This document is important and requires your immediate attention. If' you are in doubt about how to respond to the offer, you should consult with your investment dealer, stockbroker, lawyer or other professional advisor. Enquiries concerning the information in this document should be directed to New Island Resources Inc. at the e-mail address or toll-free number listed on the last page of' this Directors' Circular.
NEW ISLAND RESOURCES INC.
DIRECTORS' CIRCULAR
RELATING TO THE UNSOLICITED OFFER BY
ANACONDA MINING INC.
TO PURCHASE ALL OF THE OUTSTANDING COMMON SHARES OF
NEW ISLAND RESOURCES INC.
THE BOARD OF DIRECTORS OF NEW ISLAND IS CONSIDERING THE ANACONDA OFFER AND OTHER ALTERNATIVES THAT MAY BE AVAILABLE TO MAXIMIZE SHAREHOLDER VALUE. THIS DIRECTORS’ CIRCULAR CONTAINS NO RECOMMENDATION OF THE BOARD OF DIRECTORS AS TO WHETHER SHAREHOLDERS SHOULD ACCEPT OR REJECT THE ANACONDA OFFER. SHAREHOLDERS ARE ADVISED NOT TO DEPOSIT THEIR NEW ISLAND COMMON SHARES UNDER THE ANACONDA OFFER AT THIS TIME. THE BOARD INTENDS TO COMMUNICATE FURTHER WITH THE SHAREHOLDERS PRIOR TO THE EXPIRY TIME OF THE ANACONDA OFFER.
NOTICE TO NON-CANADIAN RESIDENTS
The Anaconda Offer is in respect of the securities of a Canadian issuer. While the issuer is subject to Canadian continuous disclosure requirements, shareholders should be aware that Canadian requirements are different from those of the United States and other non-Canadian jurisdictions.
The enforcement by non-Canadian shareholders of civil liabilities under the securities laws of the United States or other non-Canadian jurisdictions may be adversely affected by the fact that New Island Resources Inc. is incorporated in Canada, its officers and directors are residents of Canada, and its assets are located in Canada.
June 29, 2010
TABLE OF CONTENTS
NO RECOMMENDATION OF THE BOARD OF DIRECTORS 1
REASONS FOR THE RECOMMENDATION 1
BACKGROUND TO THE ANACONDA OFFER AND NEW ISLAND RESPONSE 1
ARRANGEMENTS OR AGREEMENTS REGARDING ANACONDA 2
ARRANGEMENTS OR AGREEMENTS REGARDING NEW ISLAND 2
OWNERSHIP OF SECURITIES OF NEW ISLAND 3
TRADING IN SECURITIES OF NEW ISLAND 4
ISSUANCES OF SECURITIES OF NEW ISLAND 4
OWNERSHIP OF SECURITIES OF ANACONDA 4
MATERIAL CHANGES IN THE AFFAIRS OF NEW ISLAND 4
PERSONS OR ASSETS EMPLOYED, COMPENSATED OR USED 4
APPROVAL OF THE DIRECTORS' CIRCULAR 5
SCHEDULE A GLOSSARY OF TERMS A1
FORWARD-LOOKING STATEMENTS
This Directors' Circular (the "Directors' Circular") contains forward-looking statements that are based on expectations and estimates. Forward-looking statements may be identified by the use of forward-looking terminology such as "believe", "intend", "may", "will", "expect", "estimate", "anticipate", "continue" or similar terms, variations of those terms or the negative of those terms. Statements that are not historical facts, including statements about New Island's beliefs and expectations, are forward-looking statements. These statements contain potential risks and uncertainties, and actual results may therefore differ materially. Except for ongoing obligations to disclose material information under applicable securities laws, New Island undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
Important factors that may affect these expectations include, but are not limited to: the risks associated with mining exploration; changes in the Canadian economy; changes in competition in New Island's markets; availability of future financing; and other factors discussed herein and those detailed from time to time in New Island's filings with the securities regulatory authorities in Canada. New Island shareholders should evaluate any forward-looking statements in light of these important factors.
DIRECTORS' CIRCULAR
This Directors' Circular is issued by the board of directors (the “Board of Directors”) of New Island Resources Inc. (“New Island”) in connection with the unsolicited offer (the “Anaconda Offer”) made by Anaconda Mining Inc. (“Anaconda”) to acquire all of New Island's outstanding common shares (the “New Island Shares”) on the basis of 0.3333 common shares of Anaconda (the “Anaconda Shares”) for every 1 for each New Island Share, upon the terms and subject to the conditions set out in the Anaconda Offer and accompanying circular of Anaconda dated June 11, 2010 (the “Anaconda Circular”). Reference is made to the "Glossary of Terms" annexed hereto as Schedule A for the definitions of certain terms used in this Directors' Circular.
All information provided in this Directors' Circular relating to Anaconda is derived from information contained in the Anaconda Circular and other information contained in public filings made by Anaconda with securities regulatory authorities in Canada or otherwise publicly made available by Anaconda. The Board of Directors does not assume any responsibility for the accuracy or completeness of such information or for any failure by Anaconda to disclose events that may have occurred or that may affect the significance or accuracy of any such information, which are unknown to New Island.
Unless otherwise indicated, all dollar amounts in this Directors' Circular are expressed in Canadian dollars.
NO RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors is not making a recommendation at this time with respect to acceptance or rejection of the Anaconda Offer. The Board of Directors advises Shareholders NOT TO TENDER to the Anaconda Offer until further communication is received from the Board.
The Board of Directors has retained Salman Partners Inc. (“Salman”) as its financial advisor to advise it with respect to the Anaconda Offer and the negotiations currently underway with Mountain Lake Resources Inc. (“Mountain Lake”) and to consider any other offers that may be presented for New Island or its assets or other transactions involving New Island that would provide greater value to Shareholders than the Anaconda Offer. It is expected that these processes will be ongoing for several weeks. There can be no assurance that any such offer or transaction will emerge.
NO NEED FOR IMMEDIATE ACTION
There is no need for Shareholders to do anything immediately. The Anaconda Offer remains open for acceptance until 5:00 p.m. (Toronto time) on August 3, 2010, unless extended or withdrawn.
The Board of Directors will communicate with Shareholders on a timely basis prior to the expiry of the Anaconda Offer.
REASONS FOR THE RECOMMENDATION
The Board of Directors needs time in order to permit Salman to complete its report and present its recommendations to the Board of Directors. Moreover, the Board of Directors continues to evaluate potential third parties, including Mountain Lake and to consider any other offers that may be presented for New Island or its assets or other transactions involving New Island. As previously disclosed on June 3, 2010, New Island and Mountain Lake executed a Letter of Intent (the “Mountain Lake LOI”) pursuant to which New Island and Mountain Lake are actively negotiating a potential transaction. The Board of Directors does not believe that it is in a position to make a recommendation with respect to the Anaconda Offer until Salman has delivered its recommendation, discussions with Mountain Lake have been concluded and the Board has assessed the Anaconda Offer against any alternative offers or transactions that may result from these discussions.
BACKGROUND TO THE ANACONDA OFFER AND NEW ISLAND RESPONSE
The following is a chronology of the principal events relating to the Anaconda Offer and New Island's response:
Prior Events
In April, 2010, New Island was in negotiations with Mountain Lake concerning the Mountain Lake LOI. In order to properly evaluate the proposed Mountain Lake LOI, the Board of Directors of New Island determined to explore what other strategic options were available to maximize shareholder value in New Island. As New Island and Anaconda collectively hold 100% of the interest in the Pine Cove property pursuant to an option and joint venture agreement (the “2003 Option Agreement”), the Board of Directors identified Anaconda as a potential acquiror. Currently, New Island holds a 70% interest in the Pine Cove Property and Anaconda holds a 30% interest. Should Anaconda attain commercial production, as such term is defined in the 2003 Option Agreement, Anaconda’s interest in the Pine Cove property will increase to 60% and New Island’s interest will decrease to 40%. The Board of Directors believed that, given the acrimonious relationship between New Island and Anaconda, and the potential claims of New Island against Anaconda related to Anaconda’s continuing failure to achieve commercial production at the Pine Cove property, Anaconda may be willing to pay a significant control premium to consolidate 100% of the interest in the Pine Cove property.
In early May, 2010, an independent director of New Island, spoke with the president of Anaconda and informed the president that the Board of Directors would be open to receiving an offer from Anaconda. On May 12, 2010, and again on May 14, 2010, the independent board member discussed the possibility of a merger with the president and chairman of the board of directors of Anaconda. The Board of Directors ultimately concluded that Anaconda appeared to be using the possibility of a merger as a negotiating strategy in an effort to settle ongoing arbitration between New Island and Anaconda. At that time, the independent board member informed Anaconda that New Island would not entertain any bid from Anaconda until the arbitration between the parties was settled.
On June 2, 2010, New Island and Anaconda settled the arbitration in question, and on June 3, 2010, New Island and Mountain Lake agreed to the terms of the Mountain Lake LOI.
June 2010
On June 11, 2010, Anaconda launched the Anaconda Offer by way of newspaper advertisements and delivered a copy of the Anaconda Circular to New Island’s transfer agent.
On June 16, 2010, the president of New Island formally requested by letter that Anaconda provide access to the Pine Cove property to an independent mining consultant retained by New Island to conduct a review of the Pine Cove property pursuant to New Island’s rights under the 2003 Option Agreement.
On June 17, 2010, the president of Anaconda responded and agreed in principle to allow New Island’s independent consultant access to the Pine Cove property, as is permitted pursuant to the 2003 Option Agreement. The president’s agreement was subject to certain terms as was contemplated by the 2003 Option Agreement.
After some correspondence between New Island and Anaconda, New Island and Anaconda agreed to the terms upon which the independent consultant would access the Pine Cove property on June 23, 2010.
At 4p.m. Newfoundland Daylight Time on June 22, 2010, Anaconda informed New Island that New Island would not be permitted access to the Pine Cove property until after the property has been commissioned.
On June 25, 2010, New Island finalized the retainer of its financial advisor, Salman.
ARRANGEMENTS OR AGREEMENTS REGARDING ANACONDA
No contract or arrangement or agreement has been made, or to the knowledge of the directors or officers of New Island is proposed to be made, between Anaconda and any of the directors or officers of New Island relating to any matter, including arrangements or agreements with respect to compensation for loss of office or as to their remaining in or retiring from office. No director or officer of New Island is a director or officer of Anaconda or of any subsidiary of Anaconda.
ARRANGEMENTS OR AGREEMENTS REGARDING NEW ISLAND
Except as set out below, no contract or arrangement or agreement has been made, or is proposed to be made, between New Island and any of the directors or officers of New Island pursuant to which a payment or other benefit is to be made or given by way of compensation for loss of office or as to their remaining in or retiring from office if the Anaconda Offer is successful.
Employment Agreements
In April 2007 employment contracts were put in place with respect to the services of the president/CEO, treasurer and corporate secretary and reported annually in the Company’s Information Circular to shareholders. Under the terms of these contracts, in the event of a change of control or change of Head Office outside the Province of Newfoundland and Labrador, within a two year period of such change, the CEO may elect to receive a payment of three times annual salary and the Treasurer and Corporate Secretary may elect to receive a payment of two times annual salary.
PRIOR VALUATIONS
To the knowledge of New Island and its directors, after reasonable enquiry, there have been no formal valuations prepared in respect of New Island, the New Island Shares or any material assets of New Island during the twenty-four months prior to the date of the Anaconda Offer.
MATERIAL CONTRACTS
Other than as may be set out in this Directors' Circular, none of the directors or officers of New Island or any of their associates, and to the knowledge of such directors and officers after reasonable inquiry, no person or company who owns more than 10% of any class of equity securities of New Island for the time being outstanding, has any interest in any material contract to which Anaconda is a party.
OWNERSHIP OF SECURITIES OF NEW ISLAND
The following table sets out the names and positions with New Island of each director and officer of New Island and the number, designation and percentage of outstanding securities beneficially owned, directly or indirectly, or over which control or direction is exercised by each such person and, where known after reasonable inquiry, by each associate or affiliate of New Island, any insider of New Island and such insider's associates or affiliates, and any person or company acting jointly or in concert with New Island.
|
|
|
Securities of New Island beneficially owned directly or indirectly |
|||
|
Name |
Position with New Island |
New Island Shares |
% of New Island Shares |
New Island Options |
% of New Island Options |
|
Sam Walters |
Chairman of the Board of Directors |
240,000 |
0.51% |
200,000 |
6% |
|
Harold Wareham1 |
President, CEO, director |
2,384,914 |
5.05% |
700,000 |
22% |
|
James P. O’Reilly |
Director |
20,000 |
0.04% |
550,000 |
17% |
|
Eric Jerrett |
Director |
112,500 |
0.24% |
600,000 |
18% |
|
Leo Power |
Director |
31,500 |
0.07% |
700,000 |
22% |
|
Lorna Coles |
Corporate Secretary |
160,187 |
0.34% |
150,000 |
5% |
|
Lisa Hodge2 |
Treasurer, Assistant Secretary & CFO |
945,000 |
2.00% |
150,000 |
5% |
|
|
|
|
|
|
|
|
1Harold Wareham |
Direct Indirect (Atlantis Corp.) Indirect (Atlantis Tech.) |
20,039 49,875 2,315,000 |
|
|
|
|
2Lisa Hodge |
Direct Indirect (Tolisco Ltd.) |
180,000 765,000 |
|
|
|
PRINCIPAL SHAREHOLDERS
As of June 29, 2010, to the best knowledge of New Island, no person beneficially owned, directly or indirectly, or exercised control or direction over, more than 10% of the New Island Shares.
TRADING IN SECURITIES OF NEW ISLAND
Except as set out below, during the six months preceding the date hereof, none of New Island, the directors, officers or other insiders of New Island or, to the knowledge of the directors and officers of New Island, after reasonable inquiry, any of their respective associates or affiliates or any person or company acting jointly or in concert with New Island, has traded any securities of New Island.
|
Name |
Nature of Transaction |
Date of Transaction |
Number of New Island Shares |
Price per New Island Share |
|
Newfoundland Goldbar Resources Inc. |
Disposal of loan security held by New Island |
May 5, 2010 May 5, 2010 May 11, 2010 May 26, 2010 June 4, 2010 |
366,000 200,000 600,000 122,000 200,000 |
$0.060 $0.055 $0.060 $0.060 $0.085 |
|
Atlantis Technologies Limited |
Disposal of loan security held by New Island |
March 20, 1020 April 5, 2010 |
250,000 250,000 |
$0.050 $0.050 |
ISSUANCES OF SECURITIES OF NEW ISLAND
No New Island Shares or other securities convertible or exchangeable into New Island Shares have been issued to the current directors or officers of New Island or other insiders of New Island during the two years preceding the date hereof.
OWNERSHIP OF SECURITIES OF ANACONDA
James P. O’Reilly, a director of New Island, currently holds 43,000 Anaconda Shares through a holding company he controls. No other directors or officers of New Island hold any stock in Anaconda.
Except for James P. O’Reilly, neither New Island nor any of the directors or officers of New Island or, to their knowledge after reasonable enquiry, any associate or affiliate of New Island, any insider of New Island or any such insider's associates or affiliates or any person acting jointly or in concert with New Island, owns, directly or indirectly, or exercises control or direction over, any securities of Anaconda.
MATERIAL CHANGES IN THE AFFAIRS OF NEW ISLAND
Except as otherwise described or referred to in this Directors' Circular, no other information is known to the directors or officers of New Island that indicates any material change in the affairs or prospects of New Island since March 31, 2010, the date of' New Island's most recent interim financial statements.
OTHER INFORMATION
Except as disclosed in this Directors' Circular, there is no information that is known to the directors and officers of New Island that would reasonably be expected to affect the decision of the holders of New Island Shares (or securities convertible into New Island Shares) to accept or reject the Anaconda Offer.
PERSONS OR ASSETS EMPLOYED, COMPENSATED OR USED
Salmon has been retained to render financial advisory services to the Board of Directors in connection with the analysis and consideration of, and response to, the Anaconda Offer. New Island will pay Salmon reasonable and customary compensation for its services and will reimburse Salmon for its reasonable out-of-pocket expenses. New Island has agreed to indemnify Salmon against certain liabilities arising out of or in connection with its engagement.
Except as set forth above, neither New Island nor any person acting on its behalf has employed, retained or agreed to compensate any person making solicitations or recommendations to New Island Shareholders in connection with the Anaconda Offer.
STATUTORY RIGHTS
Securities legislation in the provinces and territories of Canada provides security holders of the offeree issuer with, in addition to any other rights they may have at law, one or more rights of rescission, price revision or to damages, if there is a misrepresentation in a circular or notice that is required to be delivered to those security holders. However, such rights must be exercised within prescribed time limits. Security holders should refer to the applicable provisions of the securities legislation of their province or territory for particulars of those rights or consult a lawyer.
AVAILABILITY OF DOCUMENTS
New Island is a reporting issuer or equivalent in British Columbia, Newfoundland and Labrador and Alberta and files its continuous disclosure documents and other documents with the securities authorities of such provinces. New Island's continuous disclosure documents are available at www.sedar.com.
APPROVAL OF THE DIRECTORS' CIRCULAR
The contents of this Directors' Circular and the delivery thereof have been approved and authorized by the Board of Directors of New Island.
CERTIFICATE
June 29, 2010
The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made.
On behalf of the Board of Directors
(signed) Sam Walters (signed) Harold Wareham
Chairman of the Board of Directors President, Chief Executive Officer and Director
SCHEDULE A
GLOSSARY OF TERMS
The following provides the definition of certain terms used in this Directors' Circular.
"Anaconda" means Anaconda Mining Inc., a corporation incorporated under the Business Corporations. Act (Ontario), having its head office and principal place of business at 120 Adelaide Street W, Suite 2400, Toronto, ON M5H 1T1.
"Anaconda Circular" means the circular dated June 11, 2010, accompanying the Anaconda Offer.
"Anaconda Offer" means the unsolicited offer dated June 11, 2010 made by Anaconda to acquire all of the issued and outstanding New Island Shares.
"Anaconda Shares" means the common shares of Anaconda.
"Board of Directors" means the Board of Directors of New Island, consisting of Sam Walters, Harold Wareham, James P. O’Reilly, Eric Jerrett and Leo Power.
"Cox & Palmer" means Cox & Palmer, counsel to New Island.
"Directors' Circular" means this Directors' Circular dated June 29, 2010.
"New Island" means New Island Resources Inc., a corporation incorporated under the Business Corporations Act (Alberta), having its registered office at 1600 Bow Valley Square II, 205 - 5 Avenue S.W., Calgary, AB T2P 2V7.
"New Island Shareholders" means the holders of New Island Shares.
"New Island Shares”-. means the common shares of New Island.
Please direct all enquires to:
New Island Resources Inc.
Suite 602, 140 Water Street
St. John’s, NL A1C 6H6
Toll Free: 1-709-576-7711
Email: info@newislandresources.com
Facsimile: (709) 576-2236