10-K 1 k2001.txt K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2001 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission file number 0-17480 CROWN RESOURCES CORPORATION (Exact name of registrant as specified in charter) Washington 84-1097086 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4251 Kipling St. Suite 390, Wheat Ridge, Colorado 80033 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303)534-1030 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $ 1,927,000, based upon the closing price on March 4 2002. There were 14,804,104 shares of common stock, $0.01 par value, outstanding on March 4, 2002. This Form 10-K consists of 60 pages Exhibit Index Begins on Page 51 TABLE OF CONTENTS Page PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 17 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 19 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . 20 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 21 Item 8. Financial Statements and Supplementary Data . . . . . . . 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . 33 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 33 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 37 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 43 Item 13. Certain Relationships and Related Transactions . . . . . . 44 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . 44 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 PART I The information set forth in this Form 10-K including that in Business, Properties and Management's Discussion and Analysis of Financial Condition and Results of Operations includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by those sections. Factors that realistically could cause results to differ materially from those projected in the forward looking statements are set forth in Business, Management's Discussion and Analysis of Financial Condition and Results of Operations and Considerations Related to Crown's Business below. Item 1. Business (a) Overview Crown Resources Corporation ("Crown") is a precious metals exploration company operating in the western United States. Crown owns 41.2% of Solitario Resources Corporation ("Solitario"), which was consolidated prior to Solitario's acquisition of Altoro Gold Corporation ("Altoro"). Crown's investment in Solitario since October 2000 is accounted for under the equity method of accounting. Solitario operates as a precious and base metals exploration company in Brazil, Bolivia and Peru. Crown's principal expertise is in identifying properties with promising mineral potential, acquiring these properties and exploring them to an advanced stage. Crown's goal is to advance its properties, either on its own or through joint ventures, to the feasibility study stage. Furthermore, Crown intends to pursue development of the properties, typically through a joint venture with a partner that has expertise in mining operations. Crown has in the past recognized, and expects in the future to recognize, revenues from the option and sale of property interests to joint venture partners and from the sale of its share of metals produced on its properties. Crown was incorporated under the laws of the State of Washington in August 1988. Unless otherwise indicated by the context, all references to Crown in this report shall be read to refer to Crown Resources Corporation and its subsidiaries taken together. However, "CRC" shall refer to Crown Resources Corporation only. (b) Recent Developments Corporate Reorganization On March 8, 2002, CRC filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy") in the United States Bankruptcy Court for the District of Colorado (the "Court"). As part of the Bankruptcy CRC filed a Plan of Reorganization (the "Plan") and a Disclosure Statement with the Court on March 27, 2002. The Plan contemplates a restructuring of CRC's 5.75% convertible subordinated debentures, which were due August 27, 2001 (the "Debentures") through an exchange of outstanding Debentures, including any accrued interest thereon for the following consideration to be proportionally distributed to each Debenture holder: (i) $1,000,000 in cash; (ii) $2,000,000 in 10% Convertible Secured Notes (the "Secured Notes") convertible into Crown common shares at $0.35 per share. The Secured Notes will be pari-passu to and have essentially the same terms as certain Senior Notes, issued in October 2001 and discussed below, including a 10% interest rate payable in cash or stock at CRC's option, and a maturity date of October 2006. (iii) Warrants, which entitle the holders the right to purchase, in the aggregate, 5,714,285 shares of CRC common stock at an exercise price of $0.75 per share. The warrants expire in October 2006; (iv) $4,000,000 of convertible unsecured subordinated notes (the "Unsecured Notes") convertible into common stock of CRC at $0.75 per share. The Unsecured Notes would pay interest at 10% in stock or cash at CRC's option, and mature on the same date as the Secured Notes. All other liabilities of CRC and Crown would be paid in the normal course under the Plan. The Plan contemplates a 5 for 1 reverse split of the currently outstanding common stock, while maintaining the conversion and exercise prices of the Senior Notes, the Secured Notes, the Unsecured Notes and the related warrants. The Plan contemplates that, immediately after the approval of the Plan, assuming full dilution, the Senior Note holders would own approximately 52% of the common stock, the Debenture holders would own approximately 41% of the common stock and current shareholders would own approximately 7% of the common stock. The Plan also contemplates the cancellation of CRC's preferred stock, currently held by a wholly owned subsidiary and which is eliminated in consolidation. After being filed with the Court, the Plan must be voted on by CRC's creditors and shareholders. If the Plan is approved by the Court, the Plan becomes a legally binding agreement between CRC and its creditors and shareholders. Subject to any objections and related delays, Crown anticipates the Court could set a hearing to determine the adequacy of the Disclosure Statement and Confirmation of the Plan, prior to June 30, 2002. There can be no assurance given that the Plan will be approved by the creditors or shareholders, nor that the Court will confirm the Plan as filed, if at all. If the Plan is not confirmed by the Court, there can be no assurance that Crown will have sufficient funds to continue as a going concern, to restructure the Debentures on acceptable terms or continue operations. If the Plan is not confirmed by the Court, Crown may be forced to liquidate its assets under Chapter 7 of the U.S. Bankruptcy Code and to cease operations. Senior Note financing In October 2001, Crown issued $3,600,000 of 10% convertible secured promissory notes due in October 2006 (the "Senior Notes"). Pending confirmation of the Plan, discussed above, Crown intends to use a portion of the proceeds from this financing to restructure the Company's existing Debentures and initiate permitting on its Crown Jewel Project in the state of Washington. The Senior Notes are secured by all the assets of Crown, consisting primarily of its interest in the Crown Jewel Project and its wholly-owned subsidiary, Crown Resource Corp. of Colorado whose assets consist primarily of a 41.2% equity interest in Solitario. The Senior Notes have a five-year term and carry a 10% interest rate payable quarterly in cash or Crown common stock, at the election of the Crown. Proceeds of $3,250,000 from the Senior Notes were placed in escrow pending restructuring of the Debentures (the specific Senior Notes related to the proceeds placed in escrow are also referred to as "Escrowed Notes"). Solitario invested $650,000 in these Escrowed Notes. The Escrowed Notes are convertible into Crown common shares at a conversion price of $0.35 per share, subject to adjustment. In addition, the Escrowed Note holders have been issued a five-year warrant for every share into which the Escrowed Notes are convertible, which warrant will be exercisable into a Crown common share at $0.75 per share, subject to adjustment. Solitario also invested in a separate Senior Note, (referred to as the "Solitario Note") for the remaining $350,000 of the Senior Notes. These funds were made immediately available to Crown for general corporate purposes. The Solitario Note is convertible into Crown common shares at a conversion price of $0.2916 per share, subject to adjustment. In addition, Solitario has been issued a five- year warrant to acquire 1,200,000 shares of Crown common stock at $0.60 per share, subject to adjustment. The terms of the Solitario Note and the related warrants are otherwise identical to the terms of the Escrowed Notes and warrants. On March 5, 2002, the Crown and the Senior Lenders amended the terms of the Senior Notes, which released to Crown $200,000 of the proceeds being held in escrow. Per the terms of the Senior Notes, as amended, the release of the remaining escrowed funds is conditional upon the confirmation of a Plan, on terms acceptable by the holders of the Senior Notes, by June 30, 2002. The Senior Notes are classified as a current liability at December 31, 2001 as they are due by June 30, 2002 if the Plan is not confirmed. If the Plan is confirmed as filed, there will be a substantial dilution to existing shareholders as further described above under Corporate Reorganization and the Senior Notes will be classified as a long-term liability. Crown Jewel Project Joint Venture On July 23, 2001, Crown announced the completion of an agreement with Battle Mountain Gold Company, a wholly owned subsidiary of Newmont Mining Corporation (both companies referred to as "Newmont") to terminate its joint venture on the Crown Jewel Project where Newmont was earning a 46% interest by building a 3,000-ton per day mining facility. As part of the agreement Crown became the sole owner and manager of the Crown Jewel Project and granted Newmont a sliding scale royalty on the first 1 million ounces of gold. The royalty varies with the price of gold and Crown may purchase the royalty from Newmont for a payment of $2 million any time over the next five years. Crown has also announced it will be seeking regulatory approval and permits to operate a primarily underground mining operation at the Crown Jewel Project, which Crown believes significantly reduces the environmental impacts compared to the open-pit mining plan proposed by Newmont. Newmont's plan proposed moving over 105 million tons of material, producing 8.5 million tons of ore over an eight-year period. Crown's underground proposal, still in the planning stages, would move less than 10% of the material of the Newmont plan and estimates the total ore produced at approximately 3.3 million tons. Crown recorded $353,000 in mineral property additions in connection with the termination of the joint venture related to the assumption of liabilities of $116,000 in property taxes payable in 2001 and $237,000 for a $250,000 note payable (the "Keystone Note"), originally due in February 2002. On December 18, 2001 Crown amended the terms of the Keystone Note, by paying the holders of the note $30,000 and extending the term of the note for a period of four years, with a payment, including interest, of $20,000 due in June 2002 and four annual payments, including interest, of $50,000 beginning in December 2002. At December 31, 2001, the current portion of the Keystone Note was $68,000. (c) Considerations Related to Crown's Business Exploration and Development As of December 31, 2001, Crown's only significant mineral property is the Crown Jewel Project, located in Washington State. Crown also holds interests in mineral properties in Utah and Nevada. The Crown Jewel Project consists of a variety of interests including unpatented and patented claims and fee land held 100% by Crown or under lease or option or purchase agreements. Crown's interest in Latin American properties are held by Solitario which has interests in properties located in Peru and Brazil. Crown has acted as operator on all of its properties that are not held in joint ventures. The success of projects held under joint ventures that are not operated by Crown is substantially dependent on the joint venture partner. Currently, there are no properties held in joint ventures. Historically, after selecting a possible exploration area through its own efforts or with others, Crown compiles reports, reviews past production records, and geologic surveys concerning the area. Crown then undertakes a field exploration program to determine whether the area merits work. Initial field exploration on a property normally consists of geologic mapping and geochemical and/or geophysical surveys, together with selected sampling to identify host environments that may contain specific mineral occurrences. If an area shows promise, Crown will generally either conduct geologic drilling programs in an effort to locate the existence of economic mineralization or seek a joint venture partner to undertake such work. If mineralization is delineated, further work will be undertaken to estimate ore reserves, evaluate the feasibility for the development of a mining project, obtain permits for commercial development and, if the project appears to be economically viable, proceed to place the ore deposit into commercial production. Foreign Operations During 1999, Crown had property interests in Mexico and during 1999, 2000 and 2001, through Solitario, interests in properties located in Peru, Bolivia and Brazil. As of December 31, 2001, Crown does not hold any direct property interests outside of the United States. Crown holds a significant investment in Solitario, which is subject to the laws of Peru, Bolivia and Brazil, where it operates. These countries have, from time to time, experienced periods of political and economic instability. Foreign properties, operations and investments may be adversely affected by local political and economic developments, including nationalization, exchange controls, currency fluctuations, taxation and laws or policies as well as, bylaws and policies of the United States affecting foreign trade, investment and taxation. Certain other regions in which Crown may conduct operations have also been subject to political and economic instability, creating uncertainty and the potential for a loss of resources located in these regions. Management Services Management and technical services are provided to Solitario by Crown pursuant to a management agreement for which Crown receives management fees. Certain directors and officers of Crown are also directors and officers of Solitario. As such, certain of these officers devote a portion of their time to Solitario matters from which Crown may not receive the full benefit. Additionally, the fact that these officers receive cash compensation from Crown and not from Solitario may give rise to certain conflicts of interest between these officers' duties to Crown and to Solitario. Sources of Financing The capital required for exploration and development of properties is substantial. Crown has financed operations through the issuance of the Senior Notes, the Debentures, utilization of joint venture arrangements with third parties (generally providing that the third party will obtain a specified percentage of Crown's interest in a certain property in exchange for the expenditure of a specified amount), the sale by Crown of interests in properties or other assets, and the issuance of common stock. On March 8, 2002, CRC filed the Bankruptcy under Chapter 11 with the Court. If the Court confirms the Plan of Reorganization as filed, Crown will exchange its Debentures, including any accrued interest, for a payment of $1,000,000 in cash, the issuance of $2,000,000 of Secured Notes, warrants for 5,714,285 shares and $4,000,000 of Unsecured Notes. Until the Plan is confirmed, there is substantial doubt about Crown's ability to continue as a going concern. Crown's consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If the Plan is confirmed as filed, there is no assurance that Crown will be able to permit the Crown Jewel Project or obtain long-term financing to allow Crown to develop and operate the Crown Jewel Project or to repay its long-term debt and continue operations. See Properties - Crown Jewel Project-Financing, and Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. Competition and Markets. A large number of companies are engaged in the exploration and development of mineral properties, many of which have substantially greater technical and financial resources than Crown. Therefore, Crown may be at a disadvantage with respect to many of its competitors in the acquisition, exploration and development of mining properties. The marketing of minerals is affected by numerous factors, many of which are beyond the control of Crown. Among factors beyond the control of Crown are the price of the raw or refined minerals in the marketplace, imports of minerals from other countries, the availability of adequate milling and smelting facilities, the price of fuel, the availability and the cost of labor, and the market price of competitive minerals. Title. U.S. Properties. Crown's domestic property consists, to a large extent, of unpatented mining claims on unappropriated federal land pursuant to procedures established by the Mining Law of 1872 and other federal and state laws. These acts generally provide that a citizen of the United States (including corporations) may acquire a possessory right to develop and mine valuable mineral deposits discovered upon unappropriated federal lands, provided that such lands have not been withdrawn from mineral location, e.g., national parks, military reservations and lands designated as part of the National Wilderness Preservation System. These laws also provide for the location of unpatented millsite claims for the purpose of mining and milling minerals from valid mining claims. The validity of all unpatented mining claims is dependent upon inherent uncertainties and conditions. These uncertainties relate to such non-record facts as the sufficiency of the discovery of minerals, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. Furthermore, the acquisition of unpatented millsite claims may be limited by several factors, which include the number of valid unpatented mining claims. The Crown Jewel Project has located necessary millsite claims in excess of the number of unpatented mining claims to be developed. In November 1997 the Solicitor of the Department of the Interior issued an opinion which stated among other things, that the Bureau of Land Management should not approve plans of operation that rely on a greater number of millsite claims than the number of mining claims being developed. Federal Public Law 106-31 mandated reinstatement of the Record of Decision for the Crown Jewel Project and approval of the plan of operations submitted by Newmont (the "Plan of Operations"), which had respectively been revoked and denied, based upon the Solicitor's opinion. Opponents of the Crown Jewel Project have filed claims in various courts and jurisdictions opposing the Crown Jewel Project, including an appeal of the approval of the Plan of Operations, which was subsequently denied. See Legal Proceedings. Prior to discovery of a locatable mineral thereon, a mining claim may be open to location by others unless the owner is in possession of the claim. In the event that the discovery of a valuable mineral deposit is made on unpatented mining claims in the exploratory stage, Crown may not be able to assure clear title. The Budget Reconciliation Act of 1993 (the "1993 Act"), requires the holder of each unpatented mining claim to pay a "claim maintenance fee" of $100 per claim on or before August 31 of each year. To locate new unpatented claims, Crown must pay the $100 per claim maintenance fee for the initial assessment year and a $25 per claim location fee. If Crown fails to pay a claim maintenance fee or a location fee as required by the 1993 Act, it conclusively forfeits the related unpatented claim. In connection with the acquisition of Crown's properties, Crown conducts limited reviews of title and related matters, and obtains certain representations regarding ownership. Although Crown believes it has conducted reasonable investigations (in accordance with standard mining practice) of the validity of ownership, there can be no assurance that it holds good and marketable title to all of its properties. Regulation. The development, production and sale of minerals is subject to federal, state, provincial and local regulation in a variety of ways, including environmental regulation and taxation. Federal, state, and local environmental regulations generally have a significant effect on all companies, including Crown, engaged in mining or other extractive activities, particularly with respect to the permitting requirements imposed on such companies, the possibilities of project delays, and the increased expense required to comply with such regulations. Crown believes it is in substantial compliance with all such regulations in all the jurisdictions in which it operates. Crown is subject to income taxes, state and local franchise taxes, personal property taxes, and state severance taxes levied by various governmental units in the countries in which Crown operates. State severance taxes vary between the states and, within a single state, the amount of tax, based on a percentage of the value of the mineral being extracted, vary from mineral to mineral. Crown's operations are also subject to taxation by each locality in which it owns mineral properties or does business. The domestic exploration programs conducted by Crown are subject to federal, state and local environmental regulations. A substantial portion of Crown's mining claims is on U.S. public lands. The United States Forest Service ("USFS") and Bureau of Land Management ("BLM") extensively regulate mining operations conducted on public lands. Most operations involving the exploration for minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of stream and fresh water sources, odor, noise, dust, and other environmental protection controls adopted by federal, state, and local governmental authorities as well as the rights of adjoining property owners. Crown may be required to prepare and present to federal, state, or local authorities data pertaining to the effect or impact that any proposed exploration or mining activity may have upon the environment. All requirements imposed by any such authorities may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. Future legislation and regulations are expected to continue to emphasize the protection of the environment and, as a consequence, the activities of Crown may be more closely regulated to further the cause of environmental protection. Such legislation and regulations, as well as future interpretation of existing laws may require substantial increases in capital and operating costs to Crown and delays, interruptions, or a termination of operations, the extent of which cannot be predicted. Bills proposing major changes to the mining laws of the United States have been considered by Congress. If these bills, which may include royalty fees or net profits interests, are enacted in the future, they could have a significant effect on the ownership and operation of patented and unpatented mining claims in the United States including claims owned or held by Crown. Although it is not possible to predict whether or in what form Congress might enact changes to the mining laws, amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a material adverse impact on Crown. Applicable laws and regulations require Crown to make certain capital and operating expenditures to maintain current operations and initiate new operations. Crown's estimates of expenditures required to comply with applicable regulations are included in all of its budgets for its projects. Although these costs are difficult to determine, Crown is not currently aware of any expenditure that is required in excess of budgeted amounts. Crown incurs expenditures for land reclamation undertaken in the normal course of operations in compliance with federal and state land restoration laws and regulations. Under certain circumstances, it may be required to close an operation until a particular problem is remedied or to undertake other remedial actions. However, Crown is not aware of the existence of any such circumstances at this time. Gold Price. The future profitability of Crown's operations is significantly dependent on the price of gold. The gold price has fluctuated widely over time due to factors beyond Crown's control and, in the third quarter of 1999, reached a twenty- year low of $251 per ounce. The gold price continued to remain at depressed levels during most of 2000 and 2001. Many factors influence the price of gold including interest rates, rate of inflation, the strength of the U.S. dollar in relation to other currencies, supply and demand, economic conditions, and political turmoil. Crown cannot predict whether gold prices will remain at a level at which its reserves can be mined profitably. Insurance. The gold mining industry is subject to risks of human injury, environmental liability and loss of assets. Crown maintains insurance coverage consistent with industry practice, but can give no assurance that this level of insurance can cover all risks of harm to Crown associated with being involved in the mining business. Employees. As of March 5, 2002, Crown employed seven persons. Crown considers its relations with employees to be excellent. All employees are eligible to participate in Crown's stock option plans. None of Crown's employees are covered by a collective bargaining agreement. Item 2. Properties Reserves and Mineral Deposits The following table shows gold reserves Crown at December 31, 2001: Mineable Proven and Probable Reserves Ore Gold Grade Contained Gold (Millions of tons) (oz/ton) (000 ozs) Crown Jewel Project 2.14 0.392 839 Crown's proven and probable reserves are reported as mineable (extractable) ore reserves. Reserves do not reflect recovery losses in the milling process, but do include allowance for dilution of ore in the mining process. Metallurgical recovery of 85% was estimated. Due to the continued low price of gold, a gold price of $280 per ounce has been applied to the reserves as of December 31, 2001, the same as at December 31, 2000, and compared to a gold price of $325 utilized as of February 2000. The reserves are based upon an independent analysis performed by Mine Reserves Associates ("MRA") in March 2000. As of July 2001, Crown gained 100% ownership in the Crown Jewel Project. See Crown Jewel Project. In addition to the proven and probable reserves shown above, the Crown Jewel Project contains mineral resource deposits reported by MRA of 1,184,000 tons at a grade of 0.403 ounces of gold per ton for a total of 477,000 contained ounces of gold. These tons are included to be mined and processed in the mine plan developed by MRA. In addition to the above, Crown has identified mineral deposits on the Cord Ranch property in Nevada and the Kings Canyon property in Utah. Crown has no proven and probable reserves or capitalized costs associated with these properties as of December 31, 2001 or 2000. The following discussion summarizes the primary mining properties in which Crown has interests. Company management believes the properties described below are favorable for mineral development, although there is no assurance that any of the properties, in which Crown has or may acquire an interest, will be economically viable. Crown Jewel Project General. The Crown Jewel Project is located on an approximate 2,000-acre property 24 miles east of Oroville, Washington. Crown discovered the Crown Jewel Project in 1988, and has a carrying value of approximately $14.4 million in land, acquisition and exploration costs as of December 31, 2001. The Crown Jewel Project is currently 100% owned by Crown and was held in a joint venture with Newmont prior to July 2001. The Crown Jewel Project is held by a combination of fee ownership, private mining leases with options to purchase, state mining leases, with the balance being unpatented mining claims. Royalties payable to third parties vary from 4%-5% net smelter return royalties ("NSR") on certain private parcels. The ore body as currently defined is subject to a sliding-scale royalty payable to Newmont of 0.5% to 4%, depending on the price of gold. Geology and Land. The Crown Jewel Project deposit occurs within a large skarn system formed at the southern contact of the Buckhorn Mountain Cretaceous-aged diorite-granodiorite pluton with Triassic-aged limestones and andesites. Both the skarn system and the ore body are relatively tabular and flat lying in geometry. The skarn system is compositionally zoned in relation to the intrusive pluton with gold mineralization both concordant and crosscutting to the various skarn assemblages. Newmont Joint Venture. In March 1990, Crown entered into a joint venture agreement with Newmont (the "Agreement"), where Newmont was earning a 46% interest in the Crown Jewel Project by building a 3,000-ton per day mining facility. The Agreement was subsequently modified in May 1994. Under the Agreement as modified, Newmont paid to Crown $18,500,000, and since March 14, 1990, funded all exploration and permitting on the Crown Jewel Project. On July 23, 2001, Crown announced the completion of an agreement (the Termination Agreement") with Newmont to terminate the Agreement. As part of the Termination Agreement Crown became the sole owner and manager of the Crown Jewel Project and granted Newmont a sliding scale royalty of O.5% to 4% on the first 1 million ounces of gold. The royalty varies with the price of gold and Crown may purchase the royalty from Newmont for a payment of $2 million any time over the next five years. Crown will be seeking regulatory approval and permits to operate a primarily underground mining operation at the Crown Jewel Project, which Crown believes significantly reduces the environmental impacts compared to the open-pit mining plan proposed by Newmont. Newmont's plan proposed moving over 105 million tons of material, producing 8.5 million tons of ore over an eight-year period. Crown's underground proposal would move less than 10% of the material of the Newmont plan and estimates the total ore produced at approximately 3.3 million tons. Crown recorded $353,000 in mineral property additions in connection with the termination of the joint venture related to the assumption of liabilities of $116,000 in property taxes payable in 2001 and $237,000 for the Keystone Note. Reserves. In February 2000 Crown engaged MRA to conduct an independent analysis of an alternative mine plan that reduces environmental impacts. Crown also engaged Gochnour and Associates ("Gochnour"), an independent mining consultant, to evaluate the ability to obtain permits for the alternate mine plan. Based upon the reports of MRA and Gochnour, Crown has determined that the Crown Jewel Project contains sufficient reserves to recover Crown's investment. At December 31, 2000, Crown revised the reserves based upon an analysis by MRA, which increased the cut-off grade from 0.155 ounces per ton to 0.20 ounces per ton. The gold price was reduced, for Crown's economic analysis of the Crown Jewel Project, from $325 to $280 per ounce. The following table summarizes the Crown Jewel Project reserves as of December 31, 2001, as provided by MRA: Proven and Probable Reserves (100% basis) Grade Contained Tons (oz/ton) Ounces Crown Jewel Project 2,139,000 0.392 839,000 Reserve Study. The MRA study indicates the deposit could be mined in a combination of underground operations with a small open-cut, with ore processed on site in a mill processing 1,850 tons per day. The reserve analysis was based on results from 765 drill holes totaling 307,038 feet. MRA's mine design utilizes a 0.20 ounces of gold per ton ("opt") cutoff grade with an 85% metallurgical recovery factor for gold. The assumed economic parameters applied to the design included a $280 gold price, mining costs of $26.20 per ton for underground and $25.74 per ton of ore, including stripping costs, for the open cut. The open cut is assumed to produce 308,000 tons of ore at an average grade of 0.289 opt with a strip ratio of 10.7:1. The MRA design utilizes the waste rock from the open cut for tailings dam construction and to backfill the underground mining areas to reduce subsidence and increase the recoverable underground ounces. The underground mine is assumed to produce 1,831,000 tons of ore at an average grade of 0.410 opt. The design calls for a processing facility rated at 1,850 tons per day utilizing the parameters developed in the 1992 feasibility study, updated for subsequent engineering studies, for a carbon in leach mill with an 85% recovery factor. The estimated milling costs are $13.60 per ton with project administration estimated at $2.00 per ton. Based upon the same cutoff grade, MRA has estimated other mineral deposits of 1,184,000 tons grading 0.403 opt for a total of 477,000 contained ounces within the currently designed underground workings at the Crown Jewel Project. The cash operating costs to mine proven and probable reserves and deposits within the underground workings have been estimated by MRA to be approximately $124 per ounce, with capital costs of approximately $91 million (including $21 million of contingency) to bring the Crown Jewel Project into production. Exploration. Crown began an exploration program at the Crown Jewel Project in mid-1988 and by the end of 1989 had drilled approximately 200 holes on the property. Between March 1990 and December 1992, Newmont drilled over 550 holes designed to both confirm and expand the known reserve. To date, only 500 acres of the approximate 2,000 acres of prospective skarn geology have been drill-tested. Feasibility Study. Prior to the MRA study Crown relied upon the results of an independent feasibility study commissioned by Newmont in March of 1992. Based on this study, Newmont began development of the Crown Jewel Project based on a mine design utilizing an open pit and a 3,000-ton per day mining facility. Further engineering and reserve studies by Newmont estimated direct cash production costs at approximately $165 per ounce of gold produced. Newmont's mine design estimated capital costs at approximately $80 million to achieve commercial production. Permitting and Development. Newmont submitted its original Plan of Operations to the Washington Department of Ecology ("WDOE") and the United Stated Forest Service ("USFS") in January 1992. In February 1997, the Final Environmental Impact Statement ("FEIS") was filed by the USFS and the WDOE. The FEIS describes the environmental effects of the plan to construct and operate the Crown Jewel Project mine, and alternatives to that plan. Also, in February 1997, the USFS and the Bureau of Land Management issued a favorable Record of Decision ("ROD") selecting Newmont's open pit mining alternative. Several appeals by certain persons and special interest groups contesting the FEIS were filed with the USFS in 1997. In May of 1997, the USFS Deputy Regional Forester upheld the ROD to approve the Crown Jewel Project, denying four appeals, which had been filed in March 1997. In May 1997, an action was filed in U.S. District Court against the USFS appealing certain issues. In January 1999, the Court ruled in favor of the USFS and denied all claims of the plaintiffs. In January 2000, the State of Washington Pollution Control Hearings Board ("PCHB") issued a ruling vacating the previously granted 401 Water Quality Permit for the Crown Jewel Project issued by the Washington Department of Ecology ("WDOE"). The ruling also reversed certain water rights issued by the WDOE for the Crown Jewel Project. At the time, the PCHB ruling created further delay and uncertainty regarding a timetable for the construction of the Crown Jewel Project. In March 2000, Newmont filed an appeal in Superior Court for the State of Washington for Okanogan County, challenging the PCHB ruling. In light of the termination of the Crown Jewel Project Joint Venture and Crown's intention to permit a primarily underground mine, Crown will not pursue this action and Newmont has dropped its appeal. It is not known if other permits previously granted to the Crown Jewel Project may be subject to review as a result of the PCHB ruling. As part of the analysis of the Crown Jewel Project reserves subsequent to the January 2000 PCHB ruling, Crown retained Gochnour, to review the required permits for the mine design as proposed in the MRA report. Gochnour indicated the MRA design would require conducting additional baseline studies and collecting data for modeling to amend previously approved permits as well as to obtain permits for activities that were not previously contemplated, for example the underground mining effects on ground water. Gochnour indicated the underground alternative would also require mitigation of environmental impacts. The Gochnour report concluded the MRA mine design is legally permittable. Although Crown and Gochnour are not aware of any laws or regulations which would be violated by the mine design proposed by MRA, there will continue to be uncertainty regarding the ability of Crown obtaining the necessary permits from the regulatory authorities in a timely manner, if ever. Construction of the Crown Jewel Project will not begin prior to the successful completion of the remaining permit applications and resolution of the legal and administrative challenges. Potential delays due to the appeals process, permit process or litigation are difficult to quantify. See Legal Proceedings. Financing. Since July 2001, when Crown obtained a 100% interest in the Crown Jewel Project, Crown has evaluated whether to either proceed with the Crown Jewel Project alone or seek a joint venture with another major mining company. There is no assurance that Crown could successfully pursue either strategy. Crown would require additional capital in the form of either equity or debt financing, or enter into a joint venture to permit, develop and operate the Crown Jewel Project. No assurance can be given that such financing would be available on acceptable terms in order for the Crown Jewel Project to enter into commercial production. See also Corporate Reorganization and Management's Discussion and Analysis of Financial Condition and Results of Operations. Other Property Interests Cord Ranch Project. The Cord Ranch Project currently consists of two property acquisitions, the Pinon and Dixie Creek properties (collectively the "Pinon Project") which were made in 1990. The Pinon Project, consisting of approximately 1,880 acres of unpatented claims, was acquired under agreements entered into in October 1990. The Pinon Project properties are subject to a joint venture with Royal Standard Minerals Inc. ("Royal Standard") whereby Royal Standard has earned a 70% interest in these properties. In 2000, Crown wrote off its remaining land and leasehold investment in the Pinon Project properties. However, Crown will continue to hold the properties while Royal Standard seeks a joint venture partner to further evaluate and develop the deposits. Kings Canyon. The Kings Canyon property in Utah consists of 1,525 acres of state leases and unpatented claims. Crown holds a 100% interest in the property, subject to a 1-4% NSR royalty to third parties. Crown estimates the Kings Canyon property hosts a mineral deposit that contains 6.8 million tons of material grading 0.030 opt of gold at a cutoff grade of 0.013 opt gold. The gold occurs as sediment-hosted disseminated mineralization in Paleozoic carbonate rocks. During 2000, Crown wrote off its remaining land and leasehold investment in the Kings Canyon property. Crown will however continue to maintain the property and seek a joint venture partner to further evaluate and develop Kings Canyon. Kendall Mine and Lamefoot Royalty. Crown held certain mining leases on the Kendall mine property located near Lewiston, Montana and Crown held various royalties on the Lamefoot deposit located in Washington State. These property interests were both held through its wholly owned subsidiary, Judith Gold. In January 2001, Crown sold its holding in Judith Gold Corporation to Canyon Resources Corporation for 200,000 shares of Canyon common stock. A gain on sale of $200,000 was recorded during 2001 on the sale of Judith Gold. Peru and Brazil Primarily as a result of the issuance, in October 2000, of Solitario shares in connection with its acquisition of Altoro Gold Corporation of Vancouver, BC, Canada, Crown's ownership percentage of Solitario was reduced from 57.2%, prior to the acquisition, to 41.2% at December 31, 2001. Accordingly Crown has accounted for its investment in Solitario under the equity method since the acquisition. Crown's interest in the net assets of Solitario is shown in the Consolidated Balance Sheet as of December 31, 2001 as equity in unconsolidated subsidiary. As of December 31, 2001, Crown has no direct interest in properties outside of the United States. Exploration Expenditure Overview During 2001, Crown incurred $5,000 in expenditures conducting exploration activities on its Crown Jewel Project. Crown's properties are subject to leases and/or options to purchase. Crown is required to make approximately $24,000 in payments for its share of 2002 annual lease and rental obligations and option payments for properties it currently holds. Certain other mining claims and properties not subject to leases were acquired by Crown either by deed or were located by Crown. With respect to the claims and other properties acquired by deed or located by Crown, the obligation required to hold the claims is to pay ad valorem property taxes in the case of the patented mining claims and fee land, and annual rental fees in the case of the unpatented mining claims. See Considerations Related to Crown's Business. 2002 Mineral Lease and Rental Commitments Payments On leases, Unpatented Crown's Share Claims and of Costs Property Concessions in 2002(1)(2) Crown Jewel Project $ 22,000 $ 22,000 Cord Ranch 5,000 - Kings Canyon 2,000 2,000 TOTAL: $ 29,000 $ 24,000 (1) Represents Crown's estimated share of rentals and option payments in 2001 based upon existing joint venture or leasing arrangements. (This estimate does not include costs to be borne by other joint venturers.) (2) Crown has no work commitments remaining to be fulfilled in 2002. Item 3. Legal Proceedings In March 1997, administrative appeals of the ROD for the Final Environmental Impact Statement ("FEIS") for the Crown Jewel Project were filed against the United States Forest Service, ("USFS") by members of the following parties: (i) a joint appeal by the Okanogan Highlands Alliance, Washington Environmental Council, Colville Indian Environmental Protection Alliance, Washington Wilderness Coalition, Rivers Council of Washington, and Sierra Club, Cascade Chapter; (ii) Confederated Tribes of the Colville Reservation; (iii) Columbia River Bioregional Education Project; and (iv) Kettle Range Conservation Group; (all groups collectively the "Plaintiffs"). The appeals were denied in May 1997. Pollution Control Hearings Board Since the fourth quarter of 1997, members of the Plaintiffs, and others filed a total of seven actions (PCHB Nos. 97-146, 97-182, 97-183, 97-185, 97-186, 98-019 and 99- 019) against the Washington Department of Ecology ("WDOE") before the Pollution Control Hearings Board ("PCHB"), a state administrative tribunal, challenging the FEIS and certain permit decisions. Although the PCHB dismissed or ruled in favor of the WDOE on three of the actions (PCHB 97-146, 97-185 and 98-019), after a consolidated hearing on the remaining actions, in January of 2000, the PCHB issued a ruling vacating the previously granted 401 Water Quality Permit for the Crown Jewel Project issued by WDOE. The ruling also reversed certain water rights issued by the WDOE for the Crown Jewel Project. On March 14, 2000, Newmont filed an appeal in Superior Court of the State of Washington for Okanogan County challenging the PCHB ruling. In light of the termination of the joint venture between Crown and Newmont and Crown's announced intention to permit a primarily underground mining plan, Crown will not pursue this action and Newmont has dropped this appeal. United States District Court In late May 1997, members of the Plaintiffs filed an action in United States District Court for the District of Oregon against the USFS appealing the Forest Service's issuance of the FEIS, its decision to uphold the ROD and the denial of administrative appeals. On December 31, 1998 the Court affirmed the decisions of the USFS on the adequacy of the FEIS by granting all motions for summary judgement on behalf of the USFS and BMG, while denying all motions of the Plaintiffs. Members of the Plaintiffs appealed the decision to the Ninth Circuit Court of Appeals in April of 1999. The appeal was denied in December of 2000. Thurston County Superior Court In December of 1997, the members of the Plaintiffs filed three separate actions against the WDOE in Superior Court of the State of Washington for Thurston County. The actions challenge the WDOE's approval of permits issued to BMG for water resource mitigation and solid waste permit rulings. In April 1998, members of the Plaintiffs dismissed one of the three actions related to the tailings and solid waste permits without prejudice. In November 1998, the remaining two actions were consolidated. The case is currently pending and no trial date has been set. In light of the termination of the joint venture between Crown and Newmont and Crown's intention to permit a primarily underground mine, Crown will not pursue the action. United States District Court for the District of Oregon This action, commenced in November 1999 by members of the Plaintiffs against the Department of the Interior, et al., challenges the reinstatement of the Crown Jewel Project Record of Decision and the grant of the Plan of Operations for the Crown Jewell Project. In July 2000, Newmont filed non-merits dispositive motions. Responses and reply briefs on the motions have been received and oral arguments on the dispositive motions were held November 6, 2000. In April of 2001, the Court denied the appeal. Department of the Interior In May 2000, members of the Plaintiffs filed a protest of the patent application for the grandfathered Crown Jewel Project lode claims. The protest was filed in the Washington/Oregon State Bureau of Land Management office. The Department of the Interior has invited Newmont and/or Crown to submit a response to the protest, but has not set a date for such response or a time frame for the resolution of the protest. Crown is considering filing a response to this protest. The impact and timing of resolutions of these and any other appeals related to the permitting process cannot be determined with any accuracy at this time. See Properties - Crown Jewel Project - Permitting and Development. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of 2001 EXECUTIVE OFFICERS The executive officers of Crown are as follows: Name and municipality Position with Crown and business of residence Age experience within the last five years MARK E. JONES, III 62 Chairman of Crown since 1987, Houston, Texas Chief Executive Officer from 1987 to 1993 and President from September 1989 to November 1990; Chairman of Solitario since August 1993. CHRISTOPHER E. HERALD 48 Chief Executive Officer of Crown Golden, Colorado since June of 1999, the President of Crown since November 1990. Chief Executive Officer of Solitario since June of 1999, President of Solitario since August 1993. JAMES R. MARONICK 46 Chief Financial Officer of Crown Lakewood, Colorado since June 1999, Vice President - Finance and Secretary/Treasurer of the Company and Solitario since September 1997; Vice President - Finance and Secretary/Treasurer of Consolidated Nevada Goldfields Corporation from November 1994 to September 1997. DEBBIE W. MINO 49 Vice President - Investor Relations Sugar Land, Texas of Crown since 1989. WALTER H. HUNT 50 Vice President - South American Lima, Peru Operations of Crown since July 1994; President - South American Operations, Solitario since June 1999; Vice President - Peru Operations of Solitario since July 1994. The Board of Directors appoints officers of Crown. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The common stock of Crown had been listed and traded on the NASDAQ National Market under the symbol CRRS since 1989. On October 20, 2000 the NASDAQ Stock Market notified Crown that its common stock was no longer listed on the NASDAQ National Market because the stock had failed to maintain a minimum bid price of $1.00 for 30 consecutive trading days as required for continued listing on the NASDAQ National Market. The common shares of Crown are now traded on the Over the Counter Bulletin Board (OTCBB) under the symbol OTCBB: CRRS. Crown's stock was listed and traded in Canada on the Toronto Stock Exchange ("TSE") since December 10, 1991, under the symbol CRO. In October 2001, Crown was notified by the TSE that it was no longer listed on the TSE because Crown failed to meet the minimum listing requirements of the TSE. The following table sets forth the high and low sales prices on the OTCBB and NASDAQ National Market for Crown's common stock for the quarterly periods from January 1, 2000 to December 31, 2001. Prices (US$) High Low 2000: First Quarter 2.00 0.94 Second Quarter 1.19 0.63 Third Quarter 0.96 0.38 Fourth Quarter 0.56 0.23 2001: First Quarter 0.45 0.24 Second Quarter 0.30 0.13 Third Quarter 0.27 0.12 Fourth Quarter 0.19 0.07 Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors. Crown has not paid any dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. At February 25, 2002, there were 2,348 record holders of Crown's common stock. In October 2001, Crown issued $3,600,000 of Senior Notes and related warrants, see Item I, Recent Developments. These securities were issued pursuant to an exemption under Section 4(2) of the 1933 Securities Act. Item 6. Selected Financial Data The selected consolidated financial data set forth below for each of the five years in the period ended December 31, 2001 and as of the years then ended has been derived from the audited consolidated financial statements of Crown (not all of which financial statements are presented herein). The selected consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and related notes thereto included elsewhere in this report.
Balance sheet data: As of December 31, (in thousands) 2001 2000 1999 1998 1997 Total assets $21,265 $20,095 $22,709 $36,500 $34,338 Current portion long term debt 18,322 15,000 - - - Long term debt - - 15,000 15,000 15,000 Working capital(deficit)(15,713) (14,211) 4,881 7,839 5,521 Stockholders' equity 1,850 4,695 5,980 17,182 13,979
Income statement Year ended December 31, data: (in thousands, 2001 2000 (1) 1999 (2) 1998 1997 except per share amounts) Revenues $ 248 $ 6,401 $ 538 $ 610 $ 685 Net loss before change in accounting principle (3,148) (1,659) (2,666) (1,928) (4,979) Change in accounting principle - - (8,451) - - Net loss $(3,148)$(1,659) $(11,117)$(1,928) $(4,979) Basic loss per share before change in accounting principle $(0.22) $(0.11) $(0.18) $(0.13) $(0.38) Change in accounting principle - - (0.58) - - Basic loss per share $(0.22) $(0.11) $(0.76) (0.13) $(0.38)
(1) Includes the operations of Solitario on a consolidated basis through October 18, 2000. Subsequent to October 18, 2000, the results of Solitario are reflected under the equity method of accounting. (2) Crown changed its method of accounting for exploration costs and recorded a $8.5 million charge related to the cumulative effect of the change in accounting principle to operations in 1999. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with Crown's consolidated financial statements for the years ended December 31, 2001, 2000 and 1999, included elsewhere in this report. Crown's financial condition and results of operations are not necessarily indicative of what may be expected in future years. Corporate Reorganization On March 8, 2002, CRC filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy") in the United States Bankruptcy Court for the District of Colorado (the "Court"). As part of the Bankruptcy CRC filed a Plan of Reorganization (the "Plan") and a Disclosure Statement with the Court on March 27, 2002. The Plan contemplates a restructuring of CRC's 5.75% convertible subordinated debentures, which were due August 27, 2001 (the "Debentures") through an exchange of outstanding Debentures, including any accrued interest thereon for the following consideration to be proportionally distributed to each Debenture holder: (i) $1,000,000 in cash; (ii) $2,000,000 in 10% Convertible Secured Notes (the "Secured Notes") convertible into Crown common shares at $0.35 per share. The Secured Notes will be pari- passu to and have essentially the same terms as certain Senior Notes, issued in October 2001 and discussed below, including a 10% interest rate payable in cash or stock at CRC's option, and a maturity date of October 2006. (iii) Warrants, which entitle the holders the right to purchase, in the aggregate, 5,714,285 shares of CRC common stock at an exercise price of $0.75 per share. The warrants expire in October 2006; (iv) $4,000,000 of convertible unsecured subordinated notes (the "Unsecured Notes") convertible into common stock of CRC at $0.75 per share. The Unsecured Notes would pay interest at 10% in stock or cash at CRC's option, and mature on the same date as the Secured Notes. All other liabilities of CRC and Crown would be paid in the normal course under the Plan. The Plan contemplates a 5 for 1 reverse split of the currently outstanding common stock, while maintaining the conversion and exercise prices of the Senior Notes, the Secured Notes, the Unsecured Notes and the related warrants. The Plan contemplates that, immediately after the approval of the Plan, assuming full dilution, the Senior Note holders would own approximately 52% of the common stock, the Debenture holders would own approximately 41% of the common stock and current shareholders would own approximately 7% of the common stock. The Plan also contemplates the cancellation of CRC's preferred stock, currently held by a wholly owned subsidiary and which is eliminated in consolidation. After being filed with the Court, the Plan must be voted on by CRC's creditors and shareholders. If the Plan is approved by the Court, the Plan becomes a legally binding agreement between CRC and its creditors and shareholders. Subject to any objections and related delays, Crown anticipates the Court could set a hearing to determine the adequacy of the Disclosure Statement and Confirmation of the Plan, prior to June 30, 2002. There can be no assurance given that the Plan will be approved by the creditors or shareholders, nor that the Court will confirm the Plan as filed, if at all. If the Plan is not confirmed by the Court, there can be no assurance that Crown will have sufficient funds to continue as a going concern, to restructure the Debentures on acceptable terms or continue operations. If the Plan is not confirmed by the Court, Crown may be forced to liquidate its assets under Chapter 7 of the U.S. Bankruptcy Code and to cease operations. Senior Note financing In October 2001, Crown issued $3,600,000 of 10% convertible secured promissory notes due in October 2006 (the "Senior Notes"). Pending confirmation of the Plan, discussed above, Crown intends to use a portion of the proceeds from this financing to restructure the Company's existing Debentures and initiate permitting on its Crown Jewel Project in the state of Washington. The Senior Notes are secured by all the assets of Crown, consisting primarily of its interest in the Crown Jewel Project and its wholly-owned subsidiary, Crown Resource Corp. of Colorado whose assets consist primarily of a 41.2% equity interest in Solitario. The Senior Notes have a five-year term and carry a 10% interest rate payable quarterly in cash or Crown common stock, at the election of the Crown. Proceeds of $3,250,000 from the Senior Notes were placed in escrow pending restructuring of the Debentures (the specific Senior Notes related to the proceeds placed in escrow are also referred to as "Escrowed Notes"). Solitario invested $650,000 in these Escrowed Notes. The Escrowed Notes are convertible into Crown common shares at a conversion price of $0.35 per share, subject to adjustment. In addition, the Escrowed Note holders have been issued a five-year warrant for every share into which the Escrowed Notes are convertible, which warrant will be exercisable into a Crown common share at $0.75 per share, subject to adjustment. Solitario also invested in a separate Senior Note, (referred to as the "Solitario Note") for the remaining $350,000 of the Senior Notes. These funds were made immediately available to Crown for general corporate purposes. The Solitario Note is convertible into Crown common shares at a conversion price of $0.2916 per share, subject to adjustment. In addition, Solitario has been issued a five- year warrant to acquire 1,200,000 shares of Crown common stock at $0.60 per share, subject to adjustment. The terms of the Solitario Note and the related warrants are otherwise identical to the terms of the Escrowed Notes and warrants. On March 5, 2002, the Crown and the Senior Lenders amended the terms of the Senior Notes, which released to Crown $200,000 of the proceeds being held in escrow. Per the terms of the Senior Notes, as amended, the release of the remaining escrowed funds is conditional upon the confirmation of a Plan, on terms acceptable by the holders of the Senior Notes, by June 30, 2002. The Senior Notes are classified as a current liability at December 31, 2001 as they are due by June 30, 2002 if the Plan is not confirmed. If the Plan is confirmed as filed, there will be a substantial dilution to existing shareholders as further described above under Corporate Reorganization and the Senior Notes will be classified as a long-term liability. Results of Operations Crown has historically derived its revenues from the option and sale of property interests, from royalty interests, interest income and from the sale of its share of gold produced on its properties. Revenues from the option and sale of property interests have consisted of a small number of relatively large transactions. Such transactions have occurred, and in the future are likely to occur, if at all, at irregular intervals and have a significant impact on operating results in the periods in which they occur. In the past, Crown's exploration expenditures, including those of Solitario, have constituted the bulk of its activities. Accordingly, the deconsolidation of Solitario and the reduction in Crown's assets related to the change in accounting principle, have affected the comparability of its assets, income and cash flows for the three years ended December 31, 2001. Crown had a net loss of $3,148,000 or $0.22 per share in 2001 compared with a net loss of $1,659,000 or $0.11 per share in 2000 and a net loss before cumulative effect of an accounting change of $2,666,000 in 1999 or $0.18 per share. Total revenues were $248,000 in 2001 compared to $6,401,000 in 2000 and $538,000 in 1999. During 2000, Solitario, which was consolidated with Crown through October 2000, completed a transaction with an affiliate of Newmont Mining Corporation ("Newmont") and sold its interest in its Yanacocha property for $6 million and a sliding scale net smelter return royalty that varies with the price of gold. Crown recorded a gain on sale, on a consolidated basis, of $5,809,000 on that sale, which accounted for the increase in revenues during 2000. Crown's recurring revenues have been primarily derived from its royalty interests and from interest income. Royalty income was $112,000 in 2000 and $104,000 in 1999. Royalty income was from Crown's interest in the Lamefoot deposit at the Kettle River mine in Washington. The Lamefoot deposit was mined out during the fourth quarter of 2000 and, in January 2001, Crown sold its interest in Judith Gold, which held the Lamefoot royalty to Canyon Resources Corporation, for 200,000 shares of Canyon Resources Corporation common stock. As a result, no future royalty income is expected. Crown recorded a gain on sale of $200,000, which equaled the proceeds from the sale during 2001. Interest income was $34,000 in 2001, compared with $344,000 in 2000 and $337,000 in 1999. The fluctuations are due to changes in Crown's average invested cash balances. The primary factors resulting in the decrease in cash balances from 2000 to 2001 are the deconsolidation of Solitario and the payment of interest and other expenses entirely from cash balances during 2001. During the fourth quarter of 1999, Crown changed its method of accounting for exploration costs on properties without proven and probable reserves from capitalizing all expenditures to expensing all costs, other than acquisition costs, prior to the establishment of proven and probable reserves. This brings Crown's accounting method in accordance with the predominant practice in the U.S. mining industry. The $8,451,000 cumulative effect of the change on prior years is included in the loss for 1999. The effect of the change on 1999 was to increase the loss before cumulative effect of change in accounting principle by $83,000 or $0.01 per share. Exploration expense was $5,000 in 2001 compared to $903,000 in 2000 and $1,025,000 in 1999 primarily as a result of the deconsolidation of Solitario as of October 2000 and a reduction of exploration activities by Crown in both the United States and Mexico. General and administrative expenses in 2001 were $828,000 compared to $1,171,000 in 2000 and $1,367,000 in 1999. The lower costs in 2001 and 2000 are the result of reduced administrative costs, reductions in staff and travel related to decreased exploration activity especially with regard to the United States and the deconsolidation of Solitario. Interest expense was $1,046,000 in 2001 and $971,000 in each of 2000 and 1999. Interest expense increased during 2001 as a result of the issuance of $3,600,000 of Senior Notes in October 2001 and additional interest on the Debentures, which accrued as a result of the default on the Debentures in August 2001. Included in interest expense is amortization of deferred offering costs of $68,000 in 2001 and $102,000 in each of 2000 and 1999. Crown regularly performs evaluations of its assets to assess the recoverability of its investments in these assets. All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable utilizing established guidelines based upon estimated future net cash flows from the asset. Write-downs relating to exploration properties amounted to $2,542,000 in 2000 compared to $166,000 in 1999. There were no mineral property write-downs in 2001. Included in the write-down for 2000 was the abandonment of the Cord Ranch lease property with a charge to asset write- downs of $1.2 million. Additionally Crown recorded an asset write-down of $1.3 million for the impairment of Crown's interest in the Pinon Range and Dixie Creek prospects at Cord Ranch as well as the impairment of the King's Canyon property in Utah. The impairment of Crown's investment in these properties is attributable to continued low gold prices and an inability of Crown to complete acceptable joint ventures to explore and develop these properties. Minority interest in (income) loss of subsidiary was $(2,141,000) in 2000 compared to $389,000 in 1999. The income from Solitario in 2000 was primarily due to Solitario's gain on sale of the Yanacocha property of $5,809,000. Liquidity and Capital Resources Due to the nature of the mining business, the acquisition, exploration and development of mineral properties require significant expenditures prior to the commencement of production. Crown has in the past financed its activities through the sale of debt and equity securities, joint venture arrangements (including project financing) and the sale of interests in its properties. To the extent necessary, Crown expects to continue to use similar financing techniques. Crown's exploration and development activities and funding opportunities, as well as those of its joint venture partners, may be materially affected by gold price and mineral commodity levels and changes in those levels. The market price of gold and mineral commodities is determined in world markets and is affected by numerous factors, many of which are beyond Crown's control. Net cash used in operating activities was $1,163,000 in 2001 compared to $2,416,000 in 2000 and $2,714,000 in 1999. The reduction in cash used during 2001 related to the deconsolidation of Solitario, a reduction in exploration activity and the increase in current payables, primarily as a result of non-payment of Debenture interest since February 2001. During 2000 the inclusion of Crown's share of Solitario's gain on sale of the Yanacocha property, mitigated by the minority interest in the transaction, accounted for a significant portion of the change. The change between 2000 and 1999 primarily relate to reductions in exploration and general and administrative expenses. Net cash used in investing activities in 2001 was $18,000 compared to $1,787,000 in 2000 and $259,000 in 1999. The fluctuation during 2000 resulted from the inclusion of Solitario's $5,600,000 proceeds from the Yanacocha sale, which was offset by the elimination of Solitario's cash of $6,908,000 when Crown no longer consolidated Solitario and accounted for its investment under the equity method. During 2001, Crown's additions to mineral properties, consisting of additions to the Crown Jewel Project, were offset by proceeds from assets sales. Net cash provided by financing activities was $320,000 in 2001. There was no cash provided from financing activities during 2000 compared to $11,000 provided by financing activities from issuance of common stock in 1999. Proceeds of $350,000 from the Secured Note financing were delivered to Crown in October 2001. The balance of the $3,600,000 Senior Notes financing of $3,250,000 was placed in escrow, pending confirmation of the Plan. Crown has budgeted $460,000 for exploration and development expenditures in 2002 pending confirmation of the Plan. These expenditures will be directed toward the permitting of the Crown Jewel Project. These costs include certain baseline hydrologic studies, work on a Supplemental Draft Environmental Impact Statement and a socio-impact studies of various ore processing alternatives. Additionally, Crown will pay certain maintenance and legal expenses to maintain Crown's interest in the Crown Jewel Project. The development of the Crown Jewel Project through initial production is estimated to be approximately $91 million (including $21 million in contingencies). Crown will require significant new capital resources in order to develop the Crown Jewel Project, which may be in the form of a joint venture, project or debt finance, or issuance of equity. There is no assurance Crown will be able to obtain the necessary capital resources on acceptable terms, if at all. Cash and cash equivalents amounted to $110,000 at December 31, 2001. These funds are generally invested in short-term interest-bearing deposits and securities, pending investment in current and future projects. Working capital at December 31, 2001 was a negative $15,713,000. The accompanying financial statements have been prepared assuming that Crown will continue as a going concern. As of December 31, 2001, Crown has a working capital deficiency of $15,713,000 and Crown has defaulted on its $15,000,000 Debentures, discussed in Note 4 to the accompanying financial statements. Crown has insufficient liquidity to pay the Debentures and interest currently due. See Corporate Reorganization discussed above. There is no assurance that the Court will approve the Plan or, that if the Plan is not approved, that Crown will be able to raise sufficient funds or to restructure the Debentures on acceptable terms. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Related party transactions On June 26, 2001, Solitario agreed to acquire 200,000 shares of Canyon Resources Corporation common stock from Crown at its fair market value of $200,000 at that date. Solitario sold the shares for $245,000 in February 2002, the fair market value at that date. The transaction provided additional working capital to Crown, and was approved by independent Board members of both Crown and Solitario. In October 2001, Solitario invested in two Secured Notes totaling $1,000,000 of the Secured Notes issued by Crown. The proceeds from the first note, the Solitario Note, of $350,000 were delivered to Crown. The proceeds from the second Note, of $650,000 were placed in escrow pending the outcome of the Bankruptcy. See Note 1 and 5. In March an additional $200,000 was advanced to Crown out of escrow of which Solitario's share of the advance was $56,000. The independent Board members of both Crown and Solitario approved the transaction. The terms of the transaction were the same as given to other Senior Lenders and, with regard to the terms of the $650,000 note, the terms were negotiated with and approved by the other Senior Lenders. Exploration Activities A significant part of Crown's business involves the review of potential property acquisitions and continuing review and analysis of properties in which it has an interest, to determine the exploration and development potential of the properties. In analyzing expected levels of expenditures for work commitments and lease obligations, Crown considers the fact that its obligations to make such payments fluctuate greatly depending on whether, among other things, Crown makes a decision to sell a property interest, convey a property interest to a joint venture, or to allow its interest in a property to lapse by not making the work commitment or payment required. Crown estimates that during 2002 there will be no work commitments remaining to be fulfilled by Crown on its existing properties. Crown's estimates it will pay approximately $24,000 for its share of rental obligations and other property payments for 2002. New Accounting Pronouncements Critical Accounting Policies Land and leasehold acquisition costs are capitalized in cost centers and are depleted on the basis of the cost centers' economic reserves (estimated recoverable, proven and probable reserves) using the units- of-production method. If there are insufficient economic reserves to use as a basis for depleting such costs, they are expensed as a mineral property write-off in the period in which the determination is made. During 1999, Crown changed its method of accounting for exploration costs on properties without proven and probable reserves from capitalizing all expenditures to expensing all costs incurred, other than acquisition costs, prior to the establishment of proven and probable reserves (See Note 2). Crown records the proceeds from the sale of property interests as a reduction of the related property's capitalized cost. Proceeds that exceed the capital cost of the property are recorded as revenue. When such proceeds are associated with properties subject to a joint venture, they are recorded as revenue in accordance with the terms of the joint venture and the transfer of the property interest to the joint venture partner during the term of the joint venture. Crown regularly performs evaluations of its assets to assess the recoverability of its investments in these assets. All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable utilizing established guidelines based upon future net cash flows from the asset. Write-downs relating to mineral properties were to $2,542,000 in 2000 and $166,000 in 1999. There were no mineral property write-downs in 2001. The write- down for 2000 included Crown's decision to write off its Cord Ranch and Kings Canyon properties due to low gold prices resulting in a $2,482,000 charge to operations. In August 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No. 144"). SFAS No. 144 Supersedes SFAS No. 121, and provides for the use of probability weighted cash flow estimation in determining cash flows for the impairment of assets as well as establishing methods for accounting for assets to be disposed of other than by sale. Crown is required to implement SFAS No. 144 on January 1, 2002 and has not determined the impact that this statement will have on its consolidated financial position or results of operations. In July 2001, the Financial Accounting Standards Board (?FASB?) issued Statement of Financial Accounting Standards No. 141 (?SFAS No. 141"), ?Business Combinations.? SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. Crown implemented SFAS No. 141 during 2001 and it has not had a material impact on its consolidated financial position or results of operations. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, ?Goodwill and Other Intangible Assets? (?SFAS No.142"). SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. Crown intends to implement SFAS No. 142 on January 1, 2002 and it is not expected to have a material impact on its consolidated financial position or results of operations. The Company will adopt SFAS 143 , "Accounting for Asset Retirement Obligations", no later than January 1, 2003. Under SFAS 143, the fair value of a liability for an asset retirement obligation covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. Over time, the liability would be accreted to its present value, and the capitalized cost would be depreciated over the useful life of the related asset. Upon settlement of the liability, an entity would either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company is still studying this newly-issued standard to determine, among other things, whether it has any asset retirement obligations which are covered under the scope of SFAS 143. The effect to the Company of adopting this standard, if any, has not yet been determined. Environmental, Permitting and Legal The Final Environmental Impact Statement ("FEIS") on the Crown Jewel Project was issued to the public in February 1997. In May of 1997, the United States Forest Service ("USFS") upheld the Record of Decision ("ROD") to approve the Crown Jewel Project. In May 1997, an action was filed in U.S. District Court against the USFS appealing its decision to uphold the ROD. This action was dismissed on December 31, 1998. In January of 2000, the Pollution Control Hearings Board ("PCHB"), a state administrative tribunal, vacated the previously granted 401 Water Quality Permit for the Crown Jewel Project issued by Washington Department of Ecology ("WDOE"). The ruling also reversed certain water rights issued by the WDOE for the Crown Jewel Project. On March 14, 2000, Newmont filed an appeal in Superior Court of the State of Washington for Okanogan County challenging the PCHB ruling. In light of the termination of the Crown Jewel Project Joint Venture and Crown's intention to permit a primarily underground mine, Crown will not pursue this action and Newmont has dropped its appeal. It is not known if other permits previously granted to the Crown Jewel Project may be subject to review as a result of the PCHB ruling. Crown engaged Mine Reserves Associates ("MRA") to conduct an independent analysis of its Crown Jewel Project reserves in March 2000. Per the MRA report, Crown is reporting proven and probable reserves of 2,139,000 tons at a grade of 0.392 for a total of 839,000 contained ounces. The MRA design would use the bulk of the waste rock material from mine design for tailings dam construction and to backfill the underground mining areas, in order to increase the recoverable underground ounces. As part of the analysis of the Crown Jewel Project reserves subsequent to the January 2000 PCHB ruling, Crown retained Gochnour and associates ("Gochnour"), an independent mining environmental consultant, to review the required permits for the mine design as proposed in the MRA report. Gochnour indicated the MRA design would require conducting additional baseline studies and collecting data for modeling to amend previously approved permits as well as to obtain permits for activities that were not previously contemplated, for example the underground mining effects on ground water. Gochnour indicated the underground alternative would also require mitigation of environmental impacts. The Gochnour report concluded the MRA mine design is legally permittable. Although Crown and Gochnour are not aware of any laws or regulations which would be violated by the mine design proposed by MRA, there will continue to be uncertainty regarding the ability of Crown obtaining the necessary permits from the regulatory authorities in a timely manner, if ever. Construction of the Crown Jewel Project will not begin prior to the successful completion of the remaining permit applications and resolution of the legal and administrative challenges. Potential delays due to the appeals process, the permit process or litigation are difficult to quantify. There are no assurances that required permits will be issued in a timely fashion, that Crown will prevail in current or future legal actions or that conditions contained in permits issued by the agencies will not be so onerous as to preclude construction or operation of the Crown Jewel Project. Additionally, uncertainties exist with respect to the timing of commercial production at the Crown Jewel Project, as well as the potential fluctuation in gold prices, which could have a material effect upon Crown's ability to fund its operating activities in the long term. There is no assurance that such funding will or can be secured on terms favorable to Crown, if at all. Item 7a. Quantitative and Qualitative Disclosure About Market Risk Crown is exposed to market risks associated with changes in interest rates as it relates to its cash and short term investments, and commodity price risks for changes in the price of precious and base metals insofar as such changes may affect the economic viability of its exploration and development projects. Both the Senior Notes and the Debentures are not subject to market risk because they have a fixed interest rate and a repayment amount payable either in cash or common stock of Crown. Crown does not use financial or other derivative instruments to manage market risk. A hypothetical change of one percent in the interest rate earned on short term investments during 2001 would have resulted in an increase or decrease of less than $0.1 million in net income. A change of 10% in the price of gold, silver or zinc would not have had a material change in the assets, liabilities or net income of Crown. Item 8. Financial Statements and Supplementary Data CROWN RESOURCES CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report . . . . . . . . . . . F-1 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2001 and 2000 . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 . . . F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 . . . . F-5 Notes to Consolidated Financial Statements . . . . F-6 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Crown Resources Corporation Denver, Colorado We have audited the accompanying consolidated balance sheets of Crown Resources Corporation and subsidiaries (Crown) as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of Crown's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crown as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, Crown has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code on March 8, 2002. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of Crown; or (d) as to operations, the effect of any changes that may be made in its business. The accompanying financial statements have been prepared assuming that Crown will continue as a going concern. As discussed in Note 1, Crown's inability to pay certain debentures that were due August 2001, recurring losses from operations, and negative working capital raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 1. The financial statements do not include adjustments that might result from the outcome of this uncertainty. As discussed in Note 2 to the financial statements, Crown changed its method of accounting for exploration costs on properties without proven and probable reserves in 1999. Deloitte & Touche LLP Denver, Colorado April 1, 2002 F-1 CROWN RESOURCES CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, 2001 2000 (in thousands) Assets Current assets: Cash and cash equivalents $ 110 $ 971 Short-term investments 79 79 Escrowed cash 3,263 - Prepaid expenses and other 102 139 Total current assets 3,554 1,189 Mineral properties, net 14,363 13,902 Other assets: Equity in unconsolidated subsidiary 3,291 4,873 Debt issuance costs, net - 68 Other 57 63 Total other assets 3,348 5,004 $21,265 $20,095 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 153 $ 111 Convertible debentures 15,000 15,000 Current portion of long-term debt 68 - Convertible secured notes payable 2,234 - Convertible secured notes payable related party 1,000 - Other 812 289 Total current liabilities 19,267 15,400 Long term liabilities: Long-term note payable 148 - Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value; authorized 20,000,000 shares; none outstanding - - Common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 14,553,302 146 146 Additional paid-in capital 35,429 35,045 Accumulated deficit (33,644) (30,496) Accumulated other comprehensive loss (81) - Total stockholders' equity 1,850 4,695 $21,265 $20,095
See notes to consolidated financial statements. F-2 CROWN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Year Ended December 31, share amounts) 2001 2000 1999 Revenues: Mineral property option proceeds $ - $ 100 $ 100 Royalty income - 112 104 Interest income 34 344 337 Gain (loss) on sale of assets and mineral properties 214 5,845 (3) Total revenues 248 6,401 538 Costs and expenses: Exploration 5 903 1,025 Depreciation, depletion and amortization 11 39 65 General and administrative 828 1,171 1,367 Interest 1,046 971 971 Asset write-downs - 2,542 166 Other, net - (2) (1) Total costs and expenses 1,890 5,624 3,593 Operating income (loss) (1,642) 777 (3,055) Equity in loss of unconsolidated subsidiary (1,506) (295) - Income (loss) before minority interest (3,148) 482 (3,055) Minority interest in (income) loss of subsidiary - (2,141) 389 Net loss before cumulative effect of change in accounting principle (3,148) (1,659) (2,666) Cumulative effect of change in accounting principle - - (8,451) Net loss $ (3,148) $ (1,659) $(11,117) Per common share: Basic and diluted loss before cumulative effect of change in accounting principle $ (0.22) $ (0.11) $ (0.18) Change in accounting principle ( - ) ( - ) (0.58) Basic and diluted loss $ (0.22) $ (0.11) $ (0.76) Basic and diluted weighted average number of common and common equivalent shares outstanding 14,553 14,553 14,534
See notes to consolidated financial statements. F-3 CROWN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Additional Other (in thousands, except share Common Stock Paid-in Accumulated Comprehensive amounts) Shares Amount Capital Deficit Loss Total Balance, January 1, 1999 14,520,725 $ 145 $ 34,768 $ (17,720) $ (11) $ 17,182 Issuance of shares: Exercise of stock options 6,275 - 11 - - 11 For services 12,697 - 24 - - 24 Comprehensive income (loss): Net loss - - - (11,117) - (11,117) Net unrealized gain on marketable equity securities - - - - (120) (120) Comprehensive loss - - - - - (11,237) Balance, December 31, 1999 14,539,697 145 34,803 (28,837) (131) 5,980 Issuance of shares: For services 13,605 1 24 - - 25 Disproportionate share of sale of subsidiary stock 218 218 Comprehensive income (loss): Net loss - - - (1,659) - (1,659) Net unrealized loss on marketable equity securities - - - - 131 131 Comprehensive loss - - - - - (1,528) Balance, December 31, 2000 14,553,302 146 35,045 (30,496) - 4,695 Issuance of warrants 379 379 Disproportionate share of sale of subsidiary stock 5 5 Comprehensive loss: Net loss - - - (3,148) (3,148) Net unrealized loss on subsidiary marketable equity securities - - - - (81) (81) Comprehensive loss - - - - (81) (3,229) Balance, December 31, 2001 14,553,302 $ 146 $ 35,429 $(33,644) $ (81) $ 1,850
See notes to consolidated financial statements. F-4 CROWN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (in thousands) 2001 2000 1999 Operating Activities: Net loss $ (3,148) $ (1,659) $(11,117) Adjustments: Depreciation, depletion and amortization 79 141 167 Asset write-downs - 2,542 166 Common stock issued for services - 25 24 Minority interest - 2,141 (389) Equity in loss of unconsolidated subsidiary 1,506 295 - Cumulative effect of change in accounting principle - - 8,451 Loss (gain) on sale of assets (211) (5,845) 3 Changes in operating assets and liabilities, excluding effects of Solitario deconsolidation: Prepaid expenses and other 24 (59) (1) Accounts payable and other current liabilities 587 3 (18) Net cash used in operating activities (1,163) (2,416) (2,714) Investing Activities: Additions to mineral properties (224) (258) (217) Proceeds from asset sales 211 5,725 22 Cash effect of Solitario deconsolidation - (6,908) - Increase in other assets (5) (346) (64) Net cash used in investing activities (18) (1,787) (259) Financing Activities: Secured note financing 350 - - Payment on long term note (30) - - Issuance of common stock and warrants - - 11 Net cash provided by financing activities 320 - 11 Net decrease in cash and cash equivalents (861) (4,203) (2,962) Cash and cash equivalents, beginning of year 971 5,174 8,136 Cash and cash equivalents, end of year $ 110 $ 971 $ 5,174 Supplemental disclosure of cash flow information: Non-cash transactions: Securities received for mineral property transactions $ - $ - $ 21 Disposition of interest in subsidiary - 218 - Cash paid for interest 431 868 868 Cash placed in escrow from secured note financing 3,250 - - Long term debt assumed for mineral property transactions 237 - - Issuance of warrants 379 - -
See notes to consolidated financial statements. F-5 1. Business and Summary of Significant Accounting Policies: Business Crown Resources Corporation ("CRC") and its subsidiaries (collectively referred to as "Crown") engage principally in the acquisition, exploration and development of mineral properties, which presently exist in the western United States. Prior to October 18, 2000 Crown held properties in Peru through Solitario Resources Corporation ("Solitario"), which is currently a 41.2%-owned unconsolidated subsidiary. Crown's operations constitute a single business segment. Crown has historically derived its revenues principally from royalty interests and interest income and to a lesser extent from the option and sale of property interests and from the sale of its share of gold produced from its properties. Basis of presentation The accompanying financial statements have been prepared assuming that Crown will continue as a going concern. As of December 31, 2001, Crown has a working capital deficiency of $15,713,000 and has defaulted on its $15,000,000 5.75% convertible subordinated debentures, which were due in August 2001 (the "Debentures"), discussed in Note 4. Crown currently has insufficient liquidity to pay the Debentures and accrued interest currently due. On March 8, 2002, CRC filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code, discussed below. There is no assurance that Crown will be able to raise sufficient funds or to restructure the Debentures on acceptable terms. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Corporate Reorganization On March 8, 2002, CRC filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy") in the United States Bankruptcy Court for the District of Colorado (the "Court"). As part of the Bankruptcy CRC filed a Plan of Reorganization (the "Plan") and a Disclosure Statement with the Court on March 27, 2002. The Plan contemplates a restructuring of CRC's 5.75% convertible subordinated debentures, which were due August 27, 2001 (the "Debentures") through an exchange of outstanding Debentures, including any accrued interest thereon for the following consideration to be proportionally distributed to each Debenture holder: (i) $1,000,000 in cash; F-6 1. Business and Summary of Significant Accounting Policies (Continued): (ii) $2,000,000 in 10% Convertible Secured Notes (the "Secured Notes") convertible into Crown common shares at $0.35 per share. The Secured Notes will be pari-passu to and have essentially the same terms as certain Senior Notes, issued in October 2001 and discussed below, including a 10% interest rate payable in cash or stock at CRC's option, and a maturity date of October 2006. (iii) Warrants, which entitle the holders the right to purchase, in the aggregate, 5,714,285 shares of CRC common stock at an exercise price of $0.75 per share. The warrants expire in October 2006; (iv) $4,000,000 of convertible unsecured subordinated notes (the "Unsecured Notes") convertible into common stock of CRC at $0.75 per share. The Unsecured Notes would pay interest at 10% in stock or cash at CRC's option, and mature on the same date as the Secured Notes. All other liabilities of CRC and Crown would be paid in the normal course under the Plan. The Plan contemplates a 5 for 1 reverse split of the currently outstanding common stock, while maintaining the conversion and exercise prices of the Senior Notes, the Secured Notes, the Unsecured Notes and the related warrants. The Plan contemplates that, immediately after the approval of the Plan, assuming full dilution, the Senior Note holders would own approximately 52% of the common stock, the Debenture holders would own approximately 41% of the common stock and current shareholders would own approximately 7% of the common stock. The Plan also contemplates the cancellation of CRC's preferred stock, currently held by a wholly owned subsidiary and which is eliminated in consolidation. After being filed with the Court, the Plan must be voted on by CRC's creditors and shareholders. If the Plan is approved by the Court, the Plan becomes a legally binding agreement between CRC and its creditors and shareholders. Subject to any objections and related delays, Crown anticipates the Court could set a hearing to determine the adequacy of the Disclosure Statement and Confirmation of the Plan, prior to June 30, 2002. F-7 1. Business and Summary of Significant Accounting Policies (Continued): There can be no assurance given that the Plan will be approved by the creditors or shareholders, nor that the Court will confirm the Plan as filed, if at all. If the Plan is not confirmed by the Court, there can be no assurance that Crown will have sufficient funds to continue as a going concern, to restructure the Debentures on acceptable terms or continue operations. If the Plan is not confirmed by the Court, Crown may be forced to liquidate its assets under Chapter 7 of the U.S. Bankruptcy Code and to cease operations. Financial reporting The consolidated financial statements include the accounts of Crown and its wholly- and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Undivided interests in mineral properties are accounted for by the proportionate consolidation method in accordance with standard practice in the mining industry. On October 18, 2000, Solitario completed a Plan of Arrangement with Altoro Gold Corp. of Vancouver, Canada ("Altoro"), whereby Altoro became a wholly owned subsidiary of Solitario. In connection with the Plan of Arrangement, Solitario issued 6,228,894 shares to Altoro shareholders and option holders. Solitario also reserved 825,241 Solitario shares for issuance upon the exercise of 825,241 warrants issued in exchange for Altoro warrants. On October 24, 2000, Solitario issued 261,232 shares upon the exercise of the above warrants, the remaining warrants have since expired unexercised. After the issuance of the shares in connection with the Plan of Arrangement, shares issued upon the exercise of the warrants discussed above, and the issuance of 62,487 shares during 2001, Solitario has 23,407,134 shares outstanding of which Crown owns 9,633,585 shares or 41.2%. Accordingly, Crown has accounted for its investment in Solitario under the equity method since October 2000. Solitario's income, expense and minority interest are included in the Consolidated Statement of Operations of Crown through October 2000. Crown's interest in the net assets of Solitario is shown in the Consolidated Balance Sheet as of December 31, 2001 and 2000 as equity in unconsolidated subsidiary. Crown's share of Solitario's net loss for the year ended December 31, 2001 and from October 2000 through December 31, 2000 is shown as equity in loss of unconsolidated subsidiary in the Consolidated Statement of Operations. F-8 1. Business and Summary of Significant Accounting Policies (Continued): Use of estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash equivalents Cash equivalents include investments in highly liquid debt securities with maturities of three months or less when purchased. Investments with longer maturities at the date of purchase are classified as short-term investments. Mineral properties Land and leasehold acquisition costs are capitalized in cost centers and are depleted on the basis of the cost centers' economic reserves (estimated recoverable, proven and probable reserves) using the units-of-production method. If there are insufficient economic reserves to use as a basis for depleting such costs, they are expensed as a mineral property write-off in the period in which the determination is made. During 1999, Crown changed its method of accounting for exploration costs on properties without proven and probable reserves from capitalizing all expenditures to expensing all costs incurred, other than acquisition costs, prior to the establishment of proven and probable reserves (See Note 2). Crown records the proceeds from the sale of property interests as a reduction of the related property's capitalized cost. Proceeds that exceed the capital cost of the property are recorded as revenue. When such proceeds are associated with properties subject to a joint venture, they are recorded as revenue in accordance with the terms of the joint venture and the transfer of the property interest to the joint venture partner during the term of the joint venture. F-9 1. Business and Summary of Significant Accounting Policies (Continued): Asset write-downs Crown regularly performs evaluations of its assets to assess the recoverability of its investments in these assets. All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable utilizing established guidelines based upon future net cash flows from the asset. Write-downs relating to mineral properties were to $2,542,000 in 2000 and $166,000 in 1999. There were no mineral property write-downs in 2001. The write-down for 2000 included Crown's decision to write off its Cord Ranch and Kings Canyon properties due to low gold prices resulting in a $2,482,000 charge to operations. Marketable equity securities Crown's equity securities are classified as available- for-sale and are carried at fair value. The cost of marketable equity securities sold is determined by the specific identification method. Revenue recognition Royalty revenue is recognized when product is delivered in-kind or cash payments are received. Income taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. F-10 1. Business and Summary of Significant Accounting Policies (Continued): Loss per share The calculation of basic and diluted loss per share is based on the weighted average number of common shares outstanding during the years ended December 31, 2001, 2000, and 1999. Securities that could potentially dilute earnings per share, which include stock options, warrants and convertible debt securities, were approximately 24,100,000 shares in 2001, 3,618,000 shares in 2000 and 3,193,000 shares in 1999. The effects of these securities are not included in the computation of diluted per share amounts where their inclusion would be anti-dilutive. Employee stock compensation plans Crown follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the terms of Crowns's stock option plans, the exercise price of options issued to employees and directors equals the market price of the stock on the date of grant and, therefore, Crown records no compensation expense on stock options granted to employees and directors. Minority interest Minority interest represents the minority stockholders' proportionate interest in the equity and losses of Solitario prior to 0ctober 18, 2000. Crown owned 41.2% and 41.3% of Solitario at December 31, 2001 and December 31, 2000, respectively and 57.2% of Solitario at December 31, 1999. New accounting pronouncements In August 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No. 144"). SFAS No. 144 Supersedes SFAS No. 121, and provides for the use of probability weighted cash flow estimation in determining cash flows for the impairment of assets as well as establishing methods for accounting for assets to be disposed of other than by sale. Crown is required to implement SFAS No. 144 on January 1, 2002 and has not determined the impact that this statement will have on its consolidated financial position or results of operations. F-11 1. Business and Summary of Significant Accounting Policies (Continued): In July 2001, the Financial Accounting Standards Board (?FASB?) issued Statement of Financial Accounting Standards No. 141 (?SFAS No. 141"), ?Business Combinations.? SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. Crown implemented SFAS No. 141 during 2001 and it has not had a material impact on its consolidated financial position or results of operations. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, ?Goodwill and Other Intangible Assets? (?SFAS No.142"). SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. Crown intends to implement SFAS No. 142 on January 1, 2002 and it is not expected to have a material impact on its consolidated financial position or results of operations. The Company will adopt SFAS 143, "Accounting for Asset Retirement Obligations", no later than January 1, 2003. Under SFAS 143, the fair value of a liability for an asset retirement obligation covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. Over time, the liability would be accreted to its present value, and the capitalized cost would be depreciated over the useful life of the related asset. Upon settlement of the liability, an entity would either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company is still studying this newly-issued standard to determine, among other things, whether it has any asset retirement obligations which are covered under the scope of SFAS 143. The effect to the Company of adopting this standard, if any, has not yet been determined. 2. Mineral Properties: Change in accounting principle During the fourth quarter of 1999, Crown changed its method of accounting for exploration costs on properties without proven and probable reserves from capitalizing all expenditures to expensing all costs, other than acquisition costs, prior to the establishment of proven and probable reserves. This conforms Crown's accounting method to the predominant practice in the U.S. mining industry. The $8,451,0000 cumulative effect of the change on prior years is included in the loss for 1999. The effect of the change on 1999 was to increase the loss before cumulative effect of change in accounting principle by $83,000 or $0.01 per share. F-12 2. Mineral Properties (Continued): United States Crown Jewel Project On July 23, 2001, Crown completed an agreement with Battle Mountain Gold Company, a wholly owned subsidiary of Newmont Mining Corporation (both companies referred to as "Newmont") to terminate its joint venture on the Crown Jewel Project, where Newmont was earning a 46% interest in the Crown Jewel Project by building a 3,000-ton per day mining facility. As part of the agreement Crown became the sole owner and manager of the Crown Jewel Project and granted Newmont a sliding scale royalty on the first 1 million ounces of gold. The royalty varies with the price of gold and Crown may purchase the royalty from Newmont for a payment of $2 million any time over the next five years. Crown has also announced it will be seeking regulatory approval and permits to operate a primarily underground mining operation at the Crown Jewel Project, which Crown believes significantly reduces the environmental impacts compared to the open-pit mining plan proposed by Newmont. Newmont's plan proposed moving over 105 million tons of material, producing 8.5 million tons of ore over an eight-year period. Crown's underground proposal, still in the planning stages, would move less than 10% of the material of the Newmont plan and estimates the total ore produced at approximately 3.3 million tons. Crown recorded $353,000 in mineral property additions in connection with the termination of the joint venture related to the assumption of liabilities of $116,000 in property taxes payable in 2001 and $237,000 for a $250,000 note payable (the "Keystone Note"), due in February 2002. On December 18, 2001 Crown amended the terms of the Keystone Note, by paying the holders of the note $30,000 and extending the term of the note for a period of four years, with a payment, including interest, of $20,000 due in June 2002 and four annual payments, including interest, of $50,000 beginning in December 2002. At December 31, 2001, the current portion of the Keystone Note was $68,000. On the January 19, 2000, the State of Washington Pollution Control Hearings Board ("PCHB") issued a ruling vacating the previously granted 401 Water Quality Permit for the Crown Jewel Project issued by the Washington Department of Ecology ("WDOE"). The ruling also reversed certain water rights issued by the WDOE for the Crown Jewel Project. F-13 2. Mineral Properties (Continued): In light of the ruling by the PCHB, Crown engaged an independent mining engineering firm Mine Reserves Associates ("MRA") to evaluate an alternative mine plan that would have reduced environmental impacts. Crown also engaged Gochnour and Associates, ("Gochnour") an independent permitting consultant to evaluate the ability to obtain permits for the alternative mine plan. Based upon reports from MRA and Gochnour, Crown has determined the Crown Jewel Project contains sufficient reserves as of December 31, 2001 to recover Crown's investment. Cord Ranch Crown held a lease for the right to explore and develop the Cord Ranch prospect, a 34,000-acre ranch in the southern portion of the Carlin Gold Trend of Nevada. During 2000, Crown elected not to maintain its interest in the Cord Ranch lease and wrote off its investment with a charge to property abandonment of $1,209,000. Crown also holds certain mineral claims in the Dixie Creek and Pinon Range prospects adjacent to Cord Ranch. In September 1994, Crown signed an agreement, which has been assigned to a subsidiary of Royal Standard Minerals Inc. ("Royal Standard"). As of December 31, 1998, Royal Standard had earned a 70% interest in these properties. Under the terms of the agreement, Royal Standard must provide Crown's share of expenditures through the completion of a favorable feasibility study, with such expenditures to be repaid from Crown's share of production from the properties. In the fourth quarter of 2000, Crown wrote down its entire investment in these prospects with a charge to abandonment expense of $695,000, but still holds the properties while Royal Standard looks for a joint venture partner. Mexico From 1997 to 2000 Crown conducted exploration and reconnaissance activities in Mexico, focusing its efforts in the state of Durango. In early 1999, Crown acquired the San Juan de Minas property covering approximately 700 acres. During 2000 Crown dropped the San Juan de Minas property resulting in a $59,000 write down. South America Crown, through Solitario, has leased mineral properties and held exploration concessions or has filed applications for concessions in Peru, Bolivia and Brazil. At December 31, 2001, Crown holds no direct interest in properties located in South America. F-14 2. Mineral Properties (Continued): Land leasehold and exploration and development costs Mineral property costs for Crown's properties are comprised of the following: December 31, 2001 2000 (in thousands) Land and leasehold costs $11,358 $11,176 Exploration and development costs 3,606 3,550 14,964 14,726 Less accumulated depreciation, depletion and amortization 601 824 $14,363 $13,902 There were no land and leasehold costs related to mineral properties for which exploration activities had not yet identified the presence of economic reserves as of December 31, 2001 and 2000. At December 31, 2001 and 2000, the carrying value of the Crown Jewel Project amounted to $14,363,000 and $13,902,000 respectively. The Crown Jewel Project represents Crown's total proven and probable gold reserves and its only property in development. Crown had no foreign assets at December 31, 2001 and 2000. Crown's royalty on the Lamefoot deposit in Washington State, which ceased mining during 2000, and the Kendall Mine in Montana, which ceased mining during 1998, were held through its 100% owned-subsidiary, Judith Gold Corporation. In January 2001, Crown sold its entire holding in Judith Gold Corporation to Canyon Resources Corporation for 200,000 shares of Canyon common stock. Crown had completely amortized its investment in Judith Gold Corporation as of December 31, 2000 and recorded a gain on sale of approximately $200,000 during 2001. In June 2001, Crown sold its Canyon stock to Solitario for $200,000 3. Investment in Unconsolidated Subsidiary: As discussed in Note 1, effective October 18, 2000, Crown accounts for its investment in Solitario under the equity method. The market value of Crown's 9,633,585 shares was $2,559,000 at December 31, 2001. Condensed financial information of Solitario is as follows: F-15 3. Investment in Unconsolidated Subsidiary (continued): Balance Sheets As of December 31, (in thousands) 2001 2000 Assets Current assets $ 2,900 $ 6,490 Mineral properties, net 3,693 4,873 Other 1,510 597 Total assets $ 8,103 $ 11,960 Liabilities and stockholders' equity Current liabilities $ 106 151 Stockholders' equity 7,997 11,809 Total liabilities and stockholders' equity $ 8,103 $ 11,960
Statements of Operations Year ended December 31, (in thousands) 2001 2000 1999 Revenues $ 236 $6,271 $ 263 Costs and Expenses 3,893 1,986 1,172 Income (loss)before cumulative effect of change in accounting principle (3,657) 4,285 (909) Change in accounting principle - - (5,094) Net income (loss) $(3,657) $4,285 $(6,003)
4. Convertible Debentures: On August 27, 1991 Crown completed a European offering of $15,000,000 for its Debentures. The Debentures are convertible into approximately 1,523,000 shares of Crown common stock at $9.85 per share. Interest was payable semiannually in arrears, each February and August. Debt offering costs were amortized over the life of the Debentures. In August 2001, Crown defaulted on the Debentures, as Crown did not make the required payment of principal and accrued interest of $431,000, then due. From April to June 2001, Crown held discussions with holders of approximately $7,500,000 of the Debentures and agreed upon a framework for reorganization of CRC and the Debentures (the "Framework"). The Framework contemplated the completion of the $3,600,000 Senior Note financing, described in Note 5, and CRC filing the Plan, described in Note 1. F-16 5. Senior Notes: In October 2001 Crown issued $3,600,000 of 10% convertible secured promissory notes due in October 2006 (the "Senior Notes"). Pending confirmation of the Plan, Crown expects to use a portion of the proceeds from the Senior Notes to restructure the Company's existing Debentures and initiate permitting on its Crown Jewel Project in the state of Washington. The Senior Notes are secured by all the assets of Crown, consisting primarily of its interest in the Crown Jewel Project and its wholly-owned subsidiary, Crown Resource Corp. of Colorado whose assets consist primarily of a 41.2% equity interest in Solitario. The Senior Notes have a five-year term and carry a 10% interest rate payable quarterly in cash or Crown common stock, at the election of the Crown. Proceeds of $3,250,000 from the Senior Notes were placed in escrow pending restructuring of the Debentures (the specific Senior Notes related to the proceeds placed in escrow are also referred to as "Escrowed Notes"). Solitario invested $650,000 in these Escrowed Notes. The Escrowed Notes are convertible into Crown common shares at a conversion price of $0.35 per share, subject to adjustment. In addition, the Escrowed Note holders have been issued a five-year warrant for every share into which the Escrowed Notes are convertible, which warrant will be exercisable into a Crown common share at $0.75 per share, subject to adjustment. Solitario also invested in a separate Senior Note, (referred to as the "Solitario Note") for the remaining $350,000 of the Senior Notes. These funds were made immediately available to Crown for general corporate purposes. The Solitario Note is convertible into Crown common shares at a conversion price of $0.2916 per share, subject to adjustment. In addition, Solitario has been issued a five- year warrant to acquire 1,200,000 shares of Crown common stock at $0.60 per share, subject to adjustment. The terms of the Solitario Note and the related warrant are otherwise identical to the terms of the Escrowed Notes and warrants. On March 5, 2002, Crown and the Senior Lenders amended the terms of the Senior Notes, which released to Crown $200,000 of the proceeds being held in escrow. Per the terms of the Senior Notes, as amended, the release of the remaining escrowed funds is conditional upon the confirmation of the Plan, on terms acceptable by the holders of the Senior Notes, by June 30, 2002. The Senior Notes are classified as a current liability as of December 31, 2001 as they are due by June 30, 2002 if the Plan is not confirmed. If the Plan is confirmed as filed, there will be a substantial dilution to existing shareholders as described above in Note 1 under Corporate Reorganization and the Senior Notes will be classified as a long-term liability. F-17 6. Income Taxes: Crown's income tax expense (benefit) from continuing operations consists of the following:
(in thousands) 2001 2000 1999 Deferred: U.S. $ (388) $(1,486) $ 23 Foreign - (347) 126 Operating loss and credit carryovers: U.S. 388 1,486 23 Foreign - 347 126 Income tax expense (benefit) $ - $ - $ -
Consolidated loss before income taxes includes losses from foreign operations of $1,000, 750,000 and $1,030,000 in 2001, 2000 and 1999, respectively. During 1999 Crown recognized income tax deductions of $18,000 from the exercise of non-qualified stock options. There were no such exercises during 2000. Stockholders' equity has been credited for the income tax benefits of these income tax deductions. The net deferred tax (assets)/liabilities in the accompanying December 31, 2001 and 2000 balance sheets include the following components:
(in thousands) 2001 2000 Deferred tax assets: Net operating loss (NOL) carryovers $ 8,655 $8,060 Capital loss carryovers 261 261 Alternative minimum tax (AMT) credit carryovers 325 325 Investment in equity method investee 1,647 1,110 Other 7 78 Valuation allowance (6,577) (5,569) Deferred tax assets 4,318 4,265 Deferred tax liabilities: Exploration and development costs 3,855 3,819 Depreciation, depletion and amortization 463 446 Deferred tax liabilities 4,318 4,265 Net deferred tax (assets)liabilities $ - $ -
F-18 6. Income Taxes (Continued): A reconciliation of expected federal income tax expense (benefit) from continuing operations at the U.S. statutory rates with the expense (benefit) for income taxes is as follows:
(in thousands) 2001 2000 1999 Expected income tax (benefit) $(1,070) $ 164 $(1,039) Nondeductible foreign expenditures - 62 31 Disposition of investment in Peru - 1,916 (2,373) Deconsolidation of Solitario - 2,240 - State income tax benefit - 309 (363) Change in valuation allowance 983 (4,663) 3,742 Other 87 (28) 2 Income tax $ - $ - $ -
At December 31, 2001 Crown had unused U.S. NOL and capital loss carryovers of approximately $24,363,000 and $768,000, respectively, which begin to expire in 2004. In addition, Crown has approximately $325,000 of U.S. AMT credit carryovers that can be carried forward indefinitely. The Plan contemplates the cancellation of indebtedness related to the Debentures, plus accrued interest through June of 2002, of approximately $9,176,000. This cancellation of indebtedness, if the Plan is confirmed, is expected to reduce available NOL carryovers by the same amount. In addition, Section 382 of the Internal Revenue Code limits the availability of Crown's carryovers following a more than fifty-percent change in ownership. Crown expects a change in ownership, as defined in Section 382, will occur upon the confirmation of the Plan. The amount of future taxable income available to be offset by Crown's carryovers, if the Plan is confirmed, cannot be determined until the ownership change date is determined, which would be the confirmation date of the Plan. However, generally, the Internal Revenue Code defines this annual limitation to be the market capitalization of Crown multiplied by the long-term tax exempt bond rate, in effect on the date of the change of ownership. 7. Fair Value of Financial Instruments: For certain of Crown's financial instruments, including cash and cash equivalents, short-term investments, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities. The estimated fair value of Crown's Debentures was $3,000,000 at December 31 2001 and 2000, based on quoted market prices. At December 31, 2001, the estimated fair value of Crown's Senior Notes is considered to be their carrying value of $3,600,000. F-19 8. Commitments and Contingencies: In acquiring its interests in mineral claims and leases, Crown has entered into lease agreements, which generally may be canceled at its option. Crown is required to make work commitments and minimum rental payments in order to maintain its interests in certain claims and leases. Crown estimates its 2002 mineral property rentals and option payments to be approximately $29,000, of which Crown's share of these payments is estimated to be $24,000. Additionally, Crown has no estimated work commitments for 2002. Crown has a defined-contribution retirement plan covering all full-time U.S. employees. The plan provides for Company matching, at the rate of 75%, of employee savings contributions of up to 9% of compensation, subject to ERISA limitations. The cost of Company contributions in 2001, 2000 and 1999 was $43,000, $45,000 and $49,000, respectively. Crown leases office space under non-cancelable operating leases providing for minimum annual rent payments of $49,000 in 2002, $38,000 in 2003 and $19,000 in 2004, with no fixed commitments thereafter. Rent expense for all leases was $73,000, $78,000 and $83,000 for the years ended December 31, 2001, 2000 and 1999, respectively. 9. Stock Option Plans: Under Crown's 1988 Stock Benefit Plan ("1988 Option Plan"), the Board of Directors could grant:(a) incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended, to any employee of Crown or to any employee of any parent or subsidiary of Crown; (b)options other than incentive stock options (non-qualified stock options); (c) stock appreciation rights or cash bonus rights; (d) award stock bonuses; and (e) stock purchase rights and sell stock subject to certain restrictions. Up to 1,500,000 shares were reserved for issue under the 1988 Plan. Grants may no longer be made under the 1988 Option Plan. As of December 31, 2001, 497,000 shares remained available for future issuance under the 1988 Plan consisting of those already granted. Stock options that have been granted under the 1988 Plan have been issued at the market price of the common stock at the date of the grant. On June 27, 1991, Crown's shareholders approved the Crown Resources Corporation 1991 Stock Incentive Plan ("1991 Option Plan"). The Board of Directors has reserved 1,500,000 shares of Crown common stock for grants under the 1991 Option Plan. Options granted under both option plans generally expire five years from the date of grant. F-20 9. Stock Option Plans (Continued): Generally, the terms and conditions of the 1991 Option Plan are similar to those of the 1988 Option Plan described above, except that members of the Board of Directors are eligible only to receive formula grants of non-qualified stock options. Each member of the Board of Directors who is also an employee of Crown or any parent or subsidiary of Crown will be entitled to receive, automatically, an award of non-qualified stock options on grant dates defined in the Option 1991 Plan. Each option will cover a number of shares determined by dividing the employee-director's annual base compensation rate on the grant date by three. Each director who is not an employee will receive an award of non-qualified stock options covering 10,000 shares of Crown common stock. Options granted under the 1991 Option Plan are granted at the market price of the common stock at the date of grant, except for non-qualified options granted to non-directors, which price cannot be less than the average price for the five business days immediately preceding the date of grant. As of December 31, 2001, shares available for issue, including those already granted, totaled 1,116,251 shares. The activity in the 1988 Option Plan for the three years ended December 31, 2001 was as follows:
2001 2000 1999 Weighted Weighted Weighted Average Average Average Amount Price Amount Price Amount Price(1) Outstanding, beginning of year 545,000 2.14 557,500 2.13 576,250 4.22 Granted - - - Exercised - - (3,000) 1.75 Expired (48,000) 1.75 (12,500) 1.75 (15,750) 4.06 Outstanding, end of year 497,000 2.18 545,000 2.14 557,500 2.13 Exercisable, end of year 497,000 2.18 545,000 2.14 493,250 2.07
(1) In June 1999, the board of directors voted to reprice existing options for current employees, officers and directors to the market price of Crown's stock of $1.75 per share. The options outstanding under the 1988 Option Plan expired in February 2002. F-21 6. Stock Option Plans (Continued): The activity in the 1991 Option Plan for the three years ended December 31, 2001 was as follows:
2001 2000 1999 Weighted Weighted Weighted Average Average Average Amount Price Amount Price Amount Price(1) Outstanding, beginning of year 1,099,875 1.71 1,112,600 1.93 1,115,616 4.16 Granted 250,850 0.26 296,455 1.04 326,547 1.76 Exercised - (13,605) 1.75 (15,972) 1.85 Forfeited - - - Expired (241,575) 2.33 (295,575) 1.85 (313,591) 4.50 Outstanding, end of year 1,109,150 1.25 1,099,875 1.71 1,112,600 1.93 Exercisable, end of year 911,900 1.34 900,625 1.77 886,850 1.93
(1) In June 1999, the board of directors voted to reprice all existing options for current employees, officers and directors to the market price of Crown's stock of $1.75 per share. The options outstanding under the 1991 Option Plan have a weighted average remaining contractual life of 2.6 years. As a result of the repricing of existing options in 1999 and 1998, (under both the 1988 and 1991 Option Plans) Crown began to account for the awards as variable as of July 1, 2000, in accordance with FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation" (an interpretation of APB 25). Accordingly, an increase in the current market price of Crown common stock above the higher of the option strike price and the market price of Crown's common stock as of July 1, 2000, multiplied by vested options outstanding will be recorded as compensation expense in the period of the price increase. A subsequent reduction in the current market price, to the extent of previously recorded compensation expense will be credited as a reduction of compensation expense. There was no compensation expense recorded during 2001 or 2000 as a result of variable accounting for the repriced options. F-22 9. Stock Option Plans (Continued): Under the terms of the Plan of Reorganization (the "Plan"), both the 1988 Option Plan and the 1991 Option Plan will be terminated. If the Plan is confirmed, all outstanding options will be cancelled and no additional shares will be issued or issuable under either the 1988 Option Plan or the 1991 Option Plan. Additionally, the Plan contemplates the creation of the Crown Resources Corporation 2002 Stock Option Plan (the "2002 Option Plan"). The 2002 Option Plan would provide for up to 5,000,000 shares of common stock to be granted to officers, directors and employees. Under the terms of the 2002 Option Plan, the Board of Directors will be able to grant options with option strike prices of not less than the current market price of Crown's common stock on the date of grant. Until the Plan is confirmed and approved, no options may be granted and no shares are issuable under the 2002 Option Plan. Pro forma information has been computed as if Crown had accounted for its stock options under the fair value method of SFAS No. 123. The fair values of these options were estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2001, 2000 and 1999 grants, respectively: risk-free interest rates of 4.74%, 6.65%, and 5.69%; dividend yields of 0%; volatility factors of the expected market price of Crown's common stock of 69%, 66% and 66%; and a weighted average expected life of the options of 4.2 years in 2001, 4.2 years in 2000 and 2.4 years in 1999. The weighted average fair values of the options granted are estimated at $0.15, $0.59, and $0.76 per share in 2001, 2000 and 1999, respectively. Had Crown accounted for its stock options under the fair value method of SFAS No. 123, the following results would have been reported:
(In thousands, except per share amounts) 2001 2000 1999 Net loss As reported $ (3,148) $(1,659) $(11,177) Pro forma (3,185) (1,826) (12,297) Basic and diluted loss per share As reported $ (0.22) $(0.11) $(0.76) Pro forma (0.22) (0.13) (0.85)
10. Stockholders' Equity: Crown is authorized to issue 20,000,000 shares of $0.01 par value preferred stock and has issued 1,000,000 shares of nonconvertible preferred stock to a subsidiary that is eliminated in consolidation. Under the terms of the Plan of Reorganization, the outstanding preferred stock will be cancelled. F-23 10. Stockholders' Equity (continued): On July 25, 1995, Crown adopted a shareholder rights plan pursuant to which rights ("Rights") to acquire shares of Series B Preferred Stock were distributed to shareholders of Crown, with the right to buy 1/100 share of Series B Preferred Stock for each common share held, at an initial exercise price of $25.00. Crown also designated 500,000 shares of preferred stock as Series B Preferred Stock with each 1/100 share having economic terms substantially equivalent to one common share. Generally, the Rights will become exercisable if a shareholder or group of shareholders becomes the beneficial owner of or announces the intention to acquire common shares of 15 percent or more of the outstanding common shares of Crown. If the Rights become exercisable, each Right (other than Rights held by the acquiring person or group) will entitle the holder to purchase, at the exercise price, common stock having a market value equal to twice the exercise price. Under the terms of the Plan, the shareholder rights plan will be terminated. The $3,600,000 Senior Notes issued in October 2001 are convertible into 10,485,714 common shares. In addition warrants for an additional 10,485,714 common shares were issued to the holders of the Senior Notes. The warrants have a five-year life and 9,285,714 of the warrants are exercisable at a price of $0.75 per share and 1,200,000 of the warrants are exercisable at a price of $0.60 per share. See Note 5 above. Under the terms of the Plan, Crown's common stock would be subject to a 5 for 1 reverse split. In addition, under the terms of the Plan, the holders of the Debentures would receive $2,000,000 of Secured Notes convertible into 5,714,286 common shares, warrants for an additional 5,714,286 common shares and $4,000,000 of Unsecured Notes convertible into 5,333,333 common shares. The warrants would expire in October 2006 and have an exercise price of $0.75 per share. 11. Related Party Transactions On June 26, 2001, Solitario agreed to acquire 200,000 shares of Canyon Resources Corporation common stock from Crown at its fair market value of $200,000 at that date. Solitario sold the shares for $245,000 in February 2002, the fair market value at that date. In October 2001, Solitario invested in two Secured Notes totaling $1,000,000 of the Secured Notes issued by Crown. The proceeds from the first note, the Solitario Note, of $350,000 were delivered to Crown. The proceeds from the second Note, of $650,000 were placed in escrow pending the outcome of the Bankruptcy. See Note 1 and 5. In March an additional $200,000 was advanced to Crown out of escrow of which Solitario's share of the advance was $56,000. F-24 12. Pro Forma Consolidated Financial Information - Unaudited: As described in Note 1, Solitario acquired 100% of the outstanding common stock of Altoro (the "Transaction"). Subsequent to the Effective date and as a result of the Transaction, Crown has been accounting for its interest in Solitario under the equity method. Accordingly the accompanying consolidated statements of operations do not include any revenue or expense of Solitario after the Effective Date. The pro forma results, assuming the transaction occurred January 1, 1999 are as follows: Year ended December 31, (in thousands) 2000 1999 Revenues $ 232 $ 276 Net loss $2,795 $9,049 Basic and diluted loss per share $ 0.19 $ 0.62 As described in Note 1, Crown filed its Petition for Bankruptcy on March 8, 2002. Accordingly, the Balance Sheet as of December 31, 2001 does not include any adjustment for (i) the release of cash held in escrow, (ii) the payment of $1,000,000 in cash along with the issuance of $2,000,000, in Secured Notes and $4,000,000 of Unsecured Notes in exchange for $15,000,000 of Debentures, plus any accrued interest or (iii) the 1 for 5 reverse split. The pro forma balance sheet, assuming the Plan had been confirmed by the Court as of December 31, 2002 is as follows:
Balance sheet as of December 31, 2001 As Pro (in thousands) Reported Adjustments Forma Assets Cash $ 110 $ 2,263 $ 2,373 Escrowed cash 3,263 (3,263) - Other current assets 181 - 181 Total current assets 3,554 (1,000) 2,554 Other assets 17,711 - 17,711 Total assets $21,265 $ (1,000) $20,265 Liabilities and stockholders' equity Debentures $15,000 $(15,000) $ - Accrued interest, debentures 738 (738) - Convertible secured notes payable 3,234 (3,234) - Other current liabilities 295 - 295 Total current liabilities 19,267 (18,972) 295 Other liabilities 148 9,234 9,382 Stockholders' equity Common stock 146 (117) 29 Paid in capital 35,348 117 35,465 Retained earnings (33,644) 8,738 (24,906) Total stockholders' equity 1,850 8,738 10,588 Total liabilities and Stockholders' equity $21,265 $ (1,000) $20,265 Common shares outstanding 14,553 (11,642) 2,911
F-25 13. Selected Quarterly Financial Data (Unaudited):
(in thousands) 2001 2000 March June Sept. Dec. March June Sept. Dec. 31, 30, 30, 31, 31, 30, 30, 31, Revenues $ 222 $ 5 $ 2 $ 19 $ 190 $5,955 $ 187 $ 69 Net income (loss) $ (370)$ (665)$(1,213)$ (900) $ (813)$1,493 $ (446)$(1,893) Basic and diluted Loss per share $(0.03)$(0.04)$ (0.08)$(0.07) $(0.06)$ 0.10 $(0.03)$ (0.12)
The above quarterly data for 2000 do not reflect any pro forma adjustments to give effect to the deconsolidation of Solitario as disclosed in Note 1 and 11. F-26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. PART III Item 10 Directors and Executive Officers of the Registrant Directors The Board currently consists of four Directors. Crown has not scheduled an Annual Meeting in light of the Bankruptcy filed on March 8, 2002 and the related Plan. The Plan contemplates the appointment of six Directors; Mr. Herald, Mr. Jones, Mr. Webster, Mr. Labadie, Mr. Parker and Mr. Shorr, to serve for a one-year period. Following the one-year period, Directors appointed will serve until the next Annual Meeting of Shareholders and or until their successors are elected and qualified. The Directors contemplated to be appointed by the Plan and the current Directors are: Mark E. Jones, III. Mr. Jones, age 62, has been a Director and the Chairman of the Board of Crown since it commenced operations in February 1989. He was Chief Executive Officer of Crown from February 1989 until July 1993. He was President of Crown from September 1989 to November 1990. Mr. Jones is also Chairman of Solitario Resources Corporation ("Solitario"), a 41.3 percent-owned subsidiary of Crown that is engaged in exploration and development of properties in South America. Mr. Jones also serves as Chairman of Star Resources Corporation, a diamond exploration company. Christopher E. Herald. Mr. Herald, age 48, has been a Director of Crown since April 1989. He has served as Chief Executive Officer of Crown since June of 1999 and President of Crown since November 1990 and was Executive Vice President of Crown from January 1990 to November 1990. Mr. Herald also serves as Chief Executive Officer and a director of Solitario. Linder G. Mundy. Mr. Mundy, age 74, has been a Director of Crown since its inception. Since 1985, Mr. Mundy has been a private business consultant. David R. Williamson. Mr. Williamson, age 60, has been a Director of Crown since September 1989. In 1989 he founded David Williamson Associates Ltd., which undertakes research and consulting for the mining industry. He also serves as a director of Crew Development Corporation, Cornucopia Resources Ltd., and Asia Pacific Resources, all mining and exploration companies. Brian Labadie. Mr. Labadie, age 49, has over twenty- five years experience in the mining industry including the last five years as Senior Vice President of Operations with Miramar Mining Corporation. Prior to that, Mr. Labadie spent nine years with Echo Bay Mines, Ltd. as Vice president of Operations, including full operational and management responsibility for the Kettle River Mine in Republic, Washington. Mr. Labadie holds a Bachelor of Science degree in geological engineering from the University of Toronto. F. Gardner Parker. Mr. Parker, age 59, is managing trustee with Camden Property Trust, a New York Stock Exchange REIT. He also serves as Chairman of the Board of Computer Control Systems, Overpar, Inc., a real estate management company, and OHA General Partners, a privately held fiduciary. Mr. Parker is a director of Gilman Auto Dealerships, Associated Building Services, Net Near U. Communications, MCS Technologies, Camp Longhorn, nii Communications, and Arena Power. Mr. Parker owns interests in real estate holdings throughout the State of Texas. Mr. Parker received his CPA and worked for Ernst and Young (formerly Ernst and Ernst) for fourteen years, seven of which were as partner. Mr. Parker is a graduate of the University of Texas. Ronald Shorr. Mr. Shorr, age 64, is a mining consultant. He has been a senior mining analyst for Bear Stearns, the Natwest Bank, and Morgan Stanley Dean Witter. He has served as COO and CFO of a mining company. Mr. Shorr is a Chartered Financial Analyst (CFA). He graduated from the University of Michigan and Harvard Business School and attended graduate mining school at Columbia University. Steven A. Webster. Mr. Webster, age 50, was a Director of Crown from the time it commenced operations until June 2001 when he did not stand for re-election. Mr. Webster is managing director of Global Energy Partners, an affiliate of Donaldson Lufkin and Jenret's merchant banking group; is chairman of Carrizo Oil & Gas, Inc., an oil exploration company; is a trust manager of Camden Property Trust, a real estate investment trust; is a director of Grey Wolf, Inc., a land rig contractor; and is a director of Geokinetics, Inc., a geophysical company. Directors' Compensation Directors who are not employees of Crown are reimbursed for their expenses incurred in attending Board meetings. Directors have received options to purchase Common Stock granted under Crown's 1988 Stock Benefit Plan (the "1988 Plan"), and the 1991 Plan (the "1991 Plan"), however the ten year life of both the 1988 Plan and the 1991 Plan have expired and no new options may be granted from either plan. All options, under both plans, terminate after five years from date of grant if not earlier exercised. Under the 1991 Plan, the Board of Directors could (a) grant incentive stock options to any non-director employee of Crown or to any non-director employee of any parent or subsidiary of Crown; (b) grant options other than incentive stock options (i.e. non-qualified stock options) except that members of the Board of Directors were eligible only to receive formula grants of non-qualified stock options. Each Director who is not an employee automatically received an award of a non-qualified stock options covering 10,000 shares of Crown Common Stock on February 28 each year; (c) grant stock appreciation rights or cash bonus rights; (d) award stock bonuses; and (e) grant stock purchase rights and sell stock subject to restrictions. All options granted to Directors under the 1991 Plan have an exercise price equal to the fair market value of Crown's Common Stock on the date of grant and they are exercisable from and after the date of grant. The Board of Directors reserved 1,500,000 shares of Common Stock for grants under the 1991 Plan. Currently, 1,116,251 shares remain available for issue under the 1991 Plan; of these, options for 1,109,150 shares have been granted and options for 7,101 share are available for grant. The Board of Directors reserved 1,500,000 shares of Common Stock for grants under the 1988 Plan. The 1988 Plan had a ten-year term and no additional grants of options may be made under the 1988 Plan. Currently no shares remain available for issue pursuant to the 1988 Plan. Meetings of Board of Directors and Committees During the fiscal year ended December 31, 2001, there were three meetings of the Board. Each of the incumbent Directors attended at least 75 percent of the aggregate of the total number of meetings of the Board held while they served as a Director and the total number of meetings held by all committees of the Board on which they served, except for David Williamson, who attended 25 percent of the meetings. All of the references to meetings exclude actions taken by written consent. The Board has an Audit Committee consisting of Directors, Messrs. Mundy and Herald. The Audit Committee operates under a written charter adopted by the Board, a copy of which has been filed with the SEC and is available for review at Crown's offices. The Audit Committee has the responsibility, among other things, to: (i) recommend the selection of Crown's independent public accountants; (ii) review the preparation and scope of the annual audit of Crown and the extent of non- audit services; (iii)review with management the independent auditors' report and the recommendations of the independent auditors; (iv) review litigation and other legal matters that may affect Crown's financial condition; (v) recommends the inclusion of the audited financial statements in the Annual Report on form 10-K. The Audit Committee met twice during the fiscal year ended December 31, 2001. The Audit Committee's report is set forth below. AUDIT COMMITTEE REPORT In performing its duties, the Audit Committee reviewed and discussed the audited financial statements contained in the 2001 Annual Report on Form 10-K with management. The Audit Committee met with Deloitte and Touche, LLP, and discussed any issues deemed to be significant by Deloitte and Touche, LLP, including any matters required by Statement of Auditing Standard No. 61 (Communications with Audit Committees). In addition, the Audit Committee discussed with Deloitte and Touche, LLP its independence from Crown and its management, and has received the written disclosures and letter from Deloitte and Touche, LLP that stated it is independent of Crown within the meaning of US Securities laws. During 2001, Crown paid Deloitte and Touche, LLP $48,000 in audit fees including reviews of Crown's Quarterly Filings on Form 10-Q. In reliance on the reviews and discussions outlined above, the Audit Committee has recommended to the Board that Crown include the audited financial statements in its Annual Report under Form 10-K for the year ended December 31, 2001. Christopher E. Herald Linder G. Mundy The Board also has a Compensation Committee, however the committee did not meet during the year. Mr. Mundy and Mr. Williamson hold the positions of non-employee directors. The Compensation Committee is responsible for reviewing and approving executive compensation and administering Crown's stock option programs. The Board does not have a nominating committee or other committee performing similar functions. Executive Officers: The executive officers are listed Part I, Item 4 of this report. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires Crown's Directors and executive officers, and persons who own more than ten percent of a registered class of Crown's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of Crown. Officers, Directors, greater than ten percent shareholders are required by SEC regulation to furnish Crown with copies of all Section 16(a) forms they file. To Crown's knowledge, based solely on review of the copies of such reports furnished to Crown and written representations that no other reports were required, during the fiscal year ended December 31, 2001, all Section 16(a) filing requirements applicable to officers, Directors, and greater than ten percent beneficial owners were complied with. Item 11. Executive Compensation Report of the Compensation Committee Overview and Philosophy. The Compensation Committee of the Board is composed of Mr. Mundy and Mr. Williamson, independent non-employee directors. The Compensation Committee is responsible for reviewing and approving executive compensation and administering Crown's stock option programs. Following review and approval by the Compensation Committee, all issues pertaining to executive compensation are submitted to the full Board for approval. The policy of the Compensation Committee in determining executive compensation is that such compensation should (i) reflect Company performance, (ii) reward individual performance, (iii) align the interests of the executives with the long-term interests of the shareholders and (iv) assist Crown in attracting and retaining key executives critical to the long-term success of Crown. Executive Officer Compensation Program. The major elements of the executive compensation program during 2001 consisted principally of base salary, bonuses, and Crown's stock option plans, which reward executives for delivering value to Crown shareholders as measured by increases in the Common Stock price and performance of Crown's share price relative to its industry peer group. During 2000, Crown entered into change-in-control agreements with Mr. Herald, Mr. Jones and Mr. Maronick. These contracts provide for the payment of between one-and-a-half times and two-and-a-half- times salary in the event of a change in control of Crown. Base Salary. Base salaries of executive officers are established annually, at the beginning of each year. The Compensation Committee reviews the responsibilities, experience, performance of the executive officers, basing its approval of base salary levels and changes thereupon on these and other factors, including the competitive marketplace and Crown's budget considerations. Due to budget considerations, there were no salary increases granted to executive officers during 2001. Bonuses. Bonuses are granted to executive officers at the discretion of the Board. During 2001, bonuses were paid to certain salaried employees in amounts equal to six percent of annual base pay. A portion of some of the bonuses were paid in the form of shares of Crown's common stock. Stock Option Plans. The shareholders have approved Crown's stock option plans. The Board granted stock options during 2001 to certain eligible employees including the Named Executive Officers pursuant to the 1991 Plan. The objectives of both the 1988 Plan and the 1991 Plan are to align executive and shareholder long-term interests by creating a direct link between executive pay and shareholder return, as well as provide long-term incentives to the executive. The ten-year life of the 1991 Plan ended during 2001 and no further options will be granted pursuant to the 1991 Plan. Non-qualified stock options were granted under the 1991 Plan to non-director executive officers at an option price not less than the average price for the five business days immediately preceding the date of grant. Such non-qualified stock options were 25 percent vested upon date of grant and vest an additional 25 percent each year so that they were 100 percent vested after three years. The Board grants such options annually. Executive officers who are also members of the Board were eligible only to receive formula grants of non-qualified stock options under the 1991 Plan. Such executive officers are entitled to receive automatically, on February 28 of each year, an award of stock options calculated by dividing the executive officer's annual base compensation rate on the grant date by three. All such options were granted at a price equal to the fair market value of Crown's Common Stock on the date of the grant. All options granted to executive officers terminate after five years from date of grant if not earlier exercised. On June 5, 1999 and on June 19, 1998 the Board of Directors, voted to reprice all existing stock options, held by current officers, Directors and employees to $1.75, and to $4.06, respectively, which was the then current market price of the stock. The Board believed the worldwide declines in metals prices over the prior two years and the ongoing difficulties faced in the permitting of the Crown Jewel Project had a significant impact on Crown's stock price and that the beneficial work of Crown's management in a difficult environment, which included the positive action taken by the President and Congress in getting the approval of the Crown Jewel Project Plan of Operations, was not reflected in the stock price. Crown's management and employees had not been given an increase in salaries for the last six years. The directors of Crown receive no compensation for their services, other than their stock options. The Board recognized the efforts of Crown's management and employees and believed that the retention of existing personnel and recruitment of new personnel require the use of stock options. Accordingly, the Board felt a repricing of existing stock options in both years, to the then current market level, was warranted for past service and as an incentive for future performance. The total number of stock options repriced in 1999 was 1,559,775, which included 507,500 stock options from the 1988 Plan and 1,052,275 stock options from the 1991 Plan. The total number of stock options repriced was 1,276,841, which included 523,250 stock options from the 1988 Plan and 753,591 stock options from the 1991 Plan. Change in Control Agreements. During June 2000, Crown signed Change in Control agreements (the "Agreements") with Mr. Herald, Mr. Jones and Mr. Maronick (the "Named Executives"). The Board recognized the benefit to Crown to foster continued employment of key management personnel. In this connection, the Board recognized that, as is the case with many publicly held corporations and their subsidiaries, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of Crown and its stockholders. A Change in Control is deemed to have occurred if: (a) Any person is or becomes the beneficial owner of securities representing 20% of the voting power of Crown; or (b)the shareholders of Crown approve a merger other than a merger where at least 80% of the combined voting power of Crown securities in the surviving entity were represented by the combined voting power before the merger; or (c) the shareholders of Crown approve the sale of all or substantially all of the assets of Crown; or (d) the approval by the shareholders of Crown of any plan of liquidation or dissolution of the Company. The Agreements will remain in effect during the employment of the Named Executives, however, if a Change in Control shall have occurred during the term of the Agreements, the Agreements shall remain in effect for a period of three years beyond the month in which the Change in Control occurred. The Agreements provide no benefits unless there shall have been a Change in Control. In the event that following a Change in Control, the Corporation terminates the employment of the Named Executive, other than for Cause, or , the Named Executive resigns from his employment for Good Reason, the Agreements provide for the payment of two and one- half times the annual salary of Mr. Jones and Mr. Herald and for the payment of one and one-half times the annual salary of Mr. Maronick. Cause is defined as: (a) conviction of a felony; or (b) gross and willful failure of the Named Executive to perform his duties; or (c) dishonest conduct, which is intentional and materially injurious to Crown. Good Reason is defined as: (a) a reduction in the level of responsibility; or (b) a reduction in compensation; or (c) forced relocation to another geographic location; or (d) failure to maintain substantially similar employment terms. In February 2002, the Agreements were amended so that any action taken in connection with the Plan filed in connection with the Bankruptcy would not be deemed a change in control, as defined. 401(k) Plan. In 1990 Crown adopted the Crown Resources Corporation 401(k) Plan ("401(k) Plan"), a defined- contribution plan covering all full-time employees, including the Named Executive Officers. The 401(k) Plan provides for Company matching, at the rate of 75 percent, of employee savings contributions up to nine percent of annual compensation, subject to ERISA limitations. Company contributions are subject to vesting percentages of 25 percent after one year of vesting service, increasing annually by 25 percent, such that all amounts are fully vested after four years of vesting service. Plan participants may direct the investment of contributions in any of several different funds, including a government securities fund and various debt and equity funds. Compensation of the Chief Executive Officer. Mr. Herald's compensation for 2001 was based upon the established compensation policies described above. In establishing Mr. Herald's base salary, the Board evaluated the competitive standing of Crown as measured by criteria such as market capitalization, potential ounces of annual gold production, proven gold reserves, and stock performance. The Board also considered the duties, responsibilities, and performance of Mr. Herald in his capacity as Chief Executive Officer of Crown and executive pay rates of peer group companies. Mr. Herald's 2001 salary and performance incentives reflect his responsibilities in directing the day-to-day activities of Crown and its subsidiaries. Mr. Herald's salary arrangement and performance incentives will continue to be evaluated by the Board periodically. During 2001, Mr. Herald received a bonus of a cash payment of $7,218.75. The stock options granted to Mr. Herald during fiscal 2001 were granted in accordance with the formula in the 1991 Plan. COMPENSATION COMMITTEE Linder Mundy, Chairman David A. Williamson Summary Compensation Table The following table sets forth the compensation paid by Crown during each of the last three fiscal years to its Chief Executive Officer and each of the next most highly paid executive officers whose cash compensation exceeded $100,000 during the fiscal year ending December 31, 2001 (the "Named Executive Officers"):
Long-Term Annual Compensation Compensation All Awards Other Salary Bonuses Options Compensation Name and Principal Position Year ($) ($) (#) ($) Christopher E. Herald, CEO 2001 144,375 7,218 48,125(1) 8,220 (15) 2000 144,375 8,663(3) 48,125(1) 9,956(2) 1999 144,375 8,663(6) 48,125(1) 9,931(8) 219,375(12) 145,000(5) 68,000(5) 70,000(14) Mark E. Jones, III, Chair. 2001 98,175 4,909 32,175(1) 7,532 (16) 2000 98,175 4,909 32,175(1) 9,509(16) 1999 98,175 4,909 32,725(1) 11,168(16) 205,900(12) 135,000(5) 68,000(5) 80,000(14) James R. Maronick, CFO 2001 100,000 5,000 35,000(1) 6,960 (11) 2000 100,000 6,000(4) 30,000(1) 6,968(11) 1999 100,000 6,000(9) 30,000(1) 6,933(11) 95,000(12) 70,000(5) 44,000(5) 50,000(14)
(1) Granted under Crown's 1991 Plan. See "Option Grants in Last Fiscal Year." (2) Includes $7,875 in fully-vested employer matching contributions to 401(k) Plan. (3) Includes 3,300 shares of common stock, valued at a market price of $1.75 per share, issued as a bonus. Includes 2,286 shares of common stock, valued at a market price of $1.75 per share, issued as a bonus. (4) Options to acquire Solitario common stock, granted under the Solitario 1994 Stock Option Plan. (5) Includes 3,080 shares of common stock, valued at a market price of $2.81 per share, issued as a bonus. (6) Includes 2,118 shares of common stock, valued at a market price of $3.69 per share, issued as a bonus. (7) Amount includes $7,500 in fully-vested employer matching contributions to 401(k) Plan. (8) Includes 2,133 shares of common stock valued at a market price of $2.81 per share, issued as a bonus. (9) Includes 1,467 shares of common stock, valued at a market price of $3.69 per share, issued as a bonus. (10) Amount includes $6,750 in fully-vested employer matching contributions to 401(k) Plan. (11) Amount includes shares of the 1991 and 1988 Plans repriced by the Board on June 5, 1999 to $1.75. (12) Amount includes shares of the 1991 and 1988 Plans repriced by the Board on June 19, 1998 to $4.06. (13) Amount includes shares of the 1994 Solitario Plan repriced by Solitario on March 16, 1999 to Cdn$1.16. (14) Amount includes $7,875 in fully-vested employer matching contributions to 401(k) Plan. (15) Amount includes $6,625 in fully-vested employer matching contributions to 401(k) Plan. Options The following tables set forth for the fiscal year ended December 31, 2001 contain certain information regarding options granted to, exercised by, and held at year end by the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS Percent of Potential Realizable Total Value at Assumed Options Annual Rates of Granted Exercise Stock Price Options to Employees or Base Appreciation for Granted in Fiscal Price(2) Expiration Option Term (1) Name (#) Year ($/sh) Date 5%($) 10%($) Christopher E. Herald 48,125(2) 19.1% $0.26 2/28/2006 3,461 7,639 Mark E. Jones, III 32,725(2) 13.0% $0.26 2/28/2006 2,353 5,195 James R. Maronick 35,000(3) 13.9% $0.26 2/28/2006 2,517 5,556
(1) Potential realizable value is based on an assumption that the stock price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant, until the end of the five-year option term. These numbers are calculated based on the requirements promulgated by the SEC and do not reflect Crown's estimate of future stock price growth. (2) The options granted are non-qualified stock options that vest and become exercisable upon date of grant. Such options are nonassignable and nontransferable except by will or by the laws of descent and distribution. All options terminate five years from date of grant. (4)The options granted are non-qualified stock options that vest and become exercisable over a four-year period, becoming fully vested on February 28, 2004. Such options are nonassignable and nontransferable except by will or by the laws of descent and distribution. Options not already exercisable may become exercisable upon mergers or changes in control of Crown, pursuant to the 1991 Plan. All options terminate five years from date of grant. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised Shares Value Options at Fiscal in-the Money Options Acquired on Realized Year-End (#) at Fiscal Year-End ($) Name Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable Mark E. Jones, III 0 0 205,900 0 0 / 0 (1) Christopher E. Herald 0 0 267,000 0 0 / 0 (1) James R. Maronick 0 0 110,000 45,000 0 / 0 (1)
(1) Value based on market price of $0.08 per share of Crown Common Stock at December 31, 2001, less the exercise price. TEN-YEAR OPTION/SAR REPRICINGS
Securities Years of underlying Market price of Exercise price original option number of stock at time of at time of New exercise term remaining Name Date options/SARs repricing or repricing or price ($) at date of repriced or amendment ($) amendment ($) repricing or amended (#) amendment Christopher E. Herald 6/05/1999 48,125(1) $1.75 $2.56 $1.75 4.8 48,125(1) $1.75 $4.06 $1.75 3.8 48,125(1) $1.75 $4.06 $1.75 1.8 75,000(2) $1.75 $4.06 $1.75 2.6 3/16/1999 70,000(3) Cdn$1.16 Cdn$2.25 Cdn$1.16 2.8 6/19/1998 48,125(1) $4.06 $4.19 $4.06 4.7 48,125(1) $4.06 $5.63 $4.06 2.7 75,000(2) $4.06 $5.75 $4.06 3.5 45,833(1) $4.06 $6.56 $4.06 0.7 Mark E. Jones, III 6/05/1999 32,725(1) $1.75 $2.56 $1.75 4.8 32,725(1) $1.75 $4.06 $1.75 3.8 65,450(1) $1.75 $4.06 $1.75 1.8 75,000(2) $1.75 $4.06 $1.75 2.6 3/16/1999 80,000(3) Cdn$1.16 Cdn$2.25 Cdn$1.16 2.8 6/19/1998 32,725(1) $4.06 $4.19 $4.06 4.7 65,450(1) $4.06 $5.63 $4.06 2.7 75,000(2) $4.06 $5.75 $4.06 3.5 62,333(1) $4.06 $6.56 $4.06 0.7 James R. Maronick 6/05/1999 30,000(1) $1.75 $2.63 $1.75 4.8 15,000(1) $1.75 $4.06 $1.75 3.8 30,000(1) $1.75 $4.06 $1.75 3.3 3/16/1999 50,000(3) Cdn$1.16 Cdn$4.40 Cdn$1.16 3.4 6/19/1998 15,000(1) $4.06 $4.30 $4.06 4.7 50,000(1) $4.06 $5.73 $4.06 4.2
(1) Options granted pursuant to the 1991 Plan. (2) Options granted pursuant to the 1988 Plan. (3) Options granted by Solitario pursuant to the 1994 Plan. COMPARATIVE STOCK PERFORMANCE The following performance graph compares the performance of Crown's Common Stock to the NASDAQ Stock Market Total Return Index, the S & P Gold Mining Index, and a six-company peer group for Crown's last five fiscal years. The graph assumes the value of the investment was $100 at December 31, 1995 and measures that investment at December 31 of each of the years shown. All dividends are assumed to be reinvested. The graph is presented pursuant to requirements of the SEC. The information contained in this graph is not necessarily indicative of future price performance. S & P Gold and Precious Metals Mining consists of Barrick Gold, Battle Mountain Gold, Echo Bay Mines, Homestake Mining, Newmont Mining, and Placer Dome, which are major gold producers. Peer Group consists of Alta Gold, Bema Gold, Canyon Resources, Glamis Gold, Metallica Resources, and Royal Gold. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information, as of March 20, 2002, with respect to the number of shares of Common Stock beneficially owned by each shareholder known by Crown to be the beneficial owner of more than five percent of the Common Stock, by all Directors, nominees for director, executive officers named in the Summary Compensation Table and all Directors, nominees for director and executive officers as a group. Except as noted below, each shareholder has sole voting and investment powers with respect to the shares shown. Unless otherwise indicated below, the address of each beneficial owner is 4251 Kipling St., Suite 390, Wheat Ridge, Colorado 80033.
Percent of Amount and Nature Name and Address of of Crown's Percent of Beneficial Owner Beneficial Ownership Common Stock The Equitable Life Assurance Society (1). . . . 1,000,000 6.9 City Place House, 55, Basinghall Street London EC2V 5DR Zoloto, LP (1)(2). . . . . . . . . . . . . . . 11,428,572 43.6 14701 St. Mary's Lane, Suite 800 Houston, TX 77079 Solitario Resources Corporation (1)(3) . . . . 6,114,285 29.2 James Capel (Nominees), Ltd.(1)(4) . . . . . . 1,428,571 8.8 Devon House, 12-15 Dartmouth St London SW1 H9BL Gary L. Blum (1)(5). . . . . . . . . . . . . . 1,142,857 7.1 3104 Oak Lane, Dallas, TX 75226 Gascoigne Trust (1)(6) . . . . . . . . . . . . 857,142 5.5 c/o Chantrey Vellacot DFK 10-12 Russell Square London, WC1 B5L Mark E. Jones, III (7) . . . . . . . . . . . . 130,900 0.9 Christopher E. Herald (8) . . . . . . . . . . . 378,843 2.5 Linder G. Mundy (9) . . . . . . . . . . . . . . 40,150 0.3 David R. Williamson (10). . . . . . . . . . . . 80,000 0.5 James R. Maronick (11). . . . . . . . . . . . . 170,886 1.1 All Directors, nominees for director, and executive officers as a group (9 persons) (2)(7)(12)(13) . . . . . . . . . 12,433,351 84.4
(1)Based upon information supplied to Crown by the shareholder. (2)Includes convertible Secured Notes due 2006 convertible into 5,714,286 shares and warrants for 5,714,286 shares. (3)Includes convertible Secured Notes due 2006 convertible into 3,714,285 shares and warrants for 2,400,000 shares. (4)Includes convertible Secured Notes due 2006 convertible into 714,285 shares and warrants for 714,286 shares. (5)Includes convertible Secured Notes due 2006 convertible into 571,428 shares and warrants for 571,428 shares. (6)Includes convertible Secured Notes due 2006 convertible into 428,571 shares and warrants for 428,571 shares. (7)Includes options to purchase 130,900 shares. (8)Includes options to purchase 192,500 shares and 7,640 shares owned by Mr. Herald's spouse of which Mr. Herald disclaims beneficial ownership. (9)Includes options to purchase 40,000 shares. (10)Includes options to purchase 40,000 shares and 40,000 shares owned by David Williamson Associates Ltd. (11)Includes options to purchase 160,000 shares. (12)Includes, in the aggregate, options to purchase 898,300 shares. (13)Includes convertible Secured Notes due 2006 and warrants held by Zoloto, LP. Mr. Webster is the managing partner of Zoloto, Ltd., the general partner of Zoloto, LP. Item 13. Certain Relationships and Related Transactions Zoloto, LP invested $2,000,000 in the Secured Notes. Mr. Webster is the managing partner of Zoloto, Ltd., the general partner of Zoloto, LP. Solitario invested $1,000,000 in the Secured Notes. Crown owns 41.2% of Solitario. See the Senior Note financing under Part I, Item 1 of this report. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Consolidated Financial Statements: Index on page 29 of this Report. 2. Exhibits. The exhibits as indexed on pages 37 through 40 of this Report are included as a part of this Form 10-K. (b) Reports on form 8-K: On October 19, 2001 Crown a report on form 8-K regarding Crown's receipt and acceptance of subscription agreements for the purchase of $3.2 million of convertible secured notes and warrants. Exhibit Number Description 3.1 Crown's Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4, Commission File No. 33- 25033 (the "1989 S-4 Registration Statement")). 3.2 Crown's Bylaws (incorporated by reference to Exhibit 3.2 to the 1989 S-4 Registration Statement). 3.3 Statement of Rights and Preferences of Series A Nonconvertible Preferred Stock (issued to a subsidiary) as filed with the Secretary of State, State of Washington, which forms part of Crown's Articles of Incorporation (incorporated by reference to Exhibit 3.3 to Crown's Form 10-K for the year ended December 31, 1989). 4.1 Form of Rights Agreement, dated as of July 25, 1995, between Crown and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to Crown's Form 8-K dated July 25, 1995). 10.1 1988 Stock Benefit Plan of Crown (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the Registration Statement). 10.2 1991 Stock Incentive Plan of Crown (incorporated by reference to Exhibit 10.13 to Crown Resources Corporation's Registration Statement on Form S-4 dated May 17, 1991, Commission file no. 33-40642 (the "1991 S-4 Registration Statement")). 10.3 Crown Jewel Venture Agreement, dated effective January 4, 1991, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc., and Newmont Gold Company (incorporated by reference to Exhibit 10.10 to the 1991 S-4 Registration Statement). 10.4 Agreement and Plan of Merger, dated April 16, 1991, between Crown Resources Corporation, Crown Resources Property Corporation and Judith Gold Corporation (incorporated by reference to Exhibit 2.1 to Crown's form 8-K dated April 16, 1991). 10.5 Mining Lease, dated September 1, 1987, between Judith Gold Corporation and Canyon Resources Corporation (incorporated by reference to Exhibit 10.14 to the 1991 S-4 Registration Statement). 10.6 Settlement Agreement, dated September 29, 1992, between Battle Mountain Gold Company, Crown Resource Corp. of Colorado, Keystone Surveys, Inc., and Spenst M. Hansen (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1992). 10.7 First Amendment to Mining Agreement, dated October 25, 1993, between Crown Resource Corp. of Colorado and United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michele Pereira (incorporated by reference to Exhibit 10.20 to Crown's Form 10-K for the year ended December 31, 1993). 10.8 Second Amendment to Mining Agreement, dated April 28, 1994, between Crown Resource Corp. of Colorado and United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michele Pereira (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended March 31, 1994). 10.9 Settlement Agreement, dated May 6, 1994, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company (incorporated by reference to Exhibit 10.2 to Crown's Form 10-Q for the quarter ended March 31, 1994). 10.10 Second Amendment to Crown Jewel Venture Agreement, dated April 27, 1994, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended June 30, 1994). 10.11 Agreement, dated September 8, 1994, between Crown Resource Corp. of Colorado and Pinon Exploration Corporation (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended September 30, 1994). 10.12 Stock Purchase Agreement, dated September 9, 1994, between Cyprus Gold Exploration Corporation and Crown Resource Corp. of Colorado, relating to the Shares of Capital Stock of Pinon Exploration Corporation (incorporated by reference to Exhibit 10.2 to Crown's Form 10-Q for the quarter ended September 30, 1994). 10.13 First Amendment to Agreement between Crown Resource Corp. of Colorado and Pinon Exploration Corporation (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1995). 10.14 Third Amendment to Mining Agreement between United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michael Pereira, as Beneficiaries of the Pereira Children's Trust and Crown Resource Corp. of Colorado (incorporated by reference to Exhibit 10.19 to Crown's Form 10-K for the year ended December 31, 1995). 10.15 Letter Agreement, dated December 24, 1996, between Cominco Peru s.r.l. and Mineral Los Tapados S.A. (incorporated by reference to Exhibit 10.18 to Crown's Form 10K for the year ended December 31, 1996). 10.16 Subscription Agreement and Warrant, dated February 27, 1997, between Crown Resource Corp. of Colorado and Solitario Resources Corporation subscribing for 1,500,000 units (a unit consisting of one share of common stock and one share purchase warrant) of Solitario Resources Corporation common stock (incorporated by reference to Exhibit 10.19 to Crown's Form 10-K for the year ended December 31, 1997). 10.17 Stock Purchase Agreement, dated February 23, 1998, between Crown Resources Corporation and The Equitable Life Assurance Society (incorporated by reference to Exhibit 10.1 to Crown's Form 8-K, dated February 27, 1998). 10.18 Restated Agreement, dated December 15, 1998 between Minera Los Tapados and Cominco, to amend the agreement dated December 24, 1996 (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.19 Letter Agreement, dated October 7, 1998 between Minera Los Tapados and Billiton Exploration and Mining Peru, B.V. regarding the exploration and development of Crown's Soloco property in Peru (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.20 Letter Agreement, dated January 22, 1999 between Minera Los Tapados and Placer Dome del Peru, S.A.C. regarding exploration and development of Crown's Yanacocha property in Peru (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.21 Stock Purchase Agreement dated February 2, 2000 between Newmont Peru Limited and Solitario Resources Corporation (incorporated by reference to Exhibit 10.21 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.22 First Amendment to Stock Purchase Agreement, dated April 26, 2000, between Newmont Peru Limited and Solitario Resources Corporation (incorporated by reference to Exhibit 10.22 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.23 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and Christopher E. Herald (incorporated by reference to Exhibit 10.23 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.24 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and Mark E. Jones, III (incorporated by reference to Exhibit 10.24 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.25 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and James R. Maronick (incorporated by reference to Exhibit 10.25 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.26 Arrangement Agreement between Altoro Gold Corp of Vancouver, B.C. and Solitario Resources Corporation to proceed with a merger by way of a Plan of Arrangement (incorporated by reference to Exhibit 2.1 to Crown's Form 8-K filed on November 9, 2000). 10.27 Termination agreement, dated July 23, 2001, between Battle Mountain Gold, Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company terminating the Crown Jewel Joint Venture Agreement and Amendments (incorporated by reference to Exhibit 10.27 to Crown's Form 10-Q for the quarter ended June 30, 2001). 10.28 Royalty Deed, dated July 23, 2001, given by Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources, U.S., Inc. to Battle Mountain Gold Company covering production of the first 1 million ounces of gold from the Crown Jewel Project (incorporated by reference to Exhibit 10.28 to Crown's Form 10-Q for the quarter ended June 30, 2001). 10.29 Form of Convertible Note Purchase Agreement and related exhibits dated October 19, 2001 whereby Crown issued $3.6 million in convertible secured notes, convertible into 10,485,714 shares of common stock and warrants which may be exercised into 10,485,714 shares of Crown common stock (incorporated by reference to Exhibit 10.29 to Crown's form 10-Q for the quarter ended September 30, 2001). 10.30 Disclosure Statement and Plan of Reorganization, including Exhibits, Files with the United States Bankruptcy Court on March 27, 2002 whereby holders of Crown's $15 million of Debentures would exchange on a pro-rata basis, their Debentures for $1 million in cash, $2 million in secured notes and $4 million in unsecured notes. Under the terms of the plan, Crown would undergo a 1 for 5 reverse split of its common stock. 18.1 Deloitte and Touche letter regarding change in accounting principle. 11 Statement regarding computation of per share earnings. 21 Subsidiaries of the registrant. 23.1 Consent of Deloitte & Touche LLP. 24 Powers of attorney. For the purpose of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended ("Act"), the registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the registrant's Registration Statement on Form S-8, Nos. 33-31754 (filed October 24, 1989) and 33-57306 (filed January 22, 1993). Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CROWN RESOURCES CORPORATION By: /s/ James R. Maronick James R. Maronick Vice President - Finance Date: April 1, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Christopher E. Herald Principal Executive April 1, 2002 Christopher E. Herald Officer and Director Chief Executive Officer /s/ James R. Maronick Principal Financial April 1, 2002 James R. Maronick and Accounting Officer Vice President - Finance /s/ Mark E. Jones, III * Mark E. Jones, III A majority of /s/ Linder G. Mundy * the Board of April 1, 2002 Linder G. Mundy Directors /s/ David R. Williamson * David R. Williamson * By:/s/ James R. Maronick James R. Maronick, Attorney-in-fact INDEX TO EXHIBITS Exhibit Number Description Page 3.1 Crown's Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4, Commission File No. 33- 25033 (the "1989 S-4 Registration Statement")). 3.2 Crown's Bylaws (incorporated by reference to Exhibit 3.2 to the 1989 S-4 Registration Statement). 3.3 Statement of Rights and Preferences of Series A Nonconvertible Preferred Stock (issued to a subsidiary) as filed with the Secretary of State, State of Washington, which forms part of Crown's Articles of Incorporation (incorporated by reference to Exhibit 3.3 to Crown's Form 10-K for the year ended December 31, 1989). 4.1 Form of Rights Agreement, dated as of July 25, 1995, between Crown and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to Crown's Form 8-K dated July 25, 1995). 10.1 1988 Stock Benefit Plan of Crown (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the Registration Statement). 10.2 1991 Stock Incentive Plan of Crown (incorporated by reference to Exhibit 10.13 to Crown Resources Corporation's Registration Statement on Form S-4 dated May 17, 1991, Commission file no. 33-40642 (the "1991 S-4 Registration Statement")). 10.3 Crown Jewel Venture Agreement, dated effective January 4, 1991, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc., and Battle Mountain Gold Company (incorporated by reference to Exhibit 10.10 to the 1991 S-4 Registration Statement). 10.4 Agreement and Plan of Merger, dated April 16, 1991, between Crown Resources Corporation, Crown Resources Property Corporation and Judith Gold Corporation (incorporated by reference to Exhibit 2.1 to Crown's form 8-K dated April 16, 1991). 10.5 Mining Lease, dated September 1, 1987, between Judith Gold Corporation and Canyon Resources Corporation (incorporated by reference to Exhibit 10.14 to the 1991 S-4 Registration Statement). 10.6 Settlement Agreement, dated September 29, 1992, between Battle Mountain Gold Company, Crown Resource Corp. of Colorado, Keystone Surveys, Inc., and Spenst M. Hansen (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1992). 10.7 First Amendment to Mining Agreement, dated October 25, 1993, between Crown Resource Corp. of Colorado and United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michele Pereira (incorporated by reference to Exhibit 10.20 to Crown's Form 10-K for the year ended December 31, 1993). 10.8 Second Amendment to Mining Agreement, dated April 28, 1994, between Crown Resource Corp. of Colorado and United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michele Pereira (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended March 31, 1994). 10.9 Settlement Agreement, dated May 6, 1994, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company (incorporated by reference to Exhibit 10.2 to Crown's Form 10-Q for the quarter ended March 31, 1994). 10.10 Second Amendment to Crown Jewel Venture Agreement, dated April 27, 1994, between Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended June 30, 1994). 10.11 Agreement, dated September 8, 1994, between Crown Resource Corp. of Colorado and Pinon Exploration Corporation (incorporated by reference to Exhibit 10.1 to Crown's Form 10-Q for the quarter ended September 30, 1994). 10.12 Stock Purchase Agreement, dated September 9, 1994, between Cyprus Gold Exploration Corporation and Crown Resource Corp. of Colorado, relating to the Shares of Capital Stock of Pinon Exploration Corporation (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1995). 10.13 First Amendment to Agreement between Crown Resource Corp. Of Colorado and Pinon Exploration Corporation (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 13, 1995). 10.14 Third Amendment to Mining Agreement between United States National Bank of Oregon, as Trustee for William Cord Pereira, Virginia Lee Pereira, Philip Kirk Pereira, Patrick Clay Pereira and Susan Michael Pereira, as Beneficiaries of the Pereira Children's Trust and Crown Resource Corp. of Colorado (incorporated by reference to Exhibit 10.19 to Crown's Form 10-K for the year ended December 31, 1995). 10.15 Letter Agreement, dated December 24, 1996, between Cominco Peru s.r.l. and Minera Los Tapados S.A. (incorporated by reference to Exhibit 10.18 to Crown's Form 10K for the year ended December 31, 1996). 10.16 Subscription Agreement and Warrant, dated February 27, 1997, between Crown Resource Corp. of Colorado and Solitario Resources Corporation subscribing for 1,500,000 units (a unit consisting of one share of common stock and one share purchase warrant) of Solitario Resources Corporation common stock (incorporated by reference to Exhibit 10.19 to Crown's Form 10-K for the year ended December 31, 1997). 10.17 Stock Purchase Agreement, dated February 23, 1998, between Crown Resources Corporation and The Equitable Life Assurance Society (incorporated by reference to Exhibit 10.1 to Crown's Form 8-K, dated February 27, 1998). 10.18 Restated Agreement, dated December 15, 1998 between Minera Los Tapados and Cominco, to amend the agreement dated December 24, 1996 (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.19 Letter Agreement, dated October 7, 1998 between Minera Los Tapados and Billiton Exploration and Mining Peru, B.V. regarding the exploration and development of Crown's Soloco property in Peru (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.20 Letter Agreement, dated January 22, 1999 between Minera Los Tapados and Placer Dome del Peru, S.A.C. regarding exploration and development of Crown's Yanacocha property in Peru (incorporated by reference to Exhibit 10.18 to Crown's Form 10-K for the year ended December 31, 1998). 10.21 Stock Purchase Agreement dated February 2, 2000 between Newmont Peru Limited and Solitario Resources Corporation (incorporated by reference to Exhibit 10.21 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.22 First Amendment to Stock Purchase Agreement, dated April 26, 2000, between Newmont Peru Limited and Solitario Resources Corporation (incorporated by reference to Exhibit 10.22 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.23 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and Christopher E. Herald (incorporated by reference to Exhibit 10.23 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.24 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and Mark E. Jones, III (incorporated by reference to Exhibit 10.24 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.25 Change in Control Agreement, dated June 19, 2000, between Crown Resources Corporation and James R. Maronick (incorporated by reference to Exhibit 10.251 to Crown's Form 10-Q for the quarter ended June 30, 2000). 10.26 Arrangement Agreement between Altoro Gold Corp of Vancouver, B.C. and Solitario Resources Corporation to proceed with a merger by way of a Plan of Arrangement (incorporated by reference to Exhibit 2.1 to Crown's Form 8-K filed November 9, 2000). 10.27 Termination agreement, dated July 23, 2001, between Battle Mountain Gold, Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources U.S., Inc. and Battle Mountain Gold Company terminating the Crown Jewel Joint Venture Agreement and Amendments (incorporated by reference to Exhibit 10.27 to Crown's Form 10-Q for the quarter ended June 30, 2001). 10.28 Royalty Deed, dated July 23, 2001, given by Crown Resources Corporation, Crown Resource Corp. of Colorado, Gold Texas Resources, U.S., Inc. to Battle Mountain Gold Company covering production of the first 1 million ounces of gold from the Crown Jewel project (incorporated by reference to Exhibit 10.28 to Crown's Form 10-Q for the quarter ended June 30, 2001). 10.29 Form of Convertible Note Purchase Agreement and related exhibits dated October 19, 2001 whereby Crown issued $3.6 million in convertible secured notes, convertible into 10,485,714 shares of common stock and warrants which may be exercised into 10,485,714 shares of Crown common stock (incorporated by reference to Exhibit 10.29 to Crown's Form 10-Q for the quarter ended September 30, 2001). 10.30 Disclosure Statement and Plan of Reorganization, including Exhibits, Files with the United States Bankruptcy Court on March 27, 2002 whereby holders of Crown's $15 million of Debentures would exchange on a pro-rata basis, their Debentures for $1 million in cash, $2 million in secured notes and $4 million in unsecured notes. Under the terms of the plan, Crown would undergo a 1 for 5 reverse split of its common stock. 11 Statement regarding computation of per share earnings. 18.1 Deloitte and Touche letter regarding change in accounting principle 21 Subsidiaries of the registrant. 23.1 Consent of Deloitte & Touche LLP. 24 Powers of attorney. Exhibit 11 CROWN RESOURCES CORPORATION Statement Re: Computation of Per Share Earnings (in thousands, except per share amounts)
December 31, December 31, December 31, 2001 2000 1999 Outstanding at beginning of year 14,553 14,540 14,521 Issued during the year - 13 19 Outstanding at end of year 14,553 14,553 14,540 Weighted average number of shares outstanding during the year 14,553 14,534 14,534 Net loss for year $ (3,148) $ (1,659) $(11,117) Basic and diluted loss per common share $ (0.22) $ (0.11) $ (0.76)
Exhibit 21 CROWN RESOURCES CORPORATION Schedule of Subsidiaries December 31, 2001 Crown Resource Corp. of Colorado (100%, incorporated in Colorado) Solitario Resources Corporation (formerly Crown Minerals Corp.) (41.2%- owned subsidiary of Crown Resource Corp. of Colorado, incorporated in Colorado) Crown Minerals Corporation (100%-owned subsidiary of Crown Resource Corp. of Colorado, incorporated in Colorado) Gold Texas Resources U.S., Inc. (100%, incorporated in Texas) Crownex Resources (Canada) Ltd. (100%, incorporated in British Columbia, Canada) Gold Capital Corporation (100%, incorporated in the state of Washington) Gold Texas Resources Ltd. (100%-owned subsidiary of Gold Capital Corporation, incorporated in British Columbia, Canada) Group Crown Exploration (100%, incorporated in Mexico City, Mexico) Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-31754 and 33-57306 of Crown Resources Corporation on Form S-8 of our report dated March 22, 2001, appearing in this Annual Report on Form 10-K of Crown Resources Corporation for the year ended December 31, 2001. DELOITTE & TOUCHE LLP Denver, Colorado April 1, 2002 57 33 37 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000, 1999 and 1998 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 CROWN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000 and 1999 42 50 56 58 60