7. SHAREHOLDERS’ EQUITY

CAPITAL STOCK Authorized Unlimited Common Shares 7,000,000 Class B Preferred Shares with a par value of $1.00

1987 1986 (in thousands) Issued

15,805,287 Common Shares (1986 - 10,149,107 shares) $ 46,812 $ 39,903 NIL Class A Preferred Shares (1986 - 3,500,000 shares) = 3,500 7,000,000 Class B Preferred Shares 7,000 7,000 53,812 50,403 Commitment to issue 145,833 common shares 350 — 54,162 50,403 DEFICIT (12,826) (15,591) Shareholders’ Equity $ 41,336 $ 34,812

Common Shares

During 1987, a total 1,640,879 of Series II Warrants were exercised for cash proceeds of $2,461,318. For payment of $1.50, the holder was issued one Common Share of the Company on a flow-through basis entitling him to certain deductions for income tax purposes (a “Flow- Through Common Share’).

Also during 1987, 171,428 Flow-Through Common Shares were issued for $300,000 which was used for Canadian mineral exploration activities.

1,500,000 Common Shares have been reserved for directors, officers and employee stock op- tions. Options on 1,411,000 shares have been granted at prices ranging from $1.05 to $2.10 per share and are exercisable at varying dates up to May 1991. During 1987, options on 42,000 shares were exercised at $1.05 per share (1986 - 9,000) and options on 57,000 shares were cancelled as a result of terminations.

Preferred Shares

(a) During 1987 3,500,000 Class A Preferred Shares were converted to 3,500,000 Common shares in accordance with their conversion privilege.

(b) During 1987 amendments to the Articles were approved to change the Class B Preferred Shares from being non-cumulative, redeemable, retractable and non-convertible. Currently the Class B Preferred Shares entitle the holders to a 10% cumulative annual dividend. If a dividend on Class B Preferred Shares is to be paid in Common Shares, the Common Shares to be issued are valued at the greater of $2.40 (1986 - $2.00) per share and the average closing price for the last three trading days before the declaration of dividend (see “Dividends” below). The Class B Preferred Shares may be redeemed at $1.00 per share after July 31, 1992. During the period from July 31, 1990 to July 31, 1992 the Class B Preferred Shares are redeemable for a price of $1.00 per share if the closing price per Common Share on a recognized stock exchange throughout a 20-trading day period not more than 90 days preceding the day on which notice of redemption is given is not lower than $3.75 per share. Each Class B Pre- ferred Share may up to April 30, 1997, or earlier if the Company calls such shares for redemption, be converted at the option of the holder into one-half of a common share until April 30, 1992 or four-ninths of a common share thereafter. The Class B Preferred Shares are not retractable by the holder.

Dividends

The Company is restricted in paying cash dividend payments in respect to any shares of its capital stock as long as any Preferred Shares of the subsidiary held by the bank are out- standing. In the event that the Company is unable to pay a dividend in cash, the dividend is satisfied by the issuance of Common Shares. In February 1987, 301,935 Common Shares were issued in payment of dividends totalling $603,870 which were payable on the Class A and Class B shares for the period ending May 9, 1986 in accordance with attributes of those shares at that time.

The Class B Preferred Shares became cumulative as to dividends on July 1, 1987 and the Board of Directors has declared the dividend for the latter half of 1987. 145,833 shares were issued in January 1988 to meet this obligation of $350,000

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