Chesapeake Gold Corp.

Chesapeake Gold Corp.
American Gold Capital Corporation

October 30, 2006 11:34 ET

Chesapeake and American Gold Sign Definitive Arrangement Agreement to Complete Business Combination

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 30, 2006) - Chesapeake Gold Corp (TSX VENTURE:CKG) ("Chesapeake") and American Gold Capital Corporation (TSX VENTURE:AAU) ("American Gold"), have concluded a definitive arrangement agreement (the "Agreement") under which American Gold will become a wholly-owned subsidiary of Chesapeake, through a previously-announced plan of arrangement.

Under the Agreement, Chesapeake will issue for every (1) outstanding share of American Gold (i) 0.29 Chesapeake common shares ("Shares"), (ii) 0.145 Chesapeake common share purchase warrants ("Warrants") and (iii) 0.029 Chesapeake Series 1 Class A Shares ("Class A Shares"). American Gold has 30,855,525 common shares issued and outstanding which will result in the issue of 8,948,102 Shares, 4,474,051 Warrants and 894,810 Class A Shares.

Each Warrant shall entitle the holder to purchase one (1) Chesapeake common share at an exercise price of $8.00 for a term of five (5) years.

Each Class A Share shall be convertible, for no additional consideration and for a period of five (5) years, into ten (10) Chesapeake common shares (such that American Gold shareholders will receive, in respect of each American Gold share held, the right to convert into 0.29 Chesapeake common shares) in the event that the average London PM fix closing trading price of gold is equal to or greater than US$850 per ounce on such market during any 90 consecutive day period during the five year term. The five year term will be extended by one year if the trading price for gold has been at or above US $850 per ounce on any day during the last six months of the five year term.

Both companies will continue to seek a listing for the Warrants and the Class A Shares. In the event a stock exchange listing is obtained for the Class A Shares, the conversion ratio for the Class A Shares will be reduced by the value equivalent to $1.00 per Chesapeake share.

If the proposed transaction is completed, it is anticipated that Chesapeake will have a total of 28,685 897 shares issued and outstanding. Of these shares approximately 68.8% will be held by the existing Chesapeake shareholders and 31.2% will be held by the existing American Gold shareholders. In addition it is anticipated that the American Gold shareholders will hold Warrants to acquire approximately 4.5 million additional shares and Class A Shares entitling them to acquire a further approximately 9.1 million shares which if fully vested would represent approximately 53.4% of the then outstanding shares of the combined company.

In relation to the Agreement, certain shareholders of American Gold holding 4,985,000 shares (16.2% of the outstanding shares of American Gold) and of Chesapeake holding 2,558,952 shares (13% of the outstanding shares of Chesapeake) have entered into voting and standstill agreements.

The proposed transaction remains subject to the approval of American Gold shareholders and regulatory authorities and certain other conditions.

Complete details of the proposed transaction will be included in an information circular expected to be filed and sent to American Gold shareholders for a special meeting. A special meeting of American Gold shareholders is expected to take place on or about December 19, 2006 in order to vote on the transaction. Subsequent to approval at the shareholder meeting and receipt of regulatory and court approvals, the transaction is anticipated to close by the end of December.

Forward looking statements

This press release contains certain forward looking statements that may involve a number of risks and uncertainties. Actual events or results could differ materially from the company's expectations and projections.

The TSX has neither approved nor disapproved the information contained in this press release.

Contact Information

  • Chesapeake Gold Corp.
    P. Randy Reifel
    (604) 731-1094
    American Gold Capital Corporation
    Chris K. Falck
    (604) 689-1765 Extension. 1