Notice and Management Information Circular

Transcription

These materials are important and require immediate attention as they require Galway Securityholders to make important
decisions. If as a Galway Securityholder you are in doubt as to how to make such decisions, please contact your financial, legal,
tax or other professional advisors. If you have questions, you may contact Galway’s proxy solicitation agent and depositary,
Kingsdale Shareholder Services Inc., by toll-free telephone in North America at 1-866-581-0512, collect call outside of North
America at 1-416-867-2272 or by email at [email protected].
ARRANGEMENT INVOLVING
GALWAY RESOURCES LTD.
AND
AUX ACQUISITION 2 S.À R.L.
AND
AUX CANADA ACQUISITION 2 INC.
AND
GALWAY METALS INC.
AND
GALWAY GOLD INC.
The Board of Directors unanimously recommends that you vote
IN FAVOUR
of the Arrangement Resolution
NOTICE AND MANAGEMENT INFORMATION CIRCULAR FOR
SPECIAL MEETING
TO BE HELD ON DECEMBER 17, 2012
NOVEMBER 16, 2012
Neither the TSX Venture Exchange nor any securities regulatory authority has in any way passed upon the merits of the plan of arrangement
described in this Management Information Circular.
If you have any questions or need assistance, please contact Kingsdale Shareholder Services Inc. at 1-866-581-0512 toll-free in North America,
or 1-416-867-2272 outside of North America (collect calls accepted), or by email at [email protected].
November 16, 2012
Dear Galway Securityholders:
The board of directors (“Galway Board”) of Galway Resources Ltd. (“Galway”) cordially invites you to
attend the special meeting (“Meeting”) of the holders (“Galway Shareholders”) of common shares (“Galway
Shares”) and the holders (“Galway Warrantholders”) of common share purchase warrants (“Galway Warrants”)
issued pursuant to a warrant indenture dated January 13, 2011 between Galway and Computershare Trust Company
of Canada, to be held commencing at 10:00 a.m. (Toronto time) on December 17, 2012 at the offices of Stikeman
Elliott LLP, 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1B9.
At the Meeting, Galway Shareholders and Galway Warrantholders (collectively, the “Galway
Securityholders”) will be asked to consider and, if deemed advisable, to pass a special resolution (the
“Arrangement Resolution”), voting as a single class, approving a statutory arrangement pursuant to Section 182 of
the Business Corporations Act (Ontario) whereby AUX Canada Acquisition 2 Inc. (“AUX Canada”) a
wholly-owned subsidiary of AUX Acquisition 2 S.à r.l. (“AUX”) will acquire all of the outstanding common shares
of Galway other than those already owned by AUX or its affiliates, as well as certain related transactions
(collectively, the “Arrangement”).
Under the Arrangement, Galway Shareholders will ultimately receive $2.05 in cash (“Cash
Consideration”), plus a common share of a new public exploration and development company, Galway Metals Inc.
(“Galway Metals”), and a common share of a new public exploration and development company, Galway Gold Inc.
(“Galway Gold”) (“Share Consideration”), in exchange for each Galway Share held by said Galway Shareholder.
Upon closing of the Arrangement, existing Galway Securityholders and optionholders, including AUX Canada and
its affiliates, will hold 90% of Galway Gold and 100% of Galway Metals. The remaining 10% of Galway Gold will
be held indirectly by AUX Canada via its ownership of Galway.
Under the Arrangement, all Galway Warrants outstanding on the Effective Date will be cancelled in
exchange for the number of Galway Shares obtained by dividing (i) the amount, if any, by which: (A) the product
obtained by multiplying the number of Galway Shares underlying such Galway Warrant by $2.05; exceeds (B) the
aggregate exercise price payable under such Galway Warrant to acquire such underlying Galway Shares; by (ii)
$2.05. As the exercise price of each Galway Warrant is $1.50, each Galway Warrant will be exchanged for
approximately 0.26829 Galway Shares which will participate in the Arrangement.
Each of Galway Metals and Galway Gold are expected to be new well-capitalized public exploration and
development companies that will provide Galway Securityholders with the opportunity to participate directly in a
growth-oriented public exploration and development company to be led by much of the current Galway management
team. Galway’s management believes that the creation of Galway Metals and Galway Gold provides a platform to
unlock the intrinsic value of the assets and undeveloped lands to be transferred to Galway Metals and Galway Gold
through organic growth. Galway Metals will be able to focus its attention on its promising Victorio Project, a
molybdenum and tungsten property located in southwestern New Mexico. Galway Gold will be able to focus its
attention on its promising Vetas Project, consisting principally of the Reina de Oro and Coloro gold properties
located in northeastern Colombia. Galway’s management also believes that each of Galway Metals and Galway
Gold will benefit from a proven management team with a demonstrated track record of making large resource
discoveries, raising equity and creating shareholder value.
Following the completion of the Arrangement, Galway Metals will own 100% of Galway’s interest in the
Victorio Project. Galway Metals will be initially capitalized with approximately U.S.$12 million of working capital
transferred from Galway, which Galway management believes will allow for the continued development of such
assets and properties.
Following the completion of the Arrangement, Galway Gold will own a 100% interest in Galway’s Vetas
Project. Galway Gold will be initially capitalized with approximately U.S.$18 million of working capital transferred
from Galway, which Galway management believes will allow for the continued development of such assets and
properties.
Each of Galway Metals and Galway Gold has applied to list its shares on the TSX Venture Exchange (the
“TSX-V”). Listing is subject to each of Galway Metals and Galway Gold independently fulfilling all of the
requirements of the TSX-V. If listing approval is ultimately obtained for each of Galway Metals and Galway Gold,
trading in the Galway Metals Shares and Galway Gold Shares is expected to commence shortly after the delisting of
the Galway Shares from the TSX-V.
The Galway Board has determined that the consideration being offered pursuant to the Arrangement is fair
to Galway Shareholders and Galway Warrantholders and that the Arrangement is in the best interests of Galway.
The Galway Board recommends that Galway Securityholders vote in favour of the Arrangement Resolution. The
recommendation of the Galway Board is based on various factors, including the opinion of National Bank Financial,
financial advisor to Galway, to the effect that, as of the date of such opinion, the offered consideration of $2.05 in
cash, plus a common share of Galway Metals and a common share of Galway Gold for each Galway Share offered
pursuant to the Arrangement was fair, from a financial point of view, to Galway Shareholders, other than AUX and
its affiliates and associates.
To be effective, the Arrangement Resolution must be approved by an affirmative vote of (i) at least 662/3%
of the votes cast by all Galway Securityholders, present in person or represented by proxy at the Meeting, which
holders are entitled to one vote for each Galway Share and Galway Warrant held, and (ii) at least a simple majority
of the votes cast by Galway Securityholders, present in person or represented by proxy at the Meeting, after
excluding votes cast in respect of Galway Shares held by Mr. Robert Hinchcliffe, President and Chief Executive
Officer of Galway, whose votes may not be included in determining minority approval pursuant to Multilateral
Instrument 61-101 – Protection of Minority Security Holders In Special Transactions. The Arrangement is also
subject to certain conditions and the approval of the Ontario Superior Court of Justice.
The accompanying notice of special meeting and management information circular (the “Circular”)
provide a full description of the Arrangement and include certain additional information to assist you in considering
how to vote on the Arrangement Resolution. You are encouraged to consider carefully all of the information in the
accompanying Circular. If you require assistance, you should consult your financial, legal or other professional
advisors.
Your vote is important regardless of the number of Galway Shares or Galway Warrants you own. If
you are a registered holder of Galway Shares or Galway Warrants (“Registered Holder”), we encourage you
to take the time to complete, sign, date and return the enclosed form of proxy (printed on white paper for
Galway Shareholders and on yellow paper for Galway Warrantholders) in the envelope provided by no later
than 10:00 a.m. (Toronto time) on December 13, 2012, or no later than 48 hours (excluding Saturdays, Sundays
and statutory holiday) prior to the time to which the Meeting is adjourned or postponed, to ensure that your Galway
Shares or Galway Warrants, as applicable, will be voted at the Meeting in accordance with your instructions,
whether or not you are able to attend in person. If you hold both Galway Shares and Galway Warrants please
complete both a white and a yellow proxy. If you hold your Galway Shares or Galway Warrants through a broker or
other intermediary (“Non-Registered Holder”), you should follow the instructions provided by your broker or other
intermediary to vote your Galway Shares or Galway Warrants.
Also enclosed is a letter of transmittal (printed on blue paper for Galway Shareholders and on pink paper
for Galway Warrantholders) containing complete instructions on how a Registered Holder may deposit their Galway
Shares and Galway Warrants. We encourage Galway Shareholders and Galway Warrantholders to complete, sign,
date and return their enclosed letter of transmittal in accordance with the instructions set out therein and in the
Circular, to Kingsdale Shareholder Services Inc. (the “Depositary”), so that if the Arrangement is completed, the
Cash Consideration and Share Consideration to which you are entitled can be sent to you as soon as possible
following completion of the Arrangement. The letter of transmittal contains complete instructions on how to
exchange the certificate(s) representing your Galway Shares and/or Galway Warrants and receive your Cash
Consideration and Share Consideration under the Arrangement. Please return the properly completed documents,
including the letter of transmittal, to Kingsdale Shareholder Services Inc., The Exchange Tower, 130 King Street
West, Suite 2950, Toronto, Ontario, M5X 1E2. If you have any questions regarding the deposit of your Galway
Shares and/or Galway Warrants, please contact the Depositary at 1-866-581-0512, or by email at
[email protected]. Further information with respect to the Depositary is set forth in the letter of
transmittal. In order for you to receive your entitlement as soon as possible after the closing of the Arrangement,
kindly submit your Galway Shares and/or Galway Warrants and letter of transmittal.
Galway Securityholders will not receive their Cash Consideration or Share Consideration until the
Arrangement is completed and they have returned their properly completed documents, including the letter of
transmittal and share certificates representing their Galway Shares and/or warrant certificates representing their
Galway Warrants.
If you hold Galway Shares and/or Galway Warrants through a broker, investment dealer, bank, trust
company or other intermediary, you should follow the instructions provided by your intermediary to ensure your
vote is counted at the Meeting (see the section in the accompanying Circular entitled “Information Concerning the
Meeting” for further information on how to vote your Galway Shares and/or Galway Warrants) and you should
arrange for your intermediary to complete the necessary transmittal documents prior to the Effective Date to ensure
that you receive consideration for your Galway Shares if the proposed Arrangement is completed.
Subject to obtaining court approval and satisfying all other conditions of closing, including obtaining the
approval of the Galway Securityholders, it is anticipated that the Arrangement will be completed in December 2012.
If you have any questions relating to the Arrangement, please contact Kingsdale Shareholder Services Inc.
at 1-866-581-0512, or by email at [email protected], or please contact Galway at
1-800-475-2412.
As the President and Chief Executive Officer of Galway and on behalf of the Galway Board, I would like
to thank all Galway Securityholders for their continued support as we prepare for this important event in the history
of Galway.
Yours very truly,
(Signed) “Robert Hinchcliffe”
Director, President and Chief Executive Officer
Notice of Special Meeting
NOTICE IS HEREBY GIVEN that the special meeting (the “Meeting”) of the holders (“Galway
Shareholders”) of common shares (“Galway Shares”) of Galway Resources Ltd. (“Galway”) and the holders
(“Galway Warrantholders”) of common share purchase warrants (“Galway Warrants”) issued pursuant to a
warrant indenture dated January 13, 2011 between Galway and Computershare Trust Company of Canada, will be
held commencing at 10:00 a.m. (Toronto time) on December 17, 2012 at the offices of Stikeman Elliott LLP, 5300
Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1B9 for the following purposes:
(a)
for the Galway Shareholders and Galway Warrantholders (collectively, the “Galway Securityholders”) to
consider and, if deemed advisable, approve, voting as a single class, with or without variation a special
resolution (the “Arrangement Resolution”) in the form set out in Appendix A to the accompanying
management information circular (the “Circular”) authorizing a proposed arrangement (the
“Arrangement”) involving an arrangement under section 182 of the Business Corporations Act (Ontario),
which involves, among other things, the acquisition of all of the Galway Shares by AUX Canada
Acquisition 2 Inc., a subsidiary of AUX Acquisition 2 S.à r.l.;
(b)
for the Galway Shareholders to consider and, if deemed advisable, approve, with or without variation, an
ordinary resolution approving the adoption by Galway Metals Inc. of a rolling 10% stock option plan (the
“Galway Metals Stock Option Plan”) subject to regulatory acceptance, as more fully described in the
accompanying Circular;
(c)
for the Galway Shareholders to consider and, if deemed advisable, approve, to pass, with or without
variation, an ordinary resolution approving the adoption by Galway Gold Inc. of a rolling 10% stock option
plan (the “Galway Gold Stock Option Plan”) subject to regulatory acceptance, as more fully described in
the accompanying Circular; and
(d)
to transact such other business as may properly come before the Meeting or any adjournment or
postponement thereof.
The specific details of the foregoing matters to be put before the Meeting are set forth in the Circular
accompanying this notice.
To be effective, the Arrangement must be approved by an affirmative vote of (i) at least 662/3% of the votes
cast by all Galway Securityholders, present in person or represented by proxy at the Meeting, which holders are
entitled to one vote for each Galway Share and Galway Warrant held, and (ii) at least a simple majority of the votes
cast by Galway Securityholders, present in person or represented by proxy at the Meeting, after excluding votes cast
in respect of Galway Shares held by Mr. Robert Hinchcliffe, President and Chief Executive of Galway, whose votes
may not be included in determining minority approval pursuant to Multilateral Instrument 61-101 – Protection of
Minority Security Holders In Special Transactions. The Arrangement is also subject to certain conditions and the
approval of the Ontario Superior Court of Justice.
This notice is accompanied by the Circular, a form of proxy (printed on white paper for Galway
Shareholders and on yellow paper for Galway Warrantholders) and a letter of transmittal (printed on blue
paper for Galway Shareholders and on pink paper for Galway Warrantholders).
Galway Securityholders who are unable to attend the Meeting in person are requested to complete, date and
sign the enclosed form of proxy and to return it in the envelope provided for that purpose.
The Galway Board has by resolution fixed the close of business on November 5, 2012 as the record date,
being the date for the determination of the registered holders of Galway Shares and Galway Warrants entitled to
notice of and to vote at the Meeting for the matters as set out above and any adjournments or postponements thereof.
If you are a registered holder of Galway Shares or Galway Warrants, to ensure that your vote is recorded,
please return the enclosed form of proxy in the envelope provided for that purpose, properly completed and duly
signed, to Galway’s transfer agent, Computershare Investor Services Inc. (the “Transfer Agent”), Proxy
Department, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1 or vote over the internet or by telephone
by following the instructions included with the form of proxy prior to 10:00 a.m. (Toronto time) on December 13,
2012, or no later than 48 hours (excluding Saturdays, Sundays and statutory holidays) prior to the date on which the
Meeting or any adjournment or postponement thereof is held.
If you hold Galway Shares or Galway Warrants through a broker, investment dealer, bank, trust company
or other intermediary, you should follow the instructions provided by your intermediary to ensure your vote is
counted at the Meeting and arrange for your intermediary to complete the necessary transmittal documents to ensure
that you receive consideration for your Galway Shares and Galway Warrants if the Arrangement is completed.
The voting rights attached to the Galway Shares and Galway Warrants represented by a proxy in the
enclosed form of proxy will be voted in accordance with the instructions indicated thereon. If no instructions are
given, the voting rights attached to such Galway Shares and Galway Warrants will be voted FOR the Arrangement
Resolution and, if applicable, for the adoption of the Galway Metals Stock Option Plan and the Galway Gold Stock
Option Plan.
A registered holder of Galway Shares or Galway Warrants (“Registered Holder”) who has given a proxy
may revoke such proxy by: (a) depositing an instrument in writing executed by such Registered Holder or by such
Registered Holders’ attorney authorized in writing, or, if the Registered Holder is a corporation, by an officer or
attorney thereof duly authorized indicating the capacity under which such officer or attorney is signing (i) at the
Toronto office of the Transfer Agent any time up to and including the last business day preceding the day of the
Meeting or any adjournment or postponement thereof, excluding Saturdays, Sundays and holidays, before any
reconvened Meeting, or (ii) with the scrutineers of the Meeting, addressed to the attention of the Chairman of the
Meeting, prior to the commencement of the Meeting on the day of the Meeting, or where the Meeting has been
adjourned or postponed, prior to the commencement of the reconvened or postponed Meeting on the day of such
reconvened or postponed Meeting, or (b) in any other manner permitted by law.
A non-registered holder of Galway Shares or Galway Warrants who has given voting instructions to a
broker or other intermediary may revoke such voting instructions by following the instructions of such broker or
other intermediary. However, a broker or other intermediary may be unable to take any action on the revocation if
such revocation is not provided sufficiently in advance of the Meeting or any adjournment or postponement thereof.
If you have any questions or need assistance in your consideration of the Arrangement, with the completion
and delivery of your proxy or with submitting your securities to the Arrangement, please contact the proxy
solicitation agent and depositary, Kingsdale Shareholder Services Inc., toll free at 1-866-581-0512 or outside North
America at 1-416-867-2272 collect or by email at [email protected].
DATED at Toronto, Ontario this 16th day of November, 2012.
BY ORDER OF THE BOARD OF DIRECTORS
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE ARRANGEMENT............................................................................. 1
NOTE TO UNITED STATES SHAREHOLDERS ...................................................................................................... 5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ......................................... 7
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES ......................................................................... 10
TECHNICAL INFORMATION .................................................................................................................................. 10
INFORMATION CONTAINED IN THIS CIRCULAR ............................................................................................. 10
INFORMATION PERTAINING TO AUX AND AUX CANADA ........................................................................... 10
SUMMARY ................................................................................................................................................................ 11
The Meeting............................................................................................................................................................. 11
Background to the Arrangement .............................................................................................................................. 11
Recommendation of the Galway Board ................................................................................................................... 11
Reasons for the Arrangement .................................................................................................................................. 12
Interests of Senior Management and Others in the Arrangement ............................................................................ 13
Fairness Opinion ...................................................................................................................................................... 14
Particulars of the Arrangement ................................................................................................................................ 14
Expenses and Termination Fees .............................................................................................................................. 15
Agreements related to the Arrangement .................................................................................................................. 15
Depositary................................................................................................................................................................ 16
Risk Factors ............................................................................................................................................................. 16
Galway Gold Stock Option Plan and Galway Metals Stock Option Plan................................................................ 16
INFORMATION CONCERNING THE MEETING................................................................................................... 17
Purpose of the Meeting ............................................................................................................................................ 17
Date, Time and Place of the Meeting ...................................................................................................................... 17
Record Date ............................................................................................................................................................. 17
Solicitation of Proxies ............................................................................................................................................. 17
Appointment of Proxyholders.................................................................................................................................. 18
Voting by Proxyholder ............................................................................................................................................ 18
Registered Holders .................................................................................................................................................. 18
Beneficial Galway Securityholders ......................................................................................................................... 19
Revocation of Proxies .............................................................................................................................................. 19
Quorum .................................................................................................................................................................... 20
Galway Shares and Galway Warrants Outstanding and Principal Holders ............................................................. 20
THE ARRANGEMENT .............................................................................................................................................. 20
Approval of Arrangement Resolution...................................................................................................................... 20
Background to the Arrangement .............................................................................................................................. 20
Reasons for the Arrangement .................................................................................................................................. 22
Recommendation of the Galway Board ................................................................................................................... 24
Fairness Opinion of National Bank Financial .......................................................................................................... 24
Lock-Up Agreements Relating to the Meeting ........................................................................................................ 25
The Arrangement ..................................................................................................................................................... 26
Interests of Senior Management and Others in the Arrangement ............................................................................ 30
Canadian Securities Laws Considerations ............................................................................................................... 32
United States Securities Laws Considerations ......................................................................................................... 34
Stock Exchange Listings and Reporting Issuer Status ............................................................................................. 35
Galway Securityholder Approval of the Arrangement ............................................................................................ 35
Court Approval of the Arrangement ........................................................................................................................ 36
Dissent Rights of Galway Securityholders .............................................................................................................. 36
(i)
Treatment of Galway Options and Galway Warrants .............................................................................................. 39
Fees, Costs and Expenses ........................................................................................................................................ 40
THE ARRANGEMENT AGREEMENT .................................................................................................................... 40
Support for the Arrangement ................................................................................................................................... 40
Covenants of Galway............................................................................................................................................... 41
Covenants of AUX .................................................................................................................................................. 41
Covenants of Galway Gold ...................................................................................................................................... 42
Conditions Precedent to the Arrangement ............................................................................................................... 42
Representations and Warranties .............................................................................................................................. 44
Non-Solicitation ...................................................................................................................................................... 45
Right to Match ......................................................................................................................................................... 47
Termination of the Arrangement Agreement ........................................................................................................... 47
Termination Fee....................................................................................................................................................... 49
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS.............................................................. 50
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS .................................................... 57
RISK FACTORS ......................................................................................................................................................... 68
Risks Related to the Arrangement ........................................................................................................................... 68
OTHER MATTERS TO BE CONSIDERED AT THE MEETING ............................................................................ 69
INFORMATION CONCERNING GALWAY............................................................................................................ 71
INFORMATION CONCERNING GALWAY METALS ........................................................................................... 71
INFORMATION CONCERNING GALWAY GOLD................................................................................................ 71
AUDITORS ................................................................................................................................................................. 72
INTEREST OF EXPERTS .......................................................................................................................................... 72
AVAILABLE INFORMATION ................................................................................................................................. 72
APPROVAL OF THE BOARD OF DIRECTORS ..................................................................................................... 72
GLOSSARY OF TERMS ............................................................................................................................................ 73
CONSENT OF PRICEWATERHOUSECOOPERS LLP ........................................................................................... 82
CONSENT OF BAKER & MCKENZIE LLP............................................................................................................. 83
CONSENT OF NATIONAL BANK FINANCIAL .................................................................................................... 84
APPENDICES
APPENDIX A
ARRANGEMENT RESOLUTION
APPENDIX B
INFORMATION CONCERNING GALWAY RESOURCES
APPENDIX C
INFORMATION CONCERNING GALWAY METALS
APPENDIX D
INFORMATION CONCERNING GALWAY GOLD
APPENDIX E
PLAN OF ARRANGEMENT UNDER SECTION 182 OF THE BUSINESS CORPORATIONS
ACT (ONTARIO)
APPENDIX F
FAIRNESS OPINION OF NATIONAL BANK FINANCIAL
APPENDIX G
INTERIM ORDER
APPENDIX H
NOTICE OF APPLICATION
APPENDIX I
SECTION 185 OF THE OBCA
( ii )
QUESTIONS AND ANSWERS ABOUT THE ARRANGEMENT
The following is a question and answer summary regarding the Arrangement. This question and answer
summary is not intended to be complete and is qualified in its entirety by the more detailed information contained
elsewhere in this Circular, including its appendices. Capitalized terms used in this question and answer summary
are defined in the Glossary of Terms of this Circular. Galway Securityholders are urged to read this Circular and
its appendices carefully and in their entirety.
Questions
Answers
What am I being asked to vote on at
the Meeting?
At the Meeting, Galway Securityholders will be asked to approve
the Arrangement Resolution, in the form set out in Appendix A
attached to this Circular. The approval of the Arrangement
Resolution will require the affirmative vote of 662/3% of the votes
cast by Galway Securityholders present in person or by proxy at
the Meeting.
Galway Shareholders will also be asked to consider, and if thought
fit, to pass, with or without variation, an ordinary resolution
approving the adoption by Galway Gold and Galway Metals of the
Galway Gold Stock Option Plan and the Galway Metals Stock
Option Plan, respectively, subject to regulatory acceptance.
How is the Arrangement to be
achieved?
The arrangement will be carried out pursuant to the Plan of
Arrangement, in accordance with the provisions of the Business
Corporations Act (Ontario), whereby under the Arrangement,
Galway Shareholders will ultimately receive $2.05 in cash, plus a
common share of a new public exploration and development
company, Galway Metals Inc., and a common share of a new
public exploration and development company, Galway Gold Inc.,
for each Galway Share. Upon closing of the transaction, existing
Galway Securityholders and optionholders, including AUX
Canada and its affiliates, will hold 90% of Galway Gold and 100%
of Galway Metals. The remaining 10% of Galway Gold will be
held indirectly by AUX Canada via its ownership of Galway.
The Galway Warrants held by Galway Warrantholders will be
cancelled in exchange for the number of Galway Shares obtained
by dividing (i) the amount, if any, by which: (A) the product
obtained by multiplying the number of Galway Shares underlying
such Galway Warrant by $2.05; exceeds (B) the aggregate
exercise price payable under such Galway Warrant to acquire such
underlying Galway Shares; by (ii) $2.05. As the exercise price of
each Galway Warrant is $1.50, each Galway Warrant will be
exchanged for approximately 0.26829 Galway Shares which will
participate in the Arrangement.
An arrangement is a corporate reorganization that is supervised
and approved by a court. If the Arrangement is approved at the
Meeting, and the other conditions specified in the Arrangement
Agreement are satisfied, Galway will apply to the Court for a
Final Order approving the Arrangement. If the final order is
granted by the court, Galway and AUX will complete the
1
Questions
Answers
Arrangement shortly thereafter.
Do I have a right of dissent in respect
of the matters to be considered at the
Meeting?
Each Registered Holder is entitled to dissent in respect of the
Arrangement Resolution in the manner provided in section 185 of
the OBCA, as modified or supplemented by the Interim Order and
the Plan of Arrangement.
What am I required to do now?
You should read and carefully consider the information in this
Circular. You should complete, sign and date the form of proxy
and return it in the enclosed return envelope. You may also use a
touch-tone phone to transmit voting choices to the toll free number
given in the form of proxy or log on to the internet at the transfer
agent’s website, www.investorvote.com. If you vote by telephone
or internet, do not return the form of proxy by mail. As well, if
you are a Registered Holder, in order to receive your Cash
Consideration and Share Consideration as soon as possible after
the closing of the Arrangement, kindly deposit your Galway
Shares and/or Galway Warrants with the Depositary using the
enclosed letter of transmittal (printed on blue paper for Galway
Shareholders and on pink paper for Galway Warrantholders).
If you hold Galway Shares or Galway Warrants through a broker,
investment dealer, bank, trust company or other Intermediary, you
should follow the instructions provided by your Intermediary to
ensure your vote is counted at the Meeting and should arrange for
your Intermediary to complete the necessary transmittal
documents to ensure that you receive consideration for your
Galway Shares and Galway Warrants if the Arrangement is
completed.
How do I vote if I am a NonRegistered Holder?
Galway Shares or Galway Warrants beneficially owned by a NonRegistered Holder are registered either: (a) in the name of an
Intermediary that the Non-Registered Holder deals with in respect
of the shares or warrants (Intermediaries include, among others,
banks, trust companies, securities dealers or brokers and trustees
or administrators of self-administered registered retirement
savings plans, registered retirement income funds, registered
education savings plans and similar plans), or (b) in the name of a
clearing agency (such as CDS Clearing and Depository Services
Inc.) of which the Intermediary is a participant. In accordance with
the requirements of National Instrument 54-101 - Communication
with Beneficial Owners of Securities of a Reporting Issuer,
Galway will be distributing copies of the Notice of Meeting, this
Circular and the form of proxy to the clearing agencies and
Intermediaries for onward distribution to Non-Registered Holders.
Intermediaries are required to forward the Meeting Materials to
Non-Registered Holders unless a Non-Registered Holder has
waived the right to receive them. Very often, Intermediaries will
use service companies to forward the Meeting Materials to
2
Questions
Answers
Non-Registered Holders. Generally, Non-Registered Holders who
have not waived the right to receive the Meeting Materials will
either:
(a)
be given a form of proxy which has already been signed by
the Intermediary (typically by a facsimile, stamped
signature), which is restricted as to the number of Galway
Shares or Galway Warrants beneficially owned by the NonRegistered Holder, but which is otherwise not completed.
Because the Intermediary has already signed the form of
proxy, this form of proxy is not required to be signed by the
Non-Registered Holder when submitting the proxy. In this
case, the Non-Registered Holder who wishes to submit a
proxy should otherwise properly complete the form of
proxy and deliver it to the Transfer Agent as set out above;
or
(b)
more typically, be given a form which, when properly
completed and signed by the Non-Registered Holder and
returned to the Intermediary or its service company, will
constitute voting instructions (often called a “voting
information form”) which the Intermediary must follow.
Will my broker vote my Galway
Shares or Galway Warrants for me if
I am a Non-Registered Holder and the
Galway Shares or Galway Warrants
are held in street name by my broker?
A broker will vote the Galway Shares and Galway Warrants held
by you only if you give instructions to your broker on how you
wish to vote. Without instructions, these Galway Shares or
Galway Warrants will not be voted. Galway Securityholders
should instruct their broker to vote their Galway Shares or Galway
Warrants by following the directions provided by their brokers.
When should I return my proxy?
The Galway Board has fixed 10:00 a.m. (Toronto time) on
December 13, 2012, or no later than 48 hours (excluding
Saturdays, Sundays and statutory holidays) prior to the date on
which the Meeting or any adjournment or postponement thereof is
held, as the time before which proxies to be used or acted upon at
the Meeting, or any adjournments or postponements thereof shall
be deposited with the Transfer Agent.
When do I receive the Consideration?
Upon surrender of your certificate(s) representing your Galway
Shares and/or Galway Warrants to the Depositary, together with
the letter of transmittal, duly completed and executed, and such
other documents as may reasonably be required by the Depositary
and the completion of the Arrangement, certificate(s) representing
the Share Consideration and the Cash Consideration to which
Galway Securityholders are entitled will be sent to you by the
Depositary (unless you specify in the letter of transmittal that the
certificate(s) and Cash Consideration be made available at the
Depositary for pick-up by you).
If you are a beneficial holder of Galway Shares and/or Galway
3
Questions
Answers
Warrants, please contact your broker or other Intermediary to
instruct them to deposit your Galway Shares. Your broker should
do so prior to the Meeting in order for you to receive your
entitlement as soon as possible after the closing of the
Arrangement.
When is the Arrangement expected to
close?
The Arrangement is expected to close on or about December 20,
2012, assuming that the required approval by Galway
Securityholders and regulatory approvals have been received by
such time subject to the other terms and conditions set out in the
Arrangement Agreement and the Plan of Arrangement.
To whom can I direct any questions I
may have?
If you have any questions about the Arrangement or how to
exercise your voting rights, please contact Kingsdale Shareholder
Services Inc. toll-free in North America at 1-866-581-0512 or
collect call outside North America at 1-416-867-2272 or by email
at [email protected].
4
NOTE TO UNITED STATES SHAREHOLDERS
The issuance of the Galway Metals Shares and Galway Gold Shares to Galway Securityholders in exchange
for their securities pursuant to the Arrangement has not been and will not be registered under the U.S. Securities
Act, and such securities will be issued in reliance upon the exemption from the registration requirements of the U.S.
Securities Act provided by Section 3(a)(10) thereof, on the basis of approval of the Court. The Court will consider,
among other things, the fairness of the terms and conditions of the Arrangement to Galway Securityholders.
This solicitation of proxies is not subject to the requirements of Section 14(a) of the U.S. Exchange Act.
Accordingly, the solicitation and transactions contemplated in this Circular are made in the United States for
securities of a Canadian issuer in accordance with Canadian corporate and securities laws, and this Circular has been
prepared in accordance with disclosure requirements applicable in Canada. Galway Securityholders in the United
States should be aware that such requirements are different from those of the United States applicable to registration
statements under the U.S. Securities Act and proxy statements under the U.S. Exchange Act.
Information concerning the properties and operations of Galway (and after the Effective Date, Galway
Metals and Galway Gold) has been prepared in accordance with Canadian standards under applicable Canadian
securities laws, and may not be comparable to similar information for United States companies. The terms “Mineral
Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource” and “Inferred Mineral Resource” used in
this Circular are Canadian mining terms as defined in accordance with National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (“NI 43-101”) under guidelines set out in the Canadian Institute of Mining,
Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves adopted by the CIM
Council on November 27, 2010.
While the terms “Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource” and
“Inferred Mineral Resource” are recognized and required by Canadian Securities Laws, they are not defined terms
under standards of the SEC. As such, certain information contained in this Circular concerning descriptions of
mineralization and resources under Canadian standards is not comparable to similar information made public by
U.S. companies subject to the reporting and disclosure requirements of the SEC. An “Inferred Mineral Resource”
has a great amount of uncertainty as to its existence and as to its economic and legal feasibility. It cannot be
assumed that all or any part of an “Inferred Mineral Resource” will ever be upgraded to a higher category. Under
Canadian Securities Laws, estimates of Inferred Mineral Resources may not form the basis of feasibility or other
economic studies. Investors are cautioned not to assume that all or any part of Measured or Indicated Mineral
Resources will ever be converted into Mineral Reserves. Investors are also cautioned not to assume that all or
any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.
In addition, the definitions of “Proven Mineral Reserves” and “Probable Mineral Reserves” under CIM
standards differ in certain respects from the SEC standards.
All audited and unaudited financial statements and other financial information included in this
Circular have been prepared in United States dollars unless otherwise noted, and in accordance with
Canadian GAAP, and are subject to Canadian auditing and auditor independence standards, which differ
from U.S. GAAP and United States auditing and auditor independence standards in certain material
respects. Consequently, such financial statements and other financial information are not comparable in all
respects to financial statements prepared in accordance with U.S. GAAP and that are subject to United States
auditing and auditor independence standards. Likewise, pro forma information concerning the assets of
Galway Metals and Galway Gold have been prepared in accordance with Canadian standards and may not
be comparable in all respects to similar information for United States companies.
Galway Shareholders should be aware that the acquisition of Galway Gold Shares and Galway Metals
Shares pursuant to the Arrangement described herein may have tax consequences both in the United States and in
Canada. See “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income
Tax Considerations”.
5
Galway Securityholders that are U.S. Holders, as defined in “Certain United States Federal Income Tax
Considerations”, should consult their own tax advisors with respect to their own particular circumstances.
The enforcement by investors of civil liabilities under United States federal securities laws may be affected
adversely by the fact that Galway, Galway Metals and Galway Gold are organized under the laws of Canada, that
their officers and directors are, or will be, residents of countries other than the United States, that certain experts
named in this Circular are residents of countries other than the United States, and that all or substantial portions of
the assets of Galway, Galway Metals and Galway Gold and such other persons are, or will be, located outside the
United States. As a result, it may be difficult or impossible for Galway Securityholders in the United States to effect
service of process within the United States upon Galway, Galway Metals and Galway Gold and their directors and
officers, or to realize, against them, upon judgments of courts of the United States predicated upon civil liabilities
under the federal securities laws of the United States or “blue sky” laws of any state within the United States. In
addition, Galway Securityholders in the United States should not assume that the courts of Canada: (a) would
enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities
under the federal securities laws of the United States or “blue sky” laws of any state within the United States; or (b)
would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the federal
securities laws of the United States or “blue sky” laws of any state within the United States.
The Galway Metals Shares and Galway Gold Shares issuable to Galway Shareholders pursuant to the
Arrangement will be freely transferable under U.S. federal securities laws, except by persons who are “affiliates” of
AUX, Galway Metals or Galway Gold after the Arrangement. See “The Arrangement – United States Securities
Law Matters”.
THE SECURITIES ISSUABLE PURSUANT TO THE ARRANGEMENT HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED
STATES, NOR HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY
SUCH STATE REGULATORY AUTHORITY PASSED ON THE ADEQUACY OR ACCURACY OF THIS
CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements, other than statements of historical fact, contained in this Circular, including any
information as to the future financial or operating performance of Galway, Galway Metals and Galway Gold,
constitute “forward-looking statements” within the meaning of certain securities laws, including the “safe harbour”
provisions of the Securities Act (Ontario) and the United States Private Securities Litigation Reform Act of 1995 and
are based on expectations, estimates and projections as of the date of this Circular. These statements relate to future
events or future performance. All statements other than statements of historical fact are forward-looking statements.
Often, but not always, forward-looking statements can be identified by the use of words such as “plans”,
“expects”, “is expected”, “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”,
“intends”, “anticipates” or “believes”, or variations of, or the negatives of, such words and phrases, or state that
certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be
achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause actual results to differ materially from those anticipated in such forward-looking statements. The
forward-looking statements in this Circular speak only as of the date of this Circular or as of the date specified in
such statement.
Specifically, this Circular includes, but is not limited to, forward-looking statements regarding: the
potential of Galway, Galway Metals and Galway Gold’s properties to contain economic gold, molybdenum,
tungsten or other mineral deposits, the timing and amount of estimated future production, costs of production,
expected capital expenditures, expected exploration activities, costs and timing of the development of new deposits,
success of exploration activities, permitting time lines, currency fluctuations, government regulation of mining
operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, matters related to the
completion of the Arrangement, the ability to meet their working capital needs at the current level; the plans, costs,
timing and capital for future exploration and development of their property interests including the costs and potential
impact of complying with existing and proposed laws and regulations; management’s outlook regarding future
trends; prices and price volatility for gold, molybdenum and tungsten; and general business and economic
conditions. Inherent in forward-looking statements are risks, uncertainties and other factors beyond Galway’s
ability to predict or control. These risks, uncertainties and other factors include, but are not limited to, gold,
molybdenum and tungsten price volatility, changes in debt and equity markets, timing and availability of external
financing on acceptable terms, the uncertainties involved in interpreting geological data and confirming title to
recently acquired properties, the possibility that future exploration results will not be consistent with expectations,
increases in costs, environmental compliance and changes in environmental and other local legislation and
regulation, interest rate and exchange rate fluctuations, changes in economic and political conditions and other risks
involved in the gold, molybdenum, tungsten and development industry, as well as those risk factors listed in the
“Risk Factors” section below. Readers are cautioned that the foregoing list of factors is not exhaustive of the factors
that may affect the forward-looking statements. Actual results and developments are likely to differ, and may differ
materially, from those expressed or implied by the forward-looking statements contained in this Circular. Such
statements are based on a number of assumptions that may prove to be incorrect, including, but not limited to,
assumptions about the following: the availability of financing for Galway, Galway Metals and Galway Gold’s
exploration and development activities; operating and exploration costs; the ability to retain and attract skilled staff;
timing of the receipt of regulatory and governmental approvals for exploration projects and other operations; market
competition; and general business and economic conditions.
This Circular also contains forward-looking statements with respect to: (i) the anticipated timing of the
closing of the Arrangement; (ii) the effect of the Arrangement on Galway, Galway Metals and Galway Gold; (iii) the
timing of the Meeting; (iv) the perceived benefits of the Arrangement; (v) the timing of the Effective Date and the
satisfaction of the conditions thereto; (vi) timing of the receipt of the applicable regulatory approvals and other third
party approvals, including stock exchange approvals for the listing of the Galway Metals Shares and Galway Gold
Shares; and (vii) treatment under governmental regulation and taxation regimes.
Known and unknown factors could cause actual results to differ materially from those projected in the
forward-looking statements. Such factors include, but are not limited to: actual results of exploration activities;
7
actual results of reclamation activities; estimation or realization of mineral reserves and resources; timing and
amount of estimated future production; costs of production; capital expenditures; costs and timing of the
development of new deposits; requirements for additional capital; future prices of metal; possible variations in ore
grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes
and other risks of the mining industry; delays in obtaining governmental approvals, permits or financing or in the
completion of development or construction activities; title disputes; claims limitations on insurance coverage; the
timing and possible outcome of pending litigation and the possibility of new litigation; risks associated with
international operations; risks related to joint venture operations; risks related to the integration of acquisitions;
conditions or obligations imposed by stock exchanges or regulatory bodies; fluctuations in the currency markets;
fluctuations in the spot and forward price of gold or certain other commodities (such as silver, diesel and heavy fuel
and electricity); changes in national and local government legislation, taxation, controls, regulations and political or
economic developments in Canada, the United States, Colombia or other countries in which Galway, Galway Gold,
or Galway Metals carries on or may carry on business in the future; operating or technical difficulties in connection
with mining or development activities; the speculative nature of gold, molybdenum and tungsten exploration and
development, including the risks of obtaining necessary licenses and permits; diminishing quantities or grades of
reserves; and shortages of required supplies and materials. In addition, there are risks and hazards associated with
the business of gold, molybdenum and tungsten exploration, development and mining, including environmental
hazards, industrial accidents, unusual or unexpected geologic formations, pressures, cave-ins, flooding and gold
bullion losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks) as well as
those factors discussed under “Risks and Uncertainties” in Galway’s Management Discussion and Analysis for the
year ended December 31, 2011. There are also certain risks related to the consummation of the Arrangement and the
business and operations of Galway including, but not limited to: risks associated with realizing the increased
earnings and enhanced growth opportunities currently anticipated for Galway Metals and Galway Gold in the future;
risks associated with realizing the benefits of Galway Metals and Galway Gold’s growth projects; risks associated
with meeting key production and cost estimates; construction and technological risks related to Galway Metals and
Galway Gold; capital requirements and operating risks associated with the expanded operations of Galway Metals
and Galway Gold; the market price of the shares of Galway Metals and Galway Gold; and other risks discussed in
this Circular.
These risk factors are not intended to represent a complete list of the risk factors that could affect Galway,
Galway Metals or Galway Gold. Although Galway has attempted to identify in this Circular important factors that
could cause actual actions, events or results to differ materially from those described in forward-looking statements
in this Circular, there may be other factors that cause actions, events or results not to be as anticipated, estimated or
intended. There can be no assurance that the forward-looking statements in this Circular will prove to be accurate, as
actual results and future events could differ materially from those anticipated in such forward-looking statements.
Accordingly, readers should not place undue reliance on forward-looking statements in this Circular. All of the
forward-looking statements made in this Circular are qualified by these cautionary statements. Specific reference is
made to the most recent annual management’s discussion and analysis and other filings of Galway with the
securities regulators of Canada.
Certain of the forward-looking statements and other information contained herein concerning the mining
industry and Galway’s general expectations concerning the mining industry, Galway, Galway Metals and Galway
Gold are based on estimates prepared by Galway using data from publicly available industry sources as well as from
market research and industry analysis and on assumptions based on data and knowledge of this industry which
Galway believe to be reasonable. However, although generally indicative of relative market positions, market shares
and performance characteristics, these data are inherently imprecise. While Galway is not aware of any misstatement
regarding any industry data presented herein, the mining industry involves risks and uncertainties that are subject to
change based on various factors.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of Galway, Galway Metals, and Galway Gold to be materially
different from any of its future results, performance or achievements expressed or implied by forward-looking
statements. All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers
should not place undue reliance on forward-looking statements. Each of Galway, Galway Metals, and Galway Gold
8
disclaims any intention or obligation to update or revise any of the forward-looking statements in this Circular,
whether as a result of new information, future events or otherwise, or to explain any material difference between
subsequent actual events and such forward-looking statements, except to the extent required by applicable law. If
Galway, Galway Metals, or Galway Gold does update one or more forward-looking statements, no inference should
be drawn that it will make additional updates with respect to those or other forward-looking statements, unless
required by law.
See “Information Concerning Galway Metals” and “Information Concerning Galway Gold”, attached as
Appendix C and Appendix D respectively to this Circular.
9
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
Unless otherwise indicated, all references to “U.S.$” or “U.S. dollars” in this Circular refer to United States
dollars and all references to “$”, “Cdn$” or “Canadian dollars” in this Circular refer to Canadian dollars. Galway’s
financial statements incorporated by reference herein are reported in U.S. dollars and are prepared in accordance
with Canadian GAAP.
On October 18, 2012, the last trading day before the announcement of the Arrangement, the exchange rate
for one U.S. dollar expressed in Canadian dollars, based on the noon buying rates provided by the Bank of Canada,
was Cdn$0.9808.
On November 16, 2012, the exchange rate for one U.S. dollar expressed in Canadian dollars, based upon
the noon buying rates provided by the Bank of Canada, was Cdn$1.0028.
TECHNICAL INFORMATION
All of the disclosure of a scientific or technical nature regarding Galway’s Vetas Project in this Circular
was derived from the Vetas Technical Report which is available under Galway’s profile on the SEDAR website at
www.sedar.com. Each of the authors of the Vetas Technical Report is a “qualified person” within the meaning of NI
43-101.
All of the disclosure of a scientific or technical nature regarding Galway’s Victorio Project in this Circular
was derived from the Victorio Technical Report which is available under Galway’s profile on the SEDAR website at
www.sedar.com. Each of the authors of the Victorio Technical Report is a “qualified person” within the meaning of
NI 43-101.
INFORMATION CONTAINED IN THIS CIRCULAR
The information contained in this Circular is given as at November 16, 2012, except where otherwise
noted.
No person has been authorized to give any information or to make any representation in connection with
the Arrangement and other matters described herein other than those contained in this Circular and, if given or
made, any such information or representation should be considered not to have been authorized by Galway.
This Circular does not constitute the solicitation of an offer to purchase any securities or the solicitation of
a proxy by any person in any jurisdiction in which such solicitation is not authorized or in which the person making
such solicitation is not qualified to do so or to any person to whom it is unlawful to make such solicitation.
Information contained in this Circular should not be construed as legal, tax or financial advice and Galway
Shareholders are urged to consult their own professional advisors in connection therewith.
INFORMATION PERTAINING TO AUX AND AUX CANADA
Certain information pertaining to AUX and AUX Canada, including forward-looking statements regarding
AUX and AUX Canada included in this Circular has been provided by AUX and AUX Canada or is based on
publicly available documents. Although Galway does not have any knowledge that would indicate that any such
information is untrue or incomplete, Galway assumes no responsibility for the accuracy or completeness of such
information, nor for the failure by such other persons to disclose events which may have occurred or which may
affect the completeness or accuracy of such information but which is unknown to Galway.
10
SUMMARY
The following is a summary of certain information contained in this Circular, including its appendices.
This summary is not intended to be complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Circular, including its appendices. Certain capitalized terms used in this summary are
defined in the Glossary of Terms of this Circular. Galway Securityholders are urged to read this Circular and its
appendices carefully and in their entirety.
The Meeting
Meeting and Record Date
The Meeting will be held on December 17, 2012, at 10:00 a.m. (Toronto time) at at the offices of Stikeman
Elliott LLP, 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1B9. See “Information Concerning
the Meeting”. The Galway Board has fixed November 5, 2012, as the record date for determining the Galway
Securityholders who are entitled to receive notice of and vote at the Meeting.
The Arrangement Resolution
At the Meeting, Galway Securityholders will be asked to approve the Arrangement Resolution, in the form
set out in Appendix A attached to this Circular. To be effective, the Arrangement Resolution must be approved by
an affirmative vote of (i) at least 662/3% of the votes cast by all Galway Securityholders, present in person or
represented by proxy at the Meeting, which holders are entitled to one vote for each Galway Share and Galway
Warrant held, (ii) at least a simple majority of the votes cast by Galway Securityholders, present in person or
represented by proxy at the Meeting, after excluding votes cast in respect of Galway Shares held by Mr. Robert
Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may not be included in determining
minority approval pursuant to MI 61-101 (see “The Arrangement – Certain Canadian Securities Laws
Considerations – Minority Approval and Multilateral Instrument 61-101”).
Voting at the Meeting
This Circular is being sent to both Registered Holders and Non-Registered Holders. Only Registered
Holders or the persons they appoint as their proxyholders are permitted to vote at the Meeting. Non-Registered
Holders should follow the instructions on the forms they receive from their Intermediaries. No other securityholder
of Galway is entitled to vote at the Meeting. See “Information Concerning the Meeting”.
Background to the Arrangement
See “The Arrangement – Background to the Arrangement” for a description of the background to the
Arrangement.
Recommendation of the Galway Board
National Bank Financial has provided their opinion that, as of October 18, 2012 and based upon and subject
to the scope of review, analysis undertaken and various assumptions, limitations and qualifications contained
therein, the consideration offered pursuant to the Arrangement is fair, from a financial point of view, to Galway
Shareholders (other than AUX and its affiliates and associates).
After careful consideration, the Galway Board has unanimously determined that the consideration under the
Arrangement is fair to Galway Securityholders and that the Arrangement is in the best interests of Galway.
Accordingly, the Galway Board unanimously recommends that Galway Securityholders vote FOR the
Arrangement Resolution. See “The Arrangement – Recommendation of the Galway Board”.
11
Reasons for the Arrangement
In the course of their evaluation of the Arrangement, the Galway Board consulted with senior management,
legal counsel and National Bank Financial, reviewed a significant amount of public information, and considered a
number of factors including, among others, the following:
(a)
Significant Cash Premium to Galway Securityholders. AUX has offered Galway Securityholders
a significant cash premium to the Galway Share price. The consideration in the form of $2.05 in
cash per Galway Share to be received by Galway Shareholders under the Arrangement represents
a premium of approximately 47% based on the volume-weighted average price of Galway Shares
on the TSX-V for the 20 trading days prior to the announcement of the Arrangement.
(b)
Continued Participation by Galway Securityholders in the Victorio Project through Galway
Metals and continued participation in the Vetas Project through Galway Gold. In addition to
receiving the $2.05 per Galway Share cash consideration, Galway Securityholders, through their
ownership of Galway Metals Shares resulting from the Arrangement, will continue to participate
in any value increases associated with the exploration, development and possible operation of the
Victorio Project. In addition, through their ownership of Galway Gold Shares resulting from the
Arrangement, Galway Securityholders will continue to participate in any value increases
associated with the exploration, development and possible operation of the Vetas Project.
(c)
Well-Capitalized Resulting Companies. Galway Metals will be initially capitalized with
approximately U.S.$12 million of working capital transferred from Galway while Galway Gold
will be initially capitalized with approximately U.S.$18 million of working capital transferred
from Galway.
(d)
State of Debt and Equity Markets. The Galway Board considered the state of debt and equity
markets, the difficulty of raising the funds needed to continue the development of the Victorio
Project and the Vetas Project, and the likelihood and effect of having to scale back and/or delay
the development of the Victorio Project and the Vetas Project as a result.
(e)
Fairness Opinion. The Galway Board considered the Fairness Opinion to the effect that, as of the
date thereof, and subject to the analyses, assumptions, qualifications and limitations set forth in the
Fairness Opinion, the consideration to be received pursuant to the Arrangement was fair, from a
financial point of view, to Galway Shareholders, other than AUX and its affiliates and associates.
(f)
No Financing Condition. The Arrangement is not subject to a financing condition. The Galway
Board has concluded, with advice from its financial advisor, that AUX has the financial capacity
to consummate the Arrangement.
(g)
Process. A thorough process was conducted by Galway, with advice from its financial advisor,
which included extensive discussions with other qualified and potentially interested third parties.
(h)
The Terms of the Arrangement Agreement. Under the Arrangement Agreement, the Galway Board
remains able to respond, in accordance with its fiduciary duties, to unsolicited proposals that may
be more favourable to Galway Shareholders than the Arrangement.
(i)
Dissent Rights. Registered Holders who oppose the Arrangement may, upon compliance with
certain conditions, exercise their Dissent Rights and receive the fair value of their Galway Shares
or Galway Warrants in accordance with the Plan of Arrangement.
(j)
Cashless Exercise of Options. Galway Optionholders will be permitted to conditionally exercise
their Galway Options and receive Galway Shares that will participate in the Arrangement. AUX
Canada will make loans to Galway Optionholders for the amount of the exercise price of their
12
or 1-416-867-2272 outside of North America (collect calls accepted), or by email at [email protected]
Galway Options, to be evidenced in a form satisfactory to AUX Canada, one business day before
the Effective Date.
(k)
(l)
Required Galway Securityholder and Court Approval. The Galway Board considered the
following approvals which are protective of the rights of Galway Securityholders:
(i)
the Arrangement Resolution must be approved by not less than 662/3% of the votes cast
by Galway Securityholders in person or by proxy at the Meeting and at least a simple
majority of the votes cast by Galway Securityholders present in person or represented by
proxy at the Meeting, after excluding votes cast in respect of Galway Shares held by Mr.
Robert Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may
not be included in determining minority approval pursuant to MI 61-101; and
(ii)
the Arrangement must be approved by the Court, which will consider, among other
things, the fairness of the Arrangement to all Galway Securityholders.
Likelihood of Completion. The Galway Board considered the likelihood that the Arrangement
would be completed, in light of the experience, reputation and financial capabilities of AUX and
the absence of significant closing conditions other than the approval of Galway Securityholders
and other customary closing conditions.
In the course of their deliberations, the Galway Board also identified and considered a variety of risks (as
described in greater detail under “Risk Factors”) and potentially negative factors in connection with the
Arrangement, including, but not limited to:
(a)
the risks to Galway if the Arrangement is not completed, including the costs to Galway in
pursuing the Arrangement and the diversion of management attention away from the conduct of
Galway’s business, and in particular the financing and development of the Victorio Project and
Vetas Project;
(b)
if the Arrangement is successfully completed, Galway will no longer exist as an independent
publicly traded company and the Galway Securityholders will be unable to participate directly in
the longer term potential benefits, if any, of the business of Galway and its underlying assets, to
the extent not being transferred to Galway Metals and Galway Gold;
(c)
the conditions of AUX’s obligation to complete the Arrangement and the rights of AUX to
terminate the Arrangement Agreement in certain circumstances;
(d)
if the Arrangement Agreement is terminated and the Galway Board decides to seek another
transaction or business combination, there is no assurance that Galway will be able to find a party
willing to pay greater or equivalent value compared to the consideration available to the Galway
Securityholders under the Arrangement or that the continued operation of Galway under its current
business model will yield equivalent or greater value to Galway Securityholders compared to that
available under the Arrangement Agreement; and
(e)
the limitations contained in the Arrangement Agreement on Galway’s ability to solicit additional
interest from third parties, as well as the fact that if the Arrangement Agreement is terminated in
certain circumstances, Galway may also be required to pay a termination fee in the amount of
$12,200,000, which may adversely affect Galway’s financial condition.
Interests of Senior Management and Others in the Arrangement
In considering the recommendations of the Galway Board with respect to the Arrangement, Galway
Securityholders should be aware that members of Galway’s senior management and the Galway Board have certain
interests that may present them with actual or potential conflicts of interest in connection with the Arrangement. The
13
Galway Board is aware of these interests and considered them along with other matters described above in “The
Arrangement – Reasons for the Arrangement”.
See “The Arrangement – Interests of Senior Management and Others in the Arrangement” and “The
Arrangement – Certain Canadian Securities Laws Considerations – Minority Approval and Multilateral Instrument
61-101”.
Fairness Opinion
National Bank Financial has provided their opinion that, as of October 18, 2012 and based upon and subject
to the scope of review, analysis undertaken and various assumptions, limitations and qualifications contained
therein, the consideration offered pursuant to the Arrangement is fair, from a financial point of view, to Galway
Shareholders (other than AUX and its affiliates and associates). See “The Arrangement - Fairness Opinion of
National Bank Financial” and the complete text of the Fairness Opinion, which is attached as Appendix F to this
Circular and which should be read in its entirety.
Particulars of the Arrangement
The following description is a summary of the Plan of Arrangement and is qualified in its entirety by
reference to the full text of the Plan of Arrangement, which is attached as Appendix E to this Circular. Capitalized
terms in this section not otherwise defined have the meanings set out in the Plan of Arrangement. At the Effective
Time, the following transactions will occur and will be deemed to occur in the order set out in the Plan of
Arrangement:
(a)
the Galway Shareholder Rights Plan shall be terminated (and all rights issued thereunder shall
expire) and shall be of no further force and effect;
(b)
all unexercised Galway Options and the Galway Option Plan shall be cancelled and be of no
further force and effect;
(c)
each Galway Warrant held by a Dissenting Warrantholder shall be acquired by AUX Canada
pursuant to the Dissent Procedures;
(d)
each Galway Share held by a Dissenting Shareholder shall be acquired by AUX Canada pursuant
to the Dissent Procedures;
(e)
each Galway Warrant issued and outstanding immediately prior to the Effective Time (other than
Galway Warrants held by Dissenting Warrantholders) will be cancelled by Galway in exchange
for the number of Galway Shares obtained by dividing (i) the amount, if any, by which: (A) the
product obtained by multiplying the number of Galway Shares underlying such Galway Warrant
by $2.05; exceeds (B) the aggregate exercise price payable under such Galway Warrant to acquire
such underlying Galway Shares; by (ii) $2.05;
(f)
the articles of Galway shall be amended to create new classes of shares designated as “Class A
Common Shares”, “Class 1 Preferred Shares”, and “Class 2 Preferred Shares” and concurrently
therewith each then issued and outstanding Galway Share (other than Galway Shares held by
Dissenting Shareholders) will be deemed to be exchanged (without any action on the part of the
holder of the Galway Shares) for one Class A Common Share, one Class 1 Preferred Share and
one Class 2 Preferred Share;
(g)
each “Class 1 Preferred Share” will be transferred to Galway Metals in consideration for the
issuance by Galway Metals of one Galway Metals Share for each “Class 1 Preferred Share”
transferred to it;
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(h)
each “Class 2 Preferred Share” will be transferred to Galway Gold in consideration for the
issuance by Galway Gold of one Galway Gold Share for each “Class 2 Preferred Share”
transferred to it;
(i)
Galway shall sell 10% of the common shares of New Sisterco to Galway Gold and 10% of the
Funding Note 2 in exchange for 10% of the Galway Gold Shares in accordance with the New
Sisterco 10% Share Sale Agreement; and
(j)
each issued Class A Common Share held by a Galway Securityholder (other than AUX or any
subsidiary or affiliate of AUX) shall be transferred to AUX Canada in exchange for the Cash
Consideration;
provided that none of the foregoing will occur unless all of the foregoing occurs. Note that a number of steps in the
Plan of Arrangement relating to the spin out of Galway Metals and Galway Gold have not been described. See
“Appendix E – Plan of Arrangement Under Section 182 of the Business Corporations Act (Ontario)”.
The Arrangement also requires the approval of the Court. Galway intends, as soon as practicable after
approval of the Arrangement Resolution by Galway Securityholders, to petition the Court to obtain the Final Order
approving the Arrangement.
Completion of the Arrangement is subject to the other terms and conditions specified in the Arrangement
Agreement. See “The Arrangement Agreement”.
Expenses and Termination Fees
All expenses incurred in connection with the Arrangement Agreement and the transactions contemplated by
the Arrangement Agreement will be paid by the party incurring those expenses. See “The Arrangement – Fees,
Costs and Expenses”.
The Arrangement Agreement requires that Galway pay the Termination Fee in certain circumstances. See
“Arrangement Agreement – Termination Fee”.
Agreements related to the Arrangement
Arrangement Agreement
On October 19, 2012, Galway, AUX, AUX Canada, Galway Gold and Galway Metals entered into the
Arrangement Agreement, under which the parties agreed, subject to certain terms and conditions, to complete the
Arrangement. The Arrangement Agreement was amended and restated in an amending agreement dated November
16, 2012. This Circular contains a summary of certain provisions of the Arrangement Agreement and is qualified in
its entirety by the full text of the Arrangement Agreement a copy of which is available under Galway’s profile on
SEDAR at www.sedar.com.
Lock-Up Agreements
Each of the Locked-Up Shareholders has entered into a Lock-Up Agreement with AUX pursuant to which
they have agreed, on and subject to the terms thereof, among other things, to: (i) conditionally exercise all Galway
Options held by them; (ii) vote in favour of the Arrangement Resolution; (iii) vote against any Acquisition Proposal,
any corporate transaction involving Galway or Galway Shares other than the Arrangement and any action
reasonably likely to adversely impact the Arrangement, any sale or transfer of a material amount of the assets of
Galway or any of its subsidiaries other than the Arrangement; (iv) not to, directly or indirectly, solicit, participate in
any discussions regarding, approve, or accept any Acquisition Proposal; and (v) not to sell or transfer any of their
Galway Shares or other Galway securities without the prior consent of AUX, except for any Galway Shares issued
following the date of the Voting Agreement upon the exercise of any Galway Options or Galway Warrants which
15
expire during the term of the Lock-Up Agreement. See “The Arrangement – Lock-Up Agreements Relating to the
Meeting”.
Depositary
Galway has engaged Kingsdale Shareholder Services Inc. to act as Depositary for the receipt of certificates
in respect of Galway Shares, Galway Warrants, related Letters of Transmittal and payments to be made to the
Galway Securityholders pursuant to the Arrangement.
Proxy Solicitation Agent
Galway has retained Kingsdale Shareholder Services Inc. to assist in the solicitation of proxies. The
solicitation of proxies is on behalf of management of Galway. If you have any questions about the Arrangement or
how to exercise your voting rights, please contact the Proxy Solicitation Agent, toll-free in North America at 1-866581-0512 or collect call outside North America at 1-416-867-2272 or by email at
[email protected].
Risk Factors
In assessing the Arrangement, Galway Securityholders should carefully consider the risks described in
Galway’s management’s discussion and analysis dated April 30, 2012 for the twelve month period ended
December 31, 2011, together with the other information contained in, or incorporated by reference in this Circular,
including the disclosure under Appendix C – “Information Concerning Galway Metals” and under Appendix D –
“Information Concerning Galway Gold”, both specifically under “Risk Factors”. Additional risks and uncertainties,
including those currently unknown to or considered immaterial by Galway, may also adversely affect the business of
Galway, Galway Metals and Galway Gold going forward. In particular, the Arrangement and the operations of
Galway Metals and Galway Gold are subject to certain risks. See “Risk Factors”.
Galway Gold Stock Option Plan and Galway Metals Stock Option Plan
In contemplation of the completion of the Arrangement at the Meeting, Galway Shareholders will be asked
to approve the Galway Gold Stock Option Plan and the Galway Metals Stock Option Plan.
See “Other Matters to be Considered at the Meeting – Galway Metals Stock Option Plan” and “Other
Matters to be Considered at the Meeting – Galway Gold Stock Option Plan”.
The Galway Board unanimously recommends that the Galway Securityholders vote FOR each of the Galway
Metals Stock Option Plan and the Galway Gold Stock Option Plan.
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INFORMATION CONCERNING THE MEETING
Purpose of the Meeting
At the Meeting, Galway Securityholders will be asked to consider and, if deemed advisable, to pass, with or
without variation, the Arrangement Resolution. To be effective, the Arrangement Resolution must be approved by
represented by proxy at the Meeting, which holders are entitled to one vote for each Galway Share and Galway
Warrant held, and (ii) at least a simple majority of the votes cast by Galway Securityholders, present in person or
represented by proxy at the Meeting, after excluding votes cast in respect of Galway Shares held by Mr. Robert
Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may not be included in determining
minority approval pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders In Special
Transactions (see “The Arrangement – Certain Canadian Securities Laws Considerations – Minority Approval and
Multilateral Instrument 61-101”). The Arrangement is also subject to certain conditions and the approval of the
Ontario Superior Court of Justice.
At the Meeting, Galway Shareholders will also be asked to consider and, if deemed advisable, to pass, with
or without variation, an ordinary resolution approving the adoption by Galway Metals and Galway Gold of the
Galway Metals Stock Option Plan and the Galway Gold Stock Option Plan, subject to regulatory acceptance, as
more fully described in the accompanying Circular.
Date, Time and Place of the Meeting
The Meeting will be held on December 17, 2012, at 10:00 a.m. (Toronto time) at the offices of Stikeman
Elliott LLP, 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1B9.
Record Date
The record date for determining persons entitled to receive notice of and vote at the Meeting is
November 5, 2012. Galway Securityholders of record as at the close of business on November 5, 2012 will be
entitled to attend and vote at the Meeting, or any adjournment or postponement thereof, in the manner and subject to
the procedures described in this Circular.
Solicitation of Proxies
This Circular is being furnished in connection with the solicitation of proxies by or on behalf of
management of Galway for use at the Meeting (or any adjournment or postponement thereof) to be held at the time
and place and for the purposes set out in the accompanying Notice of Meeting. It is expected that the solicitation will
be primarily by mail, proxies may be solicited personally, by telephone or other electronic means.
Kingsdale Shareholder Services Inc. (the “Proxy Solicitation Agent”) is acting as the proxy solicitation
agent, for which it will be paid a fee of approximately $125,000 by Galway. If you have any questions about the
Arrangement or how to exercise your voting rights, please contact the Proxy Solicitation Agent toll-free in North
America at 1-866-581-0512 or collect call outside North America at 1-416-867-2272 or by email at
[email protected].
All costs incurred in connection with the preparation and mailing of this Circular and the accompanying
form of proxy and letter of transmittal, as well as the costs of solicitation of proxies will be borne by Galway.
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Appointment of Proxyholders
The persons named in the accompanying form of proxy are officers or directors of Galway. Each Galway
Securityholder has the right to appoint a person or company, other than the persons named in the enclosed
form of proxy, who need not be a Galway Securityholder, to attend and act for and on behalf of the Galway
Securityholder at the Meeting. This right may be exercised by inserting such person’s name in the blank space
provided in the accompanying form of proxy or by completing another proper form of proxy. A proxy that is in
writing, must be dated the date on which it is executed, must be executed by the Galway Securityholder or his or her
attorney authorized in writing or, if the Galway Securityholder is a corporation, by a duly authorized officer or
attorney of that corporation and, if the proxy is to apply to less than all the Galway Shares or Galway Warrants
registered in the name of the Galway Securityholder, must specify the number of Galway Shares or Galway
Warrants to which it is to apply. If the Galway Securityholder specifies a choice with respect to any matter to be
acted upon, the securities will be voted accordingly.
Voting by Proxyholder
The Galway Shares or Galway Warrants represented by a properly executed proxy will be voted for or
against all matters to be voted on at the Meeting in accordance with the instructions of the Registered Holder on any
vote that may be called for.
In the absence of any instructions to the contrary, the Galway Shares or Galway Warrants
represented by proxies received by management will be voted FOR the approval of the Arrangement
Resolution.
The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to
amendments or variations to the matters identified in the Notice of Meeting and with respect to other matters which
may properly come before the Meeting. At the date of this Circular, management of Galway knows of no such
amendments, variations or other matters to come before the Meeting other than the matters referred to in the Notice
of Meeting. If any other matters do properly come before the Meeting, it is intended that the person appointed as
proxy shall vote on such other business in such manner as that person then considers to be proper.
Registered Holders
Registered Holders may wish to vote by proxy whether or not they attend the Meeting in person. Registered
Holders who choose to submit a proxy may do so by any of the following options:
(a)
completing, dating and signing the appropriate enclosed proxy and returning it to the Transfer
Agent by fax from within North America at 1-866-249-7775, or from outside North America at 1416-263-9524, or by mail or hand to Computershare Investor Services Inc., 9th Floor, 100
University Avenue, Toronto, Ontario, M5J 2Y1;
(b)
using a touch-tone phone to transmit voting choices from within North America at
1-866-732-8683, or from outside North America at 312-588-4290 (Registered Holders who
choose this option must follow the instructions of the voice response system and refer to the
enclosed proxy form for the toll free number, the control number, holder account number and the
proxy access number); and
(c)
using the Transfer Agent’s website at www.investorvote.com (Registered Holders who choose this
option must follow the instructions that appear on the screen and refer to the enclosed proxy form
for the control number, holder account number and the proxy access number);
in all cases ensuring that the proxy is received by 10:00 a.m. (Toronto time) on December 13, 2012 or at least 48
hours (excluding Saturdays, Sundays and holidays) before the time to which the Meeting is adjourned or postponed.
Failure to complete or deposit a proxy properly may result in its invalidation. The time limit for the deposit of
proxies may be waived or extended by the chairperson of the meeting at their discretion without notice.
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Beneficial Galway Securityholders
Only Registered Holders or the persons they appoint as their proxies are permitted to vote at the Meeting.
However, in many cases, Galway Shares or Galway Warrants beneficially owned by a person are registered either
(a) in the name of an Intermediary that the Non-Registered Holder deals with in respect of the shares or warrants, or
(b) in the name of a clearing agency (such as The Canadian Depositary for Securities Limited) of which the
Intermediary is a participant. In accordance with the requirements of National Instrument 54-101 - Communication
with Beneficial Owners of Securities of a Reporting Issuer, Galway will be distributing copies of the Notice of
Meeting, this Circular, the letter of transmittal for Galway Shareholders, the letter of transmittal for Galway
Warrantholders and the form of proxy (or voting information form) to be used by Galway Securityholders
(collectively, the “Meeting Materials“) to the clearing agencies and Intermediaries for onward distribution to NonRegistered Holders.
Intermediaries are required to forward the Meeting Materials to Non-Registered Holders unless a
Non-Registered Holder has waived the right to receive them. Very often, Intermediaries will use service companies
to forward the Meeting Materials to Non-Registered Holders. Generally, Non-Registered Holders who have not
waived the right to receive the Meeting Materials will either:
(a)
be given a form of proxy which has already been signed by the Intermediary (typically by a
facsimile, stamped signature), which is restricted as to the number of shares or warrants
beneficially owned by the Non-Registered Holder but which is otherwise not completed. Because
the Intermediary has already signed the form of proxy, this form of proxy is not required to be
signed by the Non-Registered Holder when submitting the proxy. In this case, the Non-Registered
Holder who wishes to submit a proxy should otherwise properly complete the form of proxy and
deliver it to the Transfer Agent as set out above; or
(b)
more typically, be given a form which, when properly completed and signed by the
Non-Registered Holder and returned to the Intermediary or its service company, will constitute
voting instructions (often called a “voting information form”) which the Intermediary must follow.
In either case, the purpose of this procedure is to permit Non-Registered Holders to direct the voting of the shares or
warrants which they beneficially own. Should a Non-Registered Holder who receives either form of proxy wish to
vote at the Meeting in person, the Non-Registered Holder should strike out the persons named in the form of proxy
and insert the Non-Registered Holder’s name in the blank space provided. In either case, Non-Registered Holders
should carefully follow the instructions of their Intermediary, including those regarding when and where the form of
proxy or proxy authorization form is to be delivered.
Revocation of Proxies
A Registered Holder who has given a proxy may revoke such proxy by:
(a)
depositing an instrument in writing executed by such Registered Holder or by such Registered
Holder’s attorney authorized in writing, or, if the registered holder of Galway Shares and Galway
Warrants is a corporation, by an officer or attorney thereof duly authorized indicating the capacity
under which such officer or attorney is signing:
(i)
at the Toronto office of the Transfer Agent by 5:00 p.m. on the last business day
preceding the day of the Meeting or any adjournment or postponement thereof, excluding
Saturdays, Sundays and holidays, before any reconvened Meeting; or
(ii)
with the scrutineers of the Meeting, addressed to the attention of the Chairman of the
Meeting, prior to the commencement of the Meeting on the day of the Meeting, or where
the Meeting has been adjourned or postponed, prior to the commencement of the
reconvened or postponed Meeting on the day of such reconvened or postponed Meeting;
or
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(b)
any other manner permitted by law.
A Non-Registered Holder should contact his or her Intermediary and carefully follow the instructions
provided by the Intermediary in order to revoke a voting information form (or a proxy).
Quorum
A quorum for the Meeting shall constitute not less than two Galway Securityholders, present in person or
by proxy, entitled to vote at the Meeting and holding in the aggregate at least 10% of the outstanding Galway Shares
and outstanding Galway Warrants.
Each Galway Securityholder is entitled to one vote per Galway Share and Galway Warrant, as applicable,
held on the Arrangement Resolution. Each Galway Shareholder is entitled to one vote per Galway Share held on all
other matters to come before the Meeting.
Galway Shares and Galway Warrants Outstanding and Principal Holders
At the close of business on November 16, 2012, 135,879,134 Galway Shares and 5,260,137 Galway
Warrants were issued and outstanding. Each Galway Warrantholder is entitled to one vote per Galway Warrant held
for the Arrangement Resolution. Each Galway Shareholder is entitled to one vote per Galway Share held on all
matters to come before the Meeting, including the Arrangement Resolution.
To the knowledge of the directors and executive officers of Galway as at November 16, 2012, no one
Galway Securityholder beneficially owned, directly or indirectly, or exercised control or direction over: (i) Galway
Shares carrying more than 10% of the voting rights attached to all issued Galway Shares; or (b) more than 10% of
the Galway Shares and Galway Warrants on a consolidated basis.
An affiliate of AUX owns 12,356,200 Galway Shares or approximately 9.1% of the issued and outstanding
Galway Shares.
THE ARRANGEMENT
The Arrangement will be carried out pursuant to the Arrangement Agreement, the Plan of Arrangement and
related documents. A summary of the principal terms of the Arrangement Agreement and the Plan of Arrangement
is provided in this section. This summary does not purport to be complete and is qualified in its entirety by reference
to the Arrangement Agreement which is available under Galway’s profile on SEDAR at www.sedar.com and the
Plan of Arrangement, which is attached as Appendix E to this Circular. Capitalized terms have the meaning set out
in the Glossary of Terms, or are otherwise defined herein.
Approval of Arrangement Resolution
At the Meeting, Galway Securityholders will be asked to approve the Arrangement Resolution, in the form
set out in Appendix A attached to this Circular. To be effective, the Arrangement Resolution must be approved by
represented by proxy at the Meeting, and (ii) at least a simple majority of the votes cast by Galway Securityholders,
present in person or represented by proxy at the Meeting, after excluding votes cast in respect of Galway Shares held
by Mr. Robert Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may not be included in
determining minority approval pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders
In Special Transactions (see “The Arrangement – Certain Canadian Securities Laws Considerations – Minority
Approval and Multilateral Instrument 61-101”).
Background to the Arrangement
In December, 2011, representatives of Galway were approached by representatives of AUX about the
possibility of a transaction between Galway and AUX, in which AUX would acquire all of the shares of Galway.
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On December 5, 2011, Mr. Robert Hinchcliffe, the Chief Executive Officer and a director of Galway, and
Mr. Alfonso Gomez, the Country Manager, Colombia and a director of Galway, met with representatives of AUX
about the possible transaction and its terms. It was decided that if a transaction were to proceed the Victorio Project
and Vetas Project assets would not be retained by Galway. The parties also agreed that they would defer additional
discussions until the new year. Mr. Hinchcliffe then discussed the proposed transaction with the Galway Board. The
Board encouraged Mr. Hinchcliffe to pursue these discussions.
In January, 2012, representatives of AUX sought to continue to discuss the possibility of a transaction with
Galway. On January 11, 2012, Mr. Gomez met with representatives of AUX to further consider the proposed
transaction. Mr. Hinchcliffe and Mr. Gomez then met with representatives of AUX on a number of occasions during
January and February of 2012 to further consider the proposed transaction and to discuss the merits of Galway’s
assets.
At the same time, Galway continued to assess the alternatives to the transaction that had been proposed by
AUX, including raising additional capital with which to develop Galway’s assets and pursuing other corporate sale
opportunities.
On March 22, 2012, AUX provided a draft letter of intent to Mr. Hinchcliffe regarding the terms of a
transaction and the proposed price at which the transaction would be completed. Mr. Hinchcliffe provided the letter
of intent to the Galway Board and Galway’s legal counsel. After discussing the letter of intent and its contents, and
considering the alternatives available to Galway, the Galway Board directed Mr. Hinchcliffe to work to negotiate the
letter of intent and conclude binding agreements with AUX regarding the proposed transaction.
On April 5, 2012, Galway retained National Bank Financial as its financial advisor.
On April 30, 2012, Galway entered into a non-binding letter of intent with AUX and began to provide
confidential information to AUX regarding the California Project. Negotiations continued in May and June of 2012.
During this period Galway exercised several options on assets in the California region in order to attempt to
establish additional ownership interests in these assets. Galway also began the process of securing the related titles.
On June 13, 2012, AUX informed Galway that AUX was not in a position to conclude the Arrangement
Agreement and negotiations were terminated. The letter of intent expired.
In July, 2012, AUX approached Galway about the possibility of the Bank of Montreal making a $10
million loan to Galway in order to allow Galway to pay amounts owing pursuant to the exercise of its options on the
California Project and to complete certain other operations. AUX would guarantee the amount of the loan and
provide an amount equal to the amount of the loan as cash collateral to the Bank of Montreal. AUX offered no
commitment to Galway that it would ever be in a position to resume negotiations regarding a transaction with
Galway and the provision of the loan was not linked to the completion of a business combination with Galway.
Galway and Bank of Montreal commenced discussions, and regarding the loan in July, 2012, it was agreed
that the loan would be made at an effective interest rate of 3.5% maturing on February 24, 2014 and that it would
not involve any security over Galway’s assets. The Galway Board considered this proposal and determined that in
view of the favorable terms of the loan and Galway’s cash needs, it offered the best means of allowing Galway to
pursue its business plan while avoiding a potentially dilutive equity issuance.
On August 29, 2012, Galway and Bank of Montreal completed the agreements related to the loan. The
existence of the loan was disclosed by Galway in a press release. The involvement of AUX as guarantor of the loan
was not publicly disclosed, but was disclosed to the British Columbia Securities Commission and the TSX Venture
Exchange (the “TSX-V”) in a confidential material change report. On the same date Galway issued a press release
regarding the completion of its acquisition of additional titles in the California region pursuant to the exercise of
options which had been initiated earlier in the year.
21
On October 12, 2012, AUX contacted Mr. Hinchcliffe and informed him that AUX was prepared to resume
negotiations regarding a proposed transaction. The Galway Board encouraged Mr. Hinchcliffe to resume these
discussions.
Mr. Hinchcliffe and the management team resumed discussions with AUX and engaged its financial and
legal advisors in this process. The Galway Board received updates from Mr. Hinchcliffe regarding the status of
these negotiations and the proposed terms of the transaction.
On October 18, 2012, the Galway Board met to consider the draft of the Arrangement Agreement and
receive advice from National Bank Financial and its legal counsel regarding the proposed transaction. National
Bank Financial advised the Galway Board that the Consideration offered in the Arrangement was fair, from a
financial point of view, to Galway Shareholders other than AUX. The Galway Board considered all of these factors
and resolved unanimously to approve the proposed transaction.
On the morning of October 19, 2012, after settling a number of outstanding points, AUX and Galway
signed the Arrangement Agreement and Galway and AUX issued a press release in that regard. The involvement of
AUX as guarantor of the loan was publicly disclosed on October 25, 2012.
Reasons for the Arrangement
In the course of their evaluation of the Arrangement, the Galway Board consulted with senior management,
legal counsel, and National Bank Financial, reviewed a significant amount of public information, and considered a
number of factors including, among others, the following:
(a)
Significant Cash Premium to Galway Securityholders. AUX has offered Galway Securityholders
a significant cash premium to the Galway Share price. The consideration in the form of $2.05 in
cash per Galway Share to be received by Galway Shareholders under the Arrangement represents
a premium of approximately 47% based on the volume-weighted average price of Galway Shares
on the TSX-V for the 20 trading days prior to the announcement of the Arrangement.
(b)
Continued Participation by Galway Securityholders in the Victorio Project through Galway
Metals and continued participation in the Vetas Project through Galway Gold. In addition to
receiving the $2.05 per Galway Share cash consideration, Galway Securityholders, through their
ownership of Galway Metals Shares resulting from the Arrangement, will continue to participate
in any value increases associated with the exploration, development and possible operation of the
Victorio Project. In addition, through their ownership of Galway Gold Shares resulting from the
Arrangement, Galway Securityholders will continue to participate in any value increases
associated with the exploration, development and possible operation of the Vetas Project.
(c)
Well-Capitalized Resulting Companies. Galway Metals will be initially capitalized with
approximately U.S.$12 million of working capital transferred from Galway while Galway Gold
will be initially capitalized with approximately U.S.$18 million of working capital transferred
from Galway.
(d)
State of Debt and Equity Markets. The Galway Board considered the state of debt and equity
markets, the difficulty of raising the funds needed to continue the development of the Victorio
Project and the Vetas Project, and the likelihood and effect of having to scale back and/or delay
the development of the Victorio Project and the Vetas Project as a result.
(e)
Fairness Opinion. The Galway Board considered the Fairness Opinion to the effect that, as of the
date thereof, and subject to the analyses, assumptions, qualifications and limitations set forth in the
Fairness Opinion, the consideration to be received pursuant to the Arrangement was fair, from a
financial point of view, to Galway Shareholders, other than AUX and its affiliates and associates.
22
(f)
No Financing Condition. The Arrangement is not subject to a financing condition. The Galway
Board has concluded, with advice from its financial advisor, that AUX has the financial capacity
to consummate the Arrangement.
(g)
Process. A thorough process was conducted by Galway, with advice from its financial advisor,
which included extensive discussions with other qualified and potentially interested third parties.
(h)
The Terms of the Arrangement Agreement. Under the Arrangement Agreement, the Galway Board
remains able to respond, in accordance with its fiduciary duties, to unsolicited proposals that may
be more favourable to Galway Shareholders than the Arrangement.
(i)
Cashless Exercise of Options. Galway Optionholders will be permitted to conditionally exercise
their Galway Options and receive Galway Shares that will participate in the Arrangement. AUX
Canada will make loans to Galway Optionholders for the amount of the exercise price of their
Galway Options, to be evidenced in a form satisfactory to AUX Canada, one business day before
the Effective Date.
(j)
Dissent Rights. Registered Holders who oppose the Arrangement may, upon compliance with
certain conditions, exercise their Dissent Rights and receive the fair value of their Galway Shares
or Galway Warrants in accordance with the Plan of Arrangement.
(k)
Required Galway Securityholders and Court Approval. The Galway Board considered the
following approvals which are protective of the rights of Galway Securityholders:
(l)
(i)
the Arrangement Resolution must be approved by not less than 662/3% of the votes cast
by Galway Securityholders in person or by proxy at the Meeting and at least a simple
majority of the votes cast by Galway Securityholders present in person or represented by
proxy at the Meeting, after excluding votes cast in respect of Galway Shares held by My.
Robert Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may
not be included in determining minority approval pursuant to MI 61-101; and
(ii)
the Arrangement must be approved by the Court, which will consider, among other
things, the fairness of the Arrangement to all Galway Securityholders.
Likelihood of Completion. The Galway Board considered the likelihood that the Arrangement
would be completed, in light of the experience, reputation and financial capabilities of AUX and
the absence of significant closing conditions other than the approval of Galway Securityholders
and other customary closing conditions.
In the course of their deliberations, the Galway Board also identified and considered a variety of risks (as
described in greater detail under “Risk Factors”) and potentially negative factors in connection with the
Arrangement, including, but not limited to:
(a)
the risks to Galway if the Arrangement is not completed, including the costs to Galway in
pursuing the Arrangement and the diversion of management attention away from the conduct of
Galway’s business, and in particular the financing and development of the Victorio Project and
Vetas Project;
(b)
if the Arrangement is successfully completed, Galway will no longer exist as an independent
publicly traded company and the Galway Securityholders will be unable to participate directly in
the longer term potential benefits, if any, of the business of Galway and its underlying assets, to
the extent not being transferred to Galway Metals and Galway Gold;
(c)
the conditions of AUX’s obligation to complete the Arrangement and the rights of AUX to
terminate the Arrangement Agreement in certain circumstances;
23
(d)
if the Arrangement Agreement is terminated and the Galway Board decides to seek another
transaction or business combination, there is no assurance that Galway will be able to find a party
willing to pay greater or equivalent value compared to the consideration available to the Galway
Securityholders under the Arrangement or that the continued operation of Galway under its current
business model will yield equivalent or greater value to Galway Securityholders compared to that
available under the Arrangement Agreement; and
(e)
the limitations contained in the Arrangement Agreement on Galway’s ability to solicit additional
interest from third parties, as well as the fact that if the Arrangement Agreement is terminated in
certain circumstances, Galway may also be required to pay a termination fee in the amount of
$12,200,000, which may adversely affect Galway’s financial condition.
The Galway Board’s reasons for recommending the Arrangement include certain assumptions relating to
forward-looking information, and such information and assumptions are subject to various risks. See “ForwardLooking Information” and “Risk Factors”.
The foregoing summary of the information and factors considered by the Galway Board is not, and is not
intended to be, exhaustive. In view of the variety of factors and the amount of information considered in connection
with its evaluation of the Arrangement, the Galway Board did not find it practical to, and did not, quantify or
otherwise attempt to assign any relative weight to each specific factor considered in reaching its conclusion and
recommendation. In addition, individual members of the Galway Board may have assigned different weights to
different factors. The Galway Board’s recommendations were made after consideration of all of the above-noted
factors and in light of the Galway Board’s collective knowledge of the business, financial condition and prospects of
Galway, and were also based upon the advice of financial advisors and legal advisors to the Galway Board.
Recommendation of the Galway Board
After careful consideration, the Galway Board has unanimously determined that: (i) the offered
consideration of $2.05 in cash, plus one Galway Metals Share and one Galway Gold Share for each Galway Share
under the Arrangement is fair to Galway Shareholders; and (ii) that the Arrangement is in the best interests of
Galway. Accordingly, the Galway Board unanimously recommends that Galway Securityholders vote FOR
the Arrangement Resolution.
Fairness Opinion of National Bank Financial
The Galway Board retained National Bank Financial on April 5, 2012 to act as financial advisor to Galway
and the Galway Board in connection with various alternatives available to Galway, including ultimately in
connection with the Arrangement.
Subsequently, Galway requested that National Bank Financial evaluate the fairness, from a financial point
of view, to Galway Shareholders of the consideration offered pursuant to the Arrangement. On October 18, 2012, at
meetings of the Galway Board held to evaluate the Arrangement, National Bank Financial delivered an oral opinion,
which was subsequently confirmed by delivery of the written Fairness Opinion, to the effect that, as of that date, and
based upon and subject to the scope of the review, analysis undertaken and various assumptions, limitations and
qualifications set forth in its opinion, the consideration offered pursuant to the Arrangement was fair, from a
financial point of view, to Galway Shareholders, other than AUX and its affiliates or associates.
The full text of the Fairness Opinion, effective October 18, 2012, which sets out the assumptions
made, procedures followed, information reviewed, matters considered and limitations on the review
undertaken by National Bank Financial in connection with the Fairness Opinion is attached as Appendix F
hereto and forms part of this Circular. Galway Securityholders are encouraged to read the Fairness Opinion
carefully in its entirety. National Bank Financial provided the Fairness Opinion for the information and
assistance of the Galway Board, in connection with their consideration of the Arrangement and the Fairness
Opinion may not be relied upon by any other person.
24
The Fairness Opinion addresses the fairness, from a financial point of view, of the consideration offered
pursuant to the Arrangement to Galway Shareholders and does not address any other aspect of the Arrangement or
any related transaction, including any tax consequences of the Arrangement to Galway or Galway Securityholders.
The Fairness Opinion was provided for the exclusive use of the Galway Board and may not be relied upon by any
other person. The Fairness Opinion does not address the relative merits of the Arrangement or any related
transaction as compared to other business strategies or transactions that might be available to Galway or the
underlying business decision of Galway to effect the Arrangement or any related transaction. The Fairness Opinion
does not constitute a recommendation to any Galway Securityholder as to how such Galway Securityholder should
vote on the Arrangement Resolution, or how to act with respect to any matters relating to the Arrangement.
The Fairness Opinion was rendered on the basis of the securities market, economic and general business
and financial conditions prevailing as at October 17, 2012 and on information relating to the subject matter thereof
as represented to National Bank Financial. As set forth in the Fairness Opinion, National Bank Financial has relied
upon, and assumed the completeness, accuracy and fair presentation of all financial information, business plans,
forecasts, and other information, data, advice, opinions, and representations obtained by National Bank Financial
from public sources or provided by or on behalf of Galway. National Bank Financial was not asked to prepare, and
has not prepared, a formal valuation of Galway or any of its respective assets or securities.
The Fairness Opinion and the financial analyses of National Bank Financial were only one of many factors
considered by the Galway Board in their evaluation of the Arrangement and should not be viewed as determinative
of the views of the Galway Board with respect to the Arrangement or the consideration provided for in the
Arrangement.
Under the terms of National Bank Financial’s engagement, Galway has agreed to pay National Bank
Financial a fee for delivery of the Fairness Opinion. In addition, Galway has agreed to reimburse National Bank
Financial for its reasonable out-of-pocket expenses, and to indemnify National Bank Financial and related parties
against liabilities relating to, or arising out of, its engagement.
National Bank Financial was selected as financial advisor in connection with the Arrangement because it is
an internationally recognized investment banking firm with substantial experience in similar transactions in the
resource sector and has familiarity with each of Galway and AUX. National Bank Financial has been a financial
advisor in a significant number of transactions involving public and private companies and has extensive experience
in preparing fairness opinions.
National Bank Financial and other members of their corporate groups are also engaged in domestic and
international underwriting, syndication, mergers and acquisitions, banking, trading, brokerage and swaps and
derivatives activities. National Bank Financial and their affiliates may have in the past, provided and/or may in the
future provide banking, financial advisory and investment banking services to Galway and/or AUX or any of their
respective associates or affiliates.
Lock-Up Agreements Relating to the Meeting
Each of the Locked-Up Shareholders has entered into a Lock-Up Agreement with AUX pursuant to which
they have agreed, on and subject to the terms thereof, among other things: (i) to conditionally exercise all Galway
Options that they hold; (ii) to vote in favour of the Arrangement Resolution; (iii) to vote against any Acquisition
Proposal, any corporate transaction involving Galway or Galway Shares other than the Arrangement and any action
reasonably likely to adversely impact the Arrangement, any sale or transfer of a material amount of the assets of
Galway or any of its subsidiaries other than the Arrangement; (iv) not to, directly or indirectly, solicit, participate in
any discussions regarding, approve, or accept any Acquisition Proposal; and (v) not to sell or transfer any of their
Galway Shares or other Galway securities without the prior consent of AUX, except for any Galway Shares issued
following the date of the Lock-Up Agreement upon the exercise of any Galway Options or Galway Warrants which
expire during the term of the Lock-Up Agreement.
25
The Lock-Up Agreements shall automatically terminate upon the earliest to occur of: (i) the mutual written
agreement of the Locked-Up Shareholder and AUX; (ii) the termination of the Arrangement Agreement in
accordance with its terms; or (iii) the Effective Date.
The Arrangement
The following description is a summary of the Plan of Arrangement and is qualified in its entirety by
reference to the full text of the Plan of Arrangement, which is attached as Appendix E to this Circular. Capitalized
terms in this section not otherwise defined have the meanings set out in the Plan of Arrangement. At the Effective
Time, the following transactions will occur and will be deemed to occur in the order set out in the Plan of
Arrangement:
(a)
(b)
all unexercised Galway Options and the Galway Option Plan shall be cancelled and be of no
further force;
(c)
each Galway Warrant held by a Dissenting Warrantholder shall be acquired by AUX Canada
pursuant to the Dissent Procedures;
(d)
each Galway Share held by a Dissenting Shareholder shall be acquired by AUX Canada pursuant
to the Dissent Procedures;
(e)
Galway Warrants held by Dissenting Warrantholders) will be cancelled by Galway in exchange
for the number of Galway Shares obtained by dividing (i) the amount, if any, by which: (A) the
product obtained by multiplying the number of Galway Shares underlying such Galway Warrant
by $2.05; exceeds (B) the aggregate exercise price payable under such Galway Warrant to acquire
such underlying Galway Shares; by (ii) $2.05;
(f)
Holdco shall sell the Vetas Project (free and clear of any Liens) to New Sisterco in consideration
of U.S.$675,000 in accordance with the Vetas Sale Agreement;
(g)
Galway shall sell 100% of the shares and debt of each of Nyak and Galway Resources U.S. (in
each case free and clear of any Liens) to Galway Metals in consideration of the issuance of one
common share of Galway Metals and the Nyak and Galway Resources U.S. Note by Galway
Metals to Galway in accordance with the Nyak and Galway Resources U.S. Share Sale
Agreement;
(h)
Galway shall sell 90% of the common shares of New Sisterco (free and clear of all Liens) and
90% of the Funding Note 2 to Galway Gold in consideration of the issuance of one common share
of Galway Gold and the New Sisterco Note by Galway Gold to Galway in accordance with the
New Sisterco Share Sale Agreement;
(i)
the articles of Galway shall be amended to create a new class of shares designated as “Class A
Common Shares”, a new class of shares designated as “Class 1 Preferred Shares” and a new class
of shares designated as “Class 2 Preferred Shares”. Concurrently therewith each then issued and
outstanding Galway Share (other than Galway Shares held by Dissenting Shareholders) will be
deemed to be exchanged for one Class A Common Share, one Class 1 Preferred Share and one
Class 2 Preferred Share. No other consideration will be received by any holder of the Galway
Shares in respect of such exchange. The aggregate stated capital account of the Class A Common
Shares, Class 1 Preferred Shares and Class 2 Preferred Shares will not exceed the paid-up capital
(within the meaning of the Tax Act) of the Galway Shares immediately before the exchange. The
stated capital account of the Class 1 Preferred Shares will be an amount equal to the Class 1
26
Redemption Amount (which is equal to the aggregate of the principal amounts of the Nyak and
Galway Resources U.S. Note and the Funding Note 1). The stated capital account of the Class 2
Preferred Shares will be an amount equal to the Class 2 Redemption Amount (which is equal to
the aggregate of the principal amounts of the New Sisterco Note and the Funding Note 2). The
stated capital account of the Class A Common Shares will be an amount equal to the paid-up
capital of the Galway Shares immediately before the exchange less the amounts allocated to the
stated capital accounts of the Class 1 Preferred Shares and the Class 2 Preferred Shares;
(j)
each Class 1 Preferred Share will be transferred to Galway Metals in consideration for the
issuance by Galway Metals of one Galway Metals Share for each Class 1 Preferred Share
transferred to it. The stated capital account of the Galway Metals Shares shall be an amount equal
to the aggregate stated capital of the Class 1 Preferred Shares transferred to Galway Metals;
(k)
each Class 2 Preferred Share will be transferred to Galway Gold in consideration for the issuance
by Galway Gold of one Galway Gold Share for each Class 2 Preferred Share transferred to it. The
stated capital account of the Galway Gold Shares shall be an amount equal to the aggregate stated
capital of the Class 2 Preferred Shares transferred to Galway Gold;
(l)
Galway Metals shall purchase for cancellation from Galway its incorporation share for
consideration of $1;
(m)
Galway Gold shall purchase for cancellation from Galway its incorporation share for consideration
of $1;
(n)
immediately after completion of the exchange contemplated by paragraph (j), the Class 1 Preferred
Shares shall be redeemed by Galway for an amount equal to the Class 1 Redemption Amount
which amount in the aggregate shall be satisfied by the issuance of the Class 1 Note by Galway to
Galway Metals and the redeemed Class 1 Preferred Shares shall be cancelled;
(o)
immediately after completion of the exchange contemplated by paragraph (k), the Class 2
Preferred Shares shall be redeemed by Galway for an amount equal to the Class 2 Redemption
Amount which amount in the aggregate shall be satisfied by the issuance of the Class 2 Note by
Galway to Galway Gold and the redeemed Class 2 Preferred Shares shall be cancelled;
(p)
the Class 1 Note shall be repaid by way of set-off against the amounts owing by Galway Metals
pursuant to the Nyak and Galway Resources U.S. Note and the Funding Note 1 and the Class 1
Note, the Nyak and Galway Resources U.S. Note and the Funding Note 1 shall be cancelled;
(q)
the Class 2 Note shall be repaid by way of set-off against the amount owing by Galway Gold
pursuant to the New Sisterco Note and the Class 2 Note, and the New Sisterco Note shall be
cancelled;
(r)
Galway shall sell 10% of the common shares of New Sisterco to Galway Gold and 10% of
Funding Note 2 in exchange for 10% of the common shares of Galway Gold in accordance with
the New Sisterco 10% Share Sale Agreement; and
(s)
each issued Class A Common Share held by a Galway Securityholder (other than AUX or any
subsidiary or affiliate of AUX) shall be transferred to AUX Canada in exchange for the Cash
Consideration.
Effect of the Arrangement
Assuming completion of the Arrangement and using Galway Share, Galway Warrant and Galway Option
numbers as of the date of this Circular for illustration purposes, on the Effective Date:
27
(a)
AUX will pay for the Galway Shares and Galway Warrants validly deposited by providing the
Depositary with sufficient Cash Consideration per Galway Share and Galway Warrant;
(b)
assuming there are 135,879,134 Galway Shares outstanding, no Dissent Rights have been
exercised, 5,260,137 Galway Warrants remain outstanding and will be exchanged for the Warrant
Consideration, and all 9,980,600 Galway Options have been exercised as at the Effective Date:
(i)
AUX will pay approximately Cdn$301,905,530 as the Cash Consideration to acquire the
Galway Shares;
(ii)
Galway Metals will issue approximately 147,270,990 Galway Metals Shares and Galway
Gold will issue approximately 147,270,990 Galway Gold Shares to the Galway
Securityholders;
(iii)
Galway Gold will issue 16,363,443 Galway Gold Shares to Galway, representing 10% of
the issued and outstanding Galway Gold Shares, which will ultimately be owned
indirectly by AUX;
(c)
Galway will become a wholly-owned subsidiary of AUX Canada;
(d)
the Galway Shares will cease trading on the TSX-V; and
(e)
Galway Gold will be capitalized with U.S.$18 million in working capital and Galway Metals will
be capitalized with U.S.$12 million in working capital.
Effective Date of the Arrangement
If the Arrangement Resolution is passed, the Final Order is obtained, every other requirement of the OBCA
relating to the Arrangement is complied with and all other conditions disclosed below under “The Arrangement
Agreement – Conditions Precedent to the Arrangement” are satisfied or waived, the Arrangement will become
effective on the Effective Date. AUX and Galway currently expect that the Effective Date will be December 20,
2012.
At or prior to the Effective Date, AUX will deposit with the Depositary, the Cash Consideration required to
be paid in accordance with the Plan of Arrangement, which cash shall be held by the Depositary as agent and
nominee for former Galway Securityholders for distribution to such former Galway Securityholders in accordance
with the Plan of Arrangement.
At the Effective Date, the transfer agent of Galway Gold and Galway Metals will deposit with the
Depositary the Share Consideration to be issued to Galway Securityholders in accordance with the Plan of
Arrangement, which shares shall be held by the Depositary as agent and nominee for former Galway Securityholders
for distribution to such former Galway Securityholders in accordance with the Plan of Arrangement.
28
Post-Arrangement Structure
The following chart shows the relationship between the parties following the completion of the
Arrangement:
AUX Acquisition 2
S.à r.l.
82.45%
Common
Shares
AUX Canada
Acquisition 2 Inc.
(Ontario, Canada)
100%
Galway Resources
Ltd.
(Ontario, Canada)
Public Shareholders
(i.e. NOT including AUX Canada
Acquisition 2 Inc.)
Public Shareholders
(i.e. NOT including AUX Canada
Acquisition 2 Inc.)
8.39% Common
Shares
7.55% Common
Shares
10%
Common
Shares
91.61%
Common
Shares
Galway Metals Inc.
(New Brunswick,
Canada)
Galway Gold Inc.
(New Brunswick,
Canada)
100%
100%
Galway Resources
(Cayman) Ltd.
(Cayman Islands)
100%
100%
New Sisterco
(Cayman Islands)
Galway Resources
Holdco Ltd.
(Cayman Islands)
Galway Resources
US Inc.
(Nevada, USA)
Nyak Resources Inc.
(New Mexico, USA)
100%
100%
Sucursal Colombia
Victorio
Project
100%
Sucursal Colombia
Vetas
Project
California
Project
An affiliate of AUX owns 12,356,200 Galway Shares or approximately 9.1% of the issued and outstanding
Galway Shares. Following the completion of the Arrangement, AUX and its affiliates will own 100% of Galway,
approximately 8.39% of Galway Metals and approximately 17.55% of Galway Gold.
Letter of Transmittal
A letter of transmittal is enclosed with this Circular for use by Galway Securityholders for the purpose of
the surrender of share certificates representing Galway Shares or Galway Warrants. The details for the surrender of
share certificates or warrant certificates to the Depositary and the addresses of the Depositary are set out in the
applicable letter of transmittal. Provided that a Registered Holder has delivered and surrendered to the Depositary all
share certificates and/or warrant certificates, together with a letter of transmittal properly completed and executed in
accordance with the instructions of such letter of transmittal, and any additional documents as the Depositary may
reasonably require, the Galway Securityholder will be entitled to receive the Cash Consideration and the Share
Consideration.
If you are a beneficial holder of Galway Shares and/or Galway Warrants, please contact your broker or
other Intermediary to instruct them to deposit your Galway Shares and/or Galway Warrants. Your broker should do
29
so prior to the Meeting in order for you to receive your entitlement as soon as possible after the closing of the
Arrangement.
Lost Certificates
A Galway Securityholder who has lost or misplaced its share certificates or warrant certificates should
complete the letter of transmittal as fully as possible and forward it, together with a letter explaining the loss or
misplacement to the Depositary. The Depositary will assist in making arrangements for the necessary affidavit
(which will include a bonding requirement) for payment of the consideration in accordance with the Arrangement.
Cancellation of Rights after Six Years
Any certificate which immediately before the Effective Date represented Galway Shares and which has not
been surrendered, with all other documents required by the Depositary, on or before the sixth anniversary of the
Effective Date, will cease to represent any claim against or interest of any kind or nature in Galway, Galway Metals,
Galway Gold or the Depositary. Accordingly, persons who tender certificates for Galway Shares after the sixth
anniversary of the Effective Date will not receive Galway Metals Shares or Galway Gold Shares, will not own any
interest in Galway Metals or Galway Gold, and will not receive any securities or be paid any cash or other
compensation.
Fractional Shares
No fractional Galway Metals Shares or Galway Gold Shares will be issued to Galway Securityholders. If a
Galway Securityholder is entitled to a fractional share representing 0.5 or more of either a Galway Metals Share or a
Galway Gold Share, the number of Galway Metals Shares or Galway Gold Shares to be issued to that Galway
Securityholder will be rounded up to the nearest whole number of Galway Metals Shares or Galway Gold Shares. If
a Galway Securityholder is entitled to a fractional share representing less than 0.5 of either a Galway Metals Share
or Galway Gold Share, the number of Galway Metals Shares or Galway Gold Shares to be issued to that Galway
Securityholder will be rounded down to the nearest whole number of Galway Metals Shares or Galway Gold Shares.
Delivery Requirements
The method of delivery of share certificates and warrant certificates, the letter of transmittal and all other
required documents is at the option and risk of the Galway Securityholder surrendering them. Galway recommends
that such documents be delivered by hand to the Depositary, at the office noted in the letter of transmittal, and a
receipt obtained therefor or, if mailed, that registered mail, with return receipt requested, be used and that proper
insurance be obtained. Galway Securityholders holding Galway Shares which are registered in the name of an
Intermediary (such as a bank, trust company securities dealer or broker, or the trustee or administrator of a
self-administered registered retirement savings plan, registered education savings plan or similar plan) must contact
such Intermediary to arrange for the surrender of their share certificates.
Interests of Senior Management and Others in the Arrangement
In considering the recommendations of the Galway Board with respect to the Arrangement, Galway
Securityholders should be aware that members of Galway’s senior management and the Galway Board have certain
interests that may present them with actual or potential conflicts of interest in connection with the Arrangement. The
Galway Board is aware of these interests and considered them along with other matters described above in “The
Arrangement – Reasons for the Arrangement”.
The executive officers and directors of Galway beneficially own, directly or indirectly, or exercise control
or direction over, in the aggregate, 2,625,000 Galway Shares (excluding the Galway Shares issuable upon the
exercise of Galway Options) representing approximately 1.93% of the Galway Shares outstanding as of the close of
business on November 16, 2012. All of the Galway Shares held by the executive officers and directors of Galway
will be treated in the same fashion under the Arrangement as Galway Shares held by any other Galway Shareholder.
30
The executive officers and directors of Galway beneficially own, directly or indirectly, or exercise control
or direction over, in the aggregate, 5,887,500 Galway Options to acquire the same number of Galway Shares and no
Galway Warrants as of the close of business on November 16, 2012. The Galway Options held by the executive
officers and directors represent approximately 58.99% of the Galway Options issued. All of the Galway Options
held by the executive officers and directors of Galway will be treated in the same manner under the Arrangement as
Galway Options held by every other holder of Galway Options.
Certain executive officers and employees of Galway have “change of control” provisions as part of their
employment agreement. These provisions provide that in the event that there is a “change of control” of Galway,
either the officer or employee, as applicable, or Galway will have 45 days from the date of the “change of control”
event to elect to terminate the officer’s or employee’s employment. If such an election is made, Galway will make a
lump sum termination payment to the officer or employee, as applicable, that is equivalent to, dependent on the
terms of the individual’s employment agreement, two and a half to three times his or her base salary, and, an amount
that is equivalent to two and a half times the previously paid annual bonus, and for certain individuals, three times
the previously paid annual bonus. In addition, pursuant to the Arrangement, the Galway Board will take the steps
necessary to accelerate the vesting and expiry of the Galway Options and as a result all Galway Options held by
Galway’s officers and employees will become vested. The Arrangement Agreement provides that AUX will make
loans to Galway Optionholders for the amount of the exercise price of their Galway Options one business day before
the Effective Date, as described under “The Arrangement – Certain Canadian Securities Laws Considerations –
Minority Approval and Multilateral Instrument 61-101” and under “The Arrangement – Treatment of Galway
Options and Galway Warrants – Galway Options”
The following table sets out the “change of control” payments that certain executive officers will receive in
connection with the Arrangement (assuming that the officer’s employment with Galway is terminated within 90
days of the Effective Date) pursuant to the terms of their respective employment and consulting agreements as well
as details with respect to the Galway Shares and Options held by the Locked-Up Shareholders as of the date of this
Circular:
Name/Position
Robert Hinchcliffe
Director, President
and Chief
Executive Officer
Change of
Control
Payment
(U.S.$)
$1,260,000
Total
Galway
Options
100,000
100,000
450,000
150,000
425,000
100,000
1,325,000
Exercise
Price of
Galway
Options
$1.12
$0.15
$0.84
$0.75
$1.05
$1.45
Expiry
Date of
Galway
Options
06/08/2017
30/06/2014
9/10/2014
29/07/2015
11/02/2016
22/08/2016
Total
Vested
Galway
Options
1,325,000
Total
Galway
Shares
2,320,000
Nil
25,000
450,000
150,000
350,000
50,000
1,025,000
$1.12
$0.84
$0.75
$1.05
$1.45
06/08/2017
9/10/2014
29/07/2015
11/02/2016
22/08/2016
1,025,000
25,000
Alfonso Gomez
Director and
Country Manager,
Colombia
$900,000
150,000
37,500
150,000
100,000
325,000
250,000
1,012,500
$1.12
$0.15
$0.84
$0.75
$1.05
$1.45
06/08/2017
30/06/2014
9/10/2014
29/07/2015
11/02/2016
22/08/2016
1,012,500
Nil
Larry Strauss
Director and Vice
President,
$425,000
300,000
450,000
150,000
$0.15
$0.84
$0.75
30/06/2014
9/10/2014
29/07/2015
1,375,000
200,000
Robb Doub
Director
31
Name/Position
Change of
Control
Payment
(U.S.$)
Corporate Affairs
Total
Galway
Options
425,000
50,000
1,375,000
Exercise
Price of
Galway
Options
$1.05
$1.45
Expiry
Date of
Galway
Options
11/02/2016
22/08/2016
Total
Vested
Galway
Options
Total
Galway
Shares
Mike Sutton
Director
Nil
100,000
150,000
225,000
425,000
100,000
1,000,000
$0.15
$0.84
$0.75
$1.05
$1.45
30/06/2014
9/10/2014
29/07/2015
11/02/2016
22/08/2016
1,000,000
80,000
Carmelo Marrelli
Chief Financial
Officer
Nil
150,000
$0.75
29/07/2015
150,000
Nil
In addition, Mari Trowbridge, Galway’s Vice President of Administration, will receive a “change of
control” payment in connection with the Arrangement of U.S.$450,000.
See “The Arrangement – Canadian Securities Laws Considerations – MI 61-101 Protection of Minority
Security Holders in Special Transactions”.
Indemnification and Insurance
AUX has agreed that in order to maintain all current rights to indemnification or exculpation in favour of
the current and former directors and officers of Galway, prior to the Effective Date, Galway may, at its expense, take
all action deemed appropriate or necessary, subject to certain limitations, prior to the Effective Date for the
continuance (or replacement with substantially equivalent coverage from another provider) of such rights (either
directly or via run-off insurance or insurance provided by an alternative provider) for a period of up to six years
from the Effective Time.
Further information with respect to the compensation and the financial holdings and interests of Galway’s
directors and officers is contained in the Management Information Circular date August 20, 2012 which is available
under Galway’s profile on SEDAR at www.sedar.com.
Canadian Securities Laws Considerations
The Galway Metals Shares and Galway Gold Shares and other securities to be issued under the
Arrangement will be issued in reliance on exemptions from prospectus and registration requirements of applicable
Canadian securities laws. The Galway Metals Shares and Galway Gold Shares will generally be “freely tradable”
(other than pursuant to certain “control distributions”) under applicable Canadian securities laws.
Minority Approval and Multilateral Instrument 61-101
Galway is a reporting issuer or equivalent in the provinces of British Columbia and Alberta and it has
applied to become a reporting issuer in Ontario. Among other things, Galway is subject to MI 61-101, which is
intended to regulate certain transactions to ensure equality of treatment among securityholders, generally by
requiring enhanced disclosure, approval by a majority of securityholders excluding interested or related parties and,
in certain instances, independent valuations and approval and oversight of the transaction by a special committee of
independent directors. The protections of MI 61-101 generally apply to “business combinations” (as defined in MI
61-101) that may terminate the interests of securityholders without their consent.
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MI 61-101 provides that where a “related party” (as defined in MI 61-101) of an issuer is entitled to receive
a “collateral benefit” (as defined in MI 61-101) in connection with an arrangement transaction (such as the
Arrangement), such transaction is considered a “business combination” for the purposes of MI 61-101 and subject to
minority approval requirements.
A “collateral benefit”, as defined under MI 61-101, includes any benefit that a “related party” of Galway
(which includes the directors and senior officers of Galway) is entitled to receive as a consequence of the
Arrangement, including, without limitation, an increase in salary, a lump sum payment, a payment for surrendering
securities, or other enhancement in benefits related to part or future services as an employee, director or consultant
of Galway. However, MI 61-101 excludes from the meaning of “collateral benefit” certain benefits to a related
party received solely in connection with the related party’s services as an employee, director or consultant of an
issuer or an affiliated entity of the issuer or a successor to the business of the issuer where, among other things, (a)
the benefit is not conferred for the purpose, in whole or in part, of increasing the value of the consideration paid to
the related party for securities relinquished under the transaction, (b) the conferring of the benefit is not, by its terms,
conditional on the related party supporting the transaction in any manner, (c) full particulars of the benefit are
disclosed in the disclosure document for the transaction, and (d) (i) at the time the transaction was agreed to, the
related party and its associated entities beneficially own or exercise control or direction, over less than 1% of the
outstanding shares of the issuer or (ii) an independent committee, acting in good faith, determines that the value of
the collateral benefit, net of any offsetting costs to the related party, is less than 5% of the value of the consideration
the related party expects to receive in exchange for his or her equity securities under the terms of the Arrangement.
The Arrangement Agreement provides that AUX Canada will make loans to Galway Optionholders for the
amount of the exercise price of their Galway Options one business day before the Effective Date. If the Effective
Date does not occur the loans will be repaid immediately without interest payable. If the Effective Date does occur,
the loans will be repaid from the sale price payable for the Galway Shares acquired on the exercise of the Galway
Options without further action by the Galway Optionholder. No interest will be payable on the loans provided they
are repaid when due. In addition, pursuant to the Arrangement, the Galway Board will take the steps necessary to
accelerate the vesting and expiry of the Galway Options. Providing loans to the Galway Optionholders who are
related parties of Galway and accelerating vesting of their Galway Options may, subject to the above, be considered
to be a “collateral benefit” received by the applicable related parties of Galway for the purposes of MI 61-101. With
the exception of Robert Hinchcliffe, each of the related parties who would receive such collateral benefits
beneficially owns less than 1% of the outstanding Galway Shares (as calculated in accordance with MI 61-101).
Accordingly, neither the loans nor the accelerated vesting for those individuals are collateral benefits under MI 61101. See “The Arrangement – Interests of Senior Management and Others in the Arrangement”.
The consulting or employment contracts of certain senior officers of Galway provide for termination
payments pursuant to a change of control of Galway. Accordingly, any officer of Galway that is party to a
consulting or employment agreement who is terminated prior to a particular date after the Effective Date, such date
set out in their consulting or employment agreement, will receive certain termination payments (as described above
under the heading “The Arrangement – Interests of Senior Management and Others in the Arrangement”. The
receipt of termination amounts under the consulting or employment contracts may, subject to the above, be
considered to be “collateral benefits” received by the applicable officers of Galway for the purposes of MI 61-101.
With the exception of Robert Hinchcliffe, each of the officers who would receive such termination payments
beneficially owns less than 1% of the outstanding Galway Shares (as calculated in accordance with MI 61-101).
Accordingly, the termination payments of those officers are not collateral benefits under MI 61-101.
The Arrangement will be considered a “business combination” for the purposes of MI 61-101, thereby
requiring Galway to obtain “minority approval” of the Arrangement. Pursuant to MI 61-101, in determining whether
minority approval for the Arrangement has been obtained, Galway is required to exclude the votes attaching to the
Galway Shares beneficially owned or controlled by “interested parties” and their “related parties” and “joint actors”,
all as defined in MI 61-101. MI 61-101 also provides that related parties who receive a collateral benefit are
considered to be interested parties. Accordingly, Galway has determined to exclude the votes attaching to the
Galway Shares beneficially owned or controlled by Robert Hinchcliffe and his related parties and joint actors for the
purpose of determining whether minority approval of the Arrangement has been obtained. To the knowledge of the
directors and officers of Galway, as at November 16, 2012, Robert Hinchcliffe and his related parties and joint
33
actors hold, directly or indirectly, or exercise control over 2,320,000 Galway Shares and 1,325,000 Galway Options.
As a result, a total of 2,320,000 Galway Shares (representing approximately 1.7% of the issued and outstanding
Galway Shares as at November 16, 2012) will be excluded from the “minority approval” vote conducted pursuant to
MI 61-101. See “The Arrangement – Interest of Senior Management and Others in the Arrangement”.
To the knowledge of the directors and officers of Galway, after reasonable enquiry, there have been no
prior valuations (as defined in MI 61-101) prepared in respect of Galway within the 24 months preceding the date of
this Circular.
United States Securities Laws Considerations
Exemption from the Registration Requirements of the U.S. Securities Act
The securities to be issued by Galway Metals and Galway Gold pursuant to the Arrangement will not be
registered under the U.S. Securities Act or the securities laws of any state of the United States and will be effected in
reliance on Section 3(a)(10) thereof and exemptions provided under the securities laws of each state of the United
States in which Galway Shareholders reside. Section 3(a)(l0) of the U.S. Securities Act exempts from registration
securities which are issued in exchange for outstanding securities where the terms and conditions of such issue and
exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom
it is proposed to issue securities in such exchange have the right to appear, by a court or governmental authority
expressly authorized by law to grant such approval. The SEC generally recognizes exchanges effected under a
Canadian plan of arrangement as qualifying for the section 3(a)(10) exemption under the U.S. Securities Act.
Accordingly, the Final Order, if granted, will constitute a basis for the exemption from the registration requirements
of the U.S. Securities Act with respect to the Galway Metals Shares and Galway Gold Shares issued in connection
with the Arrangement.
Resales of Galway Metals Shares and Galway Gold Shares Issued to Galway Securityholders at the
Effective Time
The restrictions on resale of the Galway Metals Shares and Galway Gold Shares issued to Galway
Securityholders at the Effective Time imposed by the U.S. Securities Act will depend on whether the Galway
Securityholder is an “affiliate” of Galway Metals or Galway Gold, as applicable, after the Effective Time or was an
“affiliate” of Galway Metals or Galway Gold, as applicable, within 90 days prior to the Effective Time. As defined
in Rule 144 under the U.S. Securities Act, an “affiliate” of an issuer is a person that directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common control with, the issuer. Typically,
persons who are executive officers, directors or 10% or greater shareholders of an issuer are considered to be its
“affiliates”. The resale rules applicable to Galway Securityholders are summarized below.
Galway Securityholders who are not affiliates of Galway Metals or Galway Gold, as applicable, within 90
days before the Effective Time and who will not be affiliates of Galway Metals or Galway Gold, as applicable, after
the Effective Time may resell the Galway Metals Shares and Galway Gold Shares issued to them upon closing of the
Arrangement in the United States without restriction under the U.S. Securities Act.
Galway Securityholders who are or have been affiliates of Galway Metals or Galway Gold, as applicable,
within 90 days before the Effective Time or who will be affiliates of Galway Metals or Galway Gold, as applicable,
after the Effective Time will be subject to restrictions on resale imposed by the U.S. Securities Act with respect to
Galway Metals Shares and Galway Gold Shares issued at the Effective Time. These affiliates may not resell their
Galway Metals Shares or Galway Gold Shares unless such shares are registered under the U.S. Securities Act or an
exemption from registration is available. Affiliates may resell their Galway Metals Shares or Galway Gold Shares in
accordance with the provisions of Rule 144 under the U.S. Securities Act, including compliance with the current
public information requirements, the applicable holding period, and the volume and manner of sale limitations.
Subject to certain limitations, at any time that Galway Metals or Galway Gold, as applicable, is a “foreign
private issuer” (as defined in Rule 405 under the U.S. Securities Act), Galway Securityholders who are affiliates of
Galway Metals or Galway Gold, as applicable, after the Effective Time or within 90 days before the Effective Time
34
may immediately resell the Galway Metals Shares or Galway Gold Shares they receive at the Effective Time outside
the United States without registration under the U.S. Securities Act pursuant to Regulation S under the U.S.
Securities Act. Generally, such persons may resell such securities in an “offshore transaction” if (i) no offer is made
to a person in the United States, (ii) either: (A) at the time the buyer’s buy order is originated, the buyer is outside
the United States, or the seller and any person acting on its behalf reasonably believes that the buyer is outside the
United States, or (B) the transaction is executed in, on or through a “designated offshore securities market”
(including the TSX and the TSX-V) if neither the seller nor any person acting on its behalf knows that the
transaction has been pre-arranged with a buyer in the United States, and (iii) neither the seller, any affiliate of the
seller or any person acting on any of their behalves engages in any “directed selling efforts” in the United States.
Additional restrictions will apply if there is “substantial U.S. market interest” in the Galway Metals Shares or
Galway Gold Shares, as applicable.
For the purposes of Regulation S, “directed selling efforts” means “any activity undertaken for the purpose
of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of
the securities being offered” in the resale transaction. “Substantial U.S. market interest” with respect to a class of an
issuer’s equity securities means: (i) the securities exchanges and inter-dealer quotation systems in the United States
in the aggregate constituted the single largest market for such class of securities in the shorter of the issuer’s prior
fiscal year or the period since the issuer’s incorporation; or (ii) 20 percent or more of all trading in such class of
securities took place in, on or through the facilities of securities exchanges and inter-dealer quotation systems in the
United States and less than 55 percent of such trading took place in, on or through the facilities of securities markets
of a single foreign country in the shorter of the issuer’s prior fiscal year or the period since the issuer’s
incorporation.
Galway Metals and Galway Gold are under no obligation to remain foreign private issuers.
Certain additional restrictions will apply to Galway Securityholders who are affiliates of Galway Metals or
Galway Gold, as applicable, after the Effective Time or within 90 days of the Effective Time by virtue of his or her
status as an officer or director of the applicable entity.
The foregoing discussion is only a general overview of certain requirements of United States federal
securities laws applicable to the resale of Galway Metals Shares and Galway Gold Shares received upon completion
of the Arrangement. All holders of such Galway Metals Shares and Galway Gold Shares are urged to consult
with counsel to ensure that the resale of their Galway Metals Shares and Galway Gold Shares complies with
applicable securities legislation.
Stock Exchange Listings and Reporting Issuer Status
Galway is a reporting issuer (or the equivalent) in the Canadian provinces of British Columbia and Alberta,
and has applied to become a reporting issuer in Ontario. The Galway Shares are listed on the TSX-V. Following the
Effective Date of the Arrangement, the Galway Shares will be delisted from the TSX-V. It is a condition of the
Arrangement that the Galway Metals Shares and Galway Gold Shares to be issued pursuant to the Arrangement be
conditionally approved to be listed on the TSX-V. An application has been made to list the Galway Metals Shares
and the Galway Gold Shares on the TSX-V.
Galway Securityholder Approval of the Arrangement
The approval of the Arrangement Resolution, in the form set out in Appendix A attached to this Circular
will require the affirmative vote of (i) at least 662/3% of the votes cast by all Galway Securityholders, present in
person or represented by proxy at the Meeting, which holders are entitled to one vote for each Galway Share and
Galway Warrant held, and (ii) at least a simple majority of the votes cast by Galway Securityholders, present in
person or represented by proxy at the Meeting, after excluding votes cast in respect of Galway Shares held by Mr.
Robert Hinchcliffe, President and Chief Executive Officer of Galway, whose votes may not be included in
determining minority approval pursuant to MI 61-101 (see “The Arrangement – Certain Canadian Securities Laws
Considerations – Minority Approval and Multilateral Instrument 61-101”).
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The complete text of the Arrangement Resolution to be presented to the Meeting is set forth in Appendix A
to this Circular.
Court Approval of the Arrangement
An arrangement under the OBCA requires court approval. Prior to the mailing of this Circular, Galway
obtained the Interim Order, which provides for the calling and holding of the Meeting, the Dissent Rights and other
procedural matters. A copy of the Interim Order is attached as Appendix G to this Circular.
Subject to approval of the Arrangement Resolution by Galway Securityholders at the Meeting, the hearing
in respect of the Final Order is currently scheduled to take place on December 19, 2012 at 10:00 a.m. (Toronto time)
in the Court at 330 University Avenue, Toronto, Ontario. Any Galway Securityholder or other person who wishes to
appear, or to be represented, and to present evidence or arguments must serve and file a notice of appearance (a
“Notice of Appearance“) as set out in the Notice of Application for the Final Order and satisfy any other
requirements of the Court. The Court will consider, among other things, the fairness and reasonableness of the
Arrangement. The Court may approve the Arrangement in any manner the Court may direct, subject to compliance
with any terms and conditions, if any, as the Court deems fit. In the event that the hearing is postponed, adjourned or
re-scheduled then, subject to further order of the Court, only those persons having previously served a Notice of
Appearance in compliance with the Notice of Application and the Interim Order will be given notice of the
postponement, adjournment or re-scheduled date. A copy of the Notice of Application for the Final Order is attached
as Appendix H to this Circular.
The Court’s approval is required for the Arrangement to become effective and the Court has been informed
that approval, if obtained, will constitute the basis for the Section 3(a)(10) exemption under the U.S. Securities Act
with respect to, among other things, Galway Metals securities and Galway Gold securities to be issued pursuant to
the Arrangement as described above under “The Arrangement – United States Securities Laws Considerations”.
Assuming the Final Order is granted and the other conditions to closing contained in the Arrangement
Agreement are satisfied or waived to the extent legally permissible, then the Articles of Arrangement will be filed
with the Director and the Arrangement will become effective following the issuance of a Certificate of Arrangement
thereafter.
Dissent Rights of Galway Securityholders
Each registered Galway Shareholder is entitled to dissent in respect of the Arrangement Resolution in the
manner provided in section 185 of the OBCA, as modified or supplemented by the Interim Order and the Plan of
Arrangement (“Dissent Rights”). The same will apply, mutatis mutandis, to each Galway Warrantholder as though
such registered Galway Warrantholder were a registered Galway Shareholder. The following summary is qualified
in its entirety by the provisions of section 185 of the OBCA, the Interim Order and the Plan of Arrangement (such
Dissent Rights and procedures are collectively the “Dissent Procedures”).
Any Registered Holder who validly exercises Dissent Rights (a “Dissenting Securityholder”), will be
entitled, in the event the Arrangement becomes effective, to be paid by AUX Canada the fair value of Galway
Shares and/or Galway Warrants held by such Dissenting Securityholder which fair value shall be the fair value of
the Galway Shares and/or Galway Warrants determined immediately before the Arrangement Resolution is adopted.
Galway Securityholders are cautioned that fair value could be determined to be less than the amount per Galway
Share and/or Galway Warrant payable pursuant to the terms of the Arrangement. Section 185 of the OBCA provides
that a Dissenting Securityholder may only make a claim under that section with respect to all of the Galway Shares
and/or Galway Warrants held by the Dissenting Securityholder on behalf of any one beneficial owner and registered
in the Dissenting Securityholder’s name. One consequence of this provision is that a Registered Holder may
exercise the Dissent Rights only in respect of Galway Shares and/or Galway Warrants that are registered in
that Registered Holder’s name.
In many cases, Galway Shares and Galway Warrants beneficially owned by a Non-Registered Holder are
registered either: (a) in the name of an Intermediary, or (b) in the name of a clearing agency (such as CDS Clearing
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and Depositary Services Inc.) of which the Intermediary is a participant. Accordingly, a Non-Registered Holder will
not be entitled to exercise its Dissent Rights directly (unless the Galway Shares or Galway Warrants are
re-registered in the Non-Registered Holder’s name). A Non-Registered Holder who wishes to exercise Dissent
Rights should immediately contact the Intermediary with whom the Non-Registered Holder deals in respect of its
Galway Shares or Galway Warrants and either: (i) instruct the Intermediary to exercise the Dissent Rights on the
Non-Registered Holder’s behalf (which, if the Galway Shares or Galway Warrants are registered in the name of
CDS Clearing and Depositary Services Inc. or other clearing agency, may require that such Galway Shares or
Galway Warrants first be re-registered in the name of the Intermediary), or (ii) instruct the Intermediary to
re-register such Galway Shares or Galway Warrants in the name of the Non-Registered Holder, in which case the
Non-Registered Holder would be able to exercise the Dissent Rights directly.
A Registered Holder who wishes to dissent must provide a written notice of dissent (the “Dissent
Notice”) to Galway at 36 Toronto Street, Suite 1000, Toronto, ON, M5C 2C5, to be received not later than
5:00 p.m. on the date that is two days before the Meeting or any date to which the Meeting may be postponed
or adjourned. Failure to properly exercise Dissent Rights may result in the loss or unavailability of the right
to dissent.
The filing of a Dissent Notice does not deprive a Registered Holder of the right to vote at the Meeting.
However, the OBCA provides that a Registered Holder who has submitted a Dissent Notice and who votes FOR the
Arrangement Resolution will no longer be considered a Dissenting Securityholder with respect to that class of
securities voted FOR the Arrangement Resolution, being the Galway Shares and/or Galway Warrants. A proxy
submitted instructing the proxyholder to vote against the Arrangement Resolution, a vote against the
Arrangement Resolution or an abstention does not constitute a Dissent Notice, but a Galway Securityholder
need not vote its Galway Shares and/or Galway Warrants against the Arrangement Resolution in order to
dissent. Similarly, the revocation of a proxy conferring authority on the proxyholder to vote FOR the
Arrangement Resolution does not constitute a Dissent Notice. However, any proxy granted by a Registered
Holder who intends to dissent, other than a proxy that instructs the proxyholder to vote against the
Arrangement Resolution, should be validly revoked in order to prevent the proxyholder from voting such
Galway Shares and/or Galway Warrants in favour of the Arrangement Resolution and thereby causing the
Registered Holder to forfeit his or her Dissent Rights.
Within ten days after the Galway Securityholders adopt the Arrangement Resolution, Galway is required to
notify each Dissenting Securityholder that the Arrangement Resolution has been adopted. Such notice is not
required to be sent to any Galway Securityholder who voted for the Arrangement Resolution or who has withdrawn
its Dissent Notice.
A Dissenting Securityholder who has not withdrawn its Dissent Notice prior to the Meeting must then,
within twenty days after receipt of notice that the Arrangement Resolution has been adopted, or if the Dissenting
Securityholder does not receive such notice, within twenty days after learning that the Arrangement Resolution has
been adopted, send to Galway, care of the Transfer Agent, Computershare Investor Services Inc., Proxy Department,
100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, a written notice containing his or her name and
address, the number of Galway Shares and/or Galway Warrants in respect of which he or she dissents (the
“Dissenting Shares and/or Warrants”), and a demand for payment of the fair value of such Galway Shares and/or
Galway Warrants (the “Demand for Payment”). Within thirty days after sending a Demand for Payment, the
Dissenting Securityholder must send to Galway, care of the Transfer Agent, certificates representing the Galway
Shares and/or Galway Warrants in respect of which he or she dissents. Galway will or will cause the Transfer Agent
to endorse on the Galway Share and/or Galway Warrant certificates received from a Dissenting Securityholder a
notice that the holder is a Dissenting Securityholder and will forthwith return the Galway Share and/or Galway
Warrant certificates to the Dissenting Securityholder.
Dissenting Securityholders that fail to send the Dissent Notice, the Demand for Payment or the share
certificate(s) within the applicable time periods have no right to make a claim under Section 185 of the OBCA or the
Interim Order.
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After sending a Demand for Payment, a Dissenting Securityholder ceases to have any rights as a Galway
Securityholder in respect of its Dissenting Shares and/or Warrants other than the right to be paid the fair value of the
Dissenting Shares and/or Warrants held by such Dissenting Securityholder, except where: (i) the Dissenting
Securityholder withdraws its Dissent Notice before Galway makes an offer to pay (an “Offer to Pay”), or (ii)
Galway fails to make an Offer to Pay and the Dissenting Securityholder withdraws the Demand for Payment, in
which case the Dissenting Securityholder’s rights as a Galway Securityholder will be reinstated as of the date of the
Demand for Payment.
Pursuant to the Plan of Arrangement, in no case shall AUX Canada, Galway or any other person be
required to recognize any Dissenting Securityholder as a Galway Securityholder in respect of which Dissent Rights
have been validly exercised after the time that is immediately prior to the Effective Time and the names of such
Dissenting Securityholders shall be removed from the registers of holders of Galway Shares and/or Galway
Warrants in respect of which Dissent Rights have been validly exercised at the Effective Time such Galway
Warrants shall be canceled pursuant to the Plan of Arrangement and AUX Canada shall be recorded as the registered
holder of such Galway Shares and shall be deemed to be the legal owner of such Galway Shares.
In addition to any other restrictions under the OBCA, none of the following shall be entitled to exercise
Dissent Rights: (i) Galway Optionholders, and (ii) Galway Securityholders who vote or have instructed a
proxyholder to vote in favor of the Arrangement Resolution.
Pursuant to the Plan of Arrangement, Dissenting Securityholders who are ultimately determined not to be
entitled, for any reason, to be paid fair value for their Dissenting Shares and/or Warrants, shall be deemed to have
participated in the Arrangement on the same basis as any Galway Securityholder who is not a Dissenting
Securityholder.
AUX is not required to complete the Arrangement if Dissent Rights have been exercised with respect to
more than 10% of the issued and outstanding Galway Shares and Galway Warrants, unless such condition is waived
by AUX in its sole discretion.
Galway is required, not later than seven days after the later of the Effective Date or the date on which a
Demand for Payment is received from a Dissenting Securityholder, to send to each Dissenting Securityholder who
has sent a Demand for Payment an Offer to Pay for its Dissenting Shares and/or Warrants in an amount considered
by the Galway Board to be the fair value of the Galway Shares and/or Galway Warrants, accompanied by a
statement showing the manner in which the fair value was determined. Every Offer to Pay must be on the same
terms. Galway must pay for the Dissenting Shares and/or Warrants of a Dissenting Securityholder within ten days
after an Offer to Pay has been accepted by a Dissenting Securityholder, but any such offer lapses if Galway does not
receive an acceptance within thirty days after the Offer to Pay has been made.
If Galway fails to make an Offer to Pay for Dissenting Shares and/or Warrants, or if a Dissenting
Securityholder fails to accept an Offer to Pay that has been made, Galway may, within fifty days after the Effective
Date or within such further period as a court may allow, apply to a court to fix a fair value for the Dissenting Shares
and/or Warrants. If Galway fails to apply to a court, a Dissenting Securityholder may apply to a court for the same
purpose within a further period of twenty days or within such further period as a court may allow. A Dissenting
Securityholder is not required to give security for costs in such an application.
If Galway or a Dissenting Securityholder makes an application to court, Galway will be required to notify
each affected Dissenting Securityholder of the date, place and consequences of the application and of its right to
appear and be heard in person or by counsel. Upon an application to a court, all Dissenting Securityholders who
have not accepted an Offer to Pay will be joined as parties and be bound by the decision of the court. Upon any such
application to a court, the court may determine whether any person is a Dissenting Securityholder who should be
joined as a party, and the court will then fix a fair value for the Dissenting Shares and/or Warrants of all Dissenting
Securityholders. The final order of a court will be rendered against Galway in favour of each Dissenting
Securityholder for the amount of the fair value of its Dissenting Shares and/or Warrants as fixed by the court. The
court may, in its discretion, allow a reasonable rate of interest on the amount payable to each Dissenting
Securityholder from the Effective Date until the date of payment.
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The foregoing is only a summary of the provisions of the OBCA regarding the rights of Dissenting
Securityholders (as modified by the Plan of Arrangement and the Interim Order), which are technical and
complex. Galway Securityholders are urged to review a complete copy of section 185 of the OBCA, attached
hereto as Appendix I, and those Galway Securityholders who wish to exercise Dissent Rights are also advised
to seek legal advice, as failure to comply strictly with the provisions of the OBCA, as modified by the Plan of
Arrangement and the Interim Order, may result in the loss or unavailability of their Dissent Rights.
For a general summary of certain income tax implications to a Dissenting Shareholder, see “Certain
Canadian Federal Income Tax Considerations”.
Treatment of Galway Options and Galway Warrants
Galway Options
Pursuant to the Arrangement, the Galway Board will take the steps necessary to accelerate the vesting and
expiry of the Galway Options. The Galway Optionholders will be permitted to conditionally exercise their Galway
Options and receive Galway Shares that will participate in the Arrangement. All Galway Options and the Galway
Stock Option Plan will be cancelled at the Effective Time and be of no further force and effect. AUX Canada will
make loans to Galway Optionholders for the amount of the exercise price of their Galway Options, to be evidenced
in a form satisfactory to AUX Canada, one business day before the Effective Date. As of the date of the Circular,
there are 9,980,600 options outstanding. Assuming no change in the outstanding options, the aggregate amount of
the loans to Galway Optionholders will be $10,342,280. If the Effective Date does not occur the loans will be repaid
immediately without interest payable. If the Effective Date does occur, the loans will be repaid from the sale price
payable for the Galway Shares acquired on the exercise of the Galway Options without further action by the Galway
Optionholder. No interest will be payable on the loans provided they are repaid when due. The cost of the loans to
Galway Optionholders which will be borne by AUX is not considered to be a collateral benefit to Galway
Optionholders because the loan will not increase the net consideration that the Galway Optionholder will receive
relative to the amount they would have been entitled to receive had they exercised the Galway Options with their
own funds.
Galway Warrants
Under the terms of the Plan of Arrangement, all Galway Warrants outstanding on the Effective Date
(except for Galway Warrants held by Galway Warrantholders who exercise their Dissent Rights) will be cancelled in
exchange for the number of Galway Shares obtained by dividing (i) the amount, if any, by which: (A) the product
obtained by multiplying the number of Galway Shares underlying such Galway Warrant by the Cash Consideration
per Galway Share; exceeds: (B) the aggregate exercise price payable under such Galway Warrant to acquire such
Galway Shares; by (ii) the Cash Consideration per Galway Share (the “Warrant Consideration”).
No fractional Galway Shares forming part of the Warrant Consideration shall be issued to former Galway
Warrantholders. The number of Galway Shares to be issued as part of the Warrant Consideration to former Galway
Warrantholders shall be rounded down to the nearest whole Galway Share.
Such Galway Shares will then be exchanged pursuant to the Arrangement for the same consideration as is
being received by Galway Shareholders who do not exercise Dissent Rights (i.e. $2.05 per Galway Share plus a
Galway Metals Share and a Galway Gold Share for each Galway Share).
As an illustration of the treatment of Galway Warrants under the Arrangement, a holder of Galway
Warrants exercisable for the purchase of 10,000 Galway Shares at a price of $1.50 per share would receive
consideration under the Arrangement consisting of 2,682 Galway Metals Shares, 2,682 Galway Gold Shares and
Cash Consideration of $5,498.10, calculated as follows (assuming no deductions are required for withholding taxes
– see Section 5.04 of the Plan of Arrangement for additional information regarding withholding taxes):
(a)
(10,000 Galway Shares x $2.05 per Galway Share) – (10,000 Galway Shares x $1.50 per Galway Share) = 2,682 Galway Shares(1)
($2.05 per Galway Share)
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(b)
Each Galway Share is then exchanged for:
(i)
$2.05 per Galway Share x 2,682 Galway Shares = $5,498.10
(ii)
1.0 Galway Metals Shares per Galway Share x 2,682 Galway Shares = 2,682 Galway Metals Shares(1)
(iii)
1.0 Galway Gold Shares per Galway Share x 2,682 Galway Shares = 2,682 Galway Gold Shares(1)
Note:
(1)
Rounded down to the nearest whole share.
Assuming that a Galway Warrantholder has submitted their letter of transmittal in accordance with the
instructions provided therein and in the Circular and all other forms reasonably required by the Depositary, on
completion of the Arrangement, no further action by a Galway Warrantholder will be required in order for such
Galway Warrantholder to have the Galway Shares underlying the Galway Warrantholder’s Galway Warrants
participate in the Arrangement and to receive the Galway Metals Shares, Galway Gold Shares and Cash
Consideration that it is entitled to under the Plan of Arrangement. Subject to applicable withholding taxes, the
Depositary will deliver the certificates representing the Galway Metals Shares and Galway Gold Shares registered in
the name of the Galway Warrantholder and a cheque for the Cash Consideration to the address shown for it on the
register of holders of Galway Warrants maintained by Computershare Trust Company of Canada as warrant agent
under the Warrant Indenture.
Pursuant to the Plan of Arrangement, AUX, Galway and the Depositary shall be entitled to deduct and
withhold from any amount otherwise payable to any holder of Galway Warrants such amounts as AUX, Galway or
the Depositary is required or permitted to deduct and withhold with respect to such payment under the Tax Act, the
U.S. Internal Revenue Code of 1986 or any provision of any applicable federal, provincial, territorial, state, local or
foreign tax law or treaty, in each case, as amended. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes hereof as having been paid to the Galway Warrantholder in respect of
which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority.
Fees, Costs and Expenses
All expenses incurred in connection with the Arrangement Agreement and the transactions contemplated by
the Arrangement Agreement will be paid by the party incurring those expenses.
Galway estimates that it will incur fees and related expenses in the aggregate amount of approximately $5.1
million if the Arrangement is completed including, without limitation, financial advisors’ fees, legal and accounting
fees, severance payments, filing fees, proxy solicitation fees and the costs of preparing, printing and mailing this
Circular.
THE ARRANGEMENT AGREEMENT
The following description of certain material provisions of the Arrangement Agreement is a summary only,
is not comprehensive and is qualified in its entirety by reference to the full text of the Arrangement Agreement, a
copy of which is available under Galway’s profile on SEDAR at www.sedar.com.
Pursuant to the Arrangement Agreement, the parties thereto agreed to carry out the Arrangement on the
terms set out in the Plan of Arrangement. The provisions of the Arrangement Agreement are the result of arm’s
length negotiations conducted between representatives of Galway and AUX.
Support for the Arrangement
Galway has represented to AUX in the Arrangement Agreement that the Galway Board has, as at the date
of the Arrangement Agreement, after consultation with its financial advisors, National Bank Financial: (i) approved
the Arrangement and authorized the entering into of the Arrangement Agreement, the execution thereof, and the
performance of its provisions by Galway; (ii) determined that the Arrangement is fair to Galway Shareholders and
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that the Arrangement is in the best interests of Galway; and (iii) unanimously recommended that Galway
Securityholders vote in favour of the Arrangement Resolution.
Covenants of Galway
Galway has covenanted in favour of AUX that it will, and will cause its subsidiaries to, among other things:
carry on business in the ordinary course; not amend its articles or by-laws; not issue any dividends; not issue any
shares (except under existing options and warrants or required by existing material contracts); not redeem any
securities or amend the terms of any securities; not adopt any plans of liquidation; outside of the ordinary course or
except as required by existing material contracts not sell, pledge, lease, encumber or otherwise dispose of any assets
with a value in excess of $100,000, not acquire any assets or make any investment or capital expenditures in excess
of $100,000, not pay or otherwise satisfy material liabilities or obligations, and not waive any rights of material
value; other than as is necessary to comply with applicable laws or contracts, to provide for a tax gross-up of any
amount treated as an “excess parachute payment” within the meaning of Section 280G of the U.S. Internal Revenue
Code of 1986, as amended, or in accordance with the Galway benefit plans, not grant any officer, employee or
director an increase in compensation or grant such parties any loans or amend any of its employment agreements,
not increase benefits payable under any employment agreements or benefit plans, not provide for accelerated vesting
or exercise of share related awards upon a change of control (other than in connection with the Arrangement)
occurring on or prior to the Effective Time, and not establish, adopt or amend any collective bargaining agreement;
not settle any outstanding claims; not enter into any agreement that limits or restricts Galway or the Galway
Subsidiaries from competing in any manner; not enter into new material contracts or modify existing material
contracts except in the ordinary course; not take any action or fail to take any action which would result in loss of
material permits or approvals that would, if not obtained, materially impede the completion of the Arrangement;
keep its insurance policies in place; not take any action or fail to take any action which is intended to or reasonably
could be expected to prevent or materially delay or impede the Arrangement; notify AUX of any circumstance or
development that to the knowledge of Galway is or could reasonably be expected to constitute a material adverse
effect; not undertake a reorganization other than in accordance with the Arrangement Agreement; not make any
investments in securities of any person other than in accordance with the Arrangement Agreement; and not provide
any indemnities to Galway Metals or Galway Gold.
Galway has also covenanted in favour of AUX that it will, and will cause its subsidiaries to, do all such acts
and things as may be necessary or desirable in order to consummate and make effective the transactions
contemplated in the Arrangement Agreement, which includes, among other things: use commercially reasonable
efforts to cause such members of the Galway Board to resign as AUX may require, with a nominee of AUX to be
appointed to the Galway Board immediately thereafter; use commercially reasonable efforts to obtain all necessary
consents, approvals or waivers; carry out such terms of the Interim Order as are required to be carried out by it;
provide copies of all documents implementing the inter-company account transactions (as such term is defined in the
Arrangement Agreement) to AUX prior to the closing of such transactions; defend all lawsuits or other legal,
regulatory or other proceedings against Galway challenging or affecting the Arrangement Agreement or the
consummation of the transactions contemplated therein; cause New Sisterco to establish a branch in Colombia that
will own and exploit the Vetas Project; with respect to the sale of shares of New Sisterco, execute and file a joint
election under section 85(1) of the Tax Act with Galway Gold if requested; with respect to the sale of shares of
Nyak, execute and file a joint election under section 85(1) of the Tax Act with Galway Metals if requested.
Covenants of AUX
AUX has covenanted in favour of Galway that it will, and will cause AUX Canada to, do all such acts and
things as may be necessary or desirable in order to consummate and make effective the transactions contemplated in
the Arrangement Agreement, which includes, among other things: use commercially reasonable efforts to obtain all
necessary consents, approvals or waivers; make the payment of the aggregate consideration payable under the
Arrangement Agreement; vote the Galway Shares held or controlled by it in favour of the Arrangement Resolution;
and not take any action that is intended to, or would reasonably be expected to, individually or in the aggregate,
prevent, delay or impede the ability of AUX to consummate the Arrangement or the other transactions contemplated
by the Arrangement Agreement.
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AUX has also covenanted in favour of Galway Metals and Galway Gold that it will, and will cause its
affiliates to, vote all Galway Metals Shares and Galway Gold Shares held or controlled by AUX or its affiliates for
the election of directors of Galway Metals and Galway Gold as directed by the Galway Metals board of directors
(the “Galway Metals Board”) and the Galway Gold board of directors (the “Galway Gold Board”), respectively,
at the first annual meetings of Galway Metals and Galway Gold.
AUX has also covenanted to provide a loan of up to U.S.$12,182,000 to Galway at Galway’s request for
the sole purpose of Galway making payments due under mining titles on the California Project. When requesting a
drawdown on the loan, Galway will provide details of specific title payments to be made with the funds, to the
satisfaction of AUX. The loan will be evidenced by a promissory note with an interest rate of 4%. The loan will be
repayable on the earlier of (i) one year from date funds are advanced and (ii) 180 days after the Arrangement
Agreement is terminated for any reason, except that if the termination is due to any event, occurrence, development
or circumstance that individually or in the aggregate has had or would reasonably be expected to have a material
adverse effect, the loan will be repaid within one year of such termination, the loan will be repayable at the option of
Galway in either cash or by the transfer of mining titles for which payments were made by AUX or a combination
thereof.
AUX has also covenanted in favour of Galway Gold that for a period of 18 months from the date of the
Arrangement Agreement, without the prior written authorization of the Galway Gold Board, it will not, and will
cause its affiliates not to, directly or indirectly (including through one or more intermediaries), or jointly or in
concert with any other person, acquire, offer or agree to purchase any securities of Galway Gold. Notwithstanding
the foregoing, if a person who is not acting jointly or in concert with AUX or on AUX’s behalf, enters into an
agreement with Galway Gold providing for a transaction, pursuant to which such person will own all of Galway
Gold’s voting securities, then provided that AUX confirms in writing that such person is not acting jointly or in
concert with or on behalf of AUX, AUX will no longer be bound by the foregoing as and from the time of the
announcement of such transaction.
Covenants of Galway Gold
Galway Gold has covenanted in favour of AUX that so long as AUX and its affiliates maintain an
ownership interest of at least 10% of Galway Gold Shares, AUX has the right to nominate one director for election
to the Galway Gold Board and if such nominee is not elected, Galway Gold has agreed to take all actions that may
be available pursuant to applicable law (including increasing the size of the Galway Gold Board or obtaining the
resignation of a director on the Galway Gold Board) to ensure that such nominee becomes a director of Galway
Gold.
Conditions Precedent to the Arrangement
Mutual Conditions Precedent
The Arrangement Agreement provides that the obligations of the parties to complete the transactions
contemplated by the Arrangement Agreement are subject to the fulfillment, on or before the Effective Time, of a
number of conditions precedent, each of which may only be waived, in whole or in part, by mutual consent of
Galway, Galway Metals, Galway Gold, AUX and AUX Canada, including:
(a)
the Arrangement Resolution shall have been approved and adopted by the Galway Securityholder
at the Meeting in accordance with the provisions of the Interim Order;
(b)
the Interim Order shall have been granted on terms consistent with the Arrangement Agreement,
and shall not have been set aside or modified in a manner unacceptable to Galway and AUX,
acting reasonably, on appeal or otherwise;
(c)
the Court shall have determined that the terms and conditions of the Arrangement are procedurally
and substantively fair to the Galway Securityholders and the Final Order shall have been granted
in form and substance satisfactory to the parties to the Arrangement Agreement, acting reasonably,
42
and shall not have been set aside or modified in a manner unacceptable to the parties to the
Arrangement Agreement, acting reasonably, on appeal or otherwise;
(d)
The Lock-Up Agreements shall have been duly executed and delivered by the Locked-Up
Shareholders and remain in full force and effect;
(e)
AUX Canada shall loan U.S.$30,000,000 to Galway at a 0.25% rate for a one year term;
(f)
Galway shall loan U.S.$12,000,000 to Galway Metals to be evidenced by the Funding Note 1 and
shall loan U.S.$18,675,000 to New Sisterco to be evidenced by the Funding Note 2;
(g)
there shall not exist any prohibition at Law, including a cease trade order, injunction or other
prohibition or order at Law or under applicable legislation, against AUX or Galway which shall
prevent the consummation of the Arrangement;
(h)
the Key Regulatory Approvals shall have been obtained;
(i)
the Key Third Party Consents shall have been obtained;
(j)
at least three days prior to the Effective Date, Galway and AUX shall have submitted to the
Superintendence of Industry and Commerce of Colombia a Notificaci n Simple. Galway and
AUX shall have received a letter from the Superintendence of Industry and Commerce of
Colombia acknowledging receipt of the filing;
(k)
the Inter-Company Account Transactions shall have been completed in a manner satisfactory to
both Galway and AUX, acting reasonably;
(l)
the Arrangement Agreement shall not have been terminated;
(m)
each of Galway Metals and Galway Gold shall be deemed to be a reporting issuer under the
Canadian Securities Laws of British Columbia and Alberta on the Effective Date;
(n)
the TSX-V shall have, if required, accepted notice for filing of all transactions of Galway
contemplated in the Arrangement Agreement or necessary to complete the Arrangement, subject
only to compliance with the usual requirements of the TSX-V;
(o)
the Galway Metals Shares and Galway Gold Shares shall have been conditionally approved to be
listed on the TSX-V; and
(p)
the distribution of Galway Metals Shares and Galway Gold Shares issued in exchange for
securities of Galway in the United States pursuant to the Arrangement shall be exempt from
registration requirements under the 1933 Act and, except with respect to Persons deemed
“affiliates” of AUX, Galway Metals and Galway Gold, as the case may be, under the 1933 Act,
the Galway Metals Shares and Galway Gold Shares issued in exchange for securities of Galway to
be distributed in the United States pursuant to the Arrangement shall not be subject to resale
restrictions in the United States under the 1933 Act.
Additional Conditions Precedent to the Obligations of AUX
The Arrangement Agreement further provides that the obligation of AUX to complete the transactions
contemplated by the Arrangement Agreement is also subject to the fulfillment of a number of additional conditions
precedent, each of which is for AUX’s exclusive benefit and may be waived by AUX, including:
43
(a)
all covenants of Galway under the Arrangement Agreement to be performed on or before the
Effective Time which have not been waived by AUX shall have been duly performed by Galway
in all material respects;
(b)
all representations and warranties of Galway set forth in the Arrangement Agreement shall be true
and correct in all respects, without regard to any materiality or Material Adverse Effect
qualifications contained in them as of the Effective Time (except for representations and
warranties (other than those contained in Sections 3.1(c), 3.1(d), 3.1(f) and 3.1(h) of the
Arrangement Agreement), as though made as of a specified date, the accuracy of which shall be
determined as of that specified date), except where any failure or failures of any such
representations and warranties to be so true and correct in all respects would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on Galway (it being a
separate condition that the representations and warranties of Galway made in Sections 3.1(c),
3.1(d), 3.1(f) and 3.1(h) of the Arrangement Agreement) must be accurate in all respects when
made and, except as contemplated by the Arrangement Agreement, on and as of the Effective
Time, as though made on and as of the Effective Time);
(c)
Galway shall have provided AUX with a favourable title opinion in form and substance
satisfactory to AUX with respect to each of the California Project and the Vetas Project, dated the
Effective Date;
(d)
since the date of the Arrangement Agreement, there shall not have occurred any event, occurrence,
development or circumstance that, individually or in the aggregate has had or would reasonably be
expected to have a Material Adverse Effect on Galway;
(e)
holders of no more than 10% of the Galway Shares and Galway Warrants shall have validly
exercised Dissent Rights (and not withdrawn such exercise); and
(f)
Galway shall have completed the Inter-Company Account Transactions.
Additional Conditions Precedent to the Obligations of Galway
The Arrangement Agreement provides that the obligation of Galway to complete the transactions
contemplated by the Arrangement Agreement are also subject to a number of additional conditions precedent, each
of which are for the exclusive benefit of Galway and may be waived by Galway, including:
(a)
all covenants of AUX under the Arrangement Agreement to be performed on or before the
Effective Time shall have been duly performed by AUX in all material respects; and
(b)
all representations and warranties of AUX set forth in the Arrangement Agreement shall be true
and correct in all respects, without regard to any materiality or Material Adverse Effect
qualifications contained in them as of the Effective Time, as though made on and as of the
Effective Time (except for representations and warranties made as of a specified date, the
accuracy of which shall be determined as of that specified date), except where the failure or
failures of all such representations and warranties to be so true and correct in all respects would
not, adversely affect the ability of AUX and AUX Canada to complete the transactions
contemplated by the Arrangement Agreement.
Representations and Warranties
The Arrangement Agreement contains customary representations and warranties of Galway relating to
matters that include, among other things: organization, corporate authority, capitalization and options, listing status
of the Galway Shares, accuracy of public disclosure, ownership of subsidiaries, absence of material changes,
financial statement accuracy, no conflict or violation, material contracts, commitments, commissions, compliance
with laws, litigation, no insolvency proceedings, books and records, real property and mineral interests and rights,
44
operational, environmental and tax matters, employee benefits, Galway Board approvals, consents, insurance, no
encumbrances, no option on assets, and foreign private issuer and investment company status.
The Arrangement Agreement also contains customary representations and warranties of AUX relating to
matters that include: organization, corporate authority, no conflict or violation, compliance with laws, approvals,
ownership of Galway shares, and Investment Canada Act status.
Non-Solicitation
The Arrangement Agreement defines an “Acquisition Proposal” as being, other than the transactions
contemplated by the Arrangement Agreement: (a) any bona fide offer, proposal, expression of interest, or inquiry
from any person (other than AUX or any of its affiliates) made after the date of the Arrangement Agreement relating
to: (i) any acquisition or sale, direct or indirect, of: (A) the assets of Galway and/or one or more of its subsidiaries
that, individually or in the aggregate, constitute 20% or more of the fair market value of the consolidated assets of
Galway and its subsidiaries taken as a whole; or (B) 20% or more of any voting or equity securities of Galway or
any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the fair market value
of the consolidated assets of Galway and its subsidiaries taken as a whole; (ii) any take-over bid, tender offer or
exchange offer for any class of voting or equity securities of Galway; or (iii) a plan of arrangement, merger,
amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation,
dissolution or other similar transaction involving Galway or any of its subsidiaries whose assets, individually or in
the aggregate, constitute 20% or more of the fair market value of the consolidated assets of Galway and its
subsidiaries taken as a whole; (b) a bona fide proposal or offer or public announcement or other public disclosure of
a bona fide intention to do any of the foregoing, directly or indirectly, or (c) any modification or proposed
modification of the foregoing.
The Arrangement Agreement defines a “Superior Proposal” as being any unsolicited, written Acquisition
Proposal made after the date of the Arrangement Agreement (and not obtained in violation of the non-solicitation
provisions of the Arrangement Agreement) that relates to the direct or indirect acquisition of 100% of the
outstanding Galway Shares (other than Galway Shares owned by the person making the Superior Proposal or its
affiliates or persons acting jointly or in concert with such person or its affiliates) or all or substantially all of the
consolidated assets of Galway and its subsidiaries and (i) that is, in the opinion of the Galway Board acting
reasonably, capable of being completed without undue delay, taking into account all financial, legal, regulatory and
other aspects of such proposal and the person making such proposal; (ii) that, in the case of an Acquisition Proposal
to acquire 100% of the outstanding Galway Shares, is made available to all Galway Shareholders on the same terms
and conditions; (iii) is not subject to a due diligence condition; (iv) which is fully financed; and (v) in respect of
which the Galway Board determines, in its good faith judgment, after receiving the written advice of its outside legal
and financial advisors, that (a) failure to recommend such Acquisition Proposal to the holders of Galway Shares
would be inconsistent with its fiduciary duties under applicable law; and (b) having regard to all of its terms and
conditions, such Acquisition Proposal, would, if consummated in accordance with its terms (but not assuming away
any risk of non-completion), result in a transaction more favourable to the holders of Galway Shares from a financial
point of view than the Arrangement, after taking into account any change to the Arrangement proposed by AUX
pursuant to the right to match provisions of the Arrangement Agreement.
Galway has agreed that it will not, directly or indirectly, through any officer, director, employee,
representative (including any financial or other advisor) or agent of Galway or any of its subsidiaries (collectively,
the “Representatives”): (i) solicit, assist, initiate or knowingly encourage or facilitate (including by way of
furnishing information or entering into any form of agreement, arrangement or understanding) the initiation of any
inquiries or proposals regarding an Acquisition Proposal; (ii) participate in any discussions or negotiations with any
person (other than AUX or any of its affiliates) regarding an Acquisition Proposal; (iii) approve, accept, endorse or
recommend, or propose publicly to accept, approve, endorse or recommend, any Acquisition Proposal; (iv) accept or
enter into or publicly propose to accept or enter into any letter of intent, agreement in principle or agreement,
understanding, undertaking or arrangement or other contract in respect of an Acquisition Proposal; or (v) make a
Change in Recommendation.
45
Galway has agreed that it shall, and shall cause its subsidiaries and Representatives to, cease and cause to
be terminated any solicitation, encouragement, discussion or negotiation with any person conducted prior to the date
of the Arrangement Agreement by Galway, its subsidiaries or any Representatives with respect to any potential
Acquisition Proposal.
Notwithstanding the above, if at any time following the date of the Arrangement Agreement and prior to
obtaining the approval of the Galway Securityholders to the Arrangement Resolution at the Meeting, Galway
receives a written Acquisition Proposal that did not result from a breach of the non-solicitation provisions of the
Arrangement Agreement or an Acquisition Proposal is made to the Galway Shareholders: (i) Galway or its
Representatives may contact the person(s) making such Acquisition Proposal and its advisors solely for the purpose
of clarifying such Acquisition Proposal and any terms or conditions thereof and the likelihood of consummation so
as to determine whether such Acquisition Proposal is, or could reasonably be expected to lead to, a Superior
Proposal; and (ii) if the Galway Board determines in good faith, after consultation with its financial advisors and
outside counsel, that such Acquisition Proposal is, or could reasonably be expected to lead to, a Superior Proposal
(disregarding, for the purposes of any such determination, any term of such Acquisition Proposal that provides for a
due diligence investigation or condition), then Galway or its Representatives may, in response to a request made by
the party making such Acquisition Proposal: (A) furnish information with respect to Galway and its subsidiaries and
their business and properties to the person making such Acquisition Proposal; and/or (B) enter into, participate,
facilitate and maintain discussions or negotiations with, and otherwise cooperate with or assist, the person making
such Acquisition Proposal, provided that Galway shall not, and shall not allow its Representatives to, disclose any
non-public information with respect to Galway to such person: (i) if such nonpublic information has not been
previously provided to, or is not provided as soon as reasonably practicable thereafter to, AUX; and (ii) without
entering into a confidentiality agreement with such person in the form customarily used for such transactions, which
shall include a standstill provision that provides that any Acquisition Proposal shall be made only to the Galway
Board and shall not be publicly disclosed.
Under the Arrangement Agreement, Galway is required to promptly notify AUX, at first orally and then in
writing within 24 hours of receipt of the Acquisition Proposal, in the event it receives an Acquisition Proposal,
including the material terms and conditions thereof, and the identity of the person or persons making the Acquisition
Proposal, and shall include copies of any such proposal, inquiry, offer or request, a copy of any agreement entered
into in accordance with the right to match provisions of the Arrangement Agreement and a copy of any other
agreements which relate to the Acquisition Proposal to which Galway has access, or any material amendment to any
of the foregoing. Galway shall thereafter also provide such other material details of such proposal, inquiry, offer or
request, or any material amendment to any of the foregoing, as such materials become available or as AUX may
reasonably request. Galway is required to keep AUX promptly and fully informed as to the status, including any
changes to the material terms, of such proposal, inquiry, offer or request, or any material amendment to any of the
foregoing, and shall respond promptly to all inquiries from AUX with respect thereto.
Subject to the right of AUX to match, at any time following the date of the Arrangement Agreement and
prior to obtaining the approval of the Galway Securityholders to the Arrangement Resolution at the Meeting, if
Galway receives an Acquisition Proposal which the Galway Board concludes in good faith constitutes a Superior
Proposal, the Galway Board may terminate the Arrangement Agreement to enter into a definitive agreement with
respect to such Superior Proposal.
Nothing contained in the Arrangement Agreement shall prohibit the Galway Board from making a Change
in Recommendation or from making any disclosure to any securityholders of Galway prior to the Effective Time,
including, for greater certainty, disclosure of a Change in Recommendation if, in the good faith judgment of the
Galway Board, after consultation with outside legal counsel, failure to take such action or make such disclosure
would be inconsistent with the Galway Board’s exercise of its fiduciary duties or such action or disclosure is
otherwise required under applicable Law (including by responding to an Acquisition Proposal under a directors’
circular or otherwise as required under Securities Laws); provided that, for greater certainty, in the event of a
Change of Recommendation and a termination by AUX of the Arrangement Agreement as a result thereof, Galway
shall pay the Termination Fee. In addition, subject to the provisions concerning non-solicitation and right to match
in the Arrangement Agreement, nothing contained in the Arrangement Agreement shall prevent Galway or the
Galway Board from calling and holding a meeting of Galway Shareholders, or any of them, requisitioned by Galway
46
Shareholders, or any of them, in accordance with the OBCA or ordered to be held by a court or Regulatory
Authority of competent jurisdiction in accordance with applicable Laws.
Right to Match
Under the Arrangement Agreement, Galway has agreed that it will not accept, approve, endorse,
recommend or enter into any agreement, understanding or arrangement in respect of a Superior Proposal (other than
a permitted confidentiality and standstill agreement and/or make a Change in Recommendation) unless:
(a)
Galway has complied with its obligations contained in the non-solicitation provisions of the
Arrangement Agreement and has provided AUX with a copy of the Superior Proposal and all
related documentation as required by the Arrangement Agreement and, if applicable, the
agreement proposed to be entered into in respect of such Superior Proposal; and
(b)
a period (the “Response Period”) expiring at 5:00 p.m. (Toronto time) on the fifth business day
after the date that is the later of (x) the date on which AUX receives written notice from the
Galway Board that the Galway Board has determined, subject only to compliance with the right to
match provisions of the Arrangement Agreement, to accept, approve, endorse, recommend or enter
into an agreement to proceed with such Superior Proposal, and (y) the date AUX receives a copy
of the Superior Proposal and all related documentation as required by the Arrangement Agreement
and, if applicable, the agreement proposed to be entered into in respect of such Superior Proposal,
has expired.
During the Response Period, AUX will have the right, but not the obligation, to offer to amend the
Arrangement Agreement and the Plan of Arrangement, including an increase in, or modification of, the
consideration to be received by securityholders of Galway pursuant to the Arrangement. The Galway Board shall
review any such offer by AUX to amend the Arrangement Agreement and the Plan of Arrangement to determine
whether the Acquisition Proposal to which AUX is responding would continue to be a Superior Proposal when
assessed against the amendments to the Arrangement Agreement and the Plan of Arrangement as proposed in
writing by AUX. If the Galway Board determines that the Acquisition Proposal no longer constitutes a Superior
Proposal when assessed against the Arrangement Agreement and the Plan of Arrangement as they are proposed to be
amended, the Galway Board will cause Galway to enter into an amendment to the Arrangement Agreement with
AUX incorporating the amendments to the Arrangement Agreement and Plan of Arrangement as set out in the
written offer to amend, and will promptly reaffirm its recommendation of the Arrangement by the prompt issuance
of a press release to that effect. If the Galway Board determines that the Acquisition Proposal continues to be a
Superior Proposal, Galway may approve and recommend that holders of Galway Shares accept such Superior
Proposal and may terminate the Arrangement Agreement and pay the Termination Fee as a result thereof in order to
accept or enter into an agreement to proceed with the Superior Proposal.
In the event that Galway provides AUX with a notice under the Arrangement Agreement, an Acquisition
Proposal has been publicly disclosed or announced and the Response Period has not elapsed, then, subject to
applicable laws, at AUX’s request, Galway will postpone or adjourn the Meeting to a date acceptable to AUX,
acting reasonably.
Each successive amendment to any Acquisition Proposal that results in an increase in, or modification of,
the consideration (or value of such consideration) to be received by the holders of the Galway Shares shall constitute
a new Acquisition Proposal for the purposes of the right to match provisions of the Arrangement Agreement and
AUX shall be afforded a new Response Period and a new right to match in respect of each such Acquisition
Proposal.
Termination of the Arrangement Agreement
The Arrangement Agreement may be terminated at any time prior to the Effective Time:
(a)
by the mutual written agreement of Galway and AUX;
47
(b)
(c)
(d)
by either Galway or AUX if:
(i)
the Effective Time shall not have occurred on or before the Outside Date, except that the
right to terminate the Arrangement Agreement shall not be available to any party whose
failure (or failure by such party’s affiliate) to fulfill any of its obligations or breach of any
of its representations and warranties under the Arrangement Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur by such Outside Date;
(ii)
after the date of the Arrangement Agreement, there shall be enacted or made any
applicable Law that makes consummation of the Arrangement illegal or otherwise
prohibited or enjoins Galway or AUX from consummating the Arrangement and such
applicable Law (if applicable) or enjoinment shall have become final and non-appealable;
or
(iii)
the Arrangement Resolution shall have not have been approved by the requisite Galway
Securityholders at the Meeting (including any adjournment or postponement thereof) in
accordance with the Interim Order;
by AUX if:
(i)
the Galway Board shall have made a Change in Recommendation;
(ii)
any of the conditions precedent to the Arrangement Agreement has not been satisfied or
waived by the Outside Date or it is clear that such condition is incapable of being
satisfied by the Outside Date provided that AUX, AUX Canada or any of their affiliates
or persons acting jointly or in concert with AUX, AUX Canada or any of their affiliates is
not then in breach of the Arrangement Agreement, or has otherwise taken any action, so
as to cause any of the conditions precedent to the Arrangement Agreement not to be
satisfied;
(iii)
Galway has breached any representation or warranty or failed to perform any covenant or
agreement contained in the Arrangement Agreement (other than those set out in the right
to match provisions of the Arrangement Agreement) such that the conditions precedent to
the Arrangement Agreement would not be satisfied, and such breach or failure is
incapable of being cured by the Outside Date; provided that AUX, AUX Canada or any
of their affiliates or persons acting jointly or in concert with AUX, AUX Canada or any
of their affiliates is not then in breach of the Arrangement Agreement, or has otherwise
taken any action, so as to cause any of the conditions precedent to the Arrangement
Agreement not to be satisfied;
(iv)
Galway is in breach or in default in any material respect of any of its obligations or
covenants set forth in the right to match provision of the Arrangement Agreement;
(v)
the Meeting has not occurred on or before December 17, 2012, unless a failure by AUX
or AUX Canada to fulfill any obligation under the Arrangement Agreement, or any action
taken by AUX, AUX Canada, their affiliates or any person acting jointly or in concert
with AUX, AUX Canada or any of their affiliates, is the cause of, or results in, the failure
of the Meeting to occur on or before such date; or
(vi)
the Galway Board authorizes Galway to enter into a binding written agreement relating to
a Superior Proposal, other than a confidentiality agreement pursuant to the right to match
provisions of the Arrangement Agreement;
by Galway if:
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(i)
the Galway Board authorizes Galway, subject to complying with the terms of the
Arrangement Agreement, to enter into a definitive agreement providing for a Superior
Proposal;
(ii)
any of the conditions precedent in the Arrangement Agreement have not been satisfied or
waived by the Outside Date or it is clear that such condition is incapable of being
satisfied by the Outside Date; or
(iii)
AUX has breached any representation or warranty or failed to perform any covenant or
agreement contained in the Arrangement Agreement such that the conditions precedent to
incapable of being cured by the Outside Date; provided that Galway is not then in breach
of the Arrangement Agreement so as to cause any of the conditions precedent to the
Arrangement Agreement not to be satisfied.
Expense Reimbursement
With the exception of payment of the Termination Fee (as described below), if any, the parties agree that
each party shall be responsible for its own fees and expenses relating to the Arrangement and the other transactions
contemplated in the Arrangement Agreement, including, without limitation, regulatory fees and fees of professional
advisers, including legal counsel and auditors.
Termination Fee
Galway has agreed to pay to AUX a termination fee (the “Termination Fee”) of $12,200,000 in the
following situations:
(a)
AUX terminates the Arrangement Agreement because:
(i)
the Galway Board shall have made a Change in Recommendation;
(ii)
Galway has breached any representation or warranty or failed to perform any covenant or
agreement contained in the Arrangement Agreement (other than those set out in the right
to match provisions of the Arrangement Agreement) such that the conditions precedent to
incapable of being cured by the Outside Date; provided that AUX, AUX Canada or any
of their affiliates or persons acting jointly or in concert with AUX, AUX Canada or any
of their affiliates is not then in breach of the Arrangement Agreement, or has otherwise
taken any action, so as to cause any of the conditions precedent to the Arrangement
Agreement not to be satisfied;
(iii)
Galway is in breach or in default in any material respect of any of its obligations or
covenants set forth in the right to match provision of the Arrangement Agreement; or
(iv)
the Galway Board authorizes Galway to enter into a binding written agreement relating to
a Superior Proposal, other than a confidentiality agreement pursuant to the right to match
provisions of the Arrangement Agreement;
(b)
Galway terminates the Arrangement Agreement because the Galway Board authorizes Galway,
subject to complying with the terms of the Arrangement Agreement, to enter into a definitive
agreement providing for a Superior Proposal; or
(c)
either Galway or AUX terminates the Arrangement Agreement because the Arrangement
Resolution has not received the required Galway Securityholder approval at the Meeting
(including any adjournment or postponement thereof) in accordance with the Interim Order but
49
only if, prior to the holding of the Meeting, an Acquisition Proposal, or the intention to make an
Acquisition Proposal, with respect to Galway shall have been made to Galway or publicly
announced by any person (other than AUX or any of its affiliates or persons acting jointly or in
concert with AUX or any of its affiliates) and within six months following the date of such
termination: (i) an Acquisition Proposal is consummated by Galway; or (ii) Galway and/or one or
more of its subsidiaries enters into a definitive agreement in respect of, or the Galway Board
approves or recommends, an Acquisition Proposal and an Acquisition Proposal is subsequently
consummated at any time thereafter; provided that, for these purposes, all references to “20%” in
the definition of “Acquisition Proposal” shall be deemed to be references to “50%”.
In the circumstances set forth in (a) above, the Termination Fee shall be payable at the time of termination,
in the circumstances set forth in (b) above, the Termination Fee shall be payable within 2 business days following
the termination, and in the circumstances set forth in (c) above, the Termination Fee shall be payable within 2
business days following the closing of the applicable transaction referred to therein.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Baker & McKenzie LLP, Canadian tax counsel to Galway, Galway Metals and Galway
Gold, the following is, as of the date of this Circular, a summary of the principal Canadian federal income tax
considerations relating to the Arrangement under the Tax Act generally applicable to Galway Securityholders who,
for purposes of the Tax Act, and at all relevant times, hold their Galway Shares or Galway Warrants, and will hold
their Class A Common Shares, Class 1 Preferred Shares, Class 2 Preferred Shares, Galway Metals Shares and
Galway Gold Shares, as capital property and deal at arm’s length with Galway, Galway Metals, Galway Gold, AUX
Canada and AUX and are not affiliated with Galway, Galway Metals, Galway Gold, AUX Canada or AUX. This
summary does not apply to (i) a Galway Securityholder that is a “financial institution”, for the purposes of the markto-market rules in the Tax Act, (ii) a Galway Securityholder an interest in which is a “tax shelter investment” as
defined in the Tax Act, (iii) a Galway Securityholder that is a “specified financial institution” as defined in the Tax
Act, or (iv) a Galway Securityholder that has made an election to report its “Canadian tax results” (as defined in the
Tax Act) in a currency other than Canadian currency. Any such Galway Securityholder should consult its own tax
advisor with respect to the Arrangement.
This summary does not address the tax consequences of the Arrangement to Galway Shareholders who
acquired their Galway Shares on the exercise of an option. Such Galway Shareholders should consult their own tax
advisers.
Galway Shares, Galway Warrants, Class A Common Shares, Class 1 Preferred Shares, Class 2 Preferred
Shares, Galway Metals Shares and Galway Gold Shares will generally be considered to be capital property to a
Galway Securityholder unless such securities are held in the course of carrying on a business of trading or dealing in
securities, or were acquired in one or more transactions considered to be an adventure or concern in the nature of
trade. Certain Galway Shareholders who are residents of Canada for purposes of the Tax Act and whose Galway
Shares, Class A Common Shares, Class 1 Preferred Shares, Class 2 Preferred Shares, Galway Metals Shares or
Galway Gold Shares might not otherwise qualify as capital property, may be entitled to make an irrevocable
election in accordance with Subsection 39(4) of the Tax Act to have their Galway Shares, Class A Common Shares,
Class 1 Preferred Shares, Class 2 Preferred Shares, Galway Metals Shares or Galway Gold Shares and every
“Canadian security” (as defined in the Tax Act) owned by such Galway Shareholder in the taxation year of the
election, and in all subsequent taxation years, deemed to be capital property. Galway Securityholders who do not
hold their Galway Shares or Galway Warrants as capital property or who will not hold their Class A Common
Shares, Class 1 Preferred Shares, Class 2 Preferred Shares, Galway Metals Shares or Galway Gold Shares as capital
property should consult their own tax advisors regarding their particular circumstances.
This summary is based on the current provisions of the Tax Act and counsel’s understanding of the
published administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) publicly
available prior to the date of this Circular. This summary takes into account all proposed amendments to the Tax
Act that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof
(“Proposed Amendments”) and assumes that such Proposed Amendments will be enacted substantially as
50
proposed. However, no assurance can be given that such Proposed Amendments will be enacted in the form
proposed, or at all.
Except for the Proposed Amendments, this summary does not take into account or anticipate any other
changes in law or any changes in the CRA’s administrative policies and assessing practices, whether by legislative,
regulatory, administrative or judicial action or decision, nor does it take into account or consider other federal or any
provincial, territorial or foreign tax legislation or considerations, which may differ from the Canadian federal
income tax considerations described herein.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal,
business or tax advice to any particular Galway Securityholder. This summary is not exhaustive of all possible
Canadian federal income tax considerations applicable to the Arrangement and/or the holding of Galway Metals
Shares and Galway Gold Shares. Galway Securityholders should consult their own tax advisors as to the tax
consequences to them of the Arrangement and the holding of Galway Metals Shares and Galway Gold Shares,
having regard to their own particular circumstances.
Galway Securityholders Resident in Canada
The following section of the summary is generally applicable to a Galway Securityholder who, for the
purposes of the Tax Act and any applicable income tax treaty, is or is deemed to be resident in Canada at all relevant
times.
Galway Warrantholders
If the Arrangement becomes effective, the Galway Warrants will be cancelled, a Galway Warrantholder
will be entitled to receive in exchange therefor a number of Galway Shares based on a formula, and such Galway
Shares will participate fully in the Arrangement.
A Galway Warrantholder resident in Canada will generally be considered to have disposed of the Galway
Warrants for proceeds of disposition equal to the fair market value of the Galway Shares received in exchange
therefor. As a result, such Galway Warrantholder will realize a capital gain (or a capital loss) to the extent that the
proceeds of disposition exceed (or are exceeded by) the adjusted cost base to the Galway Warrantholder of the
Galway Warrants immediately before the disposition. For a description of the tax treatment of capital gains and
losses, see “Certain Canadian Federal Income Tax Considerations – Galway Securityholders Resident in Canada –
Taxation of Capital Gains or Capital Losses” below.
Upon receiving the Galway Shares, a Galway Warrantholder resident in Canada will become a Galway
Shareholder and should be considered to hold the Galway Shares as capital property, and the adjusted cost base of
the Galway Shares should be equal to their fair market value. The tax treatment described in “Certain Canadian
Federal Income Tax Considerations – Galway Securityholders Resident in Canada” will apply with respect to the
Galway Shares received.
Exchange of Galway Shares for Class A Common Shares, Class 1 Preferred Shares and Class 2 Preferred
Shares
A Galway Securityholder will not realize a capital gain (or a capital loss) as a result of the exchange of a
Galway Share for a Class A Common Share, a Class 1 Preferred Share and a Class 2 Preferred Share. The adjusted
cost base of the Galway Shares held by the Galway Shareholder will be apportioned between the Class A Common
Share, the Class 1 Preferred Share and the Class 2 Preferred Share received upon the exchange in proportion to the
fair market value of such shares immediately after the exchange. Management of Galway is of the view that each
Class A Common Share will have a fair market value equal to the Cash Consideration, each Class 1 Preferred Share
will have a fair market value equal to the fair market value of a Galway Metals Share and each Class 2 Preferred
Share will have a fair market value equal to the fair market value of a Galway Gold Share. This determination of
value is not binding on the CRA and it is possible that the CRA could take a contrary view. Counsel expresses no
opinion on such matters of factual determination.
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Transfer of Class 1 Preferred Shares to Galway Metals for Galway Metals Shares
Upon the transfer by a Galway Shareholder of a Class 1 Preferred Share to Galway Metals for a Galway
Metals Share, the Galway Shareholder will, unless the Galway Shareholder chooses to recognize a capital gain or a
capital loss on the transfer as described in the following paragraph, be deemed to have disposed of such Class 1
Preferred Share for proceeds of disposition equal to the Galway Shareholder’s adjusted cost base thereof (with such
adjusted cost base being computed as described above under the heading “Certain Canadian Federal Income Tax
Considerations – Galway Securityholders Resident in Canada – Exchange of Galway Shares for Class A Common
Shares, Class 1 Preferred Shares and Class 2 Preferred Shares”), provided that the Galway Shareholder deals at
arm’s length with Galway Metals immediately before the transfer and provided that following the transfer, that
Galway Shareholder and/or persons not dealing at arm’s length with that Galway Shareholder did not control
Galway Metals or beneficially own shares representing more than 50 percent of the value of all outstanding shares
of Galway Metals. Such Galway Shareholder would therefore neither recognize a capital gain nor a capital loss in
respect of the disposition and would be deemed to acquire their Galway Metals Shares at an aggregate cost which is
equal to the aggregate adjusted cost base of their Class 1 Preferred Shares.
Notwithstanding the foregoing, upon a transfer of a Class 1 Preferred Share to Galway Metals for a Galway
Metals Share, a Galway Shareholder may, if such Galway Shareholder so chooses, recognize a capital gain (or a
capital loss) in respect of such disposition by reporting the same in the Galway Shareholder’s income tax return for
the taxation year during which the disposition occurred. Such capital gain (or a capital loss) will be equal to the
amount by which the fair market value of the Galway Metals Shares received exceeds (or is exceeded by) the
aggregate of the adjusted cost base of the Class 1 Preferred Shares exchanged and any reasonable costs of making
the disposition. For a description of the tax treatment of capital gains and losses, see “Certain Canadian Federal
Income Tax Considerations – Galway Securityholders Resident in Canada – Taxation of Capital Gains or Capital
Losses” below. In such circumstances, the cost of the Galway Metals Shares acquired will be equal to the fair
market value thereof.
Transfer of Class 2 Preferred Shares to Galway Gold for Galway Gold Shares
Upon the transfer by a Galway Shareholder of a Class 2 Preferred Share to Galway Gold for a Galway Gold
Share, the Galway Shareholder will, unless the Galway Shareholder chooses to recognize a capital gain or a capital
loss on the transfer as described in the following paragraph, be deemed to have disposed of such Class 2 Preferred
Share for proceeds of disposition equal to the Galway Shareholder’s adjusted cost base thereof (with such adjusted
cost base being computed as described above under the heading “Certain Canadian Federal Income Tax
Shares, Class 1 Preferred Shares and Class 2 Preferred Shares”), provided that the Galway Shareholder deals at
arm’s length with Galway Gold immediately before the transfer and provided that following the transfer, that
Galway Shareholder and/or persons not dealing at arm’s length with that Galway Shareholder did not control
Galway Gold or beneficially own shares representing more than 50 percent of the value of all outstanding shares of
Galway Gold. Such Galway Shareholder would therefore neither recognize a capital gain nor a capital loss in
respect of the disposition and would be deemed to acquire their Galway Gold Shares at an aggregate cost which is
equal to the aggregate adjusted cost base of their Class 2 Preferred Shares.
Notwithstanding the foregoing, upon a transfer of a Class 2 Preferred Share to Galway Gold for a Galway
Gold Share, a Galway Shareholder may, if such Galway Shareholder so chooses, recognize a capital gain (or a
capital loss) in respect of such disposition by reporting the same in the Galway Shareholder’s income tax return for
the taxation year during which the disposition occurred. Such capital gain (or a capital loss) will be equal to the
amount by which the fair market value of the Galway Gold Shares received exceeds (or is exceeded by) the
aggregate of the adjusted cost base of the Class 2 Preferred Shares exchanged and any reasonable costs of making
the disposition. For a description of the tax treatment of capital gains and losses, see “Certain Canadian Federal
Income Tax Considerations – Galway Securityholders Resident in Canada – Taxation of Capital Gains or Capital
Losses” below. In such circumstances, the cost of the Galway Gold Shares acquired will be equal to the fair market
value thereof.
Disposition of Class A Common Shares for Cash Consideration
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A Galway Shareholder who disposes of Class A Common Shares for Cash Consideration will be
considered to have disposed of such Class A Common Shares for proceeds of disposition equal to the Cash
Consideration received on the disposition. As a result, the Galway Shareholder will generally realize a capital gain
(or a capital loss) to the extent that the proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are exceeded by) the adjusted cost base to the Galway Shareholder of such Class A Common Shares (with such
adjusted cost base being computed as described above under the heading “Certain Canadian Federal Income Tax
Shares, Class 1 Preferred Shares and Class 2 Preferred Shares”). For a description of the tax treatment of capital
gains and losses, see “Certain Canadian Federal Income Tax Considerations – Galway Securityholders Resident in
Canada – Taxation of Capital Gains or Capital Losses” below.
Disposition of Galway Metals Shares or Galway Gold Shares
A disposition or deemed disposition of Galway Metals Shares or Galway Gold Shares by a holder will
generally result in a capital gain (or a capital loss) to the extent that the proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base to the holder of those Galway
Metals Shares or Galway Gold Shares immediately before the disposition. For a description of the tax treatment of
capital gains and losses, see “Certain Canadian Federal Income Tax Considerations – Galway Securityholders
Resident in Canada – Taxation of Capital Gains or Capital Losses” below.
Dividends on Galway Metals Shares or Galway Gold Shares
In the case of a Galway Shareholder who is an individual (other than certain trusts), dividends received or
deemed to be received on the Galway Metals Shares or Galway Gold Shares generally will be included in computing
the Galway Shareholder’s income and subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations (as defined in the Tax Act). Taxable dividends
received on the Galway Metals Shares or Galway Gold Shares by Galway Shareholders who are individuals resident
in Canada for purposes of the Tax Act generally will be eligible for an enhanced gross-up and dividend tax credit if
Galway Metals or Galway Gold, as the case may be, designates such dividends to be “eligible dividends” for
purposes of the Tax Act.
Dividends received or deemed to be received on Galway Metals Shares or Galway Gold Shares by a
Galway Shareholder that is a corporation will be included in computing the corporation’s income and normally will
be deductible in computing its taxable income to the extent and in the circumstances provided in the Tax Act. In
some circumstances, the amount of such dividend may be treated as proceeds of disposition of the Galway Metals
Shares or Galway Gold Shares, as the case may be, or a capital gain, and not as a dividend. The taxation of capital
gains and capital losses is described below under the heading “Certain Canadian Federal Income Tax Considerations
– Galway Securityholders Resident in Canada – Taxation of Capital Gains or Capital Losses”.
A Galway Shareholder that is a “private corporation”, as defined in the Tax Act, or any other corporation
resident in Canada and controlled or deemed to be controlled by or for the benefit of an individual (other than a
trust) or a “related group”, as defined in the Tax Act, of individuals (other than trusts) may be liable to pay a
refundable tax under Part IV of the Tax Act of 33 and 1/3 percent of any dividends received or deemed to be
received on Galway Metals Shares or Galway Gold Shares to the extent that such dividends are deductible in
computing the Galway Shareholder’s taxable income.
Taxable dividends received by an individual (including certain trusts) may give rise to a liability for
alternative minimum tax as calculated under the detailed rules set out in the Tax Act.
Taxation of Capital Gains or Capital Losses
Generally, one-half of any capital gain (a “taxable capital gain”) realized by a holder in a taxation year
must be included in the holder’s income for the year, and one-half of any capital loss (an “allowable capital loss”)
realized by a holder in a taxation year must be deducted from taxable capital gains realized by the holder in that year
(subject to and in accordance with rules contained in the Tax Act). Allowable capital losses for a taxation year in
53
excess of taxable capital gains for that year generally may be carried back and deducted in any of the three
preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital
gains realized in such years, to the extent and under the circumstances described in the Tax Act.
A holder that, throughout the relevant taxation year, is a “Canadian-controlled private corporation” (as
defined in the Tax Act) may be liable to pay a refundable tax of 6 and 2/3 percent on its “aggregate investment
income” (as defined in the Tax Act), including any taxable capital gains.
If the holder of a Galway Share, a Galway Metals Share or a Galway Gold Share is a corporation, the
amount of any capital loss realized on a disposition or deemed disposition of such share may be reduced by the
amount of dividends received or deemed to have been received by it on such share (and in certain circumstances a
share exchanged for such share) to the extent and under circumstances described in the Tax Act. Similar rules may
apply where a corporation is a member of a partnership or a beneficiary of a trust that owns such shares or where a
trust or partnership of which a corporation is a beneficiary or a member is a member of a partnership or a beneficiary
of a trust that owns any such shares.
Capital gains realized by individuals (including certain trusts) may give rise to a liability for alternative
minimum tax as calculated under the detailed rules set out in the Tax Act.
Holders to whom these rules may be relevant should consult their own tax advisors.
Dissenting Securityholders
A Dissenting Securityholder will be entitled, if the Arrangement becomes effective, to be paid by AUX
Canada the fair value of the Galway Shares held by such Dissenting Securityholder.
A Dissenting Securityholder who receives a cash payment in respect of the fair value of the Dissenting
Securityholder’s Galway Shares or Galway Warrants will generally be considered to have disposed of the Galway
Shares or Galway Warrants for proceeds of disposition equal to the amount received by the Dissenting
Securityholder (other than any interest awarded by a court). As a result, such Dissenting Securityholder will realize
a capital gain (or a capital loss) to the extent that the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are exceeded by) the adjusted cost base to the Dissenting Securityholder of the Galway
Shares or Galway Warrants immediately before the disposition. For a description of the tax treatment of capital
gains and losses, see “Certain Canadian Federal Income Tax Considerations – Galway Securityholders Resident in
Canada – Taxation of Capital Gains or Capital Losses” above.
Interest awarded to a Dissenting Securityholder by a court will be included in the Dissenting
Securityholder’s income for the purposes of the Tax Act. In addition, a Dissenting Securityholder that, throughout
the relevant taxation year, is a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable
to pay a refundable tax of 6 and 2/3 percent on its “aggregate investment income” (as defined in the Tax Act),
including interest income.
Additional income tax considerations may be relevant to Dissenting Securityholders who fail to perfect or
withdraw their claims pursuant to the right of dissent. Dissenting Securityholders should consult their own tax
advisors.
Galway Securityholders Not Resident in Canada
The following section of the summary is applicable to a Galway Securityholder who, for the purposes of
the Tax Act and any applicable income tax treaty and at all relevant times, is not, and is not deemed to be, resident
in Canada and does not, and is not deemed to, use or hold Galway Shares, Galway Warrants, Galway Metals Shares
or Galway Gold Shares received pursuant to the Arrangement, in connection with carrying on a business in Canada
and is not an insurer who carries on an insurance business or is deemed to carry on an insurance business in Canada
and elsewhere (in this section, a “Non-Resident Shareholder” or “Non-Resident Warrantholder”). Special rules
54
which are not discussed in this summary may apply to a Non-Resident Shareholder that is, or does not deal at arm’s
length with, a “specified shareholder” (as defined in subsection 18(5) of the Tax Act) of Galway.
Galway Warrantholders
If the Arrangement becomes effective, the Galway Warrants will be cancelled, a Galway Warrantholder
will be entitled to receive in exchange therefor a number of Galway Shares based on a formula, and such Galway
Shares will participate fully in the Arrangement.
Galway is of the view that the Galway Shares will not be “taxable Canadian property” (as defined in the
Tax Act and as described below). As a result, the Galway Warrants will also not be taxable Canadian property and a
Galway Warrantholder not resident in Canada should not be taxable in Canada as a result of receiving the Galway
Shares in exchange for the cancellation of the Galway Warrants.
Upon receiving the Galway Shares, a Galway Warrantholder not resident in Canada will become a Galway
Shareholder and should be considered to hold the Galway Shares as capital property, and the adjusted cost base of
the Galway Shares should be equal to their fair market value. The tax treatment described in “Certain Canadian
Federal Income Tax Considerations – Galway Securityholder Not Resident in Canada” will apply with respect to the
Galway Shares received.
Exchange of Galway Shares and Transfer of Class A Common Shares, Class 1 Preferred Shares and Class
2 Preferred Shares
A Non-Resident Shareholder who holds Galway Shares that are not “taxable Canadian property” (as
defined in the Tax Act) will not be subject to tax under the Tax Act on the exchange of such Galway Shares for
Class A Common Shares, Class 1 Preferred Shares and Class 2 Preferred Shares and on the transfer of Class A
Common Shares for the Cash Consideration or the transfer of the Class 1 Preferred Shares and Class 2 Preferred
Shares to Galway Metals or Galway Gold, as the case may be. Generally, Galway Shares will not be taxable
Canadian property of a Non-Resident Shareholder at a particular time provided that the Galway Shares are listed on
a designated stock exchange (which includes the TSX-V) at that time, unless: (i) at any time during the sixty-month
period immediately preceding the disposition of the Galway Shares by such Non-Resident Shareholder, (A) the
Non-Resident Shareholder, persons not dealing at arm’s length with such Non-Resident Shareholder, or the NonResident Shareholder together with all such persons, owned 25 percent or more of the issued shares of any class or
series of the capital stock of Galway and (B) at such time more than 50 percent of the fair market value of the
Galway Shares was derived directly or indirectly from one or any combination of real or immovable property
situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined
in the Tax Act), and options in respect of, or interests in, or for civil Law rights in, any such properties (whether or
not such property exists); or (ii) the Non-Resident Shareholder’s Galway Shares were acquired in certain types of
tax deferred exchanges in consideration for property that was itself taxable Canadian property. Galway is of the
view that the Class A Common Shares, Class 1 Preferred Shares and Class 2 Preferred Shares will not be taxable
Canadian property.
If a Non-Resident Shareholder disposes of Galway Shares that are taxable Canadian property, the
disposition will give rise to a capital gain or capital loss in the same manner as described above under the heading
“Certain Canadian Federal Income Tax Considerations – Galway Securityholders Resident in Canada – Taxation of
Capital Gains or Capital Losses”. Any such capital gain will be subject to tax under the Tax Act, subject to potential
relief under an applicable income tax treaty. Such a Non-Resident Shareholder may be required to file a Canadian
federal income tax return and should consult his or her own advisor. Under the terms of the Canada-United States
Income Tax Convention, 1980 (the “Canada-U.S. Treaty”), relief is generally available with respect to any gain
realized on the disposition of Galway Shares that are taxable Canadian property if, at the time of disposition, the
Galway Shares do not derive their value principally (more than 50 percent) from real property situated in Canada
within the meaning of that phrase in the Canada-U.S. Treaty.
Disposition of Galway Metals Shares or Galway Gold Shares
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A Non-Resident Shareholder who holds Galway Metals Shares or Galway Gold Shares that are not “taxable
Canadian property” (as defined in the Tax Act) will not be subject to tax under the Tax Act on the disposition of
such Galway Metals Shares or Galway Gold Shares.
Generally, Galway Metals Shares or Galway Gold Shares will not be taxable Canadian property of a NonResident Shareholder at a particular time provided that the Galway Metals Shares or Galway Gold Shares, as the
case may be, are listed on a designated stock exchange (which includes the TSX-V (Tiers 1 and 2)) at that time,
unless: (i) at any time during the sixty-month period immediately preceding the disposition of the Galway Metals
Shares or Galway Gold Shares, as the case may be, by such Non-Resident Shareholder, the Non-Resident
Shareholder, persons not dealing at arm’s length with such Non-Resident Shareholder, or the Non-Resident
Shareholder together with all such persons, owned 25 percent or more of the issued shares of any class or series of
the capital stock of Galway Metals or Galway Gold, as the case may be, and (ii) at such time more than 50 percent
of the fair market value of the Galway Metals Shares or Galway Gold Shares, as the case may be, was derived
directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian
resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act), and options in
respect of, or interests in, or for civil Law rights in, any such properties (whether or not such property exists).
Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, Galway Metals Shares or Galway
Gold Shares could be deemed to be taxable Canadian property of the Non-Resident Shareholder.
If a Non-Resident Shareholder disposes of Galway Metals Shares or Galway Gold Shares that are taxable
Canadian property, the disposition will give rise to a capital gain or capital loss in the same manner as described
above under the heading “Certain Canadian Federal Income Tax Considerations – Galway Securityholders Resident
in Canada – Taxation of Capital Gains or Capital Losses”. Any such capital gain will be subject to tax under the
Tax Act, subject to potential relief under an applicable income tax treaty. Such a Non-Resident Shareholder may be
required to file a Canadian federal income tax return and should consult his or her own advisor. Under the terms of
the Canada-U.S. Treaty, relief is generally available with respect to any gain realized on the disposition of Galway
Metals Shares or Galway Gold Shares that are taxable Canadian property provided that their value, at the time of
disposition, does not derive principally (more than 50 percent) from Canadian real property situated in Canada (as
defined in the Canada-U.S. Treaty).
Galway Metals Shares and Galway Gold Shares may not always be listed on a designated stock exchange
and may not be listed on any such exchange at the time of their disposition. Generally, Galway Metals Shares or
Galway Gold Shares that are not listed on a designated stock exchange at the time of their disposition will be
considered taxable Canadian property of the Non-Resident Shareholder, if at any time within the 60-month period
immediately preceding the disposition, more than 50 percent of the fair market value of the Galway Metals Shares or
Galway Gold Shares, as the case may be, was derived directly or indirectly from one or any combination of real or
immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource
properties (as defined in the Tax Act), and options in respect of, or interests in, or for civil Law rights in, any such
properties (whether or not such property exists). Notwithstanding the foregoing, in certain circumstances set out in
the Tax Act, Galway Metals Shares or Galway Gold Shares could be deemed to be taxable Canadian property of the
Non-Resident Shareholder.
If the Galway Metals Shares or Galway Gold Shares are taxable Canadian property of the Non-Resident
Shareholder at the time of their disposition, the Non-Resident Shareholder may be subject to tax under the Tax Act
in respect of any capital gain realized on the disposition and the notification and withholding provisions of section
116 of the Tax Act may apply to the Non-Resident Shareholder.
Dividends on Galway Metals Shares or Galway Gold Shares
Dividends paid or deemed to be paid by Galway Metals or Galway Gold to a Non-Resident Shareholder
will be subject to Canadian nonresident withholding tax of 25 percent, subject to reduction under an applicable
income tax treaty.
Dissenting Non-Resident Shareholders and Non-Resident Warrantholders
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A dissenting Non-Resident Shareholder or Non-Resident Warrantholder may be entitled, if the
Arrangement becomes effective, to be paid by AUX Canada the fair value of the Galway Shares held by the
dissenting Non-Resident Shareholder or Non-Resident Warrantholder.
A dissenting Non-Resident Shareholder or Non-Resident Warrantholder who receives a payment in respect
of the fair value of the dissenting Non-Resident Shareholder’s or Non-Resident Warrantholder’s Galway Shares or
Galway Warrants will generally be considered to have disposed of the Galway Shares or Galway Warrants for
proceeds of disposition equal to the amount received by the dissenting Non-Resident Shareholder or Non-Resident
Warrantholder (other than any interest awarded by a court). Any capital gain (or capital loss) will be treated in the
same manner as described under the heading “Certain Canadian Federal Income Tax Considerations – Galway
Securityholder Not Resident in Canada – Exchange of Galway Shares and Transfer of Class A Common Shares,
Class 1 Preferred Shares and Class 2 Preferred Shares” above.
Any interest paid or credited to a dissenting Non-Resident Shareholder or Non-Resident Warrantholder
who deals at arm’s length with Galway for purposes of the Tax Act should not be subject to withholding tax under
the Tax Act. Additional income tax considerations may be relevant to dissenting Non-Resident Shareholders or
Non-Resident Warrantholders who fail to perfect or withdraw their claims pursuant to the Dissent Rights.
Qualified Investment Status for Deferred Plans
Provided that the Galway Gold and Galway Metals Shares are listed on a designated stock exchange (which
currently includes the TSX-V (Tiers 1 and 2)) at the time of acquisition, or the Galway Gold Shares and Galway
Metals Shares are listed on a designated stock exchange in Canada shortly after the Effective Date and Galway Gold
and Galway Metals elect to be “public corporations” for purposes of the Tax Act from the commencement of their
first taxation year, the Galway Gold and Galway Metals Shares, respectively, will be qualified investments under the
Tax Act for Deferred Plans. Galway Gold and Galway Metals intend to elect to be “public corporations” for
purposes of the Tax Act from the commencement of their first taxation year.
Notwithstanding that the Galway Gold Shares and Galway Metals Shares may be qualified investments for
a TFSA, an RRSP or an RRIF, the holder of a TFSA or the annuitant of an RRSP or RRIF will be subject to a
penalty tax in respect of such shares held in the TFSA, RRSP or RRIF, as the case may be, if such shares are a
“prohibited investment” within the meaning of the Tax Act. The Galway Gold Shares or Galway Metals Shares will
generally be a “prohibited investment” if the holder of the TFSA or the annuitant of the RRSP or RRIF does not deal
at arm's length with Galway Gold or Galway Metals, as the case may be, for purposes of the Tax Act or has a
“significant interest”, within the meaning of the Tax Act, in Galway Gold or Galway Metals, as the case may be, or
in a corporation, partnership or trust with which Galway Gold or Galway Metals, as the case may be, does not deal
at arm's length for the purposes of the Tax Act. Galway Securityholders are advised to consult their own
advisors in this regard.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material anticipated U.S. federal income tax considerations
applicable to a U.S. Holder (as defined below) arising from the Arrangement, including the receipt of Galway
Metals Shares and Galway Gold Shares and cash, and the ownership and disposition of Galway Metals Shares and
Galway Gold Shares. This summary is for general information purposes only and does not purport to be a complete
analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result
of the Arrangement or as a result of the ownership and disposition of the securities or cash received in connection
with the Arrangement. In addition, this summary does not take into account the individual facts and circumstances
of any particular U.S. Holder that may affect the U.S. federal income tax considerations applicable to a U.S. Holder.
Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax
advice with respect to any U.S. Holder. Moreover, this summary is not binding on the Internal Revenue Service (the
“IRS”) or the U.S. courts, and no assurance can be provided that the conclusions reached in this summary will not
be challenged by the IRS or will be sustained by a U.S. court if so challenged. Galway has not requested, and does
not intend to request, a ruling from the IRS or an opinion from legal counsel regarding any of the U.S. federal
income tax consequences of the Arrangement. Each U.S. Holder should consult its own tax advisor regarding the
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U.S. federal, U.S. state and local, and foreign tax consequences of the Arrangement and the receipt, ownership and
disposition of Galway Metals Shares and Galway Gold Shares and cash received in connection with the
Arrangement.
TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, U.S.
HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN
THIS DOCUMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED
UPON BY A U.S. HOLDER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED
UNDER THE INTERNAL REVENUE CODE; (B) THIS SUMMARY WAS WRITTEN IN CONNECTION WITH
THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THIS
DOCUMENT; AND (C) EACH U.S. HOLDER SHOULD SEEK ADVICE BASED ON SUCH U.S. HOLDER’S
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury
Regulations (final, temporary, and proposed), U.S. court decisions, published IRS rulings and published
administrative positions of the IRS, and the Canada U.S. Treaty, that are applicable and, in each case, as in effect
and available, as of the date of this document. Any of the authorities on which this summary is based could be
changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis
and could affect the U.S. federal income tax considerations described in this summary.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of Galway Shares or Galway
Warrants participating in the Arrangement that is (a) an individual who is a citizen or resident of the United States
for U.S. federal income tax purposes, (b) a corporation, or other entity classified as a corporation for U.S. federal
income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the United States,
including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax
regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S.
person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of
such trust.
For purposes of this summary, a “Non U.S. Holder” is an owner of Galway Shares or Galway Warrants
participating in the Arrangement that is not a U.S. Holder. This summary does not address the U.S. federal income
tax considerations applicable to Non U.S. Holders arising from the Arrangement. Accordingly, a Non U.S. Holder
should consult its own tax advisor regarding the potential U.S. federal, U.S. state and local, and foreign tax
consequences (including the potential application of and operation of any tax treaties) of the Arrangement.
This summary does not address the U.S. federal income tax considerations of the Arrangement to U.S.
Holders that are subject to special provisions under the Code, including U.S. Holders: (a) that are tax exempt
organizations, qualified retirement plans, individual retirement accounts, or other tax deferred accounts; (b) that are
financial institutions, insurance companies, real estate investment trusts, or regulated investment companies or that
are broker dealers, dealers, or traders in securities or currencies that elect to apply a mark to market accounting
method; (c) that have a “functional currency” other than the U.S. dollar; (d) that own Galway Shares or Galway
Warrants as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement
involving more than one position; (e) that acquired Galway Shares or Galway Warrants (or after the Arrangement,
Galway Metals Shares and Galway Gold Shares) in connection with the exercise of employee stock options or
otherwise as compensation for services; (f) that hold Galway Shares or Galway Warrants (or after the Arrangement,
Galway Metals Shares and Galway Gold Shares) other than as a capital asset within the meaning of Section 1221 of
the Code; (g) who are U.S. expatriates or former long-term residents of the United States; or (h) that own, or will
own after the Effective Time, directly, indirectly, or by attribution, ten percent or more, by voting power or value, of
the outstanding Galway Shares, Galway Metals Shares or Galway Gold Shares. U.S. Holders that are subject to
special provisions under the Code, including U.S. Holders described immediately above, should consult their own
tax advisors regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the Arrangement.
If an entity that is classified as a partnership (or “pass through” entity) for U.S. federal income tax purposes
holds Galway Shares, the U.S. federal income tax consequences to such partnership (or “pass through” entity) and
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the partners of such partnership (or owners of such “pass through” entity) of participating in the Arrangement and
owning Galway Gold Shares and Galway Metals Shares generally will depend on the activities of the partnership (or
“pass through” entity) and the status of such partners (or owners). Partners of entities that are classified as
partnerships (and owners of “pass through” entities) for U.S. federal income tax purposes should consult their own
tax advisors regarding the U.S. federal income tax consequences of the Arrangement.
This summary does not address the state, local, U.S. federal alternative minimum tax, estate and gift, or
foreign tax consequences to U.S. Holders of the Arrangement. Each U.S. Holder should consult its own tax advisor
regarding the state, local, U.S. federal alternative minimum tax, estate and gift, and foreign tax consequences to
them of the Arrangement.
U.S. Holders are urged to consult their U.S. tax advisors with respect to the U.S. federal, state and
local tax consequences and the non U.S. tax consequences of the transaction, including the receipt, ownership,
and disposition of Galway Gold Shares and Galway Metals Shares and cash received pursuant to the
Arrangement.
Receipt of Cash, Galway Gold and Galway Metals Shares
Galway Shareholders and Galway Warrantholders will receive a combination of cash, Galway Gold Shares
and Galway Metals Shares in exchange for Galway Shares pursuant to the Arrangement. While not free from doubt,
it is expected that the series of transactions occurring pursuant to the Arrangement will be viewed as an integrated
transaction having two distinct components for U.S. tax purposes. The first component will be a deemed distribution
by Galway of the Galway Gold Shares and Galway Metals Shares, which will be viewed as a taxable distribution for
U.S. Federal income tax purposes. The second component will be a deemed taxable sale for U.S. Federal income tax
purposes of Galway Shares by the Galway Shareholders and Galway Warrantholders to AUX Canada.
The dividend characterization rules of Section 301 will treat the fair market value of the Galway Gold
Shares and Galway Metals Shares, as of their time of distribution (the Effective Date) as a distribution that will be
required to be included in the U.S. Holder’s gross income as a dividend (without reduction for any Canadian income
tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of Galway, as
determined under U.S. federal income tax rules. At present, Galway does not believe it has any current or
accumulated “earnings and profits,” but the IRS may choose to assert that one or more of the transactions leading up
to and part of the Arrangement, in fact, triggered “earnings and profits.” Nonetheless, to the extent that a distribution
exceeds the current and accumulated “earnings and profits” of Galway, such distribution will be treated (a) first, as a
tax free return of the U.S. Holder’s Galway Shares capital to the extent of a U.S. Holder’s adjusted tax basis in the
Galway Shares, and (b) thereafter, as gain from the sale or exchange of such Galway Shares. Dividends paid on the
Galway Shares generally will not be eligible for the “dividends received deduction” normally available to U.S.
corporate shareholders receiving dividends from U.S. corporations.
The distribution of Galway Gold Shares and Galway Metals Shares is not expected to trigger the
recognition of any “built-in gains” to Galway that might cause current “earnings and profits” because Galway Gold
Shares and Galway Metals Shares are not expected to have fair market values that exceed their adjusted tax bases to
Galway at the time of the distribution. If, however, the IRS determines that such Galway Gold Shares and Galway
Metals Shares have fair market values that exceed their adjusted tax bases to Galway at the time of the distribution,
such appreciation may create current “earnings and profits” to Galway and also may subject U.S. Holders of Galway
Shares to additional adverse U.S. tax consequences through application of the PFIC rules discussed below.
Accordingly, absent an ultimate determination that Galway, in fact, has current or accumulated “earnings
and profits,” the distribution of the Galway Gold Shares and Galway Metals Shares will result in the reduction of the
U.S. Holder’s adjusted tax basis in their Galway Shares, which, in turn, will increase the U.S. Holder’s gain on the
subsequent deemed sale immediately thereafter of their Galway Shares to AUX Canada, as described below. If a
U.S. Holder’s current adjusted tax basis in its Galway Shares is less than the fair market value of the Galway Gold
Shares and Galway Metals Shares, as of their time of distribution (the Effective Date), then the U.S. Holder also
may have gain on this initial deemed distribution. A U.S. Holder’s initial tax basis in the Galway Gold Shares and
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Galway Metals Shares received will equal their fair market value, and the U.S. Holder’s holding period with respect
to such Galway Gold Shares and Galway Metals Shares will begin on the day after the Effective Date.
A U.S. Holder’s subsequent deemed sale (immediately after distribution of the Galway Gold Shares and
Galway Metals Shares) of its Galway Shares to AUX Canada will be the second principal event arising from the
Arrangement for U.S. tax purposes and will be treated as a taxable transaction for U.S. federal income tax purposes.
U.S. Holders who exchange their Galway Shares will recognize gain or loss on such exchange equal to the
difference between the “amount realized” and the U.S. Holder’s aggregate adjusted tax basis in the Galway Shares
exchanged. The “amount realized” will equal the amount of cash received. Further, as noted above, a U.S. Holder’s
adjusted tax basis in its Galway Shares is expected to be reduced by the fair market value of the distribution of the
Galway Gold Shares and Galway Metals Shares such that a U.S. Holder’s gain on this deemed sale will be increased
by the fair market value of the Galway Gold Shares and Galway Metals Shares received. Subject to the discussion
of PFICs below, any gain or loss realized will be capital gain or loss and will be long-term capital gain or loss if the
Galway Shares disposed of are held for more than one year. Preferential tax rates apply to long-term capital gains of
a U.S. Holder that is an individual, estate, or trust. Deductions for capital losses are subject to complex limitations
under the Code.
U.S. Holders Exercising Dissent Rights
A U.S. Holder that exercises dissent rights in the Arrangement and is paid cash in exchange for all of such
U.S. Holder’s Galway Shares generally will recognize gain or loss in an amount equal to the difference, if any,
between (a) the amount of cash received by such U.S. Holder in exchange for Galway Shares and (b) the tax basis of
such U.S. Holder in such Galway Shares surrendered. Subject to the PFIC rules discussed below, such gain or loss
generally will be capital gain or loss and will be long-term capital gain or loss if such Galway Shares are held for
more than one year. Absent the applicability of the PFIC regime, preferential tax rates apply to long-term capital
gains of a U.S. Holder that is an individual, estate, or trust. Deductions for capital losses are subject to complex
limitations under the Code. U.S. Holders that receive Canadian currency as a result of exercising Dissent Rights
should read the section below under the heading “Certain United States Federal Income Tax Considerations – Other
Tax Considerations – Receipt of Canadian Currency.”
Tax Consequences of Holding and Disposing of Galway Gold Shares and Galway Metals Shares
Receipt of Distributions on Galway Gold Shares and Galway Metals Shares
Subject to the discussion below under the heading “Passive Foreign Investment Companies,” a U.S.
Holder that receives a cash distribution with respect to its Galway Gold Shares and Galway Metals Shares will be
required to include the amount of such distribution in gross income as a dividend (without reduction for any
Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and
profits” of Galway Gold and Galway Metals, as determined under U.S. federal income tax rules. To the extent that a
distribution exceeds the current and accumulated “earnings and profits” of Galway Gold and Galway Metals, such
distribution will be treated (a) first, as a tax free return of capital to the extent of a U.S. Holder’s tax basis in the
Galway Gold Shares and Galway Metals Shares, and (b) thereafter, as gain from the sale or exchange of such
Galway Gold Shares and Galway Metals Shares. Dividends paid on the Galway Gold Shares or Galway Metals
Shares generally will not be eligible for the “dividends received deduction” normally is available to U.S. corporate
shareholders receiving dividends from U.S. corporations.
Absent the applicability of the PFIC rules discussed below and if the “qualified dividend” rules are
extended beyond their currently scheduled “sunset date” of December 31, 2012, a dividend paid by Galway Gold or
Galway Metals will be taxed at the preferential tax rates applicable to long-term capital gains if (a) Galway Gold or
Galway Metals, as applicable, is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving
such dividend is an individual, estate, or trust, and (c) certain holding period requirements are met. Each of Galway
Gold and Galway Metals generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a
“QFC”) if (a) Galway Gold and Galway Metals is eligible for the benefits of the Canada U.S. Treaty, or (b) the
Galway Gold Shares and Galway Metals Shares are readily tradable on an established securities market in the
United States. However, even if Galway Gold or Galway Metals, as applicable, satisfies one or more of such
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requirements, Galway Gold and Galway Metals will not be treated as a QFC if Galway Gold and Galway Metals is a
PFIC for the tax year during which each of Galway Gold or Galway Metals pays a dividend or for the preceding tax
year. It is likely that each of Galway Gold and Galway Metals will be a PFIC for the foreseeable future. See the
discussion titled “Certain United States Federal Income Tax Considerations – Passive Foreign Investment
Companies” below. Accordingly, each of Galway Gold and Galway Metals do not expect to be a QFC for the
foreseeable future (even assuming the “qualified dividend” regime is extended beyond December 31, 2012).
If each of Galway Gold and Galway Metals is not a PFIC but a U.S. Holder otherwise fails to qualify for
the preferential tax rate discussed in the preceding paragraph, a dividend paid by Galway Gold or Galway Metals to
a U.S. Holder generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to
long-term capital gains of a U.S. Holder that is an individual, estate or trust). The dividend rules are complex, and
each U.S. Holder should consult its own tax advisor regarding the dividend rules.
However, it is likely that each of Galway Gold and Galway Metals will be a PFIC for the foreseeable
future. See “Certain United States Federal Income Tax Considerations – Passive Foreign Investment
Companies,” below.
Dispositions of Galway Gold and Galway Metals Shares
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Galway Gold Shares or
Galway Metals Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair
market value of any property received and (b) such U.S. Holder’s tax basis in the Galway Gold Shares or Galway
Metals Shares sold or otherwise disposed of. Subject to the PFIC rules discussed below, any such gain or loss
normally will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder’s holding period
for the Galway Gold Shares or Galway Metals Shares exceeds one year.
Deductions for capital losses are subject to significant limitations under the Code.
Passive Foreign Investment Companies
Qualification
A foreign corporation generally will be considered a PFIC if, for a given tax year, (a) 75 percent or more of
the gross income of the corporation for such tax year is passive income or (b) 50 percent or more of the assets held
by the corporation either produce passive income or are held for the production of passive income, based on the fair
market value of such assets. With respect to sales by a corporation, “gross income” generally means sales revenues
less cost of goods sold.
“Passive income” includes, for example, dividends, interest, certain rents and royalties (other than rents and
royalties derived in the active conduct of a trade or business), certain gains from the sale of stock and securities, and
certain gains from commodities transactions. “Passive assets” are assets that produce passive income or are
reasonably expected to produce such income.
For purposes of the PFIC income test and assets test described above, if a corporation owns, directly or
indirectly, 25 percent or more of the total value of the outstanding shares of another corporation, the first corporation
will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a
proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and
assets test described above, “passive income” does not include any interest, dividends, rents or royalties that are
received or accrued by a corporation from a “related person, “ to the extent such items are properly allocable to the
income of such related person that is not passive income.
In addition, if a corporation is a PFIC and owns shares of another foreign corporation that also is a PFIC (a
“Subsidiary PFIC”), under certain indirect ownership rules, a disposition of the shares of the Subsidiary PFIC or a
distribution received from the Subsidiary PFIC generally will be treated as an indirect disposition by a U.S. Holder
or an indirect distribution received by a U.S. Holder. To the extent that gain recognized on the actual disposition by
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a U.S. Holder of shares of a corporation that is a PFIC or income recognized by a U.S. Holder on an actual
distribution received on shares of a PFIC was previously subject to U.S. federal income tax under these indirect
ownership rules, such amount generally should not be again subject to U.S. federal income tax.
PFIC Status of Galway
Based on available financial information, Galway believes it has been a PFIC for each year of its existence
and expects to be a PFIC for the tax year in which the Arrangement occurs and the tax year which includes the day
after the Effective Date. However, PFIC status is fundamentally factual in nature and often cannot be determined
until the close of the taxable year in question and is determined annually. Additionally, the analysis depends, in part,
on complex U.S. federal income tax rules that are subject to arguably varying interpretations. Consequently, there
can be no assurances regarding the PFIC status of Galway for any prior tax year or the current year. If Galway was a
PFIC at any time during a U.S. Holder’s holding period for the Galway Shares, then the tax consequences of
disposing of such shares, as discussed above, will be significantly modified, and generally worsened, by the PFIC
rules discussed below.
PFIC Status of Galway Gold and Galway Metals
Each of Galway Gold and Galway Metals expects to be a PFIC for the tax year in which the Arrangement
occurs and the tax year which includes the day after the Effective Date and may be a PFIC in subsequent years.
However, as noted above, PFIC classification is factual in nature, and often cannot be determined until the close of
the tax year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal
income tax rules, which are subject to arguably differing interpretations. Consequently, there arguably can be no
certainty regarding the PFIC status of each of Galway Gold and Galway Metals for the year in which the
Arrangement occurs, the tax year which includes the day after the Effective Date or any subsequent tax year,
although, based on the available financial information and the expected near-term activities of Galway Gold and
Galway Metals, much more likely than not Galway Gold and Galway Metals, in fact, will be deemed to constitute
PFICs. If each of Galway Gold and Galway Metals is a PFIC in 2012, or any other year in a U.S. Holder’s holding
period for Galway Gold Shares or Galway Metals Shares, as applicable, then the tax consequences to such U.S.
Holder of holding and disposing of such securities will be significantly modified and generally worsened by the
PFIC rules, as discussed below. Each U.S. Holder should consult its own tax advisor regarding whether each of
Galway Gold and Galway Metals will be a PFIC for the year in which the Arrangement occurs and for the tax year
that includes the day after the Effective Date of the Arrangement.
Consequences of the Ownership and Disposition of Shares of a PFIC
Default PFIC Rules Under Section 1291 of the Code
If any corporation is or has been a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the
acquisition, ownership, and disposition of securities of such company or companies, will depend on whether such
U.S. Holder makes an election to treat such PFIC as a “qualified electing fund” or “QEF” (a “QEF Election”) or has
made a mark to market election (a “Mark to Market Election”) with respect to the PFIC shares. A U.S. Holder that
does not make either a QEF Election or a Mark to Market Election with respect to shares in a PFIC will be referred
to in this summary as a “Non Electing U.S. Holder.”
A Non Electing U.S. Holder will be subject to the rules of Section 1291 of the Code as follows:
(i)
any gain on the sale, exchange, or other disposition of shares and any “excess distribution”
(defined as an annual distribution that is more than 25 percent in excess of the average annual
distribution over the past three years) will be allocated ratably over such U.S. Holder’s holding
period for the shares;
(ii)
the amount allocated to the current taxable year and any year prior to the first year in which the
corporation was classified as a PFIC will be taxed as ordinary income in the current year;
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(iii)
the amount allocated to each of the other taxable years will be subject to tax at the highest rate of
tax in effect for the applicable class of taxpayer for that year; and
(iv)
an interest charge for a deemed deferral benefit will be imposed with respect to the resulting tax
attributable to each of the other taxable years, which interest charge is not deductible by noncorporate U.S. Holders.
The amount of any such gain or excess distribution allocated to the current year of such Non Electing U.S.
Holder’s holding period for the PFIC’s securities will be treated as ordinary income in the current year, and no
interest charge will be incurred with respect to the resulting tax liability for the current year.
If a corporation is a PFIC for any tax year during a Non Electing U.S. Holder’s holding period for the
securities of such corporation, the corporation will continue to be treated as a PFIC with respect to such Non
Electing U.S. Holder, regardless of whether such corporation ceases to be a PFIC in one or more subsequent years.
A Non Electing U.S. Holder may terminate this deemed PFIC status with respect to the PFIC shares by electing to
recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such shares
were sold on the last day of the last tax year for which such corporation was a PFIC.
Generally, a U.S. Holder who owns shares of a PFIC (either directly or indirectly) must file Form 8621
with the Internal Revenue Service for each tax year in which the U.S. Holder recognizes gain on a direct or indirect
disposition of PFIC stock, receives certain direct or indirect distributions from a PFIC, or is making an election
reportable on Form 8621 (e.g., a QEF Election or Mark-to-Market election, as described below).
QEF Election
A U.S. Holder that makes a QEF Election for the first year in which its holding period for PFIC shares
begins generally will not be subject to the rules of Section 1291 of the Code discussed above. However, a U.S.
Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of:
(i)
the net capital gain of the PFIC, which will be taxed as long-term capital gain to such U.S. Holder;
and
(ii)
the ordinary earnings of the PFIC, which will be taxed as ordinary income to such U.S. Holder.
Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short term capital
loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder
that makes a QEF Election with respect to a PFIC will be subject to U.S. federal income tax on such amounts for
each tax year in which such corporation is a PFIC, regardless of whether such amounts are actually distributed to
such U.S. Holder. However, for any tax year in which a corporation is a PFIC and has no net income or gain, U.S.
Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a
U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain
limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge.
If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest”, which is not
deductible.
A U.S. Holder that makes a QEF Election with respect to a PFIC generally (a) may receive a tax free
distribution from such PFIC to the extent that such distribution represents “earnings and profits” of the PFIC that
were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S.
Holder’s tax basis in the shares of such PFIC to reflect the amount included in income or allowed as a tax free
distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election with respect to
shares of a PFIC generally will recognize capital gain or loss on the sale or other taxable disposition of such shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF
Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such
QEF Election is made for the first year in the U.S. Holder’s holding period for the PFIC shares in which the
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corporation was a PFIC. (For example, it should be readily possible for U.S. Holders to make a timely QEF Election
with respect to Galway Gold and Galway Metals for 2012, which will be the first year those entities come into
existence.) A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the
time such U.S. Holder files a U.S. federal income tax return for such first year. However, if a party to the
Arrangement was a PFIC in a prior year, then in addition to filing the QEF Election documents, a U.S. Holder must
elect to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if the
PFIC shares were sold on the qualification date. The “qualification date” is the first day of the first tax year in which
the PFIC was a QEF with respect to such U.S. Holder. The election to recognize such gain or “earnings and profits”
can only be made if such U.S. Holder’s holding period for the PFIC shares includes the qualification date. By
electing to recognize such gain or “earnings and profits”, such U.S. Holder will be deemed to have made a timely
QEF Election.
In certain limited situations, a U.S. Holder may be eligible for a retroactive QEF Election that covers the
U.S. Holder’s entire holding period in Galway Stock. Such retroactive QEF election does not also require a deemed
sale election because it would allow the U.S. Holder to be treated as having made a timely QEF election. This
election, however, requires consent of the IRS and must be applied for by submitting a formal ruling request with
the IRS. To be eligible for this retroactive QEF election, the U.S. Holder must have reasonably relied upon a
qualified tax professional, and the interests of the U.S. government must not be prejudiced by the election.
Generally, reasonable reliance upon a qualified tax professional is satisfied only if the professional failed to identify
Galway as a PFIC or failed to advise the U.S. Holder of the consequences of making or not making a QEF Election.
The interests of the government are prejudiced if the U.S. Holder would have a lower tax liability under the election
than it would have if it made the election by the election due date. Given that Galway has sustained significant net
operating losses for each year of its existence, the interests of the government likely would not be prejudiced by a
U.S. Holder’s retroactive QEF Election under this procedure. If the interests of the government are prejudiced, a
U.S. Holder is permitted to enter into a closing agreement whereby the U.S. holder pays the amount necessary to
eliminate any prejudice.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax
years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF
Election. If a U.S. Holder makes a QEF Election with respect to a PFIC and, in a subsequent tax year, such
corporation ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during
those tax years in which such corporation is not a PFIC. Accordingly, if such corporation becomes a PFIC in a
subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules
described above during any such subsequent tax year in which such corporation qualifies as a PFIC. In addition, the
QEF Election will remain in effect (although it will not be applicable) with respect to a U.S. Holder even after such
U.S. Holder disposes of all of such U.S. Holder’s direct and indirect interest in the PFIC’s shares. Accordingly, if
such U.S. Holder reacquires an interest in such PFIC, such U.S. Holder will be subject to the QEF rules described
above for each tax year in which such corporation is a PFIC and such U.S. Holder holds its shares.
U.S. Holders should be aware that there can be no assurance that either or both of Galway Gold and
Galway Metals will satisfy the recordkeeping requirements that apply to a QEF or that it will supply U.S. Holders
with information that such U.S. Holders would require to report under the QEF rules, in the event that it were a
PFIC and a U.S. Holder wished to make a QEF Election in respect to it.
Each U.S. Holder should consult its own U.S. tax advisor regarding the availability of, and procedure for
making, a QEF Election with respect to any party to the Arrangement which is a PFIC or may become a PFIC.
Mark to Market Election
A U.S. Holder may make a so-called “Mark to Market Election” with respect to shares in a PFIC only if the
shares are marketable stock. A PFIC’s shares generally will be “marketable stock” if such shares are regularly traded
on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the
national market system established pursuant to Section 11A of the Securities and Exchange Act of 1934, or (c) a
foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the
market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other
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requirements and the laws of the country in which such foreign exchange is located, together with the rules of such
foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange
ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such
stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de
minimis quantities, on at least 15 days during each calendar quarter. Shares regularly traded on the TSX V should
qualify as marketable stock for this purpose.
A U.S. Holder that makes a Mark to Market Election with respect to its shares in a PFIC generally will not
be subject to the rules of Section 1291 of the Code discussed above for the year in which such Mark to Market
Election is made. However, if a U.S. Holder makes a Mark to Market Election after the beginning of such U.S.
Holder’s holding period for the PFIC shares and such U.S. Holder has not made a timely QEF Election, the rules of
Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the shares of
such PFIC. In particular, a Non Electing U.S. Holder whose holding period with respect to Galway Shares includes a
year in which Galway was a PFIC would be taxed under the rules of Section 1291 as a result of the Arrangement,
even if the Mark to Market Election is made with respect to Galway for 2012)
A U.S. Holder that makes a Mark to Market Election with respect to shares in a PFIC will include in
ordinary income, for each tax year in which the corporation is a PFIC an amount equal to the excess, if any, of (a)
the fair market value of the shares in such PFIC as of the close of such tax year over (b) such U.S. Holder’s tax basis
in such PFIC shares. A U.S. Holder that makes a Mark to Market Election will be allowed a deduction in an amount
equal to the lesser of (a) the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the PFIC shares over (ii)
the fair market value of such PFIC shares as of the close of such tax year or (b) the excess, if any, of (i) the amount
included in ordinary income because of such Mark to Market Election for prior tax years over (ii) the amount
allowed as a deduction because of such Mark to Market Election for prior tax years. For purposes of making these
PFIC tax analyses, U.S. Holders should be aware that the opening offer price for Galway on January 3, 2012 (the
first trading day of 2012) was $1.60. Thus if a U.S. Holder made a Mark to Market Election with his 2012 U.S.
income tax return, as of January 1, 2012, he would have to pick up his pre-2012 appreciation in his Galway stock
(e.g., if he originally acquired the Galway shares for $1.40 per share, so a pre-2012 appreciation of $0.20) as
ordinary income (subject also to a PFIC interest surcharge), whereas the post January 1, 2012 opening value of
$0.45 (i.e., $2.05 sales price to AUX Canada less the $1.60 “Mark to Market” value as of January 1, 2012) would
qualify as long-term capital gain if the Galway stock was acquired more than one year prior to the expected
December 20, 2012 sale to AUX Canada.
A U.S. Holder that makes a Mark to Market Election with respect to shares in a PFIC generally also will
adjust such U.S. Holder’s tax basis in such PFIC shares to reflect the amount included in gross income or allowed as
a deduction because of such Mark to Market Election. In addition, upon a sale or other taxable disposition of such
PFIC shares, a U.S. Holder that makes a Mark to Market Election will recognize ordinary income or loss (not to
exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark to Market Election
for prior tax years over (b) the amount allowed as a deduction because of such Mark to Market Election for prior tax
years).
A Mark to Market Election applies to the tax year in which such Mark to Market Election is made and to
each subsequent tax year, unless the shares of the PFIC cease to be “marketable stock” or the IRS consents to
revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and
procedure for making, a Mark to Market Election.
Other PFIC Rules
Certain additional adverse rules will apply with respect to a U.S. Holder of shares in a PFIC regardless of
whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder
that uses shares in a PFIC as security for a loan will, except as may be provided in Treasury Regulations, be treated
as having made a taxable disposition of such shares. In addition, a U.S. Holder who acquires shares in a PFIC from a
decedent will not receive a “step up” in tax basis of such shares to fair market value. Further, U.S. Holders of shares
in a PFIC must annually file an IRS information return regarding their ownership of such shares.
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The PFIC rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding
the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences attributable to
the Galway shares surrendered or the Galway Gold and Galway Metals Shares received pursuant to the
Arrangement.
Other Tax Considerations
Foreign Tax Credit
A U.S. Holder that pays (whether directly or through withholding) Canadian income tax in connection with
the Arrangement or in connection with the ownership or disposition of Galway Gold Shares and Galway Metals
Shares may be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such
Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a
dollar for dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax.
This election is made on a year by year basis and applies to all foreign taxes paid (whether directly or through
withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot
exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign
source” taxable income bears to such U.S. Holder’s worldwide taxable income. Generally, dividends paid by a
foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock or
other securities of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose.
However, the amount of a distribution with respect to Galway Gold Shares or Galway Metals Shares that is treated
as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax
purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is
calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and
each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Receipt of Canadian Currency
The amount of any distribution or proceeds paid in Canadian dollars to a U.S. Holder in connection with
the ownership of Galway Gold Shares or Galway Metals Shares or on the sale, exchange or other taxable disposition
of Galway Gold Shares or Galway Metals Shares, or any Canadian dollars received as a result of the Arrangement or
on the exercise of Dissent Rights under the Arrangement, generally will be equal to the U.S. dollar value of such
Canadian dollars based on the exchange rate applicable on the date of receipt (regardless of whether such Canadian
dollars are converted into U.S. dollars at that time). A U.S. Holder that receives Canadian dollars and converts such
Canadian dollars into U.S. dollars at a conversion rate other than the rate in effect on the date of receipt may have a
foreign currency exchange gain or loss, which generally would be ordinary income or loss, and generally will be
U.S. source income or loss for foreign tax credit purposes.
Taxable dividends with respect to Galway Gold Shares and Galway Metals Shares, if any, that are paid in
Canadian dollars will be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by
reference to the exchange rate prevailing on the date of actual or constructive receipt of the dividend, regardless of
whether the Canadian dollars are converted into U.S. dollars at that time. If the Canadian dollars received are not
converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the Canadian dollars equal to
their U.S. dollar value on the date of receipt. Any U.S. Holder that receives payment in Canadian dollars and
engages in a subsequent conversion or other disposition of the Canadian dollars may have a foreign currency
exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or
loss for foreign tax credit purposes.
Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax
consequences of receiving, owning, and disposing of Canadian dollars.
Information Reporting; Backup Withholding Tax
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Payments of cash made to U.S. Holders participating in the Arrangement as well as payments relating to
the exercise of Dissent Rights under the Arrangement, and payments of cash or property made to U.S. Holders
relating to dividends on, or proceeds arising from the sale or other taxable disposition of Galway Gold Shares or
Galway Metals Shares generally will be subject to U.S. federal information reporting and may be subject to backup
withholding tax, currently at the rate of 28 percent, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct
U.S. taxpayer identification number (generally on Form W 9); or (b) fails to certify, under penalty of perjury, that
such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such
U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are
excluded from these information reporting and backup withholding tax rules. Backup withholding is not an
additional U.S. federal income tax. Any amounts withheld under the U.S. backup withholding tax rules will be
allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded to the extent
it exceeds such liability, if such U.S. Holder furnishes required information to the IRS. A U.S. Holder that does not
provide a correct U.S. taxpayer identification number may be subject to penalties imposed by the IRS. Each U.S.
Holder should consult its own U.S. tax advisor regarding the information reporting and backup withholding tax
rules.
Additional Tax on Passive Income
For taxable years beginning after December 31, 2012, U.S. Holders with income in excess of certain
thresholds generally will be subject to a 3.8 percent Medicare contribution tax on unearned income, including,
among other things, dividends on, and capital gains from the sale or other taxable disposition of, Galway Gold
Shares or Galway Metals Shares, subject to certain limitations and exceptions. You are urged to consult your tax
advisor regarding the effect, if any, of this tax on your ownership and disposition of Galway Gold Shares or Galway
Metals Shares.
Galway’s internal reorganizations of Nyak and Galway U.S. prior to their spinoff to the Galway
Securityholders should not be considered an ascribed “Inversion” for U.S. tax purposes.
In 2004, Congress enacted Section 7874 of the Code, to curtail certain perceived abuses associated with
“inversion transactions,” i.e., transactions in which a U.S.-based multinational corporation migrates to a lower-tax
jurisdiction in order to reduce U.S. taxation. In particular, Congress was concerned that “inversion transactions
resulting in a minimal presence in a foreign country” were simply a “means of avoiding U.S. tax and should be
curtailed.” In essence, an inversion transaction is the interposition of a foreign corporation to hold the assets or
business of the former domestic entity, with the interposed foreign entity controlled by the former shareholders or
partners of the U.S. expatriating entity.
Section 7874 of the Code generally provides that a corporation organized outside the U.S. which acquires
substantially all of the assets of a corporation organized in the U.S. will be treated as a U.S. corporation (and,
therefore, a U.S. tax resident) for U.S. federal income tax purposes if shareholders of the acquired U.S. corporation
own at least 80 percent (of either the voting power or the value) of the stock of the acquiring foreign corporation
after the acquisition and the acquiring foreign corporation does not have substantial business activities in the country
in which it is organized. The Treasury Regulations provide an exception from Section 7874 for certain internal
group restructurings. Although Galway Metals will indirectly acquire all of the assets of two U.S. corporations
(Galway U.S. and Nyak) and the former shareholder of those entities (Galway) will own 100 percent of the stock
Galway Metals prior to the spin off, Section 7874 should not apply to the spin off, because it should qualify as an
internal group restructuring.
On June 29, 2009, the IRS issued guidance on Section 7874, and in the preamble to such guidance, the IRS
raised the issue that certain spin off transactions may not qualify for the internal group restructuring exception. On
June 12, 2012, the IRS issued final regulations, which did not provide guidance on various open issues raised in the
June 29, 2009 preamble, including the issue of whether certain spin off transactions would qualify as internal group
restructurings. Thus, spin off transactions remain the subject of governmental consideration, and adverse guidance
may be issued in the future (including potentially with retroactive effect). Notwithstanding the June 29, 2009
preamble, the IRS has not yet implemented regulations or other guidance implementing the June 29, 2009 preamble
language regarding spinoffs. Based on current applicable Treasury Regulations, therefore, Galway’s proposed
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spinoff transaction of Galway Gold and Galway Metals should qualify for the internal group restructuring exception.
Moreover, the facts and circumstances of Galway’s spinoff are significantly different than those contained in an
example in the June 29, 2009 preamble. Most notably, Galway’s proposed spinoff involves a foreign parent
corporation whereas the June 29, 2009 preamble example involved a U.S. parent corporation. Additionally, the
inversion transaction rules were implemented by Congress to prevent perceived abuses associated with transactions
which involved U.S. multinational corporations migrating to lower tax jurisdictions. Galway’s proposed spinoff
does not come within the scope of transactions perceived abusive by Congress in implementing the inversion rules.
Based on the above, Galway intends to take the position that Section 7874 of the Code does not apply to treat
Galway Metals as a U.S. corporation for U.S. federal income tax purposes.
RISK FACTORS
In assessing the Arrangement, Galway Securityholders should carefully consider the risks described in
Galway’s management’s discussion and analysis dated April 30, 2012 for the twelve month period ended
December 31, 2011 and the management’s discussion and analysis dated August 29, 2012 for the three and six
months ended June 30, 2012, together with the other information contained in, or incorporated by reference in this
Circular, including the disclosure under Appendix C – “Information Concerning Galway Metals” to this Circular
and under Appendix D – “Information Concerning Galway Gold”, both specifically under “Risk Factors”.
Additional risks and uncertainties, including those currently unknown to or considered immaterial by Galway, may
also adversely affect the business of Galway, Galway Metals and Galway Gold going forward. In particular, the
Arrangement and the operations Galway Metals and Galway Gold are subject to certain risks, including the
following risks.
Risks Related to the Arrangement
An investment in Galway Metals and Galway Gold would be subject to certain risks, which are described
in detail under “Risk Factors” in Appendix C – “Information Concerning Galway Metals” and in Appendix D –
”Information Concerning Galway Gold”. The following are additional risk factors concerning the Arrangement that
Galway Securityholders should carefully consider before making a decision regarding approving the Arrangement
Resolution.
The Arrangement Agreement may be terminated by Galway or AUX in certain circumstances, in which case the
market price for Galway Shares may be adversely affected
Each of Galway and AUX has the right to terminate the Arrangement Agreement in certain circumstances.
Accordingly, there is no certainty, nor can Galway provide any assurance, that the Arrangement Agreement will not
be terminated by either Galway or AUX before the completion of the Arrangement. In addition, the completion of
the Arrangement is subject to a number of conditions precedent, certain of which are outside the control of Galway
or AUX, including Galway Securityholders approving the Arrangement, Court approval, TSX-V approval being
received, and other required regulatory approvals being obtained. There is no certainty, nor can Galway provide any
assurance, that these conditions will be satisfied. If for any reason the Arrangement is not completed, the market
price of Galway Shares may be adversely affected. Moreover, if the Arrangement Agreement is terminated, there is
no assurance that the Galway Board will be able to find a party willing to pay an equivalent or a more attractive
price for the Galway Shares than the price to be paid pursuant to the terms of the Arrangement Agreement.
The closing of the Arrangement is conditional on, among other things, the receipt of consents and approvals
from governmental bodies that could delay or impede completion of the Arrangement
Completion of the Arrangement is conditional upon receiving certain regulatory approvals. A substantial
delay in obtaining satisfactory approvals or the imposition of unfavourable terms or conditions in the regulatory
approvals could result in the Arrangement not being completed. Certain jurisdictions may claim jurisdiction under
their competition or antitrust laws in respect of acquisitions or mergers that may potentially affect their domestic
marketplace. Although Galway does not currently anticipate that there will be any investigation or proceeding in any
jurisdiction that would have a material impact on the completion of the Arrangement, there is no assurance that such
investigation or proceeding, whether by governmental authority or private party, will not be initiated nor, if initiated,
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will not materially adversely affect the completion of the Arrangement. There can be no certainty that the
Arrangement will be completed on the terms set out in the Arrangement Agreement, as negotiated, or at all. In the
event that any of the conditions precedent are not satisfied or waived, the Arrangement will not be completed.
Possible Failure to Realize Anticipated Benefits of the Arrangement
Galway and AUX are proposing to complete the Arrangement to create the opportunity to realize certain
benefits, including, among other things, those set forth in this Circular under “The Arrangement – Reasons for the
Arrangement”. Achieving the benefits of the Arrangement depends in part on the ability of Galway Metals and
Galway Gold to achieve the potential of improved growth and capital funding opportunities as a result of the
Arrangement. There is no certainty that the anticipated benefits will be attained as expected or at all. A variety of
factors, including those risk factors set forth in this Circular, may adversely affect the ability to achieve the
anticipated benefits of the Arrangement.
Failure to Achieve Stock Exchange Listing for Galway Gold Shares or Galway Metals Shares
Galway Gold and Galway Metals have applied to list the Galway Gold Shares and Galway Metals Shares,
respectively, issuable pursuant to the Arrangement on the TSX-V. Listing is subject to Galway Gold and Galway
Metals fulfilling all of the requirements of the TSX-V. There can be no assurance that the TSX-V will list the
Galway Gold Shares or Galway Metals Shares. A failure to list the Galway Gold Shares or Galway Metals Shares on
the TSX-V or another designated stock exchange could result in a determination that the Galway Gold Shares or
Galway Metals Shares are not qualified investments under the Tax Act for Deferred Plans. See “Certain Canadian
Federal Income Tax Considerations – Qualified Investment Status for Deferred Plans”.
Fluctuation of the Market Price of Galway Gold Shares and Galway Metals Shares
The value of the consideration being offered will depend on the future value of Galway Gold Shares and
Galway Metals Shares.
OTHER MATTERS TO BE CONSIDERED AT THE MEETING
In addition to being called for the purposes of considering and approving the Arrangement Resolution,
Galway Shareholders will be asked to approve the Galway Metals Stock Option Plan and the Galway Gold Stock
Option Plan.
Approval of the Galway Gold Stock Option Plan
Effective on or about the Effective Date, the Galway Gold Board will adopt a new rolling 10% stock option
plan, the Galway Gold Stock Option Plan, which plan was drafted in accordance with the latest TSX-V policies and
rules, and may issue options thereunder at the time of adoption. Under the policies of the TSX-V, Galway Gold’s
Stock Option Plan must be approved and ratified by Galway Gold shareholders on an annual basis.
The purpose of the Galway Gold Stock Option Plan is to allow Galway Gold to grant options to its
directors, officers, employees and consultants, as additional compensation, and as an opportunity to participate in the
success of Galway Gold. The granting of such options is intended to align the interests of such persons with that of
the shareholders. Options will be exercisable over periods of up to ten years as determined by the Galway Gold
Board and are required to have an exercise price no less than the closing market price of Galway Gold’s Shares
prevailing on the day that the option is granted less an allowable discount, which discount varies with market price
in accordance with the policies of the TSX-V. Pursuant to the Galway Gold Option Plan, the Galway Gold Board
may from time to time authorize the issue of options to directors, officers, employees and consultants of Galway
Gold and its subsidiaries or employees of companies providing management or consulting services to Galway Gold
or its subsidiaries. The maximum number of Galway Gold Shares which may be issued pursuant to options granted
under the Galway Gold Stock Option Plan will be a maximum of 10% of the issued and outstanding common shares
of Galway Gold at the time of the grant. In addition, the number of Galway Gold Shares which may be reserved for
issuance to any one individual may not exceed 5% of the issued shares on a yearly basis or 2% if the optionee is
69
engaged in investor relations activities or is a consultant. The Galway Gold Stock Option Plan contains no vesting
requirements, but permits the Galway Gold Board to specify a vesting schedule for particular option grants in its
discretion at the time of such grants. The Galway Gold Stock Option Plan also provides that if a change of control,
as defined in the Galway Stock Option Plan, occurs, all shares subject to option shall immediately become vested
and may thereupon be exercised in whole or in part by the optionholder.
Shareholder Approval Being Sought
At the Meeting, Galway Shareholders are being asked to pass an ordinary resolution, with or without
amendment, to approve and confirm the Galway Gold Stock Option Plan.
A copy of the Galway Gold Stock Option Plan, as amended, is available upon request to any shareholder of
Galway Gold at no charge, or may be inspected at the registered office of Galway during normal business hours
until the date of the Meeting.
Management considers the approval of the Galway Gold Stock Option Plan to be appropriate and in the
best interests of Galway Gold.
Galway Shareholders will be asked to pass an ordinary resolution in substantially the form set forth below:
“RESOLVED, with or without amendment, that:
1.
The Galway Gold Stock Option Plan, pursuant to which the directors may, from time to time,
authorize the issuance of options to directors, officers, employees and consultants of Galway Gold
and its subsidiaries to a maximum of 10% of the issued and outstanding common shares at the
time of grant, with a maximum of 5% of Galway’s issued and outstanding shares being reserved to
any one person on a yearly basis or 2% if the optionee is engaged in investor relations activities or
is a consultant, be and is hereby approved and confirmed; and
2.
any director or officer of Galway Gold is hereby authorized and directed, acting for, in the name
of and on behalf of Galway Gold, to execute or cause to be executed, and to deliver or cause to be
delivered, such other documents and instruments, and to do or cause to be done all such other acts
and things, as may in the opinion of such director or officer be necessary or desirable to carry out
the foregoing resolutions.”
THE GALWAY BOARD RECOMMENDS THAT GALWAY SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE GALWAY GOLD STOCK OPTION PLAN.
Approval of the Galway Metals Stock Option Plan
On or about the Effective Date, the Galway Metals Board will adopt a new rolling 10% stock option plan,
the Galway Metals Stock Option Plan, which plan was drafted in accordance with the latest TSX-V policies and
rules, and may issue options thereunder at the time of adoption. Under the policies of the TSX-V, Galway Metals
Stock Option Plan must be approved and ratified by Galway Metals shareholders on an annual basis.
The purpose of the Galway Metals Stock Option Plan is to allow Galway Metals to grant options to its
directors, officers, employees and consultants, as additional compensation, and as an opportunity to participate in the
success of Galway Metals. The granting of such options is intended to align the interests of such persons with that
of the shareholders. Options will be exercisable over periods of up to five years as determined by the Galway
Metals Board and are required to have an exercise price no less than the closing market price of Galway Metals’
Shares prevailing on the day that the option is granted less an allowable discount, which discount varies with market
price in accordance with the policies of the TSX-V. Pursuant to the Galway Metals Option Plan, the Galway Metals
Board may from time to time authorize the issue of options to directors, officers, employees and consultants of
Galway Metals and its subsidiaries or employees of companies providing management or consulting services to
Galway Gold or its subsidiaries. The maximum number of Galway Metals Shares which may be issued pursuant to
options granted under the Galway Metals Stock Option Plan will be a maximum of 10% of the issued and
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outstanding common shares of Galway Metals at the time of the grant. In addition, the number of Galway Metals
Shares which may be reserved for issuance to any one individual may not exceed 5% of the issued shares on a yearly
basis or 2% if the optionee is engaged in investor relations activities or is a consultant. The Galway Metals Stock
Option Plan contains no vesting requirements, but permits the Galway Metals Board to specify a vesting schedule
for particular option grants in its discretion at the time of such grants. The Galway Metals Stock Option Plan also
provides that if a change of control, as defined in the Galway Metals Option Plan, occurs, all shares subject to option
shall immediately become vested and may thereupon be exercised in whole or in part by the optionholder.
Shareholder Approval Being Sought
At the Meeting, Galway Shareholders are being asked to pass an ordinary resolution, with or without
amendment, to approve and confirm the Galway Metals Stock Option Plan.
A copy of the Galway Metals Stock Option Plan, as amended, is available upon request to any shareholder
of Galway Metals at no charge, or may be inspected at the registered office of Galway Metals during normal
business hours until the date of the Meeting.
Management considers the approval of the Galway Metals Stock Option Plan to be appropriate and in the
best interests of Galway Metals.
Galway Shareholders will be asked to pass an ordinary resolution in substantially the form set forth below:
“RESOLVED, with or without amendment, that:
1.
The Galway Metals Stock Option Plan, pursuant to which the directors may, from time to time,
authorize the issuance of options to directors, officers, employees and consultants of Galway
Metals and its subsidiaries to a maximum of 10% of the issued and outstanding common shares at
the time of grant, with a maximum of 5% of Galway’s issued and outstanding shares being
reserved to any one person on a yearly basis or 2% if the optionee is engaged in investor relations
activities or is a consultant, be and is hereby approved and confirmed; and
2.
any director or officer of Galway Metals is hereby authorized and directed, acting for, in the name
of and on behalf of Galway Metal, to execute or cause to be executed, and to deliver or cause to be
delivered, such other documents and instruments, and to do or cause to be done all such other acts
and things, as may in the opinion of such director or officer be necessary or desirable to carry out
the foregoing resolutions.”
THE GALWAY BOARD RECOMMENDS THAT GALWAY SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE GALWAY METALS STOCK OPTION PLAN.
INFORMATION CONCERNING GALWAY
Additional information relating to Galway is contained in Appendix B.
INFORMATION CONCERNING GALWAY METALS
Upon completion of the Arrangement, each Galway Shareholder will become a shareholder of Galway
Metals. Information relating to Galway Metals after the Arrangement is contained in Appendix C – “Information
Concerning Galway Metals”.
INFORMATION CONCERNING GALWAY GOLD
Upon completion of the Arrangement, each Galway Shareholder will become a shareholder of Galway
Gold. Information relating to Galway Gold after the Arrangement is contained in Appendix D – “Information
Concerning Galway Gold”.
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AUDITORS
Galway’s auditors are PricewaterhouseCoopers LLP, Chartered Accountants, Licensed Public Accountants,
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, M5J 0B2.
INTEREST OF EXPERTS
Information of a scientific or technical nature regarding the Victorio Project included in this Circular is
based upon the Victorio Technical Report endorsed by Harvey P. Knudsen, PhD, PE and Peter H. Hahn.
Information of a scientific or technical nature regarding the Vetas Project included in this Circular is based
upon the Vetas Technical Report prepared by James G. Lavigne, M.Sc., P.Geo and Elizabeth Edler McMonnies,
P.Geo, both of Roscoe Postle Associates Inc.
As of the date hereof, to the knowledge of Galway, none of Harvey P. Knudsen, Peter H. Hahn, James G.
Lavigne nor Elizabeth Edler McMonnies held an interest in Galway’s securities representing more than 1% of
Galway’s issued and outstanding common shares when or after they prepared the NI 43-101 compliant technical
report in respect of the Vetas Project or the Victorio Project.
PricewaterhouseCoopers LLP, the auditors for Galway, have advised Galway that they are independent
with respect of Galway within the meaning of the applicable Rules of Professional Conduct of the Institute of
Chartered Accountants of Ontario.
The matters referred to under “Certain Canadian Federal Income Tax Considerations” have been passed
upon on behalf of Galway by Baker & McKenzie LLP. As of the date hereof, the partners and associates of Baker &
McKenzie LLP, as a group, beneficially owned, directly or indirectly, less than 1% of the issued Galway Shares.
AVAILABLE INFORMATION
Galway files reports and other information with Canadian provincial securities commissions. These reports
and information are available to the public free of charge under Galway’s profile on SEDAR at www.sedar.com.
Galway Shareholders may contact Galway at its head office, 36 Toronto Street, Suite 1000, Toronto, ON M5C 2C5
(Telephone: 1-416-848-7744) to request copies of Galway’s financial statements and management discussion and
analysis for its most recently completed financial year ended December 31, 2011. Financial information of Galway
is provided in the comparative financial statements and management discussion and analysis for its most recently
completed financial year ended December 31, 2011.
APPROVAL OF THE BOARD OF DIRECTORS
The contents and the sending of the Notice of Meeting and this Circular have been approved by the Galway
Board.
DATED this 16th day of November, 2012.
BY ORDER OF THE BOARD OF DIRECTORS
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GLOSSARY OF TERMS
In this Circular, the following capitalized words and terms shall have the following meanings:
“Acquisition Proposal” means, other than the transactions contemplated by the Arrangement Agreement: (a) any
bona fide offer, proposal, expression of interest, or inquiry from any person (other than AUX or any of its affiliates)
made after the date of the Arrangement Agreement relating to: (i) any acquisition or sale, direct or indirect, of: (A)
the assets of Galway and/or one or more of its subsidiaries that, individually or in the aggregate, constitute 20% or
more of the fair market value of the consolidated assets of Galway and its subsidiaries taken as a whole; or (B) 20%
or more of any voting or equity securities of Galway or any of its subsidiaries whose assets, individually or in the
aggregate, constitute 20% or more of the fair market value of the consolidated assets of Galway and its subsidiaries
taken as a whole; (ii) any take-over bid, tender offer or exchange offer for any class of voting or equity securities of
Galway; or (iii) a plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Galway or any of its
subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the fair market value of the
consolidated assets of Galway and its subsidiaries taken as a whole; (b) a bona fide proposal or offer or public
announcement or other public disclosure of a bona fide intention to do any of the foregoing, directly or indirectly, or
(c) any modification or proposed modification of the foregoing;
“Affiliate” has the meaning ascribed thereto in the Securities Act (Ontario) section 82(2);
“Arrangement” means the arrangement under the provisions of Section 182 of the OBCA on the terms and subject
to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in
accordance with the Arrangement Agreement and Section 9.3 of the Arrangement Agreement or the Plan of
Arrangement or made at the direction of the Court in the Final Order, with the consent of AUX and Galway, each
acting reasonably;
“Arrangement Agreement” means the Arrangement Agreement dated October 19, 2012 and as amended and
restated in an amending agreement dated November 16, 2012, in each case, among AUX, AUX Canada, Galway,
Galway Metals, and Galway Gold, to which the Plan of Arrangement is attached as Schedule A, and filed on
SEDAR under Galway’s profile;
“Arrangement Resolution” means the special resolution of the Galway Securityholders, voting as a single class,
approving the Arrangement to be considered at the Galway Meeting, substantially in the form and content of
Appendix A to the Circular;
“Articles of Arrangement” means the articles of arrangement to be filed in accordance with the OBCA evidencing
the Arrangement;
“AUX” means AUX Acquisition 2 S.à r.l.;
“AUX Canada” means AUX Canada Acquisition 2 Inc., formerly 2346407 Ontario Inc., a wholly-owned
subsidiary of AUX;
“business day” means a day which is not a Saturday, Sunday or a civic or statutory holiday in Toronto, Ontario;
“California Project” means the mineral property comprised of 15 licenses and 8 options to acquire licenses located
in the municipality of California, Colombia;
“Canadian GAAP” means, in relation to any financial year beginning on or before December 31, 3010, generally
accepted accounting principles in Canada as then set out in the Canadian Institute of Chartered Accountants
Handbook, and, in relation to any financial year beginning after December 31, 2010, generally accepted accounting
principles as set out in the Canadian Institute of Chartered Accountants Handbook for an entity that prepares its
financial statements in accordance with International Financial Reporting Standards;
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“Canadian Securities Acts” means the securities acts or the equivalent securities legislation, resolution, and rules
of each province and territory of Canada, as amended;
“Cash Consideration” means the cash consideration to be received by the Galway Shareholders pursuant to the
Plan of Arrangement in consideration for their Galway Shares, consisting of $2.05 in cash for each Galway Share;
“Certificate of Arrangement” means the certificate giving effect to the Arrangement issued by the Director
pursuant to Section 183 of the OBCA;
“Change in Recommendation” means a withdrawal, amendment, modification, or qualification by the Galway
Board of its recommendation that Galway Securityholders vote in favor of the Arrangement Resolution;
“CIM” means the Canadian Institute of Mining, Metallurgy and Petroleum;
“Circular” means this management information circular, including the Notice of Meeting and all appendices hereto
and all documents incorporated by reference herein, and all amendments hereof;
“Class 1 Note” means a promissory note in the estimated amount of U.S.$13,652,135, subject to adjustment on the
Effective Date as agreed to by Galway and AUX Canada in writing, issued by Galway to Galway Metals;
“Class 1 Preferred Shares” means a new class of shares of Galway to be created as part of the Arrangement and
exchanged for issued and outstanding Galway Shares other than Galway Shares held by Dissenting Shareholders
which will be transferred to Galway Metals in consideration for the issuance by Galway Metals of one Galway
Metals Share for each Class 1 Preferred Share transferred to it;
“Class 1 Redemption Amount” means with respect to each Class 1 Preferred Share, the amount expressed in U.S.
dollars that is determined by the directors at the time of issuance of such shares and acceptable to AUX Canada,
being an amount per share equal to (A) the aggregate amount of the Nyak and Galway Resources U.S. Note and the
Funding Note 1, divided by (B) the number of Class 1 Preferred Shares so issued;
“Class 2 Note” means a promissory note in the estimated amount of U.S.$16,807,500, subject to adjustment on the
Effective Date as agreed to by Galway and AUX Canada in writing, issued by Galway to Galway Gold;
“Class 2 Preferred Shares” means a new class of shares of Galway to be created as part of the Arrangement and
exchanged for issued and outstanding Galway Shares other than Galway Shares held by Dissenting Shareholders
which will be transferred to Galway Gold in consideration for the issuance by Galway Gold of one Galway Gold
Share for each Class 1 Preferred Share transferred to it;
“Class 2 Redemption Amount” means with respect to each Class 2 Preferred Share, the amount expressed in U.S.
dollars determined by the directors at the time of issuance of such shares and acceptable to AUX Canada, being an
amount equal to (A) the amount of the New Sisterco Note, divided by (B) the number of Class 2 Preferred Shares so
issued;
“Class A Common Shares” means a new class of shares of Galway to be created as part of the Arrangement and
transferred to AUX Canada in exchange for the Cash Consideration;
“Court” means the Ontario Superior Court of Justice;
“Deferred Plan” means a DPSP, RDSP, RESP, RRSP or TFSA;
“Demand for Payment” has the meaning ascribed to it under the heading “Dissent Rights of Shareholders and
Warrantholders” in this Circular;
“Depositary” means Kingsdale Shareholder Services Inc.;
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“Director” means the Director appointed pursuant to Section 278 of the OBCA;
“Dissent Notice” means the written objection of a registered holder to the Arrangement Resolution, submitted to
Galway in accordance with the Dissent Procedures;
“Dissent Procedures” means the procedures for Dissenting Securityholders summarized under the heading
“Dissent Rights of Shareholders and Warrantholders” in this Circular;
“Dissent Rights” has the meaning ascribed to it under the heading “Dissent Rights of Shareholders and
Warrantholders” in this Circular;
“Dissenting Shares” mean those Galway Shares in respect of which a Dissenting Securityholder dissents;
“Dissenting Securityholder” means any one of the Dissenting Shareholders or Dissenting Warrantholders;
“Dissenting Shareholder” means a registered holder of Galway Shares and who dissents in respect of the
Arrangement in strict compliance with the Dissent Rights and who is ultimately entitled to be paid fair value for
their Galway Shares;
“Dissenting Warrantholder” means a registered holder of Galway Warrants who dissents in respect of the
Arrangement in strict compliance with the Dissent Rights and who is ultimately entitled to be paid fair value for
their Galway Warrants;
“Dissenting Warrants” mean those Galway Warrants in respect of which a Dissenting Securityholder dissents;
“DPSP” means a trust governed by a deferred profit sharing plan under the Tax Act;
“Effective Date” means the date shown on the Certificate of Arrangement to be issued under the OBCA giving
effect to the Arrangement, which date shall be determined in accordance with the Arrangement Agreement;
“Effective Time” means 12:01 a.m. (Toronto time) on the Effective Date;
“Fairness Opinion” means the opinion dated October 18, 2012 prepared by National Bank Financial in connection
with the Arrangement, as described under “Fairness Opinion of National Financial Bank” in this Circular and
attached as Appendix F hereto;
“Final Order” means the final order of the Court pursuant to Section 182 of the OBCA, after a hearing upon the
fairness of the terms and conditions of the Arrangement, approving the fairness to Galway Securityholders of the
Arrangement as such order may be amended by the Court at any time prior to the Effective Date, or, if appealed,
then, unless such appeal is withdrawn or denied, as affirmed or as amended on appeal;
“Funding Note 1” means a promissory note in the amount of U.S.$12,000,000 or such other amount to be agreed
upon in writing by Galway and AUX Canada, issued by Galway Metals to Galway;
“Funding Note 2” means a promissory note in the amount of U.S.$18,675,000, or such other amount to be agreed
upon in writing by Galway and AUX Canada, issued by New Sisterco to Galway;
“Galway” means Galway Resources Ltd., a company existing under the OBCA;
“Galway Board” means the board of directors of Galway as the same is constituted from time to time;
“Galway Gold” means Galway Gold Inc., formerly 663757 N.B. Inc., a New Brunswick corporation incorporated
under the NBBCA by articles of incorporation dated May 9, 2012;
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“Galway Gold Shares” means the common shares in the capital of Galway Gold;
“Galway Gold Stock Option Plan” means the 10% rolling stock option plan of Galway Gold to be approved by
Galway Shareholders at the Meeting;
“Galway Metals” means Galway Metals Inc., formerly 663755 N.B. Inc., a New Brunswick corporation
incorporated under the NBBCA by articles of incorporation dated May 9, 2012;
“Galway Metals Shares” means the common shares in the capital of Galway Metals;
“Galway Metals Stock Option Plan” means the 10% rolling stock option plan of Galway Metals to be approved by
Galway Shareholders at the Meeting;
“Galway Optionholders” means, at the relevant time, the holders of Galway Options;
“Galway Options” means the outstanding options to purchase Galway Shares granted under the Galway Stock
Option Plan;
“Galway Resources U.S.” means Galway Resources U.S. Inc., a company existing under the laws of Nevada,
United States;
“Galway Securityholders” means, collectively, Galway Shareholders and Galway Warrantholders;
“Galway Shareholder Rights Plan” means the shareholder rights plan agreement dated as of August 25, 2009
between Galway and Computershare Investor Services Inc.;
“Galway Shareholders” means, at the relevant time, the holders of Galway Shares;
“Galway Shares” means the common shares in the capital of Galway, as currently constituted;
“Galway Stock Option Plan” means the stock option plan of Galway approved by holders of Galway Shares on
May 28, 2008;
“Galway Warrantholders” means, at the relevant time, the holders of Galway Warrants;
“Galway Warrants” means the outstanding common share purchase warrants of Galway issued under the Warrant
Indenture;
“Governmental Entity” means: (a) any applicable multinational, federal, provincial, territorial, state, regional,
municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (b) any subdivision, agency, commission, board or
authority of any of the foregoing, (c) any quasi-governmental or private body including any tribunal, commission,
regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under
or for the account of any of the foregoing; or (d) any stock exchange, including the TSX-V;
“Holdco” means Galway Resources Holdco Ltd., a company existing under the laws of the Cayman Islands;
“Indicated Mineral Resource” means that part of a Mineral Resource for which quantity, grade or quality,
densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the
appropriate application of technical and economic parameters, to support mine planning and evaluation of the
economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that
are spaced closely enough for geological and grade continuity to be reasonably assumed;
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“Inferred Mineral Resource” means that part of a Mineral Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes;
“Inter-Company Account Transactions” means (i) the reversal by Galway and Galway Resources U.S. of
approximately U.S.$3,844,195 shown as owing by Galway Resources U.S. to Galway which represents expenses
incorrectly charged to Galway Resources U.S., (ii) Galway Resources U.S.’s assignment to Galway of Galway
Resources U.S.’s debt receivable, owing to it by the Colombian branch of Holdco, as a partial repayment on a dollar
for dollar basis of Galway Resource’s U.S.’s debt owing to Galway, and (iii) such other steps as may be agreed to in
writing by the Parties, other than the transactions contemplated herein;
“Interim Order” means the interim order of the Court dated November 21, 2012 providing for, among other things,
the calling and holding of the Galway Meeting, attached as Appendix G hereto as the same may be amended by the
Court;
“Intermediary” means an intermediary that a Non-Registered Holder may deal with in respect of its Galway Shares
or Galway Warrants, including banks, trust companies, security dealers or brokers and trustees or administrators of
registered retirement savings plans, registered retired income funds, registered education savings plans and similar
plans, and their nominees;
“Key Regulatory Approvals” means those sanctions, rulings, consents, orders, exemptions, permits and other
approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a
transaction may be implemented if a prescribed time lapses following the giving of notice without an objection
being made) of Governmental Entities that are set out in Schedule C of the Arrangement Agreement;
“Key Third Party Consents” means those consents, approvals and notices required from any third party to proceed
with the transactions contemplated by the Arrangement Agreement and the Plan of Arrangement that are set out in
Schedule D of the Arrangement Agreement;
“Laws” or “Laws” means all laws (including common law), by-laws, statutes, rules, regulations, principles of law
and equity, orders, rulings, ordinances, judgments, injunctions, determinations, awards, decrees or other
requirements, whether domestic or foreign, and the terms and conditions of any grant of approval, permission,
authority or license of any Governmental Entity or self-regulatory authority (including the TSX-V), and the term
“applicable” with respect to such Laws as are applicable to such Party or its business, undertaking, property or
securities and emanate from a Person having jurisdiction over the Party or Parties or its or their business,
undertaking, property or securities;
“Liens” means any hypothecs, mortgages, pledges, assignments, liens, charges, security interests, encumbrances
and adverse rights or claims or other third person interest or encumbrance of any kind, whether contingent or
absolute, and any agreement, option, right or privilege (whether by Law, contract or otherwise) capable of becoming
any of the foregoing;
“Lock-Up Agreements” means the lock-up agreements dated October 19, 2012 and made between AUX Canada
and each of the Locked-up Shareholders;
“Locked-Up Shareholders” means each of Robert Hinchcliffe, Carmello Marrelli, Larry Strauss, Michael Sutton,
Robb Doub, and Alfonso Gomez Rengifo;
“Material Adverse Effect” means in respect of any person, any change, effect, event, occurrence or facts that
individually or in the aggregate with other such changes, effects, events or occurrences, is or could reasonably be
expected to be, material and adverse to the business, prospects, operations, assets, liabilities (contingent or
otherwise), results of operations or condition (financial or otherwise) of that person and its subsidiaries, taken as a
whole, except any change, effect, event or occurrence resulting from or relating to: (i) the announcement of the
execution of the Arrangement Agreement or the transactions contemplated by the Arrangement Agreement and, in
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the case of Galway, the communication by AUX of its plans or intentions with respect to Galway or any of its
subsidiaries; (ii) changes in general economic, securities, financial, banking or currency exchange markets or
conditions; (iii) any change in GAAP; (iv) any natural disaster provided that it does not have a materially
disproportionate effect on that person relative to comparable exploration and/or mining companies; (v) changes
affecting the mining industry generally, provided that such changes do not have a materially disproportionate effect
on that person relative to comparable mining and/or exploration companies; (vi) generally applicable changes in
applicable Law; (vii) the commencement or continuation of any war, armed hostilities or acts of terrorism; (viii) any
decrease in the market price or any decline in the trading volume of that person’s common shares on the TSX-V (it
being understood that the causes underlying such change in market price or trading volume (other than those in
items (i) to (viii) above) may be taken into account in determining whether a Material Adverse Effect has occurred)
or (xi) any actions taken (or omitted to be taken) upon the request of AUX or AUX Canada or pursuant to the
Arrangement Agreement; references in certain sections of, or definitions in, the Arrangement Agreement to dollar
amounts are not intended to be, and shall not be deemed to be, illustrative or interpretative for purposes of
determining whether a “Material Adverse Effect” has occurred;
“Measured Mineral Resource” means that part of a Mineral Resource for which quantity, grade or quality,
densities, shape and physical characteristics are so well established that they can be estimated with confidence
sufficient to allow the appropriate application of technical and economic parameters, to support production planning
and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration,
sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity;
“Meeting” means the special meeting of Galway Securityholders, including any adjournments or postponements
thereof, called and to be held in accordance with the Interim Order to consider, and if deemed advisable, to pass,
with or without variation, the Arrangement Resolution;
“Meeting Materials” means the Notice of Meeting, this Circular, the letter of transmittal for Galway Shareholders,
the letter of transmittal for Galway Warrantholders and the form of proxy (or voting information form) to be used by
Galway Securityholders;
“MI 61-101” means Multilateral Instrument 61-101– Protection of Minority Security Holders In Special
Transactions;
“Mineral Reserve” means that part of a Mineral Resource which, after the application of all mining factors, results
in an estimated tonnage and grade which, in the opinion of the person making the estimate, is the basis of an
economically viable project after taking account of all relevant processing, metallurgical, economic, marketing,
legal, environment, socio-economic and government factors. Mineral Reserves are inclusive of diluting material that
will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility.
The term “Mineral Reserve” need not necessarily signify that extraction facilities are in place or operative or that all
governmental approvals have been received. It does signify that there are reasonable expectations of such approvals;
“Mineral Resource” means a concentration or occurrence of diamonds, natural solid inorganic material or natural
solid fossilized organic material, including base or precious metals, coal and industrial minerals, in or on the Earth’s
crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specific geological evidence and knowledge;
“Mineral Rights” means all mineral concessions, claims, leases, licenses, permits, access rights and other rights
and interests necessary to explore for, develop, mine or produce minerals, ore or metals for development purposes
on its mineral properties, held by each of Galway and its subsidiaries, including all such properties referred to in the
Galway Public Disclosure Record and more specifically described in the Disclosure Letter;
“NBBCA” means Business Corporations Act (New Brunswick), as amended from time to time, including the
regulations promulgated thereunder, and includes any successor thereto;
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“New Sisterco” means Galway Resources Vetas Holdco Ltd., a company existing under the laws of the Cayman
Islands;
“New Sisterco 10% Share Sale Agreement” means the agreement to be entered into between Galway and Galway
Gold dated as of the Effective Date, pursuant to which 10% of the common shares of New Sisterco will be
transferred to Galway Gold;
“New Sisterco Share Sale Agreement” means the agreement to be entered into between Galway and Galway
Metals dated as of the Effective Date, pursuant to which 90% of the common shares of New Sisterco will be
transferred to Galway Metals;
“New Sisterco Note” means a promissory note in the estimated amount of U.S.$16,807,500, subject to adjustment
on the Effective Date as agreed to by Galway and AUX Canada in writing, issued by New Sisterco to Galway Gold;
“NI 43-101” means National Instrument 43-101 – Standards of Disclosure for Mineral Projects, of the Canadian
Securities Administrators;
“Non-Registered Holder” means a non-registered beneficial holder of Galway Shares or Galway Warrants whose
shares or warrants are held through an Intermediary or in the name of a clearing agency;
“Notice of Meeting” means the notice of the special meeting accompanying this Circular;
“Nyak” means Nyak Resources Inc., a corporation existing under the laws of New Mexico, United States;
“Nyak and Galway Resources U.S. Note” means a promissory note in the amount of U.S.$1,652,134 , subject to
adjustment on the Effective Date as agreed to by Galway and AUX Canada in writing, issued by Galway Metals to
Galway;
“Nyak and Galway Resources U.S. Share Sale Agreement” means the agreement to be entered into between
Galway and Galway Metals dated as of the Effective Date, pursuant to which 100% of the common shares and debt
of Nyak and Galway Resources U.S. will be transferred to Galway Metals;
“OBCA” means the Business Corporations Act (Ontario), as amended from time to time, including the regulations
promulgated thereunder, and includes any successor thereto;
“Offer to Pay” means the written offer of Galway to each Dissenting Securityholder who has sent a Demand for
Payment to pay for its Galway Shares or its Galway Warrants for the fair value of the Galway Shares or Galway
Warrants, all in compliance with the Dissent Procedures;
“Outside Date” means December 31, 2012, or such later date as may be agreed to in writing by the Parties;
“Parties” means Galway, Galway Gold, Galway Metals, AUX, and AUX Canada, and “Party” means any of them;
“Person” includes any individual, corporation, firm, partnership, association, body corporate, trustee, executor,
administrator, legal representative, government (including any Governmental Entity) or any other entity, whether or
not having legal status;
“Plan of Arrangement” means the plan of arrangement under section 182 of the OBCA, substantially in the form
of Appendix E to the Circular, as amended or varied in accordance with the Arrangement Agreement or the Plan of
Arrangement or at the direction of the Court (with prior written consent of AUX and Galway, each acting
reasonably);
“Pre-Acquisition Reorganization” has the meaning given such term in section 5.4(c) of the Arrangement
Agreement;
79
“Probable Mineral Reserve” means the economically mineable part of an Indicated and, in some circumstances, a
Measured Mineral Resource demonstrated by at least a preliminary feasibility study. This study must include
adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at
the time of reporting, that economic extraction can be justified;
“Proven Mineral Reserve” means the economically mineable part of a Measured Mineral Resource demonstrated
by at least a preliminary feasibility study. This study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic
extraction is justified;
“Proxy Solicitation Agent” means Kingsdale Shareholder Services Inc.;
“Qualified Person” means a “qualified person” as defined in NI 43-101;
“RDSP” means a trust governed by a registered disability savings plan under the Tax Act;
“Registered Holder” means a registered holder of Galway Shares or Galway Warrants as recorded in the
shareholder register or warrant register of Galway maintained by the Transfer Agent in the case of Galway Shares
and maintained by Computershare Trust Company of Canada in the case of Galway Warrants;
“Regulation S” means Regulation S promulgated under the U.S. Securities Act;
“Response Period” means a period expiring at 5:00 p.m. (Toronto time) on the fifth business day after the date that
is the later of (i) the date on which AUX receives written notice from the Galway Board that the Galway Board has
determined, subject only to compliance with the right to match provisions of the Arrangement Agreement, to accept,
approve, endorse, recommend or enter into an agreement to proceed with such Superior Proposal, and (ii) the date
AUX receives a copy of the Superior Proposal and all related documentation as required by the Arrangement
Agreement and, if applicable, the agreement proposed to be entered into in respect of such Superior Proposal, has
expired;
“RESP” means a trust governed by a registered education savings plan under the Tax Act;
“RRIF” means a trust governed by a registered retirement income fund under the Tax Act;
“RRSP” means a trust governed by a registered retirement savings plan under the Tax Act;
“SEC” means the United States Securities and Exchange Commission;
“Securities Laws” means the Securities Act, together with all other applicable Canadian provincial securities laws,
rules and regulations and published policies thereunder, as now in effect and as they may be promulgated or
amended from time to time;
“SEDAR” means the System for Electronic Document Analysis and Retrieval described in National Instrument
13-101 of the Canadian Securities Administrators and available for public view at www.sedar.com;
“Share Consideration” means the share consideration to be received by the Galway Shareholders pursuant to the
Plan of Arrangement in consideration for their Galway Shares, consisting of one Galway Gold Share and one
Galway Metals Share;
“subsidiary” means, with respect to a specified body corporate, any body corporate of which more than 50% of the
outstanding shares ordinarily entitled to elect a majority of the board of directors thereof (whether or not shares of
any other class or classes shall or might be entitled to vote upon the happening of any event or contingency) are at
the time owned directly or indirectly by such specified body corporate and shall include any body corporate,
partnership, joint venture or other entity over which such specified body corporate exercises direction or control or
which is in a like relation to a subsidiary;
80
“Superior Proposal” has the meaning set out under the heading “The Arrangement Agreement - Non-Solicitation”;
“Tax Act” means the Income Tax Act (Canada), and the regulations thereunder, as amended from time to time;
“Taxes” means: any and all taxes, imposts, levies, withholdings, duties, fees, premiums, assessments and other
charges of any kind, and installments in respect thereof, including any interest, penalties, fines or other additions in
respect thereof, imposed by any Governmental Entity, including for greater certainty all income or profits taxes
(including Canadian, United States and Colombian federal, provincial and territorial income taxes), payroll and
employee withholding taxes, employment taxes, unemployment insurance, disability taxes, social insurance taxes,
sales and use taxes, ad valorem taxes, excise taxes, goods and services taxes, harmonized sales taxes, franchise
taxes, gross receipts taxes, capital taxes, business license taxes, mining royalties, alternative minimum taxes,
estimated taxes, abandoned or unclaimed (escheat) taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers’ compensation, government pension plan premiums or contributions;
“Termination Fee” means the Cdn$12,200,000 fee payable by Galway to AUX on the termination of the
Arrangement Agreement on the occurrence of certain events prescribed therein;
“TFSA” means a trust governed by a tax free savings account for purposes of the Tax Act;
“Transfer Agent” means Computershare Investor Services Inc.;
“TSX-V” means the TSX Venture Exchange;
“United States” means the United States of America, its territories and possessions, any State of the United States
of America and the District of Columbia;
“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended;
“U.S. Securities Act” means the United States Securities Act of 1933, as amended;
“Vetas Project” means the mineral property represented by two licenses: License 14833 and License 007468, both
located in the Vetas Municipality of Santander, Colombia;
“Vetas Technical Report” means the technical report entitled “Technical Report on the Vetas Gold Project,
Department of Santander, Colombia” dated November 13, 2012, prepared by James G. Lavigne, M.Sc., P.Geo. and
Elizabeth Edler McMonnies, P.Geo;
“Vetas Sale Agreement” means the agreement to be entered into between Holdco and New Sisterco as of the
Effective Date, pursuant to which the Vetas Project will be transferred to New Sisterco;
“Victorio Project” means the mineral property comprised of 246 claims located in New Mexico, United States;
“Victorio Technical Report” means the technical report entitled “NI 43-101 Technical Report on Resources –
Victorio Molybdenum-Tungsten Exploration Project – Luna County, NM” dated November 15, 2012, endorsed by
Harvey P. Knudsen, PhD, PE and Peter H. Hahn;
“Warrant Consideration” means with respect to Galway Warrants that are cancelled under the Plan of
Arrangement, the number of Galway Shares obtained by dividing (i) the amount, if any, by which: (A) the product
obtained by multiplying the number of Galway Shares underlying such Galway Warrant by the Cash Consideration
per Galway Share; exceeds: (B) the aggregate exercise price payable under such Galway Warrant to acquire such
Galway Shares; by (ii) the Cash Consideration per Galway Share; and
“Warrant Indenture” means the indenture dated as of January 13, 2011 between Galway and Computershare Trust
Company of Canada as warrant agent and governing the Galway Warrants.
81
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We have read the notice of special meeting and management information circular (the “Circular“) of Galway
Resources Ltd. (“Galway“) dated November 16, 2012 relating to the special meeting of shareholders and
warrantholders of Galway held to approve, among other things, the arrangement between Galway, AUX Canada
Acquisition 2 Inc., Galway Metals Inc., (“Galway Metals”) and Galway Gold Inc. (“Galway Gold”). We have
complied with Canadian generally accepted standards for an auditor’s involvement with offering documents.
We consent to the use in the Circular of our report to the board of directors of Galway Metals on the carve-out
financial statements of Galway Metals as at December 31, 2011 and 2010 and the statements of loss and
comprehensive loss, changes in owner’s net investment and cash flows for the years ended December 31, 2011,
2010 and 2009, and the notes comprising a summary of significant accounting policies and other explanatory
information. Our report is dated November 16, 2012.
We consent to the use in the Circular of our report to the board of directors of Galway Metals on the statement of
financial position of Galway Metals as at June 30, 2012, and May 9, 2012, date of incorporation, and the statements
of loss and comprehensive loss, changes in shareholder’s equity and cash flows for the period from incorporation
(May 9, 2012) to June 30, 2012 and the related notes, comprising other explanatory information. Our report is dated
November 16, 2012.
We consent to the use in the Circular of our report to the board of directors of Galway Gold on the carve-out
financial statements of Galway Gold as at December 31, 2011 and 2010 and the statements of loss and
comprehensive loss, changes in owner’s net investment and cash flows for the years ended December 31, 2011,
2010 and 2009, and the related notes comprising a summary of significant accounting policies and other explanatory
information. Our report is dated November 16, 2012.
We consent to the use in the Circular of our report to the board of directors of Galway Gold on the statement of
financial position of Galway Gold as at June 30, 2012 and May 9, 2012, date of incorporation, and the statements of
loss and comprehensive loss, changes in shareholder’s equity and cash flows for the period from incorporation (May
9, 2012) to June 30, 2012, and the related notes, comprising other explanatory information. Our report is dated
November 16, 2012.
(signed) PricewaterhouseCoopers LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
November 16, 2012
82
CONSENT OF BAKER & MCKENZIE LLP
We hereby consent to the reference to the name of our firm and to our opinions contained under “Certain Canadian
Federal Income Tax Considerations” in the management information circular of Galway Resources Ltd. dated
November 16, 2012 (the “Circular”), to the inclusion of the foregoing opinions in the Circular and to the reference
to the name of our firm contained under the section “Interest of Experts”.
(signed) Baker & McKenzie LLP
Toronto, Canada
November 16, 2012
83
CONSENT OF NATIONAL BANK FINANCIAL
To:
The Directors of Galway Resources Ltd.
We hereby consent to the reference to our firm name and to the reference to our fairness opinion dated October 18,
2012 (the “Fairness Opinion”) contained under the headings “Summary – Recommendation of the Galway Board”,
“Summary – Reasons for the Arrangement”, “Summary – Fairness Opinion”, “The Arrangement – Background to
the Arrangement”, “The Arrangement – Reasons for the Arrangement”, “The Arrangement – Fairness Opinion of
National Bank Financial” and “The Arrangement Agreement – Support for the Arrangement” and the inclusion of
the text of the Fairness Opinion as Appendix “F” to the management information circular of Galway Resources Ltd.
dated November 16, 2012. The Fairness Opinion was given as at October 18, 2012 and remains subject to the
assumptions, qualifications and limitations contained therein. In providing our consent, we do not intend that any
person other than the board of directors of Galway Resources Ltd. shall be entitled to rely upon the Fairness
Opinion.
(signed) “National Bank Financial”
Toronto, Canada
November 16, 2012
84
APPENDIX A
ARRANGEMENT RESOLUTION
BE IT RESOLVED THAT:
(a)
The arrangement (the “Arrangement”) under Section 182 of the Business Corporations Act
(Ontario) (the “OBCA“), involving Galway Resources Ltd. (“Galway“), AUX Acquisition 2 S.à
r.l. (“AUX”), AUX Canada Acquisition Inc. (“AUX Canada”), Galway Metals Inc. (“Galway
Metals”) and Galway Gold Inc. (“Galway Gold”), all as more particularly described and set forth
in the management information circular (the “Circular”) of Galway dated November 16, 2012
accompanying the notice of this meeting (as the Arrangement may be modified or amended), is
hereby authorized, approved and adopted;
(b)
The plan of arrangement, as it may be or has been amended (the “Plan of Arrangement”),
involving Galway and implementing the Arrangement, the full text of which is set out in
Appendix E to the Circular (as the Plan of Arrangement may be, or may have been, modified or
amended), is hereby approved and adopted;
(c)
The arrangement agreement (the “Arrangement Agreement”) among Galway, Galway Metals,
Galway Gold, AUX and AUX Canada, dated as of October 19, 2012 and as amended and restated
by an amending agreement on November 16, 2012 and all the transactions contemplated therein
the actions of the directors of Galway in approving the Arrangement and the actions of the officers
of Galway in executing and delivering the Arrangement Agreement and any amendments thereto
are hereby ratified and approved;
(d)
Notwithstanding that this resolution has been passed (and the Arrangement adopted) by the
securityholders of Galway or that the Arrangement has been approved by the Court, the directors
of Galway are hereby authorized and empowered, without further notice to, or approval of, the
securityholders of Galway:
(e)
(i)
to amend the Arrangement Agreement or the Plan of Arrangement to the extent permitted
by the Arrangement Agreement or the Plan of Arrangement; or
(ii)
subject to the terms of the Arrangement Agreement, not to proceed with the
Arrangement;
Any one or more directors or officers of Galway is hereby authorized, for and on behalf and in the
name of Galway, to execute and deliver, whether under corporate seal of Galway or not, all such
agreements, forms waivers, notices, certificate, confirmations and other documents and
instruments and to do or cause to be done all such other acts and things as in the opinion of such
director or officer may be necessary, desirable or useful for the purpose of giving effect to these
resolutions, the Arrangement Agreement and the completion of the Plan of Arrangement in
accordance with the terms of the Arrangement Agreement, including:
(i)
all actions required to be taken by or on behalf of Galway, and all necessary filings and
obtaining the necessary approvals, consents and acceptances of appropriate regulatory
authorities; and
(ii)
the signing of the certificates, consents and other documents or declarations required
under the Arrangement Agreement or otherwise to be entered into by Galway;
such determination to be conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing.
A-1
APPENDIX B
INFORMATION CONCERNING GALWAY RESOURCES
Incorporation
Galway is a corporation governed by the OBCA. Galway’s head office and registered office is located at 36
Toronto Street, Suite 1000, Toronto, ON M5C 2C5.
Inter-Corporate Relationships
The following diagram sets forth the corporate structure of Galway and its subsidiaries as of November 16,
2012.
Public Shareholders
(including AUX)
Galway Resources
Ltd.
(Ontario, Canada)
Galway Resources
US Inc.
(Nevada, USA)
Nyak Resources Inc.
(New Mexico, USA)
Galway Resources
(Cayman) Ltd.
(Cayman Islands)
Victorio
Project
Galway Resources
Holdco Ltd.
(Cayman Islands)
Galway Metals Inc.
(New Brunswick,
Canada)
Galway Gold Inc.
(New Brunswick,
Canada)
Galway Resources
Vetas Holdco Ltd.
(Cayman Islands)
Sucursal Colombia
California
Project
Vetas
Project
Comparative Market Prices of Galway
The Galway Shares are listed and posted for trading on the TSX-V under the symbol “GWY”. The
following tables set forth information relating to the trading of the Galway Shares on the TSX-V for the months
indicated.
TSX-V
Price Range
(Cdn$)
High
Low
Trading
Volume
November 2011 .................................................................................................................................. 1.67
1.41
8,463,163
December 2011................................................................................................................................... 1.71
1.20
7,119,498
January 2012....................................................................................................................................... 1.72
1.42
3,702,351
February 2012..................................................................................................................................... 1.70
1.26
4,292,042
March 2012......................................................................................................................................... 1.65
1.20
4,313,292
April 2012 .......................................................................................................................................... 1.54
0.97
10,223,223
Month
B-1
May 2012............................................................................................................................................ 1.25
0.85
5,322,296
June 2012............................................................................................................................................ 1.18
0.84
4,290,484
July 2012 ........................................................................................................................................... 1.07
0.86
1,926,398
August 2012 ...................................................................................................................................... 1.26
0.87
4,619,521
September 2012 ................................................................................................................................. 1.43
1.15
5,579,224
October 2012 ..................................................................................................................................... 2.29
1.02
38,645,163
2.19
6,346,922
st
th
November 2012 (1 to 16 ) ................................................................................................................ 2.23
Notes:
(1)
Source: Bloomberg.
The price of the Galway Shares as reported by the TSX-V at the close of business on October 18, 2012, the
last trading day immediately before the announcement of the Arrangement, was Cdn$1.59.
The price of the Galway Shares as reported by the TSX-V at the close of business on November 16, 2012
was Cdn$2.20.
B-2
APPENDIX C
INFORMATION CONCERNING GALWAY METALS INC.
The following is a summary of Galway Metals Inc., its business and operations, which should be read
together with the more detailed information and financial data and statements contained elsewhere in the
management information circular of Galway Resources Ltd., to which this Appendix is attached (the “Circular”).
The information contained in this Appendix, unless otherwise indicated, is given as of the date of the Circular and
may change prior to the Arrangement and listing of Galway Metals Inc.
All capitalized terms used in this Appendix and not defined herein have the meaning ascribed to such terms
in the “Glossary of Terms” or elsewhere in the Circular. Unless otherwise indicated herein, references to “$”,
“Cdn$” or “Canadian dollars” are to Canadian dollars, references to “U.S.$” or “U.S. dollars” are to United
States dollars. See “Reporting Currencies and Accounting Principles” in the Circular. See also in the Circular
“Cautionary Statement Regarding Forward-Looking Statements”.
Corporate Structure
Incorporation
Galway Metals Inc. (“Galway Metals”) is a New Brunswick corporation incorporated under the Business
Corporations Act (New Brunswick) (the “NBBCA”) by articles of incorporation dated May 9, 2012. On November
15, 2012, Galway Metals filed articles of amendment to change its name from 663755 N.B. Inc. to Galway Metals
Inc. The financial year end of Galway Metals is December 31. The registered office of Galway Metals is 44
Chipman Hill Suite 1000 Saint John, New Brunswick E2L 2A9. The principal office of Galway Metals will be
located at 36 Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5.
Intercorporate Relationships
Galway Metals is currently a wholly-owned subsidiary of Galway. Pursuant to the Arrangement
Agreement, Galway Metals will cease to be a wholly-owned subsidiary upon the issuance of Galway Metals Shares
to Galway Shareholders on a one for one basis at the Effective Time. Nyak Resources, Inc. (“Nyak”) and Galway
Resources U.S. Inc. (“Galway Resources U.S.”) will be wholly-owned subsidiaries of Galway Metals. Nyak is
incorporated under the laws of New Mexico, U.S.A. and will hold all of Galway Metals’ assets, liabilities, property,
rights, contracts, obligations and permits that pertain to Nyak and Galway Resources U.S., including the Victorio
molybdenum-tungsten project in New Mexico, U.S.A. (the “Victorio Project”). Galway Resources U.S. is
incorporated under the laws of Nevada, U.S.A. and currently does not hold any assets.
Galway Metals Inc.
(New Brunswick,
Canada)
100%
100%
Galway Resources
US Inc.
(Nevada, USA)
Nyak Resources Inc.
(New Mexico USA)
100%
Victorio
Project
C-1
Galway Metals is not currently a reporting issuer and the Galway Metals Shares are not listed or quoted for
trading on any stock exchange. An application has been made to list the Galway Metals Shares on the Toronto
Stock Venture Exchange (“TSX-V”). Upon completion of the Arrangement, Galway Metals will be a reporting
issuer in the provinces of British Columbia, Alberta and Ontario.
Description of the Business
General
Galway Metals was incorporated on May 9, 2012. The principal business of Galway Metals will be the
investigation, acquisition, exploration, development and operation of the Victorio Project and other mineral
resources. The Victorio Project consists of a mineral property comprised of 246 claims located in the state of New
Mexico and is held by Galway pursuant to: (i) an installment sale agreement entered into on April 6, 2006, as
amended, which will give Nyak the opportunity to acquire the property interest in the IR 3, Ogre, Bogle, Yahoo,
Unicorn and Morlock claims (the “Installment Sale Agreement”); and (ii) an option contract entered into on June
1, 2006, as amended, which grants the option to purchase all of the operation and mining rights to VIC 16-19, 29-30,
39-41 (the “Primary Mining Claims”) and VIC 1-15, 20-22, 25-27, 31-38, 42-55 (the “Secondary Mining
Claims”, altogether the “Option Contract”). In connection with the Arrangement, Galway will assign the Option
Contract to Galway Metals and all outstanding rights and obligations of Galway with respect to the Victorio Project,
including the Installment Sale Agreement, will be assumed by Galway Metals. See “Material Mineral Project” for a
summary of certain terms of the Installment Sale Agreement and the Option Contract.
Galway will commit its own resources to the initial evaluation of the Victorio Project and other mineral
properties, and in select situations if, and when warranted, Galway Metals will enter into joint ventures with other
businesses to continue the development of such properties. In the course of its activities, Galway Metals may enter
into different types of agreements common in the mineral resource industry such as purchase agreements and option
agreements to purchase mining properties and/or joint venture agreements.
In connection with the Arrangement, Galway Metals will also assume all rights and obligations relating to
the assets and liabilities of Nyak and Galway Resources U.S. and U.S.$12,000,000 in cash.
Specialized Skills
All aspects of Galway Metals’ business will require specialized skills and knowledge. Such skills and
knowledge include the areas of geology, drilling, logistical planning, geophysics, implementation of exploration
programs and accounting. Since commencement of its current operations in 2006, Galway has been able to locate
and retain employees and consultants that contribute to these specialized skills and Galway Metals believes that it
will be able to do so as well.
Employees
Galway Metals will have no full time employees at its head office in Toronto, Ontario, Canada. Galway
Metals expects to have a full time staff of approximately seven in New Mexico, all of whom are contractors secured
directly by Galway Metals or through a placement agency.
Overview of New Mexico
Federal Mining Legislation
In New Mexico, ownership of unpatented mining claims is in the name of the holder (the “Locator”), with
ownership of the minerals belonging to the United States of America, under the administration of the U.S. Bureau of
Land Management (“BLM”). Under the Mining law of 1872 (the “Federal Mining Act”) which governs the
location of unpatented mining claims on federal lands, the Locator has the right to explore, develop, and mine
minerals on unpatented mining claims without payments of production royalties to the federal government.
C-2
Currently annual claim maintenance fees are the only federal encumbrances to unpatented mining claims, however
recent U.S. Congressional efforts are in motion to include a provision for federal production royalties.
New Mexico’s statutes applicable to exploration and mining operations include, most significantly,
permitting regimes under the Mining Act, NMSA 1978, §§ 69-36-1, et seq., and the Water Quality Act, NMSA
1978, §§ 74-6-1, et seq. Both regimes apply to operations regardless of whether they are conducted on federal, state
or private lands, and regardless of whether the surface and mineral estates are split and held separately as public or
private lands. Neither program is a federally delegated program, which means that for activities conducted on
federal lands they are additional to the federal requirements relating to maintenance of claims under the Federal
Mining Act, and to plans of operation and associated bonding requirements administered by federal land and mining
claims management agencies such as the United States Forest Service and the Bureau of Land Management.
State Mining Legislation
Under New Mexico’s Mining Act (the “State Mining Act”), regulations adopted by the Mining
Commission and administered by the Mining and Minerals Division require front-end permitting, reclamation and
closure planning, and posting of financial assurance for most levels of existing and new mining activities. The State
Mining Act includes similar requirements for mineral exploration projects that cause “greater disturbance than is
caused by ordinary lawful use of the area by persons not engaged in exploration” New Mexico Administrative Code
19.10.1.7.E. The regulations, which include public participation requirements for permitting of most forms of
exploration and mining activity, become increasingly more stringent depending on whether an operation (or in some
cases a unit of an operation) is classified as minimal, existing or new, and depending on the overall scale of the
proposed activity.
Environmental Protection
Upon completion of the Arrangement, it is anticipated that Galway Metals will commence exploration
activities at the Victorio Project. Under New Mexico’s Water Quality Act, regulations adopted by the Water Quality
Control Commission and administered by the Environment Department also require front-end permitting, closure
and bonding for any activities that may involve discharges of virtually any kind which could enter ground water.
Dischargers must be able to demonstrate that they will comply with New Mexico’s ground water standards “at any
place of present or reasonably foreseeable future use,” a phrase which has been given an extremely broad
interpretation by the Environment Department. The Water Quality Act applies independently of the federal Clean
Water Act, and often results in independent, though complimentary, operational and closure requirements beyond
those requirements already discussed that arise under the State Mining Act.
A wide range of other New Mexico statutes and regulations relating to environmental protection, wildlife,
materials handling, mine safety and other issues can apply to mining operations depending upon particular
circumstances. Those regimes are administered by a variety of agencies that include, but are not limited to, the
Environment Department and various divisions within New Mexico’s Energy, Minerals and Natural Resources
Department.
There is no assurance that future changes in environmental laws, if any, will not adversely affect Galway
Metals’ operations. There is no assurance that regulatory and environmental approvals will be obtained on a timely
basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the
profitability of operations or to preclude entirely the economic development of a property. See “Risk Factors –
Environmental Regulation and Liability”.
Material Mineral Projects
Galway Metals principal exploration activities after the Arrangement will be focused on the Victorio
Project in New Mexico. Interest in the Victorio Project is through the Installment Sale Agreement and the Option
Contract, the key terms of which are as follows:
C-3
Installment Sale Agreement
Pursuant to the second addendum to the Installment Sale Agreement, to maintain its rights to purchase the
mining claims in New Mexico, Nyak was required to pay to Donegan Resources, Inc. (“Donegan”) the following
amounts in cash and Galway Shares: (i) U.S.$50,000 payable on June 1, 2006; (ii) U.S.$100,000 payable on June 1,
2007; (iii) U.S.$200,000 payable on June 1, 2008; (iv) U.S.$50,000 payable on June 1, 2009; (v) U.S.$100,000
payable on June 1, 2010; (vi) U.S.$200,000 and 50,000 Galway Shares payable on June 1, 2011; and (vii)
U.S.$300,000 and 50,000 Galway Shares payable on June 1, 2012 under the current terms. Nyak will also be
required to pay and issue (i) U.S.$500,000 and 50,000 Galway Shares payable on June 1, 2013; and (ii)
U.S.$600,000 and 50,000 Galway Shares payable on June 1, 2014 for a total purchase price of U.S.$2,100,000 and
200,000 Galway Shares. All prior amounts due under the Installment Sale Agreement have been paid. Amounts that
remain outstanding as of the date herein are set out in the chart below.
Donegan is entitled to receive a royalty as follows: (i) an independent perpetual and non-participating
royalty equal to 2% of net smelter returns (“NSR”); and (ii) a 1% independent, perpetual and non-participating
royalty of NSR on any additional properties acquired within an area of mutual interest (“AOI”), covering all of
sections 28, 29, 30, 31, 32 and 33, Township 24 South, Range 12 West, which will be reduced to a 0.5% royalty on
any properties that are subject to an existing royalty in excess of 0.5%. Any lands acquired by Galway within the
AOI are subject to the terms and conditions of the respective agreements.
Galway Metals will be a 100% owner of the Victorio Property upon completion of the above payments to
Donegan Resources, however, no partial ownership option is available should Galway Metals elect not to make all
payments. It is expected that the remaining share consideration payable to Donegan will be renegotiated in
connection with the Arrangement.
Option Contract
Pursuant to the addendum to the Option Contract to maintain its rights to exercise the option, Galway and
Nyak were required to pay to Hallelujah Resources LLC, South Branch Resources, LLC and MRP GEO
COMPANY LLC (the “Sellers”) the following amounts in cash and Galway Shares: (i) U.S.$15,000 and 50,000
Galway Shares payable on July 15, 2006; (ii) U.S.$25,000 and 50,000 Galway Shares payable on July 15, 2007; (iii)
U.S.$40,000 and 50,000 Galway Shares on July 15, 2008; (iv) U.S.$15,000 and 50,000 Galway Shares on July 15,
2009; (iv) U.S.$20,000 payable on July 15, 2010; (v) U.S.$20,000 payable on July 15, 2011; and (vi) upon the
commencement of commercial production (where any processing or treatment facilities constructed on the mine
have operated for 15 consecutive days at not less than 75% of design capacity), the issuance of 200,000 Galway
Shares. All prior amounts due under the Option Contract have been paid. Amounts that remain outstanding as of the
date herein are set out in the chart below.
If Galway and Nyak choose to exercise the option then the Sellers are entitled to receive a royalty as
follows: (i) a royalty equal to 1% of the amount received by Galway and Nyak from NSR, and Galway and Nyak are
entitled to purchase 100% of the primary royalty (all ores, minings or other products removed from the Primary
Mining Claims excluding VIC 41) for the amount of U.S.$500,000 payable as to 50% on completion of a bankable
feasibility study and the remaining 50% no later than the end of the first full year of commercial production from the
Primary Mining Claims; and (ii) a royalty equal to 3% of the amount received by Galway and Nyak from NSR, and
Galway and Nyak are entitled to buy this royalty down to 2% for the amount of U.S.$1,500,000 payable as to 50%
on completion of a bankable feasibility study and the remaining 50% no later than the end of the first full year of
commercial production from the Secondary Mining Claims.
This agreement will be assigned to Galway Metals in connection with the Arrangement. It is expected that
the share consideration payable to the Sellers will be renegotiated as part of this assignment.
Galway’s outstanding counterparty obligations in respect of its material agreements for the Victorio Project
are set forth in the chart below:
C-4
Contract Terms
Completed Obligations
Contract
Date
Total
Option Cost
(U.S.$)
Installment
Sale
Agreement
4/6/2006
$2,100,000
and 200,000
Galway
shares
$1,000,000
Option
Contract
6/1/2006
$135,000
and 200,000
Galway
shares
$135,000
Notes:
(1)
(2)
Cash Paid to
Date (U.S.$)
Galway Shares
Paid to Date
100,000
200,000
Outstanding Obligations
Cash Due (U.S.$)
Galway Shares Due
6/1/2013
6/1/2014
6/1/2013
6/1/2014
$500,000
$600,000
50,000
50,000
None
200,000 upon
commencement of
commercial production
Royalty
Payment
(per ounce)
0.5% 2%+(1)
1%-3%(2)
2% NSR for ores & minerals on Donegan claims. 1% NSR for AOI’s as described in the contract, which will be reduced to 0.5% if
subject to an existing royalty.
1% NSR from Primary Mining Claims which may be purchased for $500,000. 3% NSR for Secondary Mining Claims which may be
bought down to 2% for $1,500,000
The information below relating to the Victorio Project is based upon a NI 43-101 report entitled “Technical
Report on Resources Victorio Molybdenum-Tungsten Exploration Project Luna County, NM” endorsed by Harvey
P. Knudsen, PhD, PE and Peter H. Hahn, C.P.G. dated November 15, 2012 (the “2012 Report”) a copy of which
can be found online at www.sedar.com. Harvey P. Knudsen, PhD, PE, is the Qualified Person under NI 43-101
responsible for Section 14 and Appendix A of the 2012 report. Peter H. Hahn is also a Qualified Person under NI
43-101, and responsible for all sections of the report excluding Section 14 and Appendix A.
Victorio Project
Project Description and Location
The Victorio property is located in Sections 29 and 30, Township 24 South, Range 12 West, New Mexico
Baseline and Principal Meridian, Victorio (Gage, Mine Hill) Mining District, and the geographic center of the
property has UTM coordinates of approximately 3,564,716 meters North and 772,975 meters East (Zone 12). The
property is on the south flank of the Middle Hills of the Victorio Mountains, Luna County, southwestern New
Mexico, as shown on the Location Map (Figure 1). Access to the Victorio Mountains is readily available year
round.
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Figure 1. The Victorio Project Location Map
The Victorio Project consists of six unpatented lode mining claims held by Donegan, a company from
Albuquerque, New Mexico, on which Galway has an option to purchase; 52 “VIC” lode claims which Galway has
purchased from Hallelujah, South Branch Resources LLC, and MRPGEO LLC, all Arizona based companies; and
188 “ROB” claims located by NYAK Resources Inc., a Galway subsidiary. All the claims lie on U.S. Federal lands
administered by the U.S. Bureau of Land Management (BLM). The Donegan claims cover approximately 110 acres
of land in Sections 29 and 30, T. 24 S., R. 12 W. The VIC 1-22, 25-27 and 29-55 claims cover approximately 885
acres in Sections 29, 30, 31, and 32, T. 24 S., R. 12 W. The approximate area of the ROB claims is 3,335 acres.
Total acreage of the Project is about 4,330 acres.
The property land position is approximately 14,400 feet in North-South extent by 16,000 feet in East-West
dimension; for approximately 4,330 acres in total land area. Each unpatented lode mining claim is approximately
600 feet by 1,500 feet in size for approximately 20.67 acres of surface area. Some of the claims are fractional and
some overlap senior claims.
Environmental Liabilities
Existing environmental liabilities are not described in the project files. The authors are not Qualified
Persons with respect to environmental issues; however, a brief site visit indicates that the primary environmental
liability that might exist would be related to historical surface disturbance and any related reclamation obligations.
Drill access roads and drill sites were largely left un-reclaimed, as was the standard industry practice at the time.
Galway has reclaimed all drill sites from the recent campaigns per BLM requirements and continues ongoing
reclamation in the current drilling. In general, disturbance at Victorio is minimal.
A document titled “Health, Safety, and Environmental Requirements”, by Gulf Mineral Resources Inc.’s
Environmental Department, dated December 1982, is included in their pre-feasibility engineering report for the
property. The report, which primarily addresses permitting issues and permit timelines and appropriate management
C-6
reporting approval authority, states more specifically that no major environmental sensitivities were identified
associated with the site which could result in denial of permits. The report does identify areas where additional study
is required, particularly in relation to cultural (archaeological) and biological resource issues. No detailed
environmental studies have been undertaken by Galway to date.
Permits and Licenses
An archeological survey was conducted as part of the 2007-2008 permit process; resulting in the
elimination of one proposed drill hole to avoid minor fragment scatter; although there are no prehistoric sites in the
area. More recent archeological sites include minor +50 year old mining sites in the area, which pose no issue for
exploration, but might need to be dealt with if the property were moved into a mine permitting stage. In connection
with renewed drilling at Victorio, BLM Plan of Operations No. NMNM 126701 was issued August 18, 2011; this
permit will expire in 2013 unless renewed.
Galway prepared a detailed Exploration Plan of Operations for submission to the State of New Mexico,
Energy, Minerals and Natural Resources Department. This document includes Exploration, Reclamation and
Monitoring Plans, and approval of the Plan of Operations required submission of a reclamation bond. The current
State Permit, LU017EM, was issued October 13, 2012; it will expire in October 2013 unless renewed.
The authors know of no other significant factors other than those noted in the 2012 Report that might
adversely affect access, title or the right or ability to perform work on the property.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
A series of drill and historical mine access roads transect the property and provide access to the historical
drill sites and the lower south facing slopes of the Victorio Mountains. The unimproved roads have not been
maintained, but the dry desert climate makes them easily accessible with a four-wheel drive vehicle. The paved and
gravel two-track access roads are relatively flat or at gentle grades and provide easy access to the property from the
gas station at the Gage exit on I-10. Access into the Victorio Mountains is available year round.
Deming is the nearest town to the Victorio Project, with a population of approximately 14,000. Services at
Deming are marginally adequate and supportive of services necessary for a mining population. Las Cruces, located
60 miles east of Deming is the next nearest town with major services and a population of approximately 74,000. As
such, Las Cruces has all the services available to support mineral exploration and development activities in
southwestern New Mexico.
Currently there are no access or surface use agreements in place for the Victorio Property, and a
preliminary land check indicates that none are necessary. The current 2.7 miles of paved and gravel County access
road from Gage to the eastern property boundary is on BLM lands which are open to public access.
Drilling contractors, heavy equipment contractors, and field technical personnel are all available from
service companies and contractors from Tucson, Arizona, Las Cruces, New Mexico, and Albuquerque, New
Mexico. Water sources for development and mining would be from ground water sources in the region. The water
table is shallow; approximately at 4,350 feet in elevation or 150 feet in depth. Numerous ranch wells surround the
district. In their tenure, Gulf Minerals Resources Inc. (“Gulf Minerals”) did not proceed to a full-fledged
groundwater resources investigation of the region, relying instead on published groundwater studies by the USGS
and State Hydrology Office. Preliminary groundwater opinions obtained by Galway suggest that water will have to
be purchased from existing water rights holders in the vicinity. Pre-Galway drilling operations have relied upon the
hydrants at the El Paso Natural Gas pumping station, approximately 2 to 3 miles southeast of the project, but
Galway has purchased drill water from municipal supplies in Deming. The current drilling program is supplied by
several nearby wells and from an El Paso Natural Gas Pumping station a few miles northeast of the project.
The Victorio Project lies in the Mexican highlands portion of the Basin and Range physiographic province
of southwestern New Mexico, which is a series of northerly to northwesterly-trending mountain ranges with
typically 1,000 to 3,000 feet of topographic relief above a relatively broad and flat intervening bolson plain largely
C-7
devoid of any major drainage network. The Victorio Mountains are an anomalously isolated range with an overall
trend of N. 60° to 75° W.
The southwestern corner of New Mexico has a mild, dry climate, typical of the southwest U.S., where
summers are hot (79.6º F. July average daily temperature at Gage) and winters are cool (41.2º F. January average
daily temperature at Gage). Temperatures in the summer can attain highs in excess of 100º F, and winter low
temperatures can be in the low 20’s ºF. Average annual precipitation at Gage siding is 9.93 inches with most falling
in the summer months from monsoon-type thunderstorms. Winter snowstorms are rare, and rarely accumulate more
than a few inches of snow at a time, which quickly melts.
Access to sources for a skilled workforce, technical skills and services, and necessary development
equipment and supplies, are readily available from either Tucson, Arizona or El Paso, Texas, both being 200 miles
or less distant from the property via interstate highway. Access to the Victorio Mountains and the project area is
readily available year round (Figure 2).
Figure 2: Victorio Project Infrastructure
Exploration History
The Victorio Mountains (Gage or Mine Hill) Mining District was discovered around 1880. The Hearst
Mining Syndicate and others mined oxidized argentiferous lead carbonate replacement ores from Mine Hill, about a
mile southeast from the center of Galway’s drill pattern. These deposits were mined sporadically until 1947.
At Middle Hills, The New Jersey Zinc Co. mined tungsten ores from the Irish Rose and Tungsten Hill
mines during World War II. Beryllium in helvite and beryl was identified at that time.
The core claims at Middle Hill were staked by local prospectors between 1945 and 1948. These claims, and
a large group of later locations surrounding them, have been leased/optioned to numerous groups, including
Donegan Resources, Lone Mountain Mining, Southern Union Production Co., Keradamex Inc., Humble/Exxon,
C-8
Leonard Resources, Rosario Resources, ASARCO, Newmont, Bethlehem Copper, and Amax Exploration. These
companies did geologic mapping, sampling and various geophysical surveys. Drilling in that period totaled about
10,000 feet, and one hole, Humble’s H3 located near the Irish Rose shaft cut encouraging but weak molybdenumtungsten mineralization. Gulf Minerals acquired the property in 1977, and drilled 166,016 feet in 71 holes, 19781982. The property was dropped by Gulf in 1983. Subsequent to Gulf’s work, the Mine Hill area has been explored
by several firms, including Cominco American Resources, Santa Fe Pacific Mining and Echo Bay Exploration.
Donegan Resources has preserved more than 20 file boxes of data plus numerous rolled maps and crosssections from these operators. It is estimated that total expenditures prior to Galway’s involvement are between $4.0
and $5.2 million historical dollars, with an additional $1.2 million expended on the peripheral deposits at Mine and
East Hills.
The SRK report details the historic “reserves” calculated by Gulf Minerals, 57.7 million tons, 0.129% Mo
and 0.142% WO3. Details of the “reserve classification” are not available for reconciliation with current CIM
resource/reserve categories. The discussion of reserves refers to historical terms used at the time and are not
sufficiently defined to be classified by CIM categories in use today. The historical reserve numbers should not be
relied upon, but a NI 43-101 compliant resource estimate is reported in the 2012 Report.
During the 2006-2008 programs, Galway has spent approximately $4,800,000 on the Victorio Project,
including all direct and indirect costs and payments to landowners. Expenditures to date on the current program are
about $2,000,000. Early in 2007, Galway initiated a program of confirmation/in-fill drilling. This program was
completed in 2008, and the drilling currently in progress was started in December 2011, but has been suspended
pending business negotiations with AUX.
Reliability of Exploration Data
The authors of the 2012 Report, as Qualified Persons, examined historical data for the Victorio Property
provided by Galway and Donegan Resources Inc., and relied upon that basic data to support the statements and
opinions presented therein. In their opinion, the Gulf Minerals’ data is present in sufficient detail, generally
correlative, credible, and verifiable in the field, and is a reasonable representation of the evaluation of the Victorio
Project before Galway’s involvement. In addition, the authors of the 2012 Report believe that the data generated
through Galway’s work is of sufficient quality and supported by adequate QA/QC programs to support a reliable
revised resource estimate.
Galway possesses the original drill core logging sheets for the Gulf Resources drill holes, but other data,
such as original drill logs from other operators, and original field mapping sheets, are not now part of the project
data files. There is no known master file index that existed in the early 1980's of the contents or location of all
historical files; however, it is the opinion of the authors of the 2012 Report that there are no material gaps in the
information for the Victorio Project.
The 2012 Report included technical information, which required subsequent calculations to derive subtotals, totals, and weighted averages. Such calculations inherently involve a degree of rounding and consequently
can introduce a margin of error. Where these rounding errors occur, the authors did not consider them to be material.
Geological Setting and Mineralization
The Victorio Mountains stratigraphic section consists of Cretaceous and Tertiary volcanic sequences
overlying Paleozoic carbonate and clastic sedimentary rocks deposited on a Precambrian basement. Intrusive
equivalents of the younger capping volcanics intrude the section and are spatially and temporally affiliated with
molybdenum, tungsten, and beryllium mineralization. Mineralization occurs within four different rock types. These
include: Precambrian basement, Cambrian-Ordovician Bliss Sandstone, Ordovician El Paso Group and Tertiary
Andesite sills and dikes. The Precambrian basement is intersected only in drill core; the rocks are predominantly
quartzo-feldspathic gneiss and amphibolite gneiss. The Bliss Sandstone on this property is also encountered only in
drilling. The unit consists of a basal conglomerate overlain by clean arenite, grading upwards into silty quartzite and
dolomitic units. The top of the Bliss is difficult to pinpoint as it grades into the thinly bedded units of the El Paso
C-9
group. This in turn grades upward into more massively bedded dolomitic limestone. The carbonate units of both the
Bliss and El Paso formations host a large portion of the mineralization.
The stratigraphic section has been locally thickened by the introduction of numerous andesitic sills. These
are mineralized and in some locations appear to have formed barriers to the mineralization fluids. The Tungsten Hill
Breccia Pipe is located approximately 2500 feet northeast of the main molybdenum and tungsten mineralization but
its relation to the ore deposit is not yet fully understood. The area is cut by numerous fault sets which overprint a
large scale anticline. The anticline is interpreted to be related to thickening of the stratigraphic section by the
emplacement of the intrusive sills. The faults have been described by three orientations and displacements; an east
striking set with normal and reverse movement, a northeast striking set with normal movement and a northwest
striking set with normal movement. The molybdenum and tungsten mineralization appears to occur together for the
most part although they each define a unique grade shell of anomalous mineralization. The tungsten occurs in a
shallow low grade envelope and also at depth in proximity to the molybdenum mineralization. Zoning in scheelite
crystals suggests two and possibly three episodes of mineralization. Approximately 80% of the scheelite fluoresces
cream to yellow, representing a range of 1% to 15% molybdenum in the scheelite. The bulk of the molybdenum
mineralization occurs slightly deeper than the main tungsten zone.
For the resource estimation, a 3-D shape for each rock type was constructed. This was used to assign a
majority rock type to both the blocks and the composites. Grade was assigned to each rock type by using only the
composites from the same rock type. Densities were also assigned to each block based on which rock type they fell
within.
Summary of Drilling
The historic drilling at Victorio by Gulf and other companies was done principally by coring, with lesser
footage of rotary/reverse circulation, principally for precollaring deep holes. Complete documentation is available
on Gulf’s holes, which total 87% of the total known drill footage at Victorio. The drill techniques reported by Gulf
are typical of the industry standard methods at the time, are still standard today, and are valid and appropriate
methods to define the molybdenum-tungsten mineralization.
The drilling activity by other entities from 1966 to 1993 is summarized in the following table:
Geophysics
Drilling
Year(s)
Aeromag
IP/R
GndMag
VLF
Grac.
DH
Core
(ft)
1966
72 line-mi
9.4 mi IP
-
-
-
-
-
-
-
Keradamex
1970-1
-
-
-
-
-
2
1125.5
-
-
Humble Oil (Exxon
Minerals)
1969-71
-
18.7 mi IP
-
-
-
4
4705.8
-
-
ASARCO
1973
-
-
-
-
-
-
-
-
-
Rosario Exploration
1974
-
-
-
-
-
-
-
-
Newmont Mining
1974 (?)
-
6.5 mi IP
-
-
Unk
-
-
-
-
Bethlehem Copper
Corp.
1976
-
-
-
-
-
2
-
4143, +
spot core
-
Donegan & Donegan
1976
-
1.9 mi
-
-
-
-
-
-
-
1977-82
>72 line-mi
7.2 mi CR
3.2 line mi
Unk
Unk
71
166,016
(Unk rot.
pre-collar)
-
Company
Southern Union
Prod.Co
Gulf Minerals
Resources
Rotary
(ft)
Total
(ft)
Amax Exploration
1979
-
-
-
-
-
-
-
-
-
Cominco American
Rscs. Inc.
1987-8
-
-
-
-
-
15
-
2735
RC
C - 10
Geophysics
Drilling
Company
Year(s)
Aeromag
IP/R
GndMag
VLF
Grac.
DH
Core
(ft)
Rotary
(ft)
Total
(ft)
Santa Fe Pacific Min.
1988-90
-
Reinterp
Reinterp
Reinterp
Reinterp
5
-
3930
-
Echo Bay
Exploration
1992-93
Aerodat
(Unk)
-
-
-
11
1323
6916
RC
43.7 li-mi
> 3.2 li-mi
Unk
Unk
110
173170
17724
190894.3
AEM/AM
TOTAL
> 144 li-mi
Galway began confirmation infill drilling at the Victorio Project deposit. The first phase began on January
11, 2007, and concluded on March 17, 2007 (Holes GRV 70 through 75, 11,286 feet.) Drilling began again on
September 25, 2007 and continued through May 1, 2008 (Holes GRV-76 through 88, 25,084 feet; GRV-77 was
abandoned due to excessive deviation.) Total drilling to the end of that program in completed holes by Galway is
36,370 feet. All drill holes have been surveyed down-hole for deviations by either gyroscopic tools (by a contractor,
International Directional Services) or by single shot camera methods by the drillers.
During the second phase of drilling, five angle holes were drilled, in northwest, west, and southwest
directions. The angle drilling was designed to crosscut the prevalent highangle quartz veining to evaluate any bias
which might be introduced by concentrating on vertical holes.
Galway’s drilling as well as historical drilling activities have been by standard drilling techniques which for
the Victorio deposit are core drilling with lesser rotary drilling. Several Galway holes, and possibly some historic
holes, were precollared to varying depths by rotary or RC methods before coring was started. To the end of the
2007-2008 program. The Victorio Mountains district has at least 138 known drillholes and at least 226,000 feet of
documented drilling completed since 1969. Of this, 166,016 feet was completed at Middle Hills by Gulf Mineral
Resources on the Victorio Project deposit. Total footage in the current drill program (to April 15, 2012) is 2,330 feet
of precollar and 8,501 feed of diamond coring.
The core drilling methods used in Galway’s and historical drilling of the Victorio deposit are typical of the
industry standard methods at the time, are still industry standard methods today, and are valid and appropriate
methods to define the molybdenumtungsten mineralization.
Drilling Methods
Galway’s drill contractor for the first phase of drilling, January – March 2007, was Marcus and Marcus,
Coeur d’Alene, Idaho, and for the second phase, September 2007 – May 2008, the contractor was Connors Drilling,
Montrose, Colorado. Earlier drilling, largely for Gulf Minerals Resources, Inc. and also for Humble/Exxon and other
operators, both on and off the present day claim block, was also accomplished by diamond core and reverse
circulation (RC) drilling. These practices are standard for the industry. Galway’s drill holes are largely HQ (2.5 inch
diameter) and to a lesser extent NQ (2.0 inch diameter) size core, with some rotary pre-collar.
Similar drilling technology is employed in the current infill drilling program by Galway’s contractor, Cabo
Drilling Corp., North Vancouver, B.C.
2012 Infill Drilling Program
In late December 2011, the first hole of a planned ten-hole infill drilling campaign was started. To date,
eight holes have been completed. The current infill drilling program was temporarily suspended in June, 2012.
Footage to that date is 3,350 feet tricone (precollar) and 14,672 feet of HQ size coring, total 18,022. Assays have
been received from all of these holes. Some of the holes are angled at steep dips to avoid siting the rig in a drainage
and still intersect the mineralized horizons at the desired locations.
Preliminary review of the assay intervals and results indicates that the grades and intervals in the infill
holes are consistent with those in surrounding holes. Comparison of these results indicates that there will be no
C - 11
significant change in the molybdenum and tungsten grades of the deposit. It is anticipated that the reduced hole
spacing will result in increased confidence and reclassification of portions of the deposit from Indicated to Measured
resource, when the deposit is modeled at the end of the current program.
Galway’s contractor at the end of the 2007-2008 program, Connors Drilling, utilized a modified Longyear
44 core drilling rig. In order to assess the possible bias which might be present because of the preponderance of high
angle veins and mineralized structures which were logged in the vertical holes, five angle holes were drilled in
Galway’s 2007-2008 campaign. Dip on the angle holes varied from -60 to -83 degrees. Four of the angle holes,
GRV-82, 83, 84 and 86 were drilled with oriented core using the REFLEX-ACT method, where the bottom of the
last piece of core in each core run is marked, and the core is carefully reassembled in a trough in the core shed.
Knowing the dip and bearing of the angle hole, the attitude in three-dimensional space of planar elements such as
quartz veins can be can be measured, calculated and plotted using stereonets and rose diagrams, and statistical plots
of vein orientations can be constructed. The study concentrated on quartz-molybdenite veins, but in two of the holes,
GRV-84 and 86, the tungsten-bearing veins were treated separately.
Although the data is sparse because of the small number of oriented-core angle holes, Galway geologists
have arrived at some preliminary interpretations. Although the strike direction of veins is variable, greater than 30%
of all quartz-molybdenite and tungsten-bearing veins dip greater than 70 degrees. The overall pattern of
quartzmolybdenite veins suggests a radial pattern to the veining centered near GRV-81, which could be the center of
the mineralizing system. In the two holes where the molybdenite and tungsten veins were measured separately, the
patterns in GRV-84 are very ordered and similar, whereas in GRV-86 the dip orientation pattern is random,
indicating stockwork type veining.
Drill core obtained in all phases of Galway’s program is boxed at the drill site by the drill crews, and the
core boxes, secured by rubber straps to prevent spillage, are picked up each shift by Galway personnel and delivered
to a secure core storage and processing facility in Deming.
Sample Methods, Preparation, Analysis and Security
Gulf Mineral Resources’ drilling practices, sampling and sample preparation, analytical procedures,
QA/QC procedures and security at the Victorio Molybdenum- Tungsten Deposit, on which the estimated resource
calculated by SRK in their NI 43- 101 Technical Report dated February 28, 2007 is based, are described in that
report. These procedures were, and still are, standard in the industry and are judged by the authors to be well carried
out. Assaying for Gulf was done by accredited commercial laboratories with acceptable QA/QC standards.
At Galway’s facility, the core is first washed to remove residual drill mud and grease. The core boxes are
laid out each day, photographed and scanned by Galway geologists to construct a rough lithologic log. Galway's
practice is to construct the geotechnical log first, including measurements of specific gravity and physical data from
which rock quality data factors can be determined. Reconstruction of core and detailed measurements on oriented
core, as listed above, are made at this time before the core is split.
The person making the geotechnical logs marks the core in each run for sawing with a black marker line,
taking care to crosscut the preponderance of mineralized structures.
The core is sawed in half on the axis with a circular diamond saw. Because of the competence of the rock
and associated excellent core recovery, it is possible to closely estimate the exact depth at any point in Victorio core.
It is therefore practical to sample the core for assay on even ten- and five-foot intervals. Galway's practice has been
to sample the core on ten-foot intervals to 1,400 ft. depth, and on five-foot intervals below. Half of the core from
each marked sample interval is placed in plastic sample bags with pre-printed depth labels, by the person doing the
sawing; the other half is returned to the core box.
The core boxes are then moved to another room, which can be darkened, and again laid out in order, and
the core is carefully examined with a short-wave ultraviolet lamp. The percent tungsten is estimated by observing
fluorescence of scheelite, and the habit and attitude of tungsten-bearing veins is noted.
C - 12
Detailed geologic logging follows. The core is logged into Microsoft Excel using a personal digital
assistant into which pick lists of qualities corresponding to formation, lithology, alteration mineralogy, structure, and
mineralization are loaded. At a later time, the spreadsheet data are transferred to detailed paper logs.
The sawn core is again photographed, and the core boxes are placed in storage in Galway’s warehouse,
which is attached to the core logging facility.
The bagged core samples have been shipped by commercial trucking services to the ALS-Chemex
preparation facilities in Sparks or Elko, Nevada, where pulps are prepared and shipped on to the ALS-Chemex
analytical lab in Vancouver, B.C. The unused portions of the pulps, and the assay reject material, have been returned
to Galway's secure warehouse in Deming.
Sample Preparation
At the ALS-Chemex preparation facility in Sparks or Elko, Nevada, core samples are weighed, fine crushed
to 70% -2mm, split with a riffle splitter, and a 1,000g pulp, 85% -75 micron or better, is created with a “ring and
puck” mill. The assay pulps are then sent to the ALS-Chemex analytical laboratory in Vancouver. Unused portions
of the pulps, and the remainder of the crushed rejects are returned to Galway’s warehouse in Deming.
Analytical Procedures
Galway's drill core samples have been analyzed for molybdenum and tungsten within standard ICP
packages: ME-MS81 was used from GRV-70 through 79, and ME-MS61 from GRV-80 through 88. ME-MS81 uses
lithium borate fusion, acid dissolution of the bead and ICP analysis, while ME-MS61 is four-acid digestion and ICP
finish. Checking between the two systems shows good correlation. Tungsten was also analyzed by lithium borate
fusion and XRF analysis, which is industry standard for tungsten ore materials. The agreement between the ICP and
XRF tungsten analyses was found to be excellent.
Both ICP packages also report a large number of other elements, but no notably anomalous associated
metals have been recognized.
In the 2012 infill drill program, since the geochemical characteristics of the deposit are well documented,
only tungsten, molybdenum and fluorine (for determination of fluorite content) are initially analyzed. The tungsten
and molybdenum are run by XRF of a pressed pellet, and fluorine by specific ion analysis. Again, analyses are being
done by ALS-Chemex. Core composites will be checked for other elements by ICP methods at a later date.
Gulf Minerals’ QA/QC programs, and the well-known historic problems with tungsten analyses are
covered in detail in SRK’s NI 43-101 Technical Report dated February 28, 2007. The authors believe that Gulf
executed the program to acceptable standards, and that their analytical procedures fairly represent the true grade of
the deposit. Galway’s QA-QC procedures, detailed below, have taken these matters into account, and Galway
believes that the accuracy and precision of tungsten assays is not a significant obstacle to effective estimation of
resources at Victorio.
Quality Control Procedures (QA/QC)
Galway utilizes ALS Chemex as the primary laboratory and SGS as a secondary lab for the analysis of core
samples. Both laboratories have in place comprehensive quality systems fully compliant with international standards
ISO 9001:2000 and ISO 17025:2005. Both laboratories are independent of Galway in every respect.
In addition to relying on the competence of these laboratories, Galway has implemented a QA/QC program
involving submission of blanks and control samples into every sample shipment, and re-assaying duplicate pulps on
about 4% of all samples by an independent laboratory.
C - 13
For the 2007-2008 program, six high quality, certified standard samples, specifically designated as derived
from molybdenum and/or tungsten deposits, were purchased from Natural Resources Canada CANMET Project and
from CDN Resource Laboratories, Delta, B.C., Canada; both sources are recognized industry suppliers of mineral
and metallurgical sample standards. The six standards were rotated and inserted every 20 samples. A blank sample
(white silica sand) was also inserted every 20 samples.
Analysis of the data from the QA/QC program utilized in the 2007-2008 program reveals some
discrepancies, but they are not believed to be significant for the current level of resource estimation.
The QA/QC strategy in the current drilling program includes inserting one standard or blank every 20
samples, starting each hole with a fine sand blank and ending with a coarse sand blank. ALS is rerunning 5% of all
samples assaying greater than 0.10% Mo and 0.10% W03. In the near future, a secondary lab will be chosen for
check assays of duplicate pulps, which are split from 5% of the samples. The nine standards currently being used are
supplied by CDN Resource Laboratories and by Shea Clark Smith, Reno, Nevada.
Sample Security
Industry standard provisions for security of drill information and drill core at the drill site are imposed on
the drill crews, and Galway employees have routinely picked up core and transported core to the core processing
facility in Deming.
Mineral Processing and Metallurgical Testing
The metallurgical test work contracted to Hazen Research (“Hazen”), Golden, CO by Gulf Minerals in
1982 is detailed in SRK's NI 43-101 Technical Report dated February 28, 2007. Hazen's flotation testing resulted in
85% recovery of molybdenum at a concentrate grade of 55-56% Mo, and a low-grade tungsten concentrate at 75%
recovery. The tungsten concentrate would have to be processed further to produce marketable ammonium
paratungstate (APT). That program was cut short when Gulf Minerals pulled out of the project.
In 2007, Galway again engaged Hazen Research to continue metallurgical work on samples from Galway's
initial drilling. The first phase of metallurgical testwork was completed in mid-2008. The purpose of Phase I work
was to confirm Hazen's results for Gulf Minerals. Hazen was successful in reproducing their earlier recoveries.
Phase II testwork was launched by Hazen using a new set of core samples selected from intercepts in ten
Galway holes, from both the El Paso limestone and the Bliss sandstone, principal ore hosts at Victorio. Total weight
of the new samples is 1,516.2 kg. Hazen's results in molybdenum recovery are regarded by Galway as satisfactory at
this stage of work, and the initial emphasis of Phase II will be on producing a higher grade, marketable tungsten
concentrate by gravity concentration and pre-concentration. This would have a significant positive impact on project
economics by eliminating operating and capital costs associated with an APT plant. No results have yet been
received from this program. The Hazen studies were incomplete when the project was put on standby in 2008.
In addition, a representative sampling was made from the Phase II material sent to Hazen and submitted to
Terra Vision, Lac-Beauport, Quebec, Canada. Terra Vision has proposed testing these materials by automated ore
sorting techniques, which could result in effective pre-concentration of tungsten ore. These techniques operate
through optical (in the case of tungsten, by ultraviolet fluorescence), conductivity, or X-ray response of rock
fragments and particles. This program has not yet produced results. These metallurgical studies were terminated late
in 2008.
In 2012, several laboratories are being considered to continue the metallurgical work. Initial testing will be
done on core samples representative of several metal contents and geological domains within the deposit.
C - 14
Mineral Resources and Mineral Resource Statement
To the extent that environmental, permitting, legal, title, taxation, socio-economic marketing, political and
other relevant factors have been investigated by Galway, none of these elements has the potential to materially affect
the mineral resource estimate.
These factors will be taken into account when subsequent studies are made in preparation for prefeasibility, feasibility and economic assessment reporting.
In 2007, SRK compiled the drillhole database and determined it to be of high quality. In 2008, Galway
drilled an additional 12 holes (11 completed) of infill drilling and added the 11 holes to the drillhole database. The
database contains information from 88 drill holes totaling 200,839 feet of drilling. The maximum drillhole depth is
3,200 feet and the average is 2,282 feet. Prior to 2008, the majority of the holes were drilled vertically. In 2008, five
angle holes were drilled, one of which was abandoned due to drift. The 2012 drillholes are not considered in this
statistical treatment, and none of the following discussion of resource calculations includes data from the current
program. Upon completion of the infill drilling program, the recent holes will be added to the drillhole database, the
deposit statistically modeled, and the resources recalculated and reclassified.
Grades were estimated using ordinary kriging and by inverse distance to the third power using 15'
composites. In prior studies, inverse to the distance three weighting (ID3) was used to estimate the resources of
Victorio. The statistical characteristics of the mineralization in each rock unit vary from formation to formation.
However, in examining the cross sections the grades do not show sharp changes at the boundaries of the formation.
The changes are gradual in most instances. Thus a new set of 15 feet down-hole composites with no breaks at the
formation contacts were calculated from the drillhole database. These were used for the grade estimation.
A total of eight separate ordinary kriging runs and eight inverse distance runs were made to estimate the
molybdenum and tungsten values in the four mineralized formations. Blocks within each formation were estimated
by using nearby drill hole composites selected based on the search parameters derived for each formation.
The Mineral Resources are classified under the categories of Measured, Indicated and Inferred Mineral
resources according to CIM guidelines. Classification of the mineral resources reflects the relative confidence of the
grade estimates, primarily as a function of sample spacing relative to geological and geo-statistical observations
regarding the continuity of mineralization. In this study, the blocks were assigned to measured, indicated or inferred
based on the relative error bound of each block estimate. Any single block (30'x30'x15') estimate can have a large
error. What is important is that when blocks are grouped together to form a mining unit and mined, the amount of
metal predicted in the unit will be achieved when mined. For this study, a block of 1,000,000 tons was assumed as a
planning unit. Standard geostatistical calculations show that a drilling grid of 200 ft would give estimates that have a
+ or — 25% relative error bound.
Based on the above scheme, areas where the drilling is on 200 grid, the geology is well known and the
mineralization has good continuity, the resources are classified as measured. On a block by block basis, the 95%
error bound must be less than .75. For areas where the drilling is wider spaced but the geology is still well known
and the mineralization has good continuity, the resources are classified as indicated. The error bound for the
indicated blocks is greater than .75 to 1.0. This corresponds to approximately a 400 feet grid. Inferred resources are
in areas where the geological continuity is good and the mineralization appears to be continuous, but drilling is
wider spaced than 400 feet. This corresponds to error bounds greater than 1 and less than 1.5.
The estimates given by ordinary kriging and Inverse Distance Weighting to the third power are nearly the
same. To maintain consistency with prior resource estimates the estimates made by inverse distance weighting to the
third power was chosen for the resource statement. The mineral resources for the Victorio Project at a cutoff grade
of $25 and $35 per ton are shown in the table below. Cut off is based on dollar rock value calculated from contained
Mo % valued at $15.00/lb combined with WO3 % valued at $8.00/lb.
C - 15
Victorio Project Resource Statement
Total Tons
Resource Category
Dollar
Value/Ton
Cut-Off
(million)
Average
Grade Mo%
Average
Grade WO3%
Measured
$25
37.7
0.10
0.08
Indicated
$25
39.5
0.08
0.09
Inferred
$25
77.2
0.07
0.09
Measured
$35
20.3
0.12
0.11
Indicated
$35
19.1
0.10
0.12
Inferred
$35
34.7
0.10
0.11
Recommendations:
The 2012 Report suggests that on the confirmation of in-fill drilling planned by Galway, it will strengthen
the current resource estimate, upgrade more of the resource into Measure and Indicated categories (as defined by
CIM standards), and provide further geotechnical information and samples for metallurgical testing. The in-fill
drilling, more detailed geotechnical information and metallurgical studies will assist in establishing a pre-feasibility
study to determine the project’s economic viability and further refine the determination of optimum mining methods
and mine design. The 2012 Report suggest that this phase can be accomplished within a 12 to 18 month time period,
at a cost of approximately U.S. $9,400,000.
Available Funds
Available Funds of Galway Metals
No financings are being contemplated by Galway Metals in connection with the Arrangement. As of June
30, 2012, after giving effect to the Arrangement, the pro forma working capital of Galway Metals will be
U.S.$12,000,000.
Principal Purposes of Funds
At the Effective Time, the aggregate funds available to Galway Metals are estimated to be approximately
U.S.$12,000,000. The following table represents the principal purposes for which funds will be used by Galway
Metals over the 18 months subsequent to listing:
Principal Purpose
Estimated Amount
(U.S.$)
$40,000
Fees payable in connection with the Listing
Fees payable under Installment Sale Agreement
$500,000
Cost related to geophysical and drilling for 40 drill holes as
recommended in the 2012 Report
$6,000,000
Anticipated general and administrative expenses for the next 18 months
(including legal, accounting and other professional fees)
$1,800,000
Unallocated
$3,660,000
Total:
$12,000,000
C - 16
Although Galway Metals intends to spend the funds available to it as stated above, there may be
circumstances where, for sound business reasons, the reallocation of funds may be necessary.
Dividends and Other Distributions
Galway Metals’ current policy is to retain earnings to finance the growth and the development of its
business and not pay dividends until it has established revenue and income generating assets. This policy will be
reviewed in the future should Galway Metals be successful in establishing a commercial mining operation. Galway
Metals is not aware of any restriction that could prevent it from paying dividends.
Management’s Discussion and Analysis of Galway Metals
Please refer to the management’s discussion and analysis contained in the following statements: Schedule
A for Audited Carve-Out Financial Statements for Galway Metals Inc. for the years ended December 31, 2011, 2010
and 2009, Schedule B for the Condensed Interim Carve-Out Financial Statements for Galway Metals Inc. for the
three and six months ended June 30, 2012; and Schedule C for the Audited Financial Statements for Galway Metals
Inc. for the period from incorporation (May 9, 2012) to June 30, 2012 and the related Management’s Discussion &
Analysis in respect of the same period.
Disclosure of Outstanding Security Data on Fully-Diluted Basis
The following table sets forth the fully-diluted share capital of Galway Metals after giving effect to the
Arrangement based on the share capital of Galway as at November 16, 2012.
Number of
Galway Metals Shares(1)
Percentage of
Galway Metals Shares
(Diluted)
(Diluted)
Galway Metals Shares issued pursuant to the Arrangement.........
147,270,990
90%
Subtotal(1) ......................................................................................
147,270,990
90%
Galway Metals Shares reserved for issuance pursuant to the
Galway Metals Stock Option Plan(2) .............................................
14,727,099
10%
Fully-Diluted Total ......................................................................
161,998,089
100%
Notes:
(1) Assumes that immediately prior to the Effective Time: (i) that there will be 135,879,134 Galway Shares outstanding, (ii) no Dissent Rights
have been exercised, (iii) 5,260,137 Galway Warrants remain outstanding, which will be exchanged for Warrant Consideration and (vi) that
all Galway Options have been exercised.
(2) Assumes that Galway Metals Stock Option Plan is approved by Galway Shareholders. Pursuant to the policies of the TSX-V, the number of
Galway Metals Shares reserved for issuance pursuant to the Galway Metals Stock Option Plan is to be up to a rolling maximum of ten
percent of the total number of Galway Metals Shares issued and outstanding from time to time. See “Options to Purchase Securities”.
Description of Securities to be Listed
The authorized capital of Galway Metals consists of an unlimited number of common shares. Holders of
common shares are entitled to receive notice of, attend and vote at all meetings of the shareholders of Galway
Metals. Each common share carries the right to one vote in person or by proxy at all shareholder meetings of
Galway Metals. The holders of common shares are entitled to receive dividends as and when declared by the
Galway Metals Board and, subject to the rights, privileges, restrictions and conditions attaching to any other class of
shares of Galway Metals, are entitled to receive the remaining property of Galway Metals in the event of liquidation,
dissolution or winding-up.
There is currently one common share of Galway Metals issued and outstanding, and Galway is currently
the sole shareholder.
C - 17
Consolidated Capitalization
The following table sets forth the capitalization of Galway Metals, effective June 30, 2012, both before and
after giving pro forma effect to the Arrangement. The financial information below should be read in conjunction
with the Audited Financial Statements for Galway Metals attached as Schedule C and the Pro Forma Consolidated
financial statements for Galway Metals as at June 30, 2012 attached as Schedule D.
Designation
Assets
Current assets
Non-current assets
Total Assets
Liabilities
Shareholder’s Equity
Notes:
(1)
Balance as at June 30, 2012
(U.S.$)
Pro Forma as at June 30, 2012(1)
(U.S.$)
$1
$12,000,000
-
$1,454,454
$1
$13,514,454
-
$327,729
$1
$13,186,725
As at June 30, 2012 there were (i) 125,630,341 Galway Shares outstanding,, (ii) 9,381,601 Galway Warrants outstanding, which
would be exchanged for Warrant Consideration and (iii) 10,917,650 Galway Options outstanding.
Stock Option Plan
There are no outstanding options or warrants to purchase Galway Metals Shares as at the date of this
Circular. Galway Metals may decide to issue options at the Effective Time, pursuant to the terms of the Galway
Metals Stock Option Plan (as defined below).
At or prior to the Effective Time, Galway Metals proposes to establish a new stock option plan (the
“Galway Metals Stock Option Plan”). The following is a summary of the material terms of the Galway Metals
Stock Option Plan:
1.
The maximum number of Galway Metals Shares with respect to which options may be granted pursuant to
the Galway Metals Stock Option Plan shall not exceed 10% of the outstanding Galway Metals Shares from
time to time (on a non-diluted basis);
2.
The purpose of the Galway Metals Stock Option Plan is to give to Eligible Persons (as defined below) the
opportunity to participate in the success of Galway Metals by granting to such individuals options to
acquire common shares of Galway Metals in accordance with the terms of the plan, thereby giving such
Eligible Persons an ongoing proprietary interest in Galway Metals;
3.
Options may be granted to directors, senior officers, or employees of Galway Metals or any of its
subsidiaries, a corporation that is wholly-owned by any of the foregoing; or to consultants of Galway
Metals (collectively, “Eligible Persons”);
4.
No options shall be granted to any optionee if such grant could result, at any time, in:
i.
the issuance to any one individual, within a one-year period, of a number of Galway Metals Shares
exceeding 5% of the issued and outstanding Galway Metals Shares;
ii.
the issuance to any one consultant, within any 12 month period, of a number of Galway Metals
Shares exceeding 2% of the issued and outstanding Galway Metals Shares; and
iii.
the issuance to employees conducting investor relations activities, within any 12 month period, of
an aggregate number of Galway Metals Shares exceeding 2% of the issued and outstanding
Galway Metals Shares;
C - 18
unless permitted otherwise by any applicable stock exchange.
5.
An option shall vest and may be exercised (in each case to the nearest full Galway Metals Share) in whole
or in part at any time during the term of such option after the date of the grant as determined by the
resolution of the Galway Metals board (“Galway Metals Board”) granting the option;
6.
An option shall vest and may be exercised (in each case to the nearest full Galway Metals Share) in whole
or in part at any time during the term of such option after the date of the grant as determined by the
resolution of the Galway Metals Board granting the option, provided that if an option expires during a
black-out period, then the exercise period for the option shall be extended in certain circumstances;
7.
Options may be granted by Galway Metals pursuant to the recommendations of the Galway Metals Board
or the committee appointed to administer the Galway Metals Stock Option Plan from time to time provided
and to the extent that such decisions are approved by the Galway Metals Board;
8.
An option shall be personal to the optionee and shall be non-assignable and non-transferable (whether by
operation of law or otherwise), except that an option may be assigned between a company that is whollyowned by an Eligible Person and the Eligible Person associated with the company;
9.
An option and all rights to purchase Galway Metals Shares pursuant thereto shall expire and terminate
immediately upon the optionee who holds such option ceasing to be an Eligible Person provided that, in the
case of termination of employment not for cause, such option and all rights to purchase Galway Metals
Shares thereto shall expire and terminate: i) in the case of an optionee who is an Eligible Person, 90 days
following notice of termination of employment or on the expiry time, whichever is earlier; and ii) in the
case of an optionee who is engaged in investor relations activities, 30 days following notice of termination
to provide such investor relation activities or on the expiry time, whichever is earlier;
10.
If an optionee dies before the expiry of an option, the optionee’s legal representative(s) may, subject to the
terms of the option and the Galway Metals Stock Option Plan, exercise the option to the extent that the
optionee was entitled to do so at the date of the optionee’s death at any time up to and including, but not
after, a date twelve months following the date of the optionee’s death or on the expiry time, whichever is
earlier;
11.
The Galway Metals Stock Option Plan will terminate automatically on the 10th anniversary of the date the
plan was approved by both shareholders and the Galway Board. The Galway Metals Board may suspend or
terminate the Galway Metals Stock Option Plan at any time, or from time to time amend the terms of the
Galway Metals Stock Option Plan or of any option granted under the Galway Metals Stock Option Plan and
any stock option agreement relating thereto, provided, that any such suspension, termination or
amendment: (1) complies with applicable law and the requirements of the TSX-V, including applicable
requirements relating to requisite shareholder approval and prior approval of the TSX-V or any other
relevant regulatory body; (2) is, in the case of an amendment that materially adversely affects the rights of
any holder of Options, made with consent of such holder; and (3) is, in the case of any reduction in the
exercise price of options held by insiders at the time of the proposed reduction, subject to approval by
disinterested shareholders of Galway Metals in accordance with the TSX-V Corporate Finance Manual; and
12.
If a bona fide offer to purchase all of the issued Galway Metals Shares is made by a third party; Galway
Metals proposes to sell all or substantially all of its assets and undertakings; Galway Metals proposes to
merge, amalgamate or be absorbed by or into any other corporation (save and except for a subsidiary)
under any circumstances which involve or may involve or require the liquidation of Galway Metals, a
distribution of its assets among its shareholders, or the termination of the corporate existence of Galway
Metals; Galway Metals proposes an arrangement as a result of which all of the outstanding Galway Metals
Shares would be acquired by a third party; or any other form of transaction is proposed which the majority
of the Galway Metals Board determines is reasonably likely to have a similar effect as any of the foregoing
(each, a “Change of Control Event”), then upon completion of any of the foregoing transactions, the
Galway Metals Board may require that an option granted under the Galway Metals Stock Option Plan may
C - 19
be exercised (whether or not such option has vested), as to all or any of the optioned Galway Metals Shares
in respect of which such option has not previously been exercised, by the optionee at any time up to and
including (but not after) the expiry time of the option; and Galway Metals may require the acceleration of
the time for the exercise of the said option and of the time for the fulfillment of any conditions or
restrictions on such exercise, and all such changes shall be final and binding on all options granted under
the Galway Metals Stock Option Plan. Upon completion of a Change of Control Event, an optionee who
thereafter shall exercise an option granted under the Galway Metals Stock Option Plan shall accept in lieu
of the number of Galway Metals Shares to which such optionee was entitled upon such exercise, the
aggregate number of shares, other securities or other property which such optionee would have been
entitled to receive as a result of such transaction if, on the effective date, the optionee had been the
registered holder of the number of Galway Metals Shares to which such optionee was entitled to upon
exercise, except that if Galway Metals is not able to procure compliance with this provision by the issuer or
payee of the shares, securities or other property then the optionee shall accept the Galway Metals Shares
that the optionee would be entitled to receive on exercise of the option.
Prior Sales
Galway purchased one Galway Metals Share for $1.00 on the incorporation of Galway Metals, which is the
only share of Galway Metals currently outstanding.
Escrowed Securities
There are no Galway Metals’ Shares currently held in escrow. Following completion of the Arrangement,
Galway Metals Shares under the direction or control of directors and officers of Galway Metals and certain other
parties may become subject to escrow.
Principal Securityholders
As of the date of the Circular, Galway holds 100% of the issued Galway Metals Shares.
Following completion of the Arrangement, there is no person or company that is expected to directly or
indirectly own, or have control or direction over more than 10% of the shares of Galway Metals. This is based on
the number of Galway Shares, Galway Warrants and Galway Options outstanding as of November 16, 2012 and
assumes that all Galway Warrants participate in the arrangement rather than being exercised.
Directors and Executive Officers
Name, Occupation and Security Holding
The following table sets forth the name, state or province of residence, position to be held with Galway
Metals, principal occupation and number of common shares of Galway Metals that will be beneficially owned,
directly or indirectly, or which control or direction is exercised, by each person who will be a director and/or an
executive officer of Galway Metals after the Arrangement.
Name, Office Held and
Residence(1)
Robert Hinchcliffe(3)
President and Chief Executive
Officer, Director
New York, USA
Start Date
Shares
Beneficially Owned,
Controlled(1)(2)
May 9, 2012
3,645,000
C - 20
Principal Occupation(1)
Director of Galway since May 30, 2005;
President and Chief Executive Officer of
Galway since May 30, 2005
Name, Office Held and
Residence(1)
Start Date
Shares
Beneficially Owned,
Controlled(1)(2)
Alfonso Gómez(3)
Independent Director
Bogotá, Colombia
Effective Time
1,012,500
Country Manager (Colombia) of Galway
since March, 2011 and Administrative
Manager (Colombia) of Galway since
2006
Robb Doub(3)
Maryland, USA
Effective Time
1,050,000
General Partner of New Markets
Venture Partners from 2003 to present.
Prior to this, Mr. Doub was a
Managing Director of Small Enterprise
Assistance Fund (SEAF) from 1997 to
2003.
Joseph Cartafalsa
Director
New York, U.S.A.
Effective Time
265,455
Robert Suttie
Chief Financial Officer and
Corporate Secretary
Ontario, Canada
Effective Time
None
Notes:
(1)
(2)
(3)
Attorney at Putney, Twombly, Hall &
Hirson LLP since 1997.
Senior Manager of Marrelli Support
Services Inc. since May 1, 2006 and
serves of chief financial officer for
server junior resource companies on the
TSX-V.
The information as to residence and principal occupation, not being within the knowledge of Galway or Galway Metals, has been
furnished by the respective directors and officers individually.
Each person will participate in the Arrangement and receive a pro rata portion of Galway Metals Shares. As a result it is expected
Galway Metals’ directors and executive officers will acquire and hold, an aggregate of 5,972,955 Galway Metals Shares,
approximately 4.06% of the issued and outstanding Galway Metals Shares at the Effective Time, assuming that immediately prior to
the Effective Time: (i) that there will be 135,879,134 Galway Shares outstanding, (ii) no Dissent Rights have been exercised, (iii)
5,260,137 Galway Warrants remain outstanding, which will be exchanged for Warrant Consideration and (vi) that all Galway Options
have been exercised.
Member of the audit committee.
It is expected that the term of office of each director listed above will conclude at the end of Galway
Metals’ next annual meeting, subject to reappointment by the shareholders of Galway Metals at such meeting.
Robert Hinchcliffe, President, Chief Executive Officer and Director, Age 45
Mr. Hinchcliffe has been the president, chief executive officer and director of Galway since May 2005 and
president, chief executive officer and director of Galway Metals since May 2012. After working on Wall Street for
several years as a financial analyst, Mr. Hinchcliffe was the Chief Financial Officer of a producing gold mine
company for two years. Mr. Hinchcliffe graduated from the University of Arizona in 1991 with a Bachelor of Arts
degree in economics and from Georgetown University in 1995 with a MBA with a concentration in finance.
Alfonso Gómez, Independent Director, Age 69
Mr. Gómez has over 30 years working in the resource sector, holding various positions with prominent
international mining companies in Colombia. Mr. Gómez has been with Galway since 2006 and will be the
Colombia Country Manager, in charge of Galway Metals’ efforts in Colombia regarding financial, legal, permitting,
environmental and community affairs among other areas. Before joining Galway, Mr. Gómez was Vice President of
operations for Prodeco and Vice President of Public Affairs of Carbones del Cerrejon, the world’s largest coal
producer and owner of the largest coal mine in the world, producing 35 million tons per year.
Robb Doub, Independent Director, Age 45
C - 21
Mr. Doub has over 16 years of investing in high growth international emerging businesses. He is currently
a general partner of New Markets Venture Partners. Prior to this position, Mr. Doub was a Managing Director of
Small Enterprise Assistance Funds (SEAF), an emerging market venture capital company managing over $200
million in Central and Eastern Europe, Latin America, and Asia. He currently serves on the Board of K2 Alternative
Strategies Offshore Ltd, a hedge fund of funds managed by K2 Advisors, eCoast Sales Solutions, Appfluent
Technologies, EGeen International, and on the Conflicts Advisory Board of the off-shore hedge funds managed by
Deutsche Asset Management’s Absolute Return Strategies Group. Mr. Doub was a visiting professor at the
University of Warsaw’s School of Business teaching finance to MBA candidates and has been a guest speaker at the
Kellogg School of Business at Northwestern and at the Johnson School of Business at Cornell. Mr. Doub graduated
from the University of Vermont, with a major in History and received a MBA with Honors from Georgetown
University.
Joseph Cartafalsa, Director, Age 45
Mr. Cartafalsa is partner at the New York-based law firm of Putney, Twombly, Hall & Hirson LLP, one of
the oldest law firms in New York. He has over 20 years’ experience as a management-side labor and employment
attorney, representing clients in a myriad of industries, including exploration and mining, finance, media and
manufacturing. Mr. Cartafalsa has represented employers, executives, officers and directors in litigated matters, and
has worked closely with employers to provide counseling during particularly sensitive times such as during layoffs,
mergers or corporate restructuring. He has also been called upon to draft, review and litigate executive and nonexecutive employment contracts, compensation agreements and restrictive covenants. Mr. Cartafalsa is on the
advisory board for the Cornell Labor and Employment Law Program and currently serves on the Cornell ILR Dean’s
Advisory Council. Mr. Cartafalsa received his BS degree from Cornell University’s School of Industrial and Labor
Relations in 1989 and his JD degree from the Fordham University School of Law in 1992.
Robert Suttie, Chief Financial Officer and Corporate Secretary, Age 43
Mr. Suttie currently works with Marrelli Support Services as its senior manager of financial reporting and
compliance, possessing more than sixteen years of experience, ten of which were in public accounting prior to his
tenure with the company. Mr. Suttie specializes in management advisory services, accounting and the financial
disclosure needs of the group’s public client base. In addition to managing the group’s financial-statement and
disclosure team, Mr. Suttie also serves as Chief Financial Officer for a number of junior mining companies listed on
the TSX and TSX-V, leveraging his skills and experience to become integral to the reporting issuers. Mr. Suttie
graduated from the University of Western Ontario with a BA.
Corporate Cease Trading Orders or Bankruptcies
No person who will be a director or executive officer of Galway Metals, or a shareholder holding a
sufficient number of shares to materially affect control of Galway Metals is, or has been within the ten years prior to
that date, a director or executive officer of any company, that while that person was acting in that capacity was the
subject of a cease trade order or an order that denied the relevant company access to any exemption under securities
legislation, for a period of more than 30 consecutive days was subject to an event that resulted, after the director or
executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or
similar order or an order that denied the relevant company access to any exemption under securities legislation, for a
period of more than 30 consecutive days or became, within a year of a director or executive officer ceasing to act in
that capacity became, bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangements or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets.
Penalties or Sanctions
No person who will be a director or executive officer of Galway Metals, or a shareholder holding a
sufficient number of shares to materially affect control of Galway Metals, has been subject to any penalties or
sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory
authority or has entered into a settlement agreement with a Canadian securities regulatory authority, or been subject
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to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important
to a reasonable investor making an investment decision.
Personal Bankruptcies
No person who will be a director or officer of Galway Metals, or a shareholder holding a sufficient number
of shares to materially affect control of Galway Metals, or a personal holding company of any such persons has,
within ten years before the date hereof, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or become subject to or instituted any proceedings, arrangements or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or
shareholder.
Conflicts of Interest
There are no existing or potential material conflicts of interest between Galway Metals, and a person who
will be a director or officer of Galway Metals.
Other Reporting Issuer Experience
The following table sets out each director’s and officer’s personal experience as a director or officer of any
other reporting issuer (or the equivalent of a reporting issuer) in the last five year period:
Name
Name and Jurisdiction of
Reporting Issuer
Trading
Market
Position
Robert Hinchcliffe Galway Resources Ltd.
TSX-V
President, Director and 05- 2005
Chief Executive Officer
Present
Alfonso Gómez
Galway Resources Ltd.
TSX-V
Director
08-2011
Present
Robb Doub
TSX-V
Director
11-2009
Present
Robert Suttie
Rupert Resources Ltd.
TSX-V
Chief Financial Officer
10-2012
Present
Strike Minerals Inc.
TSX-V
03-2011
Present
Asher Resources Corporation
TSX-V
02-2011
Present
Chop Exploration Inc.
TSX-V
Chief Financial Office
02-2011
08-2011
TSX
07-2009
Present
Metallum Resources Inc.
TSX-V
02-2007
Present
Noront Resources Ltd.
TSX-V
01-2007
06-2008
Thundermin Resources Inc.
From
To
Executive Compensation
Executive Employment Agreement
Since incorporation, Galway Metals has not carried on any business and has not completed a financial year.
As of the date of this Circular, no compensation or benefits of any nature have been paid by Galway Metals to its
directors or officers and none will be paid until the completion of the Arrangement.
Following the Effective Date, it is anticipated that the executive officers of Galway Metals will be paid
compensation at levels comparable with other junior exploration companies of similar size and character.
Galway Metals will enter into an executive employment agreement with Robert Hinchcliffe at an
annualized salary of $200,000.
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It is expected that the employment agreement with Mr. Hinchcliffe will include the following conditions:
participation in the Galway Metals Stock Option Plan, participation in change of control payments; participation in
Galway Metals’ Stock Option Plan; participation in Galway Metals’ benefits plan; and twenty-six days of paid
vacation per year. If Mr. Hinchcliffe’s employment is terminated without cause at any time or in the event that Mr.
Hinchcliffe voluntarily terminates his employment for any reason within twelve months after a change of control (as
defined therein), Galway Metals shall pay a lump sum equal to three times his base salary within thirty days of
termination, a lump sum equal to three times his most recent incentive bonus within thirty days of termination and
eighteen months continued medical coverage for himself and dependents equal to six months of his base salary.
Report on Executive Compensation
The Galway Metals Board will review Galway Metals’ executive compensation and stock option policies
and the compensation paid to the Chief Executive Officer and other officers of Galway Metals and will also review
the design and competitiveness of Galway Metals’ compensation, stock option and benefit programs generally.
The compensation of executive officers will be composed primarily of three elements: a base salary,
potential bonuses and the allocation of incentive stock options. The Galway Metals Board will establish the levels of
remuneration taking into consideration level of expertise, length of service to Galway Metals, responsibilities and
individuals’ performance.
Compensation of Directors
Galway Metals has no standard arrangements pursuant to which directors are compensated by Galway
Metals or its subsidiaries for their services in their capacity as directors, or for committee participation, involvement
in special assignments or for services as consultant or expert during the most recently completed financial year or
subsequently, up to and including the date of this Circular. At or prior to the Effective Time, Galway Metals will
implement the Galway Metals Stock Option Plan for the granting of incentive stock options to the officers,
employees and directors. The purpose of granting such options is to assist Galway Metals in compensating,
attracting, retaining and motivating the directors of Galway Metals and to closely align the personal interests of such
persons to that of the shareholders.
Indebtedness of Directors and Executive Officers
No director, executive officer or senior officer of Galway Metals, (or a person who will be a director,
executive officer or senior officer) or any associates of such persons, are or will be indebted to Galway Metals and
no indebtedness of such persons is the subject of a guarantee, support agreement, letter of credit or other similar
arrangement provided by Galway Metals.
Audit Committee and Corporate Governance
Audit Committee
Charter of the Audit Committee:
Mandate
The primary function of the Galway Metals Audit Committee (the “Audit Committee”) is to assist the
Galway Metals Board in fulfilling its financial oversight responsibilities by reviewing: (i) Galway Metals’ financial
reports and other financial information provided by Galway Metals to regulatory authorities and shareholders; (ii)
systems of internal controls regarding finance and accounting; and (iii) auditing, accounting and financial reporting
processes. Consistent with this function, the Audit Committee will encourage continuous improvement of, and
should foster adherence to, Galway Metals’ policies, procedures and practices at all levels. The Audit Committee’s
primary duties and responsibilities are to:
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(a)
serve as an independent and objective party to monitor Galway Metals’ financial reporting and
internal control system and review Galway Metals’ financial statements;
(b)
review and appraise the performance of Galway Metals’ external auditors; and
(c)
provide an open avenue of communication among Galway Metals’ auditors, financial and senior
management and the Galway Metals Board.
Composition
The Audit Committee shall be comprised of three directors as determined by the Galway Metals Board, the
majority of whom shall be free from any relationship that, in the opinion of the Galway Metals Board, would
interfere with the exercise of his or her independent judgment as a member of the Audit Committee.
At least one member of the Audit Committee shall have accounting or related financial management
expertise. All members of the Audit Committee that are not financially literate will work towards becoming
financially literate and obtain a working familiarity with basic finance and accounting practices. For the purposes of
Galway Metals’ Charter, the definition of “financially literate” is the ability to read and understand a set of financial
statements that present a breadth and level of complexity of accounting issues that are generally comparable to the
breadth and complexity of the issues that can presumably be expected to be raised by Galway Metals’ financial
statements.
The members of the Audit Committee shall be elected by the Galway Metals Board at its first meeting
following the annual shareholders’ meeting. Unless a Chair is elected by the full Galway Metals Board, the members
of the Audit Committee may designate a Chair by a majority vote of the full Audit Committee membership.
Meetings
The Audit Committee shall meet twice annually, or more frequently as circumstances dictate. As part of its
job to foster open communication, the Audit Committee will meet at least annually with the Chief Financial Officer
and the external auditors in separate sessions.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
(a)
Review and update its Charter annually.
(b)
Review Galway Metals’ financial statements, MD&A and any annual and interim earnings, press
releases before Galway Metals publicly discloses this information and any reports or other
financial information (including quarterly financial statements), which are submitted to any
governmental body, or to the public, including any certification, report, opinion, or review
rendered by the external auditors.
External Auditors
(a)
Review annually, the performance of the external auditors who shall be ultimately accountable to
the Galway Metals Board and the Audit Committee as representatives of the shareholders of
Galway Metals.
(b)
Obtain annually, a formal written statement of external auditors setting forth all relationships
between the external auditors and Galway Metals, consistent with Independence Standards Board
Standard 1.
(c)
Review and discuss with the external auditors any disclosed relationships or services that may
impact the objectivity and independence of the external auditors.
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(d)
Take, or recommend that the full Galway Metals Board take, appropriate action to oversee the
independence of the external auditors.
(e)
Recommend to the Galway Metals Board the selection and, where applicable, the replacement of
the external auditors nominated annually for shareholder approval.
(f)
At each meeting, consult with the external auditors, without the presence of management, about
the quality of Galway Metals’ accounting principles, internal controls and the completeness and
accuracy of Galway Metals’ financial statements.
(g)
Review and approve Galway Metals’ hiring policies regarding partners, employees and former
partners and employees of the present and former external auditors of Galway Metals.
(h)
Review with management and the external auditors the audit plan for the year-end financial
statements and intended template for such statements.
(i)
Review and pre-approve all audit and audit-related services and the fees and other compensation
related thereto, and any non-audit services, provided by Galway Metals’ external auditors. The
pre-approval requirement is waived with respect to the provision of non-audit services if:
(i)
the aggregate amount of all such non-audit services provided to Galway Metals
constitutes not more than five (5) percent of the total amount of revenues paid by Galway
Metals to its external auditors during the fiscal year in which the non-audit services are
provided;
(ii)
such services were not recognized by Galway Metals at the time of the engagement to be
non-audit services; and
(iii)
such services are promptly brought to the attention of the Audit Committee by Galway
Metals and approved prior to the completion of the audit by the Audit Committee or by
one or more members of the Audit Committee who are members of the Galway Metals
Board to whom authority to grant such approvals has been delegated by the Audit
Committee.
Provided the pre-approval of the non-audit services is presented to the Audit Committee’s first scheduled
meeting following such approval such authority may be delegated by the Audit Committee to one or more
independent members of the Audit Committee.
Financial Reporting Processes
(a)
In consultation with the external auditors, review with management the integrity of Galway
Metals’ financial reporting process, both internal and external.
(b)
Consider the external auditors’ judgments about the quality and appropriateness of Galway
Metals’ accounting principles as applied in its financial reporting.
(c)
Consider and approve, if appropriate, changes to Galway Metals’ auditing and accounting
principles and practices as suggested by the external auditors and management.
(d)
Review significant judgments made by management in the preparation of the financial statements
and the view of the external auditors as to appropriateness of such judgments.
(e)
Following completion of the annual audit, review separately with management and the external
auditors any significant difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
(f)
Review any significant disagreement among management and the external auditors in connection
with the preparation of the financial statements.
(g)
Review with the external auditors and management the extent to which changes and improvements
in financial or accounting practices have been implemented.
(h)
Review any complaints or concerns about any questionable accounting, internal accounting
controls or auditing matters.
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(i)
Review certification process.
(j)
Establish a procedure for the confidential, anonymous submission by employees of Galway Metals
of concerns regarding questionable accounting or auditing matters.
(a)
Review any related-party transactions.
Other
Composition of the Audit Committee
The following are the members of the Audit Committee:
Robert Hinchcliffe
Not Independent(1)
Financially literate(1)
Robb Doub
Independent
(1)
Alfonso Gómez
Independent(1)
Note:
(1)
As defined by National Instrument 52-110 – Audit Committees (“NI 52-110”).
Relevant Education and Experience
Set out below is a general description of the education and experience of each Audit Committee member
that is relevant to the performance of his responsibilities as an Audit Committee member.
Robert Hinchcliffe – Mr. Hinchcliffe has had extensive experience working with financial statements over
the past fifteen years. After working on Wall Street for several years as a financial analyst, Mr. Hinchcliffe was the
Chief Financial Officer of a producing gold mine company for two years. Mr. Hinchcliffe graduated from the
University of Arizona in 1991 with a Bachelor of Arts degree in economics and from Georgetown University in
1995 with a MBA with a concentration in finance.
Robb Doub – Mr. Doub has over sixteen years of investing in high growth international emerging
businesses. He is currently a general partner of New Markets Venture Partners. Prior to this position, Mr. Doub was
a Managing Director of SEAF, an emerging market venture capital company managing over $200 million in Central
and Eastern Europe, Latin America, and Asia. Mr. Doub was a visiting professor at the University of Warsaw’s
School of Business teaching finance to MBA candidates and has been a guest speaker the at the Kellogg School of
Business at Northwestern and at the Johnson School of Business at Cornell. Mr. Doub graduated from the University
of Vermont, with a major in History, and received a MBA with Honors from Georgetown University.
Alfonso Gómez – Mr. Gómez has over 30 years working in the resource sector, holding various positions
with prominent international mining companies in Colombia. In his positions with these companies, he has been
responsible for preparing and executing annual budgets for mining projects.
External Auditor Service Fees
Galway Metals has less than one year’s operating history. It is anticipated that Galway Metals’ auditors
will be PricewaterhouseCoopers LLP, Chartered Accountants, Licensed Public Accountants, 18 York Street, Suite
2600, Toronto, Ontario M5J 0B2.
Exemption from NI 52-110
As Galway Metals will be listed on the TSX-V, it is a “venture issuer” and may avail itself of exemptions
from the requirements of Part 3 Composition of the Audit Committee and Part 5 Reporting Obligations of NI 52110, which require the independence of each member of an audit committee, subject to limited exceptions and the
disclosure of audit committee information in an annual information form, respectively. Galway Metals will rely on
the exemption in Part 3 because not all the members of its audit committee are independent, and it will rely on the
exemption in Part 5 because, as a venture issuer, it is not required to file an annual information form.
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Corporate Governance
Galway Metals’ corporate governance practices will be as follows:
Board of Directors
Upon completion of the Arrangement, Galway Metals’ Board will consist of four directors. Robb Doub and
Alfonso Gómez are independent directors. Mr. Hinchcliffe and Mr. Cartafalsa are not independent. Mr. Hinchcliffe
will serve as an executive officer of Galway Metals and the firm at which Mr. Cartafalsa is a partner will continue to
provide legal services to Galway Metals.
Board Mandate and Position Descriptions
The Galway Metals Board intends to adopt a written mandate and position descriptions for the chair of each
board committee including the roles and responsibilities of the Chief Executive Officer.
Orientation and Continuing Education
New directors will be provided with an information package regarding the business and operations of
Galway Metals which will fully apprise each of them of such matters and of the duties and responsibilities of the
directors pursuant to applicable law and policy.
New directors will also receive access to senior management through an orientation session to discuss
operations, current business strategies and historical information about Galway Metals.
Galway Metals will encourage and support members of the Galway Metals Board to pursue available
continuing education opportunities, including opportunities within the mineral industry and with respect to their
corporate governance responsibilities.
Ethical Business Conduct
A copy of Galway Metals’ Code of Business Conduct can be obtained by contacting Galway Metals.
Galway Metals also plans to institute a ‘whistleblower’ program whereby infractions can be reported to the Chair of
the audit committee. This policy will be distributed to employees.
Any director or executive officer that has a material interest in a transaction or agreement that is being
considered by Galway Metals is required to declare a conflict of interest and is excluded from voting and from the
decision making process with respect to that issue.
Nomination of Directors
The Galway Metals Board as a whole will review the composition of the board and its committees and
recommend changes, if appropriate, evaluate potential candidates and propose nominees.
Compensation
In determining compensation levels for directors and officers, the Galway Metals Board will assess the age,
experience and qualifications of the individuals involved and evaluate these factors in light of corporate resources,
objectives and performance.
No compensation consultant or advisor has been retained by Galway Metals to date.
Assessments
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Galway Metals will have a relatively small board of directors which will provide the opportunity for all
directors to actively interact and to become familiar with one another. Any issues with respect to effectiveness and
contribution readily become apparent in this environment and will be brought to the attention of the board by the
director concerned.
Risk Factors
An investment in the securities of Galway Metals is highly speculative and involves numerous and
significant risks. Only investors whose financial resources are sufficient to enable them to assume such risks and
who have no need for immediate liquidity in their investment should undertake such investment. Prospective
investors should carefully consider the risk factors that have affected, and which in the future are reasonably
expected to affect, Galway Metals and its financial position.
Galway Metals’ financial condition, results of operations and businesses are subject to certain risks, certain
of which are described below (and elsewhere in the Circular):
Galway Metals has no History of Operations, Earnings or Dividends
Galway Metals has not yet commenced operations and therefore has no history of earnings or of a return on
investment, and there is no assurance that the Victorio Project or any other potentially acquired mineral property
interests will generate earnings, operate profitably or provide a return on investment in the future. Galway Metals
has no plans to pay dividends. The future dividend policy of Galway Metals will be determined by the Galway
Metals Board.
No Assurance of Listing of Galway Metals Shares
The Galway Metals Shares are not currently listed on any stock exchange. Although an application has
been made to the TSX-V for listing of the Galway Metals Shares on the TSX-V, there is no assurance when, or if,
the Galway Metals Shares will be listed on the TSX-V or on any other stock exchange. Until the Galway Metals
Shares are listed on a stock exchange, shareholders of Galway Metals may not be able to sell their Galway Metals
Shares. Even if a listing is obtained, ownership of Galway Metals Shares will involve a high degree of risk.
Additional Funding Requirements
Galway Metals is reliant upon additional equity financing in order to continue its business and operations,
because it is in the business of mineral exploration and at present does not derive any income from its mineral assets.
There is no guarantee that future sources of funding will be available to Galway Metals. If Galway Metals is not able
to raise additional equity funding in the future, it will be unable to carry out its business.
Commodity Price Volatility
The price of molybdenum-tungsten and other various commodities that Galway Metals is exploring can
fluctuate drastically, and is beyond Galway Metals’ control. Galway Metals is specifically concerned with the prices
of base metals and other minerals. While Galway Metals would benefit from an increase in the value of metals and
other minerals, a decrease in the value of base metals and other minerals could also adversely affect it.
Title to Mineral Properties
Acquisition of title to mineral properties is a very detailed and time-consuming process. Title to, and the
area of, mineral properties may be disputed or impugned. Although Galway Metals has investigated its title to the
mineral properties for which it holds an option or concessions or mineral leases or licenses, there can be no
assurance that Galway Metals has valid title to such mineral properties or that its title thereto will not be challenged
or impugned. For example, mineral properties sometimes contain claims or transfer histories that examiners cannot
verify, and transfers under foreign law often are complex. Galway Metals does not carry title insurance with respect
C - 29
to its mineral properties. Accordingly, Galway Metals’ mineral properties may be subject to prior unregistered liens,
agreements, transfers or claims, including native land claims, and title may be affected by, among other things,
undetected defects. In addition, Galway Metals may be unable to operate its properties as permitted or to enforce its
rights with respect to its properties. A successful claim that Galway Metals does not have title to a mineral property
could cause Galway Metals to lose its rights to mine that property, perhaps without compensation for its prior
expenditures relating to the property. Galway holds only an option to acquire the Victorio Project, and as a result
Galway Metals may not obtain all of the permits or licences necessary to carry on proposed exploration activities
with respect to the Victorio Project.
Assignment of the Installment Sale Agreement and the Option Contract
Galway Metals does not hold title to the Victorio Project and can only assume the right to the option to
hold title through the assignment or assumption of the Installment Sale Agreement and the Option Contract from
Galway. In the case that Galway Metals is in default or fails to make the necessary payments of the Installment Sale
Agreement or the Option Contract it may lose all its interests in the Victorio Project.
It is expected that the terms of the Installment Sale Agreement and the Option Contract, upon assignment
or assumption to Galway Metals, and the terms of the Installment Sale Agreement will be renegotiated to reflect the
fact that Galway Shares will no longer be issued as payment. There can be no assurances that the new payment
terms of the Installment Sale Agreement or the Option Contract will be the same or similar to the original payment
terms.
Mineral Exploration
Mineral exploration involves a high degree of risk. Few properties that are explored are ultimately
developed into producing mines. Unusual or unexpected formations, formation pressures, fires, power outages,
labor disruptions, flooding, explosions, tailings impoundment failures, cave-ins, landslides and the inability to obtain
adequate machinery, equipment or labor are some of the risks involved in mineral exploration and exploitation
activities. Galway Metals has relied on and may continue to rely on consultants and others for mineral exploration
and exploitation expertise. Substantial expenditures are required to establish mineral reserves and mineral resources
through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of some
properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining, or to
upgrade existing infrastructure.
There can be no assurance that the funds required to exploit any mineral reserves and mineral resources
discovered by Galway Metals will be obtained on a timely basis or at all. The economics of exploiting mineral
reserves and mineral resources discovered by Galway Metals are affected by many factors, many outside the control
of Galway Metals, including the cost of operations, variations in the grade of ore mined and metals recovered, price
fluctuations in the metal markets, costs of processing equipment, and other factors such as government regulations,
including regulations relating to royalties, allowable production, importing and exporting of minerals and
environmental protection. There can be no assurance that Galway Metals’ mineral exploration and exploitation
activities will be successful.
Foreign Exchange
Galway Metals has historically conducted its financings in Canadian dollars and a significant amount of its
operating expenditures and financial commitments are denominated in U.S. dollars. Where there are fluctuations in
the United States dollar exchange rate, Galway Metals’ revenue margins may be materially affected.
Uninsurable Risks
Mineral exploration activities involve numerous risks, including unexpected or unusual geological
operating conditions, rock bursts, cave-ins, fires, floods, earthquakes and other environmental occurrences and
political and social instability. It is not always possible to obtain insurance against all such risks and Galway Metals
may decide not to insure against certain risks as a result of high premiums or other reasons. Should such liabilities
C - 30
arise, they could negatively affect Galway Metals’ profitability and financial position and the value of its common
shares. Galway Metals does not maintain insurance against environmental risks.
Environmental Regulation and Liability
Galway Metals’ activities are subject to laws and regulations controlling not only mineral exploration and
exploitation activities themselves but also the possible effects of such activities upon the environment.
Environmental legislation may change and make the mining and processing of ore uneconomic or result in
significant environmental or reclamation costs. Environmental legislation provides for restrictions and prohibitions
on spills, releases or emissions of various substances produced in association with certain mineral exploitation
activities, such as seepage from tailings disposal areas that could result in environmental pollution. A breach of
environmental legislation may result in the imposition of fines and penalties or the suspension or closure of
operations. In addition, certain types of operations require the submission of environmental impact statements and
approval thereof by government authorities. Environmental legislation is evolving in a manner that may mean
stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for companies and their directors,
officers and employees. Permits from a variety of regulatory authorities are required for many aspects of mineral
exploitation activities, including closure and reclamation. Future environmental legislation could cause additional
expense, capital expenditures, restrictions, liabilities and delays in the development of the Galway Metals’
properties, the extent of which cannot be predicted. In the context of environmental permits, including the approval
of closure and reclamation plans, Galway Metals must comply with standards and laws and regulations that may
entail costs and delays, depending on the nature of the activity to be permitted and how stringently the regulations
are implemented by the permitting authority.
Regulations and Permits
Galway Metals’ activities are subject to a wide variety of laws and regulations governing health and worker
safety, employment standards, waste disposal, protection of the environment, protection of historic and
archaeological sites, mine development and protection of endangered and protected species and other matters.
Galway Metals is required to have a wide variety of permits from governmental and regulatory authorities to carry
out its activities. These permits relate to virtually every aspect of Galway Metals’ exploration and exploitation
activities. Changes in these laws and regulations or changes in their enforcement or interpretation could result in
changes in legal requirements or in the terms of Galway Metals’ permits that could have a significant adverse impact
on Galway Metals’ existing or future operations or projects. Obtaining permits can be a complex, time-consuming
process. There can be no assurance that Galway Metals will be able to obtain the necessary permits on acceptable
terms, in a timely manner or at all. The costs and delays associated with obtaining permits and complying with
these permits and applicable laws and regulations could stop or materially delay or restrict Galway Metals from
continuing or proceeding with existing or future operations or projects. Any failure to comply with permits and
applicable laws and regulations, even if inadvertent, could result in the interruption or closure of operations or
material fines, penalties or other liabilities.
Potential Dilution
The issue of common shares of Galway Metals upon the exercise of options will dilute the ownership
interest of Galway Metals’ current shareholders. Galway Metals may also issue additional options, warrants or
additional common shares from time to time in the future. If it does so, the ownership interest of Galway Metals’
then current shareholders could also be diluted.
Legal Proceedings and Regulatory Actions
There are no legal proceedings to which Galway Metals is a party, or to which any of its properties are
subject, nor are there any such proceedings known or contemplated, that are of a material nature.
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Interests of Management and others in Material Transactions
Other than described in the Circular, none of the directors or executive officers of Galway Metals and no
associate or affiliate of the foregoing person, has, or has had, any material interests, directly or indirectly, in any
transaction or in any proposed transaction that has materially affected or will materially affect Galway Metals or any
of its subsidiaries.
Auditors, Transfer Agents and Registrars
It is anticipated that Galway Metals’ Transfer Agent and Registrar will be Computershare Investor Services
Inc., located at 100 University Avenue, 9th floor, Toronto, Ontario, M5J 2Y1.
It is anticipated that Galway Metals’ auditors will be PricewaterhouseCoopers LLP, Chartered
Accountants, located at 18 York Street, Suite 2600, Toronto, Ontario M5J 0B2.
Material Contracts
The contracts to be assigned to Galway Metals that would materially affect Galway Metals and that can
reasonably be regarded as material to a proposed investor in the Galway Metals Shares, other than contracts entered
into in the ordinary course of business are the Arrangement Agreement, the Installment Sale Agreement and the
Option Contract. See “The Arrangement Agreement” in the Circular, for a discussion of the Arrangement
Agreement and “Material Mineral Project” for a discussion of the Installment Sale Agreement and the Option
Contract.
A copy of the current form of the material contracts may be inspected at the principal business office of
Galway located at 36 Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5, during normal business hours from the
date of the Circular until the completion of the Arrangement.
Experts
Information relating to the Victorio Project in this Appendix C was prepared by Harvey P. Knudsen and
Peter H. Hahn. As at the date hereof, Harvey P. Knudsen and Peter H. Hahn beneficially owned, directly or
indirectly, less than 1% of the outstanding Galway Metals Shares.
Financial Statement Disclosure for Galway Metals
Set forth below is a summary of certain selected unaudited pro forma information with respect to Galway
Metals as at June 30, 2012 after giving effect to the proposed Arrangement. The following information should be
read in conjunction with the following financial statements:
(a)
Audited Carve-out Financial Statements for Galway Metals Inc. for the years ended December 31,
2011, 2010 and 2009 (see Schedule A);
(b)
Condensed Interim Carve-out Financial Statements for Galway Metals for the three and six
months ended June 30, 2012 (see Schedule B);
(c)
Audited Financial Statements for Galway Metals for the period from Incorporation (May 9, 2012)
to June 30, 2012 (see Schedule C); and
(d)
Pro Forma Consolidated Financial Statements for Galway Metals as at June 30, 2012 (see
Schedule D).
The pro forma adjustments are based upon available information and assumptions described in the
notes to the Galway Metals unaudited pro forma statement of financial position. The pro forma adjustments
are based upon the assumptions described in the notes to the unaudited pro forma statement of financial
position, including that the Galway Securityholders approve the Arrangement Resolution at the Meeting and
C - 32
the Arrangement is completed. The unaudited pro forma statement of financial position is presented for
illustrative purposes only and is not necessarily indicative of the financial position that would have occurred
had the Arrangement actually occurred at the times contemplated by the notes to the unaudited pro forma
statement of financial position or of the results of financial position expected in future periods or as of any
date. See “Cautionary Statement Regarding Forward-Looking Statements”.
Total assets(1) .............................................................................................................
Total liabilities...........................................................................................................
Notes:
(1)
Pro Forma Galway Metal as
at June 30, 2012
(U.S.$)
13,514,454
327,729
The exploration and evaluation and property and equipment of U.S.$1,329,184 related to the Victorio Project currently owned by
Galway include, among other things, costs incurred with respect to land and license acquisition, exploration expenses and
administrative expenses.
Galway Metals Shareholder Rights Plan
The Galway Metals Board, with the approval of Galway as Galway Metals’ sole shareholder, will adopt a
shareholder rights plan (the “Galway Metals Shareholder Rights Plan”) with Computershare Investor Services
Inc. The Galway Metals Shareholder Rights Plan will be adopted by the Galway Metals Board to protect the future
shareholders of Galway Metals from unfair, abusive or coercive take-over strategies, including the acquisition of
control of Galway Metals through a take-over bid that does not treat all shareholders equally or fairly. See attached
to this Appendix, Schedule E, “Summary of Galway Metals Shareholder Rights Plan”.
The terms of the Galway Metals Shareholder Rights Plan will require confirmation and approval by the
future shareholders of Galway Metals every three years.
The principal objectives of the Galway Metals Shareholder Rights Plan are to ensure that, in the event that
a bid for control of Galway is made pursuant to an acquisition of Galway Metals Shares, the Galway Metals Board
has sufficient time to explore and develop alternatives for maximizing shareholder value and to provide adequate
time for competing bids to be tabled. From the shareholders’ perspective, a shareholder rights plan ensures that
shareholders have enough time to properly assess the bid and ensures that shareholders have an equal opportunity to
participate in such a bid.
The Galway Metals Shareholder Rights Plan in no way prohibits a change of control of Galway Metals in a
transaction that is procedurally fair to Galway Metals shareholders. The rights of shareholders of Galway Metals to
seek a change in the Galway Metals Board or to influence or promote action of the Galway Metals Board in a
particular manner will not be affected by the Galway Metals Shareholder Rights Plan. The approval of the Galway
Metals Shareholder Rights Plan by the shareholders of Galway Metals will not alter, diminish or reduce the
fiduciary duties of the directors of Galway Metals when faced with a potential change of control transaction or
restrict the potential actions that might be taken by the directors in such circumstances.
In approving the Galway Metals Shareholder Rights Plan, the Galway Board will consider the following
concerns inherent in the existing legislative framework governing take-over bids in Canada:
1. Time. The Galway Metals Shareholder Rights Plan is intended to ensure that there is sufficient time for
shareholders to consider and respond to a take-over bid without undue pressure and for the Galway Metals
Board to explore other alternatives available to maximize shareholder value in circumstances where other
bidders may be prepared to pay more than the offeror. Canadian securities legislation (which requires that a
take-over bid remain open for 35 days) may not provide sufficient time for these purposes.
2. Unequal Treatment. While existing Canadian securities legislation has established a number of procedural
requirements for the conduct of take-over bids, which generally require that a take-over bid be made to all
shareholders and that a bidder offer identical consideration to all shareholders, the take-over bid regime
includes exemptions to the formal bid requirements that could operate to allow control of an issuer to be
C - 33
acquired without the making of a formal take-over bid to all shareholders. Specifically, Canadian securities
legislation allows a small group of securityholders to dispose of their securities pursuant to a private
agreement at a premium to market price, which premium is not shared with other securityholders. In
addition, a person may slowly accumulate securities through stock exchange acquisitions which may result,
over time, in an acquisition of control without payment of fair value for control or a fair sharing of a control
premium among all securityholders. It may also be possible to engage in transactions outside of Canada
without regard to these protections. The Galway Metals Shareholder Rights Plan addresses these concerns
by applying to all acquisitions that would result in a person owning 20% or more of the Galway Metals
Shares (subject to certain limited exceptions), thereby generally precluding a person from acquiring a
control interest in Galway Metals without making a Permitted Bid to all shareholders.
3. Pressure to Tender. Galway Metals shareholders may feel compelled to tender to a partial take-over bid
which they consider inadequate because, if they do not, they will be left holding illiquid or minority
discounted shares. This is particularly so in the case of a partial bid for less than all securities of a class,
where the bidder wishes to obtain a control position but does not wish to acquire all of the Galway Metals
Shares. The Permitted Bid provisions of the Galway Metals Shareholder Rights Plan allow shareholders to
separate the tender decision from the partial take-over bid approval decision by requiring that a partial bid
remain open for acceptance for a further 10 business days following public announcement that more than
50% of the Galway Metals Shares (other than those held by the offeror) have been tendered to the bid.
4. Terms of Plan. Based on the advice of its legal advisors, management believes that the terms of the Galway
Metals Shareholder Rights Plan conform with the current Canadian practices. Among other things, the
Galway Shareholder Rights Plan has been designed to: (i) avoid inadvertent application of the Galway
Metals Shareholder Rights Plan to the activities of portfolio managers, trust companies and other persons
where a substantial portion of the ordinary business of such person is the management of funds for
unaffiliated investors; (ii) remove the board’s discretion to take certain actions which normally would be
considered to be in accordance with its fiduciary duties (e.g. to determine whether actions by shareholders
constitute a change in control or to redeem the rights or waive the plan’s application without a shareholder
vote); (iii) permit partial bids; and (iv) contain restrictions on certain equity financings.
5. Permitted Bid Mechanism. By proposing the Galway Metals Shareholder Rights Plan, Galway Metals is not
intending to secure the continuance in office of existing directors or management or to avoid a take-over
bid for Galway Metals. A take-over bid which satisfies the Permitted Bid provisions of the Galway Metals
Shareholder Rights Plan will not trigger the Galway Shareholder Rights Plan regardless of the value of the
consideration being offered under the bid, whether or not the bid is acceptable to the Board.
6. Other Considerations. The Galway Metals Shareholder Rights Plan will not inhibit shareholders from
exercising their rights as shareholders under Galway Metals corporate statute, the NBBCA. These rights
include the right to solicit proxies to promote a change in the composition of the Galway Metals Board and
to requisition a shareholders’ meeting to transact any proper business stated in the requisition. In addition,
the Galway Metals Shareholder Rights Plan does not affect the financial condition of Galway Metals.
Finally, the issuance of rights will not change the manner in which shareholders currently trade their
Galway Metals Shares.
General Impact of the Galway Metals Shareholder Rights Plan
By implementing the Galway Metals Shareholder Rights Plan, it is not the intention of the Galway Metals
Board to secure the continuance of existing directors or management in office, nor to avoid a bid for control of
Galway Metals. The rights of shareholders to seek a change in the management of Galway Metals as per the
provisions of the NBBCA or to influence or promote action of the Galway Metals Board in a desired direction will
not be hindered by the Galway Metals Shareholder Rights Plan. The definitions of “Acquiring Person” and
“Beneficial Ownership” have been carefully worded so as to avoid the inadvertent triggering of the Galway Metals
Shareholder Rights Plan resulting from an overly broad aggregating of holdings among institutional investors and
their clients. Persons who currently own more than 20% of the Galway Metals Shares are known as “Grandfathered
Persons” under the Galway Metals Shareholder Rights Plan. Such ownership will not trigger the exercise of rights
C - 34
under the Galway Metals Shareholder Rights Plan unless such persons increase their ownership of Galway Shares
by more than one percent. Even in the context of a bid that does not meet the “Permitted Bid” criteria, the Galway
Metals Board will continue to be bound to consider fully and fairly any bid for the Galway Metals Shares in any
exercise of its discretion to waive the application of the Galway Metals Shareholder Rights Plan or redeem the
outstanding rights issued thereunder. In the circumstances of a bid, the Galway Metals Board must act honestly and
in good faith with respect to the best interests of Galway Metals and its shareholders.
The Galway Metals Shareholder Rights Plan will not interfere with the day to day operations of Galway
Metals. The issuance of the rights does not in any way alter the financial condition, impede business plans or alter
the financial statements of Galway Metals. Similarly, the Galway Metals Shareholder Rights Plan will not initially
dilute or affect the trading of the Galway Metals Shares. However, if a Flip-In Event occurs, as more fully described
in Schedule E to this Appendix and the rights separate from the Galway Metals Shares reported earnings per share
and reported cash flow per share on a fully-diluted basis may be affected. In addition, holders of rights not
exercising their rights after a Flip-In Event may suffer substantial dilution.
As of the date of this Circular, management of Galway Metals is not aware of any pending take-over bids
for the Galway Metals Shares, or of any person who intends to make a take-over bid for the Galway Metals Shares,
other than in connection with the Arrangement. The Arrangement has been structured as a “Permitted Bid” under the
Galway Metals Shareholder Rights Plan and will not trigger a Flip-In Event.
The Galway Metals Board is not aware of, nor is the Galway Metals Board seeking confirmation of the
Galway Metals Shareholder Rights Plan in anticipation of, any pending or threatened take-over bid or offer for the
Galway Metals Shares. The Galway Metals Board does not have any current intention of implementing any other
proposal having an anti-take-over effect.
In summary, the dominant effect of the Galway Metals Shareholder Rights Plan will be to enhance
shareholder value and ensure equal treatment of all shareholders in the context of an acquisition of control of
Galway Metals.
C - 35
SCHEDULE A
AUDITED CARVE-OUT FINANCIAL STATEMENTS OF GALWAY METALS INC.
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
AND
CORRESPONDING MANAGEMENT DISCUSSION ANALYSIS
(Attached)
C - 36
Galway Metals Inc.
Carve-out Financial Statements
For the Years Ended December 31, 2011, 2010 and 2009
(Expressed in United States Dollars)
Independent Auditor’s Report
To the Directors of
Galway Metals Ltd.
We have audited the accompanying carve-out financial statements of Galway Metals Inc., mineral properties owned
by Galway Resources Ltd., which comprise the carve-out statements of financial position as at December 31, 2011,
and 2010, and the carve-out statements of loss and comprehensive loss, changes in owners' net investment and
cash flows for the years ended December 31, 2011, 2010, and 2009, and the related notes, comprising a summary
of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management of Galway Resources Ltd. is responsible for the preparation and fair presentation of Galway Metals
Inc. carve-out financial statements in accordance with International Financial Reporting Standards, and for such
internal control as management determines is necessary to enable the preparation of carve-out financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on Galway Metals Inc. carve-out financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the carve-out financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the carveout financial statements. The procedures selected depend on our judgment, including the assessment of the risks
of material misstatement of the carve-out financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the carve-out
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion of the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the carve-out financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the carve-out financial statements present fairly, in all material respects, the carve-out financial
position of Galway Metals Inc. as at December 31, 2011 and 2010, and its financial performance and its cash flows
for the years ended December 31, 2011, 2010, and 2009, in accordance with International Financial Reporting
Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 to the carve-out financial statements which states that
the carve-out financial statements have been prepared on a carve-out basis and the results do not necessarily
reflect what the results of operations, financial position or cash flows would have been had the assets been a
separate entity, nor are they indicative of future results in respect of the assets, as they will exist upon completion of
the Arrangement. Note 1 also describes certain matters and conditions that include the existence of material
uncertainty that may cast significant doubt about Galway Metals Inc.'s ability to continue as a going concern.
(signed) "PricewaterhouseCoopers LLP"
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
November 16, 2012
Galway Metals Inc.
Carve-Out Statements of Financial Position
As at December 31,
2011
2010
Assets
Current assets
Prepaids and deposits
$
Non-current asset
Restricted cash
Resource property costs (Note 6)
60,000 $
125,270
980,452
-
86,781
739,152
$
1,165,722 $
825,933
$
129,535 $
-
129,535
-
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Net Investment
Owner's net investment
1,036,187
825,933
Total Net Investment
1,036,187
825,933
1,165,722 $
825,933
$
Nature of Operations and Going Concern (Note 1)
Approved by the Board
"Robert Hinchcliffe"
Director
The accompanying notes are an integral part of these carve-out financial statements.
-2-
Galway Metals Inc.
Carve-Out Statements of Loss and Comprehensive Loss
For the Years Ended December 31,
2011
Expenses
Exploration expenses (Note 7)
Administrative expenses (Note 8)
$
387,878 $
202,026
589,904
Loss and Comprehensive loss
$
(589,904) $
2010
55,338 $
60,276
115,614
(115,614) $
-3-
2009
29,274
94,508
123,782
(123,782)
Galway Metals Inc.
Carve-Out Statements of Changes in Owner's Net Investment
Owner's Net
Investment
Balance, December 31, 2008
$
Contributions
Loss and comprehensive loss
663,752
219,385
(123,782)
$
Contributions
759,355
182,192
(115,614)
825,933
Contributions
800,158
(589,904)
$
-4-
1,036,187
Galway Metals Inc.
Carve-Out Statements of Cash Flows
2011
2010
2009
(589,904) $
(115,614) $
(123,782)
Cash resources (used in) provided by:
Operating activities
Loss and comprehensive loss for the year
Changes in current assets and liabilities:
$
(60,000)
129,535
Investing activities
Resource property acquisition costs
Restricted cash
Financing activities
Owner's contributions
-
-
(520,369)
(115,614)
(123,782)
(195,300)
(38,489)
(105,067)
64,282
(64,940)
(23,581)
(233,789)
(40,785)
(88,521)
754,158
156,399
212,303
754,158
156,399
212,303
Net change in cash
-
-
-
Cash, beginning of year
-
-
-
Cash, end of year
$
-
$
-
$
$
46,000 $
-
$
-
Supplemental Cash Flow Information
Shares issued by owner for property
-5-
7,082
Galway Metals Inc.
Notes to Carve-Out Financial Statements
1.
Nature of Operations and Going Concern
Galway Metals Inc. ("Galway Metals" or the "Company") was incorporated pursuant to the Business
Corporations Act (New Brunswick) on May 9, 2012. Galway Metals' head office is located 36 Toronto Street,
Suite 1000, Toronto, Ontario, Canada, M5C 2C5. Galway Metals was incorporated for the sole purpose of
participating in the Plan of Arrangement (the “Arrangement”) announced October 19, 2012 involving Galway
Metals, Galway Gold Inc., Galway Resources Ltd. (“Galway”), AUX Acquisition 2 S.àr.l. (“AUX”) and AUX
Canada Acquisition 2 Inc., formerly, 2346407 Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of
AUX. Galway Metals has not carried on any active business other than in connection with the Arrangement
and related matters.
Under the Arrangement, AUX Canada will acquire all of the common shares of Galway not already owned by
AUX Canada and its affiliates pursuant to the Arrangement, Galway shareholders will receive for each
Galway common share: cash consideration of Cdn$2.05 per share, one common share of Galway Metals,
and one common share in a new exploration and development company, Galway Gold Inc. Under the
Arrangement, Galway will transfer to Galway Metals and Galway Metals will hold as assets a 100% interest in
Galway’s Victorio Project, being a molybdenum-tungsten exploration project located in New Mexico (the
"Victorio Project") and US$12 million in net working capital. Upon completion of the Arrangement, Galway’s
existing securityholders will own 100% of the Galway Metals shares outstanding, proportionate to their
ownership of Galway at the time the Arrangement is completed.
The Arrangement will be completed by way of statutory Plan of Arrangement under the Business
Corporations Act (Ontario). The Arrangement is subject to court approval and must be approved by Galway
shareholders and warrantholders at a special meeting expected to be held on December 17, 2012.
These carve-out financial statements have been prepared for the purposes of the Arrangement, and reflect
the assets, liabilities, operations, and cash flows of the Victorio Project derived from the accounting records
of Galway. The statements consist of statements of loss and comprehensive loss, statements of changes in
owner's net investment, statements of cash flows, and statements of financial position as if the Victorio
Mountain properties had been operating independently during the periods presented.
The statements of loss and comprehensive loss for the years ended December 31, 2011, 2010 and 2009
include exploration and evaluation expenses, direct general and administrative expenses incurred by Galway
on the Victorio Project and an allocation of Galway's general and administrative expenses incurred during
each of these periods.
Management cautions readers of these carve-out financial statements that the allocation of expenses in the
statements of loss and comprehensive loss does not necessarily reflect the nature and level of the Victorio
Project's future operating expenses.
"Resource property costs" on the statements of financial position are recorded at the historical carrying
values of the Victorio Project recognized by Galway and consists of acquisition costs incurred by Galway
since the inception of the project.
The closing of the Arrangement is subject to the receipt of all court, stock exchange and other regulatory
approvals, receipt of the requisite Galway shareholder and warrantholder approvals, no material adverse
change having occurred in Galway and other matters customary to transactions of this nature.
-6-
Galway Metals Inc.
Notes to Carve-Out Financial Statement
1.
Nature of Operations and Going Concern (continued)
Galway Metals is in the process of exploring the Victorio Mountain properties and has not yet determined
whether the mineral properties contain mineral reserves that are economically recoverable. The continuing
operations of Galway Metals and the underlying value and recoverability of the amounts shown for mineral
properties are entirely dependent upon the existence of economically recoverable mineral reserves, the ability
to obtain the necessary financing to complete the exploration and development of the mineral property
interests and on future profitable production or proceeds from the disposition of the mineral property
interests.
These carve-out financial statements have been prepared using accounting policies applicable to a going
concern. Realization values may be significantly different from carrying values as shown and these carve-out
financial statements do not give effect to adjustments that would be necessary to the carrying values and
classification of assets and liabilities and the reported expenses and balance sheet classifications should
Galway Metals be unable to continue as a going concern and these adjustments could be material.
As at December 31, 2011, 2010, and 2009, Galway Metals had no source of operating cash flows and had
not yet achieved profitable operations, and accumulated losses since inception and expect to incur further
losses in the development of of the mineral property, all of which casts significant doubt about their ability to
continue as a going concern. Galway Metals' ability to continue as a going concern is dependent upon the
ability to generate future profitable operations and/or to obtain the necessary financing to meet obligations
and repay liabilities arising from normal business operations when they come due.
2.
Basis of Presentation
The carve-out financial statements have been prepared in accordance with Canadian generally accepted
accounting principles as defined in Part I of the Handbook of the Canadian Institute of Chartered Accountants
("CICA Handbook") which are in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). The carve-out financial statements have
been prepared in compliance with IFRS and have been prepared in accordance with a financial reporting
framework specified in subsection 3.11 (6) of National Instrument 52-107 Acceptable Accounting Principles
and Auditing Standards for carve-out financial statements.
The carve-out financial statements are presented in United States dollars, Galway Metals' functional currency
and have been prepared on a historical cost basis.
The carve-out financial statements were authorized for issue by the Board of Directors on November 16,
2012.
3.
Summary of Significant Accounting Policies
[a] Carve-out Financial Statements
The carve-out financial statements presented herein have been extracted from the books and records of
the Galway. Certain financial statement items were maintained by the Company on a combined basis,
rather than on a property-by-property basis and accordingly, it was necessary to make allocations of
amounts reported in the financial statements of the Company in order to prepare these carve-out financial
statements. The allocations that were made include:
i.
Certain administrative expenses and payments were allocated based on the ratio of mineral
exploration expenditures on the Victorio Mountain properties to the total mineral exploration
expenditures by Galway.
-7-
Galway Metals Inc.
3.
Summary of Significant Accounting Policies (Continued)
[a] Carve-out Financial Statements (Continued)
ii.
As the determination of certain assets, liabilities, and expenses is dependent upon future events,
the preparation of these carve-out financial statements requires the use of estimates and
assumptions which have been made using careful judgment. In the opinion of management,
these carve-out financial statements have been properly prepared within reasonable limits of
materiality and within the framework of the significant accounting policies summarized as follows.
[b] Exploration and Evaluation Expenditures
The Company is in the exploration stage with respect to its investment in resource property costs and
follows the practice of capitalizing significant property acquisition payments for active exploration properties.
The Company expenses any other exploration and evaluation expenditures as incurred. Such expenditures
include, but are not exclusive to, geological, geophysical studies, exploratory drilling and sampling. The
aggregate costs related to abandoned mineral properties are charged to operations at the time of any
abandonment or when it has been determined that there is evidence of a permanent impairment. An
impairment charge relating to a mineral property is subsequently reversed when new exploration results or
actual or potential proceeds on sale or farmout of the property result in a revised estimate of the recoverable
amount but only to the extent that this does not exceed the original carrying value of the property that would
have resulted if no impairment had been recognized.
Resource property costs are capitalized. These costs are not depleted and are carried forward until
technical feasibility and commercial viability of extracting the resource is considered to be determined. The
technical feasibility and commercial viability is considered to occur when proven and/or probable reserves
are determined to exist.
Resource property costs are monitored for indications of impairment. Where a potential impairment is
indicated, assessments are performed for each area of interest. To the extent that exploration expenditure is
not expected to be recovered, its carrying amount is charged to the income statement. Exploration areas
where reserves have been discovered, but require major capital expenditure before production can begin,
are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional
exploration work is underway as planned.
[c] Financial Instruments
Financial assets:
All financial assets are recognized and derecognized on the trade date where the purchase or sale of a
financial asset is under a contract whose terms require delivery of the financial asset within the time frame
established by the market concerned, and are initially measured at fair value, plus transaction costs.
Financial assets are designated as ‘loans and receivables‘. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.
Financial liabilities:
Financial liabilities are designated as ‘other financial liabilities’.
-8-
Galway Metals Inc.
3.
[c] Financial Instruments (Continued)
Other financial liabilities:
Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method,
with interest recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest costs over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability or, where appropriate, to
the net carrying amount on initial recognition.
De-recognition of financial liabilities:
The Company derecognizes financial liabilities when the obligations are discharged, cancelled or expire.
The Company’s financial instruments consist of the following:
Financial assets:
Classification:
Restricted cash
Loans and receivables
Classification:
Other financial liabilities
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial
assets are impaired when there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial assets, the estimated future cash flows of the investments have
been negatively impacted. Evidence of impairment could include: significant financial difficulty of the issuer
or counterparty; or default or delinquency in interest or principal payments; or the likelihood that the
borrower will enter bankruptcy or financial reorganization.
The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets
with the exception of accounts or loan receivable, where the carrying amount is reduced through the use of
an allowance account. When an accounts or loan receivable is considered uncollectible, it is written off
against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognized on the
statement of loss and comprehensive income (loss).
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized impairment
loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortized cost would have been had the impairment not
been recognized.
-9-
Galway Metals Inc.
3.
[d] Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets
with finite lives to determine whether there is any indication that those assets have suffered an impairment
loss. Where such an indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss. The recoverable amount is the higher of an asset’s fair value
less cost to sell or its value in use. In addition, long-lived assets that are not amortized are subject to an
annual impairment assessment. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash-generating units). The Company
has identified Victorio Mountain Project as a cash-generating unit.
[e] Provisions
A provision is recognized when the Company has a present legal or constructive obligation as a result of a
past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and
the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
[f] Restoration, rehabilitation and environmental obligations
A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when
environmental disturbance is caused by the exploration, development or ongoing production of a mineral
property interest. Such costs arising from the decommissioning of plant and other site preparation work,
discounted to their net present value, are provided for and capitalized at the start of each project to the
carrying amount of the asset, as soon as the obligation to incur such costs arises. Discount rates using a
pretax rate that reflects the time value of money are used to calculate the net present value. These costs
are charged against profit or loss over the economic life of the related asset, through amortization using
either a unit-of-production or the straight-line method as appropriate. The related liability is adjusted for each
period for the unwinding of the discount rate and for changes to the current market based discount rate,
amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of
subsequent site damage that is created on an ongoing basis during production are provided for at their net
present values and charged against profits as extraction progresses.
At this stage of its exploration activities, the Company has no restoration, rehabilitation and environmental
costs as the disturbance to date is minimal.
[g] Income taxes
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is
recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which
case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous
years.
- 10 -
Galway Metals Inc.
3.
[g] Income taxes (Continued)
Deferred tax is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for
tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.
The amount of deferred tax provided is based on the expected manner of realization or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial
position reporting date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilized.
[i] Significant accounting judgments and estimates
The preparation of these carve-out financial statements requires management to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting period. Actual outcomes could
differ from these estimates. These carve-out financial statements include estimates that, by their nature, are
uncertain. The impacts of such estimates are pervasive throughout the carve-out financial statements, and
may require accounting adjustments based on future occurrences. Revisions to accounting estimates are
recognized in the period in which the estimate is revised and future periods if the revision affects both
current and future periods. These estimates are based on historical experience, current and future
economic conditions and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Critical accounting estimates
Significant assumptions about the future that management has made that could result in a material
adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from
assumptions made, relate to, but are not limited to, the following:
Impairment of assets
When there are indications that an asset may be impaired, the Company is required to estimate the asset’s
recoverable amount. Recoverable amount is the greater of value in use and fair value less costs to sell. No
impairment indicators of non-financial assets have been noted for the years ended December 31, 2009, 2010
and 2011.
Restoration, rehabilitation and environmental obligations
Management determined there were no material restoration, rehabilitation and environmental obligations,
based on the facts and circumstances that existed in the current and prior years and would trigger
recognition of the provision in accordance with IAS 37, "Provisions".
Critical accounting judgments
Income taxes and recovery of deferred tax assets
The measurement of income taxes payable and deferred income tax assets and liabilities requires
management to make judgments in the interpretation and application of the relevant tax laws. The actual
amount of income taxes only becomes final upon filing and acceptance of the tax return by the relevant
authorities, which occurs subsequent to the issuance of the financial statements.
- 11 -
Galway Metals Inc.
3.
[j] Recent accounting pronouncements
Certain pronouncements were issued by the IASB or the International Financial Reporting Interpretations
Committee ("IFRIC") that are mandatory for accounting periods after January 1, 2013. Many are not
applicable or do not have a significant impact to Galway Metals and have been excluded. The following
have not yet been adopted and are being evaluated to determine their impact on Galway Metals.
IFRS 9 Financial instruments (“IFRS 9”)
IFRS 9 was issued by the IASB in October 2010 and will replace IAS 39 Financial Instruments: Recognition
and Measurement [“IAS 39”]. IFRS 9 uses a single approach to determine whether a financial asset is
measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is
based on how an entity manages its financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new
standard also requires a single impairment method to be used, replacing the multiple impairment methods
in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company is
currently evaluating the impact of this standard on its financial statements.
IFRS 13, Fair Value Measurement ("IFRS 13")
IFRS 13, Fair Value Measurement was issued by the IASB on May 12, 2011. The new standard converges
IFRS and US GAAP on how to measure fair value and the related fair value disclosures. The new standard
creates a single source of guidance for fair value measurements, where fair value is required or permitted
under IFRS, by not changing how fair value is used but how it is measured. The focus will be on an exit price.
IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted.
The Company is assessing the impact of IFRS 13 on its financial statements.
4.
Capital Management
Galway manages its capital with the following objectives:
!
!
to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding
of future growth opportunities, and pursuit of accretive acquisitions; and
to maximize the owner's return on investment.
Galway monitors its capital structure and makes adjustments according to market conditions in an effort to
meet its objectives given the current outlook of the business and industry in general. The Company may
manage its capital structure by adjusting capital spending or disposing of assets. The capital structure is
reviewed by Management and the Board of Directors on an ongoing basis.
Galway considers its capital to be owner's net investment which at December 31, 2011, and 2010 was
$1,036,187 and $825,933, respectively. Galway manages capital through its financial and operational
forecasting processes. Galway reviews its working capital and forecasts its future cash flows based on
operating expenditures, and other investing and financing activities. The forecast is updated based on
activities related to its mineral properties. Selected information is provided to the Board of Directors of
Galway. Galway’s capital management objectives, policies and processes have remained unchanged during
the years ended December 31, 2010 and 2011.
Galway is not subject to any externally imposed capital requirements.
- 12 -
Galway Metals Inc.
5.
Property and Financial Risk Factors
(a) Property Risk
Galway's significant mineral properties are the Victorio Mountain property. Unless the Company acquires or
develops additional significant properties, Galway will be solely dependent upon the Victorio Mountain
property. If no additional mineral properties are acquired by Galway, any adverse development affecting the
Victorio Mountain property would have a material adverse effect on Galway’s financial condition and results of
operations.
(b) Financial Risk
Galway’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk (including
interest rate, and commodity and equity price risk).
Risk management is carried out by Galway's management team with guidance from the Audit Committee
under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for
overall risk management.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations.
Galway's maximum exposure to credit risk is primarily attributable to restricted cash. Galway has no
significant concentration of credit risk arising from operations. The restricted cash has been invested and
held with reputable financial institutions, from which management believes the risk of loss to be remote.
Liquidity Risk
Galway's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities
when due. As at December 31, 2011 and 2010, Galway had cash of $Nil, to settle current liabilities of
$98,899 and $nil, respectively. Galway's liquidity is dependent upon successful completion of the
Arrangement described in note 1. All of Galway's financial liabilities have contractual maturities of less than
30 days and are subject to normal trade terms.
Market Risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign
currency and commodity and equity prices.
(i) Interest rate risk
At December 31, 2011 and 2010, Galway has only restricted cash balances and no interest-bearing debt and
was not exposed to interest rate risk. Galway's current policy is to invest excess cash in investment-grade
short-term deposit certificates issued by its Canadian chartered banks. Galway regularly monitors its cash
management policy.
(ii) Foreign currency risk
Galway does not have any significant assets in a currency other than the functional currency of Galway, nor
has significant foreign currency denominated liabilities, therefore any changes in foreign exchange rates will
not give rise to significant changes to the net loss.
- 13 -
Galway Metals Inc.
5.
Property and Financial Risk Factors (Continued)
(b) Financial Risk (Continued)
(iii) Commodity and equity price risk
Commodity price risk could adversely affect Galway. In particular, Galway’s future profitability and viability of
development depends upon the world market price of gold, coal, tungsten and molybdenum. These metal
prices have fluctuated significantly in recent years. There is no assurance that, even as commercial quantities
of these metals may be produced in the future, a profitable market will exist for them. As of December 31,
2011, Galway was not a producing entity. As a result, commodity price risk may affect the completion of
future equity transactions such as equity offerings and owner's contributions. This may also affect Galway's
liquidity and its ability to meet its ongoing obligations.
6.
Resource Property Costs
Cumulative acquisition costs:
Victorio Mountain
Additions
$
634,085
105,067
Additions
$
739,152
241,300
$
980,452
As part of the Agreement, Galway's 100% interest in the Victorio Project will be transferred to Galway Metals,
and Galway Metals will be assuming two Galway agreements with regard to the Victorio Mountain
Molybdenum - Tungsten Project in New Mexico. Galway Metals will be committed to continue the payment
obligations under these agreements, as renegotiated to reflect the fact that Galway shares will no longer be
issued as payment. The outstanding payment obligations under the original agreements are set out below:
On April 6, 2006, Galway through its wholly owned subsidiary Nyak Resources, Inc., entered into an
installment sale agreement with Donegan Resources Inc., to acquire an undivided 100% right, title and
interest in and to certain mining claims in the Victorio Project. The agreement was amended in March 2009
and again in May 2011. Pursuant to the amended agreement, Galway was to acquire its interest in the
Victorio Project by paying an aggregate of $2,150,000 as follows:
·
·
·
·
·
·
·
·
·
payment of $50,000 on the closing date, not later than June 1, 2006 (paid);
payment of $100,000 on June 1, 2007 (paid);
payment of $200,000 on June 1, 2011(paid) and 50,000 shares (issued);
payment of $300,000 on June 1, 2012(paid) and 50, 000 common shares(issued);
payment of $500,000 on June 1, 2013 and 50,000 common shares; and
payment of $600,000 on June 1, 2014 and 50,000 common shares;
The property will be subject to a net smelter royalty of 2%. In addition, Donegan Resources Inc. will be
entitled to receive a 1% net smelter royalty ("NSR") on any additional properties acquired within the vicinity of
the Victorio Project. This NSR will be reduced to 0.5% royalty on any properties that are subject to an existing
royalty in excess of 0.5%.
- 14 -
Galway Metals Inc.
6.
Resource Property Costs (Continued)
On June 1, 2006, Galway entered into an option agreement with Hallelujuah Resources LLC, South Branch
Resources LLC and MRP Geo Company LLC, collectively the “sellers” to acquire an undivided 100% right,
title and interest in and to 51 additional mining claims of the Victorio Project. For purposes of the agreement,
nine of the acquired claims were deemed to be primary claims, and forty two were deemed to be secondary
claims. Pursuant to the agreement, Galway was to acquire its interest in these mining claims by paying an
aggregate of $135,000 and issuing 400,000 shares as follows:
·
·
·
·
·
·
·
payment of $15,000 and issuing 50,000 shares on the closing date (paid and issued at a fair value
Cdn$1.00);
payment of $25,000 and issuing 50,000 shares on July 15, 2007 (paid and issued at a fair value
Cdn$1.45);
Cdn$0.49);
payment of $15,000 and issuing 50,000 shares on July 15, 2009; (paid and issued at a fair value
Cdn$0.165);
payment of $20,000 without issuance of shares on July 15, 2010 (paid);
payment of $20,000 without issuance of shares on July 15, 2011 (paid); and
issuing 200,000 shares upon the commencement of commercial production.
of
of
of
of
On completion of these payments, Galway Metals will own an undivided 100% right, interest and title in these
Victorio Project claims, subject to a NSR of 1% on all primary mining claims excluding the primary mining
claim VIC 41 (the “Primary Royalty”). Galway is entitled to purchase 100% of the Primary Royalty for
$500,000, payable as to 50% on completion of a bankable feasibility study and 50% no later than the end of
the first full year of commercial production from the primary mining claims.
In addition, there is an NSR of 3% on all secondary mining claims including primary mining claim VIC 41 (the
“Secondary Royalty”). Galway Metals is entitled to buy the Secondary Royalty down to 2% for $1,500,000,
payable as to 50% on completion of a bankable feasibility study and 50% no later than the end of the first full
year of commercial production from the secondary mining claims.
7.
Exploration Expenses
2011
Geological expense (recovery)
Drilling
Mineral property fees
Other
$
Total
$
- 15 -
2010
188,423 $
132,590
61,713
5,152
$
55,329
9
387,878
55,338
$
2009
(30,000)
10,285
48,558
431
$
29,274
Galway Metals Inc.
8.
Administrative Expenses
2011
Salaries and benefits
Office and general
Professional fees
Travel
$
Total
9.
$
2010
71,239 $
68,408
48,116
14,263
202,026
2009
48,000 $
12,276
$
60,276
79,317
15,191
$
94,508
RELATED PARTY TRANSACTIONS
Remuneration of directors and key management personnel included in administrative expenses for the
years ended December 31, 2011, 2010 and 2009 are $53,204, $48,000 and $42,667, respectively.
The above transactions, occurring in the normal course of operations, are measured at the amount of
consideration established and agreed to by the related parties.
- 16 -
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SCHEDULE B
CONDENSED INTERIM CARVE-OUT FINANCIAL STATEMENTS FOR GALWAY METALS INC.
FOR THE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2012
AND
CORRESPONDING MANAGEMENT DISCUSSION ANALYSIS
(Attached)
C - 37
Galway Metals Inc.
Condensed Interim Carve-out Financial Statements
Three and Six Months Ended June 30, 2012
(Unaudited)
Galway Metals Inc.
Condensed Interim Carve-out Statements of Financial Position
(Unaudited)
June 30,
2012
As at
December 31,
2011
Assets
Current assets
$
Non-current asset
Restricted cash
60,000
$
125,270
1,329,184
60,000
125,270
980,452
$
1,514,454
$
1,165,722
$
327,729
$
129,535
Liabilities
Current liabilities
Accounts payable and accrued liablities
Net Investment
1,186,725
1,036,187
1,186,725
1,036,187
$
1,514,454
$
1,165,722
Director
The accompanying notes are an integral part of these condensed interim carve-out financial statements.
-1-
Galway Metals Inc.
Condensed Interim Carve-out Statements of Loss and Comprehensive Loss
(Unaudited)
Three Months Ended
June 30,
2012
2011
Expenses
$
$
Six Months Ended
June 30,
2012
2011
669,630 $
181,703
24,000 $
32,404
1,368,116 $
417,106
25,054
46,516
851,333
56,404
1,785,222
71,570
(851,333) $
(56,404) $
(1,785,222) $
-2-
(71,570)
Galway Metals Inc.
Condensed Interim Carve-Out Statements of Changes in Owner's Net Investment
(Unaudited)
Total
Balance, January 1, 2011
Contributions
$
Balance, June 30, 2011
$
864,422
330,737
(71,570)
1,123,589
Total
Contributions
$
1,036,187
1,935,760
(1,785,222)
$
1,186,725
-3-
Galway Metals Inc.
Condensed Interim Carve-Out Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
2012
2011
Loss and comprehensive loss for the period
$
(1,785,222) $
198,194
(71,570)
-
(1,587,028)
(71,570)
(300,000)
(196,785)
(300,000)
(196,785)
1,887,028
268,355
1,887,028
268,355
Net change in cash
-
-
Cash, beginning of period
-
-
Cash, end of period
$
-
$
$
48,732 $
-
Supplementary Cash Flow Information
Shares issued by owner for property
-4-
62,382
Galway Metals Inc.
Notes to Condensed Interim Carve-out Financial Statements
June 30, 2012
(Unaudited)
1.
Galway Metals Inc. ("Galway Metals" or "the Company") was incorporated pursuant to the Business
Corporations Act (New Brunswick) on May 9, 2012. Galway Metals' head office is located 36 Toronto Street,
Suite 1000, Toronto, Ontario, Canada, M5C 2C5. Galway Metals was incorporated for the sole purpose of
participating in the Plan of Arrangement (the “Arrangement”) announced October 19, 2012 involving Galway
Metals, Galway Gold Inc., Galway Resources Ltd. (“Galway”), AUX Acquisition 2 S.àr.l. (“AUX”) and AUX
Canada Acquisition 2 Inc., formerly 2346407 Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of AUX.
Galway Metals has not carried on any active business other than in connection with the Arrangement and
related matters.
AUX Canada and its affiliates and pursuant to the Arrangement, Galway shareholders will receive for each
Galway common share: cash consideration of Cdn$2.05 per share, one common share of Galway Metals,
Arrangement, Galway will transfer to Galway Metals and Galway Metals will hold indirectly as assets a 100%
interest in Galway’s victorio project, being a molybdenum-tungsten exploration project located in New Mexico
(the "Victorio Project") and US$12 million in net working capital. Upon completion of the Arrangement,
Galway’s existing securityholders will own 100% of the Galway Metals shares outstanding, proportionate to
their ownership of Galway at the time the Arrangement is completed.
the assets, liabilities, operations, and cash flows of the Victorio Project derived from the accounting records
of Galway. The statements consist of statements of loss and comprehensive loss, statements of changes in
owner's net investment, statements of cash flows, and statements of financial position as if the Victorio
Mountain properties had been operating independently during the periods presented.
The condensed interim statements of loss and comprehensive loss for the three and six months ended June
30, 2012 and 2011 include exploration and evaluation expenses, and direct general and administrative
expenses incurred by Galway on the Victorio Project and an allocation of Galway's general and administrative
expenses incurred during each of these periods.
Management cautions readers of these condensed interim carve-out financial statements that the allocation
of expenses in the statements of loss and comprehensive loss does not necessarily reflect the nature and
level of the Victorio Mountain properties' future operating expenses.
The Company's investment in the Victorio Project, which is presented as "Resource property costs" on the
statements of financial position is recorded at the historical carrying values recognized by Galway and
consists of acquisition costs incurred by Galway since the inception of the project.
-5-
Galway Metals Inc.
June 30, 2012
(Unaudited)
1.
Galway Metals is in the process of exploring the Victorio Mountain properties and has not yet determined
whether the mineral properties contain mineral reserves that are economically recoverable. The continuing
operations of Galway Metals and the underlying value and recoverability of the amounts shown for mineral
properties are entirely dependent upon the existence of economically recoverable mineral reserves, the ability
to obtain the necessary financing to complete the exploration and development of the mineral property
interests and on future profitable production or proceeds from the disposition of the mineral property
interests.
These interim carve-out financial statements have been prepared using accounting policies applicable to a
going concern. Realization values may be significantly different from carrying values as shown and these
interim carve-out financial statements do not give effect to adjustments that would be necessary to the
carrying values and classification of assets and liabilities and the reported expenses and balance sheet
classifications should Galway Metals be unable to continue as a going concern and these adjustments could
be material.
As at June 30, 2012 and December 31, 2011, Galway Metals had no source of operating cash flows and had
continue as a going concern. Galway Metals's ability to continue as a going concern is dependent upon the
2.
These condensed interim carve-out financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements including
International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the
information required for full annual financial statements required by IFRS as issued by International
Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC") and have been prepared in accordance with the financial reporting
These condensed interim carve-out financial statements should be read in conjunction with the annual carveout financial statements for the year ended December 31, 2011.
There are no relevant changes in accounting standards applicable to future periods other than as disclosed in
the most recent annual carve-out financial statements as at and for the year ended December 31, 2011.
These condensed interim carve-out financial statements were approved by the Board of Directors on
November 16, 2012
-6-
Galway Metals Inc.
June 30, 2012
(Unaudited)
3.
amounts reported in the financial statements of the Company in order to prepare these condensed interim
carve-out financial statements. The allocations that were made include:
i.
exploration expenditures on the Victorio Project to the total mineral exploration expenditures by
Galway.
ii.
the preparation of these condensed interim carve-out financial statements requires the use of
estimates and assumptions which have been made using careful judgment. In the opinion of
management, these condensed interim carve-out financial statements have been properly
prepared within reasonable limits of materiality and within the framework of the significant
accounting policies summarized in the annual carve-out financial statements as at and for the
year ended December 31, 2011.
[b] Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year.
[c] Significant accounting judgments and estimates
The preparation of these condensed interim carve-out financial statements requires management to make
certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of expenses during the reporting period. Actual
outcomes could differ from these estimates. These condensed interim carve-out financial statements
include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive
throughout the condensed interim carve-out financial statements, and may require accounting adjustments
based on future occurrences. Revisions to accounting estimates are recognized in the period in which the
estimate is revised and future periods if the revision affects both current and future periods. These
estimates are based on historical experience, current and future economic conditions and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
In preparing these condensed interim carve-out financial statements, the significant judgments made by
management in applying the Company's accounting policies and the key sources of estimation uncertainty
were the same as those which applied to the annual carve-out financial statements for the year ended
December 31, 2011.
-7-
Galway Metals Inc.
June 30, 2012
(Unaudited)
4.
Victorio Mountain
Additions
$
739,152
196,785
$
935,937
Additions
$
980,452
348,732
$
1,329,184
As part of the Agreement, Galway's 100% interest in the Victorio Project will be transferred to Galway Metals
and Galway Metals will be assuming two Galway agreements with regard to the Victorio Mountain
Molybdenum - Tungsten Project in New Mexico. Galway Metals will be committed to continue the payment
obligations under these agreements, as renegotiated to reflect the fact that Galway shares will no longer be
issued as payment. The outstanding payment obligations under the original agreements are set out below:
On April 6, 2006, Galway through its wholly owned subsidiary Nyak Resources, Inc., entered into an
installment sale agreement with Donegan Resources Inc., to acquire an undivided 100% right, title and
interest in and to certain mining claims in the Victorio Mountain Project. The agreement was amended in
March 2009 and again in May 2011. Pursuant to the amended agreement, Galway was to acquire its interest
in the Victorio Project by paying an aggregate of $2,150,000 as follows:
·
·
·
·
·
·
·
·
·
payment of $50,000 on the closing date, not later than June 1, 2006 (paid);
payment of $200,000 on June 1, 2011(paid) and 50,000 shares (issued);
payment of $300,000(paid) on June 1, 2012 and 50,000 common shares(issued);
payment of $500,000 on June 1, 2013 and 50,000 common shares; and
payment of $600,000 on June 1, 2014 and 50,000 common shares;
The property will be subject to a net smelter royalty of 2%. In addition, Donegan Resources Inc. will be
entitled to receive a 1% net smelter royalty ("NSR") on any additional properties acquired within the vicinity of
the Victorio Project. This NSR will be reduced to 0.5% royalty on any properties that are subject to an existing
royalty in excess of 0.5%.
On June 1, 2006, Galway entered into an option agreement with Hallelujuah Resources LLC, South Branch
Resources LLC and MRP Geo Company LLC, collectively the “sellers” to acquire an undivided 100% right,
title and interest in and to 51 additional mining claims of the Victorio Project. For purposes of the agreement,
nine of the acquired claims were deemed to be primary claims, and forty two were deemed to be secondary
claims.
-8-
Galway Metals Inc.
June 30, 2012
(Unaudited)
4.
Resource Property Costs (Continued)
Pursuant to the agreement, Galway was to acquire its interest in these mining claims by paying an aggregate
of $135,000 and issuing 400,000 shares as follows:
·
·
·
·
·
·
·
payment of $15,000 and issuing 50,000 shares on the closing date (paid and issued at a fair value
Cdn$1.00);
Cdn$1.45);
Cdn$0.49);
payment of $15,000 and issuing 50,000 shares on July 15, 2009; (paid and issued at a fair value
Cdn$0.165);
payment of $20,000 without issuance of shares on July 15, 2010 (paid);
payment of $20,000 without issuance of shares on July 15, 2011 (paid); and
issuing 200,000 shares upon the commencement of commercial production.
of
of
of
of
On completion of these payments, Galway Metals will own an undivided 100% right, interest and title in these
Victorio Project claims, subject to a NSR of 1% on all primary mining claims excluding the primary mining
claim VIC 41 (the “Primary Royalty”). The Company is entitled to purchase 100% of the Primary Royalty for
$500,000, payable as to 50% on completion of a bankable feasibility study and 50% no later than the end of
the first full year of commercial production from the primary mining claims.
In addition, there is an NSR of 3% on all secondary mining claims including primary mining claim VIC 41 (the
“Secondary Royalty”). Galway Metals is entitled to buy the Secondary Royalty down to 2% for $1,500,000,
payable as to 50% on completion of a bankable feasibility study and 50% no later than the end of the first full
year of commercial production from the secondary mining claims.
5.
Three Months Ended
June 30,
2012
2011
Six Months Ended
June 30,
2012
2011
Drilling
Geological
Assaying
Other
$
457,100 $
157,044
52,416
3,070
$
22,073
1,927
985,472 $
287,786
88,161
6,697
23,085
42
1,927
Total
$
669,630 $
24,000 $
1,368,116 $
25,054
-9-
Galway Metals Inc.
June 30, 2012
(Unaudited)
6.
Three Months Ended
June 30,
2012
2011
7.
Travel
Office and general
Professional fees
$
Total
$
76,197 $
63,767
41,739
181,703 $
-
Six Months Ended
June 30,
2012
2011
150,825 $
128,170
95,113
42,998
-
5,849
14,555
12,000
$
32,404 $
417,106 $
46,516
7,936
26,555
12,025
Remuneration of directors and key management personnel included in administrative expenses are as
follows:
Three Months Ended
June 30,
2012
2011
$
28,177 $
12,000 $
Six Months Ended
June 30,
2012
2011
56,177 $
24,000
- 10 -
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SCHEDULE C
AUDITED FINANCIAL STATEMENTS FOR GALWAY METALS INC.
FOR THE PERIOD FROM INCORPORATION (MAY 9, 2012) TO JUNE 30, 2012
AND
CORRESPONDING MANAGEMENT DISCUSSION AND ANALYSIS
(Attached)
C - 38
Galway Metals Inc.
Financial Statements
For the Period from Incorporation (May 9, 2012) to June 30, 2012
To the Directors of
Galway Metals Inc.
We have audited the accompanying financial statements of Galway Metals Inc., which comprise the statements of
financial position as at June 30, 2012 and May 9, 2012, and the statements of loss and comprehensive loss,
changes in shareholder's equity and cash flows for the period from incorporation (May 9, 2012) to June 30, 2012,
and the related notes, comprising a summary of significant accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
Our responsibility is to express an opinion on Galway Metals Inc. financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Galway Metals
Inc. as at June 30, 2012 and May 9, 2012, and its financial performance and its cash flows for the period from
incorporation (May 9, 2012) to June 30, 2012.
Toronto, Canada
November 16, 2012
Galway Metals Inc.
Statement of Financial Position
June 30,
2012
As at
May 9,
2012
Asset
Cash
$ 1
$ 1
$ 1
$ 1
Shareholder's Equity
Share capital (Note 3)
Director
The accompanying notes are an integral part of these financial statements
-2-
Galway Metals Inc.
Statement of Loss and Comprehensive Loss
For the period from incorporation (May 9, 2012) to June 30, 2012
Expenses
Exploration costs
Administrative expenses
$
-
$
-3-
-
Galway Metals Inc.
Statements of Changes in Shareholder's Equity
Share
Capital
Share issued on incorporation, May 9, 2012
$
$
Accumulated
Deficit
1
$
1
$
-
$
-
$
-4-
Total
1
1
Galway Metals Inc.
Statement of Cash Flows
Cash (used in) provided by:
Proceeds on issuance of share capital
$
1
Net change in cash
1
-
Cash, end of period
$
-5-
1
Galway Metals Inc.
Notes to Financial Statements
June 30, 2012
1.
Galway Metals Inc. was incorporated pursuant to the Business Corporations Act (New Brunswick) on May 9,
2012. Galway Metals's head office is located 36 Toronto Street, Suite 1000, Toronto, Ontario, Canada, M5C
2C5. Galway Metals was incorporated for the sole purpose of participating in the Plan of Arrangement (the
“Arrangement”) announced October 19, 2012 involving Galway Metals, Galway Gold Inc., Galway Resources
Ltd. (“Galway”), AUX Acquisition 2 S.àr.l. (“AUX”) and AUX Canada Acquisition 2 Inc., formerly 2346407
Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of AUX. Galway Metals has not carried on any active
business other than in connection with the Arrangement and related matters.
AUX Canada and its affiliates pursuant to the Arrangement, Galway shareholders will receive for each
Galway common share: cash consideration of Cdn$2.05 per share, one common share in Galway Metals,
Arrangement, Galway will transfer to Galway Metals and Galway Metals will hold as assets a 100% interest in
Galway’s Victorio Project, being a molybdenum-tungsten exploration project located in New Mexico and
approximately US$12 million in net working capital. Upon completion of the Arrangement, Galway’s existing
securityholders will own 100% of the Galway Metals shares outstanding, proportionate to their ownership of
Galway at the time the Arrangement is completed.
The transaction will be completed by way of statutory Plan of Arrangement ("Arrangement") under the
Business Corporations Act (Ontario). The Arrangement is subject to court approval and must be approved by
Galway shareholders and warrantholders at a special meeting expected to be held on December 17, 2012.
2.
Statement of Compliance
These financial statements have been prepared in accordance with Canadian generally accepted accounting
principles as defined in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants ("CICA
Handbook") which are in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The financial statements have been prepared in
compliance with IFRS.
The financial statements are presented in United States dollars, Galway Metal's functional currency and have
been prepared on a historical cost basis.
The financial statements were authorized for issue by the Board of Directors on November 16, 2012.
3.
Share Capital
Share capital:
Authorized:
Issued:
Unlimited number of common shares
1 common share
-6-
$1
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SCHEDULE D
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR GALWAY METALS INC.
AS AT JUNE 30, 2012
(Attached)
C - 39
Galway Metals Inc.
Pro Forma Consolidated Financial Statements
June 30, 2012
(Unaudited)
Galway Metals Inc.
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30, 2012
(EXPRESSED IN UNITED STATES DOLLARS)
(UNAUDITED)
Balance as at
June 30, 2012
Assets
Current assets
Cash
$
Prepaid expenses
1
Interim
Carve-out
$
-
1
Non-current assets
Restricted cash
Resource property costs
$
Liabilities
Current liabilities
Accounts payable
and accrued liabilities
$
Shareholders' Equity (Note 3)
$
1
-
1
60,000
60,000
11,999,999
1,514,454
$
$
327,729
$
1,186,725
1,514,454
$
12,060,000
$
125,270
1,329,184
11,999,999
11,999,999
11,999,999
12,000,000
60,000
-
$
$
Pro Forma as at
June 30, 2012
11,999,999 2(a)
2(f)
-
125,270
1,329,184
1
$
Pro Forma
Adjustments
$
13,514,454
$
327,729
13,186,725
2(b-g)
$
13,514,454
The accompanying notes are an integral part of these pro forma consolidated financial statements.
-1-
Galway Metals Inc.
PRO FORMA CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
Galway
Metals Inc.
Expenses
Exploration expenses
Administrative expense
Interim
Carve-out
Pro Forma
Adjustments
Pro Forma for the
Six Months Ended
June 30, 2012
$
-
$
1,368,116
417,106
$
-
$
1,368,116
417,106
Loss and comprehensive
loss for the period
$
-
$
(1,785,222)
$
-
$
(1,785,222)
Loss per share
$
-
$
(0.01)
Weighted average
shares outstanding
1
139,064,981
-2-
Galway Metals Inc.
FOR THE YEAR ENDED DECEMBER 31, 2011
(UNAUDITED)
Galway
Metals Inc.
Expenses
Administrative expense
Audited
Carve-out
Pro Forma
Adjustments
Pro Forma for the
Year Ended
December 31, 2011
$
-
$
387,878
202,026
$
-
$
387,878
202,026
Loss and comprehensive
loss for the year
$
-
$
(589,904)
$
-
$
(589,904)
Loss per share
$
-
Weighted average
shares outstanding
$
1
-
139,064,981
-3-
Galway Metals Inc.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
PLAN OF ARRANGEMENT AND BASIS OF PRESENTATION
The accompanying pro forma consolidated financial statements have been compiled for the purposes of
inclusion in an Information Circular of Galway Resources Ltd. ("Galway") which gives effect to a Plan of
Arrangement (the "Arrangement") whereby AUX Acquisition 2 S.àr.l. and its wholly-owned subsidiary, AUX
Canada Acquisition 2 Inc., formerly 2346407 Ontario Inc. (collectively, "AUX") will acquire all the common
shares of Galway (other than common shares of Galway held by AUX and its affiliates).
Under the terms of the Arrangement, each Galway share will be exchanged for Cdn$2.05 in cash, one
share in a new exploration company, Galway Gold Inc. ("Galway Gold"), which will hold Galway Resources
Vetas Holdco Ltd. ("Sisterco"), a company incorporated under the laws of the Cayman Islands which will
own 100% of the Vetas Gold project, and one share in a new exploration company, Galway Metals Inc.
("Galway Metals"), which will hold Nyak Resources Inc. ("Nyak"), a corporation existing under the laws of
New Mexico, and Galway Resources U.S. Inc. ("Galway Resources U.S."), a company existing under the
laws of Nevada, which owns 100% of the Victorio tungsten-molybdenum project. In addition, Galway Gold
and Galway Metals will receive US$18,000,000 of cash and US$12,000,000 of cash, respectively. Upon
closing of the Arrangement, existing Galway securityholders will hold 90% of Galway Gold and 100% of
Galway Metals.
The pro forma consolidated financial statements have been derived from and should be read in
conjunction with the audited carve-out financial statements of Galway Metals as at and for the year ended
December 31, 2011, interim carve-out financial statements of Galway Metals as at and for the three and
six months ended June 30, 2012, and audited financial statements of Galway Metals for the period from
incorporation (May 9, 2012) to June 30, 2012, prepared in accordance with International Financial
Reporting Standards ("IFRS"), and the adjustments and assumptions contained in Note 2.
These unaudited pro forma consolidated financial statements are for illustrative purposes only. They are
not intended to be indicative of the results that would actually have occurred, or the results expected in
future periods, had the events reflected herein occurred on the dates indicated. Actual amounts recorded
upon consummation of the transaction contemplated by the Arrangement will differ from those recorded in
the unaudited pro forma financial statement information.
Management of Galway Metals believes that the assumptions used provide a reasonable basis for
presenting all of the significant effects of the transaction and that the pro forma adjustments give
appropriate effect to those assumptions and are appropriately applied in the unaudited pro forma
consolidated statement of financial position and statement of loss and comprehensive loss.
-4-
Galway Metals Inc.
(UNAUDITED)
2.
PRO-FORMA ASSUMPTIONS
The unaudited pro forma consolidated financial statements give effect to the arrangement as described in
the Information Circular, as if it has occurred as of June 30, 2012 for purposes of the pro forma
consolidated statement of financial position, and January 1, 2011 for purposes of the pro forma
consolidated statement of loss and comprehensive loss and for the six months ended June 30, 2012, and
for the year ended December 31, 2011 and is based on the following assumptions:
a) Galway Metals issues a promissory note in the amount of US$12,000,000 ("Funding Note") to
Galway for cash consideration of US$12,000,000.
b) Galway Metals issues a promissory note in the amount of US$1,652,134 (subject to adjustment on
closing) ("Nyak and Galway Resources U.S. Note") and one common share for consideration of
100% ownership of Nyak and Galway Resources U.S.
c) The articles of Galway will be amended to authorize Galway to issue an unlimited number of
Galway:
i)
Class A Common Shares
ii)
Class 1 Preferred Shares
iii)
d) Each Galway Common Share outstanding on the effective date of the Arrangement will be
exchanged for one Class A Common Share, one Class 1 Preferred Shares, and 1 Class 2
Preferred Shares.
e) Each Class 1 Preferred Share will be transferred to Galway Metals in consideration for the
issuance by Galway Metals of one Galway Metals Common Share for each Class 1 Preferred
Share transferred to it.
f)
Galway Metals will purchase for cancellation from Galway its incorporation share for cash
consideration of $1.
g) All Class 1 Preferred Shares will be redeemed by Galway in consideration for consideration of a
promissory note in the amount of US$13,652,134 ("Class 1 Note"). (subject to adjustment on
closing)
h) The Class 1 Note issued by Galway to Galway Metals will be repaid by way of set-off against the
Funding Note and Nyak and Galway Resources U.S. Note issued by Galway Metals to Galway
and all promissory notes will be cancelled.
-5-
Galway Metals Inc.
(UNAUDITED)
3.
SHARE CAPITAL
Authorized: unlimited number of common shares
Number of
Shares
Initial shares issued to Galway on incorporation
Initial shares purchased for cancellation
Shares issued under Arrangement
-6-
$
1
1
(1)
(1)
139,064,981
13,186,725
139,064,981
13,186,725
SCHEDULE E
SUMMARY OF GALWAY METALS SHAREHOLDER RIGHTS PLAN
The following is a summary of the pertinent features of Galway Metals’ shareholder rights plan between
Galway Metals and Computershare Investor Services Inc. (the “Galway Metals Shareholder Rights Plan”). The
adoption of the Galway Metals Shareholder Rights Plan will be confirmed by the Galway Metals Board, with the
approval of Galway, as Galway Metals’ sole shareholder.
The summary is not meant to be complete and should be read in conjunction with the full text of the
Galway Metals Shareholder Rights Plan. All capitalized terms, where not defined herein, have the meaning ascribed
to them in the Galway Metals Shareholder Rights Plan.
Issue of Rights
Galway Metals will issue one right (a “Right”) in respect of each common share outstanding as the
Effective Date (the “Record Time”). Galway Metals will issue Rights on the same basis for each common share
issued after the Record Time and before the earlier of the Separation Time and the Expiration Time (both defined
below).
The Rights
Each Right will entitle the holder, subject to the terms and conditions of the Galway Metals Shareholder
Rights Plan, to purchase additional common shares after the Separation Time.
Evidence and Transferability of Rights Certificates
Before the Separation Time, the Rights may not be transferred separately from the common shares. After
the Separation Time, the Rights will be evidenced by separate Rights certificates and will be transferable separately
from the common shares.
Exercise of Rights
The Rights may not be exercised before the Separation Time.
After the Separation Time and before the Expiration Time, each Right entitles the holder to acquire one
common share for an exercise price equal to four times the market price of the common shares as determined at the
Separation Time (subject to certain anti-dilution adjustments). This exercise price is expected to be in excess of the
estimated maximum value of the common shares during the term of the Galway Metals Shareholder Rights Plan.
If a Flip-in Event (defined below) occurs before the Expiration Time (defined below), each Right (other
than the Rights held by an Acquiring Person (defined below) which become null and void on the occurrence of the
Flip-in Event) may be exercised to purchase that number of common shares having an aggregate market price equal
to twice the exercise price for an amount in cash equal to the exercise price (subject to certain anti-dilution
adjustments).
Rights Holder not a Shareholder
Until a Right is exercised, the holder of the Right has no rights as a shareholder.
Definitions
“Acquiring Person” means subject to certain exceptions, an Acquiring Person is a person who becomes the
Beneficial Owner (defined below) of 20% or more of the outstanding Voting Shares.
C - 40
“Beneficial Owner” means a person is a Beneficial Owner of Voting Shares if the person (or any associate or
affiliate of the person or any other person acting jointly or in concert with the person) legally or beneficially owns
Voting Shares or has the right to acquire (immediately or within 60 days) Voting Shares upon the exercise of any
convertible securities or pursuant to any agreement, arrangement or understanding.
A person is not a Beneficial Owner of Voting Shares if the person is engaged in the management of mutual funds,
investment funds or public assets for others (e.g., a fund manager, trust company, pension fund administrator, trustee
or a registered broker or dealer administering non-discretionary client accounts), as long as the person:
(a)
holds the Voting Shares in the ordinary course of its business for the account of others; and
(b)
is not making a take-over bid or acting jointly or in concert with a person who is making a takeover bid.
“Separation Time” means the Separation Time occurs on the tenth trading day after the earliest of:
(a)
the first date of a public announcement that a person has become an Acquiring Person;
(b)
the date of the commencement or announcement of the intent of a person to commence a take-over
bid, other than a Permitted Bid or Competing Permitted Bid; and
(c)
the date on which a take-over bid ceases to be a Permitted Bid or Competing Permitted Bid;
(or, in the case of (b) or (c), such later date as the Board may determine in good faith).
“Expiration Time” means the time that will occur six months after the date of adoption by the Board if the
shareholders have not approved the Galway Metals Shareholder Rights Plan on or before that date.
If the shareholders approve the Galway Metals Shareholder Rights Plan, the Expiration Time will occur on the
earliest of: (a) the time at which the right to exercise the Rights terminates in accordance with the Galway Metals
Shareholder Rights Plan, (b) immediately after the annual meeting of shareholders to be held in 2012 and every third
year thereafter unless the Galway Metals Shareholder Rights Plan is reconfirmed at that meeting, and (d) the tenth
anniversary of the date the Galway Metals Shareholder Rights Plan was adopted by the Board.
“Flip-in Event” a Flip-in Event occurs when a person becomes an Acquiring Person. Upon the occurrence of a
Flip-in Event, any Rights that are legally or beneficially owned by an Acquiring Person, will become null and void.
As a result, the Acquiring Person’s ownership interest in the Galway will be greatly diluted if a substantial portion
of the Rights are exercised after a Flip-in Event occurs.
“Permitted Bid” means a take-over bid that satisfies the following conditions:
(a)
the bid is made to all holders of Voting Shares (other than the offeror);
(b)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid for at least 60
days following the commencement of the bid;
(c)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid unless, at the
time of take-up or payment, more than 50% of the outstanding Voting Shares held by
shareholders, other than the offeror (or any associate or affiliate of the offeror or any other person
acting jointly or in concert with the offeror), have been deposited pursuant to the bid and not
withdrawn;
(d)
the offeror agrees that the Voting Shares may be deposited to and withdrawn from the bid at any
time before Voting Shares are taken up and paid for; and
(e)
if, on the date specified for take-up and payment, condition (c) is satisfied, the bid will remain
open for an additional period of at least 10 business days to permit the remaining shareholders to
tender their Voting Shares.
C - 41
“Competing Permitted Bid” is a take-over bid that satisfies the following conditions:
(a)
the bid is made after the commencement and before the expiry of a Permitted Bid;
(b)
the bid satisfies all the conditions of a Permitted Bid other than Permitted Bid condition (b); and
(c)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid before the close
of business on a date that is not earlier than the later of:
(i)
35 days after the date of the Permitted Bid, and
(ii)
the earliest date on which Voting Shares may be taken up or paid for under any bid in
existence on the date of the Permitted Bid.
“Redemption of Rights” means all (but not less than all) of the Rights may be redeemed by the Galway with the
prior approval of the shareholders at any time before a Flip-in Event occurs at a redemption price of $0.00001 per
Right (subject to adjustment). In addition, if a Permitted Bid, a Competing Permitted Bid or a bid in respect of
which the Board has waived the operation of the Galway Metals Shareholder Rights Plan is completed, the Galway
will immediately, and without further formality, redeem the Rights at the redemption price. If the Rights are
redeemed, the right to exercise the Rights will, without further action and without notice, terminate and the only
right to which holders of the Rights will be entitled thereafter will be to receive the redemption price.
“Waiver” means the Board may, at any time before an acquisition of Voting Shares under a take-over bid made by a
take-over bid circular to all registered holders of Voting Shares that would trigger a Flip-in Event, waive the
application of the “Flip-in” provisions of the Galway Metals Shareholder Rights Plan to the acquisition. If the Board
does so, however, it will be deemed to have waived the application of the “Flip-in” provisions of the Galway Metals
Shareholder Rights Plan to an acquisition of Voting Shares under any other take-over bid made by take-over bid
circular to all registered holders of Voting Shares before the expiry of the first bid. The Board may, with the prior
approval of the shareholders, at any time before any other acquisition of Voting Shares that would trigger a Flip-in
Event, waive the application of the “Flip-in” provisions of the Galway Metals Shareholder Rights Plan to the
acquisition.
The Board may also waive the “Flip-in” provisions of the Galway Metals Shareholder Rights Plan in respect of any
Flip-in Event provided that the Board has determined that the Acquiring Person became an Acquiring Person
through inadvertence and has reduced its ownership to such a level that it is no longer an Acquiring Person.
“Portfolio Managers” the Galway Metals Shareholder Rights Plan is designed to prevent the occurrence of a Flipin Event solely by virtue of the customary activities of a person engaged in the management of mutual funds,
or a registered broker or dealer administering non-discretionary client accounts) provided that the person does not
propose to make a take-over bid either alone or jointly or in concert with others.
“Term of Galway Metals Shareholder Rights Plan” means unless otherwise terminated, the Galway Metals
Shareholder Rights Plan will expire at the Expiration Time (defined above).
“Amending Power” If the Galway Metals Shareholder Rights Plan is approved by the shareholders of the Galway,
all amendments to the Galway Metals Shareholder Rights Plan, other than amendments to correct clerical or
typographical errors and amendments to maintain the validity of the Galway Metals Shareholder Rights Plan as a
result of a change of applicable legislation or applicable rules or policies of securities regulatory authorities, must be
approved by a majority of the votes cast by shareholders, other than an offeror under a take-over bid or an Acquiring
Person (or any associate or affiliate of the offeror or the Acquiring Person or any other person acting jointly or in
concert with the offeror or the Acquiring Person). In addition, all amendments to the Galway Metals Shareholder
Rights Plan require the written concurrence of the Rights Agent and prior written consent of the TSX-V (as
applicable).
“Rights Agent” means Computershare Investor Services Inc.
C - 42
APPENDIX D
INFORMATION CONCERNING GALWAY GOLD INC.
The following is a summary of Galway Gold Inc., its business and operations, which should be read
together with the more detailed information and financial data and statements contained elsewhere in the
management information circular of Galway Resources Ltd., to which this Appendix is attached (the “Circular”).
The information contained in this Appendix, unless otherwise indicated, is given as of the date of the Circular and
may change prior to the Arrangement and listing of Galway Gold Inc.
All capitalized terms used in this Appendix and not defined herein have the meaning ascribed to such terms
in the “Glossary of Terms” or elsewhere in the Circular. Unless otherwise indicated herein, references to “$”,
“Cdn$” or “Canadian dollars” are to Canadian dollars, references to “U.S.$” or “U.S. dollars” are to United
States dollars. See “Reporting Currencies and Accounting Principles” in the Circular. See also in the Circular
“Cautionary Statement Regarding Forward-Looking Statements”.
Corporate Structure
Incorporation
Galway Gold Inc. (“Galway Gold”) is a New Brunswick corporation incorporated under the Business
Corporations Act (New Brunswick) (the “NBBCA”) by articles of incorporation dated May 9, 2012. On November
15, 2012, Galway Gold filed articles of amendment to change its name from 663757 N.B. Inc. to Galway Gold Inc.
The financial year end of Galway Gold is December 31. The registered office of Galway Gold is 44 Chipman Hill
Suite 1000, Saint John, New Brunswick E2L 2A9. The principal office of Galway Gold will be located at 36
Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5.
Intercorporate Relationships
Galway Gold is currently a wholly-owned subsidiary of Galway. Pursuant to the Arrangement Agreement,
Galway Gold will cease to be a wholly-owned subsidiary upon the issuance of Galway Gold Shares to Galway
Shareholders on a one for one basis at the Effective Time, including to AUX Canada and its affiliates. As part of the
Arrangement, AUX Canada and its affiliates will also obtain a 10% holding in Galway Gold via its ownership of
Galway.
Pursuant to the Arrangement, Galway Resources Vetas Holdco Ltd. (“New Sisterco”) will become a
wholly-owned subsidiary of Galway Gold. New Sisterco is a company existing under the laws of the Cayman
Islands and will hold all of Galway Gold’s assets, liabilities, property, rights, contracts, obligations and permits that
pertain to the Reina de Oro and Coloro properties in Colombia (the “Vetas Project”) through a Colombian branch
office (“Sucursal Colombia”).
Galway Gold Inc.
(New Brunswick,
Canada)
100%
New Sisterco
(Cayman Islands)
100%
Sucursal Columbia
100%
Vetas
Project
D-1
Galway Gold is not currently a reporting issuer and the Galway Gold Shares are not listed or quoted for
trading on any stock exchange. An application has been made to list the Galway Gold Shares on the Toronto Stock
Venture Exchange (“TSX-V”). Upon completion of the Arrangement, Galway Gold will be a reporting issuer in the
provinces of British Columbia, Alberta and Ontario.
Description of the Business
General
Galway Gold was incorporated on May 9, 2012. The principal business of Galway Gold will be the
investigation, acquisition, exploration, development and operation of the Vetas Project and other mineral properties,
with a primary focus on precious metals. The Vetas Project consists of the Reina de Oro and Coloro concessions,
which are mostly contiguous and collectively comprise approximately 542 hectares. The Vetas Project is held by
Galway pursuant to two option contracts which grant the option to purchase all of the operation and mining rights of
licenses 14833 and 0074-68. The option contracts are as follows: license 14833 with Empresa Minera Reina de Oro
Ltda., dated December 21, 2009 (the “Reina de Oro Option Contract”) and (ii) license 0074-68 with Coloro
S.O.M Ltda., dated January 19, 2010 (the “Coloro Option Contract”, together with the Reina de Oro Option
Contract, the “Option Contracts”). In connection with the Arrangement, Galway will assign the Option Contracts
to Galway Gold and all outstanding rights and obligations of Galway with respect to the Vetas Project will be
assumed by Galway Gold. See “Material Mineral Projects” for a summary of certain terms of the Option Contracts.
Galway Gold will commit its own resources to the initial evaluation of the Vetas Project and other mineral
properties, and in select situations if, and when warranted, Galway Gold will enter into joint ventures with other
businesses to continue the development of such properties. In the course of its activities, Galway Gold may enter
into different types of agreements common in the mineral resource industry such as purchase agreements, option
agreements to purchase mining properties and/or joint venture agreements.
In connection with the Arrangement, Galway Gold, through New Sisterco, will assume all rights and
obligations relating to the assets and liabilities of the Vetas Project pursuant to the terms of a sale agreement (the
“Vetas Sale Agreement”) and U.S.$18,000,000 in cash from Galway.
Specialized Skills
All aspects of Galway Gold’s business will require specialized skills and knowledge. Such skills and
knowledge include the areas of geology, drilling, logistical planning, geophysics, implementation of exploration
programs and accounting. Since commencement of its current operations in 2009, Galway has been able to locate
and retain employees and consultants that contribute to these specialized skills and Galway Gold believes that it will
be able to do so as well.
Employees
Galway Gold will have no full time employees at its head office in Toronto, Ontario, Canada. Galway
Gold’s full time staff complement in Colombia will be determined subsequent to consummation of the Arrangement,
and is expected to consist of both employees and contractors.
Overview of Colombia
General Information for Foreign Investors
Colombia is a democratic republic located in the northwest part of South America whose capital and
principal city is Bogatá. Foreign investment is subject to the same treatment as domestic investment. Most sectors
are open to foreign investment with the exception of defense, national security and some activities related to toxic
waste and real estate. Foreign investors must register their investments. Profits associated with registered foreign
investments can be remitted in convertible currency. There is no limitation on the repatriation of capital or profits.
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Mining Legislation and Taxation
Mineral rights in Colombia are currently governed by the Colombian Mining Code (Law 685 of 2001, as
amended). The government entities which have an important role in the mining industry are as follows: (i) the
Ministry of Mines and Energy (“MME”), responsible for adopting the Colombian Government’s policies on: the
exploration, transportation, processing, exploitation and distribution of minerals; and the development of the mining
and energy sectors; (ii) the Servicio Geologico Colombiano (formerly INGEOMINAS), an administrative body
which is currently in charge of managing Colombian mining resources, however, upon the recent creation of the
National Mining Agency (“ANM”), the Servicio Geologico Colombiano will become an entity in charge of
performing scientific research of the subsoil resources and will manage the geological information regarding the
mineral resources; and (iii) the recently created ANM, created by means of Decree 4134 of 2011, whose main
purpose is to promote the exploration and development of the country's mineral resources and the granting of areas
for the exploration and exploitation of mineral resources. Additionally, the ANM will be in charge of ensuring that
all mining companies fulfill their obligations under the concession contracts and to act as the mining authority in
relation to royalties, surveillance of health and safety measures, promotion of the mining industry and management
of the mining cadaster.
According to article 474 of the Colombian Commercial Code, obtaining a concession from the Colombian
government or obtaining a concession through an assignment is considered a permanent activity, thus foreign
companies have to establish a branch within the Colombian territory in order to apply and hold mining title. Surface
rights are not governed by the Mining Code and must be acquired directly from the surface rights holders. Galway
has completed underground and surface exploration activities on the Vetas Project concessions. Galway is in the
process of applying for permits and surface owners’ permissions to be able to complete diamond drilling from
surface. Roscoe Postle Associates Inc. (“RPA”) does not know the status of the permits or whether the permitting
process will be successful, however, RPA points out that CB Gold Inc. is conducting a surface diamond drilling
program on ground adjacent to the Vetas Project concessions.
Decree 2655 of 1988 (the former Mining Code) establishes by means of article 17 four types of mining
titles: exploration licenses, exploitation licenses, contratos de aporte, and concession contracts. An exploration
license grants the holder the exclusive right to perform, in a prescribed area, work directed to identifying
commercially exploitable mineral deposits and reserves. There are three types of exploration licenses: small,
medium, and large mining activity licenses. The type of exploration license is determined by the anticipated volume
or tonnage of materials to be extracted from the mine to be developed on the property. During the term of the
exploration license, reports on work performed on the property must be filed with the MME. The MME
subsequently makes a definitive project classification based on the information field. The MME has the right to
reclassify the project every five years during the exploration phase. There is a maximum size area for each type of
exploration license. The term of an exploration license is determined by the area covered as follows:
Original Area
Type
Term
Extension
Up to 100 hectares
100 hectares up to 1,000 hectares
1,000 hectares or more
Small
Medium
Large
1 year
2 years
5 years
1 year
1 year
N/A
On the expiry of an exploration license for a small mining activity and any extensions thereof, the license
can be converted, subject to its compliance with prescribed conditions, into any exploitation license. An
exploitation license has a term of ten years which may be extended for one time for the same term of ten years. On
its expiry, the holder can apply for a ten year extension or conversion of the license into a concession contract. On
expiry of an exploration license for medium and large mining activities and any extensions thereof, the license is
required to be converted to a mining concession on compliance with prescribed conditions. There are two types of
mining contracts: concession contracts issued by the MME and the contratos de aporte whereby the MME grants to
its related entities the exclusive and temporary right to explore and exploit minerals in a determined area. A
concession contract gives the holder the exclusive right to extract certain minerals and conduct the activities
necessary for exploitation, transport and shipment of the same. Concession contracts have a term of 30 years.
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There are various government fees and royalties payable by mining titleholders. Holders of exploration
licenses for large mining activities must pay a fee equal to the prescribed minimum daily wage multiplied by the
number of hectares covered by the license. The fee is payable annually until the commencement of commercial
production from the property. As of 2002, on commencement of production, a royalty is payable at an effective rate
of 4% of the London gold price on the ounces produced. For underground mines, the royalty is payable when
annual production exceeds 8,000 tonnes and, for open-pit mines, when annual production exceeds 250,000 cubic
metres.
In June of 2001, a new Mining Code (Law 685 of 2001) was enacted that somewhat simplifies and
streamlines procedures for concessions. The separation of concessions into three different levels for small, medium
and large mining no longer exists. There is now only a concession contract which, once issued, has a duration of 30
years as from the date of the registration in the National Mining Registry and may be renewed for a term of 20
additional years if the title holder is in compliance of all obligations. However, concession agreements entered into
before the entry into force of Law 1382 of 2010 are granted for 30 years as from the date of the registration in the
National Mining Registry and may be renewed for a term of up to 30 years. Provisions of the Mining Code were
amended by Law 1382 of 2010, however on May 2011 this law was declared unconstitutional by the Constitutional
Court. Notwithstanding, the Court considered that the regulations of Law 1382 will remain in force for two years in
order to give time to the Congress to enact a new replacement law. Within the first 30-year period, there is an
exploration phase of three years with a further two year extension. This is followed by a construction phase of three
years with a further one year extension. Despite these time limits, mining can start any time within this phase. To
obtain the requisite permits to explore the mine the necessary environmental plans and report studies need to be
presented and approved. According to article 349 of the Mining Code, titles holders of mining titles granted under
Decree 2655 of 1988 were allowed to request the conversion of those mining titles into mining titles granted by a
concession contract ruled by Law 685 of 2001. The Vetas Project is governed by the 2001 Mining Code, Law 685 of
2001.
Environmental Protection
Upon completion of the Arrangement, it is anticipated that Galway Gold will commence exploration
activities at the Vetas Project. With respect to environmental issues, mining companies in Colombia may be subject
to the authority of the Ministry of Environment and Sustainable Development, the regional environmental
authorities (Corporaciones Autónomas Regionales) and the local environmental authorities (Grandes Centros
Urbanos), based on the location of the project and the volume of mineral or metals that are exploited. The National
Code of Renewable Natural Resources and Environmental Protection forms the basis of environmental regulation in
Colombia, and there is an interest in preserving natural resources from development activities. The 2001 Mining
Code, Law 685 of 2001 requires an environmental mining insurance policy for each concession contract. In addition,
this provision requires that an environmental impact study be presented at the end of the exploration phase if the
concession is to proceed to the construction phase, and this must be approved and an environmental license issued,
before the exploitation phase can begin. In addition, exploration activities may require an environmental
management plan and additional environmental permits or authorizations such as the superficial water concession.
Exploitation may require additional permits, including, but not limited to, an environmental license, a permit for
springs, a forest use permit, a certificate of vehicular emissions, an emissions permit and a river course occupation
permit.
Where there is a breach of environmental laws, an affected third party or the government may initiate
judicial action against a polluting entity, including actions for protection of civil rights, civil liability lawsuits, class
actions, group actions, executive or police measures and criminal filings. Environmental laws are a matter of public
interest and are not subject to settlement. Moreover, as a result of breach of environmental laws or environmental
obligations, or pollution of natural resources, environmental authorities may initiate an environmental sanctionatory
procedure which can impose sanctions such as daily fines up to 5,000 monthly minimum wages (approximately
U.S.$1.4 million), temporary or definitive closing of the facilities, revocation of licenses, permits or authorizations,
demolition of buildings, community work and confiscation of products or implements used to commit infringement.
There is no assurance that future changes in environmental laws, if any, will not adversely affect Galway
Gold’s operations. There is no assurance that regulatory and environmental approvals will be obtained on a timely
basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the
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profitability of operations or to preclude entirely the economic development of a property. See “Risk Factors –
Environmental Regulation and Liability”.
Material Mineral Projects
Galway Gold’s principal exploration activities after the Arrangement will be focused on the Vetas Project
in the country of Colombia. Galway’s interest in the Vetas Project is through the Option Contracts. The key terms
of the Option Contracts as they currently apply to Galway are as follows;
Pursuant to the Reina de Oro Option Contract to maintain its rights to exercise the option, Galway was
required to pay to Empresa Minera Reina Oro Ltda. (the “Reina de Oro Grantor”) the following amounts in cash
and Galway Shares: (i) U.S.$100,000 and 400,000 Galway Shares payable on December 21, 2009; (ii) U.S.$100,000
and 50,000 Galway Shares payable after December 21, 2010; and (iii) U.S.$100,000 and 50,000 Galway Shares
payable after December 21, 2011. All amounts have been paid and shares granted under this option agreement.
Galway can acquire the mining rights for the Reina de Oro License concession (license 14833) by
exercising its right under the Reina de Oro Option Contract. If Galway chooses to positively exercise the option,
Galway is required to pay to the Reina de Oro Grantor: (i) an amount equal to: 1.5% of the spot price of one ounce
of gold on average over the last thirty market days for every ounce of gold equivalent resources measured; and (ii)
60% of the sales value and the balance of 40% in Galway Shares or in cash, paid on the completion of exploration.
This agreement will be assigned to Galway Gold in connection with the Arrangement. It is expected that
the share consideration payable to the Reina de Oro Grantor will be renegotiated as part of this assignment.
Pursuant to the Coloro Option Contract to maintain its rights to exercise the option, Galway was required to
pay to Coloro S.O.M. Ltda. (the “Coloro Grantor”) the following amounts in cash and Galway Shares: (i)
U.S.$75,000 and 100,000 Galway Shares payable on January 19, 2010; (ii) U.S.$75,000 and 150,000 Galway Shares
payable after January 19, 2011; and (iii) U.S.$75,000 and 200,000 Galway Shares payable after January 19, 2012.
Under the current terms, Galway will also be required to pay and issue U.S.$75,000 and 250,000 Galway Shares
payable after January 19, 2013. If a fourth year is granted, Galway is required to pay to the Coloro Grantor an
additional payment of U.S.$100,000 and 300,000 Galway Shares. All prior amounts due under the Coloro Option
Contract have been paid. Amounts that remain outstanding as of the date herein are set out in the chart below.
Galway can acquire the mining rights for the Sociedad de Minas concession (license 0074-68) by
exercising its right under the Coloro Option Contract. There is no required royalty commitment under the Coloro
Option Contract. If Galway wishes to exercise this right it must pay to the Coloro Grantor U.S.$12 per ounce of
equivalent gold found.
This agreement will be assigned to Galway Gold in connection with the Arrangement. It is expected that
the share consideration payable to the Coloro Grantor will be renegotiated as part of this assignment.
Galway’s outstanding counterparty obligations in respect of concessions included in the Vetas Project are
set forth in the chart below.
Contract Terms
Contract
Reina de
Oro Option
Contract
Coloro
Option
Contract
Concession
License
Number
Date
License
14833
12/21/
2009
License
0074-68
01/19/
2010
Completed Obligations
Outstanding Obligations
Cash Paid
to Date
(U.S.$)
Galway
Shares Paid
to Date
Cash Due (U.S.$)
Galway Shares Due
Royalty
Payment
(per ounce)
$300,000
and
500,000
Galway
Shares
$300,000
500,000
Nil.
Nil.
1.50%
$300,000
and 700,000
Galway
Shares(1)
$225,000
450,000
Total Cost
(U.S.$)
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1/19/2013
1/19/2014
1/19/2013
1/19/2014
$75,000
$100,000
250,000
300,000
US$12.00
Note:
(1)
Cost excludes the grant of an additional fourth (4th) year.
The information below relating to the Vetas Project is based upon a NI 43-101 report entitled “Technical
Report on the Vetas Project, Department of Santander, Colombia” dated November 13, 2012, prepared by RPA (the
“Vetas Technical Report”), a copy of which can be found online at www.sedar.com and subsequent information
disclosed by Galway. James G. Lavigne, M.Sc., P.Geo. and Elizabeth Edler McMonnies, P. Geo are the Qualified
Persons under NI 43-101 responsible for overall preparation of the Vetas Technical Report.
Vetas Project
Project Description and Location
The Vetas Project is located in the Department of Santander, in northeastern Colombia, approximately 400 km
north of Bogotá and 41 km northeast of Bucaramanga (Figure 1). The property is located at 7° 20’ North Latitude
and 72° 52’ West Longitude within the historic California-Vetas Mining District in the Santander Massif of the
Eastern Cordillera of the Andes Mountains. The town of Vetas is partly located on the Vetas property concessions
and is at an elevation of 3,200 MASL. The Vetas Project consists of the Reina de Oro and Coloro concessions,
which are mostly contiguous and collectively comprise approximately 542 ha. The Reina de Oro concession
includes the El Volcán Mine.
Figure 1. The Vetas Project Location Map
Environmental Liabilities
RPA is unaware of any environmental liabilities related to the Vetas Project. The Galway exploration team is
cognizant of environmental issues related to diamond drilling including:
•
Handling of drilling muds as hazardous waste.
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•
Zero harm to the water resource with regards to potential pollution from the drilling operations.
•
Noise monitoring.
•
No native plant species are cut down without a restoration plan and environmental compensation.
•
Vegetation is monitored to ensure that no effects from drilling water.
•
Recovery and restoration of vegetation disturbed by the development of drill roads and drill platforms.
•
Surface drill platforms are re-contoured to a natural contour.
•
Waste underground drilling water is treatment with lime to reduce acidity.
•
Waste rock from the development of the underground drill pads is stockpiled on surface in designated
dump areas.
Permits
Galway has completed underground and surface exploration activities on the Vetas Project concessions
including diamond drilling and is currently diamond drilling with two drill rigs operating underground and one set to
resume on surface now that Galway has received all necessary drill platform construction approvals. Galway has
secured necessary permits and approvals to complete the current diamond drilling program.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Vetas Project is located in northeastern Colombia in the Department of Santander. The town of Vetas
is in part located on the Vetas Project concessions, at 7° 20’ north latitude and 72° 52’ west longitude. Access to
Vetas from Bucaramanga is via 85 km of paved highway to the town of Berlin, located near the border between the
Departments of Santander and Norte de Santander, and then via 16 km of dirt road to the town of Vetas. There is an
alternate route through the towns of Matanza, Surata, and California that requires transit of 55 km of partially paved
road to the town of California from which a 16 km dirt road connects to Vetas.
The property is located in a steep, mountainous, and relatively rugged terrain at elevations ranging from
approximately 3,100 MASL to 3,800 MASL. The town of Vetas is located at an elevation of 3,200 MASL. The
slopes are generally greater than 30° and in some areas are near-vertical cliffs. The area has long been deforested,
and the slopes are covered with scrub brush and grass. The indigenous tree species were oaks and along the streams
some relict oaks are found. Reforestation programs have introduced several varieties of pine.
The climate of the Vetas Project area is cool to cold and humid. The average annual temperature ranges
from 4oC to 10oC, varying with elevation. The rainy seasons generally occur in October-November and April-May.
Snow is infrequent but occasionally occurs at higher elevations. Average annual precipitation is about 750 mm.
Exploration work can be conducted year round.
The town of Vetas has a population of approximately 500 to 600, with more than 2,000 people living in the
municipality. With a long history of small scale mining up to the present time, the area provides a local work force
well experienced in mining. Although the principal economic activity in the area is the small-scale exploitation of
gold and silver, many of the inhabitants are also involved in agriculture.
Water for both domestic consumption and for industrial use is drawn from nearby perennial streams. The
area is served by the national electrical power grid. Land telephone lines are restricted to the town of Vetas and
cellular telephone reception is generally available except in the deeper canyons. Basic supplies are available in
Vetas; otherwise all supplies and equipment must be transported from Bucaramanga.
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Figure 2. Vetas Project Infrastructure
Exploration History
The Vetas district has a long history of mining dating back to Pre-Colombian time. The El Volcán Mine has
been in continuous production for approximately 60 years, is operated by Empresa Minera Reina de Oro Ltda. and
has produced an estimated 190,000 ounces of gold. The current mining at the El Volcán Mine is typical of the labour
intensive mining methods with development primarily in mineralization. Prior to the current activities of Galway, no
diamond drilling has been completed on the concessions including the El Volcán Mine. There is no current resource
estimate for the El Volcán Mine. The exploration work completed by Galway is the first modern day exploration
carried out on the property. Galway initiated the first diamond drilling on the property on April 4, 2011.
In November 2007, a lease contract with option to purchase was signed between White Gold Corporation
(“White Gold”) and Empresa Minera Reina de Oro Ltda. granting White Gold the right to purchase 100% of the
mineral rights to the property and 100% of the surface rights, with no retained royalties.
The only know historical exploration on the area was conducted by Oro Baracuda which worked on the
property for eight months in 2008. It is reported that only basic exploration was conducted including soil and rock
sampling.
On January 26, 2010, Galway announced that it had entered into a binding agreement to acquire a 100%
interest in the Reina de Oro and Coloro properties.
There are no current NI 43-101 compliant Mineral Resources or Mineral Reserves for the El Volcán Mine
and the surrounding Vetas Gold property. This is due to the mining method employed at the El Volcán Mine which
has been historically applied in the California-Vetas Mining District and the fact that, prior to Galway’s
involvement, there had been no significant exploration or delineation drilling on the property.
Production records from the El Volcán Mine were not available and are not in the possession of Galway.
The status of any production records for the mine is not known by RPA. As discussed in the Vetas Technical Report,
current production in 2008 was 30 tpd to 40 tpd at an average grade of 9.5 g/t Au recovered. Verbal communication
from the current mine manager to Galway personnel indicated a current annual production rate of 10,000 tonnes at a
grade of 9.5 g/t Au recovered. An annual production rate of 10,000 tonnes would be consistent with a daily
production rate of 35 tonnes based on a 285 work day year. Assuming a 60 year production history and an annual
production rate of 10,000 tonnes at an average recovered grade of 10 g/t Au, the total production from the El Volcán
Mine would be approximately 190,000 ounces Au. As disclosed in the Vetas Technical Report, RPA reiterates that
this number is based on verbal and unverified sources.
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Geological Setting and Mineralization
The Reina de Oro and Coloro concessions are located within the domain of dominantly Precambrian
metamorphic rocks east of the regional Vetas Fault. The property is underlain dominantly by grey to black
amphibolitic gneiss. Three intrusive rock types are recognized on the property intruding the gneiss: micro granite,
quartz diorite, and dacite porphyry. The former two intrusive rocks are interpreted to be part of the Jurassic intrusive
complex and the dacite porphyritic rock is interpreted to be part of the younger, possibly Tertiary aged, intrusive
event.
The most significant zone of mineralization on the Vetas Project is the El Volcán Mine located in the Reina
de Oro concession. The gold-silver mineralization in the El Volcán Mine occurs within a swarm of northeast
striking, vertical to steeply north-dipping tabular sub-parallel and occasionally intersecting or sigmoidal quartz
veins. The veins occur within a zone 200 m wide by 700 m long and project beyond these limits of the mine to the
northeast and southwest. The known vertical extent of the veins is 300 m, but the lower limit of the mineralization
has not been defined. The veins are hosted dominantly by gneiss and occur also at the gneiss-intrusive rock contacts.
The alteration envelopes or selvages are a few centimeters up to several meters in width and consist of pervasively
phyllic and argillic altered gneiss often accompanied by disseminated sulphides and/or quartz veinlets. The veins are
irregular in width, with occasional vugs, and often have colloform or crustiform texture. They consist generally of
grey to off-white finely crystalline quartz or microcrystalline chalcedony interbanded with darker grey adularia and
accompanied by minor sulphides consisting of pyrite, sphalerite and galena.
Mineralization at the El Volcán Mine is controlled by a series of northeast trending, steep faults and shear
zones consistent with the regional distribution of major structures in the district. A locally defined structure with a
west-northwest trend and termed the Rio Vetas fault zone may also be an important structural control. The veins
demonstrate at least three phases of mineral deposition: local massive pyrite followed by massive and sugary white
quartz followed by dark grey to grey chalcedonic quartz and quartz veins with vugs and druses. Visible gold is
commonly observed in quartz and within vugs in quartz. Sulphide minerals associated with the vein mineralization
include pyrite, sphalerite, galena, molybdenite and chalcopyrite.
Summary of Drilling
No drilling has historically been completed on the Vetas property. The first drilling on the property was
initiated underground at the El Volcán Mine by Galway on April 4, 2011 and was completed August 27, 2012.
Underground drilling has been completed from two drill stations located on the Reina de Oro level: Drill Station 1 is
at a nominal elevation of 3,411 m and Drill Station 2 is at a nominal elevation of 3,413 m. Drilling planned to begin
in late, 2012 will initially test mineralization down dip and along strike under and to the northeast of the mine.
Surface drilling was initiated on January 18, 2012 and was completed July 21, 2012. Surface drilling on the
Coloro Concession started on November 10, 2012.
The procedures for diamond drilling used at the Vetas Project, both underground at the El Volcán Mine and
on surface, are consistent with industry best practices. This includes surveying the location and orientation of the
drill set-ups, downhole surveying using a Reflex Multishot at regular intervals, documentation of core recovery, and
conventional and industry standard logging and sampling procedures.
The surveying, reported to Galway in UTM coordinates is tied in to surveyed monuments established on a
national basis by the Colombian government. Drilling is conducted by Matrix Drilling SAS staffed by Columbian
and Peruvian drillers. Core recovery is reported to average over 90% in the mineralized zones. RPA is not aware of
any factors that could materially impact the accuracy and reliability of the results.
Underground Drilling
Galway has completed 53 holes for a total of 24,808 m of HQ, reduced to NQ diamond drilling in the
underground program. This includes 32 holes from the first drill station drilled in a generally easterly direction and
21 holes from a second drill station drilled in a generally westerly direction.
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The diamond drilling at the El Volcán Mine has been planned to: (i) test for continuity of mineralization
below Reina de Oro, the lower level of the El Volcán mine; and (ii) test for the extension of the El Volcán
mineralization lateral to the mine and along strike.
To date, the drilling has tested dominantly down dip of the El Volcán Mine mineralization. Due to the
location of the drill platforms 1 and 2, the drilling to date has been limited in testing extensions of veins down dip
and along strike under and to the southwest of the mine. The underground drilling that began on November 13,
2012 will initially test mineralization down dip and along strike to the northeast of the mine.
The host rock intersected in the drilling is dominantly grey to dark grey amphibolitic gneiss. Mineralization
consists mainly of veins within variable sheared and altered gneiss. Veins characterizing drill hole intercepts
comprise laminated veins, vein stockworks, breccias veins, and minor veinlets. Vein and alteration associated
sulphide minerals include pyrite, marcasite, chalcopyrite, molybdenite, arsenopyrite, and locally cinnabar. Alteration
consists of silica, argillic (illite-kaolinite), chlorite, sericite, and carbonate (ankerite). Three vein types are
distinguished in the underground drilling and are interpreted in terms of relative environment and timing of
emplacement: vein type A: Stockwork veinlets characterized by quartz, molybdenite, pyrite, and locally chalcopyrite
and interpreted to be porphyry style mineralization; vein type B: Chalcedonic quartz and pyrite veins with local free
coarse gold interpreted to be related to a late epithermal event; vein type C: Vuggy and drussy quartz and
chalcedonic, banded quartz with fine pyrite and visible (locally coarse) gold, and locally galena and cinnabar
interpreted to be an epithermal style of mineralization distinct from Vein type B.
The drilling has successfully intersected the major vein structures historically developed at the El Volcán
Mine and gold and silver grades are consistent with the chip sampling results. However, in some cases, the
intersections of the predicted veins and structures have not returned significant precious metal values. The drilling,
in addition, has intersected a number of veins and structures previously not developed or recognized underground,
which occur at intermediate positions between the developed veins. The drilling has successfully intersected
mineralization below the Reina de Oro level, with the deepest intersection to date being approximately 860 m from
surface in hole GWY-V-030.
The intersection of the known veins in the underground drilling indicates that the continuity of the main
veins developed and mapped is reasonable and forms an appropriate framework for continued interpretation.
However, the intersection of numerous veins and structures previously not known and the width and grade
distribution of mineralization intersected suggest that a more complex environment of branching, anastomosing, and
linking veins and structures may exist at El Volcán Mine.
Galway is currently evaluating and interpreting the underground drilling data which includes the
interpretation and naming of the veins on sections, the correlation of the veins from section-to-section, wireframe
creation of the sectional interpretations of veins, and calculation of intersection true widths. RPA has calculated
some summary statistics of the underground intercepts using the true width values and notes the relatively high
average grade, relatively narrow width of 1.14 m and the relatively high coefficient of variation.
Surface Drilling
Sixteen HQ, reduced to NQ, diamond drill holes for a total of 9,645 m have been completed on the Vetas
Project. The surface drilling has been focused on a stockwork zone of mineralization located near the western
property boundary and adjacent to the area where CB Gold Inc. has reported positive drilling results. In addition, in
the same area, two targets defined by coincident MMI and IP chargeability anomalies have been tested.
Work on the surface target drilling is at an early stage and reconciliation with the geochemical and
geophysical targets remains to be completed. However, it appears that the host rocks and the mineralization
intersected are largely similar in style and mineralogy to the mineralization intersected at the El Volcán Mine.
Significantly, mineralization intersected thus far in the surface holes also includes stockwork mineralization (Vein
type A) hosted within an intrusive rock. A number of new veins have been encountered in the surface drilling,
however, not much is yet known regarding their continuity and gold grade potential. Structurally these new veins are
considered as being splays or secondary veins in between the main veins.
D - 10
Sample Preparation, Analyses and Security
Galway utilizes an industry standard approach to sampling drill core that includes the samples being
marked and tagged by the logging geologist. The samples are split using a rock saw equipped with a diamond blade
utilizing fresh water. One-half of the core is placed in the sample bag for shipment to the assay laboratory and the
other half is returned to the core tray for secure storage at the Galway logging facility.
Samples collected at the Vetas Project are catalogued and bagged on site for secure transportation, which
includes the use of security bag ties. The bagged samples are delivered by Galway personnel to the Acme Lab
(“ACME”) in Bucaramanga. From Bucaramanga, the samples are transported to the sample preparation laboratories
in Medellin by Acme.
For the underground chip sampling, surface exploration, and the first 10 underground diamond drill holes,
the samples were shipped to ALS Minerals sample preparation facility in Bogotá, Colombia. After the completion of
the first 10 drill holes, Galway initiated use of ACME. Samples from the Vetas Project are sent to the ACME
preparation facility in Medellin, Colombia for processing and are analyzed at the ACME laboratory in Vancouver,
Canada. The sample preparation (crushing, grinding, and splitting) is completed in the Bogotá laboratory and
prepared subsamples are shipped to the ALS Minerals analytical laboratory in Lima, Peru, for analyses.
Sample preparation at ALS Minerals in Bogotá includes logging in the laboratory information management
system (LIMS), weighing, and drying the sample. The entire sample is crushed to better than 70% -2 mm and a one
kilogram split was pulverized to better than 85% passing 75 µm. All rock samples are analyzed for gold using the
ALS Chemex procedure (code) Au-AA23, which was Fire Assay fusion with analysis by Atomic Absorption
Spectroscopy (AAS) on a 30 g split of the pulp. The method reports in the range from 0.01 g/t Au to 10 g/t Au. All
samples returning greater than 10 g/t Au with the Au-AA23 method have been reanalyzed using the Au-SCR21
method, which was a screen fire assay. Silver content is determined at ALS Minerals using the Ag-AA46 method,
which included aqua regia digestion and an AAS determination. In addition to this protocol, Galway specified
samples from the underground drilling, based on logging as being vein or within the structures hosting the veins, to
be analyzed by the screen metallic assay method in addition to fire assay.
Similarly, ACME uses a LIMS for sample management. Sample preparation completed on the Galway
samples at ACME consists of crushing the entire sample to better than 80% < 10 mesh (1.68 mm) and a 250 g split
pulverized to 85% < 200 mesh (75 pm). All samples are analyzed for gold using fire assay on a 30 g charge with an
AA finish (ACME code G601). All samples returning values greater than 10 g/t Au are subsequently prepared and
analyzed using the metallics fire assay method.
For underground drilling Galway identifies samples that are mineralized and samples that host
mineralization within intersected structures on the sample submittal form in the sample shipment. These samples are
analyzed for Au by the screen metallic method (ACME code 615) and for Ag by aqua regia digestion and by ICP-ES
analysis (ACME code 7AR2). All other underground core samples are analyzed using fire assay of 30g with an AA
finish for Au and aqua regia digestion and AA finish for Ag (ACME code 603). All samples returning values of > 5
g/t Au with the ACME 603 method are re-assayed using the screen metallic method and all samples with Ag > 100
ppm are re-assayed for Ag using aqua regia digestion followed by ICP-ES finish (ACME 7AR2), All samples from
every fifth underground drill hole are also analyzed for a suite of 36 elements. All samples identified by Galway as
mineralized or associated with the mineralized structure are analyzed for Au by the screen metallic method. The
samples not analyzed by the screen metallic method are analyzed by fire assay of 30g with an AA finish (ACME
Code 601) and those returning concentrations > 5 g/t are re-assayed using the screen metallic method. All samples
are analyzed for 36 elements using aqua regia digestion of a 15 g pulp followed by ICP-ES/MS analysis (ACME
code 1DX2). Samples with Ag values > 100 ppm from the 1DX2 analyses are re-analyzed for Ag using aqua regia
digestion and ICP-ES finish (ACME 7AR2), For samples from the surface drilling, all samples are assayed for Au
using fire assay of 30 g and an AA finish (ACME code 601). Samples returning Au > 5 g/t are re-assayed using the
screen metallic assay method (ACME code 615). All surface core samples are analyzed for 36 elements using aqua
regia digestion of a 15 g pulp followed by ICP-ES/MS analysis (ACME code 1DX2). Samples with Ag values > 100
ppm from the 1DX2 analysis are reanalyzed for Ag using aqua regia digestion and ICP-ES finish (ACME 7AR2),
D - 11
The belt samples of El Volcán Mine ore have all been analyzed at ALS Minerals using the screen fire assay
method (Au-SCR21). The samples of tailings were analyzed at a local assay laboratory located in Vetas.
Surface exploration rock samples were analyzed for gold by a 30 g fire assay and AAS finish method (code
G601) plus a multi-element suite with an aqua regia digestion and analyzed for either ultra-trace 53 element ICP-MS
finish (code 1F04) or 36 element ICP-MS finish (code IDX2).
Based on the Vetas Technical Report, ALS Minerals is a widely used, international testing laboratory. The
ALS Minerals quality system complies with the requirements of the International Standards ISO 9001:2000 and ISO
17025:1999 at all laboratory sites. ACME is an ISO 9001:2008 qualified international geochemical and assaying
laboratory and is widely used by the mineral exploration industry.
Mineral Resources
No Mineral Resource or Mineral Reserve estimates have been completed on the Vetas Project.
Recommendations
Based on the site visits and review of the available documentation, RPA recommends that the Vetas Project
continue to be evaluated. The Vetas contract calls for a Mineral Resource estimation to be completed by the end of
2013. A two stage exploration program is proposed that includes continued evaluation of both the El Volcán Mine to
support a Mineral Resource estimation as well additional exploration on potential targets.
RPA has evaluated the interpretation completed to date and concurs with the approach taken by Galway. In
RPA’s opinion Galway should focus on assessing the spatial distribution of gold grade and thickness of the
individual vein structures. In addition RPA recommends the following:
•
That the sectional interpretations of veins (structures) be augmented by a series of level plans to evaluate
the current interpretation of the major veins and potential oblique structures and/or structural splays.
•
Create longitudinal sections for each of the major veins and in longitudinal section view evaluate the
distribution grade, width, and grade*width.
•
That the interpretation of the drilling to date be integrated with the level mapping and sampling to form an
interpretation on which Mineral Resources can be estimated and the potential for a narrow vein mining
opportunity can be evaluated.
Specific recommendations for Phase 1 and Phase 2 programs are as follows:
PHASE 1 PROGRAM (12 MONTHS) – $2.6 M:
•
Continue underground diamond drilling at the 100 m center drill spacing used to date and designed to
provide an initial coverage of 500 m vertical below the Reina de Oro level and 500 m along strike. RPA
concludes that the drill coverage under and along strike of the SW part of the deposit attained from pads 1
and 2 is adequate and that drilling proceed in a similar fashion to the NW from pads to complete this
drilling. 3 and 4. RPA recommends that 10,000 m be budgeted for this phase of drilling.
•
Complete a comprehensive interpretation of the El Volcán Mine that includes the results of the diamond
drilling and underground mapping and sampling carried out to date.
•
Surface drilling from two platforms is recommended in the north-west corner of the property. One drill
could accomplish the goal of covering an area 500 m deep by 200 m along strike at 100 m centres followed
up, depending on success, by 50 m centres in a later phase. Additionally 1,200 m is recommended to be
drilled at Coloro before the end of 2013. RPA recommends that 5,000 m of surface drilling be budgeted for
this phase.
•
Continue working on an integrated 3D geological and structural model of the deposit in preparation for an
initial NI 43-101 compliant Mineral Resource estimate.
D - 12
•
Complete preliminary metallurgical test work on El Volcán Mine mineralization.
•
Implement/improve the following procedures related to the QA/QC process:
o
Detailed documentation of the protocols for accurate sample insertion (e.g. reviewing/improving
procedures for insertion of certified reference material CRMs and blanks as mislabeling was
detected).
o
Data reception and data manipulation protocols: format of sent/received data, data storage, recoding carried out in the database (e.g., detection limit modification), documenting modifications
between original and modified data.
o
Data evaluation and monitoring procedures: documentation of process, periodicity, and corrective
actions taken in case corrections are required.
o
Documentation of any improvement implemented in the process as this will be increasingly
important in any drill programs on which resource estimation will be based.
A budget of approximately U.S.$2.6 million is estimated for Phase 1:
Program Diamond Drilling Budget and Evaluation Budget Galway Gold Inc.
Vetas Project
Description
Cost (U.S.$)
Lodging and meals
$114,000
Core storage and core logging facility
$22,500
Drilling costs
$1,875,000
Analytical
$150,000
Geology, geotechnical, and support
$149,500
Resource Estimate and Reporting
$50,000
Contingency (10%)
$236,100
Total
$2,597,100
Contingent on successful results of Phase 1 drilling and data compilation, RPA recommends proceeding to
the Phase 2 program.
PHASE 2 PROGRAM (6 MONTHS) – $3.6 M:
•
Based on the interpretation of the current data, RPA proposes 13,750 m of underground diamond drilling
including:
o
Underground infill drilling on 50 m spacings from the four drill stations.
o
Selected infill drilling above and below the Reina de Oro level.
o
Further evaluation of the down-dip extension of mineralization at Reina de Oro.
o
Evaluation of along strike potential at Reina de Oro.
•
RPA recommends 6,250 m of surface exploration drilling to test the workings above the Reina de Oro level
(nominal 3,398 m elevation) and for exploration in the area around the “Alaska” workings. Included in this
amount is approximately 600 m of drilling at Coloro. The surface diamond drilling would also further test
early stage targets derived from the exploration program/compilation.
•
Complete an initial NI 43-101 compliant Mineral Resource estimate for the El Volcán Mine.
A budget of approximately $3.6 million is estimated for Phase 2
D - 13
Phase 2 Program Diamond Drilling and Evaluation Budget Galway Gold Inc.
Vetas Project
Description
Cost (U.S.$)
Lodging and meals
$152,000
Core storage and core logging facility
$30,000
Drilling costs
$2,500,000
Analytical
$200,000
Geology, geotechnical, and support
$266,000
Resource Estimation and Reporting
$125,000
Contingency (10%)
$314,800
Total
$3,587,800
Available Funds
Available Funds of Galway Gold
No financings are being contemplated by Galway Gold in connection with the Arrangement. As of June 30,
2012 after giving effect to the Arrangement, the pro forma working capital of Galway Gold will be
U.S.$18,000,000.
Principal Purposes of Funds
At the Effective Time, the aggregate funds available to Galway Gold are estimated to be approximately
U.S.$18,000,000. The following table represents the principal purposes for which funds will be used by Galway
Gold over the 18 months subsequent to listing:
Estimated
Amount
(U.S.$)
$40,000
Principal Purpose
Fees payable in connection with the listing
Fees payable under material contracts
$150,000
Cost related to completion of Phase 1 as recommended in the 2012 Report
$2,597,100
Cost related to completion of Phase 2 as recommended in the 2012 Report
$3,587,800
Anticipated general and administrative expenses for the next 18 months
(including legal, accounting and other professional fees)
$2,250,000
Unallocated
$9,375,100
Total
$18,000,000
Although Galway Gold intends to spend the funds available to it as stated above, there may be
circumstances where, for sound business reasons, the reallocation of funds may be necessary.
Dividends and Other Distributions
Galway Gold’s current policy is to retain earnings to finance the growth and the development of its
business and not pay dividends until it has established revenue and income generating assets. This policy will be
reviewed in the future should Galway Gold be successful in establishing a commercial mining operation. Galway
Gold is not aware of any restriction that could prevent it from paying dividends.
D - 14
Management’s Discussion and Analysis of Galway Gold
Please refer to the management’s discussion and analysis contained in the following statements: Schedule
A for Audited Carve-Out Financial Statements for Galway Gold Inc. for the years ended December 31, 2011, 2010
and 2009, Schedule B for the Condensed Interim Carve-Out Financial Statements for Galway Gold Inc. for the three
and six months ended June 30, 2012, and Schedule C for the Audited Financial Statements for Galway Gold Inc. for
the period from incorporation (May 9, 2012) to June 30, 2012 and the related Management’s Discussion & Analysis
in respect of the same period.
Disclosure of Outstanding Security Data on Fully-Diluted Basis
The following table sets forth the fully-diluted share capital of Galway Gold after giving effect to the
Arrangement based on the share capital of Galway as at November 16, 2012.
Number of
Galway Gold
Shares(1)
Notes:
(1)
(2)
Percentage
(Diluted)
(Diluted)
Galway Gold Shares issued pursuant to the Arrangement
163,634,434
90%
Subtotal
163,634,434
90%
Galway Gold Shares reserved for issuance pursuant to the Galway Gold
Stock Option Plan(2)
16,363,443
10%
Fully-Diluted Total
179,997,877
100%
Assumes that immediately prior to the Effective Time: (i) that there will be 135,879,134 Galway Shares outstanding, (ii) no Dissent
Rights have been exercised, (iii) 5,260,137 Galway Warrants remain outstanding, which will be exchanged for Warrant Consideration
and (vi) that all Galway Options have been exercised.
Assumes that Galway Gold Stock Option Plan is approved by Galway Shareholders. Pursuant to the policies of the TSX-V, the
number of Galway Gold Shares reserved for issuance pursuant to the Galway Gold Stock Option Plan is to be up to a rolling
maximum of ten percent of the total number of Galway Gold Shares issued and outstanding from time to time. See “Options to
Purchase Securities”.
Description of Securities to be Listed
The authorized capital of Galway Gold consists of an unlimited number of common shares. Holders of
common shares are entitled to receive notice of, attend and vote at all meetings of the shareholders of Galway Gold.
Each common share carries the right to one vote in person or by proxy at all shareholder meetings of Galway Gold.
The holders of common shares are entitled to receive dividends as and when declared by the Galway Gold Board
and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of Galway
Gold, are entitled to receive the remaining property of Galway Gold in the event of liquidation, dissolution or
winding-up. There is currently one common share of Galway Gold issued and outstanding, and Galway is currently
the sole shareholder.
Consolidated Capitalization
The following table sets forth the capitalization of Galway Gold, effective June 30, 2012, both before and
after giving pro forma effect to the Arrangement. The financial information below should be read in conjunction
with the Audited Financial Statements for Galway Gold attached as Schedule C and the unaudited pro forma
financial statements for Galway Gold as at June 30, 2012 attached as Schedule D.
D - 15
Balance as at June 30, 2012
(U.S.$)
Pro Forma as at June 30, 2012(1)
(U.S.$)
Current assets
$1
$18,000,000
Non-current assets
-
$1,478,150
$1
$19,478,150
-
$1,741,981
$1
$17,736,169
Designation
Assets
Total Assets
Liabilities
Shareholder’s Equity
Notes:
(1)
As at June 30, 2012 there were (i) 125,630,341 Galway Shares outstanding, (ii) 9,381,601 Galway Warrants outstanding, which would
be exchanged for Warrant Consideration and (iii) 10,917,650 Galway Options outstanding.
Stock Option Plan
There are no outstanding options or warrants to purchase Galway Gold Shares as at the date of this
Circular. Galway Gold may decide to issue options at the Effective Time, pursuant to the terms of the Galway Gold
Stock Option Plan (as defined below).
At or prior to the Effective Time, Galway Gold proposes to establish a new stock option plan (the “Galway
Gold Stock Option Plan”). The following is a summary of the material terms of the Galway Gold Stock Option
Plan:
1. The maximum number of Galway Gold Shares with respect to which options may be granted pursuant to the
Galway Gold Stock Option Plan shall not exceed 10% of the outstanding Galway Gold Shares from time to time
(on a non-diluted basis);
2. The purpose of the Galway Gold Stock Option Plan is to give to Eligible Persons (as defined below) the
opportunity to participate in the success of Galway Gold by granting to such individuals options to acquire
common shares of Galway Gold in accordance with the terms of the plan, thereby giving such Eligible Persons
an ongoing proprietary interest in Galway Gold.
3. Options may be granted to directors, senior officers, or employees of Galway Gold or any of its subsidiaries, a
corporation that is wholly-owned by any of the foregoing, or to consultants of Galway Gold (collectively,
“Eligible Persons”);
4. No options shall be granted to any optionee if such grant could result, at any time, in:
(i)
the issuance to any one individual, within a one-year period, of a number of Galway Gold Shares
exceeding 5% of the issued and outstanding Galway Gold Shares;
(ii)
the issuance to any one consultant, within any 12 month period, of a number of Galway Gold Shares
exceeding 2% of the issued and outstanding Galway Gold Shares; and
(iii)
the issuance to employees conducting investor relations activities, within any 12 month period, of an
aggregate number of Galway Gold Shares exceeding 2% of the issued and outstanding Galway Gold
Shares;
unless permitted otherwise by any applicable stock exchange.
5. An option shall vest and may be exercised (in each case to the nearest full Galway Gold Share) in whole or in
part at any time during the term of such option after the date of the grant as determined by the resolution of the
Galway Gold board (“Galway Gold Board”) granting the option;
D - 16
6. An option shall vest and may be exercised (in each case to the nearest full Galway Gold Share) in whole or in
part at any time during the term of such option after the date of the grant as determined by the resolution of the
Galway Gold Board granting the option, provided that if an option expires during a black-out period, then the
exercise period for the option shall be extended in certain circumstances;
7. Options may be granted by Galway Gold pursuant to the recommendations of the Galway Gold Board or the
committee appointed to administer the Galway Gold Stock Option Plan from time to time provided and to the
extent that such decisions are approved by the Galway Gold Board;
8. An option shall be personal to the optionee and shall be non-assignable and non-transferable (whether by
operation of law or otherwise), except that an option may be assigned between a company that is wholly-owned
by an Eligible Person and the Eligible Person associated with the company;
9. An option and all rights to purchase Galway Gold Shares pursuant thereto shall expire and terminate
immediately upon the optionee who holds such option ceasing to be an Eligible Person provided that, in the
case of termination of employment not for cause, such option and all rights to purchase Galway Gold Shares
thereto shall expire and terminate: i) in the case of an optionee who is an Eligible Person, 90 days following
notice of termination of employment or on the expiry time, whichever is earlier; and ii) in the case of an
optionee who is engaged in investor relations activities, 30 days following notice of termination to provide such
investor relation activities or on the expiry time, whichever is earlier;
10. If an optionee dies before the expiry of an option, the optionee’s legal representative(s) may, subject to the
terms of the option and the Galway Gold Stock Option Plan, exercise the option to the extent that the optionee
was entitled to do so at the date of the optionee’s death at any time up to and including, but not after, a date
twelve months following the date of the optionee’s death or on the expiry time, whichever is earlier;
11. The Galway Gold Stock Option Plan will terminate automatically on the 10th anniversary of the date the plan
was approved by both shareholders and the Galway Board. The Galway Gold Board may suspend or terminate
the Galway Gold Stock Option Plan at any time, or from time to time amend the terms of the Galway Gold
Stock Option Plan or of any option granted under the Galway Gold Stock Option Plan and any stock option
agreement relating thereto, provided, that any such suspension, termination or amendment: (1) complies with
applicable law and the requirements of the TSX-V, including applicable requirements relating to requisite
shareholder approval and prior approval of the TSX-V or any other relevant regulatory body; (2) is, in the case
of an amendment that materially adversely affects the rights of any holder of Options, made with consent of
such holder; and (3) is, in the case of any reduction in the exercise price of options held by insiders at the time
of the proposed reduction, subject to approval by disinterested shareholders of Galway Gold in accordance with
the TSX-V Corporate Finance Manual; and
12. If a bona fide offer to purchase all of the issued Galway Gold Shares is made by a third party; Galway Gold
proposes to sell all or substantially all of its assets and undertakings; Galway Gold proposes to merge,
amalgamate or be absorbed by or into any other corporation (save and except for a subsidiary) under any
circumstances which involve or may involve or require the liquidation of Galway Gold, a distribution of its
assets among its shareholders, or the termination of the corporate existence of Galway Gold; Galway Gold
proposes an arrangement as a result of which all of the outstanding Galway Gold Shares would be acquired by a
third party; or any other form of transaction is proposed which the majority of the Galway Gold Board
determines is reasonably likely to have a similar effect as any of the foregoing (each, a “Change of Control
Event”), then upon completion of any of the foregoing transactions, the Galway Gold Board may require that an
option granted under the Galway Gold Stock Option Plan may be exercised (whether or not such option has
vested), as to all or any of the optioned Galway Gold Shares in respect of which such option has not previously
been exercised, by the optionee at any time up to and including (but not after) the expiry time of the option; and
Galway Gold may require the acceleration of the time for the exercise of the said option and of the time for the
fulfillment of any conditions or restrictions on such exercise, and all such changes shall be final and binding on
all options granted under the Galway Gold Stock Option Plan. Upon completion of a Change of Control Event,
an optionee who thereafter shall exercise an option granted under the Galway Gold Stock Option Plan shall
accept in lieu of the number of Galway Gold Shares to which such optionee was entitled upon such exercise, the
aggregate number of shares, other securities or other property which such optionee would have been entitled to
D - 17
receive as a result of such transaction if, on the effective date, the optionee had been the registered holder of the
number of Galway Gold Shares to which such optionee was entitled to upon exercise, except that if Galway
Gold is not able to procure compliance with this provision by the issuer or payee of the shares, securities or
other property then the optionee shall accept the Galway Gold Shares that the optionee would be entitled to
receive on exercise of the option.
Prior Sales
Galway purchased one Galway Gold Share for $1.00 on the incorporation of Galway Gold, which is the
only share of Galway Gold currently outstanding.
Escrowed Securities
There are no Galway Gold Shares currently held in escrow. Following completion of the Arrangement,
Galway Gold Shares under the direction or control of directors and officers of Galway Gold and certain other parties
may become subject to escrow.
Principal Securityholders
As of the date of the Circular, Galway holds 100% of the issued Galway Gold Shares.
Following completion of the Arrangement, the only person or company that is expected to directly or
indirectly own, or have control or direction over more than 10% of the shares of Galway Gold is AUX Canada,
which is expected to hold directly and indirectly approximately 28,719,643 Galway Gold Shares representing
approximately 17.55% of the outstanding Galway Gold Shares. This is based on the number of Galway Shares,
Galway Warrants and Galway Options outstanding as of November 16, 2012 and assumes that all Galway Warrants
participate in the arrangement rather than being exercised.
Directors and Executive Officers
Name, Occupation and Security Holding
The following table sets forth the name, state or province of residence, position to be held with Galway
Gold, principal occupation and number of common shares of Galway Gold that will be beneficially owned, directly
or indirectly, or which control or direction is exercised, by each person who will be a director and/or an executive
officer of Galway Gold after the Arrangement.
Start Date
Shares Beneficially
Owned,
Controlled(1),(2)
May 9, 2012
3,645,000
Director of Galway since May 30,
2005; President and Chief Executive Officer
of Galway since May 30, 2005
Larry Strauss
Vice President Corporate Affairs,
Director
Ontario, Canada
Effective
Time
1,575,000
Director of Galway since May 9, 2009.
Alfonso Gomez
Country Manager, Director
Bogotá, Colombia
Effective
Time
1,012,500
Name, Office Held and Residence(1)
Robert Hinchcliffe(3)
President, Chief Executive Officer and
Director
New York, USA
Managing Director of Galway, Mining
analyst and director of GMP Securities from
September of 1999 to March 2007
D - 18
Country Manager (Colombia) of Galway
since March 2011 and Administrative
Manager (Colombia) of Galway since 2006
Robb Doub(3)
Maryland, USA
Effective
Time
1,050,000
General Partner of New Markets Venture
Partners from 2003 to present. Prior to
this, Mr. Doub was a Managing Director of
Small Enterprise Assistance Fund (SEAF)
from 1997 to 2003.
Mike Sutton(3)
Ontario, Canada
Effective
Time
1,080,000
Director of Galway since July 2010.
Jose Gustavo de Souza Costa
Rio de Janeiro, Brazil
Effective
Time
None
Chief Executive Officer and Investor
Relations Officer of CCX Carvão da
Colômbia S.A. since October 2012 and Chief
Executive Officer of AUX Colômbia Ltda.
since June 2011. Chief Executive Officer of
Metro Rio, Grupo Invepar from June 2005 to
June 2011.
Robert Suttie
Chief Financial Officer and Corporate
Secretary
Ontario, Canada
Effective
Time
None
Senior Manager of Marrelli Support Services
Inc. since May 1, 2006 and serves of chief
financial officer for server junior resource
companies on the TSX-V.
Notes:
(1)
(2)
(3)
Director of Northern Aspect Resources Ltd.,
Chief Geologist, Kirkland Lake Gold Inc.
from 2001-2007; Consultant Vault Minerals,
Kirkland Lake Gold Inc. from 2007-2009;
Advisory board member of Galway, Senior
Geologist at Vault Minerals (acquired by
Queenston Mining in 2010) since 2009.
The information as to residence and principal occupation, not being within the knowledge of Galway or Galway Gold, has been
furnished by the respective directors and officers individually.
Each person will participate in the Arrangement and receive a pro rata portion of Galway Gold Shares. As a result it is expected
Galway Gold’s directors and executive officers will acquire and hold, an aggregate of 8,362,500 Galway Gold Shares, approximately
5.11% of the issued and outstanding Galway Gold Shares at the Effective Time, assuming that immediately prior to the Effective
Time: (i) that there will be 135,879,134 Galway Shares outstanding, (ii) no Dissent Rights have been exercised, (iii) 5,260,137
Galway Warrants remain outstanding, which will be exchanged for Warrant Consideration and (vi) that all Galway Options have been
exercised.
Member of the Audit Committee.
Pursuant to the Arrangement, AUX has the right to nominate one director for election to the Galway Gold
board of directors and if such nominee is not elected, Galway Gold agrees that it will take all actions that may be
available to it pursuant to applicable law to ensure that such nominee becomes a director of Galway Gold. This right
shall remain in place as long as AUX and its affiliates maintain an ownership interest of at least 10% of Galway
Gold’s common shares. Jose Gustavo de Souza Costa has been nominated by AUX to sit on the Galway Gold
Board.
It is expected that the term of office of each director listed above will conclude at the end of Galway Gold’s
next annual meeting, subject to reappointment by the shareholders of Galway Gold at such meeting.
Robert Hinchcliffe, President, Chief Executive Officer and Director, Age 45
Mr. Hinchcliffe has been the president, chief executive officer and director of Galway since May 2005 and
president, chief executive officer and director of Galway Gold since May 2012. After working on Wall Street for
several years as a financial analyst, Mr. Hinchcliffe was the Chief Financial Officer of a producing gold mine
company for two years. Mr. Hinchcliffe graduated from the University of Arizona in 1991 with a Bachelor of Arts
degree in economics and from Georgetown University in 1995 with a MBA with a concentration in finance.
Lawrence Strauss, Vice President Corporate Affairs and Director, Age 51
Mr. Strauss has 18 years of experience as a mining and commodities analyst in both Canada and the United
States. He was most recently a Director at GMP Securities, where he spent seven years as a well-regarded mining
D - 19
analyst. During his time with GMP Securities, the firm landed advisory roles on mergers and acquisitions, and raised
several billion dollars for many leading international mining companies, including Goldcorp, Kinross Gold,
Wheaton River, Bema Gold, Ivanhoe Mines and Northgate Minerals, among many others. During his career Mr.
Strauss has been awarded “Best on the Street” in the Mining and Metals category by the Wall Street Journal. Earlier
in his career, Mr. Strauss worked with Canaccord Capital, Prudential Securities and Merrill Lynch.
Alfonso Gomez, Country Manager and Director, Age 69
Mr. Gómez has over 30 years working in the resource sector, holding various positions with prominent
international mining companies in Colombia. Mr. Gómez has been with Galway since 2006 and will be the
Colombia Country Manager, in charge of Galway Gold’s efforts in Colombia regarding financial, legal, permitting,
environmental and community affairs among other areas. Before joining Galway, Mr. Gómez was Vice President of
operations for Prodeco and Vice President of Public Affairs of Carbones del Cerrejon, the world’s largest coal
producer and owner of the largest coal mine in the world, producing 35 million tons per year.
Robb Doub, Independent Director, Age 45
Mr. Doub has over 16 years of investing in high growth international emerging businesses. He is currently
a general partner of New Markets Venture Partners. Prior to this position, Mr. Doub was a Managing Director of
Small Enterprise Assistance Funds (SEAF), an emerging market venture capital company managing over $200
million in Central and Eastern Europe, Latin America, and Asia. He currently serves on the Board of K2 Alternative
Strategies Offshore Ltd, a hedge fund of funds managed by K2 Advisors, eCoast Sales Solutions, Appfluent
Technologies, EGeen International, and on the Conflicts Advisory Board of the off-shore hedge funds managed by
Deutsche Asset Management’s Absolute Return Strategies Group. Mr. Doub was a visiting professor at the
University of Warsaw’s School of Business teaching finance to MBA candidates and has been a guest speaker at the
Kellogg School of Business at Northwestern and at the Johnson School of Business at Cornell. Mr. Doub graduated
from the University of Vermont, with a major in History and received a MBA with Honors from Georgetown
University.
Mike Sutton, Independent Director, Age 52
Mr. Sutton has worked in some of the largest gold camps in the world, including Witwatersrand, Timmins
and Kirkland Lake, serving in various capacities related entirely to the exploration and mining of gold. Mr. Sutton
was awarded the Prospector of the Year for Ontario for the discovery of the South Mine Complex while he was
Chief Geologist and Assistant Manager at Kirkland Lake Gold. Most recently, he guided Vault Minerals as Vice
President of Exploration to a takeover by Queenston Mining Inc. Mr. Sutton will be Galway Gold’s qualified person
and serves on its gold advisory board. He is also a member of the Association of Professional Geoscientists of
Ontario and has been a member of the PDAC since 1982. Mr. Sutton graduated in 1984 from the University of
Toronto, with a Bachelor of Science Degree with Honors in Geology.
Jose Gustavo de Souza Costa, Independent Director, Age 66
Mr. de Souza Costa is the Chief Executive Officer and Investor Relations Officer of CCX Carvão da
Colômbia S.A. and the Chief Executive Officer of AUX Colômbia Ltda. He was the Chief Executive Officer of
Metro Rio, Grupo Invepar from June 2005 to June 2011 and was director or the boards of each of Eletrobrás and of
BM&FBOVESPA. Prior to June 2005, Mr. De Souza Costa held positions at Banco Pactual S.A., Banco Icatu S.A.,
Cia. de Mineração do Amapá, São Bento Mineração S.A., Banco Comércio e Indústria de São Paulo and Cia.
Metropolitana de Crédito Financiamento e Investimentos. He holds a degree in economics from the State University
of Rio de Janeiro – UERJ.
Robert Suttie, Chief Financial Officer and Corporate Secretary, Age 43
Mr. Suttie currently works with Marrelli Support Services as its senior manager of financial reporting and
compliance, possessing more than sixteen years of experience, ten of which were in public accounting prior to his
tenure with the company. Mr. Suttie specializes in management advisory services, accounting and the financial
D - 20
disclosure needs of the group’s public client base. In addition to managing the group’s financial-statement and
disclosure team, Mr. Suttie also serves as Chief Financial Officer for a number of junior mining companies listed on
the TSX and TSX-V, leveraging his skills and experience to become integral to the reporting issuers. Mr. Suttie
graduated from the University of Western Ontario with a BA.
Corporate Cease Trading Orders or Bankruptcies
No person who will be a director or executive officer of Galway Gold, or a shareholder holding a sufficient
number of shares to materially affect control of Galway Gold is, or has been within the ten years prior to that date, a
director or executive officer of any company, that while that person was acting in that capacity was the subject of a
cease trade order or an order that denied the relevant company access to any exemption under securities legislation,
for a period of more than 30 consecutive days was subject to an event that resulted, after the director or executive
officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order
or an order that denied the relevant company access to any exemption under securities legislation, for a period of
more than 30 consecutive days or became, or within a year of a director or executive officer ceasing to act in that
capacity became, bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangements or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets.
Penalties or Sanctions
No person who will be a director or executive officer of Galway Gold, or a shareholder holding a sufficient
number of shares to materially affect control of Galway Gold, has been subject to any penalties or sanctions imposed
by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered
into a settlement agreement with a Canadian securities regulatory authority; or been subject to any other penalties or
sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor
making an investment decision.
Personal Bankruptcies
No person who will be a director or officer of Galway Gold, or a shareholder holding a sufficient number
of shares to materially affect control of Galway Gold, or a personal holding company of any such persons has,
within ten years before the date hereof, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or become subject to or instituted any proceedings, arrangements or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or
shareholder.
Conflicts of Interest
Except as otherwise disclosed in the Circular, there are no existing or potential material conflicts of interest
between Galway Gold, and a person who will be a director or officer of Galway Gold.
Other Reporting Issuer Experience
The following table sets out each director’s and officer’s personal experience as a director or officer of any
other reporting issuer (or the equivalent of a reporting issuer) in the last five year period:
Name
Name and Jurisdiction of
Reporting Issuer
Trading
Market
Position
From
To
Robert Hinchcliffe
TSX-V
President, Director and
05- 2005
Present
Larry Strauss
TSX-V
Director
04-2009
Present
Alfonso Gomez
TSX-V
Director
08-2011
Present
D - 21
Robb Doub
TSX-V
Director
11-2009
Present
Mike Sutton
Galway Resources Ltd
TSX-V
Director
07-2010
Present
Northern Aspect Resources Ltd.
TSX-V
Director
07- 2012
Present
CCX Carvão da Colômbia S.A.
BOVESPA
(Brazil)
Investor Relations Officer
10-2012 Present
Metro Rio, Grupo Invepar
BOVESPA
(Brazil)
06-2005
06-2011
Rupert Resources Ltd.
TSX-V
10-2012
Present
Strike Minerals Inc.
TSX-V
03-2011
Present
Asher Resources Corporation
TSX-V
02-2011
Present
Chop Exploration Inc.
TSX-V
Chief Financial Office
02-2011
08-2011
TSX
07-2009
Present
Metallum Resources Inc.
TSX-V
02-2007
Present
Noront Resources Ltd.
TSX-V
01-2007
06-2008
Jose Gustavo de
Souza Costa
Robert Suttie
Thundermin Resources Inc.
Executive Compensation
Executive Employment Agreements
Since incorporation, Galway Gold has not carried on any business and has not completed a financial year.
As of the date of this Circular, no compensation or benefits of any nature have been paid by Galway Gold to its
directors or officers and none will be paid until the completion of the Arrangement.
Following the Effective Date, it is anticipated that the executive officers of Galway Gold will be paid
compensation at levels comparable with other junior exploration companies of similar size and character.
Galway Gold will enter into executive employment agreements with Robert Hinchcliffe as Chief Executive
Officer, Larry Strauss as Vice President of Corporate Affairs and Alfonso Gomez as Colombia Country Manager at
annualized salaries of Cdn $275,000, $150,000, and $250,000 respectively.
It is expected that the employment agreement with Mr. Hinchcliffe will include the following conditions:
participation in the Galway Gold Stock Option Plan, participation in change of control payments; participation in
Galway Gold’s Stock Option Plan; participation in Galway Gold’s benefits plan; and twenty-six days of paid
vacation per year. If Mr. Hinchcliffe’s employment is terminated without cause at any time or in the event that Mr.
Hinchcliffe voluntarily terminates his employment for any reason within twelve months after a change of control (as
defined therein), Galway Gold shall pay a lump sum equal to three times his base salary within thirty days of
termination, a lump sum equal to three times his most recent incentive bonus within thirty days of termination and
eighteen months continued medical coverage for himself and dependents equal to six months of his base salary.
It is expected that the employment agreement with Mr. Gomez will include the following conditions:
participation in the Galway Gold Stock Option Plan; participation in change of control payments; and participation
in Galway Gold’s benefits plan. If Mr. Gomez’s employment is terminated without cause at any time, Galway shall
pay a gross amount equal to six month’s salary in equal monthly installments two months after termination.
It is expected that the employment agreement with Mr. Strauss will include the following conditions:
participation in change of control payments; and participation in Galway Gold’s benefits plan. If Mr. Strauss’
employment is terminated without cause at any time, Galway Gold shall pay a gross amount equal to two month’s
salary in equal monthly installments the two months after termination.
Report on Executive Compensation
D - 22
The Galway Gold Board will review Galway Gold’s executive compensation and stock option policies and
the compensation paid to the Chief Executive Officer and other officers of Galway Gold and will also review the
design and competitiveness of Galway Gold’s compensation, stock option and benefit programs generally.
The compensation of executive officers will be composed primarily of three elements: a base salary,
potential bonuses and the allocation of incentive stock options. The Galway Gold Board will establish the levels of
remuneration taking into consideration level of expertise, length of service to Galway Gold, responsibilities and
individuals’ performance.
Compensation of Directors
Galway Gold has no standard arrangements pursuant to which directors are compensated by Galway Gold
or its subsidiaries for their services in their capacity as directors, or for committee participation, involvement in
special assignments or for services as consultant or expert during the most recently completed financial year or
subsequently, up to and including the date of this Circular. At or prior to the Effective Time, Galway Gold will
implement the Galway Gold Stock Option Plan for the granting of incentive stock options to the officers, employees
and directors. The purpose of granting such options is to assist Galway Gold in compensating, attracting, retaining
and motivating the directors of Galway Gold and to closely align the personal interests of such persons to that of the
shareholders.
Indebtedness of Directors and Executive Officers
No director, executive officer or senior officer of Galway Gold, (or a person who will be a director,
executive officer or senior officer) or any associates of such persons, are or will be indebted to Galway Gold and no
indebtedness of such persons is the subject of a guarantee, support agreement, letter of credit or other similar
arrangement provided by Galway Gold.
Audit Committee and Corporate Governance
Audit Committee
Charter of the Audit Committee:
Mandate
The primary function of the Galway Gold audit committee (the “Audit Committee”) is to assist the
Galway Gold Board in fulfilling its financial oversight responsibilities by reviewing: (i) Galway Gold’s financial
reports and other financial information provided by Galway Gold to regulatory authorities and shareholders; (ii)
systems of internal controls regarding finance and accounting; and (iii) auditing, accounting and financial reporting
processes. Consistent with this function, the Audit Committee will encourage continuous improvement of, and
should foster adherence to, Galway Gold’s policies, procedures and practices at all levels. The Audit Committee’s
primary duties and responsibilities are to:
(a) serve as an independent and objective party to monitor Galway Gold’s financial reporting and internal
control system and review Galway Gold’s financial statements;
(b) review and appraise the performance of Galway Gold’s external auditors; and
(c) provide an open avenue of communication among Galway Gold’s auditors, financial and senior
management and the Galway Gold Board.
D - 23
Composition
The Audit Committee shall be comprised of three directors as determined by the Galway Gold Board, the
majority of whom shall be free from any relationship that, in the opinion of the Galway Gold Board, would interfere
with the exercise of his or her independent judgment as a member of the Audit Committee.
At least one member of the Audit Committee shall have accounting or related financial management
expertise. All members of the Audit Committee that are not financially literate will work towards becoming
financially literate and obtain a working familiarity with basic finance and accounting practices. For the purposes of
Galway Gold’s Charter, the definition of “financially literate” is the ability to read and understand a set of financial
statements that present a breadth and level of complexity of accounting issues that are generally comparable to the
breadth and complexity of the issues that can presumably be expected to be raised by Galway Gold’s financial
statements.
The members of the Audit Committee shall be elected by the Galway Gold Board at its first meeting
following the annual shareholders’ meeting. Unless a Chair is elected by the full Galway Gold Board, the members
of the Audit Committee may designate a Chair by a majority vote of the full Audit Committee membership.
Meetings
The Audit Committee shall meet twice annually, or more frequently as circumstances dictate. As part of its
job to foster open communication, the Audit Committee will meet at least annually with the Chief Financial Officer
and the external auditors in separate sessions.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
(a)
Review and update its Charter annually.
(b)
Review Galway Gold’s financial statements, MD&A and any annual and interim earnings, press
releases before Galway publicly discloses this information and any reports or other financial
information (including quarterly financial statements), which are submitted to any governmental
body, or to the public, including any certification, report, opinion, or review rendered by the
external auditors.
External Auditors
(a)
Review annually, the performance of the external auditors who shall be ultimately accountable to
the Galway Board and the Audit Committee as representatives of the shareholders of Galway
Gold.
(b)
Obtain annually, a formal written statement of external auditors setting forth all relationships
between the external auditors and Galway Gold, consistent with Independence Standards Board
Standard 1.
(c)
Review and discuss with the external auditors any disclosed relationships or services that may
impact the objectivity and independence of the external auditors.
(d)
Take, or recommend that the full Galway Gold Board take, appropriate action to oversee the
independence of the external auditors.
(e)
Recommend to the Galway Gold Board the selection and, where applicable, the replacement of the
external auditors nominated annually for shareholder approval.
(f)
At each meeting, consult with the external auditors, without the presence of management, about
the quality of Galway Gold’s accounting principles, internal controls and the completeness and
accuracy of Galway Gold’s financial statements.
D - 24
(g)
Review and approve Galway Gold’s hiring policies regarding partners, employees and former
partners and employees of the present and former external auditors of Galway Gold.
(h)
Review with management and the external auditors the audit plan for the year-end financial
statements and intended template for such statements.
(i)
Review and pre-approve all audit and audit-related services and the fees and other compensation
related thereto, and any non-audit services, provided by Galway Gold’s external auditors. The
pre-approval requirement is waived with respect to the provision of non-audit services if:
(i)
the aggregate amount of all such non-audit services provided to Galway Gold constitutes
not more than five (5) percent of the total amount of revenues paid by Galway Gold to its
external auditors during the fiscal year in which the non-audit services are provided;
(ii)
such services were not recognized by Galway Gold at the time of the engagement to be
non-audit services; and
(iii)
such services are promptly brought to the attention of the Audit Committee by Galway
Gold and approved prior to the completion of the audit by the Audit Committee or by one
or more members of the Audit Committee who are members of the Galway Gold Board
to whom authority to grant such approvals has been delegated by the Audit Committee.
Provided the pre-approval of the non-audit services is presented to the Audit Committee’s first scheduled
meeting following such approval such authority may be delegated by the Audit Committee to one or more
independent members of the Audit Committee.
Financial Reporting Processes
(a)
In consultation with the external auditors, review with management the integrity of Galway Gold’s
financial reporting process, both internal and external.
(b)
Consider the external auditors’ judgments about the quality and appropriateness of Galway Gold’s
accounting principles as applied in its financial reporting.
(c)
Consider and approve, if appropriate, changes to Galway Gold’s auditing and accounting
principles and practices as suggested by the external auditors and management.
(d)
Review significant judgments made by management in the preparation of the financial statements
and the view of the external auditors as to appropriateness of such judgments.
(e)
Following completion of the annual audit, review separately with management and the external
auditors any significant difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
(f)
Review any significant disagreement among management and the external auditors in connection
with the preparation of the financial statements.
(g)
Review with the external auditors and management the extent to which changes and improvements
in financial or accounting practices have been implemented.
(h)
Review any complaints or concerns about any questionable accounting, internal accounting
controls or auditing matters.
(i)
Review certification process.
(j)
Establish a procedure for the confidential, anonymous submission by employees of Galway Gold
of concerns regarding questionable accounting or auditing matters.
(a)
Review any related-party transactions.
Other
D - 25
Composition of the Audit Committee
The following are the members of the Audit Committee:
Robert Hinchcliffe
Not Independent(1)
Robb Doub
Independent
(1)
Mike Sutton
Note:
Independent(1)
(1)
As defined by National Instrument 52-110 – Audit Committees (“NI 52-110”).
Relevant Education and Experience
Set out below is a general description of the education and experience of each Audit Committee member
that is relevant to the performance of his responsibilities as an Audit Committee member.
Robert Hinchcliffe – Mr. Hinchcliffe has had extensive experience working with financial statements over
the past fifteen years. After working on Wall Street for several years as a financial analyst, Mr. Hinchcliffe was the
Chief Financial Officer of a producing gold mine company for two years. Mr. Hinchcliffe graduated from the
University of Arizona in 1991 with a Bachelor of Arts degree in economics and from Georgetown University in
1995 with a MBA with a concentration in finance.
Robb Doub – Mr. Doub has over sixteen years of investing in high growth international emerging
businesses. He is currently a general partner of New Markets Venture Partners. Prior to this position, Mr. Doub was
a Managing Director of SEAF, an emerging market venture capital company managing over $200 million in Central
and Eastern Europe, Latin America, and Asia. Mr. Doub was a visiting professor at the University of Warsaw’s
School of Business teaching finance to MBA candidates and has been a guest speaker the at the Kellogg School of
Business at Northwestern and at the Johnson School of Business at Cornell. Mr. Doub graduated from the University
of Vermont, with a major in History, and received a MBA with Honors from Georgetown University.
Mike Sutton – Mr. Sutton worked as the Assistant Manager at Kirkland Lake Gold and most recently, he
guided Vault Minerals as Vice President of Exploration to a takeover by Queenston Mining Inc. Mr. Sutton sits on
the board of Northern Aspect Resources, is also a member of the Association of Professional Geoscientists of
Ontario and has been a member of the PDAC since 1982. Mr. Sutton graduated in 1984 from the University of
Toronto, with a Bachelor of Science Degree with Honors in Geology and a minor in economics.
External Auditor Service Fees
Galway Gold has less than one year’s operating history. It is anticipated that Galway Gold’s auditors will
be PricewaterhouseCoopers LLP, Chartered Accountants, 18 York Street, Suite 2600, Toronto, Ontario M5J 0B2.
Exemption from NI 52-110
As Galway Gold will be listed on the TSX-V, it is a “venture issuer” and may avail itself of exemptions
from the requirements of Part 3 Composition of the Audit Committee and Part 5 Reporting Obligations of NI 52110, which require the independence of each member of an audit committee, subject to limited exceptions and the
disclosure of audit committee information in an annual information form, respectively. Galway Gold will rely on the
exemption in Part 3 because not all the members of its audit committee are independent, and it will rely on the
exemption in Part 5 because, as a venture issuer, it is not required to file an annual information form.
Corporate Governance
Galway Gold’s corporate governance practices will be as follows:
Board of Directors
D - 26
Upon completion of the Arrangement, Galway Gold’s Board will consist of five directors. Robb Doub and
Mike Sutton are independent directors. Robert Hinchcliffe serves as an executive officer of Galway Gold therefore
is not independent. Larry Strauss and Alfonso Gomez are employees of Galway Gold and are therefore not
independent.
Board Mandate and Position Descriptions
The Galway Gold Board intends to adopt a written mandate and position descriptions for the chair of each
board committee including the roles and responsibilities of the Chief Executive Officer.
Orientation and Continuing Education
New directors will be provided with an information package regarding the business and operations of
Galway Gold which will fully apprise each of them of such matters and of the duties and responsibilities of the
directors pursuant to applicable law and policy.
New directors will also receive access to senior management through an orientation session to discuss
operations, current business strategies and historical information about Galway Gold.
Galway Gold will encourage and support members of the Galway Gold Board to pursue available
continuing education opportunities, including opportunities within the mineral industry and with respect to their
corporate governance responsibilities.
Ethical Business Conduct
A copy of Galway Gold’s Code of Business Conduct can be obtained by contacting Galway Gold. Galway
Gold also plans to institute a ‘whistleblower’ program whereby infractions can be reported to the Chair of the audit
committee. This policy will be distributed to employees.
Any director or executive officer that has a material interest in a transaction or agreement that is being
considered by Galway Gold is required to declare a conflict of interest and is excluded from voting and from the
decision making process with respect to that issue.
Nomination of Directors
The Galway Gold Board as a whole will review the composition of the board and its committees and
recommend changes, if appropriate, evaluate potential candidates and propose nominees.
Compensation
In determining compensation levels for directors and officers, the Galway Gold Board will assess the age,
experience and qualifications of the individuals involved and evaluate these factors in light of corporate resources,
objectives and performance.
No compensation consultant or advisor has been retained by Galway Gold to date.
Assessments
Galway Gold will have a relatively small board of directors which will provide the opportunity for all
directors to actively interact and to become familiar with one another. Any issues with respect to effectiveness and
contribution readily become apparent in this environment and will be brought to the attention of the board by the
director concerned.
D - 27
Risk Factors
An investment in the securities of Galway Gold is highly speculative and involves numerous and
significant risks. Only investors whose financial resources are sufficient to enable them to assume such risks and
who have no need for immediate liquidity in their investment should undertake such investment. Prospective
investors should carefully consider the risk factors that have affected, and which in the future are reasonably
expected to affect, Galway Gold and its financial position.
Galway Gold’s financial condition, results of operations and businesses are subject to certain risks, certain
of which are described below (and elsewhere in the Circular):
Galway Gold has no History of Operations, Earnings or Dividends
Galway Gold has not yet commenced operations and therefore has no history of earnings or of a return on
investment, and there is no assurance that the Vetas Project or any other potentially acquired mineral property
interests will generate earnings, operate profitably or provide a return on investment in the future. Galway Gold has
no plans to pay dividends. The future dividend policy of Galway Gold will be determined by the Galway Gold
Board.
No Assurance of Listing of Galway Gold Shares
The Galway Gold Shares are not currently listed on any stock exchange. Although an application has been
made to the TSX-V for listing of the Galway Gold Shares on the TSX-V, there is no assurance when, or if, the
Galway Gold Shares will be listed on the TSX-V or on any other stock exchange. Until the Galway Gold Shares are
listed on a stock exchange, shareholders of Galway Gold may not be able to sell their Galway Gold Shares. Even if a
listing is obtained, ownership of Galway Gold Shares will involve a high degree of risk.
Additional Funding Requirements
Galway Gold is reliant upon additional equity financing in order to continue its business and operations,
because it is in the business of mineral exploration and at present does not derive any income from its mineral assets.
There is no guarantee that future sources of funding will be available to Galway Gold. If Galway Gold is not able to
raise additional equity funding in the future, it will be unable to carry out its business.
Commodity Price Volatility
The price of gold and other various commodities that Galway Gold is exploring for can fluctuate drastically
and is beyond Galway Gold’s control. Galway Gold is specifically concerned with the prices of precious and base
metals. While Galway Gold would benefit from an increase in the value of precious and base metals, a decrease in
the value of precious and base metals and other minerals could also adversely affect it.
Title to Mineral Properties
Acquisition of title to mineral properties is a very detailed and time-consuming process. Title to, and the
area of, mineral properties may be disputed or impugned. Although Galway Gold has investigated its title to the
mineral properties for which it holds an option or concessions or mineral leases or licenses, there can be no
assurance that Galway Gold has valid title to such mineral properties or that its title thereto will not be challenged or
impugned. For example, mineral properties sometimes contain claims or transfer histories that examiners cannot
verify, and transfers under foreign law often are complex. Galway Gold does not carry title insurance with respect to
its properties. Accordingly, Galway Gold’s mineral properties may be subject to prior unregistered liens,
agreements, transfers or claims, including native land claims, and title may be affected by, among other things,
undetected defects. In addition, Galway Gold may be unable to operate its properties as permitted or to enforce its
rights with respect to its properties. A successful claim that Galway Gold does not have title to a mineral property
could cause Galway Gold to lose its rights to mine that property, perhaps without compensation for its prior
expenditures relating to the property. Galway holds only an option to acquire the Vetas Project, and as a result
D - 28
Galway Gold may not obtain all of the permits or licences necessary to carry on proposed exploration activities with
respect to the Vetas Project.
Assignment of Option Contracts
Galway Gold does not hold title to the Vetas Project and can only assume the right to the option to hold
title through the assignment of the Option Contracts from Galway. In the case that Galway or Galway Gold is in
default of the Option Contracts it may lose all its interests in the Vetas Project.
It is expected that the terms of the Option Contracts, upon assignment to Galway Gold, will be renegotiated
to reflect the fact that Galway Shares will no longer be issued as payment. There can be no assurances that the new
payment terms of the Option Contracts will be the same or similar to the original payment terms.
Mineral Exploration
Mineral exploration involves a high degree of risk. Few properties that are explored are ultimately
developed into producing mines. Unusual or unexpected formations, formation pressures, fires, power outages, labor
disruptions, flooding, explosions, tailings impoundment failures, cave-ins, landslides and the inability to obtain
adequate machinery, equipment or labor are some of the risks involved in mineral exploration and exploitation
activities. Galway has relied on and may continue to rely on consultants and others for mineral exploration and
exploitation expertise. Substantial expenditures are required to establish mineral reserves and mineral resources
through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of some
properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining, or to
upgrade existing infrastructure.
There can be no assurance that the funds required to exploit any mineral reserves and mineral resources
discovered by Galway Gold will be obtained on a timely basis or at all. The economics of exploiting mineral
reserves and mineral resources discovered by Galway Gold are affected by many factors, many outside the control
of Galway Gold, including the cost of operations, variations in the grade of ore mined and metals recovered, price
fluctuations in the metal markets, costs of processing equipment, and other factors such as government regulations,
including regulations relating to royalties, allowable production, importing and exporting of minerals and
environmental protection. There can be no assurance that Galway Gold’s mineral exploration and exploitation
activities will be successful.
Foreign Investment Risk
At present, Galway Gold is only active in Colombia and therefore its foreign mining and exploration
operations are subject to the risks normally associated with the conduct of business in foreign countries. The
occurrence of one or more of the risks could have a material and adverse effect on Galway Gold’s profitability or the
viability of its affected foreign operations, which could have a material and adverse effect on future cash flows,
earnings, results of operations and financial condition.
Galway Gold’s ability to carry on its business in the normal course may be adversely affected by political
and economic considerations such as civil and tribal unrest, war (including neighboring states), terrorist actions,
labor disputes, corruption, sovereign risk, political instability, the failure of foreign parties or governments to honor
contractual relations, consents, rejections or waivers granted, changing government regulations with respect to
mining including environmental requirements, taxation, land tenure, foreign investments, income repatriation and
capital recovery, fluctuations in currency exchange and inflation rates, import and export restrictions, challenges to
permits and licenses and problems renewing or retaining new permits and licenses amongst other things.
Foreign Exchange
Galway Gold has historically conducted its financings in Canadian dollars and a significant amount of its
operating expenditures and financial commitments are denominated in U.S. dollars and Colombian pesos. Where
D - 29
there are fluctuations in the United States dollar or Colombian peso exchange rate, Galway Gold’s revenue margins
may be materially affected.
Uninsurable Risks
Mineral exploration activities involve numerous risks, including unexpected or unusual geological
operating conditions, rock bursts, cave-ins, fires, floods, earthquakes and other environmental occurrences and
political and social instability. It is not always possible to obtain insurance against all such risks and Galway Gold
may decide not to insure against certain risks as a result of high premiums or other reasons. Should such liabilities
arise, they could negatively affect Galway Gold’s profitability and financial position and the value of its common
shares. Galway Gold does not maintain insurance against environmental risks.
Environmental Regulation and Liability
Galway Gold’s activities are subject to laws and regulations controlling not only mineral exploration and
exploitation activities themselves but also the possible effects of such activities upon the environment.
Environmental legislation may change and make the mining and processing of ore uneconomic or result in
significant environmental or reclamation costs. Environmental legislation provides for restrictions and prohibitions
on spills, releases or emissions of various substances produced in association with certain mineral exploitation
activities, such as seepage from tailings disposal areas that could result in environmental pollution. A breach of
environmental legislation may result in the imposition of fines and penalties or the suspension or closure of
operations. In addition, certain types of operations require the submission of environmental impact statements and
approval thereof by government authorities. Environmental legislation is evolving in a manner that may mean
stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for companies and their directors,
officers and employees. Permits from a variety of regulatory authorities are required for many aspects of mineral
exploitation activities, including closure and reclamation. Future environmental legislation could cause additional
expense, capital expenditures, restrictions, liabilities and delays in the development of the Galway Gold properties,
the extent of which cannot be predicted. In the context of environmental permits, including the approval of closure
and reclamation plans, Galway Gold must comply with standards and laws and regulations that may entail costs and
delays, depending on the nature of the activity to be permitted and how stringently the regulations are implemented
by the permitting authority.
Regulations and Permits
Galway Gold’s activities are subject to a wide variety of laws and regulations governing health and worker
safety, employment standards, waste disposal, protection of the environment, protection of historic and
archaeological sites, mine development and protection of endangered and protected species and other matters.
Galway Gold is required to have a wide variety of permits from governmental and regulatory authorities to carry out
its activities. These permits relate to virtually every aspect of Galway Gold’s exploration and exploitation activities.
Changes in these laws and regulations or changes in their enforcement or interpretation could result in changes in
legal requirements or in the terms of Galway Gold’s permits that could have a significant adverse impact on Galway
Gold’s existing or future operations or projects. Obtaining permits can be a complex, time-consuming process.
There can be no assurance that Galway Gold will be able to obtain the necessary permits on acceptable terms, in a
timely manner or at all. The costs and delays associated with obtaining permits and complying with these permits
and applicable laws and regulations could stop or materially delay or restrict Galway Gold from continuing or
proceeding with existing or future operations or projects. Any failure to comply with permits and applicable laws
and regulations, even if inadvertent, could result in the interruption or closure of operations or material fines,
penalties or other liabilities.
Potential Dilution
The issue of common shares of Galway Gold upon the exercise of options will dilute the ownership interest
of Galway Gold’s current shareholders. Galway Gold may also issue additional options, warrants or additional
common shares from time to time in the future. If it does so, the ownership interest of Galway Gold’s then current
shareholders could also be diluted.
D - 30
Legal Proceedings and Regulatory Actions
There are no legal proceedings to which Galway Gold is a party, or to which any of its properties are
subject, nor are there any such proceedings known or contemplated, that are of a material nature.
Interests of Management and others in Material Transactions
Other than described in the Circular, none of the directors or executive officers of Galway Gold, and no
associate or affiliate of the foregoing person, has, or has had, any material interests, directly or indirectly, in any
transaction or in any proposed transaction that has materially affected or will materially affect Galway Gold or any
of its subsidiaries.
Auditors, Transfer Agents and Registrars
It is anticipated that Galway Gold’s Transfer Agent and Registrar will be Computershare Investor Services
Inc., located at 100 University Avenue, 9th floor, Toronto, Ontario, M5J 2Y1.
It is anticipated that Galway Gold’s auditors will be Galway’s auditors, PricewaterhouseCoopers LLP,
Chartered Accountants, Licensed Public Accountants, located at 18 York Street, Suite 2600, Toronto, Ontario M5J
0B2.
Material Contracts
The contracts to be assigned to Galway Gold that would materially affect Galway Gold and that can
reasonably be regarded as material to a proposed investor in the Galway Gold Shares, other than contracts entered
into in the ordinary course of business are the Arrangement Agreement, the Vetas Sale Agreement and the Option
Contracts. See “The Arrangement Agreement” in the Circular for a discussion of the Arrangement Agreement. See
“Description of the Business” for a summary of Galway Gold’s obligations under the Option Contracts.
A copy of the current form of the material contracts may be inspected at the principal business office of
Galway located at 36 Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5, during normal business hours from the
date of the Circular until the completion of the Arrangement.
Experts
Information relating to the Vetas Project in this Appendix D was prepared by RPA as part of the Vetas
Technical Report. As at the date hereof, RPA and its respective directors, officers, employees and consultants,
individually or as a group, beneficially owned, directly or indirectly, less than 1% of the outstanding Galway Gold
Shares.
Financial Statement Disclosure for Galway Gold
Set forth below is a summary of certain selected unaudited pro forma information with respect to Galway
Gold as at June 30, 2012 after giving effect to the proposed Arrangement. The following information should be read
in conjunction with the following financial statements:
(a) Audited Carve-Out Financial Statements for Galway Gold Inc. for the years ended December 31, 2011,
2010 and 2009 (see Schedule A);
(b) Condensed Interim Carve-Out Financial Statements for Galway Gold for the three and six months ended
June 30, 2012 (see Schedule B);
(c) Audited Financial Statements for Galway Gold for the period from Incorporation (May 9, 2012) to June 30,
2012 (see Schedule C); and
(d) Pro Forma Consolidated Financial Statements for Galway Gold as at June 30, 2012 (see Schedule D).
D - 31
The pro forma adjustments are based upon available information and assumptions described in the
notes to the Galway Gold unaudited pro forma statement of financial position. The pro forma adjustments
are based upon the assumptions described in the notes to the unaudited pro forma statement of financial
position, including that the Galway Shareholders approve the Arrangement Resolution at the Meeting and
the Arrangement is completed. The unaudited pro forma statement of financial position is presented for
illustrative purposes only and is not necessarily indicative of the financial position that would have occurred
had the Arrangement actually occurred at the times contemplated by the notes to the unaudited pro forma
statement of financial position or of the results of financial position expected in future periods or as of any
date. See “Cautionary Statement Regarding Forward-Looking Statements”.
Pro Forma Galway Gold
as at June 30, 2012
(U.S.$)
Total assets(1) .........................................................................................
Total liabilities .......................................................................................
Notes:
(1)
$19,478,150
$1,741,981
The exploration and evaluation and property and equipment of U.S.$1,478,150 related to the Vetas Project currently
owned by Galway include, among other things, costs incurred with respect to land and license acquisition, exploration
expenses and administrative expenses.
Galway Gold Shareholder Rights Plan
The Galway Gold Board, with the approval of Galway as Galway Gold’s sole shareholder, will adopt a
shareholder rights plan (the “Galway Gold Shareholder Rights Plan”) with Computershare Investor Services Inc.
The Galway Gold Shareholder Rights Plan will be adopted by the Galway Gold Board to protect the future
shareholders of Galway Gold from unfair, abusive or coercive take-over strategies, including the acquisition of
control of Galway Gold through a take-over bid that does not treat all shareholders equally or fairly. See attached to
this Appendix, Schedule E, “Summary of Galway Gold Shareholder Rights Plan”.
The terms of the Galway Gold Shareholder Rights Plan will require confirmation and approval by the
future Galway Gold shareholders every three years.
The principal objectives of the Galway Gold Shareholder Rights Plan are to ensure that, in the event that a
bid for control of Galway is made pursuant to an acquisition of Galway Gold Shares, the Galway Gold Board has
sufficient time to explore and develop alternatives for maximizing shareholder value and to provide adequate time
for competing bids to be tabled. From the shareholders' perspective, a shareholder rights plan ensures that
shareholders have enough time to properly assess the bid and ensures that shareholders have an equal opportunity to
participate in such a bid.
The Galway Gold Shareholder Rights Plan in no way prohibits a change of control of Galway Gold in a
transaction that is procedurally fair to Galway Gold shareholders. The rights of shareholders of Galway Gold to
seek a change in the Galway Gold Board or to influence or promote action of the Galway Gold Board in a particular
manner will not be affected by the Galway Gold Shareholder Rights Plan. The approval of the Galway Gold
Shareholder Rights Plan by the shareholders of Galway Gold will not alter, diminish or reduce the fiduciary duties
of the directors of Galway Gold when faced with a potential change of control transaction or restrict the potential
actions that might be taken by the directors in such circumstances.
In approving the Galway Gold Shareholder Rights Plan, the Galway Board will consider the following
concerns inherent in the existing legislative framework governing take-over bids in Canada:
1. Time. The Galway Gold Shareholder Rights Plan is intended to ensure that there is sufficient time for
shareholders to consider and respond to a take-over bid without undue pressure and for the Galway Gold
Board to explore other alternatives available to maximize shareholder value in circumstances where other
bidders may be prepared to pay more than the offeror. Canadian securities legislation (which requires that a
take-over bid remain open for 35 days) may not provide sufficient time for these purposes.
D - 32
2. Unequal Treatment. While existing Canadian securities legislation has established a number of procedural
requirements for the conduct of take-over bids, which generally require that a take-over bid be made to all
shareholders and that a bidder offer identical consideration to all shareholders, the take-over bid regime
includes exemptions to the formal bid requirements that could operate to allow control of an issuer to be
acquired without the making of a formal take-over bid to all shareholders. Specifically, Canadian securities
legislation allows a small group of securityholders to dispose of their securities pursuant to a private
agreement at a premium to market price, which premium is not shared with other securityholders. In
addition, a person may slowly accumulate securities through stock exchange acquisitions which may result,
over time, in an acquisition of control without payment of fair value for control or a fair sharing of a control
premium among all securityholders. It may also be possible to engage in transactions outside of Canada
without regard to these protections. The Galway Gold Shareholder Rights Plan addresses these concerns by
applying to all acquisitions that would result in a person owning 20% or more of the Galway Gold Shares
(subject to certain limited exceptions), thereby generally precluding a person from acquiring a control
interest in Galway Gold without making a Permitted Bid to all shareholders.
3. Pressure to Tender. Galway Gold shareholders may feel compelled to tender to a partial take-over bid
which they consider inadequate because, if they do not, they will be left holding illiquid or minority
discounted shares. This is particularly so in the case of a partial bid for less than all securities of a class
where the bidder wishes to obtain a control position but does not wish to acquire all of the Galway Gold
Shares. The Permitted Bid provisions of the Galway Gold Shareholder Rights Plan allow shareholders to
separate the tender decision from the partial take-over bid approval decision by requiring that a partial bid
remain open for acceptance for a further 10 business days following public announcement that more than
50% of the Galway Gold Shares (other than those held by the offeror) have been tendered to the bid.
4. Terms of Plan. Based on the advice of its legal advisors, management believes that the terms of the Galway
Gold Shareholder Rights Plan conform with the current Canadian practices. Among other things, the
Galway Shareholder Rights Plan has been designed to: (i) avoid inadvertent application of the Galway Gold
Shareholder Rights Plan to the activities of portfolio managers, trust companies and other persons where a
substantial portion of the ordinary business of such person is the management of funds for unaffiliated
investors; (ii) remove the board’s discretion to take certain actions which normally would be considered to
be in accordance with its fiduciary duties (e.g. to determine whether actions by shareholders constitute a
change in control or to redeem the rights or waive the plan’s application without a shareholder vote); (iii)
permit partial bids; and (iv) contain restrictions on certain equity financings.
5. Permitted Bid Mechanism. By proposing the Galway Gold Shareholder Rights Plan, Galway Gold is not
intending to secure the continuance in office of existing directors or management or to avoid a take-over
bid for Galway Gold. A take-over bid which satisfies the Permitted Bid provisions of the Galway Gold
Shareholder Rights Plan will not trigger the Galway Shareholder Rights Plan, regardless of the value of the
consideration being offered under the bid, whether or not the bid is acceptable to the Board.
6. Other Considerations. The Galway Gold Shareholder Rights Plan will not inhibit shareholders from
exercising their rights as shareholders under Galway Gold’s corporate statute, the NBBCA. These rights
include the right to solicit proxies to promote a change in the composition of the Galway Gold Board and to
requisition a shareholders’ meeting to transact any proper business stated in the requisition. In addition, the
Galway Gold Shareholder Rights Plan does not affect the financial condition of Galway Gold. Finally, the
issuance of rights will not change the manner in which shareholders currently trade their Galway Gold
Shares.
General Impact of the Galway Gold Shareholder Rights Plan
By implementing the Galway Gold Shareholder Rights Plan, it is not the intention of the Galway Gold
Board to secure the continuance of existing directors or management in office, nor to avoid a bid for control of
Galway Gold. The rights of shareholders to seek a change in the management of Galway Gold as per the provisions
of the NBBCA or to influence or promote action of the Galway Gold Board in a desired direction will not be
hindered by the Galway Gold Shareholder Rights Plan. The definitions of “Acquiring Person” and “Beneficial
Ownership” have been carefully worded so as to avoid the inadvertent triggering of the Galway Gold Shareholder
D - 33
Rights Plan resulting from an overly broad aggregating of holdings among institutional investors and their clients.
Persons who currently own more than 20% of the Galway Gold Shares are known as “Grandfathered Persons” under
the Galway Gold Shareholder Rights Plan. Such ownership will not trigger the exercise of rights under the Galway
Gold Shareholder Rights Plan unless such persons increase their ownership of Galway Gold by more than one
percent. Even in the context of a bid that does not meet the “Permitted Bid” criteria, the Galway Gold Board will
continue to be bound to consider fully and fairly any bid for the Galway Gold Shares in any exercise of its discretion
to waive the application of the Galway Gold Shareholder Rights Plan or redeem the outstanding rights issued
thereunder. In the circumstances of a bid, the Galway Gold Board must act honestly and in good faith with respect to
the best interests of Galway Gold and its shareholders.
The Galway Gold Shareholder Rights Plan will not interfere with the day to day operations of Galway
Gold. The issuance of the rights does not in any way alter the financial condition, impede business plans or alter the
financial statements of Galway Gold. Similarly, the Galway Gold Shareholder Rights Plan will not initially dilute or
affect the trading of the Galway Gold Shares. However, if a Flip-In Event occurs, as more fully described in
Schedule E to this Appendix and the rights separate from the Galway Gold Shares reported earnings per share and
reported cash flow per share on a fully-diluted basis may be affected. In addition, holders of rights not exercising
their rights after a Flip-In Event may suffer substantial dilution.
As of the date of this Circular, management of Galway Gold is not aware of any pending take-over bids for
the Galway Gold Shares, or of any person who intends to make a take-over bid for the Galway Gold Shares, other
than in connection with the Arrangement. The Arrangement has been structured as a “Permitted Bid” under the
Galway Gold Shareholder Rights Plan and will not trigger a Flip-In Event.
The Galway Gold Board is not aware of, nor is the Galway Gold Board seeking confirmation of the Galway
Gold Shareholder Rights Plan in anticipation of, any pending or threatened take-over bid or offer for the Galway
Gold Shares. The Galway Gold Board does not have any current intention of implementing any other proposal
having an anti-take-over effect.
In summary, the dominant effect of the Galway Gold Shareholder Rights Plan will be to enhance
shareholder value and ensure equal treatment of all shareholders in the context of an acquisition of control of
Galway Gold.
D - 34
SCHEDULE A
AUDITED CARVE-OUT FINANCIAL STATEMENTS OF GALWAY GOLD INC.
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
AND
(Attached)
D - 35
Galway Gold Inc.
Carve-out Financial Statements
To the Directors of
Galway Gold Ltd.
We have audited the accompanying carve-out financial statements of Galway Gold Inc., mineral properties owned
by Galway Resources Ltd., which comprise the carve-out statements of financial position as at December 31, 2011
and 2010, and the carve-out statements of loss and comprehensive loss, changes in owner's net investment and
cash flows for the years ended December 31, 2011, 2010, and 2009, and the related notes, comprising a summary
of significant accounting policies and other explanatory information.
Management of Galway Resources Ltd. is responsible for the preparation and fair presentation of Galway Gold Inc.
carve-out financial statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of carve-out financial statements that
are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on Galway Gold Inc. carve-out financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the carveout financial statements. The procedures selected depend on our judgment, including the assessment of the risks
of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the carve-out
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion of the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the carve-out financial statements.
our audit opinion on the carve-out financial statements.
Opinion
In our opinion, the carve-out financial statements present fairly, in all material respects, the carve-out financial
position of Galway Gold Inc. as at December 31, 2011 and 2010, and its financial performance and its cash flows
for the years ended December 31, 2011, 2010, and 2009, in accordance with International Financial Reporting
Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 to the carve-out financial statements which states that
the carve-out financial statements have been prepared on a carve-out basis and the results do not necessarily
reflect what the results of operations, financial position or cash flows would have been had the assets been a
separate entity, nor are they indicative of future results in respect of the assets, as they will exist upon completion of
the Arrangement. Note 1 also describes certain matters and conditions that include the existence of material
uncertainty that may cast significant doubt about Galway Gold Inc.'s ability to continue as a going concern.
Toronto, Canada
November 16, 2012
Galway Gold Inc.
Carve-Out Statements of Financial Position
As at December 31,
2011
2010
Asset
$
1,292,389 $
802,564
$
841,953 $
114,434
841,953
114,434
450,436
688,130
450,436
688,130
Liabilities
Current liabilities
Net Investment
$
1,292,389 $
Director
-1-
802,564
Galway Gold Inc.
Carve-Out Statements of Loss and Comprehensive Loss
2011
Expenses
$
$
2010
2009
3,633,308 $
707,865
550,118 $
322,672
470
107,667
4,341,173
872,790
108,137
(4,341,173) $
(872,790) $
-2-
(108,137)
Galway Gold Inc.
Carve-Out Statements of Changes in Owner's Net Investment
Owner's Net
Investment
Contributions
$
108,137
(108,137)
Contributions
$
1,560,920
(872,790)
Contributions
688,130
4,103,479
(4,341,173)
$
-3-
450,436
Galway Gold Inc.
Carve-Out Statements of Cash Flows
2011
2010
2009
(872,790) $
(108,137)
Loss and comprehensive loss for the year
$
(4,341,173) $
727,519
Owner's Contributions
114,434
-
(3,613,654)
(758,356)
(108,137)
(489,825)
(802,564)
-
(489,825)
(802,564)
-
4,103,479
1,560,920
108,137
4,103,479
1,560,920
108,137
Net change in cash
-
-
-
Cash, beginning of year
-
-
-
Cash, end of year
$
-
$
-
$
-4-
-
Galway Gold Inc.
1.
Galway Gold Inc. ("Galway Gold") was incorporated pursuant to the Business Corporations Act (New
Brunswick) on May 9, 2012. Galway Gold's head office is located 36 Toronto Street, Suite 1000, Toronto,
Ontario, Canada, M5C 2C5. Galway Gold was incorporated for the sole purpose of participating in the Plan of
Arrangement (the “Arrangement”) announced October 19, 2012 involving Galway Gold, Galway Metals Inc.,
Galway Resources Ltd. (“Galway”), AUX Acquisition 2 S.à. r.l. (“AUX”) and AUX Canada Acquisition 2 Inc.,
formerly, 2346407 Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of AUX. Galway Gold has not
carried on any active business other than in connection with the Arrangement and related matters.
Galway common share cash: consideration of Cdn$2.05 per share, one common share in Galway Gold and
one common share in a new exploration and development company, Galway Metals Inc.. Under the
Arrangement, Galway will transfer to Galway Gold and Galway Gold will indirectly hold as assets a 100%
interest in Galway’s Vetas Gold Project, being an interest in Reina de Oro and Coloro concessions located in
the Vetas Mining District in Colombia and approximately US$18 million in net working capital. Upon
completion of the Arrangement, Galway’s existing securityholders, including AUX Canada and its affiliates,
will own 90% of the Galway Gold shares outstanding, proportionate to their ownership of Galway at the time
the Arrangement is completed and AUX Canada will own an additional 10% of the Galway Gold shares via its
ownership of Galway Resources Ltd.
the assets, liabilities, operations, and cash flows of the Vetas Gold properties derived from the accounting
records of Galway. The statements consist of statements of loss and comprehensive loss, statements of
changes in owner's net investment, statements of cash flows, and statements of financial position as if the
Vetas Gold properties had been operating independently during the periods presented.
The statements of loss and comprehensive loss for the years ended December 31, 2011, 2010 and 2009,
include exploration and evaluation expenses, and direct general and administrative expenses incurred by
Galway on the Vetas Gold properties and an allocation of Galway's general and administrative expenses
incurred during each of these periods.
Management cautions readers of these carve-out financial statements that the allocation of expenses in the
statements of loss and comprehensive loss does not necessarily reflect the nature and level of the Vetas
Gold properties' future operating expenses.
values of the Vetas Gold Project recognized by Galway and consists of acquisition costs incurred by Galway
-5-
Galway Gold Inc.
1.
Galway Gold is in the process of exploring the Vetas Gold properties and has not yet determined whether the
mineral properties contain mineral reserves that are economically recoverable. The continuing operations of
Galway Gold and the underlying value and recoverability of the amounts shown for mineral properties are
entirely dependent upon the existence of economically recoverable mineral reserves, the ability to obtain the
necessary financing to complete the exploration and development of the mineral property interests and on
future profitable production or proceeds from the disposition of the mineral property interests.
These carve-out financial statements have been prepared using accounting policies applicable to a going
concern. Realization values may be significantly different from carrying values as shown and these carve-out
financial statements do not give effect to adjustments that would be necessary to the carrying values and
classification of assets and liabilities and the reported expenses and balance sheet classifications should
Galway Gold be unable to continue as a going concern and these adjustments could be material.
As at December 31, 2011, 2010, and 2009, Galway Gold had no source of operating cash flows and had not
yet achieved profitable operations, and accumulated losses since inception and expect to incur further losses
in the development of of the mineral property, all of which casts significant doubt about their ability to continue
as a going concern. Galway Gold's ability to continue as a going concern is dependent upon the completion
of the arrangement, the ability to generate future profitable operations, and/or to obtain the necessary
financing to meet obligations and repay liabilities arising from normal business operations when they come
due, however there is no assurance of the success or sufficiency of these initiatives.
2.
The carve-out financial statements have been prepared in accordance with Canadian generally accepted
accounting principles as defined in Part I of the Handbook of the Canadian Institute of Chartered Accountants
("CICA Handbook") which are in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). The carve-out financial statements have
been prepared in compliance with IFRS and have been prepared in accordance with the financial reporting
The carve-out financial statements are presented in United States dollars, Galway Gold's functional currency
and have been prepared on a historical cost basis.
The carve-out financial statements were authorized for issue by the Board of Directors on November 16,
2012.
-6-
Galway Gold Inc.
3.
the Galway. Certain financial statement items were maintained by Galway on a combined basis, rather than
on a property-by-property basis and accordingly, it was necessary to make allocations of amounts reported
in the financial statements of Galway in order to prepare these carve-out financial statements. The
allocations that were made include:
i.
exploration expenditures on the Vetas Gold properties to the total mineral exploration
ii.
the preparation of these carve-out financial statements requires the use of estimates and
assumptions which have been made using careful judgment. In the opinion of management,
these carve-out financial statements have been properly prepared within reasonable limits of
materiality and within the framework of the significant accounting policies summarized as follows.
[b] Exploration and Evaluation Expenditures
The Company is in the exploration stage with respect to its investment in resource property costs and
follows the practice of capitalizing significant property acquisition payments for active exploration properties.
The Company expenses any other exploration and evaluation expenditures as incurred. Such expenditures
include, but are not exclusive to, geological, geophysical studies, exploratory drilling and sampling. The
aggregate costs related to abandoned mineral properties are charged to operations at the time of any
abandonment or when it has been determined that there is evidence of a permanent impairment. An
impairment charge relating to a mineral property is subsequently reversed when new exploration results or
actual or potential proceeds on sale or farmout of the property result in a revised estimate of the recoverable
amount but only to the extent that this does not exceed the original carrying value of the property that would
have resulted if no impairment had been recognized.
Resource property costs are capitalized. These costs are not depleted and are carried forward until
technical feasibility and commercial viability of extracting the resource is considered to be determined. The
technical feasibility and commercial viability is considered to occur when proven and/or probable reserves
are determined to exist.
Resource property costs are monitored for indications of impairment. Where a potential impairment is
indicated, assessments are performed for each area of interest. To the extent that exploration expenditure is
not expected to be recovered, its carrying amount is charged to the income statement. Exploration areas
where reserves have been discovered, but require major capital expenditure before production can begin,
are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional
exploration work is underway as planned.
-7-
Galway Gold Inc.
3.
[c] Financial Instruments
Financial assets:
All financial assets are recognized and derecognized on the trade date where the purchase or sale of a
financial asset is under a contract whose terms require delivery of the financial asset within the time frame
established by the market concerned, and are initially measured at fair value, plus transaction costs.
Financial assets are designated as ‘loans and receivables‘. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.
Financial liabilities are designated as ‘other financial liabilities’.
Other financial liabilities:
Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method,
with interest recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest costs over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability or, where appropriate, to
the net carrying amount on initial recognition.
De-recognition of financial liabilities:
The Company derecognizes financial liabilities when the obligations are discharged, cancelled or expire.
The Company’s financial instruments consist of the following:
Classification:
Other liabilities
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial
assets are impaired when there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial assets, the estimated future cash flows of the investments have
been negatively impacted. Evidence of impairment could include: significant financial difficulty of the issuer
or counterparty; or default or delinquency in interest or principal payments; or the likelihood that the
borrower will enter bankruptcy or financial reorganization.
The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets
with the exception of accounts or loan receivable, where the carrying amount is reduced through the use of
an allowance account. When an accounts or loan receivable is considered uncollectible, it is written off
against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognized on the
statement of loss and comprehensive income (loss).
-8-
Galway Gold Inc.
3.
[c] Financial Instruments (Continued)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized impairment
loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortized cost would have been had the impairment not
been recognized.
[d] Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets
with finite lives to determine whether there is any indication that those assets have suffered an impairment
loss. Where such an indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss. The recoverable amount is the higher of an asset’s fair value
less cost to sell or its value in use. In addition, long-lived assets that are not amortized are subject to an
annual impairment assessment. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash-generating units). The Company
has identified Vetas Gold Project as a cash-generating unit.
[e] Provisions
A provision is recognized when the Company has a present legal or constructive obligation as a result of a
past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and
the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
[f] Restoration, rehabilitation and environmental obligations
A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when
environmental disturbance is caused by the exploration, development or ongoing production of a mineral
property interest. Such costs arising from the decommissioning of plant and other site preparation work,
discounted to their net present value, are provided for and capitalized at the start of each project to the
carrying amount of the asset, as soon as the obligation to incur such costs arises. Discount rates using a
pretax rate that reflects the time value of money are used to calculate the net present value. These costs
are charged against profit or loss over the economic life of the related asset, through amortization using
either a unit-of-production or the straight-line method as appropriate. The related liability is adjusted for each
period for the unwinding of the discount rate and for changes to the current market based discount rate,
amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of
subsequent site damage that is created on an ongoing basis during production are provided for at their net
present values and charged against profits as extraction progresses.
At this stage of its exploration activities, the Company has no restoration, rehabilitation and environmental
costs as the disturbance to date is minimal.
[g] Income taxes
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is
recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which
case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous
years.
-9-
Galway Gold Inc.
3.
[g] Income taxes (Continued)
Deferred tax is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes. The following temporary differences are not provided for the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is
based on the expected manner of realization or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the financial position reporting date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilized.
[i] Significant accounting judgments and estimates
The preparation of these carve-out financial statements requires management to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting period. Actual outcomes could
differ from these estimates. These carve-out financial statements include estimates that, by their nature, are
uncertain. The impacts of such estimates are pervasive throughout the carve-out financial statements, and
may require accounting adjustments based on future occurrences. Revisions to accounting estimates are
recognized in the period in which the estimate is revised and future periods if the revision affects both
current and future periods. These estimates are based on historical experience, current and future
economic conditions and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Critical accounting estimates
Significant assumptions about the future that management has made that could result in a material
adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from
assumptions made, relate to, but are not limited to, the following:
Impairment of assets
When there are indications that an asset may be impaired, the Company is required to estimate the asset’s
recoverable amount. Recoverable amount is the greater of value in use and fair value less costs to sell. No
impairment indicators of non-financial assets have been noted for the years ended December 31, 2011,
2010, and 2009.
Restoration, rehabilitation and environmental obligations
Management determined there were no material restoration, rehabilitation and environmental obligations,
based on the facts and circumstances that existed in the current and prior years and would trigger
recognition of the provision in accordance with IAS 37, "Provisions".
Critical accounting judgments
Income taxes and recovery of deferred tax assets
The measurement of income taxes payable and deferred income tax assets and liabilities requires
management to make judgments in the interpretation and application of the relevant tax laws. The actual
amount of income taxes only becomes final upon filing and acceptance of the tax return by the relevant
authorities, which occurs subsequent to the issuance of the financial statements.
- 10 -
Galway Gold Inc.
3.
[j] Recent accounting pronouncements
Certain pronouncements were issued by the IASB or the International Financial Reporting Interpretations
Committee ("IFRIC") that are mandatory for accounting periods after January 1, 2013. Many are not
applicable or do not have a significant impact to Galway Gold and have been excluded. The following have
not yet been adopted and are being evaluated to determine their impact on Galway Gold.
IFRS 9 Financial instruments (“IFRS 9”)
IFRS 9 was issued by the IASB in October 2010 and will replace IAS 39 Financial Instruments: Recognition
and Measurement [“IAS 39”]. IFRS 9 uses a single approach to determine whether a financial asset is
measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is
based on how an entity manages its financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new
standard also requires a single impairment method to be used, replacing the multiple impairment methods
in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company is
currently evaluating the impact of this standard on its financial statements.
IFRS 13, Fair Value Measurement ("IFRS 13")
IFRS 13, Fair Value Measurement was issued by the IASB on May 12, 2011. The new standard converges
IFRS and US GAAP on how to measure fair value and the related fair value disclosures. The new standard
creates a single source of guidance for fair value measurements, where fair value is required or permitted
under IFRS, by not changing how fair value is used but how it is measured. The focus will be on an exit price.
IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted.
The Company is assessing the impact of IFRS 13 on its financial statements.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a
material impact on the Company.
4.
Capital Management
Galway manages its capital with the following objectives:
!
!
to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding
of future growth opportunities, and pursuit of accretive acquisitions; and
to maximize the owner's return on investment.
Galway monitors its capital structure and makes adjustments according to market conditions in an effort to
meet its objectives given the current outlook of the business and industry in general. Galway may manage its
capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or
disposing of assets. The capital structure is reviewed by Management and the Board of Directors on an
ongoing basis.
Galway considers its capital to be equity, comprising owners' net investment, which at December 31, 2011
and 2010 was $450,436 and $688,130, respectively. Galway manages capital through its financial and
operational forecasting processes. Galway reviews its working capital and forecasts its future cash flows
based on operating expenditures, and other investing and financing activities. The forecast is updated based
on activities related to its mineral properties. Selected information is provided to the Board of Directors of
Galway. Galway’s capital management objectives, policies and processes have remained unchanged during
the years ended December 31, 2011, and 2010.
Galway is not subject to any externally imposed capital requirements.
- 11 -
Galway Gold Inc.
5.
Property and Financial Risk Factors
(a) Property Risk
Galway’s significant mineral properties are the Vetas Gold property. Unless Galway acquires or develops
additional significant properties, Galway will be solely dependent upon the Vetas Gold property. If no
additional mineral properties are acquired by Galway, any adverse development affecting the Vetas Gold
property would have a material adverse effect on Galway’s financial condition and results of operations.
(b) Financial Risk
Galway’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk (including
interest rate, and commodity and equity price risk).
Risk management is carried out by Galway's management team with guidance from the Audit Committee
under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for
overall risk management.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Galway
has no significant concentration of credit risk.
Liquidity Risk
Galway's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities
when due. As at December 31, 2011, and 2010, Galway had cash of $nil, and $nil, respectively, to settle
current liabilities of $841,953, and $114,434, respectively. Galway's liquidity is dependent upon successful
completion of the Arrangement described in note 1. All of Galway's financial liabilities have contractual
maturities of less than 30 days and are subject to normal trade terms.
Market Risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates and
commodity and equity prices.
(i) Interest rate risk
At December 31, 2011 and 2010, Galway has no cash balances and no interest-bearing debt and was not
exposed to interest rate risk.
(ii) Foreign currency risk
Galway does not have any significant assets in currency other than the functional currency of Galway, nor
has significant foreign currency denominated liabilities, therefore any changes in foreign exchange rates will
not give rise to significant changes to the net loss.
- 12 -
Galway Gold Inc.
5.
Property and Financial Risk Factors (continued)
(b) Financial Risk (continued)
(iii) Commodity and equity price risk
Commodity price risk could adversely affect Galway. In particular, Galway’s future profitability and viability of
development depends upon the world market price of gold, coal, tungsten and molybdenum. These metal
prices have fluctuated significantly in recent years. There is no assurance that, even as commercial quantities
of these metals may be produced in the future, a profitable market will exist for them. As of December 31,
2011, Galway was not a producing entity. As a result, commodity price risk may only affect the completion of
future equity transactions such as equity offerings and owner's contributions. This may also affect Galway's
liquidity and its ability to meet its ongoing obligations in the future.
6.
Vetas Gold Project
Additions
$
711,520
91,044
Additions
$
802,564
489,825
$
1,292,389
As part of the Agreement, Galway's 100% interest in the Vetas Gold Project will be transferred to Galway
Gold, Galway Gold will assume the contracts entered by Galway in 2009 and 2010 to secure land packages
in the Vetas-Surata gold region in the state of Santander, Colombia. Galway Gold will be committed to
continue the payment obligations under these agreements, as renegotiated to reflect the fact that Galway
shares will no longer be issued as payment. The outstanding payment obligations under the original
agreements are as follows:
·
·
·
payment of $75,000 and issuance of 250,000 common shares on January 20, 2013;
payment of $100,000 on January 20, 2014; and
issuance of 300,000 common shares on October 20, 2014;
Galway Gold will also have the option to earn 100% of the project by paying 1.5% of the gold value of
measured and indicated gold resources. The contracts cover 541 hectares and the property will not be
encumbered by royalty commitments.
- 13 -
Galway Gold Inc.
7.
2011
Drilling
Assaying
Geological
Mine maintenance
Geophysics
Mapping
Environmental
$
Total
8.
$
1,821,385 $
761,725
494,543
366,969
78,805
65,839
44,042
25,219 $
166,543
348,956
9,400
-
3,633,308
550,118
$
2009
470
$
470
9.
2010
2011
2010
2009
Office and general
Travel
Professional fees
$
504,860 $
100,107
87,234
15,664
231,506 $
30,469
49,443
11,254
107,667
-
Total
$
707,865 $
322,672 $
107,667
Remuneration of directors and key management personnel included in administrative expenses for the
years ended December 31, 2011, 2010 and 2009 are $204,606, $133,379 and $107,667, respectively.
- 14 -
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SCHEDULE B
CONDENSED INTERIM CARVE-OUT FINANCIAL STATEMENTS FOR GALWAY GOLD INC.
FOR THE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2012
AND
(Attached)
D - 36
Galway Gold Inc.
Condensed Interim Carve-out Financial Statements
Three and Six Months Ended June 30, 2012
(Unaudited)
Galway Gold Inc.
Condensed Interim Carve-out Statements of Financial Position
(Unaudited)
June 30,
2012
As at
December 31,
2011
Asset
$
1,478,150
$
1,292,389
$
1,741,981
$
841,953
Liabilities
Current liabilities
Total Liabilities
1,741,981
Net Investment
$
841,953
(263,831)
450,436
(263,831)
450,436
1,478,150
$
1,292,389
Director
-1-
Galway Gold Inc.
Condensed Interim Carve-out Statements of Loss and Comprehensive Loss
(Unaudited)
Three Months Ended
June 30,
2012
2011
Expenses
Exploration costs (Note 5)
$
$
Six Months Ended
June 30,
2012
2011
3,023,135 $
371,767
691,249 $
187,436
4,484,249 $
686,375
1,020,474
338,701
3,394,902
878,685
5,170,624
1,359,175
(3,394,902) $
(878,685) $
(5,170,624) $
(1,359,175)
-2-
Galway Gold Inc.
Condensed Interim Carve-Out Statements of Changes in Owner's Net Investment
(Unaudited)
Total
Contributions
$
$
688,130
1,407,800
(1,359,175)
736,755
Total
Contributions
$
450,436
4,456,357
(5,170,624)
$
(263,831)
-3-
Galway Gold Inc.
Condensed Interim Carve-Out Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
2012
2011
Loss and comprehensive loss for the period
$
(5,170,624) $
(1,359,175)
900,028
278,619
(4,270,596)
(1,080,556)
(185,761)
(327,244)
(185,761)
(327,244)
4,456,357
1,407,800
4,456,357
1,407,800
Net change in cash
-
-
-
-
Cash, end of period
$
-
$
-4-
-
Galway Gold Inc.
June 30, 2012
(Unaudited)
1.
Galway Gold Inc. ["Galway Gold" or "the Company"] was incorporated pursuant to the Business Corporations
Act (New Brunswick) on May 9, 2012. Galway Gold's head office is located 36 Toronto Street, Suite 1000,
Toronto, Ontario, Canada, M5C 2C5. Galway Gold was incorporated for the sole purpose of participating in
the Plan of Arrangement (the “Arrangement”) announced October 19, 2012 involving Galway Gold, Galway
Metals Inc., Galway Resources Ltd. (“Galway”), AUX Acquisition 2 S.a.r.l (“AUX”) and AUX Canada
Acquisition 2, formerly 2346407 Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of AUX. Galway
Gold has not carried on any active business other than in connection with the Arrangement and related
matters.
Galway common share cash consideration of Cdn$2.05 per share, one Galway Gold common share and one
common share in a new exploration and development company, Galway Metals Inc. Under the Arrangement,
Galway will transfer to Galway Gold and Galway Gold will indirectly hold as assets a 100% interest in
Galway’s Vetas Gold Project, being an interest in Reina de Oro and Coloro concessions located in the Vetas
Mining District in Colombia and approximately US$18 million in net working capital, subject to adjustment.
Upon completion of the Arrangement, Galway’s existing shareholders including AUX Canada and its affiliates
will own 90% of the Galway Gold shares outstanding, proportionate to their ownership of Galway at the time
the Arrangement is completed and AUX Canada will own an additional 10% of the Galway Gold shares via its
ownership of Galway Resources Ltd.
The Arrangement will be completed by way of statutory Plan of Arrangement under the Ontario Business
Corporations Act. The Arrangement is subject to court approval and must be approved by Galway
These condensed interim carve-out financial statements have been prepared for the purposes of the
Arrangement, and reflect the assets, liabilities, operations, and cash flows of the Vetas Gold properties
derived from the accounting records of Galway. The statements consist of condensed interim statements of
loss and comprehensive loss, condensed interim statements of changes in owner's net investment,
condensed interim statements of cash flows, and condensed interim statements of financial position as if the
Vetas Gold properties had been operating independently during the periods presented.
The condensed interim statements of loss and comprehensive loss for the three and six months ended June
30, 2012 and 2011 include exploration and evaluation expenses, and direct general and administrative
expenses incurred by Galway on the Vetas Gold properties and an allocation of Galway's general and
administrative expenses incurred during each of these periods.
Management cautions readers of these condensed interim carve-out financial statements that the allocation
of expenses in the statements of loss and comprehensive loss does not necessarily reflect the nature and
level of the Vetas Gold properties' future operating expenses.
values of the Vetas Gold Project recognized by Galway and consists of acquisition costs incurred by Galway
-5-
Galway Gold Inc.
June 30, 2012
(Unaudited)
1.
Galway Gold is in the process of exploring the Vetas Gold properties and has not yet determined whether the
mineral properties contain mineral reserves that are economically recoverable. The continuing operations of
Galway Gold and the underlying value and recoverability of the amounts shown for mineral properties are
entirely dependent upon the existence of economically recoverable mineral reserves, the ability to obtain the
necessary financing to complete the exploration and development of the mineral property interests and on
future profitable production or proceeds from the disposition of the mineral property interests.
These interim carve-out financial statements have been prepared using accounting policies applicable to a
going concern. Realization values may be significantly different from carrying values as shown and these
interim carve-out financial statements do not give effect to adjustments that would be necessary to the
carrying values and classification of assets and liabilities and the reported expenses and balance sheet
classifications should Galway Gold be unable to continue as a going concern and these adjustments could be
material.
As at June 30, 2012 and December 31, 2011, Galway Gold had no source of operating cash flows and had
continue as a going concern. Galway Gold's ability to continue as a going concern is dependent upon the
2.
These condensed interim carve-out financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements including
International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the
information required for full annual financial statements required by IFRS as issued by International
Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC") and have been prepared in accordance with the financial reporting
These condensed interim carve-out financial statements should be read in conjunction with the annual carveout financial statements for the year ended December 31, 2011.
There are no relevant changes in accounting standards applicable to future periods other than as disclosed in
the most recent annual carve-out financial statements as at and for the year ended December 31, 2011.
These condensed interim carve-out financial statements were approved by the Board of Directors on
November 16, 2012
-6-
Galway Gold Inc.
June 30, 2012
(Unaudited)
3.
amounts reported in the financial statements of the Company in order to prepare these condensed interim
carve-out financial statements. The allocations that were made include:
i.
exploration expenditures on the Vetas Gold properties to the total mineral exploration
ii.
the preparation of these condensed interim carve-out financial statements requires the use of
estimates and assumptions which have been made using careful judgment. In the opinion of
management, these condensed interim carve-out financial statements have been properly
prepared within reasonable limits of materiality and within the framework of the significant
accounting policies summarized in the annual carve-out financial statements as at and for the
year ended December 31, 2011.
[b] Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year.
[c] Significant accounting judgments and estimates
The preparation of these condensed interim carve-out financial statements requires management to make
certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of expenses during the reporting period. Actual
outcomes could differ from these estimates. These condensed interim carve-out financial statements
include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive
throughout the condensed interim carve-out financial statements, and may require accounting adjustments
based on future occurrences. Revisions to accounting estimates are recognized in the period in which the
estimate is revised and future periods if the revision affects both current and future periods. These
estimates are based on historical experience, current and future economic conditions and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
In preparing these condensed interim carve-out financial statements, the significant judgments made by
management in applying the Company's accounting policies and the key sources of estimation uncertainty
were the same as those which applied to the annual carve-out financial statements for the year ended
December 31, 2011.
-7-
Galway Gold Inc.
June 30, 2012
(Unaudited)
4.
Vetas Gold Project
Additions
$
802,564
327,244
$
1,129,808
Additions
$
1,292,389
185,761
$
1,478,150
As part of the Arrangement, Galway's 100% interest in the Vetas Gold Project will be transferred to Galway
Gold and Galway Gold will assume the contracts entered by Galway in 2009 and 2010 to secure land
packages in the Vetas-Surata gold region in the state of Santander, Colombia as described below. Galway
Gold will be committed to continue the payment obligations under these agreements, as renegotiated to
reflect the fact that Galway shares will no longer be issued as payment. The outstanding payment obligations
under the original agreements are as follows:
·
·
·
payment of $75,000 and issuance of 250,000 common shares on January 20, 2013;
payment of $100,000 on January 20, 2014; and
issuance of 300,000 common shares on October 20, 2014;
Galway Gold will also have the option to earn 100% of the project by paying 1.5% of the gold value of
measured and indicated gold resources. The contracts cover 541 hectares and the property will not be
encumbered by royalty commitments.
5.
Three Months Ended
June 30,
2012
2011
Six Months Ended
June 30,
2012
2011
Drilling
Assaying
Geological
Mine maintenance
Environmental
Geophysics
Mapping
$
2,155,807 $
471,098
191,450 $
184,871
19,909
-
343,540 $
138,069
144,372
8,284
8,800
48,184
2,950,183 $
926,068
366,312 $
201,795
39,891
-
380,111
38,161
224,169
232,760
8,284
78,805
58,184
Total
$
3,023,135 $
691,249 $
4,484,249 $
1,020,474
-8-
Galway Gold Inc.
June 30, 2012
(Unaudited)
6.
Three Months Ended
June 30,
2012
2011
7.
Six Months Ended
June 30,
2012
2011
Office and general
Travel
Professional fees
$
204,429 $
123,831
43,507
-
140,815 $
19,927
23,822
2,872
366,348 $
230,773
74,209
15,045
259,219
34,595
40,418
4,469
Total
$
371,767 $
187,436 $
686,375 $
338,701
Related Party Transactions
Remuneration of directors and key management personnel included in administrative expenses are as
follows:
Three Months Ended
June 30,
2012
2011
$
64,388 $
37,250 $
Six Months Ended
June 30,
2012
2011
128,677 $
74,500
-9-
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SCHEDULE C
AUDITED FINANCIAL STATEMENTS FOR GALWAY GOLD INC.
FOR THE PERIOD OF INCORPORATION (MAY 9, 2012) TO JUNE 30, 2012
AND
(Attached)
D - 37
Galway Gold Inc.
Financial Statements
For the Period from Incorporation (May 9, 2012) to June 30, 2012
To the Directors of
Galway Gold Inc.
We have audited the accompanying financial statements of Galway Gold Inc., which comprise the statements of
financial position as at June 30, 2012 and May 9, 2012, and the statements of loss and comprehensive loss,
changes in shareholder's equity and cash flows for the period from incorporation (May 9, 2012) to June 30, 2012,
and the related notes, comprising a summary of significant accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
Our responsibility is to express an opinion on Galway Gold Inc. financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Galway Gold
Inc. as at June 30, 2012 and May 9, 2012, and its financial performance and its cash flows for the period from
incorporation (May 9, 2012) to June 30, 2012.
Toronto, Canada
November 16, 2012
Galway Gold Inc.
Statement of Financial Position
June 30,
2012
As at
May 9,
2012
Asset
Cash
$ 1
$ 1
$ 1
$ 1
Shareholder's Equity
Share capital (Note 3)
Director
-2-
Galway Gold Inc.
Statement of Loss and Comprehensive Loss
Expenses
$
-
$
-3-
-
Galway Gold Inc.
Statements of Changes in Shareholder's Equity
Share
Capital
Share issued on incorporation, May 9, 2012
$
$
Accumulated
Deficit
1
$
1
$
-
$
-
$
-4-
Total
1
1
Galway Gold Inc.
Statement of Cash Flows
Cash (used in) provided by:
Proceeds on issuance of share capital
$
1
Net change in cash
1
-
Cash, end of period
$
-5-
1
Galway Gold Inc.
Notes to Financial Statements
June 30, 2012
1.
Nature of Operations
Galway Gold Inc. ("Galway Gold") was incorporated pursuant to the Business Corporations Act (New
Brunswick) on May 9, 2012. Galway Gold's head office is located 36 Toronto Street, Suite 1000, Toronto,
Ontario, Canada, M5C 2C5. Galway Gold was incorporated for the sole purpose of participating in the Plan of
Arrangement (the “Arrangement”) announced October 19, 2012 involving Galway Gold, Galway Metals Inc.,
Galway Resources Ltd. (“Galway”), AUX Acquisition 2 S.àr.l. (“AUX”) and AUX Canada Acquisition 2,
formerly 2346407 Ontario Inc. ("AUX Canada"), a wholly owned subsidiary of AUX. Galway Gold has not
carried on any active business other than in connection with the Arrangement and related matters.
the AUX Canada and its affiliates pursuant to the Arrangement, Galway shareholders will receive for each
Galway common share: cash consideration of Cdn$2.05 per share, one common share in Galway Gold Inc.,
and one common share in a new exploration and development company, Galway Metals Inc. Under the
Arrangement, Galway will transfer to Galway Gold and Galway Gold will hold indirectly as assets a 100%
interest in Galway’s Vetas Gold Project, being an interest in Reina de Oro and Coloro concessions located in
the Vetas Mining District in Colombia and approximately US$18 million in net working capital. Upon
completion of the Arrangement, Galway’s existing securityholders including AUX Canada and its affiliates will
own 90% of the Galway Gold shares outstanding, proportionate to their ownership of Galway at the time the
Arrangement is completed and AUX will own 10% of the Galway Gold shares via its of ownership of Galway
Resources Ltd.
2.
Statement of Compliance
These financial statements have been prepared in accordance with Canadian generally accepted accounting
principles as defined in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants ("CICA
Handbook") which are in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The financial statements have been prepared in
compliance with IFRS.
The financial statements are presented in United States dollars, Galway Gold's functional currency and have
been prepared on a historical cost basis.
The financial statements were authorized for issue by the Board of Directors on November 16, 2012.
3.
Share Capital
Share capital:
Authorized:
Issued:
Unlimited number of common shares
1 common share
-6-
$1
X
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SCHEDULE D
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR GALWAY GOLD INC.
AS AT JUNE 30, 2012
(Attached)
D - 38
Galway Gold Inc.
Pro Forma Consolidated Financial Statements
June 30, 2012
(Unaudited)
Galway Gold Inc.
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30, 2012
(UNAUDITED)
Balance as at
June 30, 2012
Assets
Current assets
Cash
$
Non-current assets
Resource property costs
1
$
-
$
Liabilities
Current liabilities
Accounts payable and
accrued liabilities
Interim
Carve-out
$
Shareholders' Equity (Note 3)
$
1,478,150
1
-
1
1,478,150
$
$
1,741,981
$
(263,831)
$
1,478,150
17,999,999
-
$
1
$
-
Pro Forma
Adjustments
2(b) $
2(i)
2(f)
2(b)
2(i)
17,999,999
17,999,999
$
Pro Forma as at
June 30, 2012
17,999,999
18,000,000
1,478,150
$
19,478,150
2(b) $
1,741,981
2(b)
2(e)
2(f)
2(i)
17,736,169
$
19,478,150
-1-
Galway Gold Inc.
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)
Galway
Gold Inc.
Expenses
$
-
$
-
Total comprehensive loss
for the period
$
-
Loss per share
$
-
Weighted average shares
outstanding
Interim
Carve-out
4,484,249
Pro Forma
Adjustments
$
686,375
$
(5,170,624)
1
-
$
-
Pro Forma for the
Six Months Ended
June 30, 2012
2(b) $
2(i)
2(b)
2(i)
4,484,249
686,375
$
(5,170,624)
$
(0.03)
154,516,645
-2-
Galway Gold Inc.
FOR THE YEAR ENDED DECEMBER 31, 2011
(UNAUDITED)
Galway
Gold Inc.
Expenses
$
-
$
-
Total comprehensive loss
for the year
$
-
Loss per share
$
-
Weighted average shares
outstanding
Audited
Carve-out
3,633,308
Pro Forma
Adjustments
$
707,865
$
(4,341,173)
1
-
$
-
Pro Forma for the
Year Ended
December 31, 2011
2(b) $
2(i)
2(b)
2(i)
3,633,308
707,865
$
(4,341,173)
$
(0.03)
154,516,645
-3-
Galway Gold Inc.
(UNAUDITED)
1.
PLAN OF ARRANGEMENT AND BASIS OF PRESENTATION
The accompanying pro forma consolidated financial statements have been compiled for the purposes of
inclusion in an Information Circular of Galway Resources Ltd. ("Galway") relating to a Plan of Arrangement
(the "Arrangement") whereby AUX Acquisition 2 S.àr.l. and its wholly-owned subsidiary, AUX Canada
Acquisition 2 Inc., formerly, 2346407 Ontario Inc. (collectively, "AUX") will acquire all the common shares
of Galway (other than common shares of Galway held by AUX and its affiliates).
Under the terms of the arrangement, each Galway share will be exchange for Cdn$2.05 in cash, one
share in a new exploration company, Galway Gold Inc. ("Galway Gold"), which will hold Galway Resources
Vetas Holdco Ltd. ("Sisterco"), a company incorporated under the laws of the Cayman Islands and will
own 100% of the Vetas Gold project, and one share in a new exploration company, Galway Metals Inc.
("Galway Metals"), which will hold Nyak Resources Inc. ("Nyak"), a corporation existing under the laws of
New Mexico, and Galway Resources U.S. Inc. ("Galway Resources U.S."), a company existing under the
laws of Nevada, which owns 100% of the Victorio tungsten-molybdenum project. In addition, Galway Gold
and Galway Metals will receive US$18,000,000 of cash and US$12,000,000 of cash, respectively. Upon
closing of the Arrangement, existing Galway securityholders, including AUX Canada and its affiliates, will
hold 90% of Galway Gold and 100% of Galway Metals. AUX Canada will hold an additional 10% of Galway
Gold via its ownership of Galway.
The pro forma consolidated financial statements have been derived from the audited consolidated
financial statements of Galway as at and for the year ended December 31, 2011, the unaudited
condensed interim consolidated financial statements of Galway as at and for the period ended June 30,
2012, the audited carve-out financial statements of Galway Gold as at and for the year ended December
31, 2011, prepared in accordance with International Financial Reporting Standards ("IFRS"), and the
adjustments and assumptions contained in Note 2.
These unaudited pro forma consolidated financial statements have been prepared in accordance with
IFRS and should be read in conjunction with the audited consolidated financial statements of Galway for
the year ended December 31, 2011 and the audited carve-out financial statements of Galway Gold
included elsewhere in the Information Circular.
These unaudited pro forma consolidated financial statements are for illustrative purposes only. They are
not intended to be indicative of the results that would actually have occurred, or the results expected in
future periods, had the events reflected herein occurred on the dates indicated. Actual amounts recorded
upon consummation of the transaction contemplated by the Arrangement will differ from those recorded in
the unaudited pro forma consolidated financial statement information.
Management of Galway Gold believes that the assumptions used provide a reasonable basis for
presenting all of the significant effects of the transaction and that the pro forma adjustments give
appropriate effect to those assumptions and are appropriately applied in the unaudited pro forma
consolidated statement of financial position and statement of loss and comprehensive loss.
-4-
Galway Gold Inc.
(UNAUDITED)
2.
PRO-FORMA ASSUMPTIONS
The unaudited pro forma consolidated financial statements give effect to the arrangement as described in
the Information Circular, as if it has occurred as of June 30, 2012 for purposes of the pro forma
consolidated statement of financial position, January 1, 2012 for purposes of the pro forma consolidated
statement of loss and comprehensive loss for the six months ended June 30, 2012, and January 1, 2011
for purposes of the pro forma consolidated statement of loss and comprehensive loss for the year ended
December 31, 2011 and is based on the following assumptions:
a) Galway shall transfer all assets related to Vetas Gold Project as well as US$18,000,000 cash to
Sisterco for consideration of a promissory note in the amount of US $18,675,000 ("Funding Note"
- subject to adjustment on closing).
b) Galway Gold issues a promissory note in the amount of $16,807,500 ("Sisterco Note" - subject to
adjustment on closing) and one common share for consideration of 90% ownership of Sisterco
and 90% of Funding Note.
c) The articles of Galway will be amended to authorize Galway to issue an unlimited number of
Galway:
i)
Class A Common Shares
ii)
iii)
d) Each Galway Common Share outstanding on the effective date of the Arrangement will be
exchanged for one Class A Common Share, one Class 1 Preferred Shares, and one Class 2
Preferred Shares
e) Each Class 2 Preferred Share will be transferred to Galway Gold in consideration for the issuance
by Galway Gold of one Galway Gold Common Share for each Class 2 Preferred Share transferred
to it.
f)
Galway Gold will purchase for cancellation from Galway its incorporation share for cash
consideration of $1.
g) All Class 2 Preferred Shares will be redeemed by Galway in consideration for a promissory note in
the amount of US$16,807,500 ("Class 2 Note" - subject to adjustment on closing).
h) The Class 2 Note issued by Galway to Galway Gold is repaid by way of set-off against the Sisterco
Note issued by Galway Galway to Galway and both promissory notes will be cancelled.
i)
Galway Gold will sell 10% of its Common Shares to Galway in consideration for the remaining 10%
of Funding Note, equal to $1,867,500 (subject to adjustment on closing), and the remaining 10%
ownership of Sisterco.
-5-
Galway Gold Inc.
(UNAUDITED)
3.
SHARE CAPITAL
Authorized: unlimited number of common shares
Number of
Shares
Initial shares issued to Galway on incorporation
Initial shares purchased for cancellation
Shares issued under Arrangement
-6-
$
1
1
(1)
(1)
154,516,645
17,736,169
154,516,645
17,736,169
SCHEDULE E
SUMMARY OF GALWAY GOLD SHAREHOLDER RIGHTS PLAN
The following is a summary of the pertinent features of Galway Gold’s shareholder rights plan between
Galway Gold and Computershare Investor Services Inc. (the “Galway Gold Shareholder Rights Plan”). The
adoption of the Galway Gold Shareholder Rights Plan will be confirmed by the Galway Gold Board, with the
approval of Galway, as Galway Gold’s sole shareholder.
The summary is not meant to be complete and should be read in conjunction with the full text of the
Galway Gold Shareholder Rights Plan. All capitalized terms, where not defined herein, have the meaning ascribed to
them in the Galway Gold Shareholder Rights Plan.
Issue of Rights
Galway Gold will issue one right (a “Right”) in respect of each common share outstanding as the Effective
Date (the “Record Time”). Galway Gold will issue Rights on the same basis for each common share issued after the
Record Time and before the earlier of the Separation Time and the Expiration Time (both defined below).
The Rights
Each Right will entitle the holder, subject to the terms and conditions of the Galway Gold Shareholder
Rights Plan, to purchase additional common shares after the Separation Time.
Evidence and Transferability of Rights Certificates
Before the Separation Time, the Rights may not be transferred separately from the common shares. After
the Separation Time, the Rights will be evidenced by separate Rights certificates and will be transferable separately
from the common shares.
Exercise of Rights
The Rights may not be exercised before the Separation Time.
After the Separation Time and before the Expiration Time, each Right entitles the holder to acquire one
common share for an exercise price equal to four times the market price of the common shares as determined at the
Separation Time (subject to certain anti-dilution adjustments). This exercise price is expected to be in excess of the
estimated maximum value of the common shares during the term of the Galway Gold Shareholder Rights Plan.
If a Flip-in Event (defined below) occurs before the Expiration Time (defined below), each Right (other
than the Rights held by an Acquiring Person (defined below) which become null and void on the occurrence of the
Flip-in Event) may be exercised to purchase that number of common shares having an aggregate market price equal
to twice the exercise price for an amount in cash equal to the exercise price (subject to certain anti-dilution
adjustments).
Rights Holder not a Shareholder
Until a Right is exercised, the holder of the Right has no rights as a shareholder.
Definitions
“Acquiring Person” means subject to certain exceptions, an Acquiring Person is a person who becomes the
Beneficial Owner (defined below) of 20% or more of the outstanding Voting Shares.
D - 39
“Beneficial Owner” means a person is a Beneficial Owner of Voting Shares if the person (or any associate or
affiliate of the person or any other person acting jointly or in concert with the person) legally or beneficially owns
Voting Shares or has the right to acquire (immediately or within 60 days) Voting Shares upon the exercise of any
convertible securities or pursuant to any agreement, arrangement or understanding.
A person is not a Beneficial Owner of Voting Shares if the person is engaged in the management of mutual funds,
or a registered broker or dealer administering non-discretionary client accounts), as long as the person:
(a)
holds the Voting Shares in the ordinary course of its business for the account of others; and
(b)
is not making a take-over bid or acting jointly or in concert with a person who is making a takeover bid.
“Separation Time” means the Separation Time occurs on the tenth trading day after the earliest of:
(a)
the first date of a public announcement that a person has become an Acquiring Person;
(b)
the date of the commencement or announcement of the intent of a person to commence a take-over
bid, other than a Permitted Bid or Competing Permitted Bid; and
(c)
the date on which a take-over bid ceases to be a Permitted Bid or Competing Permitted Bid;
(or, in the case of (b) or (c), such later date as the Board may determine in good faith).
“Expiration Time” means the time that will occur six months after the date of adoption by the Board if the
shareholders have not approved the Galway Gold Shareholder Rights Plan on or before that date.
If the shareholders approve the Galway Gold Shareholder Rights Plan, the Expiration Time will occur on the earliest
of: (a) the time at which the right to exercise the Rights terminates in accordance with the Galway Gold Shareholder
Rights Plan, (b) immediately after the annual meeting of shareholders to be held in 2012 and every third year
thereafter unless the Galway Gold Shareholder Rights Plan is reconfirmed at that meeting, and (d) the tenth
anniversary of the date the Galway Gold Shareholder Rights Plan was adopted by the Board.
“Flip-in Event” a Flip-in Event occurs when a person becomes an Acquiring Person. Upon the occurrence of a
Flip-in Event, any Rights that are legally or beneficially owned by an Acquiring Person, will become null and void.
As a result, the Acquiring Person’s ownership interest in the Galway will be greatly diluted if a substantial portion
of the Rights are exercised after a Flip-in Event occurs.
“Permitted Bid” means a take-over bid that satisfies the following conditions:
(a)
the bid is made to all holders of Voting Shares (other than the offeror);
(b)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid for at least 60
days following the commencement of the bid;
(c)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid unless, at the
time of take-up or payment, more than 50% of the outstanding Voting Shares held by
shareholders, other than the offeror (or any associate or affiliate of the offeror or any other person
acting jointly or in concert with the offeror), have been deposited pursuant to the bid and not
withdrawn;
(d)
the offeror agrees that the Voting Shares may be deposited to and withdrawn from the bid at any
time before Voting Shares are taken up and paid for; and
(e)
if, on the date specified for take-up and payment, condition (c) is satisfied, the bid will remain
open for an additional period of at least 10 business days to permit the remaining shareholders to
tender their Voting Shares.
“Competing Permitted Bid” is a take-over bid that satisfies the following conditions:
D - 40
(a)
the bid is made after the commencement and before the expiry of a Permitted Bid;
(b)
the bid satisfies all the conditions of a Permitted Bid other than Permitted Bid condition (b); and
(c)
the offeror agrees that no Voting Shares will be taken up or paid for under the bid before the close
of business on a date that is not earlier than the later of:
(i)
35 days after the date of the Permitted Bid, and
(ii)
the earliest date on which Voting Shares may be taken up or paid for under any bid in
existence on the date of the Permitted Bid.
“Redemption of Rights” means all (but not less than all) of the Rights may be redeemed by the Galway with the
prior approval of the shareholders at any time before a Flip-in Event occurs at a redemption price of $0.00001 per
Right (subject to adjustment). In addition, if a Permitted Bid, a Competing Permitted Bid or a bid in respect of which
the Board has waived the operation of the Galway Gold Shareholder Rights Plan is completed, the Galway will
immediately, and without further formality, redeem the Rights at the redemption price. If the Rights are redeemed,
the right to exercise the Rights will, without further action and without notice, terminate and the only right to which
holders of the Rights will be entitled thereafter will be to receive the redemption price.
“Waiver” means the Board may, at any time before an acquisition of Voting Shares under a take-over bid made by a
take-over bid circular to all registered holders of Voting Shares that would trigger a Flip-in Event, waive the
application of the “Flip-in” provisions of the Galway Gold Shareholder Rights Plan to the acquisition. If the Board
does so, however, it will be deemed to have waived the application of the “Flip-in” provisions of the Galway Gold
Shareholder Rights Plan to an acquisition of Voting Shares under any other take-over bid made by take-over bid
circular to all registered holders of Voting Shares before the expiry of the first bid. The Board may, with the prior
approval of the shareholders, at any time before any other acquisition of Voting Shares that would trigger a Flip-in
Event, waive the application of the “Flip-in” provisions of the Galway Gold Shareholder Rights Plan to the
acquisition.
The Board may also waive the “Flip-in” provisions of the Galway Gold Shareholder Rights Plan in respect of any
Flip-in Event provided that the Board has determined that the Acquiring Person became an Acquiring Person
through inadvertence and has reduced its ownership to such a level that it is no longer an Acquiring Person.
“Portfolio Managers” the Galway Gold Shareholder Rights Plan is designed to prevent the occurrence of a Flip-in
Event solely by virtue of the customary activities of a person engaged in the management of mutual funds,
or a registered broker or dealer administering non-discretionary client accounts) provided that the person does not
propose to make a take-over bid either alone or jointly or in concert with others.
“Term of Galway Gold Shareholder Rights Plan” means unless otherwise terminated, the Galway Gold
Shareholder Rights Plan will expire at the Expiration Time (defined above).
“Amending Power” If the Galway Gold Shareholder Rights Plan is approved by the shareholders of the Galway, all
amendments to the Galway Gold Shareholder Rights Plan, other than amendments to correct clerical or
typographical errors and amendments to maintain the validity of the Galway Gold Shareholder Rights Plan as a
result of a change of applicable legislation or applicable rules or policies of securities regulatory authorities, must be
approved by a majority of the votes cast by shareholders, other than an offeror under a take-over bid or an Acquiring
Person (or any associate or affiliate of the offeror or the Acquiring Person or any other person acting jointly or in
concert with the offeror or the Acquiring Person). In addition, all amendments to the Galway Gold Shareholder
Rights Plan require the written concurrence of the Rights Agent and prior written consent of the TSX-V (as
applicable).
“Rights Agent” means Computershare Investor Services Inc.
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APPENDIX E
PLAN OF ARRANGEMENT UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
Section 1.01
Definitions
In this Plan of Arrangement, unless the context otherwise requires, the following words and terms with the
initial letter or letters thereof capitalized shall have the meanings ascribed to them below:
(a)
“Arrangement” means the arrangement under section 182 of the OBCA on the terms and subject
to the conditions set out in this Plan of Arrangement, subject to any amendments or variations
thereto made in accordance with Section 9.3 of the Arrangement Agreement or this Plan of
Arrangement at the direction of the Court;
(b)
“Arrangement Resolution” means the special resolution of the Galway Shareholders and the
Galway Warrantholders, voting as a single class, approving the Arrangement to be considered at
the Galway Meeting, substantially in the form and content of Schedule B to the Arrangement
Agreement;
(c)
“AUX” means AUX Acquisition 2 S.à r.l.;
(d)
“AUX Canada” means 2346407 Ontario Inc.;
(e)
“business day” means any day other than a Saturday, a Sunday or a statutory or civic holiday in
Toronto, Ontario;
(f)
“Class 1 Note” means a promissory note in the estimated amount of U.S.$13,652,135, subject to
adjustment on the Effective Date as agreed to by Galway and AUX Canada in writing, issued by
Galway to Spinco1;
(g)
“Class 1 Redemption Amount” means with respect to each Class 1 Preferred Share, the amount
expressed in U.S. dollars that is determined by the directors at the time of issuance of such shares
and acceptable to AUX Canada, being an amount per share equal to (A) the aggregate amount of
the Nyak and Galway Resources U.S. Note and the Funding Note 1, divided by (B) the number of
Class 1 Preferred Shares so issued;
(h)
“Class 2 Note” means a promissory note in the estimated amount of U.S.$16,807,500, subject to
adjustment on the Effective Date as agreed to by Galway and AUX Canada in writing, issued by
Galway to Spinco2;
(i)
“Class 2 Redemption Amount” means with respect to each Class 2 Preferred Share, the amount
expressed in U.S. dollars that is determined by the directors at the time of issuance of such shares
and acceptable to AUX Canada, being an amount per share equal to (A) the amount of the New
Sisterco Note, divided by (B) the number of Class 2 Preferred Shares so issued;
(j)
“Consideration” means the consideration to be received by the Galway Shareholders pursuant to
this Plan of Arrangement in consideration for their Galway Shares, consisting of $2.05 in cash for
each Galway Share;
(k)
“Certificate of Arrangement” means the certificate giving effect to the Arrangement issued by
the Director pursuant to Section 183 of the OBCA;
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(l)
“Court” means the Ontario Superior Court of Justice;
(m)
“CRA” means the Canada Revenue Agency;
(n)
“Depositary” means any trust company, bank or financial institution agreed to in writing between
AUX Canada and Galway for the purpose of, among other things, exchanging certificates
representing Galway Shares for the Consideration, Spinco1 Shares and Spinco2 Shares in
connection with the Arrangement;
(o)
“Disclosure Letter” means the confidential disclosure letter executed by Galway and agreed and
accepted by AUX and AUX Canada in connection with the execution of the Arrangement
Agreement;
(p)
“Dissent Rights” shall have the meaning ascribed to such term in Article 4.01 hereof;
(q)
“Dissenting Shareholder” means a registered holder of Galway Shares who dissents in respect of
the Arrangement in strict compliance with the Dissent Rights and who is ultimately entitled to be
paid fair value for their Galway Shares;
(r)
“Dissenting Warrantholder” means a registered holder of Galway Warrants who dissents in
respect of the Arrangement in strict compliance with the Dissent Rights and who is ultimately
entitled to be paid fair value for their Galway Warrants;
(s)
“Effective Date” means the date on which all of the conditions to completion of the Arrangement
as set forth in the Arrangement Agreement have been satisfied or waived and all documents
agreed to be delivered under the Arrangement Agreement been delivered to the satisfaction of
AUX, AUX Canada, Galway, Spinco1 and Spinco2, acting reasonably, which will be the date
shown in the Certificate of Arrangement;
(t)
“Effective Time” means 12:01 a.m. (Toronto time) on the Effective Date;
(u)
“Final Order” means the final order of the Court pursuant to Section 182 of the OBCA, as such
order may be amended by the Court at any time prior to the Effective Date or, if appealed, then,
unless such appeal is withdrawn or denied, as affirmed or as amended on appeal;
(v)
“Former Galway Securityholders” means the holders of Galway Shares and Galway Warrants
immediately prior to the Effective Time;
(w)
“Former Galway Shareholders” means the holders of Galway Shares immediately prior to the
Effective Time;
(x)
“Funding Note 1” means a promissory note in the amount of U.S.$12,000,000 or such other
amount to be agreed upon in writing by Galway and AUX Canada, issued by Spinco1 to Galway;
(y)
“Funding Note 2” means a promissory note in the amount of U.S.$18,675,000, or such other
amount to be agreed upon in writing by Galway and AUX Canada, issued by New Sisterco to
Galway;
(z)
“Galway” means Galway Resources Ltd., a company existing under the OBCA;
(aa)
“Galway Meeting” means the special meeting of the Galway Securityholders, including any
adjournment or postponement thereof, to be held in accordance with the Interim Order to consider
the Arrangement Resolution;
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(bb)
“Galway Options” means options to purchase Galway Shares issued pursuant to the Galway
Stock Option Plan;
(cc)
“Galway Securityholders” means, collectively, the Galway Shareholders and the Galway
Warrantholders;
(dd)
“Galway Shareholder Rights Plan” means the shareholder rights plan agreement dated as of
August 25, 2009 between Galway and Computershare Investor Services Inc.;
(ee)
“Galway Shares” means the common shares in the capital of Galway, as currently constituted;
(ff)
“Galway Shareholders” means the holders of Galway Shares;
(gg)
“Galway Stock Option Plan” means the stock option plan of Galway approved by the holders of
Galway Shares on May 28, 2007;
(hh)
“Galway Resources U.S.” means Galway Resources U.S. Inc., a company existing under the laws
of Nevada;
(ii)
“Galway Warrantholders” means the holders of Galway Warrants;
(jj)
“Galway Warrants” means outstanding common share purchase warrants to purchase Galway
Shares as set forth in the Arrangement Agreement and Disclosure Letter;
(kk)
“Holdco” means Galway Resources Holdco Ltd., a corporation existing under the laws of the
Cayman Islands;
(ll)
“Interim Order” means the interim order of the Court, providing for, among other things, the
calling and holding of the Galway Meeting, as the same may be amended by the Court;
(mm)
“Liens” means any mortgage, hypothec, prior claim, lien, pledge, assignment for security, security
interest, right of third parties or other charge, encumbrance or any collateral securing the payment
obligations of any person, as well as any other agreement or arrangement with similar effect
whatsoever;
(nn)
“New Sisterco” means a company to be incorporated under the laws of the Cayman Islands and
wholly-owned by Galway;
(oo)
“New Sisterco Share Sale Agreement” means the agreement to be entered into between Galway
and Spinco2 dated as of the Effective Date, pursuant to which 90% of the common shares of New
Sisterco will be transferred to Spinco2;
(pp)
“New Sisterco Note” means a promissory note in the estimated amount of U.S.$16,807,500,
subject to adjustment on the Effective Date as agreed to by Galway and AUX Canada in writing,
issued by New Sisterco to Spinco2;
(qq)
“New Sisterco 10% Share Sale Agreement” means the agreement to be entered into between
Galway and Spinco2 dated as of the Effective Date, pursuant to which 10% of the common shares
of New Sisterco will be transferred to Spinco2;
(rr)
“Nyak” means Nyak Resources Inc., a corporation existing under the laws of New Mexico, USA;
(ss)
“Nyak and Galway Resources U.S. Note” means a promissory note in the amount of
U.S.$1,652,135 , subject to adjustment on the Effective Date as agreed to by Galway and AUX
Canada in writing, issued by Spinco1 to Galway;
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(tt)
“Nyak and Galway Resources U.S. Share Sale Agreement” means the agreement to be entered
into between Galway and Spinco1 dated as of the Effective Date, pursuant to which 100% of the
common shares and debt of Nyak and Galway Resources U.S. will be transferred to Spinco1;
(uu)
“OBCA” means the Business Corporations Act (Ontario), as amended from time to time,
including the regulations promulgated thereunder, and includes any successor thereto;
(vv)
“Plan of Arrangement” means this plan of arrangement and any amendments or variations hereto
made in accordance with Section 9.3 of the Arrangement Agreement or this plan of arrangement
or made at the direction of the Court;
(ww)
“Spinco1” means 663755 N.B. Inc.;
(xx)
“Spinco2” means 663757 N.B. Inc.;
(yy)
“Spinco1 Common Share” means a common share in the capital of Spinco1;
(zz)
“Spinco2 Common Share” means a common share in the capital of Spinco2;
(aaa)
“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder, as amended from
time to time;
(bbb)
“TSXV” means the TSX Venture Exchange;
(ccc)
“U.S. Tax Code” means the United States Internal Revenue Code of 1986, as amended;
(ddd)
“Vetas Project” means the mineral property comprised of 542 hectares represented by License
14833 and License 0074-68 located in the California-Vetas Municipality of Colombia;
(eee)
“Vetas Sale Agreement” means the agreement to be entered into between Holdco and New
Sisterco dated as of the Effective Date, pursuant to which the Vetas Project will be transferred to
New Sisterco;
(fff)
“Victorio Molybdenum-Tungsten Project” means Galway’s mineral property comprised of 246
claims located in the State of New Mexico; and
(ggg)
“Warrant Consideration” means, with respect to Galway Warrants that are cancelled under the
Plan of Arrangement, the number of Galway Shares obtained by dividing: (i) the amount, if any,
by which: (A) the product obtained by multiplying the number of Galway Shares underlying such
Galway Warrant by the Consideration per Galway Share; exceeds: (B) the aggregate exercise price
payable under such Galway Warrant to acquire such Galway Shares; by (ii) the Consideration per
Galway Share.
In addition, words and phrases used herein and defined in the OBCA and not otherwise defined herein shall
have the same meaning herein as in the OBCA unless the context otherwise requires.
Section 1.02
Interpretation Not Affected by Headings
The division of this Plan of Arrangement into articles, sections, paragraphs and subparagraphs and the
insertion of headings herein are for convenience of reference only and shall not affect the construction or
interpretation of this Plan of Arrangement. The terms “this Plan of Arrangement”, “hereof”, “herein”, “hereto”,
“hereunder” and similar expressions refer to this Plan of Arrangement and not to any particular article, section or
other portion hereof and include any instrument supplementary or ancillary hereto.
Section 1.03
Number, Gender and Persons
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In this Plan of Arrangement, unless the context otherwise requires, words importing the singular shall
include the plural and vice versa, words importing the use of either gender shall include both genders and neuter and
the word person and words importing persons shall include a natural person, firm, trust, partnership, association,
corporation, joint venture or government (including any governmental agency, political subdivision or
instrumentality thereof) and any other entity or group of persons of any kind or nature whatsoever.
Section 1.04
Date for any Action
If the date on which any action is required to be taken hereunder is not a business day, such action shall be
required to be taken on the next succeeding day which is a business day.
Section 1.05
Statutory References
Any reference in this Plan of Arrangement to a statute includes all regulations made thereunder, all
amendments to such statute or regulation in force from time to time and any statute or regulation that supplements or
supersedes such statute or regulation.
Section 1.06
Currency
Unless otherwise stated, all references herein to amounts of money are expressed in lawful money of
Canada.
Section 1.07
Governing Law
This Plan of Arrangement shall be governed, including as to validity, interpretation and effect, by the laws
of the Province of Ontario and the laws of Canada applicable therein.
ARTICLE TWO
BINDING EFFECT
Section 2.01
Binding Effect
As of and from the Effective Time, this Plan of Arrangement shall be binding upon:
(a)
AUX;
(b)
AUX Canada;
(c)
Galway;
(d)
Spinco1;
(e)
Spinco2;
(f)
the Dissenting Shareholders;
(g)
the Dissenting Warrantholders;
(h)
the Galway Shareholders; and
(i)
the Galway Warrantholders.
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ARTICLE THREE
ARRANGEMENT
Section 3.01
Arrangement
At the Effective Time, the following shall occur and shall be deemed to occur sequentially in the following
order without any further act or formality:
(a)
(b)
all unexercised Galway Options and the Galway Stock Option Plan shall be cancelled and be of no
further force and effect and none of Galway, AUX, AUX Canada, Holdco, New Sisterco, Spinco1
or Spinco2 or any of their respective affiliates or successors shall have any liability in respect
thereof;
(c)
each Galway Warrant held by a Dissenting Warrantholder shall be and shall be deemed to be
transferred by the holder thereof, without any further act or formality on its part, free and clear of
all Liens, claims and encumbrances, to AUX Canada and AUX Canada shall thereupon be obliged
to pay the amount therefor determined and payable in accordance with Article 4 hereof, and the
name of such holder shall be removed from the register of holders of Galway Warrants as a holder
of Galway Warrants and AUX Canada shall be recorded as the registered holder of the Galway
Warrants so transferred and shall be deemed to be the legal owner of such Galway Warrants;
(d)
each Galway Share held by a Dissenting Shareholder shall be deemed to be transferred by the
holder thereof, without any further act or formality on its part, free and clear of all Liens, claims
and encumbrances, to AUX Canada and AUX Canada shall thereupon be obliged to pay the
amount therefor determined and payable in accordance with Article 4 hereof, and the name of such
holder shall be removed from the central securities register of Galway as a holder of Galway
Shares and AUX Canada shall be recorded as the registered holder of the Galway Shares so
transferred and shall be deemed to be the legal owner of such Galway Shares;
(e)
Galway Warrants held by Dissenting Warrantholders, which have been transferred pursuant to
Section 3.01(c) hereof) will be cancelled by Galway in exchange for the Warrant Consideration;
(f)
Holdco shall sell the Vetas Project (free and clear of any Liens) to New Sisterco in consideration
of U.S.$675,000 in accordance with the Vetas Sale Agreement;
(g)
Galway shall sell 100% of the shares and debt of each of Nyak and Galway Resources U.S. (in
each case free and clear of any Liens) to Spinco1 in consideration of the issuance of one Spinco1
Common Share and the Nyak Galway and Resources U.S. Note by Spinco1 to Galway in
accordance with the Nyak and Galway Resources U.S. Share Sale Agreement;
(h)
Galway shall sell 90% of the common shares of New Sisterco (free and clear of all Liens) and
90% of the Funding Note 2 to Spinco2 in consideration of the issuance of one Spinco2 Common
Share and the New Sisterco Note by Spinco2 to Galway in accordance with the New Sisterco
Share Sale Agreement;
(i)
the articles of Galway shall be amended as follows:
(i)
creating a new class of shares designated as “Class A Common Shares”, in an unlimited
number, having the rights, privileges, restrictions and conditions set out in Part 1 of
Schedule 1 attached hereto;
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(ii)
creating a new class of shares designated as “Class 1 Preferred Shares”, in an unlimited
(iii)
creating a new class of shares designated as “Class 2 Preferred Shares”, in an unlimited
and concurrently therewith each then issued and outstanding Galway Share (other than Galway
Shares held by Dissenting Shareholders) will be deemed to be exchanged (without any action on
the part of the holder of the Galway Shares) for one Class A Common Share, one Class 1
Preferred Share and one Class 2 Preferred Share. No other consideration will be received by any
holder of the Galway Shares in respect of such exchange.
The aggregate stated capital account of the Class A Common Shares, Class 1 Preferred Shares and
Class 2 Preferred Shares will not exceed the paid-up capital (within the meaning of the Tax Act)
of the Galway Shares immediately before the exchange. The stated capital account of the Class 1
Preferred Shares will be an amount equal to the Class 1 Redemption Amount (which is equal to
the aggregate of the principal amounts of the Nyak and Galway Resources U.S. Note and the
Funding Note 1). The stated capital account of the Class 2 Preferred Shares will be an amount
equal to the Class 2 Redemption Amount (which is equal to the principal amount of the New
Sisterco Note). The stated capital account of the Class A Common Shares will be an amount
equal to the paid-up capital of the Galway Shares immediately before the exchange less the
amounts allocated to the stated capital accounts of the Class 1 Preferred Shares and the Class 2
Preferred Shares.
Each Galway Shareholder shall cease to be the holder of the Galway Shares so exchanged, shall
cease to have any rights with respect to such Galway Shares and shall be the holder of the number
of Class A Common Shares, Class 1 Preferred Shares and Class 2 Preferred Shares issued to such
shareholder. The name of such shareholder shall be removed from the central securities register of
Galway in respect of the Galway Shares so exchanged and shall be added to the central securities
register of Galway as the holder of the number of Class A Common Shares, Class 1 Preferred
Shares and Class 2 Preferred Shares so issued to such shareholder; each Galway Shareholder shall
be deemed to have executed and delivered all consents, releases, assignments and waivers,
statutory or otherwise, required to exchange such shares as described above;
(j)
each Class 1 Preferred Share will be transferred to Spinco1 (free and clear of any Liens) in
consideration for the issuance by Spinco1 of one Spinco1 Common Share for each Class 1
Preferred Share transferred to it. The stated capital account of the Spinco1 Common Shares shall
be an amount equal to the aggregate stated capital of the Class 1 Preferred Shares transferred to
Spinco1 pursuant to this section 3.1(j). In connection with such transfer, each holder of Class 1
Preferred Shares so transferred shall be deemed to cease to be the holder of the Class 1 Preferred
Shares so transferred and shall be deemed to be the holder of the number of Spinco1 Common
Shares issued to such holder in consideration for such transfer. The name of such shareholder
shall be removed from the central securities register of Galway in respect of the Class 1 Preferred
Shares so transferred and shall be added to the central securities register of Spinco1 as the holder
of the number of Spinco1 Common Shares so issued to such shareholder, and Spinco1 shall be and
shall be deemed to be the transferee of the Class 1 Preferred Shares so transferred and the name of
Spinco1 shall be entered in the central securities register of Galway in respect of the Class 1
Preferred Shares so transferred to Spinco1;
(k)
each Class 2 Preferred Share will be transferred to Spinco2 (free and clear of any Liens) in
consideration for the issuance by Spinco2 of one Spinco2 Common Share for each Class 2
Preferred Share transferred to it. The stated capital account of the Spinco2 Common Shares shall
be an amount equal to the aggregate stated capital of the Class 2 Preferred Shares transferred to
Spinco2 pursuant to this section 3.1(k). In connection with such transfer, each holder of Class 2
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Preferred Shares so transferred shall be deemed to cease to be the holder of the Class 2 Preferred
Shares so transferred and shall be deemed to be the holder of the number of Spinco2 Common
Shares issued to such holder in consideration for such transfer. The name of such shareholder
shall be removed from the central securities register of Galway in respect of the Class 2 Preferred
Shares so transferred and shall be added to the central securities register of Spinco2 as the holder
of the number of Spinco2 Common Shares so issued to such shareholder, and Spinco2 shall be and
shall be deemed to be the transferee of the Class 2 Preferred Shares so transferred and the name of
Spinco2 shall be entered in the central securities register of Galway in respect of the Class 2
Preferred Shares so transferred to Spinco2;
(l)
Spinco1 shall purchase for cancellation from Galway its incorporation share for consideration of
$1;
(m)
Spinco2 shall purchase for cancellation from Galway its incorporation share for consideration of
$1;
(n)
immediately after completion of the exchange contemplated by section 3.1(j), each Class 1
Preferred Share shall be redeemed by Galway for an amount equal to the Class 1 Redemption
Amount which amount in the aggregate shall be satisfied by the issuance of the Class 1 Note. The
redeemed Class 1 Preferred Shares shall be cancelled and the appropriate entry made on the
central securities register of Galway. All notices, consents, releases, assignments, waivers
(including a waiver of notice of redemption), statutory or otherwise, required to redeem the
Class 1 Preferred Shares as described above shall be deemed given by each of Galway and
Spinco1, as applicable;
(o)
immediately after completion of the exchange contemplated by section 3.1(k), each Class 2
Preferred Share shall be redeemed by Galway for an amount equal to the Class 2 Redemption
Amount which amount in the aggregate shall be satisfied by the issuance of the Class 2 Note. The
redeemed Class 2 Preferred Shares shall be cancelled and the appropriate entry made on the
central securities register of Galway. All notices, consents, releases, assignments, waivers
(including a waiver of notice of redemption), statutory or otherwise, required to redeem the Class
2 Preferred Shares as described above shall be deemed given by each of Galway and Spinco2, as
applicable;
(p)
the Class 1 Note shall be repaid by way of set-off against the amounts owing by Spinco1 pursuant
to the Nyak and Galway Resources U.S. Note and the Funding Note 1 and the Class 1 Note, the
Nyak and Galway Resources U.S. Note and the Funding Note 1 shall be cancelled;
(q)
the Class 2 Note shall be repaid by way of set-off against the amount owing by Spinco2 pursuant
to the New Sisterco Note and the Class 2 Note, and the New Sisterco Note shall be cancelled;
(r)
Galway shall sell 10% of the common shares of New Sisterco to Spinco2 and 10% of the Funding
Note 2 in exchange for 10% of the common shares of Spinco2 in accordance with the New
Sisterco 10% Share Sale Agreement; and
(s)
each issued Class A Common Share held by a Former Galway Securityholder (other than AUX or
any subsidiary or affiliate of AUX) shall be transferred to AUX Canada in exchange for the
Consideration, subject to Sections 3.03 and Article 5 hereof. Each former Galway Shareholder
shall cease to be the holder of the Class A Common Shares so exchanged and shall cease to have
any rights with respect to such Class A Common Shares. Following completion of this step, AUX
Canada will be the holder of all of the issued and outstanding Class A Common Shares and shall
be entered in the central securities register of Galway as the holder of all of the issued and
outstanding class of common shares.
Section 3.02
No Fractional Spinco Shares or Galway Shares
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No fractional Spinco1 Shares or Spinco2 Shares shall be issued to Former Galway Securityholders. The
number of Spinco1 Shares and Spinco2 Shares to be issued to Former Galway Securityholders shall be rounded up
to the nearest whole Spinco1 Share or Spinco2 Share in the event that a Former Galway Securityholder is entitled to
a fractional share representing 0.5 or more of a Spinco1 Share or Spinco2 Share and shall be rounded down to the
nearest whole Spinco1 Share or Spinco2 Share in the event that a Former Galway Securityholder is entitled to a
fractional share representing less than 0.5 of a Spinco1 Share or Spinco2 Share.
No fractional Galway Shares forming part of the Warrant Consideration shall be issued to Former Galway
Securityholders. The number of Galway Shares to be issued as part of the Warrant Consideration to Former Galway
Securityholders shall be rounded down to the nearest whole Galway Share.
ARTICLE FOUR
DISSENT RIGHTS
Section 4.01
Dissent Rights
Pursuant to the Interim Order, holders of Galway Shares and Galway Warrants may exercise rights of
dissent (“Dissent Rights”) under Section 185 of the OBCA, as modified by this Article 4, the Interim Order and the
Final Order, with respect to Galway Shares and Galway Warrants in connection with the Arrangement, provided that
the written notice of dissent to the Arrangement Resolution contemplated by Section 185(6) of the BCA must be
sent to Galway by holders who wish to dissent by 5:00 p.m. at least two days before the Galway Meeting or any date
to which the Galway Meeting may be postponed or adjourned and provided further that holders who exercise such
rights of dissent and who:
(a)
are ultimately entitled to be paid fair value for their Galway Shares or Galway Warrants, as the
case may be, which fair value shall be the fair value of such shares or warrants immediately before
the passing by the Galway Securityholders, respectively, of the Arrangement Resolution, shall be
paid an amount in cash equal to such fair value by AUX Canada; and
(b)
are ultimately not entitled, for any reason, to be paid fair value for their Galway Shares or Galway
Warrants shall be deemed to have participated in the Arrangement, as of the Effective Time, on
the same basis as a non-dissenting holder of Galway Shares or Galway Warrants and shall be
entitled to receive only the consideration contemplated in subsections 3.01(i) through (m) hereof
in the case of Galway Shares, and subsection 3.01(e) hereof in the case of Warrants, that such
holder would have received pursuant to the Arrangement if such holder had not exercised Dissent
Rights,
but in no case shall AUX Canada, Galway or any other person be required to recognize holders of Galway Shares or
Galway Warrants who exercise Dissent Rights as holders of Galway Shares or Galway Warrants after the time that
is immediately prior to the Effective Time, and the names of such holders of Galway Shares or Galway Warrants
who exercise Dissent Rights shall be deleted from the central securities register and register of holders of Galway
Warrants, respectively, as holders of Galway Shares or Galway Warrants at the Effective Time and AUX Canada
shall be recorded as the registered holder of the Galway Shares or Galway Warrants so transferred and shall be
deemed to be the legal owner of such Galway Shares or Galway Warrants.
ARTICLE FIVE
DELIVERY OF CONSIDERATION AND SPINCO SHARES
Section 5.01
(a)
Delivery of Consideration and Spinco1 Shares and Spinco2 Shares
Each holder of Galway Shares on the Effective Date following completion of the transactions
described in subsection 3.01(s) shall be entitled to receive, and the Depositary shall deliver to such
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holder following the Effective Time, payment of a cheque representing the aggregate
Consideration to be paid in exchange for the deposit of such holders Galway Shares for transfer to
AUX Canada that such holder is entitled to receive in accordance with Section 3.01 hereof.
(b)
described in subsection 3.01(l) shall be entitled to receive, and the Depositary shall deliver to such
holder following the Effective Time, a certificate or certificates representing the applicable
number of Spinco1 Shares to be issued in exchange for the deposit of such holders Galway Shares
for transfer to AUX Canada that such holder is entitled to receive in accordance with Section 3.01
hereof.
(c)
described in subsection 3.01(m) shall be entitled to receive, and the Depositary shall deliver to
such holder following the Effective Time, a certificate or certificates representing the applicable
number of Spinco2 Shares to be issued in exchange for the deposit of such holders Galway Shares
for transfer to AUX Canada that such holder is entitled to receive in accordance with Section 3.01
hereof.
(d)
After the Effective Time and until deposited for transfer as contemplated by subsection 5.01(a),
(b) and (c) hereof, each certificate that immediately prior to the Effective Time represented one or
more Galway Shares following completion of the transactions described in 3.01, shall be deemed
at all times to represent only the right to receive in exchange therefor the Consideration and the
Spinco1 Shares and Spinco2 Shares that the holder of such certificate is entitled to receive in
accordance with Section 3.01 hereof.
Section 5.02
Lost Certificates
In the event any certificate, that immediately prior to the Effective Time represented one or more
outstanding Galway Shares that were deposited in exchange for the Consideration and the Spinco1 Shares and
Spinco2 Shares in accordance with Section 3.01 hereof, shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the holder claiming such certificate to be lost, stolen or destroyed, the Depositary shall
deliver in exchange for such lost, stolen or destroyed certificate, the Consideration and certificates representing
Spinco1 Shares and Spinco2 Shares that such holder is entitled to receive in accordance with Section 3.01 hereof.
When authorizing such delivery of the Consideration and certificates representing Spinco1 Shares and Spinco2
Shares, respectively, that such holder is entitled to receive in exchange for such lost, stolen or destroyed certificate,
the holder to whom such Consideration and Spinco1 Shares and Spinco2 Shares is to be delivered shall, as a
condition precedent to the delivery of same, give a bond satisfactory to AUX Canada and the Depositary in such
amount as AUX Canada and the Depositary may direct, or otherwise indemnify AUX Canada and the Depositary in
a manner satisfactory to AUX Canada and the Depositary, against any claim that may be made against AUX Canada
or the Depositary with respect to the certificate alleged to have been lost, stolen or destroyed and shall otherwise
take such actions as may be required by the articles of Galway.
Section 5.03
Distributions with Respect to Unsurrendered Certificates
No dividend or other distribution declared or made after the Effective Time with respect to Spinco1 Shares
or Spinco2 Shares with a record date after the Effective Time shall be delivered to the holder of any unsurrendered
certificate that, immediately prior to the Effective Time, represented outstanding Galway Shares unless and until the
holder of such certificate shall have complied with the provisions of Section 5.01 or Section 5.02 hereof. Subject to
applicable law and to Section 5.04 hereof, at the time of such compliance, there shall, in addition to the delivery of
the Consideration and certificates representing Spinco1 Shares and Spinco2 Shares to which such holder is thereby
entitled, be delivered to such holder, without interest, the amount of the dividend or other distribution with a record
date after the Effective Time theretofore paid with respect to such Spinco1 Shares and Spinco2 Shares.
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Section 5.04
Withholding Rights
AUX, AUX Canada, Galway, and the Depositary shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any person pursuant to the Arrangement and from all dividends or
other distributions otherwise payable to any former Galway Securityholders such amounts as AUX, AUX Canada,
or the Depositary may be required to deduct and withhold therefrom under any provision of applicable Laws in
respect of Taxes, including without limitation, any amounts payable in respect of Galway Options. To the extent
that such amounts are so deducted, withheld and remitted, such amounts shall be treated for all purposes under this
Agreement as having been paid to the person to whom such amounts would otherwise have been paid.
Section 5.05
Limitation and Proscription
To the extent that a Former Galway Securityholder shall not have complied with the provisions of
Section 5.01 or Section 5.02 hereof on or before the date that is six years after the Effective Date (the “final
proscription date”), then the Consideration and Spinco1 Shares and Spinco2 Shares that such Former Galway
Securityholder was entitled to receive shall automatically be returned to AUX Canada or cancelled, as applicable,
without any applicable repayment of capital in respect thereof and the certificates representing such Spinco1 Shares
and Spinco2 Shares shall be delivered to AUX Canada by the Depositary and the share certificates representing the
Spinco1 Shares and Spinco2 Shares shall be caused to be cancelled by AUX Canada, and the interest of the Former
Galway Shareholder in such Spinco1 Shares and Spinco2 Shares to which it was entitled shall be terminated as of
such final proscription date.
ARTICLE SIX
AMENDMENTS
Section 6.01
Amendments to Plan of Arrangement
(a)
AUX Canada and Galway reserve the right to amend, modify or supplement this Plan of
Arrangement at any time and from time to time, provided that each such amendment, modification
or supplement must be (i) set out in writing, (ii) agreed to in writing by AUX Canada and Galway,
(iii) filed with the Court and, if made following the Galway Meeting, approved by the Court, and
(iv) communicated to holders or former holders of Galway Shares and Galway Warrants if and as
required by the Court.
(b)
Any amendment, modification or supplement to this Plan of Arrangement may be proposed by
Galway at any time prior to the Galway Meeting provided that AUX Canada shall have consented
thereto in writing, with or without any other prior notice or communication, and, if so proposed
and accepted by the persons voting at the Galway Meeting (other than as may be required under
the Interim Order), shall become part of this Plan of Arrangement for all purposes.
(c)
Any amendment, modification or supplement to this Plan of Arrangement that is approved by the
Court following the Galway Meeting shall be effective only if: (i) it is consented to in writing by
each of AUX Canada and Galway; and (ii) if required by the Court, it is consented to by the
Galway Shareholders and Galway Warrantholders voting in the manner directed by the Court.
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Schedule 1
Class A Common Share Terms
(1)
Payment of Dividends: The holders of common shares shall be entitled to receive such dividends
(if any) as the board of directors may from time to time declare. For greater certainty, the board of
directors may in their discretion from time to time declare a dividend on the preference shares of
the Corporation without declaring a dividend on the common shares and vice versa.
(2)
Participation upon Liquidation, Dissolution or Winding-Up: In the event of the liquidation,
dissolution or winding-up of the Corporation or other distribution of assets or property of the
Corporation among its shareholders for the purpose of winding-up its affairs, the holders of the
common shares shall, subject to the prior rights of the holders of the preference shares and any
other class of shares of the Corporation entitled to receive the assets and property of the
Corporation upon such a distribution in priority to the common shares, be entitled to participate
rateably in any distribution of the assets and property of the Corporation.
(3)
Voting Rights: The holders of the common shares shall be entitled to receive notice of and to
attend all meetings of the shareholders of the Corporation and to one vote in respect of each
common share held at all such meetings.
Class 1 Preferred Share Terms
(1)
Payment of Dividends: The holders of preference shares shall be entitled to receive such
dividends (if any) as the board of directors may from time to time declare. For greater certainty,
the board of directors may in their discretion from time to time declare a dividend on the common
shares of the Corporation without declaring a dividend on the preference shares and vice versa.
(2)
preference shares shall be entitled to receive from the assets and property of the Corporation a sum
equivalent to the aggregate Redemption Amount (as hereinafter defined) of all preference shares
held by them respectively before any amount shall be paid or any property or assets of the
Corporation distributed to the holders of any common shares or shares of any other class ranking
junior to the preference shares. After payment to the holders of the preference shares of the
amount so payable to them as above provided they shall not be entitled to share in any further
distribution of the assets or property of the Corporation.
(3)
(a)
Redemption by Corporation: The Corporation may, upon giving notice as hereinafter
provided, redeem at any time the whole or from time to time any part of the then outstanding
preference shares on payment of the amount determined by the board of directors at time of
issuance of such preference shares (the “Redemption Price”) plus all declared and unpaid
dividends thereon (the whole constituting and being herein referred to as the “Redemption
Amount”).
(b)
Idem: In the case of redemption of preference shares under the provisions of clause
(3)(a) hereof, the Corporation shall pay or cause to be paid to or to the order of the registered
holders of the preference shares to be redeemed the Redemption Amount thereof on presentation
and surrender at the registered office of the Corporation or any other place designated by the board
of directors of the certificates representing the preference shares called for redemption. Such
payment shall be made by such method as determined by the board of directors, including by
issuance of a promissory note by the Corporation or by cheque payable at par at any branch of the
Corporation’s bankers in Canada. If a part only of the shares represented by any certificate be
redeemed a new certificate for the balance shall be issued at the expense of the Corporation. From
and after the date specified for redemption the preference shares called for redemption shall cease
to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights
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of shareholders in respect thereof unless payment of the Redemption Amount shall not be made
upon presentation of certificates in accordance with the foregoing provisions, in which case the
rights of the shareholders shall remain unaffected. The Corporation shall have the right at any
time after providing notice of its intention to redeem any preference shares to deposit the
Redemption Amount of the shares so called for redemption or of such of the said shares
represented by certificates as have not at the date of such deposit been surrendered by the holders
thereof in connection with such redemption to a special account in any chartered bank or in any
trust company in Canada, named in such notice, to be paid without interest to or to the order of the
respective holders of such preference shares called for redemption upon presentation and surrender
to such bank or trust company of the certificates representing the same, and upon such deposit
being made or upon the date specified for redemption in such notice, whichever is the later, the
preference shares in respect whereof such deposit shall have been made shall be redeemed and the
rights of the holders thereof after such deposit or such redemption date, as the case may be, shall
be limited to receiving without interest their proportionate part of the total Redemption Amount so
deposited against presentation and surrender of the said certificates held by them respectively and
any interest allowed on such deposit shall belong to the Corporation.
(4)
(a)
Redemption at Option of Holder: A holder of preference shares shall be entitled to
require the Corporation to redeem, subject to the requirements of the Canada Business
Corporations Act, as now enacted or as the same may from time to time be amended, re-enacted or
replaced, at any time or times all or any of the preference shares registered in the name of such
holder on the books of the Corporation by tendering to the Corporation at its registered office a
share certificate or certificates representing the preference shares which the registered holder
desires to have the Corporation redeem together with a request in writing specifying (i) that the
registered holder desires to have the preference shares represented by such certificate or
certificates redeemed by the Corporation and (ii) the business day (herein referred to as the
“Redemption Date”) on which the holder desires to have the Corporation redeem such preference
shares. The Redemption Date shall be not less than 30 days after the day on which the request in
writing is given to the Corporation. Upon receipt of a share certificate or certificates representing
the preference shares which the registered holder desires to have the Corporation redeem together
with such a request the Corporation shall on the Redemption Date redeem such preference shares
by paying to such registered holder the Redemption Amount for each such preference share being
redeemed. Such payment shall be made by cheque payable at par at any branch of the
Corporation’s bankers for the time being in Canada. The said preference shares shall be redeemed
on the Redemption Date and from and after the Redemption Date such shares shall cease to be
entitled to dividends and the holder thereof shall not be entitled to exercise any of the rights of
holders of preference shares in respect thereof unless payment of the Redemption Amount is not
made on the Redemption Date, in which event the rights of the holder of the said preference shares
shall remain unaffected.
(b)
Idem: If a holder of preference shares shall have required the Corporation pursuant to
the provisions of clause (4)(a) hereof to redeem all or any of the preference shares registered in the
name of such holder and the Corporation cannot redeem the said preference shares on the
Redemption Date without thereby contravening the Canada Business Corporations Act, as now
enacted or as the same may from time to time be amended, re-enacted or replaced, the Corporation
shall redeem the said preference shares as soon as it is lawfully able to do so and until the said
preference shares are so redeemed the rights of the holder thereof shall remain unaffected,
provided that the said holder may at any time by notice in writing tendered to the Corporation at
its registered office withdraw the request that the said preference shares be redeemed in which
event the Corporation shall return to the said holder the share certificate or certificates
representing the said preference shares which had been tendered to the Corporation.
(5)
Voting Rights: The holders of preference shares shall not be entitled to receive notice of or to
attend meetings of the shareholders of the Corporation. The holders of the preference shares shall,
however, be entitled to notice of meetings of shareholders called for the purpose of authorizing the
dissolution of the Corporation or the sale of its undertaking or a substantial part thereof.
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(6)
Waiver: The Corporation or the holder of any preference share may waive, in writing, any of the
requirements herein, in its favour, including requirements with respect to the giving of notice of
redemption.
(7)
Specified Amount: The “specified amount” for purposes of subsection 191(4) of the Income Tax
Act (Canada) in respect of each preference share shall be the amount specified by a director or an
officer of the Corporation in a certificate that is made concurrently with the issuance of the
preference shares (expressed in a dollar amount).
Class 2 Preferred Share Terms
(1)
Payment of Dividends: The holders of preference shares shall be entitled to receive such
dividends (if any) as the board of directors may from time to time declare. For greater certainty,
the board of directors may in their discretion from time to time declare a dividend on the common
shares of the Corporation without declaring a dividend on the preference shares and vice versa.
(2)
preference shares shall be entitled to receive from the assets and property of the Corporation a sum
equivalent to the aggregate Redemption Amount (as hereinafter defined) of all preference shares
held by them respectively before any amount shall be paid or any property or assets of the
Corporation distributed to the holders of any common shares or shares of any other class ranking
junior to the preference shares. After payment to the holders of the preference shares of the
amount so payable to them as above provided they shall not be entitled to share in any further
distribution of the assets or property of the Corporation.
(3)
(a)
Redemption by Corporation: The Corporation may, upon giving notice as hereinafter
provided, redeem at any time the whole or from time to time any part of the then outstanding
preference shares on payment of the amount determined by the board of directors at time of
issuance of such preference shares (the “Redemption Price”) plus all declared and unpaid
dividends thereon (the whole constituting and being herein referred to as the “Redemption
Amount”).
(b)
Idem: In the case of redemption of preference shares under the provisions of clause
(3)(a) hereof, the Corporation shall pay or cause to be paid to or to the order of the registered
holders of the preference shares to be redeemed the Redemption Amount thereof on presentation
and surrender at the registered office of the Corporation or any other place designated by the board
of directors of the certificates representing the preference shares called for redemption. Such
payment shall be made by such method as determined by the board of directors, including by
issuance of a promissory note by the Corporation or by cheque payable at par at any branch of the
Corporation’s bankers in Canada. If a part only of the shares represented by any certificate be
redeemed a new certificate for the balance shall be issued at the expense of the Corporation. From
and after the date specified for redemption the preference shares called for redemption shall cease
to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights
of shareholders in respect thereof unless payment of the Redemption Amount shall not be made
upon presentation of certificates in accordance with the foregoing provisions, in which case the
rights of the shareholders shall remain unaffected. The Corporation shall have the right at any
time after providing notice of its intention to redeem any preference shares to deposit the
Redemption Amount of the shares so called for redemption or of such of the said shares
represented by certificates as have not at the date of such deposit been surrendered by the holders
thereof in connection with such redemption to a special account in any chartered bank or in any
trust company in Canada, named in such notice, to be paid without interest to or to the order of the
respective holders of such preference shares called for redemption upon presentation and surrender
to such bank or trust company of the certificates representing the same, and upon such deposit
being made or upon the date specified for redemption in such notice, whichever is the later, the
preference shares in respect whereof such deposit shall have been made shall be redeemed and the
E - 14
rights of the holders thereof after such deposit or such redemption date, as the case may be, shall
be limited to receiving without interest their proportionate part of the total Redemption Amount so
deposited against presentation and surrender of the said certificates held by them respectively and
any interest allowed on such deposit shall belong to the Corporation.
(4)
(a)
Redemption at Option of Holder: A holder of preference shares shall be entitled to
require the Corporation to redeem, subject to the requirements of the Canada Business
Corporations Act, as now enacted or as the same may from time to time be amended, re-enacted or
replaced, at any time or times all or any of the preference shares registered in the name of such
holder on the books of the Corporation by tendering to the Corporation at its registered office a
share certificate or certificates representing the preference shares which the registered holder
desires to have the Corporation redeem together with a request in writing specifying (i) that the
registered holder desires to have the preference shares represented by such certificate or
certificates redeemed by the Corporation and (ii) the business day (herein referred to as the
“Redemption Date”) on which the holder desires to have the Corporation redeem such preference
shares. The Redemption Date shall be not less than 30 days after the day on which the request in
writing is given to the Corporation. Upon receipt of a share certificate or certificates representing
the preference shares which the registered holder desires to have the Corporation redeem together
with such a request the Corporation shall on the Redemption Date redeem such preference shares
by paying to such registered holder the Redemption Amount for each such preference share being
redeemed. Such payment shall be made by cheque payable at par at any branch of the
Corporation’s bankers for the time being in Canada. The said preference shares shall be redeemed
on the Redemption Date and from and after the Redemption Date such shares shall cease to be
entitled to dividends and the holder thereof shall not be entitled to exercise any of the rights of
holders of preference shares in respect thereof unless payment of the Redemption Amount is not
made on the Redemption Date, in which event the rights of the holder of the said preference shares
shall remain unaffected.
(b)
Idem: If a holder of preference shares shall have required the Corporation pursuant to
the provisions of clause (4)(a) hereof to redeem all or any of the preference shares registered in the
name of such holder and the Corporation cannot redeem the said preference shares on the
Redemption Date without thereby contravening the Canada Business Corporations Act, as now
enacted or as the same may from time to time be amended, re-enacted or replaced, the Corporation
shall redeem the said preference shares as soon as it is lawfully able to do so and until the said
preference shares are so redeemed the rights of the holder thereof shall remain unaffected,
provided that the said holder may at any time by notice in writing tendered to the Corporation at
its registered office withdraw the request that the said preference shares be redeemed in which
event the Corporation shall return to the said holder the share certificate or certificates
representing the said preference shares which had been tendered to the Corporation.
(5)
Voting Rights: The holders of preference shares shall not be entitled to receive notice of or to
attend meetings of the shareholders of the Corporation. The holders of the preference shares shall,
however, be entitled to notice of meetings of shareholders called for the purpose of authorizing the
dissolution of the Corporation or the sale of its undertaking or a substantial part thereof.
(6)
Waiver: The Corporation or the holder of any preference share may waive, in writing, any of the
requirements herein, in its favour, including requirements with respect to the giving of notice of
redemption.
(7)
Specified Amount: The “specified amount” for purposes of subsection 191(4) of the Income Tax
Act (Canada) in respect of each preference share shall be the amount specified by a director or an
officer of the Corporation in a certificate that is made concurrently with the issuance of the
preference shares (expressed in a dollar amount).
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APPENDIX F
FAIRNESS OPINION OF NATIONAL BANK FINANCIAL
October 18, 2012
Strictly Private & Confidential
The Board of Directors of
Suite 1000, 36 Toronto Street
Toronto, ON M5C 2C5
To the Board of Directors:
National Bank Financial Inc. (“National Bank Financial”) understands that Galway Resources Ltd.
(“Galway”) and AUX Acquisition 2 S.àr.l. and its wholly-owned Ontario subsidiary, 2346407 Ontario
Inc. (AUX Acquisition 2 S.àr.l. and its affiliates, including 2346407 Ontario Inc., collectively, “AUX”),
proposes to enter into an arrangement agreement (the “Arrangement Agreement”), under which AUX
will indirectly acquire all of the issued and outstanding common shares (each a “Galway Share” and
collectively the “Galway Shares”) of Galway (other than Galway Shares held by AUX). National Bank
Financial further understands that pursuant to the Arrangement, the assets comprising Galway’s Victorio
tungsten-molybdenum project (the “Victorio Project”) (including the rights and obligations under
contracts related thereto) will be transferred to a new subsidiary (“SpinCo1”) of Galway, and the assets
comprising Galway’s Vetas gold-silver project (the “Vetas Project”) will be transferred to another new
subsidiary (“SpinCo2”) of Galway. Under the terms of the Arrangement, holders of Galway Shares
(“Galway Shareholders”) other than AUX shall receive for each Galway Share held (i) C$2.05 in cash;
(ii) one common share of SpinCo1; and (iii) one common share of SpinCo2 (the consideration in (i), (ii)
and (iii) referred to collectively herein as the “Consideration”). The transactions contemplated by the
Arrangement Agreement will be effected pursuant to a court-approved plan of arrangement under the
Business Corporations Act (Ontario) (the “Arrangement”).
National Bank Financial also understands that AUX currently owns approximately 9.4% of the
outstanding Galway Shares and will, immediately following completion of the Arrangement, and
depending on the number of Galway warrants that are exercised by warrantholders, own approximately
8.2% - 8.6% of the common shares of SpinCo1 and approximately 17.4% - 17.7% of the outstanding
common shares of SpinCo2.
National Bank Financial further understands that AUX has entered into lock-up agreements with certain
of Galway’s directors and senior officers (the “Locked-Up Securityholders”) with respect to all of the
Galway Shares beneficially owned, controlled or directed by the Locked-Up Securityholders (the “Lock-
F-1
Up Agreements”) whereby the Locked-Up Securityholders will commit to vote such securities in favour
of the Arrangement, subject to the terms and conditions of the Lock-Up Agreements.
The terms and conditions of the Arrangement will be more fully described in a management information
circular (the “Management Information Circular”) to be prepared by Galway and mailed to Galway
Shareholders in connection with a meeting of Galway’s shareholders and warrantholders to be called by
Galway to seek shareholder and warrantholder approval of the Arrangement.
Engagement of National Bank Financial by the Board
National Bank Financial has been retained by Galway pursuant to an engagement agreement dated
effective April 5, 2012 (“Engagement Agreement”) to provide an opinion (the “Fairness Opinion”) to
the board of directors (the “Board”) of Galway as to the fairness, from a financial point of view, to
Galway Shareholders other than AUX, of the Consideration to be received by Galway Shareholders
pursuant to the Arrangement.
National Bank Financial understands that the Fairness Opinion and a summary thereof will be included in
the Management Information Circular and, subject to the terms of the Engagement Letter, National Bank
Financial consents to such disclosure. National Bank Financial has not been engaged to prepare a
valuation of Galway, AUX, SpinCo1 or SpinCo2 or a valuation of any of the securities or assets of any of
them and this Fairness Opinion should not be construed as such.
National Bank Financial will be paid fees for its services as financial advisor to the Board. The fee to be
received by National Bank Financial in respect of the Fairness Opinion is not contingent on either the
conclusion of the Fairness Opinion or on the completion of the Arrangement or an alternative transaction.
In addition, National Bank Financial is to be indemnified in respect of certain liabilities that might arise
out of its engagement.
Relationship with Interested Parties
National Bank Financial is not an “associated” or “affiliated” entity or “issuer insider” (as such terms are
used in Multilateral Instrument 61-101 of the Ontario Securities Commission and the Québec Autorité des
marchés financiers (“MI 61-101”)) of Galway or AUX, nor is it a financial advisor to AUX in connection
with the Arrangement.
National Bank Financial acts as a trader and dealer, both as principal and agent, in major financial
markets and, as such, may have had and may in the future have positions in the securities of Galway and,
from time to time, may have executed or may execute transactions for such companies and clients from
whom it received or may receive compensation. National Bank Financial, as an investment dealer,
conducts research on securities and may, in the ordinary course of its business, provide research reports
and investment advice to its clients on investment matters, including with respect to Galway and AUX.
Credentials of National Bank Financial
National Bank Financial is a leading Canadian investment dealer whose businesses include corporate
finance, mergers and acquisitions, equity and fixed income sales and trading and investment research.
This Fairness Opinion is the opinion of National Bank Financial and the form and content herein has been
reviewed and approved for release by a group of managing directors of National Bank Financial, each of
whom is experienced in merger, acquisition, divestiture, valuation and fairness opinion matters.
F-2
Scope of Review
In connection with rendering our Fairness Opinion, National Bank Financial has reviewed and relied
upon, or carried out as the case may be, among other things, the following:
(i)
certain non-public documents regarding Galway made available to National Bank
Financial, including financial and technical projections for the California Project;
(ii)
discussions with senior management of Galway;
(iii)
discussions with counsel to Galway;
(iv)
the Arrangement Agreement;
(v)
various public documents relating to the business, operations, financial
performance and share history of Galway and other public companies we
considered relevant, including:
(a)
annual and quarterly financial reports;
(b)
annual information forms;
(c)
management proxy circulars;
(d)
investor presentations;
(e)
technical reports filed under National Instrument 43-101; and
(f)
research analyst reports.
(vi)
public information with respect to trading multiples of comparable companies we
considered relevant; and
(vii)
public information with respect to precedent transactions we considered relevant.
National Bank Financial has not, to the best of its knowledge, been denied access by Galway to any
information under the control of Galway that has been requested by National Bank Financial.
Assumptions and Limitations
With the Board’s approval and as provided for in the Engagement Agreement, National Bank Financial
has relied upon the completeness, accuracy and fair presentation of all financial information, business
plans, forecasts and other information, data, advice, opinions and representations obtained by us from
public sources, or provided to us by Galway, its subsidiaries or their respective directors, officers,
associates, affiliates, consultants, advisors and representatives (collectively, the “Information”). Our
Fairness Opinion is conditional upon such completeness, accuracy and fair presentation of the
Information. We have not been requested to nor, subject to the exercise of professional judgment, have
we attempted to verify independently the completeness, accuracy or fair presentation of the Information.
Two senior officers of Galway have represented to National Bank Financial in a certificate delivered as of
the date hereof, among other things, that (i) the Information provided orally by, or in the presence of,
employees, directors, officers, consultants, advisors and representatives of Galway or its subsidiaries or
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affiliates or in writing by any of them to National Bank Financial or obtained by National Bank Financial
from the System for Electronic Document Analysis and Retrieval (SEDAR) relating to Galway, its
subsidiaries, associates or affiliates, or the Arrangement, for the purpose of preparing the Fairness
Opinion was, at the date the Information was provided to National Bank Financial, and is at the date
hereof, complete, true and correct in all material respects, and did not and does not contain any untrue
statement of a material fact in respect of Galway, its subsidiaries, associates or affiliates, or the
Arrangement and did not and does not omit to state a material fact in respect of Galway, its subsidiaries,
associates or affiliates, or the Arrangement necessary to make the Information or any statement contained
therein not misleading in light of the circumstances under which the Information was provided or any
such statement was made; and that (ii) since the dates on which the Information was provided to National
Bank Financial, except as disclosed in writing to National Bank Financial, there has been no material
change, financial or otherwise, in the financial condition, assets, liabilities (contingent or otherwise),
business, operations or prospects of Galway or any of its subsidiaries and no material change has occurred
in the Information or any part thereof which would have or which would reasonably be expected to have a
material effect on the Fairness Opinion.
With respect to any forecasts, projections, estimates and/or budgets provided to National Bank Financial
and used in its analyses, National Bank Financial notes that projecting future results of any company is
inherently subject to uncertainty. National Bank Financial has assumed, however, that such forecasts,
projections, estimates and/or budgets were prepared using the assumptions identified therein and that such
assumptions, in the opinion of Galway, are (or were at the time and continue to be) reasonable in the
circumstances.
National Bank Financial has assumed that, in all respects material to its analysis, the Arrangement
Agreement executed by the parties will be in substantially the form of the draft provided to us, the
representations and warranties of the parties to the Arrangement Agreement contained therein are true,
accurate and complete in all material respects, such parties will each perform all of the respective
covenants and agreements to be performed by them under the Arrangement Agreement, and all conditions
to the obligations of such parties as specified in the Arrangement Agreement will be satisfied without any
waiver thereof. NBF has also assumed that all material approvals and consents required in connection
with the consummation of the Arrangement will be obtained and that in connection with obtaining any
necessary approvals and consents, no limitations, restrictions or conditions will be imposed that would
have a material adverse effect on SpinCo1 or SpinCo2.
National Bank Financial has also assumed that the Lock-Up Agreements will be entered into by the
parties thereto substantially in the form of the drafts provided to us, that all of the representations and
warranties to be contained in the Lock-Up Agreements will be correct as of the date hereof and that the
Locked-Up Securityholders will vote all of their securities in favour of the Arrangement.
National Bank Financial is not a legal, tax or accounting expert and National Bank Financial expresses no
opinion concerning any legal, tax or accounting matters concerning the Arrangement. We express no
opinion as to the value at which the shares of SpinCo1 or SpinCo2 may trade following completion of the
Arrangement.
This Fairness Opinion is rendered as at the date hereof and on the basis of securities markets, economic
and general business and financial conditions prevailing as at the date hereof and the conditions and
prospects, financial and otherwise, of Galway as they are reflected in the Information and as they were
represented to us in our discussions with the management of Galway. In our analyses and in connection
with the preparation of our Fairness Opinion, we made numerous assumptions with respect to industry
performance, general business, market and economic conditions and other matters, many of which are
beyond the control of National Bank Financial and any party involved in the Arrangement.
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This Fairness Opinion is provided to the Board of Galway for its use only and may not be relied upon by
any other person. National Bank Financial disclaims any undertaking or obligation to advise any person
of any change in any fact or matter affecting the Fairness Opinion which may come or be brought to the
attention of National Bank Financial after the date hereof. Without limiting the foregoing, in the event
that there is any material change in any fact or matter affecting the Fairness Opinion after the date hereof,
National Bank Financial reserves the right to change, modify or withdraw the Fairness Opinion.
The preparation of a fairness opinion is a complex process and is not necessarily capable of being
partially analyzed or summarized. National Bank Financial believes that its analyses must be considered
as a whole and that selecting portions of the analyses or the factors considered by it, without considering
all factors and analyses together, could create an incomplete view of the process underlying the Fairness
Opinion. The Fairness Opinion should be read in its entirety.
This Fairness Opinion is addressed to and is for the sole use and benefit of the Board, and may not be
referred to, summarized, circulated, publicized or reproduced or disclosed to, used or relied upon by any
party without the express written consent of National Bank Financial. This Fairness Opinion is not to be
construed as a recommendation to any holder of Galway Shares to vote in favour or against the
Arrangement.
Fairness Opinion
Based upon and subject to the foregoing, National Bank Financial is of the opinion that, as of the date
hereof, the Consideration to be received by Galway Shareholders pursuant to the Arrangement is fair,
from a financial point of view, to Galway Shareholders other than AUX.
Yours very truly,
NATIONAL BANK FINANCIAL INC.
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APPENDIX G
INTERIM ORDER
(Attached)
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APPENDIX H
NOTICE OF APPLICATION
(Attached)
H-1
APPENDIX I
SECTION 185 OF THE OBCA
SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
Rights of dissenting shareholders
185.(1) Subject to subsection (3) and to sections 186 and 248, if a corporation resolves to,
(a)
amend its articles under section 168 to add, remove or change restrictions on the issue, transfer or
ownership of shares of a class or series of the shares of the corporation;
(b)
amend its articles under section 168 to add, remove or change any restriction upon the business or
businesses that the corporation may carry on or upon the powers that the corporation may
exercise;
(c)
amalgamate with another corporation under sections 175 and 176;
(d)
be continued under the laws of another jurisdiction under section 181; or
(e)
sell, lease or exchange all or substantially all its property under subsection 184 (3),
a holder of shares of any class or series entitled to vote on the resolution may dissent.
Idem
(2)
If a corporation resolves to amend its articles in a manner referred to in subsection 170 (1), a holder of
shares of any class or series entitled to vote on the amendment under section 168 or 170 may dissent,
except in respect of an amendment referred to in,
(a)
clause 170 (1) (a), (b) or (e) where the articles provide that the holders of shares of such class or
series are not entitled to dissent; or
(b)
subsection 170 (5) or (6).
One class of shares
(2.1)
The right to dissent described in subsection (2) applies even if there is only one class of shares.
Exception
(3)
A shareholder of a corporation incorporated before the 29th day of July, 1983 is not entitled to dissent
under this section in respect of an amendment of the articles of the corporation to the extent that the
amendment,
(a)
amends the express terms of any provision of the articles of the corporation to conform to the
terms of the provision as deemed to be amended by section 277; or
(b)
deletes from the articles of the corporation all of the objects of the corporation set out in its
articles, provided that the deletion is made by the 29th day of July, 1986.
Shareholder’s right to be paid fair value
(4)
In addition to any other right the shareholder may have, but subject to subsection (30), a shareholder who
complies with this section is entitled, when the action approved by the resolution from which the
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shareholder dissents becomes effective, to be paid by the corporation the fair value of the shares held by the
shareholder in respect of which the shareholder dissents, determined as of the close of business on the day
before the resolution was adopted.
No partial dissent
(5)
A dissenting shareholder may only claim under this section with respect to all the shares of a class held by
the dissenting shareholder on behalf of any one beneficial owner and registered in the name of the
dissenting shareholder.
Objection
(6)
A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a
resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless
the corporation did not give notice to the shareholder of the purpose of the meeting or of the shareholder’s
right to dissent.
Idem
(7)
The execution or exercise of a proxy does not constitute a written objection for purposes of subsection (6).
Notice of adoption of resolution
(8)
The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder
who has filed the objection referred to in subsection (6) notice that the resolution has been adopted, but
such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn
the objection.
Idem
(9)
A notice sent under subsection (8) shall set out the rights of the dissenting shareholder and the procedures
to be followed to exercise those rights.
Demand for payment of fair value
(10)
A dissenting shareholder entitled to receive notice under subsection (8) shall, within twenty days after
receiving such notice, or, if the shareholder does not receive such notice, within twenty days after learning
that the resolution has been adopted, send to the corporation a written notice containing,
(a)
the shareholder’s name and address;
(b)
the number and class of shares in respect of which the shareholder dissents; and
(c)
a demand for payment of the fair value of such shares.
Certificates to be sent in
(11)
Not later than the thirtieth day after the sending of a notice under subsection (10), a dissenting shareholder
shall send the certificates representing the shares in respect of which the shareholder dissents to the
corporation or its transfer agent.
Idem
(12)
A dissenting shareholder who fails to comply with subsections (6), (10) and (11) has no right to make a
claim under this section.
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Endorsement on certificate
(13)
A corporation or its transfer agent shall endorse on any share certificate received under subsection (11) a
notice that the holder is a dissenting shareholder under this section and shall return forthwith the share
certificates to the dissenting shareholder.
Rights of dissenting shareholder
(14)
On sending a notice under subsection (10), a dissenting shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of the shares as determined under this section
except where,
(a)
the dissenting shareholder withdraws notice before the corporation makes an offer under
subsection (15);
(b)
the corporation fails to make an offer in accordance with subsection (15) and the dissenting
shareholder withdraws notice; or
(c)
the directors revoke a resolution to amend the articles under subsection 168 (3), terminate an
amalgamation agreement under subsection 176 (5) or an application for continuance under
subsection 181 (5), or abandon a sale, lease or exchange under subsection 184 (8),
in which case the dissenting shareholder’s rights are reinstated as of the date the dissenting shareholder sent
the notice referred to in subsection (10), and the dissenting shareholder is entitled, upon presentation and
surrender to the corporation or its transfer agent of any certificate representing the shares that has been
endorsed in accordance with subsection (13), to be issued a new certificate representing the same number
of shares as the certificate so presented, without payment of any fee.
Offer to pay
(15)
A corporation shall, not later than seven days after the later of the day on which the action approved by the
resolution is effective or the day the corporation received the notice referred to in subsection (10), send to
each dissenting shareholder who has sent such notice,
(a)
a written offer to pay for the dissenting shareholder’s shares in an amount considered by the
directors of the corporation to be the fair value thereof, accompanied by a statement showing how
the fair value was determined; or
(b)
if subsection (30) applies, a notification that it is unable lawfully to pay dissenting shareholders
for their shares.
Idem
(16)
Every offer made under subsection (15) for shares of the same class or series shall be on the same terms.
Idem
(17)
Subject to subsection (30), a corporation shall pay for the shares of a dissenting shareholder within ten days
after an offer made under subsection (15) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has been made.
Application to court to fix fair value
(18)
Where a corporation fails to make an offer under subsection (15) or if a dissenting shareholder fails to
accept an offer, the corporation may, within fifty days after the action approved by the resolution is
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effective or within such further period as the court may allow, apply to the court to fix a fair value for the
shares of any dissenting shareholder.
Idem
(19)
If a corporation fails to apply to the court under subsection (18), a dissenting shareholder may apply to the
court for the same purpose within a further period of twenty days or within such further period as the court
may allow.
Idem
(20)
A dissenting shareholder is not required to give security for costs in an application made under subsection
(18) or (19).
Costs
(21)
If a corporation fails to comply with subsection (15), then the costs of a shareholder application under
subsection (19) are to be borne by the corporation unless the court otherwise orders.
Notice to shareholders
(22)
Before making application to the court under subsection (18) or not later than seven days after receiving
notice of an application to the court under subsection (19), as the case may be, a corporation shall give
notice to each dissenting shareholder who, at the date upon which the notice is given,
(a)
has sent to the corporation the notice referred to in subsection (10); and
(b)
has not accepted an offer made by the corporation under subsection (15), if such an offer was
made,
of the date, place and consequences of the application and of the dissenting shareholder’s right to appear
and be heard in person or by counsel, and a similar notice shall be given to each dissenting shareholder
who, after the date of such first mentioned notice and before termination of the proceedings commenced by
the application, satisfies the conditions set out in clauses (a) and (b) within three days after the dissenting
shareholder satisfies such conditions.
Parties joined
(23)
All dissenting shareholders who satisfy the conditions set out in clauses (22)(a) and (b) shall be deemed to
be joined as parties to an application under subsection (18) or (19) on the later of the date upon which the
application is brought and the date upon which they satisfy the conditions, and shall be bound by the
decision rendered by the court in the proceedings commenced by the application.
Idem
(24)
Upon an application to the court under subsection (18) or (19), the court may determine whether any other
person is a dissenting shareholder who should be joined as a party, and the court shall fix a fair value for
the shares of all dissenting shareholders.
Appraisers
(25)
The court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the
shares of the dissenting shareholders.
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Final order
(26)
The final order of the court in the proceedings commenced by an application under subsection (18) or (19)
shall be rendered against the corporation and in favour of each dissenting shareholder who, whether before
or after the date of the order, complies with the conditions set out in clauses (22) (a) and (b).
Interest
(27)
The court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting
shareholder from the date the action approved by the resolution is effective until the date of payment.
Where corporation unable to pay
(28)
Where subsection (30) applies, the corporation shall, within ten days after the pronouncement of an order
under subsection (26), notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
Idem
(29)
Where subsection (30) applies, a dissenting shareholder, by written notice sent to the corporation within
thirty days after receiving a notice under subsection (28), may,
(a)
withdraw a notice of dissent, in which case the corporation is deemed to consent to the withdrawal
and the shareholder’s full rights are reinstated; or
(b)
retain a status as a claimant against the corporation, to be paid as soon as the corporation is
lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the
corporation but in priority to its shareholders.
Idem
(30)
A corporation shall not make a payment to a dissenting shareholder under this section if there are
reasonable grounds for believing that,
(a)
the corporation is or, after the payment, would be unable to pay its liabilities as they become due;
or
(b)
the realizable value of the corporation’s assets would thereby be less than the aggregate of its
liabilities.
Court order
(31)
Upon application by a corporation that proposes to take any of the actions referred to in subsection (1) or
(2), the court may, if satisfied that the proposed action is not in all the circumstances one that should give
rise to the rights arising under subsection (4), by order declare that those rights will not arise upon the
taking of the proposed action, and the order may be subject to compliance upon such terms and conditions
as the court thinks fit and, if the corporation is an offering corporation, notice of any such application and a
copy of any order made by the court upon such application shall be served upon the Commission.
Commission may appear
(32)
The Commission may appoint counsel to assist the court upon the hearing of an application under
subsection (31), if the corporation is an offering corporation.
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Any questions and requests for assistance may be directed to the
Proxy Solicitation Agent and Depositary:
The Exchange Tower
130 King Street West, Suite 2950, P.O. Box 361
Toronto, Ontario
M5X 1E2
www.kingsdaleshareholder.com
North American Toll Free Phone:
1-866-581-0512
Email: [email protected]
Facsimile: 1-416-867-2271
Toll Free Facsimile: 1-866-545-5580
Outside North America, Banks and Brokers Call Collect: 1-416-867-2272