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Item 10.
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Directors, Executive Officers and Corporate Governance
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General
Our bylaws provide that the terms of office of the members of our board of directors be divided into three classes, Class I, Class II and Class III, the members of which serve for a staggered three-year term.
The terms of the current Class I, Class II and Class III directors are set to expire at the next annual meeting of stockholders for the 2013, 2012 and 2014 years, respectively.
At each annual meeting of stockholders, directors chosen to succeed those whose terms then expire are elected for a term of office expiring at the third succeeding annual meeting of stockholders after their election or until their successors are elected and qualify, subject to their prior death, resignation or removal.
Our board presently consists of six directors.
Two directors serve in each class of directors.
None of our directors or executive officers is related to one another.
Our board members are encouraged to attend meetings of the board of directors and the annual meeting of stockholders.
The board of directors held 16 meetings 2013.
Officers serve at the discretion of the board of directors.
The following table sets forth certain biographical information with respect to our directors and executive officers:
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Name
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Position
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Age
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Martin B. Oring
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Director (Class III), Chairman of the board, Chief Executive Officer and President
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68
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Carl S. Ager
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Director (Class II), Vice President, Secretary and Treasurer
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39
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John E. Mack
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Director (Class II)
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66
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Robert D. McDougal
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Director (Class III)
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81
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Michael W. Conboy
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Director (Class I)
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38
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Jordan M. Estra
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Director (Class I)
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66
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Melvin L. Williams
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Chief Financial Officer
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53
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Martin B. Oring, Director, Chairman of the Board, President and Chief Executive Officer
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Mr. Oring has been a member of our board of directors since October 6, 2008 and our Chairman of the board, President and Chief Executive Officer since October 1, 2010.
Mr. Oring, a senior financial/planning executive, has served as the President of Wealth Preservation, LLC, a financial advisory firm that serves high-net-worth individuals, since 2001.
Since the founding of Wealth Preservation, LLC in 2001, Mr. Oring has completed the financial engineering, structuring, and implementation of over $1 billion of proprietary tax and estate planning products in the capital markets and insurance areas for wealthy individuals and corporations.
From 1998 until 2001, Mr. Oring served as Managing Director, Executive Services at Prudential Securities, Inc., where he was responsible for advice, planning and execution of capital market and insurance products for high-net-worth individuals and corporations.
From 1996 to 1998, he served as Managing Director, Capital Markets, during which time he managed Prudential Securities’ capital market effort for large and medium-sized financial institutions.
From 1989 until 1996, he managed the Debt and Capital Management group at The Chase Manhattan Corporation as Manager of Capital Planning (Treasury).
Prior to joining Chase Manhattan, he spent approximately eighteen years in a variety of management positions with Mobil Corporation, one of the world’s leading energy companies.
When he left Mobil in 1986, he was Manager, Capital Markets & Investment Banking (Treasury).
Mr. Oring is also currently a director and chief executive officer of PetroHunter Energy Corporation, and was previously a director of Parallel Petroleum Corporation, each of which is a publicly traded oil and gas exploration and production company.
He also served as a director of Falcon Oil & Gas Australia Limited, a subsidiary of Falcon Oil & Gas Ltd., an international oil and gas exploration and production company, headquartered in Denver, Colorado, which trades on the TSX Venture Exchange.
Mr. Oring has served as a Lecturer at Lehigh University, the New York Institute of Technology, New York University, Xerox Corporation, Salomon Brothers, Merrill Lynch, numerous Advanced Management Seminars, and numerous in-house management courses for a variety of corporations and organizations.
He has an MBA Degree in Production Management, Finance and Marketing from the Graduate School of Business at Columbia University, and a B.S. Degree in Mechanical Engineering from Carnegie Institute of Technology.
As a financial planner and an executive with experience in banking and finance, we believe that Mr. Oring contributes his leadership skills, knowledge and finance background, and business experience to our board of directors.
In addition, we believe that Mr. Oring’s membership on our board of directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Carl S. Ager, Director, Vice President, Secretary and Treasurer
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Mr. Ager has been a member of our board of directors since July 25, 2005 and our Vice President, Secretary and Treasurer since October 7, 2005.
In 1997, Mr. Ager obtained his Bachelor of Applied Sciences Engineering Geophysics degree from Queen’s University in Kingston, Ontario.
Since January, 2003, Mr. Ager has been President of CSA Management Corp, a private Nevada corporation which provides consulting services, including business planning and administration.
However, CSA has not had active operations since 2005.
Mr. Ager also served as Vice President and a director of Nanominerals from June 2003 until June 2007.
Prior to joining Nanominerals and CSA Management, Mr. Ager’s experience included working as an investment executive for Scotia McLeod, one of Canada’s leading full-service brokerage firms (2000-2002).
As an engineer and an executive with experience in working with natural resource companies, we believe that Mr. Ager contributes his leadership skills, knowledge, finance and technology background, and business experience to our board of directors.
In addition, we believe that Mr. Ager’s membership on our board of directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
John E. Mack, Director.
Mr. Mack has over 35 years of international banking and financial business management experience. From November 2002 through September 2005, Mr. Mack served as Senior Managing Executive Officer and Chief Financial Officer of Shinsei Bank, Limited in Tokyo, Japan. Prior to joining Shinsei Bank and for more than twenty-five years Mr. Mack served in senior management positions at Bank of America and its predecessor companies, including twelve years as Corporate Treasurer.
Since 2006, Mr. Mack has been retired and has served as a director in several companies. Mr. Mack is a member of the Board of Directors of Flowers National Bank, Incapital Holdings LLC, Medley Capital Corporation, and Residential Capital, LLC, and is Vice-Chairman and a director of Islandsbanki hf located in Reykjavik, Iceland. Mr. Mack holds an MBA from the University of Virginia Darden School of Business and received his bachelor's degree in economics from Davidson College.
Mr. Mack is a “Financial Expert” in accordance with SEC and exchange listing Audit Committee requirements.
In determining Mr. Mack’s qualifications to serve on our Board of Directors, the Board has considered, among other things, his experience and expertise in finance, accounting and management.
In addition, the Board believes that Mr. Mack’s membership on the Company’s Board of Directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Robert D. McDougal, Director
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Mr. McDougal has been a member of our board of directors since July 25, 2005.
He is a Certified Public Accountant.
He began practicing public accounting in 1973 and established his own practice in 1981.
The major portion of the practice is with mining and mining related clients including public companies, private companies, partnerships and individuals.
He was a director and officer of GEXA Gold Corporation, a publicly traded mining company, from 1985 to 2001.
Mr. McDougal was one of the founders of Millennium Mining Corporation which has been merged into Gold Summit Corporation, a publicly traded company.
He is the managing partner of GM Squared, LLC, which holds numerous mining claims. He also serves as the chief financial officer and a director of Ireland Inc., a publicly traded exploration stage company primarily focused on the acquisition and exploration of mining properties, of which Nanominerals is the principal stockholder.
He served on the Nevada Society of Certified Public Accountants Committee on Natural Resources for seven years, four years as chairman.
Prior to this time, Mr. McDougal served 20 years in the United States Air Force, retiring with the rank of Major.
Following his retirement from the United States Air Force, Mr. McDougal obtained a Bachelor of Arts degree in accounting from the University of Nevada, Reno, graduating with distinction.
As an accountant and an executive with experience in working with mining companies and as an Audit Committee financial expert, we believe that Mr. McDougal contributes his leadership skills, knowledge, finance and technology background, and business experience to our board of directors.
In addition, we believe that Mr. McDougal’s membership on our board of directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Michael W. Conboy, Director
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Mr. Conboy has been a member of our board of directors since October 26, 2010.
Since 2003, Mr. Conboy has worked at Luxor Capital Group, LP, an investment management firm based in New York, New York, and currently serves as its Director of Research.
Luxor Capital Group, LLC is one of the Company’s principal stockholders.
From 2000-2003, Mr. Conboy worked as a distressed investments analyst at ING in New York and London for ING’s internal proprietary desk, where he was actively involved in numerous restructurings.
Since 2010, he also has served as the Chairman of the Board of Directors of CML Metals Corp., which is focused on redeveloping the Comstock/Mountain Lion iron ore mine in southwestern Utah.
Mr. Conboy also serves as a director of Innovate Loan Servicing Corporation, a finance company focused on the subprime auto loan sector.
Mr. Conboy earned his B.S. in Business Administration from Georgetown University.
As an investment banker and an executive with experience in working with natural resource companies, we believe that Mr. Conboy contributes his leadership skills, knowledge, finance and industry background, and business experience to our Board of Directors.
In addition, we believe that Mr. Conboy’s membership on our Board of Directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Jordan M. Estra, Director
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Mr. Estra has been a member of our board of directors since March 1, 2010.
Mr. Estra is also a Director of Starcore International Mines and Meadow Bay Gold, both publicly traded gold mining companies.
Since July 2010, Mr. Estra has been President and Chief Executive Officer of Ensurge, Inc., a mining investment company seeking gold mining opportunities in Brazil.
He became a Director of Ensurge in February 2010.
From May 2009 until July 2010, Mr. Estra had been the Managing Director of Private Equity at Sutter Securities Incorporated in San Francisco, California and Boca Raton, Florida, where he specializes in raising capital for emerging natural resource companies.
From October 2009 through December 2009, Mr. Estra served as the Chief Executive Officer of Signature Exploration and Production Corp.
From April 2007 to April 2009, Mr. Estra was a Managing Director of Investment Banking with Jesup & Lamont Securities, Inc.
Mr. Estra was a Senior Vice President of Investment Banking with Dawson James Securities, Inc. from September 2006 to March 2007 and a Managing Director of Healthcare Investment Banking with Stanford Financial Group from June 2003 to September 2006.
From 1986 to 2003 Mr. Estra held senior research and/or investment banking positions with a number of brokerage and investment banking firms.
From 1971 to 1986 Mr. Estra held various positions in finance, corporate strategic planning and marketing with AMAX, Inc., a global natural resources leader with interests in precious metals, copper, lead, zinc, coal, oil and gas, molybdenum, tungsten and iron ore.
He served as Assistant to the Chairman and was Vice President of Marketing and Strategic Planning when he resigned in 1986 to pursue a career on Wall Street.
Mr. Estra graduated with High Distinction from Babson College with a degree in International Economics and with Honors from the Columbia University Graduate School of Business with an MBA in Finance.
He holds Series 7, 24, 63, 86 and 87 securities licenses.
As an investment banker and an executive with experience in working with natural resource companies and as an Audit Committee financial expert, we believe that Mr. Estra contributes his leadership skills, knowledge, finance and technology background, and business experience to our board of directors.
In addition, we believe that Mr. Estra’s membership on our board of directors helps to achieve the objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Melvin L. Williams, Chief Financial Officer
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Mr. Williams has been our Chief Financial Officer since June 14, 2006.
Mr. Williams is a certified public accountant with over 20 years' experience in the public accounting industry with the firm of Cupit, Milligan, Ogden and Williams in Reno, Nevada.
During this period, he provided auditing, consulting, merger/acquisition, valuation and tax services to companies in the manufacturing, technology, mining, healthcare and service industries, including publicly traded mining companies, as well as to various non-profit organizations.
From 1984 until 1987, Mr. Williams served on the accounting staff of the University of Oregon Foundation, a private fund raising entity that also maintains endowment and trust investments for the continuing support of the University.
Mr. Williams, a member of the American Institute of Certified Public Accountants since 1989, is also a member of the Nevada Society of CPAs and past president of the Reno, Nevada chapter of the Institute of Management Accountants.
He earned a Bachelor of Business Administration degree at the University of Oregon in 1983.
Consultants
Nanominerals is a private Nevada corporation principally engaged in the business of mineral exploration.
We have engaged Nanominerals as a consultant to provide us with the use of its laboratory, instrumentation, milling equipment and research facilities which has allowed us to perform tests and analysis both effectively and in a more timely manner than would otherwise be available from other such consultants.
Dr. Charles A. Ager performs the services for us in his authorized capacity with Nanominerals under our consulting arrangement with Nanominerals.
Carl S. Ager, our Vice President, Secretary and Treasurer, is the son of Dr. Ager.
Dr. Ager currently is the sole officer and director of Nanominerals, and controls its day to day operations.
The following sets forth certain biographical information with respect to Dr. Ager:
Dr. Charles A. Ager is a geophysical engineer with approximately 40 years of experience in the areas of mining discovery and production.
He is a registered geophysicist in the State of California and a registered professional engineer and professional geoscientist in British Columbia, Canada.
Dr. Ager received a PhD degree in geophysics from the University of British Columbia in 1974 and a Master’s of Science degree from the University of British Columbia in 1972.
He received his undergraduate degree in mathematics and physics from California State University, Sacramento in 1968.
Dr. Ager has been associated with Nanominerals from 1988 until present.
Dr. Ager was the Chairman of ABM Mining Group from 1979 until 1988, when it was acquired by Northgate Mining.
ABM Mining Group was involved in providing technical and financial assistance in building and operating medium sized mining companies.
Project duties included property acquisition, exploration, permitting, development, production and finance.
Dr. Ager also was the President of the Ager Group of Geotechnical Companies from 1968 to 1979.
The Ager Group of Geotechnical Companies was involved in providing technical and financial assistance for exploration and development projects in Canada, the United States, Africa and the Far East.
Project work included the use of water, ground and air surveys in the exploration for oil and gas, coal, industrial minerals and base and precious metals.
Dr. Ager is a member of the Association of Professional Engineers and Geoscientists of British Columbia, Canada, the Society of Exploration Geophysicists and the Society of Mining, Metallurgy and Exploration.
Director Qualifications
We believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards.
They should have broad experience at the policy-making level in business or banking.
They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience.
Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us.
Each director must represent the interests of all stockholders.
When considering potential director candidates, the board of directors also considers the candidate’s character, judgment, age and skills, including financial literacy and experience in the context of our needs and the needs of the board of directors.
In addition to considering an appropriate balance of knowledge, experience and capability, the board of directors has as an objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives, skills and other individual qualities that contribute to board heterogeneity.
Independent Directors; Review, Approval or Ratification of Transactions with Related Persons
We currently have six members on our board of directors.
We believe that each of John E. Mack, Michael W. Conboy, Jordan M. Estra and Robert D. McDougal is independent under the criteria established by Section 803A of the NYSE Amex LLC (“AMEX”) Company Guide for director independence, but that none of the remaining two members are independent.
The AMEX criteria include various objective standards and a subjective test.
A member of the board of directors is not considered independent under the objective standards if, for example, he or she is employed by us.
Mr. Oring and Mr. Ager are not independent because they are our employees.
The subjective test requires that each independent director not have a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
We considered commercial, financial services, charitable, and other transactions and other relationships between us and each director and his or her family members and affiliated entities.
For Messrs. Mack, Conboy, Estra and McDougal, we believe that each did not have any transactions or other relationships which would have exceeded the AMEX objective standards or would otherwise interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
With respect to our other two directors, we believe that we have ongoing business relationships with these directors or their affiliates which would not satisfy the AMEX subjective standards regarding the exercise of independent judgment in carrying out the responsibilities of a director.
We have ongoing business relationships with affiliates of our management and principal stockholders.
In particular, we have continuing obligations under the agreements under which we acquired the assets relating to our Clarkdale Slag Project.
We remain obligated to pay a royalty which may be generated from the operations of the Clarkdale Slag Project with Nanominerals, one of our principal stockholders, which is an affiliate of a member of our executive management and board of directors, Carl S. Ager.
We also have engaged Nanominerals as a paid consultant to provide technical services to us.
Further, one of our board members, Robert D. McDougal, serves as the chief financial officer and a director of Ireland, Inc., a publicly traded, mining related company, which is an affiliate of Nanominerals.
In addition, Martin B. Oring, our President and Chief Executive Officer and a member of our board of directors, serves as a consultant to Ireland Inc.
These persons are subject to a fiduciary duty to exercise good faith and integrity in handling our affairs.
However, the existence of these continuing obligations may create a conflict of interest between us and all of our board members and senior executive management, and any disputes between us and such persons over the terms and conditions of these agreements that may arise in the future may raise the risk that the negotiations over such disputes may not be subject to being resolved in an arms’ length manner.
In addition, Nanominerals’ interest in Ireland, Inc. and its other mining related business interests may create a conflict of interest between us and our board members and senior executive management who are affiliates of Nanominerals.
Because we currently only have four independent directors, the existence of these continuing obligations to our affiliates may create a conflict of interest between us and our non-independent board members and senior executive management, and any disputes between us and such persons over the terms and conditions of these agreements that may arise in the future may raise the risk that the negotiations over such disputes may not be subject to being resolved in an arms’ length manner.
We intend to make good faith efforts to recruit independent persons to our board of directors.
We intend to evaluate the independence of each of our directors in connection with the preparation of the proxy statement for our next annual meeting of stockholders.
Although we only have four independent directors, the board of directors has adopted a written Related Person Transactions Policy, that describes the procedures used to identify, review, approve and disclose, if necessary, any transaction or series of transactions in which: (i) we were, are or will be a participant, (ii) the amount involved exceeds $120,000, and (iii) a related person had, has or will have a direct or indirect material interest.
There can be no assurance that the above conflicts will not result in adverse consequences to us and the interests of the other stockholders.
Although our management intends to avoid situations involving conflicts of interest and is subject to a Code of Ethics, there may be situations in which our interests may conflict with the interests of those of our management or their affiliates.
These could include:
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competing for the time and attention of management,
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potential interests of management in competing investment ventures, and
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the lack of independent representation of the interests of the other stockholders in connection with potential disputes or negotiations over ongoing business relationships.
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Committee Interlocks and Insider Participation
Robert D. McDougal, a member of our board of directors, serves as the chief financial officer and a director of Ireland Inc., a publicly traded exploration stage company primarily focused on the acquisition and exploration of mining properties.
Nanominerals, one of our principal stockholders and an affiliate of Carl S. Ager, one of our executive directors and officers, is the principal stockholder of Ireland Inc.
Except as set forth above, no interlocking relationship exists between any member of our board of directors and any member of the board of directors or compensation committee of any other companies, nor has such interlocking relationship existed in the past.
Committees of the Board Of Directors
Audit Committee
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We have an Audit Committee and an audit committee charter.
Our Audit Committee is presently comprised of Robert D. McDougal, Michael W. Conboy, Jordan M. Estra and John E. Mack.
Mr. McDougal is the Chairman of the Audit Committee.
Each of Messrs. McDougal, Conboy, Estra and Mack is an independent director.
We believe that each of Messrs. McDougal, Estra and Mack qualifies as an “audit committee financial expert” under Item 407(d)(5) of Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”).
On September 8, 2006, we adopted a revised audit committee charter and a whistle blower policy.
The purpose of the amendments to the audit committee charter is to expand on the role of the Audit Committee’s relationship with external auditors and the primary committee responsibilities.
The purpose of the whistle blower policy is to encourage all employees to disclose any wrongdoing that may adversely impact us, our stockholders, employees, investors, or the public at large.
The policy also sets forth (i) an investigative process of reported acts of wrongdoing and retaliation, and (ii) procedures for reports of questionable auditing, accounting and internal control matters from employees on a confidential and anonymous basis and from other interested third parties.
A copy of our audit committee charter was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 27, 2006.
Our Audit Committee is responsible for:
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selecting, hiring and terminating our independent auditors,
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evaluating the qualifications, independence and performance of our independent auditors,
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approving the audit and non-audit services to be performed by our independent auditors,
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reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies,
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overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters,
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establishing procedures for the confidential, anonymous submission by our
employees of concerns regarding accounting and auditing matters,
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reviewing with management and our independent auditors, any earnings announcements and other public announcements regarding our results of operations,
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preparing the Audit Committee report that the SEC requires in our annual proxy statement,
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engaging outside advisors, and
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authorizing funding for the outside auditor and any outside advisors engaged by the Audit Committee.
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Compensation Committee.
We have a Compensation Committee and have adopted a Compensation Committee charter.
Our Compensation Committee assists our board of directors in determining and developing plans for the compensation of our officers, directors and employees.
Specific responsibilities include the following:
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approving the compensation and benefits of our executive officers,
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reviewing the performance objectives and actual performance of our officers, and
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administering our stock option and other equity compensation plans.
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Our Compensation Committee is comprised of Robert D. McDougal, John E. Mack, Michael W. Conboy and Jordan M. Estra.
Mr. Estra is the Chairman of the Compensation Committee.
Each of Messrs. McDougal, Mack, Conboy and Estra is an independent director.
Nominating and Governance Committee.
We have a Nominating and Governance Committee and have adopted a Nominating and Governance Committee charter.
Our Nominating and Governance Committee will assist the Board of Directors by identifying and recommending individuals qualified to become members of our Board of Directors, reviewing correspondence from our stockholders, establishing, evaluating and overseeing our corporate governance guidelines, and recommending compensation plans for our directors.
Specific responsibilities include the following:
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evaluating the composition, size and governance of our Board of Directors and its committees and making recommendations regarding future planning and the appointment of directors to our committees,
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establishing a policy for considering stockholder nominees for election to our Board of Directors,
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evaluating and recommending candidates for election to our Board of Directors; and
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recommending and determining the compensation of our directors.
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Our Nominating and Governance Committee is comprised of Robert D. McDougal, Martin B. Oring, John E. Mack, Michael W. Conboy, Jordan M. Estra and Carl S. Ager.
Mr. Conboy is the Chairman of the Nominating and Governance Committee.
Each of Messrs. McDougal, Mack, Conboy and Estra is an independent director.
However, Messrs. Oring and Ager are not independent directors.
Disclosure Committee and Charter
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We have a Disclosure Committee and a Disclosure Committee charter.
A copy of the disclosure committee charter was filed as an exhibit to our Form 10-KSB filed with the SEC on April 13, 2004.
The purpose of the committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.
Our Disclosure Committee is presently comprised of John E. Mack, Carl S. Ager, Robert D. McDougal, Martin B. Oring, Michael W. Conboy and Jordan M. Estra.
Mr. Mack is the Chairman of the Disclosure Committee.
Each of Messrs. Mack, McDougal, Conboy and Estra is an independent director.
However, Messrs. Oring and Ager are not independent directors.
Board Leadership Structure and Risk Oversight
Our board of directors has an integrated structure in which the roles of Chairman and Chief Executive Officer are combined.
The board has determined that only four of our non-management directors are independent.
Generally, our board structure provides that an independent lead director presides at the executive sessions of the non-management directors and at all board meetings at which the Chairman is not present, serves as liaison between the Chairman and the independent directors, frequently communicates with the Chief Executive Officer, calls meetings of the independent directors, obtains board member and management input and sets the agenda for the board with the Chief Executive Officer, approves meeting schedules to assure there is sufficient time for discussion of all agenda items, works with the Chief Executive Officer to ensure the board members receive the right information on a timely basis, stays current on major risks and focuses the board members on such risks, molds a cohesive board, works with the Audit Committee and Compensation Committee to evaluate board and committee performance, facilitates communications among directors, assists in recruiting and retention for new board members, ensures that committee structure and committee assignments are appropriate and effective, ensures outstanding governance processes, and leads discussions regarding Chief Executive Officer performance, personal development and compensation.
Our former lead independent director, Martin B. Oring, became our President and Chief Executive Officer in October 2010, and therefore, no longer is an independent director.
We currently do not have a lead independent director.
The board has had several years of successful experience with a leadership structure in which the roles of Chairman and Chief Executive Officer are combined, and has determined that this structure, together with a very active and involved group of independent directors, is most appropriate and effective for us.
The board believes that this structure promotes greater efficiency, within the context of an active and independent board, through more direct communication of critical information from management to the board and from the board to management.
In addition, the Chief Executive Officer’s extensive knowledge of our business uniquely qualifies him, in close consultation with our independent directors, to lead the board in assessing risks and focusing on the issues that are most material to us.
The board’s involvement in risk oversight includes receiving regular reports from members of senior management and evaluating areas of material risk to us, including operational, financial, legal and regulatory, and strategic and reputational risks.
The Audit Committee, pursuant to its charter, is responsible for overseeing the assessment of the business risk management process, including the adequacy of our overall control environment and controls in selected areas representing significant financial and business risk.
In carrying out this responsibility, the Audit Committee regularly evaluates our risk identification, risk management and risk mitigation strategies and practices.
In general, the reports identify, analyze, prioritize and provide the status of major risks to us.
In addition, the Compensation Committee regularly considers potential risks related to our compensation programs.
Further, the Disclosure Committee reviews the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.
Related Person Transactions Policy
On March 17, 2009, the board of directors adopted a written Related Person Transactions Policy, that describes the procedures used to identify, review, approve and disclose, if necessary, any transaction or series of transactions in which: (i) we were, are or will be a participant, (ii) the amount involved exceeds $120,000, and (iii) a related person had, has or will have a direct or indirect material interest.
Related party transactions, which are limited to those described in this policy, are subject to the approval or ratification by the Audit Committee in accordance with this policy.
Our Code of Ethics, which applies to our directors and executive officers, including our Chief Executive Officer, Chief Financial Officer and all senior financial officers, provides that all conflicts of interest should be avoided.
Pursuant to Item 404 of Regulation S-K of the SEC, certain transactions between the issuer and certain related persons need to be disclosed in our filings with the SEC.
In addition, under Section 78.140 of the Nevada Revised Statutes, certain transactions between us and our directors and officers may need to be approved by our board of directors or a duly authorized committee of the board.
Finally, SEC rules require our board to assess whether relationships or transactions exist that may impair the independence of our outside directors.
The policy is intended to provide guidance and direction on related party transactions.
A “related party transaction” is any transaction directly or indirectly involving any related party that would need to be disclosed under Item 404(a) of Regulation S-K.
Under Item 404(a), we are required to disclose any transaction occurring since the beginning of our last fiscal year, or any currently proposed transaction, involving us where the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.
“Related party transaction” also includes any material amendment or modification to an existing related party transaction.
For purposes of the policy, “related party” means any of the following:
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a director (which term when used therein includes any director nominee),
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a person known by us to be the beneficial owner of more than 5% of our common stock (a “5% stockholder”),
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an entity which is owned or controlled by a person listed above, or an entity in which a person listed above has a substantial ownership interest or control of such entity, or
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a person who is an immediate family member of any of the foregoing.
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“Immediate family member” means a child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer, nominee for director or beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee for director or beneficial owner.
All related party transactions are required to be disclosed to the Audit Committee of the board and any material related party transaction are required to be disclosed to the full board of directors.
Related party transactions will be brought to management’s and the board’s attention in a number of ways.
Each of our directors and executive officers is instructed and periodically reminded to inform the Office of the Secretary of any potential related party transactions.
In addition, each such director and executive officer completes a questionnaire on an annual basis designed to elicit information about any potential related party transactions.
Any potential related party transactions that are brought to our attention are analyzed by our legal department, or if none exists, our outside counsel, in consultation with management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction requiring compliance with the policy.
At each of its meetings, the Audit Committee will be provided with the details of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction, and the benefits to us and to the relevant related party.
In determining whether to approve a related party transaction, the Audit Committee will consider, among other factors, the following factors to the extent relevant to the related party transaction:
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·
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whether the terms of the related party transaction are fair to us and on the same basis as would apply if the transaction did not involve a related party,
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|
·
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whether there are business reasons for us to enter into the related party transaction,
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|
·
|
whether the related party transaction would impair the independence of an outside director,
|
|
·
|
whether the related party transaction would present an improper conflict of interests for any of our directors or executive officers, taking into account the size of the transaction, the overall financial position of the director, executive officer or related party, the direct or indirect nature of the director’s, executive officer’s or related party’s interest in the transaction and the ongoing nature of any proposed relationship, and
|
|
·
|
any other factors the Audit Committee deems relevant.
|
The Audit Committee will apply these factors, and any other factors it deems relevant to its determination, in a manner that is consistent with the rules and regulations promulgated by the Commission and the objectives of the policy.
Given that this list of factors is non-exclusive and, further, that the factors have not been assigned any particular level of importance with respect the other factors, the Audit Committee will have a certain amount of discretion in applying these factors.
The members of the Audit Committee, however, must exercise their reasonable business judgment in making a determination regarding the transaction at issue.
As a result, the specific application of these factors will be determined by the Audit Committee on a case-by-case basis.
The Audit Committee will examine each factor, both individually and collectively, in the context of our overall business and financial position, as well as our short-term and long-term strategic objectives.
In doing so, the Audit Committee will look at the particular facts and circumstances of the transaction at issue, as well as the totality of the circumstances surrounding the transaction as a whole.
The Audit Committee will examine the relationship of the facts and circumstances with our overall business and financial position and strategic objectives.
If, as and when special or unique concerns must be addressed, the Audit Committee will take such concerns into account.
For example, regarding transactions that would impair independence, if our securities become listed on a national securities exchange that requires a certain percentage of the board of directors to be independent, and the Audit Committee determines that a particular transaction will impair the independence of an outside director, potentially causing us to contradict the exchange mandated independence requirement, that particular transaction may be rejected.
However, there could arise a situation where, due to the importance of the transaction to our overall business and financial position and strategic objectives and our ability to appoint another independent director, such a transaction might be approved by the Audit Committee.
Any member of the Audit Committee who has an interest in the transaction under discussion will abstain from voting on the approval of the related party transaction, but may, if so requested by the Chairperson of the Audit Committee, participate in some or all of the Audit Committee’s discussions of the related party transaction.
Upon completion of its review of the transaction, the Audit Committee may determine to permit or to prohibit the related party transaction.
A related party transaction entered into without pre-approval of the Audit Committee will not be deemed to violate the policy, or be invalid or unenforceable, so long as the transaction is brought to the Audit Committee as promptly as reasonably practical after it is entered into or after it becomes reasonably apparent that the transaction is covered by the policy.
Under the policy, any “related party transaction” will be consummated or will continue only if:
|
·
|
the Audit Committee shall approve or ratify such transaction in accordance with the guidelines set forth in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party,
|
|
·
|
the transaction is approved by the disinterested members of the board of directors, or
|
|
·
|
if the transaction involves compensation, that such transaction is approved of by our Compensation Committee.
|
Corporate Governance Guidelines
Our Board has adopted Corporate Governance Guidelines which govern, among other things, Board member criteria, responsibilities, compensation and education, Board committee composition and charters and management succession.
Code of Ethics
Our directors and executive officers, including our Chief Executive Officer, Chief Financial Officer and all senior financial officers, are bound by a Code of Ethics that complies with Item 406 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
A Code of Ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
|
·
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships,
|
|
·
|
full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the SEC and in other public communications made by an issuer,
|
|
·
|
compliance with applicable governmental laws, rules and regulations,
|
|
·
|
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.
|
We will mail without charge, upon written request, a copy of our Code of Ethics.
Requests should be sent to: Searchlight Minerals Corp., 2360 W. Horizon Ridge Pkwy., Suite 100, Henderson, Nevada, 89052, Attn. Corporate Secretary.
Rule 10b5-1 Plans
The board of directors has authorized directors and other executive officers who are subject to our stock-trading pre-clearance and quarterly blackout requirements, at their election, to enter into plans, at a time they are not in possession of material non-public information, to purchase or sell shares of our common stock that satisfy the requirements of Exchange Act Rule 10b5-1.
Rule 10b5-1 permits trading on a pre-arranged, “automatic-pilot” basis subject to certain conditions, including that the person for whom the plan is created (or anyone else aware of material non-public information acting on such person’s behalf) not exercise any subsequent influence regarding the amount, price and dates of transactions under the plan.
Using these plans, officers and directors can gradually diversify their investment portfolios and spread stock trades over a period of time regardless of any material, non-public information they may receive after adopting their plans.
As a result, trades under 10b5-1 plans by our directors, and other executive officer may not be indicative of their respective opinions of our performance at the time of the trade or of our potential future performance.
The board believes that it is appropriate to permit directors and senior executives, whose ability to purchase or sell our common stock is otherwise substantially restricted by quarterly and special stock-trading blackouts and by their possession from time to time of material nonpublic information, to engage in pre-arranged trading in accordance with Rule 10b5-1.
Trades by our directors and executive officers pursuant to 10b5-1 trading plans will be disclosed publicly through Form 144 and Form 4 filings with the SEC, as required by applicable law.
Currently, we do not have any 10b5-1 trading plans for any of our officers and directors.
Stockholder Communication with Our Board of Directors
Our board of directors has established a process for stockholders to communicate with the board of directors or with individual directors.
Stockholders who wish to communicate with our board of directors or with individual directors should direct written correspondence to our Corporate Secretary at our principal executive offices located at 2360 West Horizon Ridge Pkwy., Suite 100, Henderson, Nevada, 89052.
Any such communication must contain:
|
·
|
a representation that the stockholder is a holder of record of our capital stock,
|
|
·
|
the name and address, as they appear on our books, of the stockholder sending such communication, and
|
|
·
|
the class and number of shares of our capital stock that are beneficially owned by such stockholder.
|
The Corporate Secretary will forward such communications to our board of directors or the specified individual director to whom the communication is directed unless such communication is unduly hostile, threatening, illegal or similarly inappropriate, in which case the Corporate Secretary has the authority to discard the communication or to take appropriate legal action regarding such communication.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership and reports of changes in ownership of our equity securities.
As of the date of this Report, and based solely on our review of the copies of such reports furnished to us and written representations from the directors and executive officers, we believe that all reports needed to be filed by current Section 16 reporting persons have been filed in a timely manner for the year ended December 31, 2013.with the exception of the following:
- Martin B. Oring, our CEO and one of our directors, was delinquent in the reporting of one transaction in 2013 on Form 4 which was reported on a delinquent basis on one report.
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Item 11.
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Executive Compensation
|
Compensation Discussion and Analysis
Process Overview
.
The Compensation Committee of the board of directors discharges the board of directors’ responsibilities relating to compensation of all of our executive officers.
The Compensation Committee is comprised of four non-employee directors.
The agenda for meetings is determined by the Chair of the Compensation Committee with the assistance of Martin B. Oring, our President and Chief Executive Officer, and Melvin L. Williams, our Chief Financial Officer.
Compensation Committee meetings are regularly attended by one or more of our officers.
However, they do not attend the portion of meetings during which their own performance or compensation is being discussed.
Mr. Williams and Mr. Ager support the Compensation Committee in its work by providing information relating to our financial plans, performance assessments of our executive officers and other personnel-related data.
In addition, the Compensation Committee has the authority under its charter to hire, terminate and approve fees for advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities.
The Compensation Committee has not delegated its authority to grant equity awards to any of our employees, including the executive officers.
Compensation Philosophy and Objectives
.
The Compensation Committee believes that our compensation philosophy and programs are designed to foster a performance-oriented culture that aligns our executive officers’ interests with those of our stockholders.
The Compensation Committee also believes that the compensation of our executive officers is both appropriate and responsive to the goal of improving stockholder value.
The Compensation Committee’s philosophy is to link the named executive officers’ compensation to corporate performance.
The base salary, bonuses and stock option grants of the named executive officers are determined in part by the Compensation Committee reviewing data on prevailing compensation practices of comparable companies with whom we compete for executive talent, and evaluating such information in connection with our corporate goals and compensation practices.
Because of our size and due to our stage of development, we do not have an extensive executive compensation program.
Instead, we have a fairly simple executive compensation program that is intended to provide appropriate compensation for our executive officers.
Our current compensation arrangements for several of our executive officers, including our Chief Executive Officer, are below average compensation levels for similar positions at comparable companies.
As we continue to grow, we may need to increase our recruiting of new executives from outside of the Company.
This in turn may require us to pay higher compensation which may be closer to or in excess of comparable company averages.
Finally, we believe that creating stockholder value requires not only managerial talent, but active participation by all employees.
In recognition of this, we try to minimize the number of compensation arrangements that are distinct or exclusive to all of our executive officers.
We currently provide base salary, bonuses and long-term equity incentive compensation to a number of our employees.
Because we are an exploration company, we are in the process of refining our compensation policies and anticipate that this will be an ongoing process as our company moves forward in its exploration, testing and construction plans.
In light of the above, since our company could develop in a number of directions, such as exploration only, or exploration with a producing mine, we have looked at a broad range of mining companies to establish our compensation packages.
In general, these companies consisted of a mix of smaller to medium-sized public mining companies.
Most are at late stages of a mine development project or have either one or two operating mines.
Although many companies were considered for comparative purposes by our Compensation Committee, initially the Compensation Committee focused on the following companies as likely to be more relevant to our own as we develop: General Moly, Inc., Allied Nevada Gold Corp., Great Basin Gold Ltd., Gryphon Gold Corp. and Midway Gold Corp.
Each company’s publicly-disclosed information was compiled to provide data on executive compensation, including base pay, other cash compensation and stock-based compensation.
It is our intent to formulate executive compensation packages that are both representative of industry practices and are sufficient to attract and retain capable and experienced people.
The board believes that the comparison companies noted above are a representative list of comparison companies currently, but expects the list to change to reflect developments in the mining industry and related markets.
As we develop, the comparison companies will be selected to be comparative to our size and complexity at the time of the comparison.
In addition, the comparison companies will also develop over time, which will necessarily result in changes in the composition of the comparison group.
Future comparison groups may include some, none or all of the companies in the current group.
For example, exploration companies may begin to operate mines or may be acquired in a merger or acquisition.
Our compensation policies and programs are designed to make us competitive with similar mining companies, to recognize and reward executive performance consistent with the success of our business and to attract and retain capable and experienced people.
The Compensation Committee’s role and philosophy is to ensure that our compensation goals and objectives, as applied to the actual compensation paid to our executive officers, are aligned with our overall business objectives and with stockholder interests.
In addition to industry comparables, the Compensation Committee considers a variety of factors when determining both compensation policies and programs and individual compensation levels, including the stockholder interests, our overall financial and operating performance and the Compensation Committee’s assessment of each executive’s individual performance and contribution toward meeting our corporate objectives.
As we develop, we will place increasing importance on the incentive-based component of compensation because we believe that a significant portion of an executive’s compensation should depend upon our overall corporate performance, including share price performance relative to our peer group.
2013 Executive Officer Compensation Components
.
For the year ended December 31, 2013, the principal component of compensation for our executive officers was a base salary and equity-based incentive compensation.
Base Salary
.
Base salaries for our executive officers, other than the Chief Executive Officer (CEO), are determined by the Compensation Committee based upon recommendations by our Chief Executive Officer, taking into account such factors as salary norms in comparable companies, individual responsibilities, performance and experience of the executive officer.
The Compensation Committee, after review of compensation paid by peer group companies, supplemented by published compensation surveys of public companies and a review of the CEO’s responsibilities, performance, and experience, sets the CEO’s salary.
A review of the salaries of our executive officers is conducted at least annually.
During 2007, the Compensation Committee approved increases in base salaries for our executive officers from 2006 to realign salaries with market levels after taking into account individual responsibilities, performance and experience.
The Compensation Committee determined that in connection with the closing of the acquisition of 100% of the Clarkdale Slag Project and as a result of the increase in the scope of responsibilities of our executives during 2007, it was appropriate to review the compensation of salaries for comparable executives in the peer group.
The increase in the scope of responsibilities during 2007 included the additional work performed and to be performed by the executives to acquire 100% of the Clarkdale Slag Project, design and engineer our first production module, conduct multiple financings, and supervise an increased number of employees.
During its review of the peer group, the Compensation Committee decided to increase the salaries of the executive officers to reduce the size of the disparity between the compensation paid to our executive officers and the compensation paid to the executive officers in the peer group.
The realignment resulted in different changes in percentage increases among our executive officers because not all of the executives required the same percentage increase to narrow the gap between our officers’ salaries and the salaries for comparable executives in the peer group.
The Compensation Committee was focused on bringing the dollar amount of our executives’ salaries closer to the peer group, not on increasing the salaries at the same rate as the percentage increase of market salaries.
As such, market salaries increased at a lower percentage rate than our executives’ salaries.
The Compensation Committee did not have a specific formula to determine the amount of the executive compensation or the specific increases for each individual executive.
In addition to industry comparables, the Compensation Committee reviewed the National Association of Corporate Directors “Report of the Blue Ribbon Commission on Executive Compensation and the Role of the Compensation Committee” for 2007.
Our executives’ salaries were subjectively determined in the discretion of the Compensation Committee, taking into account the foregoing factors.
The Compensation Committee considered the lack of formal training of Mr. Ager in the specific technicalities of mineral exploration, but determined that his general business management experience merited his compensation level, and that we could engage technical mineral exploration specialists, as necessary and appropriate.
Mr. Williams’ increase reflected a change in his contract, increasing his time commitment to us from a range of 300-600 hours per year to 600-800 hours per year.
The Compensation Committee did not have a specific formula to determine the amount of the executive compensation.
The 2008 and 2009 salaries for our executive officers were not increased by mutual agreement between the board and the individual executives.
Continuing into 2010, the Compensation Committee decided to postpone most compensation adjustments for our executive officers due to the status of the development of our mineral properties and our focus of cash resources into those projects.
In September 2010, the executive officers and directors voluntarily agreed to reduce cash compensation by 25% beginning on October 1, 2010.
Effective July 1, 2011, the Compensation Committee approved to restore cash compensation levels for our executive officers to their contracted amounts based on the favorable results from autoclave testing provided to the Company in August 2011. For 2013, the Compensation Committee decided to postpone compensation adjustments for our executive officers due to the status of the development of our mineral properties and our focus of cash resources into those projects.
The following charts reflect changes in the base salaries of our executive officers from 2012 to 2013:
Name
|
|
Principal Position
|
|
2012
Salary
|
|
2013
Salary
|
|
Base Salary
% Change
|
|
Martin B. Oring
|
|
President and Chief Executive Officer
|
|
$
|
200,000
|
|
$
|
200,000
|
|
n/a
|
|
Melvin L. Williams
|
|
Chief Financial Officer
|
|
$
|
130,000
|
|
$
|
130,000
|
|
n/a
|
|
Carl S. Ager
|
|
Vice President, Treasurer, and Director
|
|
$
|
160,000
|
|
$
|
160,000
|
|
n/a
|
|
Bonuses
.
Our cash bonus program seeks to motivate executive officers to work effectively to achieve our financial performance objectives and to reward them when such objectives are met. Bonuses for executive officers are subject to approval by the Compensation Committee.
For the year ended December 31, 2013, bonuses for executive officers were not authorized per their request.
Equity-Based Incentive Compensation
.
Stock options are an important component of the total compensation of executive officers.
We believe that stock options align the interests of each executive with those of the stockholders.
They also provide executive officers a significant, long-term interest in our success and help retain key executive officers in a competitive market for executive talent.
Our 2007 Stock Option Plan authorizes the Compensation Committee to grant stock options to executive officers.
The number of shares owned by, or subject to options held by, each executive officer is periodically reviewed and additional awards are considered based upon past performance of the executive and the relative holdings of other executive officers.
The option grants generally expire no later than five years from the date of grant.
Further, our 2009 Stock Incentive Award Plan (“2009 Incentive Plan”) provides for grants to our employees and service providers of options to purchase shares of our common stock, rights to receive the appreciation in value of common shares, awards of common shares subject to vesting and other restrictions on transfer, and other awards based on common shares.
The 2009 Incentive Plan authorizes the issuance of up 7,250,000 shares of common stock.
Further, our 2007 Stock Option Plan (the “2007 Plan”) provides that options to purchase up to 4,000,000 shares of common stock may be granted to eligible participants.
For the year ended December 31, 2013, we did not grant any stock options to our executive officers.
Stock Ownership Guidelines
.
We currently do not require our directors or executive officers to own a particular amount of our common stock.
The Compensation Committee is satisfied that stock and option holdings among our directors and executive officers are sufficient at this time to provide motivation and to align this group’s interests with those of our stockholders.
Other Benefits
Health and Welfare Benefits
.
Our executive officers receive the same health and welfare benefits offered to other employees, including medical, and holiday pay.
However, our Chief Executive Officer and President, Martin B. Oring, has voluntarily agreed not to participate in health or other benefit plans or programs otherwise in effect from time to time for our executives or employees.
Retirement Program
.
We currently have no Supplemental Executive Retirement Plan, or SERP, obligations.
We do not have any defined benefit retirement plans.
Perquisites
.
We do not provide special benefits or other perquisites to any of our executive officers.
Employment Arrangements, Severance and Change of Control Benefits
.
Other than as described below, we are not party to any employment contracts with our officers and directors.
Martin B. Oring
.
On October 1, 2010, we entered into an employment agreement and non-qualified stock option agreement with Mr. Oring as our Chief Executive Officer and President.
The agreement is on an at will basis and we may terminate his employment, upon written notice, at any time, with or without cause or advance notice.
We have agreed to pay Mr. Oring compensation of $150,000, which includes compensation as a director.
Mr. Oring will be provided with reimbursement for reasonable business expenses in connection with his duties as Chief Executive Officer.
Mr. Oring has voluntarily agreed not to participate in health or other benefit plans or programs otherwise in effect from time to time for our executives or employees. Effective October 1, 2011, Mr. Oring’s compensation was increased to $200,000.
Carl S. Ager
.
We entered into an employment agreement with Carl S. Ager, our Vice President, Secretary and Treasurer, effective January 1, 2006 and as amended February 16, 2007.
Pursuant to the terms of the employment agreement, we agreed to pay Mr. Ager an annual salary of $160,000.
From October 1, 2010 through June 30, 2011, we agreed to reduce Mr. Ager’s annual base compensation to $120,000.
In addition to his annual salary, Mr. Ager may be granted a discretionary bonus and stock options, to the extent authorized by our board.
The term of the agreement is for an indefinite period, unless otherwise terminated by either party pursuant to the terms of the agreement.
In the event that the agreement is terminated by us, other than for cause, we will provide Mr. Ager with six months written notice or payment equal to six months of his monthly salary.
Melvin L. Williams
.
We entered into an employment agreement with Melvin L. Williams, our Chief Financial Officer, effective June 14, 2006 and as amended February 16, 2007.
Pursuant to the terms of the employment agreement, we agreed to pay Mr. Williams an annualized salary of $130,000 based on an increase in time commitment from 300-600 hours worked to 600-800 hours worked.
From October 1, 2010 through June 30, 2011, we agreed to reduce Mr. Williams’ annual base compensation to $97,500.
In the event the employment agreement is terminated by us without cause, we have agreed to pay Mr. Williams an amount equal to three months’ salary in a lump sum as full and final payment of all amounts payable under the agreement.
Tax and Accounting Treatment of Compensation
.
In our review and establishment of compensation programs and payments, we consider, but do not place great emphasis on, the anticipated accounting and tax treatment of our compensation programs on us and our executive officers.
While we may consider accounting and tax treatment, these factors alone are not dispositive.
Among other factors that receive greater consideration are the net costs to us and our ability to effectively administer executive compensation in the short and long-term interests of stockholders under a proposed compensation arrangement.
Our Compensation Committee and our board have considered the potential future effects of Internal Revenue Code Section 162(m), Trade or Business Expense, Certain excessive employee remuneration (“Section 162(m)”) on the compensation paid to our executive officers.
Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for any of our executive officers.
There is an exemption from the $1 million limitation for performance-based compensation that meets certain requirements.
In approving the amount and form of compensation for our executive officers, our compensation committee will continue to consider all elements of the cost to us of providing such compensation, including the potential impact of Section 162(m).
In order to qualify certain forms of equity based compensation, such as stock options, as performance-based compensation, each of the 2007 Stock Option Plan and 2009 Incentive Plan was submitted to and approved by our stockholders and is structured to provide 162(m) qualification to stock options and other forms of performance-based awards.
Grants of equity based compensation under each of the 2007 Stock Option Plan and 2009 Incentive Plan may qualify for the exemption if vesting is contingent on the attainment of objectives based on performance criteria set forth by our compensation committee, and if certain other requirements are satisfied as set forth under Section 162(m).
The compensation paid to any of our executive officers in 2012 did not exceed the $1 million threshold under Section 162(m). Thus, at the present time, neither we nor any of our executives are impacted by Section 162(m).
We monitor whether it might be in our best interest to comply with Section 162(m) of the Code, but reserve the right to award future compensation which would not comply with the Section 162(m) requirements for non-deductibility if the Compensation Committee concludes that it is in our best interest to do so.
We seek to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals and therefore the Compensation Committee has not adopted a policy requiring all compensation to be deductible.
The Compensation Committee will continue to assess the impact of Section 162(m) on its compensation practices and determine what further action, if any, is appropriate.
We account for equity compensation paid to our employees under the rules of Accounting Standards Codification 718, “Compensation-Stock Compensation” (ASC 718), which requires us to estimate and record an expense for each award of equity compensation over the service period of the award.
Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
We have not tailored our executive compensation program to achieve particular accounting results.
We intend that our plans, arrangements and agreements will be structured and administered in a manner that complies with the requirements of Internal Revenue Code Section 409A, Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans (“Section 409A”).
Participation in, and compensation paid under our plans, arrangements and agreements may, in certain instances, result in the deferral of compensation that is subject to the requirements of Section 409A.
If our plans, arrangements and agreements as administered fail to meet certain requirements under Section 409A, compensation earned thereunder may be subject to immediate taxation and tax penalties.
Section 409A requires programs that allow executives to defer a portion of their current income to meet certain requirements regarding risk of forfeiture and election and distribution timing (among other considerations).
Section 409A requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters.
Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans.
Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including the named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A.
Our current compensation and benefit plans are not subject to Section 409A.
We have reviewed our compensation arrangements with our executives and employees, and have determined that they are excepted from the requirements of Section 409A.
The severance provisions and discretionary bonus provisions under our Employment Agreements fall within the short-term deferral rules of Treasury Regulations Section1.409A-1(b)(4). The equity awards issued under each of the 2007 Stock Option Plan and 2009 Incentive Plan (both statutory and nonstatutory stock options) are excepted from Section 409A.
Statutory options under Internal Revenue Code Section 422 are not subject to Section 409A.
Likewise, the nonstatutory options are excepted from Section 409A under Treasury Regulations Section 1.409A-1(b)(5)(i)(A) because the exercise prices for all awards issued thereunder are the fair market value of the underlying stock on the date the option was granted and the options do not include any feature for the deferral of compensation other than deferral of recognition of income until the later of the exercise or disposition of the option or the date the options become substantially vested.
The underlying stock for all the options constitutes "service recipient stock" within the meaning of Treasury Regulation Section 1.409-A-1(b)(5)(iii).
If we adopt new compensation plans that constitute non-qualified deferred compensation, they will be operated in compliance with Section 409A and regulatory guidance issued by the Internal Revenue Service.
Compensation Committee Report
.
The Compensation Committee of the Board has reviewed this Compensation Discussion and Analysis and discussed that analysis with management.
Based on its review and discussions with management, the committee recommended to our board that this Compensation Discussion and Analysis be included in our Form 10-K for the year ended December 31, 2013.
This report is provided by the following directors, who comprise the committee:
Jordan M. Estra (Chairman)
Robert D. McDougal
John E. Mack
Michael W. Conboy
Summary Compensation Table
The following table sets forth all compensation received during the two years ended December 31, 2013 by our Chief Executive Officer, Chief Financial Officer and each of the other most highly compensated executive officers whose total compensation exceeded $100,000 in such fiscal year.
These officers are referred to as the Named Executive Officers in this Report:
Name and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
|
|
|
Option
Awards ($)
(1)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Non-qualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Martin B. Oring, Director,
|
|
2013
|
|
30,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
170,000
|
(2)
|
|
200,000
|
|
President and
|
|
2012
|
|
30,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
170,000
|
(2)
|
|
200,000
|
|
CEO
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl S. Ager,
|
|
2013
|
|
160,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
160,000
|
|
Director, Vice
|
|
2012
|
|
160,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
160,000
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin L. Williams,
|
|
2013
|
|
130,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
64,441
|
|
|
196,441
|
|
Chief Financial
|
|
2012
|
|
130,000
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
49,996
|
|
|
179,996
|
|
Officer
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts listed in this column represent the aggregate grant date fair value for grants during the fiscal year, computed in accordance with Accounting Standards Codification 718, “CompensationStock Compensation,” (ASC 718), rather than the amounts realized by the named individuals.
See Note 11 to the consolidated financial statements (“Stock Based Compensation”) included in our Annual Report on Form 10-K for the year ended December 31, 2013 for our valuation assumptions used to calculate the grant date fair value.
|
|
(2)
|
Mr. Oring was appointed as our President and Chief Executive Officer on October 1, 2010.
Mr. Oring entered into an employment agreement on October 1, 2010 for an annual salary of $30,000. Mr. Oring was also paid a director fee of $10,000 per month through June 30, 2011. Mr. Oring’s director fees are included in other compensation in the above table. Effective July 1, 2011, Mr. Oring’s total base compensation was increased to $200,000 per annum. Mr. Oring’s salary as our President and Chief Executive Officer was unchanged but his director fees were increased to $170,000 per annum or $14,167 per month.
|
|
(3)
|
Mr. Ager was appointed as our Secretary, Treasurer and Chief Financial Officer on October 7, 2005.
Mr. Ager entered into an employment agreement on January 1, 2006 and received an annual salary of $160,000 from January 1, 2008 until September 30, 2010.
From October 1, 2010 through June 30, 2011, we agreed to reduce Mr. Ager’s annual base compensation to $120,000.
Effective July 1, 2011, the Compensation Committee approved to restore cash compensation levels for Mr. Ager to his base salary that existed prior to the 25% reduction based on the favorable results from autoclave testing.
|
|
(4)
|
Mr. Williams was appointed as our Chief Financial Officer on June 14, 2006.
Mr. Williams entered into an employment agreement on June 14, 2006 and received an annual salary of $130,000 from January 1, 2008 until September 30, 2010.
From October 1, 2010 through June 30, 2011, we agreed to reduce Mr. Williams’ annual base compensation to $97,500.
Effective July 1, 2011, the Compensation Committee approved to restore cash compensation levels for Mr. Williams to his base salary that existed prior to the 25% reduction based on the favorable results from autoclave testing.
Other compensation includes direct benefit to Mr. Williams of $66,441 and $49,996 from fees incurred in 2013 and 2012, respectively, with Cupit, Milligan, Ogden & Williams, an affiliate of Mr. Williams, to provide accounting support services. These amounts were based on the profit percentage derived by Mr. Williams from the revenue earned by Cupit Milligan in the applicable period, as applied to the fees for services provided to us.
|
Outstanding Equity Awards At Fiscal Year-End
The following table provides information concerning unexercised options for each of our Named Executive Officers outstanding as of December 31, 2013:
Name and
Position
|
|
Number of
Securities
Underlying
Options
(#)Exercisable
|
|
Option
Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Stock
Awards
Number
of Shares
or Units
of Stock
that Have
Not
Vested (#)
|
|
Martin B. Oring
(1)
Director, President and CEO
|
|
6,569
|
|
-
|
|
-
|
|
$
|
2.74
|
|
3/31/2014
|
|
-
|
|
|
|
7,377
|
|
-
|
|
-
|
|
$
|
2.44
|
|
6/30/2014
|
|
-
|
|
|
|
9,890
|
|
-
|
|
-
|
|
$
|
1.82
|
|
9/30/2014
|
|
-
|
|
|
|
50,000
|
|
-
|
|
-
|
|
$
|
1.45
|
|
10/6/2014
|
|
-
|
|
|
|
11,250
|
|
-
|
|
-
|
|
$
|
1.60
|
|
12/31/2014
|
|
-
|
|
|
|
15,000
|
|
-
|
|
-
|
|
$
|
1.20
|
|
3/31/2015
|
|
-
|
|
|
|
25,714
|
|
-
|
|
-
|
|
$
|
0.70
|
|
6/30/2015
|
|
-
|
|
|
|
18,462
|
|
-
|
|
-
|
|
$
|
0.98
|
|
9/30/2015
|
|
-
|
|
|
|
100,000
|
|
-
|
|
-
|
|
$
|
0.91
|
|
10/1/2015
|
|
-
|
|
|
|
50,000
|
|
-
|
|
-
|
|
$
|
1.45
|
|
10/6/2015
|
|
-
|
|
|
|
100,000
|
|
-
|
|
-
|
|
$
|
0.91
|
|
12/22/2015
|
|
-
|
|
|
|
450,000
|
(1)
|
-
|
|
-
|
|
$
|
1.22
|
|
9/21/2016
|
|
-
|
|
|
|
50,000
|
|
-
|
|
-
|
|
$
|
1.45
|
|
10/6/2016
|
|
-
|
|
|
|
50,000
|
|
-
|
|
-
|
|
$
|
1.45
|
|
10/6/2017
|
|
-
|
|
|
|
100,000
|
|
-
|
|
-
|
|
$
|
0.91
|
|
10/1/2020
|
|
-
|
|
|
|
-
|
|
150,000
|
(1)
|
-
|
|
$
|
1.22
|
|
9/21/2021
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Carl S. Ager Director, Vice President, Treasurer and Secretary
|
|
225,000
|
(2)
|
-
|
|
-
|
|
$
|
1.22
|
|
9/21/2016
|
|
-
|
|
|
|
|
|
100,000
|
(2)
|
-
|
|
$
|
1.22
|
|
9/21/2021
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin L. Williams Chief Financial Officer
|
|
75,000
|
|
-
|
|
-
|
|
$
|
1.22
|
|
9/21/2016
|
|
-
|
|
|
(1)
|
On September 21, 2011, Mr. Oring was granted options to purchase up to 600,000 shares of our common stock pursuant to a non-qualified stock option agreement.
Of the 600,000 options, 200,000 options vested on execution of the agreement.
The remaining 400,000 options vest over the term of the option in connection with the occurrence of certain events, as follows: (i) 150,000 options vested upon completion of defined target from metallurgical tests: (ii) 150,000 will vest upon obtaining a funding commitment to construct a gold recovery facility: and (iii) 100,000 vested upon Mr. Oring completing 30 months of service as CEO.
|
|
(2)
|
On September 21, 2011, Mr. Ager was granted options to purchase up to 325,000 shares of our common stock pursuant to a non-qualified stock option agreement.
Of the 325,000 options, 125,000 options vested on execution of the agreement.
The remaining 200,000 options vest over the term of the option in connection with the occurrence of certain events, as follows: (i) 100,000 options vested upon completion of defined target from metallurgical tests and (ii) 100,000 will vest upon obtaining a funding commitment to construct a gold recovery facility.
|
Grants of Plan Based Awards
There were no grants of plan-based awards to named executive officers during the year ended December 31, 2013.
Option Exercises and Stock Vested
No shares were acquired by any of our Named Executive Officers during the year ended December 31, 2013 through stock option exercises.
Potential Payments upon Termination of Employment or a Change of Control
We have entered into change in control agreements with Martin B. Oring, our President and Chief Executive Officer, Carl S. Ager, our Vice President, Secretary and Treasurer, and Melvin L. Williams, our Chief Financial Officer, in connection with their respective employment agreements.
The agreement with Mr. Oring provides for the vesting of any unvested options granted in connection with his employment agreement in the event of a significant corporate transaction generally resulting in a sale or change of control.
The agreements for Mr. Ager and Mr. Williams provide for payments to be made to each named executive officer upon termination of employment.
In the event that the agreement with Mr. Ager is terminated by us, other than for cause, we will provide Mr. Ager with six months written notice or payment equal to six months of his monthly salary.
In the event the employment agreement with Mr. Williams is terminated by us without cause, we have agreed to pay Mr. Williams an amount equal to three months’ salary in a lump sum as full and final payment of all amounts payable under the agreement.
The severance amounts are payable in cash, in a lump sum.
As of December 31, 2013, in the event of a qualifying termination, Mr. Ager would have been entitled to cash payments totaling $80,000 and Mr. Williams would have been entitled to cash payments totaling $32,500.
Director Compensation
This section provides information regarding the compensation policies for our directors and amounts paid and securities awarded to these directors in the year ended December 31, 2013.
From January 1, 2008 until September 30, 2010, we agreed to pay non-employee directors compensation of $3,000 per month in cash.
From October 1, 2010 through June 30, 2011, the directors agreed to reduce their base cash compensation by 25% to $2,250 per month.
As of July 1, 2011, we agreed to restore the base cash compensation to $3,000 per month.
In addition, directors have a choice between receiving $9,000 value of our common stock per quarter, where the appropriate number of shares to equal $9,000 is determined by the closing price of our stock on the last trading day of each quarter, or a number of options to purchase twice the number of shares of common stock that the director would otherwise receive if the director elected to receive shares, with an exercise price based on the closing price of our stock on the last trading day of each quarter.
Effective April 1, 2011, the Board of Directors implemented a policy whereby the number of options granted for quarterly compensation to each director is limited to 18,000 options per quarter.
Further, our 2009 Stock Incentive Plan for Directors (“2009 Directors Plan”) provides for grants to our directors of options to purchase shares of our common stock, rights to receive the appreciation in value of common shares, awards of common shares subject to vesting and other restrictions on transfer, and other awards based on common shares.
The 2009 Directors Plan authorizes the issuance of up 2,750,000 shares of common stock.
In addition, on October 6, 2010, we instituted a form of indemnification agreement between the directors and us, whereby directors may be indemnified by us against claims brought against them out of their services to us.
All of our current directors have entered into such an indemnification agreement.
The following table summarizes the compensation paid to our non-employee directors for the year ended December 31, 2013:
Name
|
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($)
(1)
|
|
|
Option
Awards
($)
(2)(3)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Robert D. McDougal
(4)
|
|
$
|
36,000
|
|
|
-
|
|
$
|
11,945
|
|
|
-
|
|
|
-
|
|
$
|
47,945
|
|
Jordan M. Estra
(5)
|
|
$
|
36,000
|
|
|
-
|
|
$
|
11,945
|
|
|
-
|
|
|
-
|
|
$
|
47,945
|
|
Michael W. Conboy
(6)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
John E. Mack
(7)
|
|
$
|
36,000
|
|
|
-
|
|
$
|
11,945
|
|
|
-
|
|
|
-
|
|
$
|
47,945
|
|
|
(1)
|
No stock awards were granted for the year ended December 31, 2013.
|
|
(2)
|
Amounts listed in this column represent the aggregate grant date fair value for grants during the fiscal year, computed in accordance with Accounting Standards Codification 718, “CompensationStock Compensation,” (ASC 718), rather than the amounts realized by the named individuals.
See Note 11 to the consolidated financial statements (“Stock Based Compensation”) included in our Annual Report on Form 10-K for the year ended December 31, 2013 for our valuation assumptions used to calculate the grant date fair value.
|
|
(3)
|
The following stock option awards were made to the directors in the table in 2013, as computed in accordance with ASC 718: (i) 18,000 stock options each to Jordan M. Estra, John E. Mack and Robert D. McDougal with an exercise price of $0.48 per share and a grant date value of $0.33 per share (March 31, 2013): (ii) 18,000 stock options each to Jordan M. Estra, John e. Mack and Robert D. McDougal with an exercise price of $0.288 per share and a grant date value of $0.11 per share (June 30, 2013): (iii) 18,000 stock options each to Jordan M. Estra, Robert D. McDougal and John E. Mack with an exercise price of $0.365 per share and a grant date value of $0.13 per share (September 30, 2013): (iv) 18,000 stock options each to Jordan M. Estra, Robert D. McDougal and John E. Mack with an exercise price of $0.24 per share and a grant date value of $0.09 per share (December 31, 2013).
|
|
(4)
|
Mr. McDougal held 469,804 stock options and no unvested shares as stock awards, at December 31, 2013.
We granted 72,000 stock options and no shares as stock awards to Mr. McDougal in 2013.
|
|
(5)
|
Mr. Estra held 500,518 stock options, which included 50,000 unvested stock options, at December 31, 2013.
We granted 72,000 stock options and no shares as stock awards to Mr. Estra in 2013.
|
|
(6)
|
Mr. Conboy held no stock options and no unvested shares as stock awards, at December 31, 2013.
We granted no stock options and no shares as stock awards to Mr. Conboy in 2013.
|
|
(7)
|
Mr. Mack held 312,800 stock options, which included 150,000 unvested stock options, at December 31, 2013.
We granted 72,000 stock options and no shares as stock awards to Mr. Mack in 2013.
|
Limitation of Liability of Directors
Nevada Revised Statutes provide that, subject to certain exceptions, or unless the articles of incorporation or an amendment thereto, provide for greater individual liability, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that his act or failure to act constituted a breach of his fiduciary duties as a director or officer, and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
Our Articles of Incorporation do not contain a provision which provides for greater individual liability of our directors and officers.
Our Articles of Incorporation include provisions for limiting liability of our directors and officers under certain circumstances and for permitting indemnification of directors, officers and certain other persons, to the maximum extent permitted by applicable Nevada law, including that:
|
·
|
no director or officer is individually liable to us or our stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer, provided, that the foregoing clause will not apply to any liability of a director or officer for any act or failure to act for which Nevada law proscribes this limitation and then only to the extent that this limitation is specifically proscribed,
|
|
·
|
any repeal or modification of the foregoing provision will not adversely affect any right or protection of a director existing at the time of such repeal or modification,
|
|
·
|
we are permitted to indemnify our directors, officers and such other persons to the fullest extent permitted under Nevada law.
Our current Bylaws include provisions for the indemnification of our directors, officers and certain other persons, to the fullest extent permitted by applicable Nevada law, and
|
|
·
|
with respect to the limitation of liability of our directors and officers or indemnification of our directors, officers and such other persons, neither any amendment or repeal of these provisions nor the adoption of any inconsistent provision of our Articles of Incorporation, will eliminate or reduce the effect of these provisions, in respect of any matter occurring, or any action, suit or proceeding accruing or arising or that, but for these provisions, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
|
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
General
We have ongoing business relationships with affiliates of our management and principal stockholders.
In particular, we have continuing obligations under the agreements under which we acquired the assets relating to our Clarkdale Slag Project.
We remain obligated to pay a royalty which may be generated from the operations of the Clarkdale Slag Project to Nanominerals, one of our principal stockholders, which is an affiliate of one member of our executive management and board of directors, Carl S. Ager.
We also have engaged Nanominerals as a paid consultant to provide technical services to us.
Further, one of our board members, Robert D. McDougal, serves as the chief financial officer and a director of Ireland Inc., a publicly traded, mining related company, which is an affiliate of Nanominerals. In addition, our President and Chief Executive Officer and a member of our board of directors, serves as a consultant to Ireland Inc.
We also rent office space from Ireland Inc. under a sublease agreement. These persons are subject to a fiduciary duty to exercise good faith and integrity in handling our affairs.
However, the existence of these continuing obligations may create a conflict of interest between us and our board members and senior executive management, and any disputes between us and such persons over the terms and conditions of these agreements that may arise in the future may raise the risk that the negotiations over such disputes may not be subject to being resolved in an arms’ length manner.
In addition, Nanominerals’ interest in Ireland Inc. and its other mining related business interests may create a conflict of interest between us and our board members and senior executive management who are affiliates of Nanominerals.
Although our management intends to avoid situations involving conflicts of interest and is subject to a Code of Ethics, there may be situations in which our interests may conflict with the interests of those of our management or their affiliates.
These could include:
|
·
|
competing for the time and attention of management,
|
|
·
|
potential interests of management in competing investment ventures, and
|
|
·
|
the lack of independent representation of the interests of the other stockholders in connection with potential disputes or negotiations over ongoing business relationships.
|
Although we only have four independent directors, the board of directors has adopted a written Related Person Transactions Policy, that describes the procedures used to identify, review, approve and disclose, if necessary, any transaction or series of transactions in which: (i) we were, are or will be a participant, (ii) the amount involved exceeds $120,000, and (iii) a related person had, has or will have a direct or indirect material interest.
There can be no assurance that the above conflicts will not result in adverse consequences to us and the interests of the other stockholders.
Prior to the adoption of the Related Person Transactions Policy on March 17, 2009, related party transactions were subject to our Code of Ethics, which was adopted July 18, 2006, and an unwritten policy that any transactions with related persons would be approved of by a majority of our independent, disinterested directors, and would comply with the Sarbanes Oxley Act and other securities laws and regulations.
However, we did not have any independent directors until October 2008.
At any point at which we did not have independent directors on our board, any transactions with related persons were approved of by a majority of our then disinterested directors.
The following is a description of related party transactions in the two most recent fiscal years ended December 31, 2013.
Transactions with Nanominerals Corp. and Affiliates
General.
Nanominerals is a private Nevada corporation principally engaged in the business of mineral exploration.
Nanominerals does not have any employees and relies on third party consultants for the provision of services.
Nanominerals is one of our principal stockholders.
Dr. Ager and Mrs. Ager, collectively own 35% of the outstanding common stock of Nanominerals.
One of our executive officers and directors, Carl S. Ager, and our former President and Chief Executive Officer, Ian R. McNeil, are stockholders of Nanominerals, but neither currently serves as an officer, director or employee of Nanominerals.
Messrs. Ager and McNeil each own 17.5% of the issued and outstanding shares of common stock of Nanominerals, representing an aggregate of 35% of the outstanding common stock of Nanominerals.
Dr. Ager currently is the sole officer and director of Nanominerals, and controls its day to day operations.
Further, Mr. Ager has given an irrevocable proxy to Dr. Ager to vote his shares of Nanominerals during the time that Mr. Ager serves as one of our directors or executive officers.
Dr. Ager has sole voting and investment powers over the 16,400,000 shares and 216,374 common stock purchase warrants owned by Nanominerals.
Messrs. Ager and McNeil are the son and son-in-law, respectively, of Dr. Ager and Mrs. Ager.
Dr. Ager, Mr. Ager and Mr. McNeil may be considered promoters of the Company by virtue of their positions in the Company and Nanominerals.
Nanominerals is the principal stockholder of another publicly traded mining company (Ireland Inc.) and has other mining related business interests which may create a conflict of interest between us and our board members and senior executive management who are affiliates of Nanominerals.
Consulting Arrangement with Nanominerals
.
Nanominerals provides us with the use of its laboratory, instrumentation, milling equipment and research facilities which has allowed us to perform tests and analysis both effectively and in a more timely manner than would otherwise be available from other such consultants.
We believe that Nanominerals’ knowledge and understanding of the science and technology in our business, along with its understanding of how to implement our business plan in a practical manner, has made Nanominerals an important part of our technical team.
Dr. Ager performs the services for us in his authorized capacity with Nanominerals under our consulting arrangement with Nanominerals.
Nanominerals also engages the services of outside technical consultants to perform the services for us, depending on the specific goal of a particular project.
Some of our consultants have worked directly with Nanominerals in an ongoing manner and performed day-to-day work and tests.
The consulting services provided by Nanominerals are highly specialized and unique to the mineral exploration industry, and there is a limited number of experts that can perform these types of services.
We currently do not rely solely on Nanominerals to provide us with technical expertise to guide the project technically.
However, Nanominerals continues to be an important consultant to assist us with our technical challenges.
The services provided by Nanominerals include:
|
·
|
SEM/EDS Studies
:
Nanominerals uses SEM/EDS to identify the minerals (gold, silver, copper and zinc) in the slag material and understand the physical make-up of the slag.
This information has provided us with an understanding how to potentially liberate the minerals from the slag material by mechanical methods (grinding).
This type of work is highly specialized and very unique to the mineral exploration industry.
|
|
·
|
Grinding Studies
:
Looking at the ground material again using SEM/EDS, Nanominerals has assisted us in testing a number of different grinders and variables (size of material fed to grinder, grinding time, etc.) to find the best way to mechanically liberate and expose the minerals within the slag material.
Without mechanical liberation, the chemicals used in the extraction process (leaching) cannot perform.
Therefore, grinding is a crucial step in the overall processing of the slag material.
The unique nature of the slag material (i.e. it is very hard and abrasive and the minerals are entombed within the slag) makes the proper grinding of the slag material very difficult.
Grinding and crushing are commonly used in the mining industry.
|
|
·
|
Analytical and Extraction Studies
: Nanominerals has provided us the use of its laboratory, instrumentation, milling equipment and research facilities and has performed (and continues to perform) analytical and extraction studies for the presence of gold, silver, copper and zinc in the slag material.
Nanominerals has tested different variables (chemicals, pH, ORP, machines, instruments, etc.) to attempt to determine the most effective methods to analyze and extract the desired metals.
|
|
·
|
Flow Sheet Development
:
Nanominerals, in conjunction with our technical team and consultants, helps to developed a flow sheet for the Clarkdale Project to attempt to determine methods to process the slag material on a large scale, and continues to assist us in determining the most effective methods used in the process of extracting metals from the slag material.
|
|
·
|
Financings
:
Nanominerals has introduced us to investors and potential investors which have led to participation in our previous financings.
Nanominerals has also provided assistance to us when potential financiers performed technical due diligence on our projects, including making technical presentations to potential investors.
We have not provided special fees to Nanominerals in connection with such financings.
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We commenced our consulting arrangement with Nanominerals in 2005 following the completion of the Assignment Agreement relating to the Clarkdale Slag Project.
In 2005, we only reimbursed Nanominerals for technical expenses.
However, in 2006, we began to pay Nanominerals the $30,000 monthly fee, plus expense reimbursement due to the significant amount of work that Nanominerals was performing for us.
This consulting arrangement was approved by the board, including our former director K. Ian Matheson, who has never had a direct or indirect financial interest in Nanominerals.
The board initially determined that $30,000 per month fee was a reasonable rate for Nanominerals based on several factors:
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the technical services provided by Nanominerals were highly specialized and required scientists with significant experience in mining, metallurgy and chemistry.
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we required a significant amount of time to be devoted to our projects (most importantly at Clarkdale).
Nanominerals was available to us nearly every day (at least 100 hours per month).
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Nanominerals had available resources, such as outside scientific contacts whom the consultant could use to perform specific work (i.e. SEM specialists, metallurgists in certain specialized fields, etc.).
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Nanominerals had instrumentation and laboratory facilities at its disposal, either to be able to prepare or provide technical presentations and coordinate technical due-diligence presentations to prospective investors.
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Nanominerals was willing to provide the services to us on a month-to-month with the ability to terminate at any time.
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Given the time commitment that we required and the general market rate for qualified consultants of approximately $500 per hour, anticipated monthly fees for the services that Nanominerals was to perform were estimated to be a minimum of $50,000.
Given these criteria, we believe that engaging Nanominerals to perform these services at the $30,000 monthly rate, plus expense reimbursement, has provided an advantage to us over other technical consultants.
Until August 31, 2010, we paid Nanominerals a $30,000 per month fee, together with expense reimbursement and some expenses, to cover their services.
The monthly fee was reduced to $17,500 on September 1, 2010, and was further reduced to $15,000 on October 1, 2010. Effective January 1, 2011, we agreed to replace the monthly fee with an advance royalty payment of $15,000 per month and to reimburse Nanominerals for actual expenses incurred.
During the years ended December 31 2012 and 2013, we utilized the services of Nanominerals to provide technical assistance and financing related activities primarily to the Clarkdale Slag Project and Searchlight Gold Project.
In addition, Nanominerals provided us with the use of its laboratory, instrumentation, milling equipment and research facilities.
For the year ended December 31, 2012, we incurred total advanced royalty payments, consulting fees and reimbursement of expenses to Nanominerals of $180,000, $53,400 and $8,095, respectively.
$15,000 was due to Nanominerals as of December 31, 2012. For the year ended December 31, 2013, we incurred total advanced royalty payments, consulting fees and reimbursement of expenses to Nanominerals of $180,000, $59,140 and $4,842, respectively.
$37,896 was due to Nanominerals as of December 31, 2013.
Transactions with Verde River Iron Company and Harry B. Crockett
Under the terms of a letter agreement, dated November 22, 2006 and as amended on February 15, 2007, with VRIC, Harry B. Crockett and Gerald Lembas, and an Agreement and Plan of Merger with VRIC and Transylvania, dated and completed on February 15, 2007, we acquired all of the outstanding shares of Transylvania from VRIC through the merger of Transylvania into our wholly-owned subsidiary, Clarkdale Minerals LLC, a Nevada limited liability company. VRIC is an affiliate of one of our principal stockholders, Marcia Crockett, who is the widow of one of our former board members, Harry B. Crockett.
As a result of the merger, we own title to the approximately 200 acre property underlying a slag pile located in Clarkdale, Arizona from which we are seeking to recover base and precious metals through the reprocessing of slag material, approximately 600 acres of additional land adjacent to the project property and a commercial building in the town of Clarkdale, Arizona.
In accordance with the terms of these agreements, we: (i) paid $10,100,000 in cash to VRIC, and (ii) issued 16,825,000 shares of our common stock to Harry B. Crockett and Gerald Lembas, the equity owners of VRIC, and certain designates of VRIC under the agreements, who are not our affiliates.
The $10,100,000 cash payment to VRIC consisted of (i) $9,900,000 in connection with the acquisition of Transylvania and (ii) $200,000 paid to VRIC for an option to enter into the reorganization with Transylvania.
Under the terms of our 2007 agreements to acquire Transylvania with VRIC, we have the following continuing obligations:
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we agreed to continue to pay VRIC $30,000 per month (which amount we had previously paid to VRIC under the Joint Venture Agreement since June 2005) until the earlier of: (i) the date that is 90 days after we receive a bankable feasibility study, or (ii) the tenth anniversary of the date of the execution of the letter agreement,
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we have agreed to pay VRIC $6,400,000 within 90 days after we receive a bankable feasibility study,
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we have agreed to pay VRIC a minimum annual royalty of $500,000, commencing 90 days after we receive a bankable feasibility study, and an additional royalty consisting of 2.5% of the “net smelter returns” on any and all proceeds of production from the Clarkdale Slag Project.
The minimum royalty remains payable until the first to occur of: (1) the end of the first calendar year in which the percentage royalty equals or exceeds $500,000, or (2) February 15, 2017.
In any calendar year in which the minimum royalty remains payable, the combined minimum royalty and percentage royalty will not exceed $500,000, and
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we have agreed to pay VRIC an additional amount of $3,500,000 from the net cash flow of the Clarkdale Slag Project after such time that we have constructed and are operating a processing plant or plants that are capable of processing approximately 2,000 tons of slag material per day at the Clarkdale Slag Project.
The acquisition agreement does not include a specific provision with respect to the periods at the end of which “net cash flow” is measured, once the production threshold has been reached.
Therefore, the timing and measurement of specific payments may be subject to dispute.
The parties intend to negotiate a clarification of this provision in good faith before the production threshold has been reached.
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We have recorded a liability for the $30,000 monthly payment commitment using imputed interest based on our best estimate of our incremental borrowing rate.
The effective interest rate used was 8.00%, resulting in an initial present value of $2,501,187 and a debt discount of $1,128,813.
The expected term used was ten years, which represents the maximum term the VRIC liability is payable if the Project Funding Date does not occur by the tenth anniversary of the date of the execution of the letter agreement.
We paid $1,050,000 to VRIC from February 15, 2007 (the acquisition date) through December 31, 2010, which included $753,334 of principal and $656,666 of interest.
At December 31, 2010, the balance of the principal obligation owing under the letter agreement was $1,747,853.
Actual payments made under the letter agreement from January 1, 2012 through December 31, 2013 were made as follows:
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Amount
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Amount
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Total
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Applied to
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Applied to
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Payments
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Interest
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Principal
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Balance
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At 12/31/11:
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$
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1,519,426
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Quarter Ended 3/31/12
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90,000
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29,990
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60,010
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1,459,416
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Quarter Ended 6/30/12
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90,000
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28,782
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61,218
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1,398,198
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Quarter Ended 9/30/12
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90,000
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27,549
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62,451
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1,335,747
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Quarter Ended 12/31/12
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90,000
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26,292
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63,708
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1,272,040
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2012 Totals
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$
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360,000
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$
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112,614
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$
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247,387
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$
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1,272,040
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Quarter Ended 3/31/13
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90,000
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25,009
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64,991
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1,207,049
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Quarter Ended 6/30/13
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90,000
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23,701
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66,299
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1,140,750
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Quarter Ended 9/30/13
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90,000
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22,366
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67,634
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1,073,116
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Quarter Ended 12/31/13
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90,000
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21,005
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68,995
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1,004,121
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2013 Totals
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$
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360,000
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$
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92,081
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$
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267,919
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$
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1,004,121
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Other than the total $30,000 monthly payment, which includes imputed interest as set forth in the table above, we have accounted for the payments that are dependent upon future events as contingent payments.
Upon meeting the contingency requirements described above, the purchase price of the Clarkdale Slag Project will be adjusted to reflect the additional consideration.
Transactions with Affiliate of our Chief Financial Officer
During the years ended December 31, 2013 and 2012, we utilized the accounting firm of Cupit, Milligan, Ogden & Williams, an affiliate of Melvin L. Williams, our Chief Financial Officer, to provide accounting support services.
We incurred total fees to Cupit Milligan of $141,261 and $128,196 for the years ended December 31, 2013 and 2012, respectively.
Additionally, in the year ended December 31, 2013, we incurred and capitalized an additional $5,085 of CMOW fees. Such fees were capitalized as deferred issuance fees. At December 31, 2013, we had an outstanding balance due to the firm of $8,639. No amounts were due to the firm as of December 31, 2012. These accounting support services included bookkeeping input for Clarkdale facility, assistance in preparing working papers for quarterly and annual reporting, and preparation of federal and state tax filings.
These expenses do not include any fees for Mr. Williams’ time in directly supervising the support staff.
Mr. Williams’ compensation has been provided in the form of salary.
The direct benefit to Mr. Williams of the above Cupit, Milligan fees was $66,441 and $49,996 for the years ended December 31, 2013 and 2012, respectively.
Transactions with Ireland Inc.
We lease corporate office space under a sublease agreement with Ireland Inc. (“Ireland”). NMC is a shareholder in both the Company and Ireland. Additionally, one of our directors is the CFO, Treasurer and a director of Ireland and our CEO provides consulting services to Ireland. The lease agreement commenced September 1, 2013, is for a 2 year period and requires monthly lease payments of $2,819 for the first year and $1,667 for the second year. The lease agreement did not require payment of a security deposit.
Total rent expense incurred under this sublease agreement was $11,276 for the year ended December 31, 2013. No amounts were due to Ireland as of December 31, 2013.
Transactions with Luxor Capital Group, L.P.
On September 18, 2013, we completed a private placement (the “Offering”) of secured convertible notes (the “Notes”) to certain investors (collectively, the “Purchasers”), resulting in aggregate gross proceeds to us of $4,000,000.We intend to use the proceeds from the Offering for general working capital purposes. We did not pay any commissions or brokers fees in connection with the Offering.
Luxor Capital Group, LP and certain of its associates and affiliates (collectively, “Luxor”) purchased $2,600,000 of the Notes in the Offering. Luxor and certain other funds managed by Luxor are principal stockholders of the Company. Michael Conboy, one of our directors, currently serves as Luxor’s Director of Research. The Notes were issued in reliance on exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D thereunder.
In connection with the Offering, we entered into certain agreements, including a Secured Convertible Note Purchase Agreement (the “Purchase Agreement”), a Registration Rights Agreement (the “Registration Rights Agreement”) and a Pledge and Security Agreement (the “Security Agreement”), each dated September 18, 2013, with the Purchasers (the Purchase Agreement, Registration Rights Agreement and Security Agreement, together with all exhibits, schedules and other documents attached thereto, are collectively referred to herein as the “Transaction Documents”). Our two wholly-owned subsidiaries, Clarkdale Metals Corp. and Clarkdale Minerals, LLC, agreed to guarantee the obligations underlying the Notes. We and our subsidiaries granted a first priority lien in all of our assets pursuant to the terms of the Security Agreement. The Bank of Utah has agreed to act as the collateral agent under the Security Agreement.
The Notes contain the following terms and conditions: The Notes are due five (5) years from the date of issuance. However, the Note holders have a put option with respect to the Notes, on the second anniversary of the issuance date and every six (6) months thereafter, at par plus accrued and unpaid interest. The Notes may not be prepaid without the consent of the holders of the majority-in-interest of the Notes. The Notes have customary provisions relating to events of default.
Interest on the Notes accrues at a rate of 7% per annum, which will be payable in cash semi-annually.
Following and during the continuance of an event of default, the Notes will bear interest at a rate per annum equal to the rate otherwise applicable thereto, plus an additional 2% per annum.
Each Note is convertible at any time while the Note is outstanding, at the option of the holder, into shares of our common stock, at $0.40 per share. The Notes have customary anti-dilution provisions, including, without limitation, provisions for the adjustment to the exercise price based on certain stock dividends and stock splits. In addition, the conversion price of the Notes may require adjustment upon the issuance of equity securities (including the issuance of debt convertible into equity) by us at prices below the then existing conversion price, subject to certain exempt issuances which will not result in an adjustment to the exercise price.
The Notes are secured by a first priority lien on all of our assets and our two subsidiaries in favor of the Purchasers. However, we have the right to cause defeasance of the liens and to reduce the interest rate on the Notes to 4% per annum, if, at any time, we deposit additional collateral and other agreements, satisfactory to the holders of the majority-in-interest of the Notes, with the collateral agent.
We have agreed to not incur any (a) additional secured indebtedness, or (b) indebtedness of any kind (unsecured or secured) with a maturity of less than 5 years from the issuance date of the Notes, in each case, without the written consent of the holders of the majority-in-interest of the Notes, except for purposes of defeasance or trade payables in the ordinary course of business.
In connection with the Offering, our board of directors agreed to waive certain provisions of our Rights Agreement, dated November 12, 2009, with respect to accounts managed by Luxor. In connection with the Rights Agreement, the Board of Directors previously declared a dividend of one common share purchase right for each outstanding share of our common stock. The rights become exercisable, under certain circumstances, in the event that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of our common stock (an “acquiring person”).
In connection with the Offering, we agreed to waive the 15% limitations currently in the Rights Agreements with respect to Luxor, and to allow Luxor to become the beneficial owners of up to 22% of the shares of our common stock, without being deemed to be an “acquiring person” under the Rights Agreement.
On June 7, 2012, we completed a private placement (the “Offering”) of our securities to certain investors, (collectively, the “Purchasers”), which consisted of Luxor Capital Partners, L.P. and certain other funds with respect to which Luxor Capital Group, LP (“Luxor”) acts as investment manager. The Purchasers and certain other funds managed by Luxor are principal stockholders of ours.
In the Offering, we sold 4,500,000 shares of our common stock at a purchase price of $0.90 per share, resulting in aggregate gross proceeds to us of $4,050,000.
In connection with the Offering, we entered into a securities purchase agreement (the “Purchase Agreement”), and a registration rights agreement (the “Registration Rights Agreement”), each dated June 7, 2012, with the Purchasers.
Pursuant to the Registration Rights Agreement, we have agreed to file a registration statement covering the resale of the shares of common stock issued to the Purchasers in the Offering. Pursuant to the Registration Rights Agreement, we have agreed to file a registration statement with the Securities and Exchange Commission within 60 calendar days upon demand by the Purchasers and to use our best efforts to cause such registration statement to become effective within 120 calendar days after the filing date of such registration statement, or we will be subject to certain liquidated damages provisions. We also have agreed to file and keep continuously effective such additional registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume restrictions pursuant to Rule 144 of the Securities Act. The Purchasers will also be granted piggyback registration rights with respect to such shares.
If, among other things, (i) we fail to file the initial registration statement within the prescribed period or (ii) any registration statement that we file is not declared effective within 120 calendar days of the required filing date, we have agreed to pay to each Purchaser, as partial liquidated damages, an amount in cash equal to 1% of the aggregate purchase price paid by each such Purchaser for any shares of common stock that have not then been registered for every monthly period following any required filing date and, on a pro rata basis, for every monthly period following the 120 day period within which any registration statement was to be declared effective. The maximum aggregate liquidated damages payable to a Purchaser will not exceed 3% of the aggregate purchase price paid by such Purchaser.
In connection with the Offering, our board of directors agreed to waive certain provisions of our Rights Agreement, dated November 12, 2009, with respect to accounts managed by Luxor. In connection with the Rights Agreement, the Board of Directors previously declared a dividend of one common share purchase right for each outstanding share of our common stock. The rights become exercisable, under certain circumstances, in the event that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of our common stock (an “acquiring person”).
In connection with the Offering, we agreed to waive the 15% limitations currently in the Rights Agreements with respect to Luxor, and to allow Luxor to become the beneficial owners of up to 17.5% of the shares of our common stock, without being deemed to be an “acquiring person” under the Rights Agreement.
We believe that all transactions with our affiliates have been entered into on terms no less favorable to us than could have been obtained from independent third parties.
We intend that any transactions with officers, directors and 5% or greater stockholders will be on terms no less favorable to us than could be obtained from independent third parties.
We currently only have four independent directors and the existence of these continuing obligations to our affiliates may create a conflict of interest between us and certain of our board members and senior executive management, and any disputes between us and such persons over the terms and conditions of these agreements that may arise in the future may raise the risk that the negotiations over such disputes may not be subject to being resolved in an arms’ length manner.
We intend to make good faith efforts to recruit additional independent persons to our board of directors.
We intend that any transactions with our affiliates will be approved by a majority of our independent, disinterested directors and will comply with the Sarbanes Oxley Act and other securities laws and regulations.