M-18
|
Linear
Gold Corp.
|
|
Notes
to Consolidated Financial Statements
|
|
(Unaudited)
|
|
December
31, 2009
|
Variable
Interest Entities
In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”). This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: (i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and (ii) the obligation
to absorb losses or receive benefits from the entity that could potentially be
significant to the VIE. The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE. The provisions of
the updated guidance are effective for the Company’s fiscal year beginning April
1, 2010. The Company does not expect the adoption of this guidance to
have an impact on the Company’s consolidated financial position, results of
operations or cash flows.
M-19
Linear
Gold Corp.
(A
Development Stage Enterprise)
Consolidated
Financial Statements
March
31, 2009, 2008 and 2007
M-20
|
PricewaterhouseCoopers
LLP
|
|
Chartered
Accountants
|
|
Summit
Place
|
|
1601
Lower Water Street, Suite 400
|
|
Halifax,
Nova Scotia
|
|
Canada
B3J 3P6
|
|
Telephone
+1 (902) 491 7400
|
|
Facsimile
+1 (902) 422 1166
|
April
20, 2010
Report
of Independent Auditors
To
the Board of Directors and Shareholders of
Linear
Gold Corp.
We have
audited the accompanying consolidated balance sheets of Linear Gold Corp. and
its subsidiaries as of March 31, 2009 and 2008 and the related consolidated
statements of operations, deficit and comprehensive loss and cash flows for each
of the three years in the period ended March 31, 2009. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with Canadian generally accepted auditing
standards and auditing standards generally accepted in the United States of
America. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe our audits provide a reasonable basis for
our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Linear Gold Corp. and its
subsidiaries at March 31, 2009 and 2008 and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 2009
in conformity with Canadian generally accepted accounting
principles.
(signed)
“PricewaterhouseCoopers
LLP”
Chartered
Accountants
M-21
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Consolidated
Balance Sheet
|
|
As
at March 31, 2009 and 2008
|
|
(in
Canadian dollars)
|
|
2009
$
|
2008
$
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
29,902,386 | 25,577,634 | ||||||
|
Marketable
securities
|
24,000 | 137,500 | ||||||
|
Accounts
receivable (note 12)
|
759,195 | 689,484 | ||||||
|
Sales
taxes recoverable
|
75,145 | 583,202 | ||||||
|
Deposits
(note 14)
|
– | 876,194 | ||||||
|
Prepaid
expenses
|
22,720 | 53,975 | ||||||
| 30,783,446 | 27,917,989 | |||||||
|
Property and
equipment (note
6)
|
204,793 | 309,246 | ||||||
|
Reclamation deposits
(note
7)
|
36,061 | 35,029 | ||||||
|
Resource properties (note
8)
|
27,532,385 | 29,534,887 | ||||||
| 58,556,685 | 57,797,151 | |||||||
|
Liabilities
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
398,182 | 501,811 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Share capital (note
9)
|
68,553,460 | 64,290,836 | ||||||
|
Warrants
(note 10)
|
571,280 | 4,407,191 | ||||||
|
Contributed surplus
(note
9)
|
8,188,135 | 2,733,551 | ||||||
|
Accumulated other comprehensive
loss (note
9)
|
(229,000 | ) | (111,000 | ) | ||||
|
Deficit
|
(18,925,372 | ) | (14,025,238 | ) | ||||
| 58,158,503 | 57,295,340 | |||||||
| 58,556,685 | 57,797,151 | |||||||
Commitments and
contingency
(note 14)
Subsequent events (note
17)
The
accompanying notes form an integral part of these financial
statements.
Approved
on behalf of the Board of Directors
|
(signed)
“Derrick
Gill”
|
(signed)
“Wade K.
Dawe”
|
|
Director
|
Director
|
M-22
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Consolidated
Statements of Operations, Deficit and Comprehensive
Loss
|
|
For
the years ended March 31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Operating
costs and expenses
|
||||||||||||
|
Depreciation
and amortization
|
134,725 | 63,045 | 56,752 | |||||||||
|
Investor
relations and marketing
|
44,644 | 352,337 | 591,684 | |||||||||
|
Office
and premises
|
159,960 | 160,943 | 126,005 | |||||||||
|
Professional
services
|
285,399 | 78,925 | 177,186 | |||||||||
|
Regulator
and securities
|
73,965 | 109,918 | 103,706 | |||||||||
|
Salaries
and benefits
|
1,079,563 | 1,303,969 | 1,023,614 | |||||||||
|
Stock-based
compensation
|
1,028,824 | 805,374 | 307,450 | |||||||||
|
Travel
|
100,745 | 194,430 | 180,413 | |||||||||
|
Write-down
of resource properties (note 8)
|
3,577,683 | 1,958,083 | 62,273 | |||||||||
| 6,485,508 | 5,027,024 | 2,629,083 | ||||||||||
|
Other
expenses (income)
|
||||||||||||
|
Foreign
exchange loss
|
144,280 | 236,083 | 31,458 | |||||||||
|
Loss
on disposal of equipment
|
60,561 | – | − | |||||||||
|
Gain
on sale of marketable securities
|
– | (79,928 | ) | (237,146 | ) | |||||||
|
Interest
income
|
(947,222 | ) | (1,209,313 | ) | (561,587 | ) | ||||||
|
Management
fees and other
|
(327,265 | ) | (294,448 | ) | (130,824 | ) | ||||||
|
Transaction
break fee, net of costs
|
(515,728 | ) | – | − | ||||||||
|
Costs
associated with distribution of subsidiary (note 11)
|
− | − | 122,144 | |||||||||
| (1,585,374 | ) | (1,347,606 | ) | (775,955 | ) | |||||||
|
Net
loss for the years
|
(4,900,134 | ) | (3,679,418 | ) | (1,853,128 | ) | ||||||
|
Dividend
(note 11)
|
− | − | (1,100,017 | ) | ||||||||
|
Deficit
– Beginning of years
|
(14,025,238 | ) | (10,345,820 | ) | (7,392,675 | ) | ||||||
|
Deficit
– End of years
|
(18,925,372 | ) | (14,025,238 | ) | (10,345,820 | ) | ||||||
|
Loss
per share – basic and diluted
|
(0.17 | ) | (0.13 | ) | (0.08 | ) | ||||||
|
Weighted
average number of common shares outstanding – basic and
diluted
|
28,070,707 | 27,697,625 | 22,169,575 | |||||||||
|
Statement
of comprehensive loss
|
||||||||||||
|
Net
loss for the years
|
(4,900,134 | ) | (3,679,418 | ) | (1,853,128 | ) | ||||||
|
Other
comprehensive loss
|
||||||||||||
|
Net
change in unrealized loss on available-for-sale securities
|
(118,000 | ) | (111,000 | ) | − | |||||||
|
Comprehensive
loss
|
(5,018,134 | ) | (3,790,418 | ) | (1,853,128 | ) | ||||||
The
accompanying notes form an integral part of these financial
statements.
M-23
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Consolidated
Statements of Cash Flow
|
|
For
the years ended March 31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Cash
and cash equivalents provided by (used in)
|
||||||||||||
|
Operating
activities
|
||||||||||||
|
Net
loss for the years
|
(4,900,134 | ) | (3,679,418 | ) | (1,853,128 | ) | ||||||
|
Charges
(credits) to income not involving cash
|
||||||||||||
|
Depreciation
and amortization
|
134,725 | 63,045 | 56,752 | |||||||||
|
Stock-based
compensation
|
1,028,824 | 805,374 | 307,450 | |||||||||
|
Loss
on disposal of equipment
|
60,561 | – | − | |||||||||
|
Gain
on sale of marketable securities
|
– | (79,928 | ) | (237,146 | ) | |||||||
|
Write-down
of resource properties
|
3,577,683 | 1,958,083 | 62,273 | |||||||||
| (98,341 | ) | (932,844 | ) | (1,663,799 | ) | |||||||
|
Net
change in non-cash working capital items related to
operations
|
||||||||||||
|
Decrease
(increase) in accounts receivable
|
(407,711 | ) | (253,021 | ) | 52,465 | |||||||
|
Decrease
(increase) in advances to joint venture partners
|
− | − | 59,066 | |||||||||
|
Decrease
(increase) in sales taxes recoverable
|
(38,032 | ) | 8,091 | 4,339 | ||||||||
|
Decrease
(increase) in deposits
|
876,194 | (876,194 | ) | (748 | ) | |||||||
|
Decrease
(increase) in prepaid expenses
|
31,255 | (47,878 | ) | 20,916 | ||||||||
|
Decrease
(increase) in reclamation deposits
|
(1,032 | ) | (1,321 | ) | − | |||||||
|
Increase
(decrease) in accounts payable and accrued liabilities
|
(23,378 | ) | 150,078 | (92,999 | ) | |||||||
| 338,955 | (1,953,089 | ) | (1,620,760 | ) | ||||||||
|
Financing
activities
|
||||||||||||
|
Units
issued for cash
|
5,000,001 | – | 25,000,000 | |||||||||
|
Stock
options exercised for cash
|
– | 982,000 | 646,750 | |||||||||
|
Share
issuance costs
|
(166,097 | ) | – | (1,668,726 | ) | |||||||
|
Repayment
of loans to officers and directors to exercise options
|
338,000 | 488,000 | − | |||||||||
| 5,171,904 | 1,470,000 | 23,978,024 | ||||||||||
|
Investing
activities
|
||||||||||||
|
Proceeds
on disposal of equipment
|
6,232 | – | − | |||||||||
|
Proceeds
on sale of marketable securities
|
– | 79,928 | 312,521 | |||||||||
|
Resource
property interests and options, net
|
(1,560,604 | ) | (5,325,138 | ) | (10,098,515 | ) | ||||||
|
Sales
tax recoverable related to resource property interests
|
497,675 | 1,063,257 | (401,013 | ) | ||||||||
|
Purchases
of equipment
|
(129,410 | ) | (105,658 | ) | (45,990 | ) | ||||||
| (1,186,107 | ) | (4,287,611 | ) | (10,232,997 | ) | |||||||
|
Net
change in cash and cash equivalents during the years
|
4,324,752 | (4,770,700 | ) | 12,124,267 | ||||||||
|
Cash
and cash equivalents – Beginning of years
|
25,577,634 | 30,348,334 | 18,224,067 | |||||||||
|
Cash
and cash equivalents – End of years
|
29,902,386 | 25,577,634 | 30,348,334 | |||||||||
|
Supplemental cash flow
information (note 15)
|
||||||||||||
The
accompanying notes form an integral part of these financial
statements.
M-24
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
1
Nature of operations
The
Company, directly and with exploration partners, is in the process of exploring
its resource properties and has not yet determined whether these properties
contain ore reserves that are economically recoverable. To date the
Company has not earned significant revenues and is considered to be a
development stage enterprise. The amounts shown as resource
properties and related deferred costs represent costs net of recoveries to date,
less amounts written off, and do not necessarily represent present or future
values.
The
Company has no income or cash flow from operations. The Company will
periodically have to raise additional funds to complete exploration and
development and, while it has been successful in doing so in the past, there can
be no assurance that it will be able to do so in the future. The recoverability
of amounts shown for resource properties and related deferred costs is dependent
upon the discovery of economically recoverable reserves, securing and
maintaining title and beneficial interest in the properties, obtaining necessary
financing and permits to continue operations, completing development and
attaining future profitable production or proceeds from the disposition
thereof.
2
Changes in accounting policies
Effective
April 1, 2008, the Company adopted the following new accounting standards issued
by the Accounting Standards Board: (i) Section 1400, General Standards of
Financial Statement Presentation; (ii) Section 1535, Capital Disclosures; (iii)
Section 3862, Financial Instruments – Disclosures; (iv) Section 3863, Financial
Instruments – Presentation; (v) Emerging Issues Committee Abstract (“EIC 174”)
Mining Exploration Costs; (vi) EIC 173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities; and (vii) Section 3064, Goodwill and
Intangible Assets.
Section
1400, General Standards of Financial Statement Presentation, requires management
to assess and disclose an entity’s ability to continue as a going concern in
both interim and annual financial statements.
Section
1535, Capital Disclosures, establishes disclosure requirements about an entity’s
capital and how it is managed to enable users of the financial statements to
evaluate the entity’s objectives, policies and processes for managing
capital.
Section
3862, Financial Instruments – Disclosures, describes the required disclosures
related to the significance of financial instruments on the Company’s financial
position and performance and the nature and extent of risks arising for
financial instruments to which the entity is exposed and how the entity manages
those risks.
Section
3863, Financial Instruments – Presentation, establishes standards for the
presentation of financial instruments and non-financial
derivatives.
As
required by the transitional provisions, these new standards have been applied
without restatement of prior period amounts.
EIC 174,
Mining Exploration Costs, provides guidance on capitalization of exploration
costs related to mining properties. It also provides guidance for
development stage entities that cannot estimate future cash flows from its
properties in assessing whether impairment in such properties is
required. This abstract has been applied retrospectively without
restatement to prior periods and no impairments or adjustments have been
required.
EIC 173,
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, is
effective for interim and annual financial statements ending on or after January
20, 2009. EIC 173 provides further information on the determination of the fair
value of financial assets and financial liabilities under Section 3855,
Financial Instruments – Recognition and Measurement. It states that
an entity’s own credit and the credit risk of the counterparty should be taken
into account in determining the fair value of financial assets and financial
liabilities, including derivative instruments. EIC 173 was applied retroactively
without restatement of prior periods, to all financial assets and liabilities
measured at fair value. This standard did not have a material impact on the
Company’s financial statements.
M-25
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
Section
3064, Goodwill and Intangible Assets, replaced Section 3062, Goodwill and Other
Intangible Assets, and Section 3450, Research and Development
Costs. Section 3064 establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented
enterprises. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062. The Company adopted
this standard retrospectively in 2009. The adoption of this standard did not
have an impact on the Company’s financial statements.
3
Significant accounting policies
The
consolidated financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”) and, in management’s opinion, within reasonable limits of materiality and
within the framework of the significant accounting policies summarized
below.
Basis of presentation
These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Linear Gold Mexico, S.A. de C.V., Linear Gold Caribe,
S.A., Servicios Ixhuatan, S.A. de C.V., Linear Gold Mineração Ltda. and Linear
Gold Holdings Corp., (individually and collectively referred to as the
“Company”). All inter-company transactions and balances have been
eliminated on consolidation of the accounts. All amounts presented
are in Canadian dollars unless otherwise stated.
Resource properties
As a
development stage enterprise, the Company defers all expenditures related to its
resource properties until such time as the properties are put into commercial
production, sold or abandoned. Under this method, all amounts shown
as resource properties represent costs incurred to date, less amounts amortized,
received from exploration partners and/or written off, and do not necessarily
represent present or future values.
If the
properties are put into commercial production, the expenditures will be depleted
following the unit-of-production method. If the properties are sold
or abandoned, or considered to be impaired in value, the expenditures will be
charged to operations. The Company does not accrue the estimated
future costs of maintaining in good standing its resource
properties.
Resource
properties are reviewed for impairment on a property by property basis, whenever
events or changes in circumstances indicate that the carrying amount of a
resource property may not be recoverable. If the Company has
sufficient information about a resource property to estimate future cash flows
expected to be generated by the resource property, then recoverability is
measured by a comparison of the carrying amount to the estimated cash
flows. If the Company does not have sufficient information about the
resource property to estimate future cash flows expected to be generated by the
resource property, then the carrying amount is compared to the estimated fair
value. If the carrying amount exceeds the estimated future cash flows
or estimated fair value, the resource property will be written down to its
estimated fair value. The ultimate recoverability of the amounts
capitalized for the resource properties is dependent upon the delineation of
economically recoverable ore reserves, the Company’s ability to obtain the
necessary financing to complete their development and realize profitable
production or proceeds from the disposition thereof.
Management’s
estimates of recoverability of the Company’s investment in various projects have
been based on current conditions. However, it is possible that
changes could occur in the near term which could adversely affect management’s
estimates and may result in future write-downs of capitalized property carrying
values.
M-26
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
Marketable securities
Marketable
securities are accounted for as available-for-sale and are measured at fair
value with changes in fair value recorded in other comprehensive income (loss)
or in net income (loss) to the extent that the decline in value is considered to
be other than temporary.
Property option agreements
From time
to time, the Company may acquire or dispose of a resource property pursuant to
the terms of an option agreement. As the options are exercisable
entirely at the discretion of the optionee, the amounts payable or receivable in
accordance with the terms of the options are not recorded. Option
payments are recorded as property costs or recoveries when the payments are made
or received.
Loss per share
Loss per
share is computed based on the weighted average number of common shares
outstanding during the years. Diluted loss per share has not been
disclosed since the exercise of options and warrants would be
anti-dilutive.
Management estimates
The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results may differ from those
estimates.
M-27
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
3
Significant accounting policies (continued)
Cash equivalents
Cash
equivalents consist of highly-liquid investments which are readily convertible
into cash with maturities of three months or less when purchased and which bear
interest at nominal annual rates of return.
Future income taxes
Future
tax assets and liabilities are measured using the substantively enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
future tax assets and liabilities of changes in tax rates is recognized in
income in the period that includes the date substantively enacted tax rates will
be effective. A valuation allowance has been applied against all of
the future income tax assets, as realization is not considered more likely than
not.
Related party transactions
All
transactions with related parties are in the normal course of business and are
measured at the exchange amount.
Property and equipment
Property
and equipment are recorded at cost less accumulated
amortization. Amortization is calculated using the declining-balance
method at the annual rate of 30% for office furniture and exploration equipment
and the straight-line method at the annual rate of 25% for exploration
vehicles.
Leasehold
improvements are amortized on a straight-line basis over the term of the related
lease.
Foreign currency
translation
Assets
and liabilities denominated in foreign currencies are translated into Canadian
dollars at exchange rates in effect at the balance sheet date for monetary items
and at exchange rates prevailing at the transaction dates for non-monetary
items. Revenues and expenses are translated at the average exchange
rates prevailing during the years except for expenses that relate to
non-monetary asset and liabilities, which are translated at the same historical
exchange rate as the related asset or liability. Gains and losses on
translation are included in the determination of income (loss) for the
years.
M-28
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
3
Significant
accounting policies (continued)
Stock-based compensation
The
Company accounts for stock options using the fair value method of the Canadian
Institute of Chartered Accountants Handbook Section 3870 (“CICA 3870”),
Stock-based Compensation and Other Stock-based Payments. Under this
Section, the estimated fair value of all stock options granted is recorded in
operations over their vesting periods.
The
estimated fair value of options is determined using the Black-Scholes option
pricing model that takes into account, as of the grant date, the exercise price,
the expected life of the option, the current price of the underlying stock and
its expected volatility, expected dividends on the stock and the risk-free
interest rate over the expected life of the option. The resulting
estimated fair value of the options is expensed on a straight-line basis over
their vesting periods. Cash consideration received from employees
when options are exercised is credited to capital stock.
Future accounting changes
International
Financial Reporting Standards (“IFRS”)
In 2006,
the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan
that will significantly affect financial reporting requirements for Canadian
companies. The AcSB’s strategic plan outlines the convergence of
Canadian GAAP with IFRS over a five-year transitional period. In
February 2008, the AcSB announced that 2011 is the changeover date for
publicly-listed companies to use IFRS, replacing Canada’s own GAAP. The date is
for interim and annual financial statements relating to fiscal years beginning
on or after January 1, 2011. Accordingly, the Company will be
required to adopt IFRS on April 1, 2011. The transition will require
the restatement for comparative purposes of amounts reported by the Company for
the year ended March 31, 2011. While the Company has begun to assess
the adoption of IFRS for fiscal 2012, the financial reporting impact of the
transition to IFRS cannot be reasonably estimated at this time.
Business combinations
In
January 2009, the CICA issued the new Handbook Section 1582, Business
Combinations, effective for fiscal years beginning on or after January 1,
2011. Earlier adoption of Section 1582 is permitted. This
pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the
accounting for business combinations in a number of areas. It
establishes principles and requirements governing how an acquiring company
recognizes and measures in its financial statements identifiable assets
acquired, liabilities assumed, any non-controlling interest in the acquiree, and
goodwill acquired. The section also establishes disclosure
requirements that will enable users of the acquiring company’s financial
statements to evaluate the nature and financial effects of its business
combinations. Although the Company is considering the impact of
adopting this pronouncement on the consolidated financial statements, it will be
limited to any future acquisitions beginning in fiscal 2012.
M-29
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
3
Significant accounting policies (continued)
Future accounting changes
(continued)
Consolidated
financial statements and non-controlling interests
In
January 2009, the CICA issued the new Handbook Section 1601, Consolidated
Financial Statements, and Section 1602, Non-controlling Interests, effective for
fiscal years beginning on or after January 1, 2011. Earlier adoption
of these recommendations is permitted. These pronouncements further
align Canadian GAAP with US GAAP and IFRS. Sections 1601 and 1602
change the accounting and reporting for ownership interest in subsidiaries held
by parties other than the parent. Non-controlling interests are to be
presented in the consolidated statement of financial position within the entity
but separate from the parent’s equity. The amount of consolidated net
income attributable to the parent and to the non-controlling interest is to be
clearly identified and presented on the face of the consolidated statement of
income. In addition, these pronouncements establish standards for a
change in a parent’s ownership interest in a subsidiary and the valuation of
retained non-controlling equity investments when a subsidiary is
deconsolidated. They also establish reporting requirements for
providing sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling
owners. The Company is currently considering the impact of adopting
these pronouncements on its consolidated financial statements in fiscal 2012 in
connection with the conversion to IFRS.
4
Financial instruments
The
Company recognizes financial instruments based on their
classification. Depending on the financial instruments’
classification, changes in subsequent measurements are recognized in the
Statement of Operations or comprehensive income (loss).
If a
financial instrument is measured at fair value, changes in its fair value shall
usually be recognized in the Statement of Operations in the period in which the
change occurs, with some exceptions, such as for cash flow hedges and
available-for-sale investments. For investments designated as being
available-for-sale, changes in the fair value shall be recorded directly in
Shareholders’ Equity in a separate account called “Accumulated Other
Comprehensive Income (Loss)” until the asset is disposed of or becomes
impaired. At that time, the gains and losses are transferred to the
Statement of Operations.
The
Company has implemented the following classifications:
|
|
·
|
Cash
and cash equivalents are classified as “Financial Assets Held for
Trading”. These financial assets are marked-to-market through
net loss at each period end.
|
|
|
·
|
Marketable
securities are classified as “Available-for-Sale” financial assets and are
marked-to-market, with changes in fair value recognized in other
comprehensive income (loss) each period or in the Statement of Operations
and Deficit to the extent the decline in value is considered to be other
than temporary.
|
|
|
·
|
Sales
taxes recoverable and accounts receivable are classified as “Loans and
Receivables”. After their initial fair value measurement, they
are measured at amortized cost using the effective interest
method.
|
|
|
·
|
Accounts
payable and accrued liabilities are classified as “Other Financial
Liabilities”. After their initial fair value measurement, they
are measured at amortized cost using the effective interest
method.
|
M-30
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
4
Financial instruments (continued)
Fair value
The fair
value estimates of financial instruments are made at a specific point in time,
based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect
estimated fair value.
The
carrying value of cash and cash equivalents, accounts receivable, and accounts
payable and accrued liabilities approximates their fair value because of the
short-term nature of those instruments.
Liquidity risk
The
Company’s approach to managing liquidity risk is to ensure that it will have
sufficient liquidity to meet liabilities when due. Cash and cash
equivalents are held in bank accounts or interest-bearing instruments that can
be converted to cash without penalty at any time and are recorded at fair
value.
Foreign currency rate risk
A
significant portion of the Company’s transactions occur in United States,
Mexican, Brazilian, and Dominican Republic currencies and accordingly, the
related financial assets are subject to fluctuations in the respective exchange
rates.
Concentration of credit
risk
Management
does not believe it is exposed to any significant concentration of credit risk
except that a significant portion of its cash and cash equivalents are on
deposit with a major Canadian chartered bank. All of the sales taxes
recoverable are with either the government of Canada or the government of
Mexico.
Interest rate risk
The
Company has cash and cash equivalents and no interest-bearing debt; accordingly,
the Company’s interest income is susceptible to fluctuations in interest
rates. Management estimates that a 1% change in interest rates would
result in a change in interest income in the range of $180,000 to
$220,000.
5
Capital management
The
Company’s capital consists of share capital, contributed surplus and
warrants. The Company’s objective when managing capital is to
maintain adequate levels of funding to support the acquisition and exploration
of resource properties and maintain the necessary corporate and administrative
functions to facilitate these activities. This is done primarily
through equity financing. Future financing is dependent on market
conditions and there can be no assurance the Company will be able to raise funds
in the future.
The
Company invests all capital that is surplus to its immediate operational needs
in short-term, highly-liquid, financial instruments.
There
were no changes to the Company’s approach to capital management during the
year. The Company is not subject to externally imposed capital
requirements.
M-31
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
6
Property and
equipment
|
2009
|
||||||||||||
|
Cost
$
|
Accumulated
amortization
$
|
Net
$
|
||||||||||
|
Office
equipment
|
232,063 | 137,521 | 94,542 | |||||||||
|
Exploration
equipment
|
147,450 | 95,374 | 52,076 | |||||||||
|
Exploration
vehicles
|
280,479 | 222,304 | 58,175 | |||||||||
|
Leasehold
improvements
|
43,871 | 43,871 | – | |||||||||
| 703,863 | 499,070 | 204,793 | ||||||||||
|
2008
|
||||||||||||
|
Cost
$
|
Accumulated
amortization
$
|
Net
$
|
||||||||||
|
Office
equipment
|
241,364 | 100,085 | 141,279 | |||||||||
|
Exploration
equipment
|
145,809 | 80,673 | 65,136 | |||||||||
|
Exploration
vehicles
|
227,407 | 155,201 | 72,206 | |||||||||
|
Leasehold
improvements
|
53,983 | 23,358 | 30,625 | |||||||||
| 668,563 | 359,317 | 309,246 | ||||||||||
During
the year ended March 31, 2009, the Company capitalized amortization of $32,345
(2008 - $68,035) to resource properties.
7
Reclamation deposits
Term
deposits totalling $36,061 (2008 - $35,029) have been posted as a reclamation
bond held in trust with the Ministry of Finance, Province of British
Columbia.
M-32
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
8
Resource properties
|
2009
|
||||||||||||
|
Mineral
properties costs
$
|
Deferred
exploration and
development costs
$
|
Total
$
|
||||||||||
|
Mexico
|
||||||||||||
|
Ixhuatan
|
1,159,385 | 25,266,673 | 26,426,058 | |||||||||
|
Dominican
Republic
|
741,258 | 365,069 | 1,106,327 | |||||||||
| 1,900,643 | 25,631,742 | 27,532,385 | ||||||||||
|
2008
|
||||||||||||
|
Mineral
properties costs
$
|
Deferred
exploration and
development costs
$
|
Total
$
|
||||||||||
|
Mexico
|
||||||||||||
|
Ixhuatan
|
1,159,016 | 24,976,639 | 26,135,655 | |||||||||
|
Cobre
Grande
|
168,812 | 1,046,724 | 1,215,536 | |||||||||
|
Other
|
55,280 | 220,128 | 275,408 | |||||||||
|
Dominican
Republic
|
741,255 | 370,916 | 1,112,171 | |||||||||
|
Brazil
|
107,431 | 688,686 | 796,117 | |||||||||
| 2,231,794 | 27,303,093 | 29,534,887 | ||||||||||
The
Company’s interest in resource properties consists of:
a) Mexico
i) Ixhuatan
The
Company has a 100% interest in the Ixhuatan Project (“Ixhuatan”), covering an
area of approximately 98,000 hectares in the state of
Chiapas. Ixhuatan is covered by exploration concessions which can be
replaced by exploitation concessions upon application by the Company. Ixhuatan
includes the Campamento Deposit, the Cerro la Mina Discovery and several other
prospective drill targets.
Effective
October 26, 2007, the Company entered into an Option Agreement (the “Agreement”)
with Kinross Gold Corporation (“Kinross”) with respect to the exploration and
potential future development of Ixhuatan, granting Kinross an option to earn up
to a 70% interest in Ixhuatan.
M-33
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
8
Resource properties (continued)
a) Mexico
(continued)
i) Ixhuatan
(continued)
Under the
terms of the Agreement, Kinross’ subsidiary became the operator of Ixhuatan and
must incur a minimum of US$15 million of expenditures on Ixhuatan within the
24-month period ending on October 26, 2009. Upon completion of such
expenditures, Kinross will have the option to acquire an initial 60% interest in
Ixhuatan by paying the Company US$45 million. Kinross will then have
a further option to increase its interest in Ixhuatan to 70% by paying the
Company an additional US$55 million within 90 days of Kinross’ board of
directors approving the construction and development of a mine, based on a
positive NI 43-101 compliant feasibility study. If such a production
decision is made and the Proven and Probable Gold Reserves and Gold Equivalent
Ounce Silver Reserves of the Project, as referenced in the feasibility study,
are greater than 2.0 million ounces, Kinross will pay the Company an additional
fee, calculated as follows:
|
Proven
and Probable Gold
Reserves
and Gold Equivalent Ounce Silver Reserves
|
Payment
US$
|
|||
|
2.0
million – 2.49 million
|
5,000,000 | |||
|
2.5
million – 2.99 million
|
10,000,000 | |||
|
Greater
than 3 million
|
15,000,000 | |||
ii) Cobre
Grande
The
Company held the right to acquire a 100% interest in the Cobre Grande
polymetalic mineral project through a purchase option agreement with the
Community of San Baltazar Guelavila (the “Community”). In 2006, the
Company transferred the right to earn an 80% interest in the agreement to Linear
Metal Corp Mexico, S.A. de C.V., a subsidiary of Linear Metals
Corporation. To earn its 80% interest in the agreement, Linear Metal
Corp Mexico, S.A. de C.V. was required to fulfill the remaining terms of the
agreement with the Community, which required that a payment of US$90,000 be made
in March 2009. If the purchase option had been exercised in March
2009, the Community would have been able to choose between a US$12 million
buyout, a 2% Net Smelter Returns royalty, or a 15% participation interest, with
the purchaser being responsible for all capital outlays. The Company
retains a 20% interest in the agreement, which can be purchased by Linear Metals
at any time prior to December 31, 2012, for US$1.2 million.
The
purchase option was not exercised; accordingly, the value of the Cobre Grande
property has been reduced to $nil, resulting in a write-down of resource
properties of $1,215,535.
M-34
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
8
Resource properties (continued)
a) Mexico
(continued)
iii) Other
During
the year ended March 31, 2009, the Company relinquished its interest in the
Motozintla property, an early-stage property located in the state of Chiapas,
resulting in a write-down of resource properties of $289,681.
During
the year ended March 31, 2008, the Company relinquished its interests in certain
early-stage properties in the state of Chiapas, including La Reforma, Los Olivos
and Niquivil, and certain other early-stage properties located in the state of
Oaxaca, including Loma Bonita and Yolanda, resulting in a write-down of resource
properties of $1,958,083.
b) Dominican
Republic
The
Company holds a 100% interest in the Ampliacion Pueblo Viejo Concession and the
Loma Hueca Concession and a 50% interest in the Loma E1 Mate
Concession. The Company has signed an agreement (the “Agreement”)
with Everton Resources Inc. (“Everton”) whereby Everton can acquire up to an
undivided 65% interest in all three of the concessions.
i) Ampliacion
Pueblo Viejo Concession
Everton
can earn a 50% interest in the Ampliacion Pueblo Viejo Concession by making
total cash payments to the Company of US$700,000 and issuing a total of
1,200,000 common shares to the Company and completing work commitments of
US$2,500,000 over a three-year period. At March 31, 2009, the Company
has received cumulative cash payments of US$100,000 and 200,000 common shares of
Everton pursuant to the Agreement. These amounts have been recorded
as a recovery against the Company’s exploration expenditures relating to the
Ampliacion Pueblo Viejo Concession. Subsequent to March 31, 2009, the
Company received an additional US$300,000 and 600,000 common shares of Everton
pursuant to the Agreement.
Everton
can increase its interest in the Ampliacion Pueblo Viejo Concession to 65% by
incurring all additional expenditures on the concession to the completion of a
bankable feasibility study, paying the Company US$2,000,000 and issuing
1,000,000 common shares to the Company.
ii) Loma
Hueca Concession
Everton
can earn a 50% interest in the Loma Hueca Concession by making total cash
payments to the Company of US$100,000, issuing a total of 200,000 common shares
to the Company and completing work commitments of US$600,000 over a three-year
period. At March 31, 2009, the Company has received cumulative cash
payments of US$75,000 and 100,000 Everton common shares pursuant to the
Agreement. These amounts have been recorded as a recovery against the
Company’s exploration expenditures relating to the Loma Hueca
Concession.
M-35
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
8
Resource properties (continued)
b) Dominican
Republic (continued)
ii) Loma
Hueca Concession (continued)
Everton
can increase its interest in the Loma Hueca Concession to 65% by incurring all
additional expenditures on the concession to the completion of a bankable
feasibility study, paying the Company US$250,000 and issuing 300,000 common
shares to the Company.
iii) Loma
El Mate Concession
Everton
can acquire an additional 15% interest, thereby increasing its total interest to
65%, in the Loma El Mate Concession by incurring
all additional expenditures on the concession to the completion of a bankable
feasibility study.
c) Brazil
Pursuant
to four separate property option agreements, the Company held the right to
acquire up to a 100% interest in four exploration properties in the state of
Mato Grosso, Brazil. During the year ended March 31, 2009, the
Company terminated its interest in all four property option agreements,
resulting in a write-down of resource properties of $2,072,467.
M-36
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
9
Share capital
a) Authorized
Unlimited
number of common shares without par value
Unlimited
number of first preferred shares without par value
Unlimited
number of second preferred shares without par value
b) Changes
in the Company’s issued common share capital during the years were as
follows:
|
Year ended March 31, 2009
|
Year ended March 31, 2008
|
Year ended March 31, 2007
|
||||||||||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
Number
|
Amount
|
|||||||||||||||||||
|
$
|
$
|
$
|
||||||||||||||||||||||
|
Opening
balance
|
27,917,980 | 64,290,836 | 27,207,980 | 62,596,341 | 21,380,980 | 42,070,678 | ||||||||||||||||||
|
Shares
issued for cash (note 9 (c))
|
4,545,455 | 4,409,092 | – | – | 5,000,000 | 20,975,000 | ||||||||||||||||||
|
Shares
issued as commission (note 9 (c))
|
100,000 | 97,000 | – | – | − | − | ||||||||||||||||||
|
Shares
issued on exercise of options
|
– | – | 710,000 | 1,320,000 | 827,000 | 1,134,750 | ||||||||||||||||||
|
Value
of options exercised
|
– | – | – | 374,495 | − | 466,830 | ||||||||||||||||||
| 32,563,435 | 68,796,928 | 27,917,980 | 64,290,836 | 27,207,980 | 64,647,258 | |||||||||||||||||||
|
Less:
Share issue costs
|
– | (243,468 | ) | – | – | − | (2,050,917 | ) | ||||||||||||||||
|
Closing
balance
|
32,563,435 | 68,553,460 | 27,917,980 | 64,290,836 | 27,207,980 | 62,596,341 | ||||||||||||||||||
c) Shares
issued for cash
On March
19, 2009, the Company completed a private placement financing of 4,545,455 units
at a price of $1.10 per unit, for aggregate gross proceeds of
$5,000,001. Each unit consisted of one common share and one-half of
one common share purchase warrant. Each whole warrant entitles the
holder to acquire one common share at a price of $1.50 until March 19,
2011. The value allocated to the common shares issued was $4,409,092,
and the value allocated to the warrants was $590,909. Total costs
associated with the private placement were $276,097, including cash paid for
commissions of $140,000, legal and regulatory fees of $26,097 and 100,000 units
issued to the agent valued at $110,000. The Company allocated
$243,468 to the costs of issuing the common shares and $32,629 to the costs of
issuing the warrants.
M-37
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
9
Share capital (continued)
c) Shares
issued for cash (continued)
On March
1, 2007, the Company completed a private placement financing of 5,000,000 units
at a price of $5.00 per unit, for aggregate gross proceeds of
$25,000,000. Each unit consisted of one common share and one-half of
one common share purchase warrant. Each whole warrant entitles the holder to
acquire one common share at a price of $5.50 for a period of 24 months. The
value allocated to the common shares issued was $20,975,000 and the value
allocated to the warrants was $4,025,000. Total costs associated with the
private placement were $2,438,226, including cash paid for commissions and legal
fees of $1,668,726 and warrants issued to underwriters valued at $769,500. The
warrants issued to the underwriters were broker warrants exercisable for 300,000
units of the Company at an exercise price of $5.00 per unit, which were valued
at $769,500 (see note 10 (b)). The Company allocated $2,050,917 to
the costs of issuing common shares and $387,309 to the costs of issuing
warrants.
d) Stock
option plan
The
Company has a stock option plan (the “Plan”) providing the Board of Directors
with the discretion to issue an equivalent number of options of up to 10% of the
issued and outstanding share capital of the Company. Stock options
are granted with an exercise price not less than the closing share price of the
day preceding the date of grant.
The
estimated fair value of options recognized in the consolidated statement of
operations and deficit has been estimated at the grant date using the
Black-Scholes option pricing model. Option pricing models require the
input of highly subjective assumptions, including the expected
volatility. Changes in the assumptions can materially affect the fair
value estimate. The weighted average assumptions used in the pricing
model to assign value to the options granted during the years are as
follows:
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Risk
free interest rate
|
1.42% | 3.76% | 4.28% | |||||||||
|
Expected
life
|
4.0
years
|
3.3
years
|
2.5
years
|
|||||||||
|
Expected
volatility
|
67% | 61% | 62% | |||||||||
|
Expected
dividend yield
|
nil
|
nil
|
nil
|
|||||||||
M-38
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2009, 2008 and 2007
|
|
(in
Canadian dollars)
|
9
Share capital (continued)
d) Stock
option plan (continued)
Option
activity during the years ended March 31:
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Number
|
Weighted
average
exercise
price
$
|
Number
|
Weighted
average
exercise
price
$
|
Number
|
Weighted
average
exercise
price
$
|
|||||||||||||||||||
|
Opening
balance
|
2,142,500 | 4.08 | 1,702,500 | 4.03 | 2,239,500 | 3.03 | ||||||||||||||||||
|
Exercised
|
– | − | (710,000 | ) | 1.86 | (827,000 | ) | 1.37 | ||||||||||||||||
|
Granted
|
1,090,000 | 1.29 | 1,932,500 | 3.90 | 550,000 | 5.07 | ||||||||||||||||||
|
Expired
|
(10,000 | ) | 6.35 | (325,000 | ) | 6.51 | − | − | ||||||||||||||||
|
Cancelled
|
(485,000 | ) | 3.82 | (457,500 | ) | 4.95 | (260,000 | ) | 6.11 | |||||||||||||||
|
Closing
balance
|
2,737,500 | 3.00 | 2,142,500 | 4.08 | 1,702,500 | 4.03 | ||||||||||||||||||
The
weighted average grant date fair value per option of options issued during the
year was $0.56 (2008 - $1.56; 2007 - $1.95).
The
Company capitalized $18,569 (2008 - $229,894; 2007 - $165,289) in stock-based
compensation expense to resource properties.
As at
March 31, 2009, the Company has outstanding stock options entitling the holders
to acquire additional common shares as follows:
|
Price
$s
|
Number
outstanding
|
Weighted average remaining
contractual life in years
|
Weighted average
exercise price
$
|
|||||||||
|
1.05
|
955,000 | 4.9 | 1.05 | |||||||||
|
3.00
|
855,000 | 3.8 | 3.00 | |||||||||
|
5.00
|
912,500 | 0.8 | 5.00 | |||||||||
|
6.34
|
15,000 | 0.6 | 6.34 | |||||||||
| 2,737,500 | 3.2 | 3.00 | ||||||||||
As at
March 31, 2009, 518,844 options remained available for future grants under the
plan. Options vested and exercisable at March 31, 2009 totalled
659,250 at an average exercise price of $4.34 per share.
M-39
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
9 Share
capital (continued)
e) Contributed
surplus
|
$
|
||||
|
Balance
at March 31, 2006
|
1,807,515 | |||
|
Value
of options earned during the year
|
472,739 | |||
|
Value
of options exercised during the year
|
(466,830 | ) | ||
|
Value
of warrants expired during the year
|
259,354 | |||
|
Balance
at March 31, 2007
|
2,072,778 | |||
|
Value
of options earned during the year
|
1,035,268 | |||
|
Value
of options exercised during the year
|
(374,495 | ) | ||
|
Balance
at March 31, 2008
|
2,733,551 | |||
|
Value
of options earned during the year
|
1,047,393 | |||
|
Value
of warrants expired during the year
|
4,407,191 | |||
|
Balance
at March 31, 2009
|
8,188,135 | |||
f) Accumulated
other comprehensive loss
|
$
|
||||
|
Balance
at March 31, 2006
|
− | |||
|
Other
comprehensive loss for the year
|
− | |||
|
Balance
at March 31, 2007
|
− | |||
|
Other
comprehensive loss for the year
|
(190,928 | ) | ||
|
Other
comprehensive income recognized in net loss for the year
|
79,928 | |||
|
Balance
at March 31, 2008
|
(111,000 | ) | ||
|
Other
comprehensive loss for the year
|
(118,000 | ) | ||
|
Balance
at March 31, 2009
|
(229,000 | ) | ||
M-40
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
10 Warrants
a) Warrants
outstanding as of March 31, 2009:
|
Expiry
date
|
Number
|
Weighted average
exercise
price
$
|
Amount
$*
|
|||||||||
|
March
19, 2011
|
2,322,728 | 1.50 | 603,909 | |||||||||
*Black-Scholes valuation
b) Warrant
activity during the years ended March 31:
|
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
|
Number
|
Weighted
average
exercise
price
$
|
Amount
$
|
Number
|
Weighted
average
exercise
price
$
|
Amount
$
|
Number
|
Weighted
average
exercise
price
$
|
Amount
$
|
||||||||||||||||||||||||||||
|
Opening
balance
|
2,800,000 | 5.45 | 4,407,191 | 2,800,000 | 5.45 | 4,407,191 | 193,548 | 7.75 | 259,354 | |||||||||||||||||||||||||||
|
Issued
|
2,322,728 | 1.50 | 603,909 | – | – | – | 2,800,000 | 5.45 | 4,794,500 | |||||||||||||||||||||||||||
|
Expired
|
(2,800,000 | ) | 5.45 | (4,407,191 | ) | – | – | – | (193,548 | ) | 7.75 | (259,354 | ) | |||||||||||||||||||||||
| 2,322,728 | 1.50 | 603,909 | 2,800,000 | 5.45 | 4,407,191 | 2,800,000 | 5.45 | 4,794,500 | ||||||||||||||||||||||||||||
|
Less:
Warrant issue costs
|
– | (32,629 | ) | – | − | – | − | − | (387,309 | ) | ||||||||||||||||||||||||||
|
Closing
balance
|
2,322,728 | 1.50 | 571,280 | 2,800,000 | 5.45 | 4,407,191 | 2,800,000 | 5.45 | 4,407,191 | |||||||||||||||||||||||||||
The
Company incurred cash warrant issue costs of $19,629 in connection with the
private placement on March 19, 2009. As an additional cost of the
financing, the Company granted 100,000 units to the agent. Each unit
consisted of one common share and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to acquire one common
share at a price of $1.50 until March 19, 2011. The value of the
units allocated to the warrants issued was $13,000.
The
Company incurred cash warrant issue costs of $263,419 in connection with the
private placement on March 1, 2007. As an additional cost of the financing, the
Company granted 300,000 broker warrants to the underwriters, exercisable for an
aggregate of 300,000 units of the Company at an exercise price of $5.00 per unit
until March 1, 2009. When exercised, the units will consist of
300,000 common shares and 150,000 warrants exercisable at $5.50 per warrant. The
value of the broker warrants is $769,500 and $12,890 was allocated by the
Company to the cost of issuing the warrants.
M-41
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
10 Warrants
(continued)
|
|
c)
|
The
fair value of warrants issued has been estimated at the grant date using
the Black-Scholes option pricing model. The weighted average
assumptions used in the pricing model for warrants granted in the years
ended March 31, 2009 and 2007 are as
follows:
|
|
2009
|
2007
|
|||||||
|
Risk
free interest rate
|
0.99% | 4.13% | ||||||
|
Maximum
life
|
2.0
years
|
2.0
years
|
||||||
|
Expected
volatility
|
68% | 61% | ||||||
|
Expected
dividend yield
|
nil
|
nil
|
||||||
11 Linear
Metal Corporation distribution
On June
26, 2006, the Company completed its distribution of Linear Metal Corporation
(“Linear Metals”), a 100%-owned subsidiary of the Company at that time, as a
dividend-in-kind to shareholders of record on June 26, 2006. Prior to the
dividend distribution, the Company had transferred its La Morena and Tierra
Blanca properties, located in Mexico, and its Seymour Lake and KM61 properties,
located in Canada, to Linear Metals, as well as providing Linear Metals with an
option to earn an 80% interest in the Cobre Grande property in
Mexico.
The
Company’s 100% ownership interest in Linear Metals was distributed to the
Company’s shareholders on the basis of one unit of Linear Metals for each share
of the Company.
Prior to
the distribution, the Company incurred expenditures of $122,144 through Linear
Metals, arising from professional fees and filing fees associated with the
completion of Linear Metals’ prospectus, private placement and TSX Venture
Exchange listing. These expenses have been included in the results of the
Company for the year ended March 31, 2007.
The
amount of the dividend-in-kind was $1,100,017, representing the book value of
Resource Properties transferred to Linear Metals.
M-42
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
12 Related
party transactions
During
the years, the Company entered into transactions with related parties, as
follows:
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Geological
consulting fees paid to a director
|
− | − | 400 | |||||||||
|
Legal
fees paid to a firm of which an officer is a partner
|
159,863 | 40,071 | 76,700 | |||||||||
| 159,863 | 40,071 | 77,100 | ||||||||||
During
the year ending March 31, 2008, the Company provided financing in the form of
demand loans totalling $338,000 in connection with the exercise of 300,000
expiring stock options by certain officers and directors. The demand
loans were interest-bearing. The balance of $nil (2008 - $338,000)
has been included in the Company’s accounts receivable. The balance
of $338,000 and all accrued interest was repaid in full during the year ending
March 31, 2009.
13 Income
taxes
The
following table reconciles the expected income taxes payable (recoverable) at
the statutory income tax rate to the amounts recognized in the consolidated
statements of operations and deficit for the years ended March 31, 2009,
2008 and 2007:
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Loss
before income taxes
|
(4,900,134 | ) | (3,679,418 | ) | (1,853,128 | ) | ||||||
|
Income
tax rate
|
35.0 | % | 35.5 | % | 38.1 | % | ||||||
|
Expected
income tax recovery based on above rates
|
(1,715,000 | ) | (1,306,000 | ) | (706,000 | ) | ||||||
|
Effect
of different tax rates in foreign jurisdictions
|
106,000 | 18,000 | 23,000 | |||||||||
|
Non-deductible
stock option expense
|
360,000 | 286,000 | 117,000 | |||||||||
|
Change
in valuation allowance
|
1,086,000 | 861,000 | 983,000 | |||||||||
|
Other
and permanent differences
|
163,000 | 141,000 | (417,000 | ) | ||||||||
|
Provision
for income taxes
|
– | – | − | |||||||||
|
Provision
for (recovery of) income taxes is comprised of:
|
||||||||||||
|
Future
income taxes
|
(1,086,000 | ) | (861,000 | ) | (983,000 | ) | ||||||
|
Adjustment
to valuation allowance
|
1,086,000 | 861,000 | 983,000 | |||||||||
| – | – | − | ||||||||||
M-43
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
13 Income
taxes (continued)
The
following reflects future income tax assets at March 31, 2009 and
2008:
|
2009
$
|
2008
$
|
|||||||
|
Future
tax assets (liabilities)
|
||||||||
|
Non-capital
losses carried forward
|
12,539,000 | 11,649,000 | ||||||
|
Resource
expenditures and deductible share issue costs
|
777,000 | 857,000 | ||||||
|
Accounting
value of mineral resource properties in excess of tax
value
|
(6,980,000 | ) | (7,306,000 | ) | ||||
|
Accounting
value of property and equipment in excess of tax value
|
(73,000 | ) | (23,000 | ) | ||||
| 6,263,000 | 5,177,000 | |||||||
|
Valuation
allowance
|
(6,263,000 | ) | (5,177,000 | ) | ||||
|
Net
future income tax asset recognized
|
– | – | ||||||
The
Company has accumulated losses for Canadian tax purposes of approximately
$9,057,000, which may be carried forward and used to reduce taxable income in
future years. These losses expire as follows:
|
$
|
||||
|
Year
ending March 31, 2010
|
396,000 | |||
|
2014
|
667,000 | |||
|
2015
|
1,945,000 | |||
|
2026
|
1,604,000 | |||
|
2027
|
2,224,000 | |||
|
2028
|
1,536,000 | |||
|
2029
|
685,000 | |||
| 9,057,000 | ||||
The
Company has undeducted share issuance costs from prior years of approximately
$800,000, which will be deducted from Canadian taxable income over the next four
years. The Company has also incurred resource expenditures of
approximately $1,418,000, which may be carried forward indefinitely and used to
reduce Canadian taxable income in future years.
M-44
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
13 Income
taxes (continued)
The
Company has accumulated Mexican tax losses of approximately $32,137,000, which
may be carried forward and used to reduce taxable income in Mexico in future
years. These losses expire as follows:
|
$
|
||||
|
Year
ending March 31, 2010
|
1,632,000 | |||
|
2011
|
1,715,000 | |||
|
2012
|
1,097,000 | |||
|
2013
|
3,029,000 | |||
|
2014
|
2,878,000 | |||
|
2015
|
2,010,000 | |||
|
2016
|
4,260,000 | |||
|
2017
|
6,084,000 | |||
|
2018
|
5,194,000 | |||
|
2019
|
4,238,000 | |||
| 32,137,000 | ||||
The
Company has accumulated Brazilian tax losses of approximately $371,000, which
may be carried forward indefinitely and used to reduce taxable income in Brazil
in future years.
The
future tax asset resulting from these items has not been recognized in these
accounts, as realization is not considered more likely than not. A
valuation allowance has been applied against the entire future tax benefit
asset.
14 Commitments
and contingency
Commitments
The
Company has commitments in respect of its operating leases on its premises and
an office copier lease which expire between December 31, 2009 and September 30,
2013. These commitments require total payments over the next five
years as follows:
|
$
|
||||
|
Year
ending March 31, 2010
|
109,212 | |||
|
2011
|
35,619 | |||
|
2012
|
4,289 | |||
|
2013
|
4,289 | |||
|
2014
|
2,145 | |||
M-45
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
14 Commitments
and contingency (continued)
Contingency
The
Company follows Section 3290, Contingencies, of the CICA Handbook in determining
accruals and related disclosure with respect to contingent
losses. Estimated contingent losses are accrued when it is considered
likely that a future event will confirm that an asset has been impaired or a
liability incurred at the date of the financial statements and the amount of the
contingent loss can be reasonably estimated.
During
the year ending March 31, 2008, the Company was advised that the income tax
authorities in Mexico had reviewed the funding of Linear Gold Mexico, S.A. de
C.V. (formerly MIM Mexico, S.A. de C.V.) by its previous owners and determined
that this funding was taxable as revenue. The tax authorities in
Mexico issued an assessment of approximately MXN$9,175,000 for income tax and
value added tax on this assessed revenue, including interest and
penalties. During the year ending March 31, 2008, the Company placed
approximately MXN$9,175,000 on deposit with the income tax
authorities. During the year ending March 31, 2009, the Company
received a favourable ruling from the tax authorities in Mexico and the deposit
was recovered in full, with interest.
15 Supplemental
cash flow information
|
2009
$
|
2008
$
|
2007
$
|
||||||||||
|
Supplemental
information
|
||||||||||||
|
Interest
received during the years
|
947,222 | 1,213,175 | 561,587 | |||||||||
|
Significant
non-cash transactions
|
||||||||||||
|
Marketable
securities received from property option agreements
|
4,500 | 248,500 | − | |||||||||
|
Loans
to officers and directors to exercise options
|
– | 338,000 | 488,000 | |||||||||
|
Dividend
on distribution of subsidy
|
− | − | 1,100,017 | |||||||||
|
Cash
and cash equivalents
|
||||||||||||
|
Cash
|
25,304,364 | 2,366,598 | 2,842,091 | |||||||||
|
Short-term
investments
|
4,598,022 | 23,211,036 | 27,506,243 | |||||||||
| 29,902,386 | 25,577,634 | 30,348,334 | ||||||||||
M-46
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
16 Segmented
information
The
Company conducts mineral operations in Mexico, the Dominican Republic and
Brazil. Since the Company is in the exploration stage, there is no
segmented revenue or operating results to report. The Company’s total
assets are segmented geographically as:
|
2009
|
||||||||||||||||||||
|
Corporate
Canada
$
|
Mineral
Operations
Brazil
$
|
Mineral
Operations
Mexico
$
|
Mineral
Operations
Dominican
Republic
$
|
Total
$
|
||||||||||||||||
|
Current
assets
|
27,744,689 | 14,714 | 3,023,283 | 760 | 30,783,446 | |||||||||||||||
|
Property
and equipment
|
93,403 | 42,546 | 43,629 | 25,215 | 204,793 | |||||||||||||||
|
Reclamation
deposits
|
36,061 | – | – | – | 36,061 | |||||||||||||||
|
Resource
properties
|
– | – | 26,426,058 | 1,106,327 | 27,532,385 | |||||||||||||||
| 27,874,153 | 57,260 | 29,492,970 | 1,132,302 | 58,556,685 | ||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Corporate
Canada
$
|
Mineral
Operations
Brazil
$
|
Mineral
Operations
Mexico
$
|
Mineral
Operations
Dominican
Republic
$
|
Total
$
|
||||||||||||||||
|
Current
assets
|
25,210,882 | – | 2,631,112 | 75,995 | 27,917,989 | |||||||||||||||
|
Property
and equipment
|
107,698 | 42,866 | 119,418 | 39,264 | 309,246 | |||||||||||||||
|
Reclamation
deposits
|
35,029 | – | – | – | 35,029 | |||||||||||||||
|
Resource
properties
|
– | 796,117 | 27,626,599 | 1,112,171 | 29,534,887 | |||||||||||||||
| 25,353,609 | 838,983 | 30,377,129 | 1,227,430 | 57,797,151 | ||||||||||||||||
M-47
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
17 Subsequent
events
a) Acquisition
of the Goldfields Project
On August
20, 2009, the Company acquired a 100% interest in the Goldfields Project located
near Uranium City, Saskatchewan, Canada from GLR Resources Inc. (“GLR”), by
paying GLR US$5,000,000 in cash and issuing 727,272 common shares of the
Company, valued at $1.95 per share, as consideration for the
purchase. In addition to the cash payment and shares issued, the
Company assumed equipment construction contracts previously entered into by GLR
with aggregate remaining payments on the date of acquisition of approximately
CDN$20,900,000.
The
acquisition will be accounted for as an asset purchase. The Company
is currently finalizing its assessment of the fair value of the assets
acquired. The following table sets the preliminary allocation of the
purchase price to the assets acquired:
|
$
|
||||
|
Purchase
price
|
||||
|
Cash
consideration – US$5,000,000
|
5,517,946 | |||
|
Shares
issued – 727,272 at a value of $1.95 per share
|
1,418,181 | |||
|
Transaction
costs
|
471,059 | |||
| 7,407,186 | ||||
|
Assets
acquired
|
||||
|
Resource
properties
|
7,244,000 | |||
|
Property
and equipment
|
163,186 | |||
| 7,407,186 | ||||
The
equipment construction contracts require aggregate Canadian dollar equivalent
payments to suppliers and the reimbursement of certain deposits to GLR during
the years ended March 31, as follows:
|
Payment
$
|
||||
|
2010
|
3,000,000 | |||
|
2011
|
16,100,000 | |||
|
2012
|
1,800,000 | |||
M-48
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
17 Subsequent
events (continued)
a) Shares
issued for cash
On
November 19, 2009, the Company completed a public offering of 10,407,500 units
at a price of $2.10 per unit and 520,000 flow-through common shares at a price
of $2.40 per flow-through share, for aggregate gross proceeds of
$23,103,750. Each unit consisted of one common share and one-half of
one common share purchase warrant, with each whole warrant entitling the holder
to acquire one common share of the Company at an exercise price of $3.00 for a
period of five years expiring on November 19, 2014. Total costs
associated with the offering were approximately $2,500,000, including cash costs
for commissions, professional fees and regulatory costs and 655,651 broker
warrants issued as a commission. Each broker warrant entitles the
holder to acquire one common share of the Company at an exercise price of $2.15
for a period of two years, expiring on November 19, 2011.
Pursuant
to the issuance of the flow-through shares, the Company is required to spend the
gross proceeds of $1,248,000 on qualified Canadian mineral exploration
expenditures, as defined by Canadian income tax legislation, prior to December
31, 2010. During February 2010, with an effective date of December 31, 2009, the
Company renounced the qualifying Canadian mineral exploration expenditures to
investors.
b) Option
Agreement with Kinross Gold Corporation
On
December 22, 2009, the Company received notice from Kinross Gold Corporation
(“Kinross”) pursuant to an Option Agreement (the “Option”), which became
effective on October 26, 2007 with respect to the exploration and potential
future development of the Company’s Ixhuatan Project (“Ixhuatan”) in Mexico,
that the Option would not be exercised. Accordingly, the Company
continues to hold a 100% interest in the Ixhuatan Project.
Pursuant
to the terms of the Option, Kinross will pay the Company US$3,400,000
representing the difference between the minimum required expenditures of
US$15,000,000 and the actual expenditures incurred by Kinross during the option
period. The amount of US$3,400,000 will be applied as a recovery of
Resource Properties.
c) Proposed
Business Combination with Apollo Gold Corporation
On March
9, 2010, the Company and Apollo Gold Corporation (“Apollo”) entered into a
binding letter of intent (the “Letter of Intent”) pursuant to which the
businesses of the Company and Apollo would be combined by way of a
court-approved plan of arrangement (the “Arrangement”) and pursuant to the
Letter of Intent, the Company and Apollo entered into a subscription agreement
(the “Subscription Agreement”) providing for a private placement (the “Private
Placement”) whereby the Company would purchase 62,500,000 common shares of
Apollo at a price of $0.40 per common share for gross proceeds of
CDN$25,000,000.
M-49
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
17 Subsequent
events (continued)
d) Proposed
Business Combination with Apollo Gold Corporation (continued)
The
Private Placement closed on March 19, 2010. The Apollo common shares
issued to the Company as part of this Private Placement are subject to a
four-month hold period in Canada and are restricted securities under United
States federal and state securities law. In the event the Arrangement
is not completed for any reason, Apollo has agreed to file a registration
statement with the United States Securities and Exchange Commission (the “SEC”)
in respect of the common shares of Apollo issued in the Private Placement as
expeditiously as possible so as to register the resale of such shares by the
Company in the United States. Pursuant to the completion of the
Arrangement, the common shares issued pursuant to the Private Placement are
expected to be cancelled without any payment upon completion of the
Arrangement.
On March
31, 2010, the Company and Apollo signed a Definitive Arrangement Agreement (the
“Definitive Agreement”). Pursuant to the Definitive Agreement:
|
|
·
|
each
outstanding common share of the Company will be exchanged for 5.4742
common shares of Apollo (the “Exchange
Ratio”);
|
|
|
·
|
each
outstanding common share purchase warrant of the Company (the “Linear
Warrants”) will be exchanged for common share purchase warrants of Apollo
on the basis of the Exchange Ratio and the exercise price of each Linear
Warrant will be adjusted as provided for in the applicable Warrant
Certificates; and
|
|
|
·
|
each
outstanding common share option of the Company (the “Linear Options”)
granted under the Company’s Stock Option Plan will be exchanged for common
share options of Apollo granted under Apollo’s Stock Option Plan on the
basis of the Exchange Ratio and the exercise price of each Linear Option
will be adjusted on the same basis as the Linear
Warrants.
|
Upon
consummation of the Arrangement and based on the terms, the transaction will be
accounted for as an acquisition of a business with Apollo being the
acquirer. Based on the terms of the Arrangement, the shareholders of
the Company, immediately prior to the Arrangement, will own approximately 47.8%
of the outstanding common stock of Apollo on a non-diluted basis and
approximately 42.9% on a fully-diluted basis.
The
Arrangement will be subject to the approval of not less than 66 2/3% of the
Company’s common shares and a majority of the Apollo common shares held by
disinterested shareholders to be voted at special meetings of shareholders to be
called to approve the Arrangement.
If either
the Company or Apollo terminates the Definitive Agreement and abandons the
Arrangement prior to closing for any reason (other than as a result of the
failure of a condition to such party’s obligation to close contained in the
Letter of Intent or the Definitive Agreement not being satisfied), such
terminating party shall pay to the other party an amount equal to
CDN$4,000,000.
M-50
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
17 Subsequent
events (continued)
d) Proposed
Business Combination with Apollo Gold Corporation (continued)
The
Definitive Agreement may be terminated (i) by mutual written consent of the
Company and Apollo; (ii) by a party which accepts, recommends, approves or
enters into an agreement to implement a “superior proposal” (as defined in the
Definitive Agreement); (iii) by either party if certain mutual conditions,
conditions of the other party or the Arrangement itself are not or are incapable
of being satisfied and/or completed prior to July 2, 2010.
e) Operating
leases
Subsequent
to March 31, 2009, the Company entered into incremental non-cancellable
operating leases on its premises, which expire between December 31, 2010 and May
31, 2012. These commitments require total payments over the next four
years as follows:
|
Payment
$
|
||||
|
2010
|
35,600 | |||
|
2011
|
106,800 | |||
|
2012
|
96,000 | |||
|
2013
|
16,000 | |||
18 Reconciliation
of Canadian and United States generally accepted accounting
principles
The
consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP. These principles differ in certain
material respects from United Stated generally accepted accounting principles
(“US GAAP”). The effect of these differences on the Company’s
consolidated financial statements for the years ending March 31, 2009 and 2008
is quantified below and described in the accompanying notes:
|
Year
ended March 31,
|
||||||||
|
2009
$
|
2008
$
|
|||||||
|
Net
loss for the years reported under Canadian GAAP
|
(4,900,134 | ) | (3,679,418 | ) | ||||
|
Add
(deduct)
|
||||||||
|
Deferred
exploration costs (a)
|
(1,439,499 | ) | (4,810,101 | ) | ||||
|
Write-down
of mineral properties and related deferred costs (a)
|
3,185,092 | 1,912,289 | ||||||
|
Net
loss for the years under US GAAP
|
(3,154,541 | ) | (6,577,230 | ) | ||||
|
Other
comprehensive loss for the years under US GAAP
|
(118,000 | ) | (111,000 | ) | ||||
|
Comprehensive
loss for the years under US GAAP
|
(3,272,541 | ) | (6,688,230 | ) | ||||
|
Net
loss per share under US GAAP
|
||||||||
|
Basic
and diluted
|
(0.11 | ) | (0.24 | ) | ||||
M-51
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
18 Reconciliation
of Canadian and United States generally accepted accounting principles
(continued)
|
Year
ended March 31,
|
||||||||
|
2009
$
|
2008
$
|
|||||||
|
Resource
properties under Canadian GAAP
|
27,532,385 | 29,534,887 | ||||||
|
Add
(deduct)
|
||||||||
|
Deferred
exploration costs (a)
|
(26,376,410 | ) | (28,122,002 | ) | ||||
|
Resources
properties under US GAAP
|
1,155,975 | 1,412,885 | ||||||
|
Shareholders’
equity reported under Canadian GAAP
|
58,158,503 | 57,295,340 | ||||||
|
Cumulative
adjustments to shareholders’ equity
|
||||||||
|
Add
(deduct)
|
||||||||
|
Deferred
exploration costs (a)
|
(26,376,410 | ) | (28,122,002 | ) | ||||
|
Shareholders’
equity reported under US GAAP
|
31,782,093 | 29,173,338 | ||||||
|
Year
ended March 31,
|
||||||||
|
2009
$
|
2008
$
|
|||||||
|
Cash
flows used in operating activities under Canadian GAAP
|
338,955 | (1,953,089 | ) | |||||
|
Deferred
exploration costs (a)
|
(1,424,922 | ) | (5,217,709 | ) | ||||
|
Cash
flows used in operating activities under US GAAP
|
(1,085,967 | ) | (7,170,798 | ) | ||||
|
Cash
flows used in investing activities under Canadian GAAP
|
(1,186,107 | ) | (4,287,611 | ) | ||||
|
Deferred
exploration costs (a)
|
1,424,922 | 5,217,709 | ||||||
|
Cash
flows used in investing activities under US GAAP
|
238,815 | 930,098 | ||||||
M-52
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
18 Reconciliation
of Canadian and United States generally accepted accounting principles
(continued)
a) Deferred
exploration costs
Under
Canadian GAAP, exploration expenditures may be capitalized during the search for
a commercially mineable body of ore and amortized later during commercial
production. Under US GAAP, exploration expenditures can only be deferred
subsequent to the determination that proven or probable mineral reserves exist,
at which time costs incurred to bring the mine into production are capitalized
as development costs. Capitalized costs are then amortized on a unit
of production basis based on proven and probable reserves. During the years
ended March 31, 2009 and 2008, the Company wrote-off deferred exploration costs
under Canadian GAAP of $3,577,683 (2008 - $1,958,083), which included
acquisition costs of $392,591 (2008 - $45,794) and deferred exploration
expenditures of $3,185,092 (2008 - $1,912,289), for properties that were not
considered economically feasible and were therefore abandoned. Under
US GAAP, the exploration costs of $3,185,092 (2008 - $1,912,289) would have been
expensed in the period incurred.
For the
purposes of the consolidated statements of cash flows, these costs are
classified as cash used in investing activities under Canadian GAAP and cash
used in operating activities under US GAAP.
b) Income
taxes
Under
Canadian GAAP, future income taxes are calculated based on enacted or
substantively enacted tax rates applicable to future years. Under US GAAP, only
enacted rates are used in the calculation of future income taxes. This
difference in GAAP did not result in a difference in the financial position,
results of operations or cash flows of the Company for the years ended March 31,
2009 and 2008.
c) Stock-based
compensation
Effective
April 1, 2004, the Company adopted the fair value based method of accounting for
stock-based companies. Consequently, there were no differences
between Canadian and US GAAP with respect to options granted since inception.
Canadian GAAP permits a choice which allows companies to estimate forfeitures at
the grant date or recognize forfeitures as they occur. US GAAP requires
forfeitures to be estimated at the grant date. Management has evaluated the
impact of estimating forfeitures at the grant date for the purposes of this
reconciliation and determined that the impact is not material.
M-53
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
18 Reconciliation
of Canadian and United States generally accepted accounting principles
(continued)
d) Uncertainty
in income taxes
In July
2006, the ASC issued guidance for Accounting for Uncertainty in Income Taxes.
The guidance prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements, uncertain
tax positions that the Company has taken or expects to take on a tax return
(including a decision whether to file or not file a return in a particular
jurisdiction). Under the guidance, the financial statements will reflect
expected future tax consequences of such positions presuming the taxing
authorities’ full knowledge of the position and all relevant facts, but without
considering time value. The guidance also revises disclosure requirements and
introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax
benefits. It is effective for fiscal years beginning after December 15, 2006.
Management has evaluated the adoption of the guidance for purposes of this
reconciliation and has determined there is no impact.
e) Recently
issued accounting pronouncements
The Accounting Standards
Codification
In June
2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification (“ASC”) as the single source of authoritative
GAAP to be applied by non-governmental entities. The ASC is a new structure
which took existing accounting pronouncements and organized them by accounting
topic. Relevant authoritative literature issued by the Securities and Exchange
Commission (“SEC”) and select SEC staff interpretations and administrative
literature was also included in the ASC. All other accounting guidance not
included in the ASC is non-authoritative. The ASC is effective for annual or
interim periods ending after September 15, 2009. The Company does not
expect the adoption of the ASC to have a significant impact on the Company’s
consolidated financial position, results of operations or cash
flows.
Fair Value
Accounting
In
September 2006, the ASC guidance for fair value measurements and disclosure was
updated to define fair value, establish a framework for measuring fair value,
and expand disclosures about fair value measurements. This guidance does not
require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. The provisions of the
updated guidance were adopted April 1, 2008. In February 2008, the FASB staff
issued an update to the guidance which delayed the effective date for
non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring basis.
The adoption of the guidance is not expected to have a significant impact on the
Company.
In
October 2008, the guidance was further updated to provide guidance on how the
fair value of a financial asset is to be determined when the market for that
financial asset is inactive. The guidance states that determining fair value in
an inactive market depends on the facts and circumstances, requires the use of
significant judgment and, in some cases, observable inputs may require
significant adjustment based on unobservable data. Regardless of the valuation
technique used, an entity must include appropriate risk adjustments that market
participants would make for non-performance and liquidity risks when determining
fair value of an asset in an inactive market. The guidance was effective upon
issuance. The adoption of the guidance did not have a significant impact on the
Company.
M-54
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
18 Reconciliation
of Canadian and United States generally accepted accounting principles
(continued)
e) Recently
issued accounting pronouncements (continued)
Fair Value
Option
In
February 2007, the ASC issued guidance that permits entities to choose to
measure many financial instruments and certain other items at fair value, with
the objective of improving financial reporting by mitigating volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The guidance was
adopted April 1, 2008. The Company did not elect the Fair Value Option for any
of its financial assets or liabilities, and therefore, the adoption of the
guidance had no impact on the Company’s consolidated financial position, results
of operations or cash flows.
Accounting for the Useful
Life of Intangibles
In April
2008, the ASC updated guidance on the determination of the useful life of
intangible assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The guidance is effective for the
Company’s fiscal year beginning April 1, 2009 and will be applied prospectively
to intangible assets acquired after the effective date. The Company
does not expect the adoption of the guidance to have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.
Business
Combinations
In
December 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any non-controlling interest in the acquiree.
The updated guidance also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. The provisions of the updated guidance are effective for
assets or liabilities arising from contingencies in business combinations for
which the acquisition date is on or after April 1, 2009. The Company will apply
the guidance to all future business combinations.
Equity Method
Investment
In
November 2008, the ASC updated guidance which clarifies the accounting for
certain transactions and impairment considerations involving equity method
investments. The intent of the changes is to provide guidance on (i) determining
the initial measurement of an equity method investment, (ii) recognizing
other-than-temporary impairments of an equity method investment and (iii)
accounting for an equity method investee’s issuance of shares. The updated
guidance will be effective for the Company’s fiscal year beginning April 1, 2009
and is not expected to have an impact on the Company’s consolidated financial
position or results of operations.
M-55
|
Linear
Gold Corp.
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Consolidated Financial Statements
|
|
March 31, 2009, 2008 and
2007
|
|
(in
Canadian dollars)
|
18 Reconciliation
of Canadian and United States generally accepted accounting principles
(continued)
e) Recently
issued accounting pronouncements (continued)
Variable Interest
Entities
In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”). This analysis identifies a primary beneficiary of a VIE
as the entity that has both of the following characteristics: (i) the power to
direct the activities of a VIE that most significantly impact the entity’s
economic performance and (ii) the obligation to absorb losses or receive
benefits from the entity that could potentially be significant to the VIE. The
updated guidance also requires ongoing reassessments of the primary beneficiary
of a VIE. The provisions of the updated guidance are effective for the Company’s
fiscal year beginning April 1, 2010. The Company does not expect the adoption of
this guidance to have an impact on its consolidated financial position, results
of operations or cash flows.
M-56
SCHEDULE
N
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
APOLLO
GOLD CORPORATION
Unaudited
pro forma consolidated financial statements of
Apollo
Gold Corporation
N-1
UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
Apollo
Gold Corporation
Pro forma
consolidated balance sheet
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars)
|
Apollo
Gold Corp.
$
|
Linear
Gold Corp.
$
|
Note 4
|
Pro Forma
adjustments
$
|
Apollo Gold
consolidated
Pro Forma
$
|
|||||||||||||
|
|
(Schedule 1)
|
||||||||||||||||
|
Assets
|
|||||||||||||||||
|
Current
assets
|
|||||||||||||||||
|
Restricted
cash
|
6,731 | 1,131 | - | 7,862 | |||||||||||||
|
Cash
and cash equivalents
|
- | 38,522 |
(a)
|
(10,000 | ) | 22,822 | |||||||||||
|
(a)
|
23,787 | ||||||||||||||||
|
(a)
|
(23,787 | ) | |||||||||||||||
|
(g)
|
(5,700 | ) | |||||||||||||||
|
Marketable
securities
|
156 | - | 156 | ||||||||||||||
|
Accounts
receivable and other
|
1,690 | 3,543 | - | 5,233 | |||||||||||||
|
Prepaids
|
394 | 48 | - | 442 | |||||||||||||
|
Derivative
instruments
|
1,961 | - | - | 1,961 | |||||||||||||
|
Inventories
|
8,189 | - | - | 8,189 | |||||||||||||
| 18,965 | 43,400 | (15,700 | ) | 46,665 | |||||||||||||
|
Investment
in Apollo Gold Corporation
|
- | - |
(a)
|
23,787 | - | ||||||||||||
|
(f)
|
(23,787 | ) | |||||||||||||||
|
Derivative
Instruments
|
4,844 | - | - | 4,844 | |||||||||||||
|
Long-term
Investments
|
1,036 | - | - | 1,036 | |||||||||||||
|
Property,
plant and equipment
|
116,171 | 2,269 | - | 118,440 | |||||||||||||
|
Investment
in Montana Tunnels joint venture
|
3,440 | - | - | 3,440 | |||||||||||||
|
Restricted
certificates of deposits
|
14,805 | 34 | - | 14,839 | |||||||||||||
|
Resource
properties
|
- | 8,040 |
(b)
|
70,658 | 78,698 | ||||||||||||
| 159,261 | 53,743 | 54,958 | 267,962 | ||||||||||||||
|
Liabilities
|
|||||||||||||||||
|
Current
liabilities
|
|||||||||||||||||
|
Bank
indebtedness
|
328 | - | - | 328 | |||||||||||||
|
Accounts
payable
|
6,789 | 971 | - | 7,760 | |||||||||||||
|
Accrued
liabilities
|
2,129 | - | - | 2,129 | |||||||||||||
|
Derivative
instruments
|
12,571 | - | - | 12,571 | |||||||||||||
|
Current
portion of long-term debt
|
34,860 | - |
(a)
|
(10,000 | ) | 24,860 | |||||||||||
| 56,677 | 971 | (10,000 | ) | 47,648 | |||||||||||||
|
Accrued
long-term liabilities
|
483 | - | - | 483 | |||||||||||||
|
Derivative
instruments
|
31,654 | - | - | 31,654 | |||||||||||||
|
Long-term
debt
|
48,909 | - | - | 48,909 | |||||||||||||
|
Equity-linked
financial instruments
|
27,318 | - | - | 27,318 | |||||||||||||
|
Accrued
site closure costs
|
5,345 | - | - | 5,345 | |||||||||||||
|
Deferred
income tax liability
|
1,304 | 227 |
(b)
|
19,785 | 21,316 | ||||||||||||
| 171,690 | 1,198 | 9,785 | 182,673 | ||||||||||||||
|
Shareholders'
equity
|
|||||||||||||||||
|
Common
stock
|
202,769 | 81,856 |
(a)
|
23,787 | 294,759 | ||||||||||||
|
(c)
|
91,990 | ||||||||||||||||
|
(f)
|
(23,787 | ) | |||||||||||||||
|
(f)
|
(81,856 | ) | |||||||||||||||
|
Warrants
|
- | 5,093 |
(f)
|
(5,093 | ) | - | |||||||||||
|
Additional
paid-in capital
|
45,555 | 8,643 |
(d),(e)
|
11,428 | 56,983 | ||||||||||||
|
(f)
|
(8,643 | ) | |||||||||||||||
|
Accumulated
other comprehensive income
|
- | (104 | ) |
(f)
|
104 | - | |||||||||||
|
Accumulated
deficit
|
(260,753 | ) | (42,943 | ) |
(g)
|
(5,700 | ) | (266,453 | ) | ||||||||
|
(f)
|
42,943 | ||||||||||||||||
| (12,429 | ) | 52,545 | 45,173 | 85,289 | |||||||||||||
| 159,261 | 53,743 | 54,958 | 267,962 | ||||||||||||||
N-2
Apollo
Gold Corporation
Pro forma
consolidated statement of operations and comprehensive loss
Year
ended December 31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars except per share amounts)
|
Apollo
Gold Corp.
$
|
Linear
Gold Corp.
$
|
Pro Forma
adjustments
$
|
Apollo Gold
consolidated
pro forma
$
|
|||||||||||||
|
(Schedule 2)
|
||||||||||||||||
|
Revenue from sale of gold
|
47,008 | - | - | 47,008 | ||||||||||||
|
Operating
expenses
|
||||||||||||||||
|
Direct
operating cost
|
26,126 | - | - | 26,126 | ||||||||||||
|
Depreciation
and amortization
|
6,978 | 123 | - | 7,101 | ||||||||||||
|
General
and administrative expenses
|
4,875 | 3,731 | - | 8,606 | ||||||||||||
|
Accretion
expense - accrued site closure costs
|
369 | - | - | 369 | ||||||||||||
|
Exploration,
business development and other
|
1,960 | 429 | - | 2,389 | ||||||||||||
|
Recoveries
of exploration costs
|
- | (3,522 | ) | (3,522 | ) | |||||||||||
|
Write-down
of resource properties
|
- | 131 | - | 131 | ||||||||||||
| 40,308 | 892 | - | 41,200 | |||||||||||||
|
Operating
income (loss)
|
6,700 | (892 | ) | - | 5,808 | |||||||||||
|
Other
income (loss)
|
||||||||||||||||
|
Interest
income
|
195 | 472 | - | 667 | ||||||||||||
|
Interest
expense
|
(8,045 | ) | - | - | (8,045 | ) | ||||||||||
|
Debt
transaction costs
|
(1,249 | ) | - | - | (1,249 | ) | ||||||||||
|
Loss
on modification of debentures
|
(1,969 | ) | - | - | (1,969 | ) | ||||||||||
|
Fair
value change on equity-linked financial instruments
|
(10,720 | ) | - | - | (10,720 | ) | ||||||||||
|
Realized
(loss) on investments - derivative instruments
|
(6,355 | ) | - | - | (6,355 | ) | ||||||||||
|
Unrealized
(loss) on investments - derivative instruments
|
(37,420 | ) | - | - | (37,420 | ) | ||||||||||
|
Foreign
exchange gain (loss) and other
|
376 | (255 | ) | - | 121 | |||||||||||
|
Other
income
|
- | 647 | - | 647 | ||||||||||||
| (65,187 | ) | 864 | - | (64,323 | ) | |||||||||||
|
Income
taxes
|
73 | - | - | 73 | ||||||||||||
|
Equity
loss in Montana Tunnels joint venture
|
(3,236 | ) | - | - | (3,236 | ) | ||||||||||
|
Net
loss and comprehensive loss
|
(61,650 | ) | (28 | ) | - | (61,678 | ) | |||||||||
|
Net
loss per share
|
||||||||||||||||
|
Basic
and diluted
|
(0.25 | ) | (0.13 | ) | ||||||||||||
|
Basic
and diluted shares outstanding during the period
|
245,404,000 | 487,487,000 | ||||||||||||||
N-3
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
1. Basis
of presentation
The
unaudited pro forma consolidated financial statements have been prepared in
connection with the acquisition of Linear Gold Corp. (“Linear”) by Apollo Gold
Corporation (the “Company” or “Apollo”). The unaudited pro forma
consolidated financial statements have been prepared for illustrative purposes
only and give effect to the transactions and the acquisition by Apollo pursuant
to the assumptions described in Note 4 to these pro forma consolidated financial
statements. The unaudited pro forma consolidated balance sheet as at
December 31, 2009 gives effect to the acquisition by Apollo as if it had
occurred as of December 31, 2009. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 2009 give
effect to the acquisition by Apollo as if it was completed on January 1,
2009.
The pro
forma consolidated financial statements are not necessarily indicative of the
operating results or financial condition that would have been achieved if the
acquisition had been completed on the dates or for the periods presented, nor do
they purport to project the results of operations or financial position of the
consolidated entities for any future period or as of any future
date. The pro forma consolidated financial statements do not reflect
any special items such as payments pursuant to change of control provisions or
integration costs or operating synergies that may be incurred as a result of the
acquisitions.
The pro
forma adjustments and allocations of the purchase price for Linear are based in
part on estimates of the fair value of assets acquired and liabilities to be
assumed. The final purchase price allocations will be completed after
asset and liability valuations are finalized as of the date of the completion of
the acquisition. Any final adjustments may change the allocation of
purchase price which could affect the fair value assigned to the assets and
liabilities in these unaudited pro forma consolidated financial
statements.
In
preparing the unaudited pro forma consolidated balance sheet and the unaudited
pro forma consolidated statement of operation, the following historical
information, that was prepared in accordance with United States Generally
Accepted Accounting Principles (“U.S. GAAP”), was used:
|
|
(a)
|
the
audited consolidated financial statements of Apollo as at
December 31, 2009;
|
|
|
(b)
|
the
unaudited consolidated balance sheet of Linear as at December 31, 2009,
and the unaudited interim consolidated statements of operations for the
nine month periods ended December 31, 2009 and 2008;
and
|
|
|
(c)
|
the
audited consolidated financial statements of Linear for the year ended
March 31, 2009.
|
The
historical information noted in (b) and (c) above was used to compile the linear
consolidated statement of operations for the twelve months ended December 31,
2009 (Schedule 2). Linear’s interim consolidated financial statements for
its fiscal period ended December 31, 2009 had previously been filed under
Canadian GAAP and Canadian dollars. The U.S. GAAP adjustments and currency
translation are reflected in Schedules 1 and 2 of these pro forma consolidated
financial statements. Note 6 provides details around the nature of
the U.S. GAAP adjustments recorded.
The
unaudited pro forma consolidated balance sheet and the unaudited pro forma
consolidated statement of operations should be read in conjunction with the
historical financial statements including the notes thereto, as listed
above.
The
accounting policies used in preparing the pro forma financial statements are set
out in Apollo’s consolidated financial statements for the year ended December
31, 2009.
N-4
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
2. Conversion
of historical financial statements to U.S. dollars
The
unaudited pro forma consolidated financial statements are presented in U.S.
dollars and, accordingly, Linear’s unaudited statement of operations for the
twelve month period ended December 31, 2009 and unaudited balance sheet at
December 31, 2009 were converted from Canadian dollars to U.S. dollars using the
following exchange rates:
|
$
|
||||
|
As
at December 31, 2009
|
0.9515 | |||
|
Average
for the twelve months ended December 31, 2009
|
0.8757 | |||
3. Acquisition
of Linear
On March
9, 2010, Apollo announced that it had entered into a business combination
arrangement to acquire all the outstanding common shares of
Linear. Under the transaction, the shareholders of Linear will
receive 5.4742 Apollo common shares for each Linear common share
outstanding. As at March 9, 2010, there were 44,222,573 common shares
of Linear outstanding. The share price used to estimate the
consideration given by Apollo is $0.38 per Apollo share.
In
addition to the business combination transaction and in contemplation thereof,
on March 18, 2010 Apollo completed a private placement of 62,500,000 shares to
Linear at a price of Cdn.$0.40 per share for aggregate proceeds of Canadian
$25,000. On the completion of the business combination the Apollo
shares held by Linear will be cancelled. In the event that the
business combination is not completed for any reason Apollo has agreed to file a
registration statement with the SEC so as to register the resale of such shares
by Linear in the United States. Of the gross proceeds $10,000 was
used to repay debt owing under the Project Facility Agreement.
The
business combination will be accounted for using the acquisition method, with
Apollo as the acquirer of Linear. Apollo will also exchange all
outstanding employee and non-employee stock options and all share purchase
warrants of Linear for similar securities of Apollo which, for purposes of these
pro forma consolidated financial statements, have been assumed to be at an
exchange ratio of 5.4742 and at a price equivalent to the original price divided
by 5.4742. These equity securities were valued using the
Black-Scholes option pricing model using the following assumptions:
|
Warrants
|
Options
|
|||||||
|
Remaining
life
|
1-5
years
|
3-5
years
|
||||||
|
Volatility
|
77 | % | 77 | % | ||||
|
Dividends
|
- | - | ||||||
|
Risk
free interest rate
|
1.9 | % | 1.9 | % | ||||
Apollo
will complete a full and detailed valuation of the fair value of the net assets
of Linear acquired with the assistance of an independent third
party. Additionally, the consideration given by Apollo will be valued
at the date of closing of the transaction and therefore the final consideration
may be significantly different from that used in this pro
forma. Therefore, it is likely that the fair values of assets and
liabilities acquired will vary from those shown below and the differences may be
material.
Apollo
has estimated the fair value of Linear’s non–mineral interest net assets to be
equal to their current carrying value. The remainder of the purchase
price over the estimated fair value of the assets acquired and liabilities
assumed of $70,658 has been assigned as the estimated fair value of the acquired
mineral interests.
N-5
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
3. Acquisition
of Linear (continued)
The
allocation of the purchase price is based upon management’s preliminary
estimates and certain assumptions with respect to the fair value increment
associated with the assets to be acquired and the liabilities to be assumed. The
actual fair values of the assets and liabilities will be determined as of the
date of acquisition and may differ materially from the amounts disclosed above
in the assumed pro forma purchase price allocation because of changes in fair
values of the assets and liabilities to the date of the transaction, and as
further analysis (including of identifiable intangible assets, for which no
amounts have been estimated and included in the preliminary amounts shown above)
is completed. Consequently, the actual allocation of the purchase price may
result in different adjustments than those in the unaudited pro forma
consolidated statement of operations.
The
preliminary purchase price allocation is subject to change and is summarized as
follows:
|
$
|
||||
|
Purchase
of Linear shares (242,083,209 Apollo common shares)
|
91,940 | |||
|
Fair
value of options and warrants acquired
|
11,428 | |||
|
Purchase
consideration
|
103,418 | |||
The
purchase price was allocated as follows:
|
$
|
||||
|
Net
working capital acquired (including cash of $15.8 million)
|
18,642 | |||
|
Other
assets
|
34 | |||
|
Property
plant and equipment, net
|
2,269 | |||
|
Mineral
exploration properties
|
78,698 | |||
|
Equity
investment in Apollo
|
23,787 | |||
|
Deferred
income tax liability
|
(20,072 | ) | ||
|
Net
identifiable assets
|
103,418 | |||
N-6
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
4. Effect
of transactions on the pro forma consolidated financial statements
The pro
forma consolidated financial statements incorporate the following pro forma
assumptions:
|
|
(a)
|
Subsequent
to the announcement of the transaction and date of the pro forma
consolidated financial statements, Apollo completed a private placement
from treasury of 62,500,000 common shares of Apollo for gross proceeds of
$23,787 (Cdn.$25,000). Apollo used $10,000 of the proceeds to repay the
Project Facility Agreement;
|
|
|
(b)
|
The
assumption that Apollo acquired 100% of the outstanding common shares of
Linear as a result of the acquisition. As per Note 3, this
gives rise to an increase to fair value of assets and related deferred tax
liabilities as follows:
|
|
$
|
||||
|
Mineral
interests
|
70,658 | |||
|
Deferred
income tax liabilities
|
(19,785 | ) | ||
| 50,873 | ||||
|
Book
value of net assets
|
52,545 | |||
|
Total
purchase consideration
|
103,418 | |||
|
|
(c)
|
This
pro forma adjustment reflects the issuance of 242,083,209 shares of Apollo
for $91,990 in connection with the acquisition of 100% of the outstanding
shares of Linear;
|
|
|
(d)
|
The
assumption that all of the 2,770,000 stock options of Linear outstanding
at March 9, 2010 are converted into 15,163,534 Apollo options with a fair
value of $3,301;
|
|
|
(e)
|
The
assumption that all of the 8,177,763 share purchase warrants of Linear
outstanding at March 9, 2010 are converted into 44,766,707 Apollo share
purchase warrants with a fair value of
$8,127;
|
|
|
(f)
|
These
pro forma adjustments eliminate the historical equity accounts of Linear
and the investment in Apollo common shares held by Linear;
and
|
|
|
(g)
|
This
assumption provides for the recording of transaction expenses of the
agreement totaling $5,700. Termination costs of Apollo in the
amount of $1,700 have been excluded from the pro
forma.
|
N-7
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
|
5.
|
Apollo
shares outstanding and loss per
share
|
The
average number of shares used in the computation of pro forma basic and diluted
loss per share has been determined as follows:
|
December
31,
|
||||
|
2009
|
||||
|
Basic and
diluted
|
||||
|
Weighted average shares
outstanding for the period
|
245,404,000 | |||
|
Issued to acquire
Linear
|
242,083,000 | |||
|
Pro forma basic weighted average
shares of Apollo
|
487,487,000 | |||
In
conjunction with the closing of the acquisition, the Company intends to effect a
share consolidation of outstanding Apollo shares on the basis of one share for
every four Apollo shares outstanding. On this basis, the pro-forma basic and
diluted weighted average shares of Apollo would be 121,871,750 shares and the
basic and diluted net loss per share would be $0.51.
6. U.S.
GAAP adjustments to Linear historical financial statements
|
|
(a)
|
Deferred
exploration costs
|
Under
Canadian GAAP, exploration expenditures may be capitalized during the search for
a commercially mineable body of ore and amortized later during commercial
production. Under U.S. GAAP, exploration expenditures can only be deferred
subsequent to the determination that proven or probably mineral reserves exist
at which time costs incurred to bring the mine into production are capitalized
as development costs. Capitalized costs are then amortized on a unit of
production basis based on proven and probable reserves. As at December 31,
2009, Linear had capitalized a net amount of $21,780 (Cdn.$22,891) of
exploration expenditures that would be expensed as incurred under U.S. GAAP.
Exploration costs in the twelve month period ended December 31, 2009
approximated $429 (Cdn.$490). During the twelve month period ended December 31,
2009, Linear wrote-off deferred exploration costs of $933 (Cdn.$1,066) for
properties that were not considered economically feasible and were therefore
abandoned. Under U.S. GAAP, the exploration costs would have been expensed in
the period incurred.
Under
Canadian GAAP, recoveries of exploration costs of $3,522 (Cdn.$4,022) were
applied against resource properties. Under U.S. GAAP, these recoveries are
recorded in the statement of operations.
|
|
(b)
|
Flow-through
common shares
|
Under
Canadian GAAP, Linear accounts for the issuance of flow-through common shares
using the deferral method. Under U.S. GAAP, the flow-through funds which are
unexpended at the balance sheet date are considered to be restricted cash and
are not considered to be cash or cash equivalents. As at December 31, 2009,
Linear had restricted cash related to flow-through funds of $1,131
(Cdn.$1,189).
N-8
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
6. U.S.
GAAP adjustments to Linear historical financial statements (continued)
|
|
(b)
|
Flow-through
common shares (continued)
|
Under
Canadian GAAP, flow-through common shares are recorded at face value, being the
net cash received for the flow-through shares. The related future tax liability
is established for the tax effect of the difference between the tax basis and
the book basis of the assets when renounced and is recorded as a reduction of
share capital. Under U.S. GAAP, the proceeds from the offering must be allocated
between the sale of the shares and the sale of the tax benefit. The allocation
for proceeds is made based on the difference between the quoted market price of
the flow-through shares and the amount an investor pays for the flow-through
shares. A liability is established for this difference that is reversed upon
renunciation of the tax benefit.
N-9
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
|
7.
|
Reconciliation
to Canadian Generally Accepted Accounting
Principles
|
Apollo
prepares its consolidated financial statements in accordance with U.S. GAAP. The
following adjustments would be required in order to present the pro-forma
financial statements in accordance with Canadian GAAP at December 31, 2009 and
for the year ended December 31, 2009.
Material
variances between financial statement items under U.S. GAAP and the amounts
determined under Canadian GAAP are as follows:
|
2009
|
||||
|
$
|
||||
|
Total pro forma assets in
accordance with U.S. GAAP
|
267,962 | |||
|
Bank
indebtedness
|
(328 | ) | ||
|
Montana Tunnels joint venture
(b)
|
10,911 | |||
|
Black Fox development costs
(c)
|
27,674 | |||
|
Convertible debentures
(d)
|
(485 | ) | ||
|
Total pro forma assets in
accordance with Canadian GAAP
|
305,734 | |||
|
Total pro forma liabilities in
accordance with U.S. GAAP
|
182,673 | |||
|
Bank
indebtedness
|
(328 | ) | ||
|
Montana Tunnels joint venture
(b)
|
10,911 | |||
|
Convertible debentures
(d)
|
(86 | ) | ||
|
Income taxes related to
flow-through share issuance (e)
|
(1,096 | ) | ||
|
Equity-linked financial
instruments (f)
|
(27,318 | ) | ||
|
Total pro forma liabilities in
accordance with Canadian GAAP
|
164,756 | |||
|
Total pro forma shareholders'
(deficiency) equity in accordance with U.S. GAAP
|
85,289 | |||
|
Financing costs
(a)
|
(485 | ) | ||
|
Montana Tunnels joint venture
(b)
|
- | |||
|
Black Fox development costs
(c)
|
27,674 | |||
|
Convertible debentures
(d)
|
86 | |||
|
Income taxes related to
flow-through share issuance (e)
|
1,096 | |||
|
Equity-linked financial
instruments (f)
|
27,318 | |||
|
Total
pro forma shareholders' equity in accordance with
Canadian GAAP
|
140,978 | |||
|
Total
pro forma shareholders' equity and liabilities in accordance with
Canadian GAAP
|
305,734 | |||
N-10
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
|
7.
|
Reconciliation
to Canadian Generally Accepted Accounting Principles
(continued)
|
Under
Canadian GAAP, the net loss and net loss per share would be adjusted as
follows:
|
2009
|
||||
|
$
|
||||
|
Pro forma net loss for the year,
based on U.S. GAAP
|
(61,678 | ) | ||
|
Financing costs
(a)
|
(485 | ) | ||
|
Montana Tunnels joint venture
(b)
|
3,236 | |||
|
Black Fox development costs
(c)
|
(1,485 | ) | ||
|
Convertible debentures
(d)
|
(550 | ) | ||
|
Income
taxes
|
116 | |||
|
Equity-linked financial
instruments (f)
|
10,720 | |||
|
Pro forma net loss from continuing
operations for the year based on
|
||||
|
Canadian
GAAP
|
(50,126 | ) | ||
|
Pro forma basic and diluted net
loss per share in accordance with
|
||||
|
Canadian
GAAP
|
||||
|
Continuing
operations
|
(0.10 | ) | ||
|
|
(a)
|
Financing
costs
|
Under
U.S. GAAP, debt financing costs are capitalized and amortized over the term of
the related debt.
Under
Canadian GAAP, debt financing costs are expensed when they are incurred. As a
result, an adjustment is recorded under Canadian GAAP to increase opening
deficit by $0.3 million and reduce the opening balance of deferred
financing costs by $0.3 million.
N-11
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
|
7.
|
Reconciliation
to Canadian Generally Accepted Accounting Principles
(continued)
|
|
|
(b)
|
Montana
Tunnels joint venture
|
|
|
(i)
|
Joint
venture
|
Under
U.S. GAAP, Apollo has accounted for its 50% interest in the Montana Tunnels
joint venture (“Montana Tunnels”) using the equity method whereby Apollo’s share
of the investees’ earnings and losses is included in operations and its
investments therein are adjusted by a similar amount.
Under
Canadian GAAP, Apollo would account for its joint venture interest in Montana
Tunnels using the proportionate consolidation method whereby Apollo’s
proportionate share of each line item of Montana Tunnels assets, liabilities,
revenues and expenses is included in the corresponding line item of the
financial statements. Further, due to the sale of its interest in Montana
Tunnels on February 1, 2010, Montana Tunnels is presented as a discontinued
operation under Canadian GAAP.
Apollo’s
interest in the Montana Tunnels joint venture was sold on February 1,
2010.
|
(ii)
|
Impairment
of property, plant and equipment
|
In 2002,
under U.S. GAAP, write-downs for impairment of property, plant and equipment are
determined using current proven and probable reserves and mineral resources
expected to be converted into mineral reserves, and as such, no impairment was
recorded for Canadian GAAP purposes.
|
(iii)
|
Stripping
costs
|
Under
U.S. GAAP, the cost of removing overburden and waste materials to access the ore
body at an open pit mine prior to the production phase are referred to as
“pre-stripping costs”. Pre-stripping costs are capitalized during the
development of an open pit mine. The production phase of an open pit mine
commences when saleable materials are produced. Stripping costs incurred during
the production phase of a mine are included in the cost of inventory produced
during the period in which the stripping costs were incurred. Capitalized
pre-stripping costs are amortized using the units-of-production method, whereby
the denominator is the estimated recoverable ounces of gold in the associated
open pit.
Under
Canadian GAAP, stripping costs that represent a betterment to the mineral
property are capitalized and amortized using the units-of-production method over
the expected life of the mine based on the estimated recoverable gold equivalent
ounces.
|
(c)
|
Development
of Black Fox
|
On April
14, 2008, Apollo filed a Canadian National Instrument 43-101 prepared to U.S.
standards and on April 24, 2008, Apollo’s Board of Directors approved a plan
authorizing management to proceed with development of Black Fox. Therefore,
effective April 24, 2008, under U.S. GAAP, mining development costs at the Black
Fox Project are capitalized. Development costs incurred prior to April 24, 2008
were expensed as incurred under U.S. GAAP.
Under
Canadian GAAP, mining development costs at Black Fox Project have been
capitalized from inception. Accordingly, for Canadian GAAP purposes, a
cumulative increase in property, plant and equipment of $29.2 million has been
recorded as at December 31, 2009 and additional depreciation expense of $1.6
million has been recorded for the year then ended.
N-12
Apollo
Gold Corporation
Notes to
the pro forma consolidated financial statements
December
31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars, unless otherwise noted)
|
7.
|
Reconciliation
to Canadian Generally Accepted Accounting Principles
(continued)
|
(d) Convertible
debentures
Under
U.S. GAAP, the 2007 debentures were recorded as compound financial instruments
including detachable note warrants. On issuance, under Canadian GAAP, the
detachable note warrants are similarly treated as an equity instrument with the
remainder of the convertible debentures treated as a liability. However, under
Canadian GAAP, the beneficial conversion features determined using the effective
conversion prices based on the proceeds allocated to the convertible debentures
is allocated to contributed surplus. Canadian GAAP does not require the
recognition of any beneficial conversion feature.
(e) Flow-through
common shares
Under
Canadian income tax legislation, a company is permitted to issue flow-through
shares whereby the Company agrees to incur qualifying expenditures and renounce
the related income tax deductions to the investors. Under U.S. GAAP, the
proceeds from issuance of these shares are allocated between the offering of
shares and the sale of tax benefits. The allocation is made based on the
difference between the quoted price of the existing shares and the amount the
investor pays for the shares. A liability is recognized for this difference. The
liability is reversed when tax benefits are renounced and a deferred tax
liability is recognized at that time. Income tax expense is the difference
between the amount of a deferred tax liability and the liability recognized on
issuance.
Under
Canadian GAAP, the issue of flow-through shares is recorded using the deferral
method in accordance with Canadian GAAP. At the time of issue, the funds
received are recorded as share capital.
Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow-through funds which are unexpended at the consolidated balance sheet
dates are considered to be restricted and are not considered to be cash or cash
equivalents under U.S. GAAP. They are not considered restricted under Canadian
GAAP. As at December 31, 2009, unexpended flow-through funds were
$4.6 million.
(f) Equity-linked
financial instruments not indexed to the Company’s own stock
Under
U.S. GAAP, effective January 1, 2009, an equity-linked financial instrument
would not be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional currency. As of
December 31, 2009 and January 1, 2009, Apollo had 103.0 million and 64.7 million
outstanding warrants to purchase common shares, respectively, that were either
(a) denominated in a currency (Canadian dollars) other than its functional
currency (U.S. dollars) or (b) subject to a potential strike-price adjustment
(the warrants issued November 8, 2006 were exercisable at $0.176 as of January
1, 2009). As such, these warrants are not considered to be indexed to Apollo’s
own stock, and are thereby required to be accounted for separately as derivative
instruments, rather than as equity instruments.
Under
Canadian GAAP, these warrants are accounted for as equity instruments, with
their fair value upon issuance recognized as additional paid-in
capital.
N-13
Schedule
1
Apollo
Gold Corporation
Linear
Gold Corp. – Consolidated Balance Sheet
Year
ended December 31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars except per share amounts)
|
Cdn GAAP
Cdn $
|
Note 6
|
US GAAP
Adjustments
Cdn $
|
US GAAP
Cdn $
|
US GAAP
US $
|
|||||||||||||
|
Assets
|
|||||||||||||||||
|
Current
Assets
|
|||||||||||||||||
|
Cash
and cash equivalents
|
41,676 |
(b)
|
(1,189 | ) | 40,487 | 38,522 | |||||||||||
|
Restricted
cash
|
- |
(b)
|
1,189 | 1,189 | 1,131 | ||||||||||||
|
Marketable
securities
|
164 | - | 164 | 156 | |||||||||||||
|
Accounts
receivable
|
3,724 | - | 3,724 | 3,543 | |||||||||||||
|
Prepaid
expense
|
50 | 50 | 48 | ||||||||||||||
| 45,614 | - | 45,614 | 43,400 | ||||||||||||||
|
Property
and equipment
|
2,385 | - | 2,385 | 2,269 | |||||||||||||
|
Reclamation
deposit
|
36 | - | 36 | 34 | |||||||||||||
|
Resource
properties
|
31,341 |
(a)
|
(22,891 | ) | 8,450 | 8,040 | |||||||||||
| 79,376 | (22,891 | ) | 56,485 | 53,743 | |||||||||||||
|
Liabilities
|
|||||||||||||||||
|
Current
Liabilities
|
|||||||||||||||||
|
Accounts
payable and accrued liabilities
|
1,020 | - | 1,020 | 971 | |||||||||||||
|
Deferred
income tax
|
- |
(b)
|
239 | 239 | 227 | ||||||||||||
| 1,020 | 239 | 1,259 | 1,198 | ||||||||||||||
|
Shareholders’
Equity
|
|||||||||||||||||
|
Share
Capital
|
86,270 |
(b)
|
(239 | ) | 86,031 | 81,856 | |||||||||||
|
Warrants
|
5,353 | - | 5,353 | 5,093 | |||||||||||||
|
Contributed
Surplus
|
9,084 | - | 9,084 | 8,643 | |||||||||||||
|
Accumulated
other comprehensive income
|
(109 | ) | - | (109 | ) | (104 | ) | ||||||||||
|
Deficit
|
(22,242 | ) |
(a)
|
(22,891 | ) | (45,133 | ) | (42,943 | ) | ||||||||
| 78,356 | (23,130 | ) | 55,226 | 52,545 | |||||||||||||
| 79,376 | (22,891 | ) | 56,485 | 53,743 | |||||||||||||
N-14
Schedule
2
Apollo
Gold Corporation
Linear
Gold Corp. – Consolidated Statement of Operations
Year
ended December 31, 2009
(Unaudited)
(Expressed
in thousands of U.S. dollars except per share amounts)
|
Cdn
GAAP
Cdn
$
|
Cdn
GAAP
Cdn
$
|
Cdn
GAAP
Cdn
$
|
US
GAAP
|
||||||||||||||||||||||
|
3-months
ended
March
31, 2009
|
9-months
ended
December
31, 2009
|
12-months
(Jan
- Dec
2009)
|
Note
6
|
Adjustme
nts
Cdn
$
|
US
GAAP
Cdn
$
|
US
GAAP
US
$
|
|||||||||||||||||||
|
Operating
Costs and Expenses
|
|||||||||||||||||||||||||
|
Depreciation
and amortization
|
83 | 58 | 141 | - | 141 | 123 | |||||||||||||||||||
|
Exploration
costs
|
- | - | - |
(a)
|
490 | 490 | 429 | ||||||||||||||||||
|
Recoveries
of exploration costs
|
- | - | - |
(a)
|
(4,022 | ) | (4,022 | ) | (3,522 | ) | |||||||||||||||
|
Investor
relations and marketing
|
4 | 772 | 776 | - | 776 | 680 | |||||||||||||||||||
|
Office
and premises
|
43 | 185 | 228 | - | 228 | 200 | |||||||||||||||||||
|
Professional
services
|
145 | 162 | 307 | - | 307 | 269 | |||||||||||||||||||
|
Regulator
and securities
|
24 | 60 | 84 | - | 84 | 74 | |||||||||||||||||||
|
Salaries
and benefits
|
319 | 1,213 | 1,532 | - | 1,532 | 1,342 | |||||||||||||||||||
|
Stock-based
compensation
|
265 | 861 | 1,126 | - | 1,126 | 986 | |||||||||||||||||||
|
Travel
|
46 | 160 | 206 | - | 206 | 180 | |||||||||||||||||||
|
Write-down
of resource properties
|
1,216 | - | 1,216 |
(a)
|
(1,066 | ) | 150 | 131 | |||||||||||||||||
| 2,145 | 3,471 | 5,616 | (4,598 | ) | 1,018 | 892 | |||||||||||||||||||
|
Other
Expenses (Income)
|
|||||||||||||||||||||||||
|
Foreign
exchange loss
|
74 | 217 | 291 | - | 291 | 255 | |||||||||||||||||||
|
Interest
Income
|
(352 | ) | (187 | ) | (539 | ) | - | (539 | ) | (472 | ) | ||||||||||||||
|
Management
fees and other
|
(86 | ) | (194 | ) | (280 | ) | - | (280 | ) | (246 | ) | ||||||||||||||
|
Loss
on disposal of equipment
|
47 | 1 | 48 | - | 48 | 42 | |||||||||||||||||||
|
Loss
on sale of marketable securities
|
- | 10 | 10 | - | 10 | 9 | |||||||||||||||||||
|
Transaction
break fee, net of costs
|
(516 | ) | - | (516 | ) | - | (516 | ) | (452 | ) | |||||||||||||||
| (833 | ) | (153 | ) | (986 | ) | - | (986 | ) | (864 | ) | |||||||||||||||
|
Net
loss
|
(1,312 | ) | (3,318 | ) | (4,630 | ) | 4,598 | (32 | ) | (28 | ) | ||||||||||||||
|
Classification
for pro forma statement of operations and comprehensive
loss
|
|||||||||||||||||||||||||
|
Depreciation
and amortization
|
123 | ||||||||||||||||||||||||
|
Exploration
costs
|
429 | ||||||||||||||||||||||||
|
Recoveries
of exploration costs
|
(3,522 | ) | |||||||||||||||||||||||
|
General
and administrative expenses
|
3,731 | ||||||||||||||||||||||||
|
Write-down
of resource properties
|
131 | ||||||||||||||||||||||||
|
Interest
income
|
472 | ||||||||||||||||||||||||
|
Foreign
exchange gain (loss) and other
|
(255 | ) | |||||||||||||||||||||||
|
Other
income
|
647 | ||||||||||||||||||||||||
|
Total
|
(28 | ) | |||||||||||||||||||||||
N-15
SCHEDULE
O
APOLLO
CORPORATE GOVERNANCE PROCEDURES
The
Canadian securities regulatory authorities have adopted National Instrument
58-101 “Disclosure of Corporate Governance Practices” (“NI 58-101”), which requires
disclosure of Apollo’s approach to corporate governance, and National Policy
58-201 “Corporate Governance Guidelines” (“NP 58-201”), which provides
guidance on corporate governance practices. In the U.S., we are
subject to disclosure requirements pursuant to (i) Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended, (ii) the United States
Sarbanes-Oxley Act of 2002 (“SOX”) and (iii) the AMEX
listing standards and corporate governance requirements (“AMEX Standards”), which
require similar disclosure. The following is an overview of Apollo’s
corporate governance practices.
Assumption
of Responsibilities by the Apollo Board
The
Apollo Board participates fully in assessing and approving strategic plans and
prospective decisions proposed by management. In order to ensure that the
principal business risks borne by Apollo are appropriate, the Apollo Board
receives and comments on periodic reports from management of Apollo’s assessment
and management of such risks. The Apollo Board regularly monitors the financial
performance of Apollo, including receiving and reviewing detailed financial
information contained in management reports. The Apollo Board, directly and
through the Audit Committee, assesses the integrity of Apollo’s internal control
and management information systems. In 2003, the Apollo Board adopted a
Disclosure Policy and appointed a disclosure policy officer being an assistant
secretary of Apollo, to determine, among other things, the appropriateness and
timing of the release of information with respect to developments at
Apollo.
The
Apollo Board regularly receives reports regarding the monitoring of senior
management of Apollo and its subsidiaries. Input is received at both the
Compensation Committee and Apollo Board meetings regarding the performance of
senior management. Both the Compensation Committee and the Apollo Board have
specifically assumed responsibility for reviewing the performance of senior
management.
The
Apollo Board meets at least four times each calendar year, and more frequently
as required. The frequency of meetings, as well as the nature of the agenda
items, change depending on the state of Apollo’s affairs and in light of
opportunities or risks which Apollo faces from time to time. In 2009, the Apollo
Board held 12
meetings.
Corporate
Governance Principles
In 2003,
the Apollo Board formally adopted a set of corporate governance principles.
Those principles provide guidelines on board size, independence of Apollo Board
members, nominating and orientation of new directors, retirement and resignation
of Apollo Board members, conduct of Apollo Board meetings, conflicts of
interest, share ownership by directors, compensation review, assessing board and
committee performance, interaction with third parties and
confidentiality.
Composition
of the Board of Directors and Risk Oversight
NI 58-101
and the AMEX Standards generally define an “independent director” as a
non-employee director who is affirmatively determined by the board of directors
not to have a material relationship with the listed company that would interfere
with the exercise of independent judgment.
NP 58-201
states that the board of directors of every corporation should be constituted
with a majority of individuals who qualify as unrelated directors. The AMEX
Standards require that each listed company must have a sufficient number of
independent directors on its board of directors such that at least a majority of
such directors are independent directors subject to the certain exceptions. The
Apollo Board has determined that six of the proposed nominees for director are
independent directors. Mr. Russell is the president and chief executive officer
of Apollo, and the Apollo Board has determined that Mr. Russell is not
independent.
The
Apollo Board believes that all of its directors, including its non-independent
directors, make a valuable contribution to the Apollo Board and Apollo. As
indicated above, a majority of Apollo’s directors are independent. The
non-independent director possesses an extensive knowledge of the Apollo’s
business and has extensive business experience, both of which have proven to be
beneficial to the other directors, and his participation contributes to the
effectiveness of the Apollo Board. The Apollo Board also monitors potential
conflicts of interest and has a written policy setting forth the expectation
that each director avoid any action, position or interest that conflicts with or
gives the appearance of a conflict.
O-1
Presently,
the chairman of the Apollo Board is Mr. Stott, an independent director. The
chairman’s responsibilities include acting as liaison between the Apollo Board
and the chief executive officer and establishing, in consultation with the chief
executive officer and the Apollo Board, procedures to govern the Apollo Board’s
performance. Further, the chairman ensures that the Apollo Board operates
independently of management and that directors have an independent leadership
contact. As part of his responsibilities, the chairman is responsible for
obtaining peer reviews of the operation of the Apollo Board to obtain insight as
to areas where the Apollo Board and its committees could be operating more
effectively. The chairman chairs all Apollo Board meetings including meetings at
which only independent directors are present. During their meetings, several
committees of the Apollo Board also hold sessions with only independent
directors present.
If the
Arrangement is consummated, Wade Dawe will become Apollo’s chairman and chief
executive officer. In order to mitigate any potential disadvantages
of a combined chairman and chief executive officer role, Apollo intends to
appoint one of its independent members to serve as the lead independent director
who would:
|
|
·
|
Preside
at all meetings of the Apollo Board at which the chairman is not present,
including executive sessions of the independent
directors;
|
|
|
·
|
Serve
as the liaison between the chairman and the independent
directors;
|
|
|
·
|
Serve
as a liaison between the Apollo Board and management to obtain the types
and forms of information that the Apollo Board
needs;
|
|
|
·
|
Request
and preview information sent to the Apollo
Board;
|
|
|
·
|
Work
with management to prepare presentations for the Apollo
Board;
|
|
|
·
|
Approve
meeting agendas for the Apollo Board;
and
|
|
|
·
|
Approve
meeting schedules to assure that there is sufficient time for discussion
of all agenda items.
|
The
Apollo Board believes that, in the context of a combined chairman and chief
executive officer, the role of a strong lead independent director is necessary
in order to facilitate and strengthen the Apollo Board’s independent oversight
of Apollo’s performance, strategy and planning and to uphold effective
governance standards.
See
“Particulars of Matters to be Acted Upon — Election of Directors” for
biographies of the nominee directors, which includes details of other boards on
which Apollo’s directors serve.
Risk is
inherent with every business, and how well a corporation manages risk can
ultimately determine its success. We face a number of risks,
including economic risks, operational risks, environmental and regulatory risks,
among others. Management is responsible for the day-to-day management
of such risks, while the Apollo Board, as a whole and through its committees,
has responsibility for the oversight of risk management. In its risk
oversight role, the Apollo Board has the responsibility to satisfy itself that
the risk management processes designed and implemented by management are
adequate and functioning as designed.
The
Apollo Board believes that meaningful communication between management and the
Apollo Board is essential for effective risk management and oversight. Our
chairman meets regularly with our chief executive officer to discuss strategy
and the risks facing us. Certain members of senior management attend board
meetings on a quarterly basis and are available to address any questions or
concerns raised by the Apollo Board on risk management-related matters. Each
quarter, the Apollo Board receives presentations from senior management on
strategic matters involving our operations and is provided information that
highlight the various factors that could lead to risk in our
organization.
O-2
While the
Apollo Board is ultimately responsible for our risk oversight, our Audit
Committee, Technical Committee and Compensation Committee assist the Board in
fulfilling its oversight responsibilities in certain areas of risk. The Audit
Committee assists the Apollo Board in fulfilling its oversight responsibilities
with respect to risk management in the areas of financial reporting, internal
controls and compliance with legal and regulatory requirements. The Compensation
Committee assists the Apollo Board in fulfilling its oversight responsibilities
with respect to the management of risks arising from our compensation policies
and programs. The Technical Committee assists the Apollo Board in
identifying risks associated with our operations and environmental
compliance.
Committees
The
Apollo Board has four standing committees: an Audit Committee, a Compensation
Committee, a Technical Committee and a Nominating Committee. The Apollo Board
committees are generally composed of outside directors, a majority of whom are
independent directors in accordance with the AMEX Standards. All of the
directors on the Audit Committee, Compensation Committee and Nominating
Committee are independent directors in accordance with NP 58-201. The
composition, mandate and certain activities of each committee are set out under
“Statement of Corporate Governance Practices — Board Committees” of this
Circular.
Position
Descriptions
The
Apollo Board has given a mandate to the Compensation Committee to develop
position descriptions for senior management. Guidelines have been developed and
approved by the Apollo Board which set out those matters requiring board
approval. See the discussion above under the heading “Composition of the Board
of Directors and Risk Oversight” for the position description for the Chairman
of the Apollo Board.
Director
Orientation and Continuing Education
In
accordance with NI 58-101 and NP 58-201, Apollo has established a process to
provide an orientation and education program for new recruits to the Apollo
Board. Such orientation and education program consists of details of Apollo’s
organizational structure, the structure of the Apollo Board and its committees,
compliance requirements for directors, corporate policies and by-laws. They also
meet with a number of directors and senior management personnel of Apollo and
its material subsidiaries to learn of the functions and activities of Apollo. On
an ongoing basis, presentations are made to the Apollo Board on various aspects
of Apollo’s operations.
Board
Functioning and Independence
In
accordance with the NP 58-201 and the AMEX Standards, Apollo provides
orientation to new recruits to the Apollo Board. Such orientation consists of
orientation sessions with management, a review of prior board activity, receipt
of documentation including Apollo’s articles, by-laws, policies and procedures
and personal meetings with directors and management of
subsidiaries.
The
Apollo Board has a formal policy that all acquisitions and divestitures of a
material nature require the approval of the Apollo Board. In addition, the
Apollo Board’s policy requires that all major strategic decisions, including any
change in the strategic direction of Apollo, be presented by management to the
Apollo Board for approval. As part of its ongoing activity, the Apollo Board
regularly receives and comments upon reports of management as to the performance
of Apollo’s business and management’s expectations and planned actions in
respect thereto.
The
Apollo Board reviews the adequacy and form of the compensation of directors to
ensure the compensation realistically reflects the responsibility and risk
involved in being an effective director. The Apollo Board has made it a priority
to continue to examine and develop the processes which it follows in its
deliberations in order that it will continue to fulfill its
mandate.
The
Apollo Board and the chief executive officer engage in regular dialogue
regarding the performance of the senior management team, including the chief
executive officer, in achieving Apollo’s strategic objectives as determined by
management and the board of directors. As the Apollo Board has plenary power,
any responsibility which is not delegated to management or a board of directors
committee remains with the Apollo Board.
The
Apollo Board conducts in-camera sessions without management present as it deems
appropriate and also conducts in-camera sessions to review the recommendations
of the Compensation Committee. The Compensation Committee also conducts part of
its deliberations without management present. As well, the Audit Committee has a
policy to meet annually with Apollo’s auditors without management
present.
O-3
Apollo’s
By-laws provide for a system which enables an individual director to engage an
outside adviser at the expense of Apollo in appropriate circumstances. Prior
approval of the Audit Committee is required for the retention of such an
adviser.
Apollo
has adopted a formal policy that all members of the Apollo Board are encouraged,
but not required, to attend the annual meeting of shareholders of Apollo. Other
than W.S.
(Steve) Vaughan, all members of the board attended Apollo’s 2009 annual
and special meeting held on May 7, 2009.
Shareholder
Communications
Apollo
endeavours to keep all shareholders well informed as to the financial
performance of Apollo, primarily by means of its annual and quarterly reports,
and by press releases. The Apollo Board has specifically adopted a disclosure
policy in furtherance of these goals.
Management
of Apollo is receptive to shareholder feedback in any form. It is the policy of
Apollo to receive and respond promptly to shareholder inquiries, while being
guided by legal requirements as well as Apollo’s policies in respect to
confidentiality and disclosure. Shareholders wishing to send communications to
the Apollo Board should write to either the chairman of the Apollo Board or the
secretary of Apollo at the following address: Apollo Gold Corporation, 5655
South Yosemite Street, Suite 200, Greenwood Village, Colorado, 80111-3220. All
such communication shall state the type and amount of Corporation securities
held by the security holder and shall clearly state that the communication is
intended to be shared with the Apollo Board, or if applicable, with a specific
committee of the Apollo Board. The Chairman of the Apollo Board or the secretary
of Apollo, as applicable, will forward all such communication to the members of
the Apollo Board or specific committee of the Apollo Board.
Code
of Business Conduct and Ethics
In 2003,
Apollo formally adopted a Code of Business Conduct and Ethics and related
policies, which sets high standards for ethical behaviour throughout the
organization. The Code of Business Conduct and Ethics provides the entire
organization with the same frame of reference for dealing with sensitive and
complex issues such as conflicts of interest, use of information,
confidentiality of personal information, confidentiality of business
information, corporate opportunities, use of inside information, fair trading,
protection and use of company assets, accounting practices, records retention,
compliance with laws, rules and regulations, and duty to report and
consequences.
In
addition, in 2004 Apollo formally adopted a Code of Ethics (the “Code”) pursuant to section 406
of SOX and the Rules of AMEX in order to provide written standards and guidance
to Apollo’s directors, principal executive officer, principal financial officer,
principal accounting officer or controller or those performing similar functions
and any ‘‘executive officers’’ (as defined under Rule 16a-1(f) of the Securities
Exchange Act of 1934, as amended) of Apollo not named above. The purpose of the
Code is to promote:
|
|
·
|
honest,
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
|
·
|
compliance
with applicable governmental laws, rules and
regulations;
|
|
|
·
|
full,
fair, accurate, timely and understandable disclosure in reports and
documents that Apollo files with, or submits to, the Securities and
Exchange Commission and in other public communications made by
Apollo;
|
|
|
·
|
the
prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code;
and
|
|
|
·
|
accountability
for adherence to the Code.
|
The Code
is posted on Apollo’s website at www.apollogold.com. Amendments of/and waiver
granted under the Code will be disseminated on Apollo’s website.
O-4
Whistleblower
Policy
Apollo’s
internal controls and corporate reporting and disclosure procedures are intended
to prevent, deter and remedy any violation of the applicable laws and
regulations that relate to corporate reporting and disclosure, accounting and
auditing controls and procedures, securities compliance and other matter
pertaining to fraud against shareholders. Even the best systems of control and
procedures, however, cannot provide absolute safeguard against such
violations.
In 2004,
the Audit Committee of Apollo formally adopted a Whistleblower Policy which
govern the process through which employees and others, either directly or
anonymously, can notify Apollo’s Compliance Officer or Audit Committee of
potential violations or concerns.
The
Whistleblower Policy also establishes a mechanism for responding to, and keeping
records of complaints from employees and others regarding such potential
violations or concerns.
O-5
QUESTIONS
MAY BE DIRECTED TO THE PROXY SOLICITOR
NORTH
AMERICAN TOLL-FREE
1-
888-987-3940
(Banks,
Brokers or Collect Calls: 416-637-4661)
TIME
IS OF THE ESSENCE. PLEASE VOTE TODAY.
APOLLO
GOLD CORPORATION
FOR USE
AT THE ANNUAL AND SPECIAL MEETING OF
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OF APOLLO
GOLD CORPORATION
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►,
2010
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IS IMPORTANT
Apollo
Gold Corporation
PROXY
The
undersigned shareholder of Apollo Gold Corporation (the “Corporation”) hereby
appoints R. David Russell, president of the Corporation, or failing him, Melvyn
Williams, chief financial officer of the Corporation, or instead of either of
the foregoing _________________________________________ as the nominee of the
undersigned, with full power of substitution, to attend and act for and on
behalf of the undersigned at the annual meeting of shareholders of the
Corporation to be held at ► on
►, 2010 at
the hour of ► (Denver
Time), and at any adjournment or adjournments thereof, to the same extent and
with the same power as if the undersigned were personally present at the said
meeting or such adjournment or adjournments thereof and, without limiting the
generality of the power hereby conferred, with respect to all shares registered
in the name of the undersigned, the nominees named above are specifically
directed to vote or withhold from voting as indicated on the reverse side
hereof.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
CORPORATION. WITHOUT LIMITING THE GENERAL AUTHORIZATION AND POWER
HEREBY GIVEN, ALL THE SHARES REGISTERED IN THE NAME OF THE UNDERSIGNED ARE TO BE
VOTED AS INDICATED ON THE REVERSE AND MAY BE VOTED IN THE DISCRETION OF THE
NOMINEE WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN
THE NOTICE OF THE MEETING, AND/OR IN RESPECT OF ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING AND IN SUCH MANNER AS SUCH NOMINEE IN HIS
JUDGMENT MAY DETERMINE. IF NO CHOICE IS SPECIFIED THIS PROXY WILL CONFER
DISCRETIONARY AUTHORITY AND WILL BE VOTED IN FAVOUR OF THE MATTERS REFERRED TO
ABOVE.
A
SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A SHAREHOLDER) TO
ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING OTHER THAN THE PERSONS
DESIGNATED IN THIS FORM OF PROXY. SUCH RIGHT MAY BE EXERCISED BY FILLING IN THE
NAME OF SUCH PERSON IN THE BLANK SPACE
PROVIDED.
(SEE
REVERSE SIDE)
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL PROPOSALS.
o TO
VOTE FOR ALL PROPOSALS - To vote for ALL proposals as recommended by the
board of directors, please mark this box, sign and date this proxy below and
return this proxy by facsimile to 416-368-2502 or 866-781-3111 (North American
Toll Free) or in the accompanying addressed
envelope.
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PROPOSAL
NO. 1 – Approval of an ordinary resolution, the full text of which
is attached to the accompanying Circular as
Schedule A, approving
the issuance of the Corporation’s common shares (including common shares
issuable upon exercise of warrants and options), the Corporation’s
warrants to purchase common shares and the Corporation’s options to
purchase common shares, in each case in connection with the Arrangement
more particularly described in the Circular (See
page ►)
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FOR AGAINST
o o
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PROPOSAL
NO. 2 – Approval of an ordinary resolution, the full text of which
is attached to the accompanying Circular as
Schedule B, approving
certain amendments to the Apollo Stock Option Incentive Plan
(See page ►)
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FOR AGAINST
o o
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PROPOSAL
NO. 3 – Approval of a special resolution, the full text of which is
attached to the accompanying Circular as
Schedule C, authorizing
the filing of articles of amendment to change the name of the Corporation
to ►
(See page ►)
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FOR AGAINST
o o
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PROPOSAL
NO. 4 – Approval of a special resolution, the full text of which is
attached to the accompanying Circular as
Schedule D, authorizing
the filing of articles of amendment to effect a consolidation of the
Corporation’s common shares on the basis of one (1) post-consolidation
common share for every four (4) common shares outstanding immediately
prior to the consolidation. (See
page ►)
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FOR AGAINST
o o
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PROPOSAL
NO. 5 – Election of seven directors named in the accompanying
Circular (See
page ►)
(01)
R. David Russell
(02)
G. Michael Hobart
(03)
Charles E. Stott
(04)
W.S. (Steve) Vaughan
(05)
Robert W. Babensee
(06)
Marvin K. Kaiser
(07)
David W. Peat
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FOR
ALL
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WITHHOLD
VOTE
FOR
ALL
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FOR
ALL
EXCEPT
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PROPOSAL
NO. 7 - Ratification of the re-appointment of Deloitte & Touch
LLP as our independent registered chartered accountants (See
page ►)
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FOR WITHHOLD
o o
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PROPOSAL
NO. 8 - Approval of an ordinary resolution, the full text of which
is attached to the accompanying Circular as
Schedule E, ratifying the
Corporation’s shareholder rights plan
(See page ►)
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FOR AGAINST
o o
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Name
of Shareholder (please
print)
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Per:
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Signature
of Shareholder
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Date:
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Notes:
(1)
This proxy must be signed by the shareholder or by his attorney authorized in
writing or, if the shareholder is a corporation, by an officer or attorney
thereof duly authorized.
(2)
If this proxy is not dated in the space provided, it shall be deemed to bear the
date on which the form of proxy is mailed by
management.
PLEASE
SIGN AND RETURN THIS PROXY BY FACSIMILE TO 416-368-2502 or 866-781-3111 (NORTH
AMERICAN TOLL FREE) OR IN THE ACCOMPANYING ADDRESSED ENVELOPE AS SOON AS
POSSIBLE.
PLEASE CHECK THIS BOX IF
YOU INTEND TO BE PRESENT AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS.
o
PROXIES
SUBMITTED MUST BE RECEIVED BY ►.