The call came in at about 1:30 on a Friday afternoon, Dec. 12. It was an attorney for a Canadian mining concern and its financial adviser, and he was calling to deliver an ultimatum to Gold Reserve Inc. that would launch the Spokane-based company into a two-month-long fight for its life.

The attorney was representing Rusoro Mining Ltd., a Vancouver, British Columbia-based venture with Russian ties that had made a friendly, yet unsuccessful bid to acquire Gold Reserve last summer. This time, recalls Gold Reserve President Douglas Belanger, Rusoro was calling to inform Gold Reserve that if the company didn't accept its new acquisition offer before the end of the weekend, it would commence a hostile takeover beginning the following Monday morning.

What followed was an intense battle that ended—at least for now—with an injunction from a Toronto judge blocking Rusoro's takeover attempt, and a subsequent withdrawal of Rusoro's offer. In a recent interview, Belanger provided a rare glimpse inside a fight over one of Spokane's lesser-known public companies.

Gold Reserve is a mining exploration concern formed in 1998 but with roots that date back to the 1950s. It's technically a Canadian company, but its executive offices are located in downtown Spokane, where it employs 11 people. Its prize possession is mining rights to a promising gold and copper deposit in Venezuela, which it has spent $230 million so far to develop, although it has been obstructed in recent years by a volatile Venezuelan government led by President Hugo Chvez.

The Dec. 12 offer came as a surprise, Belanger says. Rusoro had made clear its interest in Gold Reserve, with a formal offer last August and a couple of informal overtures later. Gold Reserve knew, though, that both companies were using the same financial adviser, Grand Cayman-based Endeavour Financial International Corp., and it was unheard of for a suitor to attempt a hostile takeover of a company with which it shared such an adviser, Belanger contends.

"We were truly shocked they would make a hostile bid," he says.

Belanger says it's not unusual in the close-knit world of small mining ventures to have a financial adviser introduce two of its clients to one another for friendly merger talks, but when a bid is hostile, the adviser would have a conflict of interest in pitting one client against the other.

Normally, he says, Gold Reserve would respond to a takeover bid with a "we'll get back to you" message, giving it time to study the offer and provide its shareholders with the information they would need to decide for themselves whether the offer was in the best interest of the company. In this case, though, the initial message needed to be a firm "no," given the Endeavour relationship, Belanger recalls.

Gold Reserve called a board meeting for Saturday morning, Dec. 13, which some of its directors had to attend via telephone, since they were scattered from Toronto to London at the time. Among its directors are Chris Mikkelsen, a principal at McDirmid, Mikkelsen & Secrest PS, and Patrick McChesney, controller of Foothills Auto Group, both of Spokane. Based on that meeting, Gold Reserve sent a letter on Sunday to both Rusoro and Endeavour stating that "the proposed takeover could not proceed because it was tainted by Endeavour's possession of confidential information belonging to Gold Reserve and Rusoro's benefiting from that information in advancing its bid," says a directors' circular filed later by Gold Reserve.

The following day at 5:27 a.m. Spokane time, says Belanger, Rusoro made public its hostile takeover attempt of Gold Reserve.

"Seven minutes later," he says, "we got an e-mail from Endeavour terminating their advisory with us."

That day, Gold Reserve's conference room, located in its headquarters office on the second floor of the Chronicle Building downtown, became a war room. For the next the few weeks, Gold Reserve's small staff, along with about three dozen other people ranging from lawyers and accountants to financial advisers and forensic investigators, worked to build a defense against Rusoro's attack, Belanger says.

"We were working 10 to 14 hours a day, seven days a week," he says. "We took Christmas off, but that was it. It was like a nightmare."

Quickly, Gold Reserve formulated a legal defense. On Tuesday, Dec. 16, it filed an action in the Ontario Superior Court of Justice, in Toronto, seeking an injunction restraining Rusoro and Endeavour from proceeding with the offer, citing Rusoro's improper access to and use of confidential information Endeavour possessed as an adviser to Gold Reserve. The request for an injunction is included in a lawsuit that also seeks damages from and other sanctions against the companies.

With that legal maneuver launched, Gold Reserve's board turned its attention to analyzing the offer itself, in which Rusoro offered to acquire all of the outstanding shares of Gold Reserve through an exchange that would provide three shares of Rusoro stock for each share of Gold Reserve stock. Based on stock prices on the date of the offer, the bid would have amounted to about $60 million.

"Our job was to get all the information we could to the shareholders," Belanger says.

Gold Reserve brought in a host of experts to help it analyze the offer. Among them were J.P. Morgan Securities Inc. and RBC Capital Markets, which it had been using for consulting on equity financing; Rosen & Associates Ltd, a Toronto-based litigation and investigative accounting firm, and Behre Dolbear & Co., an independent mining industry consultant that looked at Rusoro's technical information. It also hired a public relations firm.

With today's technology, much of the collaboration could be done via e-mail, telephone, and fax, Belanger says. Every day at 3 p.m., Gold Reserve would arrange an "update" call to keep everyone abreast of progress.

On Dec. 29, Gold Reserve's board filed with U.S. and Canadian securities regulators the directors' circular, which concluded that it was strongly recommending to shareholders that they reject Rusoro's offer, and detailed its reasons why.

The board made a host of arguments, but they boiled down to two main points: Rusoro's offer was too low, and the board had concerns about Rusoro's financial viability.

Specifically, the board contended that Rusoro's offer didn't adequately compensate Gold Reserve shareholders for the value of the Spokane company's Brisas project in Venezuela, which it says contains an estimated 10.2 million troy ounces of gold and 1.4 billion pounds of copper. It also pointed out that Gold Reserve had $109 million in cash and cash equivalents at the time, and owned another $47 million worth of equipment.

Gold Reserve says that although it has been stymied by the Venezuelan government in its efforts to develop a mine at the Brisas property, it plans to continue to work with government officials there to bring that project to fruition. Belanger says that if need be, the Spokane company will pursue legal avenues to recoup its investments there and be compensated for future potential revenues, perhaps through protections it believes it has under international treaties.

In addition to the concerns it raised about Endeavour's access to Gold Reserve's proprietary information, the Spokane company also accused Rusoro of doing unauthorized sample drilling on Gold Reserves property at Brisas, a claim Rusoro says is unfounded.

Meanwhile, Gold Reserve and its advisers raised concerns about Rusoro's financial health in the circular and contended that there were discrepancies in its financial reporting. They argued that there was not enough information available to answer how Rusoro planned to meet its future debt obligations.

Wrote Rosen & Associates, "The financial viability of Rusoro is uncertain at best. Rusoro has not been able to generate positive cash flows (or profits) from operations since becoming an active mining company "

Behre Dolbear, meanwhile, said Rusoro's filings "lack sufficient information from which a typical investor could make an informed decision."

Gold Reserve also amended its shareholder rights plan, making clear that Rusoro's bid could not be permitted, and Rusoro responded by asking the Ontario Securities Commission to set aside the "poison pill."

Rusoro operates the Choco 10 and Isidora mines in Venezuela. It acquired the Isidora property in July of last year from Hecla Mining Co., of Coeur d'Alene.

In its response to Gold Reserve's directors' circular, Rusoro argued that its bid did represent a premium price to Gold Reserve, based on the share prices of the two companies, and that its financial disclosures all comply with Canadian and U.S. accounting rules, among other things.

"We have proven our ability to acquire, rationalize, turnaround, and operate previously struggling assets in Venezuela and we are excited to have the opportunity to apply our experience to Gold Reserve's projects for the benefit of Gold Reserve and Rusoro shareholders," wrote CEO Andre Agapov.

Even before Gold Reserve got its injunction against Rusoro on Feb. 10, it was clear there was little interest among Gold Reserve's shareholders to approve the takeover, says Belanger, who estimated that less than 3 percent of shareholders relinquished their shares for the proposed takeover. "Our advisers said they had never seen a tender go that low," he says. "Usually you get at least 5 percent."

Belanger says he personally talked with "probably 75 percent" of the company's shareholders by phone sometime during the process, adding that he was worried going into it because "with the meltdown" in the economy, "shareholders weren't happy."

In its decision to grant the injunction, the Ontario court said, among other things, that "once Rusoro decided to make a hostile takeover bid, Rusoro knew or ought reasonably to have known that Endeavour was acting in conflict and quite possibly in breach of confidence."

The same day the injunction was issued, Rusoro withdrew its offer to acquire Gold Reserve.

On Tuesday, the Ontario court denied Rusoro and Endeavour's requst to appeal the Feb. 10 injunction.

Belanger says of the earlier court ruling, "We couldn't have written the judge's decision better ourselves."

Last week, Rusoro filed a counterclaim against Gold Reserve disputing Gold Reserve's earlier claims and seeking damages for blocking Rusoro's attempt to take over the company.

So far, Belanger believes Gold Reserve has spent more than $5 million to defend itself against the hostile takeover attempt.

Though more litigation is coming, he says, he'd like to put the issue behind the company so it can concentrate on the Brisas project, where it hopes to get clarification on the Venezuelan government's intentions for the future.

Gold Reserve secured a construction permit in 2007 to begin infrastructure work at the planned mine, but the Venezuelan government revoked the permit last May. Now the government is considering adopting a new mining law there, Gold Reserve says.

If necessary, Gold Reserve will seek claims against Venezuela for an amount "somewhere in the billions of dollars," based on the deposit's proven and probable reserves and what the Spokane company has invested in the process thus far. That, he says, could be a several-year process.

Gold Reserve posted a $19.7 million loss for 2008, compared with a loss of about $12 million in 2007. It listed assets of about $224 million as of Dec. 31, based on U.S. accounting standards.