Unassociated Document
As filed with the Securities and Exchange Commission on April 30 , 2010
Registration No. 333 165866

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment no. 1
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Capital Gold Corporation
(Exact name of registrant as specified in its charter)

Delaware
1040
13-3180530
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

76 Beaver Street, 14th Floor
New York, New York 10005
(212) 344-2785
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

John Brownlie
President and Chief Operating Officer
Capital Gold Corporation
76 Beaver Street, 14th Floor
New York, New York 10005
(212) 344-2785
(212) 344-4537 — Facsimile
 (Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
 
Barry I. Grossman, Esq.
Sarah E. Williams, Esq.
Kathleen L. Cerveny, Esq.
Ellenoff Grossman & Schole LLP
150 East 42nd Street
New York, NY 10017
(212) 370-1300
(212) 370-7889 — Facsimile
Jonathan H. Gardner, Esq.
Kavinoky Cook LLP
726 Exchange Street, Suite 800
Buffalo, New York 14210
(716) 845-6000
(716) 845-6474 – Facsimile

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective and all other conditions to the transactions contemplated by the Business Combination Agreement described in the included proxy statement/prospectus have been satisfied or waived.
 
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ¨
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨
Smaller reporting company  ¨
   
(Do not check if a smaller reporting company)
 
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
 
o Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
 
o Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
 
CALCULATION OF REGISTRATION FEE
                         
         
Proposed Maximum
   
Proposed Maximum
   
Amount of
 
Title of Each Class of
 
Amount to be
   
Offering
   
Aggregate
   
Registration
 
Securities to be Registered
 
Registered(1)
   
Price Per Security
   
Offering Price
   
Fee(2)
 
Shares of common stock, par value $0.0001 per share
    12,099,135     $ 3.335 (3)   $ 40,350,616     $ 2,877.00  
Shares of common stock underlying Warrants exercisable for one share of common stock par value $0.0001 per share
    4,830,938     $ 5.15 (4)   $ 24,879,331     $ 1,773.90  
Shares of common stock underlying Options exercisable for one share of common stock par value $0.0001 per share
    1,218,403     $ 4.77 (4)   $ 5,811,783     $ 414.39  
Total
    18,148,476           $ 71,041,730     $ 5,065.29 (5)  

(1)           In accordance with Rule 416, shares of common stock offered hereby shall also be deemed to cover additional securities to be offered or issued to prevent dilution pursuant to stock splits, stock dividends or similar transactions.
 
(2)           Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $71.30 per $1,000,000 of the proposed maximum aggregate offering price.
 
(3)           Estimated pursuant to Rule 457(f)(1) solely for the purpose of computing the amount of the registration fee, based on the average of the high and low prices of the shares of common stock, par value $0.0001 per share, Capital Gold Corporation on the NYSE AMEX on March 29, 2010.
 
(4)           Represents average exercise price of the Warrants or Options, as applicable.
 
(5)           Previously Paid
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further Amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.


 
 

 


PROPOSED BUSINESS COMBINATION – YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Capital Gold Corporation and Nayarit Gold Inc:
 
The Boards of Directors of Capital Gold Corporation (“Capital Gold”) and Nayarit Gold Inc. (“Nayarit”) each have unanimously approved a business combination agreement, including the annexed amalgamation agreement (the “Business Combination Agreement”) dated February 10, 2010 between Capital Gold and Nayarit, as amended on April 29, 2010 (the “Amendment”) pursuant to which Nayarit will become a wholly-owned subsidiary of Capital Gold (the “Business Combination”).

If the Business Combination is completed, all outstanding shares of Nayarit common stock and all outstanding warrants and options to purchase Nayarit common stock will be converted into the right to receive shares of Capital Gold common stock and options to purchase Capital Gold common stock, respectively.  Each outstanding share of Nayarit common stock will be converted into the right to receive 0.134048 shares of Capital Gold common stock, with cash to be paid in lieu of any fractional share.  Based on the number of shares of Nayarit common stock outstanding on February 10, 2010, Capital Gold expects to issue approximately 12,099,135 shares of its common stock in the Business Combination to Nayarit's current stockholders and to reserve for issuance an additional approximately 4,830,938 and 1,218,403 shares of Capital Gold common stock upon the exercise of former Nayarit warrants and options, respectively.  Based on the number of outstanding shares of Nayarit common stock and Capital Gold common stock, after the merger, the current stockholders of Nayarit would own approximately 19.97% of Capital Gold on a non-diluted basis.
 
Capital Gold common stock is listed on the NYSE AMEX under the symbol “CGC” and closed at $3.52 per share on February 10, 2010, the trading day prior to the announcement of the execution of the Business Combination Agreement. Capital Gold common stock is also listed on the Toronto Stock Exchange (the “TSX”) under the symbol “CGC” and closed at CDN$3.73 per share on February 10, 2010.  Nayarit common stock is listed on the TSX Venture Exchange (the “TSX-V”) under the symbol “NYG” and closed at CDN$0.52 per share on February 10, 2010.  If the Business Combination is completed, Nayarit’s common shares will no longer be traded on the TSX Venture Exchange, but shares of Capital Gold will continue to be traded on the NYSE AMEX and the TSX.
 
Stockholders of Capital Gold will be asked at a special meeting (the “Capital Gold Special Meeting”) to approve the Business Combination Agreement and the Business Combination, including the issuance and reservation for issuance of shares of Capital Gold common stock in the Business Combination.  The Capital Gold Special Meeting will be held at 10 a.m on June 11, 2010 at Bayards, One Hanover Square, New York City, New York, 10004, local time.
 
Stockholders of Nayarit will be asked at a special meeting (the “Nayarit Special Meeting”) to approve the Business Combination Agreement and the Business Combination.  The Nayarit Special Meeting will be held at 76 Temple Terrace, Lower Sackville, Nova Scotia, B4C 0A7 on June 11 , 2010 at 11:00 AM, local time.
 
This proxy statement/prospectus provides you with detailed information about Capital Gold, Nayarit, the proposed Business Combination and the Capital Gold Special Meeting and the Nayarit Special Meeting.  We encourage you to read and consider carefully this joint proxy statement/prospectus in its entirety, including annexes. For a discussion of significant matters that should be considered before voting at the special meetings, please see the section entitled “Risk Factors.
 
The board of directors of Capital Gold has fixed the close of business on May 5, 2010, as the record date (the “Capital Gold Record Date”) for the determination of stockholders entitled to notice of and to vote at the Capital Gold Special Meeting and at any adjournment thereof.  A list of stockholders as of the Capital Gold Record Date entitled to vote at the Capital Gold Special Meeting will be open to the examination of any Capital Gold stockholder, for any purpose germane to the Capital Gold Special Meeting, during ordinary business hours before the Capital Gold Special Meeting at the Capital Gold executive offices, and at the time and place of the Capital Gold Special Meeting during the duration of the Capital Gold Special Meeting.

 
 

 

The Board of Directors of Nayarit has fixed the close of business on May 3, 2010, as the record date (the “Nayarit Record Date”) for the determination of stockholders entitled to notice of and to vote at the Nayarit Special Meeting and at any adjournment thereof.  A list of stockholders as of the Nayarit Record Date entitled to vote at the Capital Gold Special Meeting will be open to the examination of any Nayarit stockholder, for any purpose germane to the Nayarit Special Meeting, during ordinary business hours for a period of ten calendar days before the Nayarit Special Meeting at Nayarit’s executive offices in Sackville, Nova Scotia, and at the time and place of the Nayarit Special Meeting during the duration of the Nayarit Special Meeting.
 
Approval of the Business Combination requires the affirmative vote of a majority of the Capital Gold’s common stock voted at the Capital Gold Special Meeting at which a quorum is present and the affirmative vote of a special two-thirds majority of the Nayarit common stock voted at the Nayarit Special Meeting. See the sections entitled “Special Meeting of Stockholders of Capital Gold” and “Special Meeting of Stockholders of Nayarit,” for additional information.
 
After careful consideration, the respective boards of directors of each of Capital Gold and Nayarit have unanimously approved the Business Combination Agreement, the Amendment and the Business Combination.  The respective boards of directors of Capital Gold and Nayarit each have concluded that the combination of the two companies may produce more value than either company could achieve individually.  
 
The Board of Directors of Capital Gold recommends that its stockholders vote or give instruction to vote “FOR” the approval of the Business Combination Proposal to be presented at the Capital Gold Special Meeting.
 
The Board of Directors of Nayarit recommends that its stockholders vote or give instruction to vote “FOR” the approval of the Business Combination Proposal to be presented at the Nayarit Special Meeting.
 
This joint proxy statement/prospectus describes the proposed Business Combination in more detail.  Capital Gold and Nayarit urge you to read this entire document carefully, including the Business Combination Agreement, which is included as Annex I.  For a discussion of risk factors you should consider in evaluating the Business Combination, see the section entitled “Risk Factors” beginning on page 18.
 
Your vote is important.  Whether or not you plan to attend the Capital Gold Special Meeting or the Nayarit Special Meeting, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided.
 
We strongly support the Business Combination of Capital Gold and Nayarit and recommend that you vote in favor of the proposals presented to you for approval.
 
     
John Brownlie
 
Colin Sutherland
President
 
President and Chief Executive Officer
Capital Gold Corporation
 
Nayarit Gold Inc.

 
 

 

CAPITAL GOLD CORPORATION
76 Beaver Street, 14th Floor
New York, NY 10005
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF CAPITAL GOLD CORPORATION
TO BE HELD ON JUNE 11, 2010

To the Stockholders of Capital Gold Corporation:
 
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Capital Gold Special Meeting”) of Capital Gold Corporation (“Capital Gold”), a Delaware corporation, will be held at 10 a.m. on June 11, 2010 at Bayards, One Hanover Square, New York City, New York, 10004, local time. You are cordially invited to attend the Capital Gold Special Meeting, at which meeting stockholders will be asked to consider and vote upon the following proposals, which are more fully described in the accompanying joint proxy statement/prospectus in the section entitled, “Proposals to be Considered by Capital Gold Stockholders.”
 
(1) The Business Combination Proposal — to adopt the business combination agreement, including the annexed amalgamation agreement (the “Business Combination Agreement”) dated as of February 10, 2010 as amended on April 29, 2010 (the “Amendment”) between Capital Gold and Nayarit Gold Inc., an Ontario corporation (“Nayarit”)  pursuant to which Nayarit will amalgamate with a to be formed wholly-owned Ontario subsidiary of Capital Gold and Capital Gold will issue approximately 12,099,135 shares of its common stock to stockholders of Nayarit and reserve for issuance an additional approximately 4,830,938 and 1,218,403 shares of Capital Gold pursuant to warrants and options, respectively, of Nayarit.  As a result of the transaction, Nayarit will become a wholly-owned subsidiary of Capital Gold (the “Business Combination”);
 
(2) The Stockholder Adjournment Proposal — to consider and vote upon the adjournment of the Capital Gold Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, at the time of the Capital Gold Special Meeting, it appears we cannot consummate the transactions contemplated by the Business Combination Agreement and the other proposals to be considered by stockholders (the “Stockholder Adjournment Proposal”); and
 
(3) Such other procedural matters as may properly come before the Capital Gold Special Meeting or any adjournment or postponement thereof.
 
After careful consideration, the Board of Directors of Capital Gold has unanimously approved the Business Combination Agreement the Amendment and the Business Combination and unanimously recommends that you vote or give instruction to vote “FOR” the Business Combination Proposal.
 
All Capital Gold stockholders are cordially invited to attend the Capital Gold Special Meeting in person.  To ensure your representation at the Capital Gold Special Meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible.  If you are a stockholder of record of Capital Gold common stock, you may also cast your vote in person at the Capital Gold Special Meeting.  If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the Capital Gold Special Meeting and vote in person, you must obtain a proxy from your broker or bank.
 
The Board of Directors of Capital Gold has fixed the close of business on May 5, 2010 as the record date for the determination of stockholders entitled to notice of and to vote at the Capital Gold Special Meeting and at any adjournment or postponement thereof.  As of the record date, there were [            ] shares of Capital Gold common stock issued and outstanding and entitled to vote at the Capital Gold Special Meeting.

 
 

 
 
A complete list of Capital Gold stockholders of record entitled to vote at the Capital Gold Special Meeting will be available for ten days before the Special Meeting at the principal executive offices of Capital Gold for inspector by stockholders during ordinary business hours for any purpose germane to the Capital Gold Special Meeting. 
  
Your vote is important.  Please sign, date and return your proxy card as soon as possible to make sure that your shares are represented at the Capital Gold Special Meeting.  If you are a stockholder of record of Capital Gold common stock, you may also cast your vote in person at the Capital Gold Special Meeting.  If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares.
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
 
Christopher Chipman
Secretary
 
[     ], 2010
 
ALL PROPERLY SIGNED AND DATED PROXIES THAT CAPITAL GOLD RECEIVES PRIOR TO THE VOTE AT THE CAPITAL GOLD SPECIAL MEETING, AND THAT ARE NOT SUBSEQUENTLY REVOKED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED ON THE PROXIES. ALL PROPERLY SIGNED AND DATED PROXIES RECEIVED BY CAPITAL GOLD PRIOR TO THE VOTE AT THE CAPITAL GOLD SPECIAL MEETING THAT DO NOT PROVIDE ANY DIRECTION AS TO HOW TO VOTE IN REGARDS TO THE BUSINESS COMBINATION PROPOSAL WILL BE VOTED FOR APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.

 
 

 
 
NAYARIT GOLD INC.
76 Temple Terrace, Suite 150
Lower Sackville, Nova Scotia
B4C 0A7
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF NAYARIT GOLD INC.
TO BE HELD ON JUNE 11, 2010
 
To the Stockholders of Nayarit Gold Inc.:
 
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Nayarit Special Meeting”) of Nayarit Gold Inc. (“Nayarit Gold”), an Ontario corporation, will be held at 11 a.m., local time, on June 11, 2010, at 76 Temple Terrace, Lower Sackville, Nova Scotia, B4C0A7.  You are cordially invited to attend the Nayarit Special Meeting, at which meeting stockholders will be asked to consider and vote upon the following proposal, which is more fully described in this proxy statement/prospectus under the heading, “Proposal to be Considered by Nayarit Stockholders.”
 
(1) The Business Combination Proposal—to approve by special resolution the business combination agreement (the “Business Combination Agreement”) dated as of February 10, 2010 as amended on April 29, 2010 (the “Amendment”) between Nayarit and Capital Gold Corporation (“Capital Gold”) pursuant to which Nayarit will amalgamate with a to be formed wholly-owned Ontario subsidiary of Capital Gold and the stockholders of Nayarit and holders of other Nayarit securities will receive securities of Capital Gold in exchange for the securities of Nayarit that they hold as of the record date for the transaction, as more fully described in the joint proxy statement/prospectus that accompanies this Notice (the “Business Combination”); and
 
(2) Such other procedural matters as may properly come before the Nayarit Special Meeting or any adjournment or postponement thereof.
 
After careful consideration, the Board of Directors of Nayarit has unanimously approved the Business Combination Agreement, the Amendment and the Business Combination and unanimously recommends that you vote or give instruction to vote “FOR” the Business Combination Proposal.
 
Stockholders of Nayarit have certain dissenters rights under the Ontario Business Corporations Act. See “Special Meeting of Stockholders of Nayarit – Nayarit Stockholders’ Dissenter Rights” in the enclosed joint proxy statement/prospectus.
 
All Nayarit stockholders are cordially invited to attend the Nayarit Special Meeting in person.  To ensure your representation at the Nayarit Special Meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible.  If you are a stockholder of record of Nayarit common stock, you may also cast your vote in person at the Nayarit Special Meeting.  If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the Nayarit Special Meeting and vote in person, you must obtain a proxy from your broker or bank.
 
The Board of Directors of Nayarit has fixed the close of business on May 3, 2010 as the record date for the determination of stockholders entitled to notice of and to vote at the Nayarit Special Meeting and at any adjournment or postponement thereof.  As of the record date, there were 91,709,665 shares of Nayarit common stock issued and outstanding and entitled to vote at the Nayarit Special Meeting.
 
Your vote is important.  Please sign, date and return your proxy card as soon as possible to make sure that your shares are represented at the Nayarit Special Meeting.  If you are a stockholder of record of Nayarit common stock, you may also cast your vote in person at the Nayarit Special Meeting.  If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares.   Registered stockholders of Nayarit have the right to dissent with respect to the Business Combination and, if the Business Combination becomes effective, to be paid the fair value of their shares of Nayarit common stock in accordance with the provisions of Section 185 of the Business Corporations Act (Ontario) (the “Ontario Act”).  A dissenting stockholder must send to Nayarit a written objection to the Business Combination resolution which written objection must be received by the Chief Financial Officer of Nayarit or the Chairman of the Nayarit Special Meeting before the Nayarit Special Meeting.  A Nayarit stockholder's right to dissent is more particularly described in the accompanying joint proxy statement/prospectus and the text of Section 185 of the Ontario Act is set forth as Annex II to the joint proxy statement/prospectus. Failure to strictly comply with the requirements set forth in Section 185 of the Ontario Act may result in the loss of any right of dissent.  Only registered stockholders of Nayarit are entitled to dissent.

 
 

 
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
 
Colin Sutherland
President and Chief Executive Officer

[                ], 2010

ALL PROPERLY SIGNED AND DATED PROXIES THAT NAYARIT RECEIVES PRIOR TO THE VOTE AT THE NAYARIT SPECIAL MEETING, AND THAT ARE NOT SUBSEQUENTLY REVOKED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED ON THE PROXIES. ALL PROPERLY SIGNED AND DATED PROXIES RECEIVED BY NAYARIT PRIOR TO THE VOTE AT THE NAYARIT SPECIAL MEETING THAT DO NOT PROVIDE ANY DIRECTION AS TO HOW TO VOTE IN REGARDS TO THE BUSINESS COMBINATION PROPOSAL WILL BE VOTED FOR APPROVAL OF THE BUSINES COMBINATION PROPOSAL.
 
Nayarit stockholders should return their completed proxy cards to:
 
Computershare Trust Company of Canada
1969 Upper Water Street
Purdy’s Wharf II
Suite 2008
Halifax, Nova Scotia B3J 3R7

 
 

 
 
The information in this proxy statement/prospectus is not complete and may be changed.  We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY COPY – SUBJECT TO COMPLETION, DATED April 30 , 2010
 
PROXY STATEMENT/PROSPECTUS
 
CAPITAL GOLD CORPORATION
AND
NAYARIT GOLD INC.

We are pleased to announce that the Board of Directors of Capital Gold Corporation (“Capital Gold”) and the Board of Directors of Nayarit Gold Inc. (“Nayarit”), have agreed to a Business Combination between Capital Gold and Nayarit pursuant to a business combination agreement dated as of February 10, 2010, including the annexed amalgamation agreement (the “Business Combination Agreement”) as amended on April 29, 2010 (the “Amendment”).
 
The Business Combination Agreement is attached as Annex I to this joint proxy statement/prospectus.  We encourage you to read the Business Combination Agreement in its entirety, including all annexes.
 
Pursuant to the Business Combination Agreement, Nayarit will amalgamate with a corporation to be organized under the Ontario Business Corporation Act (the “Ontario Act”) as a wholly-owned subsidiary of Capital Gold and the Nayarit stockholders will receive 12,099,135 shares of Capital Gold common stock in exchange for all issued and outstanding shares of Nayarit common stock.  In addition, holders of Nayarit options and warrants will receive shares of Capital Gold upon the exchange of their options and warrants on the same basis.
 
Capital Gold common stock is listed on the NYSE AMEX under the symbol “CGC” and closed at USD$3.52 per share on February 10, 2010. Capital Gold common stock is also listed on the Toronto Stock Exchange (the “TSX”) under the symbol “CGC” and closed at CAD$3.73 per share on February 10, 2010. Nayarit common stock is listed on the TSX Venture Exchange (the “TSX-V”) under the symbol “NYG” and closed at CAD$0.52 per share on February 10, 2010.
 
Under the NYSE AMEX rules, stockholder approval is required to be obtained where the number of shares of a listed company issued or issuable in connection with an acquisition exceeds 19.99% of the number of issued and outstanding shares of the company on a non-diluted bases. Under the rules of the TSX, stockholder approval is required to be obtained where the number of shares of a listed company issued or issuable in connection with an acquisition transaction (which includes a merger or amalgamation) exceeds 25% of the number of shares of the company outstanding, on a non-diluted basis. Capital Gold stockholder approval is required under the rules of both the NYSE AMEX and the TSX for the completion of the Business Combination, as the relevant dilution threshold described immediately above for each stock exchange will be exceeded.
 
This joint proxy statement/prospectus provides you with detailed information about the Business Combination.  You are encouraged to carefully read this entire document and the documents annexed hereto, including the Business Combination Agreement.  You will note that sections of this joint proxy statement/prospectus are directed specifically to the stockholders of Capital Gold and sections of this joint proxy statement/prospectus are directed specifically to the stockholders of Nayarit.  Please pay attention to the section headings in this document.
 
YOU SHOULD ALSO CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 18, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS BEFORE YOU DECIDE WHETHER TO VOTE OR INSTRUCT YOUR VOTE TO BE CAST TO ADOPT THE BUSINESS COMBINATION PROPOSALS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
 
Capital Gold and Nayarit are soliciting the enclosed proxy cards on behalf of their respective Boards of Directors, and they will pay all costs of preparing, assembling and mailing their respective proxy materials.  In addition to mailing out proxy materials, Capital Gold’s and Nayarit’s officers may solicit proxies from their respective stockholders by telephone or fax, without receiving any additional compensation for their services.  Capital Gold and Nayarit have requested brokers, banks and other fiduciaries to forward proxy materials to the beneficial owners of their common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission nor any Province of Canada has determined if the attached proxy statement/prospectus is truthful or complete nor has the Securities and Exchange Commission or any state securities commission approved or disapproved the Capital Gold Stock to be issued or issuable in the Business Combination or determined if the information in this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 
 

 

This joint proxy statement/prospectus is dated [           ], 2010 and is first being mailed to the Capital Gold and Nayarit stockholders on or about [           ], 2010.

 
 

 

TABLE OF CONTENTS
 
Page
QUESTIONS AND ANSWERS FOR ALL STOCKHOLDERS ABOUT THE BUSINESS COMBINATION PROPOSALS
1
QUESTIONS AND ANSWERS FOR CAPITAL GOLD STOCKHOLDERS
5
QUESTIONS AND ANSWERS FOR NAYARIT STOCKHOLDERS
6
SUMMARY
8
Information About The Parties To The Business Combination
8
Capital Gold Corporation
8
Nayarit Gold, Inc.
8
Summary Of The Business Combination
8
The Business Combination Agreement
8
Risks Associated with Capital Gold and the Business Combination
9
Vote of Stockholders Required
9
Recommendations of the Respective Boards of Directors
9
Interests of Directors and Executive Officers
9
Conditions to the Completion of the Business Combination
9
Completion and Effectiveness of the Business Combination
10
Restrictions on Solicitation of Alternative Transactions by Nayarit
10
Termination of the Business Combination Agreement and Payment of Certain Termination Fees
10
Material U.S. Federal Income Tax Consequences of the Business Combination
10
Material Canadian Federal Income Tax Consequences
10
Accounting Treatment of the Amalgamation
12
Nayarit Stockholders’ Dissenter Rights
12
Regulatory Approvals
12
Board of Directors and Management of Capital Gold Following the Business Combination
12
Reasons for Approval of the Business Combination
13
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAPITAL GOLD
14
SELECTED HISTORICAL FINANCIAL INFORMATION OF NAYARIT
15
COMPARATIVE PER SHARE DATA
16
RISK FACTORS
18
Risks Related to the Business Combination and the Combined Entity
18
Risks Related to Capital Gold
22
Risks Related to Ownership of Capital Gold Stock
27
THE BUSINESS COMBINATION
30
Overview and Structure of the Business Combination
30
Closing and Effective Time of Amalgamation
31
Conditions to Closing of the Amalgamation
31
Accounting Treatment of the Amalgamation
31
Regulatory Approvals 
31
Representations and Warranties of Capital Gold and Nayarit in the Business Combination Agreement
33
Covenants of the Parties
33
Non-Solicitation
33
Indemnifications Provisions
34
Termination
34
Effect of Termination
34
Break Fee
35
COMPARISON OF RIGHTS OF NAYARIT STOCKHOLDERS AND CAPITAL GOLD STOCKHOLDERS
36
Authorized Capital
36
Number and Election of Directors
36
Removal of Directors
36
Filling Vacancies on the Board of Directors
36
Stockholder Meetings and Provisions for Notices; Proxies
37
Quorum and Voting by Stockholders
37
Stockholder Action Without a Meeting
37
Amendment of Certificate or Articles of Incorporation
38
Amendment of Bylaws
38
Anti-Takeover Statutes
38
Limitation of Liability and Indemnification of Directors and Officers
39

 
i

 

Appraisal/Dissenters Rights
39
Dividends
40
DOCUMENTS INCORPORATED BY REFERENCE
41
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
41
SPECIAL MEETING OF STOCKHOLDERS OF CAPITAL GOLD
42
General
42
Date, Time and Place
42
Purpose of the Special Meeting of Stockholders
42
Recommendation of Capital Gold’s Board of Directors to Stockholders
42
Record Date; Who is Entitled to Vote
42
Quorum and Required Vote for Stockholder Proposals
42
Abstentions and Broker Non-Votes
43
Voting Your Shares of Common Stock
43
Revoking Your Proxy
43
No Additional Matters May Be Presented at the Special Meeting
43
Who Can Answer Your Questions About Voting Your Capital Gold Shares
44
Appraisal Rights
44
Proxy Solicitation Costs
44
Vote of Management of Capital Gold
44
PROPOSALS TO BE CONSIDERED BY CAPITAL GOLD STOCKHOLDERS
45
The Business Combination Proposal
45
General Description of the Business Combination
45
Background of the Business Combination
45
Capital Gold’s Board of Directors’ Reasons for Approval of the Business Combination
46
Terms of the Business Combination Agreement
48
Certain Benefits of the Directors and Officers and Others in the Business Combination
48
Contact Information for Capital Gold
48
Required Vote
48
Recommendation of Capital Gold’s Board of Directors
49
The Stockholder Adjournment Proposal
50
Purpose
50
Consequences if the Stockholder Adjournment Proposal is Not Approved
50
Required Vote
50
Recommendation of Capital Gold’s Board of Directors
50
SPECIAL MEETING OF STOCKHOLDERS OF NAYARIT
51
General
51
Date, Time and Place
51
Purpose of the Special Meeting of Stockholders
51
Recommendation of Nayarit’s Board of Directors to Stockholders
51
Nayarit Stockholders’ Dissenter Rights
52
Canadian Federal Income Tax Consequences for Holders of Nayarit Shares, Nayarit Warrants and Nayarit Options
54
Certain Material U.S. Federal Income Tax Considerations
56
U.S. Information Reporting
57
Solicitation of Proxies
57
Voting Common Shares
57
Registered Stockholders
58
Non-Registered/Beneficial Stockholders
58
Appointment of Proxy Holders
58
Revocability of Proxies
58
Voting Shares and Principal Stockholders
59
Additional Information
59
Board of Directors Approval
59
PROPOSAL TO BE CONSIDERED BY NAYARIT STOCKHOLDERS
60
The Business Combination Proposal
60
General Description of the Business Combination
60
Background of the Business Combination
61
Nayarit’s Board of Directors’ Reasons for Approval of the Business Combination
61

 
 
ii

 

Terms of the Business Combination Agreement
63
Fairness Opinion of Blair Franklin Capital Partners Inc.
63
Certain Benefits of the Directors and Officers and Others in the Business Combination
64
Required Vote
64
Recommendation of Nayarit’s Board of Directors
64
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
65
INFORMATION ABOUT CAPITAL GOLD
73
Sonora, Mexico Concessions
73
Properties
73
Other Properties
80
Competition
80
Employees
80
Legal Proceedings
81
Capital Gold’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for Years ended July 31, 2009, 2008 and 2007
81
Overview
81
Results of Operations
82
Liquidity and Capital Resources
87
Recently Issued Accounting Pronouncements
90
Capital Gold’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for Six Months ended January 31, 2010
98
Receipt of Technical Report for Updated Reserves at El Chanate
98
El Oso Project-Saric Properties-Sonora, Mexico
100
Results of Operations
101
Liquidity and Capital Resources
105
Management of Capital Gold
112
Directors and Executive Officers
112
Board Leadership Structure and Role in Risk Oversight
114
Committees
115
Corporate Governance
118
Compliance with Section 16(a) of the Exchange Act
118
Compensation of Directors
118
Executive Compensation of Capital Gold
119
Compensation Discussion and Analysis
119
Compensation Committee Report
133
Audit Committee Report
133
Beneficial Ownership of Capital Gold’s Securities
134
Interest of Capital Gold’s Stockholders in the Transaction
136
Certain Relationships and Related Transactions of Capital Gold
136
Description of Securities of Capital Gold
136
Common Stock
137
Anti-Takeover Provisions
137
Transfer Agent and Warrant Agent
138
Price Range of Capital Gold Shares and Dividend Policy
138
INFORMATION ABOUT NAYARIT
140
Name and Incorporation
140
Intercorporate Relationships
140
Description of Business
140
Property Description and Location
140
Dividends or Distributions
151
Selected Financial Information
151
Nayarit’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Year ended September 30, 2009
151
Results of Operations
151
Capital Resources
152
Off-Balance Sheet Arrangements
152
Transactions with Related Parties
152
 
iii

 
Proposed Transactions
152
Critical Accounting Estimates
152
Changes in Accounting Policies and Pronouncements
152
Future Accounting Changes – Canadian GAAP
153
Recently Issued Accounting Pronouncements – U.S. GAAP
154
Management’s Responsibility for Financial Statements
155
Risks and Uncertainties
155
Outstanding Shares
155
Description of Securities
155
Directors and Officers
159
Committees of the Board of Directors
161
Corporate Cease Trade Orders or Bankruptcies
162
Individual Bankruptcies
162
Penalties or Sanctions
162
Executive Compensation
162
Director Compensation
168
Indebtedness of Directors and Executive Officers
170
Statement of Corporate Governance Practices
170
Form 58-101 – Corporate Governance Disclosure (TSX Issuers)
171
Legal Proceedings and Regulatory Actions
175
Conflicts of Interest
175
Interest of Certain Persons in Matters to be Acted Upon
176
Interest of Informed Persons in Material Transactions
176
Non-Arm’s Length Party Transactions
176
Registrar and Transfer Agent
177
Material Contracts
177
Experts and Interests of Experts
177
Other Material Facts
177
Approvals
177
MANAGEMENT OF CAPITAL GOLD FOLLOWING THE BUSINESS COMBINATION
178
Directors and Executive Officers
178
Committees of the Board of Directors
178
Code of Conduct and Ethics
180
Director Compensation
180
Executive Compensation
180
Employment Agreements
180
Corporate Headquarters
180
GLOSSARY OF TERMS
181
Technical Terms
181
Additional Definitions
181
LEGAL MATTERS
183
EXPERTS
183
OTHER MATTERS
183
DEADLINE FOR RECEIPT OF CAPITAL GOLD STOCKHOLDER PROPOSALS
183
DELIVERY OF MATERIALS TO STOCKHOLDERS WITH SHARED ADDRESSES
184
WHERE YOU CAN FIND MORE INFORMATION
184
INDEX TO FINANCIAL STATEMENTS
F-2
   
ANNEX I   – BUSINESS COMBINATION AGREEMENT, AS AMENDED
I-1
ANNEX II  – RIGHTS OF DISSENTING STOCKHOLDERS OF NAYARIT
II-1
ANNEX III – FAIRNESS OPINION OF BLAIR FRANKLIN CAPITAL PARTNERS INC.
III-1

TRADEMARKS, TRADENAMES, SERVICE MARKS AND SERVICE NAMES

This proxy statement/prospectus contains trademarks, tradenames, service marks and service names of Capital Gold Corporation and Nayarit Gold, Inc. and others.that are used in conjunction with the operation of their respective businesses.

 
iv

 

QUESTIONS AND ANSWERS FOR ALL STOCKHOLDERS
ABOUT THE BUSINESS COMBINATION PROPOSALS

The following questions and answers briefly address some commonly asked questions about the Business Combination Proposals to be presented at the Capital Gold Special Meeting of Stockholders and the Nayarit Special Meeting of Stockholders. The following questions and answers may not include all the information that is important to stockholders. We urge stockholders to read carefully this entire proxy statement/prospectus, including the annexes and the other documents referred to herein.

Q.   Why am I receiving this joint proxy statement/prospectus?
 
 
A.   Capital Gold and Nayarit have agreed to a Business Combination under the terms of a Business Combination Agreement that is described in this joint proxy statement/prospectus.  In order to complete the Business Combination the stockholders of both Capital Gold and Nayarit must approve the Business Combination Agreement.
 
Q.   Why is the Business Combination between Capital Gold and Nayarit being proposed?
 
A.   Both Capital Gold and Nayarit believe that the combined company will create more value than either company could achieve individually. The combined company will have greater assets in Mexico with significant exploration potential, revenues from Capital Gold’s producing mine and greater management depth. As such, management of both companies believe that the combined company will be better positioned to attract additional investment and that the stock of Capital Gold may receive greater investor attention as Capital Gold progresses to become a mid-tier precious metals producer in Latin America.
 
Stockholders are encouraged to review their respective management’s reasons for the Business Combination in “Proposals to be Considered by Capital Gold Stockholders—The Business Combination Proposal” and “Proposal to be Considered by Nayarit Stockholders—The Business Combination Proposal,” herein.
 
Q.   What will a Nayarit stockholder receive in exchange for Nayarit common stock pursuant to the Business Combination?
 
A.   All of the Nayarit shares of common stock (the “Nayarit Common Shares”) issued and outstanding immediately prior to the consummation of the Business Combination (other than Nayarit Common Shares held by dissenting stockholders of Nayarit) shall become exchangeable into the common stock of Capital Gold on the basis of 0.134048 shares of Capital Gold common stock for each one (1) Nayarit Common Share. See “The Business Combination.”
 
Q.   What will a Nayarit option holder receive in exchange for Nayarit options pursuant to the Business Combination?
 
A.   Upon completion of the Amalgamation, each option to purchase Nayarit Common Shares outstanding immediately prior to the Effective Time of the Amalgamation (the “Effective Time”) will become an option to purchase, on the same terms, 0.134048 shares of Capital Gold common stock for each Nayarit Common Share for which the option was exercisable. See “The Business Combination.”
 
Q.   What will a Nayarit warrant holder receive in exchange for Nayarit warrants pursuant to the Business Combination?
 
A.   Upon completion of the Amalgamation, each warrant to purchase Nayarit Common Shares outstanding immediately prior to the effective time of the Amalgamation will become an option to purchase, on the same terms, 0.134048 shares of Capital Gold common stock for each Nayarit Common Share for which the warrant was exercisable.  See “The Business Combination.”
 

 
1

 

Q.   Who will be the directors of Capital Gold following the Business Combination?
 
A.   Upon the consummation of the Business Combination, the board of directors will consist of  Stephen Cooper, John Cutler, Leonard Sojka, each a current director of Capital Gold, and Colin Sutherland a nominee of Nayarit and a nominee of Capital Gold.
 
Q.   When do you expect the Business Combination to be completed?
 
A.   Capital Gold and Nayarit are working to complete the Business Combination as promptly as possible. The completion of the Business Combination, however, is subject to the satisfaction of a number of conditions.  Assuming the timely satisfaction of these conditions, Capital Gold and Nayarit hope to complete the Amalgamation in the second calendar quarter of 2010.
 
Q.   What stockholder approvals are needed to complete the Business Combination?
 
A.   Holders of a majority of the shares of Capital Gold common stock voted at the Capital Gold special meeting must approve the Business Combination Agreement and the issuance of Capital Gold common stock in connection with the Business Combination.
 
Holders of a special two-thirds majority of the outstanding Nayarit Common Shares present or represented by proxy at the Nayarit special meeting of stockholders (the “Nayarit Special Meeting”) must approve the Business Combination Agreement.
 
Q.   How does the board of directors of Capital Gold recommend I vote on the proposal?
 
A.   The board of directors of Capital Gold recommends that stockholders vote in favor of the Business Combination Proposal.
 
Q.   How does the board of directors of Nayarit recommend I vote on the proposal?
 
A.   The board of directors of Nayarit recommends that stockholders vote in favor of the applicable Business Combination Proposal.
 
Q.   How will the officers and directors of Capital Gold and Nayarit vote?
 
A.   The officers and directors of each of Capital Gold and Nayarit have indicated that they intend to vote any shares held by them in favor of the respective Business Combination Proposals.
 
Q.   Is there a penalty if the Business Combination Proposal is not approved?
 
A.   The Business Combination provides that a “break fee” of $1 million (the “Break Fee”) will be payable in the event that the Business Combination is not consummated because (i) either Capital Gold or Nayarit fails to consummate the Business Combination as a result of the decision by one of their boards of directors to change its recommendation to its stockholders to approve the Business Combination; (ii) if Nayarit accepts an acquisition proposal from a third party for its stock or material assets; (iii) if Capital Gold’s or Nayarit’s action or inaction, through no fault of the other party, results in the termination of the Business Combination Agreement, or (iv) if the required stockholder approval is not obtained, then the party that failed to consummate the Business Combination would be obligated to pay the other party the Break Fee.  See “The Business Combination—Break Fee.”
 
Q.   What do I need to do now?
 
A.   After carefully reading and considering the information contained in and incorporated into this proxy statement/prospectus, please submit your proxy card according to the instructions on the enclosed proxy card as soon as possible. Unless you submit the applicable proxy card or attend the relevant special meeting and vote in person, your shares will not be represented or voted at the applicable special meeting.
 

 
2

 

Q.   How do I vote?
 
A.   If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares. If you wish to attend the Capital Gold Special Meeting or the Nayarit Special Meeting and vote in person, you must obtain a proxy from your broker, bank or nominee to vote your shares at the relevant special meeting.
 
Q.   What will happen if I sign and return my proxy card without indicating how I wish to vote?
 
A.   Signed and dated proxies received by Capital Gold or Nayarit without an indication of how the stockholder intends to vote on a proposal will be voted in favor of the relevant Business Combination Proposal and, in the case of Capital Gold, for the Stockholder Adjournment Proposal.
 
Q.   If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?
 
A.   No. Your broker, bank or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. Capital Gold and Nayarit believe the Business Combination Proposals presented to their respective stockholders will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instructions.
 
With respect to Capital Gold stockholders only, if you do not provide instructions with your proxy or sign your proxy card your bank or broker may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank or broker is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will be counted for purposes of determining whether a quorum is present, but will not count for purpose of determining the number of votes cast at the Capital Gold Special Meeting. Your bank, broker or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.
 
Q.   May I change my vote after I have mailed my signed proxy card?
 
A.   Yes. You may change your vote by sending a later-dated, signed proxy card to your company’s corporate secretary at the address set forth below so that it is received by your company’s secretary prior to your company’s Special Meeting, or attend your company’s Special Meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to your company’s Secretary, which must be received prior to your company’s Special Meeting or, in the case of Nayarit, provide the instrument of revocation to the chairman of the Nayarit Special Meeting at the time of that meeting.
 
Q.   What should I do if I receive more than one set of voting materials?
 
A.   You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. If you hold shares of Capital Gold and Nayarit, you will receive a set of voting materials from both companies.
 
 
3

 
Q.   Who can help answer my questions about the Business Combination?
 
A.   If you have questions about the Business Combination or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card you should contact the following persons:
 
Capital Gold stockholders should contact:
 
Christopher Chipman, Secretary
Capital Gold Corporation
76 Beaver Street, 14th Floor
New York, New York 10005.
Tel: (212) 344-2785
Fax: (212) 344-4537
 
or
 
Nayarit stockholders should contact:
 
Colin Sutherland
Nayarit Gold Inc.
76 Temple Terrace
Suite 150
Lower Sackville, Nova Scotia
B4C 0A7
Tel:  (902) 252-3833
Fax:  (902) 252-3836
 

 
4

 

QUESTIONS AND ANSWERS FOR CAPITAL GOLD STOCKHOLDERS

Q.   Why is Capital Gold proposing the Business Combination?
 
A.   Capital Gold believes that the proposed Business Combination will provide substantial benefits to Capital Gold stockholders. The Capital Gold board of directors believes the Business Combination provides stockholders with liquidity, capital raising and strategic and growth opportunities that would not have been readily available to Capital Gold on a stand-alone basis. To review the Capital Gold reasons for the transaction in greater detail, see “Proposals to be Considered by Capital Gold Stockholders – The Business Combination Proposal – Capital Gold’s Board of Directors’ Reasons for Approval of the Business Combination.”
 
Q.   What percentage of Capital Gold will the current Capital Gold stockholders own immediately following the Business Combination?
 
A.   Upon the consummation of the Business Combination, the current Capital Gold stockholders will hold approximately 80.03% of the issued and outstanding shares of Capital Gold common stock on a non-diluted basis.
     
Q.   What will happen if I abstain from voting at the Capital Gold Special Meeting?
 
A.   If you are a Capital Gold stockholder and you do not submit a proxy card or vote at the Capital Gold Special Meeting of Stockholders, your shares will not be counted as present for purposes of determining a quorum and will have no effect on the outcome of the proposal to approve the issuance of Capital Gold common stock in the Business Combination.  If you submit a proxy card and affirmatively elect to abstain from voting, your proxy will be counted for purposes of determining the presence of a quorum but will not be voted at the special meeting. As a result, your abstention will have the same effect as a vote against the issuance of Capital Gold common stock in the Business Combination.
 
Q.   As a stockholder of Capital Gold, do I have appraisal rights if I object to the Business Combination?
 
A.   No appraisal rights are available to stockholders of Capital Gold under the DGCL in connection with the proposals set forth herein.
     
Q.   If I am not going to attend the Capital Gold Special Meeting in person, should I return my proxy card instead?
 
A.   Yes. Whether or not you plan to attend the Capital Gold Special Meeting, after carefully reading and considering the information contained in this proxy statement, please complete and sign your proxy card. Then return the proxy card in the enclosed return envelope provided in this package as soon as possible, to ensure your shares are represented at the special meeting.

 
5

 

QUESTIONS AND ANSWERS FOR NAYARIT STOCKHOLDERS

Q.   Why is Nayarit proposing the Business Combination?
 
A.   Nayarit believes that the proposed Business Combination will provide substantial benefits to Nayarit stockholders. The Nayarit board of directors believes the Business Combination provides stockholders with liquidity and will make capital and strategic and growth opportunities available to Nayarit that would not be available on a stand-alone basis. To review the Nayarit reasons for the transaction in greater detail, see “Proposal to be Considered by Nayarit Stockholders – The Business Combination Proposal – Nayarit’s Board of Directors’ Reasons for Approval of the Business Combination.”
 
Q.   What percentage of Capital Gold will the former Nayarit stockholders own immediately following the Business Combination?
 
A.   Upon the consummation of the Business Combination, Nayarit stockholders will hold approximately 19.97% of the issued and outstanding shares of Capital Gold common stock on a non-diluted basis.
 
Q.   If I am not going to attend the Nayarit Special Meeting in person, should I return my proxy card instead?
 
A.   Yes. Whether or not you plan to attend the Nayarit Special Meeting, after carefully reading and considering the information contained in this proxy statement, please complete and sign your proxy card. Then return the proxy card in the enclosed return envelope provided in this package as soon as possible, to ensure your shares are represented at the special meeting.
 
Nayarit stockholders should return their completed proxy cards to:
 
Computershare Trust Company of Canada
1969 Upper Water Street
Purdy’s Wharf II
Suite 2008
Halifax, Nova Scotia B3J 3R7
 
Q.   Will Nayarit stockholders be taxed on the Capital Gold securities that they receive in exchange for their Nayarit securities?
 
 
A.   For U.S. federal income tax purposes, the Business Combination is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).  Assuming it is so treated, Nayarit stockholders who are U.S. persons should not recognize gain or loss as a result of their receipt of Capital Gold securities in exchange for their Nayarit securities.  No ruling from the IRS or legal opinion is being obtained, however, concerning the qualification of the Business Combination as a tax-free reorganization for U.S. federal income tax purposes.  See “Nayarit Special Meeting—Certain Material U.S. Federal Income Tax Considerations.
     
Q.   As a stockholder of Nayarit, do I have dissenters rights if I object to the Business Combination?
 
A.   Stockholders of Nayarit have certain dissenters rights under the Ontario Act. See “Special Meeting of Stockholders of Nayarit – Nayarit Stockholders’ Dissenter Rights” herein.
     
Q.   What will happen if I abstain from voting at the Nayarit Special Meeting?
 
 
A.   If you are a Nayarit stockholder and you do not submit a proxy card or vote at the special meeting of Nayarit stockholders, your shares will not be counted as present for purposes of determining a quorum and will not be voted at the special meeting.
 
Q.   What are the federal income tax consequences of exercising my dissenters’ rights?
 
 
A.   For U.S. federal income tax purposes, Nayarit stockholders who exercise their dissenters’ rights and receive cash for their Nayarit shares should treat such receipt as a taxable disposition of such shares.  See “Nayarit Special Meeting—Certain Material U.S. Federal Income Tax Considerations.
 

 
6

 

Q.   Should I send in my stock certificates now?
 
A.   No. You should not send in your stock certificates at this time. Promptly after the Effective Time of the Business Combination, Nayarit securityholders will receive transmittal materials with instructions for surrendering the Nayarit securities. You should follow the instructions in the post-closing letter of transmittal regarding how and when to surrender your certificates.

 
7

 

SUMMARY
 
This summary highlights selected information from this joint proxy statement/prospectus and is qualified in its entirety by the more detailed information included elsewhere in this joint proxy statement/prospectus.  Because this is a summary, it may not contain all of the information that is material or important to you.  Accordingly, you should read this entire joint proxy statement/prospectus carefully, including the annexes.  Please also see the section entitled “Where You Can Find More Information.”
 
Information About the Parties to the Business Combination
 
Capital Gold Corporation
 
Capital Gold is engaged in the mining, exploration and development of gold properties in Mexico.  Capital Gold’s primary focus is on the operation and development of the El Chanate project, and Capital Gold also conduct gold exploration in other locations in Sonora, Mexico. (The financial data in this discussion is in thousands, except where otherwise specifically noted.)
 
Capital Gold’s shares of common stock are currently listed on the NYSE AMEX under the symbol “CGC” and on the TSX under the symbol “CGC.” Following the Business Combination, Capital Gold anticipates that the shares of common stock will continue to be listed on the NYSE AMEX and the TSX.
 
The mailing address of Capital Gold’s principal executive office is 76 Beaver Street, 14th Floor, New York, New York 10005.  Its telephone number is (212) 344-2785.
 
Nayarit Gold, Inc.
 
Nayarit is a development stage company engaged primarily in the acquisition and exploration of mineral properties in Mexico.  Nayarit controls approximately 257,000 acres (104,000 hectares) of mining concessions known as the Orion Project in the State of Nayarit Mexico.  The Orion Project lies in the Sierra Madre Occidental, a prolific mining district in Western Mexico.
 
Nayarit’s shares of common stock are currently listed on the TSX-V under the symbol “NYG”. Following the Business Combination, Nayarit’s shares of common stock will be exchanged for shares of Capital Gold which shares will continue to be listed on the NYSE AMEX and the TSX under the symbol “CGC.”
 
The mailing address of Nayarit’s principal executive office is 76 Temple Terrace, Suite 150, Lower Sackville, NS, B4C 0A7, Canada.  Its telephone number is (902) 252-3833.
 
Summary of the Business Combination
 
The Business Combination Agreement (page 30)
 
The respective Boards of Directors of Capital Gold and Nayarit have approved a business combination agreement between Capital Gold and Nayarit dated as of February 10, 2010 (the “Business Combination Agreement”) that would effect the amalgamation of Nayarit into a to be formed wholly owned Canadian subsidiary of Capital Gold.  In this proxy statement/prospectus, we sometimes refer to the transaction covered by the Business Combination Agreement as the “Business Combination”.  If the Business Combination is approved by the stockholders of both companies, the parties intend to effect an amalgamation (the “Amalgamation”) of Nayarit and a corporation to be organized under the Ontario Act as a wholly-owned subsidiary of Capital Gold (“Merger Sub”) in accordance with the terms of the amalgamation agreement annexed to the Business Combination Agreement (the “Amalgamation Agreement”), to form a combined entity (“AmalgSub”).  By virtue of the Amalgamation, the separate existence of each of Nayarit and Merger Sub shall thereupon cease, and AmalgSub, as the surviving company in the Amalgamation, shall continue its corporate existence under the Ontario Act as a wholly-owned subsidiary of Capital Gold.

 
8

 

Pursuant to the terms of the Amalgamation Agreement, by virtue of the Amalgamation and without any action on the part of Nayarit or the holders of any securities of Nayarit, all of the Nayarit Shares issued and outstanding immediately prior to the consummation of the Amalgamation Agreement (other than Nayarit Common Shares held by dissenting stockholders of Nayarit) shall become exchangeable into the common stock of Capital Gold on the basis of 0.134048 shares of Capital Gold common stock for each one (1) Nayarit Common Share.  Further, upon completion of the Amalgamation, each option and warrant to purchase Nayarit common stock outstanding immediately prior to the Effective Time of the Amalgamation will become an option or warrant to purchase, on the same terms, 0.134048 shares of Capital Gold common stock for each share of Nayarit common stock for which the option or warrant was exercisable.
 
The Amalgamation Agreement, which is the legal document that governs the Business Combination, is attached as Exhibit A to the Business Combination Agreement attached as Annex I to this proxy statement/prospectus. We encourage you to read it carefully.  Capital Gold and Nayarit also have provided a more detailed description of the Business Combination below under the caption “The Business Combination.”
 
The Amendment to the Business Combination Agreement (page 35)
 
On April 29, 2010, Capital Gold and Nayarit entered into an Amendment to the Business Combination Agreement, pursuant to which, among other things, it amended the provision with respect to the officers and board of directors of Capital Gold subsequent to the closing of the Business Combination. Specifically, because John Brownlie, Capital Gold’s current President and Chief Operating Officer tendered his resignation to be effective at the closing of the Business Combination, those provisions were amended to reflect such resignation.
 
Risks Associated with Capital Gold and the Business Combination (page 18)
 
The Business Combination poses a number of risks to each company and its respective stockholders.  In addition, the shares of Capital Gold common stock to be issued to Nayarit stockholders in connection with the Business Combination will be subject to various risks associated with the combined businesses of Capital Gold and Nayarit.  These risks are discussed in detail under the caption “Risk Factors.”  Capital Gold and Nayarit encourage you to read and consider all of these risks carefully.
 
Vote of Stockholders Required (pages 48 and 64)
 
A complete list of Capital Gold stockholders of record entitled to vote at the Capital Gold Special Meeting will be available for ten days before the Special Meeting at the principal executive offices of Capital Gold for inspector by stockholders during ordinary business hours for any purpose germane to the Capital Gold Special Meeting.
 
The approval of the Business Combination by Capital Gold, including the issuance of Capital Gold common stock in the Business Combination, requires the affirmative vote of a majority of the shares of Capital Gold common stock voted at the Capital Gold Special Meeting at which a quorum is present.  As of the record date, there were [         ] shares of Capital Gold common stock outstanding and entitled to vote.
 
The approval of the Business Combination by Nayarit requires the affirmative vote of holders of a special two-thirds majority of the shares of Nayarit common stock represented in person or by proxy and voted at the Nayarit Special Meeting at which a quorum is present to vote for the proposal.  As of the record date, there were 91,709,665 shares of Nayarit common stock outstanding and entitled to vote.
 
Recommendation of the Respective Board of Directors (pages 49 and 64)
 
Both of the respective Boards of Directors of Capital Gold has and Nayarit have unanimously determined that the Business Combination, including all of its terms and conditions, is in the best interests of, the stockholders of Capital Gold and the stockholders of Nayarit.  Each Board recommends that their respective stockholders vote FOR approval of the Business Combination.
 
Interests of Directors and Executive Officers (page s48 and 64)
 
As you consider the recommendations of the respective Boards of Directors of Capital Gold and Nayarit, you should be aware that certain officers, directors  and other stockholders of both companies have interests regarding the Business Combination that are different from, or in addition to, your interests as stockholders of the respective companies.  See “Proposals to be Considered by Capital Gold Stockholders—The Business Combination Proposal—Certain Benefits of the Directors and Officers and Others in the Business Combination” and “Proposal to be Considered by Nayarit Stockholders—The Business Combination Proposal—Certain Benefits of the Directors and Officers and Others in the Business Combination.”
 
Conditions to the Completion of the Business Combination (page 31)

Capital Gold and Nayarit's respective obligations to complete the Business Combination are subject to certain conditions described below under “The Business Combination – Conditions to Closing the Amalgamation.”

 
9

 

Completion and Effectiveness of the Business Combination (page 31)
 
Capital Gold and Nayarit expect to complete the Business Combination when all of the conditions to the completion of the Amalgamation contained in the Business Combination Agreement have been satisfied or waived. The Business Combination will become effective upon the filing of Articles of Amalgamation with the Ontario Ministry of Government Services (Companies and Personal Property Security Branch) and the issuance of a Certificate of Amalgamation therefor.
 
Capital Gold and Nayarit are working toward satisfying the conditions to the Business Combination, and hope to complete the Business Combination as soon as practicable following the special meetings of their respective stockholders.
 
Restrictions on Solicitation of Alternative Transactions by Nayarit (page 35)
 
Under the terms of the Business Combination Agreement, Nayarit may not solicit, initiate or, subject to limited exceptions, engage in discussions or negotiations with, or provide material inside information to, any third party regarding any type of extraordinary transactions, including a merger, Business Combination or sale of a material amount of assets or capital stock.
 
Termination of the Business Combination Agreement and Payment of Certain Termination Fees (page 34)
 
Capital Gold and Nayarit may terminate the Business Combination Agreement by mutual agreement and under certain other circumstances.
 
The Business Combination provides that a “break fee” of $1 million (the “Break Fee”) will be payable in the event that the Business Combination is not consummated because certain specified events have occurred.  Such events that would trigger payment of the Break Fee are as follows.  If either Capital Gold or Nayarit, through no fault of the other party, fails to consummate the Business Combination as a result of the decision by one of their boards of directors to change its recommendation to its stockholders to approve the Business Combination, the party whose board changed its recommendation would be obligated to pay the other party the Break Fee.   If Nayarit accepts an acquisition proposal from a third party for its stock or material assets (an “Acquisition Proposal”), then Nayarit would be obligated to pay the Break Fee.  If Capital Gold’s or Nayarit ’s action or inaction, through no fault of the other party, results in the termination of the Business Combination Agreement by the other party pursuant to termination provisions of the Business Combination Agreement, then the party that failed to so progress and consummate the Business Combination would be obligated to pay the other party the Break Fee.   Finally, if either the required Nayarit stockholder approval vote or the Capital Gold stockholder approval vote is not obtained following the public announcement of an Acquisition Proposal, then the defaulting party would be obligated to pay to the other party the Break Fee.
 
Material U.S. Federal Income Tax Consequences of the Business Combination (page 56)
 
For U.S. federal income tax purposes, the Business Combination is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).  Assuming it is so treated, Nayarit stockholders who are U.S. persons should not recognize gain or loss as a result of their receipt of Capital Gold securities in exchange for their Nayarit securities.  No ruling from the IRS or legal opinion is being obtained, however, concerning the qualification of the Business Combination as a tax-free reorganization for U.S. federal income tax purposes. See “Nayarit Special Meeting—Certain Material U.S. Federal Income Tax Considerations.
 
Material Canadian Federal Income Tax Consequences (page 54)
 
The following is a summary of the principal Canadian federal income tax consequences under the Income Tax Act (Canada) (the “Tax Act”) generally applicable in respect of the Business Combination to a holder of Nayarit securities who, for purposes of the Tax Act and at all relevant times, is a resident of Canada, holds Nayarit shares of common stock, Nayarit warrants and/ or Nayarit options to purchase common stock as capital property, deals at arm’s length with Nayarit, is not affiliated with Nayarit or Capital Gold and to whom Nayarit is not is a foreign affiliate.  This summary is not applicable to a holder that is a “financial institution” or a “specified financial institution” as defined in the Tax Act nor to a holder of an interest that is a tax shelter investment.  Generally, securities will be considered to be capital property to the holder thereof unless they are held in the course of carrying on a business of trading or dealing in securities or were acquired in one or more transactions considered to be an adventure in the nature of trade.

 
10

 
 
This summary does not address the income tax considerations of exercising, cancelling or otherwise disposing of any options or warrants to acquire Capital Gold shares, nor does it address all issues relevant to Nayarit Stockholders who acquired shares on the exercise of options or warrants.  This summary does not address the income tax consequences on the exercise cancellation or disposition of Capital Gold options or warrants.  This summary also does not address the income tax consequences to persons who are not resident of Canada for purposes of the Tax Act or any applicable income tax treaty.  Such security holders should consult their own tax advisors with respect to the Amalgamation.
 
This summary is based upon the current provisions of the Tax Act, the Regulations thereunder, all proposed amendments to the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance prior to the date hereof (the “Proposed Amendments”) and counsel’s understanding of the administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) publicly available prior to the date of this proxy statement/prospectus.  Except for the Proposed Amendments, this summary does not take into account or anticipate any changes in the law or administrative policies or assessing practices of the CRA, nor does it take into account the tax law of any province, territory or foreign jurisdiction.  There can be no assurance that the Proposed Amendments will be enacted in the form currently proposed or at all.
 
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder.  Holders of Nayarit shares and Capital Gold shares should consult their own tax advisers to determine the tax consequences to them of the Business Combination.
 
The Amalgamation
 
A holder of Nayarit shares who disposes of Nayarit shares, warrants or options in the Business Combination in exchange for Capital Gold shares, warrants or options, as the case may be, will generally be deemed to have disposed of such shares for proceeds of disposition equal to the fair market value of the Capital Gold shares, warrants, or options, as the case may be, received on the exchange.
 
Such holder will realize a capital gain to the extent that such proceeds of disposition exceed (or are less than) the adjusted cost base of that holder's Nayarit shares, warrants or options disposed of immediately before the exchange and any reasonable costs of disposition.  A holder of Nayarit shares, warrants or options will acquire the Capital Gold shares, Capital Gold warrants or Capital Gold options, as the case may be, at a cost equal to the fair market value of such Capital Gold shares, Capital Gold warrants or Capital Gold options received on the exchange.  Such capital gain (or capital loss) will be subject to the tax treatment described below under “Capital Gains and Capital Losses.”
 
Dissenting Nayarit Stockholders
 
Dissenting stockholders are advised to consult with their own tax advisors with respect to the tax treatment of payments received as a result of the exercise of the dissent rights described herein.  A Nayarit stockholder who dissents from the Business Combination and thereby becomes entitled to a cash payment that is ultimately paid by Capital Gold should generally be considered to have realized a capital gain (or capital loss) equal to the amount, if any, by which the proceeds of disposition of the Nayarit shares (which will be equal to the amount of the cash payment less any portion that is in respect of interest) exceed (or are exceeded by) the aggregate of the adjusted cost base of the Nayarit shares and any reasonable costs of disposition.  Any amount in respect of interest received by a Nayarit dissenting stockholder will be included in such dissenting stockholder’s income in accordance with the provisions of the Tax Act.
 
The date of disposition of shares disposed of by reason of a stockholder exercising such stockholder’s dissent rights is unclear and dissenting stockholders should consult their tax advisers in this regard.

 
11

 

Dividends on Capital Gold Shares
 
Capital Gold has stated that it does not intend to pay dividends in the foreseeable future.  Dividends received or deemed to have been received by a holder of Capital Gold shares will be included in computing the stockholder’s income.  In the case of an individual stockholder, such dividends will not be eligible for the gross-up and dividend tax credit treatment normally applicable to dividends received from taxable Canadian corporations and in the case of a corporate holder such dividends will not be deductible in computing taxable income.  A holder that is a Canadian-controlled private corporation may be liable to pay an additional refundable tax of 6 2/3% on such dividends.
 
Disposition of Capital Gold Shares
 
On the disposition or deemed disposition of Capital Gold shares, a holder will generally realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition exceed (or are less than) the holder’s adjusted cost base of the Capital Gold shares.
 
Capital Gains and Capital Losses
 
Generally, only one-half of any capital gain (a “taxable capital gain”) is required to be included in the holder’s income in the taxation year of disposition, and one-half of any capital loss (an “allowable capital loss”) may be deducted against taxable capital gains realized in the taxation year of disposition.  Allowable capital losses that cannot be deducted from taxable capital gains in the year of disposition can generally be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any following year against taxable capital gains realized in such years to the extent and in the circumstances set out in the Tax Act.
 
Accounting Treatment of the Amalgamation (page 31)
 
The Capital Gold and Nayarit amalgamation will be accounted for under the acquisition method of accounting.  Capital Gold is the acquirer and will utilize the acquisition method of accounting which is based on Accounting Standards Codification, or ASC, Topic 805, Business Combinations, or ASC 805 and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures.

Nayarit Stockholders’ Dissenter Rights (page 52)

Registered stockholders of Nayarit are entitled to dissent from the Business Combination Proposal in the manner provided in section 185 of the Ontario Act.  Section 185 of the Ontario Act is reprinted in its entirety and attached to this proxy statement/prospectus as Annex II.  In the event that the Business Combination is approved by the stockholders of Nayarit and the Business Combination is effected, registered stockholders of Nayarit who properly exercise dissent rights will be entitled to be paid the fair value of their Nayarit Shares as of the close of business on the date the Business Combination Proposal is approved.  A registered Nayarit Stockholder who wishes to exercise dissent rights must send a Dissent Notice to Nayarit, such that it is received by Nayarit not later than 4:00 p.m. (Toronto time) on the business day immediately preceding the day of the Nayarit Special Meeting (or any postponement or adjournment thereof), at Nayarit Gold Inc., 76 Temple Terrace, Suite 150, Lower Sackville, Nova Scotia B4C 0A7.  Attention: Megan Spidle.  See “Special Meeting of Stockholders of Nayarit – Nayarit’s Stockholders’ Dissenter Rights” herein.
 
Regulatory Approvals (page 31)
 
Capital Gold and Nayarit do not believe that the Business Combination is subject to the reporting obligations, statutory waiting periods or other approvals of any government or regulatory agency or body other than addressing comments raised by the Securities and Exchange Commission, or SEC, with respect to this proxy statement/prospectus) a post-closing notice filing under the Investment Canada Act and the TSX and the TSX Venture Exchange.
 
Board of Directors and Management of Capital Gold Following the Business Combination (page 178)
 
Upon the consummation of the Business Combination, the Board of Directors of Capital Gold shall consist of Stephen M. Cooper, John W. Cutler, Leonard J. Sojka, each a current director of Capital Gold, and Colin Sutherland, a nominee of Nayarit and a nominee of Capital Gold.  Bradley Langille and Colin Sutherland will join Capital Gold as senior officers.  See “Management of Capital Gold Following the Business Combination”  for more information.

 
12

 
 
Reasons for Approval of the Business Combination (pages 46 and 61)
 
In reaching its decision to approve the Business Combination Agreement and recommend the Business Combination Proposal to their respective stockholders, Capital Gold’s board of directors and Nayarit’s board of directors considered a number of factors, including those listed below.
 
Expected Strategic Benefits of the Business Combination Proposal
 
·
Exploration and Development.  The Business Combination will enhance the combined company’s ability to grow and secure additional capital resources to continue exploration and development of Nayarit’s Orion Project and Capital Gold’s El Chanate Project, enhancing long term value for stockholders.
 
·
Visibility as a Mid-Tier Producer.  The combined company has the potential to be recognized as a significant mid-tier producer in Latin America, with the possibility that further growth opportunities will follow.
 
·
Strong Management Team.  The combination of Capital Gold’s and Nayarit’s management will create a management team with complementary skills in exploration, business and projected development and operations.
 
·
Potential synergies.  The fact that Nayarit’s and Capital Gold’s respective assets and operations in Mexico are a strategic fit and complementary.
 
·
Market exposure.  Nayarit’s investor following in Canada together with Capital Gold’s following as an NYSE AMEX listed issuer will provide enhanced market exposure to the combined company.
 
 
·
Stockholder liquidity.  Increased market capitalization and a broader stockholder base resulting from the Amalgamation should improve trading liquidity for stockholders.

The respective boards of Nayarit and Capital Gold weighed these factors against a number of other factors identified in their respective deliberations as weighing negatively against the Business Combination, including:
 
·
Fixed exchange rate. The exchange rate is fixed, and as a result, the Capital Gold shares issued on consummation of the Business Combination Agreement may have a market value different than at the time of the announcement of the Business Combination.
 
·
Conditions to closing. The Business Combination Agreement is subject to several conditions and because there can be no certainty that these conditions may be satisfied or waived, the Business Combination may not be successfully completed, which could negatively impact upon both companies.
 
·
Termination rights. The Business Combination Agreement may be terminated by either Capital Gold or Nayarit in certain circumstances in which case the market prices for the Capital Gold or Nayarit shares may be adversely affected.
 
·
Limitations on other opportunities.  The Business Combination Agreement significantly limits the ability of either party to pursue other Business Combination opportunities until the transaction is completed.

 This discussion of the information and factors considered by the board of directors of Capital Gold and Nayarit includes the principal positive and negative factors considered by such boards, but is not intended to be exhaustive and may not include all of the factors considered.  The boards did not quantify or assign any relative or specific weights to the various factors that it considered in reaching their determinations that the Business Combination Agreement and Business Combination Proposals are advisable and in the best interests of their respective stockholders.  Rather, the boards viewed their respective positions and recommendations as being based on the totality of the information presented to them and the factors they considered.  It should be noted that this explanation of the reasoning of the respective boards of directors of Capital Gold and Nayarit and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this joint proxy statement/prospectus.

 
13

 

SELECTED HISTORICAL FINANCIAL INFORMATION OF CAPITAL GOLD
 
Capital Gold is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.
  
The following selected historical financial information was derived from Capital Gold’s audited financial statements as of July 31, 2009 and 2008 contained in its Annual Report on Form 10-K for the fiscal year ended July 31, 2009 filed with the SEC on October 14, 2009, which is incorporated by reference into this joint proxy statement/prospectus. The unaudited financial statements for the six months ended January 31, 2010 and 2009 which are contained in our Quarterly Report on Form 10-Q for the six months ended January 31, 2010, filed with the SEC on March 12, 2010, as amended on our Quarterly Report on Form 10-Q/A for the six months ended January 31, 2010 filed with the SEC on March 17, 2010, which is incorporated by reference into this joint proxy statement/prospectus, and Capital Gold’s audited financial statements as of July 31, 2007, 2006 and 2005 which are available at www.sec.gov.  The results of operations for interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.
  
The following information is only a summary and should be read in conjunction with the unaudited interim financial statements of Capital Gold for the six months ended January 31, 2010 and 2009 and the notes thereto and the audited financial statements of Capital Gold for the year ended July 31, 2009 and 2008 and the notes thereto and “Capital Golds Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this joint proxy statement/prospectus .
 
   
For the Six Months Ended
January 31,
   
Fiscal Year Ended July 31
 
   
2010
   
2009
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(unaudited)
                               
Statement of Operations data:
                                         
Revenues (1)
  $ 24,955     $ 20,544     $ 42,757     $ 33,104     $ -     $ -     $ -  
Net Income (loss)
  $ 5,884     $ 5,133     $ 10,407     $ 6,364     $ (7,472 )   $ (4,805 )   $ (2,006 )
Income (loss) per share – Basic (2)
  $ 0.12     $ 0.11     $ 0.22     $ 0.15     $ (0.20 )   $ (0.17 )   $ (0.11 )
Income (loss) per share – Diluted(2)(3)
  $ 0.12     $ 0.10     $ 0.21     $ 0.13     $ -     $ -     $ -  
Weighted average shares outstanding – Basic (2)
    48,505,818       48,278,255       48,315116       43,760,000       37,452,816       28,051,118       18,780,980  
Weighted average shares outstanding – Diluted(2)(3)
    49,861,776       49,729,966       49,882,770       48,867,282       37,452,816       28,051,118       18,780,980  
                                                         
Balance Sheet data:
                                                       
Cash and cash equivalents
  $ 4,943     $ 8,848     $ 6,448     $ 10,992     $ 2,225     $ 2,741     $ 4,282  
Inventories
  $ 28,109     $ 14,720     $ 21,405     $ 13,113     $ 3,171     $     $ --  
Property and equipment,  net
  $ 24,725     $ 22,537     $ 22,417     $ 20,918     $ 18,000     $ 1,036     $ 651  
Total assets
  $ 63,636     $ 50,965     $ 54,601     $ 48,879     $ 27,551     $ 9,546     $ 5,552  
Reclamation and remediation liability
  $ 1,854     $ 1,215     $ 1,594     $ 1,666     $ 1,249     $ -     $ -  
Long-term debt
  $ 2,600     $ 6,200     $ 4,400     $ 8,375     $ 12,500     $ -     $ -  
Total debt
  $ 6,200     $ 10,250     $ 8,000     $ 12,500     $ 12,500     $ -     $ -  
Total stockholders’ equity
  $ 45,250     $ 50,965     $ 37,882     $ 28,197     $ 11,986     $ 8,930     $ 5,269  

Notes:
(1)There were no revenues for the fiscal years ended July 31, 2007, 2006 and 2005 as Capital Gold’s first gold sale from production was in August 2007.
(2)Amounts were adjusted for retroactive effect of reverse stock split with every four (4) shares of common stock issued and outstanding being converted into one (1) share of common stock.
(3) Because Capital Gold incurred losses for the fiscal years ended July 31, 2007, 2006 and 2005, the effect of stock options and warrants was considered anti-dilutive. Accordingly, Capital Gold's presentation of diluted net loss per share is the same as that of basic net loss per share.

 
14

 

SELECTED HISTORICAL FINANCIAL INFORMATION OF NAYARIT

Nayarit is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.
 
The following selected historical financial information was derived from Nayarit’s audited financial statements as of September 30, 2009 and 2008, prepared in accordance with Canadian GAAP, with a reconciliation to U.S. GAAP, the unaudited financial statements for the three months ended December 31, 2009 and 2008, prepared in accordance with Canadian GAAP both of which are included elsewhere in this proxy statement/prospectus and Nayarit’s audited financial statements as of September 30, 2007, 2006 and 2005, prepared in accordance with Canadian GAAP, are available at www.sedar.com.  The results of operations for interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.
 
The following information is presented in accordance with U.S. GAAP and has been translated from Canadian dollars to U.S. dollars at the period end exchange rate for balance sheet data and at the average annual exchange rate for statement of operations data.
 
The following information is only a summary and should be read in conjunction with the unaudited interim financial statements of Nayarit for the three months ended December 31, 2009 and 2008 and the notes thereto and the audited financial statements of Nayarit for the year ended September 30, 2009 and the notes thereto and “Nayarit’s Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this joint proxy statement/prospectus.
 
   
For the Three Months
Ended December 31
   
Fiscal Year Ended September 30
 
   
2009
   
2008
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
( unaudited)
                               
Statement of Operations data:
                                         
Revenues (1)
    -       -       -       -       -       -       -  
Net Loss
  $ (902,099 )   $ (2,515,466 )   $ (8,136,340 )   $ (8,264,093 )   $ (5,366,349 )   $ (3,840,011 )   $ (1,830,354 )
Loss per share – Basic (2)
  $ (0.01 )   $ (0.04 )   $ (0.10 )   $ (0.16 )   $ (0.13 )   $ (0.12 )   $ (0.11 )
Loss per share – Diluted(2)
  $ (0.01 )   $ (0.04 )   $ (0.10 )   $ (0.16 )   $ (0.13 )   $ (0.12 )   $ (0.11 )
Weighted Average Shares Outstanding – Basic(2)
    89,688,896       68,001,769       79,126,397       50,758,673       39,978,939       30,929,315       15,423,436  
Weighted Average Shares Outstanding – Diluted(2)
    89,688,896       68,001,769       79,126,397       50,758,673       39,978,939       30,929,315       15,423,436  
                                                         
Balance Sheet data:
                                                       
Cash and cash equivalents
  $ 1,349,955     $ 1,290,471     $ 2,285,722     $ 5,161,202     $ 1,374,629     $ 145,991     $ 701,230  
Total Assets
  $ 6,815,777     $ 4,194,006     $ 7,039,826     $ 7,113,098     $ 2,075,125     $ 2,151,531     $ 909,256  
Reclamation and Remediation Liability
    -       -       -       -       -       -       -  
Long-term Debt
    -       -       -       -       -       -       -  
Total debt
    -       -       -       -       -       -       -  
Total stockholders’ equity
  $ 6,412,878     $ 3,549,294     $ 6,691,074     $ 6,192,924     $ 1,756,708     $ 2,007,996     $ 839,955  

Notes:
(1)  Nayarit has not had revenues since inception.
(2)  Because Nayarit incurred losses for the periods presented, the effect of stock options and warrants was considered anti-dilutive. Accordingly, Nayarit's presentation of diluted net loss per share is the same as that of basic net loss per share.

 
15

 

COMPARATIVE PER SHARE DATA
 
The following table sets forth selected historical per share information of Capital Gold and Nayarit and unaudited pro forma combined per share information after giving effect to the merger between Capital Gold and Nayarit, under the acquisition method of accounting, assuming that 0.134048 shares of Capital Gold common stock are exchanged into one (1) Nayarit Common Share.  The pro forma shares to be issued assumes the issuance of 12,099,135 common shares, which is calculated by multiplying 0.134048 by 90,259,548, being the number of shares of Nayarit common stock outstanding on February 11, 2010.  Nayarit stockholders will own approximately 19.97% of the issued and outstanding shares of Capital Gold common stock. The acquisition method of accounting is based on Accounting Standards Codification, or ASC, Topic 805, Business Combinations, or ASC 805, and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures. The pro forma adjustments reflect the assets and liabilities of Nayarit at their preliminary estimated fair values. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma combined per share information set forth in the following table.
 
In accordance with the requirements of the SEC, the unaudited pro forma combined and unaudited pro forma Capital Gold and Nayarit per share equivalent information gives effect to the Amalgamation as if the Amalgamation had been effective on August 1, 2008 in the case of income per share data, and January 31, 2010 in the case of book value per share data. You should read this information in conjunction with the selected historical financial information included elsewhere in this proxy statement/prospectus, and the historical financial statements of Capital Gold and Nayarit and related notes that have been filed with the SEC, certain of which are incorporated in this proxy statement/prospectus by reference. See “Selected Historical Financial Information of Capital Gold” beginning on page 14,Selected Historical Financial Information of Nayarit” beginning on page 15 and “Where You Can Find More Information” beginning on page 184. The unaudited Capital Gold pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included in this proxy statement/prospectus. See Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 65. The historical per share information of Nayarit below is derived from audited financial statements as of and for the year ended September 30, 2009 and the unaudited financial statements as of and for the three months ended December 31, 2009. The unaudited pro forma Nayarit per share equivalents are calculated by multiplying the unaudited Capital Gold pro forma combined per share amounts by the exchange ratio of 0.134048.
 
The unaudited pro forma combined per share information below is presented for illustrative purposes only and is not necessarily indicative of the income per share and book value that would have occurred if the Amalgamation had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company.
 
Comparative per Share Data
 
As of and for the Six
Months Ended
January 31, 2010
(unaudited)
   
As of and for the
Twelve Months Ended
July 31, 2009
 
Capital Gold - Historical
           
Historical per common share:
           
Earnings per share (basic)
  $ 0.12     $ 0.22  
Earnings per share (diluted)
  $ 0.12     $ 0.21  
Book value per share (1)
  $ 0.93     $ 0.78  
                 
Unaudited Pro Forma Combined (2)
               
Unaudited  pro forma per common share(1)
               
Earnings per share (basic)
  $ 0.07     $ 0.04  
Earnings per share (diluted)
  $ 0.07     $ 0.03  
Book value per share(1)
  $ 1.42     $ N/A (4 )

 
16

 

Comparative per Share Data
 
As of and for the Three
Months Ended December
31, 2009
   
As of and for the Twelve
Months Ended September
30, 2009
 
Nayarit – Historical
           
Historical per common share:
           
Loss per share (basic)
  $ (0.01 )   $ (0.10 )
Loss per share (diluted)
  $ (0.01 )   $ (0.10 )
Book value per share(1)
  $ 0.07     $ 0.07  
                 
Unaudited Pro Forma Combined (2)(3)
               
Unaudited  pro forma per common share:
               
Earnings per share (basic)
  $ 0.07     $ 0.03  
Earnings per share (diluted)
  $ 0.07     $ 0.03  
Book value per share
  $ 1.42       N/A (4 )

(1) The book value per share is computed by dividing total shareholders' equity by the number of shares of common stock issued and outstanding as of December 31, 2009.
(2) The pro forma combined shares outstanding assumes the issuance of 12,099,135 common shares, which is calculated by multiplying 0.134048 by 90,259,548, being the number of shares of Nayarit common stock outstanding on February 10, 2010.
(3) The unaudited pro forma Nayarit per share equivalents are calculated by multiplying the unaudited Capital Gold pro forma combined per share amounts by the exchange ratio of 0.134048.
(4) For the pro forma balance sheet presentation, it was assumed that the merger was completed on January 31, 2010 and, therefore, the pro forma book values for the twelve months ended July 31, 2009 are not presented.

 
17

 

RISK FACTORS
 
In addition to the other information included in this joint proxy statement/prospectus, Capital Gold and Nayarit stockholders should carefully consider the following risk factors before deciding whether to vote in favor of the matters set forth in this joint proxy statement/prospectus.  If any of the risks described below actually occurs, the respective businesses, operating results, financial condition and/or stock prices of Capital Gold, Nayarit or the combined company could be materially adversely affected.
 
Risks Related to the Business Combination and the Combined Entity
 
Completion of the Business Combination is subject to a number of conditions.
 
The obligations of the parties to consummate the Business Combination are subject to the satisfaction or waiver of specified conditions set forth in the Business Combination Agreement.  Such conditions include satisfaction by all parties of covenants and obligations contained in the Business Combination Agreement, the accuracy in all material respects on the date of the Business Combination Agreement and the closing date of all of the parties’ representations and warranties, obtaining material consents, approval of the regulatory authorities, and stockholder approval, as set forth in the Business Combination Agreement.  It is possible some or all of these conditions will not be satisfied or waived by parties to the Business Combination Agreement, and therefore, the Business Combination may not be consummated.
 
Inaccuracies in projecting operating costs could hinder exploration activity.
 
Capital and operating cost estimates made in respect of the combined entity’s mines and development projects may not prove accurate. Capital and operating costs are estimated based on the interpretation of geological data, feasibility studies, anticipated climatic conditions and other factors. Any of the following events, among the other events and uncertainties described in this proxy statement/prospectus, could affect the ultimate accuracy of such estimates; unanticipated changes in grade and tonnage of mineralized material to be mined and processed; incorrect data on which engineering assumptions are made; delay in construction schedules, unanticipated transportation costs; the accuracy of major equipment and construction cost estimates; labor negotiations; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas on exportation of minerals) and title claims.  Failure to accurately project such expenses could adversely affect the combined entity’s ability to continue operations.
 
The exchange ratio is fixed and will not be adjusted in the event of any change in either Capital Gold’s or Nayarit’s stock price.
 
The aggregate number of shares to be issued to Nayarit stockholders at closing is fixed in the Business Combination Agreement at 0.134048 shares of Capital Gold common stock for each one share of Nayarit common stock.  The exact number of shares of Capital Gold common stock to be issued to holders of Nayarit common stock will be determined immediately prior to the closing, and is currently expected to be 12,099,135.  The exchange ratio will not be adjusted for changes in the market price of either Nayarit common stock or Capital Gold common stock.  Changes in the price of Capital Gold common stock prior to completion of the Business Combination will affect the purchase price and purchase price allocation that Nayarit stockholders will receive on the date of the Business Combination.  Stock price changes may result from a variety of factors (many of which are beyond the control of either Capital Gold or Nayarit), including the following factors:
 
 
·
changes in Nayarit’s and Capital Gold’s respective businesses, operations and prospects, or the market assessments thereof;
 
 
·
market assessments of the likelihood that the Business Combination will be completed, including related considerations regarding regulatory approvals of the Business Combination; and
 
 
·
general market and economic conditions and other factors generally affecting the price of each of Capital Gold’s and Nayarit’s common stock.
 
The price of Capital Gold common stock at the closing of the Business Combination may vary from its price on the date the Business Combination Agreement was executed, on the date of this proxy statement/prospectus and on the date of the stockholders’ meetings of Nayarit and Capital Gold.  As a result, the market value represented by the exchange ratio will also vary.

 
18

 

Because the date that the Business Combination is completed will be later than the date of the stockholder meetings, at the time of your meeting, you will not know the exact market value of the Capital Gold common stock that Nayarit stockholders will receive upon completion of the Business Combination.
 
If the price of Capital Gold common stock increases between the date of the stockholder meetings and the Effective Time of the Business Combination, Nayarit stockholders will receive shares of Capital Gold common stock that have a market value that is greater than the market value of such shares on the date of the stockholders meetings.  On the other hand, if the price of Capital Gold common stock decreases between the date of the stockholder meetings and the Effective Time of the Business Combination, Nayarit stockholders will receive shares of Capital Gold common stock that have a market value that is less than the market value of such shares on the date of the stockholder meetings.  Therefore, because the exchange ratio is fixed, stockholders cannot be sure at the time of the stockholder meetings of the market value of the consideration that will be paid to Nayarit stockholders upon completion of the Business Combination.
 
Failure to complete the Business Combination could negatively impact the stock prices and the future business and financial results of Capital Gold and Nayarit.
 
If the Business Combination is not completed, the ongoing businesses of Capital Gold and Nayarit may be adversely affected.  Additionally, if the Business Combination is not completed for certain specific reasons described under the caption “The Business Combination”, Capital Gold or Nayarit may be required to pay a termination fee under the Business Combination Agreement of $1,000,000, and will have to pay certain costs relating to the Business Combination, such as legal, accounting, financial advisor, filing, printing and mailing fees.  Any of the foregoing, or other risks arising in connection with the failure of the Business Combination, including the diversion of management attention from pursuing other opportunities during the pendency of the Business Combination, may have an adverse effect on the business, financial results and stock prices of Capital Gold and Nayarit.
 
Whether or not the Business Combination is completed, the announcement and pendency of the Business Combination could cause disruptions in the businesses of Capital Gold and Nayarit, which could have an adverse effect on their respective businesses, financial results and stock prices.
 
Whether or not the Amalgamation is completed, the announcement and pendency of the Business Combination could cause disruptions in the businesses of Capital Gold and Nayarit as well as planned or unexpected changes in management.  Specifically, managements’ attention has been focused on the Business Combination, which may have diverted managements’ attention from the core business of the respective companies and other opportunities that could have been beneficial to the respective companies.  In addition, current and prospective employees of Capital Gold and Nayarit may experience uncertainty about their future roles with Capital Gold following the Business Combination, which may materially and adversely affect the ability of each of Capital Gold and Nayarit to attract and retain key personnel.  These disruptions could be exacerbated by a delay in the completion of the Business Combination or termination of the Business Combination Agreement and could have an adverse effect on the business, financial results or stock prices of Capital Gold or Nayarit if the Business Combination is not completed.
 
The Business Combination Agreement contains provisions that could discourage a potential competing acquirer of either Capital Gold or Nayarit.
 
The Business Combination Agreement limits the ability of the parties to solicit or entertain alternative Business Combination proposals from third parties and provides that in some circumstances, upon termination of the Business Combination Agreement one of the parties will be required to pay a “break” fee of $1,000,000 to the other party.  These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Capital Gold or Nayarit from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Business Combination, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the $1,000,000 break fee that may become payable in certain circumstances.

 
19

 

If the Business Combination Agreement is terminated and either Capital Gold or Nayarit determines to seek another Business Combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Business Combination.
 
The combined company may not realize the benefits currently anticipated due to challenges associated with integrating the operations of Capital Gold and Nayarit.
 
The success of the combined company will depend in large part on the success of management of the combined company integrating the operations of Nayarit with those of Capital Gold after the completion of the Business Combination.  The failure of the combined company to achieve such integration could result in the failure of the combined company to realize the anticipated benefits of the Business Combination and could impair the results of operations, profitability, and financial results of the combined company.
 
The overall integration of the operations of Nayarit and Capital Gold may also result in unanticipated operational problems, expenses, liabilities and diversion of management’s time and attention.
 
There can be no assurance that Capital Gold or Nayarit uncovered every item that could have a material adverse effect on the combined company.
 
Although Capital Gold and Nayarit each conducted respective business, financial and legal due diligence in connection with the proposed Business Combination, there can be no assurance that due diligence uncovered every item that could have a material adverse effect on the combined company.  Accordingly, there may be matters involving either or both companies and their respective financial statements that were not identified during their due diligence.  Any of these issues could materially and adversely affect the combined company’s financial condition.
 
Uncertainties in management’s assessment of Nayarit could cause Capital Gold not to realize the benefits anticipated to result from the Business Combination.
 
It is possible that, following the Business Combination, uncertainties in assessing the value, strengths and potential profitability of, and identifying the extent of all weaknesses, risks, contingent and other liabilities of Nayarit could cause Capital Gold not to realize the benefits anticipated to result from the Business Combination.
 
Fluctuation in the price of gold and base metals could adversely affect the business of the combined entity.
 
Changes in the market price of gold and base metals, which in the past have fluctuated widely, will affect the profitability of the combined entity’s operations and its financial condition.  The combined company’s profitability and viability will depend on the market price of gold and base metals.  The market price of gold and base metals is set in the world market and is affected by numerous industry factors beyond the combined entity’s control, including the demand for precious metals, expectations with respect to the rate of inflation, interest rates, currency exchange rates, the demand for jewelry and industrial products containing metals, production levels, inventories, costs of substitutes, changes in global or regional investment or consumption patterns, and sales by central banks and other holders, speculators and producers of gold and other metals in response to any of the above factors, and global and regional political and economic factors.  A decline in the market price of gold or other base metals below the combined entity’s anticipated production costs for any sustained period would have a material adverse impact on the profit, cash flow and results of operations of the combined company’s projects and anticipated future operations.  Such a decline also could have a material adverse impact on the ability of the combined company to finance the exploration and development of its existing and future mineral projects, including Nayarit’s exploration stage projects.  A decline in the market price of gold or other base metals may also require the combined company to write-down its mineral reserves which would have a material adverse effect on the value of Capital Gold’s common stock.  Further, if revenue from gold or base metal sales declines, the combined company may experience liquidity difficulties in the future.

 
20

 

Adverse land title claims may affect the combined entity’s ability to operate.
 
The acquisition of title to mineral properties is a very detailed and time-consuming process.  Title to, and the area of, mineral concessions may be disputed.  Although both Capital Gold and Nayarit believe they have taken reasonable measures to ensure proper title to their properties, it is possible that title defects may be raised by third parties. In particular, the amalgamation pursuant to which Nayarit will become a wholly-owned subsidiary of Capital Gold may be considered a transfer of title to Nayarit’s properties under applicable Mexican law.  When a title transfer (or deemed transfer) takes place, the combined entity’s title may be challenged or impaired.  Third parties may have valid claims underlying portions of Nayarit’s interests, including government licensing requirements or regulations, prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, undetected defects.  In addition, the combined entity may be unable to operate its properties as permitted or to enforce its rights with respect to its properties.
 
The combined entity will be subject to certain mining risks, which may adversely affect the entity’s capital resources.
 
Mining operations generally involve a high degree of risk.  The combined entity’s operations are subject to all of the hazards and risks normally encountered in the exploration, development and production of gold and base metals, including: unusual and unexpected geologic formations; seismic activity; rock bursts; cave-ins; flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities; damage to life or property; environmental damage and possible legal liability.  Although adequate precautions to minimize risk will be taken, milling operations are subject to hazards such as equipment failure, failure of containment vessels and contamination of the environment by chemicals used in processing ore such as cyanide or the failure to retain dams around tailings disposal areas which may result in environmental pollution and consequent liability. The exploration for and development of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate.  Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the combined entity not receiving an adequate return on invested capital.
 
The combined company’s principal operations will be located in Mexico and are subject to Mexican laws and regulations, and any variation from current regulations or a change in political climate could adversely affect the combined company’s ability to conduct its business.
 
Capital Gold’s El Chanate open pit gold mine and mining concessions are located in northern Sonora, Mexico.  Capital Gold’s Saric project is also located in Mexico.  Nayarit's Orion Gold Project is located in the State of Nayarit, Mexico.  The combined company’s projects and operations are subject to Mexican laws and regulations.  Investors should assess the political risks of investing in a foreign country and, more particularly, in Mexico.  Variations from the current regulatory, economic and political climate in Mexico could have an adverse effect on the affairs of the combined company.

 
21

 

The combined company’s licenses to operate and conduct exploration in Mexico may not be renewed.
 
For the combined company to carry out mining activities, exploitation licenses in Mexico must be obtained and kept current.  There is no guarantee that all of the combined company's exploitation licenses will be extended or that new exploitation licenses will be granted.  In addition, such exploitation licenses could be changed and any application to renew any existing licenses may not be approved.  The combined company may be required to contribute to the cost of providing the required infrastructure to facilitate the development of its properties.  The combined company also will have to obtain and comply with permits and licenses which may contain specific conditions concerning operating procedures, water use, waste disposal, spills, environmental studies, abandonment and restoration plans and financial assurances.  The combined company’s failure to comply with such regulations may adversely impact its ability to continue its exploration operations.
 
Risks Related to Capital Gold
 
While Capital Gold believes that it will continue to generate positive cash flow and profits from operations, if it encounters unexpected problems, it may need to raise additional capital.   If additional capital is required and Capital Gold is unable to obtain it from outside sources, Capital Gold may be forced to reduce or curtail its operations or its anticipated exploration activities.
 
Prior to the first fiscal quarter of 2008, Capital Gold was not able to generate cash flow from operations.  While it is now generating positive cash flow and profits, if Capital Gold encounters unexpected problems and it is unable to continue to generate positive cash flow and profits, it may need to raise additional capital.  Capital Gold also may need to raise additional capital for property acquisition and new exploration. To the extent that Capital Gold needs to obtain additional capital, management intends to raise such funds through the sale of its securities and/or joint venturing with one or more strategic partners.  Capital Gold cannot assure that adequate additional funding, if needed, will be available or on terms acceptable to it.  If Capital Gold needs additional capital and it is unable to obtain it from outside sources, Capital Gold may be forced to reduce or curtail its operations or its anticipated exploration activities.
 
Capital Gold’s Credit Agreement with Standard Bank plc (“Standard Bank”) imposes restrictive covenants on it.
 
Capital Gold’s Credit Agreement with Standard Bank requires it, among other obligations, to meet certain financial covenants including, but not limited to, (i) a ratio of current assets to current liabilities at all times greater than or equal to 1.20:1.00, (ii) a quarterly minimum tangible net worth at all times of at least U.S. $15,000,000, and (iii) a quarterly average minimum liquidity of U.S. $500,000.  In addition, the Credit Agreement restricts, among other things, Capital Gold’s ability to incur additional debt, create liens on its property, dispose of any assets, merge with other companies, enter into hedge agreements, organize or invest in subsidiaries or make any investments above a certain dollar limit.  A failure to comply with the restrictions contained in the Credit Agreement could lead to an event of default thereunder which could result in an acceleration of such indebtedness. As a condition to closing the Business Combination, Capital Gold must obtain the consent of Standard Bank.
 
Capital Gold’s mining contractor is using reconditioned equipment which could adversely affect its cost assumptions and its ability to economically and successfully mine the project.
 
Sinergia Obras Civiles Y Mineras, S.A. de C.V. (“Sinergia”), Capital Gold’s mining contractor, is using fully functioning, but older equipment.  Such equipment is subject to the risk of more frequent breakdowns and need for repair than new equipment.  If the equipment that Capital Gold or Sinergia uses breaks down and needs to be repaired or replaced, Capital Gold will incur additional costs and operations may be delayed, resulting in lower amounts of gold recovered.  In such event, Capital Gold’s capital and operating cost assumptions may be inaccurate and its ability to economically and successfully mine the El Chanate project may be hampered, resulting in decreased revenues and, possibly, a loss from operations.
 
The gold deposit Capital Gold has identified at El Chanate is relatively low-grade.  If Capital Gold’s estimates and assumptions are inaccurate, its results of operation and financial condition could be materially adversely affected.
 
The gold deposit Capital Gold is mining at its El Chanate mine is relatively low-grade.  If the estimates of ore grade or recovery rates turn out to be lower than the actual ore grade and recovery rates, if costs are higher than expected, or if Capital Gold experiences problems related to the mining, processing, or recovery of gold from ore at the mine, Capital Gold’s results of operation and financial condition could be materially adversely affected.  Moreover, it is possible that actual costs and economic returns may differ materially from Capital Gold’s best estimates.  There can be no assurance that Capital Gold’s operations at El Chanate will continue to be profitable.

 
22

 

Gold prices can fluctuate on a material and frequent basis due to numerous factors beyond Capital Gold’s control.  Capital Gold’s ability to generate profits from operations could be materially and adversely affected by such fluctuating prices.
 
The profitability of any gold mining operations in which Capital Gold has an interest will be significantly affected by changes in the market price of gold.  Gold prices fluctuate on a daily basis.  During the six months ended January 31, 2010, the spot price for gold on the London Exchange has fluctuated between $870.25 and $1,212.50 per ounce.  Gold prices are affected by numerous factors beyond Capital Gold’s control, including:
 
 
·
industrial and commercial demand for gold,
 
 
·
the level of interest rates,
 
 
·
the rate of inflation,
 
 
·
central bank sales,
 
 
·
world supply of gold and
 
 
·
stability of exchange rates.

Each of these factors can cause significant fluctuations in gold prices. Such external factors are in turn influenced by changes in international investment patterns and monetary systems and political developments.  The current significant instability in the financial markets heightens these fluctuations.   The price of gold has historically fluctuated widely and, depending on the price of gold, revenues from mining operations may not be sufficient to offset the costs of such operations.
 
Capital Gold may not be successful in hedging against interest rate fluctuations and may incur mark-to-market losses and lose money through its hedging programs.
 
Capital Gold has entered into interest rate swap agreements.  The terms of Capital Gold’s Credit Agreement with Standard Bank require that it hedge at least 50% of its outstanding loan balance.  There can be no assurance that Capital Gold will be able to successfully hedge against interest rate fluctuations.
 
Further, there can be no assurance that the use of hedging techniques will always be to Capital Gold’s benefit.  Hedging instruments that protect against the market price volatility of metals may prevent Capital Gold from realizing the full benefit from subsequent increases in market prices with respect to covered production, which would cause Capital Gold to record a mark-to-market loss, thus decreasing its profits.  Hedging contracts also are subject to the risk that the other party may be unable or unwilling to perform its obligations under these contracts.  Any significant nonperformance could have a material adverse effect on Capital Gold’s financial condition, results of operations and cash flows.
 
Capital Gold’s material property interests are in Mexico. Risks of doing business in a foreign country could adversely affect its results of operations and financial condition.
 
Capital Gold faces risks normally associated with any conduct of business in a foreign country with respect to its El Chanate Project in Sonora, Mexico, including various levels of political and economic risk.  The occurrence of one or more of these events could have a material adverse impact on Capital Gold’s efforts or operations which, in turn, could have a material adverse impact on its cash flows, earnings, results of operations and financial condition.  These risks include the following:
 
 
·
labor disputes,
 
 
·
invalidity of governmental orders,
 
 
·
uncertain or unpredictable political, legal and economic environments,
 
 
·
war and civil disturbances,

 
23

 

 
·
changes in laws or policies,
 
 
·
taxation,
 
 
·
delays in obtaining or the inability to obtain necessary governmental permits,
 
 
·
governmental seizure of land or mining claims,
 
 
·
limitations on ownership,
 
 
·
limitations on the repatriation of earnings,
 
 
·
increased financial costs,
 
 
·
import and export regulations, including restrictions on the export of gold, and
 
 
·
foreign exchange controls.

These risks may limit or disrupt the project, restrict the movement of funds or impair contract rights or result in the taking of property by nationalization or expropriation without fair compensation.
 
Capital Gold sells gold in U.S. dollars; however, it incurs a significant amount of its expenses in Mexican pesos.  If applicable currency exchange rates fluctuate, Capital Gold’s revenues and results of operations may be materially and adversely affected.
 
Capital Gold sells gold in U.S. dollars.  It incurs a significant amount of our expenses in Mexican pesos.  As a result, Capital Gold’s financial performance would be affected by fluctuations in the value of the Mexican peso to the U.S. dollar.
 
Changes in regulatory policy could adversely affect Capital Gold’s exploration and future production activities.
 
Any changes in government policy may result in changes to laws affecting:

 
·
ownership of assets,
 
 
·
land tenure,
 
 
·
mining policies,
 
 
·
monetary policies,
 
 
·
taxation,
 
 
·
rates of exchange,
 
 
·
environmental regulations,
 
 
·
labor relations,
 
 
·
repatriation of income and/or
 
 
·
return of capital.

Any such changes may affect Capital Gold’s ability to undertake exploration and development activities in respect of future properties in the manner currently contemplated, as well as its ability to continue to explore, develop and operate those properties in which it has an interest or in respect of which it has obtained exploration and development rights to date. The possibility, particularly in Mexico, that future governments may adopt substantially different policies, which might extend to expropriation of assets, cannot be ruled out.
 
As Capital Gold currently does not enter into forward sales, commodity, derivatives or hedging arrangements with respect to its future gold production, it is exposed to the impact of any significant decrease in the gold price.
 
As a general rule, Capital Gold sells its gold at the prevailing market price. Currently, Capital Gold generally does not enter into forward sales, commodity, derivative or hedging arrangements to establish a price in advance for the sale of future gold production, although it may do so in the future. As a result, Capital Gold may realize the benefit of any short-term increase in the gold price, but is not protected against decreases in the gold price, and if the gold price decreases significantly, Capital Gold’s revenues may be materially adversely affected.

 
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Compliance with environmental regulations could adversely affect Capital Gold’s exploration and future production activities.
 
With respect to environmental regulation, future environmental legislation could require:
 
 
·
stricter standards and enforcement,
 
 
·
increased fines and penalties for non-compliance,
 
 
·
more stringent environmental assessments of proposed projects and
 
 
·
a heightened degree of responsibility for companies and their officers, directors and employees.

There can be no assurance that future changes to environmental legislation and related regulations, if any, will not adversely affect Capital Gold’s operations. Capital Gold could be held liable for environmental hazards that exist on the properties in which it holds interests, whether caused by previous or existing owners or operators of the properties. Any such liability could adversely affect its business and financial condition.
 
Capital Gold has and the combined entity will have insurance against losses or liabilities that could arise from its operations.  If it incurs material losses or liabilities in excess of its insurance coverage, its financial position could be materially and adversely affected.
 
Mining operations involve a number of risks and hazards, including:
 
 
·
environmental hazards,
 
 
·
industrial accidents,
 
 
·
metallurgical and other processing,
 
 
·
acts of God, and/or
 
 
·
mechanical equipment and facility performance problems.
 
Such risks could result in:
 
 
·
damage to, or destruction of, mineral properties or production facilities,
 
 
·
personal injury or death,
 
 
·
environmental damage,
 
 
·
delays in mining,
 
 
·
monetary losses, and/or
 
 
·
possible legal liability.

Industrial accidents could have a material adverse effect on Capital Gold’s future business and operations.  Capital Gold currently maintains general liability, business interruption, auto and property insurance coverage.   Capital Gold cannot be certain that the insurance it has in place will cover all of the risks associated with mining or that it will be able to maintain insurance to cover these risks at economically feasible premiums. Capital Gold also might become subject to liability for pollution or other hazards which it cannot insure against or which it may elect not to insure against because of premium costs or other reasons. Losses from such events may have a material adverse effect on Capital Gold’s financial position.

 
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Calculation of reserves and metal recovery dedicated to future production is not exact, might not be accurate and might not accurately reflect the economic viability of Capital Gold’s properties.
 
Reserve estimates may not be accurate.  There is a degree of uncertainty attributable to the calculation of reserves, resources and corresponding grades being dedicated to future production.  Until reserves or resources are actually mined and processed, the quantity of reserves or resources and grades must be considered as estimates only. In addition, the quantity of reserves or resources may vary depending on metal prices.  Any material change in the quantity of reserves, resource grade or stripping ratio may affect the economic viability of Capital Gold’s properties. In addition, there can be no assurance that mineral recoveries in small scale laboratory tests will be duplicated in large tests under on-site conditions or during production.
 
Capital Gold is dependent on the efforts of certain key personnel and contractors to develop Capital Gold’s El Chanate Project.  If Capital Gold loses the services of these persons and contractors and it is unable to replace them, Capital Gold’s operations at its El Chanate Project may be disrupted and/or materially adversely affected.
 
Capital Gold is dependent on a relatively small number of key personnel, including but not limited to John Brownlie, President and Chief Operating Officer, who, among other duties, oversees the El Chanate Project Christopher Chipman, Chief Financial Officer, and Scott Hazlitt, Vice President—Mine Development.  The loss of any one of Capital Gold’s key personnel could have an adverse effect on Capital Gold.  Mr. Brownlie will resign from his position as President and Chief Operating Officer effective upon the closing of the Business Combination.  Although the Board of Directors is actively seeking a Chief Executive Officer of Capital Gold, there can be no assurance that Mr. Brownlie’s resignation will not have an adverse effect on Capital Gold. Capital Gold also is dependent upon Sinergia to provide mining services.  Sinergia commenced mining operations on March 25, 2007, and transitioned from the pre-production to production phase of the mining contract in July 2007.  Sinergia’s mining fleet is not new.  If Capital Gold loses the services of its key personnel, or if Sinergia is unable to effectively maintain its fleet, operations at its El Chanate Project may be disrupted and/or materially adversely affected.
 
There are uncertainties as to title matters in the mining industry.  Capital Gold believes that it has good title to its properties; however, any defects in such title that cause Capital Gold to lose its rights in mineral properties could jeopardize its business operations.
 
Capital Gold has investigated its rights to explore, exploit and develop its concessions in manners consistent with industry practice and, to the best of Capital Gold’s knowledge, those rights are in good standing.  However, Capital Gold cannot assure that the title to or its rights of ownership in the El Chanate concessions will not be challenged by third parties or governmental agencies.  In addition, there can be no assurance that the concessions in which Capital Gold has an interest are not subject to prior unregistered agreements, transfers or claims and title may be affected by undetected defects.  Any such defects could have a material adverse effect on Capital Gold.
 
Capital Gold’s ability to maintain long-term profitability eventually will depend on its ability to find, explore and develop additional properties.  Capital Gold’s ability to acquire such additional properties could be hindered by competition. If Capital Gold is unable to acquire, develop and economically mine additional properties, it most likely will not be able to be profitable on a long-term basis.
 
Gold is a non-renewable resource and gold mines continue to deplete their reserves while in operation.  They eventually become depleted of ore or become uneconomical to sustain mining operations.  The acquisition of gold properties and their exploration and development are subject to intense competition.  Companies with greater financial resources and larger staffs for exploration and development may be in a better position than Capital Gold to compete for such mineral properties.  If Capital Gold is unable to find, develop and economically mine new properties, Capital Gold most likely will not be able to be profitable on a long-term basis.
 
Capital Gold’s ability on a going forward basis to discover additional viable and economic mineral reserves is subject to numerous factors, most of which are beyond Capital Gold’s control and are not predictable. If Capital Gold is unable to discover such reserves, it most likely will not be able to be profitable on a long-term basis.
 
Exploration for gold is speculative in nature, involves many risks and is frequently unsuccessful.  Few properties that are explored are ultimately developed into commercially producing mines.  As noted above, Capital Gold’s long-term profitability will be, in part, directly related to the cost and success of exploration programs.  Any gold exploration program entails risks relating to:

 
26

 
 
 
·
the location of economic ore bodies,
 
 
·
development of appropriate metallurgical processes,
 
 
·
receipt of necessary governmental approvals, and
 
 
·
construction of mining and processing facilities at any site chosen for mining.

 
·
The commercial viability of a mineral deposit is dependent on a number of factors including:
 
 
·
the price of gold,
 
 
·
the particular attributes of the deposit, such as its
 
 
o
size
 
 
o
grade, and
 
 
o
proximity to infrastructure,
 
 
·
financing costs,
 
 
·
taxation,
 
 
·
royalties,
 
 
·
land use,
 
 
·
water use,
 
 
·
power use,
 
 
·
importing and exporting gold, and
 
 
·
environmental protection.
 
The effect of these factors cannot be accurately predicted.
 
Risks Related to Ownership of Capital Gold Stock
 
The issuance of a significant number of Capital Gold shares could adversely affect the market price of Capital Gold shares.
 
If the Business Combination is completed, a significant number of additional shares of Capital Gold common stock will be available for trading in the public market.  The increase in the number of Capital Gold shares may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of, Capital Gold shares.
 
The NYSE AMEX may delist Capital Gold’s securities from its exchange which could limit investors’ ability to make transactions in Capital Gold’s common stock and subject it to additional trading restrictions.
 
Capital Gold’s common stock is listed on the NYSE AMEX, a national securities exchange.  Although Capital Gold expects to continue to meet the minimum continued listing standards, it cannot assure you that its securities will continue to be listed on the NYSE AMEX in the future.
 
If the NYSE AMEX delists Capital Gold’s common shares from trading on its exchange, Capital Gold could face significant material adverse consequences, including:
 
 
·
a limited availability for market quotations for Capital Gold’s common stock;
 
 
·
reduced liquidity with respect to Capital Gold’s common stock;
 
 
·
a determination that Capital Gold’s common stock is a “penny stock,” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for Capital Gold’s common stock;
 
 
·
limited amount of news and analyst coverage for Capital Gold’s common stock; and

 
27

 

 
·
a decreased ability to issue additional securities or obtain additional financing in the future.
 
In addition, Capital Gold would no longer be subject to NYSE AMEX rules, including rules requiring Capital Gold to have a certain number of independent directors and to meet other corporate governance standards.
 
Capital Gold’s stock price may be adversely affected if a significant amount of shares, including those issued to the Nayarit stockholders, are sold in the public market.
 
As of the date of this joint proxy statement/prospectus, approximately 2,542,476 shares of Capital Gold’s common stock, constituted "restricted securities" as defined in Rule 144 under the Securities Act of 1933 and could be resold pursuant to an exemption from registration afforded by Rule 144.  In addition, Capital Gold has registered herein 18,148,476 shares of common stock, including common shares issuable upon the exercise of warrants and options of Nayarit.  All of the foregoing shares, assuming exercise of all of the above options and warrants, would represent in excess of 27% of the then outstanding shares of Capital Gold’s common stock.  Registration of the shares permits the sale of the shares in the open market or in privately negotiated transactions without compliance with the requirements of Rule 144.  To the extent the exercise price of the warrants or options is less than the market price of the common stock, the holders of the warrants are likely to exercise them and sell the underlying shares of common stock.  Capital Gold also may issue shares to be used to meet its capital requirements or use shares to compensate employees, consultants and/or directors.  Capital Gold is unable to estimate the amount, timing or nature of future sales of outstanding common stock.  Sales of substantial amounts of Capital Gold’s common stock in the public market could cause the market price for the common stock to decrease.
 
Furthermore, a decline in the price of Capital Gold’s common stock would likely impede its ability to raise capital through the issuance of additional shares of common stock or other equity securities.
 
Capital Gold does not intend to pay cash dividends in the near future.
 
Capital Gold’s board of directors determines whether to pay cash dividends on its issued and outstanding shares.  The declaration of dividends will depend upon Capital Gold’s future earnings, its capital requirements, its financial condition and other relevant factors.  Capital Gold’s board does not intend to declare any dividends on its shares for the foreseeable future.  Capital Gold anticipates that it will retain any earnings to finance the growth of its business and for general corporate purposes.
 
Capital Gold’s stockholders will experience immediate dilution as a consequence of the issuance of shares of Capital Gold’s common stock as consideration in the Business Combination.  Having a minority share position may reduce the influence that Capital Gold’s current stockholders have on the management of Capital Gold.
 
Based on the number of shares of Nayarit common stock outstanding on February 10, 2010, Capital Gold expects to issue approximately 12,099,135 shares of its common stock in the Business Combination to Nayarit's current stockholders and to assume warrants and options to purchase an additional approximately 4,830,938 and 1,218,403 shares of Capital Gold common stock held by Nayarit's warrant and option holders, respectively.  Based on the number of outstanding shares of Nayarit common stock and Capital Gold common stock, after the Amalgamation, the current stockholders of Nayarit would own approximately 19.97% of Capital Gold.  Consequently, the ability of the current stockholders of Capital Gold following the Business Combination to influence management of Capital Gold through the election of directors will be substantially reduced.
 
If the Business Combination’s benefits do not meet the expectations of financial or industry analysts, the market price of Capital Gold’s securities may decline.
 
The market price of Capital Gold’s securities decline prior to or after the consummation of the Business Combination if:
 
 
·
the Company does not achieve the perceived benefits of the Business Combination as rapidly, or to the extent anticipated by, financial or industry analysts; or
 
 
·
the effect of the Business Combination on Capital Gold’s financial results is not consistent with the expectations of financial or industry analysts.

 
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Accordingly, investors may experience a loss as a result of a decline in the market price of Capital Gold’s securities. A decline in the market price of Capital Gold’s securities also could adversely affect its ability to issue additional securities and its ability to obtain additional financing in the future.

 
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THE BUSINESS COMBINATION
 
The following summary describes the material provisions of the Business Combination Agreement, as amended.  The provisions of the Business Combination Agreement are complicated and not easily summarized.  This summary may not contain all of the information about the Business Combination Agreement, as amended that is important to you.  The following summary is qualified in its entirety by reference to the complete text of the Business Combination Agreement.  The Business Combination Agreement is attached to this joint proxy statement/prospectus as Annex I and is incorporated by reference into this joint proxy statement/prospectus, and we encourage you to read it carefully in its entirety for a more complete understanding of the Business Combination Agreement and the Business Combination.
 
The Business Combination Agreement, as amended has been included to provide information regarding the terms of the transaction.  Except for its status as the contractual document that establishes and governs the legal relations among Capital Gold and Nayarit with respect to the Business Combination the Amendment, the Business Combination Agreement is not intended to be a source of factual, business or operational information about the parties.
 
The Business Combination Agreement, as amended contains representations, warranties and covenants that the respective parties made to each other as of the date of the Business Combination or other specific dates.  The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Business Combination.  The representations, warranties and covenants in the Business Combination Agreement, as amended are also modified in important part by the underlying disclosure schedules, which are not filed publicly and which are subject to a contractual standard of materiality different from that generally applicable to stockholders, and were used for the purpose of allocating risk among the parties rather than establishing matters of fact.  The parties do not believe that these schedules contain information that is material to the vote on the proposals at the respective Special Meetings of Capital Gold and Nayarit.
 
Overview and Structure of the Business Combination, as Amended
 
The Business Combination Agreement, as Amended sets forth, among other things:
 
 
·
representation and warranties of the parties as to, among other things, the organization, corporate power and authority, authorization and validity of the Business Combination Agreement and, as relevant, other agreements contemplated therein, the receipt of any necessary consents, approvals and permits, the accuracy of certain information, and other matters;
 
 
·
conditions to be satisfied or waived on or before the Business Combination Closing Date, to each party’s obligation to consummate the Business Combination on the Business Combination Closing Date;
 
 
·
covenants regarding conduct of business prior to the Business Combination Closing Date and other matters; and
 
 
·
circumstances under which the Business Combination Agreement may be terminated prior to closing of the Business Combination on the Business Combination Closing Date.
 
On April 29, 2010, the parties to the Business Combination Agreement entered into Amendment No. 1 to the Business Combination Agreement, pursuant to which, among other things, the provisions with respect to John Brownlie continuing as President and Chief Operating Officer and serving as a member of the Board of Directors were eliminated.
  
Forms of the following additional agreements contemplated in connection with the Business Combination are attached to the form of the Business Combination Agreement included in this proxy statement/prospectus:
 
 
·
The form of Amalgamation Agreement between Nayarit and “MergerSub” as defined below to form AmalgSub (as defined below) as a wholly owned subsidiary of Capital Gold; and
 
 
·
Lock Up Agreements between Capital Gold and each of Colin Sutherland and Bradley Langille pursuant to which they each agree not to sell or otherwise dispose of Capital Gold shares and securities received by them as stockholders and option holders of Nayarit.

 
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Pursuant to the terms of the Business Combination Agreement, as amended Capital Gold and Nayarit agreed to effect an amalgamation (the “Amalgamation”) of Nayarit and a corporation, to be organized under the Ontario Act as a wholly-owned subsidiary of Capital Gold (“Merger Sub”), to form a combined entity (“AmalgSub”).  By virtue of the Amalgamation, the separate existence of each of Nayarit and Merger Sub shall cease, and AmalgSub, shall continue its corporate existence under the OBCA as a wholly-owned subsidiary of Capital Gold.  In connection with the Amalgamation, and without any action on the part of Nayarit or the holders of any securities of Nayarit, all of the Nayarit Common Shares issued and outstanding immediately prior to the consummation of the Amalgamation (other than Nayarit Common Shares held by dissenting stockholders of Nayarit) shall become exchangeable into the common stock of Capital Gold on the basis of 0.134048 shares of Capital Gold common stock for each one (1) Nayarit Common Share (the “Amalgamation Consideration”).
 
Accounting Treatment of the Amalgamation (page 31)
 
The Capital Gold and Nayarit amalgamation will be accounted for under the acquisition method of accounting.  Capital Gold is the acquirer and will utilize the acquisition method of accounting which is based on Accounting Standards Codification, or ASC, Topic 805, Business Combinations, or ASC 805 and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures.
 
Regulatory Approvals (page 31)
 
Capital Gold and Nayarit do not believe that the Business Combination is subject to the reporting obligations, statutory waiting periods or other approvals of any government or regulatory agency or body other than addressing comments raised by the Securities and Exchange Commission, or SEC, with respect to this proxy statement/prospectus and the Toronto Stock Exchange and the TSX Venture Exchange.
 
Closing and Effective Time of the Amalgamation
 
The Amalgamation is expected to be consummated promptly following the satisfaction or waiver of the conditions described below under the subsection entitled “Conditions to Closing of the Amalgamation,” unless Capital Gold and Nayarit agree in writing to hold the closing at another time but in no event will such time be later than 120 days after the date of the Business Combination Agreement.
 
The Effective Time of the Amalgamation will occur concurrently with the filing of articles of amalgamation with the Ontario Ministry of Government Services (Companies and Personal Property Security Branch) and the issuance of a certificate of amalgamation therefor.
 
Conditions to Closing of the Amalgamation
 
The obligations of the parties to the Business Combination Agreement to consummate the Amalgamation are subject to the satisfaction (or waiver by the other party) of the following specified conditions set forth in the Business Combination Agreement before consummation of the Amalgamation:
 
 
(i)
Capital Gold’s stockholders have approved the Business Combination Agreement and the issuance of the Amalgamation Consideration;
 
 
(ii)
Nayarit’s stockholders have approved the Business Combination Agreement;
 
 
(iii)
If applicable, the required waiting period under any domestic or foreign anti-trust laws has expired or been terminated;
 
 
(iv)
All governmental authority approvals and third party consents required in connection with the transactions contemplated by the Business Combination Agreement have been obtained or made;
 
 
(v)
A registration statement with respect to the Amalgamation Consideration shall have been declared effective by the SEC and no stop order suspending the effectiveness of such registration statement is in effect;
 
 
(vi)
No governmental authority has enacted, issued, promulgated, enforced or entered any law or order that has the effect of making the Amalgamation illegal or otherwise preventing or prohibiting consummation of the Amalgamation;
 
 
(vii)
Final versions of Capital Gold’s disclosure schedules and Nayarit’s disclosure schedules have been delivered and are final, true, correct and complete; and
 
 
(viii)
No pending action exists against any of the parties to the Business Combination Agreement, or against any of their respective officers, directors, assets or properties, which could be reasonably be expected to have a material adverse effect.
 
The obligations of Capital Gold to consummate the Amalgamation are subject to various additional closing conditions (unless waived by Capital Gold):
 
 
(i)
The accuracy in all respects on the date of the Business Combination Agreement and the Effective Time of all of the representations and warranties of Nayarit;
 
 
(ii)
The performance in all material respects of all covenants and obligations required to be performed by or complied with by Nayarit at or prior to the Effective Time;
 
 
(iii)
The delivery to Capital Gold by Nayarit of an officer’s certificate evidencing the accuracy of the representations or warranties made by Nayarit and its subsidiaries and certifying the performance of the covenants or obligations required to be performed by Nayarit;

 
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(iv)
The delivery to Capital Gold by Nayarit of a secretary’s certificate certifying the resolutions of the board of directors of Nayarit authorizing the execution of the Business Combination Agreement and the transaction contemplated thereby;
 
 
(v)
No material adverse effect with respect to Nayarit’s business shall have occurred since the date of the Business Combination Agreement;
 
 
(vi)
The receipt by Capital Gold of a satisfactory opinion from legal counsel to Nayarit;
 
 
(vii)
The receipt by Capital Gold of a satisfactory title opinion from mining counsel to Nayarit;
 
 
(viii)
The receipt of lockup agreements from Colin Sutherland and Bradley Langille;
 
 
(ix)
The filing by Nayarit with the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) all financial statements that are required pursuant to applicable Canadian laws;
 
 
(x)
Holders of no more than 5% of the Nayarit Common Shares vote against the Amalgamation and exercise dissent rights under the Ontario Act;
 
 
(xi)
The receipt by Capital Gold of a final report from SRK Consulting concerning Nayarit’s assets and properties and such final report shall not be materially different from the preliminary SRK Consulting report provided to Capital Gold;
 
 
(xii)
The resignation of the respective directors and officers of Nayarit and its subsidiaries except for those directors and officers continuing in their capacities after the Effective Time;
 
 
(xiii)
All convertible securities of Nayarit and options to purchase Nayarit Common Shares outstanding prior to the Effective Time shall provide for the issuance of Capital Gold common stock on the exchange basis set forth in the Business Combination Agreement;
 
 
(xiv)
The receipt by Capital Gold of a fairness opinion with respect to the transactions contemplated by the Business Combination Agreement from the advisors to Capital Gold, if deemed necessary by the board of directors of Capital Gold;
 
 
(xv)
The receipt by  Nayarit of a fairness opinion with respect to the transactions contemplated by the Business Combination Agreement from the advisors to Nayarit;
 
 
(xvi)
The termination of the employment agreements between Nayarit and each of Colin Sutherland and Bradley Langille without payment by Nayarit of any change of control payments; and
 
 
(xvii)
The receipt by Capital Gold of a certificate from SRK Consulting certifying Nayarit’s representations and warranties regarding Nayarit’s mining properties and assets.
 
The obligations of Nayarit to consummate the Amalgamation are subject to various additional closing conditions (unless waived by Nayarit):
 
 
(i)
The accuracy in all respects on the date of the Business Combination Agreement and the Effective Time of all of representations and warranties of Capital Gold;
 
 
(ii)
The performance in all material respects of all covenants and obligations required to be performed by or complied with by Capital Gold at or prior to the Effective Time;
 
 
(iii)
The delivery to Nayarit by Capital Gold of an officer’s certificate evidencing the accuracy of the representations or warranties made by Capital Gold and certifying the performance of the covenants or obligations required to be performed by Capital Gold;
 
 
(iv)
The delivery to Nayarit by Capital Gold of a secretary’s certificate certifying the resolutions of the board of directors of Capital Gold authorizing the execution of the Business Combination Agreement and the transaction contemplated thereby;
 
 
(v)
No material adverse effect with respect to Capital Gold’s business shall have occurred since the date of the Business Combination Agreement;
 
 
(vi)
The receipt by Nayarit of a satisfactory opinion from legal counsel to Capital Gold;
 
 
(vii)
The resignation of the directors and officers of Capital Gold except for those directors and officers continuing in their capacities after the Effective Time;

 
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(viii)
Capital Gold has entered into an agreement with an exchange agent with respect to the exchange of the certificates evidencing Nayarit Common Shares for the Amalgamation Consideration; and
 
 
(ix)
The receipt by Nayarit of a satisfactory title opinion from mining counsel to Capital Gold;
 
Representations and Warranties of Capital Gold and Nayarit in the Business Combination Agreement
 
The Business Combination Agreement contains a number of representations that each of Capital Gold and Nayarit have made to each other.  The representations and warranties contained in the Business Combination Agreement were made for purposes of the Business Combination Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Business Combination Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts.
 
Further, the representations and warranties are qualified by information in confidential disclosure schedules delivered by the respective parties together with the Business Combination Agreement.  While Capital Gold and Nayarit do not believe these schedules contain information for which the securities laws require public disclosure, other than information that has already been so disclosed, the disclosure schedules do contain information that modify, qualify and create exceptions to the representations, warranties and covenants set forth in the Business Combination Agreement.
 
This description of the representations and warranties, and their reproduction in the copy of the Business Combination Agreement attached to this joint proxy statement/prospectus as Annex I, are included solely to provide stockholders with information regarding the terms of the Business Combination Agreement.  Accordingly, the representations and warranties and other provisions of the Business Combination Agreement should not be read alone and should not be relied on as statements of true fact, but instead should only be read together with the information provided elsewhere in this joint proxy statement/prospectus. See “Where You Can Find More Information.”
 
Covenants of the Parties
 
Among other covenants, Capital Gold and Nayarit have agreed to during the period from the date of the Business Combination Agreement until the earlier of the termination of the Business Combination Agreement or the closing of the Amalgamation, unless the other party gives written consent to the contrary,
 
 
(i)
conduct their respective business in all material respects in the ordinary course of business consistent with past practice;
 
 
(ii)
use commercially reasonable efforts to preserve intact, in all material respects, their respective business organizations, to keep available the services of their respective and their respective subsidiaries’ managers, directors, officers, key employees and consultants;
 
 
(iii)
keep all of their respective mineral rights, permits and contracts in good standing and in full force and effect; and
 
(iv)
comply with all laws in the conduct of their respective business.
 
Non-Solicitation
 
Each of Capital Gold and Nayarit have agreed, from the date of the Business Combination Agreement until the earlier of the Effective Time or termination of the Business Combination Agreement that it shall not, as more specifically set forth in the Business Combination Agreement, solicit, furnish information in connection with or in response to, engage in discussions as to, or take action in furtherance of an Acquisition Proposal (as defined in the Agreement).

 
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Indemnification Provisions
 
From the date of the Business Combination Agreement through the Effective Time, each of Capital Gold and Nayarit (each of which is referred to as a party and for the purpose of this description of the indemnification provisions, the “indemnifying party”), have agreed to indemnify and hold the other party (and its affiliates, and its or their successors and assigns and respective directors, officers, employees and agents), harmless from and against any liability, claim (including claims by third parties), demand, judgment, loss, cost, damage, or expense whatsoever (including reasonable attorneys’, consultants’ and other professional fees and disbursements of every kind, nature and description) that arise from (i) any breach of any representation, warranty, covenant or agreement of such indemnifying party contained in the Business Combination Agreement and (ii) any negligence, willful misconduct or fraud committed by the indemnifying party in connection with the execution, delivery and performance of the Business Combination Agreement.
 
Termination
 
The Business Combination Agreement may be terminated at any time prior to the earlier of the Effective Time, notwithstanding the approval by the stockholders of Capital Gold and Nayarit, as follows:
 
 
(i)
by mutual written consent of Capital Gold and Nayarit, as duly authorized by their respective board of directors;
 
 
(ii)
by either Capital Gold and Nayarit if (A) the closing conditions in the Business Combination Agreement have not been satisfied by the other party by 120 days after the date of the Business Combination Agreement (the “Completion Deadline”); or (B) any governmental authority shall have enacted, issued, promulgated, enforced or entered any order or law that has the effect of enjoining or otherwise preventing or prohibiting the Amalgamation (unless the foregoing was the result of the prospective terminating party’s breach of the Business Combination Agreement, in which case the prospective terminating party may not terminate pursuant to this provision);
 
(iii)
by Capital Gold if (A)  there has been a material breach of any representation, warranty, covenant or agreement on the part of Nayarit, or any representation or warranty of Nayarit shall have become untrue or inaccurate, which breach or untrue representation or warranty is incapable of being cured prior to the closing or is not cured within 20 days of notice of such breach or inaccuracy, or (B) any of the conditions to closing are unsatisfied by Nayarit by the Completion Deadline, provided, however that Capital Gold may not terminate pursuant to this provision if it has materially breached the Business Combination Agreement and such breach caused the closing conditions not to be satisfied; or
 
(iv)
by Nayarit if (A)  there has been a material breach of any representation, warranty, covenant or agreement on the part of Capital Gold, or any representation or warranty of Capital Gold shall have become untrue or inaccurate, which breach or untrue representation or warranty is incapable of being cured prior to the closing or is not cured within 20 days of notice of such breach or inaccuracy, or (B) any of the conditions to closing are unsatisfied by Capital Gold by the Completion Deadline, provided, however Nayarit may not terminate pursuant to this provision if it has materially breached the Business Combination Agreement and such breach caused the closing conditions not to be satisfied.

Effect of Termination
 
If the Business Combination Agreement is terminated, neither party shall have any liability to the other party except for liability for the Break Fee (as defined below) or fraud or a breach of representation, warranty or covenant prior to termination as specifically set forth in the Business Combination Agreement, and all rights and obligations of the parties pursuant to the Business Combination Agreement shall cease, except as specifically set forth in the Business Combination Agreement.

 
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Break Fee
 
The Business Combination provides that a “break fee” of $1 million (the “Break Fee”) will be payable in the event that the Business Combination is not consummated because certain specified events have occurred.  Such events that would trigger payment of the Break Fee are as follows.  If either Capital Gold or Nayarit, through no fault of the other party, fails to consummate the Business Combination as a result of the decision by one of their boards of directors to change its recommendation to its stockholders to approve the Business Combination, the party whose board changed its recommendation would be obligated to pay the other party the Break Fee.  If Nayarit accepts an acquisition proposal from a third party for its stock or material assets (an “Acquisition Proposal”), then Nayarit would be obligated to pay the Break Fee.  If Capital Gold’s or Nayarit’s action or inaction, through no fault of the other party, results in the termination of the Business Combination Agreement by the other party pursuant to termination provisions of the Business Combination Agreement, then the party that failed to so progress and consummate the Business Combination would be obligated to pay the other party the Break Fee.  Finally, if either the required Nayarit stockholder approval vote or the Capital Gold stockholder approval vote is not obtained following the public announcement of an Acquisition Proposal, then the defaulting party would be obligated to pay to the other party the Break Fee.
 
Amendment to the Business Combination Agreement
 
On April 29, 2010, Capital Gold and Nayarit entered into an Amendment to the Business Combination Agreement, pursuant to which, among other things, it amended the provision with respect to the officers and board of directors of Capital Gold subsequent to the closing of the Business Combination. Specifically, because John Brownlie, Capital Gold’s current President and Chief Operating Officer tendered his resignation to be effective at the closing of the Business Combination, those provisions were amended to reflect such resignation.
 
 
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COMPARISON OF RIGHTS OF NAYARIT STOCKHOLDERS
AND CAPITAL GOLD STOCKHOLDERS
 
Nayarit is incorporated under the laws of the Province of Ontario, Canada.  Capital Gold is incorporated under the laws of Delaware.  As a result of the Business Combination, the stockholders of Nayarit will become stockholders of Capital Gold.  As stockholders of Nayarit, their rights are currently governed by the Ontario Business Corporations Act and by Nayarit’s articles of association, as amended, and its by-laws.  Following the Business Combination, the rights of stockholders of Nayarit will be governed by the Delaware General Corporation Law, or the DGCL, and by Capital Gold’s certificate of incorporation, as amended, and its by-laws.  The following discussion summarizes the material differences between Nayarit’s certificate of incorporation and by-laws, as amended, and Capital Gold’s certificate of incorporation and by-laws, as amended, and between the provisions of Ontario law and Delaware law affecting stockholder rights.  This section does not include a complete description of all differences between the rights of these holders, nor does it include a complete description of the specific rights of these holders.  In addition, the identification of some of the differences in the rights of these holders as material is not intended to indicate that other differences that are equally important do not exist.
 
Authorized Capital
 
Nayarit.  The total number of authorized common shares of Nayarit is unlimited no par value.  There are no shares of Nayarit preferred stock authorized or outstanding.
 
Capital Gold.  The total number of authorized shares of Capital Gold is 75,000,000 shares of common stock, par value $0.0001 per share.  There are no shares of preferred stock authorized or outstanding.

Number and Election of Directors
 
Nayarit.  The Board of Directors currently consists of five (5) members. Nayarit’s articles of association provide that there shall be a minimum of three (3) and a maximum of ten (10) directors, with the number of directors to be fixed from time to time by resolution of the Board of Directors.
 
Capital Gold.  The Board of Directors currently consists of four (4) members.  The Capital Gold by-laws provide the number of the directors of the corporation shall be not less than three (3) nor more than ten (10), unless and until otherwise determined by vote of a majority of the entire Board of Directors.

Removal of Directors
 
Nayarit.  Nayarit’s articles of association provide that any director may be removed before the expiration of his or her term, at any annual or special meeting of stockholders, by the affirmative vote of at least a majority of stockholders entitled to vote in the election of directors.
 
Capital Gold.  Under Delaware law, any director or the entire board of directors of a Delaware corporation may be removed with or without cause by the holders of a majority of the shares then entitled to vote at an election of directors.
 
Filling Vacancies on the Board of Directors
 
Nayarit.  Subject to the laws of Ontario,  Nayarit’s bylaws provide that a vacancy on the Board of Directors may be filled by the affirmative vote of the majority of the Board, except in the event a vacancy resulted from an increase in the number of directors, an increase in the maximum number of directors or from a failure of the stockholders to elect the minimum number of Directors.
 
Capital Gold.  The Capital Gold bylaws provide that any vacancy in the Board of Directors occurring by reason of an increase in the number of directors, or by reason of the death, resignation, disqualification, removal (unless a vacancy created by the removal of a director by the stockholders shall be filled by the stockholders at the meeting at which the removal was effected) or inability to act of any director, or otherwise, shall be filled for the unexpired portion of the term by a majority vote of the remaining directors, though less than a quorum, at any regular meeting or special meeting of the Board of Directors called for that purpose.

 
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Stockholder Meetings and Provisions for Notices; Proxies
 
Nayarit. Pursuant to Nayarit’s by-laws, the annual meeting of its stockholders may be held at any place in or outside of Ontario as the Board of Directors determines, or in the absence of such determination, at the registered office of Nayarit.  The Board of Directors may also determine the date of the annual meeting.  The Board may also, at any time, call a special meeting of the stockholders of Nayarit.  Notice must be given not less than 21 days, and not more than 50 days, in advance.  Notice for a special meeting must include the nature of the business to be transacted and the text of any special resolution to be submitted to the meeting.
 
Notice may be waived by any stockholder or person entitled to attend the meeting.  Attendance by any person at a meeting shall still constitute waiver unless such person attends a meeting for the express purpose of objecting to the transaction of business on the grounds that the meeting is not lawfully called.  Accidental omission of notice to any individual entitled to attend a meeting shall not invalidate the proceedings taken or resolutions passed at any meeting of the stockholders.
 
Every Nayarit stockholder entitled to vote at stockholder meetings may appoint a proxyholder to vote, attend and act at stockholder meetings. Proxies are valid for one year.
 
Capital Gold.  Capital Gold’s by-laws provide that all meetings of the stockholders shall be held at the principal office of the corporation, or at other places as shall be designated in the notices or waivers of notice of such meetings.
 
Under Capital Gold’s by-laws, written notice stating the time when and place where the meeting is to be held must be served either personally or by mail no less than 10 days and no more than 50 days before the date of such annual or special meeting to each stockholder entitled to vote at the meeting unless otherwise required by law.  For special meetings, the purpose or purposes for such meeting must also be stated in the notice.
 
Under Delaware law, no proxy shall be valid after three years from the date of its execution, unless the proxy provides for a longer period.
 
Quorum and Voting by Stockholders
 
Nayarit.  Nayarit’s by-laws provide that the holders of a majority of the shares entitled to vote at meeting of stockholders, whether present or represented by proxy, constitutes a quorum.
 
Capital Gold.  Capital Gold’s by-laws provide that the presence at the commencement of the meeting in person or by proxy of stockholders holding of record a majority of the total number of shares then issued and outstanding shall constitute a quorum at any such meeting of stockholders.
 
Capital Gold’s by-laws provide that directors are elected by a plurality of the votes cast at a meeting by holders of shares, present in person or by proxy, at the meeting and entitled to vote on the election of directors, and except as otherwise required by law, Capital Gold’s certificate of incorporation as amended, or Capital Gold’s bylaws, all other matters shall be determined by a majority of the votes cast, at any meeting at which a quorum is present.
 
Stockholder Action Without a Meeting
 
Nayarit.  Nayarit’s by-laws provide that any stockholder action permitted by law, the articles of organization or the bylaws to be taken at a meeting of stockholders may be taken without a meeting, if a unanimous written consent setting forth the action so taken is signed by all of Nayarit’s stockholders entitled to vote.
 
Capital Gold.  Capital Gold’s by-laws provide that any resolution in writing, signed by all stockholders entitled to vote thereon, shall be and constitute action by the stockholders with the same effect as if it had been duly passed by unanimous vote at a duly called meeting of stockholders.

 
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Amendment of Certificate or Articles of Incorporation
 
Nayarit.   Under the Ontario Act, any change to the articles of a corporation must be approved by special resolution.  A “special resolution” is a resolution passed by a majority of not less than two-thirds of the votes cast by the stockholders who voted in respect of that resolution, or signed by all the stockholders entitled to vote on that resolution. If a proposed amendment requires approval by special resolution, the holders of shares of a class (or of a series of a class, if the proposed amendment would affect such series differently from the other series of shares of such class) are entitled to vote separately as a class or series if the proposed amendment affects the class or series as specified in the Ontario Act, whether or not the class or series otherwise carries the right to vote.
 
Capital Gold.   Capital Gold’s certificate of incorporation does not contain any special provisions regarding approval of amendments to the certificate of incorporation.   Under the DGCL, an amendment to the certificate of incorporation requires that the board of directors approve the amendment, declare it advisable and submit it to stockholders for adoption. Such amendment must be adopted by a majority in voting power of all issued and outstanding shares and any greater vote required by the certificate of incorporation. Except in limited circumstances, any proposed amendment to the certificate of incorporation that would increase or decrease the authorized shares of a class of stock, increase or decrease the par value of the shares of a class of stock, or alter or change the powers, preferences or special rights of the shares of a class of stock (so as to affect them adversely) requires approval of the holders of a majority of the outstanding shares of the affected class, voting as a separate class, in addition to the approval of a majority of the shares entitled to vote on that proposed amendment. If any proposed amendment would alter or change the powers, preferences or special rights of any series of a class of stock so as to affect them adversely, but does not affect the entire class, then only the shares of the series affected by the proposed amendment is considered a separate class for purposes of the immediately preceding sentence.
 
Amendment of By-laws
 
Nayarit.  Nayarit’s by-laws may be amended or repealed, or rescinded by either the stockholders or by the Board of Directors. Nayarit’s Board may repeal, alter, alter, amend or rescind it bylaws by a majority vote at a duly called and held Board meeting or by the unanimous written consent of the Board of Directors subject to confirmation by a majority of the votes cast by holders of voting shares at the next meeting of shareholders.
 
Capital Gold.  Capital Gold’s by-laws provide that the board is expressly authorized to adopt, amend or repeal the by-laws provided however, that the stockholders entitled to vote with respect thereto may alter, amend or repeal bylaws made by the Board of Directors except that the Board of Directors shall have no power to change the quorum for meetings of stockholders or of the Board of Directors or to change any provisions of the by-laws with respect to the removal of directors or the filling of vacancies in the Board resulting from the removal by the stockholders. The Company’s by-laws also provide that all by-laws may be altered or repealed and new by-laws may be made by the affirmative vote of stockholders holding of record at least a majority of the outstanding shares entitled to vote in the election of directors at any annual or special meeting of stockholders, provided that the notice or waiver of notice of such meeting shall have summarized or set forth in full therein, the proposed amendment.

Anti-Takeover Statutes
 
Nayarit.  Such matters as take-over bids, issuer bids or self tenders, going-private transactions and transactions with directors, officers, significant stockholders and other related parties to which Nayarit is a party are subject to regulation by Canadian provincial securities legislation and administrative policies and rules of Canadian securities administrators. Such legislation and administrative policies and rules will continue to apply to Capital Gold after the Business Combination. Such legislation and administrative policies and rules may impose stockholder approval requirements separate and apart from the Ontario Act.
 
Capital Gold.  The provisions of Delaware law relating to Business Combinations do not apply to a corporation if, among other things, the certificate of incorporation or bylaws of the corporation contain a provision expressly electing not to be governed by the provisions of the statute or the corporation does not have voting stock listed on a national securities exchange or held of record by more than 2,000 stockholders.
 
Capital Gold has not “opted out” of the Delaware laws relating to Business Combinations.

 
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Under certain provisions of Delaware law, a corporation may not engage in certain transactions with an “interested stockholder.”  For purposes of this provision, an “interested stockholder” generally means any person who, together with its affiliates or associates, directly or indirectly owns 15% or more of the outstanding voting stock of the corporation.  These provisions prohibit certain Business Combinations between an interested stockholder and a corporation for a period of three years following the date that the stockholder acquired its stock unless:
 
 
·
prior to the stockholder becoming an interested stockholder, the board of directors of the corporation approved the Business Combination or the transaction which resulted in the stockholder becoming an interested stockholder;
 
 
·
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares held by directors who are also officers and shares held by certain employee stock plans) in which such stockholder became an interested stockholder; or
 
 
·
the Business Combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
 
Limitation of Liability and Indemnification of Directors and Officers
 
Nayarit.  Nayarit’s by-laws provide that it shall indemnify a director or officer, a former director or officer, or a person who acts or acted at Nayarit’s request as a director or officers of a body corporate of which Nayarit is or was a stockholder or creditor and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of Nayarit or such body corporate, if:
 
 
·
he acted honestly and in good faith with a view to the best interests of Nayarit; and
 
 
·
in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
 
Capital Gold.  Capital Gold’s certificate of incorporation, as amended, provides that no director of the corporation shall be personally liable to Capital Gold or its stockholders for monetary damages for breach of fiduciary duty as a director, except for a breach of fiduciary duties unless the breach involves:  (1) a director’s duty of loyalty to the corporation or its stockholders; (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) liability for unlawful payments of dividends or unlawful stock purchases or redemption by the corporation; or (4) a transaction from which the director derived an improper personal benefit.  Capital Gold’s certificate of incorporation, as amended also provides that the corporation shall indemnify all persons whom it may indemnify pursuant to Section 145 of the General Corporation Law of Delaware or otherwise.
 
Appraisal/Dissenter’s Rights
 
Nayarit.  Registered stockholders of Nayarit are entitled to dissent from the Business Combination Proposal in the manner provided in section 185 of the Ontario Act.  Section 185 of the Ontario Act is reprinted in its entirety and attached to this proxy statement/prospectus as Annex II.  In the event that the Business Combination is approved by the stockholders of Nayarit and the Business Combination is effected, registered stockholders of Nayarit will be entitled to be paid the fair value of their Nayarit Shares as of the effective time of the closing of the Business Combination.  A registered Nayarit Stockholder who wishes to exercise Dissent Rights must send a Dissent Notice to Nayarit, such that it is received by Nayarit not later than 4:00 p.m. (Toronto time) on the business day immediately preceding the day of the Nayarit Special Meeting (or any postponement or adjournment thereof), at Nayarit Gold Inc., 76 Temple Terrace, Suite 150, Lower Sackville, Nova Scotia B4C 0A7.  Attention: Megan Spidle.  See “Special Meeting of Stockholders of Nayarit – Nayarit’s Stockholders’ Dissenter Rights” herein.
 
Capital Gold.  Under Delaware law, Capital Gold stockholders do not have appraisal rights with respect to shares of any class or series of stock if such shares are (1) listed on a national securities exchange or (2) held by more than 2,000 stockholders of record, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or acquiring entity, or depository receipts in respect thereof, or shares of stock, or depository receipts in respect of any other entity that is publicly listed or held by more than 2,000 holders, or cash in lieu of fractional shares or fractional depository receipts described above, or a combination of the foregoing.  Since Capital Gold stockholders will not exchange their shares in the Business Combination for any other security, under Delaware law, Capital Gold stockholders are not entitled to appraisal rights in connection with the Business Combination.

 
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Dividends
 
Neither Capital Gold nor Nayarit currently pays dividends. Under the terms of the Business Combination Agreement, neither Capital Gold nor Nayarit may declare, set aside or pay any dividends with respect to their capital stock prior to the Effective Date of the Amalgamation or the termination of the Business Combination Agreement. After completion of the Amalgamation, former Nayarit shareholders who hold the Capital Gold common stock they received as part of the Amalgamation Consideration will receive whatever dividends are declared and paid on Capital Gold common stock following the Amalgamation. There can be no assurance that any dividends will be declared or paid by Capital Gold or as to the amount or timing of such dividends, if any. Any future dividends will be made at the discretion of the Capital Gold Board of Directors. Until Nayarit stockholders have provided to the exchange agent your signed letter of transmittal and any other items specified by the letter of transmittal with respect to their shares of Nayarit common stock, any dividends or other distributions declared after the Effective Time of the Amalgamation with respect to Capital Gold common stock into which the Nayarit common stock may have been converted will accrue but will not be paid with respect to such shares. Capital Gold will pay to former Nayarit shareholders any unpaid dividends or other distributions, without interest, only after they have duly surrendered their Nayarit stock certificates.

 
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DOCUMENTS INCORPORATED BY REFERENCE

The following documents, heretofore filed by us with the Commission pursuant to the Exchange Act, are hereby incorporated by reference, except as superseded or modified herein:

1.     Our Annual Report on Form 10-K for the fiscal year ended July 31, 2009.

2.     Our Quarterly Report on Form 10-Q, as amended, for the quarter ended January 30, 2009

3.     Our report on Form 8-K filed with the SEC on September 3, 2009.

4.     Our report on Form 8-K filed with the SEC on September 18, 2009.

5.     Our report on Form 8-K filed with the SEC on September 23, 2009.

6.     Our report on Form 8-K filed with the SEC on October 29, 2009.

7.     Our report on Form 8-K filed with the SEC on November 6, 2009.

8.     Our report on Form 8-K filed with the SEC on January 22, 2010.

9.     Our report on Form 8-K filed with the SEC on February 11, 2010.

10.     Our report on Form 8-KA filed with the SEC on March 22, 2010.

11. Our proxy statement on Schedule 14A filed on Schedule 14A on December 14, 2009

12. A description of our common stock contained in Form 8-A filed on February 1, 2010.

Each document filed subsequent to the date of this prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering shall be deemed to be incorporated by reference in this prospectus and shall be part hereof from the date of filing of such document.

All documents filed by the registrant after the date of filing the initial registration statement on Form S-4 of which this prospectus forms a part and prior to the effectiveness of such registration statement pursuant to Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 shall be deemed to be incorporated by reference into this prospectus and to be part hereof from the date of filing of such documents.
  
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
The statements contained in this proxy statement/prospectus that are not purely historical are forward-looking statements.  The forward-looking statements include, but are not limited to, statements regarding Capital Gold’s, Nayarit’s or their respective management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.  Forward-looking statements in this proxy statement/prospectus may include, for example, statements about Capital Gold’s and Nayarit’s:
 
 
·
ability to complete the Business Combination;
 
 
·
the benefits of the Business Combination;
 
 
·
potential of exploration assets in Mexico;
 
 
·
adverse capital and credit market conditions and their impact on our liquidity, access to capital and cost of capital;
 
 
·
changes in the combined company’s financial strength and the effect of such changes on future results of operations and financial condition;
 
 
·
general economic conditions or a prolonged economic downturn affecting the mining industry;
 
 
·
fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets;
 
 
·
the stability of and actions by governments and economies in the markets in which both companies operate;
 
 
·
competitive factors and competitors’ responses to initiatives;
 
 
·
the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where Capital Gold  operates or does business; and
 
 
·
other risks and uncertainties described under the caption “Risk Factors” and in other filings with the SEC in the case of Capital Gold, and with the Ontario Securities Commission in the case of Nayarit.
 
All forward-looking statements included herein attributable to Capital Gold, Nayarit or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  Except to the extent required by applicable laws and regulations, Capital Gold and Nayarit do not undertake any obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.
 
Before you grant your proxy or instruct how your vote should be cast or vote on the approval of the Business Combination, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this joint proxy statement/prospectus could have a material adverse effect on Capital Gold, Nayarit or the combined entity, now or upon completion of the Business Combination.

 
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SPECIAL MEETING OF STOCKHOLDERS OF CAPITAL GOLD
 
General
 
Capital Gold is furnishing this proxy statement/prospectus to its stockholders as part of the solicitation of proxies by its Board of Directors for use at the Special Meeting of Stockholders of Capital Gold, to be held on at 10 a.m. local time on June 11, 2010 at Bayards, One Hanover Square, New York City, New York, 10004, and at any adjournment or postponement thereof (the “Capital Gold Special Meeting”).  This proxy statement/prospectus is first being furnished to Capital Gold stockholders on or about [     ], 2010. This proxy statement/prospectus provides you with information you need to know to be able to vote or instruct your vote to be cast at the Capital Gold Special Meeting.
 
Date, Time and Place
 
The Capital Gold Special Meeting will be held at 10 a.m. local time on June 11, 2010 at Bayards, One Hanover Square, New York City, New York, 10004, or such other date, time and place to which such meeting may be adjourned or postponed.
 
Purpose of the Special Meeting of Stockholders
 
At the Capital Gold Special Meeting, Capital Gold will ask holders of its common stock to consider and vote upon the following proposals:
 
(1) The Business Combination Proposal—to adopt a business combination agreement (the “Business Combination Agreement”) dated as of February 10, 2010 as amended on April 29, 2010 (the “Amendment”) by and among the Capital Gold and Nayarit, pursuant to which Capital Gold will issue approximately 12,099,135 shares of its common stock to stockholders of Nayarit and reserve for issuance an additional approximately 4,830,938 and 1,218,403 shares of its common stock for the exercise warrants and options of Nayarit, respectively, and Nayarit will become a wholly-owned subsidiary of Capital Gold (the “Business Combination”); and
 
(2) The Stockholder Adjournment Proposal —to consider and vote upon the adjournment of the Capital Gold Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, at the time of the special meeting, it appears Capital Gold cannot consummate the transactions contemplated by the Business Combination (the “Stockholder Adjournment Proposal”); and
 
(3) Such other procedural matters as may properly come before the Capital Gold Special Meeting or any adjournment or postponement thereof.
 
Recommendation of Capital Gold’s Board of Directors to Stockholders
 
After careful consideration of each of the proposals, the Company’s Board of Directors has determined unanimously that each of them is fair to, and in the best interests of, Capital Gold and its stockholders and unanimously recommends that the stockholders vote or instruct their vote to be cast “FOR” the Business Combination Proposal and the Stockholder Adjournment Proposal.
 
Record Date; Who is Entitled to Vote
 
You will be entitled to vote or direct votes to be cast at the Capital Gold Special Meeting if you owned shares of Capital Gold ’s common stock at the close of business on May 5, 2010, which Capital Gold has fixed as the record date for the Capital Gold Special Meeting.  You are entitled to one vote for each share of common stock of Capital Gold you owned at the close of business on the record date. On the record date, there were [       ] shares of common stock of Capital Gold outstanding.
 
Quorum and Required Vote for Stockholder Proposals
 
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present at Capital Gold Special at the commencement of the Special Meeting if Stockholders holding record a majority of the total number of shares of common stock issued and outstanding and entitled to vote at the Capital Gold Special Meeting is represented in person or by proxy. Abstentions and broker non-votes will count as present for the purposes of establishing a quorum.

 
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The approval of the Business Combination Proposal requires the affirmative vote of the majority of the common stock of Capital Gold voted at the Capital Gold Special Meeting at which a quorum is present. A quorum for the meeting requires the presence, in person or by proxy, of stockholders holding of record a majority of the total shares issued and outstanding and entitled to vote as of the record date.
 
The approval of the Stockholder Adjournment Proposal requires the affirmative vote of a majority of the common stock of Capital Gold issued and outstanding as of the record date voted at the Capital Gold Special Meeting.
 
Abstentions and Broker Non-Votes
 
Under the rules of various national and regional securities exchanges, your broker, bank or nominee cannot vote your warrants or shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. Capital Gold believes the Business Combination Proposal presented to stockholders will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your broker, bank or nominee may deliver a proxy card expressly indicating that it is NOT voting your shares, as the case may be. This indication that a broker, bank or nominee is not voting your shares is referred to as a “broker non-vote.”
 
Abstentions will have no effect on the Business Combination Proposal or the Stockholder Adjournment Proposal. Broker non-votes, while considered present for the purposes of establishing a quorum, will have no effect on the Business Combination Proposal or the Stockholder Adjournment Proposal.
 
Voting Your Shares of Common Stock
 
Each share of Common Stock you own in your name entitles you to one vote on the applicable proposals. Your one or more proxy cards show the number of shares, as the case may be, you own. There are two ways to vote your shares:
 
 
·
You can vote by signing and returning the enclosed proxy card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted, as recommended by the Capital Gold Board of Directors, “FOR” the Business Combination Proposal” and “FOR” the Stockholder Adjournment Proposal.
 
 
·
You can attend the Capital Gold Special Meeting and vote in person. Capital Gold will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee in order to vote your shares, at the Capital Gold Special Meeting. That is the only way Capital Gold can be sure that the broker, bank or nominee has not already voted your shares.
 
Revoking Your Proxy
 
If you give a proxy, you may revoke it at any time before the Capital Gold Special Meeting, or at the Capital Gold Special Meeting by doing any one of the following:
 
 
·
You may send another proxy card with a later date;
 
 
·
You may notify Christopher Chipman, Capital Gold’s Secretary, in writing before the Capital Gold Special Meeting, that you have revoked your proxy; or
 
 
·
You may attend the Capital Gold Special Meeting, revoke your proxy, and vote in person, as indicated above.
 
No Additional Matters May Be Presented at the Special Meeting
 
The Capital Gold Special Meeting has been called only to consider the Business Combination Proposal and the Stockholder Adjournment Proposal. Under Capital Gold’s bylaws, other than procedural matters incident to the conduct of the Capital Gold Special Meetings, no other matters may be considered if they are not included in the notice of the Capital Gold Special Meeting.

 
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Who Can Answer Your Questions About Voting Your Capital Gold Shares
 
If you have any questions about how to vote or direct a vote in respect of your Capital Gold shares, you may call Capital Gold’s Chief Financial Officer, Christopher Chipman, at (212) 344-5158.
 
Appraisal Rights
 
No appraisal rights are available under the DGCL to the stockholders of Capital Gold in connection with the proposals set forth herein.
 
Proxy Solicitation Costs
 
Capital Gold is soliciting proxies on behalf of its Board of Directors. All solicitation costs will be paid by Capital Gold. This solicitation is being made by mail but also may be made by telephone or in person. Capital Gold and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means, including email and facsimile.
 
Capital Gold will ask banks, brokers and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. Capital Gold will reimburse them for their reasonable expenses.
 
Vote of the Management of Capital Gold
 
As of the record date for the Capital Gold Special Meeting, Capital Gold’s officers and directors beneficially owned and were entitled to vote an aggregate of 1,908,475 shares of common stock, which means Capital Gold’s officers and directors own an aggregate of approximately 3.8% of the outstanding shares of common stock. The officers and directors of Capital Gold have indicated that they intend to vote such shares in favor of all proposals presented at the Capital Gold Special Meeting.

 
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PROPOSALS TO BE CONSIDERED BY CAPITAL GOLD STOCKHOLDERS
 
PROPOSAL NO. 1
 
THE BUSINESS COMBINATION PROPOSAL
 
The discussion in this joint proxy statement/prospectus of the Business Combination Proposal and the principal terms of the Business Combination Agreement are subject to, and is qualified in its entirety by reference to, the Business Combination Agreement, which is attached as Annex I to this joint proxy statement/prospectus.
 
General Description of the Transaction
 
The respective Boards of Directors of Capital Gold and Nayarit have approved a business combination agreement between Capital Gold and Nayarit dated February 10, 2010 (the “Business Combination Agreement”) as amended on April 29, 2010 (the “Amendment”) that would effect the amalgamation of Nayarit with a to be formed corporation as a wholly owned Canadian subsidiary of Capital Gold.  If the Business Combination is approved by the stockholders of both companies, the parties intend to effect an amalgamation (the “Amalgamation”) of Nayarit and a corporation, to be organized under the Ontario Act as a wholly-owned subsidiary of Capital Gold (“Merger Sub”), to form a combined entity (“AmalgSub”).  By virtue of the Amalgamation, the separate existence of each of Nayarit and Merger Sub shall thereupon cease, and AmalgSub shall continue its corporate existence under the Ontario Act as a wholly-owned subsidiary of Capital Gold.
 
The parties to the Business Combination Agreement intend to consummate the Amalgamation as promptly as practicable after the special meetings of the stockholders of Capital Gold and Nayarit, provided that:
 Capital Gold’s stockholders have approved the Business Combination Agreement and the issuance of the Amalgamation Consideration;
 
Nayarit’s stockholders have adopted the Business Combination Agreement and approved the transactions contemplated thereby, including the Amalgamation;
 
 
·
holders of no more than 5% of the Nayarit shares vote against the Amalgamation and exercised dissent rights under the Ontario Act;
 
 
·
the SEC has declared effective Capital Gold’s registration statement of which this proxy statement/prospectus is a part; and
 
 
·
the other conditions specified in the Business Combination Agreement have been satisfied or waived.
 
For more information, see the section entitled “The Business Combination” beginning on page 30. The Business Combination Agreement is included as Annex I to this joint proxy statement/prospectus The Amendment is included in Annex I as well. You are encouraged to read the Business Combination Agreement in its entirety.
 
Background of the Business Combination

The terms of the Business Combination are the result of arms-length negotiations between representatives of Capital Gold and Nayarit.  The following is a discussion of the background of these negotiations, the Business Combination and related transactions.

In early December 2008, John Brownlie and Scott Hazlitt, President and Vice President—Mine Development of Capital Gold, respectively, held an initial meeting with Colin Sutherland and Bradley Langille, President and strategic consultant to Nayarit and scheduled a site visit to Nayarit’s properties in Mexico which occurred the same month.

During the ensuing twelve months, Capital Gold explored several other opportunities, two of which proceeded to a confidentiality agreement and a letter of intent but none of which opportunities were pursued or consummated.

On December 10, 2009, Mr. Brownlie, Mr. Sutherland, Mr. Langille and David Badner, an advisor to Nayarit, met in San Francisco, California, to discuss the potential merger of Capital Gold and Nayarit during which management from both companies provided overviews of their respective businesses.  The meeting outlined the process for moving toward a letter of intent, which included discussions around the exchange ratio, management positions, and overall strategy beyond the transaction.  It was discussed that Nayarit should proceed to finalizing the Preliminary Economic Assessment in order to provide the financial basis for the Orion Project.

 
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During the period December 12, 2009 through December 16, 2009 Mr. Brownlie held various telephonic discussions with principals of Nayarit concerning the content of a proposed letter of intent.

On December 17, 2009, Capital Gold and Nayarit executed a letter of intent.

 On January 14, 2010 Capital Gold and its counsel, Ellenoff Grossman & Schole LLP (“EG&S”), provided a draft Business Combination Agreement to Nayarit and its counsel, Dennis H. Peterson, of Peterson Law Professional Corporation.  Subsequently, Messrs. Brownlie, Langille, Sutherland and Badner held various discussions and conference calls to negotiate the terms of the Business Combination Agreement.

On January 19, 2010, the Capital Gold Board of Directors met to discuss and consider Capital Gold’s acquisition of Nayarit.  Mr. Brownlie provided an overview of the proposed transaction including the material terms.  The Board of Directors discussed the various components of the proposed transaction including the composition of the board and management of Nayarit.  Mr. Barry Grossman and Ms. Sarah Williams, both of EG&S, counsel to Capital Gold, discussed certain relevant issues, including the regulatory approval process, the accounting treatment and tax issues with respect to the transaction.  Ms. Williams gave an overview of the stockholder approval requirements.  Senior management and the Board of Directors discussed the benefits and various transaction risks related to the proposed acquisition.  The Board of Directors then resolved to proceed with drafting documents to effect the Nayarit acquisition on the terms set forth in the letter of intent, subject to further input by the Board.

On January 20, 2010 and January 21, 2010, Mr. Brownlie and Mr. Sutherland, Mr. Grossman and Ms. Williams, and Christopher Chipman, Chief Financial Officer of Capital Gold met in New York to discuss the terms and conditions of the definitive agreement and outlined the items which required further negotiation and clarification.

On February 10, 2010 Capital Gold’s Board of Directors met to discuss and approve terms of the proposed Business Combination Agreement.  Jennings Capital, financial advisor to Capital Gold, provided an overview of the proposed transaction. Subsequent to these discussions Capital Gold and Nayarit executed the Business Combination Agreement and an acknowledgement regarding each party’s completion of its due diligence.

Prior to the opening of the financial markets on February 11, 2010, Capital Gold and Nayarit issued a joint press release announcing the execution of the Business Combination Agreement.

On March 8, 2010, Capital Gold announced that it had completed its due diligence regarding the Nayarit Business Combination.

Capital Gold’s Board of Directors’ Reasons for Approval of the Business Combination
 
Capital Gold’s Board of Directors concluded that the Business Combination is fair to, and in the best interests of, Capital Gold and its stockholders and that the consideration to be paid in the Business Combination is fair to Capital Gold and its stockholders. Capital Gold’s management conducted a due diligence review of Nayarit that included an industry analysis, an evaluation of Nayarit’s existing business, a valuation analysis and financial projections in order to enable the Board of Directors to evaluate Nayarit’s business and financial condition and prospects.
 
Capital Gold’s Board of Directors considered Nayarit’s properties, various industry and financial data, including certain financial analyses developed by Capital Gold and metrics compiled by Capital Gold’s management in evaluating the consideration to be paid by Capital Gold in the Business Combination.
 
In considering the Business Combination, Capital Gold’s Board of Directors gave considerable weight to the following favorable factors:

 
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·
Exploration and Development.  The Business Combination will enhance the combined company’s ability to grow and secure additional capital resources to continue exploration and development of Nayarit’s Orion Project and Capital Gold’s El Chanate Project, enhancing long term value for stockholders;
 
·
Visibility as a Mid-Tier Producer.   The combined company has the potential to be recognized as a significant mid-tier producer in Latin America, with the possibility that further growth opportunities will follow;
 
·
Strong Management Team.  The combination of Capital Gold and Nayarit’s management will create a management team with complementary skills in exploration, business and projected development and operations;
 
·
Potential synergies.  The strategic fit and complementary nature of Nayarit and Capital Gold’s respective assets and operations in Mexico;
 
·
Market exposure.  Nayarit’s investor following in Canada together with Capital Gold’s following as an NYSE AMEX listed issuer will provide enhanced market exposure to the combined company; and
 
·
Stockholder liquidity.  Increased market capitalization and a broader stockholder base resulting from the merger should improve trading liquidity for stockholders.
 
Capital Gold’s Board of Directors believes the above factors strongly supported its determination and recommendation to approve the Business Combination. Capital Gold’s Board of Directors did, however, consider the following potentially negative factors, among others, including the risk factors set forth elsewhere in this joint proxy statement/prospectus, in its deliberations concerning the Business Combination:
 
·
Uncertain regulatory environment.  The potential for scrutiny or increased regulation by the Government of Mexico;
 
·
Interests of officers and directors.  Interests in the Business Combination that certain officers and directors of Capital Gold may have which are different from, or in addition to, the interests of the Capital Gold stockholders generally, including the matters described under “Proposals to be Considered by Capital Gold Stockholders— The Business Combination Proposal—Certain Benefits of the Directors and Officers and Others in the Transaction”;
 
·
Limitations on indemnification. The limitations on indemnification set forth in the Business Combination Agreement described in “The Business Combination”;
 
·
Dilution to interests of stockholders.  Control of Nayarit’s current stockholders of a significant percentage of Capital Gold’s issued shares after the Business Combination;
 
·
Regulatory issues.  The impact of changes in or additional licensing or other regulations affecting operations in Mexico and the mining industry generally;
 
·
Fixed exchange rate.  The exchange rate is fixed, and as a result, the Capital Gold shares issued on consummation of the Business Combination Agreement may have a market value different than at the time of the announcement of the Business Combination;
 
·
Conditions to closing.  The Business Combination Agreement is subject to several conditions and because there can be no certainty that these conditions may be satisfied or waived, the Business Combination may not be successfully completed, which could negatively impact upon both companies;
 
·
Termination rights.  The Business Combination Agreement may be terminated by either Capital Gold or Nayarit in certain circumstances in which case the market prices for the Capital Gold or Nayarit shares may be adversely affected; and
 
·
Limitations on other opportunities.   The Business Combination Agreement significantly limits the ability of either party to pursue other Business Combination opportunities until the transaction is completed.

 
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This discussion of the information and factors considered by the Board of Directors of Capital Gold includes the principal positive and negative factors considered by the Board of Directors, but is not intended to be exhaustive and may not include all of the factors considered by the Board of Directors of Capital Gold.  The Board of Directors of Capital Gold did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination that Business Combination Agreement and Business Combination proposal are advisable and in the best interests of Capital Gold and its stockholders.  Rather, the Board of Directors of Capital Gold viewed its position and recommendation as being based on the totality of the information presented to it and the factors it considered.  In addition, individual members of the Board of Directors of Capital Gold may have given differing weights to different factors.  It should be noted that this explanation of the reasoning of the Board of Directors of Capital Gold and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this joint proxy statement/prospectus.
 
Terms of the Business Combination Agreement
 
Capital Gold’s Board of Directors believes the terms of the Business Combination, including the closing conditions, are customary and reasonable. It was important to Capital Gold’s Board of Directors that the Business Combination include customary terms and conditions as it believed such terms and conditions would allow for a more efficient closing process and lower transaction expenses.
 
Certain Benefits of the Directors and Officers and Others in the Business Combination
 
When you consider the recommendation of the Capital Gold Board of Directors in favor of approval of the Business Combination, you should keep in mind that Capital Gold directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a stockholder.  These interests include, among other things:
 
 
·
It is currently anticipated that Messrs. Cooper, Cutler, Sojka, each a current director of Capital Gold, a nominee of Nayarit, and a nominee of Capital Gold will serve as directors of Capital Gold following the Business Combination and that John Brownlie will resign as President and Chief Operating Officer of Capital Gold and Bradley Langille and Colin Sutherland will join Capital Gold as senior officers.
 
·
For a period of thirty-six (36) months following the Effective Time of the Business Combination, Capital Gold and Nayarit have agreed that they shall cause their nominees on the Board of Directors to execute and deliver an undertaking whereby such nominees agree to: (i) nominate the foregoing individuals for re-election at each annual meeting of the stockholders of Capital Gold; and (ii) cause any successors chosen by such nominees to comply with the foregoing provision at each annual meeting of the stockholders of Capital Gold.
 
·
As a condition to closing the Business Combination, Capital Gold and Nayarit have agreed that the employment agreements between Nayarit, on one hand, and each of Colin Sutherland and Bradley Langille, on the other hand, shall either have been (i) terminated prior to the Effective Date in accordance with the terms thereof, including payment of all termination payments prescribed therein (except for any payments relating to the change of control of Nayarit), or (ii) terminated with no payment of change of control benefits in consideration for the execution of a new employment agreement with Capital Gold on terms comparable to the other senior officers of Capital Gold.