BCSC

Decisions

BEAUCHAMPS EXPLORATION INC., et. al. [Decision]

BCSECCOM #:	Document Type: Decision
Published Date: 1996-08-02	Effective Date: 1996-07-29
Details:

COR#96/151

IN THE MATTER OF THE SECURITIES ACT
S.B.C. 1985, c. 83

AND

IN THE MATTER OF GEORGE STEPHEN SLIGHTHAM, PETER OLIVER TRANTER, MACKENZIE ILES WATSON, LESLIE ROBERT REDFORD AND MERVIN ERNEST WEBB

AND

IN THE MATTER OF BEAUCHAMPS EXPLORATION INC. AND BEAUFIELD CONSOLIDATED RESOURCES INC.

HEARING

PANEL:	JOYCE C. MAYKUT, Q.C.	VICE CHAIR
	ADRIENNE R. WANSTALL	MEMBER

DATES:

JUNE 5, 6 and 13, 1995

APPEARING:	DWIGHT C. HARBOTTLE	FOR COMMISSION STAFF

	LEON GETZ, Q.C.	FOR MACKENZIE ILES
		WATSON

	MITCHELL F. WELTERS	FOR LESLIE ROBERT REDFORD

	GREGORY T. CHU	FOR BEAUCHAMPS
		EXPLORATION INC. AND
		BEAUFIELD CONSOLIDATED
		RESOURCES INC.

DECISION OF THE COMMISSION

TABLE OF CONTENTS


INTRODUCTION
BACKGROUND
The Parties
Beauchamps-Beaufield Loans
Beauchamps-Slightham Loans
Beauchamps Management Fees
Beauchamps Shares Issued Without Full Consideration
Beaufield Management Fees
Beaufield Shares Issued Without Full Consideration
Exercise of Options to Purchase Beaufield Shares
Insider Reports
Slightham’s Agreed Statement of Facts
Redford’s Testimony


FINDINGS
Beauchamps
Beaufield
Tranter, Watson and Redford Duty of Directors under The Company Act
Tranter And Watson Insider Reports


DECISION
Beauchamps
Beaufield
Tranter
Watson
Redford

APPENDICES

A Summary of Information in Beauchamps’ Financial Statements

BSummary of Information in Beaufield’s Financial Statements

INTRODUCTION

This is a hearing under sections 144(1) and 144.1 of the Securities Act, S.B.C. 1985, c. 83. The notice of hearing was issued on February 24, 1995, and alleged that:

• Beauchamps Exploration Inc. and Beaufield Consolidated Resources Inc. implemented non-arms length transactions (intercompany loans, loans to a director, George Stephen Slightham, and payment of management fees to Slightham) without obtaining Vancouver Stock Exchange approval and without making the disclosure required by the Exchange and the Securities Act;
• Beauchamps and Beaufield made misrepresentations in disclosure documents required to be filed under the Securities Act;
• Beauchamps and Beaufield issued securities contrary to Exchange policy and for inadequate consideration, contrary to the Company Act, R.S.B.C. 1979, c.59;
• Slightham, Peter Oliver Tranter, Mackenzie Iles Watson and Leslie Robert Redford, as directors of both Beauchamps and Beaufield, and Mervin Ernest Webb, as a director of Beauchamps, failed to act honestly, in good faith and in the best interests of the companies, and to exercise the care, diligence and skill of a reasonably prudent person, contrary to the Company Act;
• Slightham and Tranter failed to file insider reports respecting their acquisitions and dispositions of the shares of Beauchamps and Beaufield, and Watson failed to file insider reports respecting his acquisitions and dispositions of the shares of Beaufield, contrary to the Securities Act; and
• Slightham traded in the shares of Beauchamps and Beaufield with knowledge of undisclosed material facts or material changes, contrary to the Securities Act.

The notice of hearing was accompanied by temporary orders under section 144(2) of the Securities Act that:

• all trading cease in the securities of Beauchamps and Beaufield for a period expiring on March 7, 1995;
• the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Securities Act do not apply to Slightham and Tranter for a period expiring on March 7, 1995;
• Slightham and Tranter resign any positions they hold as a director or officer of a reporting issuer and that they are prohibited from becoming or acting as a director or officer of a reporting issuer, or of any issuer that provides management, administrative, promotional or consulting services to a reporting issuer, for a period expiring on March 7, 1995; and
• Slightham file by March 7, 1995, all insider reports referred to in an order issued under section 146 of the Securities Act on July 28, 1994, that Slightham cease trading in the securities of Beauchamps and Beaufield.

The hearing was adjourned, and the temporary orders extended, twice by consent. On May 25, 1995, the Commission revoked under section 153 of the Securities Act the temporary order that all trading cease in the securities of Beauchamps and Beaufield. On June 2, 1995, Slightham and the Executive Director executed an Agreed Statement of Facts and Undertaking and the Executive Director ordered under section 144(1) of the Securities Act, with Slightham’s consent, that:

• the exemptions described in sections 30 to 32, 55, 58, 80 and 81 of the Securities Act do not apply to Slightham for a period of 25 years; and
• Slightham be prohibited from becoming or acting as a director or officer of any reporting issuer, or of any issuer that provides management, administrative or consulting services to a reporting issuer, for a period of 25 years.

Slightham also undertook to pay $30,000 to the Commission.

The hearing was held on June 5, 6 and 13, 1995. At the commencement of the hearing, Commission staff advised that they were not proceeding against Webb. Therefore, the remaining respondents are Beauchamps, Beaufield, Tranter, Watson and Redford.

BACKGROUND

THE PARTIES

Beauchamps was incorporated under the Company Act and is a reporting issuer and an exchange issuer under the Securities Act. During the period under consideration Beauchamps held interests in various mining properties and was in the process of determining whether those properties contained reserves that were economically recoverable. Its shares have been listed and posted for trading on the Exchange since November 10, 1987, and it is classified as a venture company by the Exchange. Its listing agreement with the Exchange was signed by Slightham and Redford. Trading in Beauchamps shares was halted by the Exchange on December 29, 1993, pending a reverse take over and remains halted. Also, Beauchamps is subject to an order of the Executive Director made pursuant to section 146 of the Securities Act on April 4, 1995, that all trading cease in the securities of Beauchamps for failure to file financial statements.

Beaufield was incorporated under the Company Act and is a reporting issuer and an exchange issuer under the Securities Act. Like Beauchamps, during the period under consideration Beaufield held interests in various resource properties and was in the process of determining whether those properties contained reserves that were economically recoverable. Its shares were listed and posted for trading on the Exchange until December 23, 1987. Beaufield’s shares traded on The Toronto Stock Exchange from April 28, 1987 until August 31, 1992, when it was suspended for failure to meet The Toronto Stock Exchange’s working capital requirements. Beaufield then delisted from The Toronto Stock Exchange and, on October 14, 1992, relisted on the Exchange, where it is classified as a venture company. Its current listing agreement with the Exchange was signed by Slightham and another director who is not a respondent in these proceedings.

Slightham was the president, chief executive officer and a director of Beauchamps from April 28, 1989 to February 27, 1995. He was the president and a director of Beaufield from September 15, 1980 to February 27, 1995. Until February 27, 1995, Slightham was the person primarily responsible for the management of the day to day activities of both Beauchamps and Beaufield.

Tranter was the secretary, chief financial officer and a director of Beauchamps from April 28, 1989 to February 24, 1995. He was a director of Beaufield from February 10, 1992 to February 24, 1995.

Watson was director of Beauchamps from May 3, 1991 to March 17, 1993. He was a director of Beaufield from February 13, 1987 to September 2, 1994. He had been a director of other companies prior to his involvement with Beauchamps and Beaufield and is a director of two other Exchange companies.

Redford was a director of Beauchamps from August 28, 1989 to August 31, 1993. He was a director of Beaufield from October 29, 1992 to August 31, 1993. He had been a director of other companies prior to his involvement with Beauchamps and Beaufield.

By a directors’ resolution dated April 21, 1993, Slightham, Tranter and Redford were appointed to the audit committee of Beauchamps for the following year. Beauchamps’ Information Circular of March 24, 1994, identified Slightham and Tranter as members of the audit committee. Slightham and Tranter signed all of Beauchamps’ financial statements, both the audited annual statements and the interim statements, from the statements for the year ended October 31 1990, to the statements for the quarter ended January 31, 1994.

Beaufield’s Information Circulars of January 23, 1990 and January 23, 1991, identified Slightham, Watson and John Murdoch as members of the audit committee. Beaufield’s Information Circulars of November 30, 1992 and December 15, 1993, identified Slightham, Watson and Tranter as members of the audit committee. Beaufield’s Information Circular of January 20, 1995, identified Slightham and Tranter as members of the audit committee. Slightham and Watson signed all of Beaufield’s financial statements from the interim statements for the quarter ended November 30, 1990, to the audited annual statements for the year ended August 31, 1991. Slightham and Tranter signed all the financial statements from the statements for the year ended August 31, 1992, to the statements for the year ended August 31, 1993, as well as the statements for the year ended August 31, 1994.

All of the financial statements referred to, as well as Beauchamps’ synoptic journal of cash receipts and disbursements for the period from November 1, 1990 to October 31, 1993, and Beaufield’s synoptic journal of cash receipts and disbursements for the period from September 1, 1990 to August 31, 1994, were reviewed by Arthur Andersen and Company, Chartered Accountants, at the request of Commission staff. The Arthur Andersen Report was submitted to Commission staff on May 18, 1995.

Tables summarizing the information contained in the financial statements for Beauchamps’ 1990 to 1993 financial years and Beaufield’s 1991 to 1994 financial years are set out in Appendices A and B.

BEAUCHAMPS - BEAUFIELD LOANS

Beauchamps’ financial statements show that Beaufield owed Beauchamps the following amounts at the end of each of the following financial years:

Year ended October 31	Amount owing from Beaufield to Beauchamps
1990	17,340
1991	61,420
1992	56,586
1993	42,369

There is a discrepancy between Beauchamps’ financial statements and synoptic journal with respect to these loans. The net increase in the amount due from Beaufield to Beauchamps between October 31, 1990 and October 31, 1993 is $25,029, as per Beauchamps’ financial statements, and $43,602, as per Beauchamps’ synoptic journal. This difference of $18,573 could not be accounted for by the Arthur Andersen Report.

There is no evidence of any documentation respecting the Beauchamps-Beaufield loans, such as a loan agreement or promissory note. Neither Beauchamps’ 1990 nor 1991 annual financial statements mention the interest or repayment terms. The 1992 and 1993 annual financial statements provide that the Beaufield loans bear interest at 8% and must be repaid within 18 months of when the money was advanced. However, the 1993 annual financial statements note that Beaufield is currently in default of its obligations.

In nine of the thirteen interim financial statements filed by Beauchamps between January 31, 1990 and January 31, 1994, Beauchamps was in a bank overdraft position. Beauchamps’ synoptic journal for this period reveals that Beauchamps regularly issued NSF cheques.

Beaufield’s financial statements for the years ended August 31, 1991 to 1993 do not disclose the amounts owing to Beauchamps.

On April 9, 1992, the Exchange sent a letter to Beauchamps, to the attention of Slightham, requesting details regarding the $61,420 due from Beaufield included in Beauchamps’ October 31, 1991 annual financial statements. The letter also reminds Beauchamps that all transactions with related parties require prior Exchange approval. Beauchamps did not respond to this letter.

On June 1, 1992, Beauchamps’ directors (Slightham, Tranter, Watson, and Redford) consented to a resolution ratifying any and all advances made by Beauchamps to Beaufield since Beauchamps’ date of incorporation and authorizing further advances to Beaufield, to a maximum of $100,000 in total, “as the directors, in their sole discretion may deem advisable under the circumstances” and “subject to such advances being, in the opinion of the President of the Company, in the best interests of the Company”. These advances were to be repaid within 18 months of each advance and bear interest at 8% per year. Slightham, Tranter and Watson were also directors of Beaufield on the date of the resolutions. Redford became a director of Beaufield some five months later, on October 29, 1992. This was the only directors’ resolution respecting the Beaufield loans.

We do not know what information, if any, was before the directors at the time of the resolution. The most recent financial statements available at that time were those for the quarter ended January 31, 1992. Those financial statements show that, apart from mining properties and deferred exploration expenditures of $265,685, Beauchamps’ only assets were $1,692 in cash, $76,120 in accounts receivable (presumably most of which was owing from Beaufield) and $62,255 owing from Slightham. Beauchamps’ liabilities totalled $94,872. During the quarter, Beauchamps had spent nothing on its mining properties.

On September 17, 1992, the Exchange sent a letter to Beaufield’s solicitor, Edward Bence, who was also the solicitor for Beauchamps, in connection with Beaufield’s application for listing on the Exchange. In the letter, the Exchange requests clarification of the $61,420 owing to Beauchamps and advises that prior Exchange approval is required for any future advances from or to Beauchamps, unless the advances are made in the normal course of business, such as pursuant to a joint venture arrangement. There is no evidence of a response to the letter.

Prior Exchange approval was not obtained for any of the advances and neither Beauchamps nor Beaufield issued a news release contemporaneous with any of the advances.

BEAUCHAMPS - SLIGHTHAM LOANS

Beauchamps’ synoptic journal discloses that, during its 1991 to 1993 financial years, Slightham received at least $365,505 in loans from Beauchamps and repaid approximately $370,752. There is a significant discrepancy between the amounts set out in the synoptic journal and those in Beauchamps’ financial statements.

Beauchamps’ financial statements show that Slightham owed Beauchamps the following amounts at the end of the following quarters:

Quarter ended	Amount owing from Slightham
	to Beauchamps

October 31, 1990	$ 60,692

January 31, 1991	149,316
April 30, 1991	102,881
July 31, 1991	110,664
October 31, 1991	93,303

January 31, 1992	62,255
April 30, 1992	38,755
July 31, 1992	79,780
October 31, 1992	1 ($118,050 written off)

January 31, 1993	127,632
April 30, 1993	184,654
July 31, 1993	168,591
October 31, 1993	-

On March 4, 1991, Slightham signed a note confirming that he owed Beauchamps $121,092 and that it would be repaid in the following year. In a resolution dated April 29, 1991, Tranter, Webb, and Redford (Slightham abstained) consented to a directors resolution which stated that:

the Directors have determined that it is in the best interests of the Company to make advances to the President from time to time and/or to borrow money from the President from time to time provided that such advances are not used by the President for the purpose of purchasing shares in the capital stock of the Company or for any other illegal purpose;

The directors also resolved, among other things, that:

1. Any and all advances made by the Company to the president since the date of incorporation of the Company be and are hereby ratified, confirmed and approved as having been made in the best interests of the Company.

2. The outstanding balance owed by the President to the Company of $72,000 as of the date hereof shall be repaid by the President on or before the end of the eighteenth month following the month in which these resolutions are passed, such outstanding amounts to bear interest at the rate of 10% per annum compounded annually not in advance from the date hereof until the date the said amounts have been repaid in full.

3. The Company make such further advances to the President as the Directors, in their sole discretion, may deem advisable subject to a maximum total amount of $100,000 inclusive of the sum of $72,000 currently owed by the President to the Company. Such further advances shall also be repayable at the end of the eighteenth month following the month in which such advances were made and shall bear interest at a rate of 10% per annum compounded annually not in advance from the date such advances are made to the date they are repaid in full.

The most recent financial statements available at the time of the resolution were those for the quarter ended January 31, 1991. Those financial statements show that, apart from mining properties and deferred exploration expenditures of $559,388, Beauchamps’ only assets were $174 in cash, $16,820 in accounts receivable (presumably most of which was owing from Beaufield) and $149,316 owing from Slightham. Beauchamps’ liabilities totalled $11,419, including a bank overdraft of $1,589. During the quarter, Beauchamps’ only activity was the acquisition of an interest in some mineral claims for $5,000 and 75,000 Beauchamps shares.

Beauchamps’ financial statements for the six months ended April 30, 1991, show a balance owing from Slightham to Beauchamps of $102,881, an amount over the $100,000 maximum set in the resolution made the day before.

On May 15, 1992, the Exchange sent a letter to Beauchamps, to the attention of Slightham, noting that Beauchamps’ October 31, 1991 annual financial statements show $93,303 owing from Slightham and requesting details as to the use of the funds and whether that use related to Beauchamps’ business. The letter also reminds Beauchamps that all loans or advances made by or to a listed company require prior Exchange notification and approval. Finally, the letter notes that Beauchamps and Beaufield share offices and routinely pay each other’s bills; the letter advises that there is a possible breach of the Company Act and that the companies must keep separate books. There is no evidence of a response to the letter.

On June 22, 1992, Bence sent a letter to Slightham as President of Beauchamps, reminding him that Beauchamps is required to notify, and obtain prior approval from, the Exchange of any loans or advances of funds to any person and of any non-arm’s length transactions. Bence specifically notes that both Slightham and Beaufield are prohibited from borrowing further funds from Beauchamps without complying with Exchange requirements. There is no evidence of a response to the letter.

Beauchamps’ October 31, 1992 annual financial statements show $1 as due from a director and include a provision for loss on loan due from a director of $118,050. The notes to the financial statements state that outstanding advances of $118,049 to Slightham bear interest at 10% and have to be repaid within 18 months of when they were advanced. The notes conclude that the “directors cannot determine if the loan will be recovered and accordingly, a provision has been recorded in the accounts in the amount of $(118,050).” However, the next financial statements issued by Beauchamps, those for the quarter ended January 31, 1993, show a balance owing from Slightham to Beauchamps of $127,632. Tranter, Watson and Redford were all directors during Beauchamps’ 1992 financial year and the quarter ended January 31, 1993.

The minutes of a directors meeting held three months later, on April 21, 1993, attended by Slightham, Redford and Bence, record the following discussion:

The Secretary [Bence] referred to his letter of March 24, 1993 expressing his concerns about the Company’s financial position as set forth in the audited financial statements as at October 31, 1992. He also referred to the fact that the loans which had been made to the President of the Company as stipulated in the audited financial statements, namely $118,051 had been written down to $1 because the directors were unable to determine whether or not these loans could be collected. The Secretary expressed concern that these loans may not be perceived by the Vancouver Stock Exchange or the British Columbia Securities Commission as having been made in the best interests of the Company. He also expressed his concern that the loans were in part being made for the purpose of providing financial assistance to one or more persons who had acquired options to purchase shares in the capital of the Company all contrary to the provision of the B.C. Company Act. Considerable discussion ensued as to how to resolve these problems. Mr. Slightham stated that he was prepared to execute a demand promissory note dated April 21, 1993 evidencing his indebtedness to the company as at that date and agreed to pay 3% interest on that debt. He also agreed that his $4,000 per month management salary would be used to repay the amount that he owed the Company and that further, he was prepared to transfer an interest in one or more mineral properties owned by him to the Company in exchange for a reduction in the amount which he owed the Company equivalent to the value of the interest being assigned.

At the meeting, Slightham and Redford resolved, among other things, that:

• Beauchamps accept a demand promissory note from Slightham as evidence of the amount owing from Slightham on April 21, 1993;

• Beauchamps stop paying management fees to Slightham until the repayment by him of the total amount owing;

• $4,000 per month management fees otherwise payable to Slightham be used to reduce his indebtedness to Beauchamps;

• Slightham transfer one or more mineral properties to Beauchamps on or before July 31, 1993, to reduce his indebtedness to Beauchamps by not less than $50,000;

• Beauchamps cease providing any form of assistance for the purpose of allowing persons holding options to purchase Beauchamps shares to exercise those options; and

• Beauchamps disseminate a news release advising that these arrangements have been made and that Beauchamps intends to collect the money owing to it by Slightham.

The minutes do not indicate whether Tranter was notified of the meeting. Watson had resigned as a director on March 17, 1993.

Slightham did not sign a promissory note evidencing the amount owing to Beauchamps on April 21, 1993. However, he did sign a promissory note on April 30, 1993, in the amount of $184,654 payable on demand, with interest at 3% per annum. This note, and the March 4, 1991 note, are the only acknowledgments of his debt provided by Slightham to Beauchamps. There is no evidence of further directors’ resolutions respecting any of the Slightham loans. There is also no evidence that the Exchange was notified of, or approved, any of the Slightham loans. Also, Beauchamps issued no news releases disclosing the making of its loans to Slightham.

Beauchamps’ April 30, 1993 financial statements show $184,654 owing from Slightham to Beauchamps. On July 29, 1993, the Exchange sent a letter to Beauchamps, to the attention of Slightham, referring to its concerns regarding related party loans which were expressed in its letters of April 9, 1992 (which was not before us) and May 15, 1992, as well as in Bence’s letter of June 22, 1992. The Exchange questioned the write off of the loan to Slightham in Beauchamps’ October 31, 1992 financial statements and the apparent subsequent loan to Slightham reflected in Beauchamps’ January 31 and April 30, 1993 financial statements. The letter concludes by noting that Beauchamps “has been previously put on notice with regard to the use of the Company’s treasury as a banking facility” and that trading in Beauchamps’ shares may be interrupted. There is no evidence of a response to the letter.

Beauchamps’ July 31, 1993 financial statements show $168,591 owing from Slightham. However, Beauchamps’ October 31, 1993 annual financial statements show “-” as due from a director and “-” as provision for loss on loan due from a director. The notes to the financial statements state that the “directors in 1992 could not determine if the loan outstanding from the president at October 31, 1992 of $118,051 would be recovered and accordingly, a provision has been recorded in the accounts in the amount of $118,050.” There is no mention of the actual amount owing as of October 31, 1993.

BEAUCHAMPS MANAGEMENT FEES

Beauchamps’ financial statements show that, during its 1990 to 1993 financial years, Beauchamps paid Slightham the following amounts in management fees:

Quarter ended	Management fees paid to Slightham
	during current financial year

Oct 31, 1990	$36,000

Jan 31, 1991	9,000
Apr 30, 1991	18,000
Jul 31, 1991	27,000
Oct 31, 1991	42,000

Jan 31, 1992	10,500
Apr 30, 1992	21,000
Jul 31, 1992	31,500
Oct 31, 1992	48,000

Jan 31, 1993	12,000
Apr 30, 1993	24,000
Jul 31, 1993	36,000
Oct 31, 1993	122,305
	$248.305

Management fees of at least $98,305 were paid to Slightham during the six months following the directors’ resolution of April 21, 1993, which provided that Beauchamps would pay no further management fees to Slightham until his loans had been repaid.

There were no written management contracts between Beauchamps and Slightham and no directors’ resolutions approving the management fees paid to Slightham. Also, there is no evidence of any invoices submitted to Beauchamps outlining the services provided by Slightham. No material respecting the management fees was filed with the Exchange and no news releases were issued.

BEAUCHAMPS SHARES ISSUED WITHOUT FULL CONSIDERATION

According to Beauchamps’ financial statements, during its 1991 to 1993 financial years, Beauchamps issued shares valued at $827,435 pursuant to the exercise of options and warrants by directors and employees (as to $427,435) and pursuant to a number of private placements (as to $400,000). Shares valued at $611,435 were specifically stated to have been issued for cash.

According to Beauchamps’ synoptic journal, during the same period, Beauchamps received consideration of $396,058 from issuance of shares. This consideration was in the form of cash (as to $383,218) and of advances due from Slightham (as to $12,840).

The $431,377 shortfall in total consideration and $228,217 shortfall in cash consideration could not be accounted for by Arthur Andersen on a review of Beauchamps’ financial statements and synoptic journal for this period. However, the Arthur Andersen Report noted that the shortfall in total consideration can be partially accounted for if assumptions are made with respect to two discrepancies between Beauchamps’ financial statements and synoptic journal. The first is that, during this period, Beauchamps’ financial statements report payment of $213,975 in employee salaries while its synoptic journal shows payment of $77,905 in employee salaries, for a discrepancy of $136,070. The second is that, during this period, Beauchamps’ financial statements report payment of $212,305 in management fees to Slightham while its synoptic journal shows payment of $0 in management fees to Slightham, for a discrepancy of $212,305.

If we assume that these discrepancies in salaries and management fees represent payment in kind for exercise of options and warrants by Beauchamps’ employees and by Slightham, this would account for an additional $348,375 in share consideration. Though this assumption could not be verified by Arthur Andersen or by Commission staff, it was confirmed by Slightham in his Agreed Statement of Facts. However, this would still leave a shortfall in total consideration of $83,002 unaccounted for.

BEAUFIELD MANAGEMENT FEES

Beaufield’s financial statements indicate that, during its 1991 to 1994 financial years, Beaufield paid Slightham the following amounts in management fees:

	Management fees	Portion attributable
	paid to Slightham	to the exercise of
	during current financial	directors’ stock
Quarter ended	year	options

Aug 31, 1991	$320,084	$256,450

Aug 31, 1992¹	295,012	232,012

Nov 30, 1992	12,000
Feb 28, 1993	24,000
May 31, 1993	36.000
Aug 31, 1993	103,883	21,515

Aug 31, 1994¹	51,448	15,200
	$770,427	$525,177

¹The interim financial statements for the quarters ended Nov 30, 1991, Feb 28, 1992, May 31, 1992, Nov 30, 1993, Feb 28, 1994 and May 31, 1994 were not in evidence.

In September 1992, when Beaufield applied to be relisted on the Exchange, Beaufield submitted to the Exchange for approval a management agreement entered into by Beaufield and Slightham on July 22, 1992. The agreement provided for fees of $48,000 in the first year, an increase of 4% in each subsequent year and a yearly bonus based on Beaufield’s net income. On September 17, 1992, the Exchange sent a letter to Bence, in which it advised that it did not accept the bonus scheme outlined in the agreement as it was excessive compared to industry standards, and sought further information as follows:

Please explain what controls the Company has put into place to ensure the President will no longer exercise stock options below the strike price and take back management fees. We remind the directors of the Company of their duties as directors under the Company Act.

There is no evidence of a response to the letter.

No management contract between Beaufield and Slightham was subsequently approved by the Exchange. No resolution of Beaufield’s directors approved the payment of these management fees. Also, there is no evidence of any invoices submitted to Beaufield outlining the services provided by Slightham. No news releases respecting these management fees were issued by Beaufield.

BEAUFIELD SHARES ISSUED WITHOUT FULL CONSIDERATION

According to Beaufield’s financial statements, during its 1991 to 1994 financial years, Beaufield issued shares valued at $1,322,526 pursuant to the exercise of options and warrants by directors and employees (as to $1,157,813) and pursuant to a number of private placements (as to $164,713). Shares valued at $966,950 were specifically stated to have been issued for cash.

According to Beaufield’s synoptic journal, during the same period, Beaufield received consideration of $1,039,348 from issuance of shares. This consideration was in the form of cash (as to $129,970), salaries (as to $30,800) and of advances due from Slightham (as to $878,578).

The $283,178 shortfall in the total consideration and the $836,980 shortfall in cash consideration could not be accounted for by Arthur Andersen on a review of Beaufield’s financial statements and synoptic journal for the period. However, they speculated that a portion of the management fees credited to Slightham by Beaufield during this period may represent advances to Slightham that were then applied as consideration for share issuances to Slightham. This theory is supported by Beaufield’s annual financial statements, which attribute $525,177 of Slightham’s management fees to the exercise of directors’ stock options, and by Slightham in his Agreed Statement of Facts.

EXERCISE OF OPTIONS TO PURCHASE BEAUFIELD SHARES

Donald S. Bubar, a consulting geologist, was granted options to purchase 300,000 Beaufield shares as part of the consideration for his services. These shares were issued pursuant to three treasury orders for 100,000 shares each signed on September 1 and 6, and October 12, 1994, by Slightham and Tranter. Bubar did not exercise the options himself, did not receive the share certificates, did not endorse the certificates for transfer and did not execute any powers of attorney in respect of a transfer of the shares.

Nick C. Carter, a director of Beaufield from September 8, 1993 to November 1, 1994, was granted options to purchase 180,000 Beaufield shares. These shares were issued pursuant to a treasury order for 60,000 shares signed on April 18, 1994, and a treasury order for 120,000 shares signed on November 14, 1994. Both treasury orders were signed by Slightham and Tranter. These shares were issued without Carter’s knowledge or consent and he did not receive the share certificates.

On January 20, 1995, Beaufield issued an Information Circular, signed by Slightham on behalf of the board of directors, noting the exercise of part of the Bubar and all of the Carter options.

INSIDER REPORTS

Tranter has filed only one insider report with respect to Beauchamps; it was filed in June 1987 and indicates that he owned 20,000 shares. However, in December 1991 Tranter was granted an option to purchase 50,000 shares of Beauchamps and in May 1992 he exercised that option. Beauchamps’ May 24, 1994 Information Circular indicates that Tranter owned 20,000 shares.

Tranter has filed only one insider report with respect to Beaufield; it was filed in October 1992 and indicates that he owned no shares of Beaufield. However, Beaufield’s December 15, 1993 Information Circular indicates that Tranter owned 50,010 shares, was granted an option to purchase 200,000 shares in June 1993 and purchased a total of 80,000 shares on partial exercise of the option in August 1993.

Commission staff wrote to Tranter in March 1994 requesting him to update his insider report filings with respect to Beauchamps and Beaufield. He did not respond to this request and no further filings have been received.

Watson had filed two insider reports with respect to Beaufield; the first was filed in February 1987 and indicates that he owned 15,000 shares; the second was filed in October 1992 and indicates that he owned 50,000 shares. However, Beaufield’s December 15, 1993 Information Circular indicates that Watson owned 20,000 shares, was granted an option to purchase 115,000 shares in October 1992 and exercised that option in June 1993. Commission staff wrote to Watson in March 1994 requesting him to update his insider report filings, which he did in August 1994. The reports filed included trades in addition to those described above.

SLIGHTHAM’S AGREED STATEMENT OF FACTS

In his Agreed Statement of Facts, Slightham admitted that the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans, the Beauchamps management fees and the Beaufield management fees

• were non-arm’s length transactions implemented without prior Exchange approval, contrary to the requirements of the Exchange, and

• were material changes in the affairs of Beauchamps and Beaufield which were disclosed in Beauchamps’ and Beaufield’s quarterly reports, but were not generally disclosed on a timely basis, contrary to the Securities Act and the requirements of the Exchange.

Slightham also admitted that he knew, or ought to have known, that the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans, the Beauchamps management fees and the Beaufield management fees were implemented without prior Exchange approval and were not disclosed as required under the Securities Act.

With respect to share issuances by Beauchamps, Slightham admitted that, during its 1991 to 1993 financial years, Beauchamps issued shares valued at $827,435 upon the exercise of options and warrants and pursuant to private placements, for which Beauchamps received $383,218 in cash. He admitted that these shares had been issued for insufficient consideration, contrary to section 43 of the Company Act. He also admitted that, during this period, he knew that Beauchamps had received insufficient consideration for the shares, and authorized or directed that the unpaid value be included as part of Beauchamps salary and management fee expense for the period, a significant portion of which was unearned or unauthorized at the time the shares were issued.

With respect to share issuances by Beaufield, Slightham admitted that, during its 1991 to 1993 financial years, Beaufield issued shares valued at $978,913 pursuant to the exercise of options and warrants and pursuant to private placements, for which Beaufield received $112,840 in cash. He admitted that these shares had been issued for insufficient consideration, contrary to section 43 of the Company Act. He also admitted that, during this period, he knew that Beaufield had received insufficient consideration for the shares, and authorized or directed that the unpaid value be included as part of Beaufield’s salary and management fee expense for the period, a significant portion of which was unearned or unauthorized at the time the shares were issued.

Slightham also admitted that, during 1994, Beaufield issued, and Slightham caused Beaufield to issue, at least 480,000 shares on the exercise of employee stock options to persons other than the optionees without the knowledge of, or payment by, the optionees. Slightham also admitted that Beaufield’s Information Circular of January 20, 1995, signed by Slightham on behalf of Beaufield’s board of directors, falsely represented that Bubar and Carter had exercised options to purchase shares.

Slightham admitted that, as president and a director of Beauchamps and Beaufield, he failed to act honestly, in good faith and in the best interests of Beauchamps and Beaufield, and to exercise the care, diligence and skill of a reasonably prudent person, contrary to sections 127, 142 and 159 of the Company Act.

Slightham also admitted that he failed to file complete insider reports with respect to shares of Beauchamps and Beaufield, contrary to section 70 of the Securities Act, and that he traded in the shares of Beauchamps and Beaufield with knowledge of undisclosed material facts or material changes, contrary to section 68 of the Securities Act.

Finally, Slightham admitted that all of the foregoing matters had the effect of conferring a personal benefit on Slightham, creating a detrimental impact on the financial position of Beauchamps and Beaufield and concealing this material information from the public.

REDFORD’S TESTIMONY

The only director to testify at the hearing was Redford. He testified that he was never told what his responsibilities were as a director, that he assumed that Beauchamps’ legal counsel would guide him in that area, that he was never involved in the management of the company and that he had little knowledge of Beauchamps’ operations. He did not see any of the letters from the Exchange. He also did not see Beauchamps’ interim financial statements even though he was a member of the audit committee for part of 1993.

Shortly after the resignation of Beauchamps’ prior auditors in September 1990, Redford received a letter from them outlining a number of financial irregularities and problems relating to matters such as the Slightham loans, management salaries, the exercise of options, and the preparation of cheques. When Redford received the letter, he simply discussed it with Bence and Slightham and trusted them to rectify the situation. He did not bring the auditor’s concerns to the attention of Tranter or, when he became a director on May 3, 1991, Watson.

FINDINGS

BEAUCHAMPS

The issues before us are:

1. Did Beauchamps fail to disclose material changes in its affairs in contravention of section 67 of the Securities Act?

2. Did Beauchamps breach its Exchange listing agreement by

a. failing to notify the Exchange of, and obtain prior approval of, proposed material changes in its affairs?

b. failing to promptly disclose material changes in its affairs?

c. paying management fees exceeding those permitted by the Exchange?

3. Did Beauchamps distribute disclosure documents that misrepresented Beauchamps’ affairs?

4. Did Beauchamps issue shares in contravention of the Company Act?

1. Disclosure Of Material Changes

Where a material change occurs in the affairs of a reporting issuer, section 67 of the Securities Act requires the issuer, as soon as practicable, to issue and file a press release disclosing the nature and substance of the change, and to file a material change report. Section 1 of the Securities Act defines a material change, where used in relation to the affairs of an issuer, as a change in the issuer’s business, operations, assets, or ownership that would be expected to have a significant effect on the market price or value of any of the issuer’s securities.

Appendix A reveals that, during its 1990 to 1993 financial years, Beauchamps earned total revenues of $26,047, most of which was interest earned on the Beaufield and Slightham loans. Beauchamps was usually in a bank overdraft position and regularly issued NSF cheques. Spending on acquisition and exploration of mining properties totalled $552,042. Spending on Slightham’s management fees totalled $248,305. The outstanding loans to Beaufield and Slightham grew from $78,032 at the end of the 1990 financial year to $210,960 (using the amount owing by Slightham at July 31, 1993) at the end of the 1993 financial year.

These figures clearly indicate that the Beaufield and Slightham loans and the Beauchamps management fees were significant aspects of Beauchamps’ affairs. We find that the loans made to Beaufield and Slightham and the management fees paid to Slightham during Beauchamps’ 1990 to 1993 financial years were changes in Beauchamps’ operations and assets that would reasonably be expected to have a significant effect on the market price or value of Beauchamps’ shares and, therefore, were material changes in Beauchamps’ affairs.

Beauchamps was required under section 67 to issue and file a press release and to file a material change report as soon as practicable with respect to each of these material changes. It did not do so. Therefore, we find that Beauchamps contravened section 67 of the Securities Act by failing to disclose the Beaufield and Slightham loans and the Beauchamps management fees in the manner set out in that section.

2. Exchange Listings Agreement

Beauchamps’ listing agreement with the Exchange provides that Beauchamps shall comply with all applicable by-laws, rules and policies of the Exchange.

Beauchamps’ listing agreement and then Exchange Listings Policy Statement No. 9 - Company Classification, Filing Requirements and Exemptions - require Beauchamps to promptly notify the Exchange of, and obtain acceptance of, a proposed material change in the company’s business or affairs. Where the proposed transaction has not been negotiated at arm’s length, the Exchange may require shareholder approval as a condition of acceptance. Beauchamps’ listing agreement deems the following to be material changes: any management contract, any non-arm’s length transaction, and any loan or advance of funds other than to a wholly owned subsidiary. Therefore, we find the following Beauchamps transactions to be material changes for the purposes of Exchange Policy No. 9: the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans, and the Beauchamps management fees.

Beauchamps did not notify the Exchange of or obtain prior Exchange approval for any of them. Therefore, we find that Beauchamps breached its listing agreement with the Exchange by failing to notify, and obtain approval from, the Exchange of each of the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans and the Beauchamps management fees in accordance with Exchange Policy No. 9.

Then Exchange Listings Policy Statement No. 10 - Corporate Disclosure Policy - requires Beauchamps, and Beauchamps’ management, to disclose promptly by news release a change in Beauchamps’ affairs that might reasonably be expected to affect materially the value of Beauchamps’ listed shares. We found above that the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans and the Slightham management fees were changes in Beauchamps’ affairs that would reasonably be expected to have a significant effect on the market price or value of Beauchamps’ shares. Beauchamps did not file news releases with respect to these changes. Therefore, we find that Beauchamps breached its listing agreement with the Exchange by failing to disclose promptly by news release each of the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans and the Beauchamps management fees in accordance with Exchange Policy No. 10.

Then Exchange Listings Policy Statement No. 7 - Management Remuneration - provides that venture companies with no cash flow or immediate source of funds, other than by public subscription, can pay a maximum of $2,500 per month, in the aggregate, for management fees (though this limit can be varied in particular circumstances). Exchange Policy No. 7 requires that a management agreement setting out the responsibilities and specific services to be provided must be filed for acceptance by the Exchange. Chapter 20 of the Exchange’s Policy and Procedures Manual requires that the related directors’ resolution must also be filed. Beauchamps paid Slightham more than $30,000 per year in each of its 1990 to 1993 financial years. No material respecting the management fees was filed with the Exchange and no resolutions approving the management fees were passed by the directors. Therefore, we find that Beauchamps breached its listing agreement with the Exchange by failing to file with the Exchange for acceptance a management agreement with Slightham, by failing to file with the Exchange the related directors’ resolution and by paying Slightham management fees in excess of $2,500 per month, contrary to Exchange Policy No. 7 and Chapter 20 of the Exchange Policy and Procedure Manual.

3. Disclosure Documents Misrepresenting Beauchamps’ Affairs

Commission staff argued that Beauchamps’ financial statements misrepresented two aspects of Beauchamps’ affairs, the first respecting payment for shares issued and the second respecting the Slightham loans.

Beauchamps’ financial statements for its 1991 to 1993 financial years indicate that Beauchamps issued shares valued at $827,435 pursuant to private placements and the exercise of options and warrants. Beauchamps’ financial statements also indicate that $611,435 worth of these shares were issued for cash. However, Beaufield’s synoptic journal indicates that Beauchamps received only $396,058 in consideration for these shares, $383,218 in cash and $12,840 in advances due from Slightham. Therefore, we find that the financial statements issued by Beauchamps during its 1991 to 1993 financial years misrepresented the share consideration received by Beauchamps, as to both the amount and the nature of that consideration.

Beauchamps’ October 31, 1992 annual financial statements showed that $118,050 of the amount owing from Slightham had been written off because of its questionable recoverability. Yet the Slightham loan reappeared as an asset in the company’s unaudited financial statements for the subsequent three quarters. We find that Beauchamps’ financial statements for the periods ended January 31, April 30 and July 31, 1993, misrepresented Beauchamps’ financial position in showing the amounts owing from Slightham as an asset, given the concerns of the directors with respect to their recoverability.

4. Shares Issued In Contravention Of The Company Act

Section 43 of the Company Act provides that shares cannot be issued until they are fully paid and, if the shares are issued for services, the shares will be considered fully paid only if the services are past services whose value is set in a directors’ resolution. During its 1991 to 1993 financial years, Beauchamps issued shares valued at $827,435 pursuant to private placements and the exercise of options and warrants. Beauchamps’ financial statements indicate that $611,435 worth of these shares were issued for cash. Yet Beauchamps’ synoptic journal indicates that Beauchamps received only $383,218 in cash for these shares. As well, the synoptic journal indicates that Beauchamps received only $396,058 in total consideration for issuance of shares during this period, leaving a shortfall of $431,377. The Arthur Andersen Report surmised that $348,375 of this could be accounted for as payment of management fees to Slightham and salaries. However, this would still leave a shortfall in share consideration of $83,002. Slightham admitted that, during its 1991 to 1993 financial years, Beauchamps issued shares for insufficient consideration. He also admitted that a significant portion of the management fees and salaries in consideration for which shares were issued during those years were unearned or unauthorized at the time the shares were issued. Finally, there is no evidence before us of either invoices setting out the services, or directors’ resolutions valuing the services, for which these management fees or salaries were paid. Therefore, we find that, during its 1991 to 1993 financial years, Beauchamps issued shares that were not fully paid, in contravention of section 43 of the Company Act.

Section 127 of the Company Act provides that a company cannot loan money to a person to enable the person to purchase the company’s shares. Beauchamps’ synoptic journal indicates that at least $12,840 of the consideration received by Beauchamps for shares issued during its 1991 to 1993 financial years consisted of advances due from Slightham. Therefore, we find that, during its 1991 to 1993 financial years, Beauchamps loaned money to Slightham for the purpose of purchases of Beauchamps shares by Slightham, in contravention of section 127 of the Company Act.

BEAUFIELD

The issues before us are:

1. Did Beaufield fail to disclose material changes in its affairs in contravention of section 67 of the Securities Act?

2. Did Beaufield breach its Exchange listing agreement by

a. failing to notify the Exchange of, and obtain prior Exchange approval of, proposed material changes in its affairs?

b. failing to promptly disclose material changes in its affairs?

c. paying management fees exceeding those permitted by the Exchange.

3. Did Beaufield distribute disclosure documents that misrepresented Beaufield’s affairs?

4. Did Beaufield issue shares in contravention of the Company Act?

1. Disclosure Of Material Changes

Where a material change occurs in the affairs of a reporting issuer, section 67 of the Securities Act requires the issuer, as soon as practicable, to issue and file a press release disclosing the nature and substance of the change, and to file a material change report. Section 1 of the Securities Act defines a material change, when used in relation to the affairs of an issuer, as a change in the issuer’s business, operations, assets, or ownership that would be expected to have a significant effect on the market price or value of any of the issuer’s securities.

Appendix B reveals that, during its 1991 to 1994 financial years, Beaufield earned total revenues of $1,001. Spending on acquisitions and exploration of mining properties totalled $216,985. Spending on Slightham’s management fees totalled $770,427. The outstanding loans from Beauchamps varied over the period reaching, according to Beauchamps’ annual financial statements, a low of $17,340 on October 31, 1990, and a high of $61,420 on October 31, 1991. Beauchamps’ financial statements for the year ended October 31, 1993 also note that Beaufield is currently in default of its obligations to Beauchamps.

These figures clearly indicate that the Beaufield management fees and the Beauchamps-Beaufield loans were significant aspects of Beaufield’s affairs. We find that the Beaufield management fees, the ongoing loans made by Beauchamps during Beaufield’s 1991 to 1994 financial years and Beaufield’s default in respect of its obligations under those loans were changes in Beaufield’s operations and assets that would reasonably be expected to have a significant effect on the market price or value of Beaufield’s shares and, therefore, were material changes in Beaufield’s affairs.

Beaufield did not issue any press releases or file any material change reports with regard to the Beaufield management fees or the Beauchamps-Beaufield loans. Therefore, we find that Beaufield contravened section 67 of the Securities Act by failing to disclose the Beaufield management fees, the Beauchamps-Beaufield loans and Beaufield’s default in respect of its obligations under those loans in the manner set out in that section.

2. Exchange Listings Agreement

Beaufield’s listing agreement with the Exchange provides that Beaufield shall comply with all applicable by-laws, rules, policies, and procedural requirements of the Exchange.

Beaufield’s listing agreement and then Exchange Policy No. 9 require Beaufield to promptly notify the Exchange of, and obtain acceptance of, a proposed material change in the company’s business or affairs. Where the proposed transaction has not been negotiated at arm’s length, the Exchange may require shareholder approval as a condition of acceptance. Beaufield’s listing agreement deems the following to be material changes: any management contract, any non-arm’s length transaction, and any loan or advance of funds. As well, Exchange Policy No. 10 provides that the borrowing of a significant amount of funds is likely to give rise to material information and thus to require prompt disclosure. Therefore, we find the following Beaufield transactions to be material changes for the purposes of Beaufield’s listing agreement and Exchange Policy No. 9: the Beauchamps-Beaufield loans made after October 14, 1992 and the Beaufield management fees paid to Slightham after October 14, 1992. Beaufield did not notify the Exchange of or obtain prior Exchange approval of the Beauchamps-Beaufield loans. Beaufield did submit a management contract to the Exchange for approval in October 1992, but no contract was ultimately approved. Therefore, we find that Beaufield breached its listing agreement with the Exchange by failing to notify, and obtain approval from, the Exchange of the post October 14, 1992 Beauchamps-Beaufield loans and by failing to obtain approval from the Exchange of the post October 14, 1992 Beaufield management fees in accordance with Exchange Policy No. 9.

Then Exchange Policy No. 10 requires Beaufield, and Beaufield’s management, to disclose promptly by news release a change in Beaufield’s affairs that might reasonably be expected to affect materially the value of Beaufield’s listed shares. We found above that the Beaufield management fees, the Beauchamps-Beaufield loans and Beaufield’s default in respect of its obligations under those loans were changes in Beaufield’s affairs that would reasonably be expected to have a significant effect on the market price or value of Beaufield’s shares. Beaufield did not file press releases with regard to these changes. Therefore, we find that Beaufield breached its listing agreement with the Exchange by failing to disclose promptly by news release the post October 14, 1992 Beaufield management fees and Beauchamps-Beaufield loans, and Beaufield’s default in respect of its obligations under those loans, in accordance with Exchange Policy No. 10.

Then Exchange Policy No. 7 provides that venture companies with no cash flow or immediate source of funds, other than by public subscription, can pay a maximum of $2,500 per month, in the aggregate, for management fees (though this can be varied in particular circumstances). Exchange Policy No. 7 requires that a management agreement setting out the responsibilities and specific services to be provided must be filed for acceptance by the Exchange. Chapter 20 of the Exchange’s Policy and Procedures Manual requires that the related directors’ resolution must also be filed. Beaufield paid Slightham more than $30,000 per year in each of its 1993 and 1994 financial years. Beaufield did submit a management agreement to the Exchange for acceptance in October 1992, but no agreement was ultimately approved. No directors’ resolutions approving the management fees were passed by the directors or filed with the Exchange. Therefore, we find that Beaufield breached its listing agreement with the Exchange by failing to obtain Exchange acceptance of its management agreement with Slightham, failing to file with the Exchange the related directors’ resolution and paying Slightham management fees in excess of $2,500 per month, contrary to Exchange Policy No. 7 and Chapter 20 of the Exchange Policy and Procedure Manual.

3. Disclosure Documents Misrepresenting Beaufield’s Affairs

Commission staff argued that Beaufield’s disclosure documents misrepresented two aspects of Beaufield’s affairs, the first respecting payment for shares issued and the second respecting the exercise of the Bubar and Carter options.

Beaufield’s financial statements for its 1991 to 1994 financial years indicate that Beaufield issued shares valued at $1,322,526 pursuant to private placements and the exercise of options and warrants. Beaufield’s financial statements also indicate that $966,950 worth of these shares were issued for cash. However, Beaufield’s synoptic journal for the same period indicates that Beaufield received only $1,039,348 in consideration for these shares, $129,970 in cash; $30,800 in salaries and $878,578 in advances due from Slightham. Therefore we find that the financial statements issued by Beaufield during its 1991 to 1994 financial years misrepresented the share consideration received by Beaufield, as to both the amount and the nature of that consideration.

Beaufield’s Information Circular of January 20, 1995, stated that Bubar exercised options to purchase 200,000 shares and Carter exercised options to purchase 180,000 shares of Beaufield. In fact, neither Bubar nor Carter exercised these options. Therefore, we find that Beaufield’s Information Circular of January 20, 1995, contained a false representation that Bubar and Carter had exercised options to purchase shares of Beaufield.

4. Shares Issued In Contravention Of The Company Act

According to Beaufield’s financial statements for its 1991 to 1994 financial years, Beaufield issued shares valued at $1,322,526 pursuant to private placements and the exercise of options and warrants. According to Beaufield’s synoptic journal, during this period, Beaufield received consideration for shares of only $1,039,348. This consideration was comprised of $129,970 in cash, $30,800 in salaries and $878,578 in advances due from Slightham. Arthur Andersen speculated that this $283,178 shortfall in consideration could be accounted for by management fees paid to Slightham in the form of shares issued on exercise of his options.

Section 127 of the Company Act provides that a company cannot loan money to a person to enable the person to purchase the company’s shares. Beaufield’s synoptic journal indicates that $878,578 of the consideration received by Beaufield for shares issued during its 1991 to 1994 financial years consisted of advances due from Slightham. Therefore, we find that, during its 1991 to 1994 financial years, Beaufield loaned money to Slightham for the purpose of purchases of Beaufield shares by Slightham, in contravention of section 127 of the Company Act.

TRANTER, WATSON AND REDFORD

DUTY OF DIRECTORS UNDER THE COMPANY ACT

The general duties of directors are set out in sections 141(1), 142 and 143 of the Company Act, as follows:

141.(1) The directors shall, subject to this Act and the articles of the company, manage or supervise the management of the affairs and business of the company.

142.(1) Every director of a company, in exercising his powers and performing his functions, shall:

(a) act honestly and in good faith and in the best interests of the company; and

(b) exercise the care, diligence and skill of a reasonably prudent person.

(2) The provisions of this section are in addition to and not in derogation of, any enactment or rule of law or equity relating to the duties or liabilities of directors of a company.

143. The provisions of a contract, the memorandum or the articles, or the circumstances of his appointment shall not relieve a director from the duty to act in accordance with this Act and the regulations, or from any liability that by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to the company.

Dixon v Deacon Morgan McEwen Easson et al

, (1989) 41 B.C.L.R. (2d) 180 (B.C.S.C.), Bouck J. referred to the corresponding provisions in the Canada Business Corporations Act and observed that there is little Canadian case law respecting the duty of care of directors. After briefly surveying the English, American and Canadian law in this area, Bouck J. refused to summarily dismiss an action for negligence against a director because he believed that such important principles should be determined only after a hearing of all the evidence and full and complete argument.

Bouck J. began his description of current English law with a reference to the often cited case of

Re City Equitable Fire Ins. Co

., [1925] 1 Ch. 407 (C.A.) in which Romer J. (the trial judge) laid down certain general principles respecting the duty of directors. Bouck J. notes at page 192 of

Dixon

that these general principles were carefully summarized in Mason and O’Hair, Australian Company Law, 3rd. ed., pp. 168-169, as follows:

1. A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. A director of a life insurance company, for instance, does not guarantee that he has the skill of an actuary or of a physician. It is perhaps only another way of stating the same proposition to say that directors are not liable for mere errors of judgment.

2. A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances he is reasonably able to do so.

3. In respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director is, in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly.

In his discussion of the English law, at pages 192 to 195 of

Dixon

, Bouck J. observed that the English courts regarded directors as “pleasant, if incompetent, amateurs” and were concerned that imposing onerous standards of skill and care would deter able people from accepting directorships. If the shareholders tired of having incompetent directors, they could vote them out. However, as Bouck J. noted, this theory ignores the modern reality of passive shareholders, who rarely attend meetings or vote, and powerful directors, who control the proxy machinery. Bouck J. ends his discussion of the English law as follows: “From this brief review, I conclude the leniency of English law towards the conduct and responsibilities of company directors is a much outdated model.”

English law stands in stark contrast to current American law which, as Bouck J. observed at page 197 of

Dixon

, “places a much heavier burden on a director to take care in the management of a company even though the main principle is expressed in much the same words as Canadian law”. In one of the leading American cases,

Hanson Trust PLC v. ML SCM Acquisition Inc

., 781 F.2d 264 (2nd Cir. 1986), at pages 273 to 275, the United States Court of Appeals, Second Circuit, described the American standard:

Under New York corporation law, a director’s obligation to a corporation and its shareholders includes a duty of care in the execution of directorial responsibilities. Under the duty of care, a director, as a corporate fiduciary, in the discharge of his responsibilities must use at least that degree of diligence that an “ordinarily prudent” person under similar circumstances would use. See N.Y. Bus. Corp. L. § 717. In evaluating this duty, New York courts adhere to the business judgment rule, which “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.”

...

The district court herein found no fraud, no bad faith and no self-dealing by SCM’s directors; we do not disagree with these findings. However, the exercise of fiduciary duties by a corporate board member includes more than avoiding fraud, bad faith and self-dealing. Directors must exercise their “honest judgment in the lawful and legitimate furtherance of corporate purposes,”

Auerbach,

419 N.Y.S.2d at 926, 393 N.E.2d at 1000. It is not enough that directors merely be disinterested and thus not disposed to self-dealing or other incidia of a breach of the duty of loyalty. Directors are also held to a standard of due care. They must meet this standard with “conscientious fairness,”

Alpert v. 28 Williams St. Corp.,

63 N.Y.2d 554, 569, 483 N.Y.S.2d 667, 674, 473 N.E.2d 19, 26 (1984) (citing cases). For example, where their “methodologies and procedures” are “so restricted in scope, so shallow in execution, or otherwise so

pro forma

or halfhearted as to constitute a pretext or sham,” then inquiry into their acts is not shielded by the business judgment rule.

Auerbach

, 419 N.Y.S.2d at 929, 393 N.E.2d at 1002-03.

The law is settled that, particularly where directors make decisions likely to affect shareholder welfare, the duty of due care requires that a director’s decision be made on the basis of “reasonable diligence” in gathering and considering material information. In short, a director’s decision must be an informed one... Directors may be liable to shareholders for failing reasonably to obtain material information or to make a reasonable inquiry into material matters.

As Bouck J. observed at page 198 of

Dixon

: “Ignorance of an American director in relation to the activities of a company is not a means of escaping liability if it was the duty of the director to know the facts and they could be determined by the exercise of ordinary care.”

In his review of the current Canadian law, Bouck J. at page 196 of

Dixon

refers to an article entitled “Directors’ and Officers’ Liability Insurance” by John I. S. Nicholl in Corporate Structure, Finance and Operations (1986), vol. 4, Lazar Sarna ed., at page 1 where, at pages 7 and 8, the author states:

There is a dearth of case law on the issue of duty of care, and accordingly it is difficult to say precisely to what depths one must sink in order to be liable in negligence.

Conduct unbecoming a director would seem to include deliberately ignoring the affairs of the corporation, and also transfer of control to persons whom one knows to be dishonest or irresponsible.

Lesser sins are likely to be forgiven on the basis of the “business judgment” rule provided that the individual responsible can plausibly claim to have acted in good faith. See

Revelstoke Credit Union v. Miller

[[1984] 2 W.W.R. 297, 24 B.L.R. 271, 28 C.C.L.T. 17 (B.C.S.C.)], where the directors of a credit union were held

not

to have been contributorily negligent in relying on the honesty of their manager; compare to

Stavert v. Lovitt

[(1908), 42 N.S.R. 449 (N.S.C.A.)], where the directors of a bank

were

held personally liable for losses caused by an employee whom they knew to be suspect. [Emphasis added.]

Revelstoke

, the manager made a series of unauthorized loans to two clients of the credit union. As noted by McEachern C.J.S.C. at page 307, “these transactions were deliberately carried on in a deceitful and clandestine manner by the manager, and although some members of the loans department knew some of the details, none but the manager knew the full story”. McEachern C.J.S.C. concluded at page 325:

With regard to the directors, I am satisfied none of them had any actual knowledge of the Scabar or Collicutt loans in 1979, nor do I think they should have. They were entitled, in my view, to leave the management of the credit union to Mr. MacLean, and they could only be faulted

if something actually came to their attention which should have put them on notice, or if they failed to ensure the systems in place were adequate.

The inspector’s report of 5th September 1978 is an example of the former but I have already held that I do not think they can be faulted in that connection. It must be remembered that directors are entitled to rely upon and trust managers unless some reason for suspicion has come to their attention:

Dovey v. Cory,

supra. [Emphasis added.]

In an earlier case,

In Re The Traders Trust Co. and Bertha Kory

(1915) 9 W.W.R. 538, the British Columbia Supreme Court found the directors of the company liable for the fraud of another director, who had induced Kory to invest in the company by falsely representing the company to be prosperous and the investment to be guaranteed by the Bank of England. In discussing the general duty of directors, Morrison J. quoted with approval the following passage (from Vol 10 Cyc. p.832) at page 545:

The true rule, disregarding casuistic distinctions as to degrees of care and diligence,

holds directors liable for being ignorant of what they might have discovered by the exercise of that good business diligence which the law imposes on them

. The rule is, as it ought to be, that he who has put his trust in the wrong doer and held him out to the world as a person to be dealt with, shall bear the burden of his acts. [Emphasis added.]

In referring to one of the directors, who had signed the documentation respecting the Kory investment, Morrison, J. observed at page 546:

[A]s a reasonable prudent, careful man of ordinary business understanding he should have become suspicious and hesitated. If he trusted under all the circumstances,

of which he should not have been ignorant

, then he must bear the consequences. If he signed merely as a matter of form and in complete ignorance of the circumstances surrounding it

he must be put in the same position as if he had made himself master of all the circumstances

[Emphasis added.]

These two cases confirm the need for directors to put in place adequate systems for the management of the company, which would, of course, include the flow of necessary information to the board. They also confirm the need for directors to make decisions on an informed basis and to act in circumstances where they “should have become suspicious and hesitated”. These principles are reinforced by two recent cases in British Columbia respecting the meaning of the words “in good faith”. The cases do not deal specifically with the duties of directors, but establish principles that are equally applicable in this situation.

Kripps v. Touche Ross & Co.

(1990), 48 B.C.L.R. (2d) 171, the British Columbia Court of Appeal considered section 152 of the Securities Act, which protects the Commission from liability in respect of any act done “in good faith”. At page 179, Hollinrake J.A., in considering those words, stated: “While there can be no doubt that dishonesty may constitute a component of a want of good faith, in my opinion it is not a necessary component.”

MacAlpine v. H.(T.)

(1991) 57 B.C.L.R. (2d) 1, the British Columbia Court of Appeal considered section 23 of the Family and Child Service Act, which provides that no person is personally liable for anything done or omitted “in good faith” in the exercise of powers conferred by that Act. At page 13, Macfarlane J.A., for the majority, referred to the definition of “good faith” in Black’s Law Dictionary, revised 4th ed., page 822, which reads as follows: “Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder on inquiry.” Macfarlane J.A. continued at page 14: “In my opinion the duty of the superintendent, and those delegated to exercise the duties of the superintendent, is to

honestly consider the facts he knew or ought to have known

before he makes his decision

: “i.e., believing in facts which, if true, would have justified what he did” (per Kellock J.,

Chaput v. Romain

, supra, p. 859).” [Emphasis added.]

In summary, though there may be a dearth of case law in Canada on the issue of the duty of care of directors, there is sufficient law from which we can derive certain basic principles. Those principles certainly take us beyond the standards established for English directors in

Re City Equitable Fire Ins. Co.

They impose on directors a duty to put in place adequate systems for the management of the company, which would include the flow of information that is necessary to the directors and upon which they will base their decisions. Should that information generate concerns or otherwise put the directors on inquiry, they must take the necessary steps to resolve those concerns or initiate the appropriate inquiry. In short, the directors, all the directors, have a duty to ensure that the affairs and business of the company are being properly managed.

It is particularly critical for our capital markets that these principles be followed by directors of reporting issuers. Shareholders of widely held public companies have little knowledge of, or access to information concerning, the manner in which those companies are actually run. These shareholders rely on the directors to ensure that the company is properly managed. There is no room on the board of a reporting issuer in British Columbia for “pleasant, if incompetent, amateurs”.

The Company Act duties faced by Tranter, Watson and Redford can be summarized as follows. As directors, Tranter, Watson and Redford were required to either manage, or supervise the management of, the affairs and business of Beauchamps and Beaufield. Though it may have been appropriate for them to leave the day to day activities in Slightham’s hands, they were still responsible for supervising his management of the two companies. In doing so, they were required to act honestly and in good faith and in the best interests of the companies, and to exercise the care, diligence and skill of a reasonably prudent person. In order to meet these duties, they were obliged to put in place adequate systems for management of the companies, including the flow of necessary information to the directors, to make their decisions on an informed basis, and to take the necessary steps to resolve any concerns or suspicions that came to their notice. Moreover, they could not be relieved of these duties by the circumstances of their appointments.

The evidence is overwhelming that, during the period of their directorships, both Beauchamps and Beaufield were managed with almost total disregard for the regulatory requirements of the Exchange, the Securities Act and the Company Act, and in a manner that was rife with conflict of interest.

This was particularly evident in the circumstances surrounding the Beauchamps-Beaufield loans, the Beauchamps-Slightham loans and the Beauchamps management fees, all of which were related party transactions and all of which involved conflicts of interest. We noted earlier that these transactions constituted a significant aspect of Beauchamps’ affairs. Some of the figures bear repeating here. During its 1990 to 1993 financial years, Beauchamps earned total revenues of $26,047. Cash on hand dwindled from $99,843 at the end of the 1990 financial year to $17 at the end of the 1993 financial year. Beauchamps was usually in a bank overdraft position and regularly issued NSF cheques. Spending on acquisition and exploration of mining properties totalled $552,042. Spending on Slightham’s management fees totalled $248,305. The outstanding loans to Beaufield and Slightham grew from $78,032 at the end of the 1990 financial year to $210,960 at the end of the 1993 financial year. It is impossible to accept that a director seeing these numbers, and acting in good faith, could consider it to be in the best interests of Beauchamps to continue making loans to Beaufield and Slightham and to continue paying Slightham such generous management fees. The particular circumstances surrounding each of the three sets of transactions reinforces this view.

With regard to the Beaufield loans, on June 1, 1992, Slightham, Tranter, Watson and Redford consented to resolutions ratifying all advances made to Beaufield to date and authorizing further advances to a maximum of $100,000 “as the directors, in their sole discretion may deem advisable under the circumstances” and “subject to such advances being, in the opinion of the President of the Company, in the best interests of the Company”. There was no loan agreement or other documentation respecting these loans and no indication as to how the loans would benefit Beauchamps. The last financial statements the directors would have seen at this point were the interim statements for the three months ended January 31, 1992, which showed Beauchamps’ only current assets as cash of $1,692, accounts receivable of $76,120 (primarily owing from Beaufield) and loans to Slightham of $62,255, while liabilities totalled $94,872. As well, at the time of the resolution, Slightham, Tranter and Watson were directors of Beaufield as well as of Beauchamps; Redford became a director of Beaufield later that year. Finally, assuming that there were subsequent advances to Beaufield, there is no evidence that the directors ever put their minds to whether any of the advances were “advisable under the circumstances” or passed any resolutions approving them.

With regard to the Slightham loans, on April 29, 1991, Tranter, Webb and Redford consented to resolutions ratifying all advances made to Slightham to date and authorizing further advances to a maximum of $100,000, inclusive of the $72,000 then owing, “as the Directors, in their sole discretion, may deem advisable” as they had determined that “it is in the best interests of the Company to make advances to the President from time to time”. There is no indication as to how these advances would benefit Beauchamps and no restriction on Slightham’s use of the funds other than a proviso that he not use them for an “illegal purpose”, such as purchasing Beauchamps shares. The last financial statements they would have seen at this point were the interim statements for the three months ended January 31, 1991, which showed Beauchamps’ only current assets as cash of $174, accounts receivable of $16,820 (primarily owing from Beaufield) and loans to Slightham of $149,316, while liabilities (bank overdraft and accounts payable) totalled $11,419.

Once again, there is no evidence that the directors ever considered whether any of the subsequent advances to Slightham were “advisable” or passed any resolutions approving them. In fact, by April 30, 1991, the day after the resolution was passed, the Slightham loans already exceeded the $100,000 maximum. By October 31, 1992, the date by which the $72,000 was to have been repaid, the directors (Slightham, Tranter, Watson and Redford) had written off the $118,050 then owing from Slightham. Yet the financial statements for the following three quarters each showed amounts owing from Slightham in excess of $125,000, as well as the payment of management fees to Slightham.

The directors did not take any further action with regard to the Slightham loans until April 21, 1993, at a meeting attended by only two directors, Slightham and Redford. It is unclear whether Tranter had been given notice of the meeting and Watson had resigned in March 1993. At that meeting, they resolved to take various steps to reduce Slightham’s indebtedness to Beauchamps, including putting Slightham’s management fees towards reduction of the debt and having Slightham transfer mineral properties to Beauchamps. However, and this is astounding in the circumstances, they did not resolve to stop making advances to Slightham. In fact, Slightham’s debt to Beauchamps rose to $184,654 by April 30, 1993 and $168,591 by July 31, 1993, dropping to “-” by October 31, 1993. There is no evidence as to the actual amount owing on that date. Aside from the promissory notes of March 14, 1991 and April 30, 1993, there was no documentation respecting these loans.

With regard to the Beauchamps management fees, the fees paid to Slightham during Beauchamps’ 1991 to 1993 financial years significantly exceeded the $30,000 per year permitted by the Exchange. There were no management contracts between Beauchamps and Slightham, no invoices outlining the services provided by Slightham and no directors’ resolutions approving the management fees paid to Slightham. In effect, the directors gave Slightham carte blanche to set his own remuneration.

In looking at these related party transactions, it is no answer for the directors to say, as Redford did, that they did not know what their responsibilities were, that they had no knowledge of Beauchamps’ operations and that they did not see either the letters from the Exchange or Beauchamps’ interim financial statements. Each of them was obliged to inform himself of his responsibilities as a director and to ensure that he received the information necessary to carry out those responsibilities. A director exercising the care, diligence and skill of a reasonably prudent person would have reviewed Beauchamps’ interim, as well as annual, financial statements. Even a cursory review of Beauchamps’ financial statements for the period between 1990 and 1994 would have led a director, acting in good faith, to conclude that continuing to make substantial loans to Beaufield and Slightham, with no reference to the use to which this money would be put, and to pay management fees to Slightham well in excess of those generally permitted by the Exchange, would not be in Beauchamps’ best interests.

As well, Redford was specifically put on notice regarding financial irregularities in Slightham’s dealings with Beauchamps in late 1990, by Beauchamps’ prior auditors, and again at the meeting with Bence and Slightham on April 21, 1993. After receiving the letter from the prior auditors, Redford did speak to Bence and Slightham, but did not follow up on his discussion and took no further steps to ensure that the “irregularities” were properly dealt with. The consent resolutions of April 29, 1991, regarding the Slightham loans, and June 1, 1992, regarding the Beaufield loans, also should have put the directors on notice that there were serious problems not only with respect to these related party transactions, but with the financial management of the company. That the directors, other than Slightham, did not see the various letters from the Exchange and Bence raising concerns regarding these transactions, is irrelevant. The directors should have identified and addressed these concerns themselves, rather than relying on the Exchange or the company’s solicitor to do so.

In addition to permitting these related party transactions to continue, Tranter, Watson and Redford failed to ensure that Beauchamps complied with the regulatory obligations that flowed from them. Beauchamps did not disclose these transactions as required by section 67 of the Securities Act. Beauchamps did not notify the Exchange of, and obtain acceptance of, these transactions, or publicly disclose them, as required by its listing agreement. Beauchamps did not file a management agreement and related directors’ resolution with the Exchange, or pay total management fees of $30,000 or less a year, as required by its listing agreement.

The importance of a company complying with its listing agreement with the Exchange was discussed in

In the Matter of Harry Claude Faulkner,

(1994) BCSC Weekly Summary, Vol. 94:22, where the Commission said at page 32:

The listing agreement between a listed company and the Exchange is a key element in the securities regulatory system of this Province. It is the vehicle through which the Exchange exercises supervision over the affairs of the company. Commission staff will generally not permit a junior issuer, like Shasta, to offer securities to the public under a prospectus unless the issuer is listed on the Exchange, or another exchange that exercises supervision over the issuer and provides a transparent market for secondary trading of the securities. The listing agreement for a junior issuer requires the issuer to obtain the approval of the Exchange for various corporate activities and transactions that are important to the protection of investors and the maintenance of a fair and efficient securities market. The Commission relies on the Exchange’s supervision of junior issuers through this approval process.

It is the responsibility of the directors to ensure that a company complies with applicable legislation and its listing agreement. Directors exercising the care, diligence and skill of a reasonably prudent person may delegate this responsibility to management of the company, but, if they do so, must also set up adequate systems to satisfy themselves that compliance is in fact taking place and, if matters arise that should put them on notice, take the steps necessary to resolve the concern. That did not happen here. There is no evidence that Tranter, Watson or Redford attempted to cause Beauchamps to comply with the requirements of section 67 of the Securities Act or its listing agreement, or that they set up adequate systems to satisfy themselves that Slightham was doing so.

In addition to the problems associated with the related party transactions, we found that Beauchamps issued shares that were not fully paid, contrary to section 43 of the Company Act, and loaned money to Slightham to allow him to purchase Beauchamps shares, contrary to section 127 of the Company Act. As well, we determined that Beauchamps received considerably less cash for its shares than was indicated in the company’s financial statements.

Counsel for the respondents argued that it would be impracticable to expect a director not actually involved in the management of Beauchamps to go behind the financial statements and examine the supporting documentation in respect of the company’s issuance of shares. Therefore, that Tranter, Watson and Redford failed to make such an examination, or to discover the problems connected with Beauchamps’ issuance of shares, did not constitute a breach of their duty to act honestly and in good faith, and to exercise the care, diligence and skill of a reasonably prudent person.

We do not accept this argument. In addition to setting out the general duty of directors in sections 141 and 142 of the Company Act, the Act addresses the specific role of directors with regard to the issuance of shares and the preparation of financial statements. Section 45 of the Act provides that every director (not just those involved in the company’s management) is jointly and severally liable to compensate the company and any member for any loss, damage and costs sustained by the company or the members due to the issuance of shares in contravention of section 43. Section 198 of the Act provides that the directors must approve a financial statement (annual and six month interim financial statements) of the company before it is issued.

Once again, directors exercising the care, diligence and skill of a reasonably prudent person may delegate to management responsibility for the actual issuance of shares and the preparation of financial statements. However, in doing so, they must ensure that adequate systems are in place, and, if circumstances arise that should put them on notice, take the necessary steps to satisfy themselves that they and the company are meeting their obligations under the Company Act.

There is no evidence before us that Tranter, Watson or Redford made any attempt to ensure that adequate systems were put in place with regard to Beauchamps’ issuance of shares and preparation of financial statements, other than retaining an auditor to review the company’s annual financial statements. As well, we are of the view that several circumstances should have put them on notice that it would be prudent for them to delve more deeply into these matters. A key circumstance in this regard was that almost one third of the value of shares issued by Beauchamps during its 1990 to 1993 financial years was derived from shares issued to Beauchamps’ directors, officers and employees, the very people who were responsible for actually issuing the shares and recording those transactions in the financial statements. In other words, they constituted yet another set of related party transactions. Another circumstance was that Beauchamps, having next to no revenue, was in substance wholly dependent on the capital raised through share issuances to keep it alive. Finally, various incidents occurred that should have put Tranter, Watson and Redford on notice that management, namely Slightham, was, at best, completely unreliable when it came to maintaining financial records and complying with regulatory requirements. Redford was advised in late 1990 by Beauchamps’ former auditors of financial irregularities, including irregularities in the exercise of options. In a resolution dated April 29, 1991, Tranter and Redford, somewhat belatedly, ratified all past loans to Slightham and authorized all future loans to a maximum of $100,000, a limit that was exceeded the very next day, as was disclosed in Beauchamps’ April 30, 1991 financial statements. In a resolution dated June 1, 1992, Slightham, Tranter, Watson and Redford, again somewhat belatedly, ratified all past loans to Beaufield and authorized all future loans to a maximum of $100,000 subject, among other things, “to such advances being, in the opinion of the President of the Company, in the best interests of the Company”. The “President of the Company” was, of course, also the president of Beaufield. In Beauchamps’ October 31, 1992 financial statements, the directors (including Tranter, Watson and Redford) wrote off the $118,050 then owing from Slightham to the company because they could not determine whether the loan was recoverable. At the directors meeting of April 21, 1993, Redford was advised by Bence of his concern that Beauchamps’ various financial transactions with Slightham had contravened the Company Act.

We are of the view that, faced with these circumstances, a director exercising the care, diligence and skill of a reasonably prudent person would not have blindly relied on the financial statements prepared by management either as being accurate in themselves or as providing assurance that Beauchamps was issuing shares for adequate consideration. A director exercising the case, diligence and skill of a reasonably prudent person would have “become suspicious and hesitated”. We are also of the view that, having been put on notice, the directors of Beauchamps could have followed several avenues in order to satisfy themselves that they and the company were meeting their obligations under the Company Act. They could have discussed the matter with Beauchamps’ auditors. They could have discussed the matter with Beauchamps’ solicitor, Bence. They could themselves have examined Beauchamps’ accounting records; section 195 of the Company Act provides that every company must keep proper accounting records in respect of all the company’s financial transactions and that these records are open to the inspection of any director during the company’s normal business hours. After receiving the letter from Beauchamps’ prior auditors, Redford claims that he gave the letter to Bence and told him to correct the irregularities. However, Redford did not discuss the letter with the other directors, other than Slightham, or follow up to ensure that the irregularities had been corrected. There is no evidence before us that Tranter, Watson or Redford took any other steps to satisfy themselves that Beauchamps was complying with the requirements of the Company Act.

We found that the financial statements issued by Beauchamps during its 1991 to 1993 financial years misrepresented the share consideration received by Beauchamps, as to both the amount and the nature of that consideration. We also found that Beauchamps’ financial statements for the periods ended January 31, April 30 and July 31, 1993, misrepresented Beauchamps’ financial position in showing the amounts owing from Slightham as an asset, given the concerns of the directors with respect to their recoverability. We determined above that, rather than blindly relying on the financial statements presented by management, Tranter, Watson and Redford should have taken steps to satisfy themselves that the statements accurately reflected Beauchamps’ affairs and that Beauchamps was meeting its obligations under the Company Act. Had they done so, these misrepresentations would not have been made.

Many of the problems occurring in Beauchamps were mirrored in Beaufield. Like Beauchamps, Beaufield entered into a number of related party transactions, involving clear conflicts of interest, during its 1991 to 1994 financial years, namely the Beauchamps-Beaufield loans and the Beaufield management fees. As with Beauchamps, these related party transactions constituted a significant aspect of Beaufield’s affairs. During these years, Beaufield earned total revenues of $1001. Beaufield had $0 in cash at the end of its 1991 and 1992 financial years, $10,328 at the end of its 1993 financial year and $281 at the end of its 1994 financial year. Spending on acquisition and exploration of mining properties totalled $216,985. Spending on Slightham’s management fees totalled $770,427. The outstanding loans from Beauchamps varied over the period reaching, according to Beauchamps’ annual financial statements, a low of $17,340 on October 31, 1990, and a high of $61,420 on October 31, 1991.

Again as with Beauchamps, it is impossible to accept that a director seeing these numbers, and acting in good faith, could consider it to be in Beaufield’s best interests to continue paying Slightham such exorbitant management fees. After paying him management fees of $320,084 in its 1991 financial year and $295,012 in its 1992 financial year, Beaufield did enter into a management contract with Slightham on July 22, 1992, which provided for fees of $48,000 in the first year, an increase of 4% in each subsequent year and a yearly bonus based on Beaufield’s net income. The Exchange refused to approve the contract because the bonus scheme was excessive. In fact, Beaufield paid Slightham $103,883 rather than $48,000 in management fees during the first year of the contract and $51,448 during the second. Both these fees exceeded the $30,000 per year generally permitted by the Exchange as well as the amounts set in the agreement. There were no management contracts approved by the Exchange, no invoices outlining the services provided by Slightham, and no directors’ resolutions approving the management fees paid to Slightham during Beaufield’s 1993 and 1994 financial years.

Tranter, Watson and Redford were directors during Beaufield’s 1993 financial year (Redford from October 29, 1992 to August 31, 1993 only). During that year, Beaufield’s financial statements showed management fees paid as $12,000 at November 30, 1992, $24,000 at February 28, 1993, $36,000 at May 31, 1993, and $103,883 at August 31, 1993. There is no evidence before us that any of them raised any concerns with respect to the massive increase in management fees paid during the last quarter of Beaufield’s 1993 financial year or the fact that these fees significantly exceeded both the maximum set by the Exchange and the amount set in the July 22, 1992 agreement.

Each of the directors of Beaufield was obliged to inform himself of his responsibilities as a director and to ensure that he received the information necessary to carry out these responsibilities. A director exercising the care, diligence and skill of a reasonably prudent person would have reviewed Beaufield’s interim, as well as annual, financial statements. A review of Beaufield’s financial statements for its 1991 to 1994 financial years would have led a director, acting in good faith, to conclude that continuing to pay Slightham exorbitant management fees would not be in Beaufield’s best interests.

In addition to permitting these related party transactions to continue, Tranter, Watson and Redford failed to ensure that Beaufield complied with the regulatory obligations that flowed from them. Beaufield did not disclose these transactions as required by section 67 of the Securities Act. After its shares were listed on the Exchange, Beaufield did not obtain Exchange acceptance of these transactions or publicly disclose them as required by its listing agreement. Despite the fact that it was the responsibility of the directors to ensure that Beaufield complied with applicable regulatory requirements, there is no evidence (other than the filing with the Exchange of a management contract that was not ultimately approved) that Tranter, Watson or Redford attempted to cause Beaufield to comply with the requirements of section 67 of the Securities Act or its listing agreement, or that they set up adequate systems to satisfy themselves that Slightham was doing so.

In addition to the problems associated with the related party transactions, we found that Beaufield issued shares that were not fully paid, contrary to section 43 of the Company Act, and loaned money to Slightham to allow him to purchase Beaufield shares, contrary to section 127 of the Company Act. As well, we determined that Beaufield received considerably less cash for its shares than was indicated in the company’s financial statements.

There is no evidence before us that Tranter, Watson or Redford made any attempt to ensure that adequate systems were put in place with regard to Beaufield’s issuance of shares and preparation of financial statements, other than retaining an auditor to review the company’s annual financial statements. As well, we are of the view that several circumstances should have put them on notice that it would be prudent for them to inquire more closely into these matters. First, over 70% of the value of shares issued by Beauchamps during its 1991 to 1993 financial years was derived from shares issued to Beaufield’s directors, officers and employees. Beaufield had total revenues of $1001 during this period and was therefore wholly dependent on the capital raised through share issuances to keep it alive. Finally, Tranter and Redford had been directors of Beauchamps since 1989 and Watson had been a director of Beauchamps since May 1991. Due to the various incidents that had occurred, and concerns that had arisen, regarding the management of Beauchamps’ affairs, the three of them should have realized that they could not continue to blindly rely on Slightham to maintain and prepare financial records, or comply with regulatory requirements, for Beaufield any more than for Beauchamps.

Therefore, we are of the view that, faced with these circumstances, a director exercising the care, diligence and skill of a reasonably prudent person would not have blindly relied on the financial statements prepared by management either as being accurate in themselves or as providing assurance that Beaufield was issuing shares for adequate consideration. However, there is no evidence before us that Tranter, Watson or Redford set up any systems or, having been put on notice, took any steps, such as questioning the auditor or Bence or examining Beaufield’s accounting records, to satisfy themselves that Beaufield was complying with the requirements of the Company Act.

We found that the financial statements issued by Beaufield during its 1991 to 1994 financial years misrepresented the share consideration received by Beaufield, as to both the amount and the nature of that consideration. We determined above that, rather than blindly relying on the financial statements presented by management, Tranter, Watson and Redford should have taken steps to satisfy themselves that the statements accurately reflected Beaufield’s affairs and that Beaufield was meeting its obligations under the Company Act. Had they done so, these misrepresentations would not have been made.

As we noted earlier, during the period when Tranter, Watson and Redford were directors, Beauchamps and Beaufield were managed with almost total disregard for the regulatory requirements of the Exchange, the Securities Act and the Company Act and in a manner that was rife with conflict of interest. In Beauchamps, the directors: permitted a myriad of related party transactions that were not in Beauchamps’ best interests and failed to ensure that Beauchamps complied with the regulatory obligations that flowed from them; failed to ensure that Beauchamps received adequate consideration for its shares and permitted Beauchamps to give financial assistance for the purchase of its shares; and permitted Beauchamps to issue financial statements that misrepresented its affairs. In Beaufield, the directors: permitted related party transactions that were not in Beaufield’s best interests and failed to ensure that Beaufield complied with the regulatory obligations that flowed from them; failed to ensure that Beaufield received adequate consideration for its shares and permitted Beaufield to give financial assistance for the purchase of its shares; and permitted Beaufield to issue financial statements that misrepresented its affairs. Therefore, we find that Tranter, Watson and Redford failed to act in good faith and in the best interests of Beauchamps and Beaufield, and that they failed to exercise the care, diligence and skill of a reasonably prudent person, contrary to section 142 of the Company Act.

TRANTER AND WATSON

INSIDER REPORTS

Section 70(4) of the Securities Act provides that an insider of a reporting issuer whose direct or indirect beneficial ownership of, or control or direction over, the issuer’s securities changes must file an insider report disclosing the changes within ten days of the end of the month in which the changes took place. Section 1(1) of the Securities Act defines an insider to include a director or senior officer of the issuer.

Tranter was a director of Beauchamps from April 28, 1989 to February 24, 1995. In June 1987, he filed an insider report indicating that he owned 20,000 shares. He filed no other insider reports with regard to Beauchamps. In December 1991, Tranter was granted an option to purchase 50,000 shares of Beauchamps and, in May 1992, he exercised that option. Beauchamps’ Information Circular of May 24, 1994, indicated that Tranter owned 20,000 shares, which suggests that he must have sold 50,000 shares. We find that Tranter contravened section 70(4) of the Securities Act by failing to file insider reports disclosing these changes in his ownership of Beauchamps’ securities within the time period set out in that section. We note that these failures to file insider reports were occurring at times when there were several undisclosed material changes in Beauchamps’ affairs.

Tranter was a director of Beaufield from February 10, 1992 to February 24, 1995. In October 1992, he filed an insider report indicating that he owned no shares of Beaufield. He filed no other insider reports with regard to Beaufield. Beaufield’s Information Circular of December 15, 1993, indicated that Tranter owned 50,010 shares, in June 1993 was granted an option to purchase 200,000 shares, and in August 1993 exercised part of that option to purchase 80,000 shares. We find that Tranter contravened section 70(4) of the Securities Act by failing to file insider reports disclosing these changes in his ownership of Beaufield’s securities within the time period set out in that section. Once again, these failures to file occurred during times when there were undisclosed material changes in Beaufield’s affairs.

Watson was a director of Beaufield from February 13, 1987 to September 2, 1994. In February 1987, he filed an insider report indicating that he owned 15,000 shares of Beaufield and, in October 1992, he filed an insider report indicating that he owned 50,000 shares of Beaufield. Beaufield’s Information Circular of December 15, 1993, indicated that Watson owned 20,000 shares of Beaufield, in October 1992 was granted an option to purchase 115,000 shares and in June 1993 exercised that option. Watson did not file insider reports respecting these changes until August 1994, in response to a request from Commission staff. At that time, he also filed additional reports respecting other trades in Beauchamps’ shares. We find that Watson contravened section 70(4) of the Securities Act by failing to file insider reports disclosing changes in his ownership of Beaufield securities within the time period set out in that section. Again, these failures to file occurred during periods of undisclosed material changes in Beauchamps’ affairs.

DECISION

As noted earlier, Beauchamps and Beaufield were managed with almost total disregard for the regulatory requirements of the Exchange, the Securities Act and the Company Act, and in a manner that was rife with conflict of interest. Tranter, Watson and Redford, as directors, not only permitted the two companies to be managed in this way, but also allowed Slightham, the president of the two companies, to effectively use the companies’ treasuries as his own personal bank accounts.

BEAUCHAMPS

Beauchamps contravened section 67 of the Securities Act by failing to disclose the Beaufield and Slightham loans and the Beauchamps management fees in the manner set out in that section. It breached its listings agreement with the Exchange by failing to comply with Exchange Policies No. 9 and 10 in regard to the Beaufield and Slightham loans and the Beauchamps management fees, and with Exchange Policy No. 7 and Chapter 20 of the Exchange Policy and Procedures Manual in regard to the Beauchamps management fees. Beauchamps issued financial statements misrepresenting the consideration received for shares and the Slightham loans. It issued shares that were not fully paid, contrary to section 43 of the Company Act, and loaned money to Slightham for the purchase of Beauchamps shares, contrary to section 127 of the Company Act.

Counsel for Beauchamps and Beaufield argued that the companies should not be penalized as it was the directors who were responsible for these contraventions. They said that both the companies and the shareholders had already suffered from the actions of past management and should not be further prejudiced. However, we must consider the public interest as well as that of these companies and their shareholders. Our capital markets will function properly only if the participants in those markets follow the rules; if they break the rules, they must expect to be penalized.

We therefore consider it to be in the public interest to order

1. under section 144.1 of the Securities Act that Beauchamps pay an administrative penalty of $10,000 on or before October 1, 1996; and

2. under section 154.2 of the Act that Beauchamps pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

BEAUFIELD

Beaufield contravened section 67 of the Securities Act by failing to disclose the Beaufield management fees, the Beauchamps-Beaufield loans and Beaufield’s default in respect of those loans in the manner set out in that section. It breached its listing agreement with the Exchange by failing to comply with Exchange Policies No. 9 and 10 in regard to the Beaufield management fees and the Beauchamps-Beaufield loans, and with Exchange Policy No. 7 and Chapter 20 of the Exchange Policy and Procedures Manual in regard to the Beaufield management fees. Beaufield issued financial statements misrepresenting the consideration received for shares and an information circular misrepresenting the exercise of options. It issued shares that were not fully paid, contrary to section 43 of the Company Act, and loaned money to Slightham for the purchase of Beaufield shares, contrary to section 127 of the Company Act.

We consider it to be in the public interest to order

1. under section 144.1 of the Securities Act that Beaufield pay an administrative penalty of $10,000 on or before October 1, 1996; and

2. under section 154.2 of the Act that Beaufield pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

TRANTER

Tranter was the secretary, chief financial officer and a director of Beauchamps from April 1989 to February 1995. He was on Beauchamps’ audit committee during 1993 and 1994 and signed all of the company’s financial statements from October 1990 to January 1994.

In short, Tranter was a director and chief financial officer of Beauchamps for the entire period under review. He consented to the June 1, 1992 resolution ratifying all past loans to Beaufield and authorizing future loans up to $100,000, which was clearly contrary to Beauchamps’ best interests. He consented to the April 29, 1991 resolution ratifying all past loans to Slightham and authorizing future loans up to $100,000 which, once again, was clearly contrary to Beauchamps’ best interests. He signed the April 30, 1991 financial statements, which revealed that this $100,000 limit had been exceeded within one day. He signed the October 31, 1992 financial statements, which wrote off the $118,050 then owing from Slightham because of its questionable recoverability; he signed the January 31, April 30 and July 31, 1993 financial statements, each of which showed as an asset a significant amount owing from Slightham and he signed the October 31, 1993 financial statement, which once again showed the amount owing from Slightham as, in effect, zero. He signed financial statements misrepresenting the consideration received for share issuances and the Slightham loans. He gave Slightham carte blanche to set his own management fees. He took no steps to set up systems to ensure that Beauchamps was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He made no attempt to set up systems with regard to Beauchamps’ issuance of shares and preparation of financial statements, despite the fact that he signed all the financial statements during this period. This enabled Beauchamps to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

As well, Tranter was a director of Beaufield from February 1992 to February 1995. He was on Beaufield’s audit committee for most, if not all, of this period. He signed all of the company’s financial statements from August 1992 to August 1993, as well as the financial statements for August 31, 1994.

Tranter was therefore a director of Beaufield for almost all of the period under review, including the period when Beaufield relisted on the Exchange. He failed to set up systems to ensure that Beaufield was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He failed to prevent Slightham from paying himself management fees that significantly exceeded not only those normally permitted by the Exchange but those set out in Slightham’s management agreement, which had been rejected by the Exchange. He permitted Beaufield to issue financial statements misrepresenting the consideration received for share issuances. He made no attempt to set up systems with regard to Beaufield’s issuance of shares and preparation of financial statements, despite the fact that he signed at least some share certificates and many of the financial statements during this period. This enabled Beaufield to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

Finally, Tranter failed to file insider reports disclosing changes in his ownership of securities of Beauchamps and Beaufield during times when there were undisclosed material changes in the companies’ affairs. Despite a request from staff, Tranter has still not filed these reports with the Commission.

Tranter was clearly the primary nominee for Slightham. Without Tranter’s active cooperation, or absolute indifference to his responsibilities as a director, Slightham would not have been able to conceal his activities from the shareholders and the market for as long as he did. Tranter’s total disregard for the regulatory obligations faced by market participants is also evidenced by his continuing failure to file insider reports. We consider it to be in the public interest to remove Tranter from participation in the market or with issuers for a very long period. We order

1. under section 144(1)(a) of the Securities Act that Tranter comply with section 70 of the Act;

2. under section 144(1)(c) of the Act that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 do not apply to Tranter for a period of 20 years from the date of this decision;

3. under section 144(1)(d) of the Act that Tranter resign any position he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer until

a) he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and

b) a period of 20 years has elapsed from the date of this decision;

4. under section 144.1 of the Act that Tranter pay an administrative penalty of $10,000, on or before October 1, 1996; and

5. under section 154.2 of the Act that Tranter pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

WATSON

Watson was a director of Beauchamps from May 1991 to March 1993, through much of the period under review. He consented to the June 1, 1992 resolution ratifying past loans and approving future loans to Beaufield, a resolution contrary to Beauchamps’ best interests. Watson was on the board on October 31, 1992, the date of the financial statements which showed that the directors had written off the $118,050 then owing from Slightham because of its questionable recoverability. He was still a director at the time Beauchamps issued its January 31, 1993 financial statements, which showed as an asset $127,632 owing from Slightham. He gave Slightham carte blanche to set his own management fees. He took no steps to set up systems to ensure that Beauchamps was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He permitted Beauchamps to issue financial statements misrepresenting the consideration received for share issuances and the Slightham loans. He made no attempt to set up systems with regard to Beauchamps’ issuance of shares and preparation of financial statements, which enabled Beauchamps to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

Watson was a director of Beaufield from February 1987 to September 1994. He was on Beaufield’s audit committee from at least 1990 to 1994. He signed all of Beaufield’s financial statements from the November 30, 1990 financial statements to those for the year ended August 31, 1991. He failed to set up systems to ensure that Beaufield was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He failed to prevent Slightham from paying himself exorbitant management fees. He permitted Beaufield to issue, and actually signed a number of, financial statements misrepresenting the consideration received for share issuances. He made no attempt to set up systems with regard to Beaufield’s issuance of shares and preparation of financial statements, despite the fact that he was on the audit committee and signed a number of the financial statements during this period. This enabled Beaufield to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

Finally, Watson failed to file timely insider reports disclosing changes in his ownership of securities of Beaufield during times when there were undisclosed material changes in the company’s affairs.

Watson was also a nominee for Slightham and, in performing this role, completely disregarded his duties as a director of both Beauchamps and Beaufield. He was equally cavalier with respect to his duty as an insider to file insider reports. We consider it to be in the public interest to remove Watson from participation in the market or with issuers for a long period. We order

1. under section 144(1)(c) of the Securities Act that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 do not apply to Watson for a period of 10 years from the date of this decision;

2. under section 144(1)(d) of the Act that Watson resign any position he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer until

a) he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and

b) a period of 10 years has elapsed from the date of this decision;

3. under section 144.1 of the Act that Watson pay an administrative penalty of $5,000, on or before October 1, 1996; and

4. under section 154.2 of the Act that Watson pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

REDFORD

Redford was a director of Beauchamps from August 1989 to August 1993, almost all of the period under review. He was on Beauchamps’ audit committee for part of 1993. Redford was advised in late 1990 by Beauchamps’ former auditors of financial irregularities involving Slightham but, other than discussing it with Slightham and Bence, did nothing to ensure that these irregularities were corrected. He consented to the June 1, 1992 resolution ratifying past loans and approving future loans to Beaufield, which was clearly contrary to Beauchamps’ best interests. He consented to the April 29, 1991 resolution ratifying past loans and approving future loans to Slightham, which, once again, was clearly contrary to Beauchamps’ best interests. He was on the board when the directors wrote off the $118,050 then owing from Slightham because of its questionable recoverability. He was still a director at the time Beauchamps issued its January 31 and April 30, 1993 financial statements, each of which showed as an asset a significant amount owing from Slightham. He attended the meeting of April 21, 1993, with Slightham and Bence at which Bence expressed serious concerns regarding the Slightham loans. Redford permitted Beauchamps to issue financial statements misrepresenting the consideration received for share issuances and the Slightham loans. He gave Slightham carte blanche to set his own management fees. He took no steps to set up systems to ensure that Beauchamps was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He made no attempt to set up systems with regard to Beauchamps’ issuance of shares and preparation of financial statements, which enabled Beauchamps to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

Redford was a director of Beaufield from October 1992 to August 1993, less than one year. During that period, he failed to set up systems to ensure that Beaufield was meeting the disclosure and approval obligations established by the Securities Act and the Exchange. He permitted Beaufield to issue financial statements misrepresenting the consideration received for share issuances. He made no attempt to set up systems with regard to Beaufield’s issuance of shares and preparation of financial statements, which enabled Beaufield to issue shares for insufficient consideration and to give Slightham financial assistance to purchase shares, in contravention of the Company Act.

Redford was another nominee for Slightham, one who completely disregarded his duties as a director of both Beauchamps and Beaufield. Of the three nominee directors, Redford had the most notice regarding the financial irregularities arising from Slightham’s management of Beauchamps. Yet Redford took no steps, aside from a discussion with Slightham and Bence in 1990, to prevent Slightham’s mismanagement and plundering of the two companies. We consider it to be in the public interest to remove Redford from participation in the market or with issuers for a long period. We order

1. under section 144(1)(c) of the Securities Act that the exemptions described in sections 30 to 32.1, 55, 58, 80 and 81 do not apply to Redford for a period of 10 years from the date of this decision;

2. under section 144(1)(d) of the Act that Redford resign any position he holds as a director or officer of an issuer and is prohibited from becoming or acting as a director or officer of any issuer until

a) he has successfully completed a course of study satisfactory to the Executive Director concerning the duties and responsibilities of directors and officers; and

b) a period of 10 years has elapsed from the date of this decision; and

3. under section 154.2 of the Act that Redford pay prescribed fees or charges for the costs of or related to the hearing incurred by the Commission and the Executive Director, the amount to be determined following further submissions from the parties.

DATED at Vancouver, British Columbia, on July 29, 1996.

Joyce C. Maykut	Adrienne R. Wanstall
Vice Chair	Member

APPENDIX A

SUMMARY OF INFORMATION IN BEAUCHAMPS’ FINANCIAL

STATEMENTS

YEAR ENDED OCT 31	1990	1991	1992	1993

Current assets	185,375	162,901¹	74,980²	42,728
Cash at end of year	99,843	678	1,192	17
Mining properties and def. exploration expenditures	559,388	265,685	464,015	514,548
Liabilities	16,989	99,208	166,163	247,469
Revenue	5,464	5,091	11,671	3,821
Deficit at end of year	692,901³	1,328,447	1,666,741	2,020,766
Total value of shares issued	412,425	237,150	381,748	291,000
Value of shares issued pursuant to exercise of options and warrants, and private placements	412,425⁴	218,400	318,035	291,000
Value of shares issued “for cash”	412,425	218,400	318,035	75,000
Acq. of mining properties & exploration expenditures	51,860	168,331	251,103	80,748
Management fees paid to Slightham	36,000	42,000	48,000	122,305
Beauchamps-Beaufield loan outstg. at end of year	17,340	61,420	56,586	42,369
Beauchamps-Slightham loan outstg. at end of year	60,692	93,303	1⁵	- ⁶

includes $93,303 owing from Slightham not noted as a current asset

²includes $1 owing from Slightham not noted as a current asset

³deficit at October 31, 1989 was $537,196

⁴includes $312,825 raised in a public offering

⁵ $118,050 written off

⁶ $168,591 owing at July 31, 1993

APPENDIX B

SUMMARY OF INFORMATION IN BEAUFIELD’S FINANCIAL

STATEMENTS

YEAR ENDED AUG 31	1991	1992	1993	1994

Current assets	0	0	10,328	281
Cash at end of year	0	0	10,328	281
Resource properties	4,222,662	1,305,007	1,399,136	1,397,638
Liabilities	136,234	149,432	121,312	99,823
Revenue	404	161	281	155
Deficit at end of year	6,794,077¹	10,113,880	10,419,948	10,865,367
Total value of shares issued	268,550	388,950	438,645	425,363
Value of shares issued pursuant to exercise of options and warrants, and private placements	268,550	373,950	332,663	347,363
Value of shares issued “for cash”	268,550	373,950	170,050	154,400
Acq. of mining properties & exploration expenditures	5,000	24,354	94,131	93,500
Management fees paid to Slightham	320,084	295,012	103,883	51,448
Beaufield-Slightham loan outstanding at end of year	0	0	0	0

^1.

deficit at August 31, 1990 was $6,221,791